UBI Banca Group

The consolidated income statement
The income statement figures commented on are based on the reclassified consolidated financial
statements (the income statement, the quarterly income statements and the income statement net of the
principal non-recurring items) contained in another section of this report and the tables furnishing details
presented below are also based on those statements. The notes that follow those reclassified financial
statements may be consulted as may the reconciliation schedules for a description of the reclassification.
Furthermore, the commentary examines both changes that occurred over twelve months (2011 compared to
the year before) and those occurring in the last quarter of the year (this, which is highlighted with a slightly
different background colour, is compared with the previous quarter in order to bring to light trends
underlying progressive changes in interim results during the year).
The financial crisis has been stoked for two years now by a new and dangerous source of
difficulty in the euro area. After Greece, Ireland, Portugal and Spain, the turmoil has now
involved Italy with its high levels of public debt and weak prospects for growth in the medium
term. On their part financial markets have gradually attributed an excessive likelihood of
insolvency to sovereign issuers in the area, which had a sudden negative impact on the terms
and conditions for wholesale funding offered to Italian banks, which are squeezed between:
demands to strengthen capital, increase transparency and customer services and to improve
the terms and conditions they offer businesses consistent with risk and to support the local
economies on which they operate.
In consideration of the unfavourable economic environment and probable future scenarios, the
UBI Banca Group has adopted extremely prudential criteria and has recognised impairment
on its goodwill and finite useful intangible assets – recognised principally following the merger
between the former BPU Banca Group and the former Banca Lombarda e Piemontese Group –
with significant write-downs (€2,397 million gross, accounting for 44% of the total on the
books at the end of 2010) of the carrying amounts which had been recognised for those assets.
Since those amounts had been generated by a “paper for paper” transaction, that is with no
cash payments, the accounting treatment introduced by IFRS – which requires recognition of
the impairment loss through profit and loss – generated effects of an accounting nature only,
which have no impact on the Group’s operations. More specifically, it had no impacts on
liquidity, capital ratios (because these are calculated by deducting all intangible assets) or
future profits, which will in fact benefit from lower PPA amortisation from 2012.
Consequently, in order to allow a consistent analysis of Group profits and operations, the impairment
losses relating to this treatment have been stated separately (a detailed analysis is given in the Notes to
the Consolidated Financial Statements) in a single separate item net of tax and non-controlling interests,
shown in the reclassified consolidated financial statements on the last line item before net profit for the
year.
The UBI Banca Group, ended 2011 with consolidated net profit before impairment of
€349.4 million, +97.1% compared to €177.3 million the year before.
In the fourth quarter of the year, the crisis of confidence in the country reached its peak and
at the same time structural reforms, a necessary condition for economic and financial
recovery, were commenced. A profit for the period before impairment of €22.9 million was
recorded in the quarter, compared with a loss of €25.6 million in the same quarter of 2010,
and an even greater loss incurred in the second quarter of 2011 (-€69 million).
Operating difficulties experienced during the year are summarised by the performance of
operating income, which totalled €3,438.3 million (-1.7% compared to 2010). This item,
which included all income from ordinary activities, seemed to be recovering progressively in
the first part of the year, but repeated turbulence on markets then put a break on business in
the banking sector and this brought operating income down to levels lower than the already
low results recorded in 2010.
On a quarterly basis, operating income earned between 1 st October and 31 st December 2011
amounted to €904.3 million, slightly down compared to €910.5 million in the fourth quarter of
2010 – the result of improvements by net commissions and financial activities – but showing a
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