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2003-2006 STRATEGIC PLAN Alessandro Profumo - CEO. Investor Day – Bologna, 13 th June 2003. g. 03-06 plan. 0. 2002. 2006. t. S3 CREATES NEW OPPORTUNITIES FOR GROWTH. PLAN DELIVERING DOUBLE DIGIT EPS GROWTH AND PREPARING PATH FOR ACCELERATED GROWTH.

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2003-2006 STRATEGIC PLAN Alessandro Profumo - CEO

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2003 2006 strategic plan alessandro profumo ceo

2003-2006 STRATEGIC PLANAlessandro Profumo - CEO

Investor Day – Bologna, 13th June 2003


2003 2006 plan renewed business lifecycle and acceleration of growth path

g

03-06 plan

0

2002

2006

t

  • S3 CREATES NEW OPPORTUNITIES FOR GROWTH

  • PLAN DELIVERING DOUBLE DIGIT EPS GROWTH AND PREPARING PATH FOR ACCELERATED GROWTH

2003-2006 PLAN: RENEWED BUSINESS LIFECYCLE AND ACCELERATION OF GROWTH PATH


Executive summary

  • ASSUMED CONSERVATIVE MACROECONOMIC SCENARIO

  • CLIENT-FOCUSED ORGANISATION AS A COMPETITIVE ADVANTAGE

  • PLAN BASED ON ORGANIC GROWTH

EXECUTIVE SUMMARY

  • CONTINUED FOCUS ON CAPITAL ALLOCATION AND RISK MANAGEMENT

  • SUSTAINED HIGH CASH FLOW AND CAPITAL GENERATION


Agenda

AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Business model

Strategic guidelines and operating targets

Risk management and capital allocation

Group targets


Plan built in a conservative scenario leaving room for upside

US GDP, y/y % ch

2.4

1.8

2.3

EU GDP, y/y % ch

0.8

0.8

1.6

EU Inflation rate, %

2.3

2.2

1.9

US Fed Funds rates (eop), %

1.25

1.25

3.25(1)

EU ECB rates (eop) %

2.75

1.75

3.00(1)

Italy GDP, y/y % ch

Stock Mkt MSCI Europe

-31.3

0.4

2.0

0.6

4.8

1.5

PLAN BUILT IN A CONSERVATIVE SCENARIO, LEAVING ROOM FOR UPSIDE

2003

03-06 avg

2002

  • Macroeconomic scenario affected by uncertainty, with GDP growth in US and EU still lower than its potential

  • Expansive fiscal policy in US might crowd out private investment spending

  • High uncertainty even in presence of some positive signals (increasing consumer confidence and improved equity markets)

  • Conservative rise in policy rates forecasted in the next three years

Source: UCI Network forecasts

(1) December 2006


Italian banking system expected to improve profitability only from 2004

ITALIAN BANKING SYSTEM EXPECTED TO IMPROVE PROFITABILITY ONLY FROM 2004

Cagr 02-06

2003

2002

  • Profitability forecast for the banking system still negative for this year with the operating profit down 6.2% y/y (expected decrease in net interest income partially offset by slight increase in non-interest income)

  • Profitability of the Italian banking system expected to recover only from 2004

  • Profitability will benefit from the contribution of both net interest income and net non interest income, which will be sustained by the recovery of the equity and AuM markets

  • Households’ financial assets expected to grow in the period by around 7% per year, in line with US and Euro countries

  • Pension system reform could fuel pension funds growth in Italy in the next three years

y/y % ch

4.2

3.0

6.0

Deposits

Loans

6.6

6.9

5.9

Sh. term spread (eop) %

4.09

4.38(1)

4.35

Mutual Funds stock

4.6

6.8

-9.5

P&L Account (2)y/y % ch

Revenues

-0.2

4.8

-0.4

Costs

3.2

3.1

4.9

Operating profit

-6.2

7.7

-8.7

Source: UCI Network forecasts

(1) December 2006

(2) Excluding dividends from shares and bank shareholdings


2003 2006 strategic plan alessandro profumo ceo

2007

3.8

B1/positive

+

BG

2007*

2.3

Baa3/stable

HR

May 2004

0.6

A1/stable

+++

CZ

May 2004

0.8

A2/stable

++

PL

2007

17.9

B1/stable

+

RO

May 2004

3.4

A3/stable

+++

SK

Not defined

29.7

B1/negative

-

TK

EU ACCESSION IS GETTING CLOSER FOR MOST OF OUR NEW EUROPE COUNTRIES IN A CONTEXT OF DECLINING RISKS AND GROWING STABILISATION

Moody’s Rating Upgrade

April 02-April 03

Inflation 2002 eop

Countries with UCI presence

EU entry

EU accession on track for most of the countries (i.e. results of referendum in Poland) with positive impact on economic environment thanks to:

  • harmonisation of legal and institutional environment to EU standards

  • predetermined macroeconomic convergence path (higher GDP growth) with decreasing risks

  • in the medium term, with EMU convergence, lower inflation and interest rates with currency stability and public deficit control

*estimated


Combined new europe gdp growth anticipated to outpace eu growth

HR

3.97

3.6

4.1

BG

4.67

4.3

4.9

2.80

2.9

3.5

CZ

2.10

2.1

3.7

PL

4.00

4.9

4.7

RO

SK

3.36

4.0

4.3

2.57

4.0

4.8

TK

COMBINED NEW EUROPE GDP GROWTH ANTICIPATED TO OUTPACE EU GROWTH

  • Bulgaria:economic growth to speed up, sustained by the catching up process. Financial and macro stability persist, supported by effective currency board

avg 00-02 GDP growth

avg. 03-06 GDP growth*

Countries with UCI’s presence

03F GDP growth*

  • Croatia: stable economic environment sustained growth track, spurred by investment, consumption and export

  • Czech Rep.: gradual growth acceleration led by continued solid household consumption and recovery in export and investment activities

  • Poland:gradually back to its long term growth potential, thanks to recovery of both international demand and investments. EMU convergence often seen as major target, leading to int. rate contraction and need to fiscal control

  • Romania:sustained growth propelled by consumption and investment. Stabilising macro environment, with one digit inflation expected in 2004 and both fiscal and external control achieved

  • Slovakia:sustained growth driven by investment (2004) and external demand (2004-05), with continued gradual downwards trend in interest rates and strengthening SKK

  • Turkey:growth expected to consolidate at rate around 5% in 2004-05, still in a highly uncertain environment, with risks of reversal. Commitment to reforms is the most important variable to watch

*UCI forecast


Agenda1

AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Business model

Strategic guidelines and operating targets

Risk management and capital allocation

Group targets


Uci organisational model customer driven divisionalisation

UCI ORGANISATIONAL MODEL: CUSTOMER DRIVEN DIVISIONALISATION...

Weight on 2002 Group revenues pre Corporate Centre and elisions

45.4%

26.2%

10.3%

18.1%

Corporate division

Private & AM division

New Europe division

Retail division

Pekao

Zagrebacka

Clarima(1)

UBM

Pioneer

Bulbank

UniCredit Banca per la casa(2)

BMC(3)

Xelion

KFS

TradingLab

Locat(4)

UniBanka

UC Romania

  • Employees(5) (Dec 2002)

    • o/w Italy

    • o/w New Europe(5)

  • 70,992

    • 39,986

    • 31,006

  • Branches(5) (Dec 2002)

    • o/w Italy

    • o/w New Europe(5)

  • 4,607

    • 3,275

    • 1,332

Zivnostenska

(1) Consumer Finance(2) Retail mortgages (3) M/l term corporate financing(4) Leasing

(5) KFS at 100%


3 new segment banks with clearly defined missions

... 3 NEW SEGMENT BANKS WITH CLEARLY DEFINED MISSIONS...

THE RETAIL BANK:

TO BE THE LARGEST LOCAL ITALIAN BANK, COMMITTED TO HELP HOUSEHOLDS AND SMALL BUSINESSES “MAKE THEIR LIFE PROJECTS REAL”

THE CORPORATE BANK:

TO SET THE STANDARD FOR A NEW BANKING-SMEs RELATIONSHIP THROUGH EXCELLENCE IN DESIGN & DELIVERY OF PRODUCTS & SERVICES AND CUSTOMER SELECTION, BEING RECOGNISED AS THE KEY PARTNER IN MANAGING CLIENTS RISKS

THE PRIVATE BANK:

THE LEADING ITALIAN WEALTH MANAGEMENT PROVIDER FOCUSED ON PRESERVING AND INCREASING THE WEALTH OF PRIVATE CLIENTS THROUGH A HOLISTIC APPROACH, SUPERIOR SERVICE AND INNOVATIVE SOLUTIONS


2003 2006 strategic plan alessandro profumo ceo

... DETAILED UNDERSTANDING AND MANAGEMENT OF THE DIFFERENT MARKETS AND DEEPER KNOWLEDGE OF THE CUSTOMER BASE...

  • Detailed understanding of competitive environment

  • Production closer to customer needs

  • Deeper knowledge of customers, with analysis of behaviour, needs, age, types, turnover, etc.

  • Unified strategic decision making at segment level

  • Increased time to market on 100% of the customer base

  • Specialised training programs for employees

  • Integrated risk management process in all segments


Tailored strategies for different customer segments and geographies

Intra-group synergies

Pioneer

UBI

Retail business

UCB

UPB

Corporate business

UBM

UBI

Private Banking business

Pioneer

UBM

TradingLab

New Europe

... TAILORED STRATEGIES FOR DIFFERENT CUSTOMER SEGMENTS AND GEOGRAPHIES...

High importance

Revenue growth

Low importance

Existing customers

New customers

Efficiency

Risk mgmt


And crucial role of the parent company

... AND CRUCIAL ROLE OF THE PARENT COMPANY

Corporate division

Private & AM division

New Europe division

Retail division

ROLE OF THE PARENT COMPANY

  • Defining the strategic guidelines for the Group and for all Group companies

  • Managing the strategicportfolio of businesses and Group key resources

  • Optimising capital allocation to the different business units

  • Enforcing integrated risk management and development of internal models to be extended to other Group entities

  • Leveraging economies of scale through centralised functions (i.e. treasury, cost management, purchases) and specialised companies (USI, UPA)


Agenda2

AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Business model

Strategic guidelines and operating targets

Risk management and capital allocation

Group targets


2003 2006 strategic plan alessandro profumo ceo

UCI STRATEGIC BUSINESS PORTFOLIO: CONFIRMED FOCUS ON ACTIVITIES WITH HIGH GROWTH POTENTIAL AND GROUP TRACK RECORD OF VALUE CREATION

= Euro 200 mln 2002 revenues

  • Plan focused on organic growth, with different paths for each specific business

UCI CAGR 02-06 11.4%

= Euro 200 mln 2006 revenues

  • ITALIAN BANKING: consolidate UCI leadership and exploit the competitive advantage arising from specialisation

Consumer Finance

Asset Gathering

Asset Management

Retail

UBM

High potential

  • Retail: organic growth of market shares in the most attractive geographical markets

Private Banking

New

Europe

  • Corporate: improve customer penetration leveraging on innovative products and services

Value creation potential

Corporate

UCI CAGR 02-06 6.8%

  • Private Banking: organic growth through customer attraction and improvedpenetration of existing customers

Low potential

  • NEW EUROPE BANKING: maintain the leadership in New Europe for risk-adjusted profitability, exploiting the growth potential arising from EU convergence

Cannot add value

Can add value

  • ASSET MANAGEMENT: further strengthening asset management core capability focussing on innovation, ALM and performance

Non-natural owner

Natural owner

Relative capacity to extract value


Plan s growth rates and efficiency indicators outperforming the system

PLAN’S GROWTH RATES AND EFFICIENCY INDICATORS OUTPERFORMING THE SYSTEM

REVENUE GROWTH

Euro mln

COST/INCOME, %

CAGR 02-06

2002

2002

2006

10,284

8.6

54.6

50

GROUP

GROUP

UCI Italian divisions excl. Pioneer

UCI Italian divisions excl. Pioneer

7,999

8.9

52.7

46

n.m.

4.8

64.2

60

Italian system

Italian system

4,728

8.0

63.6

56

Retail Division

Retail Division

2,734

9.9

32.6

29

Corporate Division

Corporate Division

1,072

10.2

61.1

58

Private & AM Division

Private & AM Division

1,830

8.8

51.6

45

New Europe Division

New Europe Division


Agenda3

AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Business model

Strategic guidelines and operating targets

Risk management and capital allocation

Group targets


2003 2006 strategic plan alessandro profumo ceo

GROWTH COUPLED WITH RIGOROUS RISK MANAGEMENT POLICIES... BASEL II COMPLIANCE GENERATING NEW OPPORTUNITIES FOR THE GROUP

BIS II is a great opportunity for UCI: achieving a full compliance will represent the fulfilment of the ongoing development process aimed at further improving our Risk Management tools; this will result in:

  • An effective control of the whole Group real risk profile (integrated control of all the categories of risks)

  • A more efficient and dynamic capital management aimed at value creation

Beside the three BIS II macro-categories of risks, UCI has identified a fourth one: Business risks; UCI is dealing with all of them through the internal development of evaluation models currently under implementation across each Group company

BIS II Risk Categories …

… the fourth we have identified

  • Credit risks

  • Market risks

  • Operational risks

+

  • Business risks

UCI aims at adopting the advanced evaluation models required by BIS II regulations for Credit (IRB advanced) and Operational risks (AMA)


A powerful credit risk measurement methodology is already in place

Analysis components

Differentiation

Qualitative/ Industry data

Registry data

Financial data

Behavioural monitoring

By

Product

By

Country

Business Segment

LARGE CORPORATE

XXX

XXX

X

MID CORP. & SMEs

X

XXX

XX

XX

SMALL BUSINESS

XX

XX

X

XXX

RETAIL

XXX

X

X

XXX

BANKS

XXX

XX

X

GOVERNEMENTS2

XXX

XX

A POWERFUL CREDIT RISK MEASUREMENT METHODOLOGY IS ALREADY IN PLACE...

CREDIT RISKS: THE CURRENT SITUATION …

  • Dedicated Credit Risk Management units within the parent company and each separate legal entity, responsible for the development and the implementation of credit risk tools, as well as for monitoring and reporting the overall risk within each portfolio

  • Internal RATING SYSTEM1 differentiated by business segment and – if necessary - by geographic area and type of product already available and in use in the origination and monitoring processes in Italy; high levels of BIS II compliance

… AND PROBABILITY OF DEFAULT ASSOCIATED TO INTERNAL RATING CLASSES

UCI’s RATING SYSTEM …

UCI median PD: 0.77%

UCI avg. PD: 1.61%

LEGENDA:

XXX= Very important XX= Fairly important X= Useful, but not very important

  • VaR: Portfolio model calculating VaR for credit risk and determining economic capital absorption both at portfolio and at single borrower level already in place. EL (Expected Loss) and UL (Unexpected Loss) measures used to determine EVA and RARORAC

1 Based on estimated PDs (Propabilities of Default)

2 Including “Government Entities and Public Institutions”

3 Calculated on aggregated loans (including loans to customers and banks) granted by the Parent Company, the 3 Segment Banks and UBM; New Europe Banks not included


2003 2006 strategic plan alessandro profumo ceo

90 bp

69 bp

Group total

... AND WILL BE ENHANCED THANKS TO IMPLEMENTATION OF CLEAR PROCEDURES/ PROCESSES AND MORE PERVASIVE CREDIT RISK CULTURE

… AND THE NEXT STEPS …

… AIMED AT:

  • Focus on procedures/processes, IT systems and organisational sides:

    • Full implementation of credit risk tools (RATING, VAR) within processes: loan origination, renewal, and pricing, provisioning policies, bad loan recovery, reporting, budgeting

    • Upgrading of IT systems up to full BIS compliance in terms of quality and level of provided details

  • EAD (Exposure at Default) and LGD (Loss Given Default) available within each Group company with an high level of detail (i.e.: cross-breakdowns by sector, geography, type of product, ecc.)

  • Creating a more pervasive credit risk culture across the Group, consequently increasing value creation

  • Being eligible to use the Advanced Approach by 2007

  • Decreasing cost of risk in New Europe

  • Improve the risk/reward profile in Italy

Net Provisions /

Net customer loans

2002

2006

51 bp

54 bp

Aggr. 3 Italian banks 1

189 bp

158 bp

New Europe Division 1

1 2002 data are obtained deducting from stated figure extraordinary provisions


2003 2006 strategic plan alessandro profumo ceo

ALL OTHER RISK CURRENTLY STRICTLY MONITORED; COMMITMENT TO FURTHER DEVELOP RISK MANAGEMENT TOOLS AND ACHIEVE FULL INTEGRATION OF THE DIFFERENT RISKS

OTHER RISKS: CURRENT SITUATION …

… AND NEXT STEPS

  • Internal advanced model1 for the evaluation of Market Risks arising from the “Trading book” under implementation across the whole Group

  • Ongoing validation process by Bank of Italy for UBM (to be completed by the end of 2003)

  • Full implementation of the model across the whole Group with extension to the “Banking” books

  • Validation of the model by Central Banks for all the Group companies

MARKET RISKS:

  • Operational Risk Management team set up at a Group level

  • Ongoing development of an Operational Risk Management framework in line with BIS II advanced models (AMA)

  • Full implementation by year end 2006 of an Operational Risk Management system in line with BIS II advanced models

OPERATIONAL RISKS:

  • Earning at Risk approach to analyse the volatility of some components (typically Net Commissions) of net non-interest income of some Group companies (i.e. Asset Gatherers)

  • Extension of the model to all net non-interest income components of all Group companies

BUSINESS RISKS:

INTEGRATION OF RISKS

  • Ongoing creation of a risk integration model based on a top-down2 approach

  • Development of a risk integration model based on a bottom-up approach3

  • Evaluation of correlations among the different risk categories in order to exploit the potential benefits of diversification

1 Model developed by UBM Risk Management Department

2 Based, if available, on measurements of economic capital; otherwise based on estimates arising from benchmarking

3 Integration of the different risk measurement arising from the specific risk dedicated advanced models


2003 2006 strategic plan alessandro profumo ceo

DIVERSIFICATION OF BUSINESS PORTFOLIO GUARANTEES STRONG GROWTH, LOW EARNINGS VOLATILITY AND ECONOMIC CAPITAL SAVING

  • The market already implies for UCI a benefit coming from the diversification of the business portfolio, visible in:

    • A lower Beta 1,1 vs. 1,5 (competitors’ average)

    • A lower implied volatility30% vs. 39% (competitors’ average)

    • A lower cost of equity9,08% vs. 11,10% (competitors’ average)

  • Preliminary results of the internal model for integration of risks1 foresee Economic Capital saving in a range from 4,1% to 7,2%

1 Based on the analysis of correlation between Economic Capital needed for credit and market risks taking into account 80%

of the Group total consolidated assets


2003 2006 strategic plan alessandro profumo ceo

CAPITAL ALLOCATION STRICTLY LINKED TO GROWTH TARGETS AND RISKS OF EACH DIVISIONECONOMIC CAPITAL SAVING THANKS TO BIS II STARTING FROM 2007

14,100 mln(1)

CAGR: 11.3%

6.8%

6.0%

10.3%

9,207 mln

2002 Core Tier 1 ratio: 7.2%

2.9%

Corporate Centre

Private & AM

8.1%

31.0%

New Europe

8.6%

AVERAGE PAY-OUT RATIO AROUND 65% TO STABILISE CORE TIER 1 RATIO AT 2002 LEVEL

Retail

30.6%

45.8%

Corporate

49.8%

2002

2006

(1) Capital available for allocation. The capital allocated to New Europe banks is net of the excess capital attributable to

minority shareholders, which is transferred to Corporate Centre for allocation to other initiatives


Agenda4

AGENDA

2003-2006 economic scenario

UCI 3 years strategic plan

Business model

Strategic guidelines and operating targets

Risk management and capital allocation

Group targets


2003 2006 strategic plan alessandro profumo ceo

10,284

8.6

54.6

50

Revenue growth(mln)

Cost/Income, %

UCI Italian divisions excl. Pioneer

UCI Italian divisions excl. Pioneer

52.7

46

7,999

8.9

64.2

60

n.m.

4.8

Italian system

Italian system

4,670

11.5

Op. Income growth(mln)

UCI Italian divisions excl. Pioneer

3,783

12.4

6.9

12

RARORAC, %

n.m.

7.7

Italian system

0.29

14.0

70,992

4,607

70,565

5,241

EPS

Employees (1)

Branches(1)

SUSTAINED EPS GROWTH, SOUND EFFICIENCY RATIOS AND HIGH PROFITABILITY, WITH SIGNIFICANT VALUE CREATION FOR SHAREHOLDERS

CAGR 02-06

2006

2002

2002

7.2

6.8-7.2

Core Tier 1 ratio, %

17.2

21

ROE, %

DYNAMIC CAPITAL MANAGEMENT, ALLOWING FLEXIBILITY IN EARNINGS DISTRIBUTION AND LEAVING FREEDOM TO PICK POTENTIAL MARKET OPPORTUNITIES

(1) KFS at 100%


Summing up

  • The plan is built in a conservative scenario...

  • ... but the current organisational model represents a strong advantage that UCI will leverage to reinforce its competitive positioning

  • Growth will be pursued through organic growth and with a low volatility, thanks to our well diversified business portfolio

  • Reduction of cost/income ratio thanks to efficiency improvements in all business divisions and new initiatives reaching break-even

  • Strong cash flow and capital generation, with significant value creation for shareholders

SUMMING UP


2003 2006 plan renewed business lifecycle and acceleration of growth path1

g

03-06 plan

0

2002

2006

t

  • S3 CREATES NEW OPPORTUNITIES FOR GROWTH

  • PLAN DELIVERING DOUBLE DIGIT EPS GROWTH AND PREPARING PATH FOR ACCELERATED GROWTH

2003-2006 PLAN: RENEWED BUSINESS LIFECYCLE AND ACCELERATION OF GROWTH PATH


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