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UNICREDITO ITALIANO

UNICREDITO ITALIANO. Alessandro Profumo - CEO. MERRILL LYNCH BANKING & INSURANCE CONFERENCE. “BUILDING COMPETITIVE ADVANTAGE IN A VOLATILE WORLD”. London - October 10 th , 2001. Agenda. Group Highlights Leveraging on UCI’s Major Strengths: A Divisional Overview

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UNICREDITO ITALIANO

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  1. UNICREDITO ITALIANO Alessandro Profumo - CEO MERRILL LYNCH BANKING & INSURANCE CONFERENCE “BUILDING COMPETITIVE ADVANTAGE IN A VOLATILE WORLD” London - October 10th, 2001

  2. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  3. Good revenue mix and capability to manage different revenue sources Excellent C/I Ratio and tight cost control Good asset quality and strong credit risk management Risk-Adjusted Performance Measurement methodology IN THE NEW SCENARIO UCI CAN STILL LEVERAGE ON ITS MAJOR STRENGHTS

  4. OUR WELL BALANCED MIX OF INCOME SOURCES GIVES STABILITY TO TOTAL REVENUES (Euro mln) TOTAL REVENUES DIVISIONAL BREAKDOWN Good geographical revenue distribution: Italy, New Europe, USA 4,948* Interest Margin 54% • Balanced mix of InterestMargin and Non Interest Income both for Italian Banking and New Europe Banking, thanks to: • Wide product range to fully meet customers’ needs in different environments and financial market conditions • Retail focused networks spread all over the countries where we operate 3,754 Non Interest Income 46% Italian Banking 1H01 Interest Margin 64% New Europe Banking 709 Non Interest Income 36% 1H01 Wholesale Banking 592 1H01 * Balance due to Corporate Centre, Other Group companies and elisions

  5. THE REVENUE SUBSTITUTION CAPABILITIES WE HAVE DEMONSTRATED IN 1H01... (Euro mln) TOTAL NON INTEREST INCOME BREAKDOWN Despite the financial turmoil, affecting AM commissions and fees related to securities in custody, UCI has achieved +1.8% Non Interest Income growth, thanks to: +1.8% 2,431 • +2.1% increase in commissions from insurance products • +13.5% increase from cash management services and loans granted -7.5% 1,621 Net commissions • +34.2% increase in income from financial transactions, mainly due to CorporateLab, accounting for around Euro 190 mln (Corporate derivatives volume up 59.3% vs 1H00 to Euro 8.8 bn) +34.2% 459 Trading profits +19.8% Other income 351 1H01

  6. ... WILL HELP US TO CONTRAST THE IMPACT OF THE WTC SHOCK SEPTEMBER FIRST EVIDENCE SHOWS INFLOWS OF CAPITAL GUARANTEED PRODUCTS AND A STILL POSITIVE CONTRIBUTION OF INVESTMENT BANKING REVENUES • Euro 1,073 mln Net Inflows of Capital Guaranteed products in September • Euro 27.6 mln Total Revenues in September (as of 28.09) vs a monthly average of Euro 31.9 mln in the first 8 months of 2001 PROVED RESILIENCE TO MARKET STRESS • Euro 12.1 mln Revenues from CorporateLab in September (as of 28.09), with an increasing demand of hedging products • Euro 3.7 mln Net Revenues in September (as of 28.09)

  7. C/I RATIO AT EXCELLENCE LEVEL AND ONGOING COST-SAVING ACTIONS UCI’s excellent C/I provides us with a lower Net Profit sensitivity to a potential slowdown in revenue growth 1H 2001 C/I 52.6% • Italian Banks: • Key projects on restructuring the network well under way with lower investments compared to budget • Pioneer: • Turnaround in USA going on faster than planned • Costs lower than budgeted, especially on advertising 1.5% Develop. projects 0.7% New Initiatives 4.3% • New Initiatives: • Future investments strictly related to economic results Acquisitions • Italian Banking: • Structural C/I at 46.0% • Ongoing Cost Excellence project: impact on 1H01 C/I -0.4% Structural C/I ratio 46.1% • New Europe Banking: • Strict cost control policies: further improvements expected in C/I Ratio (54.4% in H01) through staff reduction and additional savings on other operating costs 1H01

  8. GOOD ASSET QUALITY THROUGH SELECTIVE LOAN GROWTH AND STRONG INTERNAL CREDIT RISK MANAGEMENT UCI TOTAL CUSTOMER LOANS : Euro 119.5 bn (as at 30.6.2001) 1H01 Italian Banking Credit Risk Analysis Other (1) % GROWTH (1HO1 ON DEC 00) DEFAULT LIKELIHOOD(2) WEIGHT ON LOAN PORTFOLIO New Europe 9.8% 8.6% LOW(3) 51.1% 12.8 37.0% MEDIUM(3) - 0.3 HIGH(3) 11.9% 0.1 Italian Banking 100% 6.0 Total portfolio 81.6% ASSET QUALITY INDICATORS: Italian Banking New Europe Other Group Total 1.5% 1.5% 0.6% 1.5% Net NPLs/Net Loans: 44.5% 86.4% 67.7% 58.1% Coverage on Gross NPLs: (1) Mainly foreign branches, Locat, Fiditalia and UniCredit Factoring. (2) Based on internal calculations, taking into account historical trends of NPL, doubtful loans and watch-list loans, sector historical trends and expectations (3) See Annexes for details

  9. THE RISK-ADJUSTED PERFORMANCE MEASUREMENT METHODOLOGY ALLOWS US TO OPTIMISE PLANNING, CONTROLLING AND CAPITAL ALLOCATION PROCESSES VALUE CREATION* IS UCI’s KEY MEASURE TO ASSESS DIVISIONS’ PROFITABILITY ... ... AND THE MAIN DRIVER TO: • Define the business portfolio to achieve targets under the condition of risk/earning profile optimisation VALUE CREATION 2000 VALUE CREATION 1H2001 MARGINAL RARORAC 1H2001 % (Euro mln) Group total 723 417 16.0 • Define performance goals and allocate capital to Divisions, Business Units and single Customer Segments 1,081 828 22.3 Italian banking 212 103 82.6 Wholesale banking 48 67 15.8 New Europe banking • Select further investments depending on their value generation -34 -31 N.s. New Initiatives * See Annex for VALUE CREATION AND RARORAC definition

  10. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  11. UCI’s DIVISIONS MAJOR STRENGTHS Italian Banking Leading position in efficiency and sales effectiveness to exploit all the opportunities in a more difficult market scenario Wholesale Banking Efficient risk management for customers (KILOVAR, Capital Guaranteed products) and for the Group (limited VAR, resilience to market stress) Countercyclical revenue sources (derivatives for corporate liability management) • New Europe Banking • Further restructuring potential to support value creation through: • Efficiency gains (Net Operating Income per employee from Euro 7,520 in 1H00 to Euro 10,093 in 1H01, +34%) • Improved commercial effectiveness (Customer Deposits and Loans per employee from Euro 752,000 in 1H00 to Euro 910,000 in 1H01, +21%)

  12. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  13. ITALIAN BANKING DIVISION’S BUSINESS MIX IS WELL DIVERSIFIED AND WITH A PORTFOLIO EFFECT THAT STABILISES REVENUES % of Total Division Revenues Profitability improvement potential Market share growth potential Synergies with other segments Portfolio “effect” Share of yearly sales on total revenues Sensitivity to interest rates Existing customers New clients Segment Corporate 23.9% Private Small business 15.5% Affluent Mass market 33.8% Corporate Small business Private Affluent 19.2% Private 7.6% Corporate

  14. ALL BANKS ARE PROGRESSIVELY ADOPTING ADVANCED SEGMENT-BASED DELIVERY MODELS LEVERAGING ON CENTRALISED PLATFORMS MATRIX OF ORGANISATIONAL REDESIGN Matrix + specialised branches Full divisionalisation Matrix Credit CRT Cariverona 6 months 12 months 6 months Rolo Cassamarca • After three years of hard integration higher efficiency from unification (1998-2001: -265 employees, with 18% cost savings) and enhancement of IT systems (2,800 branches and 31,500 employees working on the same system) • Centralised back-office (more than 300 employees trained to commercial roles)

  15. BUSINESS DIVERSIFICATION AND SALES EFFECTIVENESS IN THE SEGMENTS ALLOW TO OFFSET NEGATIVE MARKET CONDITIONS (Euro mln) 1H01 OVER 1H00 INCREASE/DECREASE (FIGURES OF 7 COMMERCIAL BANKS+ BMC) Total revenues 1H00 3,424 Effect of financial markets turmoil on asset management commissions Market effect on asset management -187 Combined effect of increase in volumes (loans) and higher spreads (deposits) Interest income +242 Commissions on Bancassurance Good increase in premiums written +11 Income from risk management services Excellent trend in notional amounts of risks covered: + 59% on 1H01 +48 Commissions on transactional services Increased number of transactions +48 Other* +26 Total revenues 1H01 3,612 * including dividends

  16. UCI HAS STILL POSITIVE CUMULATED NET MUTUAL FUND INFLOWS IN 2001 AND PLAYS A LEADING ROLE IN BANCASSURANCE INCREASE OF MARKET SHARE ON MUTUAL FUNDS STOCK FROM 13.34% (DEC 00) TO 13.57% (SEPT 01) BANCASSURANCE • Total New Premiums up to September: Euro 2,978 mln, +17.2%yoy of which: • Euro 2,813 mln single premiums • Euro 165 mln annual 2001 cumulated (Jan-Sept) and September flows of major competitors (Euro mln) 344 UCI -1,215 1,216 Mediolanum 74 -218 San Paolo - IMI • Annual/Total New Premiums written: 5.5% -1,271 -5,242 IntesaBci -1,812 296 • Total New Premiums in Unit Linked products: Euro 2,950 mln MPS Group -555 -7,716 Industry -8,939 September Net Flows

  17. CORPORATE: SALES OF VALUE ADDED SERVICES AND NOT CAPITAL ABSORBING PRODUCTS SUPPORT CORPORATE PROFITABILITY GROWTH CORPORATE REVENUES UP 24.1% (16.8%NET OF DERIVATIVES) Breakdown of revenues in the corporate segment (Euro mln) % change y/y 1H2000 1H2001 251 291 +15.8 Loans • 7000 new corporate customers +13.3 72 64 Deposits • 900 trained professionals 213 292 +37.0 Services 35 41 +14.8 Foreign • More than 50 product specialists 48 52 +8.1 Transactional Services +93.4 Forex & Derivatives 50 97 • Approx. 35,000 customers in electronic banking (32% of total customer base) +28.8 Other 79 102 656 +24.1 Total 528 +16.8 478 558 Total without derivatives with derivatives 3.53% 3.75% RAR* 3.20% 3.19% net of derivatives Revenues on Dep.+Services /Total Customer Loans 1.85% 2.09% (*) Total Revenues/Total Loans

  18. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  19. INVESTMENT BANKING: UBM AND TRADINGLAB MAJOR STRENGHTS PROVEN ABILITY TO GET THROUGH A STRESS TEST AND ABSENCE OF OVERSHOOTING IN SITUATIONS OF EXTREME VOLATILITY • Significant loss on Trading businesses only on September 11th (Euro 2.5 mln) • Quick recovery: Euro 2.2 mln Net Profit on September 12th • Quick VAR reduction HIGH COST EFFICIENCY: C/I RATIO 30.7% IN 1H01, APPROXIMATELY 25% NET OF THE STAFF BONUSES

  20. WHOLESALE BANKING APPROACH TO WEALTH MANAGEMENT: COORDINATION BETWEEN PRODUCTION, INVESTMENT BANKING AND DISTRIBUTION ITALIAN BANKING + + • Successful launch of high value capital guaranteed products since may 2001 to meet customers’ needs of “hedged” equity and fund linked investments CAPITAL GUARANTEED PRODUCTS: EURO 2,36 bn CUMULATED NET INFLOWS AS OF 27.09.2001 (Euro mln) 298,5 1,200 800 • Further development expected, as capital guaranteed products started to be distributed through the saving Banks since September 600 236,0 197,3 400 774,1 • Standardised investment banking products for portfolio hedging strategies 213,6 200 171,9 260,4 208,0 0 MAY 2001 JUNE 2001 JULY 2001 AUG. 2001 SEPT. 2001 • Real time measurement of portfolio risk for Retail Customers (KILOVAR) SegregatedAccounts Unit Linked

  21. PIONEER: ACCELERATION OF TURNAROUND OF NET INFLOWS IN USA AND EUROPE CONFIRMED IN SEPTEMBER Assets under Management, sold by Pioneer and through third party distributors 2000(1) Net sales (Jan-Aug) Net sales (Sept) Inv. Perf.(2) 28.09.01 (Euro mln) TOTAL 66 28,646 1,851 -3,862 26,701 USA 15 21,209 724 -3,285 18,663 Italy 29 4,561 743 -135 5,198 Institutional International 3 2,252 359 -338 2,276 New Europe 19 624 25 -104 564 • Appointment of Dan Geraci, from Fidelity, as new CEO of Pioneer USA • Tradition in Value-oriented not-indexed products, particularly suitable in difficult market scenarios (1) Based on official ECB FX as at 29.12.200 (2) Including FX effect

  22. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  23. NEW EUROPE BANKING: STILL HIGH RESTRUCTURING POTENTIAL IN ECONOMIES GROWING FASTER THAN MAJOR UE COUNTRIES • Central European countries likely to be the least exposed emerging markets to the negative economic impacts of global political uncertainty: -1% GDP slowdown in USA and UE countries to reduce Bulgaria’s growth by 0.4% and Poland’s GDP by a modest 0.2%*: - GDP growth expected to be of around 2-3% in most New Europe economies - EU accession in sight to provide stability to economic policies • Recognised track record and ability of UCI to implement cost control and restructuring measures Cost/Income of NE Banking NE headcount Reduction -19% 30,407 65,2% 56,4% 25,552 54,4% 24,571 ‘99 ‘00 1H01 ‘99 ‘00 1H01 (*) Goldman Sachs and S&P estimates

  24. TWO YEARS AFTER THE ACQUISITION BANK PEKAO IS OUTPERFORMING ALL THE MAJOR DOMESTIC COMPETITORS, AS SHOWN BY 1H01 RESULTS Yoy % growth (1) Net Interest Income Net Commissions 36.6 Banking System (3) 4.1 4.1 24.1 Pekao Best perf. Pekao 10.3 Pekao Best perf. Fortis Bank Banking System (3) -27.7 Overheads costs (2) Net Profit 49.9 49.9 16.2 Best perf. Pekao Pekao Banking System (3) Banking System (3) Pekao Best perf. Pekao (4) -8.3 -8.3 -17.6 (1) Calculated on data based on Polish accounting standards at unchanged FX; all data are unconsolidated (2) Salaries, statutory employment costs, Non-personnel costs, Taxes and charges, Contribution and payment to Bank, Other costs (3) Considered Kredyt Bank, BSK, LG Petro Bank, BZWBK, BRE, BH, BPH, PBK, BOS, BIG BG, Fortis Bank, BWR, Amerbank, Bank Czestochowa, Deutsche 24 (not included Pekao) (4) BZWBK 1H’01 net income growth (+1,080%) thanks to benefits arising from the merge between BZ and WBK

  25. KEY GUIDELINES FOR REVENUES GROWTH, EFFICIENCY GAINS AND RISK MANAGEMENT REVENUE GROWTH EFFICIENCY GAINS RISK REDUCTION • Implementation of new service models (higher commercial effectiveness through a segment focus) • Introduction of new products • Synergies with production • Cross fertilisation with Italian Banking best practice • Long term initiatives undertaken to start providing results already in 2002 - new IT projects - redesign of credit process CREDIT POLICY • More rigid credit assessment rules and revision of level of autonomy • Individuation of riskier sectors/ segments/ products and relative credit actions MARKET RISK • More rigid rules on FX activity, trading, VAR

  26. Agenda • Group Highlights • Leveraging on UCI’s Major Strengths: A Divisional • Overview • Italian Commercial Banking • Wholesale Banking • New Europe Banking • Conclusions

  27. SUMMING UP ... UCI IS WELL EQUIPPED TO PERFORM ALSO IN DIFFICULT MARKET CONDITIONS AND TO FURTHER CONSOLIDATE ITS COMPETITIVE ADVANTAGES

  28. Annexes

  29. DETAILS ABOUT DEFAULT LIKELIHOOD OF ITALIAN BANKING OUTSTANDING LOANS 1H01 Italian Banking Credit Risk Analysis DEFAULT LIKELIHOOD(1) WEIGHT ON LOAN PORTFOLIO % GROWTH (1HO1 ON DEC 00) LOW(2) 51.1% 12.8 MEDIUM(3) 37.0% - 0.3 HIGH(4) 11.9% 0.1 100% 6.0 Total portfolio (1) Based on internal calculations, taking into account historical trends of NPL, doubtful loans and watch-list loans, sector historical trends and expectations (2) Main sectors included: Metal products, Farm & industrial machinery, Other industrial products, Electrical materials & supplies, Energy products, Other sales-oriented services (3) Main sectors included: Commercial services, Textile leather & clothing, Food beverages & tobacco (4) Sectors included: Construction and public works, TMT, Transport related services

  30. THE METHODOLOGY FOR RARORAC CALCULATION • Net equity as of previous year-end • less distributed dividends • plus goodwill and share capital increase Adjusted for the yearly amortisation of goodwill Net income of the year Employed capital - * Ke Cost of equity = 8,79% VALUE CREATION VaR (if available) or 70% of regulatory market risks RARORAC = (Tier 1 ratio target * RWA) - Minimum regulatory capital CAPITAL ABSORPTION Minimum regulatory capital Market risk Credit risk Operational risk(*) + + + Calculated following the guidelines contained in New Basel Capital Accord by adding 20% to the minimum regulatory requirements 4% RWA (*) Included in Tier 1 ratio target

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