Prospectus - Notowania

2.Trading Derivatives with customers
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>> Condensed Consolidated Financial Statements
Part E) – Information on risks and related risk management policies
The business model governing derivatives trading with customers provides for centralization of market risk in the MIB
Division, while credit risk is assumed by the Group company which, under the divisional or geographical segmentation
model, manages the relevant customer’s account.
The Group’s operational model provides for customer trading derivatives business to be carried on, as part of each
subsidiary’s operational independence:
- by the Italian commercial banks that close transaction in OTC derivatives in order to provide non-institutional clients
with products to manage currency, interest-rate and price risk. Under these transactions, the commercial banks
transfer their market risks to the MIB Division by means of equal and opposite contracts, retaining only the relevant
counterparty risk. The commercial banks also place or collect orders on behalf of others for investment products with
embedded derivatives (e.g., structured bonds);
- by the MIB Division operating with large corporates and financial institutions, in respect of which it assumes and
manages both market and counterparty risk;
- by HVB AG, BA AG and Pekao, which transact business directly with their customers.
UniCredit Group trades OTC derivatives on a wide range of underlyings, e.g.: interest rates, currency rates, share prices and
indexes, commodities (precious metals, base metals, petroleum and energy materials) and credit rights.
OTC derivatives offer considerable scope for personalization: new payoff profiles can be constructed by combining several
OTC derivatives (for example, a plain vanilla IRS with one or more plain vanilla or exotic options). The risk and the complexity
of the structures obtained in this manner depend on the respective characteristics of the components (reference parameters
and indexation mechanisms) and the way in which they are combined.
Credit and market risk arising from OTC derivatives business is controlled by the Chief Risk Officer competence line (CRO) in
the Parent and/or in the Division or subsidiary involved. This control is carried out by means of guidelines and policies
covering risk management, measurement and control in terms of principles, rules and processes, as well as by setting VaR
limits.
This business with non-institutional clients does not entail the use of margin calls, whereas with institutional counterparties
(dealt with by the MIB Division) recourse may be made to credit risk mitigation techniques, for example “netting” and/or
collateral agreements.
Write-downs and write-backs of derivatives to take account of counterparty risk are determined in line with the procedure
used to assess other credit exposure, specifically:
- performing exposure to non-institutional clients of the Italian commercial banks is valued in terms of PD (Probability
of Default) and LGD (Loss Given Default), in order to obtain a value in terms of ‘expected loss’ to be used for items
designated and measured at fair value;
- non-performing positions are valued in terms of estimated expected future cash flow according to specific indications
of impairment (which are the basis for the calculation of the amount and timing of the cash flow).
Referring to write-downs and write-backs of derivatives to take account of counterparty risk totaled, no significant effects have
affected 2009 Profit & Loss.