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UniCredit Group Delivering growth in a riskier world. Alessandro Profumo Chief Executive Officer. Merrill Lynch Banking and Insurance CEO Conference London, 3 rd October 2007. UNICREDIT POSITIONING AND STRATEGY SUPPORT VALUE CREATION ALSO IN THE CHANGED MARKET SCENARIO. "IN THE SPOT" TODAY.

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Unicredit group delivering growth in a riskier world

UniCredit GroupDelivering growth in a riskier world

Alessandro ProfumoChief Executive Officer

Merrill Lynch Banking and Insurance CEO Conference

London, 3rd October 2007


Unicredit positioning and strategy support value creation also in the changed market scenario

UNICREDIT POSITIONING AND STRATEGY SUPPORT VALUE CREATION ALSO IN THE CHANGED MARKET SCENARIO

"IN THE SPOT" TODAY

UNICREDIT OPPORTUNITIES

  • WIDE EUROPEAN FRANCHISE

    • Banking operations in 23 countries(1) in four core markets

    • More than ~40 million customers, ~9,500 branches

  • LIQUIDITY

    • Well balanced asset & liability structure

    • Sound liquidity position thanks to active management

  • DIVERSIFICATION BY BUSINESS AND GEOGRAPHY

    • All Divisions below 1/3 contribution to operating profit

    • Italy 47% of consolidated revenues, Germany & Austria27%,CEE 18%, other regions 8%

  • CREDIT MARKETS

    • Negligible Exposure To Us Sub-Prime & Conduits

    • High quality LBO portfolios, with no material credit defaults or loan losses

    • Diversified UCI MIB revenue sources, mitigating financial turmoil impacts

  • GROWTH & RESTRUCTURING

    • Clear growth pattern in CEE Region

    • Solid revenue base in Italy, with significant potential from Capitalia integration

    • Germany and Austria with further restructuring potential

(1) Including ATF


Agenda

Credit market

Growth opportunities

AGENDA

“In the spot today”

Liquidity


Well balanced consolidated asset liability structure

WELL BALANCED CONSOLIDATED ASSET & LIABILITY STRUCTURE

Total Liabilities 869 bn

Total Assets 869 bn

Other

Other

26

32

224

130

Trading liabilities

Trading assets

Customer Loans (454 bn)

= 150%

BANKING BOOK

708 bn

Customer Deposits (303 bn)

618 bn

48

Regulatory Capital

25

Fixed assets

139

  • Financial Equilibrium ratio(1): from 15.3% in 2003 to 56.4% as of June 07

M/L term liabilities

M/L term assets

254

303

Due to customers

  • Former Bank of Italy Rule 2(2)

+31.9 bn

339

S/T liabilities

S/T assets

218

30 June 2007

Strong discipline provided by internal rule:

Liquidity ratio limit above 0.90

(1) Medium-long term funding, 139 mln (above 1 year - capital instruments and funds not included) / Medium to long term commercial Banking book assets (254 mln)

(2) Ex Bank of Italy structural liquidity Rule 2 aimed to ensure a structural equilibrium between assets and liabilities by a specific weighting system


Clear funding and liquidity management based on three solid pillars

CLEAR FUNDING AND LIQUIDITY MANAGEMENT BASED ON THREE SOLID PILLARS

  • Extensive sharing of liquidity between all regional liquidity centres … cash pooling

  • Trading with Market Place, UCI’s digitalized trading and accounting platform

    • Active since March 07, live in all Italian entities, HVB, BA-CA, Pekao, Capitalia

  • Third party funding needs reduced by a further 3.2 bn in 2007

CASH POOLING

  • Diversification of geography and instruments for both S/T and M/L term

    • Depos, CD’s, CP, Private Placements, Pfandbriefe, Retail

    • Leveraging on the historical funding reach of HVB & BA-CA

  • Centralised co-ordination of pricing

    • Minimise cost of funds

    • Avoid internal competition

FUNDING DIVERSIFICATION

  • Maintaining eligible and marketable collateral

    • >56 bn of collateral available within 1 month

  • Increasing access to secured funding with new asset classes

    • 200 mln of new collateral through the Italian “ABACO” initiative, rising to 2.2 bn by YE

    • Projects in place to monetise existing assets through ECB and other Central Bank facilities

COLLATERALISATION


Unicredit strong liquidity position not affected by august and september market crisis

2 Apr

16 Apr

30 Apr

14 May

28 May

11 Jun

25 Jun

9 Jul

23 Jul

6 Aug

20 Aug

3 Sep

24 Sep

UNICREDIT STRONG LIQUIDITY POSITION NOT AFFECTED BY AUGUST AND SEPTEMBER MARKET CRISIS

UniCredit Group 1 month available liquidity(1)

Index

figure

  • Strong increase of intra-group liquidity flows in August (+61.2% m/m), reducing need to access the market

  • Money Market prices in the Internal liquidity market always below Euribor

140

100

60

Sound and comfortable positive liquidity gap, even after August 07 crisis

(1) Calculated as: (sum of net liquidity inflows in the timeframe) + (securities eligible for discount to the ECB, marketable repoable securities)


Agenda1

AGENDA

“In the spot today”

Liquidity

Credit market

Growth opportunities


Negligible exposure to us sub prime

NEGLIGIBLE EXPOSURE TO US SUB-PRIME…

  • Exposure to US sub-primes:

    • RMBS collateralized by US sub-prime mortgages (mainly vintage, 2002-2003), still AAA rated

    • CDO with sub-prime collateral: 90% still investment grade, 70% AA or better at the end of August

    • Retained interest held by Pioneer

(1)

Exposure equivalent to 0.8% total regulatory capital(2)

RMBS: Residential Mortgage Backed Securities

CDO: Collateralized Debt Obligations

(1) Off balance items include conduits with sub-prime exposure and investments in SIVs

(2) On Unicredit reported total regulatory capital as of June 07


And to conduit business

… AND TO CONDUIT BUSINESS

Bavaria TRR exposure, Euro bn

0

(1)

  • Very quick response to market turmoil by reducing Bavaria TRR assets from 14 to 5.8 Euro bn

  • Extremely low exposure to 3rd parties conduits: total liquidity lines provided by HVB/BA-CA ~0.55 bn

(1) Total Rate of Return Conduit


High quality leverage buy out business

HIGH QUALITY LEVERAGE BUY-OUT BUSINESS

  • Two high quality LBO portfolios, mainly European deals; no credit concerns

UNDERWRITING PORTFOLIO

  • ~5.0 eur bn, 12 deals

  • all strong credit stories

  • 1 jumbo LBO (Alliance Boots, 2 eur bn exposure), high quality credit story performing very well

Europe

95%

USA: 5%

HOLD PORTFOLIO

  • ~5.5 eur bn, 160 deals

  • 95% senior

  • Well performing, highly diversified

Europe

83%

USA: 12%

Asia: 5%


Markets and investment banking division a well balanced business portfolio

MARKETS AND INVESTMENT BANKING DIVISION: A WELL BALANCED BUSINESS PORTFOLIO

BREAKDOWN OF 2006

OPERATING REVENUES

REVENUES BY BUSINESS LINES 2006

(total return view)

Financing 61%

Investment

Banking

32%

Origination & Advisory 39%

Structured

Derivatives 38%

Markets

68%

Equities 20%

Structured Credit 12%

FICC(1) 30%

Strong diversification of revenue sources mitigating the impact of the credit market turmoil

(1) Fixed Income, Currencies, Commodities


Agenda2

Liquidity

Credit market

AGENDA

“In the spot today”

Growth opportunities


Unicredit business portfolio diversification growth and restructuring opportunities

PB&AM 12%

MIB 17%

CEE 20%

Corporate

27%

Retail 24%

UNICREDIT BUSINESS PORTFOLIO: DIVERSIFICATION, GROWTH AND RESTRUCTURING OPPORTUNITIES

OPERATING PROFIT BREAKDOWN

  • CEE: the leading franchise in a high-growth area

BY DIVISION

  • MIB: a strong regional player with significant diversification

  • RETAIL: a successful service model and a well-rooted presence in the core countries

  • CORPORATE: a network leveraging on group wide product factories

NOTE: Year-end 2006 data, referred to UniCredit + Capitalia + ATF +USB Groups (combined pro-forma, before Corporate Center and elisions) Source: UniCredit, Capitalia, ATF, USB 2006 data

  • CAPITALIA: additional opportunities from integration


Cee unique combination of strong growth potential and improving risk profile

7.4

6.0

4.0

2.1

Avg. 07-09e

CEE-16

EU-12

ASIA

LATAM

CEE: UNIQUE COMBINATION OF STRONG GROWTH POTENTIAL AND IMPROVING RISK PROFILE

CEE 20%

Real GDP Growth (%)1

  • Stronger economic growth in CEE vs EU …

    • ∆ avg. real GDP growth 07-09e ~4 pp vs. EU

  • … with improved risk profile

    • country rating (weighted for GDP6) > BBB- ~78% in May 2007(~+40 pp in the last 3 years)

Banking penetrations

Cagr

06-09

(Loans+Deposits)/ GDP in 2006

Euro bn

214%

  • Under penetrated banking sector

Loans

30%

Deposits

23%

  • High volume growth rates expected

77%2

28%

AuM4

19%

Net Profits5

EMU3

CEE

(1) CEE-16: BiH, BG, HR, CZ, HU, EE, LV, LT, PL, RO, RU, SK, SI, SRB, TK, UA; Source EIU (economist intelligence unit) for Asia and Latam

(4) Calculated for CEE 10, including Poland, Czech Rep., Hungary, Slovakia, Slovenia, Croatia, Bulgaria, Romania, Turkey and Russia

(2) Total loans/deposits include general gov.t, non-financial corporations, households and when available non-profit institutions serving households (NPISHs) and non-monetary financial institutions (Non-MFIs); CEE: new EU members, Croatia, Turkey, Bosnia, Serbia, Russia and Ukraine

(5) Net Profits (Before Tax & Extr. Items) are calculated for CEE 16

(6) For May 2007 S&P rates - GDP as year end ‘06; For May 2004 S&P rates - GDP as year end ‘03

(3) European Monetary Union

Sources: Central Banks and UniCredit Group New Europe Research Network


Unicredit s extensive network delivered excellent performance

+24.1%

44.7

13.5

10.0

8.5

5.9

5.5

4.9

4.4

2.5

UNICREDIT’S EXTENSIVE NETWORK DELIVERED EXCELLENT PERFORMANCE…

CEE 20%

UCI’s Operating profit, breakdown by country* (1H07)

UCI’s Operating profit in CEE Region, mln

y/y % ch.

+21.6

+27.2

1,424

1,143

+17.5

+52.3

+2.6

+29.4

+25.0

+12.6

1H 06

1H 07

+64.7

  • Strong top line growth delivered across all countries, drivenby volume expansion, careful pricing and high standard services to customers

  • Improved efficiency (C/I ratio to 48.2% -3.7 pp y/y) while delivering organic growth

P&L figures at current FX, % change at constant FX

Weight in % on total

(*) Balance due to Serbia, Slovenia, Baltic Countries & Profit Center Vienna


With further opportunities leveraging on group positioning and market growth potential

… WITH FURTHER OPPORTUNITIES LEVERAGING ON GROUP POSITIONING AND MARKET GROWTH POTENTIAL

CEE 20%

MARKET POTENTIAL1

UNICREDIT STRATEGY

KEY ACTIONS

Where n°1……ride the market growth consolidating market shares

  • Increase product penetration leveraging on Group’s product factories

  • Optimize branch network after merger and integration activities

+11.4%

POLAND

BULGARIA

CROATIA

BOSNIA H.

In high-growth markets with solid presence… …aggressive organic growth

+20.9%

  • Significant branch opening plan: ~900 new branches in 3 years

  • Increase Retail customer reach

ROMANIA

TURKEY

UKRAINE

RUSSIA

KAZAKH.

In other countries of presence… …selective organic growth

+11.3%

CZECH R.

  • Selective branch opening

  • Strengthen retail positioning

SERBIA

SLOVAKIA

SLOVENIA

HUNGARY

BALTICS

(1) Revenues CAGR 2006-2009 (local currency) weighted for UniCredit revenues in the considered countries in 1H07 – Kazakhstan not included


Unicredit group delivering growth in a riskier world

MIB

17%

MIB: A LEADING REGIONAL PLAYER WITH A CLEAR DIVISIONAL MODEL OFFERING SIGNIFICANT GROWTH OPPORTUNITIES

Key growth drivers:

  • Enhancing coverage, origination and advisory capabilities

COVERAGE ORIGINATION & ADVISORY

  • Increase share of wallet of existing clients in Austria, Germany and Italy

  • Leverage on the ability to provide Group’s products to an enlarged client base in Austria/Germany, Italy and CEE

  • Significant cross selling opportunities on the Group’s international platform

CROSS SELLING

  • Group’s large lender position and strong CEE M&A advisory as a door-opener to clients in the core markets

  • Cross selling potential of the global platform: FX, structured derivatives, structured and project finance

  • Strong CEE network with optimal positioning in the most attractive markets

CEE POSITIONING

  • Double digit growth rates in CEE with

Poland: +10% CAGR 2006-2011(1)

Russia: +15% CAGR 2006-2011(2)

50% of CEE revenue pool

  • Divisionalisation in CEE allows to roll out the international product platform via the local network

(1) As for System’s Wholesale Banking revenues

(2) As for System’s Investment Banking revenues


Retail italy fully implemented divisional service model supporting growth

+7.5%

-5 p.p.

RETAIL ITALY: FULLY IMPLEMENTED DIVISIONAL SERVICE MODEL SUPPORTING GROWTH

RETAIL

24%

Revenues, mln

  • Customer base enlargement:

  • 100,000 new customers in Jan-Sept 07

2,542

  • 131,000 net flow of new C/A in Jan-Sept 07

2,363

  • Customer satisfaction: continuous improvement

  • TRIM Index: UniCredit Banca 61 vs 51 of top 5 peers

  • Market share rising in key products/ segments:

  • Consumer Financing (new production)

  • Household mortgages (new production)

1H 06

1H 07

  • Small business short term loans

C/I, %

  • Cost/income target achieved one year ahead of plan

  • FTE rightsizing

    • -369 FTE since Dec05 (to 22,796 in 1H07)(1)

60

55

  • Strong productivity increases thanks to higher automation/online migration

    • Branch transactions -10% in 2006, but total bank transactions increased by 12%

    • 1,600 deposit-ATM installed by July 07: 38% of cash deposits migrated

    • 1.6 mln active online customers at June07 (+33% y/y)

FY 06

1H 07

Accelerating the current successful growth

(1) Excluding seasonal workers


Capitalia strong opportunities in both revenues and costs

CAPITALIA: STRONG OPPORTUNITIES IN BOTH REVENUES AND COSTS

RETAIL

24%

Alignment to UniCredit’s best practice

PRODUCT PENETRATION

(1)

(2)

Increase productivity:

  • Externalization of back office

  • Wider utilization of direct channels

(2)

BRANCH SERVICE MODEL(2)

(2)

Integration started at full speed:

  • Agreement with Unions on rightsizing signed

  • New branches plan

  • First Retail joint initiatives (e.g. ATMs sharing) and product development

  • Common brand strategy defined and announced

INTEGRATION

Preliminary benchmarking fully supports announced cost and revenue synergies

(1) Referred to Personal Banking

(2) Index figures, UniCredit Banca=100. For Capitalia, Min and Max between Banca di Roma, Banco di Sicilia and BIPOP


Germany and austria paving the way for future growth

-8.7%

GERMANY AND AUSTRIA: PAVING THE WAY FOR FUTURE GROWTH

RETAIL

24%

Operating expenses

C/I, %

-15 p.p.

91.9

1,558

76.9%

1,422

-1.3%

711

701

  • COST MANAGEMENT ACTIONS

  • FTE rightsizing

  • Network restructuring, through business model revision and tight direct costs management

  • Strong control on both direct and indirect costs

FY 05

FY 06

1H 06

1H 07

FY 05

1H 07

C/I, %

Operating expenses

91.5%

-17.9 p.p.

1,147

-14.7%

-12.6%

73.6%

538

978

470

FY 05

FY 06

1H 06

1H 07

FY 05

1H 07

  • Improvement of cross selling (i.e. 131,000 new “Willkommenskonto” in Germany from Jul-06 launch)

  • Focus on Affluent customers long term investments and Small Business entrepreneurs assets

  • Set up of UniCredit Consumer Financing Deutschland

  • Growth in Mortgage penetration in line with branch share in Austria

OPPORTUNITIES TO BOOST REVENUES


Corporate business expansion in a sound enviroment

CORPORATE

27%

-175bp

-5 bp

+6.1%

CORPORATE: BUSINESS EXPANSION IN A SOUND ENVIROMENT

  • Growth of corporate loans (+10.2% 1H07/1H06) and strong development of leasing (revenues at ~169 mln, +15% 1H07/1H06)

Revenues, mln

2,530

2,385

  • Good increase of deposits (+9.8% 1H07/1H06)

  • Increased cross selling of fee based products (derivatives, securities services) as main growth drivers (net fees at 409 mln, +15%)

1H 06

1H 07

C/I Ratio, %

Cost of risk, bp

53

33.3%

31.5%

48

  • Strict cost control

  • Improved quality of the loan portfolio

1H 06

1H 07

FY 06

1H 07


Opportunities arising from network strengthening and leverage on product factories

CORPORATE

27%

+33.4%

OPPORTUNITIES ARISING FROM NETWORK STRENGTHENING AND LEVERAGE ON PRODUCT FACTORIES

COMMERCIAL NETWORKS

  • Stronger positioning (~14% mkt. share(1)) after merger with Capitalia in a market with an attractive outlook …

  • … particularly in very interesting target regions (Lombardy, Tuscany and Lazio)

Aggressive expansion plan in selected regions: 5 new locations already opened

PRODUCT FACTORIES

Leasing – New Business, bn

  • LEASING:

  • N. 1 European Leasing Group(2)after integration with Capitalia

  • Strong business momentum

7.4

5.6

Jan-Aug06

Jan-Aug07

GLOBAL FINANCIAL SERVICES: focus on cash management, trade finance and international payments, exploiting the wide Pan-European network

(1) As for total corporate customer loans

(2) As for total new business, ~12 bn

(3) As for outstanding loans


Capitalia further relevant restructuring opportunities

CAPITALIA: FURTHER RELEVANT RESTRUCTURING OPPORTUNITIES

  • Union agreement signed well ahead of plan

  • Estimated staff rightsizing: 5,000 people

STAFF COSTS

  • Capitalia migration by end of 2008 to UniCredit’s EUROSIG(1)

  • Consolidation of Capitalia IT functions into UGIS(2)

  • Integration of back office functions, also leveraging on “near-shoring” in Romania

  • Consolidation of procurement activities, extensive use of e-auctions

  • Adoption of UniCredit divisional model with light regional HQs

  • Branch network rationalization in Italy and foreign countries

  • Creation of single product factories and alignment to best performers

ITBACK OFFICECENTRAL FUNCTIONS

Clear cost synergies from rationalization and alignment to best practices

(1) The single IT platform for Commercial Banking

(2) UniCredit Group Information System


Unicredit group delivering growth in a riskier world

A VALUABLE SET OF STRATEGIC OPTIONS OFFERING BOTH GROWTH AND RESTRUCTURING OPPORTUNITIES

CONCLUSIONS


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