OREANDA-NEWS. August 30, 2010. The Group’s portion of net profit reaches ˆ669 million, ˆ831 million net of the ˆ162 million in goodwill impairment, with a slight drop YoY (-ˆ106 million) despite a higher tax rate (+5.0 p.p. to 41.2% calculated excluding goodwill impairment)

Operating income at ˆ13,299 million, -9.0% YoY on a constant currency and perimeter basis), with trading income down by 36.6%

Good trend in operating costs (+0.7% YoY on a constant currency and perimeter basis) and loan loss provisions (-14.4% YoY on a constant currency and perimeter basis)

Clear strengthening of the balance sheet structure and the capital ratios with respect to June 2009: Core Tier 1 at 8.41% and Tier 1 at 9.38%

SECOND QUARTER 2010:

The Group’s portion of net profit reaches ˆ148 million, ˆ310 million net of goodwill impairment

Operating income ˆ6,493 million, with rising quarterly trend in terms of both net commissions and net interest income; trading income down noticeably at ˆ58 million (-ˆ502 million QoQ) due to difficult market conditions

Operating costs ˆ3,939 million, a slight increase QoQ, impacted by the currency effect

Loan loss provisions at ˆ1,716 million, with the cost of risk down QoQ at 122 bp, -42 bp with respect to the peak of 164 bp in 2Q09

The Board of Directors of UniCredit approved the consolidated results for first half 2010 which show the Group’s portion of net profit at ˆ669 million, ˆ148 million of which in the second quarter. This figure reflects a goodwill impairment of ˆ162 million related to the subsidiary in Kazakhstan.

Furthermore, the Board of Directors, within One4C Project and following the approvals by the shareholders’ meetings of the involved companies, has approved the merger into UniCredit S.p.A. of UniCredit Banca S.p.A., UniCredit Banca di Roma S.p.A., Banco di Sicilia S.p.A., UniCredit Corporate Banking S.p.A., UniCredit Private Banking S.p.A., UniCredit Family Financing Bank S.p.A. and UniCredit Bancassurance Management & Administration S.c.r.l. pursuant to section 2505, paragraph 2 of the Italian Civil Code. The Board of Directors has also resolved on the merger into UniCredit S.p.A. of UniCredit Partecipazioni S.r.l. It is expected that both mergers will have legal effects as at November 1st, 2010.

Going back to the Group’s quarterly results, of note is the solid performance of the main income statement items (net interest and commissions are up, costs are under control and loan loss provisions are down). The positive trend of the main income statement lines is however counterbalanced by the drop in net trading, hedging and fair value income (-ˆ502 million QoQ) attributable to the decidedly less favourable conditions of the financial markets, impacting the QoQ evolution of net profit.

Operating income reaches ˆ13,299 million in the first six months of 2010, a drop of 9.0% YoY on a constant currency and perimeter basis, and ˆ6,493 million in second quarter  2010, -4.6% QoQ. The evolution YoY and QoQ both reflect the trend in net trading, hedging and fair value income which was impacted by the government debt crisis, particularly in second quarter 2010.

Net interest amounts to ˆ7,895 million in first half 2010 (-16.5% YoY on a constant currency and perimeter basis, reflecting an unquestionably less favourable interest rate environment). In the second quarter net interest reaches ˆ3,977 million, an increase of ˆ60 million QoQ (+1.5%), with a positive contribution in terms of volumes (particularly in CEE and  CIB in Germany) and an additional value day which was partially offset by a slight squeeze in the commercial spreads.

Net commissions amount to ˆ4,379 million in the first six months of 2010, a noticeable increase (+15.5% on a constant currency and perimeter basis) with respect to the ˆ3,735 million reported in the same period of the prior year, confirming the good recovery of the asset management activities, as well as the satisfactory performance of the other commission items. Net commissions in second quarter 2010 amount to ˆ2,209 million, +1.9% QoQ despite lower commissions from securities dealing, placement and other services (-11.0% QoQ due to a slowdown in market activities), which are more than compensated by the commissions from investment management services and by the other commissions (driven by the strong performance of commissions from currency trading and other services) which are up +4.1%.  At June 30th 2010, the volume of the assets managed by the Group’s Asset Management Division amounts to ˆ185.5 billion, a slight increase QoQ.

Net trading, hedging and fair value income amounts to ˆ618 million in first half 2010, down with respect to the ˆ936 million reported in the same period in 2009. This performance is attributable primarily to the deterioration of the financial markets following the government debt crisis in second quarter 2010, which closed with the Group’s net trading, hedging and fair value income at ˆ58 million (versus ˆ560 million in first quarter 2010).

Other net income in the first six months of 2010 comes in at ˆ213 million (ˆ114 million of which in the second quarter), in line with respect to the ˆ209 million recorded in the first six months of 2009.

Operating costs amount to ˆ7,817 million in first half 2010, an increase of 0.7% YoY on a constant currency and perimeter basis, above all due to the inclusion in the first half 2009 accounts of the release of provisions for variable compensation of ˆ119 million (initially charged in 2008). The operating costs in second quarter 2010 amount to ˆ3,939 million, up with respect to the ˆ3,878 million recorded in the prior quarter (+ˆ61 million QoQ due primarily to the currency effect and cyclical elements).

Payroll costs in the first six months of 2010 rise 1.7% YoY on a like-for-like basis, coming in at ˆ4,653 million, due to the above mentioned release of variable compensation (ˆ56 million in second quarter 2009). Payroll costs in second quarter 2010 drop, on a constant currency and perimeter basis, 0.1% QoQ due to staff reductions and lower provisions for variable compensation.

Other administrative expenses, net recovery of expenses, reach ˆ2,533 million in the first six months of 2010, a slight drop with respect to the ˆ2,539 million reported in the same period 2009 (but with a reduction of 1.4% YoY on a constant currency and perimeter basis). In second quarter  2010 the figure reaches ˆ1,293 million, an increase with respect to the ˆ1,240 million recorded in the prior quarter, largely attributable to the currency effect and cyclical expenses (for example, consultancies and marketing).

Amortization, depreciation and impairment losses on intangible and tangible assets amounts to ˆ631 million in first half 2010, compared to ˆ606 million in the same period 2009. In second quarter 2010 the figure reaches ˆ314 million, down with respect to the ˆ317 million recorded in the prior quarter.

The cost/income ratio reaches 58.8% in first half 2010 (60.7% in the second quarter), up with respect to first half 2009 (53.4%).

Operating profit in the first six months of 2010 amounts to ˆ5,482 million, ˆ2,554 of which posted in the second quarter. The result reflects the ˆ502 million drop QoQ in trading income caused by different market conditions. Excluding trading income, the operating profit in second  quarter 2010 rises  5.5% with respect to the prior quarter.

Goodwill impairment amounts to ˆ162 million. The impairment test conducted in June confirmed that, as a whole, the goodwill recognised for the different business units was sustainable  with the exception of Kazakhstan, where the persistent economic crisis and the subsequent revision of the business plans deemed it necessary to make the above mentioned adjustment in value.

The provisions for risks and charges increase YoY to ˆ262 million in first half 2010, ˆ106 million of which posted in the second quarter (down with respect to the ˆ156 million recorded in the prior quarter).

Loan loss provisions and provisions for guarantees and commitments in first half  2010 amounts to ˆ3,507 million (a reduction from more than ˆ4 billion relative to the same period in 2009), equal to a cost of risk of 125 basis points annualized. In the second quarter, loan loss provisions show a decrease for the fourth consecutive quarter (at ˆ1,716 million from ˆ1,791 million in first quarter 2010).

Gross impaired loans at the end of June 2010 amount to ˆ63.7 billion, an increase of 5.9% QoQ (+5.4% QoQ at constant exchange rates). Gross NPLs rise 8.1% QoQ, while the growth of the other problem loan categories slows, increasing +3.1% QoQ.

The coverage ratio of total gross impaired loans at June 2010 is  45.2%, which reflects a  59.8% coverage of the NPLs and a 25.1% coverage of the other problem loans.

Integration costs amount to ˆ11 million in the first six months of 2010 (ˆ6 million of which incurred in the second quarter), down with respect to the ˆ309 million recorded in first half 2009 (which included charges related to staff reductions).

Net income from investments totals ˆ107 million in first half 2010, an increase with respect to the  -ˆ166 million reported in the same period of the prior year. Net income from investments in second quarter 2010 amounts to  ˆ39 million versus ˆ68 million in first quarter 2010.

Income tax amounts to ˆ745 million in the first six months of 2010 (ˆ697 million in the same period of the prior year) with a tax rate of 41.2% excluding goodwill impairment, up 5.0 percentage points YoY. The tax rate in second quarter 2010 is also relatively high with respect to the past (at 44.6% calculated excluding goodwill impairment) with tax in the period reaching ˆ342 million due to IRAP (regional business tax) charges in Italy.

Minorities total ˆ119 million in first half 2010 compared to ˆ166 million in the same period 2009. In second quarter 2010 minorities total ˆ56 million (ˆ63 million in the prior quarter).

The impact of the Purchase Price Allocation in the first six months of 2010 is lower compared to the -ˆ129 million recorded in the first six months of  2009, coming in at -ˆ115 million, -ˆ58 million of which in the second quarter.

In first half 2010 the Group’s portion of net profit amounts to ˆ669 million compared to  ˆ937 million in the same period of the prior year (-ˆ268 million YoY), which had benefited from a greater contribution of trading income to revenues (of ˆ318 million) and which was not impacted by the non-recurring charge of ˆ162 million related to goodwill impairment.  The slowdown in the contribution of trading income to revenues (-ˆ502 million QoQ), as well as the impact of the impairment losses is even more evident in the quarter with net profit dropping from ˆ372 million to ˆ148 million.

In second quarter 2010 the Group’s customer loans reach ˆ559 billion (ˆ564 billion at  March 2010) with a reduction that is attributable to the Corporate Centre and signs of recovery in the commercial business (above all in a few CEE countries and in the CIB division in Germany). Direct funding1  at June 2010 comes in at ˆ577 billion (versus ˆ593 billion at March 2010), with a solid dynamic in terms of deposits and securities placed by the Group’s commercial networks and a drop in the other securities. This decline involved primarily short term instruments expiring within one year (in line with the sector trend) and was temporarily offset in the interbank market through a drop in assets and an increase in repos with other banks. The loan-direct funding ratio at June 2010 comes in at 96.8%, testimony to the balanced funding structure. Net interbank funding at June 2010 amounts to ˆ35 billion (ˆ21 billion at March 2010).

The trading assets amount to ˆ152 billion at June 2010, an increase QoQ with respect to the ˆ138 billion recorded at March 2010 due to an increase in derivatives (+ˆ14 billion QoQ due to changes in fair value in more volatile markets). The trading assets show a further decline net of derivatives (-1.9% QoQ to ˆ56 billion at the end of June 2010).

Total assets at June 2010 amount to ˆ955 billion, largely unchanged with respect to March 2010, with a balance sheet structure that maintained its high quality even in a difficult funding environment. The Group’s leverage ratio2  at June 2010 reaches 22.3, an increase with respect to the 21.6 recorded at March 2010, also explained by the increase in the derivatives’ market value and the payment of dividends for the prior year (which took place, as usual, in the second quarter).

The Core Tier 1 ratio at the end of June 2010 reaches 8.41%, a drop QoQ of 4 basis points due primarily to an increase in risk weighted assets and to dividends accrual, which more than offset the positive contribution of the profit posted in the period. In second quarter 2010 the risk weighted assets rise 0.7% QoQ to ˆ459.0 billion due to the currency effect, but also to resumed growth in a few areas (CEE, above all Turkey, CIB in Germany). The Tier 1 ratio comes in at 9.38% and the Total Capital Ratio at 12.74%.

At the end of June 2010 the Group’s structure consists of a staff3  of 161,857, a further reduction of 6,150 relative to June 2009 and 521 relative to March 2010. The decrease in the second quarter is attributable to different areas, with the largest drop coming from Retail, CIB and  corporate structures (Corporate Centre and GBS).

The Group’s network at June 2010 consists of 9,578 branches (9,974 at June 2009 and 9,637 at March 2010).