TABLA DE VIABILIDAD ECONÓMICA

establecimientos de la UPV

Rates and spreads

In 2010 the banking rates fell to historically low levels, hitting new lows in the first half of the year, before starting to reverse their trend. Indeed, during the summer the rise in market rates was accompanied by small monthly increases in bank rates.

Rate rises were initially seen in new loans to enterprises, which in the second half of the year rose by more than half a point on the first six months. Cumulating the small movements which started in the summer of 2010, the average rates on new loans to non-financial companies, while remaining historically low, reached the highest values since mid-2009. The other lending rates only showed minor changes. The average rate on new mortgage loans to households rose in the second half of the year by about ten cents on the first half of 2010. In the light of these modest changes, the average annual level of lending rates on current loans was markedly lower than in 2009.

After the first six months of minor cuts, the average rate on overall customer funding also saw the first small increases in the second half of the year, although still remaining close to the all-time lows. In annual average terms, the funding rate was almost half a point lower than that of 2009. Among the components of the average funding rate, while the rates on household and business deposits (including repurchase agreements) only showed marginal adjustments, in the fourth quarter the rate on current bonds increased more markedly, returning to early 2010 levels.

In an environment marked by low rates, the margins on lending and deposit collecting activities remained historically narrow and lower than the 2009 average. The spread between average lending and funding rates remained unchanged during the year at 2.15%, but one fourth of a point lower than the average value in 2009. The spread on funding, measured on short-term interest rates, improved in the second half of the year as a result of the rise in money market rates (the mark-down on the 1-month Euribor increased threefold from the 0.15% average for the first six months to the 0.46% average of the forth quarter). However, in annual average terms, the mark-down was lower than the average level in 2009 (by about -10 cents at 0.27%). As to the mark- up on the 1-month Euribor a moderately downward trend was recorded during the year (average annual value was 3.46% compared to 3.86% in 2009). Given these trends, the short-term spread remained historically low, at an average 3.73%, 50 basis points lower than the average in 2009.

Loans

With regard to lending, the year was marked by a sustained improvement in bank loan performance. After a weak first half year, loans to households and businesses picked up moderately, achieving an average growth similar to that of 2009. This trend reflected the steady increase in medium/long term loans and the gradual recovery of short-term loans which started to grow again towards the end of the year, after sixteen consecutive months of decrease.

The recovery of the short-term component is linked to the resumption of the demand for business loans to support production activities, driven by the consolidation of economic recovery. Indeed, the loans to non-financial companies recorded a steady improvement from the lows hit in 2009 and in the fourth quarter they started to grow again, albeit very modestly. The improvements spanned all borrower sizes: the pickup was first observed in loans to small businesses, which, in point of fact had never dropped to any dramatic extent, and towards the end of the year, loans to medium-large businesses also returned to positive territory after the contraction recorded between the end of 2009 and the first half of 2010. At the same time, loans to households maintained their good performance, which had started at the end of 2009, driven by the rise in home purchase mortgage loans and favoured by the low interest rates on new lending transactions. Throughout 2010, the Italian banks recorded growth in loans to households higher than the Eurozone average; the rebound in loans to non-financial companies was also more marked than the Eurozone average.

Direct deposits

Throughout 2010, the customer funding of Italian banks showed a gradual slowdown in its main components, after the particularly strong growth recorded in 2009. Indeed, the trend in current accounts saw a significant contraction in the trend

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During 2010, the S&P index rose 12.8%, in line with the rise in the DJ Composite (+13.1%). The performance of the main European indexes was very varied. DAX closed the year with a significant increase (+16.1%), reflecting the recovery of the German economy; FTSE 100 rose by 9.0%, whereas the CAC 40 index recorded a slight decrease (-3.3%). The Euro Stoxx remained largely unvaried (+0.5%, after falling by -10% at mid year). The Chinese stock market posted a marked decline, with the Sse Composite index falling by -14.5%, whereas the Japanese Nikkei posted a more moderate decline, closing the year at -3.0%.

The Italian stock market performed less brilliantly than the major Eurozone indexes, reflecting the investors’ greater aversion for the “peripheral” markets of the area and the greater relative weight of the financial segment. The FTSE All Shares index fell 11.5% from the beginning of the year (-16% at mid year), whereas the FTSE MIB lost 13.2% (-17% in June 2010). Mid-cap stocks continued to perform better than blue chips: in particular, the FTSE Italia STAR index closed 2010 with a slight increase (+2.9%).

The performance of the European corporate bond market in 2010 was uneven by segment and type of security. The investment grade segment recorded overall negative performance, particularly marked for financial securities. The derivatives segment also posted substantial losses, due to the increase in risk premiums for all the main European iTraxx indexes (Credit Default Swap indexes). The non-investment grade bond segment continued to record a positive performance, with a narrowing of rate spreads. After a slightly negative start of the year, the market had commenced to move towards a decrease in risk premiums, driven by the reassuring signals coming from the macroeconomic scenario. Subsequently, however, the tensions generated by the Greek crisis triggered an intense correction phase, which deepened following the Irish crisis and due to the fears of contagion spreading to the other peripheral Eurozone countries.

The emerging economies and markets

In 2010 the GDP growth of the emerging economies gained considerable momentum (exceeding 7% based on International Monetary Fund estimates, compared to 2.6% in 2009). The pace of growth was stronger in the regions and countries which proved able to replace the original stimuli provided by fiscal policy and foreign trade with autonomous growth in private domestic demand. The fastest growth rates were recorded by the emerging economies of Asia, led by China and India, whose preliminary growth estimates are around 10%, and by those of Latin America, with Brazil, whose GDP rose more than 7%. As for MENA (Middle East and North Africa), oil producing countries benefited from the renewed growth trend in gas and oil prices and demand, while non-oil producers benefited from the greater foreign revenues (exports, money transfers from migrant workers and tourism) as well as from international capital flows. GDP growth in Egypt, which had been 5.3% in the fiscal year that ended in June 2010, in the following quarter rose to 6%. Again in 2010, mean GDP growth in Gulf countries was close to 5%.

Eastern European countries performed differently according to their subgroups. Many countries (Slovakia, Slovenia and Hungary) returned to positive GDP growth values, also thanks to the recovery of exports to the EU. In CEE (Central and Eastern European) countries where Intesa Sanpaolo operates through subsidiaries, 2010 GDP growth is estimated at about 2%. The SEE (Southern and Eastern European) countries, where due to the weak financial position of households and enterprises the private sector reacted to the crisis with a sharp contraction in consumption and investment demand, displayed a slower recovery. In some of these countries, the recession continued into 2010, in particular, in Croatia and Romania; this was only partly balanced by the recovery recorded in Bosnia and Serbia and by the positive performance of Albania. In the SEE countries where Intesa Sanpaolo operates through its subsidiaries, the estimated GDP change in 2010 was still negative at -0.9%, but improved from -5.5% in 2009. Lastly, in the CIS countries GDP rebounded in 2010 to a growth rate of about 4%, after its marked -6.5% dip in 2009. These countries mostly benefited from the pick-up in commodity prices and demand (Russia) but also from domestic political stabilisation (Ukraine).

The recovery of the economy and the rise in commodity prices triggered a widespread acceleration of inflation. The trend rate of growth on a large sample of countries accounting for more than 70% of the total GDP of emerging countries rose to 6.2% in November 2010 from 5.7% at the end of 2009. The most significant accelerations were recorded in some Asiatic countries (China and Indonesia) and in Latin America (Brazil). Prices started to rise again, especially in the last part of the year, in the MENA countries. In Eastern European countries too the inflation rate, albeit decreasing in mean value compared to 2009 picked up again during the last part of 2010 driven by the increase in food prices due to the drought (Russia, Ukraine and Serbia) or as a result of fiscal measures (Romania).

During 2010, many emerging countries started to adopt restrictive monetary policy measures. This action was more intense and widespread in Asia and Latin America, where clear risks of overheating the economy and prices emerged. In Eastern Europe, the slowdown of inflation and the continuing weakness of the economic cycle had favoured, in the first half of 2010, a decline in monetary rates in some countries (Romania, Russia, Serbia, Ukraine and Hungary). However, in the second half of the year, new inflation pressures (Russia), coupled with currency weakness (Serbia and Hungary) prompted the monetary authorities to implement restrictive monetary actions.

On the capital markets, the stock market bull phase which had started in the second quarter of 2009 continued in 2010. The momentary correction of trends recorded in the second quarter of 2010, reflecting fears on the sustainability of growth, did not prevent the year from closing on a positive note.

In detail, in 2010 the MSCI Emerging Markets Index gained almost 12%, after rising by almost 60% in 2009. This index performed slightly worse than the US market (S&P Composite Index +12.8%) but better than the Euro area (-0.1%) and Japan (- 3%). The gains were led by the Asian stock markets (with the greatest increases recorded in Indonesia, Thailand and the Philippines), those of Latin America (Argentina, Chile and Peru) and in Eastern Europe (especially the Baltic countries and Ukraine). In the MENA region, Egypt, Morocco and Tunisia recorded two-digit rises. The weakness of some Central and South Eastern European countries reflects the concerns for the more uncertain outlook of the economy and financial markets in Europe. During 2010 the US dollar depreciated further against the emerging currencies (declining by 3.6% against the OITP – Other Important Trading Partners currencies). The strongest currencies were those of the countries with the fastest-growing economic outlook (mainly in Asia), those with the highest interest rates (especially in Latin America) and commodity-exporting countries (such as South Africa, Australia and some Latin American countries such as Chile and Peru). In Eastern Europe, certain currencies under a floating exchange rate regime of the SEE countries having the greatest external budget and financial imbalances

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(Romania, Serbia and Albania) but also those of some CEE countries (Hungary) depreciated against the euro, while the currencies of countries with fixed exchange rate (Bosnia and the Baltic countries) or quasi-fixed rates (Croatia) remained stable. The currencies of Russia and Ukraine remained stable against the US dollar, supported by the improvement in the financial environment, the favourable development of commodity prices and, in the case of Ukraine, also by greater political stability. The spreads on sovereign debt in most emerging countries of Latin America and Asia at the end of 2010 were narrower than end- 2009 levels. For Latin America, the spread of the EMBI+ (Emerging Market Bond Plus) composite index declined to 306 basis points at the end of 2010 from 328 basis points at year-end 2009, whereas for Asiatic countries the same index rose to 165 basis points at year-end 2010 from 204 basis points at year-end 2009. In several Eastern European countries (including, among others, Croatia, Hungary and Romania) the spreads resumed a widening trend during 2010 due to concerns about the sustainability of external accounts and to the contagion of the financial turbulence which was affecting the government bond markets in some Eurozone countries. A countertrend was recorded in Ukraine, where the spread narrowed again significantly, returning to its summer 2008 levels (below 500 basis points).

In 2010 there was a marked prevalence of upgrades among the emerging countries and improved outlook opinions by rating agencies. More specifically, the agencies recognised the rebound of the economy as well as the effective tackling of the crisis by Latin American countries (Argentina, Bolivia, Chile, Colombia and Peru) and furthermore acknowledged the progress made on the path towards economic and financial stabilisation by several Eastern European countries (Ukraine and the Baltic countries). Finally, they recognised specific growth stories (Korea, Morocco and Turkey).

The Italian banking system

Rates and spreads

Loans

Direct deposits

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growth rate, which showed a negative change at the end of the year, compared to the two-digit increase recorded at the beginning of 2010. After a sharp slowdown in the first half of the year, bonds fluctuated around a zero rate of change, mainly due to the contraction in shorter-term bonds, (up to two years), whereas the longer-term bonds (over two years) continued to grow. In annual average terms, the growth in customer deposits was relatively robust, higher than the growth in loans, despite the contrasting trends that emerged during the year. Moreover, international comparison confirmed that the deposit-taking performance of Italian banks was better than the Eurozone average.

Assets under management

Indirect deposits1

measured at fair value, after rebounding in the first half of 2010 slowed down in September. Within indirect customer deposits, during 2010 portfolio management by banks maintained a more dynamic profile than the assets under administration component. With regard to household customers too, assets under management recorded good annual growth in September 2010, higher than that of securities in custody and under administration (at fair value, including equity securities). The latest data on securities in custody on behalf of households, only referred to debt securities (at nominal value and inclusive of bank bonds), showed a slight recovery in November and December 2010, after thirteen months running of negative changes. This performance is consistent with the increase in investors’ demand for government securities driven by the increase in their yields. With regard to assets under management, during 2010 the Italian market for open-ended mutual funds, after a positive first quarter was marked by a negative performance of the balance between subscriptions and redemptions. On an annual basis, net inflow was positive by slightly more than one billion euro, against -683 million euro in 2009: the fall of the cash and hedge funds was offset by the positive net contributions of bond products and, to a lesser degree, of flexible, balanced and equity funds. Also thanks to the positive performance of the financial markets, total assets under management came to 452 billion euro at year end, against 435 billion in December 2009.

The life insurance business recorded a 7.9% growth in production compared to 2009, coming close to 64 billion euro. However,

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