Statement of income for 2006

The consolidated statement of income for 2006 registered total operating income of 9,098 million euro, a rise of 10.9% compared to the 8,201 million for 2005.

Net interest income, equal to 4,138 million euro, rose by 9% compared to the 3,798 million for 2005.

Net commissions totalled 3,389 million euro, up 3.2% against 3,284 million for 2005. This growth was driven by management, dealing and advisory services (up 6.1%), thanks above all to the performance in asset management (up 7.5%), which represented nearly 60% of total commissions. The total of other commissions slightly decreased (down 1.6%); as part of it, commissions on deposits and current accounts fell 5% due to the preference of customers for accounts (such as Sanpaolo Zerotondo and Sanpaolo Contutto, launched in the second half of the year) which include a series of standardised services and are characterised by a limited outlay compared to traditional current accounts.

Dividends and income from other financial assets and liabilities totalled 889 million euro with a significant growth compared to the 526 million for 2005; this result was partly due to the aforementioned capital gain of 228 million on the sale of Ixis Asset Management Group and Ixis Corporate & Investment Bank. Profits on equity shareholdings, 128 million euro, were up 23.1% with respect to the 104 million for 2005.

Income from insurance business, referring to life and casualty branches in which the subholding Eurizon operates, reached 469 million euro, an increase of 8.8% compared to the 431 million euro for 2005. This performance was determined by the improved results of financial management of separate management and company assets, thanks to the changes in the asset allocation and investment strategies which enabled absorbing both the negative impact of the anticipated updating of mortality tables (33 million euro) and the added costs for the implementation of the new EurizonVita network, operating on the market as of January 2007.

Net operating income increased by 11.4% to 8,585 from 7,708 million euro, after net adjustments to loans which amounted to 501 million euro, in line with the 492 million for 2005 due to opposite trends: valuation of inherent risk in the performing portfolio led to the posting of forfeiting adjustments of 176 million euro, down from 190 million euro in 2005, confirming the satisfactory risk profile of the Group’s loan portfolio, while net analytical adjustments to loans increased to 325 million euro from 302 million.

Operating costs totalled 4,898 million euro, in line with the Business Plan, up 5.2% compared to 2005 and the cost/income ratio was down to 53.8%. from 56.8%. Personnel costs increased 6.4%, also due to an increase in the workforce, following investments in the sales network and insurance business, and the rise in the variable component of retribution. The latter rose as a result of the expenses connected to medium-term incentives in support of the three-year Plan, the Employee Share Plan initiative and incentive systems in relation to the 2006 results. Other administrative costs rose 6.9% mainly due to property costs (up 8.7%), linked to the realisation of the branch plan, indirect personnel costs (up 13.2%) including training expenses, IT costs for software maintenance and upgrades (up 11.6%) and promotion and advertising expenses (up 8.6%). Net adjustments to tangible and intangible assets fell 7.8%.

Pre-tax operating profit amounted to 3,590 million euro, a 21.5% increase compared to 2005.

After taxes of 1,067 million, profit from discontinued operations (net of tax) of 20 million, integration costs for the merger with Banca Intesa (after tax) of 341 million and minority interests of 54 million, consolidated net profit amounted to 2,148 million euro, a rise of 8.3% compared to the 1,983 for 2005. The Parent Company’s net profit amounted to 2,140 million euro with respect to the 1,165 million for 2005. The difference in performance between the Parent Company’s net profit and consolidated net profit is mainly due to the increase in dividends from equity shareholdings as a result of the significant improvement in the subsidiary companies’ profits registered in the 2005 consolidated statement of income.

Statement of income for the fourth quarter 2006

The consolidated statement of income for fourth quarter 2006 registered total operating income of 2,626 million euro, up 25.7% with respect to fourth quarter 2005 and up 24% compared to third quarter 2006.

Net interest income registered 1,080 million euro, up 10.2% with respect to fourth quarter 2005 and up 3.9% with respect to third quarter 2006.

Net commissions totalled 855 million euro, in line with fourth quarter 2005, with a 7.6% rise in asset management offset by a decrease in the total of other commissions. A 3.6% increase was registered compared to third quarter 2006, still driven by asset management (up 8.3%).

Dividends and income from other financial assets and liabilities totalled 429 million euro marking a significant growth compared to the 102 million of fourth quarter 2005 and the 135 million of third quarter 2006, partly due to the already mentioned capital gain of 228 million euro on the sale of Ixis Asset Management Group and Ixis Corporate & Investment Bank.

Income from insurance business, equal to 173 million euro, rose by 34.1% with respect to fourth quarter 2005 and nearly doubled compared to third quarter 2006.

Net operating income amounted to 2,473 million euro, up 26.4% with respect to fourth quarter 2005 and 24.2% with respect to third quarter 2006, after net adjustments to loans of 142 million euro in fourth quarter 2006, 135 million in fourth quarter 2005 and 126 million in third quarter 2006.

Operating costs amounted to 1,427 million euro, with a 9.3% rise compared to fourth quarter 2005, determined by personnel costs (up 9.2%) and other administrative costs (up 13%), while net adjustments to tangible and intangible assets fell (down 1.6%); operating costs increased 23.2% compared to third quarter 2006, due to personnel costs (up 13.7%), other administrative costs (up 39.5%) and net adjustments to tangible and intangible assets (up 38%) with a marked improvement in the cost/income ratio which was down from 62.5% in fourth quarter 2005 to 54.3% in fourth quarter 2006.

Pre-tax operating profit, equal to 1,013 million euro, rose by 61.8% with respect to fourth quarter 2005 and by 25.4% compared to third quarter 2006.

After taxes of only 127 million, thanks to the reduced tax burden connected with profits from disposal of Ixis Asset Management Group and Ixis Corporate & Investment Bank and the aforementioned benefits under Pex regime, losses from discontinued operations (net of tax) of 29 million, integration costs for the merger with Banca Intesa (after tax) of 341 million and minority interests of 6 million, the consolidated net profit amounted to 510 million euro compared to the 474 million for fourth quarter 2005 and the 498 million for third quarter 2006.

Balance sheet as at 31st December 2006

As regards the consolidation balance sheet figures as at 31st December 2006 loans to customers net of adjustments totalled 158 billion euro, up 13.1% on the figure as at 31st December 2005, up 10.2% calculated homogeneously (with the same scope of consolidation). Doubtful loans totalled 3,229 million euro, down 3.1% compared to year-end 2005, (down 8.5% calculated homogeneously). More specifically, non-performing financing amounted to 1,101 million (up 1.9%, down 4.4% calculated homogeneously), problem and restructured financing amounted to 1,300 million (up 11.3%, 6,8% calculated homogeneously) and financing due/overdue by more than 180 days amounted to 765 million (down 28.2%, 29.6% calculated homogeneously). The ratio of non-performing financing to loans to customers was 0.7% (0.8% at end 2005); the percentage of the coverage has risen to 77% (compared to the 75% at end 2005).

Customer financial assets amounted to 446 billion euro, up 11.1% since the end of December 2005, 9.2% calculated homogeneously. More specifically, direct deposits amounted to 188 billion, up 13.5% year-end 2005, 9.8% calculated homogeneously; indirect deposits increased to 285 billion, up 8.6% since year-end 2005, 8% calculated homogeneously. The volume of asset management stood at 162 billion euro, up 2.7% since the end of December 2005, 2.4% calculated homogeneously; mutual funds and fund-based portfolio management amounted to 109 billion, up around 2%, portfolio management amounted to 7 billion, up around 17%, and life technical reserves and financial liabilities totalled 47 billion, up around 1.5%, with premiums issued during 2006 equal to 6.1 billion.

As at 31st December 2006, solvency ratios - calculated with no dividend distribution since the surviving company Banca Intesa (now Intesa Sanpaolo) shall distribute dividends also to the shares resulting from the exchange of the Sanpaolo IMI shares following the merger - resulted in: Core Tier 1 ratio at 6.4% (6.8% at 31st December 2005), Tier 1 ratio at 7% (7.4% at 31st December 2005) and Total Risk Ratio at 9.2% (9.4% at 31st December 2005).

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As at 31st December 2006, the Sanpaolo IMI Group had a total network of 3,682 branches, of which 3,286 in Italy and 396 abroad; at the same date the Group had 49,862 employees, 562 more compared to 31st December 2005 calculated homogeneously, and over 4,200 financial planners.

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Results of the Business Sectors

Banking constituted the core business of the Group and the reference point for the definition, development and coordination of the commercial strategies of the entire Group network. In 2006, the sector, which was divided into the Retail & Private, Corporate and Wholesale business lines, generated 78% of consolidated revenues and contributed 77% of consolidated net profit. Total operating income amounted to 7,068 million euro, with a 7.4% increase compared to the 6,579 million in 2005 (up 9.4% excluding the non-recurring item relating to the Italenergia Bis transaction from the 2005 figure); after adjustments to loans of 518 million (in line with 2005), net operating income totalled 6,545 million, with an 8% rise compared to the 6,059 in 2005. Operating costs rose 4.3% to 3,757 million from 3,602 million for the previous year; therefore, the cost/income ratio decreased from 55% to 53%. Pre-tax operating profit reached 2,764 million euro, up 14.4% from 2,416 million in 2005, and net profit amounted to 1,647 million, up 3.5% compared to the 1,591 million in 2005.

The Retail & Private business line provided services targeting a customer base comprised of families, small businesses and private clients and included the product company specialised in consumer credit and the on-line bank for the pharmaceutical sector. Total operating income for Retail & Private rose by 9.9% to 4,405 million euro from 4,010 million in 2005; after net adjustments to loans of 186 million (in line with 2005), net operating income amounted to 4,219 million, a 10.4% rise with respect to 3,820 million in 2005. Operating costs registered a 3.9% rise to 2,641 million from 2,542 million of the previous year; as a result, the cost/income ratio decreased from 63% to 60%. Pre-tax operating profit amounted to 1,556 million euro, a 22.1% increase compared to the 1,274 in 2005, and net profit amounted to 880 million, a 22.9% rise compared to the 716 million in 2005.

The Corporate business line served business customers with a turnover of more than 2.5 million euro or overall loan facilities of over one million euro that are not part of large nationwide groups and included a product company operating in the leasing compartment. Total operating income for this business line amounted to 1,412 million euro, up 9% compared to the 1,295 million in 2005; after net adjustments to loans of 280 million (254 million in 2005), net operating income rose 8.7% to 1,132 million from 1,041 million in 2005. Operating costs were up 3% to 575 million from 558 million in the previous year; as a consequence, the cost/income ratio decreased from 43% to 41%. Pre-tax operating profit amounted to 538 million euro, a 20.9% rise with respect to the 445 million in 2005, and net profit totalled 305 million, up 22.5% compared to the 249 million of the previous year.

The Wholesale business line comprised investment banking activities, also carried out by Banca IMI, the management of the relations with leading groups of national and international standing, the international network with regard to corporate banking and commercial & retail banking, and the product companies - concerned with the development of relations with public authorities and entities - Banca OPI and FIN.OPI. Total operating income of the Wholesale amounted to 970 million euro, with a 16.3% compared to the 834 million in 2005; after net adjustments to loans of 50 million (75 million in 2005), net operating income amounted to 915 million, a rise of 20.6% with respect to the 759 million in 2005. Operating costs amounted to 369 million, up 13.5% compared to the 325 million in 2005; as a result, the cost/income ratio decreased from 39% to 38%. Pre-tax operating profit rose to 553 million, a rise of 26% compared to the 439 million in 2005, and net profit amounted to 361 million, down 6% compared to the 384 million in 2005 due to a heavier tax burden.

The insurance activities carried out by EurizonVita, asset gathering carried out by the financial planner networks of the Banca Fideuram group (targeting customers with medium to high savings potential) and asset management carried out through Eurizon Capital (formerly Sanpaolo IMI Asset Management) fell within the Eurizon Financial Group, the subholding responsible for the Savings and Assurance sector. In 2006, this sector generated 15% of consolidated revenues and contributed 24% of consolidated net profit. Total operating income amounted to 1,384 million, up 8.9% compared to the 1,271 million in 2005. Operating costs equalled 574 million, up 16.7% with respect to the 492 million of 2005, mainly in connection with Eurizon start-up costs and the strengthening of its operating structure; as a consequence, the cost/income ratio rose from 39% to 41%. Pre-tax operating profit amounted to 742 million euro, with a 4.5% rise compared to the 710 million in 2005, and net profit reached 509 million, an 11.4% rise compared to the 457 million in 2005.

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ACCOUNTING EFFECTS OF THE INTESA SANPAOLO MERGER

As the merger of Sanpaolo IMI with and into Banca Intesa came into legal and accounting effect as of 1st January 2007, in order to provide analysts and the financial community with a more appropriate picture of the Intesa Sanpaolo Group’s balance sheet and statement of income figures as at 31st December 2006, pro-forma statements have been prepared which include the merger effective as of 1st January 2007 and other events which may take place during 2007 as a direct consequence of the merger transaction if reasonably estimable to date. Such effects have been recorded in the pro-forma consolidated balance sheet as if such transactions had taken place at the end of 2006 and in the pro-forma consolidated statement of income as if they had taken place at the beginning of 2006.

In particular, to aggregate figures - obtained by combining the consolidated figures published by the Intesa Group and the Sanpaolo IMI Group in their respective 2006 annual reports, net of the usual eliminations of consolidation procedures - appropriate adjustments have been applied to show the effects of the merger, recorded according to the provision set forth in IFRS 3 and using the purchase method, that is measuring the value of the new shares issued to support the exchange (no. 5,833,529,082) on the basis of the price of the Banca Intesa ordinary shares as at 29th December 2006 (5.85 euro) and preliminarily recording the difference between such value of the shares (34.1 billion euro) and the Sanpaolo IMI Group consolidated shareholders’ equity as at 31st December 2006 (14.3 billion euro) in the caption “Merger and consolidation difference” (19.8 billion euro).

According to the accounting principle IFRS 3, the cost of the business combination must be allocated to assets, liabilities and potential liabilities as well as to intangible assets not recorded in the balance sheet of the Sanpaolo IMI Group, within the limits of their fair value, recognising any further residual cost as goodwill. Considering the complexity of this process, which requires valuations of several and diversified assets and liabilities of the acquired entity, accounting standards permit that the precise cost allocation be registered within twelve months from the date of acquisition. So far the determination of the fair value of assets and liabilities and the purchase cost allocation process have not yet been completed. Preliminary estimates led to a valuation at fair value of loans for around 0.9 billion euro and real estate assets for around one billion as well as the recognition of new intangible assets for around 8 billion euro. After an estimated fiscal effect of around 3 billion, residual cost initially reckoned at around 13 billion euro will be recorded as goodwill.

Such valuations and intangible assets with finite useful life will produce negative effects, gradually diminishing, on the next statements of income - in terms of interest adjustments and amortisation included in the pro-forma statement of income under the same caption “Effect of purchase cost allocation net of tax” - that are estimated at around 400 million euro both in the 2006 pro-forma and in 2007 and gradually expiring over the following 10/15 years. Such effects do not change the target of Intesa Sanpaolo’s 2009 net income at 7 billion euro set out in the Plan for the Merger and examined in detail in the 2007-2009 Business Plan which will be submitted for the approval of the Management Board and the Supervisory Board on 14th April 2007 and subsequently presented to the financial community.

Moreover, aggregate figures of the two Groups have also been adjusted to consider on one hand the assets and liabilities, as well as the corresponding economic results of the equity investments in Cassa di Risparmio di Parma e Piacenza and in Banca Popolare FriulAdria and the branches to be disposed to Crédit Agricole, on the other the purchase of the asset management activities from the same group. The capital gain net of the fiscal effect was recorded in a specific caption under shareholders’ equity (“Effect of disposal transaction”) and was not recorded in the pro-forma consolidated statement of income. In order to more completely represent the effects of the transactions with Crédit Agricole, the statement of income includes the estimated net benefits deriving from the cash flow, taking into account a risk free rate of 4.17%.

Pro-forma statement of income for 2006

As regards the main pro-forma aggregate figures for 2006, the Intesa Sanpaolo Group registered operating income of 18,405 million euro, mainly due to interest income of 9,127 million and net fee and commission income of 6,574 million.

Operating costs amounted to 9,673 million, of which 5,630 million referred to personnel expenses, 3,156 million to administrative expenses and 887 million to adjustments.

Operating margin amounted to 8,732 million, with the cost/income ratio at 52.6%.

Net provisions (net provisions for risks and charges, net adjustments to loans, net impairment losses on other assets) amounted to 1,612 million euro.

Income before tax from continuing operations registered 7,284 million euro.

After income taxes of 2,219 million, integration charges relating to the merger (net of tax) of 562 million, effects of purchase cost allocation (net of tax) of 400 million, income after tax from discontinued operations of 103 million and minority interests of 150 million, pro-forma net income amounted to 4,056 million di euro.

Adjusted pro-forma net income - calculated excluding integration charges relating to the merger from the pro-forma net income - equalled 4,618 million euro.

Aggregate net income - calculated excluding the direct and indirect effects of the merger, putting together the two Groups’ consolidated stated net income and excluding integration charges relating to the merger - amounted to 5,290 million euro.

Pro-forma balance sheet as at 31st December 2006

As at 31st December 2006, the Intesa Sanpaolo Group had, in pro-forma terms, total assets of 576,784 million euro, loans to customers of 327,410 million and direct customer deposits of 343,899 million.

Pro-forma shareholders’ equity amounted to 55,971 million euro.

As a consequence of the merger, there is a significant increasing effect on capital adequacy compared with that previously registered by the two Groups separately; pro-forma capital ratios as at 31st December 2006 stood at high levels: the Core Tier 1 ratio at 8%, the Tier 1 ratio at 8.8% and total capital ratio at 11.9%.

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As at 31st December 2006, Intesa Sanpaolo’s operating structure, in pro-forma terms, was made up of 6,989 branches - of which 5,789 in Italy and 1,200 abroad - and around 100,000 employees.

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The drafts of the Parent Company and the consolidated financial statements of Banca Intesa and Sanpaolo IMI approved today by the Management Board will be submitted to the Supervisory Board’s approval on 14th April 2007, the date on which the Management Board and the Supervisory Board will formulate a proposal for net income allocation, to be submitted for approval at the Ordinary Shareholders’ Meeting scheduled for 30th April - 3rd May 2007, and approve the 2007-2009 Business Plan.

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As concerns the outlook for 2007, the new Group’s expected performance reflects the gradual implementation of the 2007-2009 Business Plan, scheduled for approval on 14th April 2007, the contents of which will be duly disclosed to the financial community.

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In order to present more complete information regarding the results generated in 2006, the reclassified consolidated statement of income and the reclassified consolidated balance sheet included in the reports on operations approved by the Management Board are attached. Please note that the reclassified consolidated statement of income and the reclassified consolidated balance sheet are not subject to auditing by the Auditing company.
Intesa Sanpaolo notifies that, pursuant to provisions set forth in Art. 82, par. 2 of Consob resolution 11971 of 14th May 1999 as amended, the drafts of the Parent Company and the consolidated financial statements as at 31st December 2006 of Banca Intesa and Sanpaolo IMI - which will be submitted for approval to the Supervisory Board summoned for 14th April 2007 and to the auditing firm in charge of auditing the Annual Reports - will be available for shareholders and the market within the deadline of 31st March 2007, instead of the quarterly report as at 31st December 2006.

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It is hereby declared that pursuant to par. 2 art. 154-bis of Legislative Decree 58/98 the accounting reporting contained in this communication corresponds to the records, books and accounts of the Company.
The Manager in charge of preparing the Company’s financial reports.
B. Picca

Investor Relations
+39.02.87943180
investor.relations@intesasanpaolo.com

Media Relations
+39.02.87963531
stampa@intesasanpaolo.com

www.intesasanpaolo.com

 
Cautionary Statement for Purposes of the “Safe Harbor” Provision of the United States Private Securities Litigation Reform Act of 1995. The Private Securities Litigation reform Act of 1995 provides a “safe harbor” for forward-looking statements. This press release contains certain forward looking statements and forecasts reflecting management’s current views with respect to certain future events. The Intesa Sanpaolo Group’s ability to achieve its projected results is dependant on many factors which are outside of 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 are 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 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; and
• the Group’s ability to achieve the expected return on the investments and capital expenditures it has made it 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 speak only as of the date hereof.  Accordingly, there can be no assurance that the Group will achieve its projected results.