Intesa Sanpaolo : consolidated results at December 31st 2013

VERY STRONG BALANCE SHEET: INTESA SANPAOLO, "NOT ADDICTED" TO THE ECB AND ONE OF THE FEW BANKS IN THE WORLD ALREADY BASEL 3 COMPLIANT IN TERMS OF CAPITAL RATIOS AND LIQUIDITY, FURTHER IMPROVES ITS LEADING POSITION.

PROPOSED CASH DIVIDENDS IN LINE WITH PREVIOUS YEAR'S LEVELS.

ROBUST EARNINGS DESPITE THE CHALLENGING ENVIRONMENT, REFLECTING STRONG INCREASE IN COMMISSIONS AND ASSETS UNDER MANAGEMENT.

PARTICULARLY RIGOROUS AND CONSERVATIVE PROVISIONING POLICY, EVEN AMID SIGNS OF STABILISING CREDIT TRENDS, ALSO LEVERAGING THE GAIN ON THE STAKE IN THE BANK OF ITALY.

BALANCE SHEET FURTHER STRENGTHENED, AHEAD OF UPCOMING ASSET QUALITY REVIEW (AQR) AND STRESS TEST EXERCISE ON EUROPEAN BANKS TO BE CONDUCTED DURING 2014.

SIGNIFICANT EXCESS CAPITAL ALLOWS AMPLE STRATEGIC FLEXIBILITY: ~€11BN CAPITAL BUFFER AHEAD OF THE AQR AND ~€8BN EXCESS CAPITAL.

• STRONG CAPITAL BASE, WHICH CONTINUES TO IMPROVE AND IS WELL ABOVE REGULATORY REQUIREMENTS. PRO-FORMA BASEL 3 COMMON EQUITY, NET OF DIVIDENDS ACCRUED IN 2013:
  • 12.3% FULLY LOADED CET1 RATIO(1)
  • EQUIVALENT TO APPROXIMATELY €8 BILLION OF EXCESS CAPITAL(2)
  • CORRESPONDING TO APPROXIMATELY €11BILLION OF CAPITAL BUFFER AHEAD OF THE AQR(3)
• PROPOSED CASH DIVIDEND(4)OF €5 CENTS PER ORDINARY SHARE AND SAVINGS SHARE:
  • DIVIDEND YIELD(5)OF 2.2% PER ORDINARY SHARE AND 2.6% PER SAVINGS SHARE
• ROBUST NET INCOME EXCLUDING IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS:
  • €1,218 MILLION FOR FULL YEAR
  • €578 MILLION FOR THE FOURTH QUARTER
  
• STRONG GROWTH IN NET COMMISSIONS:
  • UP 12.8% FOR THE YEAR
  • UP 9.6% IN THE FOURTH QUARTER VERSUS THE PREVIOUS THREE MONTHS
• PARTICULARLY RIGOROUS AND CONSERVATIVE PROVISIONING POLICY:
  • NPL COVERAGE RATIO FURTHER STRENGTHENED UP TO 46%, WITH A COVERAGE OF THE DOUBTFUL LOAN COMPONENT UP TO 62.5% (128% AND 129%, RESPECTIVELY, INCLUDING COLLATERAL)
  • ROBUST RESERVE BUFFER ON PERFORMING LOANS FURTHER REINFORCED
• IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS:
  • PRUDENT IMPAIRMENT OF €5.8 BILLION IN Q4 AND IN FULL-YEAR 2013, MAINLY RELATED TO NON-CASH BASED OPERATIONS
  • ACCOUNTING EFFECT ONLY AND NO IMPACT ON CASH-FLOW, LIQUIDITY, SOLIDITY, CAPITAL RATIOS AND FUTURE PROFITABILITY

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(1) Estimated by: applying the parameters set out under fully phased-in Basel 3 to the financial statements as at December 31st2013; considering the total absorption of deferred tax assets (DTAs) related to goodwill realignment and the expected absorption by 2019 of DTAs on losses carried forward, the benefit deriving from the stake in the Bank of Italy (86bps), the effect of the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital, with a benefit of 13bps); and including the expected benefits from the optimisation actions on capital sources and requirements and from the absorption of sovereign risk shock (equal overall to one basis point).
(2) Compared to Basel 3 compliance level for Global SIFIs of 9.5% (4.5% Common Equity + 2.5% conservation buffer + 2.5% current maximum Global SIFI buffer).
(3) Compared to the capital adequacy threshold of 8% being applied in the AQR. The capital buffer does not include the benefit deriving from the stake in the Bank of Italy.
(4) To be distributed from the Extraordinary Reserve.
(5) At the Intesa Sanpaolo stock price on March 26th2014.

Turin - Milan, March 28th2014-At At its meeting yesterday, the Intesa Sanpaolo Management Board approved the parent company and consolidated draft financial statements for the year ended December 31st2013(7).

(6) This figure includes extraordinary profits of 2,558 million euro deriving from the recognition of the new shares held in the capital of the Bank of Italy, which were issued by the Central Bank following the amendments to its Statute approved by the extraordinary shareholders' assembly of December 23rd 2013. On the basis of the relevance of both the legislative measures and the amendments to the Statute, the Intesa Sanpaolo Group deems that the new shares, into which the new capital of the Bank is divided, represent new financial instruments that are unlike those held before the reform insofar as they carry substantially different legal and economic rights. This being a unique circumstance, it has been deemed proper that the decision be supported by qualified professional opinion for the purpose of precisely defining the legal and accounting issues of the transaction. Competent authorities are still carrying out in-depth assessments concerning the application of IAS/IFRS to the transaction. The outcome may entail another categorisation of the transaction leading to the recognition of the benefit through shareholders' equity, instead of through profit and loss, leaving total profitability unchanged. This benefit has had no impact on the Core Tier 1 ratio, having been sterilised through prudential filters. The Intesa Sanpaolo Group acknowledges that in-depth assessments are under way. However, on the grounds of opinion received, the Group has reached the aforementioned conclusions that the new shares in the capital of the Bank of Italy are financial instruments substantially different from the previous ones and therefore must be recognised at fair value through profit and loss.
(7) Methodological note on the scope of consolidation on page 19.

In 2013, the Group's results reflected a challenging economic environment and the adoption of a particularly rigorous and conservative policy. The Intesa Sanpaolo Group furtherreinforced a rock solid balance sheet. Specifically, the Group remained focused on further strengthening provisions, even though there have been signs of stabilisation in credit trends, ahead of the upcoming asset quality review (AQR) and stress test exercise that regulatory authorities will carry out on European Banks throughout 2014:

·additional improvement on top of an already solid capital base: further strengthening of capital ratios(already well above regulatory requirements) at December 31st2013, net of dividends accrued in 2013. Thepro-forma Basel 3 common equity ratio on a fully loaded basis increased to 12.3%(8)from 10.6% at year-end 2012,one of the highest levels of major European banks, equivalent to an excess capital of approximately eight billion euro(9)and a capital buffer of approximately 11 billion euro ahead of the AQR(10).The Core Tier 1 ratio - excluding the benefit deriving from the stake in the Bank of Italy - increased to 11.9% from 11.2% at year-end 2012 under rules on deduction of insurance investments in force until December 31st2012, and was 11.3% under the new computation rules(11);

·significant excess capital allowing ample strategic flexibility, also in the context of the 2014-2017 Business Plan approved yesterday:growth, payback to shareholders, virtually unlimited buffer versus any AQR exercise/other regulation;

·strong liquidity position and funding capability: liquid assets of 124 billion euroandlarge availability of unencumbered eligible assets with Central Banks, corresponding to liquidity of 88 billion euro at the end of December 2013; already compliant with Basel 3 Liquidity Coverage Ratio and Net Stable Funding Ratio requirements, well ahead of deadlines (2019 and 2018 respectively); Intesa Sanpaolo is"not addicted" to the ECB: in 2013, the three-yearLTROof 36 billion euro put in place in the 2011-2012 period wasfully repaid ahead of its due date;

·current accounts and deposits up 4.5%from year-end 2012;

·strong increase in assets under management: an increase of approximately 27 billion euro in 2013;

·sustained performance in net fees and commissions: 6,149 million euro in 2013, up 12.8% versus 2012;

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(8) Estimated by: applying the parameters set out under fully phased-in Basel 3 to the financial statements as at December 31st 2013; considering the total absorption of deferred tax assets (DTAs) related to goodwill realignment and the expected absorption by 2019 of DTAs on losses carried forward, the benefit deriving from the stake in the Bank of Italy (86bps), the effect of the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital, with a benefit of 13bps); and including the expected benefits from the optimisation actions on capital sources and requirements and from the absorption of sovereign risk shock (equal overall to one basis point).
(9) Compared to Basel 3 compliance level for Global SIFIs of 9.5% (4.5% Common Equity + 2.5% conservation buffer + 2.5% current maximum Global SIFI buffer).
(10) Compared to the capital adequacy threshold of 8% being applied in the AQR. The capital buffer does not include the benefit deriving from the stake in the Bank of Italy.
(11) Until year-end 2012, Basel 2 transitional regulations applied by the Bank of Italy allowed banks to deduct their insurance investments, made prior to July 20th 2006, from their total regulatory capital. Effective January 1st 2013, this no longer applies and banks are now required to deduct 50% of these investments from Tier 1 and 50% from Tier 2.

·high efficiency, highlighted by thecost/income ratio of 51.3%in 2013,top level amongst European peers;

·continued aggressive reduction in structural costs: -6.3% in 2013 versus 2012, withnominal savings of 561 million euro;

·rigorous and conservative provisioning policy:
-loan loss provisionsof 7,131 million euro in 2013, up 51.3% compared to 2012,
- aNPL coverage ratio up to 46%at year-end 2013 from 42.7% at year-end 2012 (Italian peers average: 37% in Q4 2013),with a coverage of the doubtful loan component up to 62.5% at year-end 2013 from 60.5%at year-end 2012,
- atotal NPL coverage ratio of 128%, including collateral, at year-end 2013 (137% adding also personal guarantees), with a total coverage of thedoubtful loancomponent of129%(137%adding also personal guarantees),
- arobust reserve buffer on performing loans, increased to 80bps at year-end 2013 from 76bps at year-end 2012 (Italian peers average: 59bps in Q4 2013);

·signs of stabilising credit trendswith gross NPL inflow from performing loans of 15.6 billion euro in 2013 versus 15.4 billion euro in 2012;

·prudent criteria in the impairment test, reflecting the conservative forecasts for the medium-term scenario set out in the Group's 2014-2017 Business Plan due to the monetary policy framework and the highly uncertain developments in the European economy in the coming years. This has led to a significantimpairment of goodwill and other intangible assets of approximately 6.8 billion euro before tax(impairment of 51%) - including approximately 4.7 billion euro related to goodwill (impairment of 55%), 0.5 billion euro to brand name (21%) and 1.6 billion euro to core deposits (elimination) - and approximately5.8 billion euro after tax. Of this amount, approximately 3.9 billion euro was posted by the Banca dei Territori division, 1.1 billion euro by the Corporate and Investment Banking division, 0.7 billion euro by the International Subsidiary Banks division, and 29 million euro by Banca Fideuram.This impairment mainly relates to non-cash based operations, and has an accounting effect only and no impact on the Group's cash flow, liquidity, capital solidity and capital ratios or effect on its future profitability;

·cash dividends in line with previous year's levels: the Management Board yesterday adopted a proposal, to be submitted at the next Ordinary Shareholders' Meeting, regarding thedistribution of approximately 822 million euro cashto be taken from reserves, paying outfive euro cents on ordinary shares and on savings shares, before tax. Specifically, the proposal envisages the distribution of a total amount of 822,044,844.10 euro to be drawn on the Extraordinary Reserve, deriving from five euro cents on each of the 15,508,406,321 ordinary shares and five euro cents on each of the 932,490,561 savings shares; no distribution will be made to own shares held by the Bank at record date. This assignment of reserves shall be subject to the same tax regime as the distribution of dividends and if approved at the Shareholders' Meeting, will start from May 22nd2014 (with coupon presentation on May 19thand record date on May 21st).The dividend yield is 2.2% per ordinary share and 2.6% per savings share, based on the Intesa Sanpaolo stock price on March 26th2014.

The income statement for the fourth quarter of 2013

The consolidated income statement for Q4 2013(12)recordedoperating incomeof 3,944 million euro, down 4.9% from 4,146 million euro in Q3 2013 and down 12.2% from 4,494 million euro in Q4 2012.

Net interest incomefor Q4 2013 amounted to 2,038 million euro, up 0.3% from 2,031 million euro in Q3 2013 and down 6.6% from 2,181 million euro in Q4 2012.
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(12) During the preparation of the interim statement at September 30th 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 at July 1st 2008, reclassified financial assets held for trading of 1,113 million euro into loans and receivables and 32 million euro into financial assets available for sale; the Group also reclassified financial assets available for sale of 5,482 million euro into loans and receivables. If these reclassifications had not been made, the profits/losses on trading for the fourth quarter of 2013 would have recorded 35 million euro as positive pre-tax impact (a positive impact of 94 million euro in full-year 2013, a positive impact of 135 million euro in full-year 2012, a negative impact of 11 million euro in full-year 2011, a positive impact of 92 million euro in full-year 2010 and of 72 million euro in full-year 2009, and a negative impact of 459 million euro in full-year 2008) and the shareholders' equity would have included 1,281 million euro as negative pre-tax direct impact at December 31st 2013 (with a positive impact of 176 million euro in the fourth quarter of 2013 and 553 million euro in full-year 2013).

Net fee and commission incomeamounted to 1,625 million euro, up 9.6% from 1,483 million euro in Q3 2013. In detail, commissions on commercial banking activities were up 6.7%, and those on management, dealing and consultancy activities (including portfolio management, distribution of insurance products, dealing and placement of securities, etc.) were up 19%. Under the latter, commissions on portfolio management were up 33.5% (an increase also due to approximately 130 million euro performance commissions), those on dealing and placement of securities were up 13.4%, and those on distribution of insurance products were up 3%. Net fee and commission income in Q4 2013 increased by 9.9% from the 1,479 million euro of Q4 2012. In detail, commissions on commercial banking activities were up 11.2%, and those on management, dealing and consultancy activities were up 20%. Under the latter, commissions on distribution of insurance products were up 30%, those on portfolio management were up 28.4% (approximately 75 million euro performance commissions were booked in Q4 2012), and those on dealing and placement of securities were down 14.1%.

Income from insurance businessamounted to 143 million euro, compared with 204 million euro in Q3 2013 and 159 million euro in Q4 2012.

Operating costsamounted to 2,202 million euro, up 7.9% versus the 2,041 million euro of Q3 2013 due to increases in administrative expenses and adjustments of 21.8% and 11.1% respectively and a decrease of 0.2% in personnel expenses. Operating costs for the quarter were down 4.1%, compared with 2,297 million euro in Q4 2012 due a decrease by 10% in personnel expenses and increases by 3.8% in administrative expenses and by 4.4% in adjustments.

As a result,operating marginamounted to 1,742 million euro, down 17.2% from 2,105 million euro in Q3 2013 and down 20.7% from 2,197 million euro in Q4 2012. The cost/income ratio was at 55.8% in Q4 2013 versus 49.2% in Q3 2013 and 51.1% in Q4 2012.

Netprovisionsand adjustments (net provisions for risks and charges, net adjustments to loans, net impairment losses on other assets) amounted to 3,519 million euro, compared with 1,500 million euro in Q3 2013 and 1,707 million euro in Q4 2012. Net provisions for risks and charges amounted to 249 million euro, compared with one million euro in Q3 2013 and 105 million euro in Q4 2012. Net adjustments to loans came to 3,100 million euro, compared with 1,467 million euro in Q3 2013 and 1,461 million euro in Q4 2012. Net impairment losses on other assets came to 170 million euro, compared with 32 million euro in Q3 2013 and 141 million euro in Q4 2012.

Profits/losses on investments held to maturity and on other investmentsgenerated profits of 2,441 million euro (including the benefit of 2,558 million euro deriving from the stake in the Bank of Italy), compared with losses of 35 million euro in Q3 2013 (including the impairment of 28 million euro on the investment in Telco) and 104 million euro in Q4 2012 (including the impairment of 107 million euro on the investment in Telco).

Income before tax from continuing operationscame to 664 million euro, compared with 570 million euro in Q3 2013 (up 16.5%) and 386 million euro in Q4 2012 (up 72%).

Impairment(net of tax)of goodwill and other intangible assetsamounted to 5,797 million euro. No impairment was recorded in the previous quarter or in the corresponding quarter of 2012.

Consolidated net lossof 5,190 million euro was recorded in the quarter, compared with a net income of 218 million euro in Q3 2013 and a net loss of 83 million euro in Q4 2012, after accounting:
- a tax credit of 27 million euro;
- charges (net of tax) for integration and exit incentives of 42 million euro;
- charges from purchase cost allocation (net of tax) of 75 million euro;
- losses pertaining to minority interests of 33 million euro.

Consolidated net income, excluding impairment of goodwill and other intangible assets, was at 578 million euro, compared with a net income of 218 million euro in Q3 2013 and a net loss of 83 million euro in Q4 2012.

The income statement for 2013

The consolidated income statement for 2013 recordedoperating incomeof 16,295 million euro, down 8.9% from 17,881 million euro in 2012.

Netinterest incomefor 2013 was 8,132 million euro, down 13.8% from 9,430 million euro in 2012.

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