INTESA SANPAOLO: CONSOLIDATED RESULTS AS AT 30 JUNE 2010

• Net income: one billion euro for second-quarter 2010; 1,690 million euro for first-half 2010, +6.4% versus 1,588 million euro in first-half 2009.
• Adjusted(*) net income: 501 million euro for second-quarter 2010; 1,211 million euro for first-half 2010, -6.6% versus 1,297 million euro in first-half 2009.
• Operating income: 4,012 million euro for second-quarter 2010; 8,235 million euro for first-half 2010, -5.6% versus 8,724 million euro in first-half 2009.
• Operating costs: 2,294 million euro for second-quarter 2010; 4,541 million euro for first-half 2010, -1.6% versus 4,614 million euro in first-half 2009.
• Operating margin: 1,718 million euro for second-quarter 2010; 3,694 million euro for first-half 2010, -10.1% versus 4,110 million euro in first-half 2009.
• Income before tax from continuing operations: 785 million euro for second-quarter 2010; 1,926 million euro for first-half 2010, -8.3% versus 2,100 million euro in first-half 2009.
• Capital ratios as at 30 June 2010: Tier 1 ratio at 8.9%.

Torino, Milano, 27 August 2010 – At its meeting held today the Intesa Sanpaolo Management Board, chaired by Andrea Beltratti, approved the consolidated half-yearly report as at 30 June 2010 ⁽¹⁾.

During the first half of 2010 the Intesa Sanpaolo Group continued on its course of action aimed at prioritising sustainable profitability founded on strategic decisions concerning not only revenues and costs but also liquidity, solidity and a low risk profile. These decisions have shaped the Group’s management policy particularly in the context of the crisis in international financial markets that started in the second half of 2007 and deepened in the second quarter of 2010 amid tensions in the euro zone.

Consequently, in the second quarter of 2010, management policies for the medium term - combined with some signs of recovery in the cycle reflected in an increase in customer loans and a reduction in net non-performing loans for the Group at the closing of the first six months as first evidence of a trend to be confirmed in the coming quarters - have enabled Intesa Sanpaolo to register the following:
- an increase in net interest income compared to the previous quarter - with euribor rates stabilising between the first and second quarters though remaining at their historical lows - and stability in net fee and commission income compared to the previous quarter in spite of tensions in euro-zone markets. These tensions drove trading activities to a nil balance as a result of the valuation of financial assets held for trading;
- a firm control of operating costs which, though registering an increase on the previous quarter limited to seasonality, were reduced in the first half of 2010 compared with the same period last year confirming the trend experienced by Intesa Sanpaolo throughout the years since the merger; and
- containment of loan adjustments which were slightly above the previous quarter and led to a half-yearly figure markedly down from the six months to June 2009.

This has delivered continued and robust profitability, with the Intesa Sanpaolo Group’s consolidated net income at 1,002 million euro in the second quarter of 2010 (including a 648 million euro net capital gain on the sale of its securities services business), compared with 688 million euro in the first quarter of 2010 (+45.6%), 543 million euro in the fourth quarter of 2009, 674 million euro in the third quarter of 2009, 513 million euro in the second quarter 2009 (+95.3%) and 1,075 million euro in the first quarter of 2009 (which had benefited from a 511 million euro release of deferred taxes). Accordingly, net income for the first half of 2010 grew to 1,690 million euro, up 6.4% from 1,588 million euro in the same period of 2009. Net income increased across all Business Units with the exception of domestic retail operations which were impacted by euribor rates and net interest income at their historical lows. The new Business Plan addresses the re-launch of profitability in retail domestic banking.

Consolidated adjusted net income - taking out the main non-recurring items ^(*) - was 501 million euro for the second quarter of 2010 against 710 million euro in the first quarter of 2010 (-29.4%), 243 million euro in the fourth quarter of 2009, 816 million euro in the third quarter of 2009, 653 million euro in the second quarter of 2009 (-23.3%) and 644 million euro in the first quarter of 2009. Thus adjusted net income for the first half of 2010 was 1,211 million euro, down 6.6% from 1,297 million euro in the same period of 2009.

____________________
(*) Methodological note on calculation of the adjusted net income on page 13.
(1) Methodological note on the scope of consolidation on page 13.
 

The income statement for the second quarter of 2010

The consolidated income statement for the second quarter of 2010 ⁽²⁾ registered operating income of 4,012 million euro, down 5% from the 4,223 million euro of the first quarter of 2010 and down 14% from the 4,663 million euro of the second quarter of 2009.

As part of this, in the second quarter of 2010 net interest income was 2,456 million euro, up 2% against 2,407 million euro in the first quarter of 2010, with a recovery in customer loans at the end of the quarter (+1.1% above the figure as at 31 March 2010) and euribor rates which stopped between the first and second quarters of the year the plummeting started in the last quarter of 2008 albeit remaining at their historical lows. A 10.9% decrease was registered with respect to the 2,758 million euro of the second quarter of 2009 that was mainly driven by the substantial fall in euribor rates, which weighed heavily on net interest income - following the Group’s strategy aimed at prioritising a stronger liquidity position in an economic environment characterised by a still high uncertainty further confirmed by euro-zone tensions in the second quarter of the year - although attentive pricing and partial hedging against lowering interest rates were implemented. This drop was also due to the elimination of overdraft charges - effective as of the third quarter of 2009 - which impacted 85 million euro.

Net fee and commission income amounted to 1,404 million euro, in line with 1,403 million euro in the first quarter of 2010, up 7.9% from 1,301 million euro in the second quarter last year. Compared to the first quarter of 2010, commissions on commercial banking activities were unchanged, commissions on management, dealing and consultancy activities (which include portfolio management, distribution of insurance products, dealing and placement of securities, etc.) decreased by 3.6% (dealing and placement of securities down 18.2%, distribution of insurance products up 1.1% and portfolio management up 3.4%) and commissions on facilities granted grew by 13.1%. Compared to the second quarter of 2009, commissions on commercial banking activities rose by 8.2% (also as a result of a 28 million euro benefit from the introduction of the commitment fee) and commissions on management, dealing and consultancy activities were up 9.4% (with those on dealing and placement of securities down 13.3%, those on distribution of insurance products up 5.6% and those on portfolio management up 22.2%).

Profits on trading were a negative 3 million euro in the wake of euro-zone market tensions reflecting in the valuation of financial assets held for trading with a negative contribution of 114 million euro from proprietary trading and treasury activities (of which around 100 million euro due to unrealised capital losses on Italian government bonds); on the other hand, a positive contribution of 10 million euro came from structured credit products. Trading activities had yielded a profit of 218 million euro in the first quarter of 2010 (with positive contributions of 2 million euro from proprietary trading and treasury and 27 million euro from structured credit products) and recorded a profit of 439 million euro in the second quarter last year (with positive contributions of 111 million euro from proprietary trading and treasury and 4 million euro from structured credit products). Without the IAS reclassification of financial assets held for trading into loans and receivables and financial assets available for sale, trading profits would have had a negative pre-tax impact of 23 million euro.

________
(2) During the preparation of the interim statement as at 30 September 2008, in the wake of the global financial crisis certain amendments to international accounting standards were introduced and adopted by the European Commission. In short, in accordance with these amendments it is possible to reclassify - in specific circumstances considered to be rare - unquoted financial instruments, or no longer quoted, in an active market and no longer held for trading or available for sale: in particular, out of the category “fair value through profit and loss” into the categories “available-for-sale” or “the held-to-maturity” or “loans and receivables” and out of the category “available-for-sale” into the category “loans and receivables”. The Group, largely basing on the prices as at 1 July 2008, reclassified 3,790 million euro of financial assets held for trading into loans and receivables and 187 million euro of financial assets held for trading into financial assets available for sale. Without this reclassification, the profits/losses on trading for the second quarter of 2010 would have recorded 23 million euro as a negative pre-tax impact (a positive impact of 61 million euro in the first half of 2010 and of 72 million euro in full-year 2009 and a negative impact of 459 million euro in full-year 2008). The Group also reclassified 6,514 million euro of financial assets available for sale into loans and receivables. Had these reclassifications not been made, the shareholders’ equity would have recorded 1,206 million euro as a negative pre-tax direct impact as at 30 June 2010 (with a negative impact of 397 million euro in the second quarter of 2010 and of 596 million euro in the first half of 2010).

Income from insurance business was 128 million euro compared to 166 million euro in the first quarter of 2010 and 124 million euro for the same period last year.

Operating costs amounted to 2,294 million euro, a 2.1% increase - due to seasonal effects - on the 2,247 million euro of the previous quarter with personnel expenses decreasing by 0.2% and administrative expenses and adjustments up 6.1%, and 3.5% respectively. A 1% reduction was registered against the 2,317 million euro of the second quarter of 2009, due to increasing personnel expenses (+1.2%) and declining administrative expenses (-3.8%) and adjustments (-5.1%).

As a result, operating margin totalled 1,718 million euro, down 13.1% from 1,976 million euro in the previous quarter and down 26.8% from 2,346 million euro for the same period last year. The cost/income ratio stood at 57.2% in the second quarter of 2010 from 53.2% in first quarter 2010 and 49.7% in second quarter 2009.

No goodwill impairment was recorded in the period, as was the case with the previous quarter and the second quarter of 2009.

Net provisions and adjustments (net provisions for risks and charges, net adjustments to loans, net impairment losses on other assets) amounted to 934 million euro against the 845 million euro of the first quarter of 2010 and the 1,216 million euro of the second quarter of 2009. Net provisions for risks and charges amounted to 98 million euro against 86 million euro in the previous quarter and 63 million euro in the second quarter of 2009. Net adjustments to loans totalled 798 million euro compared to 754 million euro in the first quarter of 2010 and 1,081 million euro in the second quarter of 2009. Net impairment losses on other assets amounted to 38 million euro, against 5 million euro in the previous quarter and 72 million euro in the second quarter of 2009.

Profits/losses on investments held to maturity and on other investments were a positive one million euro compared to profits of 10 million euro in the previous quarter and 15 million euro recorded in the second quarter of 2009.

Income before tax from continuing operations amounted to 785 million euro, down 31.2% from 1,141 million euro posted in the three months to 31 March 2010 and down 31.4% from 1,145 million euro in the second quarter of 2009.

Consolidated net income was 1,002 million euro - compared with 688 million euro in the first quarter of 2010 (+45.6%) and 513 million euro in the second quarter of 2009 (+95.3%) - after accounting for:
- taxes of 307 million euro;
- integration charges (net of tax) of 27 million euro;
- charges from purchase cost allocation (net of tax) of 101 million euro;
- income after tax from discontinued operations of 663 million euro, which included a net capital gain of 648 million euro on the sale of the securities services business;
- minority interests of 11 million euro.
Excluding the main non-recurring items, net income was 501 million euro for the second quarter of 2010, down 29.4% from 710 million euro in the previous quarter and down 23.3% from 653 million euro in the second quarter of 2009.

 
The income statement for the first half of 2010

The consolidated income statement for the first half of 2010 registered operating income of 8,235 million euro, down 5.6% from 8,724 million euro in the first half of 2009.

As part of this, in the first half of 2010 net interest income amounted to 4,863 million euro, down 10.2% from 5,417 million euro in the first half of 2009 (a decrease also due to the negative impact of 178 million euro following the elimination of overdraft charges).

Net fee and commission income was 2,807 million euro, registering an 11.5% increase from 2,517 million euro in the first half of 2009. Commissions on commercial banking activities were up 8.9% (an increase also due to 56 million euro resulting from the introduction of the commitment fee) and those on management, dealing and consultancy activities (which include portfolio management, distribution of insurance products, placement of securities, etc.) grew by 18.4%.

Profits on trading amounted to 215 million euro (including a 112 million euro negative contribution from proprietary trading and treasury and a 37 million euro positive contribution from structured credit products). Trading activities had yielded a profit of 546 million euro in the first half of 2009 (which included a 92 million euro positive contribution from proprietary trading and treasury and a 75 million euro negative impact on structured credit products). Without the IAS reclassification of the financial assets held for trading into loans and receivables and financial assets available for sale, trading profits would have recorded a positive pre-tax impact of 61 million euro.

Income from insurance business amounted to 294 million euro against 188 million euro in the first half of 2009.

Operating costs were reduced to 4,541 million euro, down 1.6% from 4,614 million euro in the first six months of 2009, with decreases in personnel expenses (-0.1%), administrative expenses (-3.1%) and adjustments (-6.7%).

Consequently, operating margin was 3,694 million euro, a 10.1% decrease compared to the 4,110 million euro of the same period in 2009, with the cost/income ratio at 55.1% from 52.9% in the first half of 2009.

As with the first half of 2009, no goodwill impairment was recorded in the period.

Net provisions and adjustments (net provisions for risks and charges, net adjustments to loans, net impairment losses on other assets) amounted to 1,779 million euro falling 12.1% from 2,025 million euro in the first half of 2009. Net provisions for risks and charges were 184 million euro compared to 132 million euro in the first half of 2009. Net adjustments to loans were 1,552 million euro compared to 1,814 million euro in the first half of 2009. Net impairment losses on other assets were 43 million euro compared to 79 million euro in the first half of 2009.

Profits/losses on investments held to maturity and on other investments were a positive 11 million euro compared to profits of 15 million euro in the first half of 2009.

Income before tax from continuing operations posted 1,926 million euro, down 8.3% compared to the 2,100 million euro of the first half of 2009.

Consolidated net income amounted to 1,690 million euro - up 6.4% against the 1,588 million euro of the same period last year (which had benefited from a 511 million euro release of deferred taxes) - after accounting for:
- taxes of 658 million euro (which benefited from an 86 million euro release of deferred taxes);
-  integration charges (net of tax) of 43 million euro;
- charges from purchase cost allocation (net of tax) of 193 million euro;
- income after tax from discontinued operations of 691 million euro, which included a net capital gain of 648 million euro on the sale of the securities services business;
-  a minority interest of 33 million euro.
Excluding the main non-recurring items, net income for the first half of 2010 was 1,211 million euro, down 6.6% from the 1,297 million euro of the first half of 2009.

 
Balance sheet as at 30 June 2010

As regards the consolidated balance sheet figures, as at 30 June 2010 loans to customers amounted to 375 billion euro, up 1.1% from 31 March 2010, in line with year-end 2009 levels and down 3.2% from 30 June 2009 (down 6.1% taking into account average volumes instead of those at the end of the period). Total non-performing loans (doubtful, substandard, restructured and past due) - net of adjustments - amounted to 20,822 million euro, down 1.1% compared to the 21,049 million euro as at 31 March 2010 and up 1.8% compared to the 20,456 million euro as at 31 December 2009. In detail, doubtful loans increased to 6,275 million euro from 5,881 million euro as at 31 March 2010 and 5,365 million euro as at 31 December 2009. The ratio to total loans was 1.7% (1.6% as at 31 March 2010 and 1.4% as at year-end 2009) and the coverage ratio was 66% (67% in March 2010 and at year-end 2009). Total coverage was 124% taking into account collateral and guarantees to doubtful loans in addition to specific provisions. Substandard loans decreased to 9,686 million euro compared to 9,761 million euro in March 2010 and 10,375 million euro as at year-end 2009, restructured loans increased to 3,577 million euro from 3,131 million euro in March 2010 and 2,293 million euro in December 2009 and loans past due shrank to 1,284 million euro from 2,276 million euro in March 2010 and 2,423 million euro as at year-end 2009 (also due to the marked reduction in loans overdue by 90 days upon application of internal models to residential mortgages for the calculation of capital requirements).

Customer financial assets were 835 billion euro (after netting referred to items included in both direct and indirect customer deposits), up 0.2% from 31 March 2010, up 2.1% from 31 December 2009 and up 1.7% from 30 June 2009. Under customer financial assets, direct customer deposits amounted to 437 billion euro, up 1.5% from 31 March 2010, up 3.3% from 31 December 2009 and up 0.6% from 30 June 2009; indirect customer deposits amounted to 422 billion euro, down 1.5% from 31 March 2010, up 0.3% from year-end 2009 and up 2.2% from June 2009. Assets under management totalled 233 billion euro, down 0.5% from 31 March 2010 while increasing by 2.1% from year-end 2009 and by 7.7% from June 2009. As for bancassurance, in the first half of 2010 new business for life policies amounted to 7 billion euro (37.8% higher than the first half of 2009). Assets under administration and in custody amounted to 189 billion euro, declining by 2.7% from 31 March 2010, by 1.9% from 31 December 2009 and by 3.9% from 30 June 2009.

Capital ratios as at 30 June 2010 stood at 7.7% for the Core Tier 1 ratio (7.1% at year-end 2009), 8.9% for the Tier 1 ratio (8.4% at year-end 2009) and 12.2% for the total capital ratio (11.8% at year-end 2009), applying the Basel 2 Foundation approach. This calculation took into account the dividend accrued in the period for year 2010 (assuming the half-yearly quota of the one billion euro dividend for 2009 paid in 2010), the exercise of the option to neutralise the effect of valuation reserves relating to debt securities available for sale issued by central governments of EU countries (with a benefit of around 8 basis points) and application of internal models to residential mortgages (with a benefit of about 13 basis points).

Pro-forma capital ratios should exceed 9.4% for the Core Tier 1 ratio, 10.6% for the Tier 1 ratio and 13.9% for the total capital ratio and include the effects detailed below:
- sale of Cassa di Risparmio della Spezia and 96 branches to the Crédit Agricole group (expected positive impact of about 20 basis points on the Core Tier 1 ratio),
- purchase of 50% of Intesa Vita (expected negative impact of 8 basis points on the Core Tier 1 ratio),
- sale of the remaining 25% stake in Findomestic (valuation based on the bottom end of the range set in the contract, with an expected positive impact of 7 basis points on the Core Tier 1 ratio),
- remaining capital management actions - partial or full disposals, partnerships, listings, etc. - planned on non-core assets (expected positive impact of at least 50 basis points on the Core Tier 1 ratio),
- additional capital management actions available if necessary (expected positive impact of at least 100 basis points on the Core Tier 1 ratio).

* * *

The strategic decisions taken by Intesa Sanpaolo ensured that the Group confirmed its position as one of the most solid international banking Groups, also amid recently renewed tensions on international financial markets, while continuing to build on its key strengths which include, in addition to asset quality and the level of capital ratios commented upon previously:

• an excellent liquidity profile with
  - a well-balanced net interbank position,
  - a broad availability of eligible assets with Central Banks not yet utilised, corresponding to liquidity of 65 billion euro as at 30 June 2010,
  -  customer deposits outweighing customer loans,
  - stable and well-diversified sources of funding,
  - 70% of direct customer deposits (inclusive of securities issued) generated from retail operations,
  - remaining 2010 maturities of medium-long term funding that are largely retail (around 13 billion euro out of about 16 billion euro);
  - no strict requirement for the Group to access the wholesale market for the rest of the current year;
• low leverage and an adequate capital base with
  - a much lower leverage than other main European banking groups,
  - one of the best ratios of tangible net shareholders’ equity to tangible assets among the main European banking groups;
• a low risk profile with
  - the Group’s securities portfolio including bonds issued by the central and local governments of Greece for 651 million euro, Spain for 530 million euro, Ireland for 195 million euro and Portugal for 59 million euro at the end of June 2010.

* * *

As fully detailed when disclosing the results for 2007, 2008 and 2009, Intesa Sanpaolo is only indirectly exposed to the US subprime mortgage crisis through structured credit products which were negatively affected by the dramatic decline in prices from the fourth quarter of 2007 - with impacts on profits on trading mainly in terms of write-downs - to the first quarter of 2009 inclusive, with recovery starting as of the second quarter of 2009 with positive effects on profits on trading, as commented upon previously in the income statement section. The Group had a gross and net risk exposure to structured credit products with underlying US subprime of 36 million euro as at 30 June 2010. Full and detailed information concerning structured credit products held by the Group is included, as usual, in the half-yearly report approved by the Management Board as well as in the specific slides of the results presentation made available to the market.

* * *

As at 30 June 2010, the Intesa Sanpaolo Group’s operating structure had a total network of 7,745 branches - of which 5,919 in Italy and 1,826 abroad - with 102,659 employees, 796 lower than at 31 December 2009.

* * *
 

Breakdown of results by business area

The Banca dei Territori Division comprises:
- retail customers: households (individual customers with financial assets up to 100,000 euro), personal (individual customers with financial assets between 100,000 euro and one million euro), small businesses (enterprises with a turnover under 2.5 million euro and with loan facilities under one million euro);
- SME customers: SMEs with a turnover between 2.5 and 150 million euro;
- Private customers: individual customers with financial assets exceeding one million euro.
Operations with individual and SME customers are performed through the Parent Company, Intesa Sanpaolo, and the network banks (Banca di Credito Sardo, Banca di Trento e Bolzano, Banco di Napoli, Carifirenze, Casse del Centro, Cassa dei Risparmi di Forlì e della Romagna, Cassa di Risparmio del Veneto, Cassa di Risparmio in Bologna, Cassa di Risparmio di Venezia, Cassa di Risparmio del Friuli Venezia Giulia and Banca dell’Adriatico). Intesa Sanpaolo Private Banking is the Group’s company which serves private customers. To serve non-profit entities Banca Prossima was set up, operational since November 2007 through the Group’s branches, with regional centres and a team of specialists. This Division also includes product companies, namely Mediocredito Italiano, the Group company which specialises in industrial credit, the insurance companies EurizonVita, Sud Polo Vita, Intesa Vita and Intesa Previdenza, the fiduciary service company SIREFID and Moneta, a company operating in the consumer credit business and through its subsidiary Setefi in electronic payment systems.

In the second quarter of 2010, the Banca dei Territori Division registered:
- operating income of 2,458 million euro, down 1.7% compared with 2,501 million euro in the first quarter of 2010;
- operating costs of 1,470 million euro, up 3.9% from 1,415 million euro in the first quarter of 2010;
- operating margin of 988 million euro, down 9% from 1,086 million euro in the first quarter of 2010;
- a cost/income ratio at 59.8% from 56.6% in the first quarter of 2010;
- net provisions and adjustments of 566 million euro from 496 million euro in the first quarter of 2010 due to the lagged effect of the cycle on SME asset quality;
- income before tax from continuing operations of 423 million euro, down 28.4% from 590 million euro in the first quarter of 2010;
- net income of 166 million euro, down 42.6% from 290 million euro in the first quarter of 2010.

In first-half 2010, the Banca dei Territori Division registered:
- operating income of 4,959 million euro, down 3.3% compared with 5,126 million euro in the first half of 2009, accounting for 60% of the consolidated operating income (59% in the first half of 2009);
- operating costs of 2,885 million euro, down 0.5% from 2,899 million euro in the first half of 2009;
- operating margin of 2,074 million euro, down 6.9% from 2,227 million euro in the first half of 2009;
- a cost/income ratio at 58.2% from 56.6% in the first half of 2009;
- net provisions and adjustments of 1,061 million euro against 935 million euro in the first half of 2009;
- income before tax from continuing operations of 1,013 million euro, down 21.6% from 1,292 million euro in the first half of 2009;
- net income of 456 million euro, down 22.2% from 586 million euro in the first half of 2009.

Eurizon Capital, the company specialised in providing collective and individual asset management products to the Group’s internal banking networks, is developing ever more effective synergies with the Banca dei Territori Division. The company is also focused on strengthening its presence in the “open architecture” segment through specific distribution agreements with other networks and institutional investors. Eurizon Capital controls the subsidiaries Eurizon Capital (Luxembourg) and Eurizon A.I., which promote and manage, respectively, funds incorporated under Luxembourg law and alternative funds, and owns a 49% stake in a Chinese asset management company, Penghua Fund Management.

In the second quarter of 2010, Eurizon Capital registered:
- operating income of 70 million euro, up 4.7% from 67 million euro in the first quarter of 2010;
- operating costs of 31 million euro, down 6.8% from 33 million euro in the first quarter of 2010;
- operating margin of 39 million euro, up 16.3% compared to 33 million euro in the first quarter of 2010;
- a cost/income ratio improving to 44.3% from 49.3% in the first quarter of 2010;
- income before tax from continuing operations of 38 million euro, up 16.1% from 33 million euro in the first quarter of 2010;
- net income of 21 million euro, up 36.7% from 16 million euro in the first quarter of 2010.

In first-half 2010, Eurizon Capital registered:
- operating income of 137 million euro, up 6.2% from 129 million euro in the first half last year, accounting for 2% of the Group’s consolidated figure (1% in the first half of 2009);
- operating costs of 65 million euro, up 4.8% from 62 million euro in the first half of 2009;
- operating margin of 72 million euro, up 7.5% compared to 67 million euro in the first half of 2009;
- a cost/income ratio improving to 47.4% from 48.1% in the first half of 2009;
- income before tax from continuing operations of 72 million euro, up 5.9% from 68 million euro in the first half of 2009;
- net income of 37 million euro, up 23.3% compared to 30 million euro in the first half of 2009.

The Corporate & Investment Banking Division includes:
- Large & International Corporate, which presides over relations with large corporates in Italy (mainly with a turnover exceeding 500 million euro) and foreign corporate customers;
- Mid Corporate, dedicated to Italian corporate customers with a turnover exceeding 150 million euro and mainly up to 500 million euro;
- Global Services, responsible for foreign branches, representative offices and international subsidiaries which specialise in corporate banking (Société Européenne de Banque, Intesa Sanpaolo Bank Ireland) and for providing specialist assistance in support of the internationalisation of Italian corporates and the development of export;
- Financial Institutions, responsible for relations with Italian and foreign financial institutions, management of transactional services related to payment systems as well as custody and settlement of securities as custodian and correspondent bank for local customers;
- Banca IMI, which is in charge of investment banking operations, that is the creation of products of structured finance and M&A consultancy services to the Group’s clients, and the capital markets activities for the Group’s clients and institutional operators in market making activities;
- Merchant Banking, which operates in the private equity area also through Private Equity International (PEI) and IMI Investimenti companies.
This Division also comprises the activities of Leasint, Mediofactoring and management of the Group’s proprietary trading.
 

In the second quarter of 2010, the Corporate & Investment Banking Division registered:
- operating income of 834 million euro, down 12.1% from 949 million euro in the previous quarter;
- operating costs of 222 million euro, up 6.5% from 208 million euro in the previous quarter;
- operating margin of 612 million euro, down 17.4% from 741 million euro in the previous quarter;
- a cost/income ratio of 26.6% from 21.9% in the previous quarter;
- net provisions and adjustments of 108 million euro versus 103 million euro in the previous quarter;
- profits/losses on investments held to maturity and on other investments negative 4 million euro versus a nil balance in the first quarter of 2010;
- income before tax from continuing operations of 500 million euro, down 21.7% from 638 million euro in the previous quarter;
- net income of 359 million euro, down 13.8% from 416 million euro in the previous quarter.

In first-half 2010, the Corporate & Investment Banking Division registered:
- operating income of 1,783 million euro, up 0.3% from 1,778 million euro in the same period last year, contributing 22% of the Group operating income (20% in the first half of 2009);
- operating costs of 430 million euro, down 1.8% from 438 million euro in the first half of 2009;
- operating margin of 1,353 million euro, up 1% from 1,340 million euro in the first half of 2009;
- a cost/income ratio improving to 24.1% from 24.6% in the first half of 2009;
- net provisions and adjustments of 212 million euro, more than halved compared to 588 million euro in the first half of 2009;
- profits/losses on investments held to maturity and on other investments negative 4 million euro versus a nil balance in the first half of 2009;
- income before tax from continuing operations of 1,137 million euro, up 51.4% from 751 million euro in the first half of 2009;
- net income of 775 million euro, up 47.1% from 527 million euro in the first half of 2009.

Public Finance provides services to government, public entities, local authorities, public utilities, general contractors, public and private healthcare structures and develops activities related to lending and day-to-day banking operations, project financing, securitisations and financial advisory, with the aim of promoting cooperation between public and private entities and supporting initiatives and investment projects in large infrastructures, healthcare, research and public utilities in general. Public finance activities are performed through Banca Infrastrutture Innovazione e Sviluppo.

In the second quarter of 2010, Public Finance registered:
- operating income of 85 million euro, up 13.2% from 75 million euro in the first quarter of 2010;
- operating costs of 19 million euro, down 5% from 20 million euro in the first quarter of 2010;
- operating margin of 65 million euro, up 20% from 54 million euro in the first quarter of 2010;
-  a cost/income ratio improving to 22.4% from 26.7% in the first quarter of 2010;
- net provisions and adjustments of 9 million euro from 6 million euro in the first quarter of 2010;
- income before tax from continuing operations of 57 million euro, up 17.1% from 48 million euro in the first quarter of 2010;
- net income of 35 million euro, up 20.7% from 29 million euro in the first quarter of 2010.

In first-half 2010, Public Finance registered:
- operating income of 159 million euro, accounting for 2% of the Group’s consolidated operating income (3% in the first half of 2009), a 32.6% decrease compared with 236 million euro in the first half of 2009 due to the tightening of spreads;
- operating costs of 39 million euro, a 2.5% reduction from 40 million euro in the first half of 2009;
- operating margin of 120 million euro, down 38.8% from 196 million euro in the first half of 2009;
-  a cost/income ratio of 24.5% versus 16.9% in the first half of 2009;
- net provisions and adjustments of 15 million euro versus 80 million euro in the first half of 2009;
- income before tax from continuing operations of 105 million euro, down 9.5% from 116 million euro in the first half of 2009;
- net income of 64 million euro, in line with the 63 million euro of the same period last year.

The International Subsidiary Banks Division is responsible for activities in foreign markets where the Group is operational through commercial banking subsidiaries and associates. The Division provides guidelines, coordination and support to subsidiaries abroad mainly active in retail banking. It is responsible for defining the Group’s development strategy related to its direct presence abroad, as well as exploring and analysing new growth opportunities in markets where the Group already has a presence, and in new markets. This Division also coordinates operations of international subsidiary banks and their relations with the Parent Company’s head office departments and the Corporate & Investment Banking Division’s branches and offices abroad. The Division is made up of the three following Departments which are in charge of the different geographical areas where it operates: i) the SEE Banking Area which includes the banking subsidiaries in South-Eastern Europe, Privredna Banka Zagreb in Croatia, Banca Intesa Beograd in Serbia, Intesa Sanpaolo Banka Bosna i Hercegovina in Bosnia and Herzegovina, Intesa Sanpaolo Bank Albania, Intesa Sanpaolo Bank Romania and Banca CR Firenze Romania; ii) the CEE Banking Area which includes the banking subsidiaries in Central-Eastern Europe, Banka Koper in Slovenia, VUB Banka in Slovakia, CIB Bank in Hungary; iii) the CIS and South Mediterranean Banking Areas which include the subsidiaries Banca Intesa in the Russian Federation, Pravex-Bank in Ukraine and Bank of Alexandria in Egypt.

 
In the second quarter of 2010, International Subsidiary Banks Division registered:
- operating income of 565 million euro, up 1.9% from 554 million euro in the first quarter of 2010;
- operating costs of 289 million euro, up 2.3% from 282 million euro in the first quarter of 2010;
- operating margin of 276 million euro, up 1.3% from 272 million euro in the first quarter of 2010;
- a cost/income ratio of 51.2% versus 50.9% in the first quarter of 2010;
- net provisions and adjustments of 144 million euro against 132 million euro in the first quarter of 2010;
- income before tax from continuing operations of 134 million euro, down 5.5% compared to 141 million euro in the first quarter of 2010;
- net income of 90 million euro, down 20.1% from 113 million euro in the first quarter of 2010.

In first-half 2010, International Subsidiary Banks Division registered:
- operating income of 1,119 million euro, up 1% from 1,108 million euro in the first half of 2009, contributing 14% of the Group operating income (13% in the first half of 2009);
- operating costs of 570 million euro, down 2.2% from 583 million euro in the first half of 2009;
- operating margin of 549 million euro, up 4.6% from 525 million euro in the first half of 2009;
- a cost/income ratio improving to 50.9% from 52.6% in the first half of 2009;
- net provisions and adjustments of 275 million euro versus 319 million euro in the first half of 2009;
- income before tax from continuing operations of 275 million euro, up 34.1% from 205 million euro in the first half of 2009;
- net income of 203 million euro, up 27.7% from 159 million in the first half of 2009.

Banca Fideuram, through its network of private bankers, performs asset gathering activities serving customers with a medium to high savings potential. In the second quarter of 2010, Banca Fideuram registered:
- operating income of 158 million euro, down 10.1% from 176 million euro in the first quarter of 2010;
- operating costs of 82 million euro, up 2.4% compared to 80 million euro in the first quarter of 2010;
- operating margin of 76 million euro, down 20.6% from 96 million euro in the first quarter of 2010;
- a cost/income ratio of 51.9% versus 45.5% in the first quarter of 2010;
- net provisions and adjustments of 31 million euro versus 11 million euro in the first quarter of 2010;
- income before tax from continuing operations of 45 million euro from 85 million euro in the first quarter of 2010;
- net income of 9 million euro, compared to 42 million euro in the first quarter of 2010; excluding charges from purchase cost allocation, net income for the second quarter would be 30 million euro, compared to 64 million euro in the first quarter of the year.
 

In first-half 2010, Banca Fideuram registered:
- operating income of 333 million euro, a 13.3% increase from 294 million euro in the first half of 2009, accounting for 4% of the Group’s consolidated figure (3% in the first half of 2009);
- operating costs of 161 million euro, up 1.3% from 159 million euro in the first half of 2009;
- operating margin of 172 million euro, up 27.4% from 135 million euro in the first half of 2009;
- a cost/income ratio improving to 48.3% from 54.1% in the first half of 2009;
- net provisions and adjustments of 42 million euro versus 20 million euro in the first half of 2009;
- income before tax from continuing operations of 130 million euro, up 13% from 115 million euro in the first half of 2009;
- net income of 51 million euro, up 13.3% from 45 million euro in the first half of 2009; excluding charges from purchase cost allocation, net income for the first half of the year would be 94 million euro, compared to 88 million euro in the first half of 2009.

The 2010 outlook

During the year, the Group will continue to prioritise sustainable profitability in the medium term by developing long-lasting client relationships, fine-tuning cost control and investments while at the same time monitoring asset quality, liquidity and its capital base.

Also in light of the results generated over the first six months of 2010, the Group is expected to register an improvement in net income for the year compared to 2009 due in particular to a reduction in operating costs, cost of credit and integration charges and to capital gains on capital management actions either finalised or in the finalisation stage.

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For consistency purposes, the income statement data for 2009 were restated mainly due to the ongoing disposal of the securities services business, in respect of which a sale-and-purchase agreement was entered into in December 2009: for the first three quarters of 2009 relevant items were deconsolidated line by line and their contribution in terms of net income was recorded under income after tax from discontinued operations.

Still for consistency purposes, the balance sheet data for the first three quarters of 2009 were restated deconsolidating line by line the items relating to the securities services business and registering their contribution under assets/liabilities relating to non-current assets held for sale and discontinued operations. Moreover the balance sheet data for the first quarter of 2010 and for 2009 were restated consolidating line by line the items related to the acquisition of 50 branches from Banca Monte dei Paschi di Siena finalised in June 2010.

Moreover the income statement and balance sheet data for 2009 relating to the Business Units were restated following the allotment of the Banca CR Firenze Group contribution, including Casse del Centro, to the relevant Business Units (previously it was entirely attributed to Banca dei Territori Division).

* * *

The adjusted net income was calculated excluding the main non-recurring items listed below:

in the first quarter 2010: 1) 86 million euro fiscal benefit from the release of deferred taxes relating to goodwill detaxation with some subsidiaries, recorded under taxes on income from continuing operations, 2) 23 million euro integration charges and related tax savings resulting in net integration charges of 16 million euro and 3) 92 million euro charges from purchase cost allocation, net of tax;

in the second quarter 2010: 1) 19 million euro extraordinary tax pertaining to the first half of 2010 and relating to the Group’s subsidiary in Hungary, recorded under taxes on income from continuing operations, 2) 664 million euro capital gains made on the sale of the securities services business and related taxes, which resulted in a net capital gain of 648 million euro under income after tax from discontinued operations, 3) 41 million euro integration charges and related tax savings, which resulted in net integration charges of 27 million euro and 4) 101 million euro charges from purchase cost allocation, net of tax;

in the first quarter 2009: 1) 511 million euro fiscal benefit from the release of deferred taxes relating to detaxation of intangibles with a finite life and brand name, recorded under taxes on income from continuing operations, 2) 68 million euro integration charges and related tax savings, which resulted in net integration charges of 48 million euro, 3) 95 million euro charges from purchase cost allocation, net of tax and 4) 83 million euro capital gains made on the disposal of CR Orvieto and 17 branches and related taxes, which resulted in a net capital gain of 63 million euro under income after tax from discontinued operations;

in the second quarter 2009: 1) 60 million euro integration charges and related tax savings, which resulted in net integration charges of 38 million euro and 2) 102 million euro charges from purchase cost allocation, net of tax;

in the third quarter 2009: 1) 61 million euro integration charges and related tax savings, which resulted in net integration charges of 44 million euro, and 2) 98 million euro charges from purchase cost allocation, net of tax;

in the fourth quarter 2009: 1) 51 million euro from the IMI-SIR settlement registered under the caption other operating income and related taxes, 2) capital gains of 439 million euro from the disposal of Findomestic and 70 million euro from that of Esaote registered under profits on investments held to maturity, and related taxes, 3) 131 million euro integration charges and related tax savings, which resulted in net integration charges of 84 million euro, 4) 90 million euro charges from purchase cost allocation, net of tax, and 5) 60 million euro attributable to minority shareholders out of the aforementioned 439 million euro Findomestic capital gain recorded under minority interests.

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In order to present more complete information on the results generated in the first half of 2010, the reclassified consolidated income statement and the reclassified consolidated balance sheet included in the report approved by the Management Board are attached. Please note these statements have not been reviewed by the Auditing company. The latter, in charge of performing the limited review of the half-yearly report, has not yet completed its analysis.

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The manager responsible for preparing the company’s financial reports, Ernesto Riva, declares, pursuant to paragraph 2 of Article 154 bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting records.

* * *

 
This press release contains certain forward-looking statements and forecasts reflecting the Intesa Sanpaolo management’s current views with respect to certain future events. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “plan”, “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “goal” or “target” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts, including, without limitation, those regarding Intesa Sanpaolo’s future financial position and results of operations, strategy, plans, objectives, goals and targets and future developments in the markets where Intesa Sanpaolo participates or is seeking to participate.  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 (and be more negative than) 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 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; and
• the Group’s ability to finalise capital management actions on its non-core assets (including disposals, either full or partial, partnerships, listings, etc.).
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 as a prediction of actual results. All forward-looking statements included herein are based on information available to Intesa Sanpaolo as of the date hereof. Intesa Sanpaolo undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to Intesa Sanpaolo or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

 

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