Interim financial statements for six months ended 31 December 2007 approved

Price sensitive

At a meeting held today with Renato PAGLIARO in the chair, the Management Board of Mediobanca approved the Group’s quarterly report for the six months ended 31 December 2007, as presented by Chief Executive Officer Alberto NAGEL.

Consolidated results
The Mediobanca Group’s results for the six months ended 31 December 2007 show a net profit of €640.5m. Year-on-year growth of 21.8% reflects further improvement in profit from ordinary activities, up 22% from €574m to €700.2m, on the back of good performances by all the Group’s main revenue sources and despite the sharp downturn on financial markets. The main revenue items performed as follows:
- net interest income rose almost 10%, from €332m to €364.6m, on higher volumes managed;
- net trading income showed gains of €76.1m (31/12/06: €29.9m), in strongly challenging market conditions;
- net fee and commission income rose by 22%, from €189.6m to €231.3m, on healthy contributions from all corporate and investment banking activities;
- income from equity-accounted companies rose by 22.6%, from €213.8m to €262.1m, reflecting positive earnings performances by Assicurazioni Generali and RCS MediaGroup.
Costs grew by 26.3%, from €194.5m to €245.6m, due to expansion in the Group’s operating profile within and outside Italy, which involved 16 new retail branches being opened during the period, including 5 in France, plus two new Mediobanca branch offices in Frankfurt and Madrid, with an extra 255 staff employed at Group level compared to December 2006. The figure includes costs of more than €9m linked to plans to expand the banking activity of Micos Banca, approximately half of which was due to new staff, with 115 more personnel on the books. Bad debt writeoffs were up 22%, from €78.2m to €95.4m, €85.2m of which was in retail financial services (up 12%), reflecting growth in line with the increase in lendings, with bad loans stable as a percentage of total loans over the past four quarters. The other €10.2m represents an adjustment made to the collective provision for the corporate portfolio which contains performing loans only.
Gains on disposals of securities totalled €170m (€169.3m), arising on disposals of over €1bn of AFS securities carried out during the period.
Tax reflects the benefit of a one-off, €30.4m adjustment of deferred taxes to the new IRES and IRAP tax rates introduced by the Budget Law for 2008 (244/07) approved in December last year.
Improvement at the net profit level was shown by the following of the Group’s main business areas: wholesale banking, which grew by 20.7%, from €276.7m to €333.9m; the equity investment portfolio, which returned growth of 32.9%, from €190.9m to €253.8m; and private banking, up 21.6%, from €24.1m to €29.3m. Retail financial services declined from €40.2m to €26.5m, reflecting the cost of developing new product ventures referred to above.
On the balance-sheet side there was growth of 10.8% in loans, from €26.8bn to €29.7bn, and of 6.4% in funding, from €34.2bn to €36.4bn, while treasury funds decreased slightly from €7bn to €6.8bn, and AFS securities recorded a heavier decline, from €5.6bn to €4.5bn, partly due to the fall in stock market prices, as adjustments to the fair value of investments as at the period-end resulted in a charge of €275.5m being taken.

The following developments should also be noted:
- growth in the consumer credit segment through the acquisition of Linea for a consideration of €405m. This deal, which will be completed in the coming months, will give rise to the third player in this sector in Italy, and will enable the combined entity to generate economies of scale and maximize cross-selling opportunities by optimizing operating processes and risk management. The industrial rationale for the acquisition is based on the significant areas of complementarity between the two companies in terms of products and channels. Major synergies are expected (approx. €60m gross, roughly €40m of which on the cost side) to be generated from increased efficiency in the operating platforms and improved cross selling. In 2007 Linea disbursed a total of €2,649m1 in new loans, against €1,816m in 2006, while at 30 June 2007 it had net loans of €3,547m outstanding on its books. The corresponding data for Compass show new loans of €2,500m (in the twelve months to year-end 2007), and net loans outstanding of €3,722m.
- start-up of operations at the branch office in Frankfurt, and authorization to start operations in Madrid.
- launch and completion of the share buyback programme approved by shareholders in general meeting on 27 October 2007, with the acquisition of 16.2m Mediobanca shares for an outlay of €213.4m.

Divisional results
Wholesale banking
- corporate loans2 of €18.3bn, up 14% vs end-Dec. 2006
- total income up 33%, to €379m, with net interest income up 15% and net fee and commission income up 25%
- profit from ordinary activities up 32%, to €268m
- net profit up 21%, to €334m, on comparable gains from disposals (€170m, vs €161m)
A net profit of €333.9m was recorded, up from €276.7m at the same stage last year, on the back of strong contributions from all the main revenue sources. Net interest income was up 14.9%, from €104.2m to €119.7m, due to growth in lending to corporates. Net fee and commission income grew by 24.6%, from €147.1m to €183.3m, on the strength of significant activity levels in corporate and investment banking. Net trading income rose from €23.4m to €68.4m, despite difficult market trends.

The 34.9% rise in operating costs, from €82.2m to €110.9m, is entirely due to strengthening the employee headcount, with a total of 86 more staff on the books than at this stage last year, and related overheads. During the period gains of €169.6m (31/12/06: €160.9m) on disposals of AFS securities were recorded, plus the €10.2m (€2.1m) provision to cover performing loans already referred to.

On the balance-sheet side, there was growth in lending to corporates during the period, up 14.2%, from €15,995m to €18,268.3m, and in funding, up from €26,918.8m to €28,784.1m, while treasury funds and the AFS securities portfolio recorded reductions, from €6,292.6m to €5,797m and from €4,788m to €3,911.2m respectively.

Equity investment portfolio
- NAV: stable, at €6.4bn
- Total income: up 33%, to €254m
The share in profits attributable to Mediobanca for the period rose by 29.5%, from €201.8m to €261.4m, €240.7m of which was due to Assicurazioni Generali, up 21.3%, and €20.7m to RCS MediaGroup, up 40%.

Retail financial services
- geographical presence strengthened, with 16 new branches opened, 5 of which in France
- new loans up 11%, to €2.5bn, with consumer credit up 4% and mortgages up 32%
- total income up 7%, to €261m
- net profit down 34%, to €26m, largerly due to costs linked to new initiatives
- bad loans/total loans ratio stable over last four quarters

The Compass group’s consolidated highlights for the six months ended 31 December 2007 reflect total income up 7%, from €244.3m to €261.3m, despite an increase in the cost of funding. However, profit from ordinary activities declined slightly, from €159m to €154.5m, given the growth in operating costs, up from €85.3m to €106.8m, due largely to the Group’s ongoing geographical expansion (with 16 new branches being added) and costs involved in the plans to expand the activity of Micos Banca. After bad debt writeoffs, which were up from €76.1m to €85.2m, almost entirely attributable to consumer credit activity, net profit for the six months fell from €40.2m to €26.5m.

With reference to the individual segments:
- consumer credit recorded new loans of €1,225m, up 4%, on the back of a more selective market approach; the increase in profit from ordinary activities, from €125.5m to €129.5m, was completely swallowed up by the rise in bad debt writeoffs, from €68m to €76.4m, and higher taxes, up from €26.8m to €30.9m, largely due to adjusting provisions for deferred tax receivable to the new IRES tax rates.
- mortgage lending saw new loans of €397m, up 32% partly as a result of the new activities launched in France; Micos recorded a 13.5% increase in total income, from €19.2m to €21.8m, but still incurred a €2.3m net loss for the period, compared with a €3m net profit at the same time last year, due solely to costs of €9m linked to expansion of its activities - leasing, new loans of €887m reflect 13% growth, partly due to the regulatory difficulties in the real estate sector last year having been overcome. Net profit was in line with the result posted last year, at €6.6m, despite a €2.2m rise in costs linked to expansion and strengthening of the network, with two branches added.

Private banking
- total income up 19%, to €71m, operating profit up 27% to €33m
- net profit up 29%, to €22m
- AUM: €13.9bn, up 13% vs end-Dec. 2006, stable vs June/Sept. 2007

During the six months under review net profit attributable to the Group climbed 21.6%, from €24.1m to €29.3m, reflecting growth of 27.7% in profit from ordinary activities, up from €25.6m to €32.7m. Total income rose by 18.7%, from €59.5m to €70.6m, on higher net fee and commission income, up from €41.8m to €44.9m, earned chiefly by Banca Esperia (up 29.6%), and on higher net interest income, up from €10.2m to €17.7m, due mostly to the business of Compagnie Monégasque de Banque. Assets managed on a discretionary and nondiscretionary basis remained stable at €13.9bn, €8.1bn of which by CMB and €5.8bn by Banca Esperia.

On 7 February 2008 CMB acquired the Unicredit group’s Monaco-based private banking activities. The deal, which will enable the company to acquire €500m in AUM and over 1,600 customers, represents a new step in the process of consolidating its leadership position in the Principality.

Mediobanca S.p.A.
In the six months ended 31 December 2007 Mediobanca recorded a 22.9% increase in net profit, from €259.2m to €318.6m, driven by the result of ordinary activities, up 36% from €183.4m to €249.5m, and gains on disposals of AFS securities, which rose from €160.9m to €169.6m. The increase in profit from ordinary activities reflects a healthy contribution from net interest income, up 9.5%, from €100.4m to €109.9m, and net fee and commission income, up 19.3%, from €147.9m to €176.5m. Operating costs rose by 31.3%, from €91.2m to €119.7m, chiefly due to the rise in employee headcount, with staff numbers climbing from 414 to 497, and to expansion of the Bank’s domestic and international businesses.
Below the operating line, in addition to gains on disposals of over €1bn worth of equities held in the AFS portfolio, a collective adjustment to performing loans of €10.2m was booked, chiefly in connection with the increase in volumes, plus tax for the period of €86m (31/12/06: €83m), which benefited from the one-off effect on deferred tax following the reduction in the IRES tax rate from 33% to 27.5%.