Economic and Financial Performance in 2009¹

In a difficult market context due to the consequences of the severest financial and economic crisis since the 30’s, Intesa Sanpaolo Group closed out its 2009 financial statements with results that may be considered satisfactory, achieving a solid financial and business structure while also maintaining a close relationship with the economies in which it operates. The decrease in revenues, which was limited to 2% on an annual basis, is a direct consequence of the economic slowdown, while the more considerable drop in operating costs (-4%, also on an annual basis) bears witness to the operating system’s flexibility and aptitude to adapt to changes in the market scenario. The heavy losses on loans may also be attributed to the economic slowdown and the crisis that struck many businesses and reduced the economic resources available to individuals.
Despite this unfavourable scenario, the Group earned a net income of 2,805 million euro in 2009, up by approximately 10% compared to 2008. As to in-year developments, 2009 saw a gradual reduction in revenue from the interest margin, mainly due to the rate cuts, counterbalanced by a gradual recovery in fees and commissions, mainly driven by the increase in security intermediation and asset management fees and commissions from the financial market recovery which positively impacted trading activities, especially in the second and third quarter. The performance of financial intermediation, as during the year the gradual reduction in revenue from interest margin was offset by the gradual pickup in commissions and by the constant operating cost containment policy, was directly reflected in operating income performance, which came to more than 2 billion euro in the two mid-year quarters and 1.7 billion euro in the first and fourth quarters.

It should be considered that the results were achieved in the framework of a policy that focused on three factors considered of key importance in the current crisis: solidity, liquidity and risk profile.
With regard to solidity, the actions carried out during the year yielded marked improvements in capital ratios through the Group’s operational management: Core Tier 1 rose from 6.3% at 31 December 2008 to 7.1% at 31 December 2009. Moreover, the Group’s asset structure continues to be low-leveraged, with a ratio of shareholders’ equity to total assets net of intangible items close to 5%, the highest among the main European banks and up from the previous year.
With regard to liquidity, direct customer deposits (70% of which from the retail segment) equal to 399 billion euro (net of the liabilities of the insurance segment) were markedly higher than the corresponding loans to customers (374 billion euro), the interbank position is well balanced and eligible assets with Central Banks have almost doubled on year-end 2008.

The overall risk profile continues to be low, with regard both to lending and deposit collection activities, due to the strong foothold on the domestic retail market, and to financial market activity, due to the small incidence of capital market and investment banking activities on the Group’s accounts (5.6% of consolidated operating income) and to low - and appreciably decreasing - VaR of the trading book.
With regard to the consolidated balance sheet, as at 31 December 2009 Group loans to customers stood at 374 billion euro, down 5.2% from 31 December 2008 due to strained market conditions affected by the reverberations of the financial crisis on the real economy. Non-performing loans were also affected by the economic recession which worsened the loan portfolio quality. In detail, doubtful loans came to 5,365 million euro, up 1,397 million (+35.2%) on the previous year, reaching a 1.4% incidence on total loans, and a 67% coverage ratio which is higher than the average ratio found in the Italian banking industry.  Customer financial assets amounted to 813 billion euro, up 1% from the previous year, thanks to the positive performance of indirect customer deposits (+2.4%, to 417 billion euro) driven by assets under management, whereas direct customer deposits remained essentially stable (-0.2%, to 422 billion euro). As to asset management, the evolution of the aggregate (+5.6% to 226 billion euro) benefited from an improvement in financial market performance, especially noticeable in the second half of the year, which offset the negative net inflows.

1 The figures and comments refer to the reclassified consolidated income statement published in the Intesa Sanpaolo 2009 Annual Report. Changes in annual percentages are calculated on 2008 figures, restated on a consistent basis to take into account changes in the scope of consolidation. The amounts are expressed in millions of euro.
For further details or clarification, reference should be made to the Intesa Sanpaolo 2009 Consolidated Financial Statements, which can also be consulted on the Bank's website: group.intesasanpaolo.com Web site.