Show MO NT E
DE I PA S C H I
DI S I E NA
GRO U P
A n n u a l rep o r t
2017
Domenico Beccafumi, Artemisia (detail)
Chigi Saracini Collection (work of art owned by Banca Monte dei Paschi di Siena)
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Monte dei Paschi di Siena Group
Consolidated Annual Report as at 31 December 2017
Banca Monte dei Paschi di Siena S.p.a.
Share Capital: € 10,328,618,260.14 fully paid in
Siena Companies’ Register no. and tax code 00884060526
Member of the Italian Interbank Deposit Protection Fund. Banks Register no. 5274.
Monte dei Paschi di Siena Banking Group, registered with the Banking Groups Register
BANCA MONTE DEI PASCHI DI SIENA
2
NOTICE OF ORDINARY SHAREHOLDERS’ MEETING
The Shareholders of Banca Monte dei Paschi di Siena S.p.A. (the “Bank”) are called to the Ordinary
Shareholders’ Meeting in Siena - Viale Mazzini 23 - on 12 April 2018 at 9:30 a.m., on a single call,
to discuss and pass resolutions on the following
AGENDA
1. Individual and consolidated financial statements as at 31 December 2017, accompanied by the
Reports of the Board of Directors, the Independent Auditors and the Board of Statutory
Auditors; related and consequent resolutions.
2. Remuneration report: resolution pursuant to Article 123-ter, paragraph 6, of the Legislative
Decree n. 58 of 24 February 1998 (Consolidated Law on Finance).
3. Proposal pursuant to the combined provisions of Article 114-bis and Article 125-ter of the
Legislative Decree n. 58 of 24 February 1998 (Consolidated Law on Finance), for approval of
a plan concerning the use of own shares for the payment of severance for the Montepaschi
Group personnel, together with the authorization to dispose of own shares pursuant to
Articles 2357 and 2357–ter of the Italian Civil Code; related and consequent resolutions.
The full version of the notice is available on the website www.gruppomps.it, in the section Corporate
Governance – Shareholders’ Meetings and BoD.
Siena, 12 March 2018
2017 ANNUAL REPORT
3
CONSOLIDATED ANNUAL REPORT
GOVERNING AND CONTROL BODIES ....................................................................................................5
CONSOLIDATED REPORT ON OPERATIONS........................................................................................7
CONSOLIDATED FINANCIAL STATEMENTS ................................................................................... 131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.................................................. 145
CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS PURSUANT TO
ART. 81-TER OF CONSOB REGULATION NO. 11971 OF 14 MAY 1999, AS SUBSEQUENTLY
AMENDED AND SUPPLEMENTED........................................................................................................ 503
INDEPENDENT AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS ........................ 505
ANNEXES.......................................................................................................................................................... 519
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
5
GOVERNING AND CONTROL BODIES
BOARD OF DIRECTORS
Stefania BARIATTI Chairman
Antonino TURICCHI Deputy Chairman
Marco MORELLI Chief Executive Officier
Giuseppina CAPALDO Director
Maria Elena CAPPELLO Director
Marco GIORGINO Director
Fiorella KOSTORIS Director
Roberto LANCELLOTTI Director
Nicola MAIONE Director
Stefania PETRUCCIOLI Director
Salvatore Fernando PIAZZOLLA Director
Angelo RICCABONI Director
Michele SANTORO Director
Giorgio VALERIO Director
BOARD OF STATUTORY AUDITORS
Elena CENDERELLI Chairman
Raffaella FANTINI Standing Auditor
Paolo SALVADORI Standing Auditor
Carmela Regina SILVESTRI Alternative Auditor
Daniele Federico MONARCA Alternative Auditor
SENIOR MANAGEMENT
Marco MORELLI Chief Executive Officer
Angelo BARBARULO Acting Deputy General Manager
Antonio NUCCI Deputy General Manager
INDEPENDENT AUDITOR Ernst & Young S.p.A.
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
7
CONSOLIDATED REPORT ON OPERATIONS
General accounting standards........................................................................................................................................9
Results in brief .......................................................................................................................................................... 10
Executive summary ................................................................................................................................................... 13
Group overview.......................................................................................................................................................... 15
Shareholders .............................................................................................................................................................. 16
Information on the BMPS share ................................................................................................................................ 17
Organisational structure ............................................................................................................................................ 19
Governance & control systems ................................................................................................................................... 22
Distribution channels................................................................................................................................................. 25
Customer base ........................................................................................................................................................... 27
Reference context ....................................................................................................................................................... 28
Significant events in 2017 ......................................................................................................................................... 29
Significant events after 2017...................................................................................................................................... 35
Human Resources ..................................................................................................................................................... 36
Strategy ..................................................................................................................................................................... 38
Income statement and balance sheet reclassification principles ...................................................................................... 43
Reclassified income statement ..................................................................................................................................... 45
Reclassified balance sheet ........................................................................................................................................... 53
Results by operating segment ...................................................................................................................................... 62
Prospects and outlook on operations ........................................................................................................................... 89
CONSOLIDATED NON-FINANCIAL STATEMENT ........................................................................... 91
Annexes ................................................................................................................................................................. 126
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
9 Consolidated Report on Operations
General accounting standards
The Consolidated Report on Operations as at 31 December 2017 provides a snapshot of the activities
and results which largely characterised the Group's operations during the year, both as a whole and in
the various business sectors into which consolidated operations are organised.
In particular, the economic and financial indicators, based on accounting data, are those used in the
internal systems of performance management and management reporting, and are consistent with the
most commonly used metrics within the banking industry in order to ensure the comparability of
figures presented.
The income statement and balance sheet have been reclassified based on presentation criteria that are
more suitable for representing the contents of the items according to consistent operational criteria.
In addition, the Report incorporates non-financial company information providing the details on the
activities, capital, risks and relations that are significant to the Group’s current and future performance.
This information is more thoroughly analysed in the Consolidated Non- Financial Statement, drafted
pursuant to Legislative Decree no. 254 of 30 December 2016 and included in the Report, as well as
other corporate communications found on the Banca MPS website www.mps.it., such as: the “Report
on Corporate Governance and Ownership Structure”, the “Remuneration Report” and the “Pillar 3
Disclosure”.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 10
Results in brief
The economic and financial indicators, based on accounting data, are those used in the internal systems
of performance management and management reporting, and are consistent with the most commonly
used metrics within the banking industry in order to ensure the comparability of figures presented.
Pursuant to the requirements set forth in the document “Guidelines on Alternative Performance
Measures” published by the European Securities and Markets Authority (ESMA) in June 2016, this
section contains the definitions and the methods for the calculation of alternative performance
measures.
The Group’s results as at 31 December 2017 include the effects connected to the transfer, through a
securitisation, of a set of credit exposures classified as doubtful (allocated to the “Other Assets”
balance sheet item 150 “Non-current assets and groups of assets held for sale and discontinued
operations”), which was concluded on 20 December 2017 (without derecognition). The transaction is
part of the activities defined in the Restructuring Plan approved by the European Commission on 4
July 2017.
CONSOLIDATED REPORT ON OPERATIONS
Highlights at 31/12/2017
INCOME STATEMENT AND BALANCE SHEET FIGURES
MPS GROUP
INCOME STATEMENT FIGURES 31/12/17 31/12/16 Chg.
Net interest income 1,788.3 2,021.3 -11.5%
Net fee and commission income 1,576.5 1,839.4 -14.3%
Other operating income 660.8 421.3 56.8%
Total Revenues 4,025.6 4,282.0 -6.0%
Net impairment losses (reversals) on loans and financial assets (5,460.0) (4,500.9) 21.3%
Net operating income (3,977.4) (2,840.2) 40.0%
Net profit (loss) for the year (3,502.3) (3,241.1) 8.1%
EARNING PER SHARE (EUR) 31/12/17 31/12/16 Chg.
Basic earnings per share (7.299) (110.545) -93.4%
Diluted earnings per share (7.299) (110.545) -93.4%
BALANCE SHEET FIGURES AND INDICATORS 31/12/17 31/12/16 Chg.
Total assets 139,154.2 153,178.5 -9.2%
Loans to customers 86,456.3 106,692.7 -19.0%
Direct funding 97,801.8 104,573.5 -6.5%
Indirect funding 95,845.7 98,151.8 -2.3%
of which: assets under management 58,599.4 57,180.9 2.5%
of which: assets under custody 37,246.3 40,971.0 -9.1%
Group net equity 10,429.1 6,425.5 62.3%
OPERATING STRUCTURE 31/12/17 31/12/16 Chg.
Total head count - end of period 23,463 25,566 -2,103
Number of branches in Italy 1,745 2,032 -287
2017 ANNUAL REPORT
11 Consolidated Report on Operations
CONSOLIDATED REPORT ON OPERATIONS
Highlights at 31/12/2017
ALTERNATIVE PERFORMANCE MEASURES
MPS GROUP
PROFITABILITY RATIOS (%) 31/12/17 31/12/16 Chg.
Cost/Income ratio 63.2 61.2 2.0
R.O.E. -41.6 -40.5 -1.1
Return on Assets (RoA) ratio -2.5 -2.1 -0.4
ROTE (Return on tangible equity) -41.6 -40.5 -1.1
The credit quality ratios are shown below, including the share of the portfolio allocated to assets held
for sale (and to the items Non-performing loans and Loans to Customers):
KEY CREDIT QUALITY RATIOS (%) 31/12/17 31/12/16 Chg.
Net non-performing loans / Loans to Customers 16.3 19.0 -2.7
Coverage non-performing loans 67.2 55.6 11.6
Net doubtful loans / Loans to Customers 8.3 9.7 -1.4
Coverage doubtful loans 77.2 64.8 12.4
Net impairment losses on loans / Loans to Customers (Provisioning) 5.8 4.2 1.6
Texas Ratio 111.5 145.0 -33.5
The credit quality ratios are shown below, which do not consider the share of the portfolio allocated to
assets held for sale:
KEY CREDIT QUALITY RATIOS (%) 31/12/17 31/12/16 Chg.
Net non-performing loans / Loans to Customers 12.0 19.0 -7.0
Coverage non-performing loans 50.5 55.6 -5.1
Net doubtful loans / Loans to Customers 3.6 9.7 -6.1
Coverage doubtful loans 64.8 64.8
Net impairment losses on loans / Loans to Customers (Provisioning) 1.7 4.2 -2.5
Texas Ratio 101.0 145.0 -44.0
Cost/Income ratio: ratio of Operating Expenses (Administrative Expenses and Net adjustments on property, plant and equipment and
intangible assets) to Total revenues (for the composition of the aggregate, see reclassified Income Statement)
Return On Equity (ROE): ratio of the Net profit for the year to the average between the shareholders’ equity (including Profit and
Valuation Reserves) at the end of period and the shareholders’ equity at the end of the previous year.
Return On Assets (ROA): ratio of the Net profit for the year to the total assets at the end of the period.
Return On Tangible Equity (ROTE): ratio of the Net profit for the year to the average shareholders’ equity (including Profit and
Valuation Reserves, cleared of Goodwill) at the end of the previous year and the current year.
Net impairment losses on loans/Loans to Customers (Provisioning): ratio between net impairment losses on loans and loans to
customers.
Texas Ratio: ratio between gross non-performing loans and the sum, in the denominator, of tangible shareholders’ equity and the allowance
for impairment on non-performing loans.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 12
CONSOLIDATED REPORT ON OPERATIONS
Highlights at 31/12/2017
REGULATORY MEASURES
MPS GROUP
CAPITAL RATIOS (%) 31/12/17 31/12/16 Chg.
Common Equity Tier 1 (CET1) ratio 14.8 8.2 6.6
Total Capital ratio 15.0 10.4 4.6
FINANCIAL LEVERAGE INDEX (5) 31/12/17 31/12/16 Chg.
Leverage ratio - Transitional Phase 6.0 3.2 2.8
LIQUIDITY RATIO ( % ) 31/12/17 31/12/16 Chg.
LCR 199.5 107.7 91.8
NSFR 110.0 87.6 22.4
Encumbered asset ratio * 33.4 49.4 -16.0
Counterbalancing capacity (bn of Eur) 21.1 6.9 14.2
*Ratio between carrying amount of encumbered assets and collateral and total assets and collateral (XVII, section 1.6, point 9, of Regulation
(EU) 2015/79).
2017 ANNUAL REPORT
13 Consolidated Report on Operations
Executive summary
Changes in the key items of the Group’s main aggregates for 2017 are summarised below:
The Group recorded Total revenues of EUR 4,026 mln, down by 6.0% compared to the same
period of the previous year, due to the downturn in Net interest income and Net fee and
commission income, only partially offset by the increase in the Net profit (loss) from trading and
financial assets/liabilities (influenced by the positive effects of burden sharing). This revenue trend
is affected by the performance of Net interest income, which amounted to approximately EUR
1,788 mln (-11.5% Y/Y), due especially to the negative performance of interest-bearing assets,
particularly commercial lending (decrease in average volumes and decline in the relative returns),
the trend of which was only partially attenuated by the decrease in interest expense as a result of the
reduction in the cost of commercial funding, the maturity of bonds issued with more costly
conditions, and the effects of burden sharing. Net fee and commission income, totalling
approximately EUR 1,577 mln as at 31 December 2017, recorded a decline of 14.3% compared to
the previous year, penalised primarily by the recognition of the cost of the guarantee on
government issues and the disposal of the merchant acquiring business on 30 June 2017. Under
other revenues, Net profit (loss) from trading and financial assets/liabilities for the year stood
at around EUR 575 mln (including the effects relating to the burden sharing transaction), an
increase from the previous year. Net of these effects, the aggregate would have shown a reduction
compared to 31 December 2016, which was characterised by higher net profit from trading,
disposals/repurchases of securities and capital gains on liabilities issued and measured at fair value.
Operating expenses amounted to EUR 2,543 mln (-3.0% Y/Y). Personnel expenses, which
totalled EUR 1,575 mln, declined year on year by 2.2% mainly as a result of workforce downsizing,
after the first Solidarity Fund exits of roughly 600 individuals on 1 May 2017 and the subsequent
1,200 exits on 1 November 2017. Other administrative expenses stood at about EUR 704 mln
in 2017, down 11.1% from the previous year, due to the negative impact of one-off costs of EUR
37 mln (for the recapitalisation transaction expected at the end of 2016 which was not completed
successfully). Excluding this component, Other administrative expenses posted a decrease for the
year, which was characterised by the continual initiatives to contain structural expenses. Net
adjustments to (recoveries on) property, plant and equipment and intangible assets,
amounting to approximately EUR 263 mln, were higher than the values from the previous year
due to write-downs on both property, plant and equipment (impairment on land and buildings of
EUR 17 mln) as well as intangible assets (software write-down of EUR 25 mln).
Net impairment (losses)/reversals on loans, financial assets and other transactions
amounted to approximately EUR 5,460 mln, up EUR 959 mln from the figure for the previous
year. These include i) net impairment losses posted at the beginning of the year on the loans to be
transferred following the adjustment to their recoverable value and other additional charges
envisaged in the agreement with Quaestio (in total, EUR 3.9 bn, already recognised as at 30 June
2017); ii) recovery costs associated with the long-term servicing contract signed with JV
Cerved/Quaestio for managing the outsourcing of the MPS Group’s doubtful loans (EUR -170
mln); iii) write-down of the equity investments in the Atlante Fund (EUR -30 mln, already
recognised in the first half of the year) and in Banca Popolare di Spoleto (EUR -8 mln); iv) write-
down of the share held in the Voluntary Scheme (for a total amount of EUR -46 mln). The ratio
of net impairment losses on loans to total Loans to Customers as at 31 December 2017 reflects a
Provisioning Rate of 585 bps, or 172 bps net of the balance sheet and income statement effects
of the transferred doubtful loans.
As a result of the trend of the above-mentioned economic aggregates and also considering i) the
capital gain realised from the sale of the merchant acquiring business to CartaSi (EUR +524 mln,
recorded in June 2017), ii) restructuring charges allocated against the early retirement
incentives/provision for personnel (EUR -282 mln), the closure of branches (EUR -17 mln), as
well as the expenses associated with the securitisation of doubtful loans, the overall outsourcing
transaction of the doubtful loan collection platform and the long-term servicing for managing
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 14
doubtful loans by the JV Cerved/Quaestio (totalling EUR -32 mln), and iii) the partial
reassessment of DTAs from tax losses (EUR +572 mln), accrued but not recognised in previous
years, induced by the recent regulatory measure which ordered the reduction in the ACE benefit
(refer to article 7 of Law Decree no. 50 of 24 April 2017), the Group recorded a loss of EUR
3,502 mln as at 31 December 2017, compared to a loss of EUR 3,241 mln in 2016.
Total Funding at the end of December 2017 amounted to approximately EUR 194 bn with a
decline in volumes of about EUR 9.1 bn compared to 31 December 2016, owing mainly to the
decrease in the direct component, which was impacted by the effects of the burden sharing
transaction on the bond component and the decrease in repurchase agreements with institutional
counterparties.
As at 31 December 2017, Loans to Customers amounted to EUR 86.5 bn, down EUR 20.2 bn
compared to 31 December 2016. The decline in the aggregate posted for the year was concentrated
on repurchase agreements with institutional counterparties and the non-performing loan segment
due to both higher impairments recognised at the beginning of the year on the loans to be
transferred following the adjustment to their recoverable value as well as the reclassification of
transferred loans to balance sheet item “Other assets” (item 150 “Non-current assets and groups of
assets held for sale and discontinued operations”).
The Group’s net exposure to non-performing loans, included in item 70 “Loans to Customers”
stood at EUR 10.4 bn at the end of December 2017 (EUR -10.0 bn since the beginning of the year
as a result of the trends described above). Including the transferred portfolio, the value stood at
EUR 14.8 bn (EUR -5.5 bn since the beginning of the year), with a decline in the share of net
doubtful loans (from 9.7% in December 2016 to 8.3% as at 31 December 2017), unlikely to pay
positions (from 8.5% in December 2016 to 7.6% as at 31 December 2017), and past due exposures
(from 0.8% in December 2016 to 0.4% as at 31 December 2017), The percentage of coverage of
non-performing loans, including the transferred portfolio, came to 67.2%, up by more than 1,000
bps compared to 31 December 2016 (on the other hand, the coverage percentage, net of this
portfolio, would have been 50.5%, a decline of 510 bps compared to December 2016). The increase
in coverage is linked primarily to impairment losses on loans within the transferred portfolio of
roughly EUR -3.9 bn. The coverage of doubtful loans rose from 64.8% in December 2016 to
77.2% in December 2017 (64.8% net of that portfolio).
With regard to capital ratios, as at 31 December 2017 the Common Equity Tier 1 Ratio stood at
14.8% (8.2% at the end of 2016) and the Total Capital Ratio at 15.0%, compared to 10.4%
recorded at the end of December 2016.
As at 31 December 2017, the operational liquidity position showed an unencumbered
Counterbalancing Capacity of EUR 21.1 bn, up considerably (approximately EUR +14.2 bn)
compared with the same figure as at 31 December 2016. This trend can be attributed to the
improvement in commercial liquidity (increase in direct funding and simultaneous reduction in
loans), government-backed bond issues carried out in the first quarter of 2017 (pursuant to Law
Decree no. 23/2016), which made it possible to reduce exposure to the ECB, and the increase in
cash deriving from the portion of the share capital increase subscribed by the MEF.
2017 ANNUAL REPORT
15 Consolidated Report on Operations
Group overview
The Montepaschi Group is the banking hub led by Banca Monte dei Paschi di Siena, which does
business primarily in Italy, mainly providing traditional retail & commercial banking services.
The Group is also active through its specialised product companies in business areas such as leasing,
factoring, corporate finance and investment banking. The insurance-pension sector is covered by a
strategic partnership with AXA while asset management activities are based on the offer of investment
products of independent third parties.
The Group combines traditional services offered through the network of branches and specialised
centres with an innovative self-service and digital services system enhanced by the skills of the Banca
Widiba financial advisor network.
Foreign banking operations are focused on supporting the internationalisation processes of corporate
clients in all major foreign financial markets.
COMPANY ACTIVITIES
Banca Monte dei Paschi di Siena and its subsidiaries operate in the different segments of the
banking and financial industry, with activities ranging from traditional banking to special
purpose loans, assets under management, bancassurance and investment banking. The Bank
performs functions of direction, coordination and control over the Group’s companies, as
part of the more general guidelines set out by the Board of Directors in compliance with the
instructions provided by the Bank of Italy in the interest of the Banking Group’s stability.
Monte Paschi Fiduciaria aims to satisfy the needs of individuals and legal entities wishing to
have their assets managed with the utmost confidentiality. Monte Paschi Fiduciaria may take
on the custody of assets in its capacity as a trustee and act as a protector in trusts.
MPS Capital Services Banca per le Imprese provides customers with solutions to financial and
credit issues, focusing its business on medium-long term credit facilities, special-purpose
loans, corporate finance, capital markets and structured finance.
MPS Leasing & Factoring is the Group bank specialised in developing an offer of integrated
leasing and factoring packages for businesses, artisans and professionals.
Widiba (WIse-DIalog-Banking) is the Group’s direct bank that integrates a self-service offer
with the competencies of MPS’s financial advisor network.
Consorzio Operativo is the centre for the development and management of ICT and
telecommunication systems.
Monte Paschi Banque SA and Banca Monte Paschi Belgio SA are the Group’s banks that
support commercial trade and investments of Italian companies abroad.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 16
Shareholders
As at 31 December 2017, the share capital of BMPS is equal to EUR 10,328,618,260.14 and is broken
down into 1,140,290,072 ordinary shares, of which 36,280,748 treasury shares.
According to the communications received pursuant to the applicable legislation and based on other
information available, the entities that, as at 31 December 2017, directly and/or indirectly hold
ordinary shares representing a shareholding exceeding 3% of the share capital of the Issuer and which
do not fall under the cases of exemption set forth in art. 119-bis of the Issuers’ Regulations, as well as
on the basis of what is set forth on the Consob institutional website, are as follows:
% of Outstanding
Shareholder Ordinary
Shares
Ministry of Economy and Finances 68.247%
Assicurazioni Generali* 4.319%
BMPS SPA 3.181%
*Share held directly and through subsidiary companies
**Treasury shares held by the MPS'Group following capital strengthening measures pursuant Law Decree n.
237/2016 (as subsequently amended and converted into law) and the Ministerial decree of 27/07/2017
The percentage of share capital held by MEF increased from 4.024% in December 2016 to the current
68.247%, following the conclusion of the “precautionary recapitalisation” procedure required of the
Bank by the European Central Bank (ECB) at the end of December 2016, and the recovery of the
2008-2018 Upper Tier II subordinated security.
As part of the precautionary recapitalisation, the following transactions were carried out in 2017:
burden sharing, that is, the forced conversion of all subordinated bonds issued by the Bank, for
EUR 4,472,909,844.60, with the issue of 517,099,404 new shares, assigned on 1 August 2017;
an increase in the Bank’s share capital of EUR 3,854,215,456.30 for the subscription of
593,869,870 shares by Ministry of Economy and Finance (MEF), concluded on 11 August.
Following the subscription of share capital, MEF’s ownership stake passed from 4.024% to 52.184%.
Furthermore, on 23 November, the Bank communicated that, in the name and on behalf of the MEF,
it had acquired a portion of the ordinary shares resulting from the conversion of the “2008-2018
Upper Tier II” (IT0004352586) subordinated bond and purchased as part of the partial voluntary
public offering for exchange as envisaged in Law Decree no. 237 of 23 December 2016 (as
subsequently amended and converted into law).
Following this transaction, MEF’s ownership stake passed from 52.184% to 68.247%.
2017 ANNUAL REPORT
17 Consolidated Report on Operations
Information on the BMPS share
Share price and trends
The year 2017 was characterised by the consolidation of economic growth, accommodating monetary
policy, and stable inflation, despite significant geopolitical events, such as the tensions between the
United States and North Korea, the presidential elections in France, and the secession attempt in
Catalonia. Thus, the year closed with considerable advances in the S&P 500 and the Nikkei, +19.4%
and 19.1% respectively. Europe also performed well, with the Milan posting the best stock exchange
results of the year at +13.6%, followed by Frankfurt with +12.5%, Paris at +9.3%, London +7.6%,
and Madrid +7.4%. The performance of the FTSE MIB also benefitted from trends in the FTSE IT
Banks index, which closed 2017 with an improvement of 14.9%.
In the 4th quarter of 2017, European stock indices posted divergent trends, with London and
Frankfurt closing the quarter with positive results (+4.3% and +0.7%, respectively), Paris essentially
level (-0.3%), while the others had negative performance: Madrid with -3.3% and Milan -3.7%, the
latter heavily influenced by the performance of the Italian banking sector index, FTSE IT Banks, at -
10.5%.
In addition, during the 4th quarter of 2017 BMPS shares were readmitted to trading, after having been
suspended for most of the year, following Consob Resolutions nos. 19833 and 19840 of 22 and 23
December 2016, respectively, which mandated the suspension until a proper disclosure framework had
been restored for the securities issued and guaranteed by the Bank. With Resolution no. 20167 of 24
October 2017, Consob decided to readmit the shares for listing effective 25 October 2017.
The BMPS share, which closed the day at EUR 15.08 on 22 December 2016, opened trading on 25
October at EUR 4.10 and closed at EUR 4.55. During the 2017 trading period, the security posted
performance of -14%, (closing the year at EUR 3.91), with an average daily trading volume of
approximately 3.9 million shares.
BMPS SHARE PRICE: STATISTICAL SUMMARY (from 25/10/2017 to 30/12/2017)
Average 4.06
Lowest 3.35
Highest 4.74
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 18
Ratings
The ratings assigned by the rating agencies as at 31 December 2017 are provided below:
Rating Agencies Short-term debt Outlook Long-term debt Outlook Last update
DBRS R-4 Stable B (High) Stable 23/08/17
Fitch Ratings B - B Stable 11/08/17
Moody's Investors Service NP - B3 Negative 12/07/17
On 23 August, the rating agency DBRS raised the long-term rating to “B (high)” from “B
(low)” and the short-term rating to “R-4” from “R-5”, changing the outlook from ‘Under
Review Developing’ to ‘Stable’.
On 11 August, the Fitch rating agency reduced to “f” and then raised to “b” the Bank’s
viability rating, increased the long-term rating to “B” with a “Stable” outlook from “Rating
Watch Evolving” and confirmed the short-term rating as a “B”, removing the “Rating Watch
Negative” designation.
On 12 July, the Moody’s rating agency increased the BCA (Baseline Credit Assessment) rating
to “caa1” from “ca” and confirmed the long-term rating at “B3”. The long-term rating
outlook was shifted to “Negative” from “Under Review with Direction Uncertain”.
2017 ANNUAL REPORT
19 Consolidated Report on Operations
Organisational structure
Through its Head Office, Banca Monte dei Paschi di Siena perfonns functions of direction,
coordination and controi ovcr thc Group's companics, as part of thc more generaI guidclincs sct out
by the Board of Directors and in the interest of the Group's stability.
Organisational chart ofthe Bank's Head Offices as at 31.12.2017
The organisationai developments in 2017 were characterised by the compietion of initiatives to
redefine scopes of responsibility, delineated by the new organisationai model approved by the Board of
Dircctors in thc 4th quartcr of 2016 and, during that pcriod, was limitcd to thc first rcporting lcvcl and
thc first stcp in thc organisationai rcconfiguration of thc CCO and CHCO arcas.
In addition to compieting the depIoyment of the new organisational model that involved nearly ali of
thc Parcnt Company's arcas of rcsponsibility, though with diffcring dcgrccs of dcpth and impacts,
other optimisation initiatives were planned and carried out that, for the relevant areas, contributed to
developing a framework desii:,'11 consistent with the reference philosophy that was the source of
inspiration in terms of focused and clear assignment of responsibilities, simplification of structures and
proccsscs, strcngthcning of govcrnancc mcchanisms and spccialiscd ovcrsights, as wcll as
organisational suitability in rclation to thc provisions of supcrvisory bodics and dcsigncd to facilitate
the realisation of the Bank's Restructuring PIan agreed with the competent authorities.
An overview of the most significant actions taken is presented below, broken down by area.
• Within thc Chief Audit Executive (CAE) arca, thc rcorganisation guidclincs cnvisagcd thc
reduction of direct reports to the CAE and more focus on the specialist areas by establishing a
new responsibility centre (Specialist Review Area), which combined the Credit, Risk, Fraud,
and IT/Operation functions.
• Within the Chief Risk Officer (CRO) area, the reorganisation guidelines envisaged the
streni:,>thening of governance process for business activities related to risk control, explicitly
allocating responsibilities by setting up organisationai functions focused on homogeneous risk
segments. The organisationai changes that resuited included the creation of areas that mirror
the functions predominantly involved in customer interaction (Area Lending Risk Officer,
Area Financial Risk Officer, Area Operating Risk Officer). With the same Iogic and in the
H/I'lC/I \TONTE DEI P,lo;CHT DJ SJE'lA
Consolidated Report on Operations 20
context of improving the risk culture, the internal structure of the Risk Management
Committee was reviewed, introducing specific sessions for homogeneous segments and by
relevant function.
Within the Group General Counsel Department (GGC), the reorganisation guidelines
involved strengthening governance by having technical/specialist functions report directly to
the GGC as well as improved focus on organisational oversight of advisory activities on legal
and corporate matters through the following actions:
o changing the Judicial and Criminal Assistance and Financial Advisory functions to
report directly to the GGC
o review the internal structure of the Legal and Corporate Area, setting up two
competency centres that are specialised in, and focused on, legal advisory and
corporate advisory, respectively
o strengthening local relationships by developing the specialised legal area for
communicating and applying strategic/operational directives
Within the External Affairs area, the reorganisation guidelines included the need to provide
the Bank with a solid organisational structure that is able to ensure adequate support to top
managers in relations with the media and local and national institutions.
The organisational changes that resulted included the creation of the new External and
Institutional Relations Department, with the mission of performing external relations and
representation activities with institutions, managing top management’s communication needs
with the media, and monitoring content published by the media.
For the Chief Financial Officer (CFO), the reorganisation guidelines entailed defining a
single governance of responsibilities within the M&A, Investor Relations, and Equity
Investments functions, in order to maximise synergies, with a view to ensuring explicit
directives and assessing the integration of the specialist areas that are managed.
The organisational changes that resulted included the creation of a single Area which
combines the responsibilities related to the Investor, M&A, and Equity Investments functions,
integrating the responsibilities that had been previously distributed across two distinct Areas.
To support the realisation of the Bank’s Restructuring Plan, the governance model for the
primary change projects and the initiatives supporting transformation were revised, which was
necessary to achieve the established objectives.
Thus, in order to support top management and monitor the structures involved in the change
process that has been undertaken, the Bank set up a focused and skilled responsibility centre,
which has the appropriate tools to guide decision-making processes and facilitate the
achievement of objectives.
The organisational solution involved the creation of a Chief Program & Cost Officer Area,
reporting to the CEO, which combined the responsibilities of Projects Governance that were
previously part of the CFO, in relation to the definition and management of Plan Projects and
monitoring these plans in terms of execution status, with a dedicated focus on monitoring the
principal Plan initiatives, determined in order to achieve its objectives, particularly in reference
to cost reduction measures.
For the Chief Lending Officer (CLO), the reorganisation guidelines provided for
strengthening the governance model of the Loan Portfolio and the objectives of the Business
Plan and refocusing the 2 lending business lines dedicated to execution (on the Performing
and Non-Performing Loans, respectively), through the following primary actions, the first step
of which was essentially divided into:
o creation of a function dedicated to governance of the loan portfolio (Area Credit
Portfolio Governance) into which the responsibilities for defining credit policies have
also been merged
2017 ANNUAL REPORT
21 Consolidated Report on Operations
o establishment of the new Performing Loans Department and renaming of the former
Problem Loans & Assets Department to the Non-Performing Loans Department
o creation of Regional Credit Areas, reporting to the Performing Loans Department,
defined as “mirror” structures and organisationally equivalent to the Regional Areas
that maintain business oversight. At the same time, the responsibilities for evaluation
and authorisation for foreign counterparties were transferred from the Business
function to the Credit function. This was followed by the completion of the
separation of the commercial and lending areas with the transfer of the authorities
previously assigned to the Regional Business functions (Regional Areas/DTM) to the
Regional Credit Areas. Simultaneously, in compliance with the recommendations of
supervisory bodies, the credit authorities were reviewed at the highest levels,
eliminating a corporate body (the Large Loans Committee) and redistributing its
powers to the Board of Directors and the Credit and Credit Policies Committee.
Within the Chief Commercial Officer (CCO), the transformation that was launched with the
review of the Department’s internal structures was completed with the deployment of the
organisational change in the regions: effective from the end of March 2017, the Regional Areas
were reduced from 8 to 6, with a redesign of the geographical perimeters and simultaneous
reduction of the related COO and CHCO support structures for the oversight of the respective
areas.
With regard to the Chief Operating Officer (COO), the reorganisation guidelines entailed the
strengthening of the operating cost governance strategy, including through a reduction in the
number of direct reports to the COO, focusing on the quality of operational services to customers,
and enhancing the leading role in simplifying IT procedures through the following actions:
o establishment of a strong, new responsibility centre (Organisation and Operations
Department) that combined governance of the operating apparatus, represented by the
oversight and development of processes and the execution of the operating activities
carried out both internally and through outsourcing
o integration of the responsibilities of Organisation and Demand Management, in order to
maximise lucidity in directives, continuity and coherence in the service offered in terms of
oversight, and development of structures, processes, and related IT solutions
o strengthening of the organisational structure in the regions through the creation of new
specialised oversights deriving from the separation of the organisation and human
resources areas that had previously been combined
o optimisation of the structure and strengthening of specialised oversight related to Security
with the establishment of expert responsibility centres dedicated to protecting physical
and logical security and enhancing cost oversight with the establishment of an exclusive
competency centre reporting directly to the Head of the Purchasing and Cost
Management function
For the Chief Human Capital Officer (CHCO), the reorganisation guidelines provided for the
strengthening of the organisational structure in the regions through the creation of specialised
oversights on human resources similar and simultaneous to the organisational change in the COO
area. Moreover, a function was established focused on Internal Communication, separating the
responsibilities from the technical secretariat structure.
With respect to Network processes, actions continued to improve the quality of work, free up more
time to be dedicated to sales activities and increase customer service quality, while reducing service
response/provision times by streamlining “administrative” activities and document management costs,
heavily oriented toward increasing digitalisation of processes.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 22
Governance & control systems
Corporate governance
For the Bank, the relevance of corporate governance goes beyond its traditional technical meaning, i.e.
a set of coordinated rules and structures governing relations amongst shareholders and between them
and the directors and top management. In line with the Bank’s mission, it is seen as a tool for relations
with all stakeholders.
The Bank’s bodies work so as to pursue the overall proper functioning of the business.
The Bank’s fair and transparent corporate governance system and shared Code of Ethics provide it
with rules that ensure that the legitimate expectations of all stakeholders are incorporated within
corporate objectives.
The overall corporate governance system makes reference to the Corporate Governance Code of listed
companies issued by the Italian Stock Exchange, thereby ensuring: a clear delineation of roles and
responsibilities, the appropriate separation of powers, balanced composition of the corporate bodies,
effective controls, monitoring of all business risks, adequacy of information flows and the company’s
social responsibility.
In particular, the administration and control system includes the following: the Board of Directors, the
Board of Statutory Auditors and the Shareholders' Meeting. In addition, there are the CEO and four
Board committees, specifically, the Risk Committee, Appointments Committee, Remuneration
Committee and Related-Party Transactions Committee.
The Bank’s internal control system is meant to ensure that risks are identified, measured, managed and
monitored in such a way so as to enable sound, proper business management in line with pre-
established objectives.
Further information is available in the “Report on Corporate Governance and Ownership Structure”,
available on the Bank’s website. (https://www.gruppomps.it/corporate-governance/relazioni-
corporate-governance.html)
Risk governance
Risk governance strategies are defined in line with the Group business model, medium-term
Restructuring Plan objectives and external regulatory and legal requirements.
Policies relating to the assumption, management, coverage, monitoring and control of risks are defined
by the Board of Directors of the Parent Company. Specifically, the Board of Directors periodically
defines and approves strategic risk management guidelines and quantitatively expresses the Group’s
overall risk appetite, in line with the annual budget and multi-year projections.
The Parent Company’s Board of Directors defines the overall Risk Appetite Framework (RAF) for the
Group and approves the “Group Risk Appetite Statement” (RAS) at least once per year. The Risk
Control Function is specifically assigned the task of conducting the quarterly monitoring of indicators,
drawing up a periodic report for the Board of Directors and implementing the escalation/authorisation
processes in the event of overdrawn amounts.
The RAS represents an essential element in defining the Group’s risk strategy. The risk
objectives/restrictions are identified and the indicators are broken down by Business Unit/Legal
Entity (known as “cascading down” of the Risk Appetite). The objective is to increase the Group’s
Risk Culture and fully instil accountability in all relevant Business Units with regard to respect and
pursuit of the risk appetite objectives, as required by the regulations and recommended by best
practices.
The overall RAF system is broken down in terms of the Group’s main Business Units and Legal
2017 ANNUAL REPORT
23 Consolidated Report on Operations
Entities, also in terms of operating limits for the various business areas, and formalised in governance
policies and processes for the management of the various corporate risks.
The Risk Appetite Process is structured so as to ensure consistency with the ICAAP and ILAAP as
well as with Planning and Budget and Recovery processes, in terms of governance, roles,
responsibilities, metrics, stress testing methods and monitoring of key risk indicators.
Group Risk governance is provided centrally by the Parent Company’s Board of Directors, which also
supervises and is responsible for the updating and issue of internal policies and regulations in order to
promote and guarantee a continuously greater and more widespread risk culture at all levels of the
organisation. Awareness of risks and the correct knowledge and application of the internal processes
and models governing those risks - especially for those validated for regulatory purposes - are
fundamental requirements for effective, sound and prudent business management.
The incorporation of macro risk and risk-adjusted performance indicators, consistent with the RAF,
within staff remuneration and incentive policies represents an additional tool to promote awareness of
the conduct of all resources and the cultivation of a healthy risk culture.
During 2017, internal initiatives proceeded to ensure continued compliance with national and
international regulatory provisions. With regard to risk management, reference internal regulations
were updated for the management of Banking Book Interest Rate Risk, Credit Risk, Market Risk, as
well as for the processes of ICAAP, ILAAP and Internal Validation.
In addition, the ICAAP and ILAAP packages were sent to the Regulator in accordance with the ECB’s
regulatory prescriptions regarding the “Technical implementation of the EBA Guidelines on
ICAAP/ILAAP information for SREP Purposes”.
Initiatives designed to strengthen Group Governance in the area of risk reporting were activated, in
order to ensure compliance with the instructions from the Basel Committee on Banking Supervision
(BCBS Paper no. 239), which requires systemically important banks to adopt a series of standards to
guarantee accurate aggregation of risk data and an efficient reporting process, with the launch of a
dedicated project that also resulted in the publication of the “Group Directive on Integrated Risk
Reporting”.
In reference to the Group’s Risk Culture, in addition to pursuing initiatives regarding corporate bodies
(board induction cycles on specific issues), general training programmes (on-line courses) were also
launched during the year for all personnel in the areas of risk management and mitigation, as well as
other classroom training sessions.
The Montepaschi Group is one of the Italian banks subject to the ECB’s Single Supervisory
Mechanism.
Compliance systems
Within the broader internal control system, the Compliance Function of the Parent Company
autonomously and independently governs non-compliance risk at Group level, periodically reporting to
business top management and supervisory authorities on the overall status of compliance of systems,
processes, and operations.
In 2017, a specific “Compliance Function Reinforcement Plan” was implemented, aimed at satisfying
the concerns identified by the European Central Bank. This plan involved a general revision of the
organisational model adopted, with:
centralisation in the Parent Company of the compliance functions of the Italian subsidiaries and
review of the information flows with banks and foreign branches;
replacement of the “distributed Compliance Model”, by centralising the operating activities
previously assigned to the Specialised Compliance Controls within the BMPS Compliance
Function, at the same time strengthening oversight on the 2 remaining Specialised Controls (Tax
Compliance and Workplace Health and Safety).
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 24
definition of a specific “Collaboration Protocol” between the Compliance and Internal Audit
functions and the review of the entire regulatory framework for Compliance.
Additional initiatives were completed in 2017, particularly in matters related to:
ICT compliance measures (Bank of Italy Circular no. 285) and combating international tax
evasion (FATCA/CRS);
banking transparency, with the conclusion of planned interventions on the plan sent to Bank of
Italy in 2013;
usury, adapting control procedures to the new Supervisory Instructions from Bank of Italy issued
in 2016;
protection of personal information, to improve the system for tracing banking transactions
carried out by employees;
payment systems, adapting to measures included in the new provisions of European Directive
(PSD2), in effect from January 2018;
investment services, with the definition and implementation of actions necessary to comply with
the PRIIPs Regulation, MiFID II Directive, and MiFIR Regulation, effective from January 2018.
Executive Remuneration Policy
The Group’s remuneration and incentive policies are described every year in the “Remuneration
Report”, prepared under Article 123-ter of the Consolidated Law on Finance and subject to approval
by the Shareholders' Meeting.
(https://www.gruppomps.it/corporate-governance/remunerazione.html)
The enhancement of professional skills and taking management decisions aimed at long-term value
creation reflect a corporate culture based on the ethics of responsibility, a strong sense of belonging
and continuous focus on human capital growth, in compliance with prudent risk management policies.
Thus, the Group approved a specific structured management plan so that the passage from business
strategies to results is guaranteed, including through initiatives launched to ensure a continuous process
of employee engagement, merit recognition, opportunities for professional growth, and a distinct and
distributed leadership based on measurement of performance and responsibilities fulfilled. In
particular, the distinctive element for managerial levels is the weighting of the business position (grade)
based on its true effect on the business.
2017 ANNUAL REPORT
25 Consolidated Report on Operations
Distribution channels
The Group operates with a view to developing and rationalising its distribution network, by combining
regional coverage with the strengthening of innovative channels.
Traditional domestic branches are supported by specialist sales centres, which oversee relations with
and the specific management of particular customer segments (e.g. SMEs, Private individuals,
Institutions, etc.) and by 606 Financial Advisors (-22 compared to 31 December 2016) that carry out
their activities by making use of the offices open to the public that are distributed nationwide (up by 1
compared to 31 December 2016).
MONTEPASCHI GROUP - DISTRIBUTION NETWORK AS AT 31/12/2017
Client Centres(**)
Financial
Domestic
Region Inc. Advisory Inc.
branches(*) Corporate
SME Corporate Private Top Private Istitutions Tot. Inc. Offices
Top
Emilia Romagna 115 6,6% 7 7 5 19 8,2% 7 6,1%
Friuli Venezia Giulia 47 2,7% 3 2 2 7 3,0% 3 2,6%
Liguria 21 1,2% 2 1 1 4 1,7% 4 3,5%
Lombardia 247 14,2% 7 3 1 9 6 26 11,2% 10 8,7%
Piemonte 41 2,3% 3 2 2 7 3,0% 2 1,7%
Trentino Alto Adige 3 0,2%
Valle d'Aosta 4 0,2%
Veneto 230 13,2% 14 1 1 8 7 31 13,3% 5 4,3%
Northern Italy 708 40,6% 36 4 2 29 23 94 40,3% 31 27,0%
Abruzzo 38 2,2% 3 2 2 7 3,0% 3 2,6%
Lazio 151 8,7% 8 1 7 5 21 9,0% 15 13,0%
Marche 45 2,6% 4 2 2 8 3,4% 4 3,5%
Molise 8 0,5% 1 1 0,4% 1 0,9%
Toscana 363 20,8% 17 1 2 17 10 47 20,2% 8 7,0%
Umbria 45 2,6% 2 2 4 1,7% 4 3,5%
Central Italy 650 37,2% 33 3 3 30 19 88 37,8% 35 30,4%
Basilicata 10 0,6% 1 1 0,4% 2 1,7%
Calabria 45 2,6% 2 2 4 1,7% 3 2,6%
Campania 97 5,6% 5 1 1 4 3 14 6,0% 20 17,4%
Puglia 104 6,0% 6 5 4 15 6,4% 16 13,9%
Sardegna 14 0,8% 1 1 1 3 1,3% 2 1,7%
Sicilia 117 6,7% 4 1 4 5 14 6,0% 6 5,2%
Southern Italy and
387 22,2% 18 2 1 14 16 51 21,9% 49 42,6%
island
Total 1.745 100,0% 87 9 6 73 58 233 100,0% 115 100,0%
(*) as reported to the Bank of Italy
(**)of which n. 23 reported to the Bank of Italy as Office not having the same location of the branch.
The Italy Network has 1,745 branches registered by the Supervisory Body at the end of 2017, a
reduction of 287 operating units compared to 31 December 20161, in implementation of the initiatives
laid out in the Restructuring Plan (-115 operating units in the last quarter).
The Group also relies on 233 Specialised Centres (-18 compared to 31 December 2016), of which
154 dedicated to Corporate and Institutions and 79 to Private customers.
1 Spin-offs of branches with subsequent closure.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 26
The Group’s ATM network comprises a total of 2,954 machines (+86 compared to 31 December
2016), of which 2,539 coinciding with traditional branches (2,081 of these are located in premises with
an independent entrance also accessible outside of branch hours) and 415 installed in public places
with high operational potential, of which 153 in institutions/companies. There are 973 ATM machines
with cash-in functions, of which 549 located in self-service areas and 424 inside branches. The increase
in the ATM network is concentrated in the last quarter of 2017 (+213 machines), specifically with
regard to “cash in - cash out” ATMs, in line with the provisions of the project to revise the Retail
business model, aimed at reinforcing the use of remote channels and optimising service lines.
The Group has an international presence with a Foreign Network, geographically distributed in the
main financial and economic markets, as well as in the emerging countries with the highest growth
rates and/or key relations with Italy, currently structured as follows: 4 operational branches (London,
New York, Hong Kong and Shanghai), 10 representative offices located in various “target areas”
(EU, Central-Eastern Europe, North Africa, India and China), 2 banks under foreign law (MP Belgio
with 7 branches in Belgium and MP Banque with 14 branches in France).
In addition to its presence across the country, the Parent Company offers banking services to
customers through electronic channels, through Integrated Multichannel products for Retail and
Corporate customers. As at 31 December 2017, there were a total of 2,040,214 agreements relating to
electronic services, corresponding to 1,059,363 active users (+13,783 compared to 31 December 2016).
Active customers of Retail Multichannel services numbered 969,693 (relating to 1,875,195 agreements)
while Corporate customers totalled 89,670 (for 165,019 agreements).
2017 ANNUAL REPORT
27 Consolidated Report on Operations
Customer base
As at 31 December 2017, tbe Group had around 4.9 million customers (compared to 5.1 million as at
31 December 2016) broken down as follows:
• roughly 4.7 million (down with respect to 31 December 2016) are managed by the Sales Network
of the Parent Company Banca Monte dei Paschi;
• approximately 0.2 million (up compared to 31 December 2016) managed exclusively by Widiba,
the Group's online bank.
Customer Breakdown Business Customers
Breakdown by type Breakd own by type
• Small Business - 6.5%
• VaJoro - 81.3%
• Promium - 10.3%
• Private - 0.70/0
• Family Office - 0.04%
• SIvIEs and othe.r companies - 0.8%
• Institutions - 0.2(%
• Distribution N ctwork - 95.9% • Widiba - 4.1 % • Corporato Top - 0.07%
Large Corporate - 0.03%
Bre akdown by geography
• orth East - 16.8%
. North West - 13.8%
• Centre - 35.1%
• South - 34.4%
At the end of 2017, tbe Retention indicator stood at 92.5%, down slightly from 2016 (92.7%), while
the Acquisition indicator was 3.4%, remaining essentially stable (3.4% in tbe previous year). The trends
in these indicators reflected both tbe economie context as well as the closing of branches as part of the
Network optimisation project.
B . \ :\C\ I\-[O'TI'~ DI 'J P\SCHI DI SIFN\
Consolidated Report on Operations 28
Reference context
During 2017, the global economy transitioned to a scenario of robust growth. Growth in GDP in the
principal regions was close to potential levels, estimated at 2.3% in the U.S. (from 1.5% in 2016), to
2.3% in the Euro zone (from 1.8%) and 1.7% in Japan (from 1%). Stronger growth and the associated
improvement in the labour market that was evident in all regions did not, however, result in the
expected increases in wages and prices. After the acceleration in 2016 and the early months of 2017,
inflation posted a new decline, closing the year below 2% in the U.S. (core consumption deflator) and
under 1% in the Euro zone (harmonised core index).
However, the absence of inflation did not stop the Fed and the ECB from beginning the gradual
process to withdraw the accommodating monetary policy that has characterised the post-crisis period.
In this matter, the two most important events were the launch in October of the reduction in the Fed’s
balance sheet, by partially reinvesting the proceeds from bonds held in the portfolio, and the
announcement by the ECB in the same month of a reduction in monthly purchases to EUR 30,000
million from January to September of 2018. The Fed also raised official rates three times, bringing the
Fed Funds range to 1.25-1.50%.
2017 was marked by a very intense political calendar in Europe, with elections in the Netherlands,
France, and Germany. In particular, the French presidential elections in April produced a result that
was seen as positive by financial markets and favourable for the prospects of the European Union.
With regard to Brexit, early elections in the UK weakened Prime Minister May's position in
negotiations with the European Union that began on 19 June. In the US, the dominant theme was the
first year of the Trump administration, whose main economic policy result was the tax reform initiative
at the end of the year.
Within a highly favourable global macro-environment, the Italian economy recorded growth, which
should be around 1.5% on average for the year, much higher than expected at the start of the year.
This result was driven by household consumption and new vitality in investments, which benefited
from a series of specific fiscal measures. A more favourable cyclical environment makes it highly
probable that the public finance objective of a 2.1% deficit/GDP ratio will be achieved, an objective
that includes a reasonable amount of flexibility negotiated with the European Commission. In Italy, as
in other major countries, inflation trends, although recovering, have been very weak, with a
harmonised index that ended 2017 at an average of 1.3%, after the slightly negative change recorded in
2016 (-0.1%). On the political front, the last months of 2017 saw the beginning of the new electoral
law and, at the end of the year, the dissolution of Parliament. Elections were scheduled for 4 March
2018.
In financial markets, 2017 was an extremely positive year for investors. The major equity indices
recorded gains between 10% for the Euro Stoxx and 19% for the S&P 500 and Nikkei. In this
context, the FTSE MIB rose by 13.6%. The combination of accelerating growth, weak inflation, and
monetary policies that were still accommodating generated government bond yields that were in a
relatively narrow range. In particular, the ten-year BTP fluctuated between 1.65% and 2.35%, closing
the year at the mid-point of this range, around 2%.
2017 ANNUAL REPORT
29 Consolidated Report on Operations
Significant events in 2017
On 20 January 2017, the Parent Company announced that it had received a decree from the Ministry
of Economy and Finance granting the government guarantee to back its access to liquidity pursuant to
Law Decree no. 237/2016 and that it had promptly initiated activities in preparation for the issue of
government backed securities.
On 25 January 2017, the Parent Company completed two issues of government-backed securities
pursuant to Law Decree no. 237/2016, for a total of EUR 7 bn: the first issue matures on 20/1/2018,
with a 0.5% coupon and a nominal amount of EUR 3 bn, whereas the second matures on 25/1/2020,
with a 0.75% coupon and a nominal amount of EUR 4 bn. The securities, backed by the government
guarantee pursuant to Law Decree no. 237/2016, were subscribed in full by the issuer and in part sold
on the market and in part used as collateral in funding transactions or collateral swaps. On 31 January
2017 the rating agency DBRS rated the two government-backed securities issued on 25 January 2017
pursuant to Law Decree no. 237/2016. With regard to the “Banca Monte dei Paschi di Siena S.p.A.
360 giorni 0,50% 20.01.2018 con garanzia dello Stato - ISIN IT0005240491” issue, DBRS assigned a
short-term rating of R-1 (low). With regard to the “Banca Monte dei Paschi di Siena S.p.A. 0,75%
25.01.2020 con garanzia dello Stato - ISIN IT0005240509” issue, DBRS assigned a long-term rating of
BBB (high). The trend for both issues was assessed as “Stable”. Considering the unconditional and
irrevocable guarantee of the Italian government, the ratings and trend are aligned with those of the
Italian Republic.
On 3 February 2017, the Parent Company announced that it reached a binding agreement with
Istituto Centrale delle Banche Popolari Italiane S.p.A (“ICBPI”), a national and international leader in
the management of payment services, for the sale of assets relating to the “Merchant Acquiring”
business unit based on an enterprise value of EUR 520 million. As part of this transaction, BMPS and
ICBPI, through its subsidiary CartaSì S.p.A., will enter into a ten-year partnership for the development
and placement of payment products and services for current and future customers of the Group,
through the MPS Group’s distribution network. The closing of the transaction is subject to the
satisfaction of certain standard conditions precedent for transactions of this type, including the
obligatory completion of the trade union procedure established by law and the contract and obtaining
authorisation from the Bank of Italy and the antitrust authorities.
On 6 February 2017, Fitch Ratings rated the two government-backed securities issued by the Bank on
25 January 2017 pursuant to Law Decree no. 237/2016. In particular, with regard to the “Banca Monte
dei Paschi di Siena S.p.A. 360 giorni 0,50% 20.01.2018 con garanzia dello Stato - ISIN IT0005240491”
issue, Fitch assigned a short-term rating of F2. With regard to the “Banca Monte dei Paschi di Siena
S.p.A. 0,75% 25.01.2020 con garanzia dello Stato - ISIN IT0005240509” issue, Fitch assigned a long-
term rating of BBB+. Considering the unconditional and irrevocable guarantee of the Italian
government, the ratings are aligned with those of the Italian Republic. In February, the above-
mentioned securities were used in full in sales transactions in the market and as collateral to back
funding transactions.
On 17 February 2017, Law Decree no. 237 of 23 December 2016 was converted into law, with the
main changes regarding the rules on deferred tax assets (DTAs), the amendment of conditions
concerning the recovery of the subordinated Upper Tier II 2008-2018 security and the value of shares
necessary to calculate the price of the shares to be attributed to the holders of the instruments and
loans.
On 28 February 2017, with reference to the planned transaction for the outsourcing of Banca Monte
dei Paschi di Siena S.p.A.’s doubtful loans platform (the “Juliet Project”), pursuant to the binding offer
submitted by Cerved Group S.p.A. on 13 November 2016 and already subject to the previous
communication of 14 November 2016, Cerved Information Solutions S.p.A. (MTA: CERV) the
holding company heading up the Cerved Group and a leader in Italy in credit risk analysis and credit
management, and Banca Monte dei Paschi di Siena S.p.A. announce that (i.) the conditions precedent
set forth in the agreement for the completion of the Juliet Project were not fulfilled by the established
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 30
deadline of 28 February 2017 and, therefore, the agreement relating to that project should be
considered void, and (ii.) Cerved Information Solutions S.p.A. expressed its willingness to extend the
above-mentioned deadline to 30 June 2017. In this context, Cerved Information Solutions S.p.A. and
Banca Monte dei Paschi di Siena S.p.A. note, in any case, that discussions are ongoing between the
parties to explore alternative business partnership forms within the doubtful loan management sector.
On 9 March 2017, the Board approved a preliminary proposal for the Restructuring Plan, which was
sent to the competent authority to start discussions to finalise the plan and obtain approval from the
Authority.
On 15 March 2017, the Parent Company issued a government-backed security pursuant to Law
Decree no. 237/2016, as amended by conversion law no. 15/2017, with the following characteristics:
nominal amount of EUR 4 bn, maturity of 15/3/2020, 0.75% coupon (ISIN IT0005246423). The
security, backed by the government guarantee pursuant to Law Decree no. 237/2016, as subsequently
amended by conversion law no. 15/2017, was subscribed in full by the issuer and was subsequently in
part sold on the market and in part used as collateral in funding transactions or collateral swaps. The
issue joins the two already carried out on 25 January for a total amount of EUR 7 billion. On the same
date of 15 March, Fitch Ratings rated the government-backed security issued by the Bank. In
particular, with regard to the “Banca Monte dei Paschi di Siena S.p.A. 0,75% 15.03.2020 con garanzia
dello Stato - ISIN IT0005246423” issue, Fitch assigned a long-term rating of BBB+. Subsequently, on
17 March 2017, DBRS assigned the same security a rating of BBB (high). Considering the
unconditional and irrevocable guarantee of the Italian government, the rating is aligned with that of the
Italian Republic.
On 12 April 2017, the Board of Directors of Banca Monte dei Paschi di Siena S.p.A. appointed
Independent Director Massimo Egidi as the new member of the Risk Committee. The Risk Committee
therefore consists of the following members: Roberto Isolani (Chairman), Stefania Bariatti, Daniele
Bonvicini, Antonino Turicchi and Massimo Egidi.
On 24 April 2017, Law Decree no. 50 was approved (published in Official Gazette no. 95 of 24 April
2017 - O.S. no. 20), which as of 2017 amended the regulation underlying the ACE (Support to
Economic Growth) deduction. Article 7 of the final version of Law Decree no. 50, after the
amendments to the original text made during the process of conversion into Law (cf. Law no. 96 of
24/06/2017), establishes - effective as of the 2017 tax period - a reduction in the rate (notional return)
to be applied to increases in own capital relevant for the purposes of the ACE benefit (substantially
those realised from 2011 and thereafter). Concretely, the ACE benefit rate for 2017 declines from
2.3% to 1.6% and, when fully implemented, for the subsequent years, from 2.7% to 1.5%; therefore,
with respect to the regulations previously in force, the rate reduction will decrease the amount of
deductions from taxable income for 2017 and subsequent years, downsizing the effect of the fiscal
benefit in question. Aside from this effect, the regulatory amendment in question also had significant
impacts on the probability test and therefore on the ability to recognise DTAs for the MPS Group.
Indeed, on a forward-looking basis, the lower ACE deductions will reduce the absorption of future
taxable income which may be allocated to a greater extent to offsetting previous tax losses.
On 26 June 2017, a binding agreement was entered into with the Atlante Fund (managed by Quaestio
Capital Management SGR S.p.A.) for the acquisition of 95% of the junior and mezzanine notes as part
of the assignment of doubtful loans (for further details, please refer to the section “The doubtful loan
disposal transaction”).
On 30 June 2017, the sale to CartaSi S.p.A. (“CartaSi”), a subsidiary of Istituto Centrale delle Banche
Popolari Italiane S.p.A (“ICBPI”), a national and international leader in the management of payment
services, of the BMPS assets relating to the merchant acquiring business unit was completed for
consideration of EUR 536 mln. This transaction, announced on 3 February, also envisages a ten-year
commercial partnership between the Group and CartaSì for the development and placement, through
2017 ANNUAL REPORT
31 Consolidated Report on Operations
the Group’s distribution network, of payment products and services for current and future customers
of the Group.
The sale to ICBPI of the stakes of 11.74% in Bassilichi S.p.A. and 10.13% in Consorzio Triveneto
S.p.A. held by the Parent Company was completed on 3 July.
On 4 July 2017, the European Commission announced that it had approved the Group’s 2017-2021
Restructuring Plan (the “Restructuring Plan”) to allow for the precautionary recapitalisation pursuant
to Law Decree no. 237/2016, as converted and subsequently amended (the “Precautionary
Recapitalisation” and “Decree 237”), of the Bank in line with the regulations of the European Union
(“EU”).
On 12 July 2017, the Moody’s rating agency increased the individual rating of the Parent Company
(Baseline Credit Assessment – BCA) to “caa1” from “ca” and confirmed the long-term rating at “B3”.
On 28 July 2017, as part of the procedure for the capital strengthening of the Parent Company, the
decrees of the Ministry of Economy and Finance were published in the Official Gazette of the Italian
Republic pursuant to Law Decree no. 237/2016, as converted and subsequently amended (“Decree
237”), ordering the application of the Burden Sharing measure, pursuant to art. 22, paragraphs 2 and 4
of Decree 237 (the “Burden Sharing Decree”) and the share capital increase of the Bank servicing the
subscription of shares by the MEF (the “Precautionary Recapitalisation”, the “Recapitalisation Decree”
and the “BMPS Shares reserved to the MEF”, respectively).
As part of the Burden Sharing, in compliance with what is set forth in art. 23, paragraph 3 of Decree
237, as well as art. 2 of the Burden Sharing Decree, on 1 August 2017 the financial instruments
specified below were converted into ordinary shares of the Bank newly issued at the unit price of EUR
8.65 (the “Burden Sharing Shares”):
IT0004352586
XS0122238115
XS0131739236
XS0121342827
XS0180906439
XS0236480322
XS0238916620
XS0391999801
XS0415922730
XS0503326083
XS0540544912
For further details, please refer to the press release published on the website www.mps.it on the same
date.
On 2 August 2017, the Parent Company announced that it had reached a binding agreement with
Cerved Group S.p.A. (“Cerved”) and Quaestio Holding SA (“Quaestio”) concerning the outsourcing
of its doubtful loans platform. The transaction envisages the consolidation of the platform to a vehicle
company specifically established by Banca MPS, which would subsequently be transferred to Cerved
and Quaestio, through the subscription of a long-term servicing agreement between the vehicle
company and the Group’s Italian banks for the management of future cash flows of doubtful loans.
The servicing agreement does not include loans classified as doubtful as at 31 December 2016 and
subject to the disposal plan for a total of EUR 28.6 bn. The platform outsourcing transaction
represents one of the actions included within the Banca MPS Restructuring Plan and is intended to
improve debt collection performance by virtue of an industrial partnership with an important operator
specialised in the management of doubtful loans, which is capable of guaranteeing high quality
standards aligned with best market practices. The consideration for the equity investment is EUR 52.5
mln, in addition to a possible earn out of up to EUR 33.8 mln, based on the achievement of economic
results in the timespan until 2025. The closing of the transaction, expected to take place by the end of
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 32
the first quarter of 2018, is subject to the approval of the supervisory authority as well as the
completion of the precautionary recapitalisation procedure set forth in the Restructuring Plan and the
securitisation of the doubtful loans of BMPS, with the subscription of mezzanine notes by funds
managed by Quaestio.
On 3 August 2017, an agreement was signed between the Group and the trade unions with regard to
the “Solidarity Fund for professional retraining and requalification, for the support of employment and
the income of credit personnel”, for the exit, as at 1 November 2017, of a further 1,200 resources in
addition to the 600 exits already completed as at 1 May 2017. The exit of these resources is in line with
the targets of the Restructuring Plan, which requires, inter alia, a headcount reduction across all of the
Group’s organisational structures by around 5,500 resources, to be carried out primarily through exit
support measures (roughly 4,800 through the activation of the “Solidarity Fund”).
On 10 August 2017, pursuant to art. 85-bis of the Issuers’ Regulations, the new composition of the
Parent Company’s share capital was announced, as a result of the share capital increase which took
place due to the issue on 27 July 2017 of the decrees of the Ministry of Economy and Finance
(hereinafter, “MEF”) relating to “Capital strengthening initiatives of Banca Monte dei Paschi di Siena,
pursuant to art. 18, paragraph 2 of Law Decree no. 237 of 23 December 2016 converted, with
amendments, by Law no. 15 of 17 February 2017” and “Capital strengthening initiatives of Banca
Monte dei Paschi di Siena, pursuant to art. 18, paragraph 3 of Law Decree no. 237 of 23 December
2016 converted, with amendments, by Law no. 15 of 17 February 2017”, published in Official Gazette
no. 175 on 28 July 2017. The share capital increase was completed on 11 August when it was recorded
in the Companies’ Register.
On 11 August 2017, the Fitch rating agency raised the long-term rating of the Parent Company to “B”
from “B-” and the individual rating to “b” from “c”, changing the outlook from “Rating Watch
Evolving” to “Stable”.
On 23 August 2017, the rating agency DBRS raised the long-term rating of the Parent Company to “B
(high)” from “B (low)” and the short-term rating to “R-4” from “R-5”, changing the outlook from
‘Under Review Developing’ to ‘Stable’.
On 11 October 2017, the Parent Company and Compass, the consumer credit company of the
Mediobanca Group, renewed the long-term partnership for the distribution of Compass loans in the
over 1,800 branches of Siena-based banking group. After the success of the first three years of this
collaboration, the new agreement between the Companies strengthens the commercial offering.
Starting from the new year, aside from loans, the salary/pension-backed loan product will be available
throughout the country with the collaboration of Futuro S.p.A., the Compass subsidiary specialised in
this type of lending.
On 24 October 2017, Consob approved the document relating to the Partial Voluntary Public
Offering for Exchange and Settlement (the “Offer Document”) for the holders of ordinary shares of
the Bank (ISIN IT0005276776) resulting from the conversion - following the application of the new
burden sharing measures pursuant to article 22, paragraph 2 of Law Decree no. 237 of 23 December
2016 (as converted with amendments by Law no. 15 of 17 February 2017 as amended) - of the
subordinated bond loan named “€2.160.558.000 Tasso variabile Subordinato Upper Tier II 2008 -
2018” (ISIN IT0004352586) (the “Offering”).
Also on 24 October 2017, Consob also issued its judgement of equivalences, pursuant to article 34-ter,
paragraph 1, letter j) of the regulation it adopted with resolution no. 11971 of 14 May 1999, as
amended (the “Issuers’ Regulations”), in relation to the information requirements concerning the
senior debt securities offered in exchange by BMPS as part of the Offering.
Also on the same date, Consob approved the Registration Document relating to the Issuer (the
“Registration Document”) and the Information Note (the “Information Note”) and Summary Note
(the “Summary Note”) relating to the admission to listing on the Mercato Telematico Azionario
market organised and managed by Borsa Italiana S.p.A. (the “MTA”) of ordinary shares of the Bank
(the “New Shares”). In particular, the New Shares were issued (a) on 1 August 2017 following the
2017 ANNUAL REPORT
33 Consolidated Report on Operations
adoption of burden sharing measures pursuant to article 22, paragraph 1 of Law Decree 237/2016,
converted with amendments by Law no. 15 of 17 February 2017 as amended by Law no. 121 of 31 July
2017 (“Decree 237”) and the relative Ministerial Decree published in the Official Gazette on 28 July
2017 (the “Burden Sharing Shares”) and (b) on 3 August 2017, following the share capital increase
subscribed by the Ministry of Economy and Finance (the “Share Capital Increase reserved to the
MEF” and the “MEF”, respectively) pursuant to art. 18 of Decree 237 and the relative Ministerial
Decree published in the Official Gazette on 28 July 2017. The Registration Document, the
Information Note and the Summary Note constitute the prospectus - prepared in a three-part format -
for the listing of the New Shares (the “Prospectus”).
Finally, on 24 October, Consob, with resolution no. 20167, also ordered the Revocation of Resolution
19840 of 23 December 2016 relating to the temporary suspension of trading in regulated markets,
multilateral trading facilities and the Italian systematic internalisers relating to the securities issued or
guaranteed by the Parent Company and the financial instruments with securities issued by the Parent
Company as the underlying assets.
On 25 October 2017, the MPS security was readmitted to trading on the MTA.
On 30 October 2017, the Parent Company announced that the decree of the Ministry of Economy
and Finance had been issued relating to the acquisition by that Ministry of the shares subject to partial
voluntary public offering for exchange and settlement of BMPS intended for the holders of ordinary
shares of the Bank (ISIN IT0005276776) resulting from the conversion - following the application of
the burden sharing measures pursuant to article 22, paragraph 2 of Law Decree no. 237 of 23
December 2016 (as converted with amendments by Law no. 15 of 17 February 2017 as amended) - of
the subordinated bond loan named “€2.160.558.000 Tasso variabile Subordinato Upper Tier II 2008 -
2018”.
The period for acceptance of the Offering began at 8:30 a.m. on 31 October 2017 and ended at 4:30
p.m. on 20 November 2017 (inclusive). The Offering was settled on 24 November 2017 (the
“Exchange Date”). For more information on the terms and conditions of the Offering, please refer to
the offer document available on the website www.gruppomps.it.
On 23 November 2017, the Parent Company communicated the final results of the Partial Voluntary
Public Offering for Exchange and Settlement for holders of the Bank’s ordinary shares (ISIN
IT0005276776) resulting from the conversion, following the application of the new burden sharing
measures pursuant to article 22, paragraph 2 of Law Decree no. 237 of 23 December 2016 (as
converted with amendments by Law no. 15 of 17 February 2017 as amended), of the subordinated
bond loan named “€2.160.558.000 Tasso variabile Subordinato Upper Tier II 2008 - 2018” (ISIN
IT0004352586) (the “Offering”). During the Offer Acceptance Period (31 October 2017 - 20
November 2017), 198,521,533 BMPS UT2 shares were validly purchased under the Offer terms,
equivalent to 83.520540% of the BMPS UT2 shares that were offered (equivalent to a total of
237,691,869). Based on these purchases, the final Allocation Coefficient is 92.275041%, for which the
Offeror (the Parent Company), in the name an on behalf of MEF, purchased 92.275041% of BMPS
UT2 shares purchased in Acceptance by each Subscriber and restored the remaining BMPS UT2
shares, under the conditions indicated in the Offer Document.
On 24 November 2017, in relation to the Partial Voluntary Public Offering for Exchange and
Settlement and pursuant to Section E of the Offer Document, the Parent Company announced that
the fixed interest rate of the Senior Debt Securities is equal to 0.657%, determined in accordance with
art. 19, paragraph 2, lett. c) of Decree 237. The coupon amount that will be paid on the Maturity Date
is, therefore, equal to EUR 0.003096 for each Senior Debt Security. Furthermore, based on the final
Allocation Coefficient announced on 23 November 2017, it was confirmed that the total nominal value
of the Senior Debt Securities is equal to EUR 1,535,830,866.00.
On 15 December 2017, the Chairman of the Board of Directors of Banca Monte dei Paschi di Siena,
Alessandro Falciai, announced that he was unwilling to accept his nomination on the list submitted by
the Ministry of the Economy and Finance in advance of the Shareholders' Meeting on 18 December.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 34
On 18 December 2017, the Shareholders' Meeting set the number of members of the Board of
Directors at 14, in addition to a Deputy Chairman, and resolved to appoint the members of the Board
of Directors of Banca Monte dei Paschi di Siena for the years 2017, 2018 and 2019 as well as the
members of the Board of Statutory Auditors. Moreover, Stefania Bariatti was appointed as Chairman
of the Board of Directors, and Antonino Turicchi was appointed Deputy Chairman.
On 20 December 2017, the securitisation transaction to transfer doubtful loans was concluded,
through the intervention of the Atlante Fund (managed by Quaestio Capital Management SGR S.p.A.),
for which, on 26 June 2017, a binding agreement was signed to acquire 95% of the junior and
mezzanine notes.
On 21 December 2017, in reference to the communication of 18 December 2017 following the
Ordinary and Extraordinary Shareholders' Meeting, the Parent Company announced that, following
the receipt of the verification measure from the supervisory authorities, the new Articles of
Association and appointment resolutions for the Board of Directors and the Board of Statutory
Auditors were registered with the Siena Companies’ Register, thereby becoming effective.
On the same date, pursuant to art. 85-bis of Consob Regulation no. 11971/1999 (Issuers’ Regulation),
the Parent Company’s new share capital was announced (EUR 10,328,618,260.14), following the
decision to reduce share capital pursuant to art. 2446 of the Italian Civil Code, to cover losses resulting
from the financial statements as at 30 September 2017, resolved by the Shareholders’ Meeting of 18
December 2017, filed on 20 December 2017 and registered on 21 December at the Siena Companies’
Register. The number of outstanding shares remains unchanged (1,140,290,072).
On 22 December 2017, the agreement to transfer 95% of the mezzanine notes for the securitisation
of the MPS Group doubtful loan portfolio was signed with Quaestio Capital SGR S.p.A. on behalf of
Atlante Fund. This transaction, effective 9 January 2018, is part of the agreements signed with
Quaestio Capital SGR S.p.A. on 26 June 2017 and is an integral part of the MPS Restructuring Plan
announced on 5 July 2017.
On 22 December 2017, the first meeting of the new Board of Directors was held, with Stefania
Bariatti as chairman. The Board of Directors, inter alia, resolved to confirm Marco Morelli as the
Bank’s CEO.
2017 ANNUAL REPORT
35 Consolidated Report on Operations
Significant events after 2017
On 11 January 2018, the Parent Company announced that it had successfully concluded the issue of a
fixed-rate Tier 2 subordinated bond with 10-year maturity (redeemable in advance starting from the
fifth year at the issuer’s option, subject to regulatory approval), for EUR 750 million. The bond
includes the coupon payment at a fixed rate of 5.375% and has an issue price of 100%, equivalent to a
spread of 500.5 basis points above the 5-year swap rate. As confirmation of the return of market
interest in Montepaschi Group with this subordinated issue, the transaction saw demand for more than
EUR 2.7 billion from approximately 250 institutional investors and 3.6 times higher than the offer.
The geographic distribution of the bond allocation was as follows: United Kingdom (52%), Italy
(25%), Germany, Austria and Switzerland (9%), Nordic countries (3%), France (2%), BeneLux (2%),
Spain and Portugal (1%), Asia (1%), and others (5%). Whereas the allocation by investor type was as
follows: fund managers (52%), hedge funds (29%), banks and private banks (15%), insurance
companies (3%), and others (1%). The bond, which is reserved for institutional investors, will be listed
on the Luxembourg stock exchange. The expected ratings of the bond are CCC+ (Fitch) and Caa2
(Moody’s). Global Coordinator and Joint Bookrunner: Goldman Sachs International and Mediobanca.
Joint Bookrunners: Bank of America Merrill Lynch, Barclays, JP Morgan, MPS Capital Services, and
UBS.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 36
Human Resources
KPI as at 31.12.2017
Indicators 31/12/2017 31/12/2016 31/12/2015 31/12/2014 31/12/2013 31/12/2012
Headcount 23,463 25,566 25,731 25,961 28,417 30,303
Operational location (%)
Head Offices* 22.3 22.5 22.6 21.6 24.0 26.2
Italy Network** 75.8 75.5 75.3 76.3 74.1 72.0
Foreign Network 1.9 2.0 2.1 2.0 1.9 1.8
Professional/occupational level (%) 1.9
Executives 1.2 1.2 1.4 1.3 1.3 1.5
Middle Managers 1.2
38.9 39.6 39.2 38.8 38.3 38.8
Professionals 38.9
59.9 59.2 59.4 59.9 60.4 59.7
Other indicators 59.9
Training per capita (hours) 41.9 46 37 36 35 36
Female staff (%) 49.7 48.0 47.8 47.6 46.2 45.1
Female executives (%) 8.2 7.8 7.1 6.1 5.6 5.2
49.7
8.2
* Bank Parent Company and Group companies, net of sales & distribution structures with direct customer interface.
** Regional Areas, DTMs (local unit offices), Branches, Unit, Specialised Centres and sales & distribution structures of the Group
companies
Headcount changes
As at 31 December 2017, the Group had a total of 23,463 employees, down 2,103 compared to 31
December 2016. In the course of 2017, there were 134 people hired (of which 49 pursuant to
contractual and regulatory provisions on mandatory placement) and 2,246 terminations (of which
1,839 for the Solidarity Fund, Early Retirement, and the Women’s Option), with a positive balance of 9
in terms of other changes in the Group’s scope of consolidation. Staff hiring involved 4 Executives, 26
Middle Managers and 104 Professionals, while the terminations concerned 50 Executives, 1,103 Middle
Managers and 1,093 Professionals. Distribution of the workforce in favour of customer interface units
stands at 75.8% (figure does not include the international banking division which represents 1.9% of
the total staff) and 22.3% as regards the Head Office units.
Personnel management initiatives
The personnel management policies support the reorganisation projects, in line with the restructuring
plan objectives, through mobility plans (geographical and professional) with a view to development
opportunities for employees according to approaches based on transparency and participation. Thus,
operational initiatives were supported by: the Performance Management system; professional and
managerial plans which, based on a business continuity approach, ensure adequate quality-quantity
staff coverage levels; training programmes to enhance skills, provide managerial career guidance and
support requalification processes; as well as engagement and human resource motivation leverage
(incentive policies, BMPS welfare system, and internal communication plans). In particular, the Group
2017 ANNUAL REPORT
37 Consolidated Report on Operations
approved a series of personnel engagement and development initiatives through three specific
programmes:
• MPS Development, based on Performance Management results and similar to the process
for external customers, for which the population is segmented then coherent and specific
HR development initiatives are activated for each segment, which become engagement levers
in terms of a merit-based approach.
• MPS Academy, the Group’s permanent training institute based on three pillars: People,
Business, and Compliance & Safety;
• Welfare, which will supplement the current offering of services and benefits to employees
and their families through the evolution of the MPS model, with the introduction of
innovative actions to improve the quality of professional life for individuals, the work-life
balance (agile work, MPSolidale, time saving), and creating comfortable business spaces.
Furthermore, mechanisms were activated to ensure the enhancement of internal skills, job rotation and
continual turnover, with limited recourse to hiring from the external market.
In relation to enhancing diversity, the LeaderShe Project was launched for all of MPS Group, designed
to enhance the feminine expression of leadership, identifying and eliminating any obstacles
(organisational and cultural) that prevent the expression of women’s managerial skills.
In 2017, operational plans were key to achieving operational efficiency objectives and strengthening
the core business in accordance with the project activities set forth in the Restructuring Plan. In this
context, and in relation to the implementation of the Parent Company’s new organisational model, the
mobility plans - primarily professional - concerned roughly 750 resources in the course of the year,
based on an approach meant to ensure professional continuity and the best allocation of people with
respect to the new organisational roles.
In relation to the Sales & Distribution Network, activities to streamline the branches continued
(closure of 287 branches in 2017 and 150 already planned for January 2018), in line with Plan forecasts
- supported by the activation of operational plans for the reallocation of resources primarily at the
merging branches and, in any event, according to an approach which seeks to leverage the professional
skills attained and takes into consideration individual needs and aspirations. At the same time, an
experiment was started in about 30 branches as part of the “Banca più” project to optimise branch
operations through a new digitalised model, widespread automation of administrative processes and
the customer relationship through the use of self-service tools, and concentration of business lines on
customer needs through a consultancy approach. During the year, total Network mobility came to
roughly 5,300 employees, accompanied by a training offer appropriately set up to favour the
continuing education and professional strengthening process in light of the new service models.
In line with the operational efficiency objectives laid out in the 2017-2021 Restructuring Plan, on 3
August 2017 the Group’s trade union agreement for the activation of the banking industry’s Solidarity
Fund was signed for the exit of 1,200 resources (as at 1 November 2017), favouring voluntary
participation and closer proximity to retirement benefits as priority selection criteria. There were a total
of 600 exits in the first half of 2017 (1 May), through the use of the Solidarity Fund activated with the
trade union agreement of 23 December 2016.
With respect to training, in its three main areas - People, Business, Compliance & Safety -
MPSAcademy provided more than 955,000 training hours in 2017, equal to 41.9 hours per capita;
roughly 99% of personnel participated in training activities. Aside from the focus on lending-related
training, particular attention was reserved for topics connected to risk oversight and promoting digital
culture through specific initiatives aimed at all personnel.
With the objective of enhancing managerial skills in innovative ways, more than 300 Group managers
were involved in training programmes designed around digital culture, innovation, risks,
communication, and people management, including through the experiences of managers from leading
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 38
Italian and global companies. In order to facilitate the development of a skills culture, a specific
information campaign was launched that involved the distribution to all Network personnel of a
specific guide containing the competencies and training activities envisaged for each role. This initiative
is part of the training contribution to the evolution in the distribution model and careful oversight of
the professional skills of resources that interact with customers. The English@MPSAcademy platform
was activated for all Group employees (with access available also to their family members), which
assists in understanding the English language through synchronised virtual lessons and multimedia
content.
Strategy
The Restructuring Plan approved by the European Commission on 4 July 2017 aims for the Bank’s
return to an adequate level of profitability, with a target ROE of >10% in 2021, and is based on the
following 4 pillars:
full leveraging of Retail and Small Business customers thanks to a simplified and highly
digitalised business model;
renewed operating model, with a continuous focus on efficiency, which will result in a
cost/income ratio of below 51% in 2021 and the reallocation to commercial activities of
resources employed in the administrative area;
radically improved credit risk management, with a new Chief Lending Officer (“CLO”)
organisational structure that will make it possible to strengthen the Bank’s early detection
processes and improve the recovery rate, and which will bring the cost of risk to below 60 bps
and the gross NPE ratio to below 13% in 2021;
strengthened capital and liquidity position, with targets in 2021 that include a CET1 of >14%,
a Loan to Deposit Ratio <90%, and a Liquidity Coverage Ratio (LCR) >150%, concurrent
with a significant decrease in the cost of funding.
The Restructuring Plan includes the transfer of almost the entire doubtful loan portfolio as at 31
December 2016 (for further information, please refer to the paragraph “The doubtful loan disposal
transaction” of the Consolidated report on operations).
In particular, the Restructuring Plan is consistent with and reflects the commitments undertaken with
respect to DG Comp (the “Commitments”) and is aligned with the parameters of the SREP letter
received in June 2017. In this document, received on 19 June 2017, the ECB ordered the Bank to
maintain a Total SREP Capital Requirement ratio of 11% at consolidated level as of 2018, which
includes a minimum Pillar 1 requirement of 8% and an additional Pillar 2 requirement of 3% (P2R),
entirely in terms of Common Equity Tier 1 capital.
As a result, the Group must meet the following requirements at consolidated level as of 1 January
2018:
CET1 Ratio of 9.44% on a transitional basis,
Total Capital Ratio of 12.94% on a transitional basis,
including, aside from the P2R, 1.875% for the Capital Conservation Buffer and 0.0625% for the O-SII
Buffer (Other Systemically Important Institutions Buffer). The Capital Conservation Buffer and the O-
SII Buffer will be fully implemented in 2019 with 2.5% and in 2021 with 0.25% (the latter on a
transitional basis will have a coefficient of 0.125% in 2019 and of 0.1875% in 2020). The Restructuring
Plan incorporates in full the results of the inspection on loans carried out by the ECB and completed
in May 2017. The inspection, conducted on the loan portfolio with reference to 31 December 2015,
brought to light the need to recognise additional provisions with respect to the levels of coverage as at
the reference date. These additional adjustments substantially overlap with those already recognised
from 31 December 2015 to date, the effects of the disposal of the doubtful loans portfolio and further
reductions in non-performing loans laid out in the Restructuring Plan.
2017 ANNUAL REPORT
39 Consolidated Report on Operations
The Restructuring Plan includes the preliminary estimate, formulated as at the same date of the
drafting of the Plan, of the negative effects of the entry into force of IFRS 9 for around EUR 1.2 bn
upon First Time Adoption (“FTA”), amount currently confirmed.
The re-launch of the commercial business is concentrated on Retail and Small Business customers,
making recourse to a more simplified service model characterised by a high level of digitalisation with
the launch of dedicated services (e.g., purchasing a home, coverage from risks, business requirements)
and leveraging the distinctive elements of Widiba to attract new customers and optimise the
management of existing customers. There is a new Small Business customer service model based on a
simplification of the offer and continuous attention focused on the granting of loans and the
associated risks. Greater attention is reserved to the Affluent and Private Banking segments, by
leveraging the offer of insurance and wealth management products, as well as advisory services, with
the aim of obtaining significant growth in assets under management (through the bancassurance
agreement with AXA in the Life and Non-Life segments and the continuation of the collaboration
with Anima in the investment funds segment).
The contribution of Widiba is being leveraged as a vehicle for digitalisation and innovation, through
the extension to the Group of technological and automation solutions for certain processes, enabling
the Group to benefit from an overall reduction in the cost-to-serve.
Corporate segment activities are currently being streamlined, as a result of the revision of the business
model and the optimisation of capital absorption.
The new operating model focuses on greater efficiency, continuing on the path outlined since 2012,
through:
the launch of a Group digital programme which, thanks to technological infrastructural
investments and the leveraging of the capacities developed by Widiba, will make it possible to
reduce the absorption of resources (on “manual” processes, from 34% in 2016 to less than
20% in 2021);
the complete overhaul of the distribution network, with a downsizing of branches (from 2,000
in 2016 to around 1,400 in 2021) and the relative commercial governance structures (Regional
Areas and Local Market Units) and with growth in the percentage of resources dedicated to
commercial activities from around 62% in 2016 to around 70% in 2021;
a revision of the size of all of the Group’s organisational structures which, without impairing
service quality, will result in a reduction of roughly 5,500 resources by the end of 2021 (of
which 4,800 exits through the activation of the Solidarity Fund, 450 exits linked to the
termination/closure of business activities, 750 exits deriving from natural turnover and
roughly 500 new hires); the exit plan will result in extraordinary costs of around EUR 1.15 bn
overall in the course of the plan;
the further optimisation of other administrative expenses, which will drop by 26% (from
around EUR 0.8 bn in 2016 to less than EUR 0.6 bn in 2021) and will rank the Bank as one of
the best sector operators in terms of cost management and optimisation.
In line with what was already implemented in recent years to improve credit quality and the credit risk
management process, the Restructuring Plan envisages:
the full reorganisation of the CLO, with the centralisation of lending decision-making
mechanisms and the creation of direct links with the Regional Area governance structures, a
strong push towards the automation of the lending process for smaller amounts for Retail and
Small Business which in 2021 will result in an increase in the automated disbursement process
to 70% for Retail and to 50% for the Small Business segment;
the strengthening of systems for early detection and the monitoring of at-risk positions, which
will allow for a reduction of the default rate and growth in the recovery rate of past due
exposures;
the creation of a business unit within the CLO dedicated to the management of the non-
performing loan portfolio, which will handle early remedial actions/restructuring, the control
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 40
of the activities and performance of the debt collection platform, as well as recovery activities
relating to new streams of doubtful loans not conveyed to the platform;
a specific programme for the transfer/reduction of the portfolio of unlikely to pay and
doubtful loans, the economic effects of which are included in the Restructuring Plan, so as to
allow for the achievement of the targets linked to the percentage of gross non-performing
loans out of total loans (NPE ratio).
The Restructuring Plan envisages an overall capital strengthening exceeding EUR 8 bn, which was
completed last August.
On the commercial level, the Loan to Deposit ratio is expected to improve by roughly 16 percentage
points (from 103% in 2016 to 87% in 2021), as a result of the growth in the level of funding coming
from the network and the expected reduction in gross trade receivables. As a result of the share capital
increase and the transfer of doubtful loans, a reduction in the cost of funding is also expected in the
course of the plan, with a realignment to average market parameters.
The Group is expected to reach a CET1 ratio of >14% and an ROE of >10% in 2021.
The Restructuring Plan is consistent with the Commitments undertaken with respect to the DG
Comp, laid out pursuant to European regulations, which regard various plan aspects, including:
cost reduction measures: annual restrictions in terms of the number of branches, employees,
cost/income ratio and total operating expenses, reduction of additional costs up to a
maximum of EUR 100 mln in the case of a deviation from the net operating margin targets
(gross of provisions on loans);
sale of non-strategic assets: sale of foreign banks, disposal of a list of equity investments in the
course of the plan, without prejudice to the capital position of the Bank, and part of the real
estate assets;
risk containment: commitment to deconsolidate a portfolio of doubtful loans of EUR 26.1 bn,
strengthening of risk control oversight, restrictions on proprietary finance activities in terms of
VaR and the nature of instruments traded;
prohibition against making acquisitions;
the establishment of a remuneration ceiling corresponding to 10 times the average salary of
Parent Company employees.
With reference to the Restructuring Plan approved by the European Commission in July 2017, the
Bank has initiated the process of implementing the various operational policies.
In particular the Bank continues to optimize the distribution network, with regard to which the closure
of an additional 115 branches in the fourth quarter. Furthermore, on 11 January 2018, the Parent
Company issued a fixed rate 10 year subordinated “Tier 2” bond for a total amount of EUR 750 mln.
Regarding the efficiency of the organisational structure optimisation, the exit of 1,215 resources was
registered through the Solidarity Fund in 4Q17, in line with the provisions of the Restructuring Plan.
As noted previously with regard to credit quality improvement initiatives, the Restructuring Plan
includes the transfer of almost the entire doubtful loan portfolio as at 31 December 2016 (for futher
information, please refer to the section “The doubtful loan disposal transaction”), in addition to the
sale during the 2018 of a portfolio of EUR 2.5 bn (GBV as at 31 December 2016) made up of
unsecured loans with gross unit value of less than EUR 150,000 and leasing credits. It also envisages,
by 2019, further disposal of loans belonging to the Unilkely to Pay Portfolio, for a total exposure of
aprrpximately EUR 4.5 bn, and of doubtful loansfor an total exposure of approximately EUR 2 bn, in
the period 2020-2021.
The Restructuring Plan initiatives include the following results achieved within the Chief Lending
Officer Department:
Establishment of the lending chain dedicated to the Bank most risky portfolio, effective
through out the the network since July 2017.
2017 ANNUAL REPORT
41 Consolidated Report on Operations
The supply chain manages the proposals for performing customers with a high risk of default
(High Risk Portfolio, or “Portfolio”) and for customers classified in the first stages of non-
performing category (typically past due impaired loans) that come from the commercial
network. The supply chain is rooted in both peripheral structures (at the Territorial Credit
Area level, see the “Organisational Structure” section of this report) and at the General
Management level with a dedicated area (High Risk Area), reporting to the Performing Credit
Department. The supply chain was created for the dual purpose of maximising the
composition of the flow of new default loans (with a targeted action on the “Portfolio”) and
of limiting and managing the risk of customers who are in the first NPE stages of
deteriorating further (unlikely to pay or doubtful loans), also through the use of forbearance
measures.
Review of the process of loan supply to natural persons. In addition to acquiring a broader
information set, than the previosu one, the new process makes it possible to more accurately
profile not only the counterparty but also the type of request made to the Bank; this has led to
a significant increase in its effectiveness and efficiency, expanding the scope of disbursements
subjected to this process. During the first months of use of this process, a significant increase
was observed in the share o loans suppy assisted be the new model (whether positive or
negative), passing from the previous 19% to almost 30% of the total requests submitted to the
Bank.
In addition, a new process for intercepting unusual situations was also developed with the aim
of identifying potential problems on the requesting counterparties that could generate
operational risks for the Bank. For retail counterparties, the internal disbursement process
began to be integrated with external bureaus that provide identification information on
counterparties, useful for pinpointing the requests that require further analysis in order to
understand if there are possible operational risks. The integration process began, in a trial
phase, at the end of 2017 and will go into production by the middle of 2018.
The Restructuring Plan is subject to formal monitoring by the European Commission, through a
Monitoring Trustee (the Bank confirmed Degroof Petercam Finance, with the favourable opinion of
DG Comp). It should be noted that the first monitoring was carried out during the last quarter of the
current year, with reference to the data as at 30 September 2017, specifying that, as regard to the
verification of compliance with commitments, this assumes formal relevance only when specific
deadline agreed upon with the European Commission.
The doubtful loan disposal transaction
The Parent Company and the subsidiaries MPSCS and MPSL&F sold a portfolio of doubtful loans,
with a Gross Book Value (“GBV”) as at 31 December 2016 of EUR 24,577.1 mln, to the securitisation
vehicle Siena NPL 2018 srl (“SPV”). The sale price, equivalent to 20.58% of the GBV at the cut-off
date of 31 December 2016, amounted to EUR 5,056.7 mln and was paid in part by offsetting the
SPV’s collections recognised on the transferred portfolio after the cut-off date of 31 December 2016
(EUR 548.5 mln) and, for the remaining part, through the issue by the SPV of the following securities
(totalling EUR 4,508.2 mln):
Senior A1 notes for EUR 2,683.5 mln
Senior A2 notes for EUR 412.1 mln
Mezzanine notes for EUR 847.6 mln
Junior notes for EUR 565.0 mln
The securities were fully subscribed on a pro-rata basis by MPS, MPSCS, and MPSL&F as originator
banks.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 42
On 22 December 2017, the agreement to transfer 95% of the mezzanine notes referenced above was
signed with Quaestio Capital SGR S.p.A. on behalf of Atlante Fund for a total value of approximately
EUR 800 mln, effective 9 January 2018.
The contract for the sales of doubtful loans to the Siena NPL 2018 securitisation vehicle, signed on 20
December 2017, also included the transfer, by the originator banks, of an additional 3 sub-portfolios of
doubtful loans, for an overall GBV of approximately EUR 793 mln as at 31 December 2016. The
transfer of these sub-portfolios at a price of EUR 271 mln (equal to 34.17% of GBV) was contingent
upon a series of events and conditions that had to have occurred by 31 January 2018.
The GBV of the doubtful loan portfolio, including the aforementioned sub-portfolios, amounted to
EUR 25,370 mln as at 31 December 2016, with a sale price equal to 21% of GBV.
The conditions precedent for 2 of the 3 sub-portfolios was not met as at 31 January 2018 and,
therefore, these loans were not transferred. Instead, with reference to the other loan sub-portfolio
subject to conditions precedent, an extension until 20 March 2018 was signed. These loans were also
reclassified to asset item 150 “Non-current assets and groups of assets held for sale and discontinued
operations”, for a book value of approximately EUR 48 mln, equal to the presumed sale price.
Note that for the Senior A1 notes, there will be a request for the “GACS” guarantee scheme, to be
obtained by the end of June 2018, after the assignment of an investment grade rating by at least two
rating agencies; after which time, the Senior notes may be placed in the market with institutional
investors, provided that, for the entire duration of the securitisation, the Group maintains a net
economic interest equal to 5% of the nominal amount of each class of securities in order to comply
with the “retention rule”, pursuant to current prudential regulations.
The doubtful loans portfolio will be derecognised by June 2018 with the sale of 95% of the junior
securities to the Atlante Fund. The related economic impacts of the transaction were fully incorporated
in the financial statements as at 31 December 2017.
An earn out is established in favour of the Group equal to 50% of the excess profit if the profit
realised on the Junior notes exceeds 12% per annum.
2017 ANNUAL REPORT
43 Consolidated Report on Operations
Income statement and balance sheet reclassification principles
Reclassified income statement
a) The item “Net interest income” was cleared of the negative contribution (equal to EUR -12 mln)
of the Purchase Price Allocation (PPA), which was included in its own specific item.
b) The item “Net fee and commission income” includes items 40 “Fee and commission income”
and 50 “Fee and commission expense”, and was cleared of the arrangement fees associated with the
securitisation transaction for EUR 13 mln, which was reclassified in the item “Restructuring
costs/One-off costs”.
c) The item “Dividends, similar income and gains (losses) on investments” incorporates the
item 70 “Dividends and similar income” and a portion of item 240 “Gains (losses) on investments”
(value of EUR 92 mln, corresponding to the share of profit and loss for the period contributed by
investments in the associate AXA, consolidated at equity). Dividends earned on equity securities
other than equity investments have also been eliminated from the aggregate (EUR 6 mln),
reclassified in the item “Net profit (loss) from trading and financial assets/liabilities”.
d) The item “Net profit (loss) from trading and financial assets/liabilities” includes item 80 “Net
profit (loss) from trading”, item 100 “Gains (losses) on disposal/repurchase of loans, financial
assets available for sale or held to maturity and financial liabilities” and item 110 “Net profit (loss)
from financial assets and liabilities designated at fair value”. In addition, the item incorporates
dividends earned on equity securities other than equity investments (EUR 6 mln).
e) The item “Other operating income (expenses)” includes the balance of financial statements item
220 “Other operating expenses (income)” net of the recovery of stamp duties and client expenses,
which are stated under the reclassified item “Other administrative expenses” (EUR 323 mln).
f) The income statement item “Personnel expenses” was reduced by EUR 282 mln for restructuring
charges, essentially related to allocations for early retirement incentives/provisions, as per the trade
union agreement of 3 August 2017 and, marginally, to expenses related to the securitisation
transaction of doubtful loans for EUR 0.6 mln. The amount was reclassified under “Restructuring
costs/One-off costs”.
g) The item “Other administrative expenses” includes the balance of item 180b of the financial
statements “Other administrative expenses”, reduced by the following cost items:
• expenses, amounting to EUR 92 mln, resulting from EU DGSD and BRRD directives for the
resolution of bank crises (posted under the reclassified item “Risks and charges associated with
SRF, DGS and similar schemes”);
• DTA fee, convertible into tax credit, for an amount of EUR 71 mln (posted to the reclassified
item “DTA fee”);
• restructuring charges: i) EUR 17 mln for the closure of branches envisaged in the restructuring
plan, and ii) EUR 19 mln for costs incurred for the transaction to securitise doubtful loans and
in part associated with contracts for the overall outsourcing transaction for the doubtful loan
collection platform and the long-term servicing contract to manage doubtful loans, as agreed
with Cerved/Quaestio.
This item includes also the portion of stamp duty and client expenses recovery (EUR 323 mln)
posted under item 220 “Other operating expenses/income”.
h) The item “Net adjustments to (recoveries on) property, plant and equipment / Net
adjustments to (recoveries on) intangible assets” was cleared of the negative contribution
(equal to EUR -26 mln) of the Purchase Price Allocation (PPA), which was included in its own
specific item.
i) The item “Net impairment losses (reversals) on financial assets and other transactions”
includes items 130b “Financial assets available for sale” and 130d “Other financial transactions”.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 44
j) “Restructuring costs/One-off costs” includes: i) restructuring costs allocated against early
retirement incentives/provisions for EUR 282 mln and against the branch closures set forth in the
restructuring plan for EUR 17 mln; ii) total charges of EUR 32 mln for the doubtful loan
securitisation transaction, contracts related to the overall outsourcing transaction for the doubtful
loan collection platform, and the long-term servicing contract for doubtful loan management
(included in Net fee and commission income, Personnel expenses, and Other administrative
expenses).
k) The item “Risks and charges associated with SRF, DGS and similar schemes” includes the
expenses deriving from the EU directives DGSD for deposit guarantee and BRRD for the
resolution of bank crises, posted in the financial statements under item 180b “Other administrative
expenses”. As at 31 December 2017, there were charges recognised for SRF (EUR 62 mln
accounted for in the first quarter) and DGS (EUR 30 mln accounted for in the third quarter).
l) The item “DTA fee” includes the expenses related to the fees paid on DTA that can be converted
into tax credit as set forth in art. 11 of Law Decree no. 59 of 3 May 2016, converted into Law no.
119 of 30 June 2016, recognised in the Financial Statements item 180b “Other administrative
expenses”.
m) The item “Gains (losses) on disposal of investments” includes the balance of item 240 “Gains
(losses) on investments” after deducting the portion of profit for the period contributed by
investments in AXA, consolidated at equity and posted under the reclassified item “Dividends,
similar income and gains (losses) on investments” (EUR 92 mln).
n) The item “Tax expense (recovery) on income from continuing operations” was cleared of the
theoretical tax component relating to the Purchase Price Allocation (PPA), included in a specific
item in the amount of EUR 13 mln.
o) The overall negative effects of Purchase Price Allocation (PPA) posted to this specific account were
reclassified out of other items (in particular “Net interest income” for EUR -12 mln and “Net
adjustments to (recoveries on) property, plant and equipment/Net adjustment to
(recoveries on) intangible assets” for EUR -26 mln, net of a theoretical tax burden of EUR +13
mln which integrates the item).
Reclassified balance sheet
a) The item “Marketable assets”, under Assets, includes the financial statements item 20 “Financial
assets held for trading” and item 40 “Financial assets available for sale”.
b) The item “Other assets”, under Assets, includes the financial statements item 80 “Hedging
derivatives”, item 90 “Change in value of macro-hedged financial assets”, item 140 “Tax assets”,
item 150 “Non-current assets and groups of assets available for sale and discontinued operations”
and item 160 “Other assets”.
c) The item “Deposits from customers and debt securities issued” under Liabilities, includes the
financial statements item 20 “Deposits from customers”, item 30 “Debt securities issued” and item
50 “Financial liabilities designated at fair value”.
d) The item “Other liabilities”, under Liabilities, includes the financial statements item 60 “Hedging
derivatives”, item 70 “Change in value of macro-hedged financial liabilities”, item 80 “Tax
liabilities”, item 90 “Liabilities associated with non-current assets available for sale and discontinued
operations” and item 100 “Other liabilities”.
°°°°°°°
The reconciliation between the statutory accounts and the reclassified consolidated income
statement and balance sheet is included in the “Annexes” section.
2017 ANNUAL REPORT
45 Consolidated Report on Operations
Reclassified income statement
Reclassified Consolidated Income Statement
31/12/17 31/12/16 Change
Montepaschi Group Abs. %
Net interest income 1,788.3 2,021.3 (233.0) -11.5%
Net fee and commission income 1,576.5 1,839.4 (262.9) -14.3%
Income from banking activities 3,364.8 3,860.7 (495.9) -12.8%
Dividends, similar income and gains (losses) on equity investments 101.0 77.8 23.2 29.8%
Net profit (loss) from trading and financial assets/liabilities 574.8 441.2 133.6 30.3%
Net profit (loss) from hedging (3.7) (82.0) 78.3 -95.5%
Other operating income (expenses) (11.3) (15.7) 4.4 -28.0%
Total Revenues 4,025.6 4,282.0 (256.4) -6.0%
Administrative expenses: (2,279.6) (2,402.5) 122.9 -5.1%
a) personnel expenses (1,575.4) (1,610.5) 35.2 -2.2%
b) other administrative expenses (704.3) (792.0) 87.7 -11.1%
Net adjustments to (recoveries on) property, plant and equipment
(263.4) (218.8) (44.6) 20.4%
/ Net adjustments to (recoveries on) intangible assets
Operating expenses (2,543.0) (2,621.3) 78.3 -3.0%
Pre Provision Profit 1,482.6 1,660.7 (178.1) -10.7%
Net impairment losses (reversals) on: (5,460.0) (4,500.9) (959.1) 21.3%
a) loans (5,323.7) (4,467.0) (856.7) 19.2%
b) financial assets (136.3) (33.9) (102.4) n.s.
Net operating income (3,977.4) (2,840.2) (1,137.2) 40.0%
Net provisions for risks and charges (232.9) 44.4 (277.3) n.s.
Gains (losses) on investments (14.0) 11.8 (25.8) n.s.
Restructuring costs / One-off costs (330.2) (117.0) (213.2) n.s.
Risks and charges related to the SRF, DGS and similar schemes (91.9) (241.1) 149.2 -61.9%
DTA Fee (70.9) (70.4) (0.5) 0.7%
Gains (losses) on disposal of investments 531.2 33.2 498.0 n.s.
Profit (loss) before tax from continuing operations (4,186.2) (3,179.3) (1,006.9) 31.7%
Tax expense (recovery) on income from continuing operations 709.6 (20.7) 730.3 n.s.
Profit (loss) after tax from continuing operations (3,476.6) (3,200.0) (276.6) 8.6%
Net profit (loss) for the period including non-controlling
(3,476.6) (3,200.0) (276.6) 8.6%
interests
Net profit (loss) attributable to non-controlling interests 0.1 9.7 (9.6) -99.0%
Profit (loss) for the period before PPA , impairment on
(3,476.7) (3,209.7) (267.0) 8.3%
goodwill and intangibles
PPA (Purchase Price Allocation) (25.6) (31.4) 5.8 -18.5%
Net profit (loss) for the year (3,502.3) (3,241.1) (261.2) 8.1%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 46
Quarterly trend in reclassified consolidated income statement
2017 2016
Montepaschi Group 4°Q 2017 3°Q 2017 2°Q 2017 1°Q 2017 4°Q 2016 3°Q 2016 2°Q 2016 1°Q 2016
Net interest income 414.6 470.4 445.9 457.4 502.6 483.5 486.9 548.3
Net fee and commission income 363.3 355.7 431.2 426.3 437.0 461.7 483.8 456.9
Income from banking activities 777.9 826.1 877.1 883.7 939.6 945.2 970.7 1,005.2
Dividends, similar income and gains (losses) on equity
32.3 22.4 25.7 20.5 11.3 23.3 23.9 19.3
investments
Net profit (loss) from trading and financial assets/liabilities 3.4 528.5 18.3 24.5 21.5 102.7 151.3 165.7
Net profit (loss) from hedging 0.8 (2.7) (2.0) 0.2 (80.3) (0.4) (1.4) 0.1
Other operating income (expenses) (12.0) (3.9) 0.3 4.3 (27.6) 2.2 14.7 (5.0)
Total Revenues 802.4 1,370.5 919.5 933.2 864.5 1,073.0 1,159.1 1,185.4
Administrative expenses: (579.4) (561.1) (568.2) (570.9) (630.6) (595.1) (582.1) (594.7)
a) personnel expenses (387.1) (388.8) (395.1) (404.4) (371.1) (418.4) (403.4) (417.6)
b) other administrative expenses (192.3) (172.3) (173.1) (166.5) (259.5) (176.7) (178.7) (177.1)
Net adjustments to (recoveries on) property, plant and
equipment / Net adjustments to (recoveries on) intangible (71.1) (64.7) (70.9) (56.6) (61.6) (55.2) (51.7) (50.3)
assets
Operating expenses (650.5) (625.8) (639.1) (627.5) (692.2) (650.3) (633.8) (645.0)
Pre Provision Profit 151.9 744.7 280.4 305.6 172.3 422.7 525.4 540.3
Net impairment losses (reversals) on: (557.6) (224.5) (4,374.8) (303.1) (2,482.1) (1,301.6) (368.0) (349.2)
a) loans (551.7) (175.0) (4,288.8) (308.2) (2,445.4) (1,303.3) (372.4) (345.9)
b) financial assets (5.9) (49.5) (86.0) 5.1 (36.7) 1.7 4.4 (3.3)
Net operating income (405.7) 520.2 (4,094.4) 2.5 (2,309.8) (878.9) 157.4 191.1
Net provisions for risks and charges (166.1) (7.8) (13.4) (45.6) 48.0 (27.5) 29.2 (5.3)
Gains (losses) on investments 8.9 (19.1) 0.2 (4.0) 2.5 1.6 0.2 7.5
Restructuring costs / One-off costs (34.5) (278.0) (17.7) - (117.0) - - -
Risks and charges related to the SRF, DGS and similar
2.3 (31.2) 0.4 (63.4) (139.1) (31.2) 0.3 (71.1)
schemes
DTA Fee (17.7) (17.7) (17.5) (18.0) 53.9 (15.5) (108.8) -
Gains (losses) on disposal of investments (2.3) 1.8 532.0 (0.3) 20.4 12.8 - -
Profit (loss) before tax from continuing operations (615.2) 168.2 (3,610.6) (128.6) (2,441.1) (938.7) 78.3 122.2
Tax expense (recovery) on income from continuing
119.7 79.9 543.5 (33.5) 64.7 (203.9) 139.2 (20.7)
operations
Profit (loss) after tax from continuing operations (495.5) 248.1 (3,067.1) (162.1) (2,376.4) (1,142.6) 217.5 101.5
Net profit (loss) for the period including non-controlling
(495.5) 248.1 (3,067.1) (162.1) (2,376.4) (1,142.6) 217.5 101.5
interests
Net profit (loss) attributable to non-controlling interests (0.1) 0.1 (0.1) - (8.3) 0.6 0.3 0.5
Profit (loss) for the period before PPA , impairment on
(495.6) 248.0 (3,067.0) (162.1) (2,384.7) (1,143.2) 217.2 101.0
goodwill and intangibles
PPA (Purchase Price Allocation) (6.0) (6.1) (6.4) (7.1) (7.7) (7.5) (8.3) (7.9)
Net profit (loss) for the year (501.6) 241.9 (3,073.4) (169.2) (2,392.4) (1,150.7) 208.9 93.1
2017 ANNUAL REPORT
47 Consolidated Report on Operations
Trends in revenues
In 2017, the Group recorded total Revenues of EUR 4,026 mln, down by 6.0% compared to the
previous year, due to the downturn in Net interest income and Net fee and commission income, only
partially offset by the increase in the Net profit (loss) from trading and financial assets/liabilities
(impacted by the positive effects of burden sharing). In 4Q17, Revenues, totalling EUR 802 mln,
decreased by EUR 568 mln compared to the previous quarter, which, as stated previously, had
benefitted from the effects of the burden sharing transaction represented in the item “Net profit (loss)
from trading and financial assets/liabilities” and Net interest income.
Net interest income for 2017 amounted to EUR 1,788 mln, down by 11.5% compared to 2016,
mainly related to the negative trend of interest-bearing assets, in particular commercial loans and the
securities portfolio (reduction in average volumes and decline in the related returns). This trend is
partially attenuated by the decrease in interest expense following the reduction in the cost of
commercial funding, the maturity of bonds with more costly conditions, and the effects of burden
sharing. The result for 4Q17 equal to EUR 415 mln was down EUR 56 mln from the previous quarter
(-11.9% Q/Q), which reflected the positive effects of the reversal of interest expense accrued until the
conversion date, in August, of the subordinated loans subject to burden sharing (EUR +51 mln).
Excluding this component, the quarterly trend was essentially stable, with the reduction in interest
expense offset by the decline in the contribution from commercial assets (both in terms of volumes
and returns).
Chg. Y/Y Chg. Q/Q
Items 31 12 2017 31 12 2016 4°Q 2017 3°Q 2017
Abs. % Abs. %
Relations with customers 2,083.9 2,660.6 (576.7) -21.7% 454.6 489.4 (34.8) -7.1%
of which interest income on non-
447.8 629.3 (181.5) -28.8% 91.0 104.8 (13.8) -13.2%
performing assets
Securities issued (396.3) (770.7) 374.4 -48.6% (73.7) (44.1) (29.6) 67.1%
Net Differentials on hedging
(6.2) (28.1) 21.9 -77.9% 2.1 (0.5) 2.6 n.s.
derivatives
Relations with banks (33.6) (59.1) 25.5 -43.1% (4.9) (9.1) 4.2 -46.2%
Trading portfolios 45.3 66.3 (21.0) -31.7% 6.5 10.4 (3.9) -37.5%
Portfolios designated at fair
(56.6) (41.4) (15.2) 36.7% (4.8) (12.3) 7.5 -61.0%
value
Financial assets available for sale 152.9 190.7 (37.8) -19.8% 36.4 36.0 0.4 1.1%
Other net interest income (1.1) 3.0 (4.1) n.s. (1.6) 0.6 (2.2) n.s.
Net interest income 1,788.3 2,021.3 (233.0) -11.5% 414.6 470.4 (55.8) -11.9%
Net fee and commission income totalled EUR 1,577 mln, declining by 14.3% compared to 2016,
primarily as a result of the recognition of the cost of the guarantee on government issues in the first
quarter and lower income from the credit segment (against lower volumes compared to the prior year),
as well as lower income on payment services following the disposal of the merchant acquiring business
unit on 30 June 2017. This item showed an increase of 2.1% from the previous quarter, due to the
contribution of fees and commissions from asset management.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 48
Chg. Y/Y Chg. Q/Q
Services / Values 31 12 2017 31 12 2016 4°Q 2017 3°Q 2017
Abs. % Abs. %
Guarantees given / received (50.6) 42.1 (92.7) n.s. (15.6) (15.5) (0.1) 0.6%
Collection and payment services 104.7 183.3 (78.6) -42.9% 26.9 25.4 1.5 5.9%
Current account keeping 479.8 517.8 (38.0) -7.3% 117.0 118.3 (1.3) -1.1%
Credit and debit cards 176.5 232.4 (55.9) -24.1% 35.7 32.1 3.6 11.2%
Commercial banking activities 710.4 975.6 (265.2) -27.2% 164.0 160.3 3.7 2.3%
Receipts and trasmission of orders 28.9 43.0 (14.1) -32.8% 7.9 5.6 2.3 41.1%
Trading activities on financial
11.3 30.2 (18.9) -62.6% 1.7 3.1 (1.4) -45.2%
instruments and currencies
Distribution of third party services 481.7 460.4 21.3 4.6% 106.6 107.5 (0.9) -0.8%
Insurance services 191.7 175.9 15.8 9.0% 50.2 46.1 4.1 8.9%
Placement/ offering of financial
(44.9) (31.0) (13.9) 44.8% (14.2) (10.5) (3.7) 35.2%
instruments and services
Asset management 50.7 59.6 (8.9) -14.9% 11.9 12.2 (0.3) -2.5%
Management, brokerage and
719.4 738.1 (18.7) -2.5% 164.1 164.0 0.1 0.1%
advisory services
Other advisory services 146.7 125.7 21.0 16.7% 35.2 31.4 3.8 12.1%
Net fee and commission income 1,576.5 1,839.4 (262.9) -14.3% 363.3 355.7 7.6 2.1%
Dividends, similar income and gains (losses) on equity investments totalled EUR 101 mln, an
increase compared to 31 December 2016, mainly due to the AXA-MPS contribution2.
Net profit (loss) from trading and financial assets/liabilities in 2017 stood at EUR 575 mln,
including the effects relating to the burden sharing transaction (for a total of EUR 503 mln,
represented in the details noted below), an increase from the previous year (equal to EUR 441 mln).
Net of the effects of the burden sharing transaction, the aggregate would be down considerably
compared to 31 December 2016, which was characterised by higher net profit from trading,
disposals/repurchases of securities and capital gains on liabilities issued and measured at fair value. An
analysis of the main aggregates shows the following:
Trading result equivalent to EUR 0.2 mln, down from 31 December 2016; This result reflects a
lower contribution from the subsidiary MPS Capital Services. There was also a downturn on the
previous quarter (EUR -17 mln);
The negative FVO results of EUR 3 mln were almost entirely due to the burden sharing
transaction, net of which the aggregate would be basically null due to the early adoption permitted
by IFRS 9 of the method of accounting for profit/losses connected to own creditworthiness of fair
value option liabilities (as at 31 December 2016, determined in accordance with IAS 39, the FVO
Result was positive for EUR 99 mln);
Gains on disposal/repurchase totalled EUR 578 mln, essentially relating to the effects of the
burden sharing transaction for EUR +505 mln, net of which the aggregate would be down
compared to the same period of the previous year (-54.8% Y/Y), which benefitted from the higher
AFS capital gains and other extraordinary income (disposal of the equity investment held by the
Parent Company in VISA Europe and repurchase of financial liabilities). Compared to 3Q17 and
removing the effects of the burden sharing transaction, the aggregate would have essentially
remained the same.
2 AXA-MPS was consolidated in the Group’s financial statements using the equity method.
2017 ANNUAL REPORT
49 Consolidated Report on Operations
Chg. Y/Y Chg. Q/Q
Items 31 12 2017 31 12 2016 4°Q 2017 3°Q 2017
Abs. % Abs. %
Financial assets held for trading (51.2) (77.7) 26.5 -34.1% (5.4) (0.2) (5.2) n.s.
Financial trading liabilities 33.9 82.6 (48.7) -59.0% (17.1) 3.2 (20.3) n.s.
Exchange rate effects 10.5 23.4 (12.9) -55.1% 3.5 2.1 1.4 66.7%
Derivatives 7.0 152.1 (145.1) -95.4% (1.8) (8.8) 7.0 -79.5%
Trading results 0.2 180.4 (180.2) -99.9% (20.8) (3.7) (17.1) n.s.
FVO Results (3.4) 99.3 (102.7) n.s. (2.0) (0.8) (1.2) n.s.
Disposal / repurchase 578.0 161.5 416.5 n.s. 26.2 533.0 (506.8) -95.1%
Net profit (loss) from trading 574.8 441.2 133.6 30.3% 3.4 528.5 (525.1) -99.4%
The following items also make up Revenues:
Net profit (loss) from hedging totalled EUR -4 mln (negative for EUR 82 mln as at 31
December 2016, including the negative impact from the unexpected ineffectiveness of the interest
rate risk hedge on a subordinated bond, following the obligatory conversion envisaged in Law
Decree 237/16, converted into law on 17 February 2017, as part of the precautionary
recapitalisation by the State).
Other operating income/expense was negative for EUR 11 mln (EUR -16 mln at the end of
2016).
Operating expenses
Operating expenses totalled EUR 2,543 mln in 2017, down 3.0% on the previous year. The results
for 4Q17 were EUR 651 mln, an increase of 3.9% compared to 3Q17, mainly due to trends in Other
administrative expenses and Net adjustments to (recoveries on) property, plant and equipment and
intangible assets. A closer look at the individual aggregates reveals the following:
Administrative expenses stood at EUR 2,280 mln (-5.1% Y/Y), with an impact of EUR 579 mln
pertaining to 4Q17, up 3.3% compared to the previous quarter. A breakdown of the aggregate
shows:
Personnel expenses, which totalled EUR 1,575 mln, declined year on year by 2.2% (EUR -35
mln) as a result of workforce downsizing, also due to the Solidarity Fund initiatives of 1 May
and 1 November 2017. This trend is substantially in line with the previous quarter.
Other administrative expenses stood at EUR 704 mln, down 11.1% from 2016, which had
been negatively affected by the expenses connected to the recapitalisation transaction (which
was not completed successfully) of EUR 37 mln. Excluding this component, the annual trend
would, in any case, show a decrease due to structural cost control measures which involved, in
particular, the management of the real estate segment, ICT, and legal expenses connected to
debt collection. The expenses posted in 4Q17 amounted to EUR 192 mln, higher than those of
the previous quarter.
Net adjustments to (recoveries on) property, plant and equipment / Net adjustments to
(recoveries on) intangible assets amounted to EUR 263 mln in 2017, greater than the values
from the previous year due to higher write-downs on property, plant and equipment (impairment
on land and buildings of EUR 17 mln) and on intangible assets (software impairment of EUR 25
mln). They were also up compared to the previous quarter (+10.0% Q/Q), as a result of the higher
write-downs on property, plant and equipment, following the refurbishment and expansion of the
ATM machines.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 50
Chg Y/Y Chg Q/Q
Type of transaction 31 12 2017 31 12 2016 4°Q 2017 3°Q 2017
Abs. % Abs. %
Wages and salaries (1,137.5) (1,157.7) 20.2 -1.7% (280.6) (280.2) (0.4) 0.1%
Social-welfare charges (308.2) (318.7) 10.5 -3.3% (75.8) (76.3) 0.5 -0.7%
Other personnel expenses (129.7) (134.1) 4.5 -3.3% (30.7) (32.3) 1.6 -4.8%
Personnel expenses (1,575.4) (1,610.5) 35.2 -2.2% (387.1) (388.8) 1.7 -0.4%
Taxes (263.5) (287.3) 23.8 -8.3% (50.0) (70.0) 20.0 -28.6%
Furnishing, real estate and security
(171.4) (187.1) 15.7 -8.4% (39.0) (44.9) 5.9 -13.1%
expenses
General operating expenses (201.5) (201.6) 0.1 0.0% (51.8) (49.9) (1.9) 3.8%
Information technology expenses (166.7) (180.0) 13.3 -7.4% (41.8) (40.2) (1.6) 4.0%
Legal and professional expenses (172.8) (204.2) 31.4 -15.4% (72.0) (37.0) (35.0) 94.6%
Indirect personnel costs (11.4) (13.7) 2.3 -16.8% (3.9) (1.9) (2.0) n.s.
Insurance (29.2) (31.7) 2.5 -7.9% (7.5) (7.2) (0.3) 4.2%
Advertising, sponsorship and
(12.5) (16.6) 4.1 -24.7% (6.5) (2.0) (4.5) n.s.
promotions
Other 1.5 (14.0) 15.5 n.s. 14.6 (4.0) 18.6 n.s.
Expenses recovery 323.2 344.2 (21.0) -6.1% 65.6 84.8 (19.2) -22.6%
Other administrative expenses (704.3) (792.0) 87.7 -11.1% (192.3) (172.3) (20.0) 11.6%
Tangible assets (133.1) (111.8) (21.3) 19.1% (37.5) (32.5) (5.0) 15.4%
Intangible assets (130.3) (107.0) (23.3) 21.8% (33.6) (32.2) (1.4) 4.3%
Amortization and impairment
(263.4) (218.8) (44.6) 20.4% (71.1) (64.7) (6.4) 9.9%
losses
Operating costs (2,543.0) (2,621.3) 78.3 -3.0% (650.5) (625.8) (24.7) 3.9%
As a result of these factors, the Group’s Gross Operating Income totalled EUR 1,483 mln (EUR
1,661 mln in 2016), with a contribution of EUR 152 mln from 4Q17, a decline from the previous
quarter.
Net impairment (losses)/ reversals on loans and financial assets
In 2017, the Group recognised Net impairment (losses)/reversals on loans, financial assets and
other transactions of EUR 5,460 mln, an increase of EUR 959 mln from the previous year, mainly
due to: i) net impairment losses posted at the beginning of the year on the loans to be transferred
following the adjustment to their recoverable value and other additional charges envisaged in the
agreement with Quaestio (in total, EUR -3.9 bn, already recognised as at 30 June 2017); ii) recovery
costs associated with the long-term servicing contract signed with JV Cerved/Quaestio for managing
the outsourcing of MPS Group’s doubtful loans (EUR -170 mln); iii) write-down of the equity
investments in the Atlante Fund (EUR -30 mln, already recognised in the first half of the year) and in
Banca Popolare di Spoleto (EUR -8 mln); iv) write-down of the share held in the Voluntary Scheme
(for a total amount of EUR -46 mln). The results for 4Q17 were up by EUR 333 mln from the
previous quarter.
The ratio of 2017 net impairment losses on loans to total Loans to Customers reflects a Provisioning
Rate of 585 bps, or 172 bps net of the balance sheet and income statement effects of the transferred
doubtful loans.
2017 ANNUAL REPORT
51 Consolidated Report on Operations
Chg. Y/Y Chg. Q/Q
Reversals 31 12 2017 31 12 2016 4°Q 2017 3°Q 2017
Abs. % Abs. %
Loans to banks (1.7) (0.3) (1.4) n.s. (0.4) 5.1 (5.5) n.s.
- Loans (2.2) (0.4) (1.8) n.s. (0.4) 4.9 (5.3) n.s.
- Debt securities 0.5 0.1 0.4 n.s. - 0.2 (0.2) -100.0%
Loans to customers (5,321.9) (4,466.7) (855.2) 19.1% (551.2) (180.1) (371.1) n.s.
- Loans (5,322.1) (4,465.8) (856.3) 19.2% (551.3) (180.2) (371.1) n.s.
- Debt securities 0.2 (0.9) 1.1 n.s. 0.1 0.1 - 0.0%
Impairment losses on loans (5,323.6) (4,467.0) (856.6) 19.2% (551.6) (175.0) (376.6) n.s.
Financial assets available for sale (93.1) (41.8) (51.3) n.s. (29.9) (29.7) (0.2) 0.7%
Guarantees and commitments (43.2) 7.9 (51.1) n.s. 24.0 (19.8) 43.8 n.s.
Total financial activities and
(136.3) (33.9) (102.4) n.s. (5.9) (49.5) 43.6 -88.1%
other operations
Total (5,459.9) (4,500.9) (959.0) 21.3% (557.5) (224.5) (333.0) n.s.
Consequently, the Group’s Net Operating Income in 2017 was negative for EUR 3,977 mln,
compared to a negative value of EUR 2,840 mln in the previous year.
Non-operating income, tax and net profit for the year
The Result for the year included the following items:
Net provisions for risks and charges in the amount of EUR -233 mln, mainly allocated for legal
risks. As at 31 December 2016 there was a positive balance of EUR 44 mln, which also benefitted
from the release of provisions recognised against tax and legal risks which did not emerge or were
attenuated.
Losses on investments for EUR -14 mln related to write-downs on the associates Trixia,
Interporto Toscano, and Fidi Toscana, partially offset by the gain on the sale of the investment in
Intermonte Sim Sgr realised in 4Q17. As at 31 December 2016, this item was positive for EUR 12
mln, referring essentially to the capital gain realised from the sale of Fabrica Immobiliare SGR.
Restructuring costs/One-off costs, amounting to EUR -330 mln, include the restructuring costs
allocated against the early retirement incentives/provision for personnel (EUR -282 mln) relating
to the agreement of 3 August 2017 for the exits in November (1,215 resources in 4Q17), charges
related to branch closures set forth in the restructuring plan (EUR -17 mln), and expenses
associated with the doubtful loan securitisation transaction, contracts for the overall outsourcing of
the doubtful debt collection platform, and the long-term servicing contract for managing doubtful
loans, as agreed with Cerved/Quaestio (totalling EUR -32 mln).
Risks and charges related with SRF, DGS and similar schemes, had a balance of EUR -92
mln, reflecting the entire contribution due from the Group to the Single Resolution Fund,
recognised in the first quarter (EUR 62 mln), with the remainder (EUR 30 mln) referring to the
share to be paid to the IDPF (DGS) accounted for in 3Q17. The balance as at 31 December 2016,
equivalent to EUR -241 mln, included two additional yearly contributions to the National
Resolution Fund, as required by Bank of Italy on 28 December 2016 pursuant to art. 25 of Law
Decree 237/2016.
DTA Fee, amounting to EUR -71 mln. This amount, determined according to the criteria set forth
in Law Decree 59/2016, converted into Law no. 119 of 30 June 2016, represents the fee as at 31
December 2017 on DTA (Deferred Tax Assets) that can be converted into a tax credit.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 52
Gains (losses) on disposal of investments for an amount of EUR 531 mln (resulting from the
gain on the sale of the merchant acquiring business unit to CartaSi and the sale of a property owned
by MPS Belgio) compared to a result of EUR 33 mln as at 31 December 2016 (related to the
realised gain from the sale of a property owned by the investee CO.E.M.).
Due to the changes discussed above, the Group’s Loss before tax from continuing operations
stood at EUR -4,186 mln, down with respect to 2016 levels, which recorded a loss of EUR -3,179
mln.
Tax expense (recovery) on income from continuing operations amounted to income of EUR 710
mln. This result can essentially be attributed to the partial reassessment - equal to EUR 572 mln - of
DTAs from tax losses accrued but not recognised in previous years, induced primarily by the
regulatory measure which ordered the reduction in the ACE benefit (cf. article 7 of Law Decree no. 50
of 24 April 2017). The item also includes the ACE accrued for EUR 51 mln. Indeed, on a forward-
looking basis, the lower ACE deductions planned as of 2017 and thereafter will reduce, with respect to
what was expected with the regulations previously in force, the absorption of future taxable income,
which therefore may be allocated to a greater extent to offsetting previous tax losses.
Considering the net effects of the PPA (EUR -26 mln), the Group’s consolidated loss for 2017
amounted to EUR -3,502 mln, compared to a loss of EUR 3,241 mln in 2016.
*****
In compliance with Consob instructions, following is a statement of the reconciliation of the
Shareholders’ equity and Net profit and loss for the year of the Parent Company with the Group’s
Shareholders’ equity and Net profit and loss for the year:
Reconciliation between Parent Company and Consolidated Net Equity and Profit (Loss) for the period
Shareholders' equity Net profit (loss)
Balance as per Parent Company's Accounts 9,647.5 (2,857.4)
including Parent Company's valuation reserves (61.5) -
Impact of line-by-line consolidation of subsidiaries (2,501.9) (1,526.9)
Impact of associates 249.0 99.4
Reversal of dividends from subsidiaries - (20.9)
Effect of write off of depreciation/revaluation of equity investments 2,539.0 106.4
Other adjustments 382.3 697.1
Subsidiaries' valuation reserves 113.2 -
Consolidated balance 10,429.1 (3,502.3)
including valuation reserves 51.7
2017 ANNUAL REPORT
53 Consolidated Report on Operations
Reclassified balance sheet
Reclassified Consolidated Balance Sheet
Chg
ASSETS 31/12/17 31/12/16
abs. %
Cash and cash equivalents 4,092.3 1,084.5 3,007.8 n.s.
Receivables :
a) Loans to customers 86,456.3 106,692.7 (20,236.4) -19.0%
b) Loans to banks 9,966.2 8,936.2 1,030.0 11.5%
Marketable assets 24,168.4 25,929.3 (1,760.9) -6.8%
Equity investments 1,034.6 1,031.7 2.9 0.3%
Property, plant and equipment / Intangible assets 2,854.2 2,942.9 (88.7) -3.0%
of which:
a) goodwill 7.9 7.9 -
Other assets 10,582.2 6,561.2 4,021.0 61.3%
Total assets 139,154.2 153,178.5 (14,024.4) -9.2%
Chg
LIABILITIES 31/12/17 31/12/16
abs. %
Payables
a) Deposits from customers and securities issued 97,801.8 104,573.5 (6,771.7) -6.5%
b) Deposits from banks 21,084.9 31,469.1 (10,384.2) -33.0%
Financial liabilities held for trading 4,476.9 4,971.8 (494.9) -10.0%
Provisions for specific use
a) Provisions for staff severance indemnities 199.5 252.9 (53.4) -21.1%
b) Pensions and other post retirement benefit
50.1 53.6 (3.5) -6.5%
obligations
c) Other provisions 1,088.4 1,054.5 33.9 3.2%
Other liabilities 4,021.2 4,342.7 (321.5) -7.4%
Group net equity 10,429.1 6,425.5 4,003.6 62.3%
a) Valuation reserves 51.7 47.3 4.4 9.3%
d) Reserves 3,864.8 2,253.6 1,611.2 71.5%
e) Share premium - - -
f) Share capital 10,328.6 7,365.7 2,962.9 40.2%
g) Treasury shares (-) (313.7) - (313.7)
h) Net profit (loss) for the year (3,502.3) (3,241.1) (261.2) 8.1%
Non-controlling interests 2.3 34.9 (32.6) -93.4%
Total Liabilities and Shareholders' Equity 139,154.2 153,178.5 (14,024.3) -9.2%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 54
Reclassified Consolidated Balance Sheet - Quarterly Trend
31/12/17 30/09/17 30/06/17 31/03/17 31/12/16 30/09/16 30/06/16 31/03/16
ASSETS
Cash and cash equivalents 4,092.3 821.9 843.1 879.1 1,084.5 941.4 794.6 913.4
Receivables :
a) Loans to customers 86,456.3 91,041.1 89,713.1 102,406.9 106,692.7 104,612.4 107,547.8 113,544.3
b) Loans to banks 9,966.2 12,897.0 13,116.4 8,451.4 8,936.2 7,669.4 7,953.1 6,856.1
Marketable assets 24,168.4 25,403.0 24,089.8 26,511.8 25,929.3 35,748.3 36,022.6 39,999.9
Equity investments 1,034.6 1,001.2 1,023.6 1,013.0 1,031.7 910.7 948.0 934.3
Property, plant and equipment / Intangible assets 2,854.2 2,833.7 2,844.7 2,894.2 2,942.9 3,016.9 3,059.8 3,112.4
of which:
a) goodwill 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9
Other assets 10,582.2 11,101.2 11,958.8 6,648.2 6,561.2 7,230.0 8,059.6 8,285.2
Total assets 139,154.2 145,099.1 143,589.5 148,804.6 153,178.5 160,129.1 164,385.5 173,645.6
31/12/17 30/09/17 30/06/17 31/03/17 31/12/16 30/09/16 30/06/16 31/03/16
LIABILITIES
Payables
a) Deposits from customers and securities issued 97,801.8 102,968.4 106,543.9 109,390.0 104,573.5 105,461.4 112,045.2 119,507.9
b) Deposits from banks 21,084.9 21,566.1 22,802.8 22,837.5 31,469.1 25,282.4 19,465.8 17,524.7
Financial liabilities held for trading 4,476.9 4,201.1 4,449.9 4,412.4 4,971.8 13,802.7 15,854.7 20,051.0
Provisions for specific use
a) Provisions for staff severance indemnities 199.5 234.7 233.7 252.5 252.9 251.3 249.9 247.7
b) Pensions and other post retirement benefit
50.1 45.9 47.3 52.5 53.6 51.2 52.3 51.4
obligations
c) Other provisions 1,088.4 959.8 958.8 954.2 1,054.5 1,018.8 1,012.5 1,050.0
Other liabilities 4,021.2 4,176.4 5,503.2 4,861.2 4,342.7 5,489.2 5,750.4 5,511.9
Group net equity 10,429.1 10,944.5 3,047.7 6,041.9 6,425.5 8,745.6 9,928.7 9,675.3
a) Valuation reserves 51.7 60.5 102.0 7.4 47.3 (24.7) 7.7 (36.5)
d) Reserves 3,864.8 (1,494.4) (1,177.4) (1,162.0) 2,253.6 617.2 617.2 610.5
e) Share premium - - - - - - - 6.3
f) Share capital 10,328.6 15,692.8 7,365.7 7,365.7 7,365.7 9,001.8 9,001.8 9,001.8
g) Treasury shares (-) (313.7) (313.7) - - - - - -
h) Net profit (loss) for the year (3,502.3) (3,000.7) (3,242.6) (169.2) (3,241.1) (848.7) 302.0 93.2
Non-controlling interests 2.3 2.2 2.2 2.4 34.9 26.5 26.0 25.7
Total Liabilities and Shareholders' Equity 139,154.2 145,099.1 143,589.5 148,804.6 153,178.5 160,129.1 164,385.5 173,645.6
2017 ANNUAL REPORT
55 Consolidated Report on Operations
Customer funding
The Group’s Total Funding as at 31 Background
December 2017 amounted to EUR 193.6
bn (-4.5% versus 31 December 2016) In the period from January through October of 2017, direct funding showed
with an overall decline in volumes of essentially flat performance (-0.7% compared to the same period in 2016),
EUR 7.6 bn in the fourth quarter, mainly reflecting the positive trend in deposits from resident consumer clients, up 3.3%
in the period (net of repo transactions with central counterparties and deposits
due to the decrease in direct funding with connected with loan transfers) and the steady drop in bonds (-17.8%).
institutional counterparties as well as Customers therefore continue to show high preference for liquid, risk-free
instruments, also as a result of the low opportunity cost of holding such
assets under custody. instruments. Bank bonds are instead penalised by the higher cost for the issuer
with respect to the liquidity offered by the ECB and low demand resulting
especially from the content of the regulation on banking crises (“bail-in”).
With reference to interest rates, the average rate on deposits of non-financial
companies and households was around 0.40% (0.39% in November), a slight
decline compared to the end of 2016, while the bond rate continues to decline
(2.64% in November, -10 bps compared to December 2016). The average
weighted cost of direct funding for the ABI sample, which includes larger banks,
declined throughout 2017, reaching just below 0.70% (0.68% in November).
New flows of assets under management recorded significant progress. In the
first ten months of the year, the net funding from mutual funds was nearly
double that for all of 2016 (roughly EUR 64,500 mln compared to EUR 34,400
mln), with the percentage of bond products dropping to nearly 37%, compared
to nearly 50% in 2016. In January-October 2017, funding on individual retail
portfolio management, of EUR 4,001 mln, was positive, after net flows which
basically broke even in 2016. Assets under management from open-end funds
were up by roughly 11.4% in October compared to December of the previous
year, while the stock relating to individual portfolio management grew by 2.5%.
Customer Funding
Chg Q/Q Chg Y/Y
31/12/17 30/09/17 31/12/16 Abs. % Abs. %
Direct funding 97,801.8 102,968.4 104,573.5 -5,166.6 -5.0% -6,771.7 -6.5%
Indirect funding 95,845.7 98,242.9 98,151.8 -2,397.2 -2.4% -2,306.1 -2.3%
Total funding 193,647.5 201,211.3 202,725.3 -7,563.8 -3.8% -9,077.8 -4.5%
Volumes of Direct Funding, which at the end of the year stood at EUR 97.8 bn, recorded a decrease
of EUR 6.8 bn compared to the end of December 2016, primarily due to the drop in repurchase
agreements with institutional counterparties and the bond component (impacted by the effect of
burden sharing on institutional subordinated loans and maturities during the year), only partially offset
by growth in current accounts, deposits, and other forms of funding. Compared to 30 September 2017,
the aggregate was down EUR 5.2 bn, primarily in the segment of repurchase agreements with
institutional counterparties (EUR -4.3 bn), while bonds were stable as repayments at maturity were
offset by issues of senior debt securities, such as the recovery of the 2008-2018 T2 subordinated bond
subject to burden sharing.
The Group’s market share3 on Direct Funding was 3.78% (figure updated in October 2017), up 23 bps
compared to the end of 2016.
3 Deposits and repurchase agreements (excluding repurchase agreements with central counterparties) from resident consumer clients and bonds net of repurchases placed
with resident consumer clients as first-instance borrowers. The value of Direct Funding in October did not include the effects of the recovery of the subordinated bond
that was subject to burden sharing.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 56
Direct funding
Change Q/Q Change Y/Y
Type of transaction 31/12/17 30/09/17 31/12/16 Abs. % Abs. %
Current accounts 51,465.5 50,561.2 40,972.6 904.3 1.8% 10,492.9 25.6%
Time deposits 10,469.0 11,556.9 10,133.5 (1,087.9) -9.4% 335.5 3.3%
Reverse repurchase agreements 8,572.3 12,874.7 25,295.8 (4,302.4) -33.4% (16,723.5) -66.1%
Bonds 18,521.7 18,468.6 23,676.3 53.1 0.3% (5,154.6) -21.8%
Other types of direct funding 8,773.3 9,507.0 4,495.3 (733.7) -7.7% 4,278.0 95.2%
Total 97,801.8 102,968.4 104,573.5 (5,166.6) -5.0% (6,771.7) -6.5%
Indirect Funding came to EUR 95.8 bn at the end of December, a decline from 31 December 2016
(EUR -2.3 bn), due to the reduction in assets under custody (EUR -3.7 bn), which was influenced by
the movement in a large Corporate position. Instead, asset management was up (EUR +1.4 bn). The
comparison with 30 September 2017 shows a trend similar to the annual performance (EUR -2.4 bn),
with a reduction in assets under custody (EUR -3.2 bn) and growth in assets under management (EUR
+0.8 bn). In addition, the trend in the aggregate was negatively influenced during the quarter by the
effects of the recovery transaction for the subordinated bond subject to burden sharing (2008-2018
T2).
As regards assets under management, with a balance of EUR 58.6 bn, this aggregate was up
compared to December 2016 as well as 30 September 2017. This growth was seen across all segments
with the exception of Wealth Management.
Indirect Funding
Change Q/Q Change Y/Y
31/12/17 30/09/17 31/12/16 Abs. % Abs. %
Assets under management 58,599.4 57,812.7 57,180.9 786.7 1.4% 1,418.5 2.5%
Mutual Funds/Sicav 28,477.9 27,891.6 27,020.5 586.3 2.1% 1,457.4 5.4%
Individual Portfolio under
5,933.0 6,149.0 6,619.7 -216.1 -3.5% -686.8 -10.4%
Management
Insurance Products 24,188.5 23,772.1 23,540.6 416.5 1.8% 647.9 2.8%
Assets under custody 37,246.3 40,430.2 40,971.0 -3,183.9 -7.9% -3,724.7 -9.1%
Total funding 95,845.7 98,242.9 98,151.8 -2,397.2 -2.4% -2,306.1 -2.3%
2017 ANNUAL REPORT
57 Consolidated Report on Operations
Loans to customers
As at 31 December 2017, the Group’s Background
Loans to Customers amounted to EUR
86.5 bn, down EUR 20.2 bn compared to During 2017, the growth in bank loans maintained its modest pace, despite
the end of December 2016 and EUR 4.6 more dynamic growth in the economy and improvement in supply conditions.
bn from 30 September 2017. The trend in During the January-November period, this item increased at an annual rate of
1% over the corresponding period in 2016, and can be compared with a slightly
the aggregate during the quarter reflects lower growth rate (around 0.7%) in 2016. The gap between the trend in lending
the reduction in the segments of to households (up 2.5% during the period) and non-financial companies (which
is flat at 0.05%) is growing. The former was impacted by ever more encouraging
repurchasing agreements with signs of a recovery in disposable income and the real estate market, while loans
institutional counterparties (EUR -2.5 bn) to non-financial companies remain weak despite the recovery in GDP growth,
and commercial lending. the renewal of tax measures supporting investments in operating assets and
digital technologies, as well as the legislative initiatives supporting company
The Group’s market share4 stood at capitalisation.
6.64% (last available figure from October
With regard to interest rates, in October the interest rate on the total stock of
2017), stable compared to the end of loans was 2.74%, down 11 bps compared to December 2016. On new
2016. transactions, the rate for loans to households for home purchases is 2.0%, while
the rate for non-financial companies remains around 1.5%. In particular, rates
on new loans of less than EUR 1 mln to non-financial companies (2.0%) were
down 25 basis points compared to December 2016.
The stock of doubtful continues to decline, down 13.1% in November 2017
compared to November 2016. Loan transfers had an impact of EUR 30,171
mln (in 2016 transfers reached EUR 18,000 mln for the entire year). Net of
these transactions, the annual change in November 2017 was positive and just
under 7.8%. Net of allowances for impairment, doubtful loans represented
approximately 3.5% of bank loans, down compared to the average of 4.5% in
the second half of 2016.
Loans to customers
Change Q/Q Change 31.12 Change Y/Y
Type of transaction 31/12/17 30/09/17 31/12/16 Abs. % Abs. % Abs. %
Current accounts 5,757.5 6,032.6 6,313.2 (275.1) -4.6% (555.7) -8.8% (555.7) -8.8%
Mortgages 46,868.4 47,682.2 49,532.6 (813.8) -1.7% (2,664.2) -5.4% (2,664.2) -5.4%
Other forms of lending 17,903.5 18,906.8 20,542.0 (1,003.3) -5.3% (2,638.5) -12.8% (2,638.5) -12.8%
Repurchase agreements 4,524.8 7,064.1 8,854.6 (2,539.3) -35.9% (4,329.8) -48.9% (4,329.8) -48.9%
Securities lending 1,050.1 1,072.3 1,130.3 (22.2) -2.1% (80.2) -7.1% (80.2) -7.1%
Non performing loans 10,352.0 10,283.1 20,320.0 68.9 0.7% (9,968.0) -49.1% (9,968.0) -49.1%
Total 86,456.3 91,041.1 106,692.7 (4,584.8) -5.0% (20,236.4) -19.0% (20,236.4) -19.0%
The medium/long-term component recorded new disbursements of EUR 6.3 bn in 2017, for both
households and businesses, down 18.7% Y/Y.
Please note that, also considering the transferred portfolio of doubtful loans, non-performing loans
stood at EUR 14.8 bn as at 31 December 2017.
4 Loans to resident consumer clients, including NPLs and net of repo transactions with central counterparties.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 58
Non-performing loans5
As at 31 December 2017, the Group’s exposure to gross non-performing loans totalled EUR 45.1
bn, down compared to the end of December 2016 (EUR -0.7 bn) and essentially flat compared to 30
September 2017. As concerns the quarterly trend of the non-performing loan segment, in 4Q17 there
was an increase of EUR 1.1 bn in doubtful loans and a reduction in unlikely to pay (EUR -0.8 bn) and
non-performing past due exposures (EUR -0.3 bn). Net of gross non-performing loans “held for sale”,
the gross exposure would decline from EUR 45.1 bn to EUR 20.9 bn.
As at 31 December 2017, the Group’s net exposure to non-performing loans stood at EUR 14.8 bn
recording a decline of EUR 5.5 bn since the beginning of the year, mainly attributable to net
adjustments on the transferred loans following the adjustment of their recoverable value and a
decrease of EUR 0.3 bn compared to 30 September 2017. This net exposure includes EUR 4.4 bn
relating to the non-performing loans held for sale, net of which the value would have been EUR 10.4
bn, marking a significant improvement in the ratio of net non-performing loans to net loans to
customers, which dropped from 16.3% to 12.0%. Within the aggregate, the percentage of unlikely to
pay loans and past due exposures remained substantially stable in the fourth quarter of 2017, while
doubtful loans increased (from 7.6% in September to 8.3% in December).
As at 31 December 2017, coverage of non-performing loans stood at 67.2%, an increase compared to
31 December 2016 (55.6%) and 30 September 2017 (66.4%).
Non Non- - of which - of which
Doubtful Unlikely Perfoming
performing performing Total forbone forborne not
loans to pay exposures
Past due exposures impaired impaired
Gross exposure 32,967.0 11,595.4 520.0 45,082.4 76,798.6 121,881.0 9,465.1 2,465.8
31 12 17 Provisions 25,435.4 4,715.6 133.3 30,284.3 555.2 30,839.5 4,328.6 95.3
Net exposure 7,531.6 6,879.8 386.7 14,798.1 76,243.4 91,041.5 5,136.5 2,370.5
Coverage ratio 77.2% 40.7% 25.6% 67.2% 0.7% 25.3% 45.7% 3.9%
% on Loans to customers 8.3% 7.6% 0.4% 16.3% 83.7% 100.0% - -
30 09 17 30 09 17 30 09 17 30 09 17 30 09 17 30 09 17 30 09 17 30 09 17
Gross exposure 31,851.7 12,378.7 783.4 45,013.8 81,313.9 126,327.7 9,553.5 2,590.7
30 09 17 Provisions 24,579.9 5,097.6 194.5 29,872.0 555.9 30,427.9 4,250.5 92.6
Net exposure 7,271.8 7,281.1 588.9 15,141.8 80,758.0 95,899.8 5,303.0 2,498.1
Coverage ratio 77.2% 41.2% 24.8% 66.4% 0.7% 24.1% 44.5% 3.6%
% on Loans to customers 7.6% 7.6% 0.6% 15.8% 84.2% 100.0% - -
31 03 17 31 03 17 31 03 17 31 03 17 31 03 17 31 03 17 31 03 17 31 03 17
Gross exposure 29,424.4 15,246.6 1,114.4 45,785.4 87,060.9 132,846.3 9,907.6 2,747.5
31 12 16 Provisions 19,059.5 6,145.8 260.1 25,465.4 688.1 26,153.5 3,784.3 122.5
Net exposure 10,364.9 9,100.8 854.3 20,320.0 86,372.8 106,692.8 6,123.3 2,625.0
Coverage ratio 64.8% 40.3% 23.3% 55.6% 0.8% 19.7% 38.2% 4.5%
% on Loans to customers 9.7% 8.5% 0.8% 19.0% 81.0% 100.0% - -
5
Includes the component of non-performing loans included in item 70 “Loans to customers”, and also part of item 150 “Non-current assets and groups of assets held
for sale and discontinued operations” for the portion relating to the transferred doubtful loans.
2017 ANNUAL REPORT
59 Consolidated Report on Operations
Changes in gross exposure
Non Non - of which - of which
Unlikely to
abs/% Doubtufl loans performing performing Performing Total forbone forborne not
pay
past due exposures exposures impaired impaired
Q/Q abs. 1,115.3 (783.3) (263.4) 68.6 (4,515.3) (4,446.7) (88.4) (124.9)
% 3.5% -6.3% -33.6% 0.2% -5.6% -3.5% -0.9% -4.8%
Y/Y abs. 3,542.6 (3,651.2) (594.4) (703.0) (10,262.3) (10,965.3) (442.5) (281.7)
% 12.0% -23.9% -53.3% -1.5% -11.8% -8.3% -4.5% -10.3%
Changes in coverage ratio
Non Non
Ulikely to
Doubtful loans performing performing Performing Total
pay
past due exposures exposures
Q/Q -0.02% -0.51% 0.81% 0.81% 0.04% 1.22%
Y/Y 12.38% 0.36% 2.29% 11.56% -0.07% 5.62%
Financial assets/liabilities
As at 31 December 2017, the Group’s tradable financial assets amounted to EUR 24.2 bn, down 6.8%
compared to the end of the previous year. This item also posted a decline of 4.9% compared to 30
September 2017 (EUR -1.2 bn), principally in the trading component relating to the subsidiary MPS
Capital Services (which declined during the quarter, in particular on Italian government debt securities,
for which the company acts as primary dealer). Financial liabilities held for trading declined compared
to the end of 2016 by EUR 0.5 bn but posted an increase of EUR 0.3 bn compared to 30 September
2017.
Chg. Q/Q Chg. Y/Y
Items 31 12 2017 30 09 2017 31 12 2016
Abs. % Abs. %
Tradable financial assets 24,168.4 25,403.0 25,929.3 (1,234.6) -4.9% (1,760.9) -6.8%
Financial assets held for trading 8,718.0 10,101.7 9,266.2 (1,383.7) -13.7% (548.2) -5.9%
Financial assets available for sale 15,450.4 15,301.3 16,663.1 149.1 1.0% (1,212.7) -7.3%
Financial liabilities held for trading 4,476.9 4,201.1 4,971.8 275.8 6.6% (494.9) -10.0%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 60
31 12 2017 30 09 2017 31 12 2016
Financial
Items Financial Financial Tradable
Tradable Tradable liabilities
liabilities held liabilities held financial
financial assets financial assets held for
for tradig for tradig assets
tradig
Debt securities 20,331.5 - 21,510.5 - 20,979.4 -
Equity instruments and Units of
505.1 - 476.8 - 527.7 -
UCITS
Loans - 2,903.3 - 2,506.4 265.2 2,665.6
Derivatives 3,331.8 1,573.6 3,415.7 1,694.7 4,157.0 2,306.2
Total 24,168.4 4,476.9 25,403.0 4,201.1 25,929.3 4,971.8
Interbank position
At the end of December 2017, the net interbank position of the Group stood at EUR 11.1 bn in
funding, down by EUR 11.4 bn compared to the balance as at 31 December 2016. This trend can be
attributed to the improvement in commercial liquidity (increase in direct funding and simultaneous
reduction in loans) and government-backed issues carried out in the first quarter of 2017, which made
it possible to reduce exposure to the ECB. Furthermore, the change of EUR 2.4 bn compared to 30
September 2017 is primarily attributable to the drop in loans to banks in the form of ECB deposits.
Interbank balances
Change Q/Q Change Y/Y
31/12/17 30/09/17 31/12/16 Abs. % Abs. %
Loans to banks 9,966.2 12,897.0 8,936.2 (2,930.8) -22.7% 1,030.0 11.5%
Deposits from banks 21,084.9 21,566.1 31,469.1 (481.2) -2.2% (10,384.2) -33.0%
Net position (11,118.7) (8,669.1) (22,532.9) (2,449.6) 28.3% 11,414.2 -50.7%
As at 31 December 2017, the operating liquidity position had an unencumbered Counterbalancing
Capacity of EUR 21.1. bn, a considerable increase of EUR 14.2 bn compared to the value recorded
as at 31 December 2016 and in line with that of 30 September 2017.
2017 ANNUAL REPORT
61 Consolidated Report on Operations
Shareholders’ equity
As at 31 December 2017, the Group shareholders’ equity and non-controlling interests amounts
to around EUR 10.4 bn, an improvement of approx. EUR 4.0 bn compared to the end of December
2016, mainly due to the effects of the precautionary recapitalisation and burden sharing, and down by
nearly EUR 0.5 bn compared to 30 September 2017 due to the loss posted in 4Q17.
Reclassified Consolidated Balance Sheet
Chg Q/Q Chg Y/Y
31/12/17 30/09/17 31/12/16
Equity Abs. % Abs. %
Group net equity 10,429.1 10,944.5 6,425.5 (515.4) -4.7% 4,003.7 62.3%
a) Valuation reserves 51.7 60.5 47.3 (8.8) -14.5% 4.4 9.3%
c) Equity instruments carried at equity - - - - -
d) Reserves 3,864.8 (1,494.4) 2,253.6 5,359.2 n.s. 1,611.2 71.5%
e) Share premium - - - - -
f) Share capital 10,328.6 15,692.8 7,365.7 (5,364.2) -34.2% 2,962.9 40.2%
g) Treasury shares (-) (313.7) (313.7) - - (313.7)
h) Net profit (loss) for the period (3,502.3) (3,000.7) (3,241.1) (501.6) 16.7% (261.2) 8.1%
Non-controlling interests 2.3 2.2 34.9 0.1 4.5% (32.6) -93.4%
Total Group Shareholder's Equity and
10,431.4 10,946.7 6,460.4 (515.3) -4.7% 3,971.1 61.5%
Non-controlling interests
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 62
Results by operating segment
Identification of operating segments
For the purpose of identifying the Operating Segments provided for by IFRS 8, the Group has
adopted the business approach. Consolidated income statement and balance sheet data are broken
down and re-aggregated based on criteria including: business area concerned, operating structure of
reference, relevance and strategic importance of activities carried out, and customer clusters served.
The new Parent Company structure was outlined at the end of 2016 within the scope of the broader
objectives of the Plan and was fully implemented at the start of 2017. It envisages the implementation
of a specialised commercial organisational model with three Departments (Retail, Wealth Management
and Corporate), each of which is responsible for the pertinent markets, segments and products. In
particular, in terms of innovative elements, note the creation of the Wealth Management Department,
focusing on monitoring and developing customers of high standing, and Banca Widiba SpA, which has
become more important as an autonomous business segment.
Based on the Group’s current organisational structures and the reporting criteria at the highest
decision-making level, the following operating segments were identified:
Retail Banking, which includes the sales activities of Retail customers (Value, Premium and Small
Business segments);
Corporate Banking, which includes the sales activities of Corporate customers (SME, Entities and
Top Corporate segments), Large Corporate Area, Foreign Branches and the subsidiaries MPS
Capital Services, MPS Leasing & Factoring and the foreign banks MP Belgio and MP Banque;
Wealth Management, which includes the sales activities of Private Banking customers (Private
Banking and Family Office segments) and the subsidiary MPS Fiduciaria;
Banca Widiba SpA, which includes the financial advisor network and the self-service channel;
Corporate Centre, which in addition to cancellations of intragroup entries, incorporates the results
of the following business centres:
service operations supporting the Group’s business, dedicated in particular to the management
and development of IT systems (MPS Group Operating Consortium);
companies consolidated at equity and held for sale;
operating units, such as proprietary finance, ALM, Treasury and Capital Management which,
individually, fall below the disclosure requirements for primary reporting.
The comparison periods were restated retrospectively to reflect the current segment reporting
structure.
2017 ANNUAL REPORT
63 Consolidated Report on Operations
Results in brief
The following table reports the main income statement and balance sheet items that characterised the
Group’s Operating Segments as at 31 December 2017.
SEGMENT REPORTING Business Segments
Corporate Total
Wealth Corporate
Primary segment Retail banking Widiba Center MPS Group
Management banking
Chg % Chg % Chg % Chg % Chg % Chg %
(EUR mln) 31/12/17 31/12/17 31/12/17 31/12/17 31/12/17 31/12/17
Y/Y Y/Y Y/Y Y/Y Y/Y Y/Y
PROFIT AND LOSS
AGGREGATES
Total Income 2,496.9 -17.2% 156.2 -18.2% 1,029.9 -29.7% 43.6 6.9% 299.0 n.s. 4,025.6 -6.0%
Operating expenses (1,814.1) -2.2% -67.1 -1.9% -626.1 -1.3% -62.6 1.7% 26.9 n.s. (2,543.0) -3.0%
Pre Provision Profit 682.8 -41.3% 89.1 -27.3% 403.7 -51.4% -19.0 -8.4% 326.0 n.s. 1,482.6 -10.7%
Net impairment losses (reversals) on
(1,912.5) 30.7% -3.8 -49.8% -3,187.9 9.3% 0.4 -92.6% (356.2) n.s. (5,460.0) 21.3%
loans and financial assets
Net Operating Income (1,229.6) n.s. 85.3 -25.9% -2,784.2 33.5% -18.6 21.3% (30.3) -94.5% (3,977.4) 40.0%
BALANCE SHEET
AGGREGATES
Interest-bearing loans to customers 40,237.4 -8.8% 546.9 -7.3% 36,152.4 -13.8% 237.6 n.s. 6,167.1 -36.0% 83,341.5 -13.5%
Deposits from customers and debt
42,429.9 -1.9% 3,435.6 23.4% 19,481.2 68.4% 2,147.7 37.4% 30,307.3 -33.2% 97,801.8 -6.5%
securities issued(*)
Indirect funding 47,218.7 1.7% 17,001.7 -6.8% 11,680.3 -14.1% 5,400.6 6.0% 14,544.3 -1.7% 95,845.7 -2.3%
Assets under management 37,447.1 5.8% 11,828.3 -6.4% 1,591.1 -1.6% 4,927.7 8.1% 2,805.1 -6.1% 58,599.4 2.5%
Assets under custody 9,771.5 -11.5% 5,173.4 -7.8% 10,089.2 -15.7% 472.9 -12.1% 11,739.2 -0.6% 37,246.3 -9.1%
(*) The values stated in the Sales & Distribution segments are gross interest-bearing loans and therefore do not include the allowance for
impairment.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 64
Retail Banking
Business areas Customers
Funding and provision of insurance products.
Retail customers number approximately 4.6 mln.
Lending.
Financial advisory services.
Electronic payment services.
Income statement and balance sheet results
As at 31 December 2017, the Total Funding of Retail Banking totalled roughly EUR 89.6 bn,
essentially in line with the value at the end of 2016, but higher than the level at the end of September
2017 (EUR +0.3 bn), with offsetting trends between the decrease in Direct Funding and the growth in
Indirect Funding. More specifically:
Direct Funding came to EUR 42.4 bn, marking a decline of EUR -0.8 bn compared to 31
December 2016, with a recovery in demand and short-term forms and a decline in medium/long-
term forms, also influenced by bond maturities and, in part, by the conversion of the subordinated
loan subject to burden sharing. Compared to 30 September 2017, the aggregate increased (EUR
+0.5 bn) due to the demand and medium/long-term components (EUR +0.4 bn), the latter
affected during the quarter by the recovery of the subordinated bond mentioned previously, which
more than offset the reduction in short-term funding (EUR -1.1 bn).
Indirect Funding, amounting to approx. EUR 47.2 bn, increased compared to the end of
December 2016 (EUR +0.8 bn), thanks to the upward trend in asset management (EUR +2.1 bn),
which offset the decrease in assets under custody (EUR -1.3 bn). Compared to 30 September 2017,
the aggregate remained stable, as the increase in asset management (EUR +0.8 bn) offset the
reduction in assets under custody (EUR -1.0 bn), which had been affected during the quarter by the
recovery of the subordinated bond mentioned previously.
Interest-bearing loans to customers of Retail Banking decreased from EUR 44.1 bn in
December 2016 to EUR 40.2 bn as at 31 December 2017, with a decline in volumes of EUR 3.9
bn across all types of loans, in particular in the medium/long-term component (EUR -2.7 bn). The
aggregate also posted a decline compared to 30 September 2017 (EUR -0.7 bn), principally in the
medium/long-term component (EUR -0.6 bn).
2017 ANNUAL REPORT
65 Consolidated Report on Operations
RETAIL BANKING - BALANCE SHEET AGGREGATES
Chg Abs Chg % Chg Abs Chg %
(Eur mln) 31/12/17 30/09/17 31/12/16
Q/Q Q/Q Y/Y Y/Y
Deposits from customers and debt
42,430 41,945 43,254 485 1.2% -824 -1.9%
securities issued
Assets under management 37,447 36,619 35,385 828 2.3% 2,062 5.8%
Assets under custody 9,772 10,739 11,043 -967 -9.0% -1,272 -11.5%
Indirect Funding 47,219 47,358 46,428 -139 -0.3% 791 1.7%
Total Funding 89,649 89,303 89,682 346 0.4% -34 0.0%
Interest-Bearing Loans to Customers 40,237 40,970 44,122 -732 -1.8% -3,884 -8.8%
With regard to profit and loss, Retail Banking achieved total Revenues of approx. EUR 2,497 mln as
at 31 December 2017, down 17.2% compared to last year. A breakdown of the aggregate shows:
Net Interest Income was approximately EUR 1,170 mln, down 26.9% annually due mainly to the
decrease in returns on commercial assets (volumes and rates), and the reduction in the contribution
of funding (essentially the effect of lower average volumes of direct funding by EUR -7.8 bn).
Net fee and commission income totalled roughly EUR 1,285 mln, down with respect to the
previous year (-6.4%), within which there was growth in the component from products, while
commissions from services and income from lending declined.
Considering the impact of operating expenses, which decreased by 2.2% Y/Y, Retail Banking
generated Gross Operating Income of about EUR 683 mln in 2017 (-41.3% Y/Y). Net impairment
losses (reversals) on loans and financial assets totalled EUR -1.9 bn (EUR -1.5 bn as at 31 December
2016), penalised by the adjustment of provisions on transferred doubtful loans to their recoverable
value (EUR -1,574 mln).
The Net Operating Income for the year is negative for approximately EUR 1.2 bn.
The cost-income of the Operating Segment is 72.7% (61.5% at the end of December 2016).
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 66
RETAIL BANKING - PROFIT AND LOSS AGGREGATES
Chg. Y/Y
(EUR mln) 31/12/17 31/12/16 Abs. %
Net interest income 1,170.0 1,601.1 -431.1 -26.9%
Net fee and commission income 1,285.0 1,373.3 -88.3 -6.4%
Other income 40.5 41.2 -0.7 -1.8%
Other operating expenses/income 1.5 1.8 -0.2 n.s.
Total Revenues 2,496.9 3,017.3 -520.4 -17.2%
Operating expenses (1,814.1) (1,854.3) 40.2 -2.2%
Pre Provision Profit 682.8 1,163.0 -480.2 -41.3%
Net impairment losses (reversals) on loans and financial assets (1,912.5) (1,463.7) -448.8 30.7%
Net Operating Income (1,229.6) (300.6) -929.0 n.s.
The main product/service sales and innovation initiatives
The 2017 sales plan was developed within an environment impacted by the following main factors:
economic recovery and re-launch of the bank lending cycle;
the evolution in demand with greater customer knowledge and information, widespread use of
multiple banks, spread of new technologies (primarily mobile), although a notable digital divide
remains based on age, education and financial status; new, often complex, needs to be identified
and met;
regulatory pressure on adopting evolved advisory approaches (MiFID 2) to protect investors
(ESMA/Consob instructions on “complex products”).
The initiatives enacted during the year were developed in accordance with the following main policies:
Development of quality loans, while maintaining a focus on credit quality, particularly
concentrating on the Small Business market, leveraging the availability of low-cost funding
guaranteed by the TLTRO and the development of innovation (consolidation of commercial
covenants and digital lending), particular attention to the price leverage;
Advisory management of investments, enhancement of Indirect Funding by reviewing
investment advisory models with a view to providing more customer service and offering
innovation (e.g., automated advisory services, expansion of the product range with third-party
Asset Management and new Wealth Management);
Growth in fees and commissions from services by enhancing the offer (new products, like
Protection and E-money), innovation and technology (e.g., MPS Wallie).
2017 ANNUAL REPORT
67 Consolidated Report on Operations
Market Main sales initiatives developed in the market
Value Specific initiatives have been launched dedicated to Retention and Collection
Recovery, with promotions on protection/insurance and e-money products.
Distribution of Compass SpA products supported by the release of sales initiatives with the
offer of loans under highly competitive conditions for specific target customers.
To support the development of the E-Money segment, a prize contest was announced with
the collaboration of Mastercard, focusing attention on the new Debit MC product.
Targeted actions focused on the acquisition of new customers both in the
Protection/Insurance segment (with dedicated prize contests) and in the Pension
segment, also supported by events with customers (Pension Happy Hour).
In 2017, the “Value Skills” project was developed, a unique and synergistic plan of info-
training events in regional areas and via webinar created in collaboration with external
partners, MPS Capital Services, and the Training Department, that seeks to strengthen the
skills of the Value resources on issues related to the reference commercial activities for the
year.
Acquisition initiatives with the “Il tuo buongiorno (Your good morning)” prize contest aimed
at increasing Conto Mio subscriptions with the awarding of 30 Amazon gift certificates of
EUR 100 each.
Flash initiatives with specific commercial offers for a limited time period, such as “Promo for
a day”, and “Super Flash Offers” for personal loans and Conto Mio.
Small To combine the objective of lending growth with that of credit cost containment due to
Business the decided boost in transactions with consortium guarantee (in particular Mcc), campaigns
have been developed with pre-accepted conditions for transactions with a first-demand
guarantee. The development was then supported by the release of innovative targeting in
order to identify customers to whom an expansion of the agreement may be proposed, in
accordance with the credit policy guidelines.
Increase in new POS terminals, with marketing campaigns targeting Prospect customers
and existing customers without POS terminals.
Premium Specific initiatives have been launched dedicated to Retention and Collection
Recovery, with promotions on protection/insurance and e-money products, including caring
activities.
Release of Growth and Asset Management initiatives, through the enhancement of the
Advanced Advisory process and ancillary services.
Targeted actions in both in the Protection/Insurance segment (with dedicated prize
contests) and in the Pension segment, also supported by events with customers (Pension
Happy Hour).
Initiative dedicated to acquiring volumes, “Un Monte di Valore” (“A Mountain of Value”),
with special benefits reserved for participating customers.
The “Fiduciaria Day” project was strengthened to highlight the skills and solutions of MPS
Fiduciaria in the area of succession plans, generational handovers, and legal protection.
The “Premium Academy” info-training plan, launched in 2016, was further consolidated.
In 2017, the plan was enriched in collaboration with reference partners (primarily, wealth
management), developing classroom events, in both the Head Offices and in regional areas, in
continuity with the reference commercial activities for the year.
Training internships were launched with the partners AXA, Compass, Mastercard, both for
the Value market and Premium market.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 68
Advertising and marketing initiatives
In 2017, activities to improve and innovate advertising and marketing initiatives, designed to attract
new customers and facilitate the transfer of Direct/Indirect Funding from other institutions, included
the following:
“Un Monte di Valore” (A Mountain of Value), targeted at attracting new deposits in exchange for
increasing benefits (in the form of expense reimbursement, commissions and stamp duties), also
connected with a process that leads to the adoption of additional services to Advanced Advisory; as
well as caring initiatives dedicated to a cluster of high-value customers, or initiatives dedicated
to specific products, for example the “I mesi della Protezione” (Protection months) prize contest
in association with Axa Mps Assicurazioni Danni, with daily prize drawings and a grand prize for
subscribers to the Tutta la Vita (Whole Life) and Mia Protezione (My Protection) policies and the
“Realizziamo buoni propositi” (We achieve good objectives) prize contest, again in association with
Axa Mps Assicurazioni Danni, with weekly prize drawings for subscribers to the Tutta la Vita, Mia
Protezione, and Guidare Protetti (Drive Protected) policies.
Acquisition initiatives with the “Il tuo buongiorno (Your good morning)” prize contest aimed at
increasing Conto Mio subscriptions with the awarding of 30 Amazon gift certificates of EUR 100
each. Flash initiatives with specific commercial offers for a limited time period, such as “Promo for
a day”, and “Super Flash Offers” for personal loans and Conto Mio.
“MPS Private Solution”, aimed at acquiring new volumes with exclusive opportunities on short-
term direct funding and on bancassurance solutions, which provides, in a single solution, the
specialised skills of several managers on different asset classes, investment styles and strategies,
through the MPS Private Solution Funds system;
PCA Small Business: since June 2017 the Corporate Advisory Platform has also been extended to
the Small Business segment. This platform was designed to strengthen commercial processes,
develop business customers, existing and prospective, and with appropriate deployments, and was
focused on the growth of paid, specialised advisory activities.
As part of the Convention agreements, there is a continued commitment to develop relationships that
allow access to important customer segments (in terms of quality and quantity) to increase acquisition
activities. Testing of an advanced model has been gradually launched, which conceives the agreements
in terms of a real and effective partnership, including through “cross” activities on the reference
targets.
Funding, Asset Management and Bancassurance
The “Conto Italiano di Deposito” continues to represent the main product in the short/medium-
term funding segment. During the first half of 2017, the entire offer was expanded with the
introduction of a line offering the possibility of partial early repayment without causing the
customer to lose the benefit of the interest on the remaining amounts invested. In the second half,
a line dedicated exclusively to new acquisition was introduced and the product range was
rationalised, eliminating certain lines that are no longer financially interesting for customers.
With regard to Asset Management, the first half of the year was mainly characterised by the
placement of two PIR products - a new investment instrument introduced by the “Stability Law” of
21 December 2016 (Anima Crescita Italia fund, established and managed by Anima SGR and the
Italia PIR multi-fund unit policy of AXA MPS Financial). In the second half, as part of diversifying
the multi-manager offer, a new partner, Quaestio Capital SGR, joined with the existing investment
firms, and placement began at the end of the year for a single sub-fund with a flexible maturity.
During the year, the current Bancassurance product offer was enriched with the introduction of
new products, including, as mentioned above, PIR investment products and a new unit-linked
product; the offer of units in tranches of the “Progetto Protetto (Project Protected)” and “Progetto
2017 ANNUAL REPORT
69 Consolidated Report on Operations
Valore (Project Value)” product families continued. A new investment line was also introduced for
the Melody product. The first Italy PIR multi-fund unit with flexible pricing levels was also
released.
BMPS continued to be highly committed to the Protection/Insurance segment (Non-Life, Life
and Auto) in 2017, confirming the Bank as a leader in the bancassurance sector.
Loans
The sales partnership with Compass for the placement of personal loans continued, as well as that
relating to salary/pension-backed products with the Futuro and Pitagora partnerships. The
exclusive agreement with Compass and Futuro was renewed for the entire Network, effective from
1 January 2018, with the aim of further strengthening the offer and the commercial proposition,
including with innovative channels.
As part of participating in the ABI-CDP Agreement “Plafond Sisma Centro Italia”, the operational
procedure was developed for managing the subsidised loans to support individuals and
entrepreneurs affected by the earthquakes of 2016 in regions of Abruzzo, Marche, Umbria and
Lazio, and for the loan, disbursed with funds made available by Cassa Depositi e Prestiti S.p.A.
(CDP), to allow the payment of “Suspended Taxes” and “Taxes Due” by those earning business
income and self-employment income with registered and/or operational offices in the territories
affected by the 2016 earthquake.
In the Small Business Loan segment, new products were launched (Impresa Garantita and Working
Capital) under the Industry 4.0 approach as well as the Cosvig Impresa Garantita mortgage.
The product catalogue for retail mortgages was optimised, with new pricing and offers, in order to
increase competitiveness.
Activities were launched to issue a loan combined with voluntary APE (Pension Advance), based
on the system requirements defined by INPS.
Current Accounts, Payments and Collections
MPSMio was launched, a new modular, flexible account for the needs of Value customers.
The MPS One current account, already available for Premium customers, was improved with new
additional functions.
The Cbill service was reinforced through integration with PagoPA (digitalisation of payments to PA
- AgID).
The SEDA service was revised based on the new pricing rules and approaches defined at system
level.
E-Money
MPS Wallie, the Mobile Payment and Digital Wallet services, was strengthened by adding to the
functions that were already available (Wallet for Masterpass e-commerce and P2P Jiffy payments),
the HCE/NFC payment in stores through digitalised cards on smartphones in c-less mode
(currently available for debit cards and on Android terminals, extension to credit cards, prepaid
cards, and Apple Pay is under development).
The catalogue prepaid cards (Kristal Best and Spider) were reinforced with a new online purchase
protection function (dynamic 3DSecure Code); platform for new prepaid Business cards was
consolidated and deployment of the new Consumer prepaid offer was launched.
New features for debit cards were released, to allow customers to control their spending/use
through the new Digital Banking. Development to introduce the c-less function on debit cards on
the national circuit (Pagobancomat) has begun.
Commercial agreement with Mastercard was renewed to support innovative growth initiatives and
increase penetration/use of payment instruments.
A specific commercial agreement was activated to distribute the POS product following the sale of
the Merchant Acquiring business unit to Nexi (formerly ICBPI).
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 70
Digital Banking and Transaction Banking
In 2017 Digital Banking was introduced, the Bank’s new omni-channel service that includes the
following channels:
Internet and Mobile Banking, with updated graphics and new features, fully accessible from PCs,
smartphones, and tablets (from browsers as well as Android and Apple apps);
Media Center, a multi-channel point of contact available to customers both remotely (through a
telephone operator) and to assist in using Digital Banking;
Cardless ATM, a new channel that allows the use of ATMs (Bancomat) by customers that do not
have payment cards, by entering the User Code for Internet Banking.
Digital Identity is available to all Digital Banking customers, which allows them to use the same
authentication methods on all remote channels, validate a mobile number and email address, use the
Remote Digital Signature for online contract signing with Banca MPS, and offers a certified e-mail
address () that can be used both in communications with the Bank and third
parties.
Digital Banking will become an important tool for acquiring customers, as well as for cross-selling and
up-selling, due to the progressive expansion of products that can be purchased remotely.
Currently, customers can transact in Funds and Sicavs (purchase, subscribe new shares, switch, and
sell), access information on their asset management and investment policies, as well as consult and
renew insurance policies for cars, motorcycles and commercial vehicles.
Digital Identity allows the possibility of closing contracts in direct channels, potentially allowing the
sale of all the main banking and insurance products (current accounts, cards, investments, loans,
mortgages, etc.)
The migration of customers with Integrated Multi-Channel or Paschi Home contracts began in
February 2017 and is currently underway.
2017 ANNUAL REPORT
71 Consolidated Report on Operations
Wealth Management
Business areas Customers
Funding, lending, provision of insurance products,
There are around 37 thousand private customers.
financial and non-financial services to private
banking customers
Services and products for high-standing customers
in the areas of wealth management, financial
planning, consultancy on non-strictly financial
services (tax planning, real estate, art & legal
advisory).
Fiduciary and trust services (through the subsidiary
MPS Fiduciaria).
Income statement and balance sheet results
As at 31 December 2017, Total Funding for Wealth Management amounted to approximately EUR
20.4 bn, down by roughly EUR 0.6 bn from the end of December 2016 and up slightly over the levels
recorded as at 30 September 2017 (EUR +0.1 bn). More specifically:
Direct Funding as at 31 December 2017 was EUR 0.6 bn higher than the end of 2016, reaching
EUR 3.4 bn, with a shift towards demand and short-term components, offsetting the downturn in
medium/long-term components. Compared to 30 September 2017, the aggregate increased (EUR
+0.4 bn) due to growth in demand and medium/long-term components (EUR +0.2 bn), the latter
affected during the quarter by the recovery of the subordinated bond subject to burden sharing.
Indirect Funding, amounting to about EUR 17 bn, was down by EUR 1.2 bn compared to 31
December 2016 (EUR -0.8 bn in asset management and EUR -0.4 bn in assets under custody) and
down EUR 0.3 bn from September 2017, concentrated in assets under custody impacted in the
quarter by the recovery of the subordinated bond discussed above.
Interest-bearing loans to Wealth Management customers decreased with respect to 31
December 2016 and September 2017, with a balance of roughly EUR 0.5 bn.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 72
WEALTH MANAGEMENT - BALANCE SHEET AGGREGATES
Chg Abs Chg % Chg Abs Chg %
(EUR mln) 31/12/17 30/09/17 31/12/16
Q/Q Q/Q Y/Y Y/Y
Deposits from customers and debt
3,436 3,003 2,785 433 14.4% 650 23.4%
securities issued
Assets under management 11,828 11,863 12,634 -35 -0.3% -805 -6.4%
Assets under custody 5,173 5,467 5,609 -293 -5.4% -436 -7.8%
Indirect Funding 17,002 17,330 18,242 -328 -1.9% -1,241 -6.8%
Total Funding 20,437 20,332 21,028 105 0.5% -590 -2.8%
Interest-Bearing Loans to Customers 547 561 590 -14 -2.5% -43 -7.3%
With regard to profit and loss, Wealth Management achieved total Revenues of approx. EUR 156
mln as at 31 December 2017, down 18.2% compared to last year. A breakdown of the aggregate
shows:
As at 31 December 2017, Net Interest Income was approximately EUR 26 mln, down 37.1%
annually, impacted to a large extent by the drop in the contribution of direct funding (primarily as a
result of withdrawals of average funding volumes, -26.0% Y/Y);
Net Fee and Commission income in 2017 totalled approximately EUR 130 mln, also down
compared to the levels of the previous year (-12.9%) as a result of the decline in the product
segment, for continuing operations and placement components.
Considering the impact of Operating Expenses, which decreased by 1.9% Y/Y, Wealth Management
generated Gross Operating Income of about EUR 89 mln in 2017 (-27.3% Y/Y). Including net
impairments losses (reversals) on loans and financial assets equal to EUR 4 mln, penalised especially by
the adjustment of provisions on transferred doubtful loans to their recoverable value (EUR 3 mln), the
Net Operating Income since the start of the year totalled roughly EUR 85 mln.
The cost-income of the Operating Segment is 43.0% (35.8% at the end of December 2016).
2017 ANNUAL REPORT
73 Consolidated Report on Operations
WEALTH MANAGEMENT - PROFIT AND LOSS AGGREGATES
Chg. Y/Y
(EUR mln) 31/12/17 31/12/16 Abs. %
Net interest income 25.7 40.8 -15.1 -37.1%
Net fee and commission income 129.7 148.9 -19.2 -12.9%
Other income 0.8 1.2 -0.4 -30.9%
Other operating expenses/income 0.1 0.2 -0.1 n.s.
Total Revenues 156.2 191.1 -34.9 -18.2%
Operating expenses (67.1) (68.5) 1.3 -1.9%
Pre Provision Profit 89.1 122.6 -33.5 -27.3%
Net impairment losses (reversals) on loans and financial assets (3.8) (7.5) 3.8 -49.8%
Net Operating Income 85.3 115.1 -29.8 -25.9%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 74
The main product/service sales and innovation initiatives
Market Main sales initiatives developed in the market
Private At the beginning of May, a new investment solutions platform was released, called MPS Private
Banking/ Solution, designed to respond, simply and with specialised skills, to customer needs. In particular,
Family a promotional initiative was launched for customers who contribute new funding and subscribe to
Office one of the MPS Private Solution Funds, a system developed in collaboration with 7 leading
investment firms and built exclusively for MPS Private Banking. This multi-manager offer system
is characterised by a flexible management style, with 5 sub-funds (Absolute, Flexible, Multi Asset,
Global and Flexible Bond) that have differentiated portfolio strategies and levels of risk, with an
approach based on simplification, diversification, and efficiency of investment management. The
release was also supported by a targeted marketing initiative through a dedicated advertising
campaign on radio and daily financial-economic newspapers and on the Bank's social profiles.
In addition to the launch of MPS Private Solution, the offer range was strengthened through the
release of the Anima Crescita Italia fund and an Anima PIR vehicle.
The Bancassurance segment performed a restyling of the Melody Advanced policy and the
Melody Advance Bonus Edition policy with the issue of a new Investment Line and the launch of
the Insurance PIR with dedicated pricing for Private Customers. New sub-funds of the Sicav
Hedge Invest fund were opened for placement.
Effective 29 December 2017, the Bank activated new processes for providing investment services
through out-of-branch offers, or the promotion and placement of investment services and
financial instruments to the public, outside the Bank’s premises.
In compliance with legislative requirements, the Bank has formulated a process according to
which the mandate to operate off-premises on the Bank’s behalf can only be granted to
employees registered in the Qualified Financial Advisor Registry. In this phase, the out-of-branch
offer is reserved exclusively for the promotion and placement of UCITS by providing investment
advisory services (for the types: basic, base sales/purchases, and advanced transactions).
Advertising and marketing initiatives
For promotional and marketing initiatives, see the corresponding section for Retail Banking.
With regard to Asset Management for Private/Family Office customers, the most significant
changes relate to the launch of the “MPS Private Solution” investment platform and the “Anima
Crescita Italia” fund, an Anima SGR fund that can be used by customers as a “PIR” vehicle. The
first, dedicated solely to Private and Family Office customers, introduces considerable innovation,
focusing the investor's attention on the volatility target deemed appropriate for the investment and
leaving the objective of obtaining the highest possible return to the best investment firms, with
extreme freedom in strategies. The second is the first PIR-compliant fund distributed by the Bank.
For Bancassurance, the Wealth Management product range was reinforced in its main component
(unit-linked) with the restyling of a “Melody Advanced - Bonus Edition” policy which, for a special
fee profile, allows the customer to obtain a bonus on the investment in the subscription phase,
making the policies more efficient for purposes of tax optimisation.
2017 ANNUAL REPORT
75 Consolidated Report on Operations
Results for the main subsidiary
MPS Fiduciaria: Profit for the period of approximately EUR 0.06 mln, in line with the figure
posted in December 2016.
In 2017, the subsidiary confirmed the pace of acquisitions of new relationships already recorded in
2016: the ratio between new accounts opened with ordinary mandates and corporate mandates is
slightly in favour of corporate mandates. In the various markets, the Private sector showed a positive
trend, while the Corporate market recorded a slight contraction in volumes. In general, Monte Paschi
Fiduciaria has confirmed its capacity to retain customers, even in unfavourable market conditions.
In 2017, in the wake of activities already launched in 2016, Monte Paschi Fiduciaria began a process of
intense collaboration with the Bank’s three reference markets, involving intensive training and
consolidating the integration of commercial processes with the Parent Company, through targeted and
structured business initiatives in classroom and on-the-job training.
In addition, new marketing and collaboration initiatives were developed in 2017, both with the Parent
Company and with external professionals, with the aim of strengthening the existing system of
agreements.
During the second half of 2017, the strengthening activities referred to above continued through the
preparation of supporting documents for commercial activities (handbooks and dedicated focus
documents) in full collaboration between the Wealth Management Division and MPS Fiduciaria, with
periodic and systematic sharing of issues and in-depth analyses in preparation for service
improvements for the Network and Customers.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 76
Corporate Banking
Business areas Customers
Lending and offering financial products and services to About 51,400 Corporate and large group customers of the
businesses, including through strategic partnerships with Parent Company, directly followed by Corporate Banking.
trade associations and Confidi (credit guarantee consortia),
with Guarantee Institutions (including public) and
Institutional Entities, through which funding is acquired at
favourable terms.
Offer of integrated leasing and factoring packages for
businesses, artisans and professionals (through the
subsidiary MPS Leasing & Factoring).
Corporate finance - medium-long term credit facilities,
corporate finance, capital markets and structured finance
also through the subsidiary MPS Capital Services.
Products and services issued by the Parent Company’s
foreign branches to support business expansion and
investments by Italian companies abroad. Activities abroad
are also supported by the operations of foreign
subsidiaries MP Banque and MP Belgio.
Custody and deposit services for dairy products on behalf
of third parties (through the subsidiary Magazzini Generali
Fiduciari di Mantova S.p.A., which is also authorised to
issue documents of title to the merchandise, providing for
easier access to bank lending).
Income statement and balance sheet results
Corporate Banking Total Funding recorded growth of approx. EUR 6.0 bn, from EUR 25.2 bn at the
end of December 2016 to EUR 31.2 bn as at 31 December 2017. The trend in this aggregate was
principally due to the increase in direct funding (EUR +7.9 bn) in demand/short-term forms, while the
medium/long-term component was basically stable. Compared to 30 September, the volumes show a
decline of EUR 2.0 bn due to the drop in assets under custody, which was influenced by the
movement in a large position.
With regard to lending, as at 31 December 2017, Corporate Banking interest-bearing loans to
customers stood at approximately EUR 36.2 bn (EUR -5.8 bn on 31 December 2016 and EUR -2.1
bn on 30 September 2017), mainly consisting of medium/long-term loans.
CORPORATE BANKING - BALANCE SHEET AGGREGATES
Chg Abs Chg % Chg Abs Chg %
(EUR mln) 31/12/17 30/09/17 31/12/16
Q/Q Q/Q Y/Y Y/Y
Deposits from customers and debt
19,481 19,458 11,567 24 0.1% 7,915 68.4%
securities issued
Assets under management 1,591 1,664 1,617 -72 -4.4% -26 -1.6%
Assets under custody 10,089 12,010 11,973 -1,921 -16.0% -1,884 -15.7%
Indirect Funding 11,680 13,674 13,590 -1,993 -14.6% -1,910 -14.1%
Total Funding 31,162 33,131 25,157 -1,970 -5.9% 6,005 23.9%
Interest-Bearing Loans to Customers 36,152 38,294 41,943 -2,142 -5.6% -5,791 -13.8%
2017 ANNUAL REPORT
77 Consolidated Report on Operations
For profit and loss aggregates, Corporate Banking Revenues came to approx. EUR 1,030 mln in 2017
(-29.7% Y/Y). A breakdown of the aggregate shows:
Net Interest Income was approximately EUR 647 mln, down 31.7% annually due to the decrease in
returns on commercial assets (average volumes and rates, the latter down by roughly 14.7% Y/Y);
Net fee and commission income decreased by 15.0% Y/Y, amounting to approximately EUR 341
mln, mainly penalised by the downward trend in proceeds from Credit/Foreign services, also
impacted by the reduction in operating volumes;
Other Revenue from banking and insurance business amounted to approximately EUR 52 mln (-
63.7% Y/Y), with the drop attributable to the operations of the subsidiary MPS Capital Services.
Considering the impact of Operating Expenses, down by 1.3% compared to 31 December 2016, the
Gross Operating Income came to about EUR 404 mln (-51.4% Y/Y). The Net Operating Income
for this Segment was equal to approx. EUR -2,784 mln (the result as at 31 December 2016 was EUR -
2,085 mln), as a result of the deterioration of impairment losses (reversals) on loans and financial assets
(EUR -3,188 mln), penalised by the adjustment of provisions on transferred doubtful loans to their
recoverable value (EUR -2,208 mln).
The Corporate Banking cost-income ratio stands at 60.8% (43.3% as at 31 December 2016).
CORPORATE BANKING - PROFIT AND LOSS AGGREGATES
Chg. Y/Y
(EUR mln) 31/12/17 31/12/16 Abs. %
Net interest income 646.7 946.6 -299.9 -31.7%
Net fee and commission income 340.6 400.7 -60.1 -15.0%
Other income 51.5 141.6 -90.1 -63.7%
Other operating expenses/income (9.0) (24.1) 15.2 n.s.
Total Revenues 1,029.9 1,464.8 -434.9 -29.7%
Operating expenses (626.1) (634.6) 8.5 -1.3%
Pre Provision Profit 403.7 830.2 -426.5 -51.4%
Net impairment losses (reversals) on loans and financial assets (3,187.9) (2,915.6) -272.3 9.3%
Net Operating Income (2,784.2) (2,085.4) -698.8 33.5%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 78
Results of the main subsidiaries
MPS Capital Services: loss for the year of approx. EUR -633 mln (EUR -770 mln as at 31
December 2016).
MPS Leasing & Factoring: loss for the year of EUR -161 mln (EUR -170 mln as at 31 December
2016).
Foreign banks6: In 2017, MP Banque recorded a profit of EUR 5.5 mln compared to a loss of
EUR -27.7 mln recorded in the previous year; with regard to MP Belgio, the profit for the year
amounted to roughly EUR 13.0 mln (due to the gain on the sale of the property where the office is
located), compared to a loss of EUR 9.6 mln as at 31 December 2016.
Main Corporate and Investment Banking initiatives
Corporate Market
Amongst the initiatives developed in 2017, please note the following in particular:
Electronic invoicing and related archiving in accordance with regulations (end of November
2017) - the service has been updated, extending the scope of target customers and functionalities.
In addition, electronic invoicing is now available for B2B (invoicing between private parties) and
for the management of the accounts payable cycle (receipt of electronic invoices). “Automatic
calculation of availability” in the Cash Pooling product;
New combined authentication (November 2017) - the migration of users of services for Internet
Banking PasKey aziendaonline/tesoreriaonline/tribunalionline to a new access mode that meets the
requirements of the PSDII directive The new method involves “two-factor authentication” (2FA)
based on a one-time use code sent via SMS. In total, more than 200 thousand users were migrated,
including “secondary” users (business collaborators).
Replacement of trading platform (December 2017) - upon replacement of the Bank's
infoprovider, the online trading platform was updated for the companies available on the PasKey
aziendaonline portal. The level of service for end customers and the user experience was improved
as a result of the new interface;
Extension of International Cash Management services - service hours were extended and
automatic messaging for bank transfers was introduced, which improves the timing of payment
settlement, generally for those outside the SEPA area; new PasKey tesoreriaonline platform for
entities.
Please note the following with respect to the products/services offered:
Marketing of OTC derivatives: new Tarn exchange-rate hedging product; block of PS-Structured
Products relationships for retail transactions with financial experience controls; increase of
6 The profit reported for foreign subsidiaries is local.
2017 ANNUAL REPORT
79 Consolidated Report on Operations
minimum subscription amount and pricing optimisation; development of derivative transactions
with collateral for large customers; improvements in Timely Confirmation aimed at identifying
process innovations and IT upgrades to ensure prompt collection of customer confirmations;
optimisation of the GPS application functionality.
SACE Loan - medium/long-term credit enhancement: Unsecured medium/long-term loan
subscribed, granted with the Bank's capital against expenses related to projects to expand in foreign
markets, backed by SACE's first-demand guarantee. With the aim of continuing to have a valid
instrument as a competitive offer for small and medium-sized businesses and small- mid-caps, on 1
August 2016 the Bank (as Parent Company) and SACE signed a new Convention (ref. SACE
2016/1058/00), replacing the previous agreement that expired on 30 June 2016. The new
agreement will expire on 31 March 2018.
2017 Central Italy Earthquake Tax Moratorium. Loan designed to allow payment of
“Suspended Taxes” and “Taxes Due” by those earning business income and self-employment
income, as well as those with agricultural businesses in accordance with art. 4 of Italian Presidential
Decree no. 633 of 26 October 1972, with registered and/or operational offices in the areas of
Abruzzo, Lazio, Marche, and Umbria affected by the 2016 earthquake. This loan is granted with
funds made available by Cassa Depositi e Prestiti S.p.A. (CDP).
In April, the MPS Corporate Industry 4.0 medium/long-term financing product was released,
supported by commercial covenants to facilitate investments in capital goods and assets aimed at
“digitalisation” of business activities and falling within the scope of tax incentive initiatives
provided for by the 2017 Stability Law (known as “hyper-depreciation”).
The MPS Corporate Replacement Loan product was made available in May to facilitate the
acquisition of loans already in place with other banks for new customers or existing customers
through asset transfer operations pursuant to the provisions of art. 1202 of the Italian Civil Code.
In order to support the communities affected by earthquakes and other disasters, in agreement with
ABI and Cassa Depositi e Prestiti (“CDP”), the following initiatives have been implemented:
“Plafond Sisma Centro Italia” to support customers who suffered damages from the earthquakes
in Central Italy in 2016;
“Plafond Eventi Calamitosi” to support customers that suffered damages from the disasters that
occurred in Italy in 2013;
“Plafond Moratoria Sisma Centro Italia” to grant subsidised loans aimed at the recovery of tax
collection in the territories of Central Italy affected by the 2016 earthquakes.
Furthermore, funding activities continued with CDP to ensure a greater flow of medium/long-term
resources at favourable conditions to corporate customers.
The “Export Banca” operating agreement continued with SACE, the Italian Banking Association
(ABI), CDP, and SIMEST.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 80
Market Main sales initiatives developed in the market
Large Leveraged the intragroup synergies between the MPS L&F product companies with the
Groups acquisition of new sales and increase in turnover and MPS Capital Services with a strong boost
in terms of hedging (foreign exchange) as an opposing trend to other derivatives market
activities.
Intensified the activity of repositioning for loans to high potential counterparties, including with
a forward-looking approach.
SMEs and Reorganisation of the segment involving the closure of the CTop Centres and allocation of the
Top CTop portfolios to the SME/Corporate Centres and refocusing of commercial initiatives to
Corporate support the business.
Commercial initiatives aimed at recovering Italian and foreign funding volumes and commercial
flows.
Conversion of BMPS advances on trade receivables into factoring of receivables purchases.
“Factoring in System”: commercial initiative designed to identify Top Corporate and SME
customers that use the product with other competitors.
“Leasing Care”: promotional campaign dedicated to Top Corporate enterprises and SMEs in
order to incentivise the use of vehicle leasing through a free 6-month insurance policy offer.
“Factoring Reverse”: initiative to identify, within Top Corporate and SME customers, important
companies leading their respective sectors to stipulate indirect factoring agreements that would
benefit their strategic suppliers and allowing the possibility of payment extensions.
“Hyper-depreciation”: an initiative based on the Industry 4.0 budget law to offer customers an
all-inclusive package (leasing, advisory, and technical expertise) for Top Corporate and SME
customers.
Institutio Participation in the PagoPA Platform created by the Agency for Digital Italy (AgID) for payments
ns to the Public Administration.
Placement of the “Electronic Archiving” service for electronic documents with digital signature
for the Public Administration and Servizio Inc@ssipiù
Attainment of ISO 9001 certification for the Treasury and Cash Services.
MPS Capital Services
Corporate finance
Project Financing – Activities were focused on the sectors of infrastructure, renewable energy, and
utilities; the most important transactions in 2017 include:
refinancing of the largest wind farm ever built in Italy, consisting of 69 wind generators producing
138 MWe of power, located in the province of Sassari, undertaken by a leading domestic player in
the renewable energy sector. The pool financing, in which MPSCS participated as MLA, amounting
to a total of EUR 195 mln (of which EUR 7 mln granted by the subsidiary MPSCS), granted by 12
leading domestic and foreign banks;
refinancing the transaction to launch the business of the first domestic private operator on the
Italian high-speed rail network. The pool financing, in which MPSCS participated as MLA, amounts
to a total of EUR 160 mln (of which EUR 38.5 mln granted by MPSCS), and was granted together
with 2 other leading domestic banks. The total bank exposure was considerably reduced with the
refinancing, as it involved the simultaneous subscription of a bond for a total of EUR 550 mln.
2017 ANNUAL REPORT
81 Consolidated Report on Operations
refinancing of a wind farm, consisting of 13 wind generators producing 26 MWe of power, located
in the province of Foggia, undertaken by a well-known operator in the renewable energy sector.
The intervention, financed entirely by the subsidiary, amounts to EUR 20 mln.
financing for an evaluation, by an important domestic player in the renewable energy sector, of the
total share capital of a company that owns an operating wind farm with excellent performance,
located in the province of Avellino and consisting of 15 wind generators for 41.7 MWe of power.
The intervention, financed entirely by MPSCS, amounts to EUR 9 mln.
The Advising mandates acquired during the year include the assignment as part of the restricted
procedure for the construction of a passive ultra-wideband infrastructure in the “white areas” of the
Marche and Umbria regions.
In addition, note the acquisition of arrangement and structuring mandates for the upcoming financing
of additional projects to construct wind and photovoltaic energy production plants.
Corporate Finance - Activities during 2017 focused generally on the real estate/hotel and industrial
sectors. In particular, loans were provided to support important operators in the food, energy,
clothing, and telecommunications sectors. In the second half of the year, “advising” activities and
those related to preliminary assessments of loans in the water sector intensified, the latter in
preparation for participating in competitive procedures, called by some operators in the sector, to
select lending institutions. In particular, MPSCS, in a pool with other banks, was awarded the tender
contract by the primary manager for the Lombardy Region.
Loan Syndication, Asset Disposal & Media Entertainment – A pool transaction was arranged and
structured successfully, which was syndicated on behalf of Banca MPS. The syndication of two other
transactions to be structured as a pool continues on behalf of Banca MPS.
The Asset Disposal activities include a non-binding offer received from a leading domestic operator
for the acquisition of a company that owns a prestigious property located in the historic city centre of
Florence. Negotiations are underway concerning wine producers in Tuscany.
Media Entertainment activities involved two financing transactions that were completed for leading
operators in the production and distribution of films and television series.
Acquisition Financing - During the year, activities were focused, as usual, on Acquisition/Leverage
Finance transactions in which MPSCS was able to take on the role of Mandate Lead Arranger and
Facility Agent, confirming its positive positioning in the Mid Corporate segment. Thus, origination and
structuring of interventions continued in support of leading businesses, with particular attention to
acquisitions of acknowledged importance in the industry and capable of having significant positive
effects for the MPS Group at the commercial level.
Investment banking
With regard to the bond market, MPSCS acted as Joint Bookrunner for the following bond issues in
2017: 10-year syndicated BTP linked to European inflation (BTPi); 12th issue of BTP Italy linked to
Italian inflation; CMC Ravenna for EUR 325 million. In reference to “minibond” issues, the Bank
handled the arrangement and placement of Fenicia S.p.A. (Camicissima brand) EUR 8 million; Prima
Sole Components S.p.A. EUR 25 million; Corvallis Holding S.p.A. EUR 10 million; Renco SpA EUR
35 million. During the same period, the Bank acted as Co-Manager in the following issues: Nuovo
Trasporto Viaggiatori SpA, Salini Impregilo SpA and two OBGs for Cariparma. Moreover, for the
Italian government, the Bank acted as Co-Lead Manager in the 15-year and 30-year BTP issues.
MPSCS also organised a private placement for Cassa Depositi e Prestiti for EUR 140 million.
Note that the Investment Banking Division managed the placement of the three government-backed
bank bonds issued by the Parent Company. Finally, the Division assisted the Structuring & Product
Engineering Office in finding supranational issuers to structure 3 transactions placed on the Parent
Company's Network.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 82
With regard to the equity market, the Division participated in the re-admission for listing of Pirelli &
C. SpA.
MPSCS continues its activities as Nominated Advisor on behalf of Poligrafici Printing SpA, listed on
the AIM market of Borsa Italiana.
Subsidised financing
During 2017, management activities for public aid to companies continued according to the obligations
assumed upon entering into agreements with the Ministry of Economic Development (MiSE) and the
Ministry of Education, Universities and Research (MIUR): Sustainable Growth Fund, Technological
Innovation Fund, Law 488/92 and Regional Pacts, Research Subsidy Fund, and SME Guarantee Fund.
In particular, note the preliminary assessment activities related to over 40 research and development
projects submitted on tender calls issued by the Ministry of Economic Development in relation to the
Sustainable Growth Fund, as well as the intense promotion and assistance activities carried out within
the RTI Manager of the SME Guarantee Fund.
MPS Leasing & Factoring
Leasing
“Maxileasing” initiative: commercial offer for operating asset and vehicle lease products, with
dedicated conditions for trade associations that have entered into an agreement with MPSL&F.
“Sudleasing” initiative: promotional campaign dedicated to companies with a registered office or
production plant in Southern Italian regions, which acquire an operating asset. This offer provides
dedicated conditions and a one-year insurance policy free of charge.
Sabatini Ter: Agreement with the Ministry of Education, Universities and Research for access to
the facilitation and full operations.
“Top Car”: Campaign for vehicle leasing aimed at prestigious automobiles.
Factoring
Development of Non-Recourse Factoring and Receivables Purchasing to reclassify high-risk
relationships and, thus, contain credit costs, making use, in this case, of the risk weighting of the
transferred debtors.
Indirect factoring (reverse factoring) campaign with the identification of a specific target for pre-
analysis credit and setting of theoretical “ceilings” for a more fluid commercial initiative.
The optimisation of the agent network, which began in 2016, continued over the course of 2017 with
the highest performing agents retained, while some were granted greater operating delegations.
2017 ANNUAL REPORT
83 Consolidated Report on Operations
Banca Widiba
Business areas Customers
Banking products and services, deposit account, cards and There were roughly 235,000 customers as at 31 December
advanced payment systems; customer self-service through 2017, of which 132,100 in the Financial Advisor Network
the bank’s digital channels or in assisted mode with the channel, 58,000 in the self-service channel, and 44,900
support of a Financial Advisor. customers migrated from the MPS branch network. There
Fully customisable online platform that relies on a network were approx. 202,765 customers managed exclusively by
of 606 Financial Advisors present throughout the country. Banca Widiba SpA.
Funding and Global advisory services and financial planning
through the advanced WISE platform and the skills of the
Financial Advisor Network.
Mortgages, credit facilities and personal loans.
Innovative interaction through computers, smartphones,
tablets, watches and TV.
Income statement and balance sheet results
As at 31 December 2017, Total Funding for Widiba amounted to approximately EUR 7.5 bn, up
EUR 0.9 bn from the end of December 2016. The annual trend was marked by growth in the Direct
component as well as the Asset Management component, with a net increase in the customer base of
roughly +73,900 from the beginning of the year, including the contribution of the migration into
Widiba of nearly 44,900 customers from the MPS branch network. More specifically:
Direct Funding of EUR 2.1 bn, after the difficult market environment in the final quarter of
2016 as a result of the negative outcome of the Parent Company’s recapitalisation transaction,
recorded a net recovery in volumes during the year (EUR +584 mln with respect to the end of
December 2016, of which EUR +327 mln recorded in the fourth quarter) for both current
accounts and restricted credit lines. The main commercial initiatives of the year were focused
on the acquisition of new volumes from the market by acquiring new customers as well as
increasing the share of wallet of existing customers. A particular focus was also placed on the
stabilisation and retention of customers with “high value added” campaigns targeted at
incentivising the direct deposit of wages or the closure of accounts held at other banks. The
consolidation of assistance processes supporting the business and customers through the
Widiba Media Centre structure made it possible to improve customer service levels while also
continuing with the trend of achieving significant economies of scale;
Indirect Funding, amounting to approx. EUR 5.4 bn, increased by EUR 0.3 bn compared to
the end of December 2016, of which EUR +0.1 bn in the fourth quarter, due primarily to the
positive commercial performance of the Financial Advisor Network, which recorded a
significant growth in net flows as at 31 December. Please note in particular the extremely
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 84
positive trend of Assets under management in the funds and UCITS component. Within the
Financial Advisor Network, training activities continue with an increasing focus on Advisory
services based on the new WISE platform (the new global advisory model). As at 31
December, 38 new Financial Advisors were hired.
Interest-bearing loans to Widiba customers rose from roughly EUR 44 mln at the end of
December 2016 to EUR 238 mln as at 31 December 2017. This growth refers primarily to the launch
of the offer of Widiba mortgages with roughly EUR 197 mln in new loans since the beginning of the
year. The Widiba mortgage (first 100% paperless mortgage in Italy) won two important national
awards in the first quarter of 2017 (ABI Innovation Award and AIFIN Cerchio d’Oro Award).
WIDIBA BANK - BALANCE SHEET AGGREGATES
Chg Abs Chg % Chg Abs Chg %
(EUR mln) 31/12/17 30/09/17 31/12/16
Q/Q Q/Q Y/Y Y/Y
Deposits from customers and debt
2,148 1,821 1,563 327 18.0% 584 37.4%
securities issued
Assets under management 4,928 4,830 4,557 98 2.0% 370 8.1%
Assets under custody 473 468 538 5 1.0% -65 -12.1%
Indirect Funding 5,401 5,298 5,096 102 1.9% 305 6.0%
Total Funding 7,548 7,119 6,659 429 6.0% 889 13.4%
0
Interest-Bearing Loans to Customers 238 154 44 84 54.4% 193 438.3%
With regard to profit and loss, as at 31 December 2017 Widiba achieved total Revenues of approx.
EUR 44 mln, up (EUR +2.8 mln; +6.9%) compared to the previous year. The contribution from
4Q17 decreased compared to the previous quarter due to higher non-recurring charges relative to fees
for the Financial Advisor Network. A breakdown of the aggregate shows:
the Net interest income as at 31 December 2017 was equal to approx. EUR 31 mln, up by 8.6%
compared to 2016, with a 4Q contribution showing significant growth compared to the previous
quarters (EUR +1.8 mln over 1Q, EUR +1.4 mln over 2Q, EUR +0.9 mln over 3Q). With
reference to the components of net interest income, there was a lower lending rate on financial
loans offset entirely by a lower cost of Funding and higher volumes. These trends allow for a full
recovery of the lower contribution of net interest income deriving from securities lending
transactions with customers (due primarily to regulatory changes);
Net fees and commissions as at 31 December 2017, equal to roughly 14 mln, posted an
improvement compared to 2016 (EUR +1.8 mln; +15.1%). The quarterly trend in net fees and
commissions shows a decline in 4Q solely related to the higher non-recurring charges for the
2017 ANNUAL REPORT
85 Consolidated Report on Operations
loyalty system for the Financial Advisor Network. Instead, the third quarter was the best of the
year in terms of Gross Revenues, due to the positive contribution of fees and commissions on
Asset Management and Assets under Custody. With reference to the previous year, there was
higher income from placement (due to the positive sales performance of the Financial Advisor
Network) and the continuing operations of Asset Management products (higher average volumes
under management).
Operating Expenses rose by 1.7% compared to 31 December 2016, principally due to higher
amortisation linked to investments in the Widiba banking platform and global advisory platform
(WISE). In fact, personnel expenses were EUR 0.9 mln higher, more than offset by lower
administrative costs of EUR 2.1 mln. As regards administrative costs, actions to optimise commercial
costs continued that allowed growth in the customer base at acquisition costs that were lower than
those of 2016.
The Gross Operating Income therefore came to EUR -19.0 mln, an improvement of EUR +1.7 mln
(+8.4%) compared to 31 December 2016.
The Net Operating Income as at 31 December 2017 totalled EUR -18.6 mln, a deterioration with
respect to 2016 (EUR -3.3 mln), which benefitted from write-backs on receivables equal to EUR 5.4
mln. In addition, there was an extraordinary effect from the write-down of the equity investment in the
Voluntary Scheme linked to voluntary participation in IDPF for a total of EUR 1.8 mln. The quarterly
trend of Net Operating Income showed a decrease in 4Q compared to the previous quarter, due
mainly to the effect of the trend in Net fee and commission income, discussed above.
WIDIBA BANK - PROFIT AND LOSS AGGREGATES
Chg. Y/Y
(EUR mln) 31/12/17 31/12/16 Abs. %
Net interest income 31.1 28.6 2.5 8.6%
Net fee and commission income 13.7 11.9 1.8 15.1%
Other income (0.0) 0.0 0.0 n.s.
Other operating expenses/income (1.2) 0.2 -1.4 n.s.
Total Revenues 43.6 40.8 2.8 6.9%
Operating expenses (62.6) (61.5) -1.1 1.7%
Pre Provision Profit (19.0) (20.8) 1.7 -8.4%
Net impairment losses (reversals) on loans and financial assets 0.4 5.4 -5.0 -92.6%
Net Operating Income (18.6) (15.3) -3.3 21.3%
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 86
Banca Widiba main initiatives
In 2017, Widiba confirmed its focus on product and service innovation and on financial advisory,
enriching the commercial offer in all components.
In the Italian market, Widiba is now a well-established bank of excellence due to its focus on
innovation and its distinctive value proposition, the qualities of which are founded on simplicity,
transparency, dynamism and listening to customers. Within the Group, Widiba’s role is that of a
“driver for change and innovation”; it has been the first to introduce in the market a service model that
combines technology innovation with certified financial advisory services, thus contributing to
strengthening the image of MPS Group.
As part of the strategic projects for the re-launch and re-positioning of MPS Group, in 2017 an
initiative to transfer a selected perimeter of retail customers from Banca MPS to Banca Widiba, was
planned. At the same time, the operation sought to respond to the changing needs of customers in the
new digital context, to recover eroded share of wallet due to recent reputational issues, and to re-
establish a sustainable balance between margins and cost-to-serve.
Widiba has once again been recognised by the market for its impressive innovation and ability to
change in the banking industry. In 2017 there were numerous international awards and prizes
including: the award as Global Innovator Challenger Player from the prestigious EFMA international
organisation; the 2017 ABI award for innovation of banking services for the category “Operational
innovation: process digitalisation and innovation”, won as a result of the first native digital mortgage;
the 2017 TOP Bank award for the mortgage offer recognised by the German Institute for Quality and
Finance for all four categories in the competition: Quality-price relationship, digital mortgages,
customer assistance, and customer communication.
Widiba’s commercial offering was developed primarily with respect to the products/service
components of banking, payments, and deposit accounts, and was considerably enriched with the
launch of the WISE project, the new global advisory services and asset planning platform. Certification
was another theme in 2017: after the advisory model, which had previously been certified, training and
network engagement activities continued in 2017 for the competency certification process according to
UNI ISO 22222:2008, which led to 370 advisors receiving certification as personal asset and financial
planners.
Continuing on the topic of advisory services, the project to revise the model to adapt to new MiFID 2
regulations effective 3 January 2018 is critical.
Widiba's product range has been improved and completed during the year through the introduction of
the credit department, in particular for mortgages and personal loans. Specifically, the Widiba mortgage
range, launched exclusively for the Financial Advisor Network at the end of December 2016, was
extended to all other Bank channels in 2017.
Additionally, in terms of services, 2017 represents the year in which initiatives were launched that
placed Widiba up against non-bank players, including:
- the Apple Pay service. Widiba was one of the first banks to offer its customers the possibility
to make payments with their iPhones easily, quickly, and securely, directly at points of sale
enabled with contactless technology.
- the new Widiba Home smartphone app. The first of its kind, this application allows the
customer, using a 3D viewer, to enter a true virtual branch, where he/she can check accounts
or perform transactions, independently or with the help of a avatar, through voice and eye
commands;
- Widiba Dialog, the first mixed reality app for financial advisory services. Using Microsoft’s
HoloLens technology, Widiba’s Financial Advisors can share advisory data and proposals
innovatively with their customers through holograms positioned in the physical world.
2017 ANNUAL REPORT
87 Consolidated Report on Operations
Widiba has continued to integrate and optimise an advanced CRM and customer contact platform
which allows, on one hand, for multi-channel customer management (email, phone, social, virtual
assistant, website, etc.) and, on the other, integration with all of the business structures involved in
customer management, to speed up and streamline requests with the support of financial advisors.
The feedback from customers is tangible and significant: with more than 430 thousand reviews, users’
rating of Widiba has reached a score of 4.8 out of 5.
In 2017, Banca Widiba continued the communication strategy with the market that had been outlined
in previous years, focusing marketing activities and communication investments in four main areas:
1. Brand consideration on the market, consolidating the Bank’s recognition and innovation, and
continuing the progressive definition of positioning. To this end, press campaigns have been
planned at various points during the year in the leading national media, newspapers, economic-
financial journals, and verticals. The launch of Widiba Home was supported by a specific press
campaign and events in the regions, dedicated to customers, influencers, and bloggers.
2. Increase the customer base, with the implementation of digital communication campaigns
designed for customer acquisition: 12 different acquisition initiatives, for a total of over 450
digital acquisition materials, including animated banners, static banners, high impact materials
and DEM.
3. Leadership within the market as a social bank, maintaining a strong link with its own DNA,
based on listening to and involving the reference community using all available channels: from
the website to email, to the presence of the Financial Advisor Network on the Bank's Facebook,
Twitter and LinkedIn pages, which have led to 290,000 fans and followers of its community.
4. Engagement of the Financial Advisor Network on all aspects of the Bank's activities; support in
their customer relationships, with the production of communications on the network and
materials to support their activities.
At the end of 2017, the Bank had approx. 235 thousand customers and total funding amounting to
roughly EUR 7.9 bn (+11.3% over 2016).
Corporate Centre
The Corporate Centre includes:
head office units, particularly with regard to governance and support functions, proprietary
finance, the ‘asset centre’ of divisionalised entities, which comprises in particular: asset and liability
management, treasury and capital management;
business service and support units, particularly with regard to the development and management
of information systems of the Consorzio Operativo di Gruppo (Group Operational Consortium)
and the management of doubtful debt collection.
In addition to cancellation of intragroup entries, the Corporate Centre also collects the results of
companies consolidated by the equity method and those in the process of being disposed, as well as
the results of operational branches that are individually below the minimum parameters for external
disclosure requirements.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 88
Equity investment management
In 2017, the Group continued to rationalise its equity investment portfolio.
The following is a list of the Bank’s most significant transactions during 2017.
Acquisitions and capital increases
• As part of the sale of Bassilichi S.p.A. to Istituto Centrale per le Banche Popolari Italiane S.p.A.,
10% of the share capital of the newly formed company, Ausilia S.r.l., was subscribed;
• The share capital increases of the subsidiaries MPS Capital Services S.p.A., Monte Paschi Banque
SA., and Widiba S.p.A. were subscribed. For the subsidiary MPS Leasing & Factoring S.p.A., an
advance payment was made against a future share capital increase, whose subscription is
undergoing the authorisation process with the ECB;
• The company Juliet S.p.A. was incorporated in November (100% owned by the Parent Company)
which must obtain authorisations to perform servicing activities for collection of the Group’s
doubtful loans.
Credit restructuring transactions
• In execution of the conversion of the Compagnia Aerea Italiana S.p.A. exposure, carried out based
on restructuring agreements and in compliance with art. 67 of the Bankruptcy Law, an additional
3.80% stake in the company was acquired, bringing the total shareholding to 6.114%;
• Following the approval of the agreement with creditors submitted by Jeckerson S.p.A. the Group
acquired a shareholding of 13.57% of the company's share capital by converting receivables (MPS
Capital Services S.p.A. owns a 12.31% stake).
Disposals
• Disposal of the equity investments in: Intermonte Sim S.p.A., equal to 17.41% of share capital,
Bassilichi S.p.A, equal to 11.74%, and Consorzio Triveneto S.p.A., equal to 10.13%.
• Other disposals of equity investments: Biofund S.r.l. (8.20% of share capital), E-Mid Sim S.p.A.
(5% of share capital), Emilia Wine Società Cooperativa Agricola (3.41% of share capital), Unipeg
Società Cooperativa Agricola (1.08% of share capital), and Progeo Società Cooperativa Agricola
(0.01% of share capital).
• At the conclusion of the respective settlement procedures, the equity investments in Siena S.p.A. in
liquidation (49.01%) and Gal Bassa Padovana Scarl in liquidation (8.33%) were removed from the
portfolio.
• The following investments were partially disposed: Assofood S.p.A. in liquidation (from 6.25% to
1.04% of the share capital), Patto 2000 Scrl (from 5.29% to 0.17% of the share capital), and G.A.L.
Terre del Primitivo Scarl (from 5.79% to 2.45% of the share capital).
• The subsidiary MPS Capital Services S.p.A sold its entire equity investment in Ital Tbs Telematic &
Biomedical Services S.p.A., equal to 1.72% of the share capital.
2017 ANNUAL REPORT
89 Consolidated Report on Operations
Prospects and outlook on operations
The solid and general expansion of economic activity continues in the Eurozone. The ECB’s monetary
policy measures continue to support internal demand, which is an essential precondition for further
progress on a lasting adjustment of the inflation profile towards levels lower than but close to 2
percent in the medium term. Private consumption is driven by growth in employment, which in turn
benefits from labour market reforms and growing household wealth. The recovery in business
investment continues to be supported by highly favourable financing conditions and by improvements
in business profitability. Risks to growth forecasts for the Eurozone remain essentially balanced: on
one hand, the strong economic momentum, evidenced by the recent trend in confidence indicators,
could give rise to further unexpected developments for growth; on the other hand, downside risks
remain, mainly due to international factors and trends in currency markets.
Globally, growth has spread to various countries and economic indicators point to sustained growth;
the dynamics of global trade strengthened and remained solid, driven mainly by advanced economies.
The leading indicators continue to signal positive forecasts for growth in trade in the short term.
Financial markets reflect the greater robustness of the economic outlook for the Eurozone as well as
global trends. Since the beginning of September 2017, Eurozone government bond yields have
increased and the EONIA forward curve has sharpened. The improvement in the economic outlook
and the reduction of some geopolitical tensions have resulted in an increase in equity price indices,
while the spreads on corporate bonds have decreased.
Since the monetary policy meeting of the Governing Council held in October 2017, the ECB reference
interest rates have remained the same. With regard to unconventional monetary policy measures, it was
decided that from January 2018 net asset purchases should be reduced by around one-half (EUR 30
billion until the end of September 2018), or beyond if necessary, and in any case until the Governing
Council determines that there has been a lasting adjustment to prices, consistent with its inflation
target. In addition, the Eurosystem will reinvest the principal repaid on securities maturing under the
APP for a prolonged period of time after the conclusion of net asset purchases, as long as is deemed
necessary. This measure will contribute both to maintaining favourable liquidity conditions and to an
appropriate orientation of monetary policy. Finally, the Governing Council also decided to continue
conducting the principal refinancing operations and the longer-term refinancing operations with a
three-month maturity through fixed rate auctions with full allocation of the requested amounts as long
as necessary, and at least until the end of the latest reserve maintenance period in 2019.
As regards the MPS Group, following the approval of the 2017-2021 Restructuring Plan by the
European Commission on 4 July 2017, activities began for the implementation of the main initiatives
set forth in the Plan.
In this regard, with reference to the outsourcing of the platform of doubtful loans, a binding
agreement was reached with Cerved Group S.p.A. and Quaestio Holding SA. The transaction
envisages the consolidation of the platform to a vehicle company specifically established by Banca
MPS, which would subsequently be transferred to Cerved and Quaestio, through the subscription of a
long-term servicing agreement between the vehicle company and all of the Group’s Italian banks for
the management of future cash flows of doubtful loans. The consideration for the equity investment is
EUR 52.5 mln, in addition to a possible earn out of up to EUR 33.8 mln, based on the achievement of
economic results in the timespan until 2025. The closing of the transaction, expected to take place by
the end of the first quarter of 2018, is subject to the approval of the supervisory authority as well as the
completion of the securitisation of the BMPS doubtful loans, with the subscription of mezzanine notes
by funds managed by Quaestio.
During 2017, 1,839 resources left the Group through access to the “Solidarity Fund for professional
retraining and requalification, for the support of employment and the income of credit personnel”, in
line with the targets of the Restructuring Plan, which requires, inter alia, a headcount reduction across
all of the Group’s organisational structures of around 5,500 resources, to be completed no later than
2021. Currently, the exits of a further 3,700 resources must be completed (of which approximately
3,000 through the “Solidarity Fund”).
BANCA MONTE DEI PASCHI DI SIENA
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In carrying out the transfer transaction through the securitisation of the MPS Group portfolio of
doubtful loans, on 9 January 2018, 95% of the mezzanine notes were sold by the three Originators
(BMPS, MPSCS, and MPSLF), as per the agreement signed on 22 December 2017 with Quaestio
Capital SGR S.p.A. on behalf of the Atlante Fund. The doubtful loans portfolio will be derecognised
by June 2018 with the sale of 95% of the junior securities to the Atlante Fund. Note that the economic
impacts of the securitisation, in addition to being included in the Restructuring Plan, were fully
incorporated in the financial statements as at 31 December 2017.
On 11 January 2018, the Parent Company issued a fixed-rate Tier 2 subordinated bond with 10-year
maturity (redeemable in advance starting from the fifth year at the issuer’s option, subject to regulatory
approval), for EUR 750 mln, at an issue price of 100%, equivalent to a spread of 500.5 bps over the 5-
year swap rate (fixed-rate coupon of 5.375%). The expected ratings of the bond are CCC+ (Fitch) and
Caa2 (Moody’s).
Lastly, with reference to the future capital impacts arising from the Group’s exposure to non-
performing loans, on 4 October 2017 the ECB started a consultation process in relation to an
addendum to the guidelines for banks on non-performing loans of 20 March 2017. In particular, the
addendum establishes that for all loans that are classified as non-performing starting from 2018 a total
coverage level will need to be reached, at the latest within two years for unsecured loans and within
seven years for secured loans. From a regulatory perspective, the impact on capital adequacy ratios can
be determined once the relevant regulations are finalised, which is expected by the end of March 2018.
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CONSOLIDATED NON-FINANCIAL STATEMENT
Methodological note
Perimiter
This Non-Financial Statement (NFS), referring to the reporting period of 1 January 2017 - 31
December 2017, was drafted pursuant to Legislative Decree no. 254 of 30 December 2016, relating to
the communication of non-financial information useful in understanding business performance,
results, and the positive and negative impacts of the activities.
The scope of the information reported in the NFS, unless otherwise specified in the text, corresponds
to the accounting consolidation.
The NFS seeks to balance the different information needs of the stakeholders, so it is possible that, in
some cases, the discussion of the issues is not completely exhaustive. For these cases, interested
individuals can request clarification and more information through the e-mail address .
Relevant information
The NFS addresses environmental, social, and human resources issues, as well as respect for human
rights, and anti-corruption measures, which are considered more relevant in relation to the extent to
which the activities of the Group’s companies may impact them or be impacted by them, and the
perception of what the corresponding expectations of the stakeholders may be.
More specifically, the relevant issues on which the NFS is based are:
1. Employment (responsible management of human resources - hiring of professionals and
maintenance of the workforce, guidance of young people toward professional careers);
2. Development of human resources (responsible management of human resources - development,
training, as well as active, merit-based management of human resources and enhancement of
skills);
3. Diversity (responsible management of human resources - gender diversity and equal
opportunities);
4. Welfare (responsible management of human resources - business welfare);
5. Customer experience (protection of customers - adequate listening, assistance and service,
simplicity, transparency and clarity of customer communications);
6. Security of services (protection of customers - security of digital/remote banking services and
safeguarding of personal data);
7. Corruption (legality and ethics - active and passive anti-corruption measures between private
individuals);
8. Support to SMEs (economic and social qualification - support to the entrepreneurial structure);
9. Green finance (green banking - monitoring the environmental impact of business lending,
assessment of environmental risk associated with large transactions, credit to companies with high
environmental added value);
10. Financial inclusion (economic and social qualification - access to credit at fair conditions and to
“non-bankable” individuals and small businesses);
11. Financial education (economic and social qualification - financial education in schools and with
Bank customers).
These were chosen through the following relevance assessment process:
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analysis of data published in respected studies and research, concerning some of the main
economic, demographic, social, and environmental trends and their correlations with financial
sector activities;
identification of a broad range of topics, which, firstly, can be considered relevant for purposes of
the NFS, based on concrete situations and sector considerations;
weighting of the factors chosen to assess the relevance of each of the initially identified topics,
from the perspective of both the business and the stakeholders. This was formulated based on
sector considerations and perceptions of the company in its ordinary interactions with
stakeholders. However, there was no specific stakeholder feedback and involvement for purposes
of the NFS;
development of the materiality matrix and its validation by management.
Materiality assessment criteria
Influence on banking business Importance to stakeholders
Is the issue material for the banking sector and is Do one or more categories of stakeholders in the banking
developed by peers? sector (or the bank) show strong expectations on the issue?
Is the issue inherent in the business model, does it involve Can the issue represent a significant opportunity for one
risks or opportunities that are relevant to the bank and is or more categories of stakeholders and/or positively
therefore considered strategic? impact on the community?
Is the issue regulated and developed through key public Can the issue represent a risk for one or more categories
policies? of stakeholders and/or impact negatively on the
community?
Materiality matrix - most relevant issues for purposes of the NFS
For each relevant issue, the NFS explains concisely the following information:
Policies - vision, public statements, strategic commitments, formal documents on strategies,
guidelines, and organisational approach;
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Management model - organisational oversight, offer systems, training, documented procedures or
practices, operational tools, monitoring, controls, communication, etc.;
Risks/Opportunities - description of the main risks (and opportunities) and related methods for
assessment and control (“Appendix” also contains an overview of the main risks, incurred and
generated, and the impacts connected to the issues in question);
Results - improvement objectives, activities completed and underway, key performance indicators.
Moreover, the “Appendix” provides some information on the following issues indicated in Legislative
Decree no. 254/2016, but not included in those deemed relevant for purposes of the NFS:
use of energy resources in operations and estimates of related greenhouse gas emissions;
health & safety in the workplace;
respect for human rights, with a focus on the supply chain and the methods for verifying any
discriminatory factors and other limitations on protections due to workers.
Information on the following are excluded from the NSF:
emissions of pollutants into the atmosphere and use of water resources in operations, as they are
considered to be irrelevant issues for the purposes of the NSF and, as such, are not subject to
systematic monitoring;
essential issues (pillars) for the general objectives of protection, stability, and sustainable growth of
Group companies (economic performance, corporate governance structures, remuneration policies
and incentive systems, business and systemic risk management models), for which the reader
should refer to other chapters of the financial statements and to specific publications available on
the Bank’s website.
Reporting methodology
It was adopted the following reporting method: GRI Sustainability Reporting Standards, published in 2016
by Global Reporting Initiative (GRI). In particular, according to the provisions of the GRI 101 standard:
Foundation., reference has been made to the following Reporting Standards:
GRI 102: General Disclosures - Disclosure 102-43 “Approach to stakeholder engagement”
GRI 103: Management Approach
GRI 205: Corruption – Topic-specific disclosure 205-3 “Confirmed corruption incidents and related
measures undertaken”
GRI 302: Energy
GRI 305: Emissions
GRI 401: Occupation
GRI 403: health and safety at work
GRI 404: Training
GRI 405: Diversity and equal opportunities
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GRI 406: Non discrimination – Topic-specific disclosure 406-1 “Discriminatory incidents and actions
undertaken”
GRI 417: Marketing and labeling – Topic-specific disclosures 417-2 “Cases of non-compliance with
regulations on the labeling of products and services" and 417-3 "Cases of non-compliance with
regulations relating to marketing communications”
GRI 418: Consumer Privacy - Topic-specific disclosures 418-1 “Lamentation regarding privacy
violations and loss of customer data”
In addition, some information has been reported, considered most suitable for our reality, taking into
consideration the following additional topic specific disclosures:
GRI 102: General Disclosures – Disclosure 102-8 “Pernsonnel informations”
GRI 205: Corruption – Topic-specific disclosure 205-2 “Communication and training related to anti-
corruption policies and procedures”
GRI 302: Energy – Topic-specific disclosure 302-1 “Energy consumption”
GRI 305: Emission – Topic-specific disclosure 305-1 “Direct greenhouse gas emissions (scope 1)” e
305-2 “Indirect greenhouse gas emissions (scope 2)”
GRI 401: Occupation – Topic-specific disclosure 401-1 “Number of total recruitments and turnvoer
rate”
GRI 401: Occupation – Topic-specific disclosure 401-2 “Benefit provided for full-time workers
escluding part-time workers and term workers”
GRI 401: Occupation – Topic-specific disclosure 401-3 “Parental leavee”
GRI 403: health and safety at work – Topic-specific disclosure 403-2 “Types of accidents, frequency
index, severity rate, absenteeism rate and number of work-related deaths.”
GRI 404: Training and education – Topic-specific disclosure 404-1 “Average training hours per
employee per year”
GRI 405: Diversity and equal opportunities – Topic-specific disclosure 405-1 “Diversity within
governing bodies and personnel”
GRI 405: Diversity and equal opportunities – Topic-specific disclosure 405-2 “R elationship between
male and female basic salary”
Finally, as regards the Financial Services Sector Disclosures, the following indicators were considered:
FS8 - Monetary value of products and services designed to provide an environmental benefit.
FS11 - Percentage of assets subject to positive and negative environmental or social screening.
FS14 - Initiatives to improve access to financial services for disadvantaged people
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Compliance check
The NFS was subjected to the specific audits envisaged in Legislative Decree no. 254/2016. The audits
were assigned to the same party that is responsible for performing the statutory audit of the financial
statements, to leverage the knowledge already acquired regarding the organisation and business
processes and ensure internal consistency with the Report on Operations, providing greater
effectiveness and efficiency.
1. EMPLOYMENT
Policies
The Group is committed to limiting the effects on employment and responsibly managing the
restructuring of the workforce according to the following guiding principles:
leverage the professional skills present in the business;
take advantage of development opportunities for employees;
favour volunteers for exits and greater proximity to pension age;
facilitate generational renewal with the hiring of new resources (including those envisaged in
governing national regulations);
consider the aspirations and needs of the resources involved.
The personnel cost containment measures were identified by applying principles of social equity and
attention to the lowest compensation levels.
These guiding principles are then consistently outlined in specific business policies and/or external
communications, including:
the Collective Labour Agreement, second-level negotiations, and trade union agreements;
internal regulations regarding “Personnel selection and hiring policies”;
Group regulations concerning “Management of human resource recruitment”;
business welfare policies and system which, as part of second-level negotiations, also provide for
the employment of family members of employees deceased during their service. This provision is
also extended to personnel participating in the Sector Solidarity Fund;
human resource management policies.
Risks/Opportunities
The risks related to managing this issue are operational and reputational: difficulty in ensuring adequate
coverage of roles and the operational continuity of certain activities, disputes with employees, decline
in employee satisfaction, in relation, for example, to outsourcing of activities, structural workforce
reductions, and any other business project that may impact personnel.
These risks are managed through a preventive approach, involving preliminary impact analyses, trade
union dialogue procedures (in accordance with the law and contract), and mitigation actions, aimed at
ensuring operational continuity, reducing litigation, avoiding demotion, etc.
Furthermore, this issue is particularly relevant for the inherent opportunities to:
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strengthen and consolidate the alliance with reference territories;
benefit from an enriched vision as a result of intergenerational exchange;
improve attraction and retention of stakeholders (both internal and external).
Management Model
The operational efficiency objectives of the 2017-2021 Restructuring Plan are pursued through a series
of actions that safeguard employment levels to the extent possible.
In particular, the Plan’s goals to reduce workforce were discussed with trade unions during meetings
(pursuant to law and the contract, which concluded with specific agreements) for the joint examination
of impacts on the personnel concerned.
The workforce reduction was carried out mainly using the Sector Solidarity Fund and was supported
by management plans for territorial and/or professional mobility (refer to “Human Resources”
chapter).
Moreover, the Plan’s operational efficiency objectives were pursued through personnel cost
containment measures, defined based on principles of social equity and attention to the lowest
compensation levels. To this effect, the following measures were envisaged:
modulation of the mandatory (unpaid) days of absence that contributed to the Sector Solidarity
Fund (solidarity days);
extraordinary contribution of executives to the Fund;
MPSolidale (refer to “Welfare” chapter).
In parallel with the implementation of the aforementioned management systems, aimed at supporting
the workforce reduction targets, the Parent Company provided ample space for the activities of “MPS
Orienta”: an organic approach to business activities, which the Group has for some time sought to
deploy to contribute to the social objective of training and preparing young people for professional
careers, which should also yield results in terms of strengthening the roots in our communities and the
corporate image.
Results
In 2017, it was possible to achieve the exits of about 1,800 resources (of which 600 as at 1 May 2017
and 1,200 as at 1 November 2017), through the use of the Sector Solidarity Fund (activated based on
the volunteer criterion and greater proximity to pension age).
During the year, ample space was provided for the activities of the “MPS Orienta” programme on the
various open fronts:
Apprenticeship for higher education and research - in collaboration with the University of Siena,
the Parent Company, in order to favour interaction between the academic environment and
corporate culture, offers young students an excellent training opportunity, with entry into the job
market before they even complete their studies, providing them with direct comparison of the
subjects they are studying and professional activities. For each apprentice, a specific training
programme was developed, divided into three areas: initial training (on-the-job), technical-
professional training (office, classroom and online courses consistent with the assigned role), and
training on soft skills;
School-work rotation - business track, both in head offices and regional areas, to favour the
orientation of students in the last three years of upper secondary schools and leverage the
education acquired in academic courses with additional skills that are applicable in the labour
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market. Each student was involved in targeted training activities, such as multimedia courses aimed
at developing teamwork behaviours, effective communication, and participation in working
groups;
Career day - organised in collaboration with the University of Siena, to bring together employment
demand and supply, and provide functional information to guide young people in their future
choices;
Partnerships with schools and universities in events, workshops and seminars dedicated to
selecting a university, social reputation, career orientation, professional progression, local
development, in which business skills in the area of human resource management were shared;
Internships (academic and extracurricular) - training periods, orientation and/or hiring into the
business during or immediately after completing academic studies.
Indicators - Employment 2017 2016 GRI Standards
Total head count - end of period (number) 23.463 25.566 Disclosure 102-8
Hirings (number) 134 195 Disclosure 401-1
Dismissals (number) 2.246 359 Disclosure 401-1
Turnover (%) 9.6% 1.4% Disclosure 401-1
Voluntary employee turnover rate (%) (*) 0.9% 0.6%
(*) data refers to personnel on the payroll of: Parent Company, MPS Capital Services, MPS Leasing&Factoring, and Widiba
2. HUMAN RESOURCE DEVELOPMENT
Policies
The policies for this issue are inspired by the principles formulated in the Code of Ethics (in
accordance with of the Collective Labour Agreement guidelines) and act to support the Group's
business objectives and related organisational projects.
The policies were formalised in certain internal rules and, in particular, regard:
training and continuous updating and reinforcing of skills, in line with changes in operating
models;
performance management and goal orientation;
professional development, based on principles of transparency, participation, merit, and equal
opportunities;
involvement and leveraging of personnel through incentive policies, welfare, and internal
communication.
Risks/Opportunities
The risks associated with managing this issue are mainly of an operational and reputational nature:
disputes with employees, gaps in compliance with legal regulations, rules of supervisory authorities,
and contractual requirements, reduction in employee satisfaction, in relation, for example, to applying
performance evaluation and remuneration/incentive criteria. Additional risks in this area are related to
inadequate coverage of the necessary internal competencies (in a context of profound changes in
business models), attributable to training gaps and problems in implementing the development paths.
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These risks are managed through a preventive approach, involving qualitative analyses of employee
satisfaction, monitoring disputes, and the use of risk-adjusted performance indicators in personnel
remuneration/incentive policies.
Furthermore, this issue is particularly relevant for purposes of effectively implementing business
strategies. In this sense, employee involvement, leveraging, and motivation are critical success factors
through which the Group can take action.
Management Model
There is an overall programme of measures and projects aimed at maximising the levels of personnel
involvement and leveraging:
MPS Sviluppa, which, based on the results of the performance management system, allows human
resource development actions to be more finely tuned for the various clusters of characteristics
and potential;
MPS Academy, the permanent internal training school. The training programme is based on the
people, business, compliance and safety strategies, supporting succession plans and adequate
coverage of business roles, with the aim of accompanying each resource in the continuous
development of all skills necessary for individual and professional growth;
Welfare (refer to “Welfare” chapter).
Other operating models and initiatives:
o mechanisms to ensure the enhancement of internal skills, job rotation and turnover, with limited
recourse to hiring from the external market. The hiring of resources into the structures is
supported by an induction training programme, on-the-job training, and targeted interventions
aimed at filling the initial skills gap;
o professional and managerial development plans which, with a view to business continuity,
guarantee suitable quality-quantity staff coverage levels, in line with the performance
management system and with an approach based on results, sharing and self-development;
o engagement initiatives and motivational leverage consistent with remuneration policies, the
welfare system and internal communications plans; In particular, the new Total Reward model
envisages a weighting system for managerial positions, grouped according to the real impact in
the business organisation and to the responsibilities effectively carried out, to which specific
compensation, career, and training packages are linked;
o recruiting policies meant to enhance the internal growth of resources, favour managerial renewal
and integrate and strengthen skills;
o sharing experiences in the field and development of networks between resources/roles in the
network and head offices, to increase the understanding of the different needs and
interrelationships between strategic and operational approaches (Sinergicamente Project).
Results
In 2017, the activities in relation to this issue were developed with the objective of:
ensuring effective coverage of organisational positions;
involving and motivating personnel;
leveraging diversity;
encouraging exchanges and synergies between head office and network personnel.
The main activities include:
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MPS Sviluppa - segmentation of the business population by homogeneous clusters and
identification of development actions to be undertaken for each segment;
LeaderShe - launch of a diversity management project on female leadership (refer to the
“Diversity” chapter);
Parent Company Sinergicamente Project - launch of the pilot phase of the project, which consists
of: initial training for participants, 3 months of an operating internship at the host structure
(network or head office), and the development of two projects aimed at identifying improvements
for network activities and general network-head office interaction;
Broad use of the WOO (We Open Opportunities) platform to cover internal positions through
voluntary application from employees;
Project to leverage commercial roles - classroom training was held, developed for branch managers
who have been in the role for more than three years;
Activation of training plan, defined for the first time through an entirely “bottom-up” process.
The principal activities aimed specifically at Parent Company personnel include:
o multimedia training on digital culture (approx. 12,000 people involved in the network);
o training of middle management on digital and innovation, income statement, risks, and
communication (over 300 people involved);
o launch of English@MPSAcademy, the business platform for learning English, which can also be
used by the family members of employees;
o IVASS (Institute for Insurance Supervision) professional development for more than 11,000
individuals who sell products;
o specialised training for control, risk management, human resources, credit, commercial and
organisation functions;
o e-learning courses on the primary regulatory amendments (Mifid 2, anti-money laundering,
privacy, Legislative Decree 231/2001, etc.);
o classroom professional development for branch managers and other network roles most
affected by the new requirements regarding anti-money laundering (approx. 2,500 people
involved);
multimedia courses for all employees concerning risk culture-governance and information security.
Indicators - Employee development 2017 2016 GRI Standards
Training per capita (hours) 41.9 46.0 Disclosure 404-1
Employees trained in the year (%) 99% 99% Disclosure 404-1
data refers to personnel on the payroll of: Parent Company, MPS Capital Services, MPS Leasing&Factoring, and Consorzio Operativo
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3. DIVERSITY
Policies
“[...] each new hire, promotion, career progression, and increase in compensation is carried out in
compliance with the policies of merit and equal opportunities. [...]. No form of discrimination or
harassment is tolerated”.
The Code of Ethics has set forth the above statements on diversity (gender, age, health/disability,
sexual orientation, ethnicity, religion, etc.).
Since 2017, these principles have been implemented through a comprehensive diversity management
programme.
More specifically, with regard to gender diversity, a male-female balancing policy was formalised by the
Articles of Association for the Board of Directors and the Board of Statutory Auditors and a structural
project on female leadership (LeaderShe) is underway.
Risks/Opportunities
Notwithstanding the relevant considerations set forth in the “Development of human resources”
chapter, it should be noted that the enhancement of diversity in the business brings together a broader
range of perspectives, skills, and contributions that can provide greater benefits to the Group’s
business activities, at the same time generating positive values for stakeholders.
Management Model
This issue is the subject of continuous discussion with trade unions as part of the joint commission on
equal opportunities. In particular, the commission performs periodic analyses of the most important
data pursuant to Law 125/91, meets regularly with the Corporate Observatory to monitor methods of
interaction between personnel, and identifies and reports any factors limiting the beneficial inclusion
and involvement of female staff.
Among the main organisational and planning measures through which the Group takes action on this
issue:
flexibility of working schedules, leaves, furloughs, transfers - each employee can adjust his/her
daily work schedule with flexibility in both starting and ending times; various part-time solutions
are provided, including for limited periods of time, etc. These measures are requested in large part
by female staff, as an aid for a better balance of work commitments with personal and family ones,
as confirmed for example by data on part-time positions (2,349 at the end of the year, of which
95.2% granted to female staff) and on transfers (in 2017, 1,173 transfer requests were accepted in
the Parent Company, of which 47.4% by female staff);
training courses for staff returning to the workplace after maternity (and paternity) leave -
developed by the company’s Equal Opportunities Commission, and including training initiatives,
structured and on-the-job training, and customisable multimedia tools. The initiatives are based on
the individual’s profile and requirements and promote organisational updating as well as the
development of skills that can help to reconcile new needs (for example, time management,
effective communications, stress management, teamwork and negotiation skills). The managers of
the resources concerned also participate in the initiative through dedicated training events which
aim to provide suggestions and points for reflection on how to promote work-life balance within
their own organisational units. In 2017, a total of 314 “new-parents” were involved in the
programme.
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smart working (or agile work) - employees can work from home one day a week (maximum four
per month). This measure is currently being tested in some organisational units.
LeaderShe - diversity management project on female leadership, designed to identify effective
approaches for supporting the development and enhancement of women’s managerial skills and
remove any organisational and cultural obstacles. The topic is also supported through direct
participation in “Valore D” activities (association of companies committed to this issue) involving
about 100 female employees in roles of responsibility.
Results
In 2017, developments in this issue focused in particular on the launch of the LeaderShe project, with
a first internal fact-finding survey for all employees: online questionnaire, focus groups in the network
and head offices, as well as world cafè workshops with employees of the corporate segment. The
survey identified the key obstacles and improvement actions to be taken.
Indicators - Diversity 2017 2016 GRI Standards
Female share of total workforce (%) 49.7% 48.0% Disclosure 102-8
Females in management positions (%) (*) 43.2% 42.5% Disclosure 405-1
Female executives (%) 8.2% 7.8% Disclosure 405-1
Ratio of basic salary of women to men (executivess) (%) (*) 98.0% 93.0% Disclosure 405-2
Ratio of basic salary of women to men (junior-middle 90.0% 89.0% Disclosure 405-2
managers) (%) (*)
Ratio of total remuneration of women to men (junior-middle 89.0% 89.0% Disclosure 405-2
managers) (%) (*)
Ratio of basic salary of women to men (others) (%) (*) 95.0% 94.0% Disclosure 405-2
(*) data refers to personnel on the payroll of: Parent Company, MPS Capital Services, MPS Leasing&Factoring, and Widiba
4. WELFARE
Policies
The Group considers corporate welfare to be an important value for the well-being of employees. It is
part of second-level negotiations and, despite the scenario of general containment of personnel costs, it
has been continuously maintained and, in some respects, expanded with a range of products and
services for employees, retired staff and their relatives, which currently involves about 75 thousand
people.
The management and operational policies (general and on individual components of the welfare
system) are set forth in the business contracts and in some internal rules aimed at ensuring
standardisation of treatment and equal access to all beneficiaries.
Risks/Opportunities
Contributing to meeting the social needs of employees is an opportunity for the Group to strengthen
the sense of belonging and motivation in the workplace, with positive impacts on business
performance.
All aspects of risk and opportunities pertaining to this issues and to each initiative are also verified
through a specific joint commission with trade unions.
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Management Model
At the organisational level, this issue is monitored by the Industrial Relations and Welfare Policies
Service, within the Chief Human Capital Officer Division. It is the subject of continuous discussion
with trade unions as part of the joint welfare commission and is supported by specific training
initiatives and internal communications.
Currently, the business welfare system consists of a wide range of institutions and initiatives (economic
and otherwise) focused on the principal social needs (traditional and new):
health - programme to cover medical expenses (which may also be used by family members)
accident policy and other initiatives;
pension plans - company pension plans to which Group companies allocate 2.5% of taxable
salaries for the purposes of staff severance indemnity and for which they bear the management
expenses;
work-life balance - system of employment leave and time off, in particular to support parents, as
well as smart working (agile work) mechanisms;
MP Solidale - an internal fund fuelled by donations from employees of paid leave or portions of
their remuneration, to help their co-workers who face serious and verified personal and family
needs, with priority afforded to childcare requirements;
education - study permits for student employees, initiatives dedicated to the education of children
(including scholarships for study experiences abroad), English course through the
English@MPSAcademy business platform (recently activated);
income support - favourable terms and conditions on loans and bank services and products, meal
vouchers, compensation for new hires or to help with specific needs (e.g., commuting), other types
of support for household expenses;
free time - employee social organisations, which promote cultural activities, sport and individual
hobbies.
Results
Measures for containing personnel expenses carried out with the union agreement of 24 December
2015, and functional to achieving the Restructuring Plan objectives, were identified and adjusted
by giving adequate weight to social equity policies and criteria (focusing on lower compensation
levels).
New measures were introduced through second-level negotiations designed to provide flexibility
and encourage solidarity amongst co-workers. Specifically, MP Solidale was confirmed again for
2017.
In 2017, an agile work mechanism was activated on a trial basis for the employees of certain head
office structures of the Parent Company and Consorzio Operativo (employees involved had the
opportunity to work from home one day a week up to a maximum of four per month).
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Indicators -Welfare 2017 2016 GRI Standards
Benefits provided to part-time or temporary employees vs 100% 100% Disclosure 401-2
thoese provided to full-time employees (%)
Employees that took parental leave (number) 1.733 1.679 Disclosure 401-3
Employees who returned to work after parental leave ended 1.721 1.675 Disclosure 401-3
(number)
Employees who returned to work after parental leave ended 1.665 1.695 Disclosure 401-3
who were still employed twelve months after their return to
work (number)
Return to work rate of employees that took parental leave (%) 99.3% 99.8% Disclosure 401-3
Retention rate of employees who took parental leave (%) 99.2% 99.1% Disclosure 401-3
data refers to personnel on the payroll of: Parent Company, MPS Capital Services, MPS Leasing&Factoring, and Widiba
5. CUSTOMER EXPERIENCE
Policies
“The Group is committed to creating and developing relationships of trust and mutual and enduring
satisfaction with customers. The goal is to be at the service of customers to respond to their needs and
preferences with increasingly proper, transparent behaviours, with preparation, capacity for innovation,
and credibility” (Code of Ethics).
The strategic programme of the Retail Division (“Banca Più”) strengthens the customer relationship
policy. It evolves from a traditional approach, which views the customer as a passive subject of purely
commercial actions, to a complete and satisfactory “experience” strategy, throughout the banking life
cycle, which places the customer and his/her needs at the centre of every action.
A customer experience approach must activate all mechanisms necessary so that the customer is
satisfied and loyal, and his/her needs are often anticipated.
To do so, the Group has been moving along several directions for some time:
customer segmentation, in line with new service models, to better address the needs of different
types of customers (e.g. digitalised, young people, businesses);
IT tools for “contact management” that can capture events (real-time or otherwise) in an
automated manner and respond to them with personalised, multi-channel contact experiences, that
are both commercial and purely caring (e.g., birthday greetings, operating suggestions, encouraging
the use of ATM also for deposits);
introduction of omni-channel relationship platforms able to support the customer in his/her
contact and operating needs through digital tools (Digital Banking), telephone tools (Media Center
and telephone banking), and physical tools (enhanced cash-in/cash-out ATMs);
advanced statistical methodologies and techniques (advanced analytics) to analyse phenomena not
visible to the naked eye and predict, with appropriate mathematical models, customers’ needs with
the highest probability of occurrence (target customer lists typically used by contact campaigns);
adoption of new privacy profiling consent, to prepare contact experiences connected to the
individual, using marketing automation tools;
enrichment of data for customer profiling: in addition to those relating to banking transactions and
use of products and services, information on behavioural aspects found in digital channels and/or
external sources;
customer satisfaction surveys.
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Within the Group, Banca Widiba ensures a particularly strong driver for change and innovation, with a
value proposition based on simplicity, transparency, enthusiasm, and listening to the customer.
Risks/Opportunities
The risks associated with managing this issue are operational and reputational: reduction of customer
satisfaction, complaints from customers, loss of customers, and bad referrals in relation, for example,
to possible gaps in service levels and application of compliance procedures, or specific initiatives such
as closing a branch. These risks are managed through a preventive approach involving careful
monitoring: verification of consistency between customer/product risk profiles, complaint
management, customer satisfaction surveys, media monitoring, etc.
There are also risks/opportunities in terms of competitiveness. In fact, banks are increasingly required
to face competitors who are not “native bankers”, which offer highly evolved customer experiences.
The speed of action, or deployment, of new digital and non-digital initiatives and strategies can make
the difference.
For this reason, the most concrete risk is organisational, that is, the gap in operational processes and
specific responsibilities that may not only be lacking in terms of “time-to-market”, but also do not
effectively implement the desired actions.
Furthermore, no less important is the need to have a customer database that is always up-to-date,
especially on certain critical or “must have” information, such as: know your customer (for reinforced
anti-money laundering oversight), privacy consent, identity documents, as well as mobile and email
contact details. To do so, the Group has been engaged on three fronts for several years:
raising the awareness of the network, so that every branch contact occasion is also an opportunity
to add missing information;
making use of information systems (e.g., migration to new digital banking) to “constrain” some
processes to retrieve some necessary information;
acquisition of data from certified external sources, in full compliance with legal and compliance
restrictions, to enrich the personal data of active customers, selected according to cost-benefit
criteria.
Management Model
Starting from the three models of retail customer management (representing 98.1% of total customer
assets) currently in place (Value, Premium, and Small Business), the Group is reviewing the approach
by identifying four differentiated segment types according to increasing complexity of needs
(transactional or advisory).
The new management model envisages an increasing cost-to-serve in proportion to the evolving needs
of advisory services, achieving sustainability with respect to the value of each segment.
The four retail segments will be served according to the following management models:
Mass Market - specific follow-up through direct channels, which integrates a simple and intuitive
self-service offer with low cost-to-serve;
Family - envisages the presence of sales personnel with specialised skills in the main areas required
by customers, supported by a self-service platform for transactions and online sales of
standardised products;
Affluent - involves the presence of a dedicated relationship manager with a portfolio of a
maximum of 250 customers, in order to ensure higher-quality service and advisory activities to
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meet customer requirements, supported by a self-service platform to complete the omni-channel
customer experience;
Small Business - unlike the three private segments, includes companies that, given the size in terms
of turnover, have needs that are similar to Value and Affluent customers;
All management models assign a key role to the self omni-channel platform, which consists of:
Digital Banking - information/instruction functions and online sales of standardised products, as a
result of the digital identity with Certified Electronic Mail and Remote Digital Signature (PasKey
azienda-online for the Small Business segment).
ATMs - a cash-in/cash-out machine in each branch;
Media Center and Telephone Banking - inbound and outbound activities, in addition to reactive
inbound and operational capacities.
Banca Widiba ensures a highly advanced digital banking service, which integrates a simple and
complete self-service offer with the competencies of MPS’s financial advisor network.
Results
In 2017 the “Banca Più” strategic programme was launched with the objective of transforming the
approach to retail customers through the full use of technology:
in the customer relationship, with a renewed web and mobile banking platform, structural
upgrading of the ATM network, and the creation of the new commercial site;
in the development of internal branch processes, with the replacement of the technology
infrastructure (PCs, printers, and data transmission lines) and enabling the most important
working situations, such as withdrawals, deposits, payments, and recharging cards, to be
performed in full digital mode and full paperless modes;
with the strategic objective of freeing up professional time dedicated to operational/administrative
activities to be requalified to contact activities and commercial management.
The main results achieved thus far are:
ATMs:
o installation of an additional 400 cash-in ATMs, to expand the 500 already operational, that
allow self-banking operations of withdrawals, deposits, and payment orders with coverage of
60% of the branches;
o migration of about 45% of the payment transactions and more than 90% of withdrawals from
the branch desk to ATMs, compared to 25% and 80% at the end of 2016;
o launch new cardless ATM functionality to allow customer recognition at the ATM without a
card (using Digital Banking credentials);
digital banking:
o launch of the new web and mobile banking platform, “Widiba-like”, which allows full
operations for receiving information and instructions and performing online trading;
o transfer of around 500 thousand active customers to the new platform;
o completion of the advanced platform for online sales;
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commercial site - creation of the new commercial site by type of need;
enrichment of digital contacts - adding information for about 300 thousand digital contacts with
enhanced privacy to be used for business contacts;
branch technology infrastructure - replacing 80% of jobs with new hardware and overall upgrading
the data transmission line to improve the system’s operational performance;
advanced digital and paperless signature;
o issue of the “advanced electronic signature” with multiple, multi-document and deferred
signatures and operational extensions (autograph-specimen signature, delegations,
transactional product contracts, Mifid, etc.);
o release of the use of “remote digital signature” for branch operations (withdrawals, deposits,
cash collection, top-up and reimbursement of prepaid cards, etc.);
digital signage - activation of remote management, by content and time, of video communication
and advertising devices (monitors, ATMs);
closing of branches and introduction of cash-light model - closure of 267 branches and start-up of
316 branches with cash operations only in the morning, with recovery of efficiency for branch
managers and employees;
launch of 23 “Banca Più” pilot branches - initial phase of testing of new branch operating and
commercial model with introduction of the new role of greeter to facilitate the migration of
transactions to self-banking and introduce new segmentation criteria in order to create a greater
number of Affluent portfolios and managers.
Note some of the initiatives and services of Banca Widiba, including:
a selected group of Parent Company retail customers has been directed to Banca Widiba in order to
benefit from more specialised digital banking services;
launch of the first entirely digital (paperless) mortgage in Italy - the product received various awards
(AIFIn Cerchio d'Oro award for financial innovation, ABI prize for banking services innovation,
among the most highly rated in the mortgage study of the German Institute of Quality and
Finance);
launch of the Apple Pay service;
Wise project - new platform for global advisory and asset planning services, which provides a
complete solution of robot for advisors for the entire work cycle of the advisor and to contribute to
an even more satisfactory customer experience;
Widiba Home - app for smartphones (first of its kind), which allows the customer, using a 3D
viewer, to enter a true virtual branch, where he/she can check accounts or perform transactions,
independently or with the help of an avatar. The service received international recognition from
EFMA, and within just two months from its launch, had been downloaded by more than 10
thousand customers;
Widiba Dialog - first mixed reality app for financial advisory services. Using Microsoft’s HoloLens
technology, Widiba’s Financial Advisors can innovatively share advisory data and proposals with
their customers through holograms positioned in the physical world.
Global Innovator Challenger Player international award from EFMA for innovation in processes
and customer experience.
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Indicators - Customer experience 2017 2016 GRI Standards
Customer satisfaction (*) 4.8 4.7 Disclosure 102-43 e 102-44
Total number of substantiated complaints received - parent 2.223 2.537
company (number) (**)
Total number of substantiated complaints received - Widiba 155 218
(number)
Total number of incidents of non-compliance with 3 (***) - Disclosure 417-2
regulations and/or voluntary codes concerning product and
service information (number)
Total number of incidents of non-compliance with 1 (****) - Disclosure 417-3
regulations and/or voluntary codes concerning marketing
communications (number)
(*) data referring to Banca Widiba customers - measurement of customer satisfaction after completing each transaction on the Widiba platform, with a rating on a scale
from 1 to 5 stars (in 2017 160,263 opinions were collected with an average score of 4.8/5). The 2017 customer satisfaction survey data of Parent Company
customers is being prepared and will be available by the end of 1Q2018 (in 2016 no customer satisfaction surveys were carried out)
(**) complaints collected are defined as those that have been processed in the period with a favourable outcome to the customer or that were determined to be valid; data
is extracted from the “complaint registry” technology platform and monitored in compliance with the specific regulatory provisions of supervisory authorities
(***) involves: (i) a finding by which the Bank of Italy has highlighted cases in which it is necessary to improve certain areas of account statement information; in this
regard, corrective actions have already been initiated; (ii) a measure by the Italian Anti-Trust Authority (AGCM) adopted at the meeting of 20 September 2017 on
the marketing of diamonds for investment. The measure highlights violations of regulations on commercial practices, with financial penalties assessed. This measure was
challenged before the Lazio Regional Administrative Court. In this regard, note that the Parent Company, even before the notification in its responsibility from the
provision in question, as soon as it became aware of the opening on 25 January 2017 by AGCM of a proceeding against the broker Diamond Private Investment
(DPI), independently, beginning on 3 February 2017, suspended the reporting to DPI of its customers; (iii) a request by AGCM to remove the profiles of alleged
unlawfulness for the supposed absence or incompleteness, in communications sent to customers or posted on the website, of relevant information on the characteristics and
conditions of use of the certified electronic mail and digital signature services associated with the internet banking service. Actions have been taken to adapt to the
authority's requests.
(****) refers to an AGCM measure adopted at the meeting of 27 April 2017 on remuneration for the SEDA service (SEPA Electronic Database Alignment); the
measure notes an infringement of anti-trust law. This measure was challenged before the Lazio Regional Administrative Court.
6. SERVICE SECURITY
Policies
The policies on this issue are formalised within a specific document of internal rules that provides the
guidelines, framework, and management standards to all Group companies: “Policy on Logical
Security”. It is aligned with the highest quality and compliance requirements in relation to the various
operational areas and risk sources:
information security (ISO/IEC 27001:2013 and 27002:2013);
operational continuity (ISO 27031:2011 and ISO 22301:2012);
IT risk management (ISO/IEC 27005);
ICT security (ISO 13335:2004);
payment card data protection (PCI-DSS - Payment Card Industry Data Security Standard).
On a strategic level, through a specific three-year programme, IT security objectives are defined to
mitigate the risks inherent to the confidentiality, integrity, and availability of information.
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Risks/Opportunities
IT risks are identified in a preventive approach through periodic extensive analyses on the systems.
Risks that cannot be avoided are mitigated and kept under control through a formalised process of
managing the residual risk, including obtaining specific insurance coverage.
In particular, the risks of cyber fraud, to which, for example, customers operating on remote banking
services may be more exposed, are captured and thwarted through specific prevention and protection
systems, which allow the use of the service in a secure manner. The scope of these systems is
proportional with the general business propensity to risk (Risk Appetite Framework) and the systems
are implemented in close collaboration with law enforcement. Critical issues arise largely due to the
characteristics of the personal technology equipment of customers (may not always have adequate
settings for protection systems) and in the behaviours adopted in their use. In response to this issue,
awareness-raising campaigns have been carried out for customers on the dangers of certain viral
phenomena like spamming and phishing, and how to defend themselves.
To protect personal data, additional security and control safeguards are put in place that, in
implementation of regulatory measures set forth by the Privacy Authority, allow, inter alia, the complete
traceability of banking transactions carried out by employees and the activation for all Group
companies of alerts in cases of potentially unauthorised access.
Management Model
An overall security management system is in place (organisation, processes, procedures, and
technology solutions) to protect the information assets of the Group and its customers. In particular,
the Logical Security and Operational Continuity Service, within the Chief Operating Officer Division,
is responsible for:
defining policies on logical security;
monitoring and managing reports on anomalies in the infrastructure and system applications;
managing the Group’s business continuity;
performing the functional reporting on the security functions of Consorzio Operativo and Group
companies, which independently manage information systems that affect the operations of the
company to which they belong and/or that of other companies (Italian or foreign) of the Group;
performing the functional reporting on the Security Information Function of foreign branches.
Results
In 2017, activities related to this issue aimed to strengthen the Parent Company's controls and
consolidate the technology security structures used by Consorzio Operativo and other Group
companies.
The primary initiatives included the following:
verification of the robustness of the Parent Company’s security systems, identification of
improvement areas and resulting development of an action plan;
completion of certain projects designed to reinforce the technology infrastructure and increase the
overall security and resilience of information systems;
strengthen collaboration with law enforcement and other competent bodies (e.g., Certifin) to
improve the ability to fight cyber fraud and other external threats.
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Indicators - Information security 2017 2016 GRI Standards
Total number of substantiated complaints received 5 (*) 1 Disclosure 418-1
concerning data breaches and customer privacy (number)
IT security level (*) 680 620
(*) relates to: (i) 2 customer complaints for violation of personal data (ii) 2 complaints by the Privacy Authority for the Protection of Personal Data submitted in
2015 (and still pending) related to behaviours of employees and/or financial advisors that could result in the imposition of administrative penalties; (iii) 1 case of an
anomaly in the functioning of the internet banking service dedicated to businesses, which occurred over a limited period of time (a few hours) and reported to the
authority in accordance with current legislation.
(**) independent rating from BitSight Security Ratings (scale 250 - 900) https://www.bitsighttech.com/security-ratings
the rating covers the following evaluations: a) presence of compromised systems; b) user behaviour; c) prevention systems; d) data loss
7. CORRUPTION
Policies
The Group considers compliance with laws, industry regulations, and the principles of ethics and social
responsibility an essential condition for the maintenance and improvement of business value.
In particular, it is committed to combating all forms of corruption by adhering to the principles
promoted by the United Nations Global Compact Programme and in coherent implementation of the
relevant policy included in its Code of Ethics:
“The Group does not tolerate corruption and commits to comply with the relevant laws and to
implement all measures necessary to combat corruption in all its forms, including the promise and/or
payment of bribes. In particular, it is forbidden to pay or accept amounts of money, or to carry out
other forms of corruption for the purpose of obtaining undue advantages, direct and indirect, for the
Group. Any gifts to or from third parties, including Christmas gifts or upon special occasions, are
permitted within the limits of the norms of hospitality and courtesy”.
This policy will be further clarified in 2018, including through the development and formalisation of a
specific guidance document.
Risks/Opportunities
Risks related to corruption, both ordinary (Criminal Code Book II, Title II, Section I) and between
individuals (art. 2635 of the Italian Civil Code), can result in litigation with the parties involved and
defendant legal proceedings, with effects on reputation.
These risks are identified every two years through formalised assessment procedures. They mainly arise
in activities such as: granting credit, recognition of gifts, allocating contributions in the form of
sponsorships, awarding supply and consulting contracts, as well as in the context of personnel
management activities (management of bankruptcy proceedings and direct recruitment, internal
selection, recognition of ad personam fees, etc.).
Management Model
Offences relating to corruption are avoided through the implementation of the Organisational Model
that Group companies have adopted pursuant to Legislative Decree no. 231/2001, which includes:
periodic risk self-assessment by the heads of various organisational units;
rules and operating procedures to evaluate and prevent compliance risks;
financial resource management and control processes for higher risk activities;
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periodic training and behavioural protocols for all personnel;
systems for reporting offences and disciplinary procedures.
To constantly monitor and update this Model, the Board of Directors has assigned specific
responsibilities to the Supervisory Body (consisting of three members, two of whom are external
professionals and a non-executive, independent Board member). To support the verification and
control of the Model’s effective implementation, suitable internal reporting systems are in place for
presumed irregularities committed by employees, executives, members of the Board of Directors and
Board of Statutory Auditors, as well as associated third parties (suppliers, consultants, etc.), with
functional characteristics designed to ensure confidentiality and/or other reporting safeguards:
intranet communications to the Supervisory Body;
formal communications to the Compliance and Internal Audit functions;
whistleblowing procedure.
Additional business rules govern:
the spending capacity of various organisational units, signature powers of each employee, and
detailed procedures for expense authorisation;
authorisation processes relating to the offer of products and services;
lending autonomy (through ad hoc regulations);
relations with the Public Administration (e.g., political contributions or other disbursements, in
cash or in kind, to support political causes are prohibited).
Results
Indicators - Corruption 2017 2016 GRI Standards
Training about anti-corruption (hours) (*) 20.662 2,784 (**) Disclosure 205-2
Total number of employees that have received training on anti- 20.288 928 (**) Disclosure 205-2
(*)
corruption (number)
Internal reports of alleged cases of corruption (number) 0 0 Disclosure 205-3
Total number of incidents of non-compliance with 0 0 Disclosure 205-3
regulations and/or voluntary codes concerning anti-
corruption (number)
(*) data refers to personnel on the payroll of: Parent Company, MPS Capital Services, MPS Leasing&Factoring, Consorzio Operativo, and Widiba (excluding
financial advisors)
(**) data not comparable with the 2017 figures, as it relates only to the last portion of a training programme on the issue that began in 2014 and delivered to all
employees
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8. SME SUPPORT
Policies
The enhancement of the private sector is one of the main objectives of the 2017-2021 Business Plan.
In particular it provides:
a new small business customer service model based on a simplification of the offer and continuous
attention focused on the granting of loans and the associated risks;
streamlining of corporate segment activities, as a result of the revision of the business model and
optimisation of capital absorption;
improvement of credit quality and of the credit risk management process, new impetus in loan
disbursement through an increase in small business mortgage volumes.
Development of the service to businesses is based on an approach highly focused on the customer
relationship and is implemented in line with the instructions of the Credit Policy, with particular
attention to the quality of loans.
Risks/Opportunities
Small and medium-sized businesses are the backbone of the economic-production-employment system
in Italy. For these companies, bank credit is the main source of financing and thus a key factor for the
country’s sustainable economic growth.
For the Group, knowing how to best support small and medium-sized businesses (primarily through
lending) is central to the business and a social responsibility. The associated risk profiles are mainly of a
credit nature, for which robust management models are in place, and reputational, in relation to any
gaps that may arise in the expansion of banking activities expected in local communities after a general
credit crunch.
Management Model
The corporate segment is widely spread throughout regions by means of a distributed network of
specialised centres (approx. 100 serving SMEs) with the aim of supporting an approach strongly
focused on the relationship and contact with customers.
In this regard, the “Corporate and Credit Regata” process is especially important, which includes:
frequent visits to companies;
definition of shared growth plans;
monitoring of actions implemented and defining any corrective measures.
The commercial offer includes loans to support the business growth, in particular:
investments for the purchase of machinery, equipment, operating assets, and production
equipment, as well as hardware, software, and digital technologies, within the scope of subsidies
made available by the Ministry of Economic Development with the “Sabatini Ter” initiative;
investments and innovation incentivised by the 2017 Stability Law (MPS Corporate Industry 4.0).
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SMEs receive other structured supports through:
an innovative service model in the field of subsidised lending, in partnership with a leading
specialised company, to take advantage of the important opportunities provided by Industry 4.0;
Corporate Advisory Platform, to assist clients in analysing their historical competitive positioning
and develop their future positioning with a 3-5 year business plan;
internet banking services, which continuously strengthen oversights on security and quality of
service (e.g., for electronic invoicing);
a range of advisory solutions, products, and services for import-export businesses, for which
additional internet banking services are provided.
Results
In order to support the growth of the economy and, at the same time, offer more competitive
conditions to customers, special loan pools were set up in 2017.
Advisory and subsidised loan services were particularly active (1,800 visits and 900 advisory
proposals) and allowed customers to obtain benefits of approximately EUR 29 mln, in terms of
principal/interest contributions and tax credits.
Through the “Corporate and Credit Regata” process, 55,500 growth plans were completed with
customers.
In the small business segment, priority was given to:
o optimising the offer;
o defining conventions and agreements with guarantee institutions and trade associations;
o enhancing risk mitigation requirements and agreements with guarantee institutions to facilitate
access to credit;
o financing medium/long-term investments and growth (also thanks to government subsidies);
o offering value-added ancillary services (subsidised finance, startup consultancy, credit scoring).
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9. GREEN FINANCE
Policies
Consistent with the general guidelines established by the Code of Ethics and in compliance with the
principles promoted by the United Nations Global Compact Programme, the Group has been
committed for several years to implementing an Environmental Policy with the objective of
contributing to environmentally sustainable economic growth, through appropriate credit and financial
support to businesses, households, and institutions
(https://www.gruppomps.it/static/upload/tut/tutela_ambientale_-_gruppo.pdf).
At present, banking industry policies have not been defined. In fact, the reference framework of credit
policies does not have the necessary detail to be able to formulate strategic guidelines based on the
environmental risk/value characteristics of each economic sector and, therefore, only qualitative
guidelines can be established. In this regard, new developments are expected in the future in relation to
guidelines emerging from institutions, regulatory bodies, and industry authorities, which the Group is
committed to implementing in its operations.
Risks/Opportunities
Environmental risks (and related legal liability) and their impacts on the sustainability of the Group's
credit-lending activities with customers, are evaluated differently for each market segment. Special
focus and specific management models are implemented by the subsidiaries MPS Capital Services and
MPS Leasing&Factoring in their respective businesses.
Management Model
The issue is understood and monitored through formalised procedures that, in particular in the Parent
Company and MPS Capital Services, have been, for a number of years, coherently implemented within
specific management models certified according to ISO 14001, which work alongside more general
organisational models adopted pursuant to Legislative Decree no. 231/2001.
Environmental impact objectives are pursued by defining and continuously updating lending products
that are finalised for the customer offer and specific risk assessments.
Financing products
Large companies - largest Italian producers of electricity from renewable sources are granted
revocable lines of credit and/or medium/long-term transactions (pools or bilaterals). These lines
provide financial support for current operations and/or the issue of unsecured loans.
SMEs
o Welcome Energy - product to finance new photovoltaic plants (pursuant to Ministerial Decree
no. 143 of 10 July 2012) and associated investment expenditures (costs to purchase land,
construction and infrastructure expenses, maintenance contract, etc.);
o Montepaschi Clean Energy - product to finance new plants for producing electricity from
renewable sources (excluding photovoltaic), beneficiaries of the “all-inclusive tariff” and with
maximum power up to 1 MW (wind, hydroelectric, plants powered by biomass, waste, biogas,
and ocean sources). The product also supports investments for the refurbishment/upgrading
of existing plants, within the limits indicated in regulations for access to the all-inclusive tariff;
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o corporate finance products handled by MPS Capital Services (medium/long-term loans,
structured finance, acquisition finance, project finance, etc.).
Small business - does not include ad hoc products; this type of financing is possible through the
ordinary offer in the catalogue.
Consumers - Mutuo Natura, a mortgage loan to requalify energy in housing that will be further
developed in 2018 in line with the European guidelines on energy efficient mortgages (which the
Group follows, in relation to the EEMAP Project - Energy Efficient Mortgages Action Plan). The
additional unsecured financing products currently in the catalogue that are considered “green”
(e.g., Siena Restart and Prestisole) will be rationalised into a single product to respond even more
effectively and efficiently to customer needs.
Assessing environmental risk in lending
Medium/long-term loans - transactions managed by MPS Capital Services, in addition to checks
on compliance with governing environmental regulations for the specific project envisaged during
the preliminary assessments, are subject to a screening that considers: the danger of the activity
and sector legislative requirements, size of the business, and attainment of environmental
certifications. The environmental rating (assigned to the transaction by the system algorithm which
considers the above-mentioned variables) contributes to determining creditworthiness. In addition,
especially in the most significant project finance transactions, specific contractual clauses are
envisaged, differentiated according to the investment type, which commit the borrowing firm to
comply with the laws and regulations established by local authorities as well as any other standards
of quality regarding environmental protection, workplace health and safety, employment
agreements and transparency in tender contracts. In these cases, compliance with the agreed
standards is monitored in the various phases using the documentation provided by the customer
or through due diligence carried out by external consultants. In the event of failure to comply with
these agreements, the Bank is entitled to apply the agreed financial penalties.
Loans to large companies - in the financial documentation for pool or bilateral finance
transactions, where relevant to the business activities, there are commitments, for the borrowing
party, to comply with environmental legislation, as well as specific declarations that all
authorisations and certifications envisaged by the environmental regulations have been obtained.
In this regard, some specific informative evaluations are carried out within the framework of the
qualitative analysis for assigning the rating through an electronic credit procedure.
Real estate leasing - with the support of external specialists, the assets acquired (and the customer’s
activities) are assessed through an environmental scoring model that weighs factors such as: asset
type, intended use, environmental context in which it will be used, customer’s production activity,
legal context, and attainment of appropriate certifications. The transactions that pass this first
screening, and any measures to mitigate the related environmental risks, are subject to monitoring
(this activity is still to be launched). Issues that emerge as the project is underway are promptly
reported and resolved. Instead, the riskiest transactions are the subject of appraisals and other
analyses that, in the event of a negative outcome, interrupt the process and determine how the
application should be handled.
Results
As at 31 December 2017, the Parent Company had around 2 thousand green loans to SME
customers for about EUR 660 mln.
During the year, MPS Capital Services approved 58 loans (around EUR 924 mln), which in 75% of
cases were assessed as having a low environmental impact. 11 transactions, for about EUR 107
mln, concerned renewable energy sectors.
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MPS Leasing&Factoring stipulated 204 new real estate transactions for around EUR 119 mln. Of
these, 3 transactions totalling EUR 4 mln required more detailed analyses of the related
environmental risks (2 were financed, 1 is currently being evaluated).
Indicators - Green Finance 2017 2016 GRI Standards
Monetary value of products and services designed to deliver a 107 240 G4-FS8 (Sector Disclosure)
specific environmental benefit (€/mln) (*)
Share of assets with a positive environmental rating grade (%) 75% 86% G4-FS11 (Sector Disclosure)
(**)
(*) financing granted by MPS Capital Services
(**) data referring to financing assessed by MPS Capital Services
10. FINANCIAL INCLUSION
Policies
“In relationships with customers, focus is given to the needs of the more vulnerable members of
society, with the promotion of access to banking services, informed use of credit, and the prevention
of over-indebtedness”.
These principles, established by the Code of Ethics, have been implemented over time through:
products and services for customers with low assets and income;
support to individuals and businesses in temporary economic difficulty;
disbursement of small loans to individuals and non-bankable companies, through significant
investment and other supports from a specialised operator: Microcredito di Solidarietà Spa.
The commercial policies currently implemented do not contain specific, formalised guidelines on this
issue.
Nonetheless, the objectives of financial inclusion continue to be supported in the network by listening
attentively to customers’ needs to ensure the most suitable profiling of the service proposal starting
from an initial catalogue of rational and generally standard offerings. Notwithstanding the social policy
and the work of Microcredito di Solidarietà Spa, predominantly focused in the province of Siena
(https://www.microcreditosolidale.eu/).
Risks/Opportunities
The emergence of a significant segment of individuals and small businesses that have difficulty in
relationships with banks is an expression of a broader and more general social problem of growing
inequalities and risks of exclusion, which requires systemic responses. Financial inclusion, and in
particular microcredit, may be part of the solution, but the associated risks must be duly considered,
especially if there is no collateral. Microcredito di Solidarietà anticipates these risks, first of all by
investing in building a trust relationship with the customer and then applying solid yet practical
creditworthiness assessments (Ethical Pact).
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Management Model
The responses to the requests for access to banking services by the most vulnerable customers are
processed by the Retail Division, often in compliance and coherent with measures by the government
and/or local public administrations.
Although current marketing and product strategies are geared towards rationalising the offer catalogue,
a targeted diversification of the catalogue is appropriate to more effectively handle the unique needs of
certain socio-demographic clusters:
current account services - the catalogue includes 4 types of current accounts (2 for general
consumer customers and 2 for pensioners) with considerable facilitations for account fees and
basic services, commensurate with the customer’s asset and income profile (ISEE);
education loans - Diamogli Futuro: unsecured loan for young university or postgraduate students,
between 18 and 40 years old;
reverse mortgages and financial services for the elderly - Prestito Vitalizio Ipotecario: intended for
customers over 65 years of age, who, due to their age, have difficulty in obtaining typical financing
to cover expenditure needs;
startups - financing and auxiliary support for startups and small businesses with low credit ratings,
including through partnerships with consulting, innovation and business acceleration service
providers;
advances on INPS reimbursements for redundancy - to benefit employees of companies in
financial difficulty, who are using the redundancy benefit scheme, both “extraordinary” and “in
derogation”. The advances, made available by the Bank with repayment in 4-7 months, ensure
income continuity for the employees, including those in solidarity contracts;
loan suspension - for consumer customers who have difficulty in repaying loans for serious
reasons, such as: loss of employment, the death of one of the mortgage co-signors, damages
suffered from natural disasters.
In terms of microcredit, the Parent Company uses Microcredito di Solidarietà Spa (MdS), of which it is
the majority shareholder:
MdS is a microcredit provider with registration no. 6 in the special registry pursuant to art. 111 of
the Consolidated Law on Banking;
operates mainly in the province of Siena through 38 welcome centres, an expression of the social
fabric and local volunteerism;
employs seconded personnel and retired employees of the Parent Company;
provides small, unsecured loans to individuals, training initiatives, startups, and small businesses A
small portion of the loans are used to acquire and restore liquidity;
uses credit assessment and follow-up procedures that are formalised, digitised, and traceable.
2017 ANNUAL REPORT
117 Consolidated Report on Operations
Results
At the end of 2017, “basic” current accounts had been opened for 3,261 customers (453 new accounts
during the year).
During the year, MdS granted 229 loans, for around EUR 748 thousand, and pursued the objective of
developing production microcredit, including by defining specific agreements for collaboration with
financial institutions, credit cooperatives, and local business networks.
Indicators - Financial inclusion 2017 2016 GRI Standards
Monetary value of products and services designed to deliver a 0.748 0.644 G4-FS7 (Sector Disclosure)
specific social benefit (€/mln)
loans disbursed by Microcredito di Solidarietà Spa.
11. FINANCIAL EDUCATION
Policies
Over the years, the Group has undertaken a detailed programme on this issue, especially by supporting
schools in their plans to gradually integrate economic and financial literacy into their curricula.
The activities are based on principles of social responsibility and are intended as a contribution to
strengthening the nation’s basic cultural understanding, to achieve a more informed and sustainable use
of money, credit, and financial instruments in general. The Group undertakes this commitment directly
in relation to customers, in accordance with the Code of Ethics.
The activities are carried out systematically, through ongoing partnerships and participation in systemic
projects, but its guidelines are not currently formalised in a specific policy.
Risks/Opportunities
The lack of a widespread financial culture is a gap that cannot be reconciled with the social inclusion
standards expected in this country as well as a gap in the competitiveness of Italian students compared
to their European peers. It also represents a serious limit to the informed use of money by individuals
and to general sustainable economic growth in Italy.
The initiatives in this area are an opportunity for the Group to highlight its identity as a socially
responsible entity and consolidate brand awareness among the relevant public audience.
Management Model
The main activities for this issue are handled centrally by the Sponsorship and Cultural Activities
Service, within the External and Institutional Relations Division. The approach is mainly of a project
nature, as no ordinary working procedures are currently formalised.
The flagship project is Young Factor, promoted by the Osservatorio Permanente Giovani-Editori and
identified as one of the major national initiatives in the latest surveys developed by supervisory
authorities (www.young-factor.it and www.osservatorionline.it). Since its launch in 2014, the Group
has participated in the initiative, along with Intesa Sanpaolo and Unicredit, contributing financial
resources and internal expertise in the following activities for secondary school students:
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 118
educator training through texts, videos, meetings, and the possibility to receive assistance from a
team of experts and a dedicated call centre;
preparation of a “workbook”, made available to educators and students from a team of trainers
and lecturers from the best Italian universities;
meetings and major events in regional areas with journalists, experts, and international authorities
who meet with students from various Italian schools;
monitoring levels of satisfaction and understanding of the participants, by a leading research
institute.
Results
Indicators - Financial education 2017 2016 GRI Standards
Beneficiaries - schools (number) 2.815 2.805 G4-FS16 (Sector Disclosure)
Beneficiaries - classes (number) 19.363 19.218 G4-FS16 (Sector Disclosure)
Beneficiaries - teachers (number) 7.672 7.569 G4-FS16 (Sector Disclosure)
Beneficiaries - students (number) 504,400 500.207 G4-FS16 (Sector Disclosure)
data refers to Young Factor project
2017 ANNUAL REPORT
119 Consolidated Report on Operations
ANNEX
Other issues
Use of energy
Workplace health & safety
Human rights (focus on supply chain)
Identification of principal risks incurred and generated and the impacts connected to the
material issues
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 120
OTHER ISSUES - USE OF ENERGY
Policies
Consistent with the general guidelines established by the Code of Ethics, in accordance with legal
requirements, and in compliance with the principles promoted by the United Nations Global Compact
Programme, the Group has been committed for several years to implementing an Environmental
Policy with the objective of gradually improving the environmental impact of operations
(https://www.gruppomps.it/static/upload/tut/tutela_ambientale_-_gruppo.pdf).
More specifically, energy policy guidelines have been followed, which include:
analysis and thorough understanding of the energy impacts of business activities, including during
design and/or purchase of plants;
regulatory compliance and observance of any voluntary commitments;
efficiency measures and containment of energy use;
obtaining energy from renewable sources;
monitoring consumption data.
Risks/Opportunities
The efficient and socially responsible use of energy is particularly significant to control the Group’s
overall impact on the environment and is a driver for containing operating costs, which have been
substantially implemented over the past 3-5 years with the deployment of purchasing strategies using a
portfolio management approach. This strategy also enabled the related operational risks to be reduced.
Management Model
The energy policy is governed by an Energy Manager, certified according to UNI-CEI 11339 standards
(within the Chief Operating Officer Division). The current organisational model ensures compliance
with regulatory requirements and a specific management system in compliance with the ISO 50001
standard is under development.
Results
The main activities in 2017 included:
energy & facility management project - 2017-2019 three-year plan which envisages additional
substantial electricity savings (EUR 3 mln per year when fully operational);
interventions for energy efficiency of the technical plants in 39 branches and 11 large properties;
installation of automatic, centralised mechanisms to regulate energy for about 1,000 branches and
20 large properties (to be completed over the three-year plan);
installation of tools to monitor consumption, environmental data, and for remote management of
the main plants.
2017 ANNUAL REPORT
121 Consolidated Report on Operations
Indicators - Energy consumption 2017 2016 GRI Standards
Electricity consumption (MWh) (*) 146.462 150.197 Disclosure 302-1
Share of electricity consumption from renewable sources (%) (*) 100% 100% Disclosure 302-1
Heating consumption - fuel gas (cubic meters) (*) 3,708,180 5,229,265 Disclosure 302-1
Heating consumption - fuel oil (litres) (*) 338.668 382.722 Disclosure 302-1
Direct (Scope 1) CO 2e emissions (metric tons) 10.924 14.165 Disclosure 305-1
Energy indirect (Scope 2) CO 2e emissions (metric tons) 0 0 Disclosure 305-2
(*) data referring to: Parent Company, Consorzio Operativo, MPS Capital Services, Perimetro Gestione Proprietà Immobiliari, WIDIBA, and Magazzini
Fiduciari Generali di Mantova. The considerable reduction in natural gas consumption is due primarily to the rationalisation plan for branch offices and improvement
in the monitoring system.
(**) electricity purchased on the free market produced entirely from water sources; about 161 MWh were produced through photovoltaic installations and consumed
locally
(***) data referring to the Parent Company, calculated according to the ISPRA - National Inventory Report methodology: a) to calculate scope 1, the emissions
generated by heating systems, company cars for business use, and for 70% of those as a fringe benefit were included; b) to calculate scope 2, a market-based approach
was used, setting the value of the emission coefficient from a renewable source to “zero”
OTHER ISSUES - WORKPLACE HEALTH & SAFETY
Policies
Consistent with the general guidelines established by the Code of Ethics, in accordance with legal
requirements, and in compliance with the principles promoted by the United Nations Global Compact
Programme, the Group has been committed for several years to implementing a policy on workplace
health and safety (https://www.gruppomps.it/static/upload/sal/salute_e_sicurezza.pdf).
The policy was issued by the Parent Company’s Board of Directors in 2008. Senior executives and
management are responsible for its implementation.
Risks/Opportunities
The RAD (Risk Assessment Document) identifies risks and related factors of danger for this issue. For
each risk, the document describes:
assessment of each risk;
management methods and actions takes in compliance with the current regulations in force;
prevention and protection measures to be adopted and improvement programmes to be
considered in ordinary maintenance activities and in the restructuring plans for the various relevant
production units;
internal fire prevention, emergency, and first aid procedures.
The RAD is updated periodically and in relation to any significant changes to the activities
Management Model
The policy for this issue is implemented in a highly organised manner. For activities of the Parent
Company, MPS Capital Services, and Consorzio Operativo, management systems are also in place that
are certified in accordance with the OHSAS18001 standard (Occupational Health and Safety
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 122
Assessment Series), along with the more general organisational models adopted pursuant to Legislative
Decree no. 231/2001.
At the head office level, the issue is coordinated by the Prevention and Protection Service, within the
Chief Operating Officer Division.
Other roles that are especially relevant to the proper functioning of the system are:
senior management representative (identified as the employer’s delegate pursuant to Legislative
Decree no. 81/08), who supervises the system maintenance and improvement objectives;
system manager, who is responsible for planning and ensuring the actions identified as necessary
to ensure compliance and system performance are carried out;
network of doctors responsible for health supervision;
security representative for employees.
Results
The main activities in 2017 included:
updating of internal regulations on tobacco smoke on company premises to include a ban on the
use of electronic cigarettes;
work-related stress mitigation measures;
asbestos project, with continued clean-up and monitoring activities;
launch of the analytical evaluation of catastrophic risks;
assessment of the risk of internal noise, with continued analytical verification on a sample basis for
a series of properties;
assessment of the risk of workplace air quality, with continued analytical verification on a sample
basis;
analytical evaluation of largest sources of electromagnetic fields;
continuation of the radon gas monitoring activities throughout Italy and additional evaluations for
the offices in Puglia, in compliance with a new regional law;
launch of the project to replace old life-saving equipment for workers in isolated areas with more
current models;
continuation of updates on workers subject to health surveillance, including in relation to various
organisational changes that have been implemented.
Indicators - Occupational health&safety 2017 2016 GRI Standards
Injuries at work (number) 129 109 Disclosure 403-2
Injuries on the way to work (number) 192 200 Disclosure 403-2
Frequency of injuries at work (*) 3.70 2.94 Disclosure 403-2
Frequency of injuries on the way to work (*) 5.51 5.39 Disclosure 403-2
Severity of injuries at work (*) 0.10 0.09 Disclosure 403-2
Severity of injuries on the way to work (*) 0.20 0.16 Disclosure 403-2
data referring to: Parent Company, Consorzio Operativo, MPS Capital Services, MPS Leasing&Factoring, and Widiba
(*) UNI 7249:2007 methodology for statistics on workplace accidents
2017 ANNUAL REPORT
123 Consolidated Report on Operations
OTHER ISSUES - HUMAN RIGHTS
Focus on the supply chain and the methods for verifying any discriminatory factors and other
limitations on the protections due to workers.
Policies
“The Group considers the conduct of organisations with which it relates, directly or indirectly, in terms
of professionalism and reliability, giving particular attention to their possible involvement in unlawful
activities, detrimental to human rights, and harmful to the health and the safety of humans and the
environment.
[...] In particular, suppliers must ensure professionalism in business, respect the rights of their workers,
invest in quality, and responsibly manage environmental and social impacts.”
The Code of Ethics has set forth the above statements.
These commitments for the protection of human rights are implemented in compliance with the
principles promoted by the United Nations Global Compact Programme and, with regard to specific
aspects concerning the management of supplier relationships, formalised guidelines are set forth in the
relevant policy
(https://www.gruppomps.it/static/upload/sos/sostenibilita_degli_approvvigionamenti.pdf).
Risks/Opportunities
The risk (operational and reputational) of undertaking supply relationships with companies that are not
able to prove constant compliance with regulatory obligations in terms of human rights and employee
rights is monitored through an indirect preliminary verification, based on the prices of the service
offered. In cases where the prices are not consistent with market values, and therefore also the
employee wages and working conditions may be lower than the minimum union and legal wages, the
supplier cannot be awarded the contract.
Management Model
The overall management and monitoring activities of the supply chain are performed by the Group
Purchasing and Supplier Management Service, within the Chief Operating Officer Division, with
particular attention to the evaluation, registration, and maintenance of the supplier registry, as well as
the awarding and contracting of services.
Checks on possible risk factors pertinent to respect for human and workers’ rights and preventive
measures include:
acceptance by the supplier of the behavioural principles established by the Group’s Code of Ethics
both upon qualification/entry in the registry and upon signing of contracts and service
agreements;
supplier’s obligation to exhibit, when the first invoice is issued, appropriate formal documentation
attesting the proper application of the collective labour agreements (Single Document Certifying
Contributions), an extract from the Single Labour Registry, a declaration that replaces a notary
deed acknowledging the effective payment of compensation due to employees of the specific
service);
additional checks, during qualification/entry in the registry, on companies operating in sectors at
higher risk for issues involving health, safety and other fundamental rights of workers (e.g.: general
contractors, facility management, cleaning services and environmental sanitation): the supplier’s
economic-financial situation, status of payments with sub-contractors in the supply chain, effective
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 124
possession of permits to perform the awarded activities, adoption of prevention and safety
measures, investments in specialised training, and appropriate assessment of business risks.
Results
In 2017, the Group pursued the objective of increasing the ability to identify and evaluate, during the
selection phase, suppliers who guarantee the highest standards of operational correctness, quality,
innovation and sustainability of processes and services. For that purpose:
the information set used for evaluations and monitoring was revised and supplemented, and
collected both through the purchasing portal and from infoproviders;
special emphasis has been placed on the requirement for possessing the appropriate certifications
for ongoing suppliers, operating in the most sensitive sectors. From 2018, these sectors are also
expected to create real vendor lists to report the best suppliers available in accordance with these
profiles to the relevant expenditure centres.
Indicators - Human rights (supply chain) 2017 2016 GRI Standards
Incidents of discrimination and/or violations og workers 0 0 Disclosure 406-1
rights in the supply chain (number)
Suppliers with certifications ((ISO9001, ISO14001, 614 (*) na
OHSAS18001, etc.) (number)
(*) equivalent to 53% of the 1,154 suppliers of the Group (individual lessors and professionals were excluded from the calculation, as they cannot be certified)
2017 ANNUAL REPORT
IDENTIFICATION OF MAIN RISKS (INCURRED AND GENERATED) AND IMPACTS RELATED TO MATERIAL ISSUES
125
INCURRED RIKS (by the organization) GENERATED RISKS (vis a vis stakeholder) IMPACTS (on society)
ISUUE ORIGIN (examples) Type Description Assessment and management methods
1. Employment Outsourcing of activities and structural Operational Difficulties to ensure adequate coverage of roles and the operational continuity of Preliminary impact analysis, with indication of mitigation actions aimed at guaranteeing the business Social risks Social impacts
headcount reductions some activities continuity Information asymmetry, customer awareness Employment levels in regions where the bank has a significant presence
Disputes with employees Preliminary impact analysis, with indication of mitigation actions aimed at preventing disputes with
employees
Reputational Employee satisfaction Preliminary impact analysis, with indication of mitigation actions aimed at avoidinf demotions of
employees
2. Employee development Training gaps; Operational/compliance Disputes with employees (e.g. on discrimination cases); Monitoring of disputes with employees Social risks Social impacts
3. Diversity Remuneration/Incentive criteria; Compliance gaps with laws, regulations, contractual requirements Social-economic growth of employees; Participation of women in the economy
4. Welfare Assessment criteria and job development paths Social-economic growth of female personnel Welfare state
Reputaztional Weekness in the employer branding strategy; Qualitative assessments aimed at addressing management actions for corrective and / or risk
Employee satisfaction mitigation purposes
Other risks Parziale sviluppo e copertura delle necessarie competenze interne Assessment of some macro risk indicators and risk-adjusted performances (consistent with the Risk
Appetite Framework) as part of the remuneration and incentive policies. This is aimed at promoting
awareness and risk culture among employees.
5. Customer experience Branch closures; Wealth/Operational Customer compliants; Monitoring of client portfolios aimed at ensuring consistency between the risk profile of customers Social risks
Non-timely application of compliance Loss of customers and the risk characteristics of products in offer Service inefficiency;
procedures; Economic losses from customers
Service level agreement gaps
Operational Customer compliants Monitoring of customer compliants
Reputational Customer satisfaction and bad referral; Qualitative assessments aimed at addressing management actions for corrective and / or risk
Loss of customers and long term impacts on brand reputation mitigation purposes (customer satisfaction surveys, media monitoring, etc.);
Opinions on reputational risk exposure prior to the launch of new projects and products
6. Information security ICT operating gaps; Operational Temporary interruption of some activities Cyber crime insurance coverage Social risks Social impacts
Cyber crime cases; Service inefficiency; Use of personal data for illicit purposes
Data breaches Economic losses from customers
Operational/compliance Customer compliants
Reputational Customer satisfaction Customer satisfaction surveys
7. Corruption Cases of corruption Compliance Disputes with employees; Organizational supervision, controls, training and other mitigation measures pursuant to the Model Social impacts
Legal proceedings 231/2001 Shadow economy, illegality, organized crime, etc.
Reputational Long term impacts on brand reputation Reputational crisis management and stakholder communication
8.SMEs support Non performing loans Credit Loan detorioration and non perfoming growth rates Credit risk management models Social risks Social impacts
Loan accessibility Economic growth
Reputational Week brand awareness in the territories Customer satisfaction surveys (focus on SMEs)
9. Green finance Non performing loans; Credit Loan detorioration and non perfoming growth rates Environmental credit risk assessment procedures Social risks Environmental impacts
Training gaps and non-timely application of Loan accessibility Environmental impacts of corporate financing, decarbonisation of the
new legislations on matter economy, smart cities, circular economy
Compliance Partial / non-timely application of new rules
Reputational Week brand awareness as a social responsible bank; Implentation of environmental policies
Inconsistency with the Code of Ethics
10. Financial inclusion Non performing loans Credit Loan detorioration and non perfoming growth rates Credit risk management models Social risks Social impacts
Loan accessibility Exclusion
Reputational Week brand awareness as a social responsible bank; Implementation of financial inclusion solutions
Inconsistency with the Code of Ethics
11. Financial education Week participation to national goals in matter; Compliance Customer compliants concerning product and service information Social risks Social impacts
Non-timely application of compliance Information asymmetry, customer awareness Financial literacy, economic inclusion of underprivileged segments of
procedures the society
Reputational Week brand awareness as a social responsible bank; Supporting financial education projects in the secondary schools
Inconsistency with the Code of Ethics
Consolidated Report on Operations
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Report on Operations 126
Annexes
2017 ANNUAL REPORT
127 Consolidated Report on Operations
Reconciliation between the reclassified income statement and balance sheet and the
related statutory accounts
BANCA MONTE DEI PASCHI DI SIENA
Reconciliation between the reclassified income statement as at 31 December 2017 and related statutory accounts
Accounts in Reclassified Profit and Loss Statement - Montepaschi
31/12/17 Accounts in the Profit and Loss Statement - Montepaschi Group 31/12/17 Operating Reclassifications ########
Group
Net interest income 1,788.3 Interest income and similar revenues Item 10 2,703.5 (+) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) 12.4
Interest expense and similar charges Item 20 -927.6
2017 ANNUAL REPORT
Net fee and commission income 1,576.5 Fee and commission income Item 40 1,907.3
Fee and commission expense Item 50 -343.6 12.8
Income from banking activities 3,364.8 3,339.6 25.2
Dividends, similar income and gains (losses) on equity investments 101.0 Dividends and similar income Item 70 15.3 (-) Reclassification of dividends on treasury stock transactions Item 70 - Partial -6.2
(+) Portion of profit from equity investments (Gruppo AXA) Item 240 - Partial 91.9
Net profit (loss) from trading and financial assets/liabilities 574.8 Net profit (loss) from trading Item 80 -6.0 (+) Reclassification of dividends on treasury stock transactions Item 70 - Partial 6.2
Gains/losses on disposal/repurchase of: Item 100 578.0
a) loans 1.4
b) financial assets available for sale 75.8
c) held to maturity investments
d) financial liabilities 500.8
Net profit (loss) from financial assets and liabilities Item 110 -3.4
Net profit (loss) from hedging -3.7 Net profit (loss) from hedging Item 90 -3.7
Other operating income (expenses) -11.3 Other income/expenses Item 220 311.9 (-) Recovery of stamp duty and customers’ expenses Item 220 - Partial -323.2
Total Revenues 4,025.6 4,231.7 -206.1
Administrative expenses: -2,279.6 Administrative expenses -3,083.0
Consolidated Report on Operations
a) personnel expenses -1,575.4 a) Personnel expenses Item 180a -1,857.2 (+) Restructuring charges item 180a - Partial 281.8
b) other administrative expenses -704.3 b) Other administrative expenses Item 180b -1,225.8 (+) Reclassification provision to BRRD and DGSD funds Item 180b - Partial 91.9
(+) Recovery of stamp duty and customers’ expenses Item 220 - Partial 323.2
(+) Restructuring charges Item 180b - Partial 35.5
(+) DTA fee Item 220 - Partial 70.9
Net adjustments to (recoveries on) property, plant and equipment / Net Net losses/reversal on impairment on property, plant
-263.4 Item 200 -133.1
adjustments to (recoveries on) intangible assets and equipment
Net adjustments to (recoveries on) intangible assets Item 210 -156.1 (+) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) 25.8
Operating expenses -2,543.0 -3,372.2 829.2
Pre Provision Profit 1,482.6 859.5 623.1
Net impairment losses (reversals) on: -5,460.0 Net impairment losses(reversals) on Item 130 -5,460.0
a) loans -5,323.7 a) loans Item 130a -5,323.7
b) financial assets -136.3 b) financial assets available for sale Item 130b -93.1
d) other financial transactions Item 130d -43.2
Net operating income -3,977.4 -4,600.5 623.1
Net provisions for risks and charges -232.9 Net provisions for risks and charges Item 190 -232.9
Gains (losses) on investments -14.0 Gains (losses) on investments Item 240 77.9 (-) Portion of profit from equity investments (Gruppo AXA) Item 240 - Partial -91.9
Restructuring costs / One-off costs -330.2 (-) Restructuring costs / One-off costs Item 180b - Partial -330.2
Risks and charges related to the SRF, DGS and similar schemes -91.9 Provision to BRRD and DGSD funds Item 180b - Partial -91.9
DTA fee -70.9 (-) DTA fee Item 180b - Partial -70.9
Gains (losses) on disposal of investments 531.2 Gains (losses) on disposal of investments Item 270 531.2
Profit (loss) before tax from continuing operations -4,186.2 -4,224.4 38.2
Tax expense (recovery) on income from continuing
Tax expense (recovery) on income from continuing operations 709.6 Item 290 722.2 (-) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) -12.6
operations
Profit (loss) after tax from continuing operations -3,476.6 -3,502.2 25.6
Profit (loss) after tax from groups of assets held for sale and Profit (loss) after tax from groups of assets held for
Item 310
discontinued operations sale and discontinued operations
Net profit (loss) for the period including non-controlling interests -3,476.6 -3,502.2 25.6
Net profit (loss) attributable to non-controlling interests 0.1 Net profit (loss) attributable to non-controlling interests Item 330 0.1
Profit (loss) for the period before PPA , impairment on goodwill and
-3,476.7 -3,502.3 25.6
intangibles
PPA (Purchase Price Allocation) -25.6 (-) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) -25.6
128
Impairment on goodwill and intangibles Impairment on goodwill and intangibles Item 260
Net profit (loss) for the year -3,502.3 Net profit (loss) for the year -3,502.3 Total 0.0
Reconciliation between the reclassified income statement as at 31 December 2016 and related statutory accounts
129
Accounts in Reclassified Profit and Loss Statement - Montepaschi
31/12/16 Accounts in the Profit and Loss Statement - Montepaschi Group 31/12/16 Operating Reclassifications 31/12/16
Group
Net interest income 2021.3 Interest income and similar revenues Item 10 3317.2 (+) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) 19.3
Interest expense and similar charges Item 20 -1315.2
Net fee and commission income 1839.4 Fee and commission income Item 40 2132.3
Fee and commission expense Item 50 -293.0
Margine intermediazione primario 3860.7 3841.3 19.3
Dividends, similar income and gains (losses) on equity investments 77.8 Dividends and similar income Item 70 13.5 (-) Reclassification of dividends on treasury stock transactions Item 70 - Partial -3.4
(+) Portion of profit from equity investments (Gruppo AXA) Item 240 - Partial 67.7
Net profit (loss) from trading and financial assets/liabilities 441.2 Net profit (loss) from trading Item 80 177.0 (+) Reclassification of dividends on treasury stock transactions Item 70 - Partial 3.4
Gains/losses on disposal/repurchase of: Item 100 161.5
a) loans 1.0
b) financial assets available for sale 108.4
c) held to maturity investments
d) financial liabilities 52.1
Net profit (loss) from financial assets and liabilities designated at fair value Item 110 99.3
Net profit (loss) from hedging -82.0 Net profit (loss) from hedging Item 90 -82.0
Other operating income (expenses) -15.7 Other income/expenses (net) from insurance activities Item 220 328.5 (-) Recovery of stamp duty and customers’ expenses Item 220 - Partial -344.2
Total Revenues 4282.0 4539.1 -257.2
Administrative expenses: -2402.5 Administrative expenses -3175.2
a) personnel expenses -1610.5 a) Personnel expenses Item 180a -1727.5 (+) Restructuring charges Item 180a - Partial 117.0
b) other administrative expenses -792.0 b) Other administrative expenses Item 180b -1447.7 (+) Reclassification provision to BRRD and DGSD funds item 180b Partial 241.1
(+) Recovery of stamp duty and customers’ expenses Item 220 - Partial 344.2
(+) DTA fee Item 220 - Partial 70.4
Net adjustments to (recoveries on) property, plant and equipment / Net adjustments
-218.8 (recoveries
toNet on) intangible
losses/reversal assets on property, plant and equipment
on impairment Item 200 -111.8
Net adjustments to (recoveries on) intangible assets Item 210 -134.6 (+) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) 27.6
Operating expenses -2621.3 -3421.6 800.3
Pre Provision Profit 1660.7 1117.5 543.1
Net impairment losses (reversals) on: -4500.9 Net impairment losses(reversals) on Item 130 -4500.9
a) loans -4467.0 a) loans Item 130a -4467.0
b) financial assets -33.9 b) financial assets available for sale Item 130b -41.8
d) other financial transactions Item 130d 7.9
Net operating income -2840.2 -3383.4 543.1
Net provisions for risks and charges 44.4 Net provisions for risks and charges Item 190 44.4
Gains (losses) on investments 11.8 Gains (losses) on investments Item 240 79.5 (-) Portion of profit from equity investments (Gruppo AXA) Item 240 - Partial -67.7
Restructuring costs / One-off costs -117.0 (-) Restructuring costs / One-off costs Item 180a - Partial -117.0
Risks and charges related to the SRF, DGS and similar schemes -241.1 (-) .Reclassification provision to BRRD and DGSD funds Voce 180b - Partial -241.1
Dta fee -70.4 (-) Dta fee Voce 180b - Partial -70.4
Gains (losses) on disposal of investments 33.2 Gains (losses) on disposal of investments Item 270 33.2
Profit (loss) before tax from continuing operations -3179.3 -3226.3 46.9
Tax expense (recovery) on income from continuing operations -20.7 Tax expense (recovery) on income from continuing operations Item 290 -5.2 (-) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) -15.5
Profit (loss) after tax from continuing operations -3200.0 -3231.5 31.4
Profit (loss) after tax from groups of assets held for sale and Profit (loss) after tax from groups of assets held for sale and discontinued
Item 310
discontinued operations operations
Consolidated Report on Operations
Net profit (loss) for the period including non-controlling interests -3200.0 -3231.5 31.4
Net profit (loss) attributable to non-controlling interests 9.7 Net profit (loss) attributable to non-controlling interests Item 330 9.7
Profit (loss) for the period before PPA , impairment on goodwill
-3209.7 -3241.2 31.4
and intangibles
PPA (Purchase Price Allocation) -31.4 (-) Economic effects from allocation of BAV acquisition costs to BMPS (PPA) -31.4
Impairment on goodwill and intangibles Impairment on goodwill and intangibles (-)
BANCA MONTE DEI PASCHI DI SIENA
Net profit (loss) for the year -3241.1 Net profit (loss) for the year -3241.2 Total 0.0
Consolidated Report on Operations 130
Reconciliation between the reclassified balance sheet and related statutory accounts
Balance-sheet Items - Assets 31/12/17 31/12/16 Reclassified balance-sheet items - Assets
4,092.3 1,084.5 Cash and cash equivalents
Item 10 − Cash and cash equivalents 4,092.3 1,084.5
Receivables
86,456.3 106,692.7 a) Loans to customers
Item 70 − Loans to customers 86,456.3 106,692.7
9,966.2 8,936.2 b) Loans to banks
Item 60 − Loans to banks 9,966.2 8,936.2
24,168.4 25,929.3 Marketable assets
Item 20 − Financial assets held for trading 8,718.0 9,266.2
Item 30 − Financial assets designated at fair value - -
Item 40 − Financial assets available for sale 15,450.4 16,663.1
- - Financial assets held to maturity
Item 50 − Held to maturity investments - -
1,034.6 1,031.7 Equity investments
Item 100 − Equity investments 1,034.6 1,031.7
2,854.2 2,942.9 Property, plant and equipment / Intangible assets
Item 120 − Property, plant and equipment 2,571.0 2,597.4
Item 130 − Intangible assets 283.2 345.5
10,582.2 6,561.2 Other assets
Item 80 − Hedging Derivatives 156.5 327.3
Item 90 − Change in value of macro-hedged financial assets (+/-) 57.3 113.3
Item 140 − Tax assets 3,815.3 4,147.5
Item 150 − Non-current assets held for sale and discontinued
4,595.1 60.7
operations
Item 160 − Other assets 1,958.0 1,912.4
Total Assets 139,154.2 153,178.5 Total Assets
Balance-sheet Items - Liabilities 31/12/17 31/12/16 Reclassified balance-sheet items - Liabilities
Payables
97,801.8 104,573.5 a) Deposits from customers and securities issued
Item 20 − Deposits from customers 77,014.2 80,702.8
Item 30 − Debt securities issued 20,461.3 22,347.5
Item 50 − Financial liabilities designated at fair value 326.3 1,523.2
21,084.9 31,469.1 b) Deposits from banks
Item 10 − Deposits from banks 21,084.9 31,469.1
4,476.9 4,971.8 Financial liabilities held for trading
Item 40 − Financial liabilities held for trading 4,476.9 4,971.8
- - Provisions for specific use
Item 110 − Provision for employee severance pay 199.5 252.9 a) Provision for employee severance pay
Item 120 - Provisions for risks and charges - a) pension and similar
50.1 53.6 b) Provision for pension
obligations
Item 120 - Provisions for risks and charges - b) other provisions 1,088.4 1,054.5 c) Other provisions
4,021.2 4,342.7 Other liabilities
Item 60 − Hedging Derivatives 691.4 1,018.3
Item 70 − Change in value of macro-hedged financial liabilities (0.8) -
Item 80 − Tax liabilities 58.6 75.3
Item 90 − Liabilities associated to disposal groups held for sale - 10.4
Item 100 − Other liabilities 3,272.0 3,238.7
10,429.1 6,425.5 Group net equity
Item 140 − Valuation reserves 51.7 47.3 a) Valuation reserves
Item 150 − Redeemable shares - - b) Redeemable shares
Item 160 − Equity instruments - - c) Capital instruments
Item 170 − Reserves 3,864.8 2,253.6 d) Reserves
Item 180 − Share premium reserve - - e) Share premium reserves
Item 190 − Share Capital 10,328.6 7,365.7 f) Share capital
Item 200 − Treasury shares (-) (313.7) - g) Treasury shares (-)
Item 220 − Profit (loss) for the year (+/-) (3,502.3) (3,241.1) h) Profit (loss) for the year
2.3 34.9 Non-controlling interests
Item 210 − Non-controlling interests (+/-) 2.3 34.9
Total liabilities and shareholders' equity 139,154.2 153,178.5 Total liabilities and shareholders' equity
2017 ANNUAL REPORT
131
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet ....................................................................................................................................... 133
Consolidated income statement ................................................................................................................................. 135
Consolidated statement of comprehensive income ....................................................................................................... 136
Consolidated Statement of changes in equity – 2017 ................................................................................................ 137
Consolidated Statement of changes in equity – 2016 ................................................................................................ 140
Consolidated cash flow statement - indirect method ................................................................................................... 142
BANCA MONTE DEI PASCHI DI SIENA
132
2017 ANNUAL REPORT
133 Consolidated financial statements - Consolidated balance sheet
Consolidated balance sheet
Assets 31 12 2017 31 12 2016
10 Cash and cash equivalents 4,092,307 1,084,510
20 Financial assets held for trading 8,717,994 9,266,150
40 Financial assets available for sale 15,450,436 16,663,117
60 Loans to banks 9,966,212 8,936,239
70 Loans to customers 86,456,407 106,692,711
80 Hedging derivatives 156,485 327,349
90 Change in value of macro-hedged financial assets (+/-) 57,346 113,300
100 Equity investments 1,034,644 1,031,678
120 Property, plant and equipment 2,571,012 2,597,434
130 Intangible assets 283,235 345,513
of which: goodwill 7,900 7,900
140 Tax assets 3,815,294 4,147,512
a) current 878,511 850,737
b) deferred 2,936,783 3,296,775
under Law 214/2011 1,313,058 2,367,240
Non-current assets and groups of assets held for sale and
150 4,595,135 60,684
discontinued operations
160 Other assets 1,957,685 1,912,269
Total assets 139,154,192 153,178,466
BANCA MONTE DEI PASCHI DI SIENA
Consolidated financial statements - Consolidated balance sheet 134
continued: Consolidated balance sheet
Total Liabilities and Shareholders' Equity 31 12 2017 31 12 2016
10 Deposits from banks 21,084,916 31,469,061
20 Deposits from customers 77,014,177 80,702,762
30 Debt securities issued 20,461,300 22,347,465
40 Financial liabilities held for trading 4,476,907 4,971,802
50 Financial liabilities designated at fair value 326,279 1,523,223
60 Hedging derivatives 691,368 1,018,291
70 Fair value change of financial liabilities in hedged portfolios (+/-) (788) -
80 Tax liabilities 58,633 75,342
a) current 1,255 5,292
b) deferred 57,378 70,050
Liabilities associated with non-current assets held for sale and
90 - 10,402
discontinued operations
100 Other liabilities 3,272,036 3,238,931
110 Provision for employee severance pay 199,498 252,858
120 Provisions for risks and charges: 1,138,492 1,108,054
a) post-employment benefits 50,129 53,582
b) other provisions 1,088,363 1,054,472
140 Valuation reserves 51,705 47,251
170 Reserves 3,864,821 2,253,601
190 Share capital 10,328,618 7,365,674
200 Treasury shares (-) (313,710) -
210 Non-controlling interests (+/-) 2,279 34,859
220 Profit (loss) (+/-) (3,502,339) (3,241,110)
Total Liabilities and Shareholders' Equity 139,154,192 153,178,466
2017 ANNUAL REPORT
135 Consolidated financial statements - Consolidated income statement
Consolidated income statement
Items 31 12 2017 31 12 2016
10 Interest income and similar revenues 2,703,491 3,317,233
20 Interest expense and similar charges (927,575) (1,315,216)
30 Net interest income 1,775,916 2,002,017
40 Fee and commission income 1,907,271 2,132,321
50 Fee and commission expense (343,588) (292,965)
60 Net fee and commission income 1,563,683 1,839,356
70 Dividends and similar income 15,320 13,506
80 Net profit (loss) from trading (6,010) 177,045
90 Net profit (loss) from hedging (3,735) (81,952)
100 Gains/(losses) on disposal/repurchase of: 577,959 161,501
a) loans 1,400 1,003
b) financial assets available for sale 75,786 108,382
d) financial liabilities 500,773 52,116
Net profit (loss) from financial assets and liabilities designated at
110 (3,358) 99,322
fair value
120 Net interest and other banking income 3,919,775 4,210,795
130 Net impairment (losses)/reversals on (5,459,986) (4,500,890)
a) loans (5,323,687) (4,467,024)
b) financial assets available for sale (93,082) (41,762)
d) other financial transactions (43,217) 7,896
140 Net income from banking activities (1,540,211) (290,095)
180 Administrative expenses: (3,083,001) (3,175,247)
a) personnel expenses (1,857,161) (1,727,543)
b) other administrative expenses (1,225,840) (1,447,704)
190 Net provisions for risks and charges (232,884) 44,428
200 Net adjustments to/recoveries on property, plant and equipment (133,135) (111,822)
210 Net adjustments to/recoveries on intangible assets (156,130) (134,630)
220 Other operating expenses/income 311,879 328,533
230 Operating expenses (3,293,271) (3,048,738)
240 Gains (losses) on investments 77,904 79,453
270 Gains (losses) on disposal of investments 531,181 33,195
280 Profit (loss) before tax from continuing operations (4,224,397) (3,226,185)
290 Tax (expense)/recovery on income from continuing operations 722,152 (5,187)
300 Profit (loss) after tax from continuing operations (3,502,245) (3,231,372)
320 Profit (loss) (3,502,245) (3,231,372)
330 Profit (loss) attributable to non-controlling interests 94 9,738
340 Parent company's net profit (loss) (3,502,339) (3,241,110)
31 12 2017 31 12 2016
Basic Earnings per Share (Basic EPS) (7.299) (110.545)
of continuing operations (7.299) (110.545)
Diluted Earnings per Share (Diluted EPS) (7.299) (110.545)
of continuing operations (7.299) (110.545)
BANCA MONTE DEI PASCHI DI SIENA
Consolidated financial statements - Consolidated statement of comprehensive income 136
Consolidated statement of comprehensive income
Items 31 12 2017 31 12 2016
10 Profit (loss) (3,502,245) (3,231,372)
Other comprehensive income after tax not recycled to profit and
(115,168) (8,868)
loss
40 Actuarial gains (losses) on defined benefit plans 3,666 (8,234)
50 Non current assets held for sale 83 (83)
60 Share of valuation reserves of equity-accounted investments 227 (551)
Finacial liabilities measured at fair value with impact to profit and
65 (119,144) -
loss
Other comprehensive income after tax recycled to profit and loss (28,462) 77,943
80 Exchange differences (6,043) 1,364
90 Cash flow hedges 26,165 110,202
100 Financial assets available for sale 24,446 (137,075)
110 Non current assets held for sale (15,430) (4,107)
120 Share of valuation reserves of equity-accounted investments (57,600) 107,559
130 Total other comprehensive income after tax (143,630) 69,075
140 Total comprehensive income (Item 10+130) (3,645,875) (3,162,297)
Consolidated comprehensive income attributable to non-
150 94 9,745
controlling interests
Consolidated comprehensive income attributable to Parent
160 (3,645,969) (3,172,042)
Company
2017 ANNUAL REPORT
137
Consolidated Statement of changes in equity – 2017
Allocation of Changes during the year
profit from prior
year Shareolders'equity transactions
31 12 2017
31 12 2017
31 12 2017
31 12 2017
Total equity as at
income for
shares
payout
Group equity as at
Reserves
dividends
derivatives
instruments
investments
Balance as at 31 12 2016
Balance as at 01 01 2017
Extraordinary
Stock options
distribution of
Changes in reserves
Treasury shares
Total comprehensive
Change in equity
Change in opening balances
Changes in equity
Non-controlling interest as at
Issue of new share
Purchase of treasury
Dividends and other
Share capital: 7,379,059 - 7,379,059 - - (5,376,535) 8,327,125 - - - - - (59) - 10,329,590 10,328,618 972
a) ordinary shares 7,379,059 - 7,379,059 - - (5,376,535) 8,327,125 - - - - - (59) - 10,329,590 10,328,618 972
b) other shares - - - - - - - - - - - - - - - - -
Share premium 195 - 195 - - (177) - - - - - - - - 18 - 18
Reserves: 2,263,901 (150,529) 2,113,372 (3,231,474) - 4,986,802 (3,923) - - - - - - - 3,864,778 3,864,821 (44)
a) from profits 984,832 (150,529) 834,303 (1,832,754) - 2,479,360 - - - - - - - - 1,480,910 1,480,954 (44)
b) other 1,279,069 - 1,279,069 (1,398,720) - 2,507,442 (3,923) - - - - - - - 2,383,868 2,383,868 -
Valuation reserves 48,491 150,529 199,020 - - (2,445) - - - - - - - (143,630) 52,945 51,705 1,240
Equity instruments - - - - - - - - - - - - - - - - -
Treasury shares - - - - - - (313,710) - - - - - - - (313,710) (313,710) -
Net profit (loss) (3,231,372) - (3,231,372) 3,231,475 (103) - - - - - - - - (3,502,245) (3,502,245) (3,502,339) 94
Total equity 6,460,274 - 6,460,274 - (103) (392,355) 8,009,493 - - - - - (59) (3,645,875) 10,431,375 10,429,096 2,279
Group equity 6,425,416 - 6,425,416 - - (359,843) 8,009,493 - - - - - - (3,645,969) 10,429,096 10,429,096 X
Non-controlling interests 34,859 - 34,859 - (103) (32,512) - - - - - - (59) 94 2,279 X 2,279
Consolidated financial statements - Consolidated Statement of changes in equity - 2017
BANCA MONTE DEI PASCHI DI SIENA
Consolidated financial statements - Consolidated Statement of changes in equity - 2017 138
As at 31 December 2017 the Group’s net equity, including non-controlling interests and profit for the year, amounted to
EUR 10,431.4 mln, as compared to EUR 6,460.3 mln as at 31 December 2016, with a total increase of EUR 3,971.1 mln.
Please note that the column “Changes in opening balances” includes the impact deriving from the early application of IFRS 9,
limited to the treatment of the creditworthiness of fair value option financial liabilities (for additional information, please refer
to the “Accounting policies” section).
The most significant phenomena impacting the net equity, in addition to the EUR 3,502.2 mln loss for the year, were the
following.
1. The part of the loss for the year 2016 attributable to the Parent Company, equal to EUR 3,231.5 mln, was covered
to the extent of EUR 1,398.7 mln during the same year through a share capital reduction in the corresponding
amount in accordance with the shareholders’ resolution of 24 November 2016 and by carrying forward the
remaining EUR 1,832.8 mln.
2. The Parent Company’s share capital increase was completed in August 2017 following the issue on 27 July 2017 of
the Ministry of Economy and Finance (“MEF”) decrees relating to:
“Capital strengthening initiatives of Banca Monte dei Paschi di Siena, pursuant to art. 18, paragraph 2 of Law
Decree no. 237 of 23 December 2016 converted, with amendments, by Law no. 15 of 17 February 2017” and
“Capital strengthening initiatives of Banca Monte dei Paschi di Siena, pursuant to art. 18, paragraph 3 of Law
Decree no. 237 of 23 December 2016 converted, with amendments, by Law no. 15 of 17 February 2017”,
published in Official Gazette no. 175 on 28 July 2017.
These decrees provided for:
an increase in the Parent Company’s share capital, in the amount of EUR 4,472.9 mln, through the issue of
517,099,404 ordinary shares fully subscribed as a result of the conversion into ordinary shares of the AT1 and
T2 bond issues; and
an increase in the Parent Company’s share capital for the subscription of 593,869,870 shares by the MEF, for a
total of EUR 3,854.2 mln.
As a result of the above-mentioned events, the changes laid out below took place.
“New share issue” column:
the item “Share capital - a) ordinary shares” increased by a total of EUR 8,327.1 mln;
the item Reserves “other” decreased by EUR 3.9 mln due to the costs of the share capital increase, net of the
relative taxes;
the item “Treasury shares”, a negative component of net equity, rose by EUR 313.7 mln, associated with the
conversion of the AT1 and T2 bond issues present in the balance sheet assets of the Parent Company and of
the subsidiary MPS Capital Services S.p.A.
“Changes in reserve” column:
“Share capital - a) ordinary shares”: the reduction of EUR 5,376.5 mln due to:
a. EUR 5,364.2 mln in relation to the shareholders’ resolution passed by the Parent Company on 18
December 2017 relating to the coverage of the total loss of EUR 5,364.2 mln (of which EUR 2,506.0
mln referring to the loss recognised as at 30 September 2017, EUR 534.1 mln for other equity
adjustments and lastly EUR 2,324 mln concerning previous losses) by reducing the share capital by a
corresponding amount;
b. EUR 12.3 mln in relation to the loss of control during the period over the company CO.E.M.
Costruzioni Ecologiche Moderne S.p.A.;
“Share premium reserve”: the reduction of EUR 0.2 mln was due primarily to the share capital increase carried
out in November 2017 by the subsidiary MPS Capital Services S.p.A. and subscribed in full by the Parent
Company;
“Reserves - a) from profits”: the increase in group net equity by a total of EUR 2,479.4 mln is attributable to
the Parent Company to the extent of EUR 2,479.1 mln, specifically:
a. the increase of EUR 2,485.5 mln due to the coverage of previous losses, equal to EUR 2,324 mln,
and of part of the adjustments made to net equity;
b. the decrease generated during the year of EUR 360.1 mln for the recognition of the difference
between the fair value of the ordinary shares assigned to holders of the AT1 and T2 bond issues
subject to conversion and the value of conversion into share capital. This reserve was covered by
the Parent Company in the course of the same year for EUR 371.2 mln;
c. the increase of EUR 51.8 mln deriving from the closure of the creditworthiness reserve of the fair
value option liabilities involved in the conversion into ordinary shares;
d. the decrease of EUR 51.7 mln due to the taxes previously recognised on negative components of
net equity, which translated into a tax loss with unrecognisable DTAs;
2017 ANNUAL REPORT
139 Consolidated financial statements - Consolidated Statement of changes in equity - 2017
e. EUR 2.4 mln relates primarily to the disposal of a property by the subsidiary MPS Belgio S.A. The
item also includes the decline in non-controlling interests by EUR 20.1 mln, due to the loss of
control during the period over the company CO.E.M. Costruzioni Ecologiche Moderne S.p.A.;
“Reserves - b) other”: coverage of the loss of the Parent Company recognised as at 30 September 2017 for
EUR 2,506 mln and of part (EUR 1.4 mln) of the costs incurred by the Parent Company for the share capital
increase;
“Valuation Reserves”: the amount of EUR 2.4 mln is due to the reversal of the FTA reserve recognised in the
past following the disposal of the property of the subsidiary MPS Belgio S.A.
“Valuation reserves” show overall a negative change amounting to EUR 143.6 mln, the details of which are available in the
statement of comprehensive income.
The decrease of EUR 32.6 mln in non-controlling interests is almost entirely due to the loss of control over the company
CO.E.M. Costruzioni Ecologiche Moderne S.p.A.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated Statement of changes in equity – 2016
2017 ANNUAL REPORT
Allocation of Changes during the year
profit from prior
year Shareolders'equity transactions
31 12 2016
31 12 2016
31 12 2016
31 12 2016
Total equity as at
income for
share
Group equity as at
Reserves
dividends
Balance as at 31 12 2015
Balance as at 01 01 2016
derivatives
instruments
investments
Purchase of
other payout
Issue of new
Changes in reserves
Extraordinary
Stock options
Total comprehensive
distribution of
treasury shares
Dividends and
Change in opening balances
Treasury shares
Non-controlling interest as at
Change in equity
Changes in equity
Share capital: 9,015,184 - 9,015,184 - - (1,636,083) - - - - - - (42) - 7,379,059 7,365,674 13,385
a) ordinary shares 9,015,184 - 9,015,184 - - (1,636,083) - - - - - - (42) - 7,379,059 7,365,674 13,385
b) other shares - - - - - - - - - - - - - - - - -
Share premium 6,538 - 6,538 (6,325) - (18) - - - - - - - - 195 - 195
Reserves: 231,700 - 231,700 396,092 - 1,636,134 - - - - - - (25) - 2,263,901 2,253,601 10,300
a) from profits 440,147 - 440,147 307,322 - 237,363 - - - - - - - - 984,832 974,532 10,300
b) other (208,447) - (208,447) 88,770 - 1,398,771 - - - - - - -25 - 1,279,069 1,279,069 -
Valuation reserves (20,584) - (20,584) - - - - - - - - - - 69,075 48,491 47,251 1,240
Equity instruments - - - - - - - - - - - - - - - - -
Consolidated financial statements - Consolidated Statement of changes in equity - 2016
Treasury shares - - - - - - - - - - - - - - - - -
Net profit (loss) 389,868 - 389,868 (389,767) (101) - - - - - - - - -3,231,372 (3,231,372) (3,241,110) 9,738
Total equity 9,622,706 - 9,622,706 - (101) 33 - - - - - - (67) (3,162,297) 6,460,274 6,425,416 34,859
Group equity 9,596,447 - 9,596,447 - - 51 - - - - - - 960 (3,172,042) 6,425,416 6,425,416 X
Non-controlling interests 26,259 - 26,259 - (101) (18) - - - - - - -1,027 9,745 34,859 X 34,859
140
141 Consolidated financial statements - Consolidated Statement of changes in equity - 2016
As at 31 December 2016 the Group’s net equity, including non-controlling interests and profit for the year, amounted to
EUR 6,460.3 mln, as compared to EUR 9,622.7 mln as at 31 December 2015, with a total decrease of EUR 3,162.4 mln.
The most significant phenomena impacting the net equity, in addition to the EUR 3,231.4 mln loss for the year, were:
the profit of 2015, amounting to EUR 389.9 mln, for the portion attributed to the Parent Company, was used to
cover losses, in compliance with the resolution issued by the Shareholders’ Meeting on 14 April 2016;
in November 2016, the extraordinary Shareholders’ Meeting of the Parent Company, taking into account (i) the
financial position as at 30 September 2016 and the resulting losses for the period of EUR 1,398.7 mln, as well as (ii)
prior losses of EUR 237.4 mln (carried forward on the basis of shareholders’ meeting resolution of 14 April 2016),
decided to approve the coverage of the total loss of EUR 1,636.1 mln by means of a corresponding reduction in the
share capital, which therefore amounts to EUR 7,379.1 mln;
the column “Changes in equity investments” includes the decrease in non-controlling interests referring to the
upward change of the investment held by the Parent Company in the subsidiary MPS Capital Services S.p.A., in
execution of its share capital increase finalised in February 2016;
valuation reserves show overall a positive change amounting to EUR 69.1 mln, the details of which are available in
the Consolidated statement of comprehensive income;
non-controlling interests is up by EUR 8.6 mln, as a result of the combination of what was discussed at point 3 and
the comprehensive income for the year.
BANCA MONTE DEI PASCHI DI SIENA
Consolidated financial statements - Consolidated cash flow statement – indirect method 142
Consolidated cash flow statement - indirect method
A. OPERATING ACTIVITIES 31 12 2017 31 12 2016
1. Cash flow from operations 1,092,447 810,144
profit (loss) (+/-) (3,502,245) (3,231,372)
capital gains/losses on financial assets held for trading and on
59,997 (419,482)
assets/liabilities designated at fair value (+/-)
net profit (loss) from hedging 3,735 81,952
net impairment losses/reversals 5,077,222 4,244,435
net losses/reversal on impairment on property, plant and equipment and
289,265 246,452
on intangible assets (+/-)
net provisions for risks and charges and other costs/revenues (+/-) 245,256 (33,785)
tax espense (recovery) on income from continuing operations (722,294) 5,187
other adjustments (358,489) (83,243)
2. Cash flow from (used in) financial assets 12,298,863 11,829,916
financial assets held for trading 424,957 8,998,173
financial assets available for sale 963,429 631,232
loans to banks: on demand (1,019,181) (706,775)
loans to customers 11,078,497 463,128
other assets 851,161 2,444,158
3. Cash flow from (used in) financial liabilities (14,263,427) (12,763,722)
deposits from banks: on demand (10,384,144) 13,975,951
depostits from customers (3,688,585) (7,103,567)
debt securities issued 2,389,493 (7,031,378)
financial liabilities held for trading (462,159) (10,891,122)
financial liabilities designated at fair value (1,011,961) (436,977)
other liabilities (1,106,071) (1,276,629)
Net cash flow from (used in) operating activities (872,117) (123,662)
B. INVESTMENT ACTIVITIES
1. Cash flow from 575,579 201,727
sales of equity investments 20,000 13,430
dividends collected on equity investments 20,024 57,085
sales of property, plant and equipment 9,287 130,762
sales of intangible assets 918 450
sales of subsidiaries and undertakings 525,350 -
2. Cash flow used in (185,711) (182,215)
purchase of property, plant and equipment (90,915) (106,717)
purchase of intangible assets (94,796) (75,498)
Net cash flow from (used in) investment activities 389,868 19,512
2017 ANNUAL REPORT
143 Consolidated financial statements - Consolidated cash flow statement – indirect method
C. FUNDING ACTIVITIES
issue/purchase of treasury shares 3,850,292 -
dividend distribution and other (360,246) (101)
Net cash flow from (used in) funding activities 3,490,046 (101)
NET CASH FLOW FROM (USED IN) OPERATING, INVESTMENT
3,007,797 (104,251)
AND FUNDING ACTIVITIES DURING THE YEAR
Reconciliation
Accounts 31 12 2017 31 12 2016
Cash and cash equivalents at beginning of period 1,084,510 1,188,761
Net increase (decrease) in cash and cash equivalents 3,007,797 (104,251)
Cash and cash equivalents at end of period 4,092,307 1,084,510
The “distribution of dividends and other purposes” line - in section C. Funding activities - shows the
difference between the fair value of the ordinary shares assigned to holders of the AT1 and T2
financial instruments subject to conversion, in compliance with the provisions of art. 23, paragraph 3
of Law Decree n. 237, as well as art. 2 of the Burden Sharing Decree, and the value of conversion into
share capital.
For further information on the net cash flow generated/absorbed during the year, please refer to the
section “Liquidity Risk” in Part E “Information on risks and hedging policies”.
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Part A – Accounting policies .................................................................................................................................. 147
Part B – Information on the balance sheet ............................................................................................................... 207
Part C – Information on the consolidated income statement ...................................................................................... 295
Part D – Consolidated statement of comprehensive income........................................................................................ 319
Part E – Information on risks and hedging policies ................................................................................................. 323
Part F – Information on consolidated shareholders’ equity ........................................................................................ 451
Part G – Business combinations .............................................................................................................................. 471
Part H – Related-party transactions........................................................................................................................ 475
Part I – Share-Based Payments............................................................................................................................... 487
Part L – Segment reporting ..................................................................................................................................... 491
Public disclosure pursuant to art. 89 - Communication by country of Directive 2013/36/EU (“CRD IV”) ......... 499
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
147
Part A – Accounting policies
A.1 – General ................................................................................................................................................................................................... 149
Section 1 - Statement of compliance with international accounting principles ............................................................. 149
Section 2 - General accounting standards.............................................................................................................................. 150
Section 3 – Scope and methods of consolidation ................................................................................................................ 153
Section 4 – Events after the Reporting Period ..................................................................................................................... 159
Section 5 – Other matters ........................................................................................................................................................ 159
A.2 – The main items of the accounts ........................................................................................................................................................ 167
Accounting standards................................................................................................................................................................. 167
1 Financial assets held for trading ........................................................................................................................................... 167
2 Financial assets available for sale .......................................................................................................................................... 168
3 Financial assets held to maturity........................................................................................................................................... 169
4 Loans.......................................................................................................................................................................................... 169
5 Financial assets designated at fair value .............................................................................................................................. 172
6 Hedging transactions .............................................................................................................................................................. 172
7 Equity investments .................................................................................................................................................................. 174
8 Property, plant and equipment ............................................................................................................................................. 174
9 Intangible assets ....................................................................................................................................................................... 175
10 Non-current assets held for sale ......................................................................................................................................... 176
11 Current and deferred tax...................................................................................................................................................... 177
12 Provisions for risks and charges ......................................................................................................................................... 180
13 Liabilities and debt securities issued .................................................................................................................................. 181
14 Financial liabilities held for trading .................................................................................................................................... 181
15 Financial liabilities designated at fair value....................................................................................................................... 182
16 Foreign-currency transactions ............................................................................................................................................ 183
17 Other information ................................................................................................................................................................. 184
A.3 Information on portfolio transfers ....................................................................................................................................................... 195
A.3.1 Reclassified financial assets: book value, fair value and effects on comprehensive income ............................. 195
A.3.2 Reclassified financial assets: effects on comprehensive income ............................................................................. 196
A.3.3 Transfer of financial assets held for trading ............................................................................................................... 196
A.3.4 Effective interest rate and expected cash flows from reclassified financial assets .............................................. 196
A.4 – Information on fair value .................................................................................................................................................................... 197
A.4.1.a Fair value level 2: measurement techniques and inputs used ............................................................................... 197
A.4.1.b Fair value level 3: measurement techniques and inputs used............................................................................... 198
A.4.2 Measurement processes and sensitivity ....................................................................................................................... 199
A.4.3 Fair value hierarchy.......................................................................................................................................................... 200
A.4.4 Other information ........................................................................................................................................................... 202
A.4.5 Fair value hierarchy.......................................................................................................................................................... 202
A.5 Information on “day one profit/loss” ....................................................................................................................................................... 206
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
149 Notes to the consolidated financial statements - Part A - Accounting policies
A.1 – General
Section 1 - Statement of compliance with international accounting principles
Pursuant to Legislative Decree no. 38 of 28 February 2005, these consolidated accounts were prepared
in accordance with the international accounting principles issued by the International Accounting
Standards Board (IASB) including interpretations by the IFRS Interpretations Committee, as endorsed
by the European Commission, pursuant to EC Regulation no. 1606 of 19 July 2002 which was
effective as at 31 December 2017.
The international accounting principles were applied following the indications set forth in the
“Framework for the preparation and presentation of financial statements” (the Framework).
Failing a principle or an interpretation specifically applicable to a certain transaction, event or
circumstance, the Bank’s Management used its own judgment in developing and applying the
accounting principles for the purpose of providing a report which is:
relevant for the purpose of economic decision-making by the users;
reliable so that the Financial Statements:
- result in a true and fair view of the Group’s assets, financial position, profit and loss and cash
flows;
- reflect the economic substance -and not merely the juridical form- of transactions, other
events and circumstances;
- are neutral, that is with no prejudice;
- are conservative;
- are complete in all relevant respects.
In its judgment, the Bank’s Management made reference to and took account of the enforceability of
the following provisions, listed in a hierarchically decreasing order:
the provisions and implementation guidance contained in the principles and interpretations dealing
with similar or related cases;
the definitions, recognition and measurement criteria for the accounting of assets, liabilities,
income and expenses contained in the Framework.
In delivering its judgment, the Bank’s Management may also take account of:
the most recent provisions set forth by other entities in charge of establishing the accounting
principles which use a conceptually similar Framework for the purpose of developing the
accounting principles;
other accounting literature;
consolidated practices of the banking industry.
In compliance with art. 5 of Legislative Decree no. 38 of 28 February 2005, if – in exceptional cases –
the application of a provision set forth in the international accounting principles proved to be non-
compliant with a true and fair view of the Group’s balance-sheet, financial situation and profit and loss
statement, then such provision would not be applied. The reasons for deviation and its impact on the
representation of the balance-sheet, financial situation and profit and loss statement, would in such
case be explained in the notes to the financial statements.
In the consolidated financial statements, any profits arising from this deviation are posted to a reserve
which is only distributable in proportion to the value recovered.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 150
Section 2 - General accounting standards
The Consolidated Financial Statements have been prepared in accordance with the IAS/IFRS
International accounting standards issued by the International Accounting Standards Board (IASB)
including the interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC), as endorsed by the European Union and mandatorily applied in the 2017 financial year, with
the exception of partial early adoption by the Group, starting from 1 January 2017, of IFRS 9, limited
to the part regarding the accounting treatment of the profit/loss connected to own creditworthiness of
fair value option liabilities.
Indeed, the IFRS 9 standard allows for the early application before 1 January 2018 of only the
provisions on the presentation of profits and losses on fair value option financial liabilities attributable
to changes in own creditworthiness, without applying the other parts of the standard early. The Group
has decided to take advantage of this early application option.
These provisions establish that the amount of the change in the fair value that is attributable to
changes in the credit risk of the liability shall be presented directly in other comprehensive income,
unless this creates or increases an accounting mismatch in the profit (loss) for the year, in which case
the entire change in fair value of the liability must be presented within profit and loss.
In this regard, the standard establishes that an accounting mismatch is created or expanded when the
presentation of the effects of changes in the credit risk of the liability in other comprehensive income
results in a more significant mismatch in profit and loss than that which would arise by recognising the
entire change in the fair value of the liability in profit and loss.
The standard also establishes that the amount that is recognised in other comprehensive income is not
transferred subsequently to P&L when the liability is settled or extinguished. At the moment of
settlement or extinguishment, the cumulative profit (loss) may be reclassified to other components of
shareholders' equity.
On the basis of the facts and circumstances existing at the date of initial application, the effects of
changes in the credit risk of the liabilities of the Group are not offset in profit and loss by a change in
the fair value of another financial instrument measured at fair value through profit and loss for the
year; as a result, the presentation of changes in own creditworthiness in the Group’s statement of
comprehensive income does not create an accounting mismatch.
The Group also relied on the right not to restate comparative data.
The early adoption of IFRS 9 as at 1 January 2017 with reference to the presentation of changes in
own creditworthiness of the fair value option liabilities entails:
- in terms of determining the retrospective impacts, the formation as at 1 January 2017 of a
positive valuation reserve in the amount of EUR 150.5 mln as a balancing entry to retained
earnings, net of the relative tax effect;
- the attribution as at 31 December 2017 of a negative effect, net of the relative tax effect, of
EUR 119.1 mln to shareholders' equity rather than to profit and loss.
The provisions contained in Circular Letter no. 262 issued by the Bank of Italy concerning the layout
and rules for preparing separate and consolidated financial statements for the banks and the Group
were also applied, as amended by the fourth addendum of 15 December 2015.
The consolidated financial statements consist of the:
Consolidated Balance Sheet;
Consolidated Income Statement;
Consolidated Statement of Comprehensive Income;
Consolidated Statement of Changes in Equity;
Consolidated Cash Flow Statement;
Notes to the Consolidated Financial Statements.
2017 ANNUAL REPORT
151 Notes to the consolidated financial statements - Part A - Accounting policies
The Consolidated Financial Statements are integrated with the Directors’ Report on the operations,
profit and loss and financial position of the Group.
The Consolidated Financial Statements are prepared with transparency and provide a true and fair view
of the balance-sheet, financial position and income statement for the year.
The notes to the consolidated financial statements contain all information required by the international
accounting standards and provisions contained in Bank of Italy Circular Letter no. 262, together with
other non-mandatory information deemed necessary to provide a true and fair, relevant, reliable,
comparable and intelligible view of the Group‘s performance.
The consolidated balance sheet, profit and loss and comprehensive income statements consist of items
(marked with numbers), sub-items (marked with letters) and further details (under “including/of
which” in the items and sub-items). Items, sub-items and their details constitute the accounts.
Each item in the balance sheet, profit and loss account and statement of comprehensive income also
indicates prior year’s amounts. If the items cannot be compared, the items in relation to the prior year
are reclassified; non-comparability, reclassification or impossible reclassification are pointed out and
commented in the notes to the financial statements.
Assets and liabilities, expenses and income cannot be mutually offset, unless this is permitted or
required by the international accounting standards or the provisions set forth in Circular no. 262 of the
Bank of Italy.
The balance-sheet, profit and loss account and statement of comprehensive income do not indicate the
items which do not show any amounts for the year of reference of the financial statements or prior
year. If an item of the assets or liabilities is part of several items of the balance sheet, the notes to the
financial statements indicate – whenever this is necessary for the purpose of intelligibility – that this
component may also be referred to items other than the one it is posted to.
Income is posted with no sign in the profit and loss statement, in the statement of comprehensive
income and the respective section of the notes, whereas expenses are indicated in brackets.
The statement of comprehensive income, beginning with profit (loss) for the year, shows the income
items recognised as contra-entries of valuation reserves, net of the related tax effect, in compliance
with international accounting standards. Consolidated comprehensive income is shown by separating
income items that will not be transferred to the income statement in the future and those that may be
subsequently classified to profit and loss when specific conditions are met. The statement also
distinguishes between income of the parent company and that of non-controlling interests.
The statement of changes in equity shows the breakdown and changes in net equity accounts during
the year and the previous year, broken down between share capital (ordinary and other shares), capital
reserves, profit reserves and reserves from the valuation of assets or liabilities, equity instruments and
profit and loss. Treasury shares in the portfolio are deducted from equity.
The cash flow statement has been prepared according to the indirect method, based on which cash
flows from operations are represented by the income for the year adjusted to take into account the
effects of non-monetary transactions. Cash flows are broken down amongst those deriving from
operations, those deriving from investment activities and those generated by funding activities. In the
statement, cash flows generated during the year have no sign, while those absorbed are shown between
brackets.
In compliance with the provisions of art. 5 of Legislative Decree no. 38 of 28 February 2005, the
financial statements have been prepared using the Euro as the accounting currency: the tables in the
consolidated financial statements and in the consolidated notes are denominated in thousands of Euro.
The consolidated financial statements have been prepared based on a going concern assumption,
according to the generally accepted principles of accrual accounting, relevance and materiality of
information, priority of substance over form and with a view to encouraging consistency with future
statements.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 152
Items of a different nature or with different allocation were recognised separately, unless they were
considered irrelevant. All amounts shown in the financial statements were adjusted so as to reflect any
events subsequent to the date of closing which, according to IAS 10, make it mandatory to make an
adjustment (adjusting events). Non-adjusting events reflecting circumstances that occurred after the
reporting date should be disclosed as part of the Notes to the Financial Statements, Part A, section 4, if
they are of such importance that non-disclosure would affect the ability of users to make proper
evaluations and decisions.
2017 ANNUAL REPORT
153 Notes to the consolidated financial statements - Part A - Accounting policies
Section 3 – Scope and methods of consolidation
1. Investments in subsidiaries
Type of Ownershp Relationship Available
Registered
Name Headquarters relationship votes %
Office Shareholding
(*) Held by (**)
%
A Companies
A.0 BANCA MONTE DEI PASCHI DI SIENA S.p.a. Siena Siena
A.1 Companies consolidated on a line-by-line basis
MPS CAPITAL SERVICES BANCA PER LE IMPRESE
A.1 Florence Florence 1 A.0 99.993
S.p.a.
MPS LEASING E FACTORING BANCA PER I
A.2 SERVIZI Siena Siena 1 A.0 100.000
FINANZIARI ALLE IMPRESE S.p.a.
A.3 MONTE PASCHI FIDUCIARIA S.p.a. Siena Siena 1 A.0 100.000
A.4 WISE DIALOG BANK S.p.a. - WIDIBA Milan Milan 1 A.0 100.000
MPS TENIMENTI POGGIO BONELLI E CHIGI Castelnuovo Castelnuovo
A.5 1 A.0 100.000
SARACINI SOCIETA' AGRICOLA S.p.a. Berardenga (SI) Berardenga (SI)
A.6 G.IMM ASTOR S.r.l. Lecce Lecce 1 A.0 52.000
A.7 AIACE REOCO S.r.l. Siena Siena 1 A.0 100.000
A.8 ENEA REOCO S.r.l. Siena Siena 1 A.0 100.000
CONSORZIO OPERATIVO GRUPPO
A.9 Siena Siena 1 A.0 99.760
MONTEPASCHI
A.1 0.060
A.2 0.030
A.3 0.030
A.4 0.030
99.910
PERIMETRO GESTIONI PROPRIETA' IMMOBILIARI 98.716
A.10 Siena Siena 1 A.0 98.914
S.c.p.a.
A.1 0.120 0.142
A.2 0.049 0.057
A.3 0.012 0.014
A.9 0.905 1.072
100.000
MAGAZZINI GENERALI FIDUCIARI DI MANTOVA
A.11 Mantua Mantua 1 A.0 100.000
S.p.a.
A.12 JULIET S.p.a. Siena Siena 1 A.0 100.000
A.13 BANCA MONTE PASCHI BELGIO S.A. Brussells Brussells 1 A.0 99.900
A.1 0.100
100.000
A.14 MPS PREFERRED CAPITAL I LLC New York Delaware 1 A.0 100.000
A.15 MPS PREFERRED CAPITAL II LLC New York Delaware 1 A.0 100.000
A.16 MPS CAPITAL TRUST I New York Delaware 4
A.17 MPS CAPITAL TRUST II New York Delaware 4
A.18 MONTE PASCHI BANQUE S.A. Paris Paris 1 A.0 100.000
18.1 MONTE PASCHI CONSEIL FRANCE SOCIETE PAR
Paris Paris A.18 100.000
ACTIONS SEMPLIFIEE
18.2 IMMOBILIERE VICTOR HUGO S.C.I. Paris Paris A.18 100.000
A.19 MONTEPASCHI LUXEMBOURG S.A. Luxembourg Luxembourg 1 A.0 99.200
A.18 0.800
100.000
A.20 ANTONVENETA CAPITAL L.L.C. I New York Delaware 1 A.0 100.000
A.21 ANTONVENETA CAPITAL L.L.C. II New York Delaware 1 A.0 100.000
A.22 ANTONVENETA CAPITAL TRUST I New York Delaware 1 A.0 100.000
A.23 ANTONVENETA CAPITAL TRUST II New York Delaware 1 A.0 100.000
A.24 MPS COVERED BOND S.r.l. Conegliano Conegliano 1 A.0 90.000
A.25 MPS COVERED BOND 2 S.r.l. Conegliano Conegliano 1 A.0 90.000
A.26 CIRENE FINANCE S.r.l. Conegliano Conegliano 1 A.0 60.000
A.27 CONSUM.IT SECURITISATION S.r.l. Conegliano Conegliano 1 A.0 100.000
A.28 SIENA MORTGAGES 07-5 S.p.a. Conegliano Conegliano 4 A.0 7.000
A.29 SIENA MORTGAGES 09-6 S.r.l. Conegliano Conegliano 4 A.0 7.000
A.30 SIENA MORTGAGES 10-7 S.r.l. Conegliano Conegliano 4 A.0 7.000
A.31 SIENA CONSUMER S.r.l. Conegliano Conegliano 4 A.0 10.000
A.32 SIENA CONSUMER 2015 S.r.l. Conegliano Conegliano 4 A.0 10.000
A.33 SIENA PMI 2015 S.r.l. Milan Milan 4 A.0 10.000
A.34 SIENA LEASE 2016 2 S.r.l. Conegliano Conegliano 4 A.0 10.000
A.35 SIENA PMI 2016 S.r.l. Conegliano Conegliano 4 A.0 10.000
A.36 CASAFORTE S.r.l. Rome Rome 4 A.0 -
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 154
(*) Type of relationship:
1 = majority of voting rights at ordinary shareholders’ meetings
2 = dominant influence at ordinary shareholders’ meetings
3 = agreements with other shareholders
4 = other forms of control
5 = unified management under art. 26.1. of Leg. Decree 87/92
6 = unified management under art. 26.2. of Leg. Decree 87/92
(**) Votes available in the ordinary shareholders’ meeting, distinguishing between actual and potential
2. Significant assessments and assumptions for determining the scope of consolidation
Scope of consolidation
The consolidated financial statements include the balance sheet and income statement results of the
Parent Company and its direct and indirect subsidiaries. In particular, the scope of consolidation, as
specifically set out in the IAS/IFRS, includes all subsidiaries, irrespective of their legal status, of
business activity pursued in sectors other than the Parent Company’s core business, of their being
going concerns or wound-up companies, or of whether the equity investment consists of a merchant
banking transaction.
The scope of consolidation includes all types of entities, regardless of nature, for which the principle of
control laid out in IFRS 10 applies.
The concept of control is based on the simultaneous presence of three elements:
power to direct the relevant activities, i.e., the activities that affect the investee's returns: the power
arises from substantive rights that give the investor the power to direct the relevant activities; to be
substantive, the rights must be exercisable when decisions about the direction of the relevant
activities need to be made;
exposure to variability of returns deriving from the investee’s activities, which may increase or
decrease.
exercise of power to influence returns.
Structured entities are also consolidated when the requirement of actual control recurs, even if there is
no stake in the entity.
More specifically, IFRS 12 defines structured entities as “entities that have been designed so that
voting or similar rights are not the dominant factor in deciding who controls the entity”, such as when
any voting rights relate to administrative tasks only and the relevant activities are directed by means of
contractual arrangements. Examples of structured entities include securitisation vehicles, asset-backed
financings and some investment funds.
The scope of consolidation may also include parts of a structured entity with no independent legal
status, or so-called “deemed separate entities”. In essence this is a group of well identified assets and
liabilities within a company, characterised by both the fact that: the assets represent the only source of
payment for those specific liabilities and that; third parties cannot claim rights to those specific assets
or on the cash flows they generate.
Equity investments and equity securities
Equity investments and equity securities are considered subject to control if the Group directly or
indirectly holds the absolute majority of voting rights and such rights are substantive, and the relative
majority of voting rights if the other voting rights are held by widely-dispersed shareholders. Control
may also exist in situations in which the Group does not hold the majority of voting rights, but holds
2017 ANNUAL REPORT
155 Notes to the consolidated financial statements - Part A - Accounting policies
sufficient rights to have the practical ability to unilaterally direct relevant activities of the investee or in
the presence of:
substantive potential voting rights through underlying call options or convertible instruments;
rights deriving from other contractual arrangements which, combined with voting rights, give the
Group the de facto ability to direct production processes, other operating or financial activities
able to significantly influence the investee’s returns;
power to influence, through rules of the articles of association or other contractual arrangements,
governance and decision-making procedures regarding relevant activities;
majority of voting rights through contractual arrangements formalised with other holders of voting
rights (i.e., shareholders’ agreements).
Structured entities - investment funds
The Group takes the following positions with respect to funds:
subscriber of units, held for long-term investment purposes or for trading,
counterparty in derivatives.
A relationship of control exists when the following situations are present:
the Group, as a subscriber of units, is able to remove the investment fund manager without just
cause or for reasons associated with fund performance, and such rights are substantive;
existence of provisions in the fund regulation envisaging the establishment within the fund of
committees, in which the Group participates, that influence the governance of relevant activities
and have the legal and/or de facto right to control the activities of the fund manager;
existence of other relations with the fund, such as the presence within the fund of personnel with
strategic responsibilities associated with the Group and the presence of contractual relations that
subject the fund to the Group for the subscription or placement of units.
Structured entities - securitisation vehicles
In checking for the fulfilment of requirements of control over securitisation vehicles, both the
possibility of exercising power over relevant activities for its own benefit and the end purpose of the
transaction are taken into consideration, as well as the investor/sponsor’s involvement in the
structuring of the transaction.
For autopilot entities, the subscription of the substantial entirety of the notes by Group companies is
considered an indicator of the presence, particularly during the structuring phase, of the power to
manage relevant activities to influence the economic returns of the transaction.
Methods of consolidation
With reference to the consolidation methods, subsidiaries are consolidated on a line-by-line basis,
interests in jointly controlled companies and investments in companies subject to the Group’s
“significant influence” are consolidated with the condensed equity method.
Line-by-line consolidation consists in the line-by-line acquisition of the balance-sheet and income
statement aggregates of the subsidiaries. After the assignment to third parties, under a separate
account, of their shares of equity and profit/loss, the value of the investment is eliminated against the
recognition of the residual value of the subsidiary’s equity.
Intragroup assets, liabilities, income and expenses are eliminated.
Acquisitions of companies are accounted for based on the “acquisition method” set forth in IFRS 3, as
amended by Regulation 495/2009, based on which identifiable assets acquired and identifiable
liabilities assumed (including contingent), must be recognised at their respective fair values at the
acquisition date. In addition, for each business combination, any non-controlling interests in the
acquired company may be recognised at fair value or in proportion with the share of non-controlling
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 156
interests in identifiable net assets of the company acquired. Any excess of the consideration transferred
(represented by the fair value of the assets transferred, liabilities assumed and equity instruments
issued) and any recognition at fair value of the non-controlling interests with respect to the fair value
of assets and liabilities acquired is recognised as goodwill; if the price is lower, the difference is
allocated to the income statement.
The “acquisition method” is applied starting from the acquisition date, or beginning when control over
the company acquired is effectively obtained. Therefore, the income and expenses of a subsidiary
purchased during the reference year are included in the consolidated financial statements as of the date
of purchase.
On the other hand, the income and expenses of a subsidiary sold are included in the consolidated
financial statements up to the date of disposal, i.e. when the Parent ceases to control the subsidiary. At
the date when control is lost, the controlling entity:
derecognises the assets (including any goodwill) and liabilities of (and non-controlling interests in)
the former subsidiary at their carrying amounts;
recognises the fair value of the consideration received and of any investment retained in the
former subsidiary;
reclassifies to consolidated profit or loss any amounts previously recognised in the subsidiary's
statement of other comprehensive income as if the assets or liabilities had been transferred;
recognises any resulting difference in consolidated profit or loss.
Interests in jointly controlled companies and investments in companies subject to the Group’s
“significant influence” (associates) are consolidated with the condensed equity method.
This method contemplates the initial posting of the investment at cost. This value is subsequently
adjusted to reflect:
the Group's share of gains/losses on the investment for the period is recognised under item 240
“Gains (losses) on equity investments” of the consolidated income statement;
the Group's share of changes recognised in the Statement of Consolidated Comprehensive
Income.
If an investor’s share of losses in an associate equals or exceeds the interest’s carrying value, the
investor discontinues recognising its share of further losses unless the investor has incurred specific
legal obligations or made payments in favour of the associate.
Profits resulting from transactions between the Group and its associates are eliminated to the extent of
the Group’s interest in the associate. Losses resulting from transactions between the Group and its
associates are eliminated as well, unless the transaction provides evidence of an impairment of the asset
transferred.
The Group stops using the equity method on the date on which it stops exercising significant influence
or joint control over the investee; in that case, as of that date the investment is reclassified to
“Financial assets available for sale”, on the condition that the associate or jointly controlled company
does not become a subsidiary.
§*§*§*§
During the course of 2017, investee company Juliet S.p.A., services company handling the
management and recovery of credit, and controlled by the Parent Company as per IFRS 10, entered
the scope of consolidation. Also noted is the exit from the scope of consolidation of investee company
Costruzioni Ecologiche Moderne S.p.A., as a result of the loss of control and the simultaneous
assumption of the status of associated company.
2017 ANNUAL REPORT
157 Notes to the consolidated financial statements - Part A - Accounting policies
3. Investments in associates and joint ventures with significant non-controlling interests
This section has not been completed as there are no investments of this type.
4. Significant restrictions
Listed below are the significant restrictions on the Group’s ability to access or use assets and to
extinguish liabilities:
Regulatory restrictions
The Parent Company and the subsidiaries MPSL&F, MPSCS, MPS Banque, MP Belgio and Widiba,
with assets and liabilities prior to intercompany eliminations amounting to EUR 168,744.5 mln as at 31
December 2017 (EUR 192,425.1 mln as at 31 December 2016) are subject to compliance with
minimum capital requirements and prudential supervision exercised by the Authorities present in the
respective countries of residence and by the European Central Bank, which is responsible, pursuant to
the regulation instituting the Single Supervisory Mechanism, for ensuring the uniform application of
Eurozone regulatory provisions. The credit institutions in question are required to comply with
prudential requirements regarding capital, securitisations, limits on large exposures, liquidity, financial
leverage and reporting and public disclosure of information regarding these aspects.
On 19 June 2017 the ECB informed the Parent Company of the results of the Supervisory Review and
Evaluation Process (SREP). In this document, the ECB ordered the Bank to maintain a Total SREP
Capital Requirement ratio of 11% at consolidated level as of 1 January 2018, which includes:
a minimum Pillar 1 requirement of 8% and
an additional Pillar 2 requirement of 3% (P2R), entirely in terms of Common Equity Tier 1
capital.
As a result, the BMPS Group must meet the following requirements at consolidated level as of 1
January 2018:
• CET1 Ratio of 9.44% on a transitional basis,
• Total Capital Ratio of 12.94% on a transitional basis including, aside from the P2R, 1.875%
for the Capital Conservation Buffer and 0.06% for the O-SII Buffer (Other Systemically
Important Institutions Buffer).
The Capital Conservation Buffer and the O-SII Buffer will be fully implemented in 2019 with 2.5%
and in 2021 with 0.25%.
Until 31 December 2017, the CET1 threshold to be observed was 10.75%.
For further details, please refer to the quantitative and qualitative information provided in Part F,
section 2.3 “Capital adequacy” of these Notes to the consolidated financial statements.
The subsidiaries MPS Capital Trust I, MPS Capital Trust II, MPS Preferred Capital I LLC, MPS
Preferred Capital II LLC, Antonveneta Capital Trust I, Antonveneta Capital Trust II, Antonveneta
Capital I LLC, Antonveneta Capital II LLC and Montepaschi Luxembourg are entities under foreign
law incorporated between 2000 and 2003, through which the Parent Company had carried out capital
strengthening transactions in compliance with supervisory provisions through public issues of
preference shares, counted, pursuant to prudential regulations in force pro tempore, for the purposes
of calculating the own funds of BMPS and the Group. In this respect, following approval of Italian
Law Decree 237/2016 - Urgent provisions for the protection of savings in the credit sector, in
compliance with what is set forth in art. 22, paragraphs 2 and 3 of Law Decree 237, as well as art. 2 of
the Burden Sharing Decree issued on 28 July 2017, the AT1 financial instruments specified in them,
issued by some of the aforementioned companies, were converted into newly issued ordinary shares of
the Parent Company. Moreover, the same decree envisaged cancellation of the loans, in any technical
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Notes to the consolidated financial statements - Part A - Accounting policies 158
form (deposits, bonds, etc.), granted by the Parent Company (including its foreign subsidiaries), and of
the guarantees issued by the latter as part of the single financial transactions, in relation to which the
above AT1 instruments were issued. Following the burden sharing provisions, the legal/operating
methods, where necessary, for winding up the aforementioned entities are in the definition process,
with the support of professional firms.
Legal restrictions
The Parent Company and the Italian subsidiaries other than securitisation vehicles are required, in
compliance with statutory provisions, to deduct 5% of annual net profit to form the legal reserve, until
it has reached 20% of the share capital. The reserve must be replenished if it is reduced for whatever
reason.
Contractual restrictions
Encumbered assets
The Group holds assets not available to it in that they are used to guarantee financing transactions
(e.g., repurchase or securitisation transactions).
The disclosure on assets pledged as collateral for liabilities and commitments is provided in the “Other
information” section of Part B of these notes to the consolidated financial statements, which should
therefore be referred to.
Group Assets relating to securitisation transactions
At the reporting date, the item loans to customers includes EUR 4,482.0 mln (EUR 5,649.5 mln as at
31 December 2016) relating to loans that have not been derecognised, which were sold with the
securitisations Siena Mortgages 10-7, Siena Lease 2016-2 S.r.l., Siena Consumer 2015 S.r.l., Siena PMI
2015 S.r.l. and Norma SPV S.r.l. As an offsetting entry for the cash flows arising from these disposals,
the Parent Company and subsidiaries MPS Capital Services and MPS Leasing & Factoring have
recognised a liability in their financial statements with the vehicles that issued the senior notes (subject
to final sale to a leading bank as part of the same securitisations) equal to EUR 929.3 mln (EUR
1,453.6 mln as at 31 December 2016). Against this liability, the creditors’ entitlement to repayment is
limited to cash flows arising from the assets underlying senior notes sold (please refer to table E.3 of
the Notes to the consolidated financial statements Part E - Information on risks and hedging policies).
Other restrictions
The Group’s banks are required to hold a compulsory reserve at national Central Banks. The
compulsory reserve, included in the “Loans to Banks” portfolio at the Bank of Italy, amounts to EUR
3,611.3 mln as at 31 December 2017 (EUR 3,588.5 mln as at 31 December 2016).
5. Other information
The financial statements processed for line-by-line consolidation of the subsidiaries include the
financial statements as at 31 December 2017, as approved by the Boards of Directors of the respective
companies.
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159 Notes to the consolidated financial statements - Part A - Accounting policies
Section 4 – Events after the Reporting Period
On 9 January 2018, 95% of the mezzanine notes relative to securitisation of the doubtful loan
portfolio of the MPS Group were sold, as per the agreement signed on 22 December 2017 with
Quaestio Capital SGR S.p.A. on behalf of the Atlante Fund.
On 11 January 2018, the Parent Company issued a fixed-rate Tier 2 subordinated bond with 10-year
maturity (redeemable in advance starting from the fifth year at the issuer’s option, subject to regulatory
approval), for EUR 750 mln. The bond pays a fixed rate coupon of 5.375% and has an issue price of
100% equivalent to a spread of 500.5 basis points above the 5-year swap rate. The expected ratings of
the bond are CCC+ (Fitch) and Caa2 (Moody’s).
Section 5 – Other matters
Going concern
The Consolidated Fnancial Statements were prepared based on a going concern assumption.
With regard to the indications contained in Document no. 4 of 3 March 2010, issued jointly by the
Bank of Italy, Consob and IVASS, and subsequent amendments, the Group reasonably expects to
continue operating in the foreseeable future and has therefore prepared the financial statements under
the going concern assumption.
For this purpose, the following are particularly relevant:
the approval of the Restructuring Plan by the European Commission on 4 July 2017 (for
further details on the Plan’s implementation status, refer to the paragraph entitled “Strategy”
in the Consolidated Report on Operations;
the finalisation on 11 August 2017 of the share capital increase for a total of EUR 8,327
million, following conversion of the AT1 and T2 financial instruments into ordinary shares of
the Parent Company, in compliance with what is set forth in art. 23, paragraph 3 of Decree
237, as well as art. 2 of the Burden Sharing Decree and subscription of ordinary shares by the
MEF;
the restoration of the capital ratios above the SREP thresholds currently in force: at the date
of 31 December 2017, the CET1 ratio is 14.8% while the TC Ratio is 15%, also considerably
higher than those established for 2018 with the SREP decision of 19 June 2017 (which
establishes the thresholds of 9.4% for the CET1 ratio and 12.9% for the TC ratio, excluding
only the P2 Guidance component).
As regards the liquidity position, after the significant deterioration incurred in 2017, Banca MPS
obtained the State guarantee on financial liabilities to be issued for a total of EUR 15 bn (for a
maximum duration of three years). In 2017, the Parent Company carried out three government-backed
securities issues for a total of EUR 11 bn, which were used in full in sales transactions in the market
and as collateral to back funding transactions. As a result of these transactions, the recovery of
commercial funding and the financial contribution by the MEF connected to the share capital increase
as well as to the partial public offering of 2008-2018 subordinated UT2 bonds for exchange and
settlement, liquidity indicators returned to ordinary levels.
Therefore, in light of what is noted above, as it is deemed reasonable that the Parent Company will
continue operating in the foreseeable future, the financial statements have been prepared on a going
concern basis.
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Notes to the consolidated financial statements - Part A - Accounting policies 160
List of key IAS/IFRS international accounting principles and related SIC/IFRIC
interpretations for mandatory application as of the 2017 financial statements
On 29 January 2016, the IASB published the document “Disclosure Initiative (Amendments to IAS
7)” which contains amendments to IAS 7.
The document has the objective of providing certain clarifications to improve the disclosure on
financial liabilities. In particular, the amendments introduce the requirement to provide a disclosure
that allows financial statement users to understand changes in liabilities deriving from financing
transactions, including changes deriving from monetary movements and non-monetary movements.
The amendments apply as of 1 January 2017. The presentation of comparative information relating to
prior years is not required.
The document was endorsed by the European Commission with Regulation 2017/1990 on 9
November 2017.
On 19 January 2016, the IASB published the document “Recognition of Deferred Tax Assets for
Unrealised Losses (Amendments to IAS 12)” which contains amendments to IAS 12.
The document has the objective of providing certain clarifications on the recognition of deferred tax
assets on unrealised losses. In particular, the amendments arise from a request for clarification
promoted by the IFRS IC on the application of IAS 12 relating to the recognition of deferred tax
assets in the following circumstances:
when an entity holds a fixed-rate debt instrument classified as available for sale with profit and
loss recognised in OCI;
when a change in market conditions, in particular an increase in interest rates, provokes a
reduction in the fair value of the instrument to below the initial cost;
when tax regulations exclude the deductibility of a loss for tax purposes as long as it is
unrealised;
when the entity expects to recover all contractual cash flows while retaining the instrument
until its natural maturity;
when the entity has insufficient temporary taxable differences and has no future taxable
income against which the entity can use deductible temporary differences.
The amendments apply as of 1 January 2017.
The document was endorsed by the European Commission last 9 November with Regulation
2017/1989.
IAS/IFRS international accounting standards and related SIC/IFRIC interpretations
endorsed by the European Commission, the application of which is mandatory as of 31
December 2017
On 18 May 2014, the IASB published IFRS 15 “Revenue from Contracts with Customers” which
replaces previous standards on revenue: IAS 11 “Construction Contracts”, IAS 18 “Revenue”, IFRIC
13 “Customer Loyalty Programmes”, IFRIC 15 “Agreements for the Construction of Real Estate”,
IFRIC 18 “Transfer of Assets from Customers” and SIC 31 “Revenue – Barter Transactions Involving
Advertising Services”.
The new standard applies to all contracts stipulated with customers, except for those subject to other
specific standards, even only partially.
This standard proposes a model according to which an entity must recognise revenue to accurately
depict the transfer of promised goods or services to customers in an amount that reflects the
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161 Notes to the consolidated financial statements - Part A - Accounting policies
consideration to which the entity expects to be entitled in exchange for those goods or services. In this
regard, the standard establishes five steps:
1. identify the contract with the customer, defined as an agreement (written or verbal) with
commercial substance between two or more parties that generates legally enforceable rights
and obligations with the customer;
2. identify the performance obligations in the contract;
3. determine the transaction price, i.e., the amount to which an entity expects to be entitled in
exchange for the transfer of goods and services in line with the techniques set forth in the
standard and on the basis of any presence of financial components;
4. allocate the transaction price to the performance obligations in the contracts;
5. recognise revenue when (or as) the entity satisfies a performance obligation, taking into
consideration that services may be rendered either over time or at a point in time.
The clarifications published by the IASB in 2016 with the document “Clarifications to IFRS 15
Revenue from Contracts with Customers” are part of this standard.
Identifying performance obligations;
Principal-versus-agent considerations;
Licensing.
This document was endorsed by the European Commission with Regulation no. 2017/1987 on 9
November 2017.
Application of the standard is mandatory as of the start date of the first annual period beginning on or
after 1 January 2018.
Analysis of the provisions under this standard did not highlight any significant impacts to be
recognised upon first-time application.
On 24 July 2014, the IASB issued the final version of IFRS 9 “Financial instruments”, which
replaces IAS 39. The aspect of macro hedging has not yet been addressed, as the IASB has decided to
undertake an autonomous project on this matter.
The document was endorsed by the European Commission with Regulation no. 2016/2067 on 22
September 2016 and is mandatorily to be applied as of the start date of the first annual period
beginning on or after 1 January 2018.
The key innovations are briefly described below:
Classification and measurement of financial assets
The new accounting standard envisages three portfolio categories: amortised cost, fair value through
profit and loss (FVTPL) and fair value with changes through other comprehensive income (FVOCI).
As regards debt securities, the standard sets forth a single method for determining classification in one
of the three categories; this method is based on the combination of two drivers, represented by the
procedure for managing financial instruments adopted by the entity (business model) and the
contractual characteristics of the cash flows of the instruments themselves, which must solely comprise
the payment of principal and interest (“soley payment of principal and interest” – SPPI). Equity instruments
are classified in the FVTPL category; the only exception is the possibility to irrevocably classify equity
instruments not held for trading in the FVOCI category as at the date of initial recognition. In this
case, only dividends are recognised in the income statement, while the valuations and results deriving
from the sale are allocated to equity; no impairment is envisaged.
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Classification and measurement of financial liabilities
It maintained the requirement for separate accounting of derivatives embedded in a financial host. For
instruments other than derivatives, measurement of all fair value changes through profit or loss only
applies to financial liabilities held for trading. For financial liabilities designated under the fair value
option, the amount of change in the fair value that is attributable to changes in the credit risk of the
liability, shall be presented directly in other comprehensive income, unless it creates or increases an
accounting mismatch, in which case the entire change in fair value shall be presented within profit and
loss. The amount that is recognised in other comprehensive income is not transferred from OCI to
P&L (“recycled”) when the liability is settled or extinguished.
The standard allows for the rules governing the treatment of own credit quality on financial liabilities
under the fair value option included in IFRS 9 to be applied in isolation. The Group has exercised this
option, applying said rules in advance in 2017.
Impairment
The standard sets forth a single impairment model for all debt financial instruments not measured at
FVTPL: financial assets measured at amortised cost, those measured at fair value through other
comprehensive income, lease receivables and trade receivables. The prospective model requires the
recognition of expected losses (ECL) on the financial instrument beginning from initial recognition in
the financial statements. Credit losses must be estimated on the basis of supportable information that
is available without undue cost or effort, and that includes historical, current and forecast data. For
purposes of impairment, IFRS 9 requires classification in three stages in increasing order of
deterioration of credit quality. The first category includes financial instruments whose credit quality has
not significantly deteriorated with respect to their initial recognition in the financial statements. On
exposures included in the first category, expected losses should be recognised on the basis of a 12-
month time horizon. On the exposures included in the other two categories, lifetime expected losses
should be recognised on the financial instrument.
IFRS 9 also requires improved disclosure about expected credit losses and credit risk. In particular,
entities are required to provide information that explains the basis for their expected credit loss
calculations and how they assess changes in credit risk.
Hedge accounting
Excluding macro hedges, for which IAS 39 remains in force, the standard tends to align the accounting
presentation with risk management activities and, in the second place, to strengthen the disclosure of
risk management activities undertaken by the reporting entity.
$$$$$$$$$$$
In relation to the expected impact of application of IFRS 9, it should be noted that, especially with
regard to the ECL approach, this new standard, compared to IAS 39, will entail greater recourse to
experience-based judgements and intrinsically complex calculations, with an accounting approach that
is increasingly based on the use of valuation models. The preparation of the ECL model has required
significant changes in data, information systems and processes within the Group, and has entailed the
definition of appropriate IT implementation strategies, of a functional and accounting nature,
following introduction of the new valuation models.
With respect to classification and measurement, the Group has launched a detailed examination of the
characteristics of the contractual flows of the debt instruments classified at amortised cost in
accordance with IAS 39, in order to identify any assets which will be measured at fair value in
accordance with IFRS 9 as they do not pass the Solely Payment of Principal and Interest test (SPPI
test).
The main quantitative impacts are essentially due to the following:
2017 ANNUAL REPORT
163 Notes to the consolidated financial statements - Part A - Accounting policies
reclassification of the financial instruments in accordance with the Group’s business model;
increase in the scope of instruments measured at fair value through profit and loss as a result
of their failure to pass the SPPI test (mandatory FVPL), partly due to retrospective application
of modification & derecognition accounting;
application of the new impairment model, which will entail an increase in provisions due to
the inclusion i) of lifetime expected losses on performing assets classified in stage 2 as a result
of the significant increase in the borrower’s credit risk with respect to that existing at the
moment of initial recognition of the receivable in the financial statements; ii) of prospective
macroeconomic scenarios on all categories of loans and iii) of prospective sales scenarios on
an identified portfolio of gross non-performing loans to which a high probability of sale has
been assigned, in line with the 2017-2021 Restructuring Plan.
Recall that the last two topics specified above may result, subsequent to the date of first-time
application, in greater income statement volatility, due to the possible increased number of instruments
measured at fair value and the transfer of financial instruments from stage 1 to stage 2 or vice versa; in
this case, volatility will be positively correlated with the duration of the financial instruments.
Upon first-time application of the standard, the estimated quantitative negative effects on the Group’s
consolidated equity as at 1 January 2018 amount overall to about EUR 1.2 billion, net of the tax effect
which, given the Group’s tax position, is not significant.
With particular regard to the regulatory impact of the new impairment model, note that on 27
December 2017, EU Regulation no. 2017/2395, issued on 12 December 2017 by the European
Parliament and Council (“Regulation”) was published in the Official Gazette of the European Union,
amending Regulation no. 2013/575 and introducing transition requirements aimed at mitigating the
impact of introduction of IFRS 9 on own funds, in addition to modifying the handling of large
exposures of certain exposures in the public sector that are in the national currency of a member
country. The Regulation became effective on 28 December 2017 and is applicable starting from 1
January 2018.
Introduction of the transition requirements enables gradual determination of the negative impact
arising from application of the expected loss model to determine write-downs on loans, as envisaged
by the shift to the new IFRS 9. In this regard, the Group has exercised, pursuant to paragraph 9 of art.
1 of the aforementioned Regulation, the faculty of adopting the transition requirements, notifying the
European Central Bank on 23 January 2018. Due to this transitional regime, the expected impacts on
capital as at 1 January 2018 are not significant.
Lastly, recall that the new method for accounting for interest on assets classified in stage 3 (namely
non-performing loans, for which the effective interest rate must be applied on the net, and not gross,
exposure) will have consequences on the methods for presenting interest in the income statement
starting from 2018.
As regards the exercise of the options contained in the standard, please note that the Group will avail
itself of:
the option of maintaining the current rules for recognition of hedge accounting outlined in
IAS 39;
the right not to present comparative information in the year of first-time application.
With regard to the impact on operating processes, note that the last updates to the internal regulations
are underway, in order to adopt the operational/organisational changes connected to the classification
and measurement of financial instruments, in addition to the IT implementations and releases, as per
the project plan.
On 12 September 2016, the IASB published the amendment to IFRS 4 entitled “Applying IFRS 9
Financial Instruments with IFRS 4 Insurance Contracts”, later endorsed by the European
Commission with Regulation no. 2017/1988 on 9 November 2017.
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Notes to the consolidated financial statements - Part A - Accounting policies 164
This amendment introduced a series of modifications that permit:
entities that issue insurance contracts to recognise the effects deriving from the volatility that
may arise when an entity will apply IFRS 9 before the application of the new IFRS 4 in the
statement of comprehensive income (i.e., in the OCI statement), rather than in the income
statement (the “overlay approach”).
entities whose business is constituted to a predominant extent by insurance activities to rely on
a temporary exemption from the application of IFRS 9 until 2021. Entities that defer the
application of IFRS 9 will continue to apply the current IAS 39 (the “deferral approach”).
The amendments apply as of 1 January 2018. On this matter, note that the Group’s insurance
associates shall apply the “deferral approach”.
On 13 January 2016, the IASB published the new standard “IFRS 16 Leases” which replaces IAS 17 -
Leases, as well as the interpretations IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases—Incentives and SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease.
The new standard provides a new definition of lease and introduces an approach based on control
(right of use) of an asset to distinguish lease agreements from service agreements, identifying as
discriminating factors: the identification of the asset, the right to replace it, the right to substantially
obtain all economic benefits originating from the use of the asset and the right to direct the use of the
asset underlying the agreement.
The standard was endorsed by the European Commission on 9 November 2017 with Regulation no.
2017/1986 and shall apply as of 1 January 2019.
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165 Notes to the consolidated financial statements - Part A - Accounting policies
IAS/IFRS international accounting standards and related SIC/IFRIC interpretations issued
by the IASB and still awaiting approval from the European Commission
On 12 December 2017, the IASB published the Annual Improvements to IFRSs 2015-2017 Cycle,
which included amendments to IAS 12 Income Taxes, IAS 23 Borrowing Costs, IFRS 3 Business
Combination and IFRS 11 Joint Arrangements. In particular:
The amendments to IAS 12 clarify that the effects on the taxation of dividends (as in the case
of distribution of profits) should be recognised in the income statement regardless of how the
tax originates.
The amendments to IAS 23 clarify that, if a specific loan remains outstanding after the
corresponding asset is ready for use or sale, that loan becomes part of the funds considered
for the purpose of calculating the capitalisation rate in relation to general loans.
The amendments to IFRS 3 clarify that when the entity obtains control of a business, already a
joint operation, it recalculates the stake held in that business.
The amendments to IFRS 11 clarify that when an entity obtains joint control of a business,
already a joint operation, it does not recalculate the stake held in that business.
The amendments shall apply as of 1 January 2019. However, their early application is permitted.
On 7 June 2017, the IASB published “IFRIC 23 “Uncertainty over Income Tax Treatments”,
which clarifies how to apply the requirements for recognition and measurement of IAS 12 when there
is uncertainty on the treatment of income tax.
In this case, for the purposes of recognition and measurement of current and deferred tax
assets/liabilities in accordance with IAS 12, taxable profits/losses, taxable bases, unused tax losses,
unused tax credits and tax rates are determined based on the interpretation provided by IFRIC 23.
The entity is required to use judgement in determining whether an uncertain tax treatment should be
considered independently or jointly with other tax treatments impacted by the uncertainty. The
decision should be based on the approach that provides the greatest guarantee of resolving the
uncertainty.
The entity should also consider that the relevant tax authority, in examining the data submitted to it,
may or may not accept application of the tax treatment or set of tax treatments proposed by the entity.
If it is deemed probable that a specific tax treatment will be accepted, the entity must determine the
taxable income, taxable bases, unused tax losses, unused tax credits or tax rates consistently with the
tax treatment included in the tax return.
However, if the entity considers its acceptance to be unlikely, it must reflect the effect of the
uncertainty in determining the tax components using one of the following methods:
- the “most likely amount”, which identifies the most likely amount within a range of possible
results;
- the expected amount, which is based on the weighted sum of probable values within a range
of possible values.
The decision must be based on the method that provides greater guarantee of resolving the
uncertainty.
Moreover the entity must review the judgements and estimates if the facts and circumstances change.
IFRIC 23 applies as of 1 January 2019. Early application is permitted.
Last 18 May 2017, the IASB issued IFRS 17 Insurance Contracts, which sets out the principles for
recognition, measurement, presentation and disclosure of the insurance contracts under the scope of
the standard.
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Notes to the consolidated financial statements - Part A - Accounting policies 166
The objective of IFRS 17 is to ensure that significant information is provided, faithfully representing
the contracts, in order to provide a basis for users of the financial statements to assess their effects on
the entity’s financial performance and cash flows.
On 12 October 2017, the IASB published “Amendments to IFRS 9: Prepayment Features with
negative compensation, which
- allows the measurement at amortised cost or, according to the business model, at fair value
through other comprehensive income, of financial assets having specific early repayment
options with negative compensatory payment, which would otherwise not satisfy the SPPI
conditions;
- contains a clarification with regard to accounting of a change in a financial liability at
amortised cost, which does not involve derecognition of the liability. Adjustment of the
financial liability to amortised cost, calculated as the difference between the original
contractual cash flows and the modified cash flows discounted at the effective interest rate, is
recognised in the income statement as at the date of the amendment.
The amendments apply as of 1 January 2019; early application is permitted.
Last 12 October 2017, the IASB issued Amendments to IAS 28: Long-term Interests in Associates
and Joint Ventures, which clarifies that an entity applies IFRS 9 “Financial instruments” to long-term
interests in associates or joint ventures that are part of the net investment in the associate or joint
venture, but to which the equity method does not apply.
The amendments apply as of 1 January 2019; early application is permitted.
The process for endorsement of the following documents published by the IASB in 2016 is still
underway:
Amendments to IFRS 2 “Classification and Measurement of Share-Based Payment
Transactions”, which applies from 1 January 2018 and provides a number of clarifications in
relation to the following aspects:
o accounting for the effects of vesting conditions in the case of cash-settled share-based
payments;
o the classification of share-based payments with net settlement characteristics;
o accounting for amendments to the terms and conditions of a share-based payment
which change its classification from cash-settled to equity-settled.
Annual Improvements to IFRS Standards 2014-2016 Cycle, which amends IFRS 1,
IFRS 12 and IAS 28;
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration,
which enters into force on 1 January 2018;
Amendment to IAS 40 Investment Property: Transfers of Investment Property, which
enters into force on 1 January 2018.
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167 Notes to the consolidated financial statements - Part A - Accounting policies
A.2 – The main items of the accounts
Accounting standards
This chapter contains the accounting standards in relation to the main assets and liabilities in the
balance sheet, which were adopted for the preparation of the consolidated financial statements as at 31
December 2017.
1 Financial assets held for trading
a) recognition criteria
Initial recognition of financial assets occurs at settlement date, for debt securities and equities and at
trade date for derivative contracts.
Upon initial recognition, financial assets held for trading are recognised at fair value, which usually
corresponds to the amount paid, without considering transaction costs or revenues directly attributable
to the instrument, which are directly recognised in the income statements.
Any embedded derivatives in combined financial instruments not directly connected to the latter and
with the characteristics to meet the definition of a derivative are recognised separately from the host
contract at fair value.
The applicable accounting criteria are administered to the primary contract.
b) classification criteria
This category includes debt securities and equities purchased mainly for the purpose of obtaining
short-term profits arising from price changes and the positive value of derivative contracts, including
expired and impaired derivatives not subject to early settlement as part of a master netting agreement.
Contracts designated as hedging instruments are excluded. Derivative contracts include those
embedded in combined financial instruments which were subject to separate accounting.
c) measurement criteria
After initial recognition, financial assets held for trading are recorded at fair value, with value changes
recognised in profit or loss.
For a description of criteria used to determine the fair value of financial instruments, please see section
“A.4.3 Fair Value Hierarchy” of this Part A.
d) derecognition criteria
Financial assets are derecognised upon maturity of the contractual rights on the cash flows resulting
from the assets or when the financial assets are sold and all related risks/benefits are transferred.
Securities received within the scope of a transaction that contractually provides for subsequent sale are
not recorded in the financial statements, and securities delivered within the scope of a transaction that
contractually provides for subsequent buyback are not derecognised from the financial statements.
Consequently, in the case of securities acquired with an agreement for resale, the amount paid is
recorded in the financial statements as loans to customers or banks, while in the case of securities
transferred with an agreement for repurchase, the liability is recorded under deposits from banks or
deposits from customers.
e) revenue recognition criteria
Gains and losses arising from any changes in the fair value of a financial asset are recognised in profit
and loss under item “80 Net trading income (expenses)”, except for gains and losses on derivative
assets linked with the fair value option which are classified under item “110 Net profit / loss from
financial assets and liabilities designated at fair value”.
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2 Financial assets available for sale
a) recognition criteria
Financial assets are initially recognised on the date of settlement, with reference to debt or equity
instruments, and on the date of disbursement, with reference to loans and receivables.
On initial recognition, the assets are measured at their fair value which normally corresponds to the
price paid, inclusive of transaction costs or income directly attributable to the instrument. If
recognition occurs following the reclassification from assets held to maturity, the recognition value is
the fair value as at the time of transfer. In the case of debt instruments, any difference between the
initial value and the value of repayment is spread out over the life of the debt instrument in
accordance with the method of amortised cost.
b) classification criteria
This category includes non-derivative financial assets which are not classified as loans, financial assets
designated at fair value through profit and loss or financial assets held to maturity.
In particular, this category also comprises strategic equity investments which are not managed for
trading purposes and cannot be defined as controlling interest, significant influence and joint control,
and bonds which are not subject to trading. Such investments may be transferred for any reason, such
as liquidity requirements or variations in interest rates, exchange rates, or stock price.
c) measurement criteria
After initial recognition, financial assets available for sale are measured at fair value, with interest being
recognised in the income statement as resulting from the application of the amortised cost and with
appropriation to a specific equity reserve of the gains or losses arising from changes in fair value net of
the related tax effect, except losses due to impairment. Foreign exchange fluctuations in relation to
equity instruments are posted to the specific equity reserve, whereas changes in loans/receivables and
debt instruments are allocated to profit and loss. Equity instruments, for which it is not possible to
determine a reliable fair value, are maintained at cost, adjusted for any impairment losses.
Financial assets available for sale are reviewed for objective evidence of impairment at each balance
sheet and interim reporting date. Indicators of a likely impairment include but are not limited to:
significant financial difficulty of the issuer, non-fulfilment or defaults in payments of interest or
principal, possibility that the borrower is declared bankrupt or submitted to other forms of insolvency
proceedings, disappearance of an active market for the assets. In particular, as far as equity instruments
that have a quoted market price in an active market are concerned, a market price as at the date of the
financial statements lower than the original purchasing cost of at least 30% or a market value lower
than the cost lasting more than 12 months are considered an objective evidence of value reduction. If
further reductions take place in subsequent financial years, these are charged directly to the profit and
loss statement.
With regard to debt securities, regardless of whether or not these are listed on active markets, any
impairment loss is recognised in the profit and loss statement strictly in relation to the issuer’s ability to
fulfil its obligations and therefore make the necessary payments and repay capital at maturity.
Therefore, it needs to be established whether there are indications of a loss event which could have a
negative impact on estimated future cash flows. Where there are no actual losses, no loss is recognised
on the stock, and any capital loss is recognised in the negative net equity reserve.
The amount of any value adjustment shown following the impairment test is recorded in the profit and
loss statement as an expense for the year. Should the reasons for impairment cease to exist, following
an event which occurred after recognition of impairment, reversals are recognised in equity in the case
of equity instruments, and through profit and loss in the case of debt securities.
d) derecognition criteria
Financial assets are derecognised upon maturity of the contractual rights on the cash flows resulting
from the assets or when the financial assets are sold and all related risks/rewards are transferred.
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169 Notes to the consolidated financial statements - Part A - Accounting policies
Securities received within the scope of a transaction that contractually provides for subsequent sale are
not recognised in the financial statements, and securities delivered within the scope of a transaction
that contractually provides for subsequent repurchase are not derecognised from the financial
statements. Consequently, in the case of securities acquired with an agreement for resale, the amount
paid is recognised in the financial statements as loans to customers or banks, while in the case of
securities transferred with an agreement for repurchase, the liability is shown under deposits from
customers or deposits from banks.
e) revenue recognition criteria
Upon disposal, exchange with other financial instruments or measurement of a loss of value following
impairment testing, the fair value results accrued to the reserve for assets available for sale are reversed
to profit and loss under:
item “100 – Gains/Losses on purchase/disposal of: b) financial assets available for sale”, in the
case of disposal;
item “130 - Net impairment losses/reversals on: b) financial assets available for sale”, in the case
of recognition of impairment.
If the reasons for impairment cease to exist, following an event which occurred after the impairment
was recognised, the impairment loss is reversed: through profit and loss in the case of loans or debt
securities, and through equity in the case of equity instruments.
3 Financial assets held to maturity
The Group does not use this portfolio.
4 Loans
a) recognition criteria
Recognition in the financial statements occurs:
for a receivable:
- on the date of disbursement;
- when the creditor acquires the right to payment of the amounts contractually agreed upon;
for a debt security:
- on the date of settlement.
The initial value is determined on the basis of the fair value of the financial instrument (which is
normally equal to the amount disbursed or price of underwriting), inclusive of the expenses/income
directly related to the individual instruments and determinable as of the transaction date, even if such
expenses/income are settled at a later date. This does not include costs which have these
characteristics but are subject to repayment by the debtor or which can be encompassed in ordinary
internal administrative expenses.
Swaps and repo contracts under agreement to re-sell are posted as lending transactions. In particular,
the latter are reported as receivables in the sum of the spot amount paid.
b) classification criteria
Receivables include loans to customers and banks, whether disbursed directly or purchased from third
parties, with fixed or determinable payments, which are not quoted in an active market and were not
initially classified among financial assets available for sale and financial assets at fair value through
profit or loss.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 170
They also incorporate trade receivables, repurchase agreements, receivables arising from financial
leasing transactions and securities purchased in a subscription or private placement, with fixed or
determinable payments, not quoted in active markets.
c) measurement criteria and revenue recognition criteria
After initial recognition, receivables are valued at amortised cost, which is the initial recognition
amount decreased/increased by principal repayments, write-downs/write-backs and the amortisation –
calculated using the effective interest rate method – of the difference between the amount disbursed
and the amount repayable upon maturity, typically attributable to the costs/income directly charged to
each receivable. The effective interest rate is the interest rate which makes the current value of future
flows of the receivable, in principal and interest, estimated over the expected life of the receivable,
equal to the amount disbursed, inclusive of any costs/income attributable to the receivable. Therefore,
the economic effect of costs and income is spread over the expected residual life of the receivable.
The amortised cost method is not used for short-term receivables, for which the effect of applying a
discounting logic is negligible. Similar valuation criteria are adopted for receivables with no specific
maturity or subject to revocation.
Non-performing exposures (e.g. doubtful, unlikely to pay and non-performing past due; together, non-
performing exposures) are classified into different risk categories in accordance with the regulations
issued by the supervisory authorities, supplemented with internal provisions which set automatic
criteria and rules and non-binding triggers for the transfer of receivables between different risk
categories. In particular, classification is carried out by the various units independently, except for
loans more than 90 days past due, which are measured using automated procedures.
With regard to the general concept of the restructuring of loans, three different categories have been
identified:
“forborne exposures” (as defined in Circular 272 of the Bank of Italy, which correspond to
the definitions contemplated by the ITS – Implementing Technical Standards of the EBA);
renegotiations for commercial reasons/practices;
debt settlement via borrower substitution or debt-for-equity swap.
In line with Bank of Italy regulations, a “forborne exposure” is a debt agreement for which measures
of tolerance have been applied (otherwise identifiable as “forbearance measures”). The measures of
tolerance consist of concessions - in terms of the amendment and/or refinancing of the pre-existing
debt agreement - to the borrower who has or is on the verge of having difficulty in meeting its
financial commitments (in other words, the borrower is in financial difficulty).
Forborne exposures are broken down into:
non-performing exposures with forbearance measures, pursuant to the ITS. These exposures
represent a sub-category of, depending on the case, doubtful loans, unlikely to pay or non-
performing past due; therefore, they do not make up their own category of non-performing
exposures;
forborne performing exposures, pursuant to the ITS.
The renegotiation of loans granted by the Bank to performing customers is substantially equated with
the opening of a new position, if it is granted essentially for commercial reasons rather than for the
borrower’s economic-financial difficulties (therefore, not classifiable as forborne exposures as
described above) and provided that the interest rate applied is a market rate as at the date of
renegotiation.
As an alternative to the previously described options (renegotiations due to borrower difficulties and
re-negotiations for commercial reasons/practice), the Bank and the borrower may agree on settlement
of the original debt via:
novation or assumption of the loan by another borrower (release from debt liability);
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171 Notes to the consolidated financial statements - Part A - Accounting policies
substantial modification of loan terms involving a debt-equity swap.
Said events, involving a substantial modification of contractual terms, provide for cancellation of the
pre-existing loan agreement from an accounting standpoint, and consequent booking of the new
agreement at fair value, recognising through profit or loss an amount corresponding to the difference
between the fair value of assets received and the book value of the cancelled loan.
In order to determine adjustments to the carrying value of receivables, and taking into account the
different impairment levels, analytical or collective valuation is used, as outlined hereunder.
Doubtful loans, unlikely to pay and non-performing past due exposures are valued analytically (when
the exposures exceed a given threshold value) or by applying the LGD parameter in the remaining
cases. Performing exposures are subject to statistical valuation.
For loans subject to analytical assessment, the amount of value adjustment for each loan is equal to the
difference between the loan book value at the time of measurement (amortised cost) and the current
value of estimated future cash flows, as calculated by applying the original effective interest rate. When
the original interest rate cannot be directly identified, or identifying it would be excessively
burdensome, the best approximation is applied.
For all fixed-rate positions, the interest rate thus determined remains constant, even in subsequent
years, while for floating-rate positions the interest rate is updated with respect to the reference variable
component, and the originally established spread is kept constant.
Expected cash flows take account of the expected repayment schedule, the expected recovery value of
collaterals, if any, as well as the costs expected to be incurred for the recovery of the credit exposure.
The value adjustments are booked to the profit and loss statement to item “130 - Net impairment
losses (reversals)”. The adjustment component attributable to the discounting of cash flows is
calculated on an accrual basis in accordance with the effective interest rate method and posted under
reversals.
In the Notes, impairment losses on non-performing exposures are classified as specific in the cited
income statement item, even when the calculation method is statistical in nature.
If the quality of the non-performing receivable has improved to such a point that there is reasonable
certainty of timely recovery of the principal and interest, its initial value is recycled in the following
years to the extent in which the reasons determining the adjustment disappear, provided that such
valuation can be objectively linked with an event which occurred after the adjustment. The reversal is
posted to the profit and loss statement and may not in any case exceed the amortised cost that the
receivable would have had without prior adjustments.
Receivables with no objective evidence of loss are subject to a collective assessment of impairment.
Such assessment, developed on the basis of a risk management model, is carried out by category, with
receivables grouped together according to credit risk, and the relative loss percentages are estimated
taking into account time-series based on elements observed on the date of assessment which allow the
value of latent loss in each category to be estimated.
The model, for this type of valuation, involves the following steps:
Segmentation of the loan portfolio by:
- client segment (turnover);
- economic sectors of activity;
- geographical location;
determination of the loss rate of individual portfolio segments, using the historical experience of
the Group as reference.
Value adjustments determined collectively are posted to the profit and loss statement. Any additional
write-downs or write-backs are recalculated on a differential basis, at year-end or on the dates of
interim reports, with reference to the entire loan portfolio on the same date.
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Notes to the consolidated financial statements - Part A - Accounting policies 172
d) derecognition criteria
Any receivables sold are derecognised from the assets on the balance sheet only if their disposal
implied the substantial transfer of all associated risks and rewards. However, if the risks and rewards
associated with the receivables sold have been maintained, they continue to be posted among the
assets on the balance sheet, even if legal ownership has been transferred.
If it is not possible to ascertain a substantial transfer of all risks and rewards, the receivables are
derecognised when control of the assets has been surrendered. If such control has been maintained,
even partly, the receivables should continue to be recognised to the extent of residual involvement, as
measured by the exposure to the changes in value of the receivables sold and to the changes in their
cash flows.
In addition, receivables sold are derecognised if the contractual rights to receive the cash flows from
the assets are maintained and a contractual obligation to pay only said flows to third parties is
simultaneously undertaken (pass through arrangements).
Lastly, receivables are fully derecognised when they are deemed irrecoverable or they are written off.
Derecognitions, for the portion exceeding the relative provision, are allocated directly to income
statement item 130 a) “Net impairment (losses)/reversals” and are recognised as a reduction of the
principal amount of the receivables. Recoveries of partial or entire amounts previously derecognised
are posted to the same item.
5 Financial assets designated at fair value
The Group does not use this portfolio.
6 Hedging transactions
a) recognition criteria – purpose
Risk-hedging transactions are aimed at offsetting any potential losses on a certain element or group of
elements that may arise from a specific risk, with the profits made on a different element or group of
elements, should that particular risk occur.
b) classification criteria – types of hedging
IAS 39 provides for the following types of hedging:
fair value hedges, which are intended to hedge the exposure to changes in fair value of a
recognised asset or liability that are attributable to a particular risk;
cash flow hedges, which are intended to hedge the exposure to variability in future cash flows
attributable to particular risks associated with a recognised asset or liability;
hedges of a net investment in a foreign operation, which refers to hedging the risks of an
investment in a foreign operation denominated in a foreign currency.
To conclude the chapter on the accounting principles, a specific section is added to provide further
insight into the application issues and policies adopted by the Parent Company with regard to hedging
transactions. The hedging policies adopted by the Parent Company are explained, also including the
“natural hedges” provided for by the Fair Value Option, used as an alternative to hedge accounting in
the accounting management of liability hedges.
c) measurement criteria and revenue recognition criteria
Hedging derivatives are measured at fair value. In particular:
in the case of fair value hedging, the changes in the fair value of the hedged asset are recognised,
along with the change in the fair value of the hedging instrument, in profit and loss statement item
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173 Notes to the consolidated financial statements - Part A - Accounting policies
“90 - Net profit (loss) from hedging”. Any difference, i.e. partial ineffectiveness of the hedging
derivatives, reflects their net P&L impact;
in the case of cash flow hedging, the changes in fair value of the derivative are posted to a specific
shareholders’ equity reserve with reference to the effective portion of the hedge, and are posted to
the profit and loss statement under item 90 “Net profit (loss) from hedging” only when the
changes in fair value of the hedging instrument do not offset the changes in the cash flows of the
hedged item;
hedges of foreign currency investments are accounted for similarly to cash flow hedges.
A hedging transaction should be reflective of a pre-determined risk management strategy and
consistent with risk management policies in use. In addition, a derivative is designated as a hedging
instrument if the relationship between the hedged item and the hedging instrument is formally
documented, and provided that the hedging relationship is prospectively effective at inception.
Hedge effectiveness depends on the extent to which changes in the fair value or expected cash flows
of the hedged item are offset by corresponding changes in the hedging instrument. Therefore,
effectiveness is measured by comparing said changes, while taking into account the company's intent at
hedge inception.
With reference to the hedged risk, the hedging is effective (within the 80% to 125% window) when the
changes in fair value (or in the cash flows) of the hedging instrument offset the changes in the hedged
item almost entirely.
Effectiveness is assessed at year-end by using:
prospective tests, which justify continuing hedge accounting since they show its expected
effectiveness;
retrospective tests, which show how effective the hedging relationship has been in the period
under review.
Derivatives which are considered as hedging instruments from an economic viewpoint because they
are operationally linked with financial liabilities measured at fair value (Fair Value Option) are classified
among trading derivatives; the respective positive and negative differentials or margins accrued until
the end of the reporting period are recognised, in accordance with their hedging purpose, as interest
income and interest expense, while valuation gains and losses are posted under item 110 of the profit
and loss statement, “Net profit (loss) from financial assets and liabilities designated at fair value”.
d) derecognition criteria – ineffectiveness
If tests do not confirm hedge effectiveness, both retrospectively and prospectively, hedge accounting is
discontinued and, unless it has expired or has been terminated, the hedging derivative contract is
reclassified as a held-for-trading instrument, whereas the hedged item reverts to the accounting
treatment based on its original classification.
If a fair value hedge relationship is discontinued, any positive or negative adjustments made to the
carrying amount of the hedged item until the last date on which compliance with hedge effectiveness
was demonstrated are recycled into profit and loss. In particular, if the hedged item has not been
derecognised, transfer to profit or loss is made using the effective interest method over the remaining
life of the hedged instrument; if discontinuation of the hedge relationship leads to derecognition of the
hedged item (for example due to early redemption), any gain or loss shall be entirely classified to profit
or loss when the hedged item is derecognised.
Any amounts accumulated in cash flow hedge reserves are recycled to profit or loss when the hedged
item affects profit or loss. Conversely, if the hedged item is discharged, cancelled or expires the reserve
is immediately recycled to profit or loss upon derecognition of the hedged item.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 174
7 Equity investments
a) recognition criteria
The account includes equity investments held in associates and joint ventures; the investments are
initially recognised at purchase cost.
b) classification criteria
Please refer to item 10.6 “Key considerations and assumptions to determine the existence of joint
control or significant influence” in Part B – “Assets” of these Notes to the financial statements.
c) measurement criteria and revenue recognition criteria
In consideration of the above, this item broadly contains the valuation of equity investments using the
equity method; this method provides for initial recognition of the investment at cost and its
subsequent adjustment on the basis of the share of the investee's profits and losses made after the date
of purchase. The pro-rata amount of the profit/loss for the period of the investee is posted to item
240 “Gains/losses on investments” in the consolidated income statement.
If evidence of impairment indicates that there may have been a loss in value of an equity investment,
then the recoverable value of the investment (which is the higher of the fair value, less costs to sell, and
the value in use) should be estimated. The value in use is the present value of the future cash flows
expected to be derived from the investment, including those arising from its final disposal.
Should the recoverable value be less than its carrying value, the difference is recognised immediately in
profit or loss under item “240 - Gains (losses) on investments”.
Should the reasons for impairment no longer apply as a result of an event occurring after the
impairment was recognised, reversals of impairment losses are credited to the same account in profit
and loss.
The profit related to the equity investments is booked to profit and loss of the Parent Company
regardless of whether it was generated by the investee before or after the date of purchase. In the
consolidated financial statements, dividends received are deducted from the investee’s book value;
should, after dividend recognition, the investee’s book value in the separate financial statements exceed
the book value (in the consolidated financial statements) of the investee’s net assets, including
goodwill, or should dividend payout exceed the investee’s total profit, then the Group will determine
the recoverable value of the investment to verify whether there has been a loss in its value.
d) derecognition criteria
Investments are derecognised upon maturity of the contractual rights on the cash flows resulting from
the assets or when the financial assets are sold and all related risks/rewards are transferred.
8 Property, plant and equipment
a) recognition criteria
Property, plant and equipment are originally recognised at cost, which includes the purchase price and
any additional charges directly attributable to the purchase and installation of the assets.
Non-recurring expenditures for maintenance which involve an increase in future economic rewards are
booked as an increase in the value of the assets, while expenses for ordinary maintenance are booked
to the profit and loss statement.
b) classification criteria
Fixed assets include land, operating properties, investment properties, systems, furnishings and
fixtures, equipment of any type and works of art.
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175 Notes to the consolidated financial statements - Part A - Accounting policies
Operating properties are properties owned by the Group and used in production and in the supply of
services or for administrative purposes, whereas investment properties are those owned by the Group
for the purpose of collecting rents and/or held for appreciation of capital invested.
This item also includes any assets used in financial lease contracts, although their legal ownership rests
with the leasing company, and any improvements and incremental expenses incurred in relation to
third-party assets when they refer to identifiable and separable property, plant and equipment from
which future economic rewards are expected. As regards real estate, components relating to land and
buildings are separate assets for accounting purposes and are measured separately upon acquisition.
c) measurement criteria and revenue recognition criteria
Property, plant and equipment, including non-operating real estate, are valued at cost less any accrued
depreciation and impairment.
They are systematically depreciated over their useful life on a straight-line basis, except for land and
works of art which have an indefinite useful life and cannot be depreciated. The useful life of the fixed
assets subject to depreciation is periodically reviewed and, in the event of any adjustments to the initial
estimate, a change is also made in the related depreciation rate. The depreciation rates and subsequent
useful life expected for the main categories of assets are reported in the specific sections of the notes
to the financial statements.
The presence of any signs of impairment, or indications that assets might have lost value, shall be
tested at the end of each reporting period.
Should there be indications of impairment of value, a comparison is made between the book value of
the asset and the asset's recoverable value, i.e. the higher of the fair value, less costs to sell, and the
value in use, which is the present value of the future cash flows generated by the asset. Any
adjustments are posted to the profit and loss statement under item 170 “Net impairment
losses/reversals on property, plant and equipment”. Periodic depreciation is reported in the same item.
Where the reasons for impairment cease to exist, a reversal is made, which shall not exceed the
carrying amount that would have been determined (net of depreciation or amortization) had no
impairment loss been recognised for the asset in prior periods.
d) derecognition criteria
Property, plant and equipment are derecognised from the balance sheet upon their disposal or when
the assets are permanently withdrawn from use and no future economic rewards are expected as a
result of their disposal.
9 Intangible assets
a) recognition criteria
Intangible assets are identifiable, non-monetary assets without physical substance that are held for use
over several years or indefinitely. They are recognised at cost, adjusted by any additional charges only if
it is probable that the future economic rewards that are attributable to the asset will flow to the entity
and if the cost of the asset can be measured reliably. The cost of intangible assets is otherwise posted
to the profit and loss statement in the reporting period it was incurred.
Relevant intangible assets for the Group include:
technology-related intangible assets including software licenses, internal capitalised costs, projects
and licenses under development; in particular, internally incurred costs for software project
development are intangibles recognised as assets if, and only if: a) the cost for development can be
measured reliably, b) the entity intends and is financially and technically able to complete the
intangible asset and either use it or sell it, c) the entity is able to demonstrate that the asset will
generate future economic rewards. Capitalised costs for software development only include the
expenses that are directly attributable to the development process.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 176
customer relationship intangible assets, represented by the value of assets under
management/custody and core deposits in the event of business combinations.
Goodwill is posted among assets when it results from a business combination transaction in
accordance with the principles of determination indicated by IFRS 3, as a residual surplus between the
overall cost incurred for the transaction and the net fair value of the assets and liabilities purchased (i.e.
companies or business units).
Should the cost incurred be less than the fair value of the assets and liabilities acquired, the difference
(badwill) is directly recognised in profit or loss.
b) classification, measurement and revenue recognition criteria
The cost of intangible fixed assets is amortised on a straight-line basis over their useful life. An
intangible asset with an indefinite useful life should not be amortised but assessed for impairment
periodically. Intangible assets arising from an internally developed software purchased from third
parties are amortised on a straight-line basis starting from completion and roll-out of the applications
based on their useful life. Intangible assets reflective of customer relationships, which are taken over
during business combinations, are amortised on a straight-line basis.
Where there is evidence of impairment, the recoverable amount of the assets is estimated at each
reporting date. The amount of the loss recognised in profit and loss is equal to the difference between
the carrying value and the recoverable amount of the assets.
The goodwill recognised is not subject to amortisation, but its book value is tested annually (or more
frequently) when there are signs of impairment. To this end, the cash flow generating units to which
goodwill is attributable are identified.
The amount of the impairment loss is determined by the difference between the book value of
goodwill and its recoverable amount, if lower. Said recoverable amount is the higher of the cash-
generating unit's fair value, less costs to sell, and its value in use. Value in use is the present value of
future cash flows expected to arise from the years of operation of the cash-generating unit and its
disposal at the end of its useful life. The resulting value adjustments are posted to the profit and loss
statement under item 210 “Net adjustments to (recoveries on) intangible assets”. Periodic amortisation
is reported in the same item. An impairment loss recognised for goodwill shall not be reversed in a
subsequent period.
c) derecognition criteria
Intangible assets are derecognised from the balance sheet upon disposal and when no future economic
rewards are expected.
10 Non-current assets held for sale
a) recognition criteria
Non-current assets held for sale and discontinued operations are initially valued at the lower of the
book value and the fair value less costs to sell.
b) classification criteria
This item includes non-current (tangible, intangible and financial) assets held for sale and discontinued
operations, with the relative associated liabilities, when the book value is to be recovered mainly
through a highly likely sale rather than continuous use.
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177 Notes to the consolidated financial statements - Part A - Accounting policies
c) measurement criteria and revenue recognition criteria
Following initial recognition, non-current assets held for sale and discontinued operations, with the
relative liabilities, are valued at the lower of the book value and the fair value net of selling costs.
The valuation reserves relating to non-current assets held for sale, recorded as a contra-entry to
changes in value relevant for that purpose, are recognised in the statement of comprehensive income.
Income and costs relating to groups of assets and liabilities held for sale, net of the tax effect, are
recognised in profit and loss item 310 “Profit (loss) after tax from assets held for sale and discontinued
operations”. Profit and loss associated with individual assets held for sale are recognised in the most
appropriate income statement item.
In the case of discontinued operations, it is also necessary to disclose again the same economic
information in a separate item for the previous periods presented in the financial statements,
reclassifying the profit and loss statements as a result.
Amortisation is discontinued at the date the non-current asset is classified as a non-current asset held
for sale.
d) derecognition criteria
Non-current assets held for sale and discontinued operations are derecognised from the balance sheet
upon disposal.
11 Current and deferred tax
a) recognition criteria
The effects of current and deferred taxation calculated in compliance with Italian tax laws are
recognised on an accrual basis, in accordance with the measurement methods of the income and
expenses which generated them, by administering the applicable tax rates.
Income taxes are posted to profit and loss, excluding those relating to items directly credited or
charged to equity.
Income tax provisions are determined on the basis of a prudential forecast of current tax expense,
deferred tax assets and liabilities.
Current tax includes the net balance of current tax liabilities for the year and current tax assets with the
Financial Administration, comprising tax advances, tax credit arising from prior tax returns and other
withholding tax receivables. In addition, current tax includes tax credit for which reimbursement has
been requested from the relevant tax authorities. Tax receivables transferred as a guarantee of own
debts shall also be recorded within this scope.
Deferred tax assets and liabilities are determined on the basis of the temporary differences – with no
time limits – between the value assigned to the assets or liabilities in accordance with statutory
principles and the corresponding values for tax purposes, applying the so-called balance sheet liability
method.
Deferred tax assets determined on the basis of deductible temporary differences are shown in the
balance sheet for the extent to which they are likely to be recovered on the basis of the capacity of the
company involved or all of the participating companies – as a result of exercising the option
concerning “fiscal consolidation” – to generate a positive taxable profit on an ongoing basis, in light of
a probability test.
For a description of the specific methodology of the probability test, please refer to the notes to these
consolidated financial statements, paragraph 14.7 of Section 14 - Part B - Information on the balance
sheet.
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Notes to the consolidated financial statements - Part A - Accounting policies 178
Recovery of deferred tax assets relating to goodwill, other intangibles and write-downs on loans is to
be considered automatically probable because of existing regulations that provide for conversion into
tax credits, if a statutory and/or tax loss is incurred.
In particular:
- if the financial statements filed by the company show a statutory loss for the year, deferred tax
assets relating to goodwill, other intangible assets and loan write-downs will be subject to partial
conversion into tax credits pursuant to the provisions set out in art. 2, par. 55 of Law Decree no.
225 of 29 December 2010, as amended by Law no. 10 of 26 February 2011. The conversion into
tax credits becomes effective as of the date when the ‘loss-incurring’ separate financial statements
are approved by the Shareholders’ Meeting, as provided for by art. 2, par. 56 of aforementioned
Law Decree no. 225/2010.
- if the financial statements filed by the company show a tax loss for the year, deferred tax assets
relating to goodwill, other intangible assets and loan write-downs will be subject to conversion into
tax credits pursuant to the provisions set out in art. 2, par. 56-bis of said Law Decree no.
225/2010, introduced by art. 9 of Law Decree no. 201 of 6 December 2011, as amended by Law
no. 214 of 22 December 2011. Conversion will be effective as of the date of submission of the tax
return for the year in which the loss is incurred.
As a result of changes introduced to the above provisions by Law no. 147 of 27 December 2013,
starting from the tax period in progress as at 31 December 2013, the conversion into tax credits of
deferred tax assets relating to goodwill, other intangible assets and loan losses and write-downs has
also been extended to IRAP (regional productivity tax), in the case of both a statutory loss for the year
and a negative production value.
On 27 June 2015, Law Decree no. 83/2015 (converted by Law no. 132 of 6 August 2015) was
published in the Official Gazette (no. 147), which amended, inter alia, the tax deductibility regime with
regard to the IRES and IRAP to which losses and write-downs on loans to customers of credit and
financial institutions and insurance companies are subject and the ability to convert DTAs relating to
goodwill and other intangible assets into tax credits.
In this regard, this tax measure set forth the following, in brief:
1. starting from 2016, full deductibility during the year of recognition in the income statement of loan
write-downs and losses, unlike the previous situation which envisaged deduction in 5 years;
2. the new scheduling in 10 years, starting in 2016, of the stock of loan write-downs and losses
deferred in prior years pursuant to the current legislation (18ths and fifths);
3. termination of the possibility to convert any DTAs relating to goodwill and other intangible assets
recognised in the financial statements as of 2015 and later into tax credits.
As a result of these provisions, the DTAs that can be converted ceased to increase starting from 2016.
In particular, the prerequisite for the future recognition of “convertible” DTAs relating to goodwill
and other intangible assets as well as write-downs and losses on loans ceased to apply, with the latter
becoming deductible negative income components (with the exception noted above of the portion not
deductible in 2015).
On 3 May 2016, Law Decree no. 59/2016 was published in the Official Gazette (no. 102) (converted
by Law of 30 June 2016 no. 119). In addition, on 17 February 2017, Law no. 237 of 23 December 2016
- “Urgent provisions for the protection of savings in the credit sector” was converted into Law no. 15.
As regards convertible DTAs, this Decree established that to continue to apply the existing rules on
conversion into tax credits of deferred tax assets, companies must have exercised an irrevocable option
and pay an annual fee payable with respect to each of the financial years from 2016 and subsequently,
if the conditions exist, until 2030. The Bank exercised this option, thus maintaining, on its own behalf
and for companies within the tax consolidation, the future right to the transformation into tax credits
of DTAs relating to goodwill, other intangible assets and write-downs and losses on loans.
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179 Notes to the consolidated financial statements - Part A - Accounting policies
Deferred tax assets on unused tax losses are recognised based on the same criteria as those used to
recognise deferred tax assets on deductible temporary differences: therefore, they are shown in the
balance sheet to the extent to which they are likely to be recovered on the basis of the capacity of the
company to generate a positive taxable profit in the future. Since the existence of unused tax losses
may be symptomatic of difficulties to generate positive taxable profit in the future, IAS 12 establishes
that if losses have been posted in recent periods, suitable evidence must be provided to support the
existence of such profit in the future. Furthermore, current Italian tax law allows for IRES losses to be
carried forward indefinitely (art. 84, paragraph 1, of the Income Tax Act – TUIR); as a result, verifying
the existence of future taxable profit against which to use such losses is not subject to any time limits.
Deferred tax assets and liabilities are calculated using the tax rates expected at the date on which the
temporary differences are reversed, on the basis of the provisions in force at the reporting date. Any
changes in tax rates or tax standards having a significant effect on deferred tax assets and liabilities that
are issued or announced after the reporting date and before the publication authorisation date are
treated as events after the balance sheet date that do not entail an adjustment pursuant to IAS 10, with
the resulting disclosure in the notes.
Deferred tax assets and liabilities are posted to the balance sheet by offsetting each tax against the
defined asset or liability to which it relates.
Lastly, please note that Law no. 208 of 28 December 2015 (the 2016 Stability Law) established:
effective for tax periods subsequent to that under way as at 31 December 2016, reduction of
the IRES to 24%;
for the credit and financial institutions pursuant to Legislative Decree no. 87/92, application
of an additional IRES tax of 3.5% as of tax periods subsequent to that under way as at 31
December 2016, to be calculated on individual taxable income for companies participating in
tax consolidation.
b) classification and measurement criteria
Deferred tax assets and liabilities are systematically measured to take account of any changes in
regulations or tax rates and of any different subjective situations of Group companies. The charges
which might result from already notified tax assessments or litigation pending with the tax authorities
are instead recognised in “Net provisions for risks and charges”.
With reference to fiscal consolidation of the parent company and participating subsidiaries, contracts
have been stipulated to regulate offsetting flows in relation to the transfers of tax profits and losses.
Such flows are determined by administering the applicable IRES tax rate to the taxable income of
participating companies. The offsetting flow for companies that transfer tax losses – calculated as
above – is posted by the consolidating to the consolidated company when and to the extent to which
the consolidated company will transfer positive taxable income in tax periods subsequent to that in
which the loss was recorded. Offsetting flows so determined are posted as receivables and payables
with companies participating in fiscal consolidation, classified under other assets and other liabilities,
offsetting item 290 “Tax expense (recovery) on income from continuing operations”.
c) revenue recognition criteria
Where deferred tax assets and liabilities refer to components which affected the profit and loss
statement, they are offset by income tax. When deferred tax assets and liabilities refer to transactions
which directly affected equity without impacting the profit and loss statement (e.g. valuations of
available-for-sale financial instruments or cash flow hedging derivatives), they are posted as a contra
entry to shareholders’ equity, involving the special reserves if required.
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Notes to the consolidated financial statements - Part A - Accounting policies 180
12 Provisions for risks and charges
Provisions to the reserve for risks and charges are made only when:
there is a current (legal or implicit) obligation resulting from a past event;
an outflow of resources producing economic rewards is likely to be necessary in order to settle the
obligation; and
the amount of the obligation can be estimated reliably.
Whenever timing is important, the provisions are discounted back.
Provisions to the reserve are posted to the profit and loss statement, in addition to interest expense
accrued on the reserves which were subject to discounting.
No provision is shown for contingent and unlikely liabilities, but information is provided in the notes
to the financial statements, except in cases where the probability of an outflow of resources to settle
the amount is remote or the amount is not significant.
Sub-item 120 “Provisions for risks and charges: post-employment benefits” includes appropriations in
compliance with the 2011 revised version of IAS 19 “Employee benefits” for the purpose of settling
the technical deficit of defined benefit supplementary pension funds. Pension plans are either defined
benefit or defined-contribution schemes. The charges borne by the employer for defined contribution
schemes are pre-determined; charges for defined benefit plans are estimated and shall take account of
any shortfall in contributions or poor investment performance of defined benefit plan assets.
For defined benefit plans, the actuarial values required by the application of the above principle are
determined by an external actuary in accordance with the Projected Unit Credit Method). In particular,
the accounting treatment of net defined benefit liabilities is as follows:
1) any surplus or deficit in the plan is measured as the difference between the present value of
the defined benefit obligation (DBO) and the fair value of the plan’s assets, when present;
2) when the plan is in deficit, the net defined benefit liability recognised in the balance sheet is
equal to the deficit itself;
3) when the plan is in surplus, it is necessary to determine the present value of any future
economic benefits available to the Parent Company in the form of refunds from the plan or
reductions in future contributions to the plan (asset ceiling);
4) when the asset ceiling is lower than the surplus, the net defined benefit asset is to be
recognised in the balance sheet in an amount equal to the asset ceiling.
In essence, if the Parent Company cannot use the surplus in any way then no asset may be recognised
in the balance sheet.
An increase in the present value of the DBO resulting from employee service in the current year is
recognised in the Parent Company's P&L, regardless of whether the plan is in surplus or deficit, as is
the case for past service costs and interest costs.
The following components, on the other hand, are immediately recognised in the statement of
comprehensive income:
1) actuarial gains and losses on the DBO;
2) difference between the actual return on plan assets and net income on the plan assets;
3) any change in the effect of the asset ceiling, excluding the interest income component.
Sub-item 120 “Provisions for risks and charges: other provisions” includes any provision to cover
expected losses for actions filed against the Bank, including clawback actions, estimated expenses in
relation to customer claims for securities brokerage, and other estimated expenses in relation to legal or
implicit obligations existing at the end of the period.
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181 Notes to the consolidated financial statements - Part A - Accounting policies
13 Liabilities and debt securities issued
a) recognition criteria
These financial liabilities are first recognised upon receipt of the sums collected or at the time of
issuance of debt securities.
Liabilities are initially recognised at their fair value, which is generally equal to the amount received or
the issue price, increased by any additional income/expense directly attributable to the funding or
issuing transaction and not reimbursed by the creditors. Internal administrative costs are excluded. The
fair value of financial liabilities (if any) issued at conditions other than market conditions is calculated
by using a specific valuation technique, and the difference with respect to the consideration received is
booked directly to profit and loss only when the conditions provided for by IAS 39 have been met, i.e.
when the fair value of the instrument issued can be established by using either quoted market prices
for similar instruments or a valuation technique based solely on market data.
b) classification criteria
Deposits from banks and customers and securities issued include different types of funding (both
interbank and from customers) and funds raised through certificates of deposit and outstanding bonds,
net of any repurchase. Debt securities issued include all securities that are not subject to “natural”
hedging through derivatives and that are classified as liabilities measured at fair value.
The item also incorporates payables booked by the lessee in relation to any stipulated financial lease
transactions.
c) measurement criteria and revenue recognition criteria
Following initial recognition, financial liabilities are valued at amortised cost using the effective interest
method.
Short-term liabilities for which time effect is immaterial are an exception, and are recognised at the
amount collected.
Should the requirements provided for by IAS 39 for the separate recognition of embedded derivatives
be met in the case of structured instruments, they are separated from the host contract and reported at
fair value as a trading asset or liability. In this case, the host contract is recognised at amortised cost.
d) derecognition criteria
Financial liabilities are derecognised upon maturity or extinction. Derecognition also occurs if
previously issued securities have been repurchased. The difference between the book value of the
liabilities and the amount paid to repurchase them is recorded in the profit and loss statement.
A new placement in the market of own securities after their repurchase is considered as a new issue
and posted at the new price of placement, with no impact on the profit and loss statement.
In compliance with the provisions of IAS 32, any potential commitment to buy treasury shares as a
result of the issuance of put options is shown in the balance sheet under financial liabilities, offset by
the reduction of shareholders’ equity in the amount of the current value of the contractual repayment
sum. At the end of 2017, there were no put options sold on treasury shares of the Parent company.
14 Financial liabilities held for trading
a) recognition criteria
Financial liabilities held for trading are initially recognised on the date of issue for debt securities, and
on the date of subscription for derivatives.
Upon initial recognition, they are measured at fair value, which usually corresponds to the amount
collected net of any transaction costs or income directly attributable to the instrument itself, which are
directly posted to the profit and loss statement. Any embedded derivatives in combined financial
instruments not directly connected to the latter and with the characteristics to meet the definition of a
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Notes to the consolidated financial statements - Part A - Accounting policies 182
derivative are recognised separately from the host contract at fair value. The applicable accounting
criteria are administered to the primary contract.
b) classification criteria
This category includes debt securities issued mainly for the purpose of obtaining short-term profits
and the negative value of derivative contracts excluding those designated as hedging instruments.
Derivative contracts include those embedded in combined financial instruments which were subject to
separate accounting.
The sub-items “Deposits from banks” and “Deposits from customers” also incorporate uncovered
short positions on securities.
c) measurement criteria
Following initial recognition, financial liabilities held for trading are measured at fair value, every
changes in fair value are recognised in the income statement.
For a description of criteria used to determine the fair value of financial instruments, please see section
“A.4.5 Fair Value Hierarchy” of this Part A.
d) derecognition criteria
Financial liabilities are derecognised upon maturity or extinction. Derecognition also occurs if
previously issued securities have been repurchased. The difference between the book value of the
liabilities and the amount paid to repurchase them is booked in the profit and loss statement.
e) revenue recognition criteria
Profits and losses arising from any changes in the fair value of financial liabilities are recognised in
profit and loss under item “80 Net profit/loss from trading”, except for gains and losses on derivative
payables linked with the fair value option which are classified under item “110 Net profit/loss from
financial assets and liabilities designated at fair value”.
15 Financial liabilities designated at fair value
a) recognition criteria
Financial liabilities measured at fair value are initially recognised on the date of issuance for debt
securities. Upon initial recognition, they are measured at fair value, which usually corresponds to the
amount collected net of any transaction costs or income directly attributable to the instrument itself,
which are directly posted to the profit and loss statement.
The fair value of financial liabilities (if any) issued at conditions other than market conditions is
calculated by using a specific valuation technique, and the difference with respect to the consideration
received is booked directly to profit and loss only when the conditions provided for by IAS 39 have
been met, i.e. when the fair value of the instrument issued can be established by using either quoted
market prices for similar instruments or a valuation technique based solely on market data. Should
these conditions not be available, the fair value used for valuations after the issuance of instruments is
cleared of the initial difference between the fair value upon issuance and the consideration received.
This difference is recognised in profit and loss only if it ensues from changes in the factors (including
time), which market traders would consider for price determination.
b) classification criteria
According to IAS 39, this category includes financial liabilities which have been recognised at fair value
through profit or loss; this option is allowed when:
1. the designation at fair value allows for the elimination or reduction of significant
misrepresentations of the financial instruments in the profit and loss statement and balance sheet;
or
2017 ANNUAL REPORT
183 Notes to the consolidated financial statements - Part A - Accounting policies
2. the management and/or measurement of a group of financial instruments at fair value through
profit or loss is consistent with an investment or risk management strategy documented as such by
senior management;
or
3. a host instrument embeds a derivative which significantly modifies the cash flows of the host and
should otherwise be accounted for separately.
The Parent Company has exercised this option in case 1, classifying under this item financial liabilities
that are subject to “natural hedging” through derivative instruments. In item 17 “Other information”, a
specific section is included to provide insight into the hedging management methods through the
adoption of the fair value option.
c) measurement criteria
Following initial recognition, financial liabilities are measured at fair value.
For a description of criteria used to determine the fair value of financial instruments, please see section
“A.4.5 Fair Value Hierarchy” of this Part A.
d) derecognition criteria
Financial liabilities are derecognised upon maturity or extinction. Derecognition also occurs if
previously issued securities have been repurchased. The difference between the book value of the
liabilities and the amount paid to purchase them is recorded in the profit and loss statement under item
110 “Net profit/loss from financial assets and liabilities designated at fair value”. The cumulative
amount recognised from early partial application of IFRS 9 among other items of the statement of
comprehensive income as at the repurchase date is reclassified under retained earnings.
e) revenue recognition criteria
As a result of early partial adoption of IFRS 9, starting from the current year, gains and losses arising
from any changes in the fair value of a financial asset are recognised:
under other comprehensive income, as regards the change in the fair value that is attributable
to changes in the issuer’s credit risk, unless this creates or increases an accounting mismatch in
the profit (loss) for the year, in which case the entire change in fair value of the liability must
be presented within profit and loss;
in profit and loss under item “110 Net gains/losses on financial assets and liabilities
designated at fair value”, for the portion of fair value change not attributable to changes in the
issuer’s creditworthiness.
The economic effect of derivatives linked with the fair value option is classified under item “110 Net
gains/losses on financial assets and liabilities designated at fair value”.
16 Foreign-currency transactions
a) recognition criteria
Upon initial recognition, foreign-currency transactions are recognised in the currency of account using
the foreign-exchange rates on the date of the transaction.
b) revenue classification, measurement, recognition and derecognition criteria
Financial statement entries denominated in foreign currencies are valued at the end of each reporting
period as follows:
monetary entries are converted using the exchange rate on the closing date;
non-monetary entries valued at historical cost are converted using the exchange rate on the date of
the transaction;
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Notes to the consolidated financial statements - Part A - Accounting policies 184
non-monetary entries that are measured at fair value in a foreign currency are translated at the
closing date rate.
Any exchange-rate differences resulting from the settlement of monetary elements, or from the
conversion of monetary elements at rates other than those used for initial conversion or conversion in
the previous financial statements, are posted to the profit and loss statement for the period in which
they arise.
When a profit or a loss on a non-monetary element is recognised in equity, the exchange-rate
difference in relation to said element is also posted to equity. However, when a profit or a loss is
posted to the profit and loss statement, the relative exchange-rate difference is also posted there.
The accounting position of foreign branches with different operating currencies is converted into
Euros by using the exchange rates at the end of the reporting period.
Any exchange-rate differences attributable to investments in such foreign branches, and those resulting
from the conversion into Euros of their accounting position, are recognised in equity reserves and
transferred to the profit and loss statement only in the year when the investment is disposed of or
reduced.
17 Other information
Other significant items
Other significant items from the Group’s financial statements are described below.
Cash and cash equivalents
This item includes currencies that are legal tender, including foreign banknotes and coins and demand
deposits with the central bank of the country or countries in which the Group operates with its own
branches.
The item is posted at face value. For foreign currencies, the face value is converted into Euros at year-
end exchange rate.
Value adjustment of macro-hedged financial assets and liabilities
These items show, respectively, the net amount, whether positive or negative, of the changes in value
of the macro-hedged assets and the net amount, whether positive or negative, of the changes in value
of liabilities macro-hedged against interest-rate risk, pursuant to IAS 39, paragraph 89.
Other assets
This item shows assets not attributable to the other items on the asset side of the balance sheet. It may
include, for example:
gold, silver and precious metals;
accrued income other than that which is capitalised to the related financial assets;
any inventories according to the definition of IAS 2;
improvements and incremental expenses incurred on third-party real estate other than those
attributable to property, plant and equipment and therefore not independently identifiable and
separable.
The costs in the latter bullet point are posted to other assets, since the user company exercises control
of the assets for the purpose of the tenancy agreement and can obtain future economic benefits from
them. Said costs are posted to Item 220 “Other operating expenses (income)” on the income statement
according to the shorter of the period in which the improvements and expenses can be used and the
remaining term of the contract.
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185 Notes to the consolidated financial statements - Part A - Accounting policies
Severance pay
Employee severance pay is a defined benefit allowance subsequent to the employment relationship;
therefore its actuarial value must be estimated for the purpose of the financial statements. This
estimate is carried out using the “Projected Unit Credit” method, which predicts future disbursements
on the basis of statistical historical analysis and the demographic curve, and the financial discounting of
such flows according to market interest rates. For the calculation of liabilities to be recognised in the
financial statements, the 2011 revised version of IAS 19 “Employee benefits” has been applied; please
refer to the paragraph “Provisions for risks and charges” regarding defined benefit pension plans.
The costs accrued during the year for servicing the plan are posted to the profit and loss statement
under item “180 a) Personnel expenses”.
After the reform of supplementary pension funds as per Legislative Decree no. 252 of 5 December
2005, severance pay quotas accrued to 31 December 2006 remain with each company of the Group,
while severance pay quotas accrued after 1 January 2007, at the discretion of the employee, are
assigned to supplementary pension funds or maintained with the individual companies, which will
provide for their transfer to the Treasury Fund managed by the Italian National Social Security
Institute, INPS.
Other liabilities
This item shows liabilities not attributable to other items on the liability side of the balance sheet.
It includes, for example:
a) payment agreements that must be classified as debit entries according to IFRS 2;
b) debit entries connected with payment for provision of goods and services;
c) accrued liabilities other than those to be capitalised to the respective financial liabilities.
Other significant accounting practices
Details on significant accounting criteria for purposes of understanding the financial statements are
shown below.
Treasury shares
Any shares of Parent Company Banca Monte dei Paschi di Siena S.p.A. held by Group companies are
recorded in their own item and deducted directly from equity. No profits or losses are posted to the
income statement upon the purchase, sale, issue or cancellation of the Parent Company’s equity
instruments. Any amount paid or received is posted directly to equity.
Dividends and income/cost recognition
Revenues are recognised upon attainment, or: in the case of selling goods or products, when it is likely
that future benefits will be received and said benefits can be reliably quantified; in the case of services,
when these are provided.
In particular:
a) interest is booked pro rata temporis on the basis of contractual interest rate or the effective
interest rate in the event of application of the amortised cost;
b) interest on arrears is posted to the profit and loss statement only upon actual collection;
c) dividends are shown in the profit and loss statement upon resolution of their payout, i.e. when
their payment is due;
d) commissions for service income are posted in the period when said services were rendered, on
the basis of existing contractual agreements;
e) revenues from trading or from issuance of financial instruments, as determined by the
difference between the transaction price and the fair value of the instrument, are booked to
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Notes to the consolidated financial statements - Part A - Accounting policies 186
the profit and loss statement upon reporting of the transaction if the fair value can be
determined with reference to parameters or recent transactions observable on the same market
in which the instrument is traded; otherwise, they are distributed over time, taking into
account the duration and the nature of the instrument.
f) portfolio management fees are recognised based on the duration of service;
g) expenditures are booked to profit and loss during the periods in which the related revenues
are booked. Expenditures that cannot be associated with income are booked immediately to
the profit and loss statement.
Business combinations
A business combination is defined as the transfer of control of a company (or of a group of assets and
integrated goods, conducted and managed as a unit). For the definition of control, please refer to
Section 3 “Scope of consolidation” of this part A of the notes.
A business combination may give rise to an investment link between the acquiring parent company and
the acquired subsidiary. In these cases, the acquirer applies IFRS 3 to the consolidated financial
statements while posting the acquired interest to its separate financial statements as an equity interest
in a subsidiary, consequently applying IFRS 10.
A business combination may also provide for the acquisition of the net assets of another entity,
including any goodwill, or the acquisition of the share capital of another entity (for example mergers,
splits, acquisitions of business units). Such a business combination is not an investment link like the
one between a parent company and subsidiary, and therefore in these cases IFRS 3 is also applied to
the individual financial statements.
Based on the provisions of IFRS 3, an acquirer must be identified for all combination transactions. It is
identified as the subject that obtains control over another entity or group of assets.
The acquisition must be posted to the accounts on the date when the acquirer effectively obtains
control over the entity or assets acquired.
At the date of acquisition, the acquirer must recognise goodwill as the difference between:
(a) the sum of:
i. the consideration generally measured at fair value at the acquisition date;
ii. the amount of any non-controlling interest in the acquired company and
iii. in a business combination carried out in multiple phases, the fair value at the acquisition date
of interests in the acquired company previously held by the acquirer;
(b) the net value of amounts, at the acquisition date, of identifiable assets acquired and identifiable
liabilities assumed.
The acquirer must account for transaction-related costs (legal, accounting costs, consulting expenses,
etc.) as expenses in the periods in which the costs are incurred and the services are received, with the
exception of the costs of issuing debt securities or equity instruments, which must be recognised in
accordance with the provisions of IAS 32 and IAS 39.
The fair value of the assets, liabilities and contingent liabilities of the acquired entity may be
determined provisionally by the end of the first reporting period in which the combination occurs and
must be completed within twelve months of the date of acquisition.
Business combinations do not include transactions aimed at control of one or more entities that do not
constitute a business activity, or aimed at temporary control, or finally, if the business combination is
realised for restructuring purposes, thus among two or more entities or business activities already part
of the MPS Group, and not involving changes to the control structures regardless of the percentage of
rights of third parties before and after the transaction (so-called business combinations of entities
under common control).
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187 Notes to the consolidated financial statements - Part A - Accounting policies
Business combinations under common control
Business combinations between entities under common control do not fall under IFRS 3. In the
absence of a standard of reference, as indicated in Section 1 “Declaration of conformity with
international accounting standards”, these transactions are posted to the accounts by making reference
to preliminary guidance from the Italian Association of Auditors (Orientamenti Preliminari, OPI no. 1
“Accounting treatment of “business combinations of entities under common control” in separate and
consolidated financial statements” and OPI no. 2 “Accounting treatment of mergers in financial
statements”). These guidelines consider the economic significance of business combinations on the
basis of cash flow impact on the Group. Transactions, which had no significant influence on future
cash flows, were recognised using the pooling of interest method. Therefore, in the financial
statements of the seller, the difference between the sale price and the book value is posted as an
increase/decrease in equity. Exclusively in the event of acquisition or transfer of a controlling interest,
the equity investment is posted at acquisition cost in the acquirer/transferee’s financial statements for
the year.
Amortised cost
The amortised cost of financial assets or liabilities is the value at which they were measured upon initial
recognition, net of principal repayments, plus or minus overall amortisation calculated using the
effective interest method, on the differences between the initial value and that at maturity and net of
any permanent impairment.
The effective interest rate is the rate which makes the present value of expected future payment or
collection cash flows (without considering future losses on loans), until maturity or a subsequent price
recalculation date, equal to the net book value of the financial assets or liabilities. To calculate the
current value, the effective interest rate is applied to estimated future collection or payment flows over
the entire useful life of the financial assets or liabilities – or for a shorter period if certain conditions
are met (for example, a change to market rates).
The effective interest rate shall be redetermined where the financial assets or liabilities have been
subject to fair value hedging that has ceased to exist.
In cases in which it is not possible to estimate the cash flows or expected life in a reliable manner, the
Group uses the cash flows contractually envisaged for the entire contractual term.
Following initial recognition, the amortised cost makes it possible to allocate income and costs
reducing or increasing the instrument over its entire expected life by means of the amortisation
process. The determination of the amortised cost is different depending on whether the financial
assets/liabilities are subject to valuation at a fixed or variable rate.
For fixed-rate instruments, future cash flows are quantified based on the known interest rate during
the term of the financing. For floating-rate financial assets/liabilities, whose variability is not known
beforehand (because, for example, it is tied to an index), cash flows are determined on the basis of the
last known rate. At every rate review date, the amortisation schedule and the actual rate of return over
the entire useful life of the instrument, i.e. until maturity, are recalculated. The adjustment is recognised
as cost or income in the profit and loss statement.
Valuation at amortised cost is applied to receivables, held-to-maturity financial assets, financial assets
available for sale, liabilities and debt securities issued; for debt securities classified under assets available
for sale, amortised cost is calculated for the only purpose to post interest (based on the effective
interest rate) to profit and loss; the difference between fair value and amortised cost is allocated to a
specific equity reserve.
Financial assets and liabilities traded at market conditions are initially recognised at their fair value,
which normally corresponds to the amount disbursed or paid inclusive -in the case of instruments
valued at amortised cost- of transaction costs and commissions directly attributable to the assets and
liabilities (such as fees and commissions paid to agents, consultants, intermediaries and dealers), as well
as contributions withheld by regulatory bodies and securities exchanges, taxes, and transfer charges.
These expenses, which must be directly attributable to the individual financial assets or liabilities,
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Notes to the consolidated financial statements - Part A - Accounting policies 188
impact the original actual return and make the effective interest rate associated with the transaction
different from the contractual interest rate. Calculation of the amortised cost does not include costs
that the Group must incur regardless of the transaction (for example, administrative, stationery and
advertising costs), which, even though they are specifically attributable to the transaction, occur in the
normal practice of managing loans (for example, disbursement activities).
With particular reference to receivables, lump-sum reimbursements of expenses incurred by the Group
for the provision of a service must not be attributed in a way that lowers the cost of disbursing the
loan, but since they may be considered as other operating income, the related costs must be posted to a
separate account in the income statement.
Guarantees issued
Adjustments due to any deterioration in the guarantees issued are posted to item 100 “Other
liabilities”. Impairment losses are posted to Item 130 d) “Net impairment losses/reversals on other
financial transactions” in the profit and loss statement.
Accounting for contributions to the resolution funds and the Italian Interbank Deposit Protection Fund
Italian Legislative Decrees nos. 180 and 181 of 2015 transposed directive 2015/59/EU Banking
Resolution and Recovery Directive (“BRRD”), which requires the formation of resolution funds, into
Italian law.
These funds are funded, inter alia, by:
a) annual contributions from banks, in order to reach the target level of fund resources
established by the regulation;
b) extraordinary contributions from banks when ordinary contributions are insufficient to
support approved resolution interventions.
Both types of contribution are subject to interpretation IFRIC 21 “Levies”, as the contribution
obligations are based on legislative provisions. Based on this interpretation, a liability should be
recognised when the “obligating event” takes place which triggers the payment obligation. The
balancing entry of that liability is represented by income statement item 180 (b) “administrative
expenses - other administrative expenses”, as the conditions are not met for the recognition of an
intangible asset pursuant to IAS 38 “Intangible assets”, or for the recognition of an asset for a
prepayment.
The same treatment is applied to “ex ante” contributions made to the Italian Interbank Deposit
Protection Fund within the scope of Directive 2014/49/EU “Deposit Guarantee Schemes” (DGS).
Significant accounting choices made in preparing the financial statements (with particular
reference to the provisions of IAS 1, paragraph 122, and documents nos. 4 of 3 March 2010
and 2 of 6 February 2009, issued jointly by the Bank of Italy/Consob/Isvap)
Decisions by senior management having a significant effect on amounts in the financial statements,
other than those relating to estimates, made when applying accounting principles, are shown below.
Accounting for hedge transactions – adoption of the Fair Value Option
In its financial risk management policy, relating to financial instruments included in the banking book,
the Bank has used the Fair Value Option accounting technique alongside fair value hedging and cash
flow hedging methods.
The Fair Value Option was used to represent operational hedges on fixed-rate or structured bonds
(Accounting Mismatch). In that case the Parent Company, the only issuer within the Group, stipulates
operational microhedging derivative contracts with MPS Capital Services S.p.A., which in turn manages
by assets the Group’s overall exposure to the market.
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189 Notes to the consolidated financial statements - Part A - Accounting policies
The scope of application of the fair value option currently regards primarily fixed-rate securities and
structured securities subject to hedges on interest-rate risk and the risk deriving from embedded
derivative components.
Adopting the Fair Value Option necessitates the liabilities being measured at fair value while also
taking into account changes in own creditworthiness of the issuer, the distorting effects of which are
eliminated from own funds, from the perspective of prudential supervision, in compliance with
prudential regulations in force. Starting from 2017, the Bank exercised early adoption of IFRS 9,
limited to the part that envisages recognition under other comprehensive income of the fair value
changes attributable to the issuer’s creditworthiness.
IAS 39 allows the option of designating a financial instrument under the fair value option to be
exercised irrevocably only upon initial recognition. The fair value option cannot therefore be used for
hedges on funding instruments issued prior to the decision that the hedge be undertaken; hedge
accounting must be used in these cases.
In the Operating Guide no. 4 of the OIC on accounting management of reserves and profit
distribution pursuant to Legislative Decree no. 38 of 28 February 2005, the supervisory authorities
(Bank of Italy/Consob/Isvap) specify that capital gains posted to the profit and loss statement using
the Fair Value Option and not yet realised are not distributable.
Use of estimates and assumptions when preparing financial statements. Main causes of
uncertainty (with particular reference to the provisions of IAS 1, paragraph 125, and
documents nos. 4 of 3 March 2010 and 2 of 6 February 2009, issued jointly by the Bank of
Italy/Consob/Isvap)
The estimates required by accounting standards can have a significant impact on the balance sheet and
profit and loss account, as well as on disclosure of contingent assets and liabilities reported in the
financial statements. Production of these estimates involves the use of available information and
adoption of subjective assessments. By their nature, the estimates and assumptions utilised may vary
from one period to another and, therefore, it cannot be ruled out that in subsequent periods the actual
amounts stated in the accounts may differ, even to a significant extent, as a result of changes in
subjective assessments made. These estimates and valuations are thus difficult and bring about
inevitable elements of uncertainty, even in stable macroeconomic conditions.
The main cases in which subjective valuations are mostly opted for by Management include the:
a) use of valuation models to measure the fair value of financial instruments not listed in active
markets;
b) quantification of impairment losses on loans and, more generally, other financial assets;
c) assessment of the fair value of equity investments, goodwill, other intangible assets and property,
plant and equipment;
d) estimation of liabilities arising from defined benefit company pension funds:
e) estimation of deferred tax assets recoverability;
f) estimation of legal and tax costs.
For a description of item a), please see section A.4.5 Fair Value Hierarchy; in relation to items b) and
c), the most important qualitative issues subject to elements of discretion are described below. The
actual technical and conceptual solutions used by the Group are analysed in more detail in the
individual sections of the notes to the balance sheet and the profit and loss statement, where the
contents of each item in the financial statements are described. With regard to item d) please refer to
section 12 of Liabilities in the Notes to the Financial Statements “Defined benefit company pension
funds”; as for item e) please see section 14 of Assets in the Notes to the Financial Statements “Tax
assets and liabilities”. With reference to point f) please refer to section 12 of Liabilities in the Notes to
the Financial Statements “Provisions for risks and charges” and section 1.4 “Operational Risk” in part
E of the Notes to the Financial Statements.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 190
Methods for determining impairment losses on loans and, more generally, other financial assets
At the end of every reporting period, the financial assets not classified as held-for-trading financial
assets or assets at fair value are evaluated to check whether there is objective evidence of impairment
that might render the book value of these assets not entirely recoverable.
A financial asset has suffered a reduction in value and the impairment losses must be posted to the
financial statements if, and only if, there is objective evidence of a reduction in future cash flows
compared with those originally estimated as a result of one or more specific events that have occurred
after initial recognition; the loss should be determined reliably and in relation with recent events.
The reduction in value may also be caused not by a single separate event but by the combined effect of
several events.
The objective evidence that a financial asset or group of financial assets has suffered a reduction in
value includes measurable data that arise from the following events:
significant financial difficulty of the issuer or debtor;
breach of contract, for example non-fulfilment or failure to pay interest or principal;
granting Beneficiary a credit facility that the Group has taken into consideration primarily for
economic or legal reasons related to the beneficiary’s financial difficulties and that would not have
been granted otherwise;
a reasonable probability that the beneficiary will file for bankruptcy or other financial restructuring
procedures;
disappearance of an active market for that financial asset due to financial difficulties. Nevertheless,
the disappearance of an active market due to the fact that the financial instruments of the
company are no longer publicly traded is not evidence of a reduction in value;
measurable data which indicate the existence of a significant drop in the estimated future cash
flows for a group of financial assets from the time of their initial recognition, even though the
reduction cannot yet be matched to the individual financial assets of the Group, including:
- unfavourable changes in the status of payments of the beneficiaries within the group; or
- local or national economic conditions that are associated with non-fulfilment related to
internal Group assets.
Objective evidence of reduction in value for an investment in an equity instrument includes
information regarding important changes with an adverse effect that have occurred in the
technological, market, economic or legal environment in which the issuer operates and indicates that
the cost of the investment may not be recovered.
The impairment test is performed on an analytical basis with respect to financial assets that show
specific evidence of impairment and on a collective basis with respect to financial assets for which such
objective evidence does not exist. Collective valuation is based on identifying homogenous risk classes
of financial assets with reference to the characteristics of the debtor/issuer, economic sector,
geographic area, presence of any guarantees and other relevant factors.
Whenever loans to customers and banks are classified as doubtful, unlikely to pay or non-performing
past due exposures, they are subject to an analytical valuation process, with the determination of
expected losses by uniform categories and analytical attribution to each position. The amount of the
loss is equal to the difference between the book value of the receivable upon valuation (amortised cost)
and the current value of expected future cash flows, calculated using the original effective interest rate.
Expected cash flows take account of the expected repayment schedule, the expected recovery value of
collaterals, if any, as well as the costs expected to be incurred for the recovery of the credit exposure
(including those attributable to outsourcing activities). In this regard, in order to determine the cash
flows deemed recoverable, within the assessment process adopted by the Parent Company, if there are
no analytical schedules, statistical schedules are used.
2017 ANNUAL REPORT
191 Notes to the consolidated financial statements - Part A - Accounting policies
The amount of the loss is indicated in the profit and loss statement under Item 130 a) “Net
impairment losses/reversals on loans”.
Receivables classified as performing and certain non-performing loans (with exposures below a given
threshold value) are statistically assessed. This valuation occurs by credit-risk homogenous categories
of receivables, indicative of the debtor's ability to repay sums contractually owed. The segmentation
drivers used for this purpose consist of: economic sector, geographic location and customer segments
(turnover); on the basis of the last indicator, the main segments of the portfolio are differentiated as
follows:
Retail;
Small and Medium Enterprises - Retail;
Small and Medium Enterprises – Corporate;
Corporate;
Large Corporate;
Banks;
Other.
The rate of loss is determined for each portfolio segment by identifying the largest possible synergies
(as allowed by various regulations) using the supervisory approach. In particular, the impairment for
the year of each loan belonging to a particular category is given by the difference between the book
value and the recoverable amount on the date of valuation, with the latter being determined by using
the parameters of the calculation method provided for by the new supervisory provisions, represented
by PD (probability of default) and LGD (loss given default).
For non-performing loans, statistical valuation is carried out by applying the specific LGD parameter
to the exposures’ book value.
If, in a subsequent year, the impairment loss decreases and the reduction can be objectively linked to
an event that occurred after the impairment was recognised (such as an improvement in the financial
solvency of the debtor), the previously recognised impairment loss will be reversed. The amount of the
reversal is indicated in the profit and loss statement under Item 130 “Net impairment
losses/reversals”.
Regarding non-performing loans, and in particular doubtful loans, the valuations were conducted
taking into account the ordinary recovery modalities (enforcement of guarantees, participation in
bankruptcy proceedings, etc.), except for the portfolio of doubtful loans subject to disposal (without
derecognition) on 20 December 2017, for which the net carrying amount reflected the conditions
envisaged in the disposal agreement itself (see next paragraph).
With reference to loans which have been restructured by partial or full conversion into equity stakes of
beneficiary companies, in accordance with joint document no. 4 issued by Bank of Italy/Consob/Isvap
on 3 March 2010, it is noted that the fair value of quotas received was factored into the valuation. In
particular, in the case of non-performing exposure, such classification was maintained for converted
financial instruments received and, in the case of classification in the available-for-sale (AFS) category,
capital losses recognised after conversion were posted directly to the profit and loss statement.
With regard to debt securities classified under loans to customers, if there is objective evidence of an
impairment loss, the loss is calculated as the difference between the asset’s carrying value and the
present value of estimated cash flows, discounted at the asset’s original interest rate.
If the amount of the impairment loss subsequently decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised
impairment loss is reversed. The reversal is not to result in a carrying amount of the financial asset that
exceeds what the amortised cost would have been had the impairment not been recognised. The
amount of the reversal is recognised in profit and loss.
Impairment of financial assets available for sale is posted to the profit and loss statement when a
reduction in fair value has been directly recognised in equity and the aforementioned objective
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 192
evidence exists. In such cases, the cumulative loss recognised directly in equity shall be reversed and
posted to profit and loss, even if the financial asset has not been derecognised. The overall loss
transferred from equity to profit and loss is the difference between the acquisition cost (net of any
repayment of principal and amortisation) and the current fair value, less any impairment loss on the
financial asset previously posted to profit and loss. Impaired losses posted to profit and loss for
investment in an available-for-sale equity instrument do not have to be reversed with an impact on
profit and loss.
If the fair value of an available-for-sale debt instrument subsequently increases, and the increase can be
objectively linked to an event that took place after the impairment loss was posted to the profit and
loss statement, the impairment loss must be derecognised and reversed to profit and loss.
However, the existence of a negative reserve is not in itself sufficient to determine a write-down in the
profit and loss statement.
The nature and number of assumptions used to identify impairment factors and determine losses and
reversals are elements of uncertainty in estimation.
Assumptions made in relation to disposal of the doubtful loans portfolio
As envisaged in the Restructuring Plan approved by the European Commission on 4 July 2017, the
transaction for disposal of doubtful loans, which envisaged the transfer of a portfolio of doubtful loans
for a net book value as at 20 December 2017 of EUR 4.5 bn through a securitisation transaction, was
completed in December 2017. The transaction contemplates the intervention of the Atlante Fund
(managed by Quaestio Capital Management SGR S.p.A.), with which, on 26 June 2017, a binding
agreement was signed for the acquisition of 95% of the junior and mezzanine notes. Note that the
latter were disposed with effective date 9 January 2018, with pledge on the amount whose payment was
deferred to the date of disposal of the Junior notes, envisaged upon obtaining the GACS on the Senior
tranche. For additional details, please refer to the section “The doubtful loan disposal transaction” of
the Consolidated Report on Operations.
The doubtful loans included in the transferred portfolio were already classified in Asset item 150
“Non-current assets held for sale and discontinued operations” as at 30 June 2017, as the transfer
transaction satisfied the requirements laid out in IFRS 5 (non-current assets which are highly likely to
be sold within the 12 subsequent months). Note that deconsolidation of the doubtful loans portfolio
will take place by the end of June 2018, with disposal of the junior notes, and that in any case, the
economic impacts of the securitisation, in addition to being included in the Restructuring Plan, have
been fully reflected in the half-year report as at 30 June 2017, based on the relative agreements signed
with Quaestio.
Indeed, featuring an amendment of the management strategy for such assets, the recovery of which
depends no longer on ordinary activities (enforcement of guarantees, participation in bankruptcy
proceedings, etc.) but rather on disposal to third parties, the net book value of such doubtful loans was
reduced in order to reflect the expected cash flows from this transaction, as envisaged by paragraph 63
of IAS 39. The impairment losses on the scope of transferred positions were adjusted so that the net
book value of such doubtful loans would reflect the conditions set forth in the disposal agreement
signed on 20 December 2017. The resulting additional adjustments, equal to EUR 3.9 bn, were already
recognised to a significant extent in the first half of 2017 in the profit and loss statement under Item
130 a) “Net impairment losses/reversals on loans”.
The binding agreement also envisages that the Bank will need to bear some additional charges; among
these, the profit and loss statement Item 130 d) “Net impairment losses/reversals on other financial
transactions” includes EUR 65 mln connected to the commitment undertaken to cover the vehicle
hedging costs to be sustained by the transferor.
This accounting representation also takes into account the assessment of the overall set of conditions
set forth in the agreement with Quaestio.
2017 ANNUAL REPORT
193 Notes to the consolidated financial statements - Part A - Accounting policies
Methods for determining impairment losses on equity investments, goodwill and, more generally, other intangible assets
The assumptions used to determine impairment losses on equity investments, goodwill and other
intangible assets are based on the 2017 final data and 2018-2021 projections prepared in line with the
development policies of the Restructuring Plan agreed upon with the competent Authorities.
Equity investments
The impairment process entails computation of the recoverable amount, which is the greater of the fair
value less costs to sell, and the value in use. The value in use is the present value of the cash flows
arising from the impaired asset; it reflects the estimate of the cash flows expected from the asset, the
estimate of possible changes in the amount and/or in the timing of the cash flows, the financial value
over time, the price for remunerating the risk on the asset and other factors that can influence the
pricing, on the part of market dealers, of the cash flows expected from the asset. Numerous
assumptions are therefore required to estimate the fairness of the carrying amount of equity
investments; it follows that the result of this verification inevitably entails some degree of uncertainty.
Goodwill
Goodwill posted following acquisitions is subjected to an impairment test at least once a year and
whenever there are signs of impairment. For testing purposes, once goodwill has been allocated to
cash-generating units (CGUs), the book value is compared with the recoverable value of said units.
The discounted cash flow (DCF) method is normally used to determine the recoverable value of the
CGUs. To this end, senior management has estimated CGU cash flows; these are dependent on several
factors, including cost and revenue growth rates, which in turn depend on changes in the real
economy, customer behaviour, competition and other factors. Numerous assumptions are therefore
required to estimate the fairness of the carrying amount of goodwill; it follows that the result of this
verification inevitably entails some degree of uncertainty. Disclosure in Section 13 of the “Assets” in
the notes to the financial statements provides more details on this subject.
Other property, plant and equipment and intangible assets
The tangible and intangible assets with limited useful life are tested for impairment in the presence of
any indication that the book value of the asset may not be recovered. The recoverable value is
computed with reference to (i) the fair value of the tangible or intangible asset, net of the charges for
disposal or (ii) the value in use if determinable and if it is above fair value.
The recoverable value of properties is determined on the basis of an appraisal or index-based
valuations. The loss in value is reported only if the fair value less costs to sell, or the value-in-use, is
less than the book value. The nature and number of assumptions are elements of uncertainty also for
these values and for subsequent verifications. More information on the possible assumptions can be
found in Sections 12 and 13 of the “Assets” in the notes to the financial statements.
Assumptions adopted with respect to the provisions of Law Decree 237/2016, converted with amendments to Law no.
15 of 17 February 2017
On 1 August 2017, in compliance with what is set forth in art. 23, paragraph 3 of Law Decree 237, as
well as art. 2 of the Burden Sharing Decree issued on 28 July 2017, the AT1 and T2 financial
instruments specified in them were converted into ordinary shares of the Parent Company newly
issued at the unit price of EUR 8.65. As a result, 517,099,404 shares were issued for a total value of
EUR 4,473 mln, of which 36,280,748 recognised as treasury shares (for a value of EUR 314 mln), as
they arose from the conversion of the securities held by Group Companies.
Pursuant to the joint provisions of IFRIC 19 “Extinguishing Financial Liabilities with Equity
Instruments” and IAS 39, the difference between the carrying amount of the converted bonds and the
fair value of the shares assigned to bondholders was recognised in profit and loss. In particular:
the subordinated liabilities were derecognised for a carrying amount of EUR 4,353 mln, net of
the amounts repurchased over time;
the share capital increase was recognised for EUR 4,473 mln and treasury shares totalling
EUR 314 mln were recognised as a deduction from shareholders’ equity;
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 194
the negative difference of EUR 360 mln between the fair value of the shares assigned to
bondholders and the carrying amount recognised in the share capital net of treasury shares was
debited to the item “Reserves”;
a total positive effect of EUR 554 mln was recognised in profit and loss (EUR +51 mln in
interest expenses, EUR +505 mln in gains from the repurchase of financial liabilities and EUR
-2 mln from the profit (loss) from financial liabilities measured at fair value).
Correction of errors
The correction of errors is governed by IAS 8 (Accounting policies, changes in accounting estimates
and errors). According to this standard, errors can arise in respect of the recognition, measurement,
presentation or disclosure of elements of financial statements.
When errors are discovered in the period in which the error occurred, they are corrected before the
financial statements are authorised for issue.
Material errors that are discovered in a subsequent period with respect to the period in which they
occurred, are corrected, when measurable, in the comparative information presented in the financial
statements for that subsequent period; material previous period errors shall be corrected in the first set
of financial statements authorised for issue after their discovery by retrospectively restating the
comparative amounts for previous period(s) presented in which the error occurred or, if the error
occurred before the previous periods presented, restating the opening balances of assets, liabilities and
net assets/equity for the earliest previous period presented.
2017 ANNUAL REPORT
195 Notes to the consolidated financial statements - Part A - Accounting policies
A.3 Information on portfolio transfers
A.3.1 Reclassified financial assets: book value, fair value and effects on comprehensive
income
Income components in Income components
the absence of transfers reported for the period
Type of Portfolio Book value Fair value
Portfolio (before tax) (before tax)
financial prior to at at
after transfer
instrument transfer 31 12 2017 31 12 2017
(3)
(1) (2) (4) (5) Value- Value-
Other Other
relevance relevance
(7) (9)
(6) (8)
Available
UCITS Trading - - - (432) - (171)
for sale
Debt Loans to
Trading 42,522 41,093 153 1,247 (6) 1,368
Securities banks
Debt Loans to
Trading 102,464 82,780 (39,308) 3,419 (275) 2,858
Securities customers
Debt Available Loans to
643,634 527,497 3,703 (32,977) (157) (32,941)
Securities for sale banks
Debt Available Loans to
184,213 162,621 (1,967) 7,196 (249) 6,984
Securities for sale customers
Total 972,833 813,991 (37,419) (21,547) (687) (21,902)
In the course of 2008, the Group applied the amendment “Reclassification of financial assets”, which was issued by the IASB
to amend IAS 39 and IFRS 7 in October 2008 introducing the possibility of reclassifying portfolios in unusual circumstances
such as the crisis that emerged in the markets in the second half of 2008.
This table, which refers exclusively to financial instruments reclassified in the second half of 2008 based on the above-
mentioned amendment, reports, in addition to the book values and fair values of reclassified financial instruments as at 31
December 2017, financial results (columns 6 and 7) in terms of “value relevance” and “other” (realised profit/loss and
interest), which the same financial instruments would have produced for the Group in 2017 had they not been transferred in
2008. Columns 8 and 9, on the other hand, contain the profit and loss results in terms of “value relevance” and “other”
(realised profit/loss and interest) which the Group actually posted for these instruments in the course of 2017.
The hypothetical net capital losses (see column 6) of EUR 37.4 mln differ from the negative result actually recorded for 2017
(see column 8) of EUR 0.7 mln, for an overall impact of EUR -36.7 mln, due to higher write-downs posted to the income
statement for EUR -38.5 mln, and revaluations of approximately EUR 1.8 mln to equity.
By way of completeness, on the back of the reclassification in 2008 of bonds originally classified as AFS financial instruments,
the relative negative reserve, for an amount of EUR 228.4 mln, existing on the date of reclassification, was accounted for
pursuant to the provisions set out in par. 50F of IAS 39.
In particular, the negative AFS reserve was gradually phased out over a timeframe reflecting the residual life of the underlying
securities, measured as a direct reduction of interest income. This negative impact on net interest income was offset by the
positive effect of the amortised cost mechanism on securities, which gradually brings the maturity value in line with the
nominal value. The residual reserve at the end of 2017 was EUR 5.9 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 196
A.3.2 Reclassified financial assets: effects on comprehensive income
A.3.3 Transfer of financial assets held for trading
A.3.4 Effective interest rate and expected cash flows from reclassified financial assets
Tables A.3.2, A.3.3 and A.3.4 were left blank because no financial assets were reclassified during the
year.
2017 ANNUAL REPORT
197
Fair value 31 12 2017
Items Type Valuation technique(s) Inputs used
value
trading
Hedging
Hedging
liabilities
Financial
deivatives
deivatives
Financial
held for trading
Financial assets
Financial assets
available for sale
designated at fair
liabilities held for
Bonds Discounted Cash Flow Interest rate curve, CDS curve, Basi(yield), Inflation Curves
Interest rate curve, CDS curve, Basi(yield), Inflation Curves +
Debt securities 579,392 278,257 X - 326,279 X Structured bonds Discounted Cash Flow
inputs necessary to measure optional component
Qualitative information
Bonds Market price Market price
Share/Equity Instruments Market price Market price, recent transactions, appraisals, manager reports
Equity instruments 99 10,455 X X X X Equity Instruments Discount cash flow Share price, beta sector, free risk rate
Equity Instruments Net asset adjusted Carring Amount Asset/Liabilities
Units of UCITS - 84,539 X X X X Funds/PE Market price* Market price*, recent transactions, appraisals, manager reports
A.4 – Information on fair value
1,852 - from banks
Deposits X X X X
- - from customers
Interest rate curve, CDS Curve, Basi(yield), Inflation Curve,
IR/Asset/Currency Swaps Discounted Cash Flow
Foreign exchange rates and correlation
Equity swaps Discounted Cash Flow Share price, Interest rate curve, Foreign exchange rates
Forex Singlename Plain Option Pricing Model Share price, Interest rate curve, Foreing exchange rates
Forex Singlename Exotic Option Pricing Model Interest rate curve, Foreing exchange rates, Forex volatility
Interest rate curve, share price, Foreing exchange rates, Equity
Equity Singlename Plain Option Pricing Model
volatility
Interest rate curve,Share price, Foreing exchange rates, Equity
Equity Singlename Exotic Option Pricing Model
Financial Derivatives 3,216,807 - 156,485 1,539,477 X 691,368 volatility (Surface), Model inputs
Interest rate curve, share price, foreign exchange rates, Equity
Equity Multiname Plain Option Pricing Model
volatility, Quanto correlation, Equity/Equity correlation
Interest rate curve, share price, foreign exchange rates, Equity
A.4.1.a Fair value level 2: measurement techniques and inputs used
Equity Multiname Exotic Option Pricing Model volatility (surface), Model inputs,Quanto correlation,
Equity/Equity correlation.
Interest rate curve, inflation curve, bond price, foreign exchange
Plain Rate Option Pricing Model
rates, rate volatility, rates Correlation
Spot-Forward Market price* Martket price, Swap point
Credit Derivatives 11,415 - - 34,212 X - Default swaps Discounted Cash Flow CDS curves, Interest rate curve
Notes to the consolidated financial statements - Part A - Accounting policies
Total assets 3,807,713 373,251 156,485 X X X
Total liabilities X X X 1,575,541 326,279 691,368
* price for identical financial instruments listed in non-active markets (IFRS 13 par. 82 lett. b)
BANCA MONTE DEI PASCHI DI SIENA
Fair value 31 12 2017
Range
Items Financial Financial assets Type Valuation technique(s) Unobservable inputs
(weighted average)
assets held available for
2017 ANNUAL REPORT
for trading sale.
3,042 5,314 Bonds Discounted Cash Flow IRR (Yield)
Debt Securities
8,358 Financila Instrument Credit Model 8.5 €/mln
Discounted Cash Flow Liquidity base/Equity Risk Premium/Beta 20%/8%/0.4
Equity Instruments
Equity
- 307,419 Cost/Net Equity Equity Risk Premium/Growth Rate 0-12.3 €/mln
Instruments Equity Instruments
Credit Model Fair value asset 60%/100%
Convertible Bonds
Side Pocket External Pricing NAV 0-0.3 €/mln
Closed end Fund Adjusted NAV Fair value asseet
Units of UCITS 11,670 6 €/mln
Closed real estate fund Adjusted NAV Fair value asset
4.9 €/mln
Total assets 3,042 324,403
Notes to the consolidated financial statements - Part A - Accounting policies
Total liabilities X X
A.4.1.b Fair value level 3: measurement techniques and inputs used
198
199 Notes to the consolidated financial statements - Part A - Accounting policies
A.4.2 Measurement processes and sensitivity
A description of Level 3 instruments that show significant sensitivity to changes in unobservable
inputs is provided below.
Within “Financial assets available for sale”, the category “Debt securities” includes equity instruments
distributed to creditors as part of a loan restructuring operation. In the valuation of such securities,
assumptions were made regarding the future cash flows generated by the issuer; this parameter was
considered not observable and amounts to roughly EUR 8.5 mln. With regard to bonds measured with
the Discounted Cash Flow method, placed in the amount of EUR 5.2 mln in “Financial assets available
for sale” and EUR 3 mln in “Financial assets held for trading”, the unobservable parameter is the
overall return on the security. For each percentage point of return, the overall change in value can be
estimated at EUR 0.03 mln.
Equity securities valued according to the Credit Model method essentially include two convertible
bonds issued by the Sorgenia S.p.A. group (Sorgenia S.p.A. and Sorgenia S.p.A. Power) following the
restructuring of its original debit position toward the Parent Company (for a total amount of EUR 58.9
mln). The bonds are valued according to the credit models and the value obtained is not verifiable
through market results. Defining the probability of default (PD) and the loss given default (LGD) as
non-observable parameters, the sensitivity of this position is defined as the loss deriving from the
impact on these parameters of a (negative) change in the administrative status of the counterparty and
is quantified at approximately EUR 4.5 mln.
Equity securities measured using the Discounted Cash Flow method mainly include the Bank of Italy
shareholding (EUR 187.5 mln). The shareholding was measured with the methodology identified by
the Committee of Experts of the Bank of Italy in the document “Revaluation of shareholdings in the
Bank of Italy”. This document not only details the valuation techniques adopted to reach the end
result, but identified in the market beta of the equity risk premium and in the cash flow base to be used
for cash flow discounting, the parameters on which to make entity specific assumptions. The valuation
of that equity investment is also confirmed in market transactions carried out in recent years by certain
banks. During valuation, also confirmed in market transactions carried out in recent years by a number
of banks, the intervals of the possible values that can be assigned to these parameters cause the
following changes in value: roughly EUR -23 mln for every 100 bps increase in the equity risk
premium, around EUR -37.5 mln for every 10 percentage point increase in the market beta and
roughly EUR -26 mln for every 10 percentage point increase in the cash flow base.
Within the same category, mention goes to the nearly total write-down of the contribution to the IDPF
Voluntary Scheme, with the residual balance sheet amount valued at approximately EUR 2.6 mln.
Equity securities valued at cost/net equity include all investments designated at fair value that could
not be measured according to a market-based model. These positions amount to approx. EUR 74 mln.
The units of UCITS measured with external pricing are Hedge Fund side pockets, whose price quotes
by the asset management companies are deemed non-verifiable. For this reason, the sensitivity of these
positions is considered to be equal to their entire book value (approx. EUR 0.7 mln). This category
also includes the total contributions to the Atlante Fund for approx. EUR 6 mln. The value of this last
position takes into account the residual assets of the fund after the write-off of the two main equity
investments in the fund’s assets (BPVI and Veneto Banca). The same category continues to include a
position of approx. EUR 4.9 mln in the Rainbow Reserved Closed-end real estate investment fund by
way of “datio in solutum” as part of a loan restructuring operation.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 200
A.4.3 Fair value hierarchy
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date under current
market conditions.
The fair value of financial instruments listed in active markets is determined by using quoted market
prices; quoted market prices for similar instruments or internal valuation models are used for other
financial instruments.
Financial instruments are classified in three different levels according to the reliability of the inputs
used during measurement.
The methods for classifying financial instruments in the three-level fair value hierarchy are shown
below.
Level 1
This level shall include financial instruments measured using unadjusted quoted prices in active
markets for identical instruments.
IFRS 13 defines an active market as a market in which transactions take place with sufficient frequency
and volume to provide information on an ongoing basis. A financial instrument is quoted in a financial
market when:
the quoted prices are readily and regularly available from an exchange, dealer, broker, industry
group, pricing service, authorised body or regulatory agency;
the quoted prices represent actual and regularly occurring market transactions on an arm’s length
basis.
If the quoted prices meet these criteria, they represent the best estimation of fair value and must be
used to measure the financial instrument.
From the definition of active market set out in IFRS 13 it is inferred that the active market concept is
particular to the individual financial instrument being measured and not to the market on which it is
listed; the fact that a financial instrument is quoted in a regulated market is therefore not in itself
sufficient for the aforementioned instrument to be defined as listed in an active market. Conversely, a
financial instrument that is not traded in a regulated market may present sufficient frequency and
volumes for it to be classified in level 1 of the fair value hierarchy.
Levels 2 and 3
Financial instruments not listed in an active market must be classified in level 2 or 3.
Classification in level 2 rather than level 3 is determined on the basis of market observability of the
significant inputs used to determine fair value. A financial instrument must be fully classified in a single
level; if inputs belonging to different levels are used for the purpose of measuring an instrument, the
aforementioned instrument is classified based on the lowest level of input that is significant to the fair
value measurement.
An instrument is classified in level 2 if all significant inputs are directly or indirectly observable on the
market. An input is observable if it reflects the same assumptions used by market participants, based
on independent market data.
Level 2 inputs are as follows:
a) quoted prices on active markets for similar assets or liabilities;
b) quoted prices for the instrument in question or for similar instruments on non-active markets, i.e.
markets where:
- there are few transactions;
- the prices are not current or they vary substantially over time and between the different
market makers or
2017 ANNUAL REPORT
201 Notes to the consolidated financial statements - Part A - Accounting policies
- little information is made public;
c) observable market inputs other than quoted prices (e.g. interest rates or yield curves observable in
different buckets, volatility, credit curves, etc.);
d) inputs that derive primarily from observable market data, the reporting of which is confirmed by
parameters such as correlation.
A financial instrument is classified in level 3 if the measurement techniques adopted use non-
observable market inputs and their contribution to estimating fair value is deemed significant.
All financial instruments not listed in active markets are classified in level 3 where:
despite having observable data available, significant adjustments based on non-observable data are
required;
the estimate is based on internal assumptions on future cash flows and risk adjustment of the
discount curve.
It should also be noted that regardless of whether measurement techniques adopted use non-
observable market inputs- the Group deemed it appropriate and conservative to include in Level 3 of
the Fair Value hierarchy any instruments not listed in active markets which are complex by their
financial structure or for which there is no clear measurement method recognised as standard in the
market and adjustable based on observable prices of comparable structures.
This applies, for example, to assets in the structured credit category not listed in an active market.
Although, in some cases, this category could avail itself of appropriate measurement models that make
use of observable market inputs (e.g. credit default swap curves) or quotations by primary
counterparties, the lack of a liquid market on correlations in the wake of the financial crisis made it
necessary to use subjective estimates. Given the complexity of these structures, the Group decided to
classify these instruments in level 3, in the absence of an active market, regardless of the observability
of input parameters significant for their mark-to-model measurement.
The processes used to measure level 3 instruments are based on a shared analysis of the types of
instruments and underlying risk parameters by the Group's Business functions and Risk Management.
The analysis is completed with the formulation of a pricing model and/or a model for determination
of non-observable market inputs which is subject to final validation by Risk Management. At different
time intervals depending on the type of instruments (though commonly on a monthly basis) on the
back of directly observable market inputs, the Group's Business functions proceed with determining
the non-observable market inputs and measuring instruments of level 3. The Risk Management
function, based on a shared methodological approach, proceeds with the final validation of fair value.
In support of this activity and with a view to ensuring an adequate level of auditability, assessment data
sheets have been introduced and are updated on a six-monthly basis for individual instruments
classified in level 3, which contain a brief description of the instrument, pricing methods adopted and
details about inputs used for fair value measurement.
As for fair value transfers between different levels, it is noted that the Group has set some rules to
determine whether a financial instrument is level 1 or 3; level 2 is determined, from the logical point of
view, on a residual basis. When an instrument no longer meets the conditions for classification in level
1 or 3, a new level is determined.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 202
A.4.4 Other information
With reference to par. 93 lett. (i) of IFRS 13, the Group does not hold any non-financial assets
designated at fair value on a recurring and non-recurring basis.
With reference to par. 96 of IFRS 13, the Group does not apply the portfolio exception provided for
in par. 48 of IFRS 13.
Qualitative information
A.4.5 Fair value hierarchy
A.4.5.1 Assets and liabilities designed at fair value on a recurring basis: breakdown by fair
value level.
Asset and liabilities 31 12 2017 31 12 2016
measured at fair value Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
1. Financial assets held
4,907,239 3,807,713 3,042 8,717,994 4,525,257 4,740,893 - 9,266,150
for trading
3. Financial assets
14,744,424 373,251 332,761 15,450,436 15,981,636 359,564 321,917 16,663,117
available for sale
4. Hedging derivative - 156,485 - 156,485 - 327,349 - 327,349
Total 19,651,663 4,337,449 335,803 24,324,915 20,506,893 5,427,806 321,917 26,256,616
1. Financial liabilities
2,901,366 1,575,541 - 4,476,907 2,573,621 2,398,181 - 4,971,802
held for trading
2. Financial liabilities
- 326,279 - 326,279 - 1,368,705 154,518 1,523,223
designated at fair value
3. Hedging derivative - 691,368 - 691,368 - 1,018,291 - 1,018,291
Total 2,901,366 2,593,188 - 5,494,554 2,573,621 4,785,177 154,518 7,513,316
The financial instruments measured at fair value and classified in level 3 of the hierarchy consist of instruments not listed in
active markets, valued using the mark-to-model approach, for which input data include, inter alia, non-observable market data
significant for measurement purposes or observable market data that requires significant adjustment based on non-observable
data, or that requires internal assumptions and estimations of future cash flows.
Additional information on level 3 financial instruments can be found in the comments under the tables for the individual
balance sheet items concerned.
The fair value of some financial assets, particularly the bonds for EUR 46.8 mln, worsened during the year from level 1 to
level 2. This was essentially due to worsening of the liquidity conditions of the securities (measured in terms of bid-ask spread
of the listed price), leading to the level transfer, in accordance with the Group’s policy on the valuation of financial
instruments.
With respect to the financial instruments that improved from fair value level 2 to level 1, this trend involved bonds for a total
of EUR 77.7 mln. The change in the fair value level during the year is essentially linked to the improvement in the securities’
liquidity conditions (measured in terms of bid-ask spread of the listed price) which allowed the level transfer in accordance
with the Group’s policy on the valuation of financial instruments.
As for OTC derivatives, in compliance with IFRS 13 the Group calculates adjustments to values, obtained through valuation
models using risk-free interest rates, to take account of the creditworthiness of the individual counterparty. This adjustment,
known as Credit Value Adjustment (CVA), is estimated for all positions in OTC derivatives with non-collateralised
institutional and commercial counterparties and with counterparties having a Credit Support Annex (CSA) not in line with
market standards.
The methodology is based on the calculation of expected operational loss linked to counterparty rating and estimated on a
position’s duration. The exposure includes future credit variations represented by add-ons.
Market-consistent probability measurements are employed in the calculation of CVAs in order to gauge market expectations
resulting from CDS prices without, however, losing the historical information available within the Group.
The impact of the CVA as at 31 December 2017 amounted to EUR -45.8 mln.
2017 ANNUAL REPORT
203 Notes to the consolidated financial statements - Part A - Accounting policies
The Group calculates the value adjustment of OTC derivatives in a mirror image fashion and on the same perimeter to take
into account its creditworthiness, Debit Value Adjustment (DVA). As at 31 December 2017 the DVA is positive and amounts
to a total of EUR 5.1 mln.
A.4.5.2 Annual changes of financial assets designated at fair value on a recurring basis (level
3)
31 12 2017
Financial assets Financial assets
held for trading available for sale
1. Opening balance - 321,917
2. Increases 3,042 113,090
2.1 Purchase - 103,299
2.2 Profit posted to: - 1,764
2.2.1 Profit and Loss - -
- of which capital gains - -
2.2.2 Equity X 1,764
2.3 Transfers from other
3,042 6,948
levels
2.4 Other increases - 1,079
3. Decreases - 102,246
3.1 Sales - 7,849
3.2 Redemptions - 1,511
3.3 Losses posted to: - 92,711
3.3.1 Profit and Loss - 88,815
- of which capital losses - 87,252
3.3.2 Equity X 3,896
3.4 Transfers to other levels - -
3.5 Other decreases - 175
4. Closing balance 3,042 332,761
The amount shown in the column “Financial assets available for sale” under item “2.1 Purchases”, equal to EUR 103.3 mln,
includes EUR 36.8 mln for the Sorgenia Power equity instrument and EUR 33.5 mln for the additional contribution to the
IDPF Voluntary Scheme.
The amount shown in the same column under item “2.3 Transfers from other levels” totalling EUR 6.9 mln, includes EUR
5.3 mln in debt securities issued by the company AXA-MPS, previously classified under level 2 and measured through
valuation techniques that are not market oriented but based on other non-market values, according to what is set forth in the
internal policy on the matter.
Even the EUR 3 mln in “Transfers from other levels” under “Financial assets held for trading” regard debt securities issued
by the company AXA-MPS, previously classified under level 2 and measured through valuation techniques that are not
market oriented but based on other non-market values, according to what is set forth in the internal policy on the matter.
Lastly, the amount shown in the same column alongside item “3.3 Losses”, amounting to EUR 92.7 mln, is partly due to the
write-down during the year of the amount held in the investee Voluntary Scheme for EUR 46.5 mln and Atlante Fund for
EUR 29.8 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 204
A.4.5.3 Annual changes of financial liabilities designated at fair value on a recurring basis
(level 3)
31 12 2017
Financial liabilities
designated at fair value
1. Opening balance 154,518
2.Increases 9,187
2.1 Issues -
2.2 Losses posted to 9,187
2.2.1 Profit and Loss -
- of which capital losses -
2.2.2 Equity 9,187
2.3 Transfers from other levels -
2.4 Other increases -
3. Decreases 163,705
3.1 Redemptions -
3.2 Repurchases -
3.3 Profit posted to: -
3.3.1 Profit and Loss -
- of which capital gains -
3.3.2 Equity -
3.4 Transfers from other levels -
3.5 Other decreases 163,705
4. Closing balance -
The amount in the column “liabilities designated at fair value” under item “3.5 Other decreases” totalling EUR 163.7 mln
refers to a subordinated issue of the Group, subject to conversion pursuant to Law Decree no. 237 of 23 December 2016
(burden sharing).
The amount recognised in the line “2.2.2 Losses posted to Equity” for an amount of EUR 9.2 mln regards the accounting
effect of the early application of IFRS 9, related to the recognition of change in own credit risk of financial liabilities
designated at fair value.
2017 ANNUAL REPORT
205 Notes to the consolidated financial statements - Part A - Accounting policies
A.4.5.4 Assets and liabilities not designated at fair value or designated at fair value on a non-
recurring basis: breakdown by fair value level
Financial assets/liabilities not designated 31 12 2017
at fari value or designated at fair value on a Total Fair
non-recurring basis Book value Level 1 Level 2 Level 3
value
2. Loans to bank 9,966,212 32,970 9,815,168 3,363 9,851,501
3. Loans to customers 86,456,407 127,653 6,019,800 83,772,117 89,919,570
4. Property, plant and equipment held for
338,281 - - 368,924 368,924
investment
5. Non-current assets and groups of assets
4,595,135 - - 4,596,173 4,596,173
held for sale
Total assets 101,356,035 160,623 15,834,968 88,740,577 104,736,168
1. Deposits from banks 21,084,916 - 21,084,916 - 21,084,916
2. Deposits from customers 77,014,177 - 77,014,177 - 77,014,177
3. Debt securities issued 20,461,300 14,061,015 6,752,432 - 20,813,447
Total liabilities 118,560,393 14,061,015 104,851,525 - 118,912,540
The amount stated in the line “Non-current assets held for sale and discontinued operations”, equal to EUR 4,595.1 mln,
refers primarily to receivables associated with the transfer of doubtful loans (for further detail, see the section “The
Doubtful loan disposal transaction” of the Consolidated report on operations). The aggregate includes a further EUR 9.6
mln in property, plant and equipment (mainly land from credit recovery, for EUR 5.1 mln, and properties for business use,
for EUR 4.1 mln).
For non-performing exposures classified in fair value hierarchy level 3, it is assumed that the book value represents a
reasonable approximation of fair value. This assumption stems from the scenario according to which calculation of the fair
value is predominantly impacted by the recovery expectations, determined through a subjective valuation by the manager,
except for those reclassified under the line “5. Non-current assets held for sale and discontinued operations”, for which the
fair value is equal to the disposal price (or net book value). The discounting rate applied, where present, is that set forth in
the contract, as the low liquidity and competition of the non-performing loans market does not make it possible to survey
observable market premiums.
Likewise, the fair value of non-performing loans, also mostly classified in level 3, is based on models that use predominantly
non-observable inputs (e.g., internal risk parameters).
Therefore, and also due to the absence of a secondary market, the fair value recognised in the financial statements for
disclosure purposes only could vary significantly from future sale prices.
Financial assets/liabilities not designated 31 12 2016
at fari value or designated at fair value on a Total Fair
non-recurring basis Book value Level 1 Level 2 Level 3
value
2. Loans to bank 8,936,239 52,546 8,755,442 1,937 8,809,925
3. Loans to customers 106,692,711 154,817 9,498,076 100,771,239 110,424,132
4. Property, plant and equipment held for
327,747 - - 362,257 362,257
investment
5. Non-current assets and groups of assets
60,684 - 17,921 1,128 19,049
held for sale
Total assets 116,017,381 207,363 18,271,439 101,136,561 119,615,363
1. Deposits from banks 31,469,061 - 31,469,061 - 31,469,061
2. Deposits from customers 80,702,762 - 80,707,017 - 80,707,017
3. Debt securities issued 22,347,465 - 17,733,986 3,450,179 21,184,165
4. Liabilities associated to disposal groups
10,402 - - - -
held for sale
Total liabilities 134,529,690 - 129,910,064 3,450,179 133,360,243
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part A - Accounting policies 206
A.5 Information on “day one profit/loss”
The Group did not generate day one profit/loss from financial instruments pursuant to paragraph 28
of IFRS 7 and other related IAS/IFRS paragraphs.
2017 ANNUAL REPORT
207
Part B – Information on the balance sheet
ASSETS
Section 1 – Cash and cash equivalents – Item 10 ..................................................................................................................................... 209
Section 2 – Financial assets held for trading – Item 20 ........................................................................................................................... 210
Section 3 – Financial assets designated at fair value – Item 30 .............................................................................................................. 212
Section 4 - Financial assets available for sale – Item 40 .......................................................................................................................... 213
Section 5 – Financial assets held to maturity – Item 50 .......................................................................................................................... 216
Section 6 – Loans to banks – Item 60 ......................................................................................................................................................... 217
Section 7 – Loans to customers – Item 70 ................................................................................................................................................. 219
Section 8 – Hedging derivatives – Item 80................................................................................................................................................. 223
Section 9 – Change in value of macro-hedged financial assets – Item 90 ........................................................................................... 225
Section 10 – Equity investments – Item 100 ............................................................................................................................................. 226
Section 11 – Reinsurance technical reserves – Item 110 ......................................................................................................................... 232
Section 12 - Property, plant and equipment - Item 120 .......................................................................................................................... 233
Section 14 – Tax Assets and Liabilities – Item 140 (Assets) and Item 80 (Liabilities) ...................................................................... 244
Section 15 – Non-current assets held for sale / discontinued operations and associated liabilities – Item 150 (assets) and 90
(liabilities) .......................................................................................................................................................................................................... 254
Section 16 – Other assets – Item 160 .......................................................................................................................................................... 255
LIABILITIES
Section 1 – Deposits from banks – Item 10 .............................................................................................................................................. 256
Section 2 – Deposits from customers – Item 20 ...................................................................................................................................... 257
Section 3 – Debt securities issued – Item 30 ............................................................................................................................................. 259
Section 4 – Financial liabilities held for trading – Item 40 ...................................................................................................................... 261
Section 5 – Financial liabilities designated at fair value – Item 50......................................................................................................... 263
Section 6 – Hedging derivatives – Item 60................................................................................................................................................. 265
Section 7 – Changes in value of macro-hedged financial liabilities – Item 70 .................................................................................... 267
Section 8 – Tax liabilities – Item 80 ............................................................................................................................................................. 267
Section 9 – Liabilities associated with individual assets held for sale – Item 90 ................................................................................. 267
Section 10 – Other liabilities – Item 100 .................................................................................................................................................... 268
Section 11 – Provision for employee severance pay – Item 110 ........................................................................................................... 268
Section 12 – Provisions for risks and charges – Item 120 ...................................................................................................................... 270
Section 13 – Insurance reserves – Item 130............................................................................................................................................... 286
Section 14 – Redeemable shares – Item 150.............................................................................................................................................. 286
Section 15 – Group equity – Items 140, 160, 170, 180, 190, 200 and 220 ........................................................................................... 287
Section 16 – Non-controlling interests - Item 210 ................................................................................................................................... 289
Other information ........................................................................................................................................................................................... 290
BANCA MONTE DEI PASCHI DI SIENA
208
2017 ANNUAL REPORT
209 Notes to the consolidated financial statements - Part B - Information on the balance sheet
ASSETS
Section 1 – Cash and cash equivalents – Item 10
1.1 Cash and cash equivalents: breakdown
Total Total
31 12 2017 31 12 2016
a) Cash 1,006,680 861,601
b) Demand deposits with central banks 3,085,627 222,909
Total 4,092,307 1,084,510
The line “Demand deposits with central banks” does not include the compulsory reserve, which is shown under Assets in
Item 60 “Loans to banks”.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 210
Section 2 – Financial assets held for trading – Item 20
2.1 Financial assets held for trading: breakdown
Total 31 12 2017 Totale 31 12 2016
Items/Amounts
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
A. Balance sheet assets
1. Debt securities 4,716,866 579,392 3,042 5,299,300 4,413,046 387,644 - 4,800,690
1.1 Structured
14,668 85,594 - 100,262 - 110,627 - 110,627
securities
1.2 Other debt
4,702,198 493,798 3,042 5,199,038 4,413,046 277,017 - 4,690,063
securities
2. Equity instruments 25,094 99 - 25,193 31,306 26 - 31,332
3. Units of UCITS 61,728 - - 61,728 12,122 - - 12,122
4. Loans - - - - - 265,210 - 265,210
4.1 Repurchase
- - - - - 265,210 - 265,210
agreements
4.2 Others - - - - - - - -
Total (A) 4,803,688 579,491 3,042 5,386,221 4,456,474 652,880 - 5,109,354
B. Derivatives
1. Financial derivatives: 103,551 3,216,807 - 3,320,358 68,783 4,048,084 - 4,116,867
1.1 held for trading 103,551 3,180,407 - 3,283,958 68,783 4,010,261 - 4,079,044
1.2 fair value option - 36,400 - 36,400 - 37,823 - 37,823
1.3 Others - - - - - - - -
2. Credit derivatives: - 11,415 - 11,415 - 39,929 - 39,929
2.1 held for trading - 11,415 - 11,415 - 39,929 - 39,929
2.2 fair value option - - - - - - - -
2.3 Others - - - - - - - -
Total (B) 103,551 3,228,222 - 3,331,773 68,783 4,088,013 - 4,156,796
Total (A+B) 4,907,239 3,807,713 3,042 8,717,994 4,525,257 4,740,893 - 9,266,150
Criteria adopted for classification of financial instruments in the three levels of the “fair value hierarchy” are reported in
Section A.4, “Fair value disclosure” of Part A, “Accounting policies” of the notes to the consolidated financial statements,
which should therefore be referred to.
As a result of the provisions set out in IAS 39 with regard to the derecognition of financial assets, lines 1.1 Structured
securities and 1.2 Other debt securities of the item “Cash assets” also include debt securities pledged in repos and securities
lending transactions carried out in respect of own securities posted to the trading portfolio.
The amount of EUR 493.8 mln (EUR 277.0 mln as at 31 December 2016), reported on line “1.2 Other debt securities”, in the
level 2 column, includes senior, mezzanine and junior exposures assumed by the Group with reference to third-party
securitisation transactions, equal to EUR 208.5 mln (EUR 59.3 mln as at 31 December 2016), EUR 51.4 mln (EUR 32.7 mln
as at 31 December 2016) and lastly EUR 4.1 mln (EUR 5.0 mln as at 31 December 2016), respectively.
Derivatives connected with fair value option instruments are also classified as derivative instruments: these cover the risks of
funding designated at fair value arising from possible interest rate fluctuations and from any embedded options in fixed-rate
and structured bonds issued by the Bank (natural hedging). The positive fair value of these derivatives is shown in the table in
line “B.1-1.2 – Fair value option”.
By convention, such derivatives are classified in the trading book. In terms of their representation in the income statement,
they comply with rules similar to the rules applicable to hedging derivatives: positive and negative spreads or margins settled
or accrued until the balance sheet date are recognised as interest income and expense, while valuation profits and losses are
posted under item 110 of the profit and loss statement, “Net profit (loss) from financial assets and liabilities designated at fair
value”, in compliance with representations used for funding instruments that adopted the fair value option.
2017 ANNUAL REPORT
211 Notes to the consolidated financial statements - Part B - Information on the balance sheet
2.1.a Breakdown of debt securities: structured securities
Total Total
Structured debt securities
31 12 2017 31 12 2016
Index Linked 25,229 47,524
Equity Linked 17,144 18,991
Cap Floater 1,600 -
Reverse Floater 9,167 -
Commodity 36,439 38,166
Fund Linked 8,619 4,018
Other 2,064 1,928
Total 100,262 110,627
The table adds details to line “A.1.1 Structured securities” of table 2.1 above.
2.2 Financial assets held for trading: breakdown by borrower/issuer
Total Total
Items/Amounts
31 12 2017 31 12 2016
A. Balance sheet assets
1. Debt securities 5,299,300 4,800,690
a) Governments and Central banks 4,252,546 4,008,016
b) Other public entities 904 2
c) Banks 592,925 484,726
d) Other issuers 452,925 307,946
2. Equity instruments 25,193 31,332
a) Banks 10,949 4,316
b) Other issuers: 14,244 27,016
- insurance companies 962 3
- financial companies 124 401
- non-financial companies 13,158 26,612
- other - -
3. Units of UCITS 61,728 12,122
4. Loans - 265,210
a) Governments and Central banks - -
b) Other public entities - -
c) Banks - 60,699
d) Other entities - 204,511
Total (A) 5,386,221 5,109,354
B. Derivatives
a) Banks 1,460,111 2,054,940
b) Customers 1,871,662 2,101,856
Total (B) 3,331,773 4,156,796
Total (A+B) 8,717,994 9,266,150
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 212
The breakdown by borrower/issuer was carried out in accordance with criteria of classification by economic activity group
and sector laid down by the Bank of Italy.
As for derivatives, it should be noted that the positive fair value of derivatives with customers includes approx. EUR 265.6
mln from balanced trading aimed at providing financial protection to customers of the Group's network (for further details,
see Part E “Information on risks and hedging policies” of these Notes to the Financial statements). The remaining amount is
generated from transactions with financial market participants classified as customers pursuant to the above classification
criteria set by the Bank of Italy.
2.2.a Units of UCITS: Breakdown by main categories
Total Total
Categories/Amounts
31 12 2017 31 12 2016
Equity 5 5
Bonds 50,578 159
Others 11,145 11,958
To ta l 61,728 12,122
The table adds details to line “A.3. Units of UCITS” of table 2.2 above.
Section 3 – Financial assets designated at fair value – Item 30
The tables for this section were not completed since the Bank has no financial assets designated at fair
value to report for either the current or previous year.
2017 ANNUAL REPORT
213 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 4 - Financial assets available for sale – Item 40
4.1 Financial assets available for sale: breakdown
Total 31 12 2017 Total 31 12 2016
Items/Amounts
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
1. Debt securities 14,740,157 278,257 13,672 15,032,086 15,974,883 203,875 - 16,178,758
1.1 Structured securities - - - - - - - -
1.2 Other debt securities 14,740,157 278,257 13,672 15,032,086 15,974,883 203,875 - 16,178,758
2. Equity instruments 4,254 10,455 307,419 322,128 5,931 10,877 294,039 310,847
2..1 Designated at fair value 4,254 10,228 305,958 320,440 5,931 10,650 289,488 306,069
2.2. Carried at cost - 227 1,461 1,688 - 227 4,551 4,778
3. Units of UCITS 13 84,539 11,670 96,222 822 144,812 27,878 173,512
4. Loans - - - - - - - -
Total 14,744,424 373,251 332,761 15,450,436 15,981,636 359,564 321,917 16,663,117
The portfolio of AFS financial assets includes:
a) bonds and UCITS not held for trading;
b) equity investments with shareholding lower than controlling or associate interests.
As a result of the provisions set out in IAS 39 for the derecognition of financial assets, line 1.2 also includes debt securities
committed in repos (liabilities) and securities lending transactions carried out for own securities posted to the available-for-
sale portfolio.
The sub-item “2.1 Equity instruments - measured at the fair value” includes investments in the Voluntary Scheme (qualified at
level 3) for an amount of EUR 2.6 million, originally recognised for a total of EUR 53.6 million (written down by a total of
EUR 51.4 million).
The sub-item “3 Units of UCITS” contains the investment in the shares of the Atlante Fund (level 3 column) for a value of
EUR 6.1 million, following total write-downs equal to EUR 39.9 million.
At the reporting date, the aggregate does not include the Group’s senior, mezzanine and junior exposures with reference to
own and third party securitisation transactions.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 214
4.2 Financial assets available for sale: breakdown by borrower/issuer
Total Total
Items/Amounts
31 12 2017 31 12 2016
1. Debt securities 15,032,086 16,178,758
a) Governments and Central banks 14,097,567 15,409,813
b) Other public entities 19,826 14,024
c) Banks 342,466 298,056
d) Other issuers 572,227 456,865
2. Equity instruments 322,128 310,847
a) Banks 207,194 229,256
b) Other issuers: 114,934 81,591
- insurance companies - 404
- financial companies 29,441 27,135
- non-financial companies 85,493 54,052
- other - -
3. Units of UCITS 96,222 173,512
4. Loans - -
a) Governments and Central banks - -
b) Other public entities - -
c) Banks - -
d) Other entities - -
Total 15,450,436 16,663,117
4.2.a Units of UCITS: breakdown by main categories
Total Total
Categories/Amounts
31 12 2017 31 12 2016
Hedge Funds 667 8,681
Private Equity 78,049 151,488
Real estate 15,873 8,683
Other 1,633 4,660
Total 96,222 173,512
The table adds details to line “3 Units of UCITS” of table 4.1 above.
2017 ANNUAL REPORT
215 Notes to the consolidated financial statements - Part B - Information on the balance sheet
4.2.b Equity securities issued by entities classified as doubtful or unlikely to pay
Total Total
Categories/Amounts
31 12 2017 31 12 2016
Equity securities issued by parties with doubtful status
Gross exposure 47,082 20,735
Cumulative writedowns 34,716 20,735
of which: Writedowns for the period - 1,626
Net exposure 12,366 -
Equity securities issued by parties with unlikely to pay status
Gross exposure 162,537 143,897
Cumulative writedowns 99,511 114,320
of which: Writedowns for the period 5,458 18,182
Net exposure 63,026 29,577
Total net exposure 75,392 29,577
The main cumulative write-downs relating to equity securities issued by entities classified as unlikely to pay regard:
- Sorgenia S.p.A. (EUR 43.6 mln);
- Fenice Holding S.p.A. (EUR 42.1 mln);
- CISFI S.p.A. (EUR 10.9 mln);
- RCR S.p.A. (EUR 9.5 mln);
- Aedes Società di Investimento S.p.A. (EUR 5.8 mln);
- Compagnia Investimento e Sviluppo (EUR 3.8 mln);
- Marina di Stabia S.p.A. (EUR 6.9 mln);
- Targetti Holding S.p.A. (EUR 6.6 mln).
The main write-downs recognised during the year regard:
- Sorgenia S.p.A. (EUR 2.9 mln);
- Porto Industriale di Livorno S.p.A. (EUR 1.4 mln);
- Centro Agroalimentare di Napoli (EUR 0.5 mln).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 216
4.3 Financial assets available for sale: micro-hedged assets
Total Total
Items/Amounts
31 12 2017 31 12 2016
1. Financial assets subject to micro-hedging of fair value 4,159,523 3,948,514
a) interest rate risk 4,159,523 3,948,514
b) price risk - -
c) foreign exchange risk - -
d) credit risk - -
e) multiple risks - -
2. Financial assets subject to micro-hedging of cash flows - -
a) interest rate risk - -
b) foreign exchange risk - -
c) other - -
Total 4,159,523 3,948,514
Section 5 – Financial assets held to maturity – Item 50
The tables for this section were not completed since the Group has no financial assets held to maturity
to report for either the current or previous year.
2017 ANNUAL REPORT
217 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 6 – Loans to banks – Item 60
6.1 Loans to banks: breakdown
Total
31 12 2017
Type of transaction/Amount Fair Value
Book value
Level 1 Level 2 Level 3 Total
A. Loans to central banks 3,901,816 - 3,901,816 - 3,901,816
1. Time deposits 20,000 X X X X
2. Compulsory reserve 3,881,816 X X X X
3. Reverse repurchase agreements - X X X X
4. Others - X X X X
B. Loans to banks 6,064,396 32,970 5,913,352 3,363 5,949,685
1. Loans 5,350,756 - 5,349,859 3,363 5,353,222
1.1 Current accounts and demand deposits 2,931,011 X X X X
1.2 Time deposits 37,549 X X X X
1.3 Other loans: 2,382,196 X X X X
- Reverse repurchase agreements 898,734 X X X X
- Finance leases - X X X X
- Others 1,483,462 X X X X
2. Debt securities 713,640 32,970 563,493 - 596,463
2.1 Securities - X X X X
2.2 Other debt securities 713,640 X X X X
Total 9,966,212 32,970 9,815,168 3,363 9,851,501
At the reporting date, the item includes non-performing loans for an amount of EUR 3.4 mln (EUR 1.0 mln as at 31
December 2016).
'Banks' also includes international entities of a banking nature subjected to zero weighting in accordance with prudential
supervisory regulations on the standardised approach to counterparty and credit risk.
The portfolio of “Loans to banks” includes loans and deposits, in addition to the unrestricted part of the compulsory legal
reserve with the Bank of Italy which, at year end, amounted to EUR 3,881.8 mln (EUR 3,588.5 mln as at 31 December 2016).
In accordance with regulations on average maintenance levels, the end-of-period balance of the compulsory reserve may be
subject to substantial changes in relation to the Group’s contingent cash flow requirements.
Sub-item “B.1.3 Other loans – Other”, totalling EUR 1,483.5 mln includes security deposits of approximately EUR 1,208.6
mln.
At the reporting date, the aggregate does not include the Group’s senior, mezzanine and junior exposures with reference to
own and third party securitisation transactions.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 218
Total
31 12 2016
Type of transaction/Amount
Fair Value
Book value
Level 1 Level 2 Level 3 Total
A. Loans to central banks 3,608,463 - 3,608,463 - 3,608,463
1. Time deposits 20,000 X X X X
2. Compulsory reserve 3,588,463 X X X X
3. Reverse repurchase agreements - X X X X
4. Others - X X X X
B. Loans to banks 5,327,776 52,546 5,146,979 1,937 5,201,462
1. Loans 4,449,560 - 4,451,197 1,937 4,453,134
1.1 Current accounts and demand deposits 2,339,380 X X X X
1.2 Time deposits 57,656 X X X X
1.3 Other loans: 2,052,524 X X X X
- Reverse repurchase agreements 151,545 X X X X
- Finance leases - X X X X
- Others 1,900,979 X X X X
2. Debt securities 878,216 52,546 695,782 - 748,328
2.1 Securities - X X X X
2.2 Other debt securities 878,216 X X X X
Total 8,936,239 52,546 8,755,442 1,937 8,809,925
6.2 Loans to banks subject to micro-hedging
Total Total
Type of transaction/Amounts
31 12 2017 31 12 2016
1. Loans subject to micro-hedging of fair value 709,670 795,602
a) interest rate risk 398,223 446,863
b) exchange risk 311,447 348,739
c) credit risk - -
d) multiple risks - -
2. Loans subject to micro-hedging of cash flows - -
a) interest rate risk - -
b) foreign exchange risk - -
c) others - -
Total 709,670 795,602
6.3 Finance leases
This table was not compiled since the Group had no finance leases with banking counterparties to
report for either the period under review or the previous year.
2017 ANNUAL REPORT
219 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 7 – Loans to customers – Item 70
7.1 Loans to customers: breakdown
31 12 2017
Book value Fair value
Type of transaction Amount
Non-performing
Performing Total Level 1 Level 2 Level 3 Total
Purchased Others
Loans 75,054,267 54 10,352,038 85,406,359 - 5,148,959 83,736,305 88,885,264
1. Current accounts 5,757,491 2 1,666,046 7,423,539 X X X X
2. Reverse repurchase
4,524,837 - - 4,524,837 X X X X
agreements
3. Mortgages 46,868,398 15 6,079,090 52,947,503 X X X X
4. Credit cards, personal loans
and fifth-of-salary 1,005,397 - 128,356 1,133,753 X X X X
backed loans
5. Finance lease 2,761,937 - 860,663 3,622,600 X X X X
6. Factoring 816,537 - 67,828 884,365 X X X X
7. Other transactions 13,319,670 37 1,550,055 14,869,762 X X X X
of which: leased assets under
178,049 - 17,113 195,162 X X X X
construction
Debt securities 1,050,048 - - 1,050,048 127,653 870,841 35,812 1,034,306
8. Structured securities - - - - X X X X
9. Other debt securities 1,050,048 - - 1,050,048 X X X X
Total 76,104,315 54 10,352,038 86,456,407 127,653 6,019,800 83,772,117 89,919,570
'Loans to customers' also includes operating receivables other than those connected with the payment for the supply of non-
financial goods and services, which are posted to “Other assets” in account 160 of the Assets.
The securities portfolio also includes bonds not listed in active markets issued mainly by regional public bodies, e.g. municipal
bonds (it.: buoni ordinari comunali, BOC).
According to the Bank of Italy's definitions, the “Non-performing” column, broken down into “Purchased” and “Others”,
includes doubtful, unlikely to pay and loans more than 90 days past due, recognised net of impairment losses. Details of these
exposures can be found in Part E “Information on risks and hedging policies” of the notes to the financial statements
(Section A “Credit Quality”).
Please note that, on the basis of what is set forth in the Restructuring Plan and in line with the terms of the agreements
entered into with Quaestio Capital SGR S.p.A., the Group completed a transfer through securitisation of a set of credit
exposures classified as doubtful, for a net book value of EUR 4,556.0 million. Pursuant to IFRS 5, this portfolio was
reclassified to item “150. Non-current assets and groups of assets held for sale and discontinued operations”, given that the
derecognition will be carried out by the end of June 2018 (for the details, please refer to the section “The doubtful loan
disposal transaction” of the Consolidated Report on Operations). In addition, pursuant to IFRS 5, EUR 29.2 mln in
receivables were reclassified (transfers completed in the early months of 2018).
At the reporting date, the aggregate does not include the Group’s senior, mezzanine and junior exposures with reference to
third party securitisation transactions.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 220
31 12 2016
Book value Fair value
Type of transaction Amount
Non-performing
Performing Total Level 1 Level 2 Level 3 Total
Purchased Others
Loans 85,242,458 3,778 20,316,094 105,562,330 - 8,522,269 100,771,164 109,293,433
1. Current accounts 6,313,250 374 3,405,988 9,719,612 X X X X
2. Reverse repurchase
8,854,642 - - 8,854,642 X X X X
agreements
3. Mortgages 49,532,622 1,787 12,666,897 62,201,306 X X X X
4. Credit cards, personal loans
and fifth-of-salary 1,397,535 - 145,804 1,543,339 X X X X
backed loans
5. Finance lease 2,928,195 - 954,307 3,882,502 X X X X
6. Factoring 756,321 - 134,422 890,743 X X X X
7. Other transactions 15,459,893 1,617 3,008,676 18,470,186 X X X X
of which: leased assets under
183,337 - 30,871 214,208 X X X X
construction
Debt securities 1,130,306 - 75 1,130,381 154,817 975,807 75 1,130,699
8. Structured securities - - - - X X X X
9. Other debt securities 1,130,306 - 75 1,130,381 X X X X
Total 86,372,764 3,778 20,316,169 106,692,711 154,817 9,498,076 100,771,239 110,424,132
2017 ANNUAL REPORT
221 Notes to the consolidated financial statements - Part B - Information on the balance sheet
7.2 Loans to customers: breakdown by borrower/issuer
31 12 2017
Type of transaction/Amount Non-performing
Performing Total
Purchased Others
1. Debt securities: 1,050,048 - - 1,050,048
a) Governments 142,038 - - 142,038
b) Other public entities 190,743 - - 190,743
c) Other issuers 717,267 - - 717,267
- non-financial companies 70,021 - - 70,021
- financial companies 217,135 - - 217,135
- insurance companies 430,111 - - 430,111
- others - - - -
2. Loans to: 75,054,267 54 10,352,038 85,406,359
a) Governments 531,904 - 383 532,287
b) Other public entities 1,935,153 - 146,065 2,081,218
c) Other entities 72,587,210 54 10,205,590 82,792,854
- non-financial companies 37,637,324 19 8,206,911 45,844,254
- financial companies 7,308,985 - 269,553 7,578,538
- insurance companies 68 - 3 71
- others 27,640,833 35 1,729,123 29,369,991
Total 76,104,315 54 10,352,038 86,456,407
31 12 2016
Type of transaction/Amount Non-performing
Performing Total
Purchased Others
1. Debt securities: 1,130,306 - 75 1,130,381
a) Governments 153,180 - - 153,180
b) Other public entities 224,225 - - 224,225
c) Other issuers 752,901 - 75 752,976
- non-financial companies 70,037 - 75 70,112
- financial companies 227,574 - - 227,574
- insurance companies 455,290 - - 455,290
- others - - - -
2. Loans to: 85,242,458 3,778 20,316,094 105,562,330
a) Governments 613,245 - 265 613,510
b) Other public entities 2,051,607 - 280,483 2,332,090
c) Other entities 82,577,606 3,778 20,035,346 102,616,730
- non-financial companies 41,607,346 2,512 16,563,009 58,172,867
- financial companies 12,174,474 - 487,717 12,662,191
- insurance companies 121 - 4 125
- others 28,795,665 1,266 2,984,616 31,781,547
Total 86,372,764 3,778 20,316,169 106,692,711
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 222
7.3 Loans to customers: micro-hedged assets
Total Total
Type of transaction/Amount
31 12 2017 31 12 2016
1. Loans subject to micro-hedging of fair value 297,292 380,059
a) interest rate risk 297,292 380,059
b) exchange risk - -
c) credit risk - -
d) multiple risks - -
2. Loans subject to micro-hedging of cash flows 50,069 50,095
a) interest rate risk 50,069 50,095
b) foreign exchange risk - -
c) other - -
Total 347,361 430,154
7.4 Finance leases
7.4.a Reconciliation of future minimum payments receivable and finance leases
31 12 2017
Carrying amount Gross investment
Lease payments
Total lease
Lease payments receivable
payments
receivable discountued at Deferred Future
Items/Accounts receivable of which:
discounted at implicit lease rate financial minimum lease
recognised in unguaranteed
explicit lease (present value of income payments
income for the residual values
rate minimum lease (D) (B + D)
period
(A) payments)
(A + B)
(B)
Up to 1 year 295,920 793,119 1,089,039 147,812 940,931 24,818
From 1 to 5 years - 1,504,194 1,504,194 404,875 1,909,069 125,152
Over 5 years - 1,614,204 1,614,204 291,859 1,906,063 488,078
Indefinite useful life 811,710 - 811,710 - - -
Total 1,107,630 3,911,517 5,019,147 844,546 4,756,063 638,048
Value adjustments (968,079) (428,468) (1,396,547) - (428,468) -
Loans and advances in
3,622,600
the balance sheet
Net loans to customers for finance leases amounted to EUR 3,622.6 mln, of which EUR 860.7 mln for “Non-performing
assets”. The finance lease portfolio of the subsidiary MPS Leasing & Factoring consists of 28,515 contracts, broken down as
follows in terms of the remaining debt balance:
- 60.3% real estate segment;
- 19.7% operating asset segment;
- 11.3% energy segment;
- 6.3% vehicle segment;
- 2.4% aircraft and railway segment.
The remaining value of the thirty most significant loans was EUR 248.4 mln.
2017 ANNUAL REPORT
223 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 8 – Hedging derivatives – Item 80
8.1 Hedging derivatives: breakdown by type of contract and underlying asset
Fair value 31 12 2017
NV
Level 1 Level 2 Level 3 Total
A. Financial derivatives - 156,485 - 156,485 10,094,017
1) Fair value - 156,485 - 156,485 10,094,017
2) Cash flows - - - - -
3) Foreign investments - - - - -
B. Credit derivatives - - - - -
1) Fair value - - - - -
2) Cash flows - - - - -
Total - 156,485 - 156,485 10,094,017
Legend
NV = Notional or Nominal Value
The table displays the positive book value (fair value) of hedging derivatives for hedges carried out through hedge accounting.
Information on the underlying strategies and objectives of hedge transactions can be found in the Section “Market risks” of
Part E “Information on Risks and hedging policies”.
Fair value 31 12 2016
NV
Level 1 Level 2 Level 3 Total
A. Financial derivatives - 327,349 - 327,349 15,282,706
1) Fair value - 327,349 - 327,349 15,282,706
2) Cash flows - - - - -
3) Foreign investments - - - - -
B. Credit derivatives - - - - -
1) Fair value - - - - -
2) Cash flows - - - - -
Total - 327,349 - 327,349 15,282,706
Legend
NV = Notional or Nominal Value
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 224
8.2 Hedging derivatives: breakdown by hedged portfolios and type of hedging
Fair Value Cash Flows
Investments Foreign
Micro-hedge
Macro-hedge
Macro-hedge
Micro-hedge
Transaction/Type of Total
hedge 31 12 2017
Risk Risk Risk Risk Multiple
Rate Exchange Credit Price Risks
1. Financial assets
2,443 - - - - X - X X 2,443
available for sale
2. Loans and receivables - - - - - X - X X -
3. Financial assets held
X - - X - X - X X -
to maturity
4. Portfolio X X X X X 7,362 X - X 7,362
5. Other transactions - - - - - X - X - -
Total assets 2,443 - - - - 7,362 - - - 9,805
1. Financial liabilities 146,680 - - - - X - X X 146,680
2. Portfolio X X X X X - X - X -
Total liabilities 146,680 - - - - - - - - 146,680
1. Expected transactions X X X X X X - X X -
2. Financial assets and
X X X X X - X - - -
liabilities portfolio
Total 149,123 - - - - 7,362 - - - 156,485
The table shows the positive fair values of hedging derivatives, classified by hedged assets or liabilities and type of hedging
implemented.
In particular, for the financial assets available for sale, fair value micro-hedging was used to hedge against interest-rate risk on
fixed-rate and variable-rate capped mortgages and bonds classified in the available-for-sale portfolio or among receivables, in
order to protect them from unfavourable interest rate changes. Fair value macro-hedging was carried out on fixed-rate
mortgage loan portfolios.
With reference to financial liabilities, fair value micro-hedging of the interest-rate risk refers primarily to hedges of liabilities
represented by securities. Cash flow hedges were carried out on some specific index-linked bond issues, in order to stabilise
their flows through interest rate swaps.
More information on hedged assets and liabilities can be found in the tables contained in Part B of the notes for each section
of the balance sheet items to which the hedged items are posted.
2017 ANNUAL REPORT
225 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 9 – Change in value of macro-hedged financial assets – Item 90
9.1 Change in value of hedged assets: breakdown by hedged portfolios
Total Total
Changes in value of hedged assets / Group components
31 12 2017 31 12 2016
1. Positive changes 57,346 113,300
1.1 of specific portfolios: 57,346 113,300
a) loans and receivables 57,346 113,300
b) financial assets available for sale - -
1.2 overall - -
2. Negative changes - -
2.1 of specific portfolios: - -
a) loans and receivables - -
b) financial assets available for sale - -
2.2 overall - -
Total 57,346 113,300
The value adjustment concerns fixed and capped floating rate mortgage loan portfolios that were fair value macro-hedged
with derivatives to counter possible interest rate risk-induced fluctuations in value. As this is a macro-hedge, any gain or loss
on the hedged item attributable to the risk hedged may not directly adjust the value of said item (unlike in micro-hedging), but
must be presented in this separate line item of the assets. The amounts in this item must be removed from the balance sheet
when the relevant assets or liabilities are derecognised.
The fair value of the corresponding hedging derivatives is shown respectively in Table 8.2 (assets) or Table 6.2 (liabilities),
both entitled “Hedging derivatives: breakdown by hedged portfolio and type of hedging”, in the “Macro-hedging” column.
9.2 Assets subject to macro-hedging of interest-rate risk
Total Total
Hedged assets
31 12 2017 31 12 2016
1. Loans and receivables 5,182,542 4,126,257
2. Assets available for sale - -
3. Portfolio - -
Total 5,182,542 4,126,257
The table shows the book value (amortised cost) of fixed-rate and capped floating rate mortgages included in Item 70 “Loans
to customers”, which was macro-hedged against interest-rate risk as per Table 9.1 above.
The sum of this amount and the one shown in Table 9.1 expresses the book value of these receivables, adjusted for profit or
loss attributable to the risk hedged.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 226
Section 10 – Equity investments – Item 100
10.1 Equity investments: information on shareholding
Ownership Relationship
Registered Type of Share Avail.
Company Name Headquarters
Office relationship Held by holding % votes
%
A. Companies under joint control
Immobiliare Novoli S.p.a. Florence Florence 7 Banca Monte dei Paschi di Siena 50.000 -
Integra S.p.a. Calenzano (FI) Calenzano (FI) 7 Banca Monte dei Paschi di Siena 50.000 -
Marinella di Marinella di
Marinella S.p.a. 7 Banca Monte dei Paschi di Siena 25.000 -
Sarzana (SP) Sarzana (SP)
B. Companies under significant influence
Axa Mps Assicurazioni Danni S.p.a. Rome Rome 8 Banca Monte dei Paschi di Siena 50.000 -
Axa Mps Assicurazioni Vita S.p.a. Rome Rome 8 Banca Monte dei Paschi di Siena 50.000 -
Casalboccone Roma S.p.a. (in
Siena Siena 8 Banca Monte dei Paschi di Siena 21.750 33.675
liquidazione)
CO.E.M. Costruzioni Ecologiche
Rome Rome 8 Banca Monte dei Paschi di Siena 40.197 -
Moderne S.p.a.
Fenice Holding S.p.a. Calenzano (FI) Calenzano (FI) 8 Banca Monte dei Paschi di Siena 4.156 -
MPS Capital Services S.p.a. 16.383 -
Fidi Toscana S.p.a. Florence Florence 8 Banca Monte dei Paschi di Siena 27.460 -
Firenze Parcheggi S.p.a. Florence Florence 8 Banca Monte dei Paschi di Siena 16.807 -
Fondo Etrusco Distribuzione Rome Rome 8 Banca Monte dei Paschi di Siena 48.000 -
Conegliano Conegliano
Fondo Minibond PMI Italia 8 Banca Monte dei Paschi di Siena 61.940 -
(TV) (TV)
Fondo Socrate Rome Rome 8 Banca Monte dei Paschi di Siena 23.140 -
Immobiliare Centro Milano S.p.a. Milan Milan 8 MPS Capital Services S.p.a. 33.333 -
Interporto Toscano A.Vespucci Collesalvetti Collesalvetti
8 Banca Monte dei Paschi di Siena 21.819 -
S.p.a. (LI) (LI)
MPS Capital Services S.p.a. 19.002 -
Le Robinie S.p.a. Reggio Emilia Reggio Emilia 8 Banca Monte dei Paschi di Siena 20.000 -
Microcredito di Solidarietà S.p.a. Siena Siena 8 Banca Monte dei Paschi di Siena 40.000 -
Nuova Sorgenia Holding S.p.a.* Milan Milan 8 Banca Monte dei Paschi di Siena 16.670 -
Colle V.Elsa Colle V.Elsa
NewColle S.r.l. 8 Banca Monte dei Paschi di Siena 49.002 -
(SI) (SI)
Realizzazioni e Bonifiche Arezzo
Arezzo Arezzo 8 Banca Monte dei Paschi di Siena 19.584 -
S.p.a. (in liquidazione)
Sansedoni Siena S.p.a. Siena Siena 8 Banca Monte dei Paschi di Siena 21.754 33.674
S.I.C.I. Sviluppo Imprese Centro
Florence Florence 8 MPS Capital Services S.p.a. 15.000 -
Italia SGR S.p.a.
S.I.T. - Finanz.di Sviluppo per l'Inn.
Rome Rome 8 Banca Monte dei Paschi di Siena 19.969 -
Tecnologica S.p.a.
Chianciano T. Chianciano T.
Terme di Chianciano S.p.a. 8 Banca Monte dei Paschi di Siena 18.816 -
(SI) (SI)
MPS Capital Services S.p.a. 26.807 -
Trixia S.r.l. Milan Milan 8 Banca Monte dei Paschi di Siena 15.000 -
* The portion pertaining to the Group in application of the equity method amounts to 22.24%, given the set of risks and benefits connected with the
exposure to Sorgenia S.p.A.
For further details on changes, see comments to table “10.5 - Equity investments: annual changes”.
2017 ANNUAL REPORT
227 Notes to the consolidated financial statements - Part B - Information on the balance sheet
10.2 Significant equity investments: book value, fair value and dividends earned
31 12 2017
Book value Dividends
Company name Fair value
earned
31 12 2015 31 12 2014
A. Companies under joint control
Immobiliare Novoli S.p.a. 5,517 6,602 - -
B. Companies under significant influence
Axa Mps Assicurazioni Vita S.p.a. 791,659 771,707 - -
Axa Mps Assicurazioni Danni S.p.a. 80,513 66,474 - -
Fondo Etrusco Distribuzione 67,588 64,856 - 2,239
Fidi Toscana S.p.a. 22,159 42,439 - -
Fondo Minibond PMI Italia 38,355 41,660 - 1,763
Intermonte SIM S.p.a. - 16,307 - 2,240
Fondo Socrate 11,315 12,065 15,305 989
Firenze Parcheggi S.p.a. 4,596 4,556 - -
Total 1,021,702 1,026,666 15,305 7,231
BANCA MONTE DEI PASCHI DI SIENA
2017 ANNUAL REPORT
Company name
tax
(2)
after tax
before tax
Financial assets
Total revenues
(3) = (1) + (2)
Financial liabilities
Net interest income
Non-financial assets
held for sale after tax
Non-financial liabilities
Comprehensive income
Cash and cash equivalents
Gain (Loss) for the year (1)
tangible and intangible assets
Gain (Loss) from groups of assets
Other comprehensive income after
Gain (Loss) from current operations
Gain (Loss) from current operations
Value adjustments and writebacks on
A. Companies under joint control
Immobiliare Novoli S.p.a. - 4 163,499 138,585 13,885 13,388 (2,531) - (2,666) (2,682) - (2,682) - (2,682)
B. Companies under significant influence
Axa Mps Assicurazioni Danni S.p.a. - 599,753 66,701 422,870 87,189 187,442 - - 40,523 27,892 - 27,892 186 28,078
Axa Mps Assicurazioni Vita S.p.a. X 17,377,749 876,250 15,991,566 729,327 2,256,151 - - 231,953 186,509 - 186,509 (115,950) 70,559
Fidi Toscana S.p.a. X 207,220 113,755 - 173,670 7,042 - - (2,611) (2,611) - (2,611) 396 (2,215)
Firenze Parcheggi S.p.a. X 3,468 47,887 11,695 5,521 14,284 - - 723 236 - 236 - 236
Fondo Etrusco X 3,419 224,966 76,000 580 7,070 - - 4,196 4,196 - 4,196 - 4,196
Fondo Minibond PMI Italia X 63,918 971 - 167 1,666 - - 1,153 1,153 - 1,153 - 1,153
10.3 Significant equity investments: accounting information
Fondo Socrate X 19,272 108,653 1,863 1,222 3,163 - - 132 132 - 132 - 132
Notes to the consolidated financial statements - Part B - Information on the balance sheet
228
229
S.P.A.
AXA MPS
AXA MPS
FIRENZE
VITA S.P.A.
PMI ITALIA
DANNI S.P.A
NOVOLI S.P.A.
FIDI TOSCANA
IMMOBILIARE
ASSICURAZIONI
ASSICURAZIONI
DISTRIBUZIONE
PARCHEGGI S.P.A.
FONDO SOCRATE
FONDO ETRUSCO
FONDO MINIBOND
Shareholding 50.00% 50.00% 50.00% 27.46% 48.00% 61.94% 23.14% 16.81%
Cash and cash equivalents - X X X X X X X
Financial assets 4 599,753 17,377,749 207,220 3,419 63,918 19,272 3,468
Non-financial assets 163,499 66,701 876,250 113,755 224,966 971 108,653 47,887
Fianlcial liabilities 138,585 422,870 15,991,566 - 76,000 - 1,863 11,695
Non-financiale liabilities 13,885 87,189 729,327 173,670 580 167 1,222 5,521
Shareholders'equity (100%) 11,033 156,394 1,533,106 147,305 151,805 64,721 124,839 34,139
Group shareholding 5,517 78,197 766,553 40,450 72,866 40,088 28,888 5,738
Cancellation of unrealised intragoup profit/loss - - 56,886 - - - - -
Goodwill - 2,316 46,796 - - - - -
Value adjustments - - - (18,291) - - - -
Other increases/decreases - - (78,576) - (5,278) (1,733) (17,573) (1,142)
Book value of Associate company as at 31 12 2017 5,517 80,513 791,659 22,159 67,588 38,355 11,315 4,596
Book value as at 31 12 2016 6,602 66,474 771,707 42,439 64,856 41,660 12,065 4,556
10.3a - Reconciliation of accounting information with the book value
Profit (loss) for the year (2,682) 27,892 186,509 (2,611) 4,196 1,153 132 236
Other comprehensive income after tax - 186 (115,950) 396 - - - -
Comprehensive income attributable to the Group (1,341) 14,039 35,279 (608) 2,014 714 31 40
Notes to the consolidated financial statements - Part B - Information on the balance sheet
Dividends - - - - (2,239) (1,763) (989) -
Value/adjustments and writebacks - - - (18,291) - - - -
Other changes 256 - (15,327) (1,381) 2,957 (2,256) 208 -
Book value of Associate company as at 31 12 2017 5,517 80,513 791,659 22,159 67,588 38,355 11,315 4,596
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 230
10.3b – Significant equity investments: information on business
Company name Type of business
Companies under significant influence
Company specialising in P&C insurance, offering a comprehensive range of
Axa Mps Assicurazioni Danni S.p.A.
insurance solutions tailored to the needs of customers and businesses.
Leading company in the domestic insurance market, offering innovative and
Axa Mps Assicurazioni Vita S.p.A.
advantageous solutions for all pension, insurance, savings and investment needs.
A Tuscan financial company which aims to facilitate access to credit for small
Fidi Toscana S.p.A.
and medium businesses
Real estate fund for institutional investors. Its portfolio has been built up
Fondo Etrusco Distribuzione through a series of sale and leaseback transactions on commercial properties fully
leased by a leading player in the Mass Distribution Industry
Independent investment fund for investments in bonds issued by small and
Fondo Minibond PMI Italia
medium Italian businesses
Closed-end mutual real estate investment fund. Listed on the Market for
Fondo Socrate
Investment Vehicles of the Italian Sotck Exchange as of 30 January 2014
Immobiliare Novoli S.p.A. Real estate company
Firenze Parcheggi S.p.A Company that manages and coordinates the parking in Florence
The associated companies Axa MPS Assicurazione Danni S.p.A and Axa Mps Assicurazioni Vita S.p.A. are strategic for the
Group
10.4 Non-significant equity investments: accounting information
Gain (Loss) from continuing
assets held for sale after tax
Gain (Loss) for the year (1)
Gain (Loss) from groups of
Comprehensive income
Other comprehensive
Book value of equity
operations after tax
income after tax (2)
Total liabilities
Total revenues
(3) = (1) + (2)
Total assets
investment
Denominazione
A. Companies under joint
957 78,661 52,933 2,380 (1,138) - (1,138) - (1,138)
control
B. Companies under
11,987 2,776,966 2,655,395 1,789,453 26,581 - 26,581 9,055 35,636
significant influence
2017 ANNUAL REPORT
231 Notes to the consolidated financial statements - Part B - Information on the balance sheet
10.5 Equity investments: annual changes
Total Total
31 12 2017 31 12 2016
A. Opening balance 1,031,678 908,365
B. Increases 133,812 188,117
B.1 Purchases - -
B.2 Write-backs - -
B.3 Revaluations - -
B.4 Other increases 133,812 188,117
C. Decreases 130,846 64,804
C.1 Sales 20,000 -
C.2 Write-downs 27,330 1,644
C.4 Other decreases 83,516 63,160
D. Closing balance 1,034,644 1,031,678
E. Total revaluation - -
F. Total write-downs 136,774 110,384
Below are the main changes in the course of the year.
With regard to increases, please note that line B.4 “other increases” includes: EUR 101.1 mln in profits and EUR 2.0 mln in
increases in valuation reserves relating to associates; the profit of EUR 5.8 mln connected to the disposal of the investee
Intermonte Sim Spa; an increase of EUR 17.6 mln associated with the change in status of the investee Costruzioni Ecologiche
Moderne S.p.A., as a result of the loss of control and the company’s simultaneous reclassification as an associate.
Among decreases:
on line C.1 “Sales”, the disposal of the investment in Intermonte SIM S.p.a., for an amount of EUR 20.0 mln;
on line C.2 “Value adjustments”, the write-downs of the equity investments in the associates Fidi Toscana S.p.a.,
Interporto Toscano A. Vespucci S.p.a. and Trixia S.r.l.;
on line C.3 “Other decreases”, dividends from associated companies of EUR 20.0 mln, losses recognised by the
associates of EUR 1.7 mln and decreases in valuation reserves relating to associates of EUR 59.4 mln.
$$$
In accordance with the accounting standards, the indicators of impairment of equity investments in associates have been
measured, the recoverable value has been determined where applicable, and any write-downs or reversals have been
accounted for.
As regards the equity investments in the associates Axa MPS Danni and Axa MPS Vita, an analysis on key impairment
indicators has not identified elements indicating that impairment tests should be performed.
Reported below is the main embedded goodwill:
Embedded goodwill 31 12 2017 31 12 2016
Axa Mps Assicurazioni Vita S.p.A. 46,796 46,796
Axa Mps Assicurazioni Danni S.p.A. 2,316 2,316
Others - -
Total 49,112 49,112
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 232
10.6 Key considerations and assumptions to determine the existence of joint control or
significant influence
The Group considers as associates, that is subject to significant influence, the companies of which it
holds at least 20 per cent of the voting rights (including potential voting rights) and in which it has the
power to participate in determining the financial and operating policies.
Similarly, companies are considered associates also when the Group – despite a lower percentage of
voting rights– has the power of participating in the determination of the financial and operating
policies of the investee on account of specific legal agreements such as, for example, the participation
in important committees of the investee as well as the presence of vetoing rights on significant
decisions.
The Group considers jointly controlled those companies with respect to which the following
circumstances occur simultaneously:
if an agreement has been entered into that assigns co-participation in the management of the
investee’s activities via a presence on the Board of Directors:
none of the parties participating in the agreement holds exclusive control;
decisions relating to relevant activities are made unanimously by the parties identified (each
has an implicit or explicit veto right with regard to relevant decisions).
10.7 Covenants on investments in jointly controlled companies
No covenants on investments in jointly controlled companies are reported.
10.8 Covenants on investments in companies under significant influence
No covenants on investments in companies under significant influence are reported.
10.9 Significant restrictions
At the financial statement date there are no significant restrictions to the jointly controlled companies’
or associates’ ability to transfer funds to the Group in the form of dividends, aside from those set forth
in Civil Code provisions, requiring the deduction of 5% of the net profit for the year and its allocation
to the legal reserve, until the latter amounts to 20% of the share capital. The reserve must be
replenished if it is reduced for any reason.
10.10 Other information
The equity method, a synthetic method for the valuation of the equity of companies on which the
Group has significant influence or joint control, is performed on the basis of the financial statements
for the year ended 31 December 2017; if these are not available, the valuation is carried out on the
basis of the interim report as at 30 September 2017.
Section 11 – Reinsurance technical reserves – Item 110
No values are shown in this section as the insurance companies in which the Group holds equity
investments are associates, and therefore these investments are consolidated using the equity method.
2017 ANNUAL REPORT
233 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 12 - Property, plant and equipment - Item 120
12.1 Property, plant and equipment used in the business: breakdown of assets valued at
cost
Total
Asset/Amount
31 12 2017 31 12 2016
1. Assets owned 2,218,477 2,248,657
a) land 786,524 795,492
b) buildings 1,102,476 1,144,413
c) furniture and furnishings 154,162 159,025
d) electronic systems 108,820 87,969
e) other 66,495 61,758
2. Assets leased 14,254 21,030
a) land - -
b) buildings - -
c) furniture and furnishings - -
d) electronic systems 14,254 21,030
e) other - -
Total 2,232,731 2,269,687
All of the Group’s property, plant and equipment is measured at cost; the line “land” expresses the value of land separately
from the value of buildings. In compliance with guidance provided by IAS 36 “Impairment of Assets” and recommendations
contained in document no. 4 of 3 March 2010 issued jointly by the Bank of Italy, Consob and Isvap, an overall property
appraisal was made with a view to determining any impairment losses to be posted to profit and loss for the year; disclosure
of these impairment losses is provided in the notes to the table “12.5 Property, plant and equipment used in the business:
annual changes”.
Item 1 “Assets owned –c) furnishings” includes artworks whose value amounts to EUR 121.1 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 234
12.2 Property, plant and equipment held for investment: breakdown of assets valued at
cost
Total 31 12 2017
Asset/Amount Fair Value
Book value
Level 1 Level 2 Level 3 Total
1. Assets owned 338,281 - - 368,924 368,924
a) land 164,333 - - 163,771 163,771
b) buildings 173,948 - - 205,153 205,153
2. Assets leased - - - - -
a) land - - - - -
b) buildings - - - - -
Total 338,281 - - 368,924 368,924
All of the Group’s property, plant and equipment is measured at cost; the line “land” expresses the value of land separately
from the value of buildings. In compliance with guidance provided by IAS 36 “Impairment of Assets” and recommendations
contained in document no. 4 of 3 March 2010 issued jointly by the Bank of Italy, Consob and Isvap, an overall property
appraisal was made with a view to determining any impairment losses to be posted to profit and loss for the year; disclosure
of these impairment losses is provided in the notes to the table “12.6 Property, plant and equipment held for investment:
annual changes”.
Total 31 12 2016
Attività/Valori Fair Value
Book value
Level 1 Level 2 Level 3 Total
1. Assets owned 327,747 - - 362,257 362,257
a) land 160,012 - - 162,936 162,936
b) buildings 167,735 - - 199,321 199,321
2. Assets leased - - - - -
a) land - - - - -
b) buildings - - - - -
Total 327,747 - - 362,257 362,257
12.3 Property, plant and equipment used in the business: breakdown of revalued assets
The Group does not own any revalued property, plant and equipment.
12.4 Property, plant and equipment held for investment: breakdown of assets designated
at fair value
The Group holds no property, plant and equipment designated at fair value pursuant to IAS 40.
2017 ANNUAL REPORT
235 Notes to the consolidated financial statements - Part B - Information on the balance sheet
12.5 Property, plant and equipment used in the business: annual changes
Furniture
Electronic Total
Land Buildings and Others
systems 31 12 2017
furnishings
A. Gross opening balance 812,573 1,413,071 520,439 737,240 466,791 3,950,114
A.1 Total net decrease 17,080 268,658 361,413 628,243 405,033 1,680,427
A.2 Net opening balance 795,493 1,144,413 159,026 108,997 61,758 2,269,687
B. Increases 831 14,893 4,650 56,952 20,962 98,288
B.1 Purchases 811 101 4,650 56,951 20,962 83,475
B.2 Capitalized expenditure on improvements - 6,674 - - - 6,674
B.3 Write-backs - - - - - -
B.4 Increases in fair value booked to: - - - - - -
a) shareholders' equity - - - - - -
b) profit and loss - - - - - -
B.5 Positive exchange differences - - - - - -
B.6 Transfers from properties held for
6 11 - - - 17
investment
B.7 Other increases 14 8,107 - 1 - 8,122
C. Decreases 9,799 56,829 9,514 42,876 16,226 135,244
C.1 Sales - 5 448 309 1,029 1,791
C.2 Depreciation - 42,248 9,058 42,557 15,187 109,050
C.3 Impariment losses booked to: 2,995 2,166 - - - 5,161
a) shareholders' equity - - - - - -
b) profit and loss 2,995 2,166 - - - 5,161
C.4 Decreases in fair value booked to: - - - - - -
a) shareholders' equity - - - - - -
b) profit and loss - - - - - -
C.5 Negative exchange differences - - 3 10 8 21
C.6 Transfer to: 6,804 12,217 - - - 19,021
a) tangible asset held for
6,453 11,854 - - - 18,307
investment
b) assets held for sale 351 363 - - - 714
C.7 Other decreases - 193 5 - 2 200
D. Net closing balance 786,525 1,102,477 154,162 123,073 66,494 2,232,731
D.1 Total net decreases 20,075 310,367 368,510 668,371 419,127 1,786,450
D.2 Gross closing balance 806,600 1,412,844 522,672 791,444 485,621 4,019,181
E. Carried at cost - - - - - -
An analysis of external and internal impairment indicators resulted in impairment losses for an amount of EUR 5.2 mln being
recognised in the balance sheet as at 31 December 2017 (line C.3). In addition, EUR 8.2 mln in overall capital gains on real
estate used in the business is also reported; these capital gains were not recognised in the balance sheet. With regard to
property, plant and equipment of the Group used in the business other than buildings, no extraordinary negative market
factors were thought to exist under a going concern assumption, that might call for the need to recognise impairment losses.
Line E – “Carried at cost” was left blank, as per the Bank of Italy's instructions, since it only needs to be completed for assets
accounted for at fair value.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 236
12.6 Property, plant and equipment held for investment: annual changes
31 12 2017
Lands Builiding Total
A. Opening balance 160,012 167,735 327,747
B Increases 13,548 18,781 32,329
B.1 Purchases - - -
B.2 Capitalized expenditure on improvements - 766 766
B.3 Increases in fair value - - -
B.4 Write-backs - - -
B.5 Positive exchange differences - - -
B.6 Transfers from property used in the business 6,453 11,854 18,307
B.7 Other increases 7,095 6,161 13,256
C. Decreases 9,227 12,568 21,795
C.1 Sales 772 1,324 2,096
C.2 Depreciation - 7,460 7,460
C.3 Decreases in fair value - - -
C.4 Impairment losses 8,143 3,321 11,464
C.5 Negative exchange differences - - -
C.6 Transfers to other asset potfolios 312 463 775
a) properties used in the business 6 11 17
b) non-current assets held for sale 306 452 758
C.7 Other decreases - - -
D. Closing balance 164,333 173,948 338,281
E. Designated at fair value 163,771 205,153 368,924
An analysis of external and internal impairment indicators resulted in impairment losses for an amount of EUR 11.5 mln
being recognised in the balance sheet as at the reporting date (line C.4). In addition, EUR 31.1 mln in overall capital gains on
real estate held for investment is also reported; these capital gains were not recognised in the balance sheet.
2017 ANNUAL REPORT
237 Notes to the consolidated financial statements - Part B - Information on the balance sheet
12.7 Commitments to purchase property, plant and equipment
No commitments to purchase property, plant and equipment were registered in 2017.
12.8 Property, plant and equipment: depreciation rates
Main categories of tangible assets %
Land and works of art 0.00%
Buildings 3.03%
Furniture and furnishings 10-20%
Alarm and video systems 20-30%
Electronic and ordinary office equipment 12-20%
Electronic data processing equipment 50.00%
Vehicles 20-25%
Telephones 20-25%
The percentages used for carrying out the depreciations with reference to the main categories of
property, plant and equipment are presented in the table. Owing to their indefinite useful life, lands
and artworks are not depreciated.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 238
Section 13 – Intangible assets – Item 130
13.1 Intangible assets: breakdown by type
31 12 2017 31 12 2016
Asset / Amount
Indefinite Indefinite
Finite Life Total Finite Life Total
Life Life
A.1 Goodwill X 7,900 7,900 X 7,900 7,900
A.1.1 group X 7,900 7,900 X 7,900 7,900
A.1.2 minorities X - - X - -
A.2 Other intangible assets 275,335 - 275,335 337,613 - 337,613
A.2.1 Assets carried ad cost 275,335 - 275,335 337,613 - 337,613
a) internally generated
49,459 - 49,459 64,948 - 64,948
intangible assets
b) other assets 225,876 - 225,876 272,665 - 272,665
A.2.2 Assets valued at fair value: - - - - - -
a) internally generated
- - - - - -
intangible assets
b) other assets - - - - - -
Total 275,335 7,900 283,235 337,613 7,900 345,513
All of the Group's intangible assets are valued at cost. All intangible assets recognised in the financial statements have a finite
useful life, except for goodwill.
During preparation of the 2017 accounts, goodwill recognised was tested for recoverability or impairment. In accordance with
Document 4 jointly published by Bank of Italy/Consob/IVASS on 3 March 2010 and provisions set out in IAS 36,
“Impairment of Assets”, the activities carried out to perform the goodwill recoverability test are described below.
Goodwill is not systematically amortised but tested for impairment (Impairment Test). The test performed did not result in
any impairment losses.
Line “A.2.1 Assets carried at cost – b) Other assets” includes:
intangible assets arising from customer relations recognised following the acquisition of former Banca Antonveneta
S.p.a.:
core deposits totalling EUR 30.9 mln, from the fair value measurement of on-demand funding (current accounts
and savings deposits),
core overdrafts totalling EUR 7.5 mln, from the fair value measurement of assets represented by non-revolving
credit facilities,
purchase of externally-developed software for an amount of EUR 187.5 mln.
Considering that line “A.2.1 assets carried at cost – a) internally generated intangible assets” includes intangible assets linked
to internally generated technology in the amount of EUR 49.5 mln, the software total recognised in the consolidated financial
statement amounts to EUR 237.0 mln.
For intangible assets associated with customer relationships, an analysis was carried out on the impairment indicators, which
resulted in no need for impairment testing.
With regard to the software, the analysis of the future service life of the main capitalised assets to check the impairment, is
equal to ER 25 mln.
2017 ANNUAL REPORT
239 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Impairment testing of Group Goodwill
IAS 36 sets out the principles for recognition and reporting of impairment for certain types of assets, including goodwill,
illustrating the principles that an entity must follow to make sure that the carrying amount of its assets is not higher than their
recoverable amount.
IAS 36 defines recoverable amount as the higher of:
Fair value less costs to sell - the amount obtainable from the sale of an asset in a regular transaction between market
participants, less the costs of disposal;
Value in use - the present value of estimated future cash flows expected to arise from the continuing use of an asset
or from a cash-generating unit (CGU).
IAS 36 requires the carrying amount of goodwill to be compared with the recoverable amount whenever there is an indication
that the asset may have been impaired and in any case at least once a year at the balance sheet date (Impairment Test).
The recoverable amount of goodwill is estimated with reference to the CGUs, since goodwill is not able to generate cash
flows independently from an asset.
A CGU is the smallest identifiable group of assets that generates cash inflows from continuing use which are largely
independent of the cash inflows from other assets or groups of assets, which the Group is able to recognise separately in its
management reporting system.
In accordance with IAS 36 and in light of the aforementioned considerations, the impairment test carried out on goodwill as
shown in the Group’s consolidated financial statements comprised the following activities:
Identification of goodwill;
Identification of cash-generating units and allocation of goodwill to the cash-generating units identified;
Determination of the recoverable value of the CGUs
Impairment Test results.
a. Identification of goodwill
The impairment test was carried out on goodwill; no other indefinite-life intangible assets are recognised in the financial
statements.
b. Identification of cash-generating units and allocation of goodwill to the cash-generating units identified
According to IAS 36, each CGU or group of CGUs to which goodwill is allocated represents the lowest level within the entity
at which the goodwill is monitored for internal management purposes and should not be larger than an operating segment as
defined by IFRS 8 (“Operating Segments”).
As for the impairment test as at 31 December 2016, the Group’s goodwill was tested by identifying those CGUs into which
the Group’s operations can be separated and analysing the cash flows that these will be able to generate in future years, based
on an approach consistent with Segment Reporting presented in the financial statement and therefore with Management
Reporting.
For the purpose of primary reporting of profit and loss/balance-sheet data, the Group has adopted a business approach
opting for results to be broken down by the business segments in which the Group operates. The new Parent Company
structure was outlined at the end of 2016 within the scope of the broader objectives of the Plan and was fully implemented at
the start of 2017. It envisages the implementation of a specialised commercial organisational model with three Departments
(Retail, Wealth Management and Corporate), each of which is responsible for the pertinent markets, segments and products.
In particular, as innovative elements, please note the creation of the Wealth Management Department, focusing on
monitoring and developing customers of high standing (previously included within the Retail Department) and Banca Widiba
SPA, which includes the financial advisor network and the self-service channel (previously named “Financial Advisory and
Digital Banking”).
In particular, the four CGUs have the following scope of business:
- “Retail CGU”, which includes the retail customers of the BMPS branches;
- “Corporate CGU” composed of typically corporate clients of BMPS branches and foreign branches and subsidiaries, Large
Corporates, MPS Leasing & Factoring and MPS Capital Services.
- “Wealth Management CGU” includes the typically private customers of BMPS and the subsidiary MPS Fiduciaria;
- “Widiba CGU” consisting of the customers of the subsidiary Widiba, a Group company established to relaunch the
presence of MPS in direct channels, which has also been assigned the Financial Advisory Network.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 240
It is noted that, since the Consumer, Corporate and Wealth Management CGUs have no allocated goodwill, they were not
tested for impairment.
c. Determination of the recoverable value of the CGU
The Group’s goodwill as at 31 December 2017 was tested for impairment by identifying the recoverable amount of the
Widiba CGU as the value in use.
The recoverable amount of the CGU was estimated by discounting future distributable cash flows.
Taking into account what is described above and in continuity with the impairment test carried out for the 2017 half-year
financial statements, based on the development policies defined within the Restructuring Plan approved by the European
Commission in July 2017, this test was repeated by replacing the 2017 forecast data with actual data.
The recoverable amount was estimated on the basis of the following methodological steps:
Determination of the CGU's value in use by discounting future distributable cash flows, based on the following formula:
n Ft
W VT a
t 1
(1 i ) t
where:
Ft = cash flows distributable to shareholders over the selected time horizon based on the economic and financial
projections made, maintaining a satisfactory level of capitalisation.
i = discounting rate represented by the cost of equity (ke).
VTa = present Terminal Value calculated as the value of a perpetual yield that is estimated according to an economically
sustainable normalised cash flow consistent with the long-term growth rate (“g”).
To discount cash flows distributable to shareholders, the cost of equity was used, i.e. the return on equity required by
investors/shareholders for investments with comparable risk characteristics. This rate, equal to 9.2%, is consistent with
that used in the process of “Determining the value of the ordinary shares of Banca Monte dei Paschi di Siena pursuant to
Law no. 15 of 17 February 2017” and was calculated using the Capital Asset Pricing Model (“CAPM”), based on the
following formula:
ke = Rf + Beta * (Rm-Rf)
where:
Rf = risk-free rate (factoring in the country risk) of 2.1% identified as the half-yearly average yield of 10-year bonds issued
by the Italian government (source: Bloomberg).
Beta = correlation factor between actual share performance and overall performance of the reference market
(measurement of the volatility of a stock relative to the market), equivalent to 1.3% (median of the adjusted beta of a
sample of listed companies comparable to Banca MPS, source: Bloomberg).
Rm - Rf = risk premium required by the market which, in line with assessment practices, is set at 5.3%.
.
The Terminal Value was determined based on the following formula:
VT = normalised distributable cash flow / (ke – g)
considering a normalised cash flow and an assumed long-term growth rate (g) of 1.5%.
Determination of the CGU's value in use by discounting future distributable cash flows.
Cash flows of the Widiba CGU have been determined on the basis of the CGU’s net profit projections inferred from the
analysis of the development policies mentioned previously and the following main valuation parameters - reflective of the
most recent market conditions - used to determine the recoverable amount of the CGU as at 31 December 2017:
a target supervisory ratio (capital ratio) of 8.5% at 2021, taking into account the characteristics of Widiba’s business;
the CGU’s cost of capital (ke) equal to 9.20%, determined using the method described above;
a long-term growth rate (g) of 1.5%.
2017 ANNUAL REPORT
241 Notes to the consolidated financial statements - Part B - Information on the balance sheet
d. Impairment test results
The results (in million euros) of the impairment test performed on the Financial Advisory and Digital Banking CGU on the
basis of the analysis are presented below.
Book value Recoverable value Delta
Financial Advisory and Digital Banking 122 331 208
In conclusion, the impairment test on goodwill did not bring to light impairment losses for the Widiba CGU, as the
recoverable value is higher than the book value by EUR 208 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 242
13.2 Intangible assets: annual changes
Other intangible assets:
Other intangible assets: other Total
generated internally
Goodwill
finite life indefinite life finite life indefinite life 31 12 2017
A. Opening balance 6,605,132 437,437 - 1,744,978 - 8,787,547
A.1 Total net decreases 6,597,232 372,489 - 1,472,313 - 8,442,034
A.2 Net opening balance 7,900 64,948 - 272,665 - 345,513
B. Increases - 17,948 - 76,849 - 94,797
B.1 Purchases - 17,948 - 76,849 - 94,797
B.2 Increases in internally
X - - - - -
generated intangible assets
B.3 Write-backs X - - - - -
B.4 Increases in fair value - - - - - -
- to net equity X - - - - -
- to profit and loss X - - - - -
B.5 Positive exchange
- - - - - -
differences
B.6 Other increases - - - - - -
C. Decreases - 33,437 - 123,638 - 157,075
C.1 Sales - - - 918 - 918
C.2 Write-downs - 33,437 - 122,693 - 156,130
- Depreciation - 28,964 - 102,293 - 131,257
- Write-downs - 4,473 - 20,400 - 24,873
+ net equity - - - - - -
+ profit and loss - 4,473 - 20,400 - 24,873
C.3 Decreases in fair value - - - - - -
- to net equity X - - - - -
- to profit and loss X - - - - -
C.4 Transfers to non-current
- - - - - -
assets held for sale
C.5 Negative exchange
- - - 27 - 27
differences
C.6 Other decreases - - - - - -
D. Net closing balance 7,900 49,459 - 225,876 - 283,235
D.1 Total net value
6,597,232 405,926 - 1,594,663 - 8,597,821
adjustments
E. Gross closing balance 6,605,132 455,385 - 1,820,539 - 8,881,056
F. Carried at cost - - - - - -
2017 ANNUAL REPORT
243 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Line A.1, “Total net decreases”, and line D.1, “Total net value adjustments”, show the opening and closing balances for total
value adjustments and amortisation recorded for intangible assets with a finite life.
With regard to line C.2 “Writedowns” see footnotes to table 13.1 “Intangible assets: breakdown by type”.
Line F - “Carried at cost” was left blank in accordance with Bank of Italy's instructions, as it only needs to be completed for
assets recognised at fair value.
13.3 Other information: amortisation rates
residual
Main categories of intangible assets %
depreciation period
Software 14,28- 33,00
Concessions and other licenses 20,00 - 33,00
Core deposits - current accounts 9.10% 2 years
Core deposits - deposit 6.70% 6 years
Core overdraft 9.10% 2 years
Intangible assets recognised during the purchase price allocation of Banca Antonveneta S.p.A. are all finite-life and therefore
amortised based on their expected useful life.
As at 31 December 2017 there were no:
revalued intangible fixed assets;
intangible fixed assets acquired through government concessions (IAS 38, par. 4);
intangible fixed assets pledged as loan collaterals;
commitments to purchase intangible assets.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 244
Section 14 – Tax Assets and Liabilities – Item 140 (Assets) and Item 80 (Liabilities)
14.1 Deferred tax assets: breakdown
IRES with IRAP with
IRES with IRAP with
offsetting entry offsetting entry
Items/Amounts offsetting offsetting 31 12 2017 31 12 2016
to Balance to Balance
entry to P&L entry to P&L
Sheet Sheet
Receivables (including
68,004 - - - 68,004 65,010
securitisations)
Receivables (L. 214/2011) 638,964 - 94,951 - 733,915 1,231,877
Other financial instruments 2,273 - 9,522 - 11,795 13,083
Goodwill deduction pursuant
to previous law provisions (L. 433,059 1,674 104,280 369 539,382 1,000,834
214/2011)
Tangible assets 76,915 - 9,093 - 86,008 80,418
Intangible assets 565 - 107 - 672 576
Intangible assets (Law 214/2011) 30,004 - 6,466 - 36,470 68,611
Personnel expenses 12,928 20,622 5,155 2,458 41,163 41,831
ACE surplus 146,427 - - - 146,427 97,342
Tax losses 863,377 37,659 - - 901,036 293,020
Tax losses (Law 214/2011) 3,291 - - - 3,291 65,918
Financial instruments -
- 135,221 - 26,493 161,714 215,153
valuation reserves
Others 336,521 26,938 17,910 2 381,371 372,037
Deferred tax assets (gross) 2,612,328 222,114 247,484 29,322 3,111,248 3,545,710
Offsetting with deferred tax
(60,244) (90,069) (6,252) (17,900) (174,465) (248,935)
liabilities
Deferred tax assets (net) 2,552,084 132,045 241,232 11,422 2,936,783 3,296,775
Deferred tax assets were recognised after verifying the existence of foreseeable future income (probability test). For additional
information, please refer to paragraph 14.7 “Other information” below.
In addition to deferred taxes referring to the main tax (at the rate of 24%) the amounts shown in the IRES column also
include those relating to the additional IRES tax (3.5% rate) introduced by Law no. 208 of 28 December 2015, paragraphs 65-
66, for the companies concerned.
The line “Financial instruments – valuation reserves” includes tax assets relating to the valuation of cash flow hedge
derivatives and financial instruments classified in portfolios of ‘financial assets available for sale’.
The line “Other” includes tax assets relating to other cases, such as those recognised on provisions for risks and charges in
respect of deductible costs expected for future periods and those on accessory costs of the share capital increase deductible
over five years.
2017 ANNUAL REPORT
245 Notes to the consolidated financial statements - Part B - Information on the balance sheet
14.2 Deferred tax liabilities: breakdown
IRES with IRAP with
IRES with IRAP with
offsetting offsetting
offsetting offsetting Total Total
Items/Amounts entry to entry to
entry to entry to 31 12 2017 31 12 2016
Balance Balance
P&L P&L
Sheet Sheet
Capital gains to be divided into
- - - - - 421
installments
Tangible and intangible assets 843 - 30 - 873 6,635
Financial instruments 57,233 - 10,919 - 68,152 75,088
Personnel expenses 390 443 - - 833 406
Financial instruments - valuation
- 125,471 - 24,876 150,347 187,534
reserves
Others 9,541 820 1,117 160 11,638 48,901
Deferred tax liabilities (gross) 68,007 126,734 12,066 25,036 231,843 318,985
Offsetting with deferred tax assets (60,244) (90,069) (6,252) (17,900) (174,465) (248,935)
Deferred tax liabilities (net) 7,763 36,665 5,814 7,136 57,378 70,050
The line “Financial instruments – valuation reserves” includes tax liabilities relating to the valuation of financial instruments
classified in the portfolio of “financial assets available for sale” and those originally in the portfolio of financial assets available
for sale and reclassified in 2008 in the “loans to customers” and “loans to banks” portfolios, as well as tax liabilities relating to
cash flow hedge derivatives.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 246
14.3 Deferred tax assets: annual changes (with offsetting entry to profit and loss)
Total Total
31 12 2017 31 12 2016
1. Opening balance 3,224,703 3,202,928
2. Increases 853,705 503,380
2.1 Deferred tax assets arising during the year 848,255 370,189
a) relating to previous years - -
b) due to changes in accounting principles - -
c) write-backs 580,083 -
d) other 268,172 370,189
2.2 New taxes or increases in tax rates - -
2.3 Other increases 5,450 133,191
3. Decreases 1,218,596 481,605
3.1 Deferred tax assets derecognised during the year 143,199 442,419
a) reversals 142,021 178,747
b) write-downs of non-recoverable items 1,178 259,061
c) changes in accounting principles - -
d) other - 4,611
3.2 Reduction in tax rates - -
3.3 Other decreases 1,075,397 39,186
a) conversion into tax credits pursuant to Law no. 214/2011 1,052,859 17,540
b) others 22,538 21,646
4. Total 2,859,812 3,224,703
Line 2.1 letter c) “Write-backs” reflects the effect of the partial recognition of deferred tax assets on tax losses accrued and
not recognised in previous years, to the extent to which they were deemed recoverable in light of the results of the probability
test carried out as at 31 December 2017. For additional information, please refer to paragraph 14.7 “Other information”
below.
Amongst the main “Deferred tax assets arising during the year” in line 2.1 letter d), note those relating to taxed provisions for
risks and charges recognised during the year, the ACE deduction accrued during the year and not used and the share of tax
losses with respect to the additional IRES tax deemed recoverable on the basis of the probability test.
Amongst the most significant amounts shown in line 3.1 letter a) “Reversals” are the use of provisions for risks and charges
taxed in previous years.
With regard to the decrease pursuant to line 3.3 a), please refer to the comments to the subsequent table “14.3.1 Deferred tax
assets: changes under law 214/2011 (with offsetting entry to profit and loss)”.
2017 ANNUAL REPORT
247 Notes to the consolidated financial statements - Part B - Information on the balance sheet
14.3.1 Deferred tax assets: changes under law 214/2011 (with offsetting entry to profit and
loss)
Total
Items/Amounts
31 12 2017 31 12 2016
1. Opening balance 2,364,736 2,385,327
2. Increases 3,400 66,144
3. Decreases 1,057,121 86,735
3.1 Reversals 4,259 68,951
3.2 Conversion into tax credits 1,052,860 17,540
a) arising from loss for the period 986,801 6,746
b) arising from tax losses 66,059 10,794
3.3 Other decreases 2 244
4. Closing balance 1,311,015 2,364,736
Line “2. Increases” includes the portion of the tax loss of Consorzio Operativo arising in 2017 which will be convertible into
a tax credit with the submission of the income tax return pursuant to art. 2, par. 56-bis and 56-bis.1, of Law Decree no. 225 of
29 December 2010 (transposed, as amended, into law no. 10 of 26 February 2011).
As a result of the loss recorded in their separate statutory financial statements for 2016, in 2017 the Parent Company, MPS
Capital Services, MPS Leasing e Factoring and Widiba transformed into tax credits a portion of the deferred tax assets relating
to loan writedowns, goodwill and other intangible assets, pursuant to art. 2, par. 55 of Law Decree no. 225 of 29 December
2010.
This conversion has been in effect as of the dates of approval of the respective 2016 Financial statements by the Shareholders'
Meeting in April 2017 and concerned, in addition to the amount shown in line 3.2 letter a) of this table, also deferred tax
assets with offsetting entry to equity, as presented in the subsequent table 14.5.1.
In addition, in 2017 the Parent Company, MPS Capital Services and Consorzio Operativo transformed deferred tax assets
recognised on the share of the tax loss for the year 2016 consisting of the deduction of write-downs and losses on loans
carried forward from previous years as well as deductions relating to the value of goodwill and other intangible assets. This
conversion became effective as of the date of the submission of the 2016 income tax return in October 2017, as laid out by
the provisions pursuant to art. 2, paragraph 56-bis of the above-mentioned Law Decree 225/2010, and regarded the amount
highlighted on line 3.2, letter b).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 248
14.4 Deferred tax liabilities: annual changes (with offsetting entry to profit and loss)
Total Total
31 12 2017 31 12 2016
Opening balance 125,515 85,699
2. Increases 14,741 59,974
2.1 Deferred tax liabilities arising during the year 14,625 47,368
a) relating to previous years - -
b) due to changes in accounting principles - -
c) other 14,625 47,368
2.2 New taxes or increases in tax rates - -
2.3 Other increases 116 12,606
3. Decreases 60,183 20,158
3.1 Deferred taxes derecognised during the year 9,327 13,458
a) reversals 9,327 13,394
b) due to changes in accounting principles - -
c) other - 64
3.2 Reduction in tax rates - -
3.3 Other decreases 50,856 6,700
4. Closing balance 80,073 125,515
2017 ANNUAL REPORT
249 Notes to the consolidated financial statements - Part B - Information on the balance sheet
14.5 Deferred tax assets: annual changes (with offsetting entry to equity)
Total Total
31 12 2017 31 12 2016
1. Opening balance 321,007 335,082
2. Increases 63,150 89,452
2.1 Deferred tax assets arising during the year 62,934 86,728
a) relating to previous years - -
b) due to changes in accounting principles - -
c) other 62,934 86,728
2.2 New taxes or increases in tax rates - 42
2.3 Other increases 216 2,682
3. Decreases 132,721 103,527
3.1 Deferred tax assets derecognised during the year 132,156 101,356
a) reversal 132,156 101,356
b) write-downs of non-recoverable items - -
c) due to changes in accounting principles - -
d) other - -
3.2 Reduction in tax rates - -
3.3 Other decreases 565 2,171
4. Closing balance 251,436 321,007
Deferred tax assets derecognised during the year, line 3.1 a) refers primarily to costs deductible during the year connected
with previous capital increases of the Parent Company and valuations of cash flow hedging derivatives.
14.5.1 Deferred tax assets: changes under law 214/2011 (with offsetting entry to equity)
Total Total
Items/Amounts
31 12 2016 31 12 2015
1. Opening balance 2,504 4,146
2. Increases - -
Fusioni/scissioni in entrata - -
3. Decreases 461 1,642
3.1 Reversals - -
3.2 Conversion into tax credit 459 -
a) arising from loss for the period 459 -
b) arising from tax losses - -
3.3 Other decreases 2 1,642
4. Closing balance 2,043 2,504
The table shows deferred tax assets that may be converted into tax credits pursuant to Law 214/2011, recognised with an
offsetting entry to equity. These refer to goodwill posted by the Parent Company to equity on business combinations “under
common control”.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 250
14.6 Deferred tax liabilities: annual changes (with offsetting entry to equity)
Total Total
31 12 2017 31 12 2016
1. Opening balance 193,470 201,817
2. Increases 54,740 41,446
2.1 Deferred tax liabilities arising during the year 54,564 36,491
a) relating to previous years - -
b) due to changes in accounting principles - -
c)other 54,564 36,491
2.2 New taxes or increases in tax rates - -
2.3 Other increases 176 4,955
3. Decreases 96,440 49,793
3.1 Deferred tax liabilities derecognised during the year 96,421 46,943
a) reversal 96,421 46,522
b) due to changes in accounting principles - -
c) other - 421
3.2 Reduction in tax rates - -
3.3 Other decreases 19 2,850
4. Closing balance 151,770 193,470
The increases mainly relate to taxes recognised on changes in equity reserves relating to securities classified in the “financial
assets available for sale” portfolio.
Aside from the changes in the reserves mentioned above, the decreases also regard the changes in the valuation reserve of
cash flow hedging derivatives.
14.7 Other information
Probability test
Deferred tax assets were recognised after verifying the existence of foreseeable future income
sufficient to absorb them (probability test).
In this test, the different rules set forth in the Italian tax laws which impact the assessment in question
were taken into account, in particular:
art. 2, paragraphs 55-59, of Law Decree no. 225 of 29/12/2010 (converted, with amendments,
by Law no. 10 of 26/02/2011) which establishes the obligation for financial intermediaries to
convert into tax credits DTAs (IRES and IRAP) relating to goodwill, other intangible assets
and impairment losses on receivables, in the case of a loss in the statutory financial statements
and/or a tax loss;
art. 84, paragraph 1 of the TUIR, which allows for the possibility of carrying forward IRES tax
losses with no time limits;
art. 1, paragraph 4 of Law Decree no. 201 of 06/12/2011 (converted, with amendments, by
law no. 214 of 22/12/2011), which allows for unused excess ACE to be carried forward with
no time limits, as well as, alternatively, conversion into a tax credit to be used to offset IRAP
due in 5 annual instalments;
2017 ANNUAL REPORT
251 Notes to the consolidated financial statements - Part B - Information on the balance sheet
in paragraphs 61 to 66, art. 1, of the 2016 Stability Law (Law no. 208 of 28 December 2015)
reduced the IRES rate from 27.5% to 24% and simultaneously introduced an additional IRES
tax of 3.5% for credit and financial institutions; both measures are effective as of 2017.
In terms of relevant new regulations issued during the year, art. 7 of Law Decree no. 50 of 24/04/2017
provided for - effective as of the 2017 tax period - a reduction in the rate (notional return) to be
applied to increases in own capital relevant for the purposes of the ACE benefit.
Concretely, the ACE benefit rate for 2017 declines from 2.3% to 1.6% and, when fully implemented,
for the subsequent years, from 2.7% to 1.5%. For the MPS Group, this entailed the downsizing of the
benefit in profit and loss for 2017 and also had a significant impact on the valuation of DTAs
recognisable in the financial statements (probability test). Indeed, the expectation of lower ACE
deductions in the future reduced the absorption of future taxable income which may be allocated to a
greater extent, with respect to the previous scenario, to offsetting previous tax losses. From the
accounting perspective, this translated into a partial write-back on DTAs on consolidated tax losses
not recognised in previous years, which will be described at the end of this paragraph.
Practically speaking, the probability test was carried out by following the steps listed below.
DTAs relating to goodwill, other intangible assets and impairment losses on receivables (“qualified”
DTAs), were excluded from the total amount of DTAs for which the existence of sufficient future
taxable income needs to be identified.
This is because the above-mentioned art. 2, paragraphs 55-59 of Law Decree 225/2010 made the
recovery of that type of DTA certain, with respect to both IRES and IRAP, regardless of the presence
of future taxable income.
Indeed, the rule sets forth that, if taxable income for the year in which the recovery of qualified DTAs
is expected is not sufficient to absorb them, the resulting tax loss would be convertible into a tax credit
that may be, alternatively (i) used to offset, with no amount limits, the various taxes ordinarily due
from the Bank, or (ii) requested in the form of a refund, or (iii) transferred to third parties. In addition,
qualified DTAs may be converted into tax credit in advance of their natural maturity, in the event of a
loss for the year in the statutory financial statements or voluntary liquidation, as well as subjection to
bankruptcy proceedings.
In other words, for qualified DTAs the probability test must be deemed automatically satisfied; this is
also confirmed by the joint Bank of Italy, Consob and ISVAP document no. 5 of 15/05/2012.
For DTAs other than qualified DTAs, the year in which the relative recovery is expected has been
identified (or estimated when uncertain).
Taxable income in future years has been estimated based on the forecast profit and loss statements of
the MPS Group as laid out in the Restructuring Plan approved by the European Commission on 4 July
2017. Taxable income was estimated for the probability test by applying a discount factor to the
forecast profits established in the above-mentioned Restructuring Plan (the “risk-adjusted profits
approach”); this factor used in a combined manner discounts future income to an increasing extent to
reflect its uncertainty. The discount factor is calculated by taking into account observable market
parameters. This methodological approach was introduced into the MPS Group in the course of 2016;
for more information on the reasons for this methodological update in the probability test, please refer
to the Notes to the 2016 Consolidated Financial Statements (Part B - Assets, par. 14.7).
Taxable income was estimated:
at domestic tax consolidation level, for the IRES probability test, since for the payment of this
tax the Parent Company uses the method set forth in arts. 117 et seq. of the TUIR;
at individual level for additional IRES;
at individual level for IRAP.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 252
The data thus processed have shown that taxable income in future years will be sufficient to absorb the
unqualified DTAs other than tax losses and ACE deductions recognised in the financial statements as
at 31 December 2017.
The DTAs referring to ACE deductions accrued during the year are recognisable, with the exception
of EUR 0.5 mln; as a result, the total DTAs relating to ACE deductions not recognised in the Balance
Sheet assets as at 31 December 2017 amount to EUR 1.8 mln (EUR 1.3 mln as at 31 December 2016).
As regards tax losses, the probability test entailed:
not recognising DTAs on the consolidated IRES tax loss emerging in 2017, for EUR 1,153.7
mln;
not recognising DTAs on part of the tax losses for the IRES additional tax emerging in 2017,
for EUR 140.4 mln;
the partial write-back on DTAs on consolidated IRES tax losses not recognised in previous
years for a total of EUR 572.3 mln, in large part resulting from the reduction of ACE rates in
light of the above-mentioned art. 7 of Law Decree no. 50 of 24/04/2017;
the partial write-back on DTAs on tax losses for the IRES additional tax not recognised in
previous years for EUR 6.7 mln.
As a result of the above-mentioned assessment, the Group had a total of EUR 1,783.8 mln in DTAs
on consolidated tax losses and on tax losses for the IRES additional tax not recognised in the balance
sheet assets as at 31 December 2017 (EUR 1,068.7 mln as at 31 December 2016).
For the Group, this amount is a potential asset not subject to any time limits according to current tax
legislation, whose recognition in the balance sheet asset will be evaluated at the future financial
statement dates based on the Group’s profit outlook.
2017 ANNUAL REPORT
253 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Current tax assets
Total Total
Items/Amounts
31 12 2017 31 12 2016
Prepayments of corporate income tax (IRES and IRAP) 52 14,002
Other tax credits and withholdings 880,465 838,752
Gross current tax assets 880,517 852,754
Offsetting with current tax liabilities (2,007) (2,017)
Net current tax assets 878,510 850,737
“Other tax credits and withholdings” mostly consist of income tax credits claimed for refund, IRES/IRAP credits resulting
from prior tax returns which can be used as a set-off, the tax credit arising from DTA transformation (Law no. 214/2011),
and withholdings incurred and deductible during the year.
Current tax liabilities
31 12 2017 31 12 2016
Items/Amounts Booked to Booked to Booked to Booked to
Total Total
net equity P&L net equity P&L
Corporate income tax (IRES IRAP)
- 33 33 - 39 39
payables
Other current income tax payables - 3,228 3,228 - 7,270 7,270
Gross current tax payables - 3,261 3,261 - 7,309 7,309
Offsetting with current tax asset - 2,007 2,007 - 2,017 2,017
Net current tax payables - 1,254 1,254 - 5,292 5,292
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 254
Section 15 – Non-current assets held for sale / discontinued operations and associated
liabilities – Item 150 (assets) and 90 (liabilities)
15.1 Non-current assets held for sale and discontinued operations: breakdown by type
Total
31 12 2017 31 12 2016
A. Individual assets
A.1 Financial assets 4,585,524 19,049
A.2 Equity investments - -
A.3 Tangible assets 9,611 23,322
A.4 Intangible assets - -
A.5 Other non-current assets - 18,313
Total A 4,595,135 60,684
of which valued at cost 4,594,835 41,635
of which designated at fair value (level 1) - -
of which designated at fair value (level 2) - 17,921
of which designated at fair value (level 3) 300 1,128
B. Asset groups (discontinued operations)
C. Liabilities associated with individual assets held for sale and discontinued
operations
C.1 Payables - -
C.2 Securities - -
C.3 Other liabilities - 10,402
Totale C - 10,402
of which valued at cost - 10,402
of which designated at fair value (level 1) - -
of which designated at fair value (level 2) - -
of which designated at fair value (level 3) - -
D. Liabilities included in groups of assets held for sale and discontinued
operations
Line “A.1 Financial assets”, equal to EUR 4,585.5 mln, refers primarily to receivables associated with the transfer of doubtful
loans (for further detail, see the section “The Doubtful loan disposal transaction” of the Consolidated report on operations).
Line “A.3 Property, plant and equipment”, equal to EUR 9.6 mln, mainly refers to land from credit recovery, for EUR 5.1
mln, and properties used in the business, for EUR 4.1 mln, which will soon be disposed of.
15.2 Other information
None to report as at 31 December 2017.
15.3 Details of investments in companies subject to significant influence not valued at
equity
As at 31 December 2017, there were no investments in companies subject to significant influence not
valued at equity classified as held for sale.
2017 ANNUAL REPORT
255 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 16 – Other assets – Item 160
16.1 Other assets: breakdown
Total Total
31 12 2017 31 12 2016
Tax credits from the Revenue and other tax levying authorities 252,029 280,347
Third party cheques held at the cashier's for collection 123,809 131,949
Cheques drawn on the Company held at the cashier's for collection 1,370 482
Gold, silver and precious metals 24,283 8,599
Property inventory 43,237 45,834
Items in transit between branches 8,019 3,004
Items in processing 608,917 567,620
Receivables associated with the provision of goods and services 13,420 40,333
Improvements and incremental costs on third party assets other than those
43,019 43,924
included under tangible assets
Prepaid expenses and accrued income not attributable to other line items 496,999 386,963
Biological assets 3,315 3,411
Other 339,268 399,803
Total 1,957,685 1,912,269
The lines “Items in processing” and “Other” include transactions which were cleared in early 2018.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 256
LIABILITIES
Section 1 – Deposits from banks – Item 10
1.1 Deposits from banks: breakdown
Total Total
Items/accounts
31 12 2017 31 12 2016
1. Deposits from central banks 16,893,695 24,439,087
2. Deposits from banks 4,191,221 7,029,974
2.1 Current accounts and demand deposits 861,626 182,050
2.2 Time deposits 43,514 21
2.3 Loans 2,529,686 6,085,027
2.3.1 Repurchase agreements 1,823,607 5,534,131
2.3.2 Other 706,079 550,896
2.4 Liabilities for commitments to repurchase own equity instruments - -
2.5 Other liabilities 756,395 762,876
Total 21,084,916 31,469,061
Fair value - level 1 - -
Fair value - level 2 21,084,916 31,469,061
Fair value - level 3 - -
Total fair value 21,084,916 31,469,061
The line “Deposits from central banks” includes EUR 16,894 mln for refinancing operations, guaranteed by securities pledged
by the Parent Company using the pooling mechanism.
Line 2.3.1 “Repurchase agreements” contains the financial liabilities arising from repo transactions with banks on both
treasury securities and securities made available through reverse repurchase agreements or securities lending transactions.
1.2 Details of Item 10 “Deposits from banks”: subordinated liabilities
This table was not completed as the Group has no such liabilities to report for either the current or the
previous year.
1.3 Details of Item 10 “Deposits from banks”: structured liabilities
This table was not completed as the Group has no such liabilities to report for either the current or the
previous year.
2017 ANNUAL REPORT
257 Notes to the consolidated financial statements - Part B - Information on the balance sheet
1.4 Deposits from banks subject to micro-hedging
Total Total
Type of transaction/Amount
31 12 2017 31 12 2016
1. Liabilities subject to micro-hedging of fair value 10,486,006 8,483,790
a) interest rate risk 10,486,006 8,483,790
b) exchange risk - -
c) multiple risk - -
2. Liabilities subject to micro-hedging cash-flow - -
a) interest rate risk - -
b) exchange risk - -
c) multiple risk - -
Total 10,486,006 8,483,790
The amount shown in item 1 letter a) of EUR 10,486.0 mln refers to fair value hedging of interest rate risk, carried out on
certain refinancing transactions performed as part of Eurosystem financing.
1.5 Finance lease payables
This table was not provided as the Group has no such liabilities to report for either the current or the
previous year.
Section 2 – Deposits from customers – Item 20
2.1 Deposits from customers: breakdown
Total Total
Type of transaction/Amount
31 12 2017 31 12 2016
1. Current accounts and demand deposits 51,465,521 40,972,592
2. Time deposits 10,627,582 10,133,515
3. Loans 13,942,001 28,721,385
3.1 Repurchase agreements 8,413,727 25,295,838
3.2 Other 5,528,274 3,425,547
4. Liabilities for commitments to repurchase own equity instruments - -
5. Other liabilities 979,073 875,270
Total 77,014,177 80,702,762
Fair value - level 1 - -
Fair value - level 2 77,014,177 80,707,017
Fair value - level 3 - -
Total fair value 77,014,177 80,707,017
Deposits from customers are valued at cost or at amortised cost, except for liabilities subject to micro-hedging of fair value as
reported in Table 2.4 of this section, the amortised cost of which is adjusted proportionally to the fair value of the hedged
item.
The line 3.1 “Repurchase agreements” contains the financial liabilities arising from repo transactions with customers on both
treasury securities and securities made available through repurchase agreements or securities lending transactions.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 258
2.2 Details of Item 20 “Deposits from customers”: subordinated liabilities
This table was not completed as the Group has no such liabilities to report for either the current or the
previous year.
2.3 Details of Item 20 “Deposits from customers”: structured liabilities
This table was not completed as the Group has no such liabilities to report for either the current or the
previous year.
2.4 Deposits from customers subject to micro-hedging
This table was not completed as the Group has no such liabilities to report for either the current or the
previous year.
2.5 Finance lease payables
31 12 2017
Type of transaction/ Amount Future minimum
Present Value
lease payments
Finance lease liabilities
- Up to 1 year - -
- From 1 to 5 years 1,215 1,161
- Over 5 years - -
Present value of gross/net minimum payments 1,215 1,161
Value adjustments (54) -
Present value of liabilities for the minimum lease payments 1,161 1,161
2017 ANNUAL REPORT
259 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 3 – Debt securities issued – Item 30
3.1 Debt securities issued: breakdown
Total
31 12 2017
Type of Securities/ Amounts
Fair value
Book value
Level 1 Level 2 Level 3 Total
A. Listed securities
1. Bonds 18,195,449 14,061,015 4,444,794 - 18,505,809
1.1 Structured - - - - -
1.2 Other 18,195,449 14,061,015 4,444,794 - 18,505,809
2. Other securities 2,265,851 - 2,307,638 - 2,307,638
2.1 Structured - - - - -
2.2 Other 2,265,851 - 2,307,638 - 2,307,638
Total 20,461,300 14,061,015 6,752,432 - 20,813,447
The table shows funding represented by securities, including bonds and certificates of deposit (outstanding and maturities).
Liabilities are net of bonds and repurchased CDs. In this connection it is noted that on 31 December 2017 State-guaranteed
bonds, issued and concurrently repurchased for a nominal amount of EUR 2,508 mln, were in place, part of which were then
pledged as collateral for financing transactions.
Please recall that in August 2017 the conversion of AT1 and T2 financial instruments issued by the Group into ordinary
shares of the Parent Company was completed in compliance with the provisions of art. 23, paragraph 3 of Law Decree 237, as
well as art. 2 of the Burden Sharing Decree, for a total nominal amount of EUR 4,309 mln, in addition to a nominal amount
of EUR 350 million of AT1 recognised in Liability item “50. Financial liabilities designated at fair value”. In addition, in
November 2017, in relation to the Partial Voluntary Public Offering for Exchange and Settlement for the holders of ordinary
shares of the Parent Company resulting from the conversion of the subordinated bond loan named “Tasso variabile
Subordinato Upper Tier II 2008 - 2018 (ISIN IT0004352586)”, EUR 1,535.8 million in senior debt securities were issued.
Total
31 12 2016
Type of Securities/ Amounts
Fair value
Book value
Level 1 Level 2 Level 3 Total
A. Listed securities
1. Bonds 22,153,122 - 17,497,857 3,450,179 20,948,036
1.1 Structured - - - - -
1.2 Other 22,153,122 - 17,497,857 3,450,179 20,948,036
2. Other securities 194,343 - 236,129 - 236,129
2.1 Structured - - - - -
2.2 Other 194,343 - 236,129 - 236,129
Total 22,347,465 - 17,733,986 3,450,179 21,184,165
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 260
3.2 Details of Item 30 “Debt securities issued”: subordinated securities
At the reporting date, the Group does not have liabilities of this type (EUR 4,214.6 mln in 2016). For
further details, see the note below table 3.1 above.
3.3 Details of Item 30 “Debt securities issued”: securities subject to micro-hedging
Total Total
Type of transaction / Amount
31 12 2017 31 12 2016
1. Securities subject to micro-hedging of fair value: 10,070,862 8,977,475
a) interest rate risk 10,015,254 8,878,980
b) exchange risk - -
c) multiple risks 55,608 98,495
2. Securities subject to micro-hedging of cash flows: - -
a) interest rate risk - -
b) exchange risk - -
c) other - -
Total 10,070,862 8,977,475
As a result of cash flow hedging, the fair value of derivative contracts is posted to a specific equity reserve.
The liabilities of this type increased as a result of the opening of two new interest rate risk hedges on securities issued by the
Parent Company for a notional amount of EUR 3,200.7 mln.
2017 ANNUAL REPORT
261 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 4 – Financial liabilities held for trading – Item 40
4.1 Financial liabilities held for trading: breakdown
Total 31 12 2017
Type of transaction/ FV
Group item NV FV*
Level 1 Level 2 Level 3 Total
A. Balance-sheet liabilities
1. Deposits from banks 931,754 1,002,677 1,852 - 1,004,529 1,004,529
2. Deposits from customers 1,701,715 1,898,689 - - 1,898,689 1,898,689
3. Debt securities issued - - - - - -
3.1 Bonds - - - - - -
3.1.1 Structured - - - - - X
3.1.2 Other - - - - - X
3.2 Other securities - - - - - -
3.2.1 Structured - - - - - X
3.2.2 Other - - - - - X
Total A 2,633,469 2,901,366 1,852 - 2,903,218 2,903,218
B. Derivatives
1. Financial derivatives - 1,539,477 - 1,539,477
1.1 Trading X - 1,539,477 - 1,539,477 X
1.2 Fair value option (FVO) X - - - - X
1.3 Other X - - - - X
2. Credit derivatives - 34,212 - 34,212
2.1 Trading X - 34,212 - 34,212 X
2.2 Fair value option (FVO) X - - - - X
2.3 Other X - - - - X
Total B X - 1,573,689 - 1,573,689 X
Total (A+B) 2,633,469 2,901,366 1,575,541 - 4,476,907 X
Legend
FV = Fair Value
FV*= Fair value calculated excluding value adjustments due to variations in the credit rating of the issuer since the date of issue
NV = Nominal or Notional Value
Criteria adopted for classification of financial instruments in the three levels of the “fair value hierarchy” are reported in
Section A.3, “Fair value disclosure” of Part A, “Accounting policies” of the notes to the financial statements.
The amounts classified in lines “1. Deposits from banks” and “2. Deposits from customers” are related primarily to those in
lines “1. Debt securities” and “4. Loans” in table 2.1 of the assets “Financial assets held for trading”. Please also note that the
sub-items “Deposits from banks” and “Deposits from customers”, mentioned above, also incorporate uncovered short
positions. They are designated at fair value in line with the method applied for “long” positions.
Derivatives connected with fair value option instruments are also included in the trading book: these cover the risks of
funding designated at fair value arising from possible interest rate fluctuations and from any embedded options in structured
bonds issued (natural and systematic hedging). The fair value of these derivatives is shown in the table in line B1.1 as they are
FVO hedges originally carried out with the subsidiary MPS Capital Services S.p.A., for which risk externalisation was required.
For FVO derivatives arranged by Group companies with the subsidiary MPS Capital Services S.p.A., it is worth noting that
the relevant internal units responsible for risk management perform suitable tests at consolidated level in order to periodically
test the effectiveness of the hedge established from the perspective of a ‘natural hedge’.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 262
The fair value calculated on financial derivatives includes value adjustments owing to changes in the Group’s
creditworthiness, Debit Value Adjustment (i.e. DVA), totalling EUR 5.1 mln (EUR 23 mln as at 31 December 2016).
Total 31 12 2016
Type of transaction/
FV
Group item NV FV*
Level 1 Level 2 Level 3 Total
A. Balance-sheet liabilities
1. Deposits from banks 1,508,245 1,816,532 6,462 - 1,822,994 1,822,994
2. Deposits from customers 713,483 756,581 86,071 - 842,652 842,652
3. Debt securities issued - - - - - -
3.1 Bonds - - - - - -
3.1.1 Structured - - - - - X
3.1.2 Other - - - - - X
3.2 Other securities - - - - - -
3.2.1 Structured - - - - - X
3.2.2 Other - - - - - X
Total A 2,221,728 2,573,113 92,533 - 2,665,646 2,665,646
B. Derivatives
1. Financial derivatives 508 2,257,152 - 2,257,660
1.1 Trading X 508 2,257,152 - 2,257,660 X
1.2 Fair value option (FVO) X - - - - X
1.3 Other X - - - - X
2. Credit derivatives - 48,496 - 48,496
2.1 Trading X - 48,496 - 48,496 X
2.2 Fair value option (FVO) X - - - - X
2.3 Other X - - - - X
Total B X 508 2,305,648 - 2,306,156 X
Total (A+B) 2,221,728 2,573,621 2,398,181 - 4,971,802 X
Legend
FV = Fair Value
FV*= Fair value calculated excluding value adjustments due to variations in the credit rating of the issuer since the date of issue
NV = Nominal or Notional Value
4.2 Details of item 40 “Financial liabilities held for trading”: subordinated liabilities
The Group has issued no subordinated liabilities classified in the trading book.
4.3 Details of item 40 “Financial liabilities held for trading”: structured liabilities
The Group has issued no structured liabilities classified in the trading book.
2017 ANNUAL REPORT
263 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 5 – Financial liabilities designated at fair value – Item 50
5.1 Financial liabilities designated at fair value: breakdown
Total 31 12 2017
Type of transaction / Amount FV
NV FV*
Level 1 Level 2 Level 3 Total
1. Deposits from banks - - - - - -
1.1 Structured - - - - - X
1.2 Other - - - - - X
2. Deposits from customers - - - - - -
2.1 Structured - - - - - X
2.2 Other - - - - - X
3. Debt securities issued 325,046 - 326,279 - 326,279 369,731
3.1 Structured 112,239 - 104,252 - 104,252 X
3.2 Other 212,807 - 222,027 - 222,027 X
Total 325,046 - 326,279 - 326,279 369,731
Legend
FV = Fair Value
FV*= Fair value calculated excluding value adjustments due to variations in the credit rating of the issuer since the date of issue
NV = Nominal or Notional Value
The table shows the financial liabilities represented by fixed-rate and structured bonds which have been classified at fair value
and are subject to hedging. Hedging occurs through derivative contracts and is used to cover the risk of interest rate
fluctuations and the risk resulting from embedded options.
Positive and negative spreads or margins in relation to derivative contracts settled or accrued until the balance sheet date are
recorded in the profit and loss statement under interest income and expense, while valuation profits and losses are posted
under Item 110, “Net profit (loss) from financial assets and liabilities designated at fair value”, in compliance with reporting
used for funding instruments for which the fair value option was used.
For the sake of brevity, please recall that in August 2017 the conversion of AT1 and T2 financial instruments issued by the
Group into ordinary shares of the Parent Company was completed in compliance with the provisions of art. 23, paragraph 3
of Law Decree 237, as well as art. 2 of the Burden Sharing Decree, for a total nominal amount of EUR 350 million.
Total 31 12 2016
Type of transaction / Amount FV
NV FV*
Level 1 Level 2 Level 3 Total
1. Deposits from banks - - - - - -
1.1 Structured - - - - - X
1.2 Other - - - - - X
2. Deposits from customers - - - - - -
2.1 Structured - - - - - X
2.2 Other - - - - - X
3. Debt securities issued 1,670,756 - 1,368,705 154,518 1,523,223 1,788,649
3.1 Structured 170,265 - 144,916 - 144,916 X
3.2 Other 1,500,491 - 1,223,789 154,518 1,378,307 X
Total 1,670,756 - 1,368,705 154,518 1,523,223 1,788,649
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 264
Legend
FV = Fair Value
FV*= Fair value calculated excluding value adjustments due to variations in the credit rating of the issuer since the date of issue
NV = Nominal or Notional Value
5.1.a Liabilities designated at fair value: the Fair Value Option approach
Liabilities for which the fair value option was adopted include natural hedges through debt security
derivatives for a book value of EUR 326.3 mln, as compared to EUR 1,523.2 mln in the previous year.
5.1.b Financial liabilities designated at fair value: structured debt securities
Total Total
Item/Amount
31 12 2017 31 12 2016
Index Linked 104,252 144,916
Inflation Linked - -
Total 104,252 144,916
The table reports the main types of structured bonds issued by the Group and measured at fair value. Since bonds are
measured at fair value as an offset to profit or loss, embedded derivatives are not reported separately.
5.2 - Details of item 50 “Financial liabilities designated at fair value”: subordinated
liabilities
At the date of these Financial Statements, the Group does not have liabilities of this type (EUR 154.5
mln in 2016). For further details, see the note below table 5.1 above.
2017 ANNUAL REPORT
265 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 6 – Hedging derivatives – Item 60
6.1 Hedging derivatives: breakdown by type of contract and underlying asset
Fair value
31 12 2017
NV
Level 1 Level 2 Level 3 Total
A. Financial derivatives - 691,368 - 691,368 22,301,778
1) Fair value - 691,368 - 691,368 22,301,778
2) Cash flows - - - - -
3) Foreign investments - - - - -
B. Credit derivatives - - - - -
1) Fair value - - - - -
2) Cash flows - - - - -
Total - 691,368 - 691,368 22,301,778
Legend
NV = Nominal or Notional Value
The table displays the negative book value (fair value) of hedging derivatives for hedges carried out through hedge accounting.
Hedges of financial liabilities represented by securities are also managed through the fair value option.
Information on the underlying strategies and objectives of hedge transactions can be found in Section 2 “Market risks” of
Part E “Information on risks and hedging policies”.
Fair value
31 12 2016
NV
Level 1 Level 2 Level 3 Total
A. Financial derivatives - 1,018,291 - 1,018,291 8,464,780
1) Fair value - 1,018,291 - 1,018,291 8,464,780
2) Cash flows - - - - -
3) Foreign investments - - - - -
B. Credit derivatives - - - - -
1) Fair value - - - - -
2) Cash flows - - - - -
Total - 1,018,291 - 1,018,291 8,464,780
Legend
NV = Nominal or Notional Value
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 266
6.2 Hedging derivatives: breakdown by hedged portfolios and type of hedging
Foreign investments
Fair Value Cash flow Hedge
Micro Hedge Total
Macro-hedge
Macro-hedge
Micro-hedge
Transaction/Type of
hedge 31 12 2017
interest exchange credit price multiple
rate risk risk risk risk risks
1. Financial assets
260,508 - - - - X - X X 260,508
available for sale
2. Loans and receivables 115,465 - - - - X - X X 115,465
3. Financial assets held
X - - X - X - X X -
to maturity
4. Portfolio X X X X X 306,657 X - X 306,657
5. Other transactions - - - - - X - X - -
Total assets 375,973 - - - - 306,657 - - - 682,630
1. Financial liabilities 6,596 - - X 2,142 X - X X 8,738
2. Portfolio X X X X X - X - X -
Total liabilities 6,596 - - - 2,142 - - - - 8,738
1. Expected transactions X X X X X X - X X -
2. Financial assets and
X X X X X - X - - -
liabilities portfolio
Total 382,569 - - - 2,142 306,657 - - - 691,368
The tables show the negative fair values of hedging derivatives, classified by hedged assets or liabilities and type of hedging
implemented.
In particular, on the assets side, fair value micro-hedging was used to hedge against interest-rate risk on fixed-rate and
variable-rate capped mortgages and bonds classified in the available-for-sale portfolio or among receivables, in order to
protect them from unfavourable interest rate changes. Fair value macro-hedging was carried out on fixed-rate mortgage loan
portfolios.
With reference to financial liabilities, fair value micro-hedging of the interest-rate risk refers primarily to hedges of liabilities
represented by securities. Cash flow hedges were carried out on some specific index-linked bond issues, in order to stabilise
their flows through interest rate swaps.
More information on hedged assets and liabilities can be found in the tables contained in Part B of the notes for each section
of the balance sheet items to which the hedged items are posted.
2017 ANNUAL REPORT
267 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Fair Value Cash flow Hedge
investments
Foreign
Macro-hedge
Macro-hedge
Micro Hedge
Micro-hedge
Transaction/Type of Total
hedge 31 12 2016
interest exchange credit price multiple
rate risk risk risk risk risks
1. Financial assets
401,069 - - - - X - X X 401,069
available for sale
2. Loans and receivables 96,674 46,939 - - - X - X X 143,613
3. Financial assets held
X - - X - X - X X -
to maturity
4. Portfolio X X X X X 468,170 X - X 468,170
5. Other transactions - - - - - X - X - -
Total assets 497,743 46,939 - - - 468,170 - - - 1,012,852
1. Financial liabilities 5,439 - - X - X - X X 5,439
2. Portfolio X X X X X - X - X -
Total liabilities 5,439 - - - - - - - - 5,439
1. Expected transactions X X X X X X - X X -
2. Financial assets and
X X X X X - X - - -
liabilities portfolio
Total 503,182 46,939 - - - 468,170 - - - 1,018,291
Section 7 – Changes in value of macro-hedged financial liabilities – Item 70
7.1 Change in value of hedged liabilities: breakdown by hedged portfolios
Total Total
Fair value change of financial liabilities in hedged portfolios / Values
31 12 2017 31 12 2016
1. Positive fair value change of financial liabilities - -
2. Negative fair value change of financial liabilities 788 -
Total (788) -
The balance of changes in value of the liabilities subject to macro-hedging of interest rate risk is recognised in this item.
7.2 Financial liabilities subject to macro-hedging of interest-rate risk: breakdown
As at 31 December 2017, the amount of financial liabilities subject to macro-hedging of interest rate
risk stood at EUR 1,187.9 mln. The Group adopts macro-hedging to hedge demand items (CIDs -
Italian Deposit Accounts).
Section 8 – Tax liabilities – Item 80
Please refer to section 14 of the assets.
Section 9 – Liabilities associated with individual assets held for sale – Item 90
Please refer to section 15 of the assets.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 268
Section 10 – Other liabilities – Item 100
10.1 Other liabilities: breakdown
Total Total
31 12 2017 31 12 2016
Due to the Revenue and other tax levying authorities 172,982 94,705
Due to social security authorities 494,018 238,582
Amounts available to customers 41,346 122,465
Other amounts due to employees 40,699 47,799
Items in transit between brances 34,165 69,941
Items in processing 911,743 938,389
Payables in relation to the payment of supplies of goods and services 329,603 307,187
Irrevocable commitments to disburse funds 226,388 183,171
Accrued expenses and unearned revenues not attributable to other line items 87,120 53,573
Other 933,972 1,183,119
Total 3,272,036 3,238,931
The lines “Items in processing” and “Other” include transactions which were cleared during the first days of 2018.
Section 11 – Provision for employee severance pay – Item 110
11.1 Provision for employee severance pay: annual changes
Total Total
31 12 2017 31 12 2016
A. Opening balance 252,858 246,170
B. Increases 4,668 12,598
B.1 Provision for the year 3,964 5,644
B.2 Other increases 704 6,954
C. Decreases 58,028 5,910
C.1 Severance payments 51,080 4,329
C.2 Other decreases 6,948 1,581
D. Closing balance 199,498 252,858
11.2 Other information
Provision for employee severance pay is considered as a defined benefit fund for the purpose of
international accounting standards.
The provision for the year, as clarified by the Bank of Italy, does not include amounts which, as a
result of the reform introduced by Legislative Decree no. 252 of 5 December 2005, are paid directly by
the Bank, depending on the various employee options, to complementary pension schemes or to the
treasury fund managed directly by the Italian National Social Security Institute, INPS. These items are
recognised in personnel expenses, as “contributions to external pension funds: defined contribution”.
2017 ANNUAL REPORT
269 Notes to the consolidated financial statements - Part B - Information on the balance sheet
11.2.a Changes in net defined benefit liability during the year: Severance pay
Present value of DBO
Item/Amount
31 12 2017 31 12 2016
Opening balance 252,858 246,170
Current service cost 9 13
Interest income/expense 3,954 5,630
Remeasurement of net defined benefit liability (asset): (5,631) 6,947
Actuarial gains (losses) arising from changes in demographic assumptions 67 825
Actuarial gains (losses) arising from experience adjustments (5,261) (1,619)
Actuarial gains (losses) arising from changes in financial assumptions (437) 7,741
Payments from plan (50,924) (4,346)
Other changes (768) (1,556)
Closing balance 199,498 252,858
The table above reports the information required by paragraphs 140 and 141 of IAS 19.
11.2.b Key actuarial assumptions
Key actuarial assumptions/percentage 31 12 2017 31 12 2016
Discount rates 0,79% - 1,93% 0,76-1,82%
Expected rates of salary increases X X
11.2.c Sensitivity of defined benefit obligation to changes in key actuarial assumptions
31 12 2017 31 12 2016
Actuarial assumptions
Change (%) in Change (%) in
Change in DBO Change in DBO
DBO DBO
Discount rates
Increase of 0.25% (3,146) -1.58% (5,826) -2.30%
Decrease of 0.25% 3,922 1.97% 2,669 1.06%
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 270
Section 12 – Provisions for risks and charges – Item 120
12.1 Provisions for risks and charges: breakdown
Total Total
Item/Amount
31 12 2017 31 12 2016
1. Pensions and other post retirement benefit obligations 50,129 53,582
2. Other provisions for risks and charges 1,088,363 1,054,472
2.1 legal disputes 622,489 599,910
2.2 personnel charges 82,010 178,123
2.3 other 383,864 276,439
Total 1,138,492 1,108,054
For further details of the sub-item 2.3 “others”, please refer to table 12.4 below “Provisions for risks and charges - Other provisions”.
12.2 Provisions for risks and charges: annual changes
Total 31 12 2017
Item/Amount Pensions and other
post retirement Other provisions Total
benefit obligations
A. Opening balance 53,582 1,054,472 1,108,054
B. Increases 2,143 425,199 427,342
B.1 Provision for the year 691 419,823 420,514
B.2 Changes due to the time value of money 1,382 44 1,426
B.3 Changes due to discount rate changes - 95 95
B.4 Other increases 70 5,237 5,307
C. Decreases 5,596 391,308 396,904
C.1 Use during the year 3,455 156,780 160,235
C.2 Changes due to discount rate changes 451 316 767
C.3 Other decreases 1,690 234,212 235,902
D. Closing balance 50,129 1,088,363 1,138,492
2017 ANNUAL REPORT
271 Notes to the consolidated financial statements - Part B - Information on the balance sheet
12.3 Defined benefit company pension funds
12.3.1. Description of funds and related risks
The information provided below concerns defined benefit pension funds in favour of employees and
terminated employees of the Parent Company and the Group companies, i.e. funds in which the
obligation of future payment of retirement benefits is undertaken by the funds and indirectly by the
companies, which may be required to increase the value of the obligation in the event of inadequate
capital assessed in accordance with actuarial criteria.
For each definite benefit plan the Parent Company relies on analyses carried out by an independent
certified actuary.
In accounting for the plans, the surplus or deficit was determined using the credit unitary projection
method; therefore the fair value of the assets servicing the plan, if any, was deducted from the current
value of the obligation (see Part A of the Notes - Accounting Policies).
The valuations concerned those participating, which form a closed group of retired or active
employees, and were carried out on the basis of these groups of employees as measured in December
2017 (with the exclusion of the Section of the Cassa di Previdenza Aziendale (Company’s Pension
Scheme) for employees of Monte dei Paschi di Siena, valued as at 30 November 2017).
In accordance with IAS 19, revised by amendments issued by IASB on 16 June 2011 and approved by
EU Regulation no. 475/2012 dated 5 June 2012, in determining the total cost of each defined benefit
plan, which - as is well-known - may be influenced by many variables, objective and prudential
technical bases were adopted in formulating both demographic and financial assumptions.
In view of the evolutionary nature of the main relevant aggregates, actuarial valuations were performed
under dynamic conditions, so as to subsume in the medium-long term both the average annual changes
in the benefits defined in each plan, and the interest rate trends expected in the financial market.
Some of the main actuarial assumptions that were formulated and used as valuation bases are
mentioned below:
technical mortality basis: using death probability data as provided in ISTAT's 2016 tables, broken
down by gender and age, with mortality reduced by 20%;
economic-financial basis: using as annual relative interest rate the interpolated EUR Composite
AA rate curve (BFV) as at 31 December 2017.
For each defined benefit plan, the balance sheet equity resulting from valuations carried after
reconciliation of actuarial assets and liabilities as at 31 December 2017 underwent a sensitivity analysis
to examine the effects of changes in the key technical assumptions included in the calculation model
(average annual discount rate and inflation rate), and the results were presented in specific tables.
The theoretical future increase in INPS pensionable earnings, which in any case is considered in the
calculation model in an average annual percentage of 0.75%, was not included in the sensitivity analysis
because it is essentially irrelevant for the preparation of the technical financial statements as, given that
all defined benefit pensions funds are closed to new participants and taking into account the
progressive decrease in the active population due to retirements during the year, the ratio between
active and retired participants has now reduced to a percentage of less than 0.1%.
The defined benefit plans, in which the Group companies are co-obliged within the limits set out in
the respective articles of association or regulations, are either internal plans, divided in the description
below between unfunded and funded, or independent external funds.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 272
Unfunded internal plans
Supplementary pension provision for staff in the former tax collection division of Banca Monte dei Paschi di Siena S.p.a.
(Bank Register no. 9185)
This is a defined benefit plan designed to provide retired staff of the former Direct Management
division of the Parent Company with supplementary pension in the form of annuity.
The entitled population, consisting solely of retirees whose number is 329, is made up of staff of the
former business unit, divested in 2006, who retired after the year 1982.
For the purposes of the preparation of the technical financial statements, the liabilities were valued
taking into account INPS pension payment regulations issued by Law no. 335/95 as amended and the
Plan Regulations.
The valuations concerning participants were carried out on the basis of the positions of retirees
receiving immediate or deferred retirement benefits, taking into account details on currently paid
pensions, types of pension, personal data of the beneficiary and amount of the annuity paid by the
Fund and that paid by INPS.
In the event that the agreed benefits are more costly than expected, the Parent Company remains
responsible for providing additional funds to meet the financial requirements of the retirement plans.
The valuations show an actuarial loss of EUR 1.23 mln at the date of 31 December 2017.
National insurance (INPS) for former Banca Operaia di Bologna staff
(Bank Register no. 9142)
The fund is intended to supplement benefits paid out under INPS pension schemes for retired
employees of former Banca Operaia di Bologna.
The Plan's Regulations, signed on 23 September 1980, provide for supplementary benefit up to a
certain percentage of the last salary earned. For the purposes of pension calculation, annual salary
means a set of items paid on a continuous basis and on which benefits are paid out to surviving
dependents. For the purposes of the preparation of the technical financial statements, the liabilities
were valued taking into account INPS pension payment regulations issued by Law no. 335/95 as
amended.
The valuations concerning participants were carried out taking into account details on currently paid
pensions, personal data of the beneficiary and the ratio between the annuity paid by the Fund and that
paid by INPS.
In the event of deficit, the Parent Company remains responsible for providing additional funds to meet
the financial requirements of the retirement plans.
The valuations show an actuarial loss of EUR 0.03 mln at the date of 31 December 2017.
The plan applies to a population made up exclusively of non-active participants, of which 64 are retired
and 2 on deferred retirement.
2017 ANNUAL REPORT
273 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Pension provision for employees of former Banca di Credito Popolare e Cooperativo di Reggio Emilia
(Bank Register no. 9178)
The sole aim of the fund is to supplement compulsory schemes in order to guarantee higher levels of
insurance coverage for ex-employees of former Banca di Credito Popolare e Cooperativo di Reggio
Emilia, as the direct beneficiaries of a life annuity or as the surviving spouse of a former employee.
The pension provision for employees participating in the Fund is governed by the Regulations issued
in 1977 and later amended to reflect subsequent laws. It provides for payment of supplementary
benefits so as to reach a certain percentage of the last salary earned.
The valuations concerning participants were carried out taking into account details on currently paid
pensions, personal data of the beneficiary and the ratio between the annuity paid by the Fund and that
paid by INPS.
The obligation to pay the benefits lies with the Parent Company, which must provide the wherewithal
to cover the liability over time.
The valuations show an actuarial loss of EUR 0.019 mln at the date of 31 December 2017.
The Plan applies to a population of only 12 retirees.
Pension provision for employees of former Banca Popolare Veneta
(Bank Register no. 9066)
The pension plan, which applies to a residual population of 20 retirees, is aimed at supplementing the
benefits paid out by INPS for employees already retired at 7 December 1989 and their assigns, under
labour agreements signed on 4 February 1956 and on 1 January 1982 for executive staff, as amended.
The valuations concerning participants were carried out taking into account details on currently paid
pensions, personal data of the beneficiary and the ratio between the annuity paid by the Fund and that
paid by INPS.
In the event of deficit, the Parent Company is responsible for providing additional funds to meet the
financial requirements of the retirement plans.
The valuations show an actuarial loss of EUR 0.10 mln at the date of 31 December 2017.
Pension fund of MPS Capital Services Banca per le Imprese S.p.A.
(Bank Register no. 9134)
This defined benefit complementary pension fund is reserved to 38 retirees, including 27 direct and 11
indirect beneficiaries.
The valuations show an actuarial loss of EUR 0.06 mln at the date of 31 December 2017.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 274
Funded internal plans
Pension provision for employees of former Banca Nazionale Agricoltura
(Bank Register no. 9047)
The purpose of this Provision is to pay additional retirement benefits over and above those paid by
INPS to employees of the former Banca Nazionale dell’Agricoltura, who retired before 1 October
2000 or whose employment was terminated after this date without their having exercised the right,
provided under the agreement of 12 September 2000, to transfer their contributions to another
individual capitalisation, defined contribution fund.
The Plan applies to a population of 231 retirees and 3 employees on deferred retirement.
The Plan's Regulations, first approved in 1966, provide for supplementary benefit up to a certain
percentage of the last salary earned, to be paid to the direct beneficiaries and their surviving
dependants.
The valuations concerning participants were carried out taking into account details on currently paid
pensions, personal data of the beneficiary and the ratio between the annuity paid by the Fund and that
paid by INPS.
Although the Fund has its own separate and independent allocation capital, the guarantee of
performance of the benefit payment obligation lies with the Parent Company, which must ensure the
wherewithal to cover the liability over time.
At the valuation date of 31 December 2017, the actuarial calculations show that the capital adequacy of
the Fund satisfies the obligation to pay benefits with respect to the participants.
Complementary pension provision for employees of former Banca Toscana
(Bank Register no. 9110)
This defined benefit complementary pension fund is reserved for employees of the former Banca
Toscana who were already retired at 1 January 1999 and to active employees hired before 27 April
1993 who did not opt at the time to transfer their contributions to an individual capitalisation and
defined contribution fund.
The population of employees eligible for the present and future benefits is composed of 838 retirees, 4
active employees and 3 employees on deferred retirement.
The current Fund Regulations set out the rules concerning the retirement benefits to be paid to eligible
employees, distinguishing between old age, seniority and disability pensions. Calculation of the
complementary benefits is based on the average of the last three years of employment, taking into
account only the items specified in the Regulations.
The guarantee of performance of the benefit payment obligation lies with the Parent Company, which
must ensure the wherewithal to cover the liability over time, although the Fund has its own separate
accounting and capital, with the effects set out in art. 2117 of the Italian Civil Code.
At the valuation date of 31 December 2017, the actuarial calculations show that the capital adequacy of
the Fund satisfies the obligation to pay benefits with respect to the participants.
2017 ANNUAL REPORT
275 Notes to the consolidated financial statements - Part B - Information on the balance sheet
External funds
Cassa di Previdenza Aziendale (Company’s Pension Scheme) for employees of Monte dei Paschi di Siena
(Bank Register no. 1127)
The Fund has legal personality and full independence in terms of capital and operation.
It is reserved to employees and retirees of the Parent Company hired until 31 December 1990 who,
following the agreement of 30 June 1989, opted to remain in the specific complementary benefit
Section under a defined benefit regime.
The Fund’s governance consists of a Board of Directors and a Board of Statutory Auditors with joint
membership (some of the members are appointed by the Parent Company and others are appointed by
the participants) supported by the General Manager.
The Parent Company provides, free of charge, the employees, premises and other resources required
for the autonomous management of the Cassa and incurs all the related costs and expenses, including
those for the functioning of the governing and control bodies.
In terms of guarantees given, in accordance with art. 26 of the Articles of Association, any deficits in
Section coverage which should be identified during actuarial checks will be made up by the Parent
Company only to the extent necessary to maintain tier 1 services, in accordance with the guarantee to
the participants undertaken in compliance with Law no. 218/90 and referred to in the agreement of 24
June 1991.
The complementary benefits, which are determined by subtracting the benefits paid out by INPS from
the annual amount of the complementary benefits, are made up of two components. The first
component increases the benefits to be paid by the Cassa up to 70% of the fixed items of the salary of
an employee of the same level, and the second component increases the complementary benefits by a
further 9%.
The assets that comprise the reference capital consist primarily of investments in securities, managed
almost entirely under a financial management agreement, and properties.
The population is composed of 2,663 retirees, 126 active employees and 126 employees on deferred
retirement.
The technical report prepared in accordance with IAS 19 criteria by the designated actuary shows the
capital adequacy of the Complementary Section which, against an asset fair value calculated at 30
November 2017 (*) of EUR 364.16 mln, takes into consideration the DBO (Defined Benefit
Obligation) as at 31 December 2017 of EUR 166.41 mln.
(*) most recent figure available
Pension Fund for personnel of former Banca Agricola Mantovana S.p.A.
(Bank Register no. 1341)
The Fund, which operates on a defined benefit basis, has legal personality and full independence in
terms of capital and operation, as its legal form is that of an unincorporated association under art. 36
of the Italian Civil Code.
The Fund's governance consists of a Board of Directors and a Board of Statutory Auditors with joint
membership, supported by the General Manager.
The sole purpose of the Fund is to pay to eligible participants complementary benefits over and above
those paid out by INPS; the participants include 33 retirees and 3 employees on deferred retirement.
At the valuation date of 31 December 2017, the actuarial calculations highlight a DBO (Defined
Benefit Obligation) of EUR 0.95 mln against capital meant to satisfy the pension obligation (Asset Fair
Value) of EUR 0.92 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 276
Pension Fund for personnel of former Banca Antonveneta S.p.a.
(Bank Register no. 1033)
The Fund, whose legal form is that of an unincorporated association in accordance with article 36 of
the Italian Civil Code, has the sole purpose of providing benefits in addition to AGO (General
Compulsory Insurance) cheques, was established in 1966 and has continued to operate to date.
The currently limited group of pensioners entitled to benefits refers to those who at the time did not
accept the proposal for the settlement in capital of the value of the position recognised.
Although the Fund has legal personality and full independence in terms of capital, in the event of
operating deficit, the co-obliged Parent Company is responsible for providing the wherewithal to cover
such deficit.
The population eligible to receive the benefits is composed of only 31 retirees.
At the valuation date of 31 December 2017, the actuarial calculations highlight a DBO (Defined
Benefit Obligation) of EUR 2.25 mln against capital meant to satisfy the pension obligation (Asset Fair
Value) of EUR 2.08 mln.
$$$
The defined benefit pension funds for personnel of the London branch (BMPS UK Pension Fund)
and the New York branch (Retirement Plan) of the Parent Company are designed to pay for the
employees’ benefits upon reaching normal retirement age as well as benefits to other surviving
beneficiaries.
As concerns the pension plan for the London branch, the plan is funded by the branch itself through
approximately 53.7% of the total salaries. A Trustee whose members include active employees, is
responsible for plan administration; the financial resources are managed by a specialised company. The
plan’s deficit is currently being made up through a plan of 67 monthly instalments the first of which
was paid in October 2017. The technical report prepared in accordance with IAS 19 criteria by the
designated actuary at the valuation date of 31 December 2017 shows the capital adequacy of the
pension plan which, against an asset fair value of EUR 58.24 mln, takes into consideration the DBO
(Defined Benefit Obligation) of EUR 54.2 mln.
As regards the New York branch’s retirement plan (external/funded), which includes a total of 60
members, of which 19 active employees, the actuarial calculations for the year 2017 show a DBO
(Defined Benefit Obligation) of EUR 16.82 mln, against an asset fair value of EUR 12.13 mln.
There is also a pension plan for Banca Monte dei Paschi Belgio intended to guarantee pension benefits
to active employees as well as their beneficiaries. As at 31 December 2017, the actuarial valuation (66
active employees and 17 on deferred retirement as at 31 December 2016) highlights a DBO (Defined
Benefit Obligation) of EUR 5.2 mln against capital meant to satisfy the pension obligation (Asset Fair
Value) of EUR 3.9 mln.
$$$
IAS 19 was also applied to calculate the actuarial values that could be used to determine the liability
relating to the complementary benefits associated with the former Credito Lombardo Spa. Considering
the contractual nature of the obligation, the economic costs are incurred directly by the Parent
Company. The currently limited group of people eligible for benefits regards a total of 98 immediate
pensions, of which 61 direct and 37 indirect. The actuarial calculations show a DBO (Defined Benefit
Obligation) of EUR 2.97 mln at the valuation date of 31 December 2017.
2017 ANNUAL REPORT
277 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Finally, there are two positions referring to former General Managers of the Parent Company to whom
specific economic benefits other than pension benefits are disbursed. In any event, they are assessed
on the basis of actuarial parameters in order to determine the value of the Parent Company’s
obligation. This type of remuneration, known as ex contractu, consists of payment of monthly benefits
revalued on the basis of automatic pension equalisation indexes.
$$$
As required by the Bank of Italy, the internal fund statements can be found in the annexes to the
financial statements.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 278
12.3.2 Changes in net defined liability (asset) and reimbursement rights during the year
The following tables show movements for the year in internal and external funds which, according to
international accounting standards, come under the heading of defined benefit funds.
12.3.2a Changes in net defined liability (asset) and reimbursement rights during the year –
Internal Funds
31 12 2017
A (-) B (+) C (+) D=A+B+C
Item/Amount
Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Opening balance (132,072) 158,615 15,588 42,131
Current service cost X 16 X 16
Interest income/expense (538) 1,252 - 714
Remeasurement of net defined benefit
804 2,059 (1,101) 1,762
liability (asset):
Return on plan assets excluding interest 804 X X 804
Actuarial gains (losses) arising from changes
X 4,678 X 4,678
in demographic assumptions
Actuarial gains (losses) arising from
X (2,332) X (2,332)
experience adjustments
Actuarial gains (losses) arising from changes
X (287) X (287)
in financial assumptions
Changes in effect of limiting net defined
X X (1,101) (1,101)
benefit asset to asset ceiling
Past service cost and gains (losses) arising from
X - X -
settlements
Changes in foreign exchange rates - - - -
Contributions to plan: - - - -
by employer - - X -
by employee - - X -
Payments from plan 9,746 (13,201) X (3,455)
Effect of business combinations and disposals - - - -
Effect of any plan curtailments - - X -
Effect of any plan settlements - - X -
Other changes - - - -
Closing balance (122,060) 148,741 14,487 41,168
2017 ANNUAL REPORT
279 Notes to the consolidated financial statements - Part B - Information on the balance sheet
31 12 2016
A (-) B (+) C (+) D=A+B+C
Item/Amount
Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Opening balance (141,674) 165,599 17,421 41,346
Current service cost X - X -
Interest income/expense (969) 1,211 96 338
Remeasurement of net defined benefit
191 2,687 (1,985) 893
liability (asset):
Return on plan assets excluding interest 191 X X 191
Actuarial gains (losses) arising from changes
X (457) X (457)
in demographic assumptions
Actuarial gains (losses) arising from
X (1,533) X (1,533)
experience adjustments
Actuarial gains (losses) arising from changes
X 4,677 X 4,677
in financial assumptions
Changes in effect of limiting net defined
X X (1,985) (1,985)
benefit asset to asset ceiling
Past service cost and gains (losses) arising from
X - X -
settlements
Changes in foreign exchange rates - - - -
Contributions to plan: - - - -
by employer - - X -
by employee - - X -
Payments from plan 10,436 (13,965) X (3,529)
Effect of business combinations and disposals - - - -
Effect of any plan curtailments - - - -
Effect of any plan settlements - - X -
Other changes (56) 3,083 56 3,083
Closing balance (132,072) 158,615 15,588 42,131
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 280
12.3.2b Changes in net defined liability (asset) and reimbursement rights during the year:
External Funds
31 12 2017
A (-) B (+) C (+) D=A+B+C
Item/Amount Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Opening balance (451,404) 258,098 204,761 11,455
Current service cost X 675 X 675
Interest income/expense (4,026) 5,268 (575) 667
Remeasurement of net defined benefit
3,388 (4,708) 346 (974)
liability (asset):
Return on plan assets excluding interest 3,388 X X 3,388
Actuarial gains (losses) arising from
X 1,428 X 1,428
changes in demographic assumptions
Actuarily gains (losses) arising from
X (5,964) X (5,964)
experience adjustments
Actuarial gains (losses) arising from
X (172) X (172)
changes in financial assumptions
Change in effect of limiting net defined
X X 346 346
benefit asset to asset ceiling
Past service cost and gains (losses) arising from
X - X -
settlements
Changes in foreign exchange rates 3,464 (4,356) - (892)
Contributions to plan: (1,969) - - (1,969)
by employer (1,969) - X (1,969)
by employee - - X -
Payments from plan 9,079 (9,079) X -
Effect of business combinations and disposals - - - -
Effect of any plan curtailments - - X -
Effect of any plan settlements - - X -
Other changes - - - -
Closing balance (441,468) 245,898 204,532 8,962
2017 ANNUAL REPORT
281 Notes to the consolidated financial statements - Part B - Information on the balance sheet
31 12 2016
A (-) B (+) C (+) D=A+B+C
Item/Amount Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Opening balance (472,644) 259,935 220,733 8,024
Current service cost X 541 X 541
Interest income/expense (7,112) 6,044 1,741 673
Remeasurement of net defined benefit
13,986 7,315 (17,713) 3,588
liability (asset):
Return on plan assets excluding interest 13,986 X X 13,986
Actuarial gains (losses) arising from
X (719) X (719)
changes in demographic assumptions
Actuarily gains (losses) arising from
X (13,896) X (13,896)
experience adjustments
Actuarial gains (losses) arising from
X 21,930 X 21,930
changes in financial assumptions
Change in effect of limiting net defined
X X (17,713) (17,713)
benefit asset to asset ceiling
Past service cost and gains (losses) arising from
X - X -
settlements
Changes in foreign exchange rates 7,325 (7,258) - 67
Contributions to plan: (1,787) - - (1,787)
by employer (1,787) - X (1,787)
by employee - - X -
Payments from plan 8,479 (8,479) X -
Effect of business combinations and disposals - - - -
Effect of any plan curtailments - - - -
Effect of any plan settlements - - X -
Other changes 349 - - 349
Closing balance (451,404) 258,098 204,761 11,455
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 282
12.3.2c Changes in net defined liability (asset) and reimbursement rights during the year –
Total
31 12 2017
A (-) B (+) C (+) D=A+B+C
Item/Amount Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Internal funds (122,060) 148,741 14,487 41,168
External funds (441,468) 245,898 204,532 8,962
Total defined benefit funds (563,528) 394,639 219,019 50,130
31 12 2016
A (-) B (+) C (+) D=A+B+C
Item/Amount Net defined
Present value of Effect of asset
Plan assets benefit liability
DBO ceiling
(asset)
Internal funds (132,072) 158,615 15,588 42,131
External funds (451,404) 258,098 204,761 11,455
Total defined benefit funds (583,476) 416,713 220,349 53,586
2017 ANNUAL REPORT
283 Notes to the consolidated financial statements - Part B - Information on the balance sheet
12.3.3 Information on Fair value of plan assets
31 12 2017
Internal pension plans External pension plans
Item
Listed in active Not listed in Listed in active Not listed in
markets active markets markets active markets
Cash and cash equivalents 83,847 - 10,154 3,920
of which: used by the Group 83,847 - 3,012 -
Equity instruments - - 36,941 -
of which: issued by Group - - - -
Debt instruments 38,213 - 170,019 -
of which: issued by the Group - - 5,974 -
Real estate - - - 72,896
UCITS - - 147,538 -
Total 122,060 - 364,652 76,816
of wich:
83,847 - 8,987 -
own instruments/assets used by the Group
The table shows, for funded defined benefit plans, the total amount of plan assets. In particular, the assets refer to the
following funds:
Pension Fund for personnel of former Banca Nazionale dell’Agricoltura S.p.a.,
Pension Fund for personnel of former Banca Agricola Mantovana S.p.A.
Pension Fund for personnel of former Banca Toscana S.p.A.
Pension Fund for personnel of Monte Paschi Belgio,
Pension Fund for personnel of former Banca Antonveneta and
Cassa di Previdenza Aziendale for Monte dei Paschi di Siena employees, defined benefit section
the total of which exceed the obligations existing at year end.
The table also includes the defined benefit pension funds for the Parent Company’s personnel of the branches in London
(BMPS UK Pension Fund) and New York (Retirement Plan).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 284
31 12 2016
Internal pension plans External pension plans
Item
Listed in active Not listed in Listed in active Not listed in
markets active markets markets active markets
Cash and cash equivalents 91,806 - 14,632 3,920
of which: used by the Group 91,806 - 3,055 -
Equity instruments - - 44,030 -
of which: issued by Group - - 2 -
Debt instruments 40,266 - 178,895 -
of which: issued by the Group - - 5,983 -
Real estate - - - 62,700
of which: used by the Group - - - -
Derivatives - - - -
UCITS - - 147,227 -
Asset-backed securities - - - -
Structured debt - - - -
Total 132,072 - 384,784 66,620
of wich:
91,806 - 9,040 -
own instruments/assets used by the Group
12.3.4 Key actuarial assumptions used
31 12 2017 31 12 2016
Defined benefit funds Defined benefit funds
Key actuarial assumptions/percentages
Internal pension External pension Internal pension External pension
plans plans plans plans
Discount rates 0.79% 1.65% 0.84% 1.85%
Expected rates of salary increases 0.75% 2.03% 0.75% 1.63%
A discount rate of 0.79% was used for internal plans and of 1.65% for external ones (0.79% - 1.93% for Provision for
severance pay, see table 11.2b), calculated as a weighted average of interest rates in EUR Composite AA yield curve as at 31
December 2017, using, as weights, the ratio between the amount paid / paid in advance for each maturity and the total
amount to be paid/paid in advance for the entire duration of the population considered.
2017 ANNUAL REPORT
285 Notes to the consolidated financial statements - Part B - Information on the balance sheet
12.3.5 Information on amount, timing and uncertainty of cash flows
31 12 2017
Change (%) in
Actuarial assumption Change in DBO
DBO
Discount rate
Increase of 0.25% (16,881) -4.28%
Decrease of 0.25% 9,687 2.45%
Expected rates of salary increases
Increase of 0.25% 4,072 1.03%
Decrease of 0.25% (10,956) -2.78%
31 12 2016
Change (%) in
Actuarial assumption Change in DBO
DBO
Discount rate
Increase of 0.25% (15,229) -3.86%
Decrease of 0.25% 9,219 2.34%
Expected rates of salary increases
Increase of 0.25% 10,730 2.72%
Decrease of 0.25% (6,110) -1.55%
With respect to pay increases, it is not possible to conduct any sensitivity analysis given the static nature of the benefits linked
to the choice of participants to stay in the fund.
12.3.6 Plans covering multiple employers
12.3.7 Defined benefit plans sharing risks among entities under common control
Plans having these characteristics are not present for the Group.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 286
12.4 - Provisions for risks and charges - Other provisions
Total Total
Items/Amounts
31 12 2017 31 12 2016
2.1 Legal disputes 622,489 599,910
- Revocatory 80,259 82,965
- Other legal disputes 542,230 516,945
2.2 Personnel charges 82,010 178,123
- Job disputes 39,483 46,364
- Leaving incentives 15,008 120,032
- Other 27,519 11,727
2.3 Other 383,864 276,439
- Risks related to the sale of business units 26,541 30,321
- Charges due to corporate restructuring 25,769 17,654
- Payments to financial advisors 57,428 60,098
- Charges for embezzlement 13,479 8,144
- Claims and Court agreements 1,085 781
- Other 259,562 159,441
Total 1,088,363 1,054,472
Section 13 – Insurance reserves – Item 130
The tables in this section have not been completed as no data is present for either current or previous
year.
Section 14 – Redeemable shares – Item 150
The tables in this section have not been completed as no data is present for the current year or for the
previous year.
2017 ANNUAL REPORT
287 Notes to the consolidated financial statements - Part B - Information on the balance sheet
Section 15 – Group equity – Items 140, 160, 170, 180, 190, 200 and 220
15.1 “Share capital” and “Treasury shares”: breakdown
15.1.a “Share capital” breakdown
(in units of Eur)
31 12 2017 31 12 2016
Items/Amounts Par value of Par value of
Implied par value Par value per
fully paid fully paid
share share
shares shares
Ordinary shares 9.06 10,328,618,260.00 251.21 7,365,674,050.00
Total 10,328,618,260 7,365,674,050
On 6 June 2011 the Bank's Extraordinary Shareholders' Meeting resolved that indication of the par value of the classes of
shares be eliminated; accordingly, as at 31.12.2011, the so-called “Implied par value” is indicated, which is obtained by
dividing the total share capital amount by the number of shares in the same category, outstanding at the reference date.
Ordinary shares are registered and indivisible. Each share entitles to one vote. Information on the number of fully paid-up
shares can be found in the notes to Table “15.2 Share capital – number of shares: annual changes”.
In August 2017, the share capital increase of Banca Monte dei Paschi di Siena was completed for a total amount of EUR
8,327.1 mln through the conversion into ordinary shares of AT1 and T2 bond issues for a value of EUR 4,472.9 mln, and
through the subscription by the MEF of ordinary shares for a value of EUR 3,854.2 mln.
On 18 December 2017, the extraordinary Shareholders’ Meeting of the Parent Company, taking into account (i) the financial
position as at 30 September 2017 and the resulting losses for the period of EUR 2,506.0 mln, as well as (ii) prior losses of
EUR 2,324.0 mln carried forward on the basis of shareholders’ meeting resolution of 24 November 2016 and (iii) the equity
adjustments equal to EUR 534.1 mln, decided to approve the coverage of the total loss of EUR 5,364.2 mln by means of a
corresponding reduction in the share capital.
As a result of the above, at the reporting date, the Parent Company’s share capital amounted to EUR 10,328,618,260.14,
represented by 1,118,778,319 ordinary shares without a nominal value.
15.1.b “Treasury shares”: breakdown
At the date of these financial statements, the Group holds 36,280,748 treasury shares for a total value
of EUR 313.7 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part B - Information on the balance sheet 288
15.2 Share capital - Parent company's number of shares: annual changes
31 12 2017 31 12 2016
Item/Type
Ordinary Ordinary
A. Shares outstanding as at the beginning of the year 29,320,798 2,932,079,864
- fully paid 29,320,798 2,932,079,864
- not fully paid - -
A.1 Treasury shares (-) - -
A.2 Shares outstanding: opening balance 29,320,798 2,932,079,864
B. Increases 1,110,969,274 -
B.1 New issuances 1,110,969,274 -
- Against payment: 1,110,969,274 -
- Business combinations - -
- Bond converted 517,099,404 -
- warrants exercised - -
- other 593,869,870 -
- without payment: - -
- to employees - -
- to directors - -
- other - -
B.2 Sale of treasury shares - -
B.3 Other increases - -
C. Decreases 36,280,748 2,902,759,066
C.1 Cancellation - -
C.2 Purchase of treasury shares - -
C.3 Business transferred - -
C.4 Other decreases 36,280,748 2,902,759,066
D. Shares outstanding: closing balance 1,104,009,324 29,320,798
D.1 Treasury shares (+) 36,280,748 -
D.2 Shares outstanding as at the end of the year 1,140,290,072 29,320,798
- fully paid 1,140,290,072 29,320,798
- not fully paid - -
Line C.4 “Other decreases” for 2016 includes the grouping of the Parent Company’s ordinary shares at a ratio of 1 new
ordinary share for every 100 shares held, pursuant to the resolution passed by the Extraordinary Shareholders’ Meeting of
Banca Monte dei Paschi di Siena S.p.A. held on 24 November 2016, after the cancellation of 64 ordinary shares of the Parent
Company for accounting reconciliation purposes.
At the date of these financial statements, the share capital is fully paid in.
15.3 Share capital: other information
15.3a Equity instruments: breakdown and annual changes
As at 31 December 2017, the Group held no equity instruments.
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289 Notes to the consolidated financial statements - Part B - Information on the balance sheet
15.4 Retained earnings: other information
See “Part F – Information on consolidated shareholders’ equity” of these notes to the financial
statements.
15.5 Other information
See “Part F – Information on consolidated shareholders’ equity” of these notes to the financial
statements.
Section 16 – Non-controlling interests - Item 210
16.1 Details of item 210 “Non-controlling interests”
Company name 31 12 2017 31 12 2016
Equity investments in consolidated companies with significant non-controlling
- -
interests
Other equity investments 2,279 34,859
Total 2,279 34,859
16.2 Equity instruments: breakdown and annual changes
No such instruments are present within the Group.
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Notes to the consolidated financial statements - Part B - Information on the balance sheet 290
Other information
1 Guarantees and commitments
Amount Amount
Transactions
31 12 2017 31 12 2016
1) Financial guarantees given to 2,170,143 2,667,840
a) Banks 468,550 512,555
b) Customers 1,701,593 2,155,285
2) Commercial guarantees given to 3,697,118 4,146,156
a) Banks 260,038 295,912
b) Customers 3,437,080 3,850,244
3) Irrevocable commitments to disburse funds 6,285,561 6,633,037
a) Banks 366,287 161,748
i) drawdown certain 366,287 158,015
ii) drawdown uncertain - 3,733
b) Customers 5,919,274 6,471,289
i) drawdown certain 3,304,149 4,086,218
ii) drawdown uncertain 2,615,125 2,385,071
4) Underlying commitments on credit derivatives: sales of protection 2,325,302 3,112,038
5) Assets pledged as collateral for third-party commitments 7,529 7,529
6) Other commitments 830,444 1,188,543
Total 15,316,097 17,755,143
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291 Notes to the consolidated financial statements - Part B - Information on the balance sheet
2 Assets pledged as collateral for liabilities and commitments
Portfolios 31 12 2017 31 12 2016
1. Financial assets held for trading 4,556,810 4,302,070
2. Financial assets designated at fair value - -
3. Financial assets available for sale 4,310,010 15,248,469
4. Financial assets held to maturity - -
5. Loans to banks 1,250,156 2,104,241
6. Loans to customers 29,331,330 36,708,498
7. Property, plant and equipment 1,359,791 1,379,320
The table summarises the assets pledged by the Group as collateral for its liabilities, mainly represented by repurchase
agreements. The amount in line “6. Loans to customers” includes approx. EUR 19.5 bn related to loans transferred to the
vehicles MPS Covered Bond S.r.l. and MPS Covered Bond 2 S.r.l. as part of two programmes for the issue of covered bonds.
3 Operating leases
3.1 Future minimum lease payments due under operating leases
Items/Amounts 31 12 2017
Up to 1 year 59,500
From 1 to 5 years 200,370
Over 5 years 133,324
Future minimum lease payments due 393,194
Non-cancellable future minimum lease payments receivable -
4 Investments in unit-linked and index-linked policies: breakdown
The Group does not hold any such investments since no company of the Group issues insurance
policies.
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Notes to the consolidated financial statements - Part B - Information on the balance sheet 292
5 Asset management and trading on behalf of third parties
Amount
31 12 2017
1. Trading of financial instruments on behalf of third parties
a) Purchases 14,620,742
1. Settled 14,547,027
2. Unsettled 73,715
b) Sales 14,549,662
1. Settled 14,477,433
2. Unsettled 72,229
2. Asset management accounts
a) individual 3,853,269
b) collective 1,186
3. Custody and administration of securities
a) third party securities on deposit associated with custodian bank transactions (excluding asset
-
management)
1. Securities issued by companies included in consolidation -
2. Other securities -
b) Other third party securities on deposit (excluding asset management) 52,037,012
1. Securities issued by companies included in consolidation 4,666,501
2. Other securities 47,370,511
c) third party securities deposited with third parties 45,427,242
d) own securities deposited with third parties 37,011,397
4. Other transactions 26,326,481
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293 Notes to the consolidated financial statements - Part B - Information on the balance sheet
6 Financial assets subject to offsetting, enforceable master netting arrangements and
similar agreements.
Related amounts not
Amount of Net amount subject to balance sheet
Gross financial of financial offsetting
amount of liabilities assets Net amount
Deposits Net amount
Type financial offset in recognised in (f=c-d-e)
Financial of cash 31 12 2016
assets balance the balance 31 12 2017
(a) sheet sheet instruments collateral
(b) (c=a-b) (d) received
(e)
1. Derivatives 4,347,597 1,259,698 3,087,899 1,413,756 1,496,279 177,864 311,666
2. Repurchase agreements 5,423,571 - 5,423,571 5,418,565 - 5,006 157
3. Securities lending - - - - - - -
4. Other - - - - - - -
Total as at 31 12 2017 9,771,168 1,259,698 8,511,470 6,832,321 1,496,279 182,870 X
Total as at 31 12 2016 15,413,764 1,307,592 14,106,172 12,963,439 830,910 X 311,823
7 Financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements
Net amount
Amount of Related amounts not subject
of financial
Gross financial to balance sheet offsetting
liabilities
amount of assets Net amount
recognised Net amount
Type financial offset in (f=c-d-e)
in the Deposits of 31 12 2016
liabilities balance Financial 31 12 2017
balance cash
(a) sheet instruments
sheet collateral
(b) (d)
(c=a-b) received (e)
1. Derivatives 3,446,126 1,259,698 2,186,428 1,318,441 645,899 222,088 45,608
2. Repurchase agreements 10,237,334 - 10,237,334 10,237,334 - - -
3. Securities lending - - - - - - -
4. Other - - - - - - -
Total as at 31 12 2017 13,683,460 1,259,698 12,423,762 11,555,775 645,899 222,088 X
Total as at 31 12 2016 36,095,172 1,307,592 34,787,580 34,596,942 145,030 X 45,608
IFRS 7 requires disclosure of information for all financial instruments that:
were offset in the balance sheet pursuant to IAS 32;
could potentially be offset, given certain conditions, but presented in the balance sheet as open balances as they are
governed by “framework offsetting agreements or similar agreements” which do not meet the criteria established in
IAS 32 for offsetting.
The amount offset in the financial statements refers to trading in OTC derivatives managed through central counterparties of
the subsidiary MPS Capital Services S.p.a. and the Parent Company.
For the purposes of reconciliation of the amounts shown in the column (c) “net amount of financial assets/liabilities
recognised in the balance sheet” with the opening balances shown in “Part B – Information on the balance sheet”, it should
be noted that:
the amount related to both trading and hedging derivative financial instruments, aided by netting agreements or
similar, is represented in asset items 20 “Financial assets held for trading” and 80 “Hedging derivatives” and in
liability items 40 “Financial liabilities held for trading” and 60 “Hedging derivatives”;
the amount related to repurchase agreements subject to netting agreements or similar is shown in line “Repurchase
agreements/Reverse repurchase agreements” in the tables containing a breakdown of asset items 60 “Loans to
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Notes to the consolidated financial statements - Part B - Information on the balance sheet 294
banks” and 70 “Loans to customers” and of liability items 10 “Deposits from banks” and 20 “Deposits from
customers”.
It should also be noted that:
with regard to securities lending transactions, in these tables transactions involving the payment of cash collateral
fully owned by the lender are included in the item “Repurchase agreements”;
the repurchase agreements are recognised in the tables at amortised cost, while the financial collateral and derivative
transactions are reported at their fair value.
8 Securities lending transactions
In its capacity as borrower, the Parent Company has entered into a number of securities lending
agreements with leading market counterparties. These agreements are backed by other securities and
total approximately EUR 1.5 bn.
In its capacity as borrower, the Parent Company has also entered into securities lending agreements
(mainly Italian government bonds) with customers, for a total of approximately EUR 1.4 bn.
These transactions, which in compliance with current accounting standards have no impact on the
balance sheet, are carried out with the aim of increasing the Group’s counterbalancing capacity.
9 Information on joint control activities
This paragraph was not completed as no such activities are present within the Group.
2017 ANNUAL REPORT
295
Part C – Information on the consolidated income statement
Section 1 – Interest income/expense and similar revenues/charges – Items 10 and 20 .................................................................. 297
Section 2 – Fee and commission income/expense – Items 40 and 50................................................................................................. 299
Section 3 – Dividends and similar income – Item 70 .............................................................................................................................. 300
Section 4 – Net profit (loss) from trading – Item 80 ............................................................................................................................... 301
Section 5 – Net profit (loss) from hedging – Item 90.............................................................................................................................. 302
Section 6 – Gains/(losses) on disposal/repurchase - Item 100 ............................................................................................................. 303
Section 7 – Net profit (loss) from financial assets and liabilities designated at fair value – Item 110............................................ 304
Section 8 – Net impairment losses/(reversals) – Item 130 ..................................................................................................................... 305
Section 9 – Net premiums – Item 150 ........................................................................................................................................................ 306
Section 10 – Other net insurance income/expense – Item 160............................................................................................................. 307
Section 11 – Administrative expenses – Item 180 .................................................................................................................................... 307
Section 12 – Net provisions for risks and charges – Item 190............................................................................................................... 310
Section 13 – Net adjustments to/recoveries on property, plant and equipment – Item 200 .......................................................... 310
Section 14 – Net adjustments to /(recoveries on) intangible assets – Item 210................................................................................. 310
Section 15 – Other operating expenses/income – Item 220 .................................................................................................................. 311
Section 16 – Gains (losses) on investments – Item 240 .......................................................................................................................... 312
Section 17 – Net gains (losses) on tangible and intangible assets measured at fair value – Item 250 ............................................ 313
Section 18 – Impairment of goodwill – Item 260 ..................................................................................................................................... 313
Section 19 – Gains (losses) on disposal of investments – Item 270 ..................................................................................................... 313
Section 20 – Tax (expense)/recovery on income from continuing operations – Item 290 ............................................................. 314
Section 21 – Profit (loss) after tax from assets held for sale and discontinued operations – Item 310 ......................................... 316
Section 22 – Profit (loss) attributable to non-controlling interests – Item 330 .................................................................................. 316
Section 23 – Other information ................................................................................................................................................................... 316
Section 24 – Earnings per Share (EPS) ....................................................................................................................................................... 316
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Section 1 – Interest income/expense and similar revenues/charges – Items 10 and 20
1.1 Interest income and similar revenues: breakdown
Debt Other Total Total
Itme/Type Loans
securities transactions 31 12 2017 31 12 2016
1. Financial assets held for trading 29,325 6 24,100 53,431 87,064
3. Financial assets available for sale 152,906 - - 152,906 190,654
5. Loans to banks 13,070 17,411 - 30,481 25,070
6. Loans to customers 43,324 2,418,803 - 2,462,127 3,009,233
8. Other assets X X 4,546 4,546 5,212
Total 238,625 2,436,220 28,646 2,703,491 3,317,233
The amount in line “1. Financial assets held for trading”, in the “Other transactions” column, includes the positive net
balance of spreads relating to derivatives connected with financial liabilities designated at fair value (fair value option), for an
amount of EUR 24.1 mln (EUR 29.5 mln as at 31 December 2016).
Lines 5 and 6, “Loans to banks” and “Loans to customers”, in the “Debt securities” column, include interest income on
treasury securities not listed in active markets and classified in these portfolios.
The amount in line “8. Other assets”, in the “Other transactions” column, shows mainly interest accrued on tax credits.
Interest other than that recognised in item 130 “Net impairment losses/reversals” and accrued during the year for positions
that are classified as “non-performing” as at balance sheet date totalled EUR 447.8 mln (EUR 629.3 mln as at 31 December
2016). This interest is calculated for financial assets measured at amortised cost under the effective interest rate method and is
entered in different columns based on the original 'technical form'. Interest on arrears accrued during the year is posted to
interest income only for the portion actually recovered. Any amounts recovered in subsequent years are treated as a write-
back on receivables and recognised in Item 130 of the profit and loss statement, “Net impairment losses/reversals on loans”.
For a trend analysis of the concerned items, reference should be made to the consolidated Report on Operations.
1.2 Interest income and similar revenues: spreads on hedging transactions
Information on spreads relating to hedging transactions is provided in Table 1.5.
1.3 Interest income and similar revenues: other information
1.3.1 Interest income from financial assets denominated in foreign currency
Interest income from financial assets denominated in foreign currency for 2017 amounted to EUR
50.9 mln as compared to EUR 52.4 mln in 2016.
1.3.2 Interest income from finance leases
Interest income from finance lease transactions for 2017 amounted to EUR 94.2 mln as compared to
EUR 110.1 mln in 2016.
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Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 298
1.4 Interest expense and similar charges: breakdown
Other Total Total
Item/Type Deposits Securities
transactions 31 12 2017 31 12 2016
1. Deposits from central banks (1,450) X - (1,450) (5,821)
2 Deposits from banks (62,585) X - (62,585) (78,376)
3. Deposits from customers (390,648) X - (390,648) (367,861)
4. Debt securities issued X (396,307) - (396,307) (770,743)
5. Financial liabilities held for trading (249) - (7,961) (8,210) (20,766)
6. Financial liabilities designated at fair value - (56,645) - (56,645) (41,432)
7. Other liabilities X X (5,574) (5,574) (2,118)
8. Hedging derivatives X X (6,156) (6,156) (28,099)
Total (454,932) (452,952) (19,691) (927,575) (1,315,216)
Lines 2, “Deposits from banks” and 3, “Deposits from customers”, in the “Deposits” column, include interest on payables
under repurchase agreements on: treasury securities recognised in the balance sheet or securities not recognised in the balance
sheet obtained through repo transactions or from self-securitisations without derecognition.
Line 4, “Debt securities issued”, indicates the interest expense accrued during the year on bonds and certificates of deposit
valued at amortised cost.
For a trend analysis of the concerned items, reference should be made to the consolidated Report on Operations.
1.5 Interest expense and similar charges: spreads on hedging transactions
Total Total
Items
31 12 2017 31 12 2016
A. Positive spreads on hedging transactions 312,929 465,332
B. Negative spreads on hedging transactions (319,085) (493,431)
C. Balance (A+B) (6,156) (28,099)
In line with its hedging objectives and consequent minimisation of risks in the banking book, the Group carries out both fair
value and cash flow hedging transactions.
1.6 Interest expense and similar charges: other information
1.6.1 Interest expense on liabilities denominated in foreign currency
Interest expense on financial liabilities denominated in foreign currency for 2017 amounted to EUR
32.0 mln as compared to EUR 31.5 mln in 2016.
1.6.2 Interest expense on liabilities from finance leases
No values are shown in this table as there is no significant data to be reported for either the current or
the previous year (less than EUR 1 million).
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299 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 2 – Fee and commission income/expense – Items 40 and 50
2.1 Fee and commission income: breakdown
Total Total
Type of service / Amount
31 12 2017 31 12 2016
a) guarantees issued 65,457 76,275
b) credit derivatives - -
c) management, brokerage and advisory services: 903,830 930,170
1. trading of financial instruments 23,113 44,650
2. currency trading 4,591 4,565
3. asset management 51,059 60,347
3.1 individual accounts 51,059 60,347
3.2. collective investment schemes - -
4. custody and administration of securities 9,033 9,279
5. custodian bank - -
6. placement of securities 14,922 24,387
7. client instructions 28,863 42,977
8. advisory on 10,877 10,555
8.1 investments 7,576 7,015
8.2 financial structure 3,301 3,540
9. distribution of third-party services 761,372 733,410
9.1. asset management - -
9.1.1 individual accounts - -
9.1.2 collective investment schemes - -
9.2 insurance products 191,672 175,881
9.3 other products 569,700 557,529
d) collection and payment services 265,010 353,047
e) servicing of securitisations 50 936
f) factoring transaction services 8,440 9,263
g) tax collection services - -
h) management of multilateral trade systems - -
i) current account keeping 479,773 517,821
j) other services 184,711 244,809
Total 1,907,271 2,132,321
Sub-item “j) other services” includes fee and commission income for an amount of EUR 5.2 mln (EUR 2.5 mln as at 31
December 2016) on securities lending.
For a trend analysis of the items mentioned above, reference should be made to the Report on Operations.
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Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 300
2.2 Fee and commission expense: breakdown
Total Total
Type of service / Amount
31 12 2017 31 12 2016
a) guarantees received (116,117) (34,203)
b) credit derivatives - -
c) management, brokerage and advisory services: (88,721) (82,545)
1. trading of financial instruments (16,366) (19,031)
2. currency trading (4) (23)
3. asset management: (430) (665)
3.1 own portfolio (4) (5)
3.2 third-party portfolios (426) (660)
4. custody an administration of securities (12,075) (7,452)
5. placement of financial instruments - (93)
6. off-site marketing of financial instruments, products and services (59,846) (55,281)
d) collection and payment services (64,430) (89,789)
e) other services (74,320) (86,428)
Total (343,588) (292,965)
Line “a) guarantees received” includes EUR 113.6 mln (EUR 31.7 mln as at 31 December 2016) of fees and commissions
paid by the Parent Company for the guarantee pledged by the Italian Government on securities issued and concurrently
repurchased, for a residual nominal amount of EUR 11,000.0 mln as at 31 December 2017, against Eurosystem financing
transactions.
Line “c) 6 “off-site marketing of financial instruments, products and services” includes fees and commissions paid to
Financial Advisors.
Line “e) other services” includes fee and commission expense for an amount of EUR 5.2 mln (EUR 16.7 mln as at 31
December 2016) on securities lending.
For a trend analysis of the concerned items, reference should be made to the Report on Operations.
Section 3 – Dividends and similar income – Item 70
3.1 Dividends and similar income: breakdown
31 12 2017 31 12 2016
Item/Income Income Income
Dividends from units Total Dividends from units Total
of UCITS of UCITS
A. Financial assets held for trading 1,643 303 1,946 2,858 337 3,195
B. Financial assets available for sale 9,520 3,854 13,374 10,311 - 10,311
C. Financial assets designated at fair value - - - - - -
D. Investments - - - - - -
Total 11,163 4,157 15,320 13,169 337 13,506
The table shows the amount of dividends received on shares traded within the trading book and non-controlling interest
classified in the available-for-sale asset portfolio.
Line “B. Financial assets available for sale” includes the dividend of EUR 8.5 mln collected on the Bank of Italy shareholding.
Conversely, dividends relating to the Group’s subsidiaries and associates, consolidated line-by-line or under the equity
method, are excluded.
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301 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 4 – Net profit (loss) from trading – Item 80
4.1 Net profit (loss) from trading: breakdown
31 12 2017 31 12 2016
Unrealized Trading Unrealized Trading
Transactions / P&L items Net Profit Net Profit
Profits Profits Losses Losses
(Loss) (Loss)
1. Financial assets held for trading 25,312 100,016 (86,267) (96,432) (57,371) (81,097)
1.1 Debt securities 21,435 81,741 (84,701) (75,001) (56,526) (81,644)
1.2 Equity instruments 3,314 2,314 (1,541) (5,255) (1,168) (906)
1.3 Units of UCITS 563 4,459 (25) (5,581) (584) 1,646
1.4 Loans - - - - - -
1.5 Other - 11,502 - (10,595) 907 (193)
2. Financial liabilities held for
33,051 39,969 (315) (38,734) 33,971 82,675
trading
2.1 Debt securities 32,944 39,420 (203) (38,734) 33,427 86,149
2.2 Deposits - - - - - -
2.3 Other 107 549 (112) - 544 (3,474)
3. Other financial assets and
X X X X 10,526 23,390
liabilities: exchange differences
4. Derivatives 721,863 3,308,072 (769,086) (3,273,512) 6,864 152,077
4.1 Financial derivatives: 698,298 3,193,208 (720,023) (3,170,249) 20,761 135,762
- on debt securities and interest
581,571 2,250,034 (591,204) (2,257,322) (16,921) 100,770
rates
- on equity instruments and stock
71,145 781,533 (80,098) (753,852) 18,728 9,456
indices
- on currency and gold X X X X 19,527 26,794
- other 45,582 161,641 (48,721) (159,075) (573) (1,257)
4.2 Credit derivatives 23,565 114,864 (49,063) (103,263) (13,897) 16,315
Total 780,226 3,448,057 (855,668) (3,408,678) (6,010) 177,045
The impact on this item deriving from the application of the Credit Value Adjustment (CVA) on OTC derivatives is a positive
EUR 39 mln; likewise, the application of the Debt Value Adjustment (DVA) on OTC derivatives entailed a negative impact
of EUR 17.9 mln.
For the year under way and for 2016, the breakdown of values within the “4.1 Financial derivatives” grouping was revised.
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Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 302
Section 5 – Net profit (loss) from hedging – Item 90
5.1 Net profit (loss) from hedging: breakdown
Total Total
P&L items/Values
31 12 2017 31 12 2016
A. Gains on:
A.1 Fair value hedging instruments 228,974 114,564
A.2 Hedged financial assets (fair value) 4,674 231,379
A.3 Hedged financial liabilities (fair value) 77,085 86,675
A.4 Cash-flow hedging derivatives - -
A.5 Assets and liabilities denominated in foreign currency - -
Total gains on hedging activities (A) 310,733 432,618
B. Losses on:
B.1 Fair value hedging instruments 83,489 321,906
B.2 Hedged financial assets (fair value) 218,996 39,752
B.3 Hedged financial liabilities (fair value) 11,983 74,779
B.4 Cash-flow hedging derivatives - 78,133
B.5 Assets and liabilities denominated in foreign currency - -
Total losses on hedging activities (B) 314,468 514,570
C. Net profit (loss) from hedging activities (A - B) (3,735) (81,952)
For information on hedging derivatives, the gains and losses on which are indicated in lines A.1 and A.4, B.1 and B.4 of this
table, see Section 8, “Hedging derivatives – Item 80” of the Assets and Section 6, “Hedging derivatives – item 60” of the
Liabilities in Part B of the notes to the financial statements.
More information on hedged assets and liabilities can be found in the tables in Part B of the notes for each section of the
accounts to which hedges are posted.
As at 31 December 2016, this item includes the negative impact of EUR 78.7 mln deriving from the interruption of cash flow
hedges on a subordinated security that will be subject to compulsory conversion into shares of the Bank pursuant to Law
Decree 237 of 23 December 2016, converted with amendments into law no. 15 of 17 February 2017.
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303 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 6 – Gains/(losses) on disposal/repurchase - Item 100
6.1 Gains (losses) on disposal/repurchase: breakdown
Total 31 12 2017 Total 31 12 2016
Items / P&L items Net Profit Net Profit
Gains Losses Gains Losses
(Loss) (Loss)
Financial assets
1. Loans to banks 58 (114) (56) - (204) (204)
2. Loans to customers 17,743 (16,287) 1,456 20,616 (19,411) 1,205
3. Financial assets available for sale 107,567 (31,781) 75,786 117,430 (9,048) 108,382
3.1 Debt securities issued 65,162 (30,810) 34,352 87,439 (7,598) 79,841
3.2 Equity instruments 19,035 (1) 19,034 29,690 (1,406) 28,284
3.3 Units of UCITS 23,370 (970) 22,400 301 (44) 257
3.4 Loans - - - - - -
4. Financial assets held to maturity - - - - - -
Total assets 125,368 (48,182) 77,186 138,046 (28,663) 109,383
Financial liabilities - - - - - -
1. Deposits from banks 94,483 (1,201) 93,282 37,546 - 37,546
2. Deposits from customers 23,311 - 23,311 - - -
3. Debt securities issued 386,629 (2,449) 384,180 16,422 (1,852) 14,570
Total liabilities 504,423 (3,650) 500,773 53,968 (1,852) 52,116
As regards financial liabilities, the amount of EUR 504.4 mln in the “Gains” column is almost entirely associated with profits
from the repurchase of financial liabilities included within the burden sharing transaction.
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Section 7 – Net profit (loss) from financial assets and liabilities designated at fair value
– Item 110
7.1 Net changes in financial assets and liabilities designated at fair value: breakdown
Net Profit Net Profit
Unrealized Realized Unrealized Realized
Transaction/P&L items (loss) as at (loss) as at
profits profits losses losses
31 12 2017 31 12 2016
1. Financial assets - - - - - -
1.1 Debt securities issued - - - - - -
1.2 Equity instruments - - - - - -
1.3 Units of UCITS - - - - - -
1.4 Loans - - - - - -
2. Financial liabilities 30,465 52 - (10,918) 19,599 118,641
2.1 Debt securities issued 30,465 52 - (10,918) 19,599 118,641
2.2. Deposits from banks - - - - - -
2.3. Deposits from customers - - - - - -
3. Financial assets and liabilities X X X X - -
4. Credit and financial derivatives - 18,668 (15,021) (26,604) (22,957) (19,319)
Total 30,465 18,720 (15,021) (37,522) (3,358) 99,322
The item includes solely the profit, loss, capital gains and capital losses from structured fixed-rate bonds included in the fair
value option and derivative contracts through which these bonds receive natural hedging.
Line “2.1 Financial liabilities - Debt securities” includes the capital gains and capital losses deriving from changes in fair value
other than those attributed to changes in the issuer’s creditworthiness, recognised as a balancing entry of net equity following
the partial early adoption of IFRS 9.
2017 ANNUAL REPORT
305 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 8 – Net impairment losses/(reversals) – Item 130
8.1 Net impairment losses (reversals) on loans: breakdown
Value Adjustments Write - backs
Specific Specific Portfolio
Total Total
Portfolio
Transaction/P&L items
Write-off
31 12 2017 31 12 2016
Others
A B A B
A. Loans to banks (9) (1,184) (2,013) 21 107 3 1,342 (1,733) (348)
- Loans (9) (1,184) (2,013) 21 107 3 867 (2,208) (428)
- Debt securities - - - - - - 475 475 80
B. Loans to customers (142,728) (6,667,664) (237,703) 376,949 1,170,178 - 179,014 (5,321,954) (4,466,676)
Non performing loans
- (2,687) - 52 1,205 - - (1,430) (1,679)
purchased
- Loans - (2,687) X 52 1,205 - X (1,430) (1,679)
- Debt securities - - X - - - X - -
Other receivables (142,728) (6,664,977) (237,703) 376,897 1,168,973 - 179,014 (5,320,524) (4,464,997)
- Loans (142,728) (6,664,977) (237,703) 376,897 1,168,965 - 178,869 (5,320,677) (4,464,051)
- Debt securities - - - - 8 - 145 153 (946)
C. Total (142,737) (6,668,848) (239,716) 376,970 1,170,285 3 180,356 (5,323,687) (4,467,024)
Legend
A = From interest
B= Other reversals
In impairment losses, the column “Write-off” shows losses recorded in relation to the derecognition of financial instruments,
whereas the “Others” column includes specific write-downs on non-performing loans subject to analytical valuation. Portfolio
value adjustments are quantified with reference to financial instruments that are not non-performing.
Specific value adjustments also include debt collection costs connected to the long-term servicing agreement entered into with
the Cerved/Quaestio JV for the outsourced management of part of the MPS Group’s doubtful loans (EUR 170 mln).
Column A (specific reversals) incorporates primarily the reversals represented by interest released on non-performing
positions valued at amortised cost.
For further information on loans to banks and customers, see Section 1, “Credit risk”, in Part E of the notes to the financial
statements.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 306
8.2 Net impairment losses (reversals) on financial assets available for sale: breakdown
Value Adjustments Write - backs
Specific Specific
Total Total
Transactions/ P&L items 31 12 2017 31 12 2016
Write-offs
Others
A B
A. Debt securities issued (28) (299) - 27 (300) 339
B. Equity instruments - (61,859) X X (61,859) (26,439)
C. Units of UCITS - (30,924) X 1 (30,923) (15,662)
D. Loans to banks - - - - - -
E. Loans to customers - - - - - -
F. Total (28) (93,082) - 28 (93,082) (41,762)
Legend
A = From interest
B= Other reversals
The column “Others” of the specific value adjustments above, in sub-item “B. Equity instruments”, includes the write-down
of the contribution paid to the Voluntary Scheme, equal to EUR 46.5 mln, while sub-item “C. Units of UCITS” includes the
write-down on units held in the Atlante Fund, equal to a total of EUR 29.8 mln.
8.3 Net impairment losses (reversals) on financial assets held to maturity: breakdown
This table has not been completed since financial assets held to maturity were not present for the
Group in 2017 or in the year of comparison.
8.4 Net impairment losses (reversals) on other financial transactions: breakdown
Value Adjustments Write-backs
Specific
Specific Portfolio
Transactions / Total Total
Portfolio
Write-offs
P&L items 31 12 2017 31 12 2016
Others
A B A B
A. Guarantees issued - (3,894) (1,762) - 11,989 - 15,420 21,753 5,705
B. Credit derivatives - - - - - - - - -
C. Commitments to
- (65,000) (2) - 17 - 15 (64,970) 116
disburse funds
D. Other transactions - - - - - - - - 2,075
E. Total - (68,894) (1,764) - 12,006 - 15,435 (43,217) 7,896
Legend
A = From interest
B= Other reversals
This table shows impairment losses/reversals (against expected loss) on guarantees issued, if drawn down.
Section 9 – Net premiums – Item 150
2017 ANNUAL REPORT
307 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
9.1 Net premiums: breakdown
The section was not completed, as net premiums do not exist in the Group either in the current or in
the previous year.
Section 10 – Other net insurance income/expense – Item 160
The tables of this section were not completed because there is no other net insurance income/expense
in the Group, either in the current or in the previous year.
Section 11 – Administrative expenses – Item 180
11.1 Personnel expenses: breakdown
Total Total
Type of Expense / Area
31 12 2017 31 12 2016
1. Employees (1,847,039) (1,718,113)
a) wages and salaries (1,137,494) (1,157,653)
b) social-welfare charges (308,211) (318,746)
c) severance pay (48,058) (49,268)
d) social security expenses - -
e) provision for staff severance pay (3,964) (5,644)
f) pension fund and similar obligations: (1,394) (768)
- defined contribution (664) (430)
- defined benefit (730) (338)
g) contributions to external pension funds: (19,476) (19,817)
- defined contribution (18,134) (18,603)
- defined benefit (1,342) (1,214)
h) costs related to share-based payments 612 (824)
i) other employee benefits (329,054) (165,393)
2. Other staff (1,407) (44)
3. Directors and Statutory Auditors (4,360) (4,863)
4. Retired personnel (4,355) (4,523)
Total (1,857,161) (1,727,543)
Line f) “pension fund and similar obligations” includes amounts set aside for internal funds, while line g) “contributions to
external pension funds” includes contributions paid and adjustments made to external pension funds.
Line “h) costs deriving from share-based payments”, equal to EUR 0.6 mln in 2017, reflects the reduction in provisions
recognised in the previous year relating to the performance shares assigned to the Group’s “key employees”. In 2016, the
provision was equal to EUR 0.8 mln.
Line “i) other employee benefits” includes the provision recognised for the early retirement incentives/solidarity fund
pursuant to the agreement of 3 August 2017 entered into with the trade unions, for around EUR 281.8 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 308
11.2 Average number of employees by category
Category / Average Number 31 12 2017 31 12 2016
Employees: 23,252 24,557
a) executives 299 335
b) middle managers 9,369 9,929
c) remaining staff 13,584 14,293
Other personnel 1 3
Total 23,253 24,560
11.3 Defined benefit company pension funds: costs and revenues
31 12 2017 31 12 2016
Defined benefit company Provision Defined benefit company Provision
Items/Amounts pension funds pension funds
for staff for staff
severance severance
Internal External pay Internal External pay
pension plan pension plan pension plan pension plan
Interest income/expense (714) (667) (3,954) (338) (673) (5,630)
Current service cost and gains (losses)
(16) (675) (9) - (541) (13)
arising from settlements°
Past service cost - - - - - -
Gains (losses) arising from settlements°° - - - - - -
Other operating costs - - (1) - - (1)
Total (730) (1,342) (3,964) (338) (1,214) (5,644)
° Past service cost and gains and losses arising from settlements need not be distinguished if they occur together (IAS 19.100)
°° Only in the event of settlement not set out in the terms of the plan.
11.4 Other employee benefits
No information to report pursuant to sections 53, 158 and 171 of IAS 19.
2017 ANNUAL REPORT
309 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
11.5 Other administrative expenses: breakdown
Items/Amounts 31 12 2017 31 12 2016
Stamp duties (196,231) (216,327)
Indirect taxes and duties (45,895) (48,743)
Municipal real estate property tax (21,388) (22,350)
Property rentals (79,662) (92,687)
Cleaning service contracts (14,141) (14,741)
Insurance (29,206) (31,750)
Rentals (132,624) (132,702)
Remuneration of external professionals (170,983) (202,593)
Third-party data processing (56,045) (68,369)
Lease of equipment (33,086) (32,846)
Utilities (32,810) (35,732)
Maintenance of movable and immovable properties (used in the business ) (41,735) (39,511)
Postage (24,263) (24,824)
Advertising, sponsorships and promotions (12,491) (16,553)
Membership dues (5,402) (5,535)
Reimbursement of employee car and travel expenses (7,451) (9,571)
Security services (9,330) (11,641)
Software (51,934) (55,175)
expenses for personnel training (3,888) (4,070)
Corporate entertainment expenses (1,886) (3,392)
Expenses for non-rented investment real estate (85) (887)
Printing and stationery (9,094) (8,014)
Telephone, telefax and telegraph (6,461) (5,459)
Transportation (35,198) (33,990)
Sundry occupancy expenses and refunds for release of immovable property
(7,811) (6,676)
used in the business
Contributions Resolution Funds (SRF) and Deposits Guarantee Schemes
(91,923) (241,071)
(DGS)
DTA fee (72,329) (70,396)
Others (32,488) (12,099)
Total (1,225,840) (1,447,704)
Line “Advertising, sponsorships and promotions” for an amount of EUR 12.5 mln includes advertising, events and printing
(EUR 11.0 mln), sponsorships and promotions (EUR 1.2 mln) and other communication expenses (EUR 0.3 mln).
Sub-item “Contributions Resolution Funds (SRF) and Deposits Guarantee Systems (DGS)”, equal to EUR 92 mln, consists
of: EUR 63 mln for charges associated with the SRF and NRF (National Resolution Fund) and EUR 29 mln for contributions
to the DGS. The line “DTA fee” includes the expenses related to the fee paid on DTAs that can be converted into tax credit
as set forth in art. 11 of Law Decree no. 59 of 3 May 2016, converted into Law no. 119 of 30 June 2016.
For a trend analysis of the remaining concerned items, reference should be made to the consolidated Report on Operations.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 310
Section 12 – Net provisions for risks and charges – Item 190
12.1 Net provisions for risks and charges: breakdown
31 12 2017 31 12 2016
Items/Amounts Legal Personnel Legal Personnel
Others Total Others Total
disputes costs disputes costs
Provisions for the year (172,411) (20,425) (162,829) (355,665) (135,721) (9,164) (32,354) (177,239)
Write-backs 91,199 5,492 26,090 122,781 125,633 14,548 81,486 221,667
Total (81,212) (14,933) (136,739) (232,884) (10,088) 5,384 49,132 44,428
“Provisions for the year” include changes due to the time value of money, which show the amount of “time value” accrued
during the year due to the expected imminent maturity of the estimated liability.
Section 13 – Net adjustments to/recoveries on property, plant and equipment – Item
200
13.1 Net losses (reversals) on property, plant and equipment: breakdown
Net Profit Net Profit
Impairment
\ Amortization Write-backs (loss) (loss)
losses
31 12 2017 31 12 2016
A. Tangible assets
A.1 Owned (109,734) (16,625) - (126,359) (111,822)
- used in the business (102,274) (5,161) - (107,435) (101,964)
- held for investment (7,460) (11,464) - (18,924) (9,858)
A.2 Leased (6,776) - - (6,776) -
- used in the business (6,776) - - (6,776) -
- held for investment - - - - -
Total (116,510) (16,625) - (133,135) (111,822)
Property and equipment with a finite life is tested for impairment.
Section 14 – Net adjustments to /(recoveries on) intangible assets – Item 210
14.1 Net adjustments to intangible assets: breakdown
Net profit
Net profit
Impairment (loss)
Amortization Write-backs (loss)
Assets/P&L items losses (a+b-c)
(a) (c)
(b)
31 12 2017 31 12 2016
A. Intangible assets
A.1 Owned (131,257) (24,873) - (156,130) (134,630)
- generated internally by the company (28,964) (4,473) - (33,437) (28,101)
- other (102,293) (20,400) - (122,693) (106,529)
A.2 Leased - - - - -
Total (131,257) (24,873) - (156,130) (134,630)
Amortisation mainly relates to software held by the MPS Consorzio Operativo di Gruppo and finite life intangible assets
identified during the PPA process for former subsidiary Banca Antonveneta.
2017 ANNUAL REPORT
311 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 15 – Other operating expenses/income – Item 220
15.1 Other operating expenses: breakdown
Total Total
Items/Amounts
31 12 2017 31 12 2016
Costs of robberies (2,645) (5,258)
Write-downs on improvements of third-party goods recognized as "Other
(10,852) (9,198)
Assets"
Other expenses on real estate (real estate inventory) (3,311) (10,283)
Cost of financial lease transactions (10,528) (8,796)
Costs from judgments and settlement agreements (49,892) (76,220)
Other (40,365) (46,960)
Total (117,593) (156,715)
15.2 Other operating income: breakdown
Total Total
Items/Amounts
31 12 2017 31 12 2016
Rents from investment real estate 15,685 23,291
Other revenues from real estate (real estate inventory) 2,001 4,655
Recovery of taxes 209,474 223,754
Recovery of insurance premiums 17,820 18,466
Recovery of other expenses 103,231 117,926
Income from financial lease transaction 3,050 2,590
Other 78,211 94,568
Total 429,472 485,250
The amount of EUR 103.2 mln classified under “Recoveries of other expenses” includes the “fast-track facility fee”
introduced by Law Decree 201/2011 (“Save Italy Decree”) amounting to EUR 20.8 mln (EUR 33.9 mln as at 31 December
2016) and the compensation of legal fees incurred for the enforced recovery of non-performing loans of EUR 51.9 mln (EUR
47.8 mln as at 31 December 2016).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 312
Section 16 – Gains (losses) on investments – Item 240
16.1 Gains (losses) on investments: breakdown
Total Total
P&L items/Sectors
31 12 2017 31 12 2016
1) Jointly owned companies
A. Income 6 25
1. Revaluations 6 25
2. Gains on disposal - -
3. Write-backs - -
4. Other income - -
B. Expense (1,086) (1,577)
1. Write-downs (1,086) (1,577)
2. Impairment losses - -
3. Losses on disposal - -
4. Other expenses - -
Net Profit (Loss) (1,080) (1,552)
2) Companies subject to significant influence
A. Income 106,905 87,146
1. Revaluations 101,088 79,318
2. Gains on disposal 5,817 7,828
3. Write-backs - -
4. Other income - -
B. Expense (27,921) (6,141)
1. Write-downs (591) (4,497)
2. Impairment losses (27,330) (1,644)
3. Losses on disposal - -
4. Other expenses - -
Net Profit (Loss) 78,984 81,005
Total 77,904 79,453
The amount of EUR 5.8 mln shown in line “2.A.2 Gains on disposal” consists entirely of the gain from the sale of
Intermonte SIM S.p.A., realised in the final quarter of 2017.
The negative amount of EUR 27.3 mln reported on line “2.B.2 Impairment losses” refers to the write-down of the associates
Fidi Toscana S.p.a., Interporto Toscano A.Vespucci S.p.a. and Trixia S.r.l.
For further information on the methodology for determining impairment losses, please see section 10.5, part B, of these notes
to the consolidated financial statements.
2017 ANNUAL REPORT
313 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
Section 17 – Net gains (losses) on tangible and intangible assets measured at fair value
– Item 250
17.1 Net gains (losses) on tangible and intangible assets measured at fair value (or
revalued): breakdown
The section was not completed as tangible and intangible assets measured at fair value do not exist in
the Group either in the current or in the previous period.
Section 18 – Impairment of goodwill – Item 260
18.1 Impairment of goodwill: breakdown
Owing to its indefinite or unlimited useful life, goodwill is tested at the end of each year to assess
whether its carrying value is fairly stated or recoverable. The impairment test conducted in 2017 did
not result in any impairment losses on goodwill allocated to the Financial Advisory and Digital
Banking CGU (Cash Generating Unit), as the recoverable amount is higher than the book value by
EUR 208 mln.
For additional information concerning the methods for conducting impairment tests, see the
appropriate section in Part B of the Notes to the Financial Statements, Section 12.1 of Assets
“Intangible Assets: breakdown by type”.
Section 19 – Gains (losses) on disposal of investments – Item 270
19.1 Gains (losses) on disposals of investments: breakdown
Total Total
P&L items/Sectors
31 12 2017 31 12 2016
A. Property 8,966 34,678
- Gains on disposal 9,489 34,738
- Losses on disposal (523) (60)
B. Other assets 522,215 (1,483)
- Gains on disposal 523,592 -
- Losses on disposal (1,377) (1,483)
Net Profit (Loss) 531,181 33,195
Please note that amongst gains on disposals, sub-item “A. Property” includes the capital gain of EUR 9 mln realised on the disposal of a
property of the investee MPS BELGIO.
The amount of sub-item “B. Other assets - Gains on disposal” relates to the capital gain connected to the disposal of the merchant acquiring
business unit to CartaSi.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 314
Section 20 – Tax (expense)/recovery on income from continuing operations – Item
290
20.1 Tax (expense)/recovery on income from continuing operations: breakdown
Total
P&L items/Sectors
31 12 2017 31 12 2016
1. Current tax (-) (5,192) (11,073)
2. Adjustments to current tax of prior years (+/-) (15,896) 8,533
3. Reduction of current tax for the year (+) - -
3.bis Reduction in current tax for the period due to tax credits
1,052,859 -
under Law 214/2011
4. Changes in prepaid taxes (+/-) (350,669) 37,820
5. Changes in deferred taxes (+/-) 41,050 (40,467)
6. Tax expense for the year (-) (-1+/-2 +3+/-4+/-5) 722,152 (5,187)
2017 ANNUAL REPORT
315 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
20.2 Reconciliation of theoretical to actual tax charge
Items/Amounts 31 12 2017 % 31 12 2016 %
Pre-tax profit (loss) from continuing operations (4,224,397) (3,226,185)
Theoretical IRES payable 1,161,709 27.5% 887,201 27.5%
Permanent increases (24,669) 0.6% (24,361) 0.6%
Non-deductible interest expense - 0.0% (16,037) 0.4%
Losses on sale of AFS equity investments (3,615) 0.1% (2,800) 0.1%
Non-deductible administrative expenses (Municipal real estate
(21,054) 0.5% (5,524) 0.1%
property tax, vehicles, telephone, etc.)
Impairment of goodwill - 0.0% - 0.0%
Permantent decreases 214,907 -5.1% 93,744 -2.2%
Gains on sales of AFS equity investments 5,195 -0.1% 7,404 -0.2%
Gains on disposal of subsidiaries and associates 2,512 -0.1% 2,623 -0.1%
Capital gains due to conversion of debt instruments into shares, not
155,919 -3.7% - 0.0%
relevant (Art.22 paragraph 2-bis DL237/2016)
Deduction ACE 51,281 -1.2% 83,717 -2.0%
Reversal of theoretical tax charge on profits / net losses of equity
30,638 -0.7% 22,123 -0.5%
investments in associates (valued at equity method)
DTA write-downs related to prior tax losses 572,270 -13.5% (251,610) 6.0%
Effetct due to non-registration of DTA on tax loss of current year (1,239,213) 29.3% (817,059) 19.3%
Adjustments previos year tax - 0.0% 112,593 -2.7%
Other components (IRES relative to previous years, spreads between
16,268 -0.4% (47,471) 1.1%
Italian and foreign tax rate, etc.)
Effectiove IRES payable 731,910 -17.3% (24,840) 0.6%
Theoretical IRAP payable 196,434 -4.6% 150,018 -3.6%
Economic items not relevant for IRAP purposes 25,245 -0.6% (12,051) 0.3%
Non-deductible interest expense (173) 0.0% (7,795) 0.2%
Value adjustments and credit losses (6,040) 0.1% 663 0.0%
Non-deductible costs of pernsonnel (606) 0.0% (701) 0.0%
Profit (loss) on subsidiaries ad associates 2,112 0.0% 780 0.0%
Other non-deductible administrative expenses (10%) (7,071) 0.2% (8,062) 0.2%
Amortization non-deductible (10%) (417) 0.0% (359) 0.0%
Capital gains due to conversion of debt instruments into shares, not
26,364 -0.6% - 0.0%
relevant (Art.22 paragraph 2-bis DL237/2016)
Other P&L items not relevant 11,076 -0.3% 3,423 -0.1%
Value adjustments and credit losses - 0.0% 397 0.0%
Increase Regional rates effects 43,048 -1.0% 28,600 -0.7%
Charges from not recognised tax loss carryforward IRAP (273,979) 6.5% (174,916) 4.1%
Adjustmtes previous years tax - 0.0% 20,391 -0.5%
Other components (IRAP relative to previous years, spreads between
(506) 0.0% 7,214 -0.2%
italian and foreign tax rate, etc.)
Effective IRAP payable (9,758) 0.2% 19,653 -0.5%
Total effective IRES and IRAP tax expense 722,152 -17.1% (5,187) 0.1%
The reconciliation relating to IRES includes, aside from the main tax at the rate of 24%, also the additional tax of 3.5% introduced
by Law no. 208 of 28 December 2015, paragraphs 65-66.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 316
Section 21 – Profit (loss) after tax from assets held for sale and discontinued operations
– Item 310
The tables in this section are not presented as there were no profits or losses from discontinued
operations in 2017.
Section 22 – Profit (loss) attributable to non-controlling interests – Item 330
22.1 Details of item 330 “Profit (loss) attributable to non-controlling interests”
Total Total
31 12 2017 31 12 2016
Consolidated equity investments with significant non-controlling interests - -
Other equity investments 94 9,738
Total 94 9,738
Section 23 – Other information
No additional disclosure to that presented in accordance with the international accounting standards
and Circular letter no. 262 of the Bank of Italy is required.
Section 24 – Earnings per Share (EPS)
24.1 Average number of diluted ordinary shares
(n. Shares)
Items/Amounts
31 12 2017 31 12 2016
Weighted average number of ordinary shares outstanding (+) 479,806,673 29,319,322
Dilutive effect from put options sold (+) - -
Dilutive effect from ordinary shares to be assigned as a result of treasury share-
- -
based payments (+)
Dilutive effect from convertible liabilities (+) - -
Dilutive effect from convertible liabilities (+) - -
Weighted average number of ordinary shares outstanding by diluted earnings
479,806,673 29,319,322
per share
The earnings per base share is calculated by dividing the Parent Company’s overall net result by the weighted average
of ordinary shares issued, or net of the average number of treasury shares.
2017 ANNUAL REPORT
317 Notes to the consolidated financial statements - Part C - Information on the consolidated income statement
24.2 Other information
24.2a Reconciliation of net profit (loss) for the year - numerator for basic earnings per
share
31 12 2017 31 12 2016
Relating to Relating to Relating to Relating to
continuing discontinued continuing discontinued
Total Total
Item/Amount operations operations operations operations
pertaining to pertaining to
and and and and
the Parent the Parent
pertaining to pertaining to pertaining to pertaining to
Company Company
the Parent the Parent the Parent the Parent
Company Company Company Company
Net Profit (Loss) (3,502,339) - (3,502,339) (3,241,110) - (3,241,110)
Profit (loss) attributable to other types
- - - - - -
of shares
Net profit (loss) attributable to
ordinary shares - numerator for basic (3,502,339) - (3,502,339) (3,241,110) - (3,241,110)
earnings per share
24.2.b Reconciliation of net profit (loss) for the year - numerator for diluted earnings per
share
31 12 2017 31 12 2016
Relating to Relating to Relating to
Relating to
continuing continuing discontinued
discontinued Total Total
Item/Amount operations operations operations
operations and pertaining to pertaining to
and and and
pertaining to the Parent the Parent
pertaining to pertaining to pertaining to
the Parent Company Company
the Parent the Parent the Parent
Company
Company Company Company
Net Profit (Loss) (3,502,339) - (3,502,339) (3,241,110) - (3,241,110)
Dilutive effect from convertible
- - - - - -
liabilities
Net profit (loss) attributable to
ordinary shares - numerator for (3,502,339) - (3,502,339) (3,241,110) - (3,241,110)
diluted earnings per share
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part C - Information on the consolidated income statement 318
24.2.c Basic and diluted earnings per share
(in units of Eur)
31 12 2017 31 12 2016
Relating to Relating to Relating to Relating to
continuing discontinued continuing discontinued
Total Total
Item/Amount operations operations operations operations
pertaining to pertaining to
and and and and
the Parent the Parent
pertaining to pertaining to pertaining to pertaining to
Company Company
the Parent the Parent the Parent the Parent
Company Company Company Company
Basic Earnings per Share (7.299) - (7.299) (110.545) - (110.545)
Diluted Earnings per Share (7.299) - (7.299) (110.545) - (110.545)
As at 31 December 2017, basic and diluted earnings per share was influenced by the significant change in the value of the
ratio denominator compared to the previous year, i.e., the average number of ordinary shares outstanding. As at 31 December
2017, this number was impacted by the effects of the share capital increase completed by Banca Monte dei Paschi di Siena in
August 2017, which resulted in the issue of 1,110,969,274 new shares (see Section 15 of the liabilities, Part B).
2017 ANNUAL REPORT
319
Part D – Consolidated statement of comprehensive income
BANCA MONTE DEI PASCHI DI SIENA
320
2017 ANNUAL REPORT
321 Notes to the consolidated financial statements - Part D – Consolidated statement of comprehensive income
Consolidated Statement of Comprehensive Income
31 12 2017
Items Gross Income Tax Net
10. Proft (loss) for the year X X (3,502,245)
Other income components without reversal to profit & loss
20. Tangible assets - - -
30. Intangible assets - - -
40. Actuarial defined benefit plans 4,839 (1,173) 3,666
50. Non-current assets held for sale 83 - 83
60. Share of valuation reserves of equity-accounted investments 328 (101) 227
65 Financial liabilities measured at fair value with impact to profit and loss (177,430) 58,286 (119,144)
Other income components with reversal to profit & loss
70. Hedges of foreign investments: - - -
a) changes in fair value - - -
b) reversal to profit & loss - - -
c) other changes - - -
80. Exchange differences: (9,056) 3,013 (6,043)
a) changes in value (9,172) 3,013 (6,159)
b) reversal to profit & loss - - -
c) other changes 116 - 116
90. Cash flow hedges: 41,620 (15,455) 26,165
a) changes in fair value (6,312) 291 (6,021)
b) reversal to profit & loss 44,360 (14,572) 29,788
c) other changes 3,572 (1,174) 2,398
100. Financial assets available for sale: 35,217 (10,771) 24,446
a) changes in fair value 18,290 (25,375) (7,085)
b) reversal to profit & loss 12,412 16,020 28,432
- impairment provisions 61,940 39 61,979
- realised net gains/losses (49,528) 15,981 (33,547)
c) other changes 4,515 (1,416) 3,099
110. Non-current assets held for sale: (16,360) 930 (15,430)
a) changes in value 112 (8) 104
b) reversal to profit & loss (16,472) 938 (15,534)
c) other changes - - -
120. Share of valuation reserves of equity-accounted investments: (83,488) 25,888 (57,600)
a) changes in fair value (83,488) 25,888 (57,600)
b) reversal to profit & loss - - -
- impairment provisions - - -
- realised net gains/losses - - -
c) other changes - - -
130. Other income components (204,247) 60,617 (143,630)
140. Total comprehensive income (Item 10 + 130) (204,247) 60,617 (3,645,875)
Consolidated comprehensive income attributable to non-controlling
150. 98 (4) 94
interests
160. Consolidated comprehensive income attributable to Parent Company X X (3,645,969)
BANCA MONTE DEI PASCHI DI SIENA
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2017 ANNUAL REPORT
323
Part E – Information on risks and hedging policies
Section 1 – Risks of the banking group ...................................................................................................................................................... 331
1.1 – Banking group - Credit risk ................................................................................................................................................................. 331
1.2 – Banking Group - Market risk .............................................................................................................................................................. 384
1.3 –Banking Group - Liquidity risk ............................................................................................................................................................ 421
1.4 – Banking Group - Operational risk ..................................................................................................................................................... 430
Note: Public Disclosure (Basel III Pillar) is published on the Group's website:
https://www.gruppomps.it/investor-relations.
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2017 ANNUAL REPORT
325 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Foreword
A summary of the organisation of the Group's risk governance and the related processes and key
functions is described below. An estimate of the Overall Internal Capital and a description of the
relative assessment models are also provided.
For more detailed information on the bank's Risk Governance and risk culture, please refer to the
Consolidated Report on Operations.
Risk governance system
The risk governance system adopted by the Group is characterised by a clear-cut distinction of roles
and responsibilities of the different functions at first, second and third level of control.
Policies relating to the assumption, management, coverage, monitoring and control of risks are defined
by the statutory bodies of the Parent Company. In particular:
The Parent Company’s Board of Directors defines and approves strategic guidelines and risk
management policies and, at least once a year, quantitatively expresses the Group’s overall risk
appetite in terms of economic capital;
The Board of Statutory Auditors and the Risk Committee evaluate the level of efficiency and
adequacy of the internal control system, with particular regard to risk control;
The CEO/General Management is responsible for ensuring compliance with risk policies and
procedures;
The Director in charge of the internal control and risk management system, appointed in
compliance with the Corporate Governance Code for listed companies, is responsible for creating
and maintaining an effective system of internal control and risk management.
Specific Management Committees responsible for risk issues have been established in order to
promote efficiency and flexibility in the decision-making process and facilitate interactions between the
various company functions involved:
The Risk Management Committee establishes Risk Management policies, evaluates the Group’s
risk appetite in accordance with annual and long-term Group value creation targets and ensures
and monitors overall compliance with the limits defined for the various operating levels; proposes
the allocation of capital to be submitted to the Board of Directors for approval; evaluates the risk
profile reached and therefore the capital consumption at both Group level and for each individual
company of the Group; analyses risk-return performance indicators;
The Finance and Liquidity Committee formulates the principles and strategic guidelines relating to
proprietary finance; it resolves upon and submits proposals regarding exposures to interest rate and
liquidity risk in the banking book and defines capital management actions;
The Credit and Credit Policies Committee formulates policies in relation to credit processes and
formulates an opinion, at least once per year, on credit policies by verifying their commercial
sustainability and consistency with risk appetite levels. It also approves, at least annually, company
policies pertaining to ‘credit assessment’. Based on the authorities assigned to it, it is also
responsible for taking decisions with respect to lending and the management of problem
receivables and assets.
As part of the Internal Control System, the Chief Audit Executive Division conducts third-level
controls, the Chief Risk Officer Division and the Compliance Area carry out second-level controls and
the Business Control Units (BCUs) carry out first-level controls.
The Chief Audit Executive Division performs an independent and objective “assurance” and advising
activity, aimed both at monitoring operations compliance and risk trends (including through on-site
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 326
audits) as well as assessing the efficiency of the overall internal control system in order to improve the
effectiveness and efficiency of the organisation. It also acts as Internal Secondary Supervisor with a
view to focusing on the main characteristics of the prudential supervision process adopted by the
European Supervisory Authority and on the orientations/priorities outlined by the latter over time so
as to evaluate the Group’s positioning with respect to the expectations of the Single Supervisor.
The Chief Risk Officer Division, which reports directly to the Board of Directors and functionally
reports to the CEO, includes a risk management function, the anti-money laundering function and the
internal approval function. This Division therefore has the following tasks:
o to guarantee the overall functioning of the risk management system;
o to verify capital adequacy based on the ICAAP and liquidity adequacy based on the
ILAAP;
o to participate in the definition and control of the Risk Appetite Framework (RAF), as well
as ensure that significant transactions are consistent with the RAF;
o to define strategic policies for the loan portfolio;
o to perform the anti-money laundering duties envisaged by Law and the internal validation
of risk management models;
o to ensure the necessary reporting flows to the Group’s Top Management and Governance
bodies;
o to guarantee proper and adequate control activities for the Group Companies that have
outsourced the analogous corporate function.
Specifically, within the Chief Risk Officer Division, the risk control function structures are:
o the Financial Risk Officer Area. It defines the integrated methods of risk
measurement/analysis and ensures they are constantly monitored, verifying their
consistency with the risk appetite and compliance with the thresholds defined in terms of
adequacy with respect to capital and liquidity reserves, participating in the definition of
any mitigating actions required. It participates in the preparation, drafting and monitoring
of the Recovery Plan. It governs the development of the proprietary financial risk
measurement and control system in line with internal and regulatory principles. It
guarantees management risk reporting for the Corporate Bodies and the Top
Management.
o the Lending Risk Officer Area. It governs the evolution of the credit risk measurement
system, in line with internal and regulatory principles, in terms of statistical models as well
as analytical and process assessments, overseeing the credit risk assessment from portfolio
quality to the single name level. It conducts second-level controls on the Group’s credit
exposures.
o the Operating Risk Officer Area. It governs the evolution of the risk measurement and
control system correlated with the operational application of the Group’s business model
(including operational, reputational, business model and customer portfolio risks).
The Compliance Area performs the function of control of compliance with regulations for the Parent
Company. The function is directly responsible for managing risks relating to the violation of the most
significant rules in bank-customer relations and it periodically reports to the company’s top
management and supervisory authorities regarding the overall state of compliance of the Bank’s
systems and operations. In compliance with the supervisory provisions, the Compliance function
reports directly to the CEO.
The outlying BCUs operating within the subsidiaries or main business areas, carry out compliance
checks on the transactions which they are responsible for and are the first level of organisational
supervision of transactions within the broader internal control system.
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327 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
In compliance with the requirements of autonomy and independence of each participating function,
there is also a Function Coordination Committee in place with control responsibilities. The Committee
promotes and shares operational and methodological aspects to identify possible synergies in control
activities carried out by second and third-level Functions, coordinate methods and timing for planning
and reporting to the Corporate Bodies and project initiatives connected with the Internal Control
System, and share areas for improvement identified by all Functions with control responsibilities as
well as the Supervisory Authorities.
The Staff Regulatory Relationship, reporting directly to the CEO, was established for centralised
oversight of management of relationships and assessments by the Supervisory Authorities,
coordinating and monitoring planning of the commitments made and the main directions of evolution
in the European regulatory environment.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 328
Requirements of autonomy and independence of the Risk Division
The Chief Risk Officer (CRO) is the head of the Parent Company’s Risk Control Division.
The Division’s autonomy and independence are ensured as it reports directly to the Corporate Body
with strategic supervisory functions (the Board of Directors) and only functionally to the Management
Body (CEO/GM). It has direct access to the Body with control functions (Board of Statutory
Auditors) and may communicate continuously with no restriction or intermediation. The CRO is also
entitled at his or her discretion to participate in Risk Committee meetings to intervene or propose
discussions on specific topics.
In particular, the Board of Directors appoints and removes the Chief Risk Officer, upon proposal by
the Risk Committee, with the assistance of the Appointments Committee, having consulted the Board
of Statutory Auditors.
The remuneration of the Parent Company’s Chief Risk Officer is determined and approved by the
Board of Directors upon proposal by the Remuneration Committee, having heard the opinion of the
Risk Committee.
Activities relating to the international Regulatory framework
Pillar 1: since 2008, the Group has used internal models validated by the Bank of Italy for the
measurement and management of credit risk (AIRB - Advanced Internal Rating Based) and operational
risk (AMA - Advanced Measurement Approach). Over time, and in collaboration with the Supervisory
Authorities, these models have been further enhanced and their scope of application extended to
Group entities not originally included in the initial validation scope.
Pillar 2: efforts to ensure compliance with the Supervisory Review and Evaluation Process (SREP)
framework and to further improve the Group’s Internal Capital Adequacy Assessment Processes
(ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) continued during the year,
with the mandatory reporting provided to Supervisors. In 2017, the Risk Appetite Framework (RAF),
the overall internal reference framework for the determination of the Group’s risk appetite, was further
developed. In addition, the Group engaged in several improvement projects on the system for the
management of the various risks.
Pillar 3: public disclosure is provided on a quarterly basis through the Group’s internet site
www.mps.it/investors and is continuously updated in accordance with regulatory developments.
2017 ANNUAL REPORT
329 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
An analysis of the Group’s Internal Capital
The Overall Internal Capital (or Overall Absorbed Capital) is the minimum amount of capital
resources required to cover economic losses resulting from unforeseen events caused by the
simultaneous exposure to different types of risk.
The main types of risks incurred by the Group in its day-to-day operations can be summarily described
as follows:
Credit risk;
Market risk;
Operational risk;
Banking book interest rate risk;
Counterparty risk;
Real estate risk;
Issuer risk;
Concentration risk;
Equity investment portfolio risk;
Business/Strategic risk;
Liquidity risk;
Reputational risk.
All of the types of risk mentioned above are involved in quantifying the Overall Internal Capital, with
the exception of liquidity and reputational risk that, instead, are mitigated through organisational
policies and processes.
Risks inherent in investment products/services for the Group’s customers are also monitored, to
protect the customer and preventing any potential repercussions in terms of reputation.
Risk assessment models
The Risk Management Area regularly quantifies the Group’s Internal Capital for each type of risk and
periodically reports these to the Risk Management Committee and to the Governing Bodies as part of
the reporting flows prepared by the Chief Risk Officer Division.
The approach used to quantify and supplement the risks-to-capital with regard to which the Group is
exposed is known in the literature as Pillar 1 Plus. This approach envisages that the Pillar 1
requirements for Credit and Counterparty Risk, which already include those relating to Issuer Risk on
the Banking Book, Equity Investment Risk, Real Estate Risk and Operational Risk, be increased by the
requirements from internal models relating to Market Risks, both Trading Book and Banking Book,
Banking Book Interest Rate Risk (Financial Risks), Concentration Risk and Business/Strategic Risk.
Overall Internal Capital is calculated without considering inter-risk diversification, therefore by directly
adding together the internal capital contributions of the individual risks (Building Block). This
approach aims to incorporate the indications in the SREP (Supervisory Review and Evaluation
Process) Guidelines published by the EBA.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 330
The Group also manages and quantifies liquidity risk on an ongoing basis (risk-to-liquidity, as defined
in the SREP Guidelines) through internal organisational methodologies and policies.
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331 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Section 1 – Risks of the banking group
1.1 – Banking group - Credit risk
Qualitative Information
1.1.1 General aspects
Within the guidelines approved by the Parent Company’s Board of Directors, and in line with the
evolution of the supervisory regulatory framework, the Group pursues the primary objective of
improving the quality of the managed loan book and consequently reducing the cost of credit.
The Group's credit activity is managed with a view to monitoring risk and enhancing growth
opportunities, through the development of credit policies and systems aimed at making the most of
trend data in connection with individual borrowers, against a background of in-depth knowledge and
strategic management of positions.
1.1.2 Credit risk management policies
Organisational aspects
As its distinctive mission, the Chief Lending Officer Division performs activities of credit risk taking
and operational monitoring of credit quality, giving guidance and support to the network in credit
activities, monitoring trends in the cost of credit and the direct management of impaired loans,
including financial restructuring transactions.
The Chief Lending Officer Division includes the Performing Loan Division, focused on the
management of performing exposures, non-performing past due exposures and unlikely to pay
positions within the sales network, and the Non-Performing Network Division, responsible for the
management of exposures that have been or are currently being restructured, higher risk unlikely to
pay loans and doubtful loans under the responsibility of specialised head office units.
The Performing Loans Division includes:
the Loan Disbursement Area which, relying on its constituent units dedicated to Market
Disbursement and Corporate Specialised Disbursement, is responsible for generating a flow of
loans consistent with credit policies and proceeding with the appropriate reclassifications,
while guaranteeing efficiency by reducing response times;
the High Risk Area which monitors default detection and impairment indicators in order to
enact the reclassification process accordingly through the High Risk Resolutions function and
manage credit problems through the Credit Process Quality function.
The Non-Performing Loan Division, on the other hand, is responsible for impaired loans. This
Division consists of three Areas:
the Restructured Loans and Problem Assets Area, which works on managing problematic
loans that require the implementation of restructuring actions, by directly managing the
Group’s restructured loans and those undergoing restructuring, including those for lower
amounts;
the Distressed Credit Risk Area which, through the Mid Ticket service which heads up the
Distressed Credit Risk and the newly established Big Ticket Service Departmental Sectors,
properly manages positions classified as unlikely to pay with “distressed credit risk” with a
view to maximising the reduction of the stock under management from the perspective of
costs and timing;
the Debt Collection Area which, through its Departmental Sectors, pursues the mission of
protecting credit claims from counterparties in doubtful status for judicial and out-of-court
collection purposes. In the course of 2017, the Area successfully completed a large-scale
deleveraging of doubtful loans without recourse through a securitisation vehicle; in terms of
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 332
debt collection, an ad hoc platform was also created for the management of the majority of
the doubtful loans on behalf of the Group, in order to raise the level of efficiency and cost-
effectiveness of collection activities; the platform will begin operating in the early months of
2018 and will also be disposed of in the course of 2018.
Furthermore, the Non-Performing Loans Division includes two additional structures:
the Specialised Support and Non-Performing Loan Quality Service, which plays an advisory
and support role for more complex positions, conducts monitoring, reporting and controls on
non-performing loans and sets up structured credit asset derecognition transactions;
the Bulk Problem Loan Management Service specialised in small ticket debt collection
activities and in the management of positions in arrears by relying on affiliated external debt
collection companies.
The Chief Lending Officer also relies on another two functions reporting directly to him:
the Credit Portfolio Governance Area which oversees the lending information base on a
unitary basis and outlines credit policies, defines lending operational and management
strategies and sets up extraordinary deleveraging transactions; the Function also carries out
support/operations activities such as accounts payable, document management, operational
requirements on transferred loans and the management of collateralisable bank assets;
the Credit Control Unit Service, the function responsible for supporting the CLO in
monitoring, supervision and management reporting activities, on KPIs as well as KRIs, in
addition to overseeing the analytical write-down calculation process, acting as an interface
between the CLO Division and the various control functions inside and outside the Group.
Management, measurement and control systems
Starting in 2008, statistical models aimed at creating the Internal Rating Model and rating assignment
processes were authorised by the Supervisory Authority for the calculation of capital requirements
using the Advanced IRB approach (AIRB).
The prudential regulation requires the Group to adopt the following credit risk measures needed to
calculate regulatory capital (AIRB approach): Probability of Default (PD), Loss Given Default (LGD),
and Exposure At Default (EAD). The “Probability of Default”, which is a reflection of the borrower’s
rating, represents its ability to meet obligations assumed over a time horizon of one year. Thus, a rating
is a probability-based approach to risk assessment, and represents a projection of portfolio quality that
forms a part of daily processes of credit facility assessment, loan management and pricing, as well as of
the procedures used to determine loan loss provisions and reports used by management.
The statutory adoption of risk criteria has made it possible for the Group to obtain significant
operational advantages, both in terms of a higher accuracy in credit budgeting forecasts and in terms of
a more effective monitoring of credit aggregates. Based on the risk criteria, the Group sets the process
for the yearly budgeting of credit items and makes accurate and sustainable forecasts in relation to the
loan book, unlikely to pay and doubtful loan flows and loan-loss provisions.
Forecast sustainability is ensured by the definition of concrete loan book actions which are
communicated to the outlying networks through an internal regulatory document as well as by
amending the credit disbursement and management processes and criteria.
All credit processes use the borrower rating as a decision-making driver, and they are conceived as a
function of the specific nature of various customer segments in order to optimise the use of resources
employed in loan management/monitoring and to achieve the right balance between the push for sales
and an effective loan management system. The internal rating system, which affects the Corporate and
Retail portfolios, is based on the development of several statistical models specialised by customer type
with the aim of assigning a solvency rating for prospective borrowers (first-time lending models based
2017 ANNUAL REPORT
333 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
on financial and demographic information taken from outside databases) and for existing borrowers
(for which behavioural models have also been used, which incorporate internal performance data).
In order to increase efficiency levels in managing internal ratings, the locally situated Internal Rating
Agencies have become the single point of reference for all units on rating issues. The role of the Rating
Agencies allows for a closer interaction with the Network to make assistance more effective, generate
more synergies and enable a more efficient transfer of knowledge.
Credit risk is analysed in-house for management purposes using the Credit Portfolio Model, which
was developed internally by the Parent Company and produces detailed outputs in the form of
traditional risk measures such as Expected Loss, Unexpected Loss, both management (intra-risk
diversified with a representative period of one year and a confidence interval calibrated to the target
rating assigned to the Group) and regulatory. Several inputs are considered: probability of default (PD),
obtained through validated and non-validated models, LGD rates (management and regulatory),
number and types of guarantees supporting the individual credit facilities, regulatory and management
CCF on the basis of which the regulatory and management EAD are estimated respectively.
The internal PD, LGD and EAD models for risk measurement are one of the main elements of
assessment for all Group units involved in the credit industry, both at Head Office level (Risk
Management, Credit Division, Chief Financial Officer, General Management, Risk Committee, Board
of Directors) and at branch level (Rating agencies and Relationship Managers). The Group is currently
authorised to use the Advanced Internal Rating Based (AIRB) models to determine capital
requirements against credit risk on the portfolios of “exposures to businesses” and “retail exposures”
of Banca Monte dei Paschi di Siena, MPS Capital Services and MPS Leasing & Factoring, and is
awaiting validation of the EAD parameter and roll-out of the domestic NBFI portfolio for these
counterparties.
The development of the internal rating systems involved the adoption of strict and advanced statistical
methodologies in compliance with the requirements set out in the regulations; at the same time,
models were selected in such a way as to make results consistent with the historical experience of the
bank in credit management. Lastly, in order to optimise the proper use of these new instruments, the
rating models were shared with a top-down approach – from Risk Management down to individual
client managers. Estimation of the LGD model was based on internal data relative to capital flows,
recoveries and expenses actually incurred on positions transferred to the doubtful loans portfolio.
Results obtained from model application were then compared with data recorded by the Debt
Collection Area which is dedicated to the management and recovery of non-performing loans.
The main characteristics of the advanced rating systems are as follows:
for all validated regulatory portfolios, the rating is calculated with a counterparty-based
approach for each individual borrower, in line with the accepted management practice which
provides for the assessment of credit risk, both in the disbursement and monitoring phases;
each individual counterparty is assigned a single rating at banking Group level, based on the
set of information pertaining to all lending banks within the AIRB scope; the LGD is different
for each company given the diversity of products issued and the type of customers to whom
they are offered;
the rating model segmentation is defined in such a way as to make the individual model
clusters consistent with commercial objectives, credit processes and regulatory portfolios set
out in the regulations;
the calculation of the final rating is differentiated by type of counterparty. The credit process
envisages a level of in-depth analysis proportional to counterparty risk: the assessment of loan
disbursements is based on a complex multi-level structure for medium-large corporate
counterparties, whose exposure and concentration risks are higher, and a simplified structure
for Small Business and Retail clients;
in line with this process, the final rating for medium-large corporations is the result of a
number of different factors: statistical rating, qualitative rating, overrides and valuation of the
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 334
‘economic group’ which businesses belong to; for Small Business and Retail counterparties the
rating is calculated only on the basis of statistical factors;
the rating has a 12-month internal validity period and is usually reviewed on a yearly basis,
except for rating reviews following well-structured codified practices or that are brought
forward on client managers’ request or following serious counterparty deterioration;
LGD reflects the economic (and not only the accounting) loss incurred; for this reason, LGD
estimates must also include the costs incurred for the recovery process and a time factor;
loss given default is differentiated by type of loans and a LGD value is assigned at the level of
each individual transaction; it is differentiated by geographical area since historical and current
recovery rates are different among Northern Italy, Central and Southern Italy and Islands;
loss on defaulted positions other than doubtful loans is estimated with a Cure Rate approach.
With regard to counterparties whose exposures are administratively classified as unlikely to pay
and non-performing past due, the percentage of exposures reverting back to a performing
status was calculated and used to adjust the estimated LGD, starting from doubtful loans.
The Group has adopted a single Master Scale for all types of exposures; this enables all units involved
in credit management to immediately compare the risk level associated with different counterparties or
portfolios; furthermore, the probabilities of default of internal rating classes were mapped against
Standard&Poor’s external rating scale so as to make internal risk measurements comparable to those
available on the financial market.
The development and monitoring of rating systems has been functionally assigned to Risk
Management and is subject to control by the Internal Validation and Internal Control functions.
The Group has used PD, LGD and EAD parameters, estimated for regulatory purposes to calculate
Risk Weighted Assets, also for other operational and internal management purposes. These provide
the basis of calculation for different systems of measurement and monitoring, and specifically for the:
measurement of economic and regulatory capital for credit risk;
calculation of risk-adjusted performance and measurement of value creation;
risk-adjusted pricing processes;
credit direction processes;
across all credit processes (disbursement, review, management and follow-up) which are fully
“engineered” in the Electronic Loan File application (it. Pratica Elettronica di Fido or PEF),
under which the borrower's rating is the result of a process which evaluates - in a transparent,
structured and consistent manner - all the economic-financial, behavioural and qualitative
information regarding customers with whom the bank has credit risk exposures.
In compliance with the guidelines set forth by the Basel Committee and Best Practices, new prudential
supervisory provisions for banks require credit institutions to carry out adequate stress testing
exercises.
The Group regularly conducts stress tests on all risk factors. Stress tests are used to assess the Group’s
capacity to absorb large potential losses in extreme yet plausible market situations, so as to identify the
measures necessary to reduce the risk profile and preserve assets.
Stress tests are developed on the basis of discretionary and trend-based scenarios.
trend-based scenarios: assumptions are made of shocks that are due to a combination of risk
factors which were historically observed in the past and whose recurrence and plausibility
retain a certain degree of likelihood;
discretionary scenarios: assumptions are made of shocks that are due to a combination of risk
factors which may emerge in the near future, depending on the foreseeable environmental,
social and economic developments. Simple discretionary scenarios are currently being
developed (variation of a single risk factor) as are multiple ones (variation of several risk
factors simultaneously). Simple discretionary scenarios are calibrated to independently deal
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335 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
with one category of risk factors at a time, assuming shocks do not spread to the other factors.
Multiple discretionary scenarios, on the other hand, aim to assess the impact of global shocks
that simultaneously affect all types of risk factors.
The Group’s methodological approach to stress-testing is based upon the identification of main risk
factors whose objective is to select events or combinations of events (scenarios) which reveal specific
vulnerabilities at Group-level. To this end, specific stress plans have been put in place on Pillar I risks
(credit, market and operational) which were then made to converge – together with stress events
designed ad hoc on other risk factors – into an overall Pillar II stress test plan, aimed at determining
the potential impact on the Group within the ICAAP process.
With regard to Credit risk in particular, the Group has defined a macro-economic regression model to
estimate the variations in the Probability of Default as a function of changes in the main credit drivers.
Credit drivers which significantly describe PD variations are identified beforehand.
On the basis of the regression model, credit driver disturbances are then estimated according to the
current and prospective economic situation. The shock applied to the credit drivers determines the
change in credit portfolio PD, triggering the simulation of a hypothetical counterparty downgrading,
with consequent risk variations in terms of Expected Loss, Unexpected Loss and input from new
Defaults.
The results from the stress test are submitted to the Top Management and Board of Directors. They
are formally examined by the BoD as part of the ICAAP Annual Report approval process, with a view
to providing a self-assessment of the current and prospective capital adequacy of the Group.
Credit risk mitigation policies
With reference to the retail and corporate loan portfolio, the Group does not apply any netting
processes to the credit risk exposures with on- or off-balance sheet items with opposite sign. The
Group adopts policies to reduce counterparty risk with institutional counterparties, by entering into
netting agreements according to the international ISDA and ISMA standards and related collateral
agreements for both derivatives and repos (repurchase agreements).
The main forms of real guarantees for credit protection used by the Group include pledges, mortgages
and other collateral (insurance, guarantee funds).
As at today, the pledge of sums and the pledge of securities and mutual funds deposited with the
Parent Company and mortgages on properties account for over 98% of the nominal amount of
collaterals received and all of them ensure full compliance with regulatory/legal/organisational
requirements set out by the Supervisory Regulations for the enforcement of credit risk mitigation
standards.
The Group has developed one single process for the acquisition of collaterals which is at the same time
a working instrument and the expression of the Group’s management policies. The management of
collateral is activated after loan disbursement is approved and its process is organised into a number of
different stages:
acquisition (including multiple acquisition): the controls of (formal and amount) consistency
with the guarantees proposed during the authorisation phase are performed in this stage;
adjustment/change/amendment: useful to amend the characteristics of a guarantee without
interrupting loan protection;
query: gives information about the present data and the historical trend of guarantees received;
repayment/cancellation.
If the measures for monitoring collaterals on loans show operational irregularities during the
acquisition phase or any inadequacies/losses of the values received as a pledge, events falling within
the scope of credit monitoring policies are put in place, which trigger operational obligations of credit
risk assessment.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 336
The Group accepts different instruments to protect loans which can be summarised in the following
categories:
Guarantees (including omnibus guarantees and personal guarantees issued by third parties);
Endorsement;
Guarantee policy;
Credit mandate;
Strong/binding patronage letter;
Negotiable instruments;
Performance bond agreement;
Debt delegation;
Expromission;
Assumption of debt;
Personal Collateral governed by foreign law;
Credit derivatives:
- credit default swaps;
- total return swaps;
- credit linked notes.
The main parties issuing the above credit-protection instruments are:
Sovereign governments and central banks;
Public sector and local agencies;
Multilateral development banks;
Regulated intermediaries;
Guarantee institutions (Confidi);
Companies and individuals.
Over 95% of personal guarantees are traceable to companies and individuals as guarantors. Only to a
limited portion of these customers can an internal rating be assigned, since these guarantors are not
borrowers of Group companies.
The main concentration of collaterals is linked with retail mortgage loans. However, it cannot be
referred to as risk concentration by virtue of the principle of risk fragmentation which is implicit in this
type of customers.
More generally, as regards mortgage collateral, an IT platform integrated within the Parent Company’s
systems has been introduced which is used to automatically transfer information about the property
acquired from appraisers directly to those systems. The platform automatically updates all of the
Parent Company’s loan management applications and digitally archives the appraiser’s documentation.
It is also capable of standardising the set of information provided by the appraisers.
Appraisers are selected based on an individual analysis of their abilities, professional skill and
experience, and are placed on a dedicated list of accredited professionals; their work is monitored
continuously, including by checking any divergence between surveyed values and benchmark market
data. Appraisers are required to prepare their estimates using valuation methods consistent with the
Italian Banking Association’s Guidelines for the appraisal of properties backing credit exposures.
For the phase of monitoring the assets pledged, the Group has a policy establishing the amounts of the
secured exposure and the age of the appraisal, beyond which the properties are appraised again. For
exposures lower than the thresholds defined, the Group in any event conducts half-yearly monitoring
of the property value based on market data.
2017 ANNUAL REPORT
337 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The disbursement of loans secured by collaterals is subject to specific control measures, differentiated
by type of guarantee pledged, which are applied during the phase of disbursement and monitoring.
The general requirements for ensuring the legal certainty and enforceability of guarantees are verified
by checking compliance with the following relevant conditions:
binding nature of the legal obligation entered into by the parties and enforceability in the event
of legal proceedings;
documented evidence and enforceability of the instrument against third parties in all relevant
jurisdictions for the purpose of its exercise and execution;
timely liquidation in case of non-fulfilment;
compliance with organisational requirements.
With reference to compliance with organisational requirements, mitigation of risk is ensured by:
the presence of an IT system in support of the life cycle phases of the guarantees (acquisition,
valuation, management, re-valuation and enforcement);
the existence of regulated policies for the management of guarantees (principles, practices,
processes), available to all users.
Non-performing financial assets
Non-performing financial assets include loans which, following the occurrence of events subsequent to
their disbursement, show objective evidence of a possible loss in value.
Non-performing exposures (e.g. doubtful, unlikely to pay and non-performing past due; together, non-
performing exposures) are classified into different risk categories in accordance with the regulations
issued by the Bank of Italy, supplemented with internal provisions which set automatic criteria and
rules for the transfer of receivables between different risk categories. In particular, classification is
carried out by bodies within the loan decision-making chain based on a process that provides for a
series of codified controls aiming to guarantee proper asset classification, except for loans more than
90 days past due, which are measured using automated procedures. To activate the controls, default
detection parameters have been integrated within the Group’s business procedures (Credit Monitoring)
so as to subject the most critical positions to assessment, including for any reclassification if required.
The Group’s procedures also manage the phases for transfer to non-performing categories, in
particular forborne positions. A “forborne exposure” (as defined in Bank of Italy circular 272) is a debt
agreement for which measures of tolerance have been applied (otherwise identifiable as “forbearance
measures”). The measures of tolerance consist of concessions - in terms of the amendment and/or
refinancing of the pre-existing debt agreement - to the borrower who has or is on the verge of having
difficulty in meeting its financial commitments (in other words, the borrower is in financial difficulty).
Forborne exposures are broken down into:
non-performing exposures with forbearance measures, pursuant to the Implementing
Technical Standards (ITS) issued by the EBA. These exposures represent a sub-category of,
depending on the case, doubtful loans, unlikely to pay or non-performing past due; therefore,
they do not make up their own category of non-performing exposures;
forborne performing exposures, pursuant to the ITS.
If a new facilitation or a change in the credit line which amounts to a new concession is requested, the
manager is asked to evaluate the counterparty’s financial difficulty. With support from the procedure,
the manager establishes whether the borrower is in financial difficulty and how severe it is. If the
financial difficulty is serious, the manager should decide, in addition to the concession, on whether to
change the counterparty’s classification to unlikely to pay.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 338
Positions are classified into the various categories of non-performing assets at the proposal of the
regional network responsible for the commercial relationship as well as peripheral and central
specialised functions responsible for loan control and management.
For non-performing past due loans, classification as non-performing takes place via automatic
procedures if specific objective conditions of default have been satisfied.
Non-performing exposures are returned to performing status at the initiative of the above-mentioned
structures responsible for loan control and management, after it is verified that the critical conditions
and state of insolvency no longer apply. Non-performing past due loans are returned to performing
automatically when the exposure is paid up.
Non-performing loan management begins at the first signs of impairment with the support of the
Credit Monitoring procedure, which first identifies non-performing positions (Intercept phase) and
subsequently routes them to dedicated management processes (Routing phase). More specifically:
• Intercept phase: identification of high insolvency risk positions
Ordinary-risk positions are scanned by a ‘screening’ engine which selects the highest-risk positions on a
weekly basis, so as to identify the counterparties bound to become insolvent at a sufficiently early
stage. Screening is based on a 'performance risk indicator' (it.: “indicatore di rischio andamentale”,
IRA) which summarises a set of critical elements including the worsening of leading indicators, ratings,
information on related counterparties and days past due.
• Routing phase: customer-type differentiated treatment of positions
This choice was based on the need for differentiating the treatment of positions by customer segments,
in the conviction that a corporate client cannot be treated in the same way as a retail client and that
specific client management needs should be met with 'ad hoc' processes. Ordinary-risk positions,
reported as higher risk by the 'screening' engine, are routed to specific processing queues depending on
the type of customer and credit facility involved:
1. ‘Mass Retail’ procedure, dedicated to Retail clients for which it is possible to activate mass
debt collection;
2. ‘Standard Retail’ procedure, dedicated to the remaining Retail customers with more limited
exposures and small-sized businesses with limited exposure;
3. A dedicated Corporate procedure for corporate customers.
As regards assessment, doubtful loans, unlikely to pay and non-performing past due exposures with
exposure above a given threshold value are valued analytically. For all non-performing exposures under
a given threshold value, the valuation is carried out statistically on the basis of parameters determined
by Risk Management.
The evaluation is carried out at the time of their classification, when significant events take place and,
in any event, reviewed periodically. In particular, the loan valuation is subject to review any time
knowledge is gained of significant events that could change prospects for recovery. For such events to
be promptly taken into consideration, all borrower information is periodically monitored.
2017 ANNUAL REPORT
339 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Quantitative Information
A. Credit quality
For the purposes of quantitative information on the credit quality, the term “credit exposures” does
not include equity securities and Units of UCITS, whereas the term “exposures” includes equity
securities and Units of UCITS.
A.1 Non-performing and performing loans: amounts, value adjustments, changes, breakdown
by business sector and geographical area
A.1.1 Breakdown of financial assets by portfolio and credit quality (book values)
31 12 2017
Past-due not impaired
Performing exposures
Past-due Impaired
Unlikely to pay
Doubtful loans
exposures
exposures
Total
1. Financial assets available
- 8,357 - - 15,023,729 15,032,086
for sale
3. Loans to banks 3,355 8 - 134 9,962,715 9,966,212
4. Loans to customers 3,114,773 6,850,579 386,738 1,390,563 74,713,754 86,456,407
6. Financial assets held for
4,416,877 29,211 - - 139,135 4,585,223
sale
Total 31 12 2017 7,535,005 6,888,155 386,738 1,390,697 99,839,333 116,039,928
Total 31 12 2016 10,365,311 9,101,306 854,286 2,263,738 109,223,067 131,807,708
Since the entire portfolio of financial assets is subject to classification by credit quality, with the exception of equity securities
and units of UCITS, it should be noted that the items “Loans to banks” and “Loans to customers” include not only loans but
also other types of assets (debt securities, etc.). All amounts are book values, and thus, net of any related doubtful amounts.
Lastly, please note that, at the reporting date, line “3. Loans to banks” includes net performing forborne exposures equal to
EUR 2.8 mln (EUR 2.7 mln as at 31 December 2016) and line “4. Loans to customers” includes net performing forborne
exposures totalling EUR 2,370.5 mln (EUR 2,625.0 mln as at 31 December 2016) and net non-performing forborne
exposures of EUR 5,136..5 mln (EUR 6,123.2 mln as at 31 December 2016).
The table below provides an ageing analysis of past due amounts on performing financial assets.
Performing Exposures
Portfolio/Quality Past due 6
Past due up Past due 3 to Not Total
months to 1 Over 1 year
to 3 months 6 months past due 31 12 2017
year
1. Financial assets available
- - - - 15,023,729 15,023,729
for sale
3. Loans to banks 9 - - 125 9,962,715 9,962,849
4. Loans to customers 1,028,676 136,583 125,030 100,274 74,713,754 76,104,317
6. Financial assets held for
- - - - 139,135 139,135
sale
Total 31 12 2017 1,028,685 136,583 125,030 100,399 99,839,333 101,230,030
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 340
A.1.2 Breakdown of credit exposures by portfolio and credit quality (gross and net values)
31 12 2017
Non perfoming assets Performing
(Net exposure)
Gross exposure
Gross exposure
Specific write-
Net exposure
Net exposure
Total
adjustments
Portfolio
Portfolio/quality
downs
1. Financial assets
9,688 1,331 8,357 15,023,729 - 15,023,729 15,032,086
available for sale
2. Financial assets held
- - - - - - -
to maturity
3. Loans to banks 26,558 23,195 3,363 9,971,550 8,701 9,962,849 9,966,212
4. Loans to customers 20,920,063 10,567,973 10,352,090 76,659,489 555,172 76,104,317 86,456,407
5. Financial assets
designated at fair - - - X X - -
value
6. Financial assets held
24,162,432 19,716,344 4,446,088 139,135 - 139,135 4,585,223
for sale
Total 31 12 2017 45,118,741 30,308,843 14,809,898 101,793,903 563,873 101,230,030 116,039,928
Total 31 12 2016 45,809,757 25,488,854 20,320,903 112,182,993 696,188 111,486,805 131,807,708
At the reporting date, the Group had 408 positions relating to creditors who had filed a “blank” request for a pre-insolvency
creditor arrangement procedure “Concordato in bianco” for a net exposure of EUR 242.4 mln and 9 positions relating to
creditors who had filed a request for a pre-insolvency creditor arrangement with going concern “Concordato in continuità”
for a net exposure of approx. EUR 3.4 mln.
Partial derecognitions on non-performing financial assets carried out during the year totalled EUR 276.1 mln.
Low quality assets Other assets
Cumulative losses Net exposure Net exposure
1 Financial assets held for trading 108,231 6,109 8,624,963
2 Hedging derivatives - - 156,485
Total 31 12 2017 108,231 6,109 8,781,448
Total 31 12 2016 130,722 24,910 9,525,136
In particular, please note that item “1. Financial assets held for trading” includes exposures generated by derivative contracts
with low credit quality for a net value of EUR 6.0 mln; impairment losses recognised on these instruments to take into
account the fair value credit adjustment amount to EUR 9.0 mln.
2017 ANNUAL REPORT
341 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.1.3 Banking Group - Balance sheet and off-balance sheet exposure to banks: gross and net amounts and past due
ranges
31 12 2017
Gross exposure
Non-performing Assets
Past due 6 months to 1 year
Past due up to 3 months
Past due 3 to 6 months
Specific write- Portfolio Net
Portfolio/quality
Over 1 year
Performing downs adjustments Exposure
Assets
A. Balance-sheet exposure
a) Doubtful loans - - - 26,549 X 23,194 X 3,355
- of which forborne - - - - X - X -
b) Unlikely to pay 9 - - - X 1 X 8
- of which forborne - - - - X - X -
c) Past due - - - - X - X -
- of which forborne - - - - X - X -
d) Past-due not impaired X X X X 153 X 19 134
- of which forborne X X X X - X - -
e) Other assets not impaired X X X X 10,933,450 X 8,682 10,924,768
- of which forborne X X X X 2,783 X - 2,783
Total A 9 - - 26,549 10,933,603 23,195 8,701 10,928,265
B. Off-balance-sheet exposure
a) Impaired - - - - X - X -
b) Not Impaired X X X X 2,251,102 X 3,093 2,248,009
Total B - - - - 2,251,102 - 3,093 2,248,009
Total (A+B) 9 - - 26,549 13,184,705 23,195 11,794 13,176,274
The table provides a breakdown of exposure with banks by credit quality, using the definition of impaired exposures set out
by the Bank of Italy and adopted for the purposes of the financial statements.
Thus, all balance-sheet exposures are stated at book values, before and after any doubtful amounts. In particular, balance-
sheet exposures encompass all financial assets related to banks arising from financial statement Item 20 “Financial assets held
for trading,” Item 30 “Financial assets designated at fair value,” Item 40 “Financial assets available for sale” and Item 60
“Loans to banks” with the exception of derivative contracts which are considered as off-balance-sheet in this section.
Off-balance-sheet exposures include all financial transactions other than balance-sheet transactions (guarantees issued,
commitments and derivatives, including those used for hedging purposes) involving the assumption of credit risk and valued
using the measurement criteria set forth by the Bank of Italy. They also include the counterparty risk connected to securities
lending transactions and repurchase agreements and loan transactions with margins included within the notion of Securities
Financing Transactions as defined by prudential regulations.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 342
A.1.4 Banking Group - Balance-sheet exposure to banks: changes in gross non-performing loans
31 12 2017
Unlikely Non-performing
Source/Categories Doubtful loans
to pay Past due
A. Gross exposure, opening balance 22,611 617 -
- of which: transferred but not derecognised - - -
B. Increases 4,391 2,100 -
B.1 Transfers from performing loans 3,194 2,100 -
B.2 Transfers from other impaired loans - - -
B.3 Other increases 1,197 - -
C. Decreases 453 2,708 -
C.1 Transfers to performing loans - - -
C.2 Write-offs - 26 -
C.3 Ccollections 453 2,682 -
C.4 Amounts realised upon disposal of positions - - -
C.5 Losses from disposal - - -
C.6 Transfers to other categories of impaired exposure - - -
C.7 Other decreases - - -
D. Gross exposure, closing balance 26,549 9 -
- of which: transferred but not derecognised - - -
With regard to balance-sheet exposures to banks, the table shows changes in non-performing exposures in the course of the
year.
Since the entire portfolio of financial asset exposures to banks is subject to classification by credit quality, exposures include
not only loans but also other types of assets (e.g. securities). Balance-sheet exposures are expressed at book value.
2017 ANNUAL REPORT
343 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.1.4 bis Banking Group - Balance-sheet exposure to banks: changes in gross forborne exposures by credit quality
31 12 2017
Non performing Performing
Source/Categories
forborne exposures forborne exposures
A. Goss esposure, opening balance - 2,722
- of which: transferred but not derecognised - -
B.Increases - 61
B.1 Transfers from performing loans - -
B.2 Transfers from performing forborne esposures - X
B.3 Transfers from Non-performing forborne esposures X -
B.4 Other increases - 61
C. Decreases - -
C.1 Transfers to performing loans X -
C.2 Transfers to performing forborne exposures - X
C.3 Transfers to non-performing forborne exposures X -
C.4 Write-offs - -
C.5 Collections - -
C.6 Amounts realised upon disposal of positions - -
C.7 Losses from disposal - -
C.8 Other decreases - -
D.Gross exposure, closing balance - 2,783
- of which: transferred but not derecognised - -
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 344
A.1.5 Banking Group - Non-performing balance-sheet exposure to banks: changes in overall value adjustments
31 12 2017
Doubtful loans Unlikely to pay Non-performing Past due
Source/Categories
of which of which of which
Total Total Total
forborne forborne forborne
A. Opening balance of overall
22,164 - 110 - - -
adjustments
- of which: transferred but not
- - - - - -
derecognised
B. Increases 1,048 - 27 - - -
B.1 Value adjustments 1,039 - 10 - - -
B.2 Loss from disposal - - - - - -
B.3 Transfers from other categories
- - - - - -
of impaired exposures
B.4 Other increases 9 - 17 - - -
C. Decreases 18 - 136 - - -
C.1 Write-backs from valuation 18 - 3 - - -
C.2 Write-backs from collection - - 107 - - -
C.3 Profit from disposal - - - - - -
C.4 Write-offs - - 26 - - -
C.5 Transfers to other categories
- - - - - -
of impaired exposure
C.6 Other decreases - - - - - -
D. Closing balance of overall
23,194 - 1 - - -
adjustments
- of which: transferred but not
- - - - - -
derecognised
With regard to balance-sheet exposures to banks, the table shows changes in overall value adjustments on non-performing
exposure during the year.
Since the entire portfolio of financial assets to banks is subject to classification by credit quality, value adjustments shown
refer not only to loans but also to other types of assets (e.g. securities). Balance-sheet value adjustments are expressed at book
value
2017 ANNUAL REPORT
345 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.1.6 Banking Group - Balance sheet and off-balance sheet exposure to customers: gross and net amounts and past due
ranges
31 12 2017
Gross exposure
Non-performing Assets
Past due up to 3
months to 1 year
Past due 3 to 6
Specific Portfolio Net
Over 1 year
Portfolio/quality
Past due 6
Performing write-downs adjustments Exposure
months
months
Assets
A. Balance-sheet exposure
a) Doubtful loans 24,462 16,140 50,341 32,876,742 X 25,436,016 X 7,531,669
- of which forborne 1,258 4,420 15,729 3,230,740 X 1,963,799 X 1,288,348
b) Unlikely to pay 4,838,681 341,424 999,172 5,425,871 X 4,716,984 X 6,888,164
- of which forborne 3,324,081 183,598 533,767 2,125,523 X 2,357,756 X 3,809,213
c) Past due 80,961 60,597 131,544 246,959 X 133,310 X 386,751
- of which forborne 13,526 6,571 11,056 14,840 X 6,971 X 39,022
d) Past-due not impaired X X X X 1,440,372 X 41,312 1,399,060
- of which forborne X X X X 151,429 X 8,699 142,730
e) Other assets not impaired X X X X 94,781,052 X 563,181 94,217,871
- of which forborne X X X X 2,314,407 X 86,607 2,227,800
Total A 4,944,104 418,161 1,181,057 38,549,572 96,221,424 30,286,310 604,493 110,423,515
B. Off-balance-sheet exposure
a) Impaired 697,229 - - 2,056 X 136,919 X 562,366
b) Not Impaired X X X X 13,272,836 X 136,172 13,136,664
Total B 697,229 - - 2,056 13,272,836 136,919 136,172 13,699,030
Total (A+B) 5,641,333 418,161 1,181,057 38,551,628 109,494,260 30,423,229 740,665 124,122,545
The table provides a breakdown of dealings with customers by credit quality, using the definition of impaired exposures set
out by the Bank of Italy and adopted for the purposes of the financial statements.
Since the entire portfolio of financial assets is subject to classification by credit quality, with the exception of equity securities
and units of UCITS, it should be noted that the item “Loans to customers” includes not only loans but also other types of
assets (debt securities, etc.).
Thus, all balance-sheet exposures are stated at book values, before and after any doubtful amounts. In particular, “Balance-
sheet exposure” summarises all financial assets related to customers arising from financial statement Item 20 “Financial assets
held for trading,” 30 “Financial assets designated at fair value,” 40 “Financial assets available for sale”, 70 “Loans to
customers” and 150 “Non-current assets and groups of assets held for sale and discontinued operations”, with the exception
of derivative contracts that are considered as off-balance-sheet in this section.
Please see the consolidated report on operations for quantification of and reporting on capital ratios for coverage of lending
relationships.
Off-balance-sheet exposures include all financial transactions other than balance-sheet transactions (guarantees issued,
commitments and derivatives, including those used for hedging purposes) involving the assumption of credit risk and valued
using the measurement criteria set forth by the Bank of Italy. They also include the counterparty risk connected to securities
lending transactions and repurchase agreements and loan transactions with margins included within the notion of Securities
Financing Transactions as defined by prudential regulations.
Lastly, please note that at the reporting date, gross non-performing forborne exposures with no past due amounts in the cure
period include unlikely to pay positions of EUR 3,016.5 mln (EUR 3,203.2 mln as at 31 December 2016) and non-performing
past due exposures of EUR 12.9 mln (EUR 12.3 mln as at 31 December 2016).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 346
A.1.7 Banking Group - Balance-sheet exposure to customers: changes in gross non-performing loans
31 12 2017
Unlikely Non-performing
Source / Categories Doubtful loans
to pay Past due
A. Gross exposure, opening balance 29,424,969 15,247,709 1,114,469
- of which: transferred but not derecognised 58,721 91,163 110,399
B. Increases 5,013,637 2,625,351 393,528
B.1 Transfers from performing loans 386,271 1,593,636 305,937
B.2 Transfers from other impaired loans 3,844,054 459,952 9,645
B.3 Other increases 783,312 571,763 77,946
C. Decreases 1,470,921 6,267,912 987,936
C.1 Transfers to performing loans 57,255 530,607 84,722
C.2 Write-offs 385,064 577,756 5,977
C.3 Collections 953,144 1,369,768 140,317
C.4 Amounts realised upon disposal of positions 6,465 101,189 -
C.5 Losses from disposal 605 15,061 -
C.6 Transfers to other categories of impaired exposure 13,662 3,572,232 727,756
C.7 Other decreases 54,726 101,299 29,164
D. Gross exposure, closing balance 32,967,685 11,605,148 520,061
- of which: transferred but not derecognised 517,398 130,362 92,298
With regard to balance-sheet exposures to customers, the table shows changes in non-performing exposures during the year.
Since the entire portfolio of financial asset exposures to customers is subject to classification by credit quality, it should be
noted that exposure includes not only loans but also other types of assets (e.g. securities). Balance-sheet exposures are
expressed at book value.
Exposures sold but not derecognised, under letter “D”, do not include exposures linked to the “Doubtful loan disposal
transaction” (for more details, please refer to the relative section of the Consolidated Report on Operations) as, as at 31
December 2017, the Group holds all of the securities issued by the vehicle Siena Npl 2018 and therefore represented in the
Liquidity Risk section, in line with what is laid out in the 4th update of Bank of Italy Circular 262.
2017 ANNUAL REPORT
347 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.1.7 bis Banking Group - Balance-sheet exposure to customers: changes in gross forborne exposures by credit quality
31 12 2017
Non performing Performing
Source/Categories
forborne exposures forborne exposures
A. Goss esposure, opening balance 9,907,562 2,747,529
- of which: transferred but not derecognised 38,693 85,347
B.Increases 1,976,895 1,296,652
B.1 Transfers from performing loans 305,097 743,020
B.2 Transfers from performing forborne esposures 379,865 X
B.3 Transfers from Non-performing forborne esposures X 349,506
B.4 Other increases 1,291,933 204,126
C. Decreases 2,419,348 1,578,345
C.1 Transfers to performing loans X 609,575
C.2 Transfers to performing forborne exposures 349,506 X
C.3 Transfers to non-performing forborne exposures X 370,924
C.4 Write-offs 465,739 5,436
C.5 Collections 1,322,710 486,344
C.6 Amounts realised upon disposal of positions 104,166 -
C.7 Losses from disposal 13,536 -
C.8 Other decreases 163,691 106,066
D.Gross exposure, closing balance 9,465,109 2,465,836
- of which: transferred but not derecognised 291,126 80,857
Line B.4 “Other increases” includes EUR 578.1 mln in the Non-performing forborne exposures column relating to non-
performing credit exposures at the start of the year which were subjected to forbearance measures in the course of the year.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 348
A.1.8 Banking Group - Balance-sheet exposure to customers: changes in overall value adjustments
31 12 2017
Non-performing
Doubtful loans Unlikely to pay
Past due
Source/Categories
of which of which of which
Total Total Total
forborne forborne forborne
A. Opening balance of overall adjustments 19,060,084 863,441 6,146,902 2,907,481 260,162 13,397
- of which: transferred but not derecognised 20,348 1,436 29,906 8,012 31,064 274
B. Increases 7,593,297 1,217,000 1,596,625 920,978 80,332 6,336
B.1 Value adjustments 5,790,529 728,063 1,385,583 704,866 53,534 5,335
B.2 Loss from disposal 605 - 15,061 13,536 - -
B.3 Transfers from other categories
1,736,223 447,379 106,685 182,599 2,054 693
of impaired exposures
B.4 Other increases 65,940 41,558 89,296 19,977 24,744 308
C. Decreases 1,217,365 116,642 3,026,543 1,470,703 207,184 12,762
C.1 Write-backs from valuation 583,691 68,266 558,328 345,336 29,670 3,742
C.2 Write-backs from collection 233,077 27,402 148,432 140,985 1,148 50
C.3 Profit from disposal 1,468 1,351 16,069 16,069 - -
C.4 Write-offs 384,207 16,207 575,908 449,291 5,989 147
C.5 Transfers to other categories
3,109 1,737 1,676,272 467,141 165,581 8,470
of impaired exposure
C.6 Other decreases 11,813 1,679 51,534 51,881 4,796 353
D. Closing balance of overall adjustments 25,436,016 1,963,799 4,716,984 2,357,756 133,310 6,971
- of which: transferred but not derecognised 339,414 142,122 45,104 6,928 32,991 114
With regard to balance-sheet exposures to customers, the table shows changes of total value adjustments of non-performing
exposures during the year. In particular, write-offs include reductions due to loan redemptions. Since the entire portfolio of
financial asset exposures is subject to classification by credit quality, it should be noted that exposure includes not only loans
but also other types of assets (e.g. securities). Balance-sheet exposures are expressed at book value.
Adjustments on exposures trasferred not derecognised, under letter “D”, do not include adjustments linked to the “Doubtful
loan disposal transaction” (for more details, please refer to the relative section of the Consolidated Report on Operations) as,
as at 31 December 2017, the Group holds all of the securities issued by the vehicle Siena Npl 2018 and therefore represented
in the Liquidity Risk section, in line with what is laid out in the 4th update of Bank of Italy Circular 262.
2017 ANNUAL REPORT
349 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Exposure to sovereign debt risk
Below are the sovereign credit risk exposures in government bonds, loans and credit derivatives held
by the Group as at 31 December 2017 pursuant to the criteria of the European Securities and Markets
Authority (ESMA).
The exposures are broken down by accounting categories. For securities classified as 'Loans and
Receivables (L&R)' and “Loans”, the book value (amortised cost) is also reported.
(in m ilio n o f EUR )
CREDIT
DEBT SECURITIES LOANS
DERIVATIVES
Financial assets held for Financial
Financial asset available for sale L&R L&R
COUNTRY trading Asset HFT
Fair
Fair value=Book
Nominal Nominal value=Book Book value Book value Nominal
value
value
Argentine 0.86 0.74 - - - - -
Austria 0.05 0.08 - - - - -
Belgium (5.62) (5.73) 47.25 49.35 - - -
Bosnia 0.01 0.00 - - - - -
Brazil 0.12 0.17 - - - - -
Canada 0.33 0.30 - - - - -
Philippines 0.08 0.12 - - - - -
France 0.18 0.19 409.50 423.32 - - 3.00
Germany 9.46 10.45 - - - - -
Greece 0.06 0.06 - - - - -
Hong kong - - 26.66 26.66 - - -
Italy 1,368.99 1,369.73 12,921.82 13,465.11 489.05 2,394.44 1,759.53
Lithuania 0.21 0.22 9.00 9.45 - - -
Holland 0.23 0.26 - - - - -
Poland 0.44 0.48 - - - - -
Portugal 0.67 0.76 16.00 18.45 - - -
United Kingdom 0.20 0.20 - - - - -
Romania 0.29 0.31 - - - - -
Spain 3.91 4.72 142.00 147.58 - - (3.20)
United States 0.24 0.26 - - - - -
Hungary 0.04 0.04 - - - - -
Venezuela 0.03 0.01 - - - - -
Other Countries - - - - 1.05 - -
Total 31 12 2017 1,380.75 1,383.38 13,572.23 14,139.92 490.10 2,394.44 1,759.33
Total 31 12 2016 1,672.34 1,553.76 14,020.86 15,415.99 534.02 2,747.08 2,063.05
Details on the Group’s exposure is presented taking into consideration that, according to instructions
from the European Securities and Markets Authority (ESMA), “sovereign debt” is defined as bonds
issued by central and local Governments and by government Entities, as well as loans disbursed to
aforementioned entities.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 350
These financial instruments were measured according to the standards applicable to the category to
which they belong.
The overall exposure on loans and debt securities amounted to EUR 18,407.84 mln, almost entirely in
Italian debt, and is concentrated under the AFS accounting category. Exposures to Italy are nearly
exclusively level 1, with the exception of EUR 156.3 mln in government bonds.
Following are the details of Italian AFS reserves and credit derivatives (in EUR/mln):
AFS securities: Italy 31 12 2017 31 12 2016
Book value 13,465.1 15,127.7
AFS reserve (after tax) (59.8) (69.4)
of which: hedging effect (after tax) 60.8 (42.7)
Credit derivatives - Italy 31 12 2017 31 12 2016
Purchase of protection
Nominal (268.3) (139.5)
Positive fair value 9.2 17.7
Negative fair value (0.1) -
Sale of protection - -
Nominal 2,027.8 2,102.7
Positive fair value - -
Negative fair value (18.4) (26.5)
2017 ANNUAL REPORT
351
A.2 Classification of exposure by external and internal ratings
A.2.1 Banking Group - Breakdown of balance sheet and off-balance sheet exposures by external ratings
31 12 2017
External rating classes
Esposures No Rating Total
Class 1 Class 2 Class 3 Class 4 Class 5 Class 6
A. Balance-sheet exposure 1,431,754 2,299,564 20,173,797 700,418 421,134 9,350 96,473,716 121,509,733
B. Derivatives 41,592 318,245 127,863 1,332 214,455 - 1,454,244 2,157,731
B.1 Financial derivatives 41,592 318,245 127,863 1,332 214,455 - 1,324,244 2,027,731
B.2 Credit derivatives - - - - - - 130,000 130,000
C. Guarantees issued 8,684 261,716 208,881 415,164 460,891 1,848 4,510,265 5,867,449
D. Commitments to disburse funds 5,826 3,365 2,473,199 72,179 183,426 1 4,536,616 7,274,612
E. Others - 103,393 522,283 17,906 - - 3,662 647,244
Total 1,487,856 2,986,283 23,506,023 1,206,999 1,279,906 11,199 106,978,503 137,456,769
class 1=AAA/AA- class 2=A+/A- class 3=BBB+/BBB- class 4=BB+/BB- class 5=B+/B- class 6=lower than B-
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The external rating categories used to complete the table are from Standard & Poor’s. The exposures shown are those reported in Tables A.1.3 (exposures to banks) and A.1.6
(exposures to customers) above, in addition to units of UCITS. If multiple external ratings are assigned, the rating is selected based on Bank of Italy's criteria (when two ratings
are available, the lower of the two is used, and when three or more ratings are assigned, the second highest rating is selected). To ensure relevance of information, internal cross-
reference tables were used to convert classification by various rating agencies into classification by Standard & Poor’s.
BANCA MONTE DEI PASCHI DI SIENA
2.2 Banking Group - Breakdown of balance sheet and off-balance sheet exposures by internal ratings
31 12 2017
Internal rating classes
2017 ANNUAL REPORT
Exposures Group No rating Total
Average Mediocre
High quality Fair quality Poor quality Default administrative
quality quality
default
A. Balance-sheet exposure 8,808,366 17,110,516 26,872,234 11,406,302 1,085,893 13,817,994 996,176 41,254,300 121,351,781
B. Derivatives 288,411 167,884 166,718 73,215 7,801 25,330 10 1,428,362 2,157,731
B.1 Financial derivatives 288,411 167,884 166,718 73,215 7,801 25,330 10 1,298,362 2,027,731
B.2 Credit derivatives - - - - - - - 130,000 130,000
C. Guarantees issued 543,518 1,650,853 2,053,083 350,182 19,077 301,838 - 1,029,417 5,947,968
D. Commitments to disburse funds 156,943 420,489 741,266 600,996 40,315 249,192 87,947 4,896,947 7,194,095
E. Others 70,931 207,805 17,906 - - - - 350,602 647,244
Total 9,868,169 19,557,547 29,851,207 12,430,695 1,153,086 14,394,354 1,084,133 48,959,628 137,298,819
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
High Quality customers (Master Scale categories AAA and A1) Good Quality Customers (Master Scale categories A2, A3 and B1) Fair Quality customers (Master Scale categories
B2, B3, C1 and C2) Mediocre Quality customers (Master Scale categories C3, D1, D2 and D3) Poor Quality customers (Master Scale categories E1, E2 and E3)
The table provides a breakdown of customers of the MPS Group by risk categories assigned on the basis of ratings arising from internal models. For this purpose, account is given
only of exposures (borrowers) for which an internal rating is periodically recorded for models/legal entities/portfolios which have been subject to a validation process with the
regulatory authorities without any cross-reference from official ratings to internal ratings especially with regard to the following customer segments: “Banks,” “Non-banking financial
institutions,” and “Governments and Public Administration”. Thus, based on this provision, exposures related to the latter segments, even if covered by official ratings, were reported
as “unrated” in the internal rating models.
352
353 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.3 Breakdown of secured exposures by type of collateral
A.3.1 Banking Group - Secured exposures to banks
31 12 2017
Personal guarantees
Total real and personal guarantees
Unsecured signature
Real guarantees Credit derivatives
loans
Other derivatives
Amount of Net
Governments and central
Governments and central
Exposure
Real estate mortgages
Other public entities
Other public entities
Real estate leasing
Other entities
Other entities
collaterals
CLN
Securities
Banks
Banks
Other
banks
banks
1. Secured balance-sheet
901,428 1,259 - 892,459 - - - - - - - - - 24 893,742
exposures:
1.1 totally secured 900,007 1,259 - 892,459 - - - - - - - - - 14 893,732
- of which non performing - - - - - - - - - - - - - - -
1.2 partially secured 1,421 - - - - - - - - - - - - 10 10
- of which non performing - - - - - - - - - - - - - - -
2. Secured off-balance
833,535 - - 302,587 503,876 - - - - - - - 92 - 806,555
sheet exposures:
2.1 totally secured 553,063 - - 302,587 250,367 - - - - - - - 50 - 553,004
- of which non performing - - - - - - - - - - - - - - -
2.2 partially secured 280,472 - - - 253,509 - - - - - - - 42 - 253,551
- of which non performing - - - - - - - - - - - - - - -
In addition to secured balance-sheet exposures to banks, the table shows the amount of off-balance-sheet exposures,
including derivative contracts with banks, which are fully or partially secured. As regards personal guarantees, the economic
segments to which guarantors and sellers of protection belong (in the case of unsecured loans and credit derivatives,
respectively) are identified making reference to the classification criteria provided for in the brochure “classification of
customers by segments and groups of economic activity” published by the Bank of Italy.
Exposures are classified as either “fully secured” or “partially secured” by comparing the gross exposure with the amount of
the guarantee established in the contract; for that purpose, any supplemental guarantees are also considered.
The fair value of collaterals estimated as at the balance sheet date is shown in the columns “Real guarantees” and “Personal
guarantees”; if such information is not available, the contractual value is reported. Both values cannot be higher than the book
value of secured exposures, in line with the 4th update of Bank of Italy circular 262.
BANCA MONTE DEI PASCHI DI SIENA
A.3.2 Banking Group - Secured exposures to customers
31 12 2017
Personal guarantees
2017 ANNUAL REPORT
Garanzie reali Credit derivatives Unsecured signature loans
Other derivatives
Exposure
CLN
Amount of Net
Banks
Banks
Other
Securities
collaterals
central banks
central banks
Other entities
Other entities
Real estate leasing
Governments and
Governments and
Other public entities
Other public entities
Real estate mortgages
Toal real and personal guarantees
1. Secured balance-sheet
66,587,446 45,188,474 2,606,792 5,325,156 2,224,338 - - - - - 218 992,705 4,153 8,892,289 65,234,125
exposures:
1.1 Totally secured 63,876,152 44,764,579 2,606,792 5,199,570 2,191,489 - - - - - 35 562,177 3,072 8,096,426 63,424,140
- of which non perfrorming 10,870,515 8,395,732 647,708 80,498 202,028 - - - - - 12 87,088 1,465 1,371,543 10,786,074
1.2 Partially secured 2,711,294 423,895 - 125,586 32,849 - - - - - 183 430,528 1,081 795,863 1,809,985
- of which non perfrorming 827,910 339,497 - 39,532 4,827 - - - - - 79 15,472 72 316,867 716,346
2. Secured off-balance
3,745,434 144,747 15,067 681,012 1,156,888 - - - - - - 7,889 53,027 1,395,657 3,454,287
sheet exposures:
2.1 Totally secured 3,146,069 141,802 15,012 662,351 910,087 - - - - - - 4,295 52,837 1,328,061 3,114,445
- of which non perfrorming 252,834 59,830 1,643 2,841 3,994 - - - - - - 1,376 52,777 125,453 247,914
2.2 Partially secured 599,365 2,945 55 18,661 246,801 - - - - - - 3,594 190 67,596 339,842
- of which non perfrorming 11,814 118 - 607 662 - - - - - - - 188 6,086 7,661
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
In addition to balance-sheet exposures to customers, the table shows the amount of off-balance-sheet exposures, including derivative contracts with customers, which are fully or
partially secured. As regards personal guarantees, the economic segments to which guarantors and sellers of protection belong (in the case of unsecured loans and credit derivatives,
respectively) are identified making reference to the classification criteria provided for in the brochure “classification of customers by segments and groups of economic activity”
published by the Bank of Italy. Exposures are classified as either “fully secured” or “partially secured” by comparing the gross exposure with the amount of the guarantee established
in the contract; for that purpose, any supplemental guarantees are also considered.
The fair value of collaterals estimated as at the balance sheet date is shown in the columns “Real guarantees” and “Personal guarantees”; if such information is not available, the
contractual value is reported. Both values cannot be higher than the book value of secured exposures, in line with the 4th update of Bank of Italy circular 262.
354
355
B. BREAKDOWN AND CONCENTRATION OF CREDIT EXPOSURE
B.1 Banking Group - Breakdown of on- and off-balance sheet exposures to customers by business segment (book values)
Governments Other public entities Financial companies Insurance companies Non financial companies Other entities
Exposure/
Customers
downs
downs
downs
downs
downs
downs
Portfolio
Portfolio
Portfolio
Portfolio
Portfolio
Portfolio
adjustments
adjustments
adjustments
adjustments
adjustments
adjustments
Net exposure
Net exposure
Net exposure
Net exposure
Net exposure
Net exposure
Specific write-
Specific write-
Specific write-
Specific write-
Specific write-
Specific write-
A. Balance-sheet exposure
A.1 Doubtful loans - - X 184 1,025 X 70,337 458,894 X - - X 6,077,717 22,133,370 X 1,383,431 2,842,727 X
- of which forborne - - X - - X 7,749 25,244 X - - X 1,034,711 1,695,122 X 245,885 243,433 X
A.2 Unlikely to pay 1 - X 150,378 100,908 X 243,094 337,288 X 3 4 X 5,615,307 3,988,975 X 879,381 289,809 X
- of which forborne - - X 5,233 3,137 X 128,408 203,320 X - - X 3,258,501 2,067,854 X 417,071 83,445 X
A.3 Past-due Impaired 383 260 X 287 234 X 2,451 799 X - - X 163,806 54,140 X 219,824 77,877 X
- of which forborne - - X - - X 731 278 X - - X 24,003 5,015 X 14,288 1,678 X
A.4 Other Performing 19,013,055 X 1,066 2,130,965 X 3,844 8,185,742 X 19,729 463,664 X 1,201 38,167,862 X 512,622 27,655,643 X 66,031
- of which forborne - X - 2,295 X 29 89,994 X 3,155 - X - 1,708,192 X 77,997 570,050 X 14,125
Total A 19,013,439 260 1,066 2,281,814 102,167 3,844 8,501,624 796,981 19,729 463,667 4 1,201 50,024,692 26,176,485 512,622 30,138,279 3,210,413 66,031
B. Off-balance-sheet exposures
B.1 Doubtful loans - - X - - X 33 147 X - - X 40,365 66,201 X 1,074 325 X
B.2 Unlikely to pay - - X - - X 17,196 311 X - - X 492,700 66,223 X 3,540 2,451 X
B.3 Other non-performing - - X - - X - - X - - X 6,621 1,165 X 837 96 X
B.4 Other performing 2,611,801 X - 1,281,798 X 198 2,102,996 X 66,510 4,280 X 13 6,795,526 X 69,212 292,019 X 239
Total B 2,611,801 - - 1,281,798 - 198 2,120,225 458 66,510 4,280 - 13 7,335,212 133,589 69,212 297,470 2,872 239
Total (A+B) 31 12 2017 21,625,240 260 1,066 3,563,612 102,167 4,042 10,621,849 797,439 86,239 467,947 4 1,214 57,359,904 26,310,074 581,834 30,435,749 3,213,285 66,270
Total (A+B) 31 12 2016 24,818,109 205 1,005 3,271,998 59,020 4,045 17,034,831 801,242 59,895 488,744 1 1,288 67,457,364 22,220,390 708,137 32,120,372 2,540,643 71,629
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Balance sheet exposures reported in the table below are the same as those reported in the financial statements, net of any doubtful amounts and inclusive of specific/portfolio value
adjustments, while off-balance-sheet transactions include all financial transactions other than balance-sheet transactions (guarantees issued, commitments and derivatives) involving the
assumption of credit risk and valued using the measurement criteria set forth by the Bank of Italy. The business segments to which borrowers and collateral providers belong are
identified making reference to the classification criteria provided for in the brochure “Classification of customers by segments and groups of economic activity” published by the Bank
BANCA MONTE DEI PASCHI DI SIENA
of Italy.
B.2 Banking Group - Breakdown of on- and off-balance-sheet exposures to customers by geographic area (book values)
OTHER EUROPEAN
ITALY AMERICA ASIA REST OF THE WORLD
COUNTRIES
2017 ANNUAL REPORT
Exposure/Geographic Areas
Net Overall value Net Overall value Net Overall value Net Overall value Net Overall value
esposure adjustments esposure adjustments esposure adjustments esposure adjustments esposure adjustments
A. Balance-sheet esposures
A.1 Doubtful loans 7,490,544 25,244,809 34,514 170,177 5,012 8,405 1,243 11,450 356 1,175
A.2 Ulikely to pay 6,823,864 4,675,753 47,454 33,693 183 80 8,846 3,658 7,817 3,800
A.3 Past-due Impaired 370,369 132,820 15,550 431 64 22 30 2 738 35
A.4 Other performing exposures 91,488,167 579,741 3,479,431 22,309 468,231 1,304 169,787 971 11,315 168
Total A 106,172,944 30,633,123 3,576,949 226,610 473,490 9,811 179,906 16,081 20,226 5,178
B. Off-balance-sheet exposures
B.1 Doubtful loans 40,769 66,642 700 - 2 31 - - - -
B.2 Substandard loans 513,116 68,985 321 1 - - - - - -
B.3 Other non performing
5,117 1,170 2,341 90 - - - - - -
exposures
B.4 Other performing exposures 11,314,995 135,483 1,664,117 518 70,949 49 35,258 109 3,101 13
Total B 11,873,997 272,280 1,667,479 609 70,951 80 35,258 109 3,101 13
Total (A+B) 31 12 2017 118,046,941 30,905,403 5,244,428 227,219 544,441 9,891 215,164 16,190 23,327 5,191
Total (A+B) 31 12 2016 138,289,320 26,230,286 5,885,900 211,818 616,781 5,176 354,169 14,519 45,248 5,701
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Balance-sheet exposures reported in the table below are the same as those reported in the financial statements, while off-balance-sheet transactions include all
financial transactions other than balance-sheet transactions (guarantees issued, commitments and derivatives) involving the assumption of credit risk and valued using
the measurement criteria set forth by the Bank of Italy. Amounts are stated before and after any doubtful amounts. Exposures are broken down geographically by the
country of residence of the borrower.
356
357
B.3 Banking Group - Breakdown of on- and off-balance-sheet exposures to banks by geographic area (book values
OTHER EUROPEAN
ITALY AMERICA ASIA REST OF THE WORLD
COUNTRIES
Exposure/Geographic Areas
Net Overall value Net Overall value Net Overall value Net Overall value Net Overall value
esposure adjustments esposure adjustments esposure adjustments esposure adjustments esposure adjustments
A. Balance-sheet esposures
A.1 Doubtful loans - - 3,183 1,345 75 21,749 - - 97 100
A.2 Ulikely to pay - - - - - - 8 1 - -
A.3 Past-due Impaired - - - - - - - - - -
A.4 Other performing exposures 7,799,807 372 2,658,392 5,598 264,829 1,646 138,527 825 63,347 260
Total A 7,799,807 372 2,661,575 6,943 264,904 23,395 138,535 826 63,444 360
B. Off-balance-sheet exposures
B.1 Doubtful loans - - - - - - - - - -
B.2 Substandard loans - - - - - - - - - -
B.3 Other non performing exposures - - - - - - - - - -
B.4 Other performing exposures 891,482 29 402,787 673 194,996 576 58,566 164 103,921 1,651
Total B 891,482 29 402,787 673 194,996 576 58,566 164 103,921 1,651
Total (A+B) 31 12 2017 8,691,289 401 3,064,362 7,616 459,900 23,971 197,101 990 167,365 2,011
Total (A+B) 31 12 2016 7,714,597 794 3,328,085 8,130 497,237 21,233 231,768 988 218,073 583
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Balance-sheet exposures to banks reported in the table below are the same as those reported in the financial statements, while off-balance-sheet transactions include all financial
transactions other than balance-sheet transactions (guarantees issued, commitments and derivatives) involving the assumption of risk and valued using the measurement of criteria
set forth by the Bank of Italy. Amounts are stated before and after any doubtful amounts. Exposures are broken down geographically by the country of residence of the borrower.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 358
B.4 Large exposures
Item/Amount 31 12 2017 31 12 2016
a) Book value 45,996,695 75,524,335
b) Weighted value 4,534,114 6,572,291
c) Number 11 16
Regulations provide for positions to be defined as “large exposures” by making reference to credit-risk unweighted exposures.
An exposure is deemed as a “large exposure” when its amount is equal to or greater than 10% of Regulatory capital. Pursuant
to the afore-mentioned regulations, exposures in government securities were also included.
2017 ANNUAL REPORT
359 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
C. SECURITISATION TRANSACTIONS
C.1 Securitisation transactions
Qualitative Information
Structures, processes and goals
In keeping with the organisational model established at Group level for the governance and
management of risks, securitisation risk is governed by a specific Group directive.
The Parent Company’s Structural Liquidity Service establishes general practices and coordinates
activities in relation to securitisation transactions. The criteria and rules for managing securitisation
transactions are instead determined by the Credit Portfolio Governance Area.
More specifically, for the securitisation of performing loans, the Outsourced Credit Services and
Suppliers Governance Service, within the Credit Portfolio Governance Area, is responsible for
establishing operational guidelines and general practices. For this purpose, it looks after related aspects
and obligations associated with servicing activities and monitors the performance of existing
transactions through monthly and quarterly reports on collections of remaining principal, positions in
arrears and disputed positions arising from securitisation transactions. The same Service prepares the
summary statements containing the data of the portfolio sold and, as part of critical situation
management, it reports cases that may pose potential risks for noteholders to the relevant functions in
the organisation.
In its capacity as third-level control body, the Credit Audit Service uses sampling procedures to
periodically validate:
whether the degree of recoverability of loans sold is accurate and, as a result, whether the fair
value of securities issued is appropriate;
whether line checks assigned to the various units have been carried out and roles and
responsibilities properly identified; it also verifies:
the compliance of reporting/accounting procedures with current regulations in collaboration
with other units, as necessary;
the existence of any conflicts of interest with respect to noteholders; and compliance, on a
sampling basis, with the obligations of Law 197/91, as amended.
For securitisations of non-performing loans, the servicing and debt collection performance control
services are handled by market operators outside the Group.
BANCA MONTE DEI PASCHI DI SIENA
C.1 Banking Group - Exposures arising from major own securitisation transactions broken down by type of securitised assets and type of exposure
2017 ANNUAL REPORT
31 12 2017
Balance-sheet esposure Guarantee issued Lines of credit
Quality of underlying Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior
assets/Exposures
Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net
exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure
A. Fully derecognised 850,420 (46) 136,495 (1,512) 2,821 - - - - - - - - - - - - -
Mortgages Loans - - - - - - - - - - - - - - - - - -
Residential mortgages - - - - - - - - - - - - - - - - - -
Non residential mortages 850,420 (46) 136,495 (1,512) 2,821 - - - - - - - - - - - - -
B. Partially derecognised - - - - - - - - - - - - - - - - - -
C. Not derecognised - - 3,444,400 - 583,596 - - - - - - - - - - - - -
Consumer credit - - 159,687 - 19,468 - - - - - - - - - - - - -
Mortgages Loans - - - - 52,110 - - - - - - - - - - - - -
Residential mortgages - - 1,532,432 - 76,507 - - - - - - - - - - - - -
Corporate Loans - - 1,118,677 - 3,800 - - - - - - - - - - - - -
Leasing - - 633,604 - 202,530 - - - - - - - - - - - - -
Shipping - - - - 229,181 - - - - - - - - - - - - -
Total 850,420 (46) 3,580,895 (1,512) 586,417 - - - - - - - - - - - - -
of which non-performing - - 161,533 - 287,337 - - - - - - - - - - - - -
Others 850,420 (46) 3,419,362 (1,512) 299,079 - - - - - - - - - - - - -
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
In relation to securitisation transactions with own underlying assets, the table indicates balance sheet exposures, unsecured exposures, and other forms of ‘credit enhancement’.
360
361
C.2 Banking Group - Exposures arising from major 'third-party' securitisation transactions broken down by type of securitised asset and type of
exposure
31 12 2017
Balance-sheet exposure Guarantees issued Lines of credit
Senior Mezzanine Junior Senior Mezzanine Junior Senior Mezzanine Junior
Type of securitised
asset/Exposure write- write- write- write- write- write- write- write- write-
Book downs/ Book downs/ Book downs/ Book downs/ Book downs/ Book downs/ Book downs/ Book downs/ Book downs/
value write- value write- value write- value write- value write- value write- value write- value write- value write-
backs backs backs backs backs backs backs backs backs
Other assets 2,088 2 864 - 4,066 13 - - - - - - - - - - - -
Consumer credit 48,987 129 27,002 (211) - - - - - - - - - - - - - -
Residential mortgages 125,240 177 17,105 117 - - - - - - - - - - - - - -
Non residential
32,204 (55) 6,456 59 - - - - - - - - - - - - - -
mortgages
Total 208,519 253 51,427 (35) 4,066 13 - - - - - - - - - - - -
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The table indicates the exposures assumed by the Group in relation to each third-party securitisation transaction, and also reports the contractual type of assets sold.
The column “Write-downs/write-backs” indicates the amount of any write-downs or write-backs during the year as well as depreciations and revaluations posted to
profit and loss or directly to equity reserves, in the case of AFS securities
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 362
C.3 Banking Group - Stakes in special purpose securitisation vehicles
31 12 2017
Assets Liabilities
Consolidation
Securitisation/Vehicle company
Registered office Debt
name Credit Other Senior Mezzanine Junior
securities
2017 Popolare Bari RMBS S.r.l. Via V. Alfieri, 1 Conegliano (TV) NO 704,901 571,872 58,264 92,516
Argo Mortgage 2 S.r.l. Via Cassa di Risparmio 15 Genova NO 63,112 6,962 26,800 29,350
Berica Abs 3 S.r.l. Via Battaglione Framarin, 18 Vicenza NO 572,688 310,911 93,900 115,012
Bumper 7 S.A. Av. Du XX Sept. 52-54 Luxembourg NO 552,739 26,527 332,195 49,100
Cars Alliance Auto Loans 41 rue Délizy, 93500
NO 135,533 26,520 56,799 52,300
Germany V 2013-1 Pantin (France)
Citizen Irish Auto Receivables Fourth Floor, 3 George’s Dock, IFSC,
NO 127,561 101,968 8,700 16,600
Trust 2017 DAC Dublin 1, Ireland
Claris ABS 2011 S.r.l. Via V. Alfieri, 1 Conegliano (TV) NO 112,604 525,117 654,178
Deco 2015 CHARLEMAGNE 2 BOULEVARD KONRAD
NO 226,130 116,483 40,098 69,553
S.A. ADENAUER, Luxembourg
Dilosk RMBS No1 Designated
16 Hume Street, Dublin 2, Ireland NO 145,683 100,311 24,700 20,600
Activity Company
Fred. Roeskestraat 123
E-MAC NL 2005 Amsterdam, 1076 EE NO 356,651 342,355
Netherlands
FASTNET SECURITIES 13 DAC 3 George's Dock, I.F.S.C. Dublin 1 NO 512,740 10,526 413,100 86,900 26,300
Fip Funding S.r.l. Via Parigi, 11 Roma NO 1,848,597 844,022
First Swiss Mobility 2017-2-AG Bellerivestrasse 201, 8008 Zürich NO 329,998 228,422 14,100 12,647
GRAND CANAL SECURITIES 2 3rd Floor, Kilmore House, Park Lane,
NO 517,638 13,994 230,860 67,809 218,961
DAC Spencer Dock, Dublin 1
Prins Bernhardplein 200 1097 JB,
GREEN APPLE 2017 I NHG BV NO 1,339,463 20,340 1,182,000 156,000 10,690
Amsterdam
Italfinance Securitisation Vehicle
Via V. Alfieri, 1 Conegliano (TV) NO 1,660,601 1,434,376 261,898 235,099
S.r.l.
Madeleine SPV S.r.l. Via V. Alfieri, 1 Conegliano (TV) NO 61,884 6,074 33,754 15,665 17,522
Marche M6 S.r.l. Via V. Alfieri, 1 Conegliano (TV) NO 1,244,207 748,266 494,565
Sestante Finance S.r.l. Via G. Negri 10 - 20123 Milano NO 109,310 59,744 30,530 30,547
SME GRECALE 2017 S.R.L. Piazza della Costituzione 2 - Bologna NO 767,680 17,550 508,000 77,000 184,800
Tagus Sociedade de Titularizacao
Rua Castilho, 20 Lisbona NO 770,391 612,897 17,865 45,581
de Creditos S.A.
Taurus 2015-1 IT S.r.l. Via Gustavo Fara 26 - Milano NO 189,193 136,069 15,192 37,931
Titulisacion de Activos CAM N 9 Calle Orense, 58 Madrid NO 550,468 416,817 48,000 43,500
Towers CQ S.r.l. Via A. Pestalozza, 12/14 Milano NO 832,913 625,716 87,100 121,720
VCL Multi-Compartment S.A. 52-54 avenue du X Septembre L-2550
NO 270,259 237,153 12,837
VCL 23 Luxembourg
VOBA N. 5 S.r.l. Via V. Alfieri, 1 Conegliano (TV) NO 279,646 169,591 89,450
C/Principe de Vergara, 131 Planta 3,
Wizink Master Credit Cards NO 776,889 781,505
28002 Madrid
Norma Spv S.R.L. Via Vittorio Alfieri 1, 31015 Conegliano NO 474,817 1,613 8,377 159,174 308,879
Siena Mortgages 10-7 S.r.l. Via V. Alfieri, 1 Conegliano (TV) YES 450,426 218 451,066 (422)
Casaforte S.r.l. Via Eleonora Duse 53 Roma YES 1,304,186 13,140 1,106,064 211,261
Siena Consumer 2015 S.r.l Via V. Alfieri, 1 Conegliano (TV) YES 239,147 14 186,980 52,182
Siena Lease 2016 2 S.r.l. Via V. Alfieri, 1 Conegliano (TV) YES 188,578 115 188,552 142
Siena PMI 2015 S.r..l Via A. Pestalozza 12/14, Milano YES 105,241 357 106,608 (1,010)
Total 17,821,874 - 110,468 12,632,687 2,183,100 2,927,731
Liabilities of third-party securitisation transactions do not have the remaining items different from the financial instruments
issued, including cumulative profit (loss) for the year.
As regards the “Casaforte Srl” own securitisation with the derecognition of underlying assets, please note that the assets
acquired from the originator are included under “Loans”. As regards the other consolidated own securitisation transactions,
all without the derecognition of the underlying assets, the item “Loans” does not include the receivables acquired from the
originator, but rather includes primarily the liquidity held by the vehicles at the reporting date.
2017 ANNUAL REPORT
363 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
C.4 Banking Group - Non-consolidated special purpose securitisation vehicles
31 12 2017
Accounting portfolio: Difference
Accounting portfolio:
Liabilities between
Total Total Net Maximum
Balance-sheet item/Type of exposure to
assets liabilities book exposure
structured entity loss and
(A) Financial (B) (C=A-B) to loss
Financial Deposits book value
Loans to Liabilities (D)
assets held from (E=D-C)
customers hekd for
for trading customers
trading
2017 Popolare Bari RMBS S.r.l. 28,492 28,492 - 28,492 28,492 -
Argo Mortgage 2 S.r.l. 99 99 - 99 99 -
Berica Abs 3 S.r.l. 3,060 3,060 - 3,060 3,060 -
Bumper 7 S.A. 2,000 2,000 - 2,000 2,000 -
Cars Alliance Auto Loans Germany V
2,088 2,088 - 2,088 2,088 -
2013-1
Citizen Irish Auto Receivables Trust
3,501 3,501 - 3,501 3,501 -
2017 DAC
Claris ABS 2011 S.r.l. 18,337 18,337 - 18,337 18,337 -
Deco 2015 CHARLEMAGNE S.A. 1,599 1,599 - 1,599 1,599 -
Dilosk RMBS No1 Designated Activity
2,015 2,015 - 2,015 2,015 -
Company
E-MAC NL 2005 7,598 7,598 - 7,598 7,598 -
Fastnet securities 13 DAC 2,501 2,501 - 2,501 2,501 -
Fip Funding S.r.l. 17,203 17,203 - 17,203 17,203 -
First Swiss Mobility 2017-2-AG 1,026 1,026 - 1,026 1,026 -
Grand Canal Securities 2 DAC 6,545 6,545 - 6,545 6,545 -
Green Apple 2017 I NHG BV 4,983 4,983 - 4,983 4,983 -
Italfinance Securitisation Vehicle S.r.l. 9 9 - 9 9 -
Madeleine SPV S.r.l. 5,745 5,745 - 5,745 5,745 -
Marche M6 S.r.l. 28,855 28,855 - 28,855 28,855 -
NORMA SPV 113,577 - 113,577 - 5,448 5,448 108,129 108,129 -
Sestante Finance S.r.l. 807 807 - 807 807 -
SME GRECALE 2017 S.R.L. 15,001 15,001 - 15,001 15,001 -
SRF 2017 1 FONDO DE
101 101 - 101 101 -
TITULIZACION
Tagus Sociedade de Titularizacao de
51,134 51,134 - 51,134 51,134 -
Creditos S.A.
Taurus 2015-1 IT S.r.l. 4,857 4,857 - 4,857 4,857 -
Titulisacion de Activos CAM N 9 3,431 3,431 - 3,431 3,431 -
Towers CQ S.r.l. 18,853 18,853 - 18,853 18,853 -
VCL Multi-Compartment S.A. VCL 23 1,894 1,894 - 1,894 1,894 -
VOBA N. 5 S.r.l. 29,775 29,775 - 29,775 29,775 -
Wizink Master Credit Cards 2,500 2,500 - 2,500 2,500 -
Total 113,577 264,009 377,586 - 5,448 5,448 372,138 372,138 -
The table includes the interests held by the subsidiary MPS Capital Services S.p.A. and the Parent Company as described
below:
2017 Popolare Bari RMBS S.r.l.: vehicle established on 17 May 2017 in the Italian Republic pursuant to article 3 of
the Supervisory Law as a limited liability company with the name 2017 Popolare Bari RMBS Srl, tax code and VAT
no. 04881030268. The issuer is registered in the Treviso-Belluno companies’ register with number 04881030268
and in the register of vehicles held by the Bank of Italy pursuant to the regulation issued by the Bank of Italy on 7
June 2017 (“Provisions on disclosure and statistical obligations of companies involved in securitisation
transactions”) with no. 35362.3. The loans present in the vehicle’s assets are Italian residential mortgages with a
particular concentration in the Puglia region.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 364
Argo Mortgage 2 S.r.l.: Securitisation of loans originated with 13,322 residential mortgages distributed throughout
Italy. Originator: Banca Carige SpA.
Berica Abs 3 S.r.l.: vehicle established pursuant to Law no. 130/1999. Multi-originator securitisation (Banca
Popolare di Vicenza and Banca Nuova S.p.A.), which entails the non-recourse transfer of performing loans
consisting of residential mortgages in favour of parties residing in Italy.
Bumper 7 S.A.: German loan securitisation company. Originator: LeasePlan Deutschland GmbH. The portfolio
consists of 36,580 operating lease contracts granted to consumer or public customers residing in Germany.
Cars Alliance Auto Loans Germany V 2013-1: Vehicle established with auto loans disbursed in Germany. The
vehicle was initially established with 139,361 loans with an LTV of 83.06%.
Citizen Irish Auto Receivables Trust 2017 DAC: Vehicle established under Irish law. This is a portfolio of auto
loans disbursed in Ireland.
Claris ABS 2011 S.r.l.: vehicle established pursuant to Law no. 130/1999. Multi-originator securitisation (Banca
Apulia, CASSA DI RISPARMIO DI FABRIANO E CUPRAMONTANA and Veneto Banca), which entails the
non-recourse transfer of performing loans consisting of residential mortgages in favour of parties residing in Italy.
Deco 2015 CHARLEMAGNE S.A.: Portfolio collateralised by commercial properties including more than ten
offices and retail shops located in the Netherlands and Germany, plus eight office buildings in an industrial park in
Belgium. Country of issue: Luxembourg.
Dilosk RMBS No1 Designated Activity Company: portfolio including mortgages originated by ICS Building Society
and secured by residential properties located in Ireland which were sold by the Bank of Ireland to Dilosk Funding
No.1 Limited.
E-MAC NL 2005: 3,428 loans to 2,121 parties. Dutch residential mortgages.
Fastnet securities 13 DAC: Portfolio including mortgages originated by Permanent TSB plc (Permanent TSB or
PTSB and in its role as vendor of mortgage loans) and secured by residential properties located in Ireland.
Fip Funding S.r.l.: FIP Funding is the first investment fund promoted by the Italian Republic as part of a more
extensive enhancement process promoted by the Ministry of Economy and Finance (MEF) through the
transfer/contribution of real estate assets to mutual real estate investment funds.
First Swiss Mobility 2017-2-AG: vehicle with loans disbursed in Switzerland in the form of auto loans and leases.
Grand Canal Securities 2 DAC: the vehicle will make payments on Bonds through principal and interest payments
deriving from a portfolio including mortgages originated by Irish Nationwide Building Society (Anglo Irish Bank,
Irish Bank Resolution Corporation, Hill Samuel Irlanda Ltd, Scottish Legal Trustee Ltd, Irish Industrial Building
Society and Irish Mutual Building Society) and Springboard Mortgages Limited for borrowers secured by real estate
located in Ireland. There is also a small number of mortgage loans in the mortgage portfolio, for which foreclosure
procedures have been completed in relation to the mortgaged properties.
Green Apple 2017 I NHG BV: the vehicle is a private limited liability company (besloten vennootschap met
beperkte aansprakelijkheid) incorporated under the name Green Apple 2017-I NHG B.V. pursuant to the laws of
the Netherlands on 1 August 2017 for an undefined period of time, with registered office in Amsterdam. Dutch
residential mortgages.
Italfinance Securitisation Vehicle S.r.l.: vehicle established on 23 November 2004 in the Italian Republic (with the
companies’ register of Treviso) pursuant to Law no. 130 of 30 April 1999, as a vehicle for the issue of asset-backed
securities. The Issuer is a limited liability company established with the name Doride Finance Srl, which
subsequently changed its name to Italfinance Securitisation Vehicle Srl, and is enrolled in the special register of the
Bank of Italy pursuant to article 107 of the banking law. The initial duration of the Issuer is until 31 December
2050, without prejudice to extensions pursuant to Italian law. The assets held by the vehicle are loans in the form of
leases disbursed to businesses located throughout Italy.
Madeleine SPV S.r.l.: as set forth in article 2 of its by-laws, the objective of this vehicle is the acquisition of
monetary receivables for the purpose of securitisations and the issue of securities backed by such assets. The Issuer
has been established as a multi-use vehicle and as a result it may conduct securitisation transactions in addition to
the Securitisation. The loans subject to the securitisation are fifth-of-salary-backed loans to Italian public and
private employees.
Marche M6 S.r.l.: vehicle established pursuant to Law no. 130/1999. Originator Banca Marche S.p.A. Banca
Marche S.p.A. A portfolio of performing loans deriving from residential first mortgages.
Norma SPV: on 1 July 2017, as part of a securitisation of non-performing loans, also originated by banks outside
the MPS Group, Banca MPS and MPS Capital Services completed the sale of a portfolio of non-performing loans
2017 ANNUAL REPORT
365 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
in the real estate and shipping sectors. The entire portfolio sold to the vehicle Norma SPV S.r.l. consisted of 20
loans equal to EUR 284.9 mln on the transfer date, of which:
o no. 12 loans disbursed by Banca MPS for EUR 24.0 mln in the real estate sector and EUR 145.3 mln in
the shipping sector;
o no. 8 loans disbursed by MPS Capital Services for EUR 28.8 mln in the real estate sector and USD 86.8
mln in the shipping sector.
As at 31 December 2017, the remaining debt balance (including interest on arrears accrued) of the portfolio
originated by the MPS Group amounted to EUR 252.7 mln (including EUR 145.4 mln transferred by Banca MPS
and EUR 107.3 mln by MPS Capital Services). To fund the acquisition of this portfolio, on 21 July 2017 the Vehicle
issued Class A1, B, C and D ABS securities (the “securities”) for the real estate sector and Class A1, B, C1, C2 and
D ABS securities for the shipping sector. The senior classes of both the real estate and shipping transactions were placed with
institutional investors, while the mezzanine and junior classes were subscribed by each transferring bank in proportion with the
transferred loans. In particular, the MPS Group subscribed the following classes:
o Real Estate: Class B for a nominal amount of EUR 31.2 mln; Class C for a nominal amount of EUR 4.2
mln; Class D for a nominal amount of EUR 15.8 mln.
o Shipping: Class B for a nominal amount of EUR 77.5 mln; Class C1 for a nominal amount of EUR 32.7
mln; Class C2 for a nominal amount of EUR 10.4 mln; Class D for a nominal amount of EUR 105.6
mln.
The placement of part of the notes did not entail the derecognition of the underlying assets from the balance sheet
of the transferring Banks, which have substantially retained all risks and rewards associated with the ownership of
the assets sold.
Sestante Finance S.r.l. is a limited liability company incorporated in the Italian Republic pursuant to article 3 of
Italian Law no. 130 of 30 April 1999 (Provisions on loan securitisations). The Issuer is registered in the Milan
companies’ register with number 03367430968 and in the register held by the Italian Foreign Exchange Office
pursuant to article 106 of the Banking Law with number 33852 and the special register (special list) held by the
Bank of Italy pursuant to article 107 of the banking law. Since its establishment, the Issuer has undertaken no
activities other than the acquisition of initial claims and the signing of settlement documents and it has not prepared
any financial statements or declared or paid dividends or assumed any debt, other than the costs and expenses of
establishing the Issuer or otherwise pursuant to the settlement documents. The issuer has no employees. The Issuer
was established on 17 December 2001 with the name Gea S.r.l. The extraordinary shareholders' meeting held on 7
November 2003 changed the name to Sestante Finance S.r.l. The Issuer’s authorised share capital, issued and fully
paid-up, is EUR 10,000. The Issuer’s share capital has been subscribed as follows: Stichting Artemide: EUR 6,000,
which represents 60% of the share capital Stichting Olimpo: EUR 4,000, which represents 40% of the equity. The
loans held by the vehicle are Italian residential mortgages.
SME GRECALE 2017 S.R.L.: vehicle with a portfolio of loans granted (with or without collateral) to SMEs located
throughout Italy.
SRF 2017 1 Fondo de titulisacion: Vehicle established under Spanish law with a portfolio consisting of residential
mortgages (5,325 contracts) secured by residential properties located in Spain.
Tagus Sociedade de Titularizacao de Creditos S.A.: Portuguese vehicle which issued notes collateralised with loans
for auto/lorry purchases/leases and electricity receivables (Originator EDP Servico Universal SA).
Taurus 2015-1 IT S.r.l.: the issuer was incorporated in the Italian Republic pursuant to the Securitisation Law on 23
October 2014 as a limited liability company and, on 17 November 2014, it changed its name to “TAURUS 2015-1
IT S.R.L.”. The Issuer’s by-laws call for its closure on 31 December 2100. The Issuer has no employees or
subsidiaries. The Issuer’s authorised and issued share capital is EUR 10,000, fully paid-up. The current shareholder
of the Issuer is: Quotaholder Quota Stichting SFM Italia n. 1 EUR 10,000 (100% of the share capital). The main
activity of the Issuer, its only scope of business, pursuant to article 2 of its by-laws and in compliance with the
Securitisation Law, is the performance of securitisations. The vehicle is collateralised by a portfolio 95% of which
consists of three loans secured by 14 commercial and office properties located in Northern Italy and Rome.
Titulisacion de Activos CAM N 9: vehicle subject to Spanish law. Loan originator: Caja de Ahorros del
Mediterraneo. Spanish residential mortgages.
Towers QC S.r.l.: vehicle established pursuant to Law no. 130/1999. A securitisation of salary/pension-backed
loans granted by Accedo S.p.A.
VCL Multi-Compartment S.A. VCL 23, a limited liability company established in order to issue asset-backed
securities pursuant to the laws of Luxembourg on 16 September 2009, for an unlimited period of time, which acts
in the name and on behalf of its specific Compartment VCL 23, duly created by resolutions of its Board of
Directors on 24 February 2016. VCL Multi-Comparto SA is registered with the chamber of commerce and
companies of Luxembourg with registration number B 148436. The issuer expressly chose in its By-laws to be
governed by the Luxembourg securitisation law.2. The corporate purpose of the Issuer VCL Multi-Compartment
SA is the issue of ABSs. VCL Multi-Compartment SA may issue notes of any nature and in any currency and, to the
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 366
maximum extent permitted by the Luxembourg securitisation law, pledges and mortgages. VCL Multi-
Compartment SA may enter into any agreement and take any measure necessary or useful to perform the
transactions permitted by the Luxembourg securitisation law including, for example, the dissolution of its activities
in compliance with the relative agreements. VCL Multi-Comparto SA may carry out the above-mentioned activities
only if and to the extent to which they are compatible with the Luxembourg Securitisation Law. The vehicle’s loans
are secured with 73,605 loan agreements for cars purchased in Germany.
VOBA N. 5 S.R.L.: the fifth securitisation transaction, “Voba 5”, is for the non-recourse transfer to a newly
established SPV named Voba N.5 S.r.l. of performing loans consisting of mortgages disbursed to customers with
SAE code (business code) 600, 614 or 615 (private parties, self-employed people or sole proprietorships).
Wizinik master credit cards f.t.: vehicle for the securitisation of Spanish personal loans. The group holds senior
shares.
Maximum exposure to the risk of loss has been determined to be equal to book value. During the year under review, the
Group did not provide and does not intend to provide financial or other support.
2017 ANNUAL REPORT
367
C.5 Banking Group - Servicer activities - Collections of securitised loans and redemptions of securities issued by the special purpose
securitisation vehicle
31 12 2017
Securitised assets Loans collected during the Percentage of securities redeemed
(year-end data) year (year-end data)
Special Purpose
Servicer Senior Mezzanine Junior
Vehicle
Impaired Performing Impaired Performing
Impaired Performing Impaired Performing Impaired Performing
assets loans assets loans assets loans
BMPS Casaforte S.r.l. - 1,269,567 - 134,348 0.0% 36.7% 0.0% 0.0% 0.0% 0.0%
- 1,269,567 - 134,348
Total 31 12 2017
- 1,318,072 - 137,590
Total 31 12 2016
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The table conventionally shows the Casaforte securitisation for which the Parent Company carries out servicer activities, although this is a consolidated vehicle.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 368
C.6 Banking Group - Consolidated special purpose securitisation vehicles
The Group carried out securitisation transactions chiefly to optimise its liquidity profile; besides
placement on the market, the securities were sold to perform refinancing transactions with the ECB
and repurchase agreements with the market.
The paragraphs below describe the characteristics of the Group's securitisation transactions originated
in previous years and ongoing as at 31 December 2017 where the securities were partly placed on the
market or with retail customers, as well as information on the nature of the risks associated with the
interests in consolidated securitisation vehicles.
In view of these transactions, the Parent Company allocated reserves in support of the vehicles, should
such funds be needed upon occurrence of certain events. As at 31 December 2017, these reserves
amounted to EUR 129.83 mln.
Own securitisations with derecognition of the underlying assets
Casaforte Srl
This securitisation was carried out in 2010 and consisted in the transfer to Vehicle Casaforte Srl of a
pool of receivables arising from a mortgage loan granted to the consortium company, Perimetro
Gestione Proprietà Immobiliari. As at 31 December 2017 the residual debt amounts to EUR 1,269.6
mln. In December 2013 the Parent Company announced the completed buyback in full of the PGPI
2010 equity financial instruments and related Class Z Notes for a value of approximately EUR 70 mln.
As a result of these purchases, the Parent Company acquired control of the Company, which was
subsequently consolidated in the Financial Statements.
At the reporting date, Casaforte Class A Notes amounting to EUR 157.2 mln placed with third-party
investors are posted under item “30 – Debt securities issued” of the liabilities in the consolidated
balance sheet. The Group is committed to repurchasing these securities from investors at a price
calculated on the basis of the equivalent issue spread.
Own securitisations without derecognition of the underlying assets
Siena Mortgages 10-7 Srl
On 30 September 2010, a portfolio of 34,971 performing residential mortgages originated by the
Parent Company was sold for approx. EUR 3,479.5 mln. As at 31 December 2017, the remaining debt
balance amounted to EUR 1902.4 mln (22,426 outstanding contracts).
To fund the acquisition of the portfolio, the Vehicle issued residential mortgage-backed securities
(RMBS); Class A1 and A2 notes - now fully repaid - were placed with market investors, whereas the
remaining classes of notes issued were underwritten by the Parent Company and part of them were
subsequently placed with market investors (class A3).
Market placement of these classes did not entail the derecognition of the underlying assets from the
balance sheet of the Parent Company (transferor), which has substantially retained all risks and rewards
associated with the ownership of the assets sold.
Siena Consumer 2015 Srl
On 27 February 2015, the former subsidiary Consum.it S.p.A., now absorbed into the Parent
Company, carried out a second securitisation transaction with the disposal of a portfolio of 198,371
personal, auto and special purpose loans, all disbursed by Consum.it S.p.A. for an amount of EUR
1,505.4 mln.
2017 ANNUAL REPORT
369 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
As at 31 December 2017, the remaining debt balance amounted to EUR 363.5 mln (191,994
outstanding loans).
To finance the purchase of this portfolio the Vehicle issued various classes of ABS securities, of which
those in the Senior Class were placed with an institutional investor; the remaining mezzanine and
junior classes were subscribed by the Parent Company.
In June 2017, the transaction was restructured in relation to the ABSs issued by the vehicle, with an
increase in the nominal amount of Class A through the partial redemption of Classes B, C and E. This
transaction also did not entail the derecognition of the underlying loans from the transferor’s financial
statements.
Siena PMI 2015 Srl
On 26 June 2015, in order to optimise the Group’s liquidity profile, the Parent Company transferred a
portfolio to the vehicle company “Siena PMI 2015 Srl” consisting of 24,683 performing, unsecured or
mortgage loans disbursed to Italian SMEs totalling EUR 3,002.7 mln. As at 31 December 2017, the
remaining debt balance amounted to EUR 1,167.0 mln (13,309 outstanding contracts).
To fund the acquisition of the portfolio, the Vehicle issued ABS securities on 6 August 2015. In the
senior tranche, Senior classes A1A and A1B - now fully repaid - were placed with institutional
investors, while classes A2A and A2B - also now fully repaid - were placed with the European
Investment Bank. The remaining classes of notes issued were repurchased by the Parent Company,
which subsequently placed part of Class B with institutional investors.
The B and C classes were rated by Moody’s and DBRS.
The placement of part of the notes did not entail the derecognition of the underlying assets from the
balance sheet of the Parent Company, which has substantially retained all risks and rewards associated
with the ownership of the assets sold.
Siena LEASE 2016-2 Srl
On 3 December 2015, the subsidiary MPS Leasing & Factoring Banca per i Servizi Finanziari alle
Imprese sold a portfolio consisting of 13,181 performing finance leases totalling EUR 1,622.4 mln to
the vehicle company “Siena LEASE 2016-2 S.r.l.”. As at 31 December 2017, the remaining debt
balance amounted to EUR 1,061.9 mln (8,647 outstanding contracts).
To fund the acquisition of the portfolio, the Vehicle issued ABS securities on 28 January 2016. In
particular, the senior tranche was placed with institutional investors, while the remaining classes of
securities issued were repurchased by the Originator.
The Senior and Mezzanine classes were rated by Moody’s and Fitch.
The placement did not entail the derecognition of the underlying assets from the balance sheet of the
Parent Company, which has substantially retained all risks and rewards associated with the ownership
of the assets sold.
**********************
For all the securitisation transactions described above, during the period under review the Parent
Company and its subsidiaries have not provided any financial or other support without being obliged
under the contract. There are no cases of financial or other support to a previously non-consolidated
structured entity as a result of which the structured entity was controlled by the Group.
The Group does not intend to provide financial or other support to consolidated securitisation
vehicles, nor to assist entities in obtaining financial support.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 370
D. Information on structured entities (other than securitisation vehicles)
D.1 Consolidated structured entities
This paragraph was not completed as no such entities are present.
D.2 Structured entities not consolidated for accounting purposes
D.2.1 Structured entities consolidated for supervisory purposes
This paragraph was not completed as no such entities are present.
D.2.2 Other structured entities
Qualitative Information
For disclosures pursuant to IFRS 12 please refer to the comments provided under the tables below.
Quantitative Information
31 12 2017
Accounting Difference
Accounting portfolio:
portfolio: Maximum between
Assets Total Total Net book
Balance sheet item/Type Liabilities exposure to exposure to
assets liabilitie value
of structured entity loss loss and
Held for Available (A) held for s (B) (C=A-B)
(D) book value
trading for sale trading (E=D-C)
1. Special Purpose vehicles - - - - - - - -
2. UCITS 985,284 96,210 1,081,494 172,744 172,744 908,750 1,240,964 332,214
Total 985,284 96,210 1,081,494 172,744 172,744 908,750 1,240,964 332,214
UCITS
The aggregate includes, in the column ‘Financial assets held for trading’:
- EUR 61.7 million (EUR 12.1 million as at 31 December 2016) relating to the interests held by the subsidiary MPS
Capital Services S.p.A in units of open-ended asset funds and Exchange Traded Funds investing in stocks, bonds
and derivatives. These units are purchased for the hedging of risks associated with the issue of fund structured
bonds placed through the network by the Parent Company or for repurchase on the secondary market of the
structured funds that had been originally structured;
- EUR 923.6 million (EUR 985.0 million as at 31 December 2016) relating to exposures in credit and financial
derivatives with a positive fair value to the counterparties Rainbow (EUR 485.2 million; EUR 614.9 million as at 31
December 2016) and Axa Im Deis asset funds (EUR 325.0 million; EUR 370.1 million as at 31 December 2016).
Rainbow, Anima and Axa Im Deis are funds under Irish law managed by Anima Asset Management and AXA
Investment Managers, respectively. These funds are divided into subfunds purchased by MPS AXA Financial
Limited, which are the funds to which are linked the services of the Unit Linked policies placed with the latter's
customers with the name “AXA MPS Valore Performance”. The subsidiary MPS Capital Services S.p.A. operates
with Rainbow, Anima and Axa Im Deis as counterparty with which the derivatives included in the Fund assets are
negotiated.
The column ‘Financial assets available for sale’ includes:
- EUR 66.7 mln (EUR 147.4 mln as at 31 December 2016) relating to interests held by the Parent Company in
private equity funds, whose purpose is to increase the value of the respective equity through mainly medium to
2017 ANNUAL REPORT
371 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
long-term investments chiefly in the purchase and/or subscription of shares, units and securities in general
representing the equity of target enterprises, exclusively in the best interest of the investors;
- EUR 12.9 mln (EUR 14.3 mln) relating to units of a multi-segment closed-end Italian alternative asset investment
fund (Idea CCR I) held by the Parent Company and the subsidiary MPS Capital Services S.p.A. The fund’s purpose
is to contribute to the re-launch of medium-sized Italian companies in financial difficulty, but with solid
fundamentals;
- EUR 7.6 mln (EUR 6.3 mln as at 31 December 2016) relating to units - held by the Parent Company and by the
subsidiaries MPS Capital Services S.p.A. and MPS Leasing & Factoring S.p.A - of a closed-end private contribution
real estate fund for qualified investors only (Athens RE Fund B). The fund, managed by Unipol Sai Investimenti
SGR, holds prestigious tourism complexes located in Tuscany and Sicily.
- EUR 3.4 mln (EUR 4.4 mln as at 31 December 2016) relating to the units of a closed-end real estate investment
fund for qualified investors only (Fondo Leopardi and Fondo Cosimo I), held by the Parent Company and the
subsidiary MPS Capital Services S.p.A., respectively. The objective of the funds is to maximise income for its
investors through a growing dividend yield as well as increased value of portfolio assets.
- EUR 4.9 mln relating to units of a closed-end alternative real estate investment fund for qualified investors only
(Rainbow Fund), held by the Parent Company and by the subsidiary MPS Capital Services S.p.A. The fund's
objective is to maximise income for its investors through the increased value of the investments made. The fund,
managed by Serenissima SGR, holds several hotel complexes located in Puglia;
- EUR 0.7 mln (EUR 8.7 mln as at 31 December 2016) includes interests of the Parent Company in hedge funds,
particularly side pockets and funds under liquidation.
The column ‘Financial liabilities held for trading’ includes:
- EUR 172.7 million (EUR 171.5 million as at 31 December 2016) relating to the negative fair value of financial and
credit derivatives with the counterparties Rainbow (EUR 107.6 million; EUR 135.9 million as at 31 December
2016), Anima (EUR 34.1 million; not present in 2016) and the AXA IM DEIS asset funds managed by AXA
Investment Managers (EUR 31.0 million; EUR 35.6 million as at 31 December 2016).
The entities in question raise funds through the issue of units, making recourse to the capital that investors committed to
paying upon placement and forms of borrowing in line with their respective management regulations.
Maximum exposure to the risk of loss was determined to be equal to book value for exposures to UCITS units other than the
financial and credit derivatives for which reference is made to positive fair value plus the add-on (calculated also taking into
account positions with a negative fair value). For UCITS, the maximum risk exposure also includes the Group’s commitments
not yet called up by the funds, to subscribe additional units.
During the year under review, the Group did not provide and does not intend to provide financial or other support to the
non-consolidated structured entities referred to above.
There are no sponsored non-consolidated entities for which the Group holds no interests at the reporting date.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 372
E. Transfers
A. Financial assets sold and not fully derecognised
Qualitative Information
For a description of the transactions contained in the tables reported in this section, please refer to the
footnotes of the tables themselves.
2017 ANNUAL REPORT
373
Quantitative Information
E.1 Banking Group - Financial assets sold and not derecognised: book value and full value
31 12 2017
Financial assets
Financial assets held Financial assets Financial asset
designated at Loans to banks Loans to customers Total
for trading available for sale held to maturity
Type/portfolio fair value
A B C A B C A B C A B C A B C A B C 31 12 2017 31 12 2016
A. Balance-sheet assets 4,556,819 - - - - - 1,774,273 - - - - - - - - 4,482,006 - - 10,813,098 25,115,230
1. Debt securities 4,556,261 - - - - - 1,774,273 - - - - - - - - - - - 6,330,534 19,442,975
2. Equity instruments 558 - - - - - - - - X X X X X X X X X 558 22,707
3. UCITS - - - - - - - - - X X X X X X X X X - -
4. Loans - - - - - - - - - - - - - - - 4,482,006 - - 4,482,006 5,649,548
B. Derivatives - - - X X X X X X X X X X X X X X X - -
Total 31 12 2017 4,556,819 - - - - - 1,774,273 - - - - - - - - 4,482,006 - - 10,813,098 X
of which non performing - - - - - - - - - - - - - - - 307,512 - - 307,512 X
Total 31 12 2016 4,299,467 - - - - - 14,078,883 - - - - - 726,598 - - 6,010,282 - - X 25,115,230
of which non performing - - - - - - - - - - - - - - - 178,965 - - X 178,965
Legend:
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A = Financial assets sold and fully recognised (book value)
B = Financial assets sold and partially recognised (book value)
C = Financial assets sold and partially recognised (full value)
The table reports the book value of financial assets sold but not derecognised, and still partially or fully reported in balance sheet assets. Line “1. Debt securities” exclusively
includes securities sold in repurchase agreements; the amount in line “4. Loans” refers to the loans included in securitisation transactions without derecognition described in this
BANCA MONTE DEI PASCHI DI SIENA
section.
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 374
E.1.1 – Types of transfers of financial assets not derecognized
Total Total
Item/Amount
31 12 2017 31 12 2016
Repurchase agreements 6,331,092 19,450,638
Securitisations 4,482,006 5,649,548
Others - 15,044
Total 10,813,098 25,115,230
E.2 Banking Group - Financial liabilities associated with transferred financial assets that are not derecognised: book
value
Financial Financial
Financial Financial
assets assets Loans to Loans to
Liabilities/ Asset Portfolios assets held assets held Total
designated at available for banks customers
for trading to maturity
fair value sale
1. Deposits from customers
2,505,918 - 751,958 - - 2,948 3,260,824
a) relating to fully
2,505,918 - 751,958 - - 2,948 3,260,824
recognised assets
b)relating to partially
- - - - - -
recognised assets -
2. Deposits from banks 76,276 - 216,065 - - - 292,341
a) relating to fully recognised
76,276 - 216,065 - - - 292,341
assets
b) relating to partially
- - - - - -
recognised assets -
3. Debt securities issued - - - - - 923,807 923,807
a) relating to fully recognised
- - - - - 923,807
assets 923,807
b) relating to partially
- - - - - -
recognised assets -
Total 31 12 2017 2,582,194 - 968,023 - - 926,755 4,476,972
Total 31 12 2016 2,692,615 - 13,496,086 - - 2,123,516 18,312,217
The table indicates the book value of financial liabilities posted as offsetting entries to financial assets sold and not
derecognised partially or in their entirety from balance sheet assets.
2017 ANNUAL REPORT
375
E.3 Banking Group - Sales transactions relating to financial liabilities with repayment exclusively based on assets sold and not derecognised: fair value
Financial assets Financial assets
Financial assets Financial assets Loans to banks Loans to customers
designated at fair held to maturity Total
Type/ held for trading available for sale (fair value) (fair value)
value (fair value)
Portfolio
A B A B A B A B A B A B 31 12 2017 31 12 2016
A. Balance-sheet assets - - - - - - - - - - 4,758,802 - 4,758,802 6,005,722
1. Debt securities - - - - - - - - - - - - - -
2.Equity instruments - - - - - - X X X X X X - -
3. UCITS - - - - - - X X X X X X - -
4. Loans - - - - - - - - - - 4,758,802 - 4,758,802 6,005,722
B. Derivatives - - X X X X X X X X X X - -
Total assets - - - - - - - - - - 4,758,802 - 4,758,802 6,005,722
C. Associated financial liabilities - - - - - - - - - - 929,263 - X X
1. Deposits from customers - - - - - - - - - - 5,456 - X X
2. Deposits from banks - - - - - - - - - - - - X X
3. Debt securities issued - - - - - - - - - - 923,807 - X X
Total liabilities - - - - - - - - - - 929,263 - 929,263 1,453,609
Net value as at 31 12 2017 - - - - - - - - - - 3,829,539 - 3,829,539 X
Net value as at 31 12 2016 - - - - - - - - - - 4,552,113 - X 4,552,113
Legend:
A = Financial assets sold and fully recognised (book value), B = Financial assets sold and partially recognised (book value)
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The amount reported in the column “Loans to customers – fair value” exclusively refers to the fair value of receivables sold with own securitisations without derecognition which
continue to be fully recognised in the Group’s balance sheet assets. The amount of EUR 929.3 mln reported under associated liabilities refers to the fair value of the portion of senior
notes sold to market counterparties as part of the same securitisation. The Bank recognised a liability with the notes-issuing vehicles as an offsetting entry for the cash flows arising from
this disposal. Against this liability, the creditor's entitlement to repayment is limited to cash flows arising from the assets underlying senior notes sold.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 376
B. Financial assets sold and fully derecognised with assessment of “continuing involvement”
Qualitative Information
Quantitative Information
None to report as at 31 December 2017.
E.4 Banking Group – Covered bond transactions
Characteristics of the Covered Bond Issuance Programmes
The Group has two Covered Bond Issuance Programmes.
The first Programme, meant for institutional investors, was launched in 2010 for an amount of EUR
10,000 mln. The programme is intended to place a secured product on the market, offering covered
bonds as a preferred instrument for financial profile improvement in the mid and long term. In light of
the developments in the financial markets, the Programme should be considered as part of a wider
strategy, aimed at:
curbing the costs of funding: covered bonds are widely preferred, inasmuch as they are issued
directly by the Bank and their repayment is also guaranteed by a segregated pool of assets (in
this case, residential mortgage loans); in the event of issuer bankruptcy, covered bond holders
enjoy a right of recourse on a portfolio of segregated high-quality assets and are, therefore,
willing to accept a lower yield than the one offered by similar uncovered bonds;
diversifying the Bank's funding sources on the international market;
lengthening its average debt maturity profile.
On 26 June 2015, the First Programme’s meeting of the covered bond holders approved the proposed
amendments in order to:
amend the Programme, to obtain a rating from DBRS (in addition to Moody’s and Fitch) for
the covered bonds issued and to be issued as part of the Programme; and
activate, if specific cases of default take place pursuant to the Programme, a “conditional pass
through” type mechanism for the repayment of the bonds issued.
At the time of the annual renewal of the Programme, on 23 December 2017, its maximum amount was
increased from EUR 10,000 mln to EUR 20,000 mln.
With a view to improving the efficiency and stability of the Group’s Counterbalancing Capacity, in
2012 a second Bond Issuance Programme was authorised, collateralised by separate assets consisting of
residential and commercial mortgage loans for a maximum of EUR 20,000 mln. The programme is not
intended for the market but for instruments eligible as collateral in refinancing transactions through the
European Central Bank. The programme, which did not have an explicit rating at its launch, was rated
by DBRS in 2013.
The structure of the Group's Covered Bond programmes requires fulfilment of the following activities:
a) the Parent Company or another Group company transfers, without recourse, a pool of assets, which
may consist of cash and other assets as appropriate (real-estate backed, residential and commercial
mortgage loans), to the vehicles MPS Covered Bond S.r.l. and MPS Covered Bond 2 S.r.l., thereby
forming a segregated cover pool;
b) the Transferor grants a subordinated loan to the vehicle, for the purpose of financing payment of
the assets' purchase price by the vehicle;
c) the Parent Company issues covered bonds secured by an autonomous, irrevocable and
unconditional first-demand guarantee issued by the vehicle for the only benefit of the bond-holding
2017 ANNUAL REPORT
377 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
investors and senior debtors in the Programme (the guarantee involves limited recourse to the assets of
the Cover Pool owned by the vehicle, which acts as Guarantor).
Accounting treatment
Pursuant to IAS 39, the derecognition of a financial instrument from the balance sheet of the
transferor is determined on the basis of the substance of the contract, not its legal form.
Having said this, the deal is recognised as follows:
transferred loans continue to be reported in the Parent Company's balance sheet under sub-
item “Loans” of item 70 “ Loans to customers” on the asset side, inasmuch as the Parent
Company retains the risks and rewards of ownership of the loans transferred;
the loan disbursed by the Parent Company to the Vehicle is not classified as a separate item in
the balance sheet, since it is offset with the amount due to the Vehicle in which the initial
transfer price was recognised. The loan, therefore, is not subject to credit risk assessment,
because this risk is entirely reflected in the assessment of transferred loans, which continue to
be reported in the Parent Company's balance sheet.
loans are subject to movements based on own events (figures and assessment); instalments
collected by the Parent Company (which also acts as a servicer) are reallocated daily to the
Vehicle's “Collection Account” and accounted for by the Parent Company as follows:
collection of principal from borrower is recognised as an offsetting entry to the
reduction in the loan to the borrower;
reallocation of principal to the Vehicle is recognised as an offsetting entry to the
recognition of a loan to the Vehicle;
this loan is paid off upon repayment of the subordinated loan;
interest from the borrower is recognised as an offsetting entry to Item 10
“Interest income: loans to customers” (interest on loans continues to be
recognised on an accrual basis);
reallocation of interest to the Vehicle is recognised as an offsetting entry to the
recognition of a loan to the Vehicle;
this loan is paid off upon collection of interest on the subordinated loan.
the vehicles “MPS Covered Bond S.r.l.” and “MPS Covered Bond 2 S.r.l.” are invested in by
the Parent Company for a control stake of 90%, recognised under Item 100 “Equity
Investments” and included in the Group's consolidated financial statements under the
comprehensive approach;
bonds issued are posted to Item 30 “Debt securities issued” on the liabilities side, and related
interest expense is recognised on an accrual basis.
In consideration of the characteristics and accounting treatment of the deal, the swaps associated with
the transaction are not recognised in the balance sheet, since their recognition would entail, pursuant to
par. AG49 of IAS 39, a duplication of rights and obligations already recognised due to loans
transferred being maintained on the balance sheet.
Risks and Control Measures
In order to allow the transferee to meet the obligations of the collateral pledged, the Parent Company
uses appropriate Asset & Liability Management techniques to secure a trend of substantial balance
between the maturities of cash flows arising from the assets sold and maturities of payments due in
relation with the covered bonds issued and other costs of the transaction.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 378
The Programmes were structured in compliance with applicable rules and regulations which authorise
the issuance of covered bonds only if the transferring and issuing banks meet certain capital
requirements.
The structure of the debt issuance programmes of the Parent Company (in the role of transferor and
servicer) is subject to stringent regulatory requirements and calls for continuous actions for each
transaction by the Credit Portfolio Governance; Finance, Treasury & Capital Management and
Lending Risk Officer Areas, as well as supervision by the Credit Audit Service and an external auditor
(Deloitte & Touche) as Asset Monitors. In particular, these actions include:
assessment of capital requirements mandated by Supervisory Instructions when it comes to
covered bond issuance programmes;
assessment of the quality and integrity of assets transferred with regard, in particular, to the
estimated value of properties, both residential and commercial, on which a mortgage in
relation with the asset-backed loans is placed; this assessment may result in repurchases,
integrations and additional transfers of supplemental assets;
assessment of an appropriate ratio being maintained between bonds issued and assets
transferred as collateral (Cover Pool - mortgage and residential assets for the first programme
and residential and commercial assets for the second programme);
assessment of transfer limits and integration practices;
assessment on whether risks are effectively and adequately hedged by derivative contracts in
relation to the transaction.
In the course of 2013, the mitigation strategy for interest rate risk on the first Programme was
restructured in order to minimise the Vehicle's exposure to market counterparties. In particular, the
newly-defined strategy aims to only cover the Vehicle's net exposure to interest rate risk, as opposed to
the nominal amount. At the same time, the outsourcing of Covered Bond Swaps outstanding with
market counterparties was carried out.
The paragraphs below provide information on the nature of the risks associated with the interest in the
MPS Covered Bond S.r.l. vehicle, whose assets are pledged as collateral of bond issues of the Parent
Company partly placed with the market.
In particular, the terms of the agreements that could require the Group to provide financial support to
the vehicle MPS Covered Bond S.r.l. are as follows:
the Parent Company undertakes, in accordance with the programme's terms, to ensure
compliance over time with the regulatory and contractual tests determined according to the
methodologies set by the rating agencies from time to time;
if the Parent Company's rating decreases below “BBB(low)” (DBRS), “BBB-” (Fitch) and
“Baa3” (Moody's), the repayment of each subordinated loan will be delayed by 6 months after
the original expiry (unless early loan repayment is necessary to allow for compliance with the
maximum limit of cash that may be accumulated by the Vehicle, established by regulation as
15% of the total of the cover pool, to the extent to which it is not possible for the Vehicle to
acquire new suitable assets to replace cash, pursuant to the Framework Transfer Agreement);
in accordance with the Master Definition Agreement, the Parent Company shall allocate and
change the amount of the variable liquidity reserve according to criteria agreed upon with the
rating agencies.
As concerns the second programme, the terms of the agreements that could require the Group to
provide financial support to the vehicle MPS Covered Bond 2 S.r.l. are as follows:
the Parent Company undertakes, in accordance with the programme's terms, to ensure
compliance over time with the regulatory and contractual tests determined according to the
methodologies set by the rating agency from time to time;
2017 ANNUAL REPORT
379 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
in accordance with the Master Definition Agreement, the Parent Company shall allocate and
change the amount of the variable liquidity reserve according to criteria agreed upon with the
rating agency.
During the period under review the Parent Company and its subsidiaries have not provided any
financial or other support without being obliged under the contract.
There are no cases of financial or other support to a previously non-consolidated structured entity as a
result of which the structured entity was controlled by the Group.
The Group does not intend to provide financial or other support to the vehicle, nor to assist the entity
in obtaining financial support.
Description of individual disposals and issuances
As part of the first Programme, in 2017 no transfer of new portfolios was carried out.
Here follows a summary of the main characteristics regarding transfers in the first Programme:
31 12 2017
No. Of Breakdown of
Cover Pool Total value of
mortagage transferred
transfer Type of seuritised assets Transferor asset transferrd
loans debtors by
date (in units of €)
transferred business sectors
100% natural
25 05 2010 Residential mortgage loans Banca MPS 4,413,282,561 36,711
persons
100% natural
19 11 2010 Residential mortgage loans Banca MPS 2,400,343,585 19,058
persons
100% natural
25 02 2011 Residential mortgage loans Banca MPS 3,887,509,799 40,627
persons
Banca MPS (ex Banca 100% natural
25 05 2011 Residential mortgage loans 2,343,824,924 26,804
Antonveneta) persons
100% natural
16 09 2011 Residential mortgage loans Banca MPS 2,323,368,355 27,973
persons
100% natural
14 06 2013 Residential mortgage loans Banca MPS 415,948,266 4,259
persons
100% natural
18 09 2015 Residential mortgage loans Banca MPS 1,529,531,983 15,080
persons
100% natural
31 10 2016 Residential mortgage loans Banca MPS 775,933,585 7,630
persons
100% natural
22 12 2016 Residential mortgage loans Banca MPS 237,758,336 1,903
persons
Total 18,327,501,394 180,045
The remaining debt balance on the portfolio as at 31 December 2017 amounted to EUR 10,025.0 mln
for 125,730 mortgages.
As part of the first Programme, the Parent Company completed a total of twenty-five issuances,
thirteen of which had not yet matured or been repaid early for a nominal amount, as at 31 December
2017, of EUR 8,420 mln, of which EUR 5,187 mln are on the market, while EUR 3,233 mln are held
by the Parent Company and by the subsidiary MPS Capital Services Banca per le Imprese S.p.A.
In 2017 no securities were issued as part of the first Programme.
For the second Programme, on 24 March 2017 a portfolio was sold of 5,799 performing residential
and commercial mortgages, with no outstanding payments at the date of portfolio valuation and
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 380
meeting selection criteria substantially comparable to those used for previous disposals, for an amount
of EUR 789.2 mln.
Here follows a summary of the main characteristics regarding transfers in the second Programme:
31 12 2017
No. Of Breakdown of
Cover Pool Total value of
mortagage transferred
transfer Type of seuritised assets Transferor asset transferrd
loans debtors by
date (in units of €)
transferred business sectors
100% natural
27 04 2012 Residential mortgage loans Banca MPS 2,384,995,478 27,047
persons
Residential and
22 06 2012 Banca MPS 2,478,270,455 13,993 Mixed
commercial mortage loans
Residential and
24 08 2012 Banca MPS 1,401,965,498 17,353 Mixed
commercial mortage loans
Residential and
21 09 2012 Banca MPS 2,473,677,574 9,870 Mixed
commercial mortage loans
Residential and
15 02 2013 Banca MPS 1,286,740,404 9,033 Mixed
commercial mortage loans
Residential and
21 06 2013 Banca MPS 2,147,692,217 12,771 Mixed
commercial mortage loans
Residential and
29 03 2014 Banca MPS 1,464,170,335 5,645 Mixed
commercial mortage loans
Residential and
16 10 2015 Banca MPS 977,548,353 5,671 Mixed
commercial mortage loans
Residential and
18 07 2016 Banca MPS 2,010,907,198 24,162 Mixed
commercial mortage loans
Residential and
26 08 2016 Banca MPS 813,253,156 7,211 Mixed
commercial mortage loans
Residential and
24 03 2017 Banca MPS 789,153,182 5,799 Mixed
commercial mortage loans
Total 18,228,373,850 138,555
The remaining debt balance on the portfolio as at 31 December 2017 amounted to EUR 9,520.3 mln
for 95,488 mortgages.
As part of the second Programme, the Parent Company completed thirty-three issuances (of which
seventeen not yet matured or redeemed early), which were not intended for the market but
repurchased by the Parent Company and used as collateral for refinancing transactions in the
Eurosystem, for a total as at 31 December 2017 of EUR 8,900 mln.
As part of the second Covered Bond Programme, the following issues were made in 2017 as the re-
opening of covered bond series no. 26 and no. 27 already outstanding:
Date of issue Notional Amount Coupon Frequency Date of maturity
02 02 2017 500,000,000 3mE + 0,85% Quarterly january - 2021
02 02 2017 300,000,000 3mE + 0,85% Quarterly april - 2021
Total 800,000,000
2017 ANNUAL REPORT
381 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
F. Banking group - Credit risk measurement models
The chart below provides a credit quality breakdown of the Group portfolio as at 31 December 2017
by Exposure to Risk (EAD REG) and Regulatory Capital (CAP REG). The following graph shows
that about 46% of risk exposure is to high and good quality customers (positions in financial assets are
excluded). It should be noted that the ranking below also includes exposure to banks, government
agencies and non-regulated financial and banking institutions, which are not included in the AIRB
approaches. As borrowers, these entities are nevertheless subject to a credit standing assessment using
official ratings, if any, or appropriate benchmark values that have been determined internally.
On the other hand, the following chart provides a breakdown of credit quality only for Corporate and
Retail portfolios (which are largely validated by regulatory authorities for the use of internal PD and
LGD models). As at 31 December 2017, high or good quality exposure accounted for approximately
38% of total exposure.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 382
With reference to Risk Exposure, the Parent Company covers 88.9% of the Group's total, while MPS
Capital Services, MPS L&F and Widiba jointly cover the remaining 11.1%:
The Regulatory Capital for credit risk is absorbed mainly by the Parent Company (78.5%), followed by
MPS Capital Services (13.8%) and MPS Leasing e Factoring (7.4%).
An analysis conducted at the end of 2017 shows that the Group's risk exposure is mainly toward
“Manufacturing Companies” (50.6% of total loans disbursed) and “Households” (34.2%). The
remaining portion is broken down between “Government and Public Administration” and “Banks and
Financial Institutions”, respectively at 12.4% and 2.8%.
In terms of Regulatory Capital, 80.9% is absorbed by the “Manufacturing Companies” customer
segment. The “Households” segment stands at 12.7%; followed by “Government and Public
Administration” and “Banks and Financial Institutions” with 3.9% and 2.5% respectively:
An analysis of the geographical breakdown of Group customers shows that exposure to risk is
primarily concentrated in Italy’s Central regions (40.9%), followed by the North East and North West
(both at 18.5%), Southern Italy (13.3%), Foreign Countries (4.2%) and Italy's Islands (4.6%):
Regulatory Capital absorption is also higher in Central Italy (31.6%), in North West Italy (24%) and
North East Italy (22.6%) due to the greater concentration of loans in those areas. These are followed
by Southern Italy (12.6%), Foreign Countries (4.2%) and the Islands (5%):
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383 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Lastly, the following graphs show, solely for Italian corporate customers, the percentage breakdown of
Default Exposure by individual Geographic Area and Regulatory Capital absorption by Business
Sector.
The largest share of Default Exposure for businesses in all Geographic Areas is accounted for by the
“Services” sector. Out of the Group’s total exposure, the share of Services accounts for 50% and is
followed by Industry (32%), Building (11%) and Agriculture (7%).
Italian Corporate customers – performing loan book as at 31 12 2017
EAD REG by geography and business segment
North West 6% 9% 38% 47%
North East 8% 7% 42% 43%
Central Italy 8% 13% 25% 54%
South 6% 13% 26% 55%
Islands 8% 10% 23% 59%
Total MPS Total MPS Group
7% 11% 32% 50%
Group
AGRICULTURE REAL ESTATE INDUSTRY SERVICES
Also as regards Regulatory Capital (CAP), the greatest concentration relates to the Services sector in all
Geographic Areas, with the exception of the North East:
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 384
Italian Corporate customers – performing loan book as at 31 12 2017
CAP REG by geography and business segment
North West 6% 9% 38% 47%
North East 7% 8% 43% 42%
Central Italy 7% 15% 25% 53%
South 5% 16% 28% 51%
Islands 7% 11% 28% 54%
Total MPS Group 7% 12% 33% 48%
AGRICULTURE REAL ESTATE INDUSTRY SERVICES
The comparison between expected loss and actual loss is performed on an annual basis by the internal
control function as part of PD and LGD backtesting procedures.
1.2 – Banking Group - Market risk
1.2.1 Interest rate and price risk – regulatory trading book
Market risks relating to the Trading Book
Market risk management model for the Trading Book
The Group’s Regulatory Trading Portfolio (RTP), or Trading Book, is made up of all the Regulatory
Trading Books managed by the Parent Company (BMPS) and MPS Capital Services (MPSCS). The
Trading Portfolios of the other subsidiaries are immune to market risk. Trading in derivatives, which
are brokered on behalf of customers, calls for risk to be centralised at, and managed by, MPSCS.
The market risks in the trading book are monitored in terms of Value-at-Risk (VaR) for operational
purposes. The Group’s Finance and Liquidity Committee is responsible for directing and coordinating
the overall process of managing the Group’s proprietary finance thereby ensuring that the management
strategies of the various business units are consistent.
The Group's Trading Book is subject to daily monitoring and reporting by the Financial Risk Officer
Area of the Parent Company on the basis of proprietary systems. VaR for management purposes is
calculated separately from the operating units, using the internal risk measurement model implemented
by the Risk Management function in keeping with international best practices. The Group uses the
standardised methodology in the area of market risks solely for reporting purposes.
Operating limits defined for trading activities are expressed by level of delegated authority in terms of
VaR, which is diversified by risk factors and portfolios, monthly and annual stop losses and Stress.
Furthermore, the trading book’s credit risk, in addition to being included in VaR computations and in
2017 ANNUAL REPORT
385 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
the respective limits for the credit spread risk component, is also subject to specific operating limits for
issuer and bond concentration risk which specify maximum notional amounts by type of guarantor and
rating class.
VaR is calculated with a 99% confidence interval and a holding period of 1 business day. The Group
adopts the method of historical simulation with daily full revaluation of all basic positions, out of 500
historical entries of risk factors (lookback period) with daily scrolling. The VaR calculated in this
manner takes account of all diversification effects of risk factors, portfolios and types of instruments
traded. It is not necessary to assume, a priori, any functional form in the distribution of asset returns,
and the correlations of different financial instruments are implicitly captured by the VaR model on the
basis of the combined time trend of risk factors. The trend-based scenarios used in the model are
constructed as the daily change, in terms of the ratio, of the individual risk factors; the shock is applied
to the current market level, making the VaR measure reactive to changes in market conditions.
The management reporting flow on market risks is periodically transmitted to the Risk Management
Committee, the Group’s Top Management and the Parent Company’s Board of Directors in a Risk
Management Report, which keeps Executive Management and governing bodies up to date on the
overall risk profile of the Group.
The macro-categories of risk factors covered by the Internal Market Risk Model are IR, EQ, CO, FX
and CS as described below:
IR: interest rates on all relevant curves, inflation curves and related volatilities;
EQ: share prices, indexes, baskets and relative volatilities;
CO: commodity prices, indexes and baskets;
FX: exchange rates and related volatilities;
CS: credit spread levels.
VaR (or diversified or net VaR) is calculated and broken down daily for internal management
purposes, even with respect to other dimensions of analysis:
organisational/management analysis of portfolios,
analysis by financial instrument,
analysis by risk family.
It is then possible to assess VaR along each combination of these dimensions in order to facilitate
highly detailed analyses of events characterising the portfolios.
In particular, with reference to risk factors the following are identified: Interest Rate VaR (IR VaR),
Equity VaR (EQ VaR), Commodity VaR (CO VaR), Forex VaR (FX VaR) and Credit Spread VaR (CS
VaR). The algebraic sum of these items gives the so-called Gross VaR (or non-diversified VaR), which,
when compared with diversified VaR, makes it possible to quantify the benefit of diversifying risk
factors resulting from holding portfolios on asset class and risk factor allocations which are not
perfectly correlated. This information can also be analysed along all the dimensions referenced above.
The model enables the production of diversified VaR metrics for the entire Group in order to get an
integrated overview of all the effects of diversification that can be generated among the Group banks
on account of the specific joint positioning of the various business units.
Moreover, scenario and stress-test analyses are regularly conducted on various risk factors with
different degrees of granularity across the entire tree structure of the Group's portfolios and for all
categories of instruments analysed.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 386
Stress tests are used to assess the Group’s capacity to absorb large potential losses in extreme market
situations, so as to identify the measures necessary to reduce the risk profile and preserve assets.
Stress tests are developed on the basis of discretionary and trend-based scenarios. Trend-based
scenarios are defined on the basis of previously-registered real situations of market disruption. Such
scenarios are identified based on a time frame in which risk factors were subjected to stress. No
particular assumptions are required with regard to the correlation among risk factors since trend-based
data for the stress period identified has been measured.
Stress tests based upon discretionary scenarios assume extreme changes occurring to certain market
parameters (interest rates, exchange rates, stock indices, credit spreads and volatility) and measure the
corresponding impact on the value of portfolios, regardless of their actual occurrence in the past.
Simple discretionary scenarios are currently being developed (variation of a single risk factor) as are
multiple ones (variation of several risk factors simultaneously). Simple discretionary scenarios are
calibrated to independently deal with one category of risk factors at a time, assuming shocks do not
spread to the other factors. Multiple discretionary scenarios, on the other hand, aim to assess the
impact of global shocks that simultaneously affect all types of risk factors.
It should be noted that the VaR methodology described above is, for operational purposes, also
applied to the portion of the Banking Book consisting of financial instruments that are similar to
trading instruments (e.g. AFS bonds/Equity instruments). The measurements and charts below refer
to the Regulatory Trading Portfolio only.
***
In the course of 2017, the market risks of the Group’s Regulatory Trading Book showed, in terms of
VaR, performance influenced by the subsidiary MPS Capital Services for proprietary trading activities
as well as client driven activities (structuring and coverage of policies and other structured products)
primarily in the credit spread and interest rate segments (transactions on Italian government bonds as
well as derivatives, primarily long futures and interest rate future options) and to a less significant
extent in the equity segment (options and equity futures on the main equity indexes). The Parent
Company’s contribution to total VaR was negligible during the year. Volatility in VaR measurements at
the end of the year is linked to proprietary trading for trading at auction in Italian government bonds
and trading in long futures of the subsidiary MPS Capital Services.
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387 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
With regard to the legal entities, MPSCS
accounted for 98.7% and the Parent Company
for 1.3% of overall risk as at 31 December 2017.
A breakdown of VaR by risk factors shows that
47.6% of the Group’s portfolio was allocated to
Credit Spread risk factors (CS VaR), 28.1% was
absorbed by equity risk factors (EQ VaR), 14.7%
by interest rate risk factors (IR VaR), 6.8% by
commodity risk factors (CO VaR) and the
remaining 2.8% by foreign exchange risk factors
(FX VaR).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 388
g MPS Group: Trading Book In 2017, the Group’s VaR in the Regulatory
VaR 99% 1 day in EUR/mln Trading Book ranged between a low of EUR 4.28
VaR Date mln recorded on 27 December 2017 and a high
End of Period 6.36 31/12/2017 of EUR 11.06 mln on 1 June 2017 with an
Min 4.28 27/12/2017 average value registered of EUR 6.98 mln. The
Max 11.06 01/06/2017 Regulatory Trading Book VaR as at 31 December
Average 6.98
2017 amounted to EUR 6.36 mln.
VaR model backtesting
The Group has implemented a backtesting procedure compliant with current regulations governing
Market Risk as part of its own risk management system.
Backtesting refers to a series of tests conducted on VaR model results against day-to-day changes in
the trading book value, with a view on assessing the model’s forecasting capacity as regards the
accuracy of risk metrics generated. If the model is robust, by periodically comparing the estimated daily
VaR against daily trading losses from the previous day, the result should be that actual losses greater
than the VaR occur with a frequency consistent with that defined by the confidence level.
Based on current supervisory instructions, the Financial Risk Officer Area considered it appropriate to
apply the theoretical and actual backtesting methods and integrate these into the Group’s management
reporting system.
The first type of test (theoretical backtesting) has a stronger statistical significance in reference to
measuring the accuracy of the VaR model (“uncontaminated test”).
The second type of test (actual backtesting) meets the need for verifying the VaR model’s
forecasting reliability in reference to actual Bank operations (daily trading P&L) less the effect of any
interest accrued between trading days t-1 and t on the securities and less the effect of fees and
commissions.
These “clean” P&L results (the “actual P&L”) are compared with the previous trading day VaR. If the
losses are greater than those forecast by the model an “exception” is recorded.
The chart below shows the Actual Backtesting results of the internal Market Risks model in relation to
the Group’s Regulatory Trading Book for 2017:
2017 ANNUAL REPORT
389 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The backtesting shows no exceptions during the year.
Structured Credit Products
Management Model
As at 31 December 2017, the Group did not have a significant portfolio of structured credit products
compared to its total financial assets or its total assets. These investments are subject to risk limits set
by the Board of Directors and monitored daily by Risk Management. Stop Loss, risk and nominal
limits are defined for maximum exposure for major issuer categories, broken down by rating.
The data reported in this section refer to the entire Group.
Note that no Structured Credit Products considered in this disclosure have embedded credit
derivatives that need to be separated from their host cost contract for IAS/IFRS purposes.
As at 31 December 2017, there were no direct or indirect exposures to US subprime mortgages, Alt-A
or monoline insurers.
Positions in Securitisations of third-party issuers
As at 31 December 2017, the securities positions on structured credit products other than own
securitisations had an accrued net carrying amount of EUR 264.5 mln, compared to EUR 97.6 mln as
at 31 December 2016.
In terms of profit and loss, there was a positive component of EUR 0.7 mln in the “Net profit (loss)
from trading - item 80”.
With regard to the Regulatory classification, the positions are primarily held by the subsidiary MPS
Capital Services and allocated to the Trading Portfolio (99.8% in terms of carrying amount); the
residual amount is in the Banking Book of the subsidiary Monte Paschi Banque.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 390
The underlying assets transferred as part of the securitisation transaction are predominantly residential
mortgages (53.8%), loans to individuals (28.7%) and commercial mortgages (14.6%).
Geographically speaking, 64.7% of the loans transferred were granted in Italy and 19.3% in Portugal.
Overall, 99.8% of the carrying amount of the exposures consists of investment grade securities (with
rating up to BBB-, inclusive).
The senior tranche accounts for 79% of the exposures in terms of carrying amount, and the mezzanine
tranche for 19.4%, while the junior tranche accounts for the remaining 1.6%.
Credit Derivative Positions
All exposures analysed are standardised credit indices and synthetic tranches and single-name CDS.
As at 31 December 2017, net exposures to this type of derivatives have a carrying amount (with
accounting as a CDS derivative) of EUR -22.8 mln; net of consolidation activities these financial
instruments are all held by the subsidiary MPS Capital Services and are included in the Trading Book.
In terms of profit and loss, there was a negative component of EUR 14 mln in the “Net profit (loss)
from trading - item 80”.
2017 ANNUAL REPORT
391 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Qualitative Information
A. General aspects
Each bank of the MPS Group which is relevant as a market risk-taking centre contributes to the
generation of interest rate risk and price risk in the overall Trading Book.
A.1 Interest rate risk
With reference specifically to the Parent Company, the Finance, Treasury & Capital Management Area
(FTCMA) is the Business Area in charge of trading. The Global Markets Division carries out trading
activities for MPSCS.
The FTCMA manages a proprietary portfolio which takes trading positions on interest rates and credit.
In general, interest rate positions are taken by purchasing or selling bonds, and by creating positions in
listed derivatives (futures) and OTCs (IRS, swaptions). Trading is carried out exclusively on the Bank’s
own behalf, with objectives of absolute return, in compliance with the delegated limits of monthly and
yearly VaR and Stop Loss.
In particular, the FTCMA operates in the short-term portion of the main interest rate curves, mostly
through bonds and listed derivatives.
With regard to credit risk in the trading book, the equity positions are generally managed through the
purchase or sale of bonds issued by companies or by creating synthetic positions in derivatives. The
activity is oriented to achieve a long or short position on individual issuers, or a long or short exposure
on specific commodities. The activity is carried out solely on the Bank’s own behalf with objectives of
absolute return and in compliance with other specific issuer and concentration risk limits approved by
the Board of Directors.
A.2 Price risk
The Business Area in charge of the Parent Company’s trading activity with respect to price risk is the
FTCMA which manages a proprietary portfolio and takes trading positions on equities, Stock
Exchange indexes and commodities. In general, positions on equity securities are taken both through
the purchase/sale of equities and through the positions created in listed derivatives (e.g. futures) and
OTC (e.g. options). Trading is carried out exclusively on the Bank’s own behalf, with objectives of
absolute return, in compliance with the delegated limits of monthly and yearly VaR and Stop Loss.
Similarly, the Global Markets Division carries out trading activities for MPSCS.
B. Interest rate and price risk: operational procedures and measurement methods
With regard to the market risk management process concerning the management and methods for
measuring interest rate and price risk, see the above paragraph entitled “Market risk management
model for the trading book”.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 392
Quantitative Information
1. Regulatory trading book: breakdown of balance sheet financial assets/liabilities and
financial derivatives by residual life (repricing date)
This table has not been prepared since an analysis of the regulatory trading book's sensitivity to interest
rate risk and price risk is produced based on internal models.
2. Regulatory trading book: breakdown of exposures in equity instruments and stock indices
by major countries of the listing market
This table has not been prepared since an analysis of the regulatory trading book's sensitivity to interest
rate risk and price risk is produced based on internal models.
3. Regulatory trading book: internal models and other sensitivity analysis methods
The rate and price risk of the Trading Book is monitored in terms of VaR and scenario analysis.
3.1 Interest rate risk
Each business unit within the Group operates independently on the basis of the objectives and powers
it has been assigned. The positions are managed by special desks provided with specific operational
limits. Each desk adopts an integrated risk management approach (covering more than rate risk, when
allowed) in order to benefit from the natural hedge resulting from simultaneously holding positions on
risk factors that are not perfectly correlated. The VaR by risk factor (specifically, Interest Rate VaR)
has operational relevance for the purpose of risk management analyses, even though it is the global
VaR diversified among risk factors and portfolios that is used by the operating units. Below is
information on the Group’s diversified Interest Rate VaR:
The trend in Interest Rate VaR during 2017 was influenced by the trading activities of the subsidiary
MPSCS, primarily in bonds and derivatives (long futures and interest rate future options).
2017 ANNUAL REPORT
393 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
g MPS Group: Trading Book
VaR Interest Rate 99% 1 day in EUR/mln
VaR Date
End of Period 1.48 31/12/2017
Min 0.94 19/12/2017
Max 5.92 11/01/2017
Average 3.80
Simulations include the following interest rate risk scenarios:
+100 bps parallel shift for all interest rate and inflation curves,
-100 bps parallel shift for all interest rate and inflation curves,
+1 point parallel shift for all volatility surfaces of all interest rate curves.
All positions related to the Trading Book are classified as HFT for accounting purposes, with changes
in market value posted directly to profit and loss. Below is the overall effect of the scenario analyses.
g MPS Group: Trading Book
EUR/mln
Risk Family Scenario Global Effect
Interest Rate +100bp all Interest Rate Curves 42.26
Interest Rate -100bp all Interest Rate Curves 36.49
Interest Rate +1% all Interest Rate Volatility 0.09
The asymmetry in the +100 bps and -100 bps interest rate scenarios is mainly due to the
exposure to options of the interest rate segment of the subsidiary MPSCS (primarily
swaptions).
To complete the interest rate risk analysis, details are also provided on the credit spread risk of
the Group’s Trading Book associated with the volatility of issuers' credit spreads. The VaR by
risk factor (specifically, Credit Spread VaR) has operational relevance for the purpose of risk
management analyses, even though it is the overall VaR diversified among all risk factors and
portfolios that is used by the operating units.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 394
In 2017, the trend in Credit Spread VaR was mainly influenced by the trading activities of the
subsidiary MPSCS, primarily in bonds and derivatives (long futures and interest rate future options).
g MPS Group: Trading Book
VaR Credit Spread 99% 1 day in EUR/mln
VaR Date
End of Period 4.80 31/12/2017
Min 2.52 27/09/2017
Max 5.39 27/02/2017
Average 3.72
For the purposes of sensitivity analysis, the simulation scenario is as follows:
+1 bp parallel shift for all credit spreads.
All positions related to the Trading Book are classified as HFT for accounting purposes, with
changes in market value posted directly to profit and loss. Below is the overall effect of the
scenario analyses.
g MPS Group: Trading Book
EUR/mln
Risk Family Scenario Global Effect
Credit Spread +1bp all Curves (-1.17)
3.2 Price risk
Each business unit within the Group operates independently on the basis of the objectives and powers
it has been assigned. The positions are managed by special desks provided with specific operational
limits. Each desk adopts an integrated risk management approach (covering more than price risk, when
allowed) in order to benefit from the natural hedge resulting from simultaneously holding positions on
risk factors that are not perfectly correlated. The VaR by risk factor (specifically, Equity VaR) has
management relevance for the purpose of risk management analyses, even though it is the global VaR
diversified among risk factors and portfolios that is used by the operating units.
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395 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Below is information on the Group’s diversified Equity VaR.
In 2017 the Equity VaR was influenced by activities related to the structuring and coverage of policies
and other structured products of the subsidiary MPSCS, and by the trading activity, also of MPSCS,
mostly on options and futures with key market indexes as underlying (significant effect on the risk
measurement’s volatility). At the end of December, the Equity VaR came to EUR 2.83 mln, the
average levels of the year.
g MPS Group: Trading Book
VaR Equity 99% 1 day in EUR/mln
VaR Date
End of Period 2.83 31/12/2017
Min 1.50 07/02/2017
Max 5.35 17/11/2017
Average 2.85
The simulated price scenarios are as follows:
+1% of each equity or index price;
-1% of each equity or index price;
+1 point of all volatility surfaces of all equity risk factors.
All positions related to the Trading Book are classified as HFT for accounting purposes, with changes
in market value posted directly to profit and loss. Below is the overall effect of the scenario analyses
for the equity component:
g MPS Group: Trading Book
EUR/mln
Risk Family Scenario Global Effect
Equity +1% Equity Prices (prices, indices, basket) (0.41)
Equity -1% Equity Prices (prices, indices, basket) 0.23
Equity +1% Equity Volatility (0.76)
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 396
In terms of exposure to commodity risk, in 2017 trends in the Commodity VaR were influenced by
trading activities of the subsidiary MPSCS, mainly on options and futures with key commodity indexes
as underlying (significant effect on the risk measurement’s volatility and level). At the end of
December, the Commodity VaR came to EUR 0.68 mln, in line with the average for the year.
g MPS Group
VaR Commodity 99% 1 day in EUR/mln
VaR Date
End of Period 0.68 31/12/2017
Min 0.32 31/10/2017
Max 1.13 20/01/2017
Average 0.60
The simulated price scenarios are as follows:
+1% of each commodity price,
-1% of each commodity price,
+1 point of all volatility surfaces of all commodity risk factors.
Below is the overall effect of the scenario analyses.
g MPS Group
EUR/mln
Risk Family Scenario Global Effect
Commodity +1% Prezzi Commodity 0.06
Commodity -1% Prezzi Commodity (0.06)
Commodity +1% Volatilità Commodity 0
2017 ANNUAL REPORT
397 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
1.2.2 Interest rate risk and price risk - banking book
Qualitative Information
A. General aspects, management processes and measurement methods for interest rate risk
and price risk
A.1 Interest rate risk
The Banking Book consists of all exposures not included in the Trading Book and, in accordance with
international best practices, identifies the set of the Group’s commercial trades connected to the
transformation of maturities in the assets and liabilities and ALM financial activities (treasury and risk
hedging derivatives).
The strategic Banking Book rate risk choices are defined periodically in the IRRBB Strategy document
approved by the Board of Directors and made operational within the Group’s Finance and Liquidity
Committee; these choices are based on interest rate risk measures expressed in terms of changes in
economic value as well as interest margin.
With reference to the sensitivity test on economic value, the Montepaschi Group applies a predefined
set of interest rate scenarios in line with the Basel guidelines, which envisage non-parallel movements
of the curve aside from parallel shifts of 25, 100 and 200 bps. As interest margin analyses focus on the
short term, they consider exclusively the application of parallel scenarios. The economic value
sensitivity measures are determined by clearing the origination of the cash flows of the components
not directly relating to interest rate risk.
The Group is committed to the continual updating of risk measurement methodologies by gradually
fine-tuning the estimation models so as to include all major factors that progressively modify the
interest rate risk profile of the banking book.
Risk metrics are calculated by using a model for the valuation of demand items (non-maturity deposits,
NMDs) whose characteristics of stability and partial insensitivity to interest rate changes are described
in the systems with a statistical approach which takes into consideration the time series of customer
behaviours.
In addition, the Montepaschi Group incorporates within rate risk measurements a behavioural model
which takes into account the aspect of residential mortgage prepayment (so-called prepayment risk).
The Group adopts an interest rate risk governance and management system known as the IRRBB
Framework which avails itself of:
- a quantitative model, which provides the basis for monthly calculation of the exposure of the
Group and the individual companies to interest rate risk in terms of risk indicators;
- risk monitoring processes, aimed at periodically verifying compliance with the operational limits
(risk limits and risk tolerance) assigned to the Group overall and to the individual legal entities
within the Risk Appetite Statement;
- risk control and management processes, geared toward bringing about adequate initiatives for
optimising the risk profile and activating any necessary corrective actions in the case of exceptions
from and/or misalignments with the IRRBB Strategy.
Within the above system, the following responsibilities are centralised in the Parent Company:
- definition of strategic and operational policies for managing the Group's Banking Book and
controlling its interest rate risk;
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 398
- coordination of Group policies' implementation by the companies included in the scope;
- governance of the Group’s short-, medium- and long-term rate risk position, both overall and at
individual company level, through centralised operational management.
In its governance function, the Parent Company therefore defines criteria, policies, responsibilities,
processes, limits and instruments for rate risk management.
The Group Companies included in the scope of application are responsible for abiding by the rate risk
policies and limits defined by the Parent Company and the requirements set by the relevant
Supervisory Authorities.
Within the model defined, the Finance, Treasury and Capital Management Area of the Parent
Company is responsible for the operational management of the Group’s overall rate and liquidity risk.
Specifically, within the FTCM Area, the Group Treasury Service manages the short-term rate risk and
liquidity risk for the Group. In addition, the Area carries out hedge monitoring and management
activities consistent with accounting policies, involving centralised oversight for definition of the
network's internal rates (BMPS and other Group companies) for Euro and foreign currency
transactions with maturities beyond the short term.
A.2 Price risk
The Group’s Banking Book consists primarily of equity investments, AFS securities and UCITS.
Trading in UCITS is carried out exclusively through the direct purchase of the funds/SICAVs, with no
use being made of derivative contracts.
Price risk is measured on equity positions held primarily for strategic or institutional/instrumental
purposes other than equity investments (AFS securities and UCITS).
Value-at-Risk (VaR), the methodology of which is described in Section 2 - “Market risks”, is used to
measure price risk.
Stress tests are conducted regularly as part of price risk governance strategies for the banking book in
order to assess the Group’s ability to absorb potential losses resulting from extreme events.
With reference to the equity investments component, the internal measurement system uses one of the
metrics from the standardised Supervisory approach for the determination of the Internal Capital. This
method calls for exposures to equity instruments to be assigned a risk weighting factor of 100% or
150% if high risk, unless they need to be deducted from Capital. The Capital deduction mechanisms
according to current supervisory rules (CRD4/CRR) further expand the perimeter of deductions to
also include non-significant investments in financial sector entities (<10%) and provide for deduction
exemptions. It is worth noting that the most significant portion of the MPS Group’s investment
portfolio is included within the aggregate of significant investments in other financial sector entities
(roughly 94% is the equity investment in the AXA Group).
B. Fair value hedging
C. Cash-flow hedging
The Group - and within it therefore the Parent Company - uses IAS compliant hedges for interest rate
risk management. The main types of hedging used include:
- Micro Fair Value Hedges: hedging of non-trading assets (loans/mortgage loans), securities and
bonds held;
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399 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
- Macro Fair Value Hedges: hedging of non-trading assets (loans/mortgage loans) and corporate
funding (time deposits);
- Micro Cash Flow Hedges: hedging of floating-rate deposits.
In addition to the above, the Group, and within it therefore the Parent Company, uses the Fair Value
Option for some types of business activities. In particular, the Fair Value Option was used for
(structured and fixed rate) debt securities having the following characteristics:
- the risk of fair value changes has been hedged upon issuance, with the intention of maintaining the
hedge for the contractual duration and entire amount of the hedged position;
- normally for issuances in which the Group has committed to buyback at issuance spread.
Quantitative Information
1 Banking book: breakdown of financial assets and liabilities by residual life (repricing date)
This table has not been prepared since an analysis of the banking book’s sensitivity to interest-rate risk
and price risk is produced based on internal models.
2 Banking book: internal models and other sensitivity analysis methods
2.1 Interest rate risk
The sensitivity of the Group, at the end of 2017, was indicative of exposure to rate reduction risk. The
amount of economic value at risk in the event of a +100 bps parallel shift of the rate curve came to
EUR +175.48 mln at the end of 2017 (vs. EUR -131.16 mln for a shift of -100 bps). With respect to
the previous year, as at 31 December 2017 sensitivity was favourably impacted by the transfer of
doubtful loans expected to take place by the end of the first half of 2018. However, if benchmarked
against Capital, these values are below the level considered as the attention threshold by the Bank of
Italy.
The sensitivity of the Group’s net interest income (margin sensitivity) if rates increase by 25 bps
amounts to EUR +19.76 mln at the end of 2017 (EUR -22.41 mln for -25 bps).
The internal measurement system is independently developed by the Risk Control Function of the
Parent Company, which periodically reports on the extent of portfolio risks and their changes over
time. The results are regularly brought to the attention of the Parent Company’s Risk Management
Committee and governing bodies.
2.2 Price risk
Shown below is a scenario analysis which includes all directional positions assumed, based on
instructions from the Board of Directors or including those that operationally fall under the Banking
Book of the Parent Company’s Finance, Treasury and Capital Management Area (e.g. AFS securities)
which are not included in the previously-reported scenario analyses for price risk in the Trading Book.
g MPS Group: Banking Book
EUR/mln
Risk Family Scenario Global Effect
Equity +1% Equity Prices (prices, indices, basket) 0.97
Equity -1% Equity Prices (prices, indices, basket) (0.97)
Equity +1% Equity Volatility 0
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 400
In the scenario analysis noted above, equity investments are excluded.
2.3 Foreign exchange risk
Qualitative Information
A. Foreign exchange risk: general aspects, operational processes and measurement
methods.
Foreign exchange operations are mainly based on short-term trading, with the systematic balance of
the transactions originated by the franchise and the retail banks which automatically feed into the
Group’s position.
Trading is mainly carried out by the Parent Company’s Finance, Treasury & Capital Management
Service; trading in the FX options segment is carried out by subsidiary MPSCS, with active
management of foreign exchange risk. The foreign branches of the Parent Company maintained
modest forex positions exclusively originated by funds available for commercial purposes. The
turnover in cash allocated to Group portfolios and OTC derivatives for MPSCS remained stable in
terms of risk, with ongoing and careful use of delegated powers. Foreign currency equity investments
are typically financed by funds denominated in the same currency, with no assumption of foreign
exchange risk.
For a description of stress tests used in the risk governance strategy on exchange rates and the model
applied, please refer to the section “Market risk management model for the Trading Book”.
2017 ANNUAL REPORT
401 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
B. Hedging of exchange rate risk
Quantitative Information
1. Breakdown by currency of assets, liabilities and derivatives
31 12 2017
Currencies
Items Pound Hong Kong Other
US dollar Swiss Franc Yen
sterling dollar currencies
A. Financial assets 1,986,349 75,084 16,034 20,749 33,540 51,279
A.1 Debt securities 589,058 290 1,027 - 26,661 312
A.2 Equity securities 9,377 339 146 56 328 -
A.3 Loans to banks 411,075 10,493 3,298 6,371 351 42,729
A.4 Loans to customers 976,839 63,962 11,563 14,322 6,200 8,238
A.5 Other financial assets - - - - - -
B. Other assets 118,538 2,640 1,541 331 3,020 2,712
C. Financial liabilities 760,318 43,694 15,438 3,245 1,685 16,090
C.1 Deposits from banks 126,026 1,544 12,022 507 - 1,583
C.2 Customer accounts 576,601 42,150 3,416 2,738 1,685 14,507
C.3 Debt securities 57,691 - - - - -
C.4 Other financial liabilities - - - - - -
D. Other liabilities 23,686 1,618 239 240 2,024 3,291
E. Financial derivatives
- Options
+ Long positions 109,483 4,875 2,450 1,336 - 30,173
+ Short positions 289,741 - 59 1,383 - 69,872
- Other
+ Long positions 1,495,608 174,720 30,576 16,157 - 96,988
+ Short positions 2,909,060 165,908 1,211 50,525 30,092 84,514
Total assets 3,709,978 257,319 50,601 38,573 36,560 181,152
Total liabilities 3,982,805 211,220 16,947 55,393 33,801 173,767
Difference (+/-) (272,827) 46,099 33,654 (16,820) 2,759 7,385
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 402
2. Internal models and other methodologies for sensitivity analysis
Exchange risk is monitored in terms of VaR and scenario analysis (for the methodology see the
paragraph “Market Risk Management Model for the Trading Book”).
Shown below is information concerning the Group’s diversified Forex VaR.
g MPS Group
VaR Forex 99% 1 day in EUR/mln
VaR Date
End of Period 0.90 31/12/2017
Min 0.59 24/03/2017
Max 2.32 10/04/2017
Average 1.10
The following scenarios were used for foreign exchange rate simulations:
+1% for all foreign exchange rates to the Euro,
-1% for all foreign exchange rates to the Euro,
+1 point for all volatility surfaces of all foreign exchange rates.
The impact on total banking income and profit/loss for the year was estimated taking account
only of HFT positions, with market value changes posted directly to Profit and Loss. The
effect on equity, instead, is estimated with reference to all positions classified as AFS and
related Fair Value Hedges (FVH). The total effect is the result of the algebraic sum of the two
components. Below is a summary of the scenario analyses.
g MPS Group
EUR/mln
Impact on net interest Impact on
Risk Family Scenario and other banking shareholders' Global Effect
income and net profit equity
Forex +1% Exchange rate against EUR 0.019 0.01 0.2
Forex -1% Exchange rate against EUR (0.08) (0.01) (0.09)
Forex +1% Forex Volatility 0.35 0.00 0.35
2017 ANNUAL REPORT
403 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
2.4 Derivatives
A. Financial derivatives
In the following tables, a distinction is drawn between derivatives classified in the regulatory
Trading Book and derivatives included in the Banking Book, in accordance with Bank of Italy
regulations for Prudential Supervision. This differs from a IAS-based classification for
financial statement purposes, which distinguishes between trading derivatives and hedge
accounting derivatives.
Regulatory classification is fundamental in order to more accurately discern between
instruments intended for trading - and thus for generating absorption of capital for market
risk - and those intended for other purposes which fall within the framework of credit risk
absorption.
For the Parent Company, derivatives included in the Regulatory Trading Book correspond to
those present in the regular balance-sheet trading book, with the exception of derivatives
connected to instruments for which the fair value option was adopted, which are intended to
hedge against market risks on fair-valued deposits and derivatives separated from or
operationally connected to other financial instruments in the Banking Book.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 404
A.1 Regulatory trading book: end of period notional amounts
Total 31 12 2017 Total 31 12 2016
Underlying asset/Type of derivative Over the Central Over the Central
counter counterparts counter counterparts
1. Debt securities and interest rate 223,419,492 - 509,401,108 -
a) Options 31,126,667 - 367,745,504 -
b) Swaps 190,917,111 - 140,692,295 -
c) Forward 55,554 - 5,197 -
d) Futures 1,320,160 - 958,112 -
e) Other - - - -
2. Equity securities and stock indices 12,904,376 350,155 15,980,757 182,243
a) Options 12,226,942 285,250 15,324,512 140,900
b) Swaps 244,368 - 199,841 -
c) Forward - - - -
d) Futures 433,066 64,905 456,404 41,343
e) Other - - - -
3. Exchange rates and gold 5,134,832 - 8,185,127 -
a) Options 1,236,471 - 1,607,333 -
b) Swaps 1,470,272 - 1,933,598 -
c) Forward 2,428,089 - 4,644,196 -
d) Futures - - - -
e) Other - - - -
4. Commodities 681,381 - 604,072 -
5.Other underlying - - - -
Total 242,140,081 350,155 534,171,064 182,243
2017 ANNUAL REPORT
405 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.2 Banking book: end of period notional amounts
A.2.1 Hedging derivatives
Total 31 12 2017 Total 31 12 2016
Underlying asset/Type of derivative Over the Central Over the Central
counter counterparts counter counterparts
1. Debt securities and interest rate 32,005,987 - 29,034,868 -
a) Options 3,727,960 - 2,885,437 -
b) Swaps 28,278,027 - 26,149,431 -
c) Forward - - - -
d) Futures - - - -
e) Other - - - -
2. Equity securities and stock indices - - - -
a) Options - - - -
b) Swaps - - - -
c) Forward - - - -
d) Futures - - - -
e) Other - - - -
3. Exchange rates and gold 379,809 - 412,319 -
a) Options - - - -
b) Swaps 379,809 - 412,319 -
c) Forward - - - -
d) Futures - - - -
e) Other - - - -
4. Commodities - - - -
5. Other underlying - - - -
Total 32,385,796 - 29,447,187 -
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 406
A.2.2 Other derivatives
Total 31 12 2017 Total 31 12 2016
Underlying asset/Type of derivative Over the Central Over the Central
counter counterparts counter counterparts
1. Debt securities and interest rate 314,805 - 358,549 -
a) Options 37,000 - 37,000 -
b) Swaps 277,805 - 321,549 -
c) Forward - - - -
d) Futures - - - -
e) Other - - - -
2. Equity securities and stock indices 278 - 279 -
a) Options - - - -
b) Swaps 278 - 279 -
c) Forward - - - -
d) Futures - - - -
e) Other - - - -
3. Exchange rates and gold 2,873 - 8,046 -
a) Options - - - -
b) Swaps - - - -
c) Forward 2,873 - 8,046 -
d) Futures - - - -
e) Other - - - -
4. Commodities - - - -
5. Other underlying - - - -
Total 317,956 - 366,874 -
2017 ANNUAL REPORT
407 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.3 Financial derivatives: gross positive fair value - breakdown by products
Positive Fair value
Total 31 12 2017 Total 31 12 2016
Portfolios/Types of derivatives
Over the Central Over the Central
counter counterparts counter counterparts
A. Regulatory trading book 4,389,594 6,806 5,222,140 2,919
a) Options 410,561 6,806 471,333 2,919
b) Interest rate swaps 3,877,852 - 4,571,771 -
c) Cross currency swaps 16,073 - 95,162 -
d) Equity swaps 11,819 - 8,946 -
e) Forward 56,803 - 58,738 -
d) Futures 1,671 - 893 -
g) Other 14,815 - 15,297 -
B. Banking book - Hedging 302,932 - 485,460 -
a) Options 3,586 - 4,864 -
b) Interest rate swaps 299,346 - 464,805 -
c) Cross currency swaps - - 15,791 -
d) Equity swaps - - - -
e) Forward - - - -
d) Futures - - - -
g) Other - - - -
C. Banking book - Other derivatives 36,519 - 38,401 -
a) Options 2,338 - 3,322 -
b) Interest rate swaps 34,131 - 34,936 -
c) Cross currency swaps - - - -
d) Equity swaps - - - -
e) Forward 50 - 143 -
d) Futures - - - -
g) Other - - - -
Total 4,729,045 6,806 5,746,001 2,919
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 408
A.4 Financial derivatives: gross negative fair value - breakdown by products
Negative fair value
Total 31 12 2017 Total 31 12 2016
Portfolios/Types of derivatives
Over the Central Over the Central
counter counterparties counter counterparties
A. Regulatory trading book 2,616,836 2,251 3,433,640 2,096
a) Options 536,917 2,251 664,273 2,096
b) Interest rate swaps 1,998,416 - 2,547,131 -
c) Cross currency swaps 36,836 - 88,682 -
d) Equity swaps 4,523 - 4,274 -
e) Forward 19,875 - 106,742 -
d) Futures 3,533 - 2,933 -
g) Other 16,736 - 19,605 -
B. Banking book - Hedging 840,119 - 1,109,408 -
a) Options 84,037 - 91,925 -
b) Interest rate swaps 747,320 - 970,544 -
c) Cross currency swaps 8,762 - 46,939 -
d) Equity swaps - - - -
e) Forward - - - -
d) Futures - - - -
g) Other - - - -
C. Banking book - Other derivatives 31,337 - 38,400 -
a) Options - - - -
b) Interest rate swaps 31,335 - 38,255 -
c) Cross currency swaps - - - -
d) Equity swaps 2 - 2 -
e) Forward - - 143 -
d) Futures - - - -
g) Other - - - -
Total 3,488,292 2,251 4,581,448 2,096
2017 ANNUAL REPORT
409 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.5 OTC financial derivatives: regulatory trading book - notional amounts, gross positive and negative fair value by
counterparties - contracts not subject to netting agreements
31 12 2017
Governments and
Other pubblic
Non financial
Other entities
central banks
Companies
Companies
companies
Insurance
Financial
entities
Banks
Contracts not subject to
netting agreements
1. Debt securities and interest rates
- notional value - 150,046 73,981 464,680 - 5,395,841 214,075
- positive fair value - 19,050 10,147 4,661 - 195,725 3,410
- negative fair value - 75 238 882 - 10,039 11
- future exposure - 1,384 451 1,256 - 24,514 140
2. Equity securities and stock indices
- notional value 23 - 36,647 5,261 - 1,815 25,693
- positive fair value 24 - 34,700 5,670 - - -
- negative fair value - - - - - 29 386
- future exposure 2 - 2,202 421 - - -
3. Exchange rates and gold
- notional value 181,088 - 793,193 36,271 - 2,194,753 1,821
- positive fair value 335 - 11,491 1,885 - 54,141 3
- negative fair value 1,451 - 808 107 - 14,770 67
- future exposure 1,811 - 7,932 196 - 23,807 18
4. Other underlying
- notional value - - - - - 214,031 -
- positive fair value - - - - - 11,538 -
- negative fair value - - - - - 14,652 -
- future exposure - - - - - 21,542 -
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 410
A.6 OTC financial derivatives: regulatory trading book - notional amounts, gross positive and negative fair value by
counterparties - contracts subject to netting agreements
31 12 2017
Insurance companies
Financial companies
Other public entities
Governments and
Non-financial
Other entities
central banks
companies
Banks
Contracts subject to
netting agreements
1. Debt securities and interest rates
- notional value - - 96,313,236 120,515,599 56,793 235,244 -
- positive fair value - - 1,390,991 2,335,963 9,800 665 -
- negative fair value - - 881,286 1,197,568 - 567 -
2. Equity securities and stock indices
- notional value - - 2,409,133 10,224,998 200,806 - -
- positive fair value - - 83,938 187,356 - - -
- negative fair value - - 110,853 241,945 81,797 - -
3. Exchange rates and gold
- notional value - - 1,658,897 268,809 - - -
- positive fair value - - 20,984 734 - - -
- negative fair value - - 49,910 3,200 - - -
4. Other underlying
- notional value - - 35,425 423,893 - 8,032 -
- positive fair value - - - 3,178 - 3,206 -
- negative fair value - - 284 5,845 - 68 -
2017 ANNUAL REPORT
411 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.7 OTC financial derivatives: banking book - notional amounts, gross positive and negative fair value by counterparties
- contracts not subject to netting agreements
31 12 2017
Governments and
Non-financial
Other entities
Other public
central banks
companies
companies
companies
Insurance
Financial
entities
Banks
Contracts not subject to
netting agreements
1. Debt securities and interest rates
- notional value - - 14,415 5,000 - 3,784 -
- positive fair value - - - 11 - 58 -
- negative fair value - - 2,596 - - - -
- future exposure - - - - - - -
2. Equity securities and stock indices
- notional value - - - - - - -
- positive fair value - - - - - - -
- negative fair value - - - - - - -
- future exposure - - - - - - -
3. Exchange rates and gold
- notional value - - - - - 2,873 -
- positive fair value - - - - - 50 -
- negative fair value - - - - - - -
- future exposure - - - - - - -
4. Other underlying - - - - - - -
- notional value - - - - - - -
- positive fair value - - - - - - -
- negative fair value - - - - - - -
- future exposure - - - - - - -
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 412
A.8 OTC financial derivatives: banking book - notional amounts, gross positive and negative fair value by counterparties
- contracts subject to netting agreements
31 12 2017
Governments and
Non-financial
Other entities
Other public
central banks
companies
companies
companies
Insurance
Financial
entities
Banks
Contracts subject to
netting agreements
1) Debt securities and interest rates
- notional amount - - 30,422,364 1,875,229 - - -
- positive fair value - - 334,953 4,379 - - -
- negative fair value - - 787,773 72,324 - - -
2) Equity securities and stock indices
- notional amount - - 278 - - - -
- positive fair value - - - - - - -
- negative fair value - - 2 - - - -
3) Exchange rates and gold
- notional amount - - 379,809 - - - -
- positive fair value - - - - - - -
- negative fair value - - 8,762 - - - -
4) Other amounts
- notional amount - - - - - - -
- positive fair value - - - - - - -
- negative fair value - - - - - - -
2017 ANNUAL REPORT
413 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
A.9 OTC financial derivatives - residual life: notional amounts
Up to 1 to 5 Over 5
Underlying asset/residual life Total
1 year years years
A. Regulatory trading book 55,011,981 140,316,120 46,811,983 242,140,084
A.1 Financial derivatives on debt securities
44,884,149 132,541,078 45,994,267 223,419,494
and interest rates
A.2 Financial derivatives on equity securities
6,097,566 5,989,095 817,716 12,904,377
and stock indices
A.3 Financial derivatives on exchange
3,399,288 1,735,544 - 5,134,832
rates and gold
A.4 Financial derivatives on other
630,978 50,403 - 681,381
underlying assets
B. Banking book 3,470,680 22,441,486 6,791,586 32,703,752
B.1 Financial derivatives on debt securities
3,087,998 22,441,486 6,791,308 32,320,792
and interest rates
B.2 Financial derivatives on equity securities
- - 278 278
and stock indices
B.3 Financial derivatives on
382,682 - - 382,682
rates and gold
B.4 Financial derivatives on other
- - - -
underlying assets
Total 31 12 2017 58,482,661 162,757,606 53,603,569 274,843,836
Total 31 12 2016 273,746,376 232,605,593 57,633,161 563,985,130
A.10 OTC financial derivatives: Counterparty risk/Financial risk – internal models
As at today, EPE models are not used for either internal operational or reporting purposes.
A.11 OTC derivatives traded with customers for hedging purposes
The Group’s trading in OTC derivatives is exclusively intended to meet customers' hedging needs and
is targeted at the Group's corporate customers classified as Retail clients or Professional/Qualified
investors under the MiFID directive. “Public Institutions” customers are excluded from those offered
OTC derivative products and transactions, with the exception of the cases expressly set forth in Law
no. 147 of 27/12/2013, art. 1, paragraph 572.
In addition to being included in the afore-mentioned categories, target customers must qualify as
having the required qualitative and quantitative standing in terms of business carried out, corporate
structure, assets and creditworthiness.
As at today, the catalogue of OTC derivative products on offer includes approximately 150 products
and strategies.
These products are broken down into two types:
derivatives for new hedges,
debt-rescheduling hedges for transactions already in place.
The Catalogue is then subdivided into three classes depending on the type of underlying assets:
interest rate hedges;
foreign exchange hedges;
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 414
commodity hedges.
Within each class, the products are then differentiated based on basic technical form and structure,
which may involve a single, basic transaction or multiple transactions organised into strategies.
Among these products, the Parent Company's Risk Management function has identified a set of
products classifiable as “plain vanilla” because of their basic structure, sensitivity to one risk factor and
easy understandability. “Plain vanilla” products have been identified as the only type eligible for
inclusion in the offer for Retail customers.
The class of Non Plain Vanilla products generally includes mixed, structured strategies showing more
or less complex exotic features (e.g. digital payment profiles, barriers, etc.) or resulting from the
combination of multiple basic financial components. This class of products is for
Professional/Qualified investors.
Group trading in OTC derivatives is regulated according to the following main guidelines:
- trading in derivatives by customers is conditional upon ascertaining and monitoring that they are only
used for hedging purposes. Three types of hedging relationships are possible:
1. micro hedges: ie. hedging of individual, well-defined items in the customer's assets
and/or liabilities held with the Group or other intermediaries;
2. macro hedges: ie. hedging of a portfolio of assets and/or liabilities, or a part of it, held
with the Group or other intermediaries;
3. forward transaction hedges: by way of example, hedging through OTC derivatives in
which the underlying is an exchange rate against future settlement of specific business
transactions;
- customer trading shall not in any case have a leverage effect on hedged positions;
- trading must occur in compliance with the requirement of appropriateness (to ensure the highest
level of customer protection) and adequate financial advice;
- trading under the appropriateness regime is only allowed as a marginal option for participation in
tenders, for a subset of Corporate clients with proven high level of financial culture (Large
Experienced Corporate of “LEC”) and for Financial Institutions. The execution of transactions
qualifying as inappropriate is in any case prevented.
Trading in OTC derivatives involves, first of all, the assumption of market risk by the Group, defined
as potential loss that may be incurred on positions held subsequent to unfavourable variations in
specific market parameters. The main risk factors this type of trading is subject to include: interest rate,
foreign exchange, market index, commodities and related volatility and correlations. At the same time,
the Bank also takes on the risk that the counterparty of a derivative-based transaction is in default prior
to settlement (counterparty risk).
Trading in derivatives with customers involves the centralisation of the product factory and market risk
monitoring in MPS Capital Services, whereas the allocation, management and monitoring of
counterparty risk with customers lie with the Group’s Retail Banks.
The estimation of counterparty risk on Over the Counter (OTC) derivatives with customers is based
on the fair value determination of positions held.
OTC derivatives traded with customers are comprised in level 2 of the Fair Value Hierarchy on the
basis of which fair value is calculated through proprietary valuation methods and assessment models
fed with parameters available on the market. The models used are discussed among the Operating
Units and specialised Risk Management and Quantitative Analysis functions and submitted for
validation to the Parent Company's Risk Management function. These models are subject to periodic
2017 ANNUAL REPORT
415 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
review so as to guarantee constant alignment between the model approach adopted and prevailing
domestic and international best practices. Furthermore, the pricing models for OTC derivatives with
customers are consistent with the methodological criteria used by the Group for the valuation of its
own positions.
Group customers holding positions in OTC derivatives numbered approximately 4,600 as at 31
December 2017.
The following table reports the fair value of positions in OTC derivatives for the Group, by type of
products (“Plain Vanilla” / “Non Plain Vanilla”).
g OTC derivatives hedging with customers
Montepaschi Group - EUR/mln of 29 12 2017
Product Net Fair of w hich
Value Positive Negative
Fair Value Fair Value
Plain Vanilla 186.34 210.55 (24.21)
Non-plain Vanilla 52.18 55.01 (2.83)
Total 238.52 265.56 (27.04)
As at 31 December 2017, the net fair value of these products was, on the whole, positive for the
Group and therefore negative for customers, at approx. EUR 239 mln.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 416
B. CREDIT DERIVATIVES
B1. Credit derivatives: end of period notional amounts
Regulatory trading book Banking book
Transaction categories with multiple with multiple
single name counterparties single name counterparties
(basket) (basket)
1. Purchases of protection
a) Credit default products 563,793 58,815 - -
b) Credit spread products - - - -
c) Total rate of return swap - - - -
d) Others - - - -
Total 31 12 2017 563,793 58,815 - -
Total 31 12 2016 1,012,952 38,360 - -
2. Sales of protection - - - -
a) Credit default products 2,321,488 3,815 - -
b) Credit spread products - - - -
c) Total rate of return swap - - - -
d) Others - - - -
Total 31 12 2017 2,321,488 3,815 - -
Total 31 12 2016 3,098,678 13,360 - -
The end of period notional amounts is not significantly different from the average value during the
year.
2017 ANNUAL REPORT
417 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
B2. OTC credit derivatives: gross positive fair value - breakdown by products
Positive Fair Value
Portfolios/Types of derivatives
Total 31 12 2017 Total 31 12 2016
A. Regulatory trading book 11,415 39,929
a) Credit default products 11,415 39,929
b) Credit spread products - -
c) Total rate of return swap - -
d) Other - -
B. Banking book - -
a) Credit default products - -
b) Credit spread products - -
c) Total rate of return swap - -
d) Other - -
Total 11,415 39,929
B3. OTC credit derivatives: gross negative fair value - breakdown by products
Negative Fair value
Portafogli/Tipologie derivati
Total 31 12 2017 Total 31 12 2016
A. Regulatory trading book 34,211 48,496
a) Credit default products 34,211 48,496
b) Credit spread products - -
c) Total rate of return swap - -
d) Other - -
B. Banking book - -
a) Credit default products - -
b) Credit spread products - -
c) Total rate of return swap - -
d) Other - -
Total 34,211 48,496
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 418
B.4 OTC credit derivatives: gross (positive and negative) fair value / counterparty risk -
contracts not subject to netting agreements
No transactions of this nature are recorded at the reporting date.
B.5 OTC credit derivatives: gross (positive and negative) fair value / counterparty risk-
contracts subject to netting agreements
31 12 2017
Governments and
Non-financial
Other entities
central banks
Other public
companies
companies
companies
Insurance
Financial
entities
Banks
Contracts not subject to
netting agreements
Regulatory trading
1) Purchases of protection
- notional amount - - 279,536 343,071 - - -
- positive fair value - - - 4,617 - - -
- negative fair value - - 5,124 6,077 - - -
2) Sales of protection - - - - - - -
- notional amount - - 288,276 1,985,248 51,778 - -
- positive fair value - - 4,615 2,182 - - -
- negative fair value - - 29 22,364 616 - -
Banking book
1) Purchases of protection - - - - - - -
- notional amount - - - - - - -
- positive fair value - - - - - - -
- negative fair value - - - - - - -
2) Sales of protection - - - - - - -
- notional amount - - - - - - -
- positive fair value - - - - - - -
- negative fair value - - - - - - -
2017 ANNUAL REPORT
419 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
B.6. Credit derivatives - residual life: notional amounts
Up to 1 to 5 Over 5
Underlying asset/residual life Total
1 year years years
A. Regulatory trading book 135,801 1,274,069 1,538,040 2,947,910
A.1 Credit derivatives with qualified
64,710 1,199,069 1,502,009 2,765,788
reference obligation
A.2 Credit derivatives with non-qualified
71,091 75,000 36,031 182,122
reference obligation
B. Banking book - - - -
B.1 Credit derivatives with qualified
- - - -
reference obligation
B.2 Credit derivatives with non-qualified
- - - -
reference obligation
Total 31 12 2017 135,801 1,274,069 1,538,040 2,947,910
Total 31 12 2016 1,052,236 1,775,740 1,335,374 4,163,350
B.7 Credit derivatives: counterparty risk/financial risk – internal models
As at today, EPE models are not used for either internal operational or reporting purposes.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 420
C. FINANCIAL AND CREDIT DERIVATIVES
C.1 OTC financial and credit derivatives: net fair value and future exposure by counterparty
31 12 2017
Governments and
Non-financial
Other entities
central banks
Other public
companies
companies
companies
Insurance
Financial
entities
Banks
1) Financial derivatives,
bilateral agreements
- positive fair value - - - 260,509 - - -
- negative fair value - - 3,076 - - - -
- future exposure - - 109,497 797,435 - - -
- net counterparty risk - - 98,584 932,966 - - -
2) Credit derivatives,
bilateral agreements
- positive fair value - - - - - - -
- negative fair value - - - 4,373 - - -
- future exposure - - - 2,200 - - -
- net counterparty risk - - - 2,200 - - -
3) "Cross product" agreements
- positive fair value - - 579,698 872,410 - 3,308 -
- negative fair value - - 585,163 139,459 72,613 70 -
- future exposure - - 324,688 354,839 6,003 2,354 -
- net counterparty risk - - 433,161 306,768 6,003 1,592 -
2017 ANNUAL REPORT
421 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
1.3 –Banking Group - Liquidity risk
Qualitative Information
A. Liquidity risk: general aspects, operational processes and measurement methods
In 2017, the Group updated and boosted the efficiency of its strategic and operating liquidity risk
management processes, placing particular attention on the integration of the Internal Liquidity
Adequacy Assessment Process (ILAAP) within company decision-making processes and the Liquidity
Risk Framework. It also strengthened its oversight over data quality, in particular as regards regulatory
metrics, and a more robust system of controls was developed on concentration risk, from the
perspective of sources of funding and available assets.
Group Liquidity Risk Framework
The Group has used a Liquidity Risk Framework for many years now, intended as the set of tools,
methodologies, organisational and governance setups which ensures both compliance with national
and international regulations and adequate liquidity risk governance in the short (Operating Liquidity)
and medium/long (Structural Liquidity) term, under business as usual and stress conditions. The
reference Liquidity Risk model for the Montepaschi Group is “centralised” and calls for the
management of short-term liquidity reserves and medium/long-term financial balance at Parent
Company level, guaranteeing solvency on a consolidated and individual basis for the Subsidiaries.
Management of the Group's Operating Liquidity is intended to ensure the Group is in a position to
meet cash payment obligations in the short term. The essential condition for a normal course of
business in banking is the maintenance of a sustainable imbalance between cash inflows and outflows
in the short term. From the operational perspective, the benchmark metric in this respect is the
difference between net cumulative cash flows and Counterbalancing Capacity, i.e. the reserve of
liquidity in response to stress conditions over a short time horizon, in addition to the Liquidity
Coverage Ratio (LCR) regulatory measure - Delegated Act. From the extremely short-term perspective,
the Group adopts a system for the analysis and monitoring of intraday liquidity, with the goal of
ensuring normal development during the day of the bank’s treasury and its capacity to meet its intraday
payment commitments.
Management of the Group's Structural Liquidity is intended to ensure the structural financial balance
by maturity buckets over a time horizon of more than one year, both at Group and individual company
level. Maintenance of an adequate dynamic ratio between medium/long term assets and liabilities is
aimed at preventing current and prospective short-term funding sources from being under pressure.
The benchmark metrics are gap ratios which measure the ratio of total loans over more-than-1-year
and more-than-5-year maturity deposits and the ratio of loans to retail/corporate deposits regardless of
their maturities, in addition to the regulatory measurement of the Net Stable Funding Ratio (NSFR) in
accordance with the BCBS definition. The Group also defined and formalised the asset encumbrance
management and monitoring framework with the goal of analysing:
o the overall degree of encumbrance of total assets;
o the existence of a sufficient quantity of assets that may be encumbered but which are free;
o the Group’s capacity to transform bank assets into eligible assets (or in an equivalent
manner, to encumber non-eligible assets in bilateral transactions).
The liquidity position is monitored under business-as-usual conditions and under specific and/or
system-wide stress scenarios based on the Liquidity Stress test Framework. The exercises have the
twofold objective of promptly reporting the Group’s major vulnerabilities in exposure to liquidity risk
and allowing for prudential determination of surveillance levels, to be applied to the Liquidity Risk
measurement metrics within the scope of the annual Risk Appetite Statement.
Within the scope of Risk Appetite Framework, the Liquidity Risk Framework identifies the tolerance
thresholds for liquidity risk, that is to say the maximum risk exposure deemed sustainable in a
business-as-usual scenario and under stress conditions. The short/medium and long-term liquidity risk
limits derive from the setting of these risk appetite thresholds. The system of operating limits, known
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 422
as Liquidity Risk Limits, is defined so as to make it possible to promptly identify approaches towards
the risk tolerance threshold defined in the annual Risk Appetite Statement process.
In order to immediately identify the emergence of vulnerabilities in the liquidity position, the Group
has developed a range of Early Warnings, classified as generic or specific depending on whether the
individual indicator is designed to detect potential vulnerabilities in the overall economic context of
reference or in the Group structure.
Operating and structural liquidity management is governed by the Parent Company’s Liquidity
Management Department, which is responsible for defining and implementing funding strategies in the
short and medium/long-term.
With reference to the management of operating liquidity, Liquidity Management manages the Group’s
“liquidity reserves” so as to guarantee the Bank’s capacity to deal with expected and unexpected
outflows, to that end making recourse to various interbank market instruments (unsecured deposits,
collateralised deposits, repos) as well as transactions with the Central Bank.
With regard to the management of structural liquidity, Liquidity Management pursues the objectives
laid out in detail in the annual Funding Plan which outlines the medium/long-term strategies defined
on an operational basis in the “Liquidity and Funding Strategy”. The Group’s Liquidity and Funding
Strategy defines the funding activity guidelines of the BMPS Group in terms of risk appetite, with a
three-year time horizon, in compliance with the long-term risk tolerance thresholds on operating and
structural liquidity indicators, internal and regulatory, defined within the Group’s Risk Appetite
Statement (RAS).
In addition, to complete the Funding Plan, Liquidity Management prepares the Contingency
Funding Plan, which represents the operational tool for liquidity risk management intended to define
intervention strategies in the case of extreme liquidity tensions, laying out procedures and actions that
may be promptly activated to obtain sources of funds in emergencies. The strategies to be applied are
defined on a case by case basis by the Management Committee at its Liquidity Stress/Crisis session
considering the type, duration and intensity of the crisis and the reference context when the crisis takes
place.
Lastly, the overall internal liquidity adequacy assessment process takes place periodically as part of the
strategic ILAAP consisting mainly of:
ILAAP Outcomes, or quantitative (inherent risk) and qualitative (risk management and controls)
assessments on risk positioning prepared by the Risk Control function for the Board of
Directors;
Liquidity Adequacy Statement (LAS), i.e., the summary statement of the Board of Directors which
expresses its vision of liquidity adequacy management.
Liquidity position: regulatory indicators
The Group uses the following main indicators to assess its liquidity profile:
Liquidity Coverage Ratio (LCR), which is the short-term liquidity indicator corresponding
to the ratio between the amount of high quality liquid assets and the total net cash outflows
in the subsequent 30 calendar days. Since October 2015, the indicator has been subject to a
minimum regulatory requirement of 60% in 2015, 70% in 2016, 80% in 2017 and 100% in
2018;
Net Stable Funding Ratio (NSFR), which is the structural 12-month liquidity indicator
corresponding to the ratio between the available stable funding amount and the
2017 ANNUAL REPORT
423 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
compulsory stable funding amount. Although there is no minimum regulatory requirement
for this indicator, it is included in supervisory reporting every quarter; and
Loan to Deposit Ratio, representing the ratio between loans to customers and direct
funding, excluding transactions with central counterparties.
Trends in these three indicators during the reference period are shown below.
Regulatory 31
31 December
requirement December
2017
2016
LCR 80% 199% 108%
NSFR * - 110% 88%
Loan to Deposit Ratio ** - 88.4% 102.0%
(*) Note that the NSFR figure represents a calculation provided exclusively for informational purposes and is calculated in
accordance with the provisions laid out in the document published by the Basel Committee in October 2014 (Basel III: The net stable
funding ratio, Basel Committee on Banking Supervision), pending regulatory provisions, which could be different with reference to the
aggregates to be considered as well as any weighting factors to be applied to them.
(**) Calculated as Loans to customers/(Deposits from customers + Debt securities issued + Financial liabilities designated at fair
value) using data extracted from the 2017 and 2016 financial statements, respectively.
The short-term liquidity indicator, the Liquidity Coverage Ratio (LCR), was 199% as at 31
December 2017, higher than the minimum regulatory requirement of 80% for 2017, up
significantly since December 2016 (108%). Moreover, please note that the quantification of
the aggregates at the basis of the calculation of the liquidity indicators described above does
not contain discretionary assessments by the Bank.
The medium/long-term liquidity indicator, the Net Stable Funding Ratio (NSFR), was 110%
as at 31 December 2017, representing considerable growth since December 2016 (88%).
The year 2017 was characterised by a significant improvement in the liquidity position as a
result of the recovery of net commercial funding and the positive contribution deriving from:
- the issue between January and March of three government guaranteed bonds (GGB),
pursuant to Law Decree no. 237/2016, as converted and subsequently amended (“Decree
237”), for a total amount of EUR 11 bn (against the repayment, in March, of roughly
EUR 4 billion in GGBs issued in 2012). The GGBs issued, subscribed in full by the
issuer, were subsequently sold in the market or used to back financing transactions;
- the completion in August of the Parent Company’s share capital increase, for a value
equal to roughly EUR 3.9 billion, for the subscription of shares by the Ministry of
Economy and Finance (“MEF”) pursuant to the MEF decree published in Official
Gazette no. 175 on 28 July 2017, relating to “Capital strengthening initiatives of Banca
Monte dei Paschi di Siena, pursuant to art. 18, paragraph 3 of Law Decree no. 237 of 23
December 2016 converted, with amendments, by Law no. 15 of 17 February 2017”;
- the completion of the partial voluntary public offering for exchange and settlement for
holders of the ordinary shares of the Parent Company resulting from the conversion,
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 424
following the application of the new burden sharing measures laid out in Decree 237, of
the subordinated bond loan named “€2.160.558.000 Tasso variabile Subordinato Upper
Tier II 2008 - 2018” (ISIN IT0004352586), for an overall cash impact equal to around
EUR 1.5 billion.
As at 31 December 2017 the operating liquidity position showed an unencumbered
counterbalancing capacity of EUR 21.1 bn, up by roughly EUR 14.2 bn compared to the
figure as at 31 December 2016 (EUR 6.9 bn).
Quantitative Information
2017 ANNUAL REPORT
425
1. Breakdown of financial assets and liabilities by residual contractual duration - Currency: Euro
31 12 2017
15 days
1 to 7 to 1 to 3 to 6 6 months 1 to 5 over 5 Unspecified
Account / Maturity On demand to 1
7 days 15 days 3 months months to 1 year years years maturity
month
Balance-sheet assets 18,461,512 1,437,292 1,880,584 2,046,675 4,862,321 8,785,487 7,223,367 34,940,679 36,795,631 3,629,268
A.1 Government securities 51 10 234 629 126,724 370,158 2,227,545 12,346,391 2,713,946 -
A.2 Other debt securities 483,732 453 2,903 34,515 29,954 94,676 131,016 1,170,338 962,480 8,357
A.3 Units of UCITS 156,480 - - - - - - - - -
A.4 Loans 17,821,249 1,436,829 1,877,447 2,011,531 4,705,643 8,320,653 4,864,806 21,423,950 33,119,205 3,620,911
- Banks 4,096,091 7,563 236,382 246,076 117,846 120,714 256,475 55,153 182,737 3,611,339
- Customers 13,725,158 1,429,266 1,641,065 1,765,455 4,587,797 8,199,939 4,608,331 21,368,797 32,936,468 9,572
Balance-sheet liabilities 58,717,592 4,811,857 3,094,365 4,136,525 6,599,950 5,370,469 5,015,114 27,975,631 4,896,162 293,588
B.1 Deposits and current accounts 51,842,692 208,632 401,383 718,120 2,317,783 2,415,056 1,691,675 3,014,277 27,269 -
- Banks 832,182 - - - - 9,000 218,450 188,800 - -
- Customers 51,010,510 208,632 401,383 718,120 2,317,783 2,406,056 1,473,225 2,825,477 27,269 -
B.2 Debt securities 2,273,078 1,716 1,572 2,814,111 1,466,053 1,850,004 1,169,800 7,280,905 3,524,834 293,588
B.3 Other liabilities 4,601,822 4,601,509 2,691,410 604,294 2,816,114 1,105,409 2,153,639 17,680,449 1,344,059 -
Off-balance-sheet transactions
C.1 Financial derivatives with exchange of principal
- long positions 352,073 718,079 206,739 379,426 2,369,981 1,779,343 590,913 1,095,325 486,764 -
- short positions 612,086 2,448,795 351,411 387,292 1,290,855 576,126 367,532 799,943 222,891 -
C.2 Financial derivatives without exchange of
principal
- long positions 3,813,913 60 - 4,366 43,558 40,871 29,516 24 - -
- short positions 2,191,329 428 - 3,859 35,643 7,120 44,366 190 2,406 -
C.3 Deposits and borrowings to be received
- long positions - - - - - - - - - -
- short positions - - - - - - - - - -
C.4 Irrevocable commitments to disburse funds
- long positions 144,797 1,976,189 4,801 33,009 101,350 322,356 255,689 273,024 967,451 202,256
- short positions 3,897,300 195,877 - - - - - - - -
C.5 Financial guarantees given 47,537 280 607 674 9,006 5,844 19,963 84,379 66,070 -
C.6 Financial guarantees received - - - - - - - - - -
C.7 Credit derivatives with exchange of principal
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
- long positions - - - - 30,000 - 90,000 518,828 1,538,040 -
- short positions - - - - 30,000 - 90,000 518,828 1,538,040 -
C.8 Credit derivatives without exchange of principal
- long positions - - - - - - - - - -
- short positions 4,373 - - - - - - - - -
BANCA MONTE DEI PASCHI DI SIENA
2. Breakdown of financial assets and liabilities by residual contractual duration - Currency: Other
31 12 2017
6
On 1 to 7 to 15 days 1 to 3 to 6 1 to 5 over 5 Unspecified
2017 ANNUAL REPORT
Account / Maturity months
demand 7 days 15 days to 1 month 3 months months years years maturity
to 1 year
Balance-sheet assets 561,028 38,862 39,437 124,480 174,751 184,263 73,604 355,380 759,856 -
A.1 Government securities 84 - - 3 104 19 443 1,034 13,902 -
A.2 Other debt securities 26,939 - 108 151 11,739 5,677 10,825 55,576 534,022 -
A.3 Units of UCITS 1,472 - - - - - - - - -
A.4 Loans 532,533 38,862 39,329 124,326 162,908 178,567 62,336 298,770 211,932 -
- Banks 332,239 10,190 14,843 37,996 54,349 13,371 19,376 4,238 1,179 -
- Customers 200,294 28,672 24,486 86,330 108,559 165,196 42,960 294,532 210,753 -
Balance-sheet liabilities 570,973 9,841 9,049 71,130 164,693 10,152 6,063 42,091 1,474 -
B.1 Deposits and current accounts 535,285 9,841 9,049 51,867 118,318 9,651 5,227 103 - -
- Banks 30,919 - - 33,353 - - 1,135 - - -
- Customers 504,366 9,841 9,049 18,514 118,318 9,651 4,092 103 - -
B.2 Debt securities - - - - 13,514 336 671 41,988 - -
B.3 Other liabilities 35,688 - - 19,263 32,861 165 165 - 1,474 -
Off-balance-sheet transactions
C.1 Financial derivatives with exchange of principal
- long positions 21,596 343,919 323,300 295,481 540,079 338,869 97,698 33,736 25 -
- short positions 25,734 294,874 218,897 333,050 1,455,578 557,242 361,889 228,615 152 -
C.2 Financial derivatives without exchange of
principal
- long positions 270,157 - - - - - - - - -
- short positions 163,374 - - - - - - - - -
C.3 Deposits and borrowings to be received
- long positions - - - 33,353 336 - - - - -
- short positions - - - 33,353 336 - - - - -
C.4 Irrevocable commitments to disburse funds
- long positions 33,152 127,008 32 1,424 34,291 40,270 28,260 25,370 15,665 -
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
- short positions 305,473 - - - - - - - - -
C.5 Financial guarantees given 4 - - - 4 - 2 4,339 - -
C.6 Financial guarantees received - - - - - - - - - -
C.7 Credit derivatives with exchange of principal
- long positions - - - - 8,171 - 7,629 700,242 - -
- short positions - - - - 8,171 - 7,629 700,242 - -
C.8 Credit derivatives without exchange of principal
- long positions - - - - - - - - - -
426
- short positions - - - - - - - - - -
427 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Self-securitisations
The securitisation transactions whereby the Group underwrites securities issued by vehicle companies
(self-securitisations) are not shown in the tables of Part E of the Consolidated Notes to the Financial
Statements, section C “Asset securitisation and disposal transactions”, pursuant to the provisions of
Circ. 262 of the Bank of Italy.
Self-securitisations of assets are transactions aimed at improving liquidity risk management by
optimising the amount of assets readily available to cover liquidity requirements.
Although the Group's direct and full underwriting of the notes issued by the vehicles does not make it
possible to obtain direct liquidity from the market, it still provides the Group with securities that could
be used for ECB refinancing and repo transactions on the market, thereby improving the Group's
safety margin against liquidity risk.
These sale transactions had no economic impact on the financial statements: loans continue to be
reported under item 70 “Loans to customers” and item 150 “Non-current assets and groups of assets
held for sale and discontinued operations” on the assets side, while underwritten notes are not
reported.
As at 31 December 2017, this category includes the self-securitisations entered into in December 2007
(Siena Mortgages 07–5), in March 2008 (Siena Mortgages 07-5 2nd tranche), in February 2009 (Siena
Mortgages 09-6), in December 2013 (Siena Consumer), in October 2016 (Siena PMI 2016) and in
December 2017 (Siena NPL 2018).
Siena Mortgages 07-5, 1st and 2nd series
On 21 December 2007, through the vehicle Siena Mortgages 07-5 S.p.a., the Parent Company finalised
a securitisation of performing loans consisting of a portfolio of 57,968 residential mortgages for a total
of EUR 5,162.4 mln, of which a balance of EUR 1,344.0 mln (25,075 mortgage loans) outstanding as
at 31 December 2017.
In order to fund the acquisition, the Vehicle issued Residential Mortgage Backed Floating Rate Notes
(RMBS) in the following classes, rated by Moody's and Fitch as at 31 December 2017:
Class A notes (Aa2/AA) for a nominal amount of EUR 4,765.9 mln, of which EUR 3,813.9
mln redeemed;
Class B notes (Aa2 and A), for a nominal amount of EUR 157.4 mln;
Class C notes (B3 and B), for a nominal amount of EUR 239.0 mln.
A cash reserve was also set up to support the transaction for an amount of EUR 124.0 mln, through
the issuance of class D notes, which was posted to the assets side under Item 70 “Loans to
customers”. The transaction reached the Protection Ratio (ratio between total Class B and C notes and
total Class A, B and C notes) which allowed for the gradual reduction of the cash reserve to the target
amount of EUR 38.7 mln.
The first series was followed on 31 March 2008 by a second series (Siena Mortgages 07-5 second
series), collateralised by a separate pool of assets consisting of an additional sale of a portfolio of
performing loans composed of 41,888 residential mortgages for a total of EUR 3,461.0 mln and with a
residual life of about 20 years.
As at 31 December 2017, 14,649 loans were outstanding for a balance of EUR 997.9 mln.
In order to fund the acquisition of loans, the Vehicle (the existing Siena Mortgages 07-5 S.p.a.) issued
RMBS in the following classes, rated by Moody's and Fitch as at 31 December 2017:
Class A notes (Aa2 and AA-) for a nominal amount of EUR 3,129.4 mln, of which EUR
2,419.8 mln redeemed;
Class B notes (Aa3 and BBB), for a nominal amount of EUR 108.3 mln;
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 428
Class C notes (NR and B), for a nominal amount of EUR 178.3 mln.
A cash reserve was set up to support the transaction for an amount of EUR 82.1 mln, through the
issuance of class D notes, which was posted under asset item 70 “Loans to customers”. The
transaction reached the Protection Ratio (ratio between total Class B and C notes and total Class A, B
and C notes) which allowed for the gradual reduction of the cash reserve to EUR 25.1 mln.
Siena Mortgages 09-6, 1st series
On 20 February 2009 the Parent Company finalised a securitisation through the vehicle Siena
Mortgages 09 – 6 Srl of a portfolio of performing mortgages in real estate and building for a total of
EUR 4,436.5 mln. As at 31 December 2017, the remaining debt balance stands at EUR 1,692.3 mln,
for a total of 24,695 loans.
In order to fund the acquisition of the portfolio sold, the Vehicle issued Residential Mortgage Backed
Floating Rate Notes (RMBS) in the following classes, rated by Moody's and Fitch as at 31 December
2017:
Class A notes (Aa2 and AA) for a nominal amount of EUR 3,851.3 mln, of which EUR
2,794.0 mln redeemed;
Class B notes (NR and AA), for a nominal amount of EUR 403.7 mln;
Class C notes (NR and B), for a nominal amount of EUR 181.4 mln.
A cash reserve was set up to support the transaction for an amount of EUR 106.7 mln, through the
issuance of class D notes, which was posted under asset item 70 “Loans to customers”. In July 2017,
the reserve’s target level was increased to EUR 145.0 mln.
Siena Consumer
In December 2013 a securitisation transaction was carried out through the sale to the vehicle Siena
Consumer S.r.l. of a portfolio of approximately EUR 1,500 mln consisting of 200,542 personal loans,
auto loans, and special-purpose loans originated by Consum.it S.p.A., now absorbed by Banca Monte
dei Paschi di Siena S.p.A. As at 31 December 2017, the remaining debt balance amounted to EUR
178.8 mln (194,632 outstanding loans).
To fund the acquisition of the portfolio, the Vehicle issued unrated asset-backed securities in the
following classes:
Class A notes for a nominal amount of EUR 991.6 mln, redeemed in full;
Class B notes for a nominal amount of EUR 488.3 mln, EUR 324.0 mln of which redeemed;
Class C notes for a nominal amount of EUR 21.9 mln.
2017 ANNUAL REPORT
429 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Siena PMI 2016
In 2016 the Parent Company carried out a securitisation through the vehicle named Siena PMI 2016
S.r.l. The transaction was finalised on 30 September 2016 through the sale of a portfolio of performing
loans to Italian small and medium enterprises, for a total of EUR 1,739.3 mln. As at 31 December
2017, the remaining debt balance stands at EUR 1,034.1 mln, for a total of 15,764 loans.
In order to fund the acquisition of the portfolio sold, on 27 October 2016 the Vehicle issued Asset-
Backed Securities (ABS) in the following classes, rated by Fitch and DBRS as at 31 December 2017:
Class A1 notes (AA and AAA) for a nominal amount of EUR 470.0 mln, redeemed in full;
Class A2 notes (AA and AAA) for a nominal amount of EUR 400.0 mln, of which EUR 84.3
mln redeemed;
Class B notes (AA and AAH), for a nominal amount of EUR 150.0 mln;
Class C notes (BBB and BBH) for a nominal amount of EUR 313.0 mln;
Class J notes (not rated) for a nominal amount of EUR 406.3 mln, of which EUR 34.6 mln
redeemed.
Siena NPL 2018
In the course of 2017, on the basis of what is set forth in the Restructuring Plan and in line with the
terms of the agreements entered into with Quaestio Capital Management SGR S.p.A., the MPS Group
completed the securitisation of a portfolio of doubtful loans originated by Banca Monte dei Paschi di
Siena S.p.A., MPS Capital Services Banca per le Imprese S.p.A. and Monte dei Paschi di Siena Leasing
& Factoring, Banca per i Servizi Finanziari alle Imprese S.p.A. The carrying amount of this portfolio as
at 31 December 2017 amounts to EUR 4,579.7 mln.
The portfolio was sold on 20 December 2017 to the vehicle Siena NPL 2018 S.r.l., established for this
purpose, which on 28 December 2017 issued Asset-Backed Securities (the “Securities”) in the
following classes:
Senior A1 notes for a nominal amount of EUR 2683.5 mln;
Senior A2 notes for a nominal amount of EUR 412.1 mln;
Mezzanine notes for a nominal amount of EUR 847.6 mln;
Junior notes for a nominal amount of EUR 565.0 mln.
The Securities were subscribed in full by the transferors and as at 31 December 2017 they are all held
by the Group.
The 2017-2021 Restructuring Plan and the agreements with Quaestio also call for, by the end of the
first half of 2018:
- the transfer of 95% of the mezzanine notes to the Atlante Fund managed by Quaestio (already
completed on 22 December 2017, effective as of 9 January 2018);
- rating by at least two agencies of the Senior A1 Notes (and possibly of other classes of Notes);
- after obtaining an investment grade rating from at least two agencies, the request for the
application of the guarantee (“GACS”) from the Ministry of Economy and Finance (MEF or
GACS Guarantor) pursuant to Law Decree No. 18 of 14 February 2016, converted with
amendments into Law No. 49 of 8 April 2016, and in compliance with what is laid out in the
relative implementing measures (including, inter alia, the MEF decree of 3 August 2016) on
the Senior A1 Notes (and possibly the Senior A2 as well);
- after obtaining the GACS, the transfer of 95% of the Junior Notes to the Atlante Fund, with
the simultaneous deconsolidation of the assets transferred;
- the sale of 95% of the class A2 Notes to institutional investors.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 430
For additional details, please refer to the section “The doubtful loan disposal transaction” of the
Consolidated Report on Operations.
1.4 – Banking Group - Operational risk
Qualitative Information
A. Operational risk: general aspects, operational processes and measurement methods
General information and Framework structure
By an administrative ruling dated 12 June 2008, the Bank of Italy authorised the Group to use internal
models for the determination of capital requirements for credit and operational risks.
The adoption of the advanced model (AMA) calls for banks to:
1. adopt an internal organisation which defines the roles of the corporate bodies and functions
involved in the operational risk management process;
2. establish a control function for data gathering and storing, capital requirement calculation, risk
profile assessment and reporting;
3. perform ongoing checks on the quality of the management system and its compliance with
regulatory provisions;
4. delegate the internal auditing body to perform periodic audits on the operational risk management
system;
5. ensure over time that the system is actually made use of in the usual course of business (use test).
For this purpose, the Group has adopted an integrated system for operational risk management, i.e. an
internal framework built around a governance model that involves all companies included in the AMA
model scope of application. The approach defines the standards, methods and instruments that make it
possible to measure risk exposure and the effects of mitigation by business area.
The advanced approach is designed to integrate all major qualitative and quantitative (LDA-Scenario
mixed model) information sources (information or data).
The quantitative Loss Distribution Approach component is based on the collection, analysis and
statistical modelling of internal and external time series of loss data (the latter supplied by the Italian
Database of Operational Losses, DIPO).
The qualitative component focuses on the evaluation of the risk profile of each unit and is based on
the identification of relevant scenarios. In this framework, the companies included in the AMA scope
area are involved in the: identification of the processes and risks to be assessed; assessment of risks by
process managers in charge; identification of possible mitigation plans; discussion of priorities and
technical-economic feasibility of mitigating actions with Head Office functions.
Next is a phase for monitoring progress on the implementation of actions scheduled and compliance
with objectives and deadlines.
The Framework identifies Group Operational Risk Management (ORM) as the operational risk control
function (within Parent Company’s Chief Risk Officer Division).
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The Parent Company’s ORM calculates the capital required to hedge operational risks by the use of
different components of the model (internal data, external data, contextual and control factors,
qualitative analyses), supports decision-making by Top Management from the standpoint of creating
value by containment, mitigation and transfer of the risks detected, and as it does for other companies
included in the scope, it gathers internal loss data and identifies the risks to be evaluated in qualitative
analyses.
The Advanced Measurement Approach (AMA) is applied to all domestic financial and banking entities,
while the foundation model is used for remaining components and foreign companies. As at 31
December 2017 internal model coverage in terms of the relevant indicator exceeded 95%.
ORM has also set up a reporting system which ensures timely information on operational risks for the
Top Management, which transposes the strategic principles of the management system into specific
operating policies. Reports are regularly submitted to the Risk Management Committee and governing
bodies.
Over time, the adoption of the AMA model has ensured better-informed management of operational
risk, guaranteeing a material progressive reduction of the Group's operational risk.
As of 30 June 2017, the Advanced Measurement Model was changed to increase the historical depth of
internal loss data from 5 to 10 years and to introduce the scaling of external data in order to discourage
unexpected requirement fluctuations.
Quantitative Information
The percentage breakdown of events and operational losses recognised in 2017 is reported below,
divided into various risk classes.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 432
As at 31 December 2017, the number of operational risk events was down as compared to December
2016, while operational losses rose as a result of disputes with customers.
The types of event with the greatest impact on the income statement remain attributable to non-
fulfilment of professional obligations with customers (under “Customers, products and operating
practices”: approximately 64% of the total) and operational and process management shortfalls (under
“Process management, execution and delivery”: 11% of the total).
With regard to “non-fulfilment of professional obligations with customers”, risk events are mainly
associated with disputes for past share capital increases and claims due to the application of compound
interest.
By contrast, the graph below shows the breakdown of regulatory requirements by risk class:
Regulatory Capital Requirements
Montepaschi Group - 31 12 2017
Internal Fraud; 29.3%
External Fraud; 4.9%
Employment Relationships ; 3%
Customers, products and operating practices; 48.1%
Property damage; 0.3%
Business disruptions and system failures; 1.8%
Process management, execution and delivery; 12.7%
The Regulatory Requirement as at 31 December 2017 was up slightly compared to the requirement of
December 2016, primarily as a result of the developments in the models enacted as at 30 June 2017.
The breakdown of losses recognised in the period clearly differs from the breakdown of the capital in
that the latter is calculated using a 10-year time series and the incidence of the unexpected loss
component prevails.
Main types of legal risks
Some summary information is reported below including, when relevant and/or advisable, that relating
to individual claims with reference to significant issues involving the BMPS Group and which are not
considered completely groundless or normal within the context of the activities of the Group
companies.
Unless specified otherwise, labour law and tax disputes or disputes relating to debt collection are
briefly described in the notes included in other sections of this document and, therefore, they are not
addressed in this section. In compliance with the provisions of IAS 37, information that could
significantly harm the position of the Group companies is omitted.
The risks associated with or connected to legal disputes – i.e. disputes brought before judicial
authorities and arbitrators – are kept under specific and careful review by the Group.
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In case of disputes for which the disbursement of financial resources to perform the underlying legal
obligation is believed to be “likely” and the relevant amount can be reliably estimated, allocations are
made to the Reserve for Risks and Charges using statistical or analytical criteria.
The key characteristics of significant cases, by macro-category or individually, are described below:
A) Significant cases by macro-category
The cases brought against the Group belonging to sufficiently homogeneous types for which the risk
has been estimated using analytical and/or statistical criteria can be grouped for the most part into
macro-categories, characterised individually by a common denominator represented by alleged critical
elements of products, operations, services or relationships for which or in which the Group banks
played the role of disbursement or placement entities.
The main macro-categories are related to situations concerning:
1) compound interest and in general the application of interest and conditions;
2) bankruptcy rescindments;
3) the placement of bonds issued by Countries or Companies that subsequently defaulted, and
financial plans.
The table below presents the data of the main macro-categories as at 31 December 2017:
Type of dispute No. of cases Petitum (EUR mln) Funds (EUR mln)
Interest compounding 3,177 371 168
Claw-backs of payments 351 421 80
received from defaulted
entities
Defaulting obligations 646 44 12
and financial plans
1) Disputes concerning compound interest, interest and conditions
Following the change in orientation by the Supreme Court of Cassation (Corte di Cassazione) on the
legitimacy of the practice of capitalising on a quarterly basis the interest payable accrued on current
accounts, as of 1999 there has been a progressive increase in claims for the return of interest expense
resulting from quarterly compound interest. In these lawsuits, the plaintiffs also contest the legitimacy
of the interest rate and the methods to determine the commissions applied to the accounts. In this
regard, the interpretation introduced since 2010 by the Supreme Court on usury - according to which
overlimit fees (Commissioni di Massimo Scoperto), even before Italian Law no. 2/2009 was enforced,
should have been calculated on the basis of the effective global rate (Tasso Effettivo Globale - TEG),
contrary to Bank of Italy guidelines - is frequently the pretext for the actions brought by customers.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 434
The plaintiffs most often claim irregularities in current account balances; however, claims concerning
compound interest are also increasingly frequent: these cases are based on the alleged illegitimacy of
the so-called “French-style amortisation” in mortgage loans, and violation of Italian Law no. 108/1996
on usury in term loans. Aware that the jurisprudential interpretation is often disadvantageous (although
not univocal), at least with respect to certain issues, the Group is committed to maximising the
arguments in its defence - which do exist, particularly concerning the statute of limitations - identifiable
in the regulatory and interpretative framework. Thinking in terms of macro-categories, the total
provisions estimated for this type of disputes appear to be adequate relative to the risk.
2) Disputes concerning bankruptcy rescindments
The reform implemented from 2005 has reduced and limited the scope of bankruptcy rescindments,
particularly those relating to current account remittances. For those that can still be filed, or already
pending at the effective date of the reform, the Group is giving maximum emphasis to all the
arguments available in defence.
3) Disputes concerning bonds issued by Countries or Companies that subsequently defaulted, and financial plans
The considerable defensive efforts made in this type of lawsuit resulted over the years in the
emergence of some favourable jurisprudential orientations, at least with respect to certain specific
cases, which are allowing balanced risk control. In 2015 there were some negative decisions,
particularly as regards financial plans, which as things currently stand have not had tangible negative
impacts, but the developments of which will be closely monitored to ensure proper oversight over any
greater risk factors.
B) Individually significant cases
Banca Monte dei Paschi di Siena S.p.A. vs. Extraordinary Administrators of SNIA S.p.A.
No further disclosure of the case in question, which has already been described in previous notes, is
provided in this document due to the fact that, in light of the first instance decision of the Court of
Milan which completely dismissed the claims of the Extraordinary Administrators with respect to the
various defendants including the Parent Company and taking into account the progress of the
proceedings relating to the appeal lodged by the counterparty, the risk of the Parent Company losing
this case should currently be deemed remote.
Banca Monte dei Paschi di Siena S.p.a. vs. Fatrotek
The action was brought by the company Fatrotek against the Parent Company (and other credit
institutions); the plaintiff asks the Court to recognise the alleged unlawfulness by the Parent Company
and the other banks of reporting doubtful loans to the Central Credit Bureau, and claim monetary and
non-monetary damages suffered by the company amounting to EUR 157.1 mln.
The plaintiff also asks that the defendant banks be found jointly liable, each proportionately to the
seriousness of its behaviour. The Parent Company’s defence was based on the fact that the company’s
extremely severe financial situation fully justified the Parent Company’s initiatives.
The next hearing in scheduled for 31 May 2018, for the engagement of expert witness.
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Banca Monte dei Paschi di Siena S.p.A. vs. Fallimento Medeghini S.p.A. in liquidazione
In 2012, Fallimento Medeghini SpA in liquidazione served a complaint on the Parent Company
charging it with an alleged unlawful behaviour, in contract and in tort, in relation to accounting
movements between the company, which subsequently went bankrupt, and other companies
(controlled by the Medeghini family), at the time of a capital increase by Medeghini S.p.A. The claim
amounts to EUR 155.0 mln.
The Bank's defence was based on various considerations in fact and in law, and was aimed at
demonstrating the absolute groundlessness of the claims brought by the bankruptcy procedure due to
total lack of a causal link between management acts that led to the default and the Parent Company's
conduct.
During the technical appraisal ordered by the Court, the opposite party's demands that a link of
causality be recognised between the capital increase and the subsequent transactions that worsened the
company's financial difficulties - in which the Bank acted as a mere executor - were repeatedly and
effectively rebutted by BMPS's expert witness.
During the appraisal, the Court-appointed expert witness accepted almost entirely the arguments of the
defendant Parent Company, and in any case the plaintiff's claim, as formulated, appears to be
groundless in terms of damages to be awarded, as no damage has been suffered.
The case was officially deferred to 25 October 2018 for closing arguments.
Banca Monte dei Paschi di Siena S.p.A. vs. Riscossione Sicilia S.p.A.
On 15 July 2016, Riscossione Sicilia S.p.A. served a complaint on the Parent Company before the
Court of Palermo, asking the Court to order it to pay a total amount of EUR 106.8 mln.
The claim of Riscossione Sicilia S.p.A. falls within the realm of the complex dealings between the
Parent Company and the plaintiff, originated from the transfer to Riscossione Sicilia S.p.A. (pursuant
to Law Decree 203/05, converted into Law 248/05) of the stake held by Banca MPS in Monte Paschi
Serit S.p.A. (later Serit Sicilia S.p.A.).
Specifically, Riscossione Sicilia, in relation to the contractual provisions involved in said disposal, now
asks the Parent Company be ordered to pay, under its contractual liability, for alleged contingent
liabilities of Monte Paschi Serit S.p.A./Serit Sicilia S.p.A.
The Parent Company duly appeared before the court with a cross-action against Riscossione Sicilia
S.p.A. The proceeding is under preliminary investigation. At the hearing on 12 February 2018 the
Judge has reserved for the admission of preliminary evidence.
With an action filed on 30 November 2016, the Parent Company petitioned the Court of Palermo to
order Riscossione Sicilia to immediately pay EUR 40.0 mln, plus interest and expenses, due to the non-
repayment by the party subject to the order of several past-due instalments relating to two loan
agreements. With a decree issued on 17 January 2017, the Court of Palermo ordered Riscossione Sicilia
to pay the amount of EUR 40.7 mln to the plaintiff. The action was served on Riscossione Sicilia,
along with the decree and the order for payment for the amount for which provisional enforceability
had been granted, on 8 February 2017.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 436
On 11 March 2017, Riscossione Sicilia objected to the above-mentioned order and requested that it be
revoked and, by means of a cross-action, that the Parent Company be sentenced to pay an amount of
approximately EUR 66 mln.
To justify its objection, Riscossione Sicilia alleged that the Parent Company owed it EUR 106.8 mln by
virtue of certain representations and warranties set forth in two contracts for the sale of shares
whereby the Parent Company had transferred the entire share capital of the company Serit – Sicilia
S.p.A. to Riscossione Sicilia. Moreover, in the petition, Riscossione Sicilia acknowledged that its claims
were already subject to other proceedings pending before the same Court.
The Parent Company duly appeared before the court requesting the dismissal of the opposing party’s
objection. The proceeding is in the initial stage and at the hearing on 9 October 2017 the Judge, having
rejected the opposing party’s request to join the proceedings with those lodged previously, reserved his
decision with respect to the requests made by the parties during the hearing, i.e., to have the
enforceability of the order declared, submitted by the Parent Company, and for the suspension of the
proceedings, requested by the other party. With a ruling dated 26 January 2018 the Judge lifted the
reservation, rejected the counterparty’s requests and accepted the Parent Company’s request for the
provisional enforceability of the order for the entire sum, adjourning the case to 22 May 2018.
For the sake of comprehensiveness, please note that with a complaint dated 19 October 2017,
Riscossione Sicilia challenged the measure of 6 October 2017 whereby the Court of Palermo rejected
the urgent appeal pursuant to art. 700 of the Code of Civil Procedure lodged by Riscossione Sicilia
against the suspension of loans disclosed by the Parent Company. The hearing for the discussion of
the case, initially scheduled for 24 November 2017, took place on 12 January 2018 and at that time the
Judge reserved his decision. With a ruling dated 26 January 2018 the Court rejected the complaint of
Riscossione Sicilia.
Former Banca Antoniana Popolare Veneta S.p.A. (BAV) vs Elipso Finance S.r.l.
The dispute was originated by 3 loan assignment transactions identifiable in bulk in accordance with
Italian Law no. 130 of 30/4/1999, carried out or mediated by former BAV, following which since
2008 the assignee Elipso Finance s.r.l. has submitted complaints, invoking the guarantees given by the
assignors, mainly concerning the lack of documentary evidence supporting the credit. The claim
amounts to EUR 100.0 mln.
Specifically, the 3 assignments were carried out by former BAV, Antenore Finance S.p.A. and Theano
Finance S.p.A. (both of which are 98% owned by former BAV, originator of the relevant loans, and
subsequently merged into Banca MPS).
As a settlement could not be reached, in compliance with the arbitration clause contained in the
contracts Elipso initiated the arbitration procedure at the Arbitration Chamber of Milan.
The Parent Company's defence aims to demonstrate that, in accordance with contractual provisions,
even if the claim should be accepted, damages can only be awarded for positions for which Elipso can
actually prove that damage has been suffered.
The Arbitration Board ordered an expert appraisal in order to verify compliance by Elipso with the
contractual provisions with regard to guarantee activation methods and times, and the final defence
briefs were subsequently filed.
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On 17 January 2017, the partial award rejecting the counterparty’s claims was issued. After the expert
appraisal was completed on a sample of contested transactions and the correlated partial award was
issued, the Board was asked for its opinion on the methods for continuing with the expert appraisal
and, in the meantime, invited the parties to verify whether the prerequisites are met for a reconciliation.
After an additional exchange of briefs, having acknowledged the difficulty that the parties had in
reaching an agreement, the Board ordered the continuation with the expert appraisal on matters to be
determined in the course of a hearing held on 4 December 2017. Subsequently, the parties reached an
understanding for a settlement subject, as regards the Parent Company, to the approval of the Bodies.
As a result of the arbitration, the hearing of 20 February 2018 was not held and the Court will declare
the termination of the proceeding.
Banca Monte dei Paschi di Siena S.p.A. vs. CHI. DEM S.r.l. and the other companies of the
De Masi Group
The action was brought by the company CHI. DEM S.r.l. and by the other companies of the De Masi
Group. Co-defendants with Bank are two other credit institutions and Bank of Italy.
Co-defendants with Parent Company are two other credit institutions and Bank of Italy. The plaintiff
seeks relief for alleged damage suffered by the De Masi Group as a result of the aforesaid banks having
exceeded threshold rates (with the joint liability of Bank of Italy for failure to supervise) following
decision no. 46669/2011 by the Criminal Division of the Court of Cassation, which has ascertained
that in certain periods the threshold rate was actually exceeded. The petitum amounts to EUR 100.0
mln or the different amount, possibly higher, that may be confirmed in the course of the proceedings
and which the other party, with the brief pursuant to art. 183, paragraph VI no. 1 of the Italian Code
of Civil Procedure, attempted to specify based on a reference to expert reports it presented.
The Parent Company’s defence is essentially based on lack of evidence of the monetary and non-
monetary damages claimed by the plaintiff, as well as lack of any link of causality.
Beyond the above-mentioned elements of proof, an element in favour of the Parent Company is the
dismissal of a first request for payment of a provisional amount, which the plaintiffs applied for as a
precautionary measure under article 700 of the Italian Code of Civil Procedure and/or with a request
for a Court order (the dismissal was confirmed during the claim proceeding), as well as the dismissal,
on 9 July 2014, of a second request for the recognition of a provisional amount which the plaintiffs
again submitted. At the hearing on 20 February 2018 the Judge has reserved for the admission of
preliminary evidence.
For the sake of comprehensiveness, please note that on 3 July 2017 parties in the De Masi Group,
almost exactly corresponding to the composition of the opposing parties in the case referred to above,
served a complaint on the Parent Company lodging new proceedings before the Court of Rome to
obtain compensation for alleged damages suffered and quantified at EUR 16.6 mln.
Very briefly, the counterparties are alleging the Parent Company’s breach of (alleged) agreements
which - in their view - were reached and formalised within the scope of the negotiations held at the
Ministry of Economic Development:
The Parent Company duly appeared before the court refuting the action of the counterparties in fact
and in law. At the first hearing held on 10 January 2018, the Judge adjourned the case to 14 February
2018 for an attempted settlement. At the hearing, the Judge, after granting the terms pursuant to art.
163, paragraph VI of the Italian Code of Civil Procedure, adjourned the case to 14 June 2018.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 438
Banca Monte dei Paschi di Siena S.p.A. vs. receivership estate of Antonio Amato & C. Molini e
Pastifici in Salerno S.p.A. in liquidazione
The receivership estate of ‘Antonio Amato & C. Molini e Pastifici in Salerno S.p.A. in liquidazione’
brought an action against the Parent Company, with the former Directors of the Company in bonis
and other Creditor Banks as co-defendants, before the Court of Naples, requesting that the Court
ascertain and recognise the joint liability of the defendants for their unlawful conduct. According to the
plaintiff, they formed a pool that granted a loan to the company, thus worsening its state of financial
distress and causing severe damage to its business and its equity and financial integrity; they therefore
asked the Court to order the defendants to pay damages to the receivership estate in the amount of
EUR 90 mln, i.e. the presumable difference between the estate’s liabilities and assets, or a different
amount that the Court should deem suitable to award upon completion of the investigative phase; as a
secondary claim, the receivership estate asks that each of the defendants be found liable for the part
attributable to them for the damage suffered by the company, amounting to EUR 90 mln, equal to the
presumable difference between the estate’s liabilities and assets.
The Parent Company rose preliminary objections and filed a motion to dismiss the case for lack of
venue jurisdiction and of active legitimation; in the merits, the Bank asked the Court to dismiss the
plaintiff's claims as inadmissible and/or groundless or, as a secondary request, to reduce the amount of
compensation awarded in consideration of the different degree of guilt in causing the damage, in
accordance with art. 2055, paragraph 2 of the Italian Civil Code.
The proceedingis is in the preliminary stage and the accounting CTU has been admitted. The next
hearing is scheduled for 6 November 2018 for examination of the report of specialist advisor.
Banca Monte dei Paschi di Siena S.p.A vs. Edilgarba s.r.l.
The company Edilgarba called the Parent Company before the Court of Milan, claiming the breach by
the Parent Company of its obligations deriving from the mortgage loan agreement entered into on 13
September 2006 by Edilgarba and Banca Antonveneta (later Banca MPS). Edilgarba demanded
compensation for the alleged damages suffered (quantified at roughly EUR 28.5 mln) as well as
damages to its image and commercial reputation (quantified at no less than EUR 3 mln). The claim
therefore amounts to EUR 31.5 mln.
At the hearing on 5 December 2017 the decision in the case was deferred to a later date.
Banca Monte dei Paschi di Siena S.p.A. vs. Extraordinary Administrators of Impresa S.p.A.
On 11 November 2016, the Extraordinary Administrators of Impresa S.p.A. served a complaint on the
Parent Company along with other banks participating in a pool (our share is 36.48%) to have the
liability of such banks, the members of the Board of Directors of Impresa S.p.A., today under
Extraordinary Administration, and the auditing firm confirmed and declared by the court and to have
them ordered to provide compensation for damages, jointly and severally, allegedly suffered by the
company to the extent of EUR 166.9 mln.
The case is still in the initial phases and the hearing for the first appearance of the parties was held on
31 October 2017.
Along with the defence attorneys of the other Banks in the pool, a preliminary objection was first of all
raised concerning the nullity of the complaint; however, the Judge deferred all assessments in this
regard to when the decision will be made by the Board.
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Therefore, the Judge granted the terms for the filing of briefs pursuant to art. 183, paragraph 6 of the
Italian Code of Civil Procedure with a deferred start date as of 1 January 2018 - and therefore until
next 31 January, 2 March and 22 March 2018 - and scheduled the hearing for the discussion
concerning any possible preliminary evidence requested by the parties for 29 October 2018.
Banca Monte dei Paschi di Siena S.p.A. vs. CO.E.STRA. Srl in Liquidazione e Concordato
Preventivo.
On 4 December 2014, the administrators of the arrangement with creditors served a complaint on the
Parent Company along with other banks participating in a pool (our share is 28.51%) to have their
contractual or tort liability in relation to the company’s debt restructuring agreement entered into on
30 November 2011 confirmed and declared by the court and have the defendant banks ordered to
provide compensation for claimed damages, jointly and severally, suffered or for the claimed
aggravation of distress that the company allegedly suffered, quantified by the opposing party as EUR
34.6 mln.
A petition was filed for the referral of the case to a different competent court, and the proceeding is
still in the initial stage.
Banca Monte dei Paschi di Siena S.p.A. vs. Marangoni Arnaldo + 124 shareholders and
investors
In July 2015, Arnaldo Marangoni sued the Parent Company before the Court of Milan, claiming to
have purchased shares of Banca MPS between 2008 and 2013, during subscription of the capital
increase in 2008 as well as on the Electronic Stock Market for approximately EUR 0.075 mln. As the
basis for his claims, the plaintiff alleged that the Parent Company, during the time period 2008-2013,
unlawfully provided a false representation of its capital, economic, financial, profit and management
situation, with the effect of misleading the plaintiff.
On 29 March 2016, through voluntary intervention, another 124 individuals came forward. The
interveners allege to have purchased shares of Banca MPS during the capital increases of 2008 and
2011, as well as on the Electronic Stock Market.
The case is aimed at obtaining compensation for all material and non-material damage, quantified at
approximately EUR 97 mln (in the meantime reduced to roughly EUR 89 mln due to the waiver of
one counterparty), claimed by the Interveners in relation to the investments made in Banca MPS shares
based on allegedly incorrect information contained in the prospectuses, in the financial statements and
in all price-sensitive communications issued by the Parent Company that resulted in misleading the
interveners.
The proceedings were referred to the Board for a decision on the preliminary matters. The Judge
handed down a decision on 25 January 2018 rejecting the objections on the preliminary matters and
adjourned to 13 February 2018 for the continuation of the proceedings. At that hearing, the Parent
Company reserved the right to appeal the non-definitive ruling of the Court of Milan and the Judge,
after granting the terms pursuant to art. 183, paragraph 6 of the Italian Code of Civil Procedure,
adjourned the proceedings to the hearing scheduled for 18 December 2018.
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Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 440
Banca Monte dei Paschi di Siena S.p.A. vs. Coop Centro Italia s.c.p.a
On 26 July 2016, Coop Centro Italia s.c.p.a. served a complaint on the Parent Company, together with
Consob, before the Court of Florence, Section specialised in corporate matters, for the hearing of 20
January 2017.
The plaintiff, after describing its participation in the Bank's capital increases in 2008, 2011 and 2014,
and the events of the Parent Company during the period 2008-2015, requests total damages of EUR
85.5 mln, essentially claiming the false nature of the prospectuses relating to the aforementioned capital
increases. Specifically, the counterparty claims damages of EUR 20.3 mln for the capital increase of
2008 and EUR 9.2 mln for the capital increase of 2011, for contractual liability pursuant to art. 1218 of
the Italian Civil Code, as well as art. 94, paragraph 8 of Legislative Decree no. 58/98 or art. 2049 of the
Italian Civil Code in relation to the actions of its then representatives and employees, also pursuant to
art. 1218 of the Italian Civil Code, as well as art. 94, paragraph 8 of Legislative Decree no. 58/98, for
EUR 56.0 mln, jointly and severally - or alternatively each to the extent applicable - with Consob called
upon to respond pursuant to articles 2043 and 2049 of the Italian Civil Code for the actions of the
Authority and those of its commissioners and officials, with regard to the 2014 capital increase,
regarding capital losses incurred as well as loss of profit to be determined during the course of the
proceedings. The Parent Company duly appeared before the court with its defence pleadings.
The proceeding is under preliminary investigation. At the hearing on 12 October 2017, the Judge
reserved his decision on the claims.
Banca Monte dei Paschi di Siena S.p.A. vs. Coofin s.r.l.
On 26 July 2016, Coofin s.r.l. served a complaint on the Parent Company, together with Consob,
before the Court of Florence, Section specialised in corporate matters, for the hearing of 20 January
2017.
The plaintiff, after describing its participation in the Bank's capital increases in 2008, 2011 and 2014,
and the events of the Parent Company during the period 2008-2015, requests total damages of EUR
51.6 mln, essentially claiming the false nature of the prospectuses relating to the aforementioned capital
increases. Specifically, the counterparty claims damages of approximately EUR 11.5 mln for the capital
increase of 2008 and EUR 6.1 mln for the capital increase of 2011, for contractual liability pursuant to
art. 1218 of the Italian Civil Code, as well as art. 94, paragraph 8 of Legislative Decree no. 58/98 or art.
2049 of the Italian Civil Code in relation to the actions of its then representatives and employees, also
pursuant to art. 1218 of the Italian Civil Code, as well as art. 94, paragraph 8 of Legislative Decree no.
58/98, for EUR 34.0 mln, jointly and severally - or alternatively each to the extent applicable - with
Consob called upon to respond pursuant to articles 2043 and 2049 of the Italian Civil Code for the
actions of the Authority and those of its commissioners and officials, with regard to the 2014 capital
increase, regarding the capital losses incurred as well as loss of profit to be determined during the
course of the proceedings. The Parent Company duly appeared before the court with its defence
pleadings.
At the hearing on 13 March 2018, the Judge reserved himself for the admission of preliminary
evidence.
2017 ANNUAL REPORT
441 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Banca Monte dei Paschi di Siena S.p.A. vs. Alken Fund Sicav and Alken Luxembourg S.A.
On 22 November 2017, the counterparties served a complaint on the Parent Company as well as
Nomura International, Giuseppe Mussari, Antonio Vigni, Alessandro Profumo, Fabrizio Viola and
Paolo Salvadori, before the Court of Milan, requesting that the court confirm and declare: (i) the
alleged liability of the Bank pursuant to art. 94) of the Consolidated Law on Finance, as well as for the
deeds of defendants Mussari, Vigni, Profumo and Viola pursuant to art. 2935 of the Italian Civil Code
due to the offences perpetrated against the plaintiffs; (ii) the alleged liability of defendants Mussari and
Vigni in relation to investments made by the funds in 2012 on the basis of false information; (iii) the
alleged liability of defendants Viola, Profumo and Salvadori in relation to investments made by the
funds subsequent to 2012; and (iv) the alleged liability of Nomura pursuant to art. 2043 of the Italian
Civil Code and, as a result, order BMPS and Nomura jointly and severally to provide compensation for
financial damages equal to EUR 423.9 mln for Alken Funds Sicav and EUR 10 mln for lower
management fees and reputational damage to the management company Alken Luxembourg SA, as
well as jointly and severally with BMPS and Nomura the defendants Mussari and Vigni for damages
resulting from the investments made in 2012, and Viola, Profumo and Salvadori for damages
subsequent to 2012. The counterparties also requested that the defendants be ordered to provide
compensation for non-financial damages upon confirmation that they were guilty of the offence of
providing false corporate disclosures. The first hearing is scheduled for 13 June 2018 and the Parent
Company will appear before the court within the required terms to present its defence.
Banca Monte dei Paschi di Siena S.p.A vs. (former) Banca MPS Shareholders and Investors
This disclosure is provided in consideration of the fact that an additional 25 lawsuits are currently
pending, brought forward by shareholders and/or former shareholders for a total claim of
approximately EUR 730.5 mln, in which the plaintiffs claim to have purchased shares during the
capital increases of 2008, 2011, 2014 and 2015 and/or on the electronic market based on allegedly
incorrect information contained in the prospectuses and/or financial statements and/or in the price
sensitive information issued by the Parent Company during the period 2008/2015.
These legal proceedings originate within an extraordinary and exceptional context also connected to
the criminal investigations launched by the courts and the legal issues involving the Parent Company
during the years 2012 and 2013, which mainly refer to the financial transactions to acquire resources to
purchase Banca Antonveneta and to a number of financial transactions carried out by the Parent
Company, including the transactions connected to the restructuring of the “Santorini” transaction and
the “Alexandria” notes, to the prior capital increases carried out by the Parent Company in 2008 and
2011 and to the FRESH 2008 transaction.
The investors submitted claims for compensation against the Parent Company as part of the criminal
proceedings 29634/14 r.g.n.r. (General Criminal Records Registry) (a total of 1,243) pending before
the Court of Milan, in which the Parent Company is involved as a civilly liable party, as well as the
other criminal proceedings no. 955/16 (there are a total of 304 civil parties) with reference to the
financial statements, reports and other corporate communications of the Bank from 31 December
2012 to 31 December 2014 and with reference to the half-yearly report as at 30 June 2015, in which
the Parent Company is a defendant pursuant to Italian Legislative Decree 231/01 as well as a civilly
liable party.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 442
Out-of-court claims for the repayment of sums and/or compensation for damages by
Shareholders and Investors of Banca Monte dei Paschi di Siena S.p.A. in relation to the 2008
and/or 2011 share capital increases
For complete disclosure, note that, in relation to capital increases and the allegedly incorrect
information contained in the prospectuses and/or in the financial statements and/or in the price
sensitive information issued by the Parent Company since 2008, at the date of this interim report on
operations the Parent Company has received 760 requests, for a total of approximately EUR 653 mln
in quantified claims, aimed at obtaining reimbursement of the amounts invested and/or compensation
for monetary and non-monetary damages following the alleged losses suffered. Of said claims, around
10% filed civil suits (the majority of which as part of the case filed by Marangoni Arnaldo + 124 as
mentioned above).
These claims – brought individually or collectively, through professionals or consumer associations –
although heterogeneous, are mostly justified by generic references to the Parent Company’s alleged
violation of the industry legislation governing disclosure, and were rejected in that they were
considered generic, unfounded, not backed by suitable documentary evidence, and in some cases past
the statute of limitations.
Banca Monte dei Paschi di Siena S.p.A. vs. FRESH 2008 Bondholders
Several holders of FRESH Bonds 2008 bonds maturing in 2099 initiated proceedings against the
Parent Company, the company Mitsubishi UFJ Investors Services & Banking Luxembourg SA (which
replaced the Bank issuing the bond loan Banca di New York Mellon Luxembourg), the British
company JP Morgan Securities PLC and the American company JP Morgan Chase Bank NA (which
entered into a swap agreement with the bond loan issuer) before the Court of Luxembourg to request
confirmation of the inapplicability of Italian law decree 237/2016 (burden sharing) to the holders of
FRESH 2008 bonds and, as a result, to have it affirmed that such bonds cannot be forcibly converted
into shares, as well as that such bonds will continue to remain valid and effective in compliance with
the issue terms and conditions, in that they are governed by the laws of Luxembourg. In the
proceedings in question, the Parent Company will appear before the court to present its defence.
Banca Monte dei Paschi di Siena S.p.A. vs. Fruendo
Following the transfer of the back office business unit to Fruendo S.r.l. in January 2014, involving
1,064 resources, 634 workers (later reduced to 488 due to waivers/settlements and deaths) initiated
legal proceedings before the Courts of Siena, Rome, Mantua and Lecce to demand, among other
things, the continuation of the employment relationship with Banca MPS, upon the declaration of
ineffectiveness of the transfer agreement entered into with Fruendo S.r.l.
At the reference date of these financial statements, for one plaintiff proceedings are pending in the first
instance with a hearing scheduled on 14 May 2018, while for the other 487 rulings in the first and/or
second instance have already been handed down against the Parent Company, giving the workers
concerned the right to be rehired.
Specifically, for 145 workers a ruling in the first instance was handed down (at the Courts of Lecce and
Rome) against which the Parent Company has already appealed before the applicable Courts of
2017 ANNUAL REPORT
443 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Appeals with hearings currently scheduled from 26 February 2018 to 26 November 2019; on the other
hand, for 342 workers, a ruling in the second instance was also handed down (at the Courts of Appeals
of Florence, Rome and Brescia), against which the Parent Company has already submitted an appeal
before the Court of Cassation.
For the sake of full disclosure, note that both before the courts of second instance and before the
Supreme Court of Cassation, the Parent Company and Fruendo S.r.l. have filed a petition for
submission to the European Court of Justice of preliminary matters that are essential for the purposes
of a decision. In particular, an assessment was requested regarding the conformity with EC Directive
2001/23 of art. 2112 of the Italian Civil Code, as interpreted by the decisions of the Supreme Court of
Cassation, with which the appealed judgments comply, and it also asked whether:
- the transfer of an economic entity, functionally autonomous though not pre-existing, as it was
identified by the transferor and the transferee at the time of the transfer, would not allow for
the automatic transfer of employment relationships pursuant to art. 2112 of the Italian Civil
Code and therefore would require the consent of the workers concerned; and
- the automatic transfer of the employment relationships pursuant to art. 2112 of the Italian
Civil Code would not be permitted and therefore if the consent of the workers concerned
would be required if, in the case of the transfer of an economic entity carrying out bank back
office activities, the transferring Bank maintained ownership of the applications and IT
infrastructure, only granting them to the transferee for use for valuable consideration.
At the date of these financial statements, of the 487 parties entitled to be rehired by the Bank, 72
workers (later reduced to 31 following 25 waivers to be ratified in accordance with legal procedures
and 16 settlements that took place in the meantime) submitted an order requesting to be re-entered in
the Bank’s Payroll Ledger and to restore their insurance and contribution position, which the Bank
objected to by appealing before the Labour Section of the Court of Siena (the hearings for the
discussion of the case are scheduled for 25 January 2019 and for 15 February 2019).
Even if the Parent Company’s objection does not bring about the desired effects, to date no economic
impacts are expected for the Issuer from the integration of back pay to the workers rehired, as all
plaintiffs maintained their wages enjoyed at Banca MPS at the time of transfer of the business unit and
indeed, they did not suffer the wage decreases applied to the employees of Banca MPS, on the basis of
the Union Agreements of 19 December 2012 and 24 December 2015.
Given the above, the Parent Company, jointly with Fruendo S.r.l., is analysing the matters arising from
the unfavourable outcome of the labour dispute.
Lastly, please note that a number of workers (32) filed a lawsuit for the offence of wilful non-
performance of a judge’s ruling (art. 388 of the Criminal Code). As part of criminal proceedings no.
567/17 before the Court of Siena initiated following the above-mentioned lawsuit, the Public
Prosecutor submitted a request for dismissal with respect to the parties under investigation Tononi
Massimo, Viola Fabrizio, Falciai Alessandro and Morelli Marco, which the complainants objected
to. At the hearing in chambers on 12 July 2017 to decide on the objection to the request for dismissal,
the proceedings were deferred to 20 September 2017 due to lack of notification. At the hearing
concerning the objection to the request for dismissal, the Judge withheld his decision, reporting that
the decision would be made known within 5 days, when the measure would be communicated via
certified email. The Siena Preliminary Investigations Judge, lifting the reservation placed at the hearing
on 20 September 2017, issued an order to the Public Prosecutor for further investigations to be
completed within 120 days. The measure was served upon the parties under investigation on 2 October
2017.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 444
Please also note that in 2017 52 Fruendo S.r.l. workers (later reduced to 37 following
waivers/settlement) called Banca MPS before the Court of Siena (in 6 separate proceedings) to request
the continuation of the employment relationship with the Parent Company, upon declaration of the
unlawful interposition of labour (“unlawful contract”, which does not call for criminal consequences)
as part of the services outsourced by the Parent Company to Fruendo S.r.l., with hearings currently
scheduled for 25 January 2019.
Also in this case, any unfavourable outcome of the proceedings would currently result in the re-
establishment of the employment relationship of the parties concerned with the Parent Company with
no expenses for previous remuneration differences, as the plaintiffs in question have continuously
worked at Fruendo S.r.l., maintaining the remuneration received from Banca MPS when the business
unit was transferred.
Banca Monte dei Paschi di Siena S.p.A./civil action and third-party action of the Parent
Company as civilly liable party- criminal proceedings relating to the “Alexandria” case
After the early termination of the agreements in relation to the transaction known as “Alexandria”, as
agreed in the out-of-court settlement executed with Nomura on 23 September 2015 (see the annual
report as of 31 December 2015), the damages caused to the Parent Company by the performance of
these agreements are definitively fixed in time. In particular, the Parent Company reduced its claim for
damages to an amount not lower than EUR 866.3 mln (compared to an initial civil claim of approx.
EUR 1 billion).
With reference to the criminal proceedings in relation to “Alexandria”, after the service of the order of
closing of the preliminary investigations, the Office of the Public Prosecutor at the Court of Milan
sought the committal for trial of the former Top Management of Banca MPS and two members of the
Management of Nomura for false corporate disclosures and market manipulation.
As regards the offences allegedly committed by the above-mentioned individuals, the Public
Prosecutor also sought the committal for trial of Banca MPS and Nomura for administrative offences
pursuant to Legislative Decree 231/2001.
In March 2016 this proceeding was combined with the other legal action pending before the Court of
Milan in relation to the investigations concerning the Santorini, FRESH 2008 and Chianti Classico
transactions.
By an order of 13 May 2016, the Preliminary Hearing Judge (in Italian, the “GUP”) authorized the
lodging and admissibility of the claims for damages of the offended parties against the entities already
involved in the proceedings as defendants pursuant to Legislative Decree 231/2001.
On 2 July 2016, with the approval of the Public Prosecutor, the Parent Company filed a request for
plea bargain in the criminal proceedings, in relation to the objections made against the Bank in
accordance with Legislative Decree 231/2001.
After the request for plea bargain, the Parent Company’s position was closed. With the plea bargain,
accepted by the Preliminary Hearing Judge on 14 October 2016, the Parent Company exits the
proceedings as defendant in the administrative offence following crimes committed by its own former
executives, limiting the consequences to an administrative financial penalty of EUR 0.6 mln and a
confiscation, for EUR 10 mln, without exposing itself to the risk of higher penalties.
2017 ANNUAL REPORT
445 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Lastly, with regard to the above, on 1 October 2016 the Preliminary Hearing Judge ordered the
committal for trial of the defendants other than the Parent Company. At the hearing on 15 December
2016, the civil parties, those already admitted in the previous “Alexandria” proceedings as well as the
new civil parties, requested that Banca MPS, Nomura and Deutsche Bank be summoned as civilly
liable parties in relation to the offences with which the former directors and executives committed for
trial were charged.
Following an extensive closed session meeting, the Court summoned the banks as civilly liable parties,
providing the notification deadline to the parties of 10 January 2017, allowing for the completion of
notifications at the latest by 31 January 2017 and scheduling the hearing for 21 February 2017.
At the hearing on 21 February 2017, the Parent Company appeared before the court as a civilly liable
party.
During the proceedings, by order of 6 April 2017 the Court of Milan decided on the requests for the
exclusion of civil parties submitted by the defence teams of the defendants and the civilly liable parties,
excluding several civil parties.
In addition, the claim of damages as a civil party by the Parent Company with respect to Giuseppe
Mussari, Antonio Vigni, Daniele Pirondini and Gian Luca Baldassarri was also excluded on the
assumption of its contributory liability with respect to the defendants.
At the reference date of this interim report on operations, a total of 1,243 civil parties have acted
against the Parent Company.
As things stand within the above-mentioned proceedings, the witnesses are currently being heard.
On 12 May 2017 the committal for trial of the representatives Alessandro Profumo, Viola Fabrizio and
Salvadori Paolo (the first two no longer in office) was requested within new criminal proceedings
before the Court of Milan, in which they were charged with false corporate disclosures (art. 2622 of the
Italian Civil Code) in relation to the accounting of the “Santorini” and “Alexandria” transactions with
reference to the Parent Company’s financial statements, reports and other corporate communications
from 31 December 2012 to 31 December 2014 and with reference to the half-yearly report as at 30
June 2015, as well as market manipulation (art. 185 of the Consolidated Law on Finance) in relation to
the disclosures to the public concerning the approval of the financial statements and the balance sheets
specified above.
In relation to these proceedings, in which the Parent Company is identified as the injured party, the
first hearing was held on 5 July 2017, during which several hundred natural persons and a number of
trade associations asked to appear before the court as civil parties. The Preliminary Hearing Judge
postponed the proceedings to 29 September 2017 for the deliberation of the requests as well as for
consolidation with the proceedings pending against Banca MPS, as the defendant entity pursuant to
Italian Legislative Decree 231/01 for the same actions with which Mr Profumo, Mr Viola and Mr
Salvadori are currently charged. At the hearing on 29 September 2017, 304 of the 337 who requested
were admitted as civil parties. The remaining parties were excluded due to lack of legittimatio ad causam.
At the same hearing, the proceedings pending against the Parent Company, as the party liable under
administrative law, were joined with those pending against the natural persons. Therefore, the Judge
admitted the summons of the Parent Company as a civilly liable party and adjourned the proceedings
to the hearings of 10 November 2017 and 24 November 2017 to allow for the service of the related
notifications.
At the hearing on 10 November 2017, the defence attorney of Mr Salvadori objected on the basis of
the alleged nullity of the committal for trial request against his client as the compulsory charge against
the client should have been formulated only for the offence pursuant to art. 2622 of the Italian Civil
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 446
Code and not also for that pursuant to art. 185 of the Consolidated Law on Finance. In connection
with this issue, this defence attorney also objected on the grounds of the Milan A.G.’s lack of
jurisdiction.
At the hearing on 24 November 2017, the Preliminary Hearing Judge handed down an order:
- declaring the nullity of the request for committal for trial with respect to Mr Salvadori;
- ordering the separation of the relative position from the main proceedings (pending against
Mr Viola and Mr Profumo, as well as the Bank) with reference to the section relating to the
alleged offence pursuant to art. 185 of the Consolidated Law on Finance;
- reserving any decision concerning issues of jurisdiction until such time as the public
prosecutor makes his own determinations in this regard.
Therefore, the Public Prosecutor will need to issue the notice of the conclusion of investigations with
respect to Mr Salvadori for the offence pursuant to art. 185 of the Consolidated Law on Finance and
file the (new) request for committal for trial against Mr Salvadori for such offence and, lastly, request
the (new) preliminary hearing (again for the crime of market manipulation).
At the hearing on 9 February 2018, the Preliminary Hearing Judge acknowledged the filing in the
meantime of:
- the Bank’s defence brief concerning jurisdiction;
- the documents submitted by the defence attorney of Mr Viola and Mr Profumo;
- the briefs of Mr Bivona and Attorney Falaschi; as well as
- a request for an order for attachment submitted by the latter against Mr Viola and Mr
Profumo.
After which time, the Preliminary Hearing Judge convened the proceedings against Mr Salvadori
following his removal from the proceedings ordered during the previous hearing with regard to the
charge pursuant to art. 185 of the Consolidated Law on Finance.
The civil parties readmitted again requested the summons of BMPS as civilly liable party. Therefore,
the Preliminary Hearing Judge adjourned the case - also for the proceedings against Mr Viola and Mr
Profumo - to the hearing of 13 March 2018 which was not held by abstention and was therefore
postponed to 6 April 2018 for the appearance before the court of the liable party and for the
discussion of and decision on the matter of jurisdiction.
The following schedule has been provided for discussions of the defence pleadings: 6, 13, 20 and 27
April 2018.
2017 ANNUAL REPORT
447 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
Risks from tax disputes
Among the cases associated with tax disputes which regard the Group, those in which the risk of
losing is considered likely are limited in number and adequate provisions have been made to the
Reserve for risks and charges.
In the course of 2017, during a control on the supplemental return relating to the 2012 tax period, the
Revenue Agency claimed - with reference to the FRESH (Floating Rate Equity Linked Subordinated
Hybrid Preferred Securities) instrument - the non-application of the withholding taxes required by law
on at least part of the payments made in favour of the counterparty starting in 2008. Although the
Parent Company believes that it acted correctly, also taking into account the opinion of its advisors, as
well as the timing, costs and uncertainties that would arise from the initiation of litigation, it settled the
potential dispute by paying a total of EUR 12.1 mln, inclusive of direct taxes, penalties and interest.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part E - Information on risks and hedging policies 448
Financial risks of investment services
Foreword
The following section on financial risks of investment services was written as part of the “Operational
Risk” section in line with the compulsory framework for preparation of the Notes to the Financial
Statements, even though this subject presents specific characteristics and involves organisational levels
of authority that are not directly traceable to operational risk management.
Wealth risk management process and methods
The risks regarding investment services, for the Group, are a direct and indirect result of the risks
incurred by customers in relation to the performance of services and investment activities.
Consequently, governance of these risks is aimed at protecting customers and, simultaneously,
preventing any potential negative impacts on the Group in terms of operational and reputational risk.
Organisational responsibility at Group level for supervising financial risk measurement, monitoring
and control activities and for mapping investment products/services for the purposes of MiFID
adequacy is an integral part of the Group’s integrated risk management responsibilities, and is assigned
centrally to the Wealth Risk Management Service, within the Operating Risk Officer Area of the Parent
Company’s Chief Risk Officer Division. This is to ensure centralised governance of the direct and
indirect risks which the Group incurs during the course of its operations.
“Wealth risk management” focuses on the overall set of operational and management processes as well
as measurement and monitoring tools/methods used to ensure overall consistency between customers'
risk profiles and the risk of investment products and portfolios offered to -or in any case held by-
customers.
The investment products (of the Group and of third parties), whether or not included in the overall
offering to the Group’s customers, are mapped for risk on the basis of quantitative measurements of
market and credit risk factors; liquidity and complexity assessments are also conducted on these
products. Product mapping is one of the guiding criteria for carrying out investment adequacy checks
as part of the consulting service offered.
For the sake of simplicity, investment product risk mapping, performed with reference to individual
risk macro-factors, is grouped under specific risk categories.
A special focus is given by the Bank to the monitoring and prevention of potential financial and
reputational risks which investment services, particularly in contexts of financial crisis, may generate as
a consequence of increased market volatility. The fast-moving and not always predictable market
trends may result in rapid changes in product risks and generate potential financial losses, as well as
prompting a changing attitude by customers towards their own financial investments.
Customers have regularly been informed of changes in the risk of financial instruments held, so as to
ensure timely informational transparency and facilitate possible decisions aimed at rebalancing the risk
profile of their investments.
Advisory services on offer, customer risk profile and risk of investment products/portfolios
The strategic choice of the Parent Company is to systematically combine the placement of financial
products with advisory so as to ensure the highest level of protection for the investor and, at the same
time, enhance the role played by relationship managers. Again, with a view to protecting customers, the
obligation to verify appropriateness has also been extended to the trading activities on the secondary
market of the certificates issued by the Group.
2017 ANNUAL REPORT
449 Notes to the consolidated financial statements - Part E - Information on risks and hedging policies
The advisory service is offered by the Parent Company on the basis of two different methods:
- “Basic” transactional advisory, which is aimed at verifying the suitability of the individual
investments recommended in relation to the risk of the customer’s investment portfolio as a
whole. In this regard, the transactional adequacy model adopts a multivariate control approach to
the individual risk factors, taking the risk of the customer’s portfolio, including the recommended
investment product, as a reference.
- “Advanced” advisory, which is instead aimed at verifying the suitability of the overall set of
transactions, advising on them based on their impact on a suggested investment portfolio of the
customer in order to obtain optimum asset allocation and maximised prospective returns over a
certain time horizon, given the customer’s risk profile.
Wealth risk management activities cover the entire distribution perimeter of the network of Group
branches, the investment services operated by Banca Widiba and by MPS Capital Services.
Through the responses provided to the MiFID profiling questionnaire, the customer gives information
on its characteristics and needs (particularly investment objective, knowledge, experience; time
horizon), which is used to determine the customer’s more general risk profile.
An analysis of the questionnaires completed at the end of 2017 shows that roughly 64% of the Group
customers in the “Consumer/Retail” macro-segment, namely retail customers which represent almost
the entire customer base of the Group, and which hold investment products, declared a “high” or
“consistent” investment objective and the remaining 36% a positioning in lower objective classes. In
addition, mainly long-term investment time horizons were preferred.
At the end of 2017, the portfolios held by Consumer/Retail customers on the basis of formalised
“advanced” advisory proposals to obtain optimum asset allocation, were mainly distributed into the
recommended, especially long-term, Asset Allocation macro-classes.
BANCA MONTE DEI PASCHI DI SIENA
450
2017 ANNUAL REPORT
451
Part F – Information on consolidated shareholders’ equity
Section 1 - Consolidated shareholders' equity ........................................................................................................................................... 453
Section 2 – Regulatory banking capital and ratios .................................................................................................................................... 457
Section 3 - Insurance regulatory capital and ratios ................................................................................................................................... 469
Section 4 – Capital adequacy of the financial conglomerate ................................................................................................................... 469
BANCA MONTE DEI PASCHI DI SIENA
452
2017 ANNUAL REPORT
453 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
Section 1 - Consolidated shareholders' equity
A. Qualitative information
The Group pursues strategic objectives focused on quantitative and qualitative strengthening of capital,
structural rebalancing of liquidity and achievement of sustainable profitability levels. In this
perspective, capital management, planning and allocation activities play a crucial role in ensuring
compliance over time with the minimum capitalisation requirements set by the regulations and the
supervisory authorities, as well as with the risk appetite level approved by the Group's strategic
supervision body.
This is the purpose served by the Risk Appetite Framework (RAF) through which the target
capitalisation levels are estimated on a yearly basis and capital is allocated to the business units
according to expected development and estimated risk levels, making sure that the allocated capital is
sufficient to ensure compliance with minimum requirements, under both normal and stress conditions.
In the context of the RAF it is used to perform prospective capital adequacy assessments over a
multiyear period, under both normal and stress conditions. The analyses are carried out both at Group
level and by each individual legal entity subject to regulatory capital requirements.
The achievement of objectives and compliance with regulatory minimum requirements is constantly
monitored throughout the year.
The formal corporate processes to which the RAF is applied at least on an annual basis are the budget,
the risk appetite and the ICAAP.
The Group defines its targets on the basis of a Risk Adjusted Performance Measurement (RAPM),
which measures profitability net of the cost of capital to be held for regulatory purposes relative to the
assumed risk level.
The definitions of equity applied are those used in Supervisory Regulations: Common Equity Tier 1,
Tier 1 and Capital; moreover, the RAPM metrics also include Invested Capital, i.e. the amount of
Shareholders' equity needed to achieve Common Equity Tier 1 values, whether determined ex ante as
target levels or realised ex post.
The Capital at Risk concepts applied are those used in the regulatory requirements and correspond to
the risk weighted assets (RWA), determined on the basis of the rules set out in the supervisory
regulations, and the economic capital corresponding to the maximum losses estimated on measurable
risks at a predetermined confidence interval and on the basis of the Group's internal models and rules.
Both measurements are used as part of RAPM metrics.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 454
B. Quantitative Information
B.1 Consolidated shareholders’ equity: breakdown by business areas
31 12 2017
Consolidation
of which
Banking Insurance Other cancellations of which
Net equity items Total minority
group companies companies and Group
interests
adjustments
Shareholders' equity 10,329,590 304,317 217,968 (522,285) 10,329,590 10,328,618 972
Share premium 18 - 49,886 (49,886) 18 - 18
Reserves 3,864,778 340,411 68,348 (408,759) 3,864,778 3,864,821 (44)
Equity instruments - - - - - - -
Treasury shares (-) (313,710) - - - (313,710) (313,710) -
Valuation reserves 52,945 147,874 7,682 (155,556) 52,945 51,705 1,240
- Financial assets available for sale (19,597) - - - (19,597) (19,597) -
- Tangible assets - - - - - - -
- Intangible assets - - - - - - -
- Hedges of foreign investments - - - - - - -
- Cash flow hedges (2,235) - - - (2,235) (2,236) 1
- Exchange difference 2,006 - - - 2,006 2,006 -
- Non-current assets held for sale 104 - - - 104 104 -
Finacial liabilities measured at fair
value with impact to profit and loss 31,385 - - - 31,385 31,385 -
(change in own credit risk)
- Actuarial gains (losses) on
(114,242) - (27) 27 (114,242) (114,242) -
defined benefit plans
- Share of valuation reserves of
equity investments valued at 145,232 143,988 1,099 (145,087) 145,232 145,232 -
equity
- Special revaluation laws 10,292 3,886 6,610 (10,496) 10,292 9,053 1,239
Profit (loss) for the year - Group
(3,502,245) 91,874 6,212 (98,086) (3,502,245) (3,502,339) 94
and minority interests
Net equity 10,431,376 884,476 350,096 (1,234,572) 10,431,375 10,429,096 2,279
2017 ANNUAL REPORT
455 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
B.2 Valuation reserves for financial assets available for sale: breakdown
Consolidation
Insurance
Banking Group Other companies cancellations and TOTAL
companies
adjustments
Asset/Amount
Positive Negative Positive Negative Positive Negative Positive Negative Positive Negative
reserve reserve reserve reserve reserve reserve reserve reserve reserve reserve
1. Debt securities 294,280 (125,575) 198,649 - - (711) (198,649) 711 294,280 (125,575)
2. Equity instruments 11,663 (24,011) 3,147 (24,054) - - (3,147) 24,054 11,663 (24,011)
3. Units of UCITS 4,799 (37,220) 706 (34,105) - (98) (706) 34,203 4,799 (37,220)
4. Loans - - - - - - - - - -
Total 31 12 2017 310,742 (186,806) 202,502 (58,159) - (809) (202,502) 58,968 310,742 (186,806)
Total 31 12 2016 373,752 (214,646) 257,254 (54,802) 794 (98) (258,048) 54,900 373,752 (214,646)
B.3 Valuation reserves for financial assets available for sale: annual changes
31 12 2017
Debt Equity Units
Loans
securities instruments of UCITS
1. Opening balance 203,785 (16,048) (28,631) -
2. Increases 82,485 50,029 26,773 -
2.1 Inreases in fair value 59,093 5,869 5,661 -
2.2 Reversal to profit and loss of negative
18,414 44,160 21,112 -
reserves
- due to impairment 218 44,160 20,765 -
- following disposal 18,196 - 347 -
2.3 Other changes 4,978 - - -
3. Decreases 117,565 46,329 30,563 -
3.1 Decreases in fair value 70,575 2,532 5,331 -
3.2 impairment provisions 191 41,093 20,765 -
3.3 Reversal to profit and loss of positive
46,799 1,014 4,277 -
reserves: followiong disposal
3.4 Other changes - 1,690 190 -
4. Closing balance 168,705 (12,348) (32,421) -
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 456
B.4 Valuation reserves for defined benefit plans: annual changes
Provisions for
Internal funds External funds employees 31 12 2016
severance pay
Opening balance (35,016) (2,167) (81,267) (118,450)
Remeasurement of net defined benefit liability
(1,187) 706 4,080 3,599
(asset):
Return on plan assets excluding interests (540) (2,456) - (2,996)
Actuarial gains (losses) arising from changes in
(3,142) (1,035) (48) (4,225)
demographic assumptions
Actuarily gains (losses) arising from experience
1,563 4,324 3,811 9,698
adjustments
Actuarial gains (losses) arising from changes in
193 124 319 636
financial assumptions
Changes in effect of limiting net defined
739 (251) (2) 486
benefit asset to asset ceiling
Gains (losses) on settlements - - - -
Others 67 - 228 295
Closing balance (36,136) (1,461) (76,959) (114,556)
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457 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
Section 2 – Regulatory banking capital and ratios
2.1 The regulatory framework - scope of application
The European Union’s banking supervision regulatory and institutional framework (Basel 3) in force
aims to improve the ability of banks to absorb shocks arising from financial and economic stress,
whatever the source, improve risk management and governance and strengthen the bank's
transparency and disclosures, while taking into account developments from the financial crisis.
The approach based on three pillars aims to reinforce the quantity and quality of banks’ capital base as
well as establish counter-cyclical supervisory tools and new standards for liquidity risk management
and financial deleveraging.
In particular, Pillar 1 governs capital requirements to reflect the potential risk of activities as well as
capital endowment requirements.
In addition to the system of capital requirements aimed at covering credit, counterparty, market and
operational risk, there is a plan to introduce leverage caps (including off-balance sheet exposures) as a
backstop to capital requirements based on risk and to reduce excessive leverage across the system.
“Basel 3” also includes liquidity risk monitoring requirements and tools which focus on short-term
liquidity resilience (Liquidity Coverage Ratio - LCR) and longer term structural balance (Net Stable
Funding Ratio - NSFR) as well as providing standards for liquidity risk management and monitoring at
both individual and system-wide level.
Pillar 2 requires banks to adopt a strategy and process for controlling current and future capital
adequacy, assigning the supervisory authorities with the task of verifying the reliability and consistency
of results and of implementing the appropriate corrective measures, where necessary. Growing
importance is attached to the corporate governance structure and internal control systems of banks as
a determining factor for the stability of individual institutions and the financial system as a whole. In
this area, the following have been strengthened: (i) regulatory requirements concerning the role, (ii)
qualification and composition of governing bodies; (iii) awareness by these bodies and top
management regarding organisational structure and risk for the Bank and banking group; (iv) corporate
control functions, with a particular focus on the independence of those in positions of responsibility,
the recognition of risk in off-balance sheet assets and securitisations, asset valuation and stress testing;
(v) remuneration and incentive systems.
Pillar 3 – regarding the obligation of public disclosure on capital adequacy, risk exposures and general
characteristics of management and control systems, with a view to promoting market discipline –
establishes transparency requirements concerning securitisation exposures and detailed information on
the composition of regulatory capital and the methods adopted by the Group to calculate capital ratios.
The Basel 3 framework is subject to a transition period that extends the full application of the rules to
2019 (2022 for the phase-out of certain capital instruments) and during which the new rules are applied
in an increasing proportion.
Regulatory capital, an element of Pillar 1, is therefore calculated according to Basel 3 rules
implemented in Europe through a comprehensive body of regulations, consisting of the Capital
Requirements Regulation (CRR), European Regulation no. 575/2013, and supplements thereto, the
Capital Requirements Directive (CRD IV), the Regulatory Technical Standards and the Implementing
Technical Standards issued by the EBA, and the supervisory instructions issued by Bank of Italy
(specifically, Circular nos. 285 and 286).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 458
2.2 Own Funds
A. Qualitative information
Own funds are made up of the following:
- Tier 1 (T1) capital, consisting of:
Common equity Tier 1 (CET1);
Additional Tier 1 (AT1);
- Tier 2 (T2).
As with other regulatory indicators, capital is subject to specific transition rules. Therefore, there are
full application requirements and requirements for the transition period.
1. Common equity Tier 1 (CET1)
Full application requirements
Common equity Tier 1 (CET1) mainly consists of:
ordinary shares;
share premium reserve resulting from the calculated share capital;
retained earnings;
valuation reserves.
The requirements for including capital instruments in CET1 are very stringent. They include the
following:
capital instruments must be classified as equity for accounting purposes;
the nominal amount cannot be reduced except in cases of liquidation or discretionary repurchases
by the issuer, with the appropriate authorization by the Supervisory Authority;
they must have perpetual duration;
the issuer is not obliged to distribute dividends;
the issuer can only distribute dividends from distributable profits;
there can be no preferential treatment in distributions, unless as a reflection of different voting
rights;
there are no caps on distribution;
the cancellation of distributions does not result in restrictions on the issuer;
compared to the other issued capital instruments, CET1 instruments absorb losses first and to a
proportionally greater extent at the time they occur;
they represent the most subordinated instruments in the event of the Parent Company’s
bankruptcy or liquidation;
the holders have the right to the issuer’s residual assets in the event of the issuer’s liquidation;
they are not subject to guarantees or contractual provisions that increase their seniority.
Profit for the period can be included in CET1 before final approval of the annual report only with the
authorization by the Supervisory Authority and only if the following conditions are met: the profit
2017 ANNUAL REPORT
459 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
must be audited by the external auditors and any dividends the Bank is going to distribute must be
deducted from the profit for the period.
The CET1 calculation excludes the valuation reserve generated by cash flow hedges and the
gains/losses from changes in the Bank’s credit standing (fair value option liabilities and derivative
liabilities).
Furthermore, CET1 includes additional value adjustments (“prudent valuation”). These adjustments
are made to fair value exposures in the financial statements and must include the uncertainty of the
parameters (model risk, unwinding costs, etc.) and potential future costs (operational risks,
concentration risk, liquidity risk, etc.). The adjustments vary according to the financial instruments’
classification as Level 1, 2 or 3.
In addition to these components, which represent the prudential filters, CET1 is subject to the
following deductions:
loss for the period;
intangible assets, including the goodwill implicit in the equity investments under significant
influence or joint control, valued according to the equity method;
tax assets that are based on future profitability and do not derive from temporary differences (tax
losses and ACE);
deferred tax assets that depend on future profitability and derive from temporary differences (net
of the corresponding deferred tax liabilities). On the other hand, deferred tax assets that do not
depend on future profitability and can be transformed into tax credits as per Law no. 214/2011 are
not deducted. Instead, these latter assets are included in RWA and weighted at 100%;
deferred tax assets associated with multiple tax alignments of the same goodwill item for the
portion that has not yet been transformed into current taxes;
the surplus of expected losses on portfolio impairments validated for purposes of adopting the
AIRB approach (so-called “expected loss delta”);
direct, indirect and synthetic investments in the Bank’s CET1 instruments;
non significant (<10%) direct, indirect and synthetic investments in CET1 instruments of financial
institutions;
significant (>10%) direct, indirect and synthetic investments in CET1 instruments of financial
institutions;
any deductions in excess of the AT1 instruments.
Deductions for equity investments in financial institutions and deferred tax assets are applicable only
for the portions that exceed established CET1 thresholds, known as exemptions, according to the
specific mechanism described below:
insignificant investments in CET1 instruments of financial institutions are deducted, for the
portion of the aggregate of insignificant investments in CET1, AT1 and T2 instruments of
financial institutions that exceeds 10% of the CET1, in proportion with the CET1 instruments
themselves. The portions referring to AT1 and T2 instruments are instead dedicated from the AT1
and T2 aggregates, respectively. The CET1 on which to calculate the 10% is obtained after
applying the prudential filters and all deductions other than those for deferred tax assets that are
dependent on future profitability and derive from temporary differences, to direct, indirect and
synthetic investments in CET1 instruments of financial institutions, to any deductions in excess of
the AT1 capital instruments and deductions in qualified equity investments in financial businesses;
net deferred tax assets that depend on future profitability and derive from temporary differences
are deducted for the portion that exceeds 10% of the CET1 that is obtained after applying the
prudential filters and all deductions other than those for deferred tax assets that are dependent on
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 460
future profitability and derive from temporary differences, to any deductions in excess of the AT1
capital instruments and deductions in qualified equity investments in financial businesses;
significant investments in CET1 capital instruments of financial institutions are deducted for the
portion that exceeds 10% of the CET1 that is obtained after applying the prudential filters and all
deductions other than those for deferred tax assets that are dependent on future profitability and
derive from temporary differences, to any deductions in excess of the AT1 capital instruments and
deductions in qualified equity investments in financial businesses;
amounts not deducted as a result of the 10% exemption of significant investments in CET1 capital
instruments of financial institutions and net deferred tax assets that depend on future profitability
and derive from temporary differences, added together, are deducted only for the portion that
exceeds 17.65% of the CET1 that is obtained after applying the prudential filters and all
deductions, including investments in financial institutions and deferred tax assets, with the
exception of any deductions in excess of the AT1 capital instruments.
Amounts not deducted as part of the exemptions are included in the RWA with 250% weighting.
Non-controlling interests are calculated in CET1 to the extent to which they cover the corresponding
minimum capital requirements of the subsidiary. Hence, any excess cannot be calculated in the CET1.
Finally, it should be noted that from CET 1 is deducted an amount of EUR 76 mln following a specific
request from the Supervisory Authority emanated in 2013.
Transition requirements
The following are the key aspects of the transition requirements:
the losses for the period are calculated in CET1 with a progressive introduction of 20% per year
(80% in 2017 and 100% from 2018); the portion temporarily not deducted from CET1 is
calculated as a negative element of AT1;
actuarial gains/losses arising from the measurement of liabilities connected with Employee
benefits (staff severance pay, defined benefit pension funds, etc.) are recognised, net of tax effect,
in valuation reserves and are included in CET1, with a gradual introduction (80% in 2017 and
100% in 2019);
unrealised gains on financial instruments classified in the AFS portfolio were calculated in CET1
beginning in 2015 at 40% and then with a gradual introduction of 20% per year (80% in 2017 and
100% in 2018). Unrealised losses on financial instruments classified in the AFS portfolio are
calculated in CET1 with a gradual introduction of 20% per year (80% in 2017 and 100% in 2018).
With EU Reg. 2016/445 of 14 March 2016, unrealised gains and losses relating to exposures to
central administrations of EU countries, classified as AFS, are treated in the same way as those
deriving from AFS exposures to other types of counterparties, or with the same transition regime,
without prejudice to the sterilisation of the portion not calculated in CET 1, for which the
previous domestic regulations continue to apply;
deferred tax assets that depend on future profitability and do not derive from temporary
differences are deducted at 80% for 2017 (100% from 2018). These are essentially deferred
financial assets associated with tax losses and the ACE benefit;
deferred tax assets that depend on future profitability and derive from temporary differences,
exceeding the exemptions referred to above, existing as at 1 January 2014 are deducted from
CET1 with a gradual introduction of 10% per year beginning in 2015 (30% in 2017 and 100% in
2024);
other deferred tax assets that depend on future profitability and derive from temporary
differences, exceeding the exemptions referred to above, generated after 1 January 2014 are
2017 ANNUAL REPORT
461 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
deducted from CET1 with a gradual introduction of 20% per year beginning in 2014 (80% in 2017
and 100% in 2018);
non-significant investments in CET1 instruments of financial institutions held directly, indirectly
or synthetically and exceeding the above-mentioned exemptions are deducted from CET1 with a
gradual introduction of 20% per year beginning in 2014 (80% in 2017 and 100% in 2018). Direct
investments in financial institutions not deducted from CET1 during the transition phase are
deducted at 50% from AT1 and 50% from T2. Indirect and synthetic investments are subject to
capital requirements and included in RWA;
significant investments in CET1 instruments of financial institutions held directly, indirectly or
synthetically and exceeding the above-mentioned exemptions are deducted from CET1 with a
gradual introduction of 20% per year beginning in 2014 (80% in 2017 and 100% in 2018). Direct
investments in financial institutions not deducted from CET1 during the transition phase are
deducted at 50% from AT1 and 50% from T2, while indirect and synthetic investments are subject
to capital requirements and included in RWA;
the excess of expected losses on impairments (expected loss delta) is deducted from CET1 with a
gradual introduction of 20% per year beginning in 2014 (80% in 2017 and 100% in 2018). The
portion not deducted from CET1 during the transition phase is deducted at 50% from AT1 and
50% from T2.
Additional impairments to assets and liabilities designated at fair value are calculated in proportion to
the amount with which said assets and liabilities are calculated in CET1 during the transition period.
The following table reports the main characteristics of instruments included in Common Equity Tier 1.
31 12 2017
Early redemption
Grandfathering
Maturity Date
Issue Date
Currency
Features of Original Contribution
Step up
Interest
as of
subordinated amount in to capital
rate
instruments currency units (€/000)
Ordinary shares N.A. NO N.A. N.A. N.A. EUR NO 10,328,618,260 10,014,908
Total Equity Instruments (Common Equity Tier 1 - CET1) 10,014,908
The contribution to own funds is net of treasury shares.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 462
2. Additional Tier 1 (AT1)
Full application requirements
The main requirements for including capital instruments in AT1 are:
- the subscription and acquisition must not be financed by the Parent Company or its subsidiaries;
- they are subordinated to T2 instruments in the event of bankruptcy;
- they are not subject to guarantees that increase their seniority issued by the Parent Company, its
subsidiaries or other companies with close ties to the Bank and its subsidiaries;
- they have indefinite duration and do not include incentives for repayment;
- call options may be exercised only at the issuer’s discretion and, in any event, no earlier than 5
years, unless authorised by the Supervisory Authority related to specific circumstances;
- interest is paid as a function of distributable profits;
- the Parent Company has full discretion in paying interest and at any moment may decide to not
pay for an unlimited period; the cancellation is not cumulative;
- cancellation of interest does not constitute issuer default;
- in the event of trigger events, the nominal value may be reduced permanently or temporarily or the
instruments may be converted into CET1 instruments.
AT1 is subject to the following deductions for Montepaschi Group:
- direct, indirect and synthetic investments in the Bank’s AT1 instruments;
- direct, indirect and synthetic investments in AT1 instruments of financial institutions which it
owns a significant stake;
- direct, indirect and synthetic investments in AT1 instruments of financial institutions, which it
does not own a significant stake; for the portion that exceeds the exemption of 10%,
proportionally attributable to AT1 instruments;
- any adjustments exceeding T2.
In 2017, in accordance with the provisions of Art. 23 of Law Decree 237/2016, converted into Law on
17 February 2017, as part of the “Precautionary recapitalisation” realised by the State, the instruments
in question were obligatorily converted into shares for a value of EUR 493 million.
In addition, the reclassification from CET1 to AT1 of the share of the 2008 reserved share capital
increase (FRESH 2008) which was previously eligible for inclusion in AT1 has been eliminated.
Transition requirements
The following are the key aspects of the transition requirements for 2017:
- non-significant investments in AT1 instruments of financial institutions held directly, indirectly or
synthetically, temporarily not deductible from AT1 due to the transition period are deducted from
AT1 at 50% and from T2 at 50%;
- significant investments in CET1 and AT1 instruments of financial institutions held directly,
indirectly or synthetically, temporarily not deductible from CET1 and AT1 due to the transition
period, are deducted from AT1 at 50% and from T2 at 50%;
- the excess of expected losses on impairments (expected loss delta), temporarily not deductible
from CET1 due to the transition period, is deducted from AT1 at 50%.
2017 ANNUAL REPORT
463 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
3. Additional Tier 2 (T2)
Full application requirements
The main requirements for including capital instruments in T2 are:
- the subscription and acquisition must not be financed by the Parent Company or its subsidiaries;
- they are not subject to guarantees that increase their seniority issued by the Parent Company, its
subsidiaries or other companies with close ties to the Bank and its subsidiaries;
- the original duration is not less than 5 years and there are no incentives for early repayment;
- call options may be exercised only at the issuer’s discretion and, in any event, no earlier than 5
years, unless authorised by the Supervisory Authority related to specific circumstances;
- interest does not vary based on the Parent Company’s credit standing;
- amortisation of these instruments for purposes of inclusion in the T2 calculation is pro-rata
temporis in the last 5 years.
T2 is subject to the following deductions:
- direct, indirect and synthetic investments in the Bank’s T2 instruments;
- direct, indirect and synthetic investments in T2 instruments of financial institutions, which it owns
a significant stake;
- direct, indirect and synthetic investments in T2 instruments of financial institutions, which it does
not own a significant stake; for the portion that exceeds the exemption of 10%, proportionally
attributable to T2 instruments.
In 2017, in accordance with the provisions of Art. 23 of Law Decree 237/2016, converted into Law on
17 February 2017, as part of the “Precautionary recapitalisation” realised by the State, the instruments
in question were obligatorily converted into shares for a value of EUR 3,980 million.
Transition requirements
The following are the key aspects of the transition requirements for 2017:
- non significant investments in T2 instruments of financial institutions held directly are deducted
from T2 at 100%; non significant investments in T2 instruments of financial institutions held
indirectly or synthetically are deducted with a phase-in of 20% per year as of 2014 (80% in 2017
and 100% in 2018). Indirect and synthetic investments, not deducted during the transition phase,
are subject to capital requirements and included in RWAs;
- significant investments in T2 instruments of financial institutions held directly are deducted from
T2 at 100%; significant investments in T2 instruments of financial institutions held indirectly or
synthetically are deducted with a phase-in of 20% per year as of 2014 (80% in 2017 and 100% in
2018). Indirect and synthetic investments, not deducted during the transition phase, are subject to
capital requirements and included in RWAs;
- significant investments in CET1 and AT1 instruments of financial institutions held directly,
indirectly or synthetically, temporarily not deductible from CET1 and AT1 due to the transition
period, are deducted from AT1 at 50% and from T2 at 50%;
- the excess of expected losses on impairments (expected loss delta), temporarily not deductible
from CET1 due to the transition period, is deducted from T2 at 50%.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 464
Transition requirements
A gradual exclusion from the relevant capital level is envisaged for capital instruments issued
previously and calculated in regulatory capital through 31 December 2013 that do not meet the
requirements of the new regulatory framework.
In particular, in 2016 60% of nominal value of instruments issued and calculated in regulatory capital
prior to 31 December 2011, that do not meet the requirements of the new regulatory framework.
Specifically, may be included in the CET1, AT1 and T2 calculation.
As at 31 December 2017 the Group has no capital instruments subject to the gradual exclusion
described above, following the mandatory coversion of such instruments ad indicated in Law Decree
237 Burden sharing.
2017 ANNUAL REPORT
465 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
B. Quantitative Information
31 12 2017 31 12 2016
A. Tier 1 before prudential filters 10,429,096 6,243,430
of which CET1 instruments subject to transitional provisions - -
B. Tier I prudential filters (80,238) (204,241)
C. Tier I capital gross of items to be deducted (A+B) 10,348,858 6,039,189
D. Items to be deducted from Tier I 1,785,345 1,493,822
E. Transitional regime - Impact on CET1 (+/-) 387,720 808,032
F. Total Common Equity Tier 1 (CET1) (C - D +/- E) 8,951,233 5,353,399
G. Additional Tier 1 (AT1) gross of items to be deducted and transitional
- 574,403
regime effects
of which AT1 instruments subject to transitional provisions - 364,503
H. Items to be deducted from AT1 - -
I. Transitional regime - Impact on AT1 (+/-) - (574,403)
L. Total additional Tier 1 (AT1) - (G - H +/- I) - -
M. Tier2 (T2) gross of items to be deducted and transitional regime effects 162,039 1,549,962
of which T2 instruments subject to transitional provisions - -
N. Items to be deducted from T2 62,214 63,173
O. Transitional regime - Impact on T2 (+/-) 12,662 (22,865)
P. Total Tier 2 (T2) (M - N +/- O) 112,487 1,463,924
Q. Total capital (F + L + P) 9,063,720 6,817,323
Unrealised losses relating to exposures to central administrations classified as AFS amount to EUR -58.5 mln and are included
in the Capital calculation for EUR -46.8 mln.
The prudential filter to absorb gradually the effects of application of the new IAS 19 amounts to EUR 29.5 mln, and the
values of net liabilities for defined benefits according to the rules of the old and new IAS 19 amount to EUR -40.8 mln and -
114.6 mln respectively.
Compared to 31 December 2016, the CET1 rose by EUR 3,598 mln mainly as a result of:
- the share capital increase subscribed by the MEF for EUR 3,854 mln;
- the share capital increase deriving from Burden Sharing for EUR 4,473 mln, gross of treasury shares equal to EUR -314
mln;
- the recognition in a reserve of EUR 360.2 mln equal to the negative difference between the fair value of the ordinary
shares assigned as a result of Burden Sharing to holders of the AT1 and T2 bond issues subject to conversion and the
value of conversion into share capital (following the application of IFRIC 19);
- the loss for the year of EUR -3,502 mln;
- the increase in deferred tax assets which depend on future profitability and which do not derive from temporary
differences for EUR -649 mln;
- other effects for EUR 107 mln.
Tier 2 reduced by EUR -1,351 mln primarily due to the Burden Sharing and the relative cancellation of subordinated bonds
calculated (EUR -1,368 mln).
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 466
2.3 Capital adequacy
A. Qualitative information
Under the prudential regulation (art. 92 CRR), the minimum equity requirements for 2017 are as
follows:
- CET1 ratio of at least 4.5% of the Group’s total risk exposure;
- AT1 ratio of at least 6% of the Group’s total risk exposure;
- Total Capital ratio of at least 8% of the Group’s total risk exposure.
Additionally, banks must have the following reserves:
- capital conservation buffer; this reserve, consisting of CET1 capital, is aimed at conserving the
minimum level of regulatory capital during difficult periods in the market, through the
allocation of high quality capital in periods in which there are no market tensions. This reserve
is mandatory and in 2017 must be equal to 1.25% of the Bank’s total risk exposure; in 2018,
the reserve must be equal to 1.875%;
- countercyclical capital buffer - aimed at protecting the banking sector in phases of excessive
growth in loans. The buffer provides for the accumulation of CET1 capital during phases of
rapid growth in the credit cycle, which can then be used to absorb losses in the downward
phase of the cycle. As opposed to the capital conservation buffer, the countercyclical buffer is
imposed only during periods of loan growth and is calculated according to pre-established
criteria; in the fourth quarter of 2017, the countercyclical buffer coefficient for Italy was kept
at zero percent;
- the systemic risk buffer, meant to deal with non-cyclical systemic risk in the financial sector
through CET1; at the moment, no systemic risk buffer is required;
- G-SII buffer for global systemically important banks and O-SII buffer for other systemically
important entities - impose higher capital requirements on those entities based on their
systemic relevance, at a global or national level, which pose greater risks for the financial
system and for which a crisis could have impacts on contributors. The Group is not a global
systemically important bank (G-SII), but it is included among ‘Other systemically important
entities’ (O-SII), as defined by the Bank of Italy. For each bank or banking group, this
identification took into consideration the contribution of the four characteristics (size,
relevance for the Italian economy, complexity and interconnection with the financial system)
specified in the EBA guidelines to establish the systematic relevance of each entity at the level
of individual jurisdiction. The Bank of Italy’s decision established an O-SII buffer of zero
percent for 2017, 0.06% for 2018, 0.13% for 2019, 0.19% for 2020 and 0.25% as of 2021.
The combination of these buffers determines the Combined Buffer Requirement (CBR).
As concerns capital requirements, for credit risks the Group uses the Advanced Internal Rating Based
(AIRB) method with reference to the “Credit Exposures to Retail” and “Credit Exposures to Entities”
regulatory portfolios. The scope of application of the AIRB method currently includes the Parent
Company Banca MPS, MPS Capital Services and MPS Leasing & Factoring. For the remaining
portfolios and Group entities, capital requirements relative to credit risks are calculated according to
the standard method.
Conversely, capital requirements relative to market risk are calculated according to the standard
method for all Group entities.
Capital requirements relative to the operational risk calculated according to the AMA method cover
the entire Banking Group perimeter almost completely. For the remaining part of the perimeter, the
base method applies.
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467 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
As regards the SREP (Supervisory Review and Evaluation Process), on 19 June 2017 the ECB ordered
the Parent Company to maintain a Total SREP Capital Requirement ratio of 11% at consolidated level
as of 1 January 2018, which includes:
- a minimum Pillar 1 requirement of 8% and
- an additional Pillar 2 requirement of 3% (P2R), entirely in terms of Common Equity Tier 1
capital.
As a result, BMPS must meet the following requirements at consolidated level as of 1 January 2018:
- CET1 Ratio of 9.44% on a transitional basis,
- Total Capital Ratio of 12.94% on a transitional basis including, aside from the P2R, 1.875%
for the Capital Conservation Buffer and 0.06% for the O-SII Buffer (Other Systemically
Important Institutions Buffer).
Until 31 December 2017, the CET1 threshold to be observed remains 10.75%, announced in
November 2015 with the previous SREP letter.
The target ratios required by the ECB must be complied with at all times when the Authority’s
Decision is in force; similarly, at those times the Bank may not distribute dividends to shareholders or
pay cash flows to holders of AT1 instruments.
For the sake of completeness, note that, subsequent to the credit deterioration events that occurred in
2017, the Group has largely implemented the residual differences from the credit file review that
emerged following ECB’s on-site inspection 1238. The ECB further acknowledged that the additional
valuation differences, determined also through the application of statistical methods involving the
projection of results obtained, largely overlap with the value adjustments made by the Bank in the last
year as well as with the losses resulting from the disposal of the bad loans portfolio, the estimated
impacts of the transition to IFRS 9 and the measures to reduce non-performing loans, as established
by the Restructuring Plan.
Lastly, another relevant regulatory indicator is the Leverage Ratio, calculated with a denominator that
is based on the assets and off-balance sheet elements not risk weighted at the end of the quarter. To
date, the Supervisory Authorities have not yet determined the minimum Leverage Ratio thresholds.
The Group’s leverage ratio was 5.97% as at 31 December 2017. Using regulatory capital calculated by
applying the rules established for full implementation, the ratio stands at 5.73%.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity 468
B. Quantitative Information
Weighted
Non-Weighted amounts
amounts/requirements
Categories/Amounts
31 12 2017 31 12 2016 31 12 2017 31 12 2016
A. RISK ASSETS
A.1 Credit and couterparty risk 160,946,962 169,998,089 47,712,717 53,520,804
1. Standardized Approach 54,711,232 57,785,767 20,698,503 23,196,227
2. Internal rating-based (IRB) approach 106,156,157 112,174,932 27,006,454 30,317,670
2.1 Foundation - - - -
2.2 Advanced 106,156,157 112,174,932 27,006,454 30,317,670
3. Securitisations 79,573 37,390 7,760 6,907
B. REGULATORY CAPITAL REQUIREMENTS
B.1 Credit and counterparty risk 3,817,017 4,281,664
B.2 Credit valuation adjustment risk 27,650 38,362
B.3 Settlement risk - -
B.4 Market risk 199,411 243,645
1. Standardized Approach 199,411 243,645
2. Internal models - -
3. Concentration risk - -
B.5 Operational risk 800,923 678,061
1. Foundation 11,936 15,234
2. Standardized approach - -
3. Advanced 788,987 662,827
B.6 Other prudential requirements - -
B.7 Other calculation elements - -
B.8 Total prudential requirements 4,845,001 5,241,732
C. RISK ASSETS AND CAPITAL RATIOS - -
C.1 Risk-weighted assets 60,562,512 65,521,653
C.2 CET1 capital/Risk-weighted assets (CET1 capital ratio) 14.78% 8.17%
C.3 Tier 1 capital/Risk-weighted assets (Tier1 capital ratio) 14.78% 8.17%
C.4 Total capital/Risk-weighted assets (Total capital ratio) 14.97% 10.40%
As at 31 December 2017, the CET1 ratio of 14.78% is higher than the minimum coefficient set forth in art. 92 of the CRR, as
well as the target ratio set by the ECB inclusive of the Combined Buffer Requirement laid out in the regulations. Likewise, the
Tier 1 ratio and the Total Capital ratio equal to 14.78% and 14.97%, respectively, are higher than the regulatory requirements.
Compared to 31 December 2016, there was an overall reduction in RWAs (around EUR -4,959.1 mln) as a result of the
decrease in “credit and counterparty risk” (around EUR -5,808.1 mln) due to the decline in the performing loan portfolio.
The “market risk” (around EUR -552.9 mln) and “CVA risk” (approx. EUR -133.9 mln) components were also down due to
the optimisation of the respective portfolios, while the “operational risk” is increasing (around EUR 1,535.8 mln).
The significant increase in regulatory ratios compared to the previous year was therefore caused by the increase in own funds
as well as the reduction in RWAs described above.
2017 ANNUAL REPORT
469 Notes to the consolidated financial statements - Part F - Information on consolidated shareholders' equity
Section 3 - Insurance regulatory capital and ratios
The Group does not include exclusively or jointly controlled companies subject to insurance
supervision.
Section 4 – Capital adequacy of the financial conglomerate
The MPS Group is not a financial conglomerate.
BANCA MONTE DEI PASCHI DI SIENA
470
2017 ANNUAL REPORT
471
Part G – Business combinations
Section 1 – Business combinations during the period ............................................................................................................................. 473
Section 2 - Business combinations completed after the period ............................................................................................................. 473
Section 3 – Retrospective adjustments ........................................................................................................................................................ 473
BANCA MONTE DEI PASCHI DI SIENA
472
2017 ANNUAL REPORT
473 Notes to the consolidated financial statements - Part G –Business combinations
Section 1 – Business combinations during the period
1.1 Business combinations
No business combinations, as defined by IFRS 3, were carried out in 2017.
Section 2 - Business combinations completed after the period
There are no transactions to report.
Section 3 – Retrospective adjustments
No retrospective adjustments are reported.
BANCA MONTE DEI PASCHI DI SIENA
474
2017 ANNUAL REPORT
475
Part H – Related-party transactions
1 Compensation of key management personnel ....................................................................................................................................... 477
2. Related-party transactions ......................................................................................................................................................................... 478
BANCA MONTE DEI PASCHI DI SIENA
476
2017 ANNUAL REPORT
477 Notes to the consolidated financial statements - Part H - Related-party transactions
1 Compensation of key management personnel
Total Total
Items/Amounts
31 12 2017 31 12 2016
Short-term benefits 9,116 8,139
Termination benefits - 4,533
Total compensation paid to key management personnel 9,116 12,672
Considering the instructions provided by accounting standard IAS 24 and in light of the current organisational structure, the
Group has opted for the disclosure scope to include not only the Directors, Statutory Auditors, the General Manager and the
Deputy General Managers, but also other Key Management Personnel.
The information regarding remuneration policies is contained in the ‘Remuneration Report pursuant to art. 123 ter of the
Consolidated Law on Finance’, available on the Parent Company’s internet site, which contains the following data:
a detailed breakdown of compensation paid to the Governing and Control bodies, General Managers and, in
aggregate form, to Key Management Personnel;
quantitative information on the remuneration of “Key employees”;
monetary incentive plans in favour of members of the Administration and Control Body, the General Managers,
the Deputy General Managers and other Key Management Personnel;
information on the equity investments of members of the Administration and Control Body, the General Managers
and other Key Management Personnel.
The previous year’s amount on line ‘Termination benefits’ referred to the amount recognised for early termination of the
employment relationship for 4 Key Management Personnel of the Parent Company, including the former General Manager,
Fabrizio Viola, and another three managers, two of whom recipients of shares to be paid over a five year period and for at
least 50% through the assignment of performance shares.
The total number of performance shares assigned to the three managers was calculated based on the valuation of the BMPS
security at the respective dates of confirmation of the termination agreements in protected negotiations.
The total number of phantom shares - subject to the verification of malus and claw-back conditions - will be assigned in 5
annual tranches over a five year period and settled one year from the relative assignments, on the basis of the market price
applicable from time to time, without adopting, in compliance with regulatory provisions, any correction aimed at neutralising
or mitigating any negative effects of possible transactions on the Parent Company’s capital.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part H - Related-party transactions 478
2. Related-party transactions
“Regulations containing provisions relating to transactions with related parties” was adopted by Consob with
Resolution no. 17221 of 12 March 2010 and later amended by Resolution no. 17389 of 23 June 2010.
In its meeting of 10 November 2010, the Parent Company’s Board of Directors established the
“Committee of Independent Directors” which, as of 18 July 2013, was renamed “Related-Party
Transactions Committee”; the Committee is composed solely of independent directors pursuant to the
principles and criteria of the Corporate Governance Code of listed companies, which Banca MPS
adhered to, and the Consolidated Law on Finance.
In implementation of art. 53 of the Consolidated Law on Banking and in compliance with resolution
no. 277 of the Interministerial Committee for Credit and Savings (ICRC) of 29 July 2008, the directives
on regulations concerning risk assets and conflicts of interest in relation to the Associated Parties of
the Group were adopted by the Bank of Italy with the 9th update of Circular no. 263/2006, as of 31
December 2012.
Through a resolution dated 12 November 2014, the Parent Company’s Board of Directors approved -
in accordance with regulatory provisions and having obtained the prior favourable opinions of the
Related-Party Transactions Committee and of the Board of Statutory Auditors - the “Global Policy on
transactions with related parties and associated parties, obligations of the Banking entities” (hereinafter the “Global
Policy”), which includes in a single document the Group’s provisions on conflicts of interest in
transactions with related parties in accordance with the above referenced Consob Regulation no.
17221/2010 and with Associated Parties in accordance with Bank of Italy Circular no. 263/2006, Title
V - Section 5, as well as those on the obligations of banking representatives, in accordance with art.
136 of the Consolidated Law on Banking (TUB), and also contains rules for subsidiaries.
The Global Policy dictates the principles and rules to be adhered to in order to control the risk arising
from situations of possible conflict of interest with certain entities close to the Parent Company’s
decision-making centres.
The Global Policy is published on the Parent Company’s website and is therefore available in full-text
version at the following links:
https://www.gruppomps.it/static/upload/ope/operazioni_con_parti_correlate_e_soggetti_-collegati-
_obbligazioni_degli_esponenti_bancari.pdf
Already starting in 2016, the Parent Company’s Board of Directors formally resolved to approve
inclusion of the Ministry of Economy and Finance (MEF) and of the relevant directly and indirectly
controlled companies within the scope of related parties on a discretionary basis pursuant to the
provisions of the Global Policy, excluding the prudential regulation.
Following completion of the Parent Company’s precautionary recapitalisation procedure, after which
the MEF became the controlling shareholder, the Parent Company received notification on 18
December 2017 from the Supervisory Authorities with regard to the methods for the resulting
application of limits to risk assets laid out in prudential regulations, pursuant to art. 53 of the
Consolidated Law on Banking (TUB) and its implementing provisions (Bank of Italy Circ. 263/06 Title
V, Section 5), through application to the Parent Company of the “silo” approach for calculation of the
reference limits.
With reference to the MEF scope, the Parent Company has availed itself of the exemption provided by
paragraph 25 of IAS 24 on the disclosure of transactions and balances of existing transactions with
government-related entities. Among the main transactions carried out with the MEF and with its
subsidiaries, in addition to the financing and funding transactions, mention also goes to the amount of
Italian government securities recorded in the AFS portfolio, for a nominal amount of EUR 12,921.82
mln.
Information is provided below regarding transactions that are worth specifically mentioning and which
were concluded on the basis of assessments of economic advantage and carried out by the Parent
Company with Related Parties in 2017.
2017 ANNUAL REPORT
479 Notes to the consolidated financial statements - Part H - Related-party transactions
February 2017
On 1 February 2017, the Loan Disbursement and Governance Division of the Parent
Company authorised - subject to the fulfilment of certain conditions by the shareholders and
the company as well as the acceptance of what is authorised by the other bank in the pool - in
favour of BONAFOUS S.P.A.: (i) the extension to 31 December 2020 of a pool mortgage
loan of EUR 8.7 mln and (ii) the relative bullet repayment of the residual principal at the new
maturity date; (iii) the suspension of the payment of interest - including some already past due
- until the new maturity date; (iv) the granting of a fixed-term credit facility (31 December
2020) for the technical management of accrued and accruing interest. On 15 June 2017, the
Parent Company’s Board of Directors, with the favourable opinion of the Related-Party
Transactions Committee, resolved to approve participation in a Debt Restructuring
Agreement (DRA) pursuant to art. 182 bis of the Bankruptcy Law, which for the Parent
Company envisages: (i) when the DRA becomes effective, the write-off of EUR 4.7 mln in
principal, against repayment in cash of EUR 4 mln, plus the waiver of ordinary interest
accrued and accruing until the effective date of the DRA; (ii) when the DRA becomes
effective, the waiver of interest on arrears accrued and accruing pursuant to the loan
agreement until the effective date; (iii) when the amount of EUR 4 mln is collected, the waiver
of all claims deriving from the loan and the commitment to release the collateral backing the
pool mortgage loan. All of the foregoing is subject to the condition precedent of the
acceptance of the proposal by the other bank participating in the pool loan and the definitive
approval of the DRA by the competent Court. The transaction is governed by Consob
Regulation no. 17221/2010 as BONAFOUS S.P.A. is 50% owned by CDP Immobiliare S.r.l.,
which in turn is a subsidiary of CASSA DEPOSITI E PRESTITI S.p.A., a direct subsidiary of
the MEF which when the transaction was carried out held 4.024% of the share capital of the
Parent Company.
On 14 February 2017, the Parent Company’s Credit and Credit Policies Committee authorised
in favour of SOGIN S.P.A.: (i) the extension of the EUR 18.9 mln mixed credit facility usable
for the issue of sureties with underlying financial obligations against VAT refunds and for the
issue of letters of credit relating to the import of goods with a maximum duration of individual
commitments equal to 48 months and (ii) the replacement of the previous EUR 1 mln mixed
credit facility with an analogous mixed credit facility in the same amount, which may be used
in full for forward currency transactions (fixed-term and flexible/advanced) that may be used
only for transactions with a commercial underlying asset. The transaction is governed by
Consob Regulation no. 17221/2010 as SOGIN S.P.A. is wholly owned by the MEF, which
when the transaction was carried out held 4.024% of the share capital of the Parent Company.
March 2017
On 9 March 2017, the Parent Company’s Board of Directors resolved to authorise, with the
prior favourable opinion of the Related-Party Transactions Committee, the adoption of a
Framework Resolution, of up to a cumulative amount of EUR 250 mln, valid from 9 March
2017 to 14 October 2017, concerning the Parent Company’s acquisition of financial resources
- for the disbursement of subsidised government backed loans to the beneficiaries specified in
regulations in force - from funding made available by CASSA DEPOSITI E PRESTITI S.p.A.
(CDP) as part of the agreements “Plafond Eventi Calamitosi” of 17 November 2016 and
“Plafond Sisma Centro Italia” of 18 November 2016 entered into by the CDP and the Italian
Banking Association (ABI). This resolution is separate from the previous Framework
Resolution approved by the Board of Directors on 14 October 2016 and already indicated in
the 2016 financial statements, relating to the previous agreements entered into by the ABI and
CDP. The transaction in question falls within the scope of application of Consob Regulation
no. 17221/2010, as CASSA DEPOSITI E PRESTITI S.p.A. is a direct subsidiary of the MEF,
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part H - Related-party transactions 480
which when the transaction was carried out held 4.024% of the share capital of the Parent
Company.
On 16 March 2017, the Parent Company’s Large Loans Committee, with the prior favourable
opinion of the Related-Party Transactions Committee, approved the transfer of the
administrative classification of EUROCITY SVILUPPO EDILIZIO S.R.L IN
LIQUIDAZIONE from “unlikely to pay” to “doubtful”. The exposure amounts to EUR 42.9
mln. The transaction in question falls within the scope of application of Consob Regulation
no. 17221/2010, as EUROCITY SVILUPPO EDILIZIO S.R.L IN LIQUIDAZIONE is a
subsidiary of Casalboccone Roma S.r.l., in which the Parent Company holds a direct equity
investment equal to 21.8% of the share capital.
On 23 March 2017, the Parent Company’s Board of Directors, with the prior approval of the
Related-Party Transactions Committee, authorised the rescheduling of the credit facilities
provided to ENI S.p.A. and the return to within the prudential limits pursuant to art. 395 of
Regulation (EU) 575/2013. In this context, the following were approved: the granting of (i) a
new mixed credit facility of EUR 1,000 mln and (ii) a new mixed credit facility of EUR 500
mln - blocked in its entirety and usable after checking for compliance with regulatory limits -
both usable for current account overdrafts, large financial transactions, the issue of sureties
and letters of credit, loans in foreign currency, advances on receivables subject to collection,
opening of documentary credit backed by documents not representative of goods; (iii) the
confirmation of the ordinary and multi-user credit facility with a reduction to EUR 75 mln
usable for exchange rate risk hedging transactions; (iv) the granting of a new temporary and
multi-user credit facility for EUR 25 mln maturing on 31 December 2022 and usable for
interest rate risk hedging transactions, with a maximum duration of 5 years. The facilities may
also be used by the other companies of the ENI group after the issue of a credit facility
mandate by the parent company ENI S.p.A., with the delegating party and beneficiary bearing
joint and several liability. The transaction in question falls within the scope of application of
Consob Regulation no. 17221/2010, as ENI S.p.A. is subject to the de facto control of the
MEF, which holds a 4.34% direct shareholding in it and a 25.76% indirect shareholding in it
through CASSA DEPOSITI E PRESTITI S.p.A., which is in turn a subsidiary of the MEF,
which when the transaction was carried out held 4.024% of the share capital of the Parent
Company. Pending the definition and formalisation of the agreements with ENI S.p.A., on 2
August 2017, the Board of Directors, again with the prior approval of the Related-Party
Transactions Committee, decided to (i) reduce the credit facilities granted to ENI S.p.A. from
EUR 1,600 mln to EUR 350 mln in order to prevent the regulatory limits for exposure to the
so-called “connected Bankit Parties” of 5% of the consolidated regulatory capital from being
exceeded following completion of the Parent Company’s precautionary recapitalisation by the
MEF, with consequent application of the limits on risk assets required by prudential
regulations, and (ii) extend the internal operational limit by 3% of the consolidated regulatory
capital, which exceeds and implements the previous resolution adopted by the Board of
Directors on 23 March 2017. The transaction is classified as a “transaction of greater
relevance”. Public disclosure on this has been issued in accordance with applicable regulations
and the relative document is available at www.gruppomps.it.
April 2017
On 12 April 2017, with the prior favourable opinion of the Related-Party Transactions
Committee, the Parent Company’s Board of Directors granted, with respect to the unsecured
loans granted by the Parent Company, a moratorium of 6 months in favour of MARINELLA
S.p.A. and TENUTA DI MARINELLA, as well as the right to use existing short-term credit
lines granted to the latter within the authorised limit of EUR 200 thousand until the end of the
moratorium, all subject to the resolution for dissolution and placement in liquidation of
MARINELLA S.p.A. The transaction, which amounts to EUR 23 mln, falls within the scope
2017 ANNUAL REPORT
481 Notes to the consolidated financial statements - Part H - Related-party transactions
of application of Consob Regulation no. 17221/2010 as MARINELLA S.p.A. is subject to
joint control by the Parent Company, which holds a direct stake in it of 25%, and TENUTA
DI MARINELLA is wholly owned by MARINELLA S.p.A.
On 18 April 2017, the Acting Deputy Manager of the Parent Company resolved to review and
as a result renew with an increase the loan in favour of ANSALDO ENERGIA S.p.A. and, in
particular, authorised granting: (i) a new credit facility of EUR 10 mln usable in full for the
opening of documentary credit backed by documents not representative of goods and for the
issue of financial and/or commercial sureties; (ii) a new credit facility of EUR 20 mln,
guaranteed by a pledge in cash of EUR 10 mln, usable up to the maximum amount for the
issue of counter-guarantees, including with unspecified maturity, in the interest of ANSALDO
ENERGIA S.p.A. and (iii) a new credit facility of EUR 3 mln usable for exchange rate risk
hedging transactions with the exclusion of any speculative purposes. The transaction is
governed by Consob Regulation no. 17221/2010, as ANSALDO ENERGIA S.p.A. is an
indirect subsidiary of the MEF, which at the time of the transaction held 4.024% of the share
capital of the Parent Company. MEF holds indirect control as ANSALDO ENERGIA S.p.A.
is subject to the joint control, as a result of current shareholders' agreements, of the
shareholder CDP Equity S.p.A., 97.13% owned by CASSA DEPOSITI E PRESTITI S.p.A.,
whose majority shareholder is the MEF, which when the transaction was carried out held
4.024% of the share capital of the Parent Company.
June 2017
On 27 June 2017, the Parent Company’s Credit and Credit Policies Committee authorised in
favour of FINCANTIERI S.p.A.: (i) the renewal with an increase of the credit facility from
the original EUR 15 mln to EUR 65 mln usable in its entirety for the issue of sureties and
limited to the amount of EUR 10 mln for current account overdrafts and (ii) the confirmation
of the mixed use credit facility of EUR 30 mln for forward currency transactions and/or
currency options, interest rate risk hedging transactions and commodity risk hedging
transactions. The transaction in question falls within the scope of application of Consob
Regulation no. 17221/2010, as FINCANTIERI S.p.A. is subject to the control of Fintecna
S.p.A., a financial company in turn controlled through CASSA DEPOSITI E PRESTITI
S.p.A. by the MEF, which when the transaction was carried out held 4.024% of the share
capital of the Parent Company.
On 30 June 2017, the Parent Company’s Board of Directors, with the prior approval of the
Related-Party Transactions Committee, authorised with regard to SORGENIA GROUP - as
part of the restructuring agreement under article 182-bis of the Bankruptcy Law, which
became fully effective following the decree of approval by the Court of Milan dated 27 March
2015 - (i) the extension until 31 July 2017 of the Moratorium and standstill agreement - and
(ii) participation in the New Restructuring Agreement (the “New RA”) negotiated by the
parties, subject to reaching a quorum of 100% of the banks, the supervision of the
contractual texts by the bank lawyers and, only for participation in the New RA, the issue of a
certification of feasibility pursuant to article 182-bis of the Bankruptcy Law approved of by
the banks. The total amount of the transaction with regard to the SORGENIA GROUP
amounts to around EUR 560 mln. The transaction falls within the scope of application of
Consob Regulation no. 17221/2010, as it refers to the companies SORGENIA S.p.A.,
SORGENIA POWER S.p.A. and SORGENIA PUGLIA S.p.A., subsidiaries of NUOVA
SORGENIA HOLDING S.p.A. (the SORGENIA GROUP’s holding company), subject to
significant influence by the Parent Company, which holds a stake of 16.67% of the share
capital of the aforesaid holding company. The transaction is classified as a “transaction of
greater relevance”. Public disclosure on this has been issued in accordance with applicable
regulations and the relative document is available at www.gruppomps.it. Note that, following
completion on 1 August 2017 of the New RA which became effective following the decree of
approval by the Court of Milan dated 30 November 2017, on 29 December 2017, the Credit
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part H - Related-party transactions 482
and Credit Policies Committee confirmed a reduction of the existing credit ceiling for a total
of EUR 483 mln, extending the expiry date to 30 November 2018.
August 2017
On 2 August 2017, the Parent Company’s Board of Directors, with the prior approval of the
Related-Party Transactions Committee, authorised with respect to ENI S.p.A.: (i) to reduce
the credit facilities granted from EUR 1,600 mln to EUR 350 mln in order to prevent the
regulatory limits for exposure to the so-called “connected Bankit Parties” of 5% of the
consolidated regulatory capital from being exceeded following completion of the Parent
Company’s precautionary recapitalisation by the MEF, with consequent application of the
limits on risk assets required by prudential regulations, and (ii) to extend the internal
operational limit by 3% of the consolidated regulatory capital, which exceeds and implements
the previous resolution adopted by the Board of Directors on 23 March 2017 (illustrated
above). The transaction in question falls within the scope of application of Consob Regulation
no. 17221/2010, as ENI S.p.A. is subject to the de facto control of the MEF, which holds a
direct and indirect shareholding in it through CASSA DEPOSITI E PRESTITI S.p.A., which
is in turn a subsidiary of the MEF, which when the transaction was carried out held 4.024% of
the share capital of the Parent Company. The subject transaction is classified as a “transaction
of greater relevance”. Public disclosure on this has been issued in accordance with applicable
regulations and the relative document is available at www.gruppomps.it.
On 2 August 2017, the Parent Company’s Board of Directors, with the prior approval of the
Related-Party Transactions Committee, authorised the rescheduling of the credit facilities
provided to ENEL S.p.A. In this context, the following were approved: (i) the extension, with
a reduction from EUR 600 mln to EUR 200 mln, of the mixed credit facility usable for current
account overdrafts, loans in foreign currency, the issue of sureties and letters of credit, and
large financial transactions; (ii) the cancellation of the EUR 30 mln credit facility, usable for
interest rate, exchange rate and/or commodity hedging transactions; (iii) the extension of the
internal operational limit by 3% of the consolidated regulatory capital for exposure to the so-
called “connected Bankit Parties”, set by resolution of the Board of Directors on 29 January
2016. The transaction in question falls within the scope of application of Consob Regulation
no. 17221/2010, as ENEL S.p.A. is subject to the de facto control of the MEF, which when
the transaction was carried out held 4.024% of the share capital of the Parent Company.
On 8 August 2017, the Parent Company’s Credit and Credit Policies Committee approved the
renewal until 31 December 2017 of a previous framework resolution in favour of FIDI
TOSCANA S.p.A. for the performance of short and medium-term credit line transactions for
retail, small business and corporate customers, secured by guarantees issued by FIDI
TOSCANA S.p.A., for up to a maximum of EUR 30 million. The transaction falls within the
scope of application of Consob Regulation no. 17221/2010, as the Parent Company holds a
stake of 27.46% of the share capital of FIDI TOSCANA S.p.A.
September 2017
On 7 September 2017, with the prior favourable opinion of the Related-Party Transactions
Committee, the Parent Company’s Board of Directors authorised: (i) the participation of the
Parent Company in its role as shareholder, with the expression of a favourable vote, in the
shareholders’ meeting of INTERMONTE SIM S.p.A. called to resolve upon the buy-back
transaction (purchase of treasury shares); (ii) acceptance, subject to the issue of the necessary
authorisations by the Bank of Italy, of the offer to purchase treasury shares by
INTERMONTE SIM S.p.A., which for the Parent Company entails the disposal of up to a
maximum of 8,000,000 shares of the Company for a value of no less than EUR 2.5 per share;
(iii) disposal to INTERMONTE SIM S.p.A. or to Intermonte Holding SIM S.p.A. of any
shares that may remain in the Parent Company’s portfolio following the acceptance of the
buy-back at a unit price of no lower than EUR 2.5 per share. The transaction falls within the
scope of application of Consob Regulation no. 17221/2010, as the Parent Company exercises
2017 ANNUAL REPORT
483 Notes to the consolidated financial statements - Part H - Related-party transactions
significant influence over INTERMONTE SIM S.p.A. by virtue of its investment in the share
capital, with a stake of 17.41% of the shares with voting rights, and given the fact that it has
designated a Board Member, a Statutory Auditor and an Alternate Auditor.
On 26 September 2017, the Parent Company’s Credit and Credit Policies Committee
authorised: (i) the adhesion to the agreement signed by the Italian Banking Association and
CASSA DEPOSITI E PRESTITI S.p.A. (CDP) relating to the “Central Italy Earthquake
Moratorium Credit Pool” of 3 July 2017 by signing the framework loan agreement formalising
acceptance of the above-mentioned agreement; (ii) the establishment of a credit pool by the
Parent Company for a maximum amount of EUR 60 mln and (iii) the finalisation of
agreements amending the CDP/BMPS loan drawn on the credit pool relating to the
ABI/CDP agreement. The transaction falls within the scope of application of Consob
regulation no. 17221/2010, as CASSA DEPOSITI E PRESTITI S.p.A. is a subsidiary of the
MEF, controlling shareholder of the Parent Company following the completion of the
precautionary recapitalisation transaction.
October 2017
On 10 October 2017, the Parent Company’s Credit and Credit Policies Committee - as part
of the restructuring agreement pursuant to art. 182-bis of the Bankruptcy Law, which become
effective following the decree of approval by the Court of Siena dated 26 February 2016 -
with the prior approval of the Related-Party Transactions Committee, authorised with regard
to SVILUPPO E INTERVENTI IMMOBILIARI S.r.l IN LIQUIDAZIONE: (i) acceptance
of the proposals received to purchase real estate with an average price variation of 15%
compared to the new appraisal values, with consequent restriction of the mortgage collateral;
(ii) approval of further asset disposals with a variation of up to 15% compared to the new
appraisal values, for a maximum credit facility of EUR 0.6 mln until 31 December 2017 and,
subject to the submission of an update to the existing restructuring plan, a further EUR 1.1
mln in the first half of 2018; (iii) not to use the contractual remedies envisaged in the
restructuring agreement and (iv) confirmation of the administrative status “unlikely to pay,
forborne network”. Note that the total exposure of the customer group connected to
SVILUPPO E INTERVENTI IMMOBILIARI S.r.l IN LIQUIDAZIONE - as at the date of
the subject resolution - amounted to EUR 131.6 mln. The transaction falls within the scope
of application of Consob Regulation no. 17221/2010, as the Parent Company holds a stake of
21.8% of the share capital of SVILUPPO E INTERVENTI IMMOBILIARI S.r.l IN
LIQUIDAZIONE.
On 27 October 2017, the Parent Company’s Board of Directors, with the prior approval of
the Related-Party Transactions Committee, resolved the definition of the terms for renewal of
the Framework Agreement relative to the joint venture between the Bank and AXA S.A.,
following its resolution of 30 November 2016, as indicated in the 2016 Annual Report,
whereby the Board of Directors, again upon approval by the Related-Party Transactions
Committee, had authorised the ten-year renewal of the bancassurance agreement (Framework
Agreement) and commencement of clarification and definition of the terms for renegotiation,
for the purposes of defining the contents of the amending agreement, which was then
finalised on 6 November 2017. The transaction falls within the scope of application of
Consob Regulation no. 17221/2010 since AXA S.A. is a related party of the Parent Company,
as a result of the joint venture in place with the Parent Company under the aforesaid
Framework Agreement since 2007. The transaction is classified as a “transaction of greater
relevance”. Public disclosure on this has been issued in accordance with applicable regulations
and the relative document is available at www.gruppomps.it.
November 2017
On 7 November 2017, the Parent Company’s Board of Directors, with the prior approval of
the Related-Party Transactions Committee, resolved to adopt a Framework Resolution up to a
maximum amount of EUR 300 mln, valid until 6 November 2018, for completion of loans
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part H - Related-party transactions 484
and credit facilities backed by guarantees by SACE S.p.A., to be issued in the form of: (i)
insurance on export credit; (ii) financial guarantee and (iii) surety policy, exempt from the
authorisation requirements due to approval of the aforementioned framework resolution up to
EUR 30 mln for each individual transactions. The transaction falls within the scope of
application of Consob regulation no. 17221/2010, as SACE S.p.A. is wholly owned by CASSA
DEPOSITI E PRESTITI S.p.A., whose capital is 82.77% owned by the MEF, controlling
shareholder of the Parent Company following the completion of the precautionary
recapitalisation transaction.
On 29 November 2017, the Parent Company’s Board of Directors, with the prior approval of
the Related-Party Transactions Committee, resolved with respect to CASSA DEPOSITI E
PRESTITI S.p.A., in continuation of the aforementioned Framework Resolutions of 2016 and
2017, in particular, the adoption of a new Framework Agreement valid until 28 November
2018, up to a cumulative amount of EUR 1,500 mln, relative to the Parent Company’s
operations within the scope of the existing agreements stipulated between CASSA DEPOSITI
E PRESTITI S.p.A. and the Italian Banking Association. The transaction falls within the
scope of application of Consob regulation no. 17221/2010, as CASSA DEPOSITI E
PRESTITI S.p.A. is a subsidiary of the MEF, controlling shareholder of the Parent Company
following the completion of the precautionary recapitalisation transaction. The transaction is
classified as a “transaction of greater relevance”. Public disclosure on this has been issued in
accordance with applicable regulations and the relative document is available at
www.gruppomps.it.
On 29 November 2017, the Parent Company’s Board of Directors, with the prior approval of
the Related-Party Transactions Committee, resolved with respect to ENEL S.p.A., in
particular, (i) the granting of a new credit facility of EUR 100 mln with a duration of 5 years,
as the Parent Company’s stake in a pool transaction for a total of EUR 10,000 mln, which can
be used as a revolving credit facility and aimed at providing financial support to current
operations, with simultaneous cancellation of the temporary credit facility of EUR 200 mln,
unused, and (ii) extension of the operational limit of 3% of the consolidated regulatory capital
for exposure to the so-called “connected Bankit parties”, set by resolution of the Board of
Directors on 5 February 2016. The transaction falls within the scope of application of Consob
regulation no. 17221/2010, as ENEL S.p.A. is subject to the de facto control of the MEF,
controlling shareholder of the Parent Company following the completion of the precautionary
recapitalisation transaction.
December 2017
On 5 December 2017, the Parent Company’s Credit and Credit Policies Committee
authorised, with the prior approval of the Related-Party Transactions Committee, in favour of
IMMOBILIARE NOVOLI S.p.A.: (i) extension of the existing ordinary credit facilities
subject to revocation up to 31 July 2018 for a total of EUR 50.1 mln; (ii) confirmation for a
portion of EUR 7.5 mln of the syndicated building loan (total EUR 15 mln), with a maximum
duration of 13 years; (iii) the granting of new syndicated credit facility subject to revocation
for EUR 5 mln (total EUR 10 mln) for the issue of sureties; (iv) granting of a new temporary
non-interest bearing mortgage credit facility of EUR 0.9 mln until 31 December 2022, relative
to the increased interest to be calculated on the Bank’s share of the syndicated building loan.
The transaction falls within the scope of application of Consob Regulation no. 17221/2010,
as the Parent Company holds a stake of 50% of the share capital of IMMOBILIARE
NOVOLI S.p.A.
2017 ANNUAL REPORT
485 Notes to the consolidated financial statements - Part H - Related-party transactions
The following tables summarise the relationships and economic effects of transactions carried out in
the year with associates, key management personnel and other related parties.
Following the completion of the Precautionary Recapitalisation, the MEF’s investment in the share
capital of the Parent Company is equal to around 52%, therefore qualifying the MEF as the controlling
entity. The “MEF Scope” column highlights the balances7 of the balance sheet and income statement
items as at 31 December 2017 relating to the transactions carried out with the MEF and the companies
controlled by the MEF, namely companies controlled directly or indirectly by the MEF and their
associates.
2.a Related-party transactions: balance sheet items
Value as at 31 12 2017
Executives Other %
joint Associated MEF
with strategic related Total on
venture companies Perimeter
responsibility parties consolidated
Financial assets held for trading - 275 - 7,619 4,274,886 4,282,780 49.13%
Financial assets available for sale - 72,720 - - 13,231,499 13,304,219 86.11%
Lonas to banks - - - - - - 0.00%
Loans to customers 86,049 462,249 3,523 362,867 1,234,929 2,149,617 2.49%
Other assets - 9 - 102 22 133 0.01%
Total assets 86,049 535,253 3,523 370,588 18,741,336 19,736,749 -
Deposits from banks - - - - 30,387 30,387 0.14%
Deposits from customers 3,762 220,677 3,042 99,450 2,719,172 3,046,103 3.96%
Debt securities issued - 351 41 76 - 468 0.00%
Financial liabilities - 1,910 418 879 603 3,810 0.08%
Other liabilities 9 36 - - 278 323 0.01%
Total liabilities 3,771 222,974 3,501 100,405 2,750,440 3,081,091 -
Guaranties issued and
16,187 30,766 5 14,029 565,389 626,376 4.09%
Commitments
2.b Related-party transactions: income statement items
Group Income statements
Value as at 31 12 2017
Executives Other %
joint Associated MEF
with strategic related Total on
venture companies Perimeter
responsibility parties consolidated
Interest income and similar revenues 1,654 9,712 24 29,873 150,469 191,732 7.09%
Interest costs and similar charges (1) (313) (8) (70) (672) (1,064) 0.11%
Fee and commission income 300 184,577 10 311 2,416 187,614 9.84%
Fee and commission expense - (1,306) (2) (426) (49) (1,783) 0.52%
Net adjustments/impaiments (11,907) (442) - (28) (16,927) (29,304) 0.54%
Operating costs - (20,723) (9,124) (401) (25,051) (55,299) 1.68%
7
The criteria to fill out the two tables are different from those of the European Securities and Markets Authority (ESMA)
used for the table “Exposure to sovereign debt risk”.
BANCA MONTE DEI PASCHI DI SIENA
486
2017 ANNUAL REPORT
487
Part I – Share-Based Payments
BANCA MONTE DEI PASCHI DI SIENA
488
2017 ANNUAL REPORT
489 Notes to the consolidated financial statements - Part I - Share-based payments
Qualitative Information
Description of share-based payment agreements
Supervisory Provisions on pay and incentive policies and practices establish that at least 50% of
variable remuneration provided to “key employees” should be paid in the form of shares or associated
financial instruments over a period of at least 3-5 years. “Variable remuneration” refers to variable
performance-linked components as well as incentives paid for the early termination of the employment
relationship exceeding the amount due by law (“severance”).
As the Parent Company had no treasury shares at the date on which it set up its 2017 Remuneration
Policies and the legal requirements were not met to pass a resolution to purchase them, it confirmed,
as part of the instruments to be used for the aforementioned purposes where necessary, the prior
year’s adoption of a Performance Shares Plan. The Plan, approved by the Shareholders’ Meeting of the
Parent Company on 12 April 2017, fulfilled regulatory requirements, while also aiming to contribute to
alignment of the management’s interests with those of shareholders.
As the provision of performance shares does not require the material assignment of shares, but rather
the payment of an amount pegged to the share value reported over time, for accounting purposes it is
considered a cash settled share based payment pursuant to IFRS 2 “Share-based payments”. The
corresponding cost is accounted for at the end of the year of service considering the best estimate of
the amount due (fulfilment of conditions, etc.), valued at fair value taking into account the number of
shares assigned from year to year and the Bank’s share value.
Quantitative Information
The Plan approved in 2017 was not used during the course of the year.
With regard to the 2016 Plan, 54,676 Performance Shares were recorded, of which
n. 21,870 assigned up front and will be settled during 2018;
of the 32,806 deferred shares, 5,340 were assigned and will be settled during 2018. The
remaining ones will be assigned - subject to the verification of pre-established malus
conditions - throughout a period of five years and settled one year after the relative
assignments.
The fair value of the Performance Shares assigned is determined - pursuant to art. 9, paragraph 4 of
the TUIR - on the basis of the arithmetic average of the MPS share prices reported in the thirty days
leading up to the assignment date.
BANCA MONTE DEI PASCHI DI SIENA
490
2017 ANNUAL REPORT
491
Part L – Segment reporting
BANCA MONTE DEI PASCHI DI SIENA
492
2017 ANNUAL REPORT
493 Notes to the consolidated financial statements - Part L - Segment reporting
This section of the Notes to the Consolidated Financial Statements is prepared in accordance with the
IAS/IFRS international accounting principles, with particular reference to IFRS8 “Operating
Segments”.
The aforementioned accounting standard, applied as of 1 January 2009 to replace IAS14 “Segment
reporting” and the adoption of which has no effect on the valuation of balance sheet items, requires
reports to be drafted in relation to operating segments on the basis of the internal reporting actually
used by management to take decisions on the allocation of resources to various segments and to
conduct performance analyses.
Group operations by business segment
The Montepaschi Group operates in the following business areas:
- Retail and commercial banking: includes lending activities, traditional banking services, financial
advisory and digital banking services, the offering of banking and insurance products through the
strategic partnership with AXA, wealth management and investment products;
- Leasing and Factoring: includes the offering of leasing and factoring packages for businesses,
artisans and professionals;
- Corporate finance: mid- and long-term lending, corporate finance, capital markets and structured
finance;
- Investment banking: trading and global markets;
- Foreign banking: products and services in support of market expansion and investments of Italian
companies abroad.
Operations in the business areas are conducted by the following operating units of the Group:
- sales & distribution network, comprising the branches and specialised centres of Banca Monte dei
Paschi di Siena;
- Banca Widiba SpA, which includes the business of the Financial Advisory Network and Digital
Banking;
- product factories8, i.e. Group banks and companies expressly dedicated to developing specialised
financial instruments to be offered to the market, particularly including: MPS Capital Services
(specialised in corporate finance, capital market and structured finance), MPS Leasing & Factoring
(specialising in the provision of leasing and factoring services to businesses);
- foreign network, geographically present in all major financial and economic markets as well as in
emerging countries with the highest rates of growth and/or key relations with Italy. It includes the
foreign units of Banca Monte dei Paschi di Siena (4 operational branches, 10 representative
offices) and 2 banks under foreign law (MP Belgio: 7 branches; MP Banque: 14 branches).
The Group also includes service operations dedicated to the management of IT and
telecommunications (Consorzio Operativo di Gruppo).
For the purpose of identifying the Operating Segments provided for by IFRS 8, the Montepaschi
Group has adopted the business approach. Income statement/balance sheet data are then aggregated
based on criteria including business area and operating unit of reference, relevance and strategic
importance of operations involved, and cluster of clients served.
8 Please recall that on 1 June 2015, the merger by incorporation of Consum.it SpA (Group consumer credit company) into Banca Monte dei Paschi di Siena SpA
became effective, the accounting and tax effects of which are applicable as of 1 January 2015.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part L - Segment reporting 494
Based on the aggregation criteria specified above, which guide reporting at the highest decision-
making level, the breakdown of the Group’s Operating Segments as at 31 December 2017 is
therefore the following:
- Retail Banking, which includes the income statement and balance sheet results pertaining to
clusters of Retail customers (Value, Premium and Small Business segments);
- Wealth Management, which includes the income statement and balance sheet results pertaining to
clusters of Private Banking customers (Private Banking and Family Office segments) and the
subsidiary MPS Fiduciaria;
- Corporate banking, which includes the income statement and balance sheet results pertaining to
clusters of Corporate customers (SME, Entities and Top Corporate segments), Large Corporate
Area, Foreign Branches and the subsidiaries MPS Capital Services, MPS Leasing & Factoring and
the foreign banks MP Belgio and MP Banque;
- Banca Widiba SpA, which includes the income statement and balance sheet results pertaining to
the financial advisor network and the self-service channel;
- Corporate Centre: in addition to cancellations of intragroup entries, this Operating Segment
incorporates the results of the following business centres:
service operations supporting the Group’s business, dedicated in particular to the management
and development of IT systems (MPS Group Operating Consortium);
companies consolidated at equity and held for sale;
operating units, such as proprietary finance, ALM, Treasury and Capital Management which,
individually, fall below the disclosure requirements for primary reporting.
Income statement criteria by operating segment
The net operating income by operating segments was constructed based on the following criteria:
Net interest income: in relation to the business centres of Banca Monte dei Paschi di Siena, it
is calculated by way of contribution on the basis of internal transfer rates broken down by
products and maturities. With reference to non-divisionalised entities, net interest income is the
difference between “interest income and similar revenues” and “interest expense and similar
charges”.
Net fee and commission income: determined by direct allocation of commissions to the
operating segments.
Operating expenses: the aggregate includes administrative expenses (after recovery of
expenses) and net value adjustments to tangible and intangible assets. The operating expenses of
non-divisionalised entities (mono-segments) are directly allocated to their corresponding
Operating Segments while, for Banca Monte dei Paschi di Siena, they are allocated to their
respective Segments of reference by using a “cost allocation” model. With regard to Other
administrative expenses and Net value adjustments to tangible and intangible assets, the model
allocates external and intragroup cost components to the business centres either directly or by
means of specific drivers, starting from a set of previously identified and priced services. With
reference, however, to “Personnel expenses”, the model allocates costs to Business Centres on
the basis of the unique functional position of the resources, or, if this is not possible, according
to specific criteria relating to the operations performed.
Net impairment losses/reversals on loans: analytically allocated to the individual operating
segments
2017 ANNUAL REPORT
495 Notes to the consolidated financial statements - Part L - Segment reporting
Balance-sheet criteria by operating segment
Balance sheet aggregates were developed by precisely surveying the balances on individual customers
and subsequently aggregating them by service model/operating segment. Such accounts are also related
to the income/expenses allocated to each segment. In particular:
interest-bearing loans to customers: the interest-bearing assets used for the operations of a
business segment, which are directly attributable to the segment itself;
deposits from customers and debt securities issued: the interest-bearing liabilities arising
from the operations of an operating segment, which are directly attributable to the segment
itself.
Transactions between operating segments
Each segment’s income and results include transfers between operating segments (Internal Transfer
Rates). These transfers are reported in accordance with the best practices accepted by the market (i.e.
the fair value method or cost method increased by a proper margin) both with respect to commercial
and financial transactions.
The income of each operating segment is determined before intragroup balances and intragroup
transactions are eliminated during the process of consolidation. In line with the internal reporting
system used by the Montepaschi Group, balances of intragroup transactions are not shown separately.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Part L - Segment reporting 496
Basis of preparation
In accordance with the recommendations of IFRS 8, the table below presents the Group’s income
statement and balance sheet results as at 31 December 2017, developed according to the Operating
Segments defined above:
SEGMENT REPORTING Business segments
Corporate Total
Wealth Corporate Center MPS Group
Primary segment Retail banking Widiba
Management banking
(million of Euro) 31/12/17 31/12/17 31/12/17 31/12/17 31/12/17 31/12/17
PROFIT AND LOSS AGGREGATES
Net interest income 1,170.0 646.7 25.7 31.1 (85.1) 1,788.3
Net fee and commission income 1,285.0 340.6 129.7 13.7 (192.5) 1,576.5
Other income 40.5 51.5 0.8 (0.0) 579.3 672.1
Other operating expenses/income 1.5 (9.0) 0.1 43.6 (2.7) (11.3)
Total Revenues 2,496.9 156.2 1,029.9 (62.6) 299.0 4,025.6
Operating expenses (1,814.1) (67.1) (626.1) (62.6) 26.9 (2,543.0)
Pre Provision Profit 682.8 89.1 403.7 (19.0) 326.0 1,482.6
Net impairment losses (reversals) on loans and
(1,912.5) (3.8) (3,187.9) 0.4 (356.2) (5,460.0)
financial assets
Net Operating Income (1,229.6) 85.3 (2,784.2) (18.6) (30.3) (3,977.4)
BALANCE SHEET AGGREGATES
Interest-bearing loans to customers 40,237 547 36,152 238 0 6,167 83,341
Deposits from customers and debt securities
42,430 3,436 19,481 2,148 0 30,307 97,802
issued
The following table summarises the values relating to the year 2016.
2017 ANNUAL REPORT
497 Notes to the consolidated financial statements - Part L - Segment reporting
SEGMENT REPORTING Business segments
Corporate Total
Corporate Center MPS Group
Primary segment Retail banking
banking
(million of Euro) 31/12/16 31/12/16 31/12/16 31/12/16
PROFIT AND LOSS AGGREGATES
Net interest income 4,054.4 659.6 (432.0) 4,282.0
Operating expenses (2,350.2) (268.7) (2.5) (2,621.3)
Pre provision profit 1,704.2 390.9 (434.4) 1,660.7
Net impairment losses (reversals) on loans and financial
(2,963.1) (1,418.3) (119.5) (4,500.9)
assets
Net operating income (1,258.9) (1,027.4) (553.9) (2,840.2)
BALANCE SHEET AGGREGATES
Interest-bearing loans to customers 65,906.0 20,792.7 9,629.0 96,327.8
Deposits from customers and debt securities issued 53,574.8 5,594.6 45,404.1 104,573.5
For a like-for-like comparison of operations between 2016-2017, see section “Segment reporting” in
the Consolidated Report as at 31 December 2017.
BANCA MONTE DEI PASCHI DI SIENA
498
2017 ANNUAL REPORT
499 Notes to the consolidated financial statements - Public disclosure pursuant to art. 89
Public disclosure pursuant to art. 89 - Communication by country of
Directive 2013/36/EU (“CRD IV”)
The 4th update to Bank of Italy Circular no. 285/2013, Part One (Title III, Section 2), transposes into
the Italian legal framework the public disclosure set out in art. 89 - Communication by country - of
Directive 2013/36/EU (“CRD IV”), which introduces the obligation to disclose information
concerning banking activities, subdivided by country where each bank is based; the disclosure is to be
provided in the financial statements or posted on the entity’s website.
In particular, the Parent Companies of banking groups are required to provide on a consolidated basis
the following information, subdivided by country:
a) Names of the companies based in the country and nature of the business
b) Turnover
c) Number of Full-time equivalent employees
d) Profit or loss before tax
e) Tax on profit or loss
f) Public subsidies received
The tables below present the required information for the Group, with reference to the situation as at
31 December 2016.
The term “Turnover” refers to the total banking income as recorded in item 120 of the consolidated
income statement.
The term “Number of Full-time equivalent employees” refers to the ratio between the total number of
hours worked by all employees, excluding overtime, and the total annual number of hours
contractually required of full-time employees.
“Profit or loss before tax” means the sum of items 280 and 310 (the latter before taxes) of the
consolidated income statement.
“Tax on profit or loss” means the sum of taxes recorded in item 290 of the consolidated income
statement and income taxes on groups of assets held for sale.
The item “Public subsidies received” should indicate any grants received directly from the public
administrations. This item does not include transactions performed by central banks for purposes of
financial stability or transactions carried out to facilitate the monetary policy transmission mechanism.
Similarly, transactions included in government aid schemes approved by the European Commission
should not be taken into consideration.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Public disclosure pursuant to art. 89 500
31 12 2017
Profit or loss Tax on profit Public subsidies
Turnover Number of
Country before tax or loss received
(€/1000) FTEs
(€/1000) (€/000) (€/000)
Algeria - 1 - - -
Belgiuim 28,814 111 17,439 - -
China 5,811 38 1,202 (53) -
Egypt - 4 - - -
France 40,373 233 7,324 (622) -
Germany - 2 - - -
India - 2 - - -
Italy 4,073,229 22,807 (4,259,959) 606,241 124
Luxembourg (470,688) - (470,767) (93) -
Morocco - 3 - - -
Russia - 3 - - -
Tunisia - 2 - - -
Turkey - 4 - - -
U.K. 7,256 22 3,738 (192) -
U.S.A. (396,670) 21 (762,168) (401) -
Total Group companies 3,288,125 23,253 (5,463,191) 604,880 124
Companies under significant
- - 99,417 - -
influence valued at equity
Consolidation adjustments 631,650 - 1,139,377 117,272 -
Total Montepaschi's Group 3,919,775 - (4,224,397) 722,152 124
2017 ANNUAL REPORT
501 Notes to the consolidated financial statements - Public disclosure pursuant to art. 89
List of Montepaschi Group companies by location and business type
C o untry C o m pa ny na m e type o f bus ine s s
A lg e ria BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in Alg eria
Retail & Co rp o rate b anking
B e lg ium BANCA M ONTE PASCHI BELGIO S.A. Retail & Co rp o rate b anking s ervice
s ervice
Shang hai and Ho ng Ko ng
C hina BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice b ranches , rep res entative o ffice in
Guang zho u and Beijing
Eg y p t BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in Cairo
F ra nc e M ONTE PASCHI BANQUE S.A. Retail & Co rp o rate b anking s ervice
Ge rma ny BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in Frankfurt
Ind ia BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in M umb ai
It a ly AIACE REOCO S.r.l. Real es tate
CO.E.M . COSTRUZIONI
It a ly Real es tate
ECOLOGICHE M ODERNE SPA
It a ly ENEA REOCO S.r.l. Real es tate
It a ly PERIM ETRO GESTIONI PROPRIETA' IM M OBILIARI S.c.p .a. Real es tate
M PS TENIM ENTI POGGIO BONELLI E CHIGI SARACINI
It a ly Winery
SOCIETA' AGRICOLA S.p .a.
It a ly M ONTE PASCHI FIDUCIARIA S.p .a. Trus t manag ement
It a ly G.IM M ASTOR S.r.l. Real es tate leas ing
It a ly M AGAZZINI GENERALI FIDUCIARI DI M ANTOVA S.p .a. Wareho us ing
It a ly BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice
It a ly M PS CAPITAL SERVICES BANCA PER LE IM PRESE S.p .a. Retail & Co rp o rate b anking s ervice
M PS LEASING & FACTORING BANCA PER I SERVIZI
It a ly Retail & Co rp o rate b anking s ervice Leas ing e facto ring
FINANZIARI
It a ly WISE DIALOG BANK S.p .a. - WIDIBA Retail & Co rp o rate b anking s ervice Banca o n line
It a ly CASAFORTE S.r.l. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly CIRENE FINANCE S.r.l. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly M PS COVERED BOND 2 s .r.l. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly M PS COVERED BOND S.R.L. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA CONSUM ER 2 0 15 S.R.L. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA CONSUM ER S.r.l. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA M ORTGAGES 10 -7 S.r.l. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA LEASE 2 0 15 2 SRL Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA M ORTGAGES 0 7-5 S.P.A. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA M ORTGAGES 0 9 -6 S.R.L. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA PM I 2 0 15 SRL Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly SIENA PM I 2 0 16 SRL Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
It a ly CONSORZIO OPERATIVO GRUPPO M ONTEPASCHI IT Services
Lux e mb o urg M ONTEPASCHI LUXEM BOURG S.A. Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
Lux e mb o urg PATAGONIA FINANCE SA Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
Rep res entative o ffice in
M o ro c c o BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice
Cas ab lanca
R us s ia BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in M o s co w
Tunis ia BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in Tunis
Turke y BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Rep res entative o ffice in Ins tab ul
U . K. BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice Lo nd o n b ranch
U.S .A. BANCA M ONTE DEI PASCHI DI SIENA S.p .A. Retail & Co rp o rate b anking s ervice New Yo rk b ranch
U.S .A. M PS PREFERRED CAPITAL I LLC Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
U.S .A. M PS PREFERRED CAPITAL II LLC Financial s ervices fo r b us ines s Sp ecial Purp o s e Entity (SPE)
BANCA MONTE DEI PASCHI DI SIENA
502
2017 ANNUAL REPORT
503
CERTIFICATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB
REGULATION NO. 11971 OF 14 MAY 1999, AS SUBSEQUENTLY
AMENDED AND SUPPLEMENTED
1. The undersigned, Stefania Bariatti, as Chairman of the Board of Directors, and Nicola Massimo Clarelli,
as Financial Reporting Officer, of Banca Monte dei Paschi di Siena S.p.A., having regard to article 154-
bis, paragraphs 3 and 4 of Italian Legislative Decree no. 58 of 24 February 1998, do hereby certify the:
- appropriateness with respect to the company’s profile, and
- effective application of administrative and accounting procedures used in the preparation of
the consolidated financial statements for fiscal year 2017.
2. The verification of the adequacy and effective application of administrative and accounting procedures
for the preparation of the consolidated financial statements during 2017 was based on methods
defined by the MPS Group in line with the COSO model, and for the IT component, COBIT, which
constitute the reference framework for the internal control system generally accepted internationally.
3. It is also certified that:
3.1 the consolidated financial statements:
- were prepared in accordance with the international accounting standards recognised by
the European Union pursuant to European Parliament and Council Regulation No.
1606/2002/EC of 19 July 2002;
- are consistent with the underlying documentary evidence and accounting records;
- are suitable to provide a true and fair representation of the capital, economic and
financial situation of the issuer and group of companies included within the scope of
consolidation.
3.2 The Report on Operations includes a reliable analysis of the trends and results of operations as
well as of the position of the issuer and of all entities included within the scope of
consolidation, together with a description of the main risks and uncertainties they are exposed
to.
Siena, 1 March 2018
Signed by Signed by
On behalf of the Board of Directors The Financial Reporting
The Chairman Officer
Stefania Bariatti Nicola Massimo Clarelli
BANCA MONTE DEI PASCHI DI SIENA
504
2017 ANNUAL REPORT
505
INDEPENDENT AUDITORS’ REPORT ON THE FINANCIAL
STATEMENTS
BANCA MONTE DEI PASCHI DI SIENA
506
2017 ANNUAL REPORT
EY S.p.A. Tel: +39 06 324751
Via Po, 32 Fax: +39 06 32475504
00198 Roma ey.com
Independent auditor’s report in accordance with article 14 of
Legislative Decree n. 39, dated January 27, 2010 and article 10 of EU
Regulation n. 537/2014
(Translation from the original Italian text)
To the Shareholders of
Banca Monte dei Paschi di Siena S.p.A.
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Monte dei Paschi di Siena Group (the
“Group”), which comprise the balance sheet as at December 31, 2017, the income statement, the
statement of comprehensive income, the statement of changes in equity, the cash flows statement
for the year then ended and the notes to the consolidated financial statements.
In our opinion, the consolidated financial statements give a true and fair view of the financial
position of the Group as at December 31, 2017 and of its financial performance and its cash flows
for the year then ended in accordance with International Financial Reporting Standards as
adopted by the European Union as well as with the regulations issued for implementing art. 9 of
Legislative Decree n. 38, dated February 28, 2005 and art. 43 of Legislative Decree n. 136,
dated August 18, 2015.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISA Italia). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report.
We are independent of the Banca Monte dei Paschi di Siena S.p.A. (the “Bank” or the “Parent
Company”) in accordance with the regulations and standards on ethics and independence
applicable to audits of financial statements under Italian Laws. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis paragraph
Without modifying our opinion, we draw attention to the matters described by the directors in the
consolidated report on operations and in the paragraph "Going concern" of the notes to the
consolidated financial statements, regarding the approval of the 2017-2021 Restructuring Plan
by the European Commission, the completion of the precautionary recapitalization process,
carried out pursuant to the Law Decree n. 237/2016 converted into Law n. 15/2017 and to the
state of implementation of the actions envisaged by the Restructuring Plan itself.
EY S.p.A.
Sede Legale: Via Po, 32 - 00198 Roma
Capitale Sociale deliberato Euro 3.250.000,00, sottoscritto e versato Euro 3.100.000,00 i.v.
Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma
Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904
P.IVA 00891231003
Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998
Iscritta all’Albo Speciale delle società di revisione
Consob al progressivo n. 2 delibera n.10831 del 16/7/1997
A member firm of Ernst & Young Global Limited
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the consolidated financial statements of the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
We identified the following key audit matters:
Key Audit Matter Audit Response
Effects related to the operation of capital
strengthening pursuant to Law n. 15/2017
During 2017, the Parent Company, following In relation to these matters, our audit
the approval of the 2017-2021 Restructuring procedures included, among other:
Plan by the European Commission on 4 July
2017, carried out a significant capital · analysis of the regulations underlying the
strengthening operation for over Euro 8 aforementioned transactions;
billion, implementing the rules established by
· understanding, also through the support of
the Law Decree n. 237/2016 converted into
our experts in corporate valuations, of the
Law n. 15/2017 ("Decree") which provides
methodology used and the reasonableness
for:
of the assumptions underlying the
i) the conversion of the Parent Company's determination of the unit value of the
subordinated financial instruments into Parent Company’s shares for the
newly issued ordinary shares, as a quantification of the economic and equity
burden sharing measure envisaged by effects;
the Decree (so called "Burden Sharing");
· analysis of the accounting treatment of the
ii) a capital increase reserved to the impacts connected to the aforementioned
Ministry of the Economy and Finance transactions in accordance with the
("MEF"), realized through the international accounting standards;
subscription by the MEF of newly issued
ordinary shares of the Parent Company; · analysis of the elements considered by the
directors in relation to the going concern
iii) a public transaction and exchange offer, assumption, following the effects of the
realized through the purchase by the aforementioned transactions on the
MEF, through the Parent Company, of Group's capital position;
the shares assigned in conversion to the
holders of the Upper Tier II Security · analysis of the adequacy of the disclosure
(IT0004253586), which became provided in the notes to the financial
shareholders following the application of statements.
Burden Sharing.
The completion of the aforementioned
transactions constituted a key audit matter,
both, because the economic and equity
impacts were significant for the financial
statements as a whole and because they were
determined by the Parent Company on the
basis of the provisions of specific legislation
and through the use of complex estimates to
determine the unit value of the Parent
Company's shares.
2
The disclosure on the effects of the above-
mentioned transactions is provided by the
directors within the paragraph “Assumptions
adopted with respect to the provisions of Law
Decree 237/2016, converted with
amendments into Law n. 15 of 17 February
2017” included in the notes to the financial
statements.
Key Audit Matter Audit Response
Classification and evaluation of loans to
customers
Loans to customers, the amount of which is In relation to these aspects, our audit
shown in item 70 of the balance sheet, procedures included, among other:
represent, as at 31 December 2017, 62% of
the total assets. The process of classifying · an understanding of the policies, processes
loans to customers in the various risk and controls implemented by the Group in
categories and measuring them is relevant relation to the classification and
for the audit, both, because the value of loans measurement of loans to customers and
is significant for the financial statements as a the performance of compliance procedures
whole and because the value of the related on the controls considered key, including
impairment losses are determined by the those relating to IT;
directors through the use of estimates that
· execution of substantive procedures aimed
have a high degree of subjectivity. Among
at verifying the correct classification and
these, the following are particularly
measurement of credit positions;
important: the identification of objective
evidence of impairment of the loans, the · understanding, also through the support of
recoverable value of the collateral acquired, our risk management and information
the determination of expected cash flows and systems expert, of the methodology used
their timing of collection. Furthermore, as in relation to statistical evaluations and the
regards to the statistical evaluations: the reasonableness of the assumptions
definition of homogeneous loan categories in adopted as well as the performing of test
terms of credit risk, the determination of the of controls and substantive procedures,
probability of default ("PD") and the related aimed at the analysis of the completeness
estimated loss (Loss Given Default - "LGD"), of the historical databases used for the
based on historical data observation for each determination of the parameters of PD and
risk class. LGD, relevant for the purpose of
determining the impairment losses;
In addition, in relation to the sale transaction
described in the paragraph "Assumptions · performing procedures for the
made in relation to disposal of the doubtful comparative analysis of the portfolio of
loans portfolio” of the notes to the financial loans to customers and the related
coverage levels, and analysis of the most
statements that provides for the disposal,
significant deviations;
through a securitization transaction, of a
portfolio of non-performing loans with a net · with reference to the portfolio of non-
book value of approximately Euro 4.5 billion, performing positions referred to in the
the Parent Company deemed the conditions aforementioned sale transaction, the
for their assessment to exist on the basis of procedures performed included the
the values contained in the binding verification of the existence, on the basis
agreements signed with Quaestio Capital of the provisions of IFRSs, of the
3
Management SGR SpA. The same portfolio of conditions for the classification of the
non-performing positions, by virtue of the assets held for sale and their measurement
expected finalization of the transaction based on the agreements signed, by
within 12 months after the balance sheet analyzing its contents and clauses;
date, has been classified under asset item
· analysis of the adequacy of the disclosure
150 "Non-current assets and groups of
provided in the notes to the financial
assets held for sale and discontinued
statements.
operations”.
Information on the classification and
measurement of loans to customers is
provided by the directors within Part A of the
notes to the financial statements.
Key Audit Matter Audit Response
Recoverability of deferred tax assets
As at December 31, 2017, the Group In relation to these matters, our audit
recorded under item 140 "Tax assets" Euro procedures included, among other:
1,624 million of deferred tax assets ("DTA")
attributable to tax losses and other deductible · understanding of the Group's policy,
temporary differences, the recoverability of process and controls in relation to the
which depends on the availability of future assessment of the recoverability of the
taxable income. The recoverability valuation DTAs;
of these assets (knows as “probability test”,
· analysis, also through the support of our
required by the international accounting
tax experts, of the reasonableness of the
standard IAS 12) is a relevant matter for the
assumptions and the parameters used for
audit both because their value is significant to
the development of the probability test on
the financial statements as a whole, and
the basis of the tax legislation applicable to
because the valuation is based on a model
the different types of temporary
that provides for the use of assumptions and
deductible differences;
estimates that have a high degree of
subjectivity. Among these, particularly · analysis, also through the support of our
important are those related to: experts in business valuations, of the
business plans used for the purpose of
· estimation of taxable income, which is
estimating the results useful for the
presumed to occur during the time period
determination of taxable income;
considered for the recovery of the DTAs,
on the basis of the business plans and the · performance of substantive procedures on
additional assumptions made by the the completeness and accuracy of the data
directors in relation to their projection in used to determine the future taxable
the future, the growth rates used and the income included in the probability test;
probability of occurrence of the same;
· analysis of the adequacy of the disclosure
· length of the foreseeable time frame for provided in the notes to the financial
the recovery of the DTAs; statements.
· correct interpretation of the applicable tax
legislation.
The disclosure of the assessments made by
directors in relation to the recoverability of
deferred tax assets is included in paragraph
4
14.7 of Part B of the notes to the financial
statements.
Key Audit Matter Audit Response
Evaluation of legal and litigation risks
The legal risks and litigation assessment In relation to these matters, our audit
process, carried out by the Group with the procedures included, among other:
support of its legal advisors, is a relevant
· understanding of the Group's policy,
aspect for the audit, both, because of the
process and controls in relation to the
high value of the same and because the
assessment of legal and litigation risks;
estimate of the related charges requires the
directors to make use of estimates that · obtaining written confirmation from the
present a high degree of subjectivity. Group's legal advisors, their assessment of
the evolution of existing disputes and if the
Information regarding significant civil, disbursement of financial resources to
administrative and administrative litigation, in fulfill the underlying legal obligation is
which the Group is involved as well as in believed to be “likely”;
relation to other legal risks are provided by
· analysis, also through the support of our
the directors in Part E - Information on risks
legal experts, of the reasonableness of the
and hedging policies explanatory.
assumptions used to estimate the
provisions made;
· performing of substantive procedures on
the completeness and accuracy of the data
used to determine the provisions for risks;
· analysis of the adequacy of the disclosure
provided in the notes to the financial
statements.
Responsibilities of directors and Those Charged with Governance for the
Consolidated Financial Statements
The directors are responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with International Financial Reporting Standards as adopted by
the European Union and with the regulations issued for implementing art. 9 of Legislative Decree
n. 38, dated February 28, 2005 and art. 43 of Legislative Decree n. 136, dated August 18, 2015,
within the terms provided by the law, for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless they either intend to liquidate the Bank or
to cease operations, or has no realistic alternative but to do so.
The statutory audit committee (“Collegio Sindacale”) is responsible, within the terms provided by
the law, for overseeing the Group’s financial reporting process.
5
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with International
Standards on Auditing (ISA Italia) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements.
As part of an audit in accordance with International Standards on Auditing (ISA Italia), we have
exercised professional judgment and maintained professional skepticism throughout the audit. In
addition:
· we have identified and assessed the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error; have designed and performed audit
procedures responsive to those risks, and obtained audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control;
· we have obtained an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Group’s internal control;
· we have evaluated the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the directors;
· we have concluded on the appropriateness of directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern;
· we have evaluated the overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the consolidated financial
statements represent the underlying transactions and events in a manner that achieves
fair presentation.
· we have obtained sufficient appropriate audit evidence regarding the financial information
of the entities or business activities within the Group to express an opinion on the
consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We have communicated with those charged with governance, identified at an appropriate level as
required by ISA Italia, regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We have provided those charged with governance with a statement that we have complied with
the ethical and independence requirements applicable in Italy, and we have communicated with
them all matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
6
From the matters communicated with those charged with governance, we have determined those
matters that were of most significance in the audit of the financial statements of the current
period and are therefore the key audit matters. We have described these matters in our auditor’s
report.
Additional information pursuant to article 10 of EU Regulation n. 537/14
The shareholders of Banca Monte dei Paschi di Siena S.p.A., in the general meeting held on April
21, 2011, engaged us to perform the audits of the consolidated financial statements of each year
ending from December 31, 2011 to December 31, 2019.
We declare that we have not provided prohibited non-audit services, referred to article 5, par. 1,
of EU Regulation n. 537/2014, and that we have remained independent of the Group in
conducting the audit.
We confirm that the opinion on the consolidated financial statements included in this report is
consistent with the content of the additional report to the audit committee (Collegio Sindacale) in
their capacity as audit committee, prepared in accordance with article 11 of the EU Regulation n.
537/2014.
Report on compliance with other legal and regulatory requirements
Opinion pursuant to article 14, paragraph 2, subparagraph e), of Legislative Decree
n. 39 dated January 27, 2010 and of article 123-bis, paragraph 4, of Legislative
Decree n. 58, dated February 24, 1998
The directors of Banca Monte dei Paschi di Siena S.p.A. are responsible for the preparation of the
Report on Operations and of the Report on Corporate Governance and Ownership Structure of
Monte dei Paschi di Siena Group as at December 31, 2017, including their consistency with the
related consolidated financial statements and their compliance with the applicable laws and
regulations.
We have performed the procedures required under audit standard SA Italia n. 720B, in order to
express an opinion on the consistency of the Report on Operations and of specific information
included in the Report on Corporate Governance and Ownership Structure as provided for by
article 123-bis, paragraph 4, of Legislative Decree n. 58, dated February 24, 1998, with the
consolidated financial statements of Monte dei Paschi di Siena Group as at December 31, 2017
and on their compliance with the applicable laws and regulations, and in order to assess whether
they contain material misstatements.
In our opinion, the Report on Operations and the above mentioned specific information included
in the Report on Corporate Governance and Ownership Structure are consistent with the
consolidated financial statements of Monte dei Paschi di Siena Group as at December 31, 2017
and comply with the applicable laws and regulations.
With reference to the statement required by art. 14, paragraph 2, subparagraph e), of Legislative
Decree n. 39, dated January 27, 2010, based on our knowledge and understanding of the entity
and its environment obtained through our audit, we have no matters to report.
7
Statement pursuant to article 4 of Consob Regulation implementing Legislative
Decree n. 254, dated December 30, 2016
The directors of Banca Monte dei Paschi di Siena S.p.A. are responsible for the preparation of the
non-financial information pursuant to Legislative Decree n. 254, dated December 30, 2016. We
have verified that non-financial information have been approved by directors.
Pursuant to article 3, paragraph 10, of Legislative Decree n. 254, dated December 30, 2016,
such non-financial information are subject to a separate compliance report signed by us.
Rome, March 14, 2018
EY S.p.A.
Signed by: Francesco Chiulli, partner
This report has been translated into the English language solely for the convenience of
international readers.
8
EY S.p.A. Tel: +39 06 324751
Via Po, 32 Fax: +39 06 32475504
00198 Roma ey.com
Independent auditor’s report on the Consolidated disclosure of non-
Financial Information in accordance with article 3, par 10, of
Legislative Decree n. 254, dated December 30, 2016 and with article 5
of Consob Regulation adopted with resolution n. 20267
(Translation from the original Italian text)
To the Board of Directors of
Banca Monte dei Paschi di Siena S.p.A.
We have performed a limited assurance engagement pursuant to Article 3, paragraph 10, of
Legislative Decree n. 254, dated December 30, 2016 (hereinafter “Decree”) and article 5 of
CONSOB Regulation adopted with Resolution n. 20267, on the consolidated disclosure of non-
financial information of Banca Monte dei Paschi di Siena S.p.A. (the “Bank”) and its subsidiaries
(the “Group”) for the year ended December 31, 2017 in accordance with article 4 of the Decree
presented in the specific section of the Report on Operations approved by the Board of Directors
on March 1st 2018 (hereinafter “DNF”).
Responsibilities of directors and Board of statutory auditors for the DNF
The directors are responsible for the preparation of the DNF in accordance with the requirements
of articles 3 and 4 of the Decree and of the “Global Reporting initiative Sustainability Reporting
Standards” defined in 2016 by GRI – Global Reporting Initiative (the “GRI Standards”), with
reference to the selection of GRI Standards, mentioned in paragraph “Methodological Note” of
the DNF, identified by them as a reporting standard.
The directors are also responsible, within the terms provided by law, for that part of internal
control that they consider necessary in order to allow the preparation of the DNF that is free from
material misstatements caused by fraud or not intentional behaviors or events.
The directors are also responsible for identifying the contents of the DNF within the matters
mentioned in article 3, par. 1, of the Decree, considering the business and the characteristics of
the Group and to the extent deemed necessary to ensure the understanding of the Group’s
business, its performance, its results and its impact.
Finally, the directors are responsible for defining the Group's management and organization
business model, as well as with reference to the matters identified and reported in the DNF, for
the policies applied by the Group and for identifying and managing the risks generated or
incurred by the Group.
The Board of Statutory Auditors (“Collegio Sindacale”) is responsible, within the terms provided
by the law, for overseeing the compliance with the requirements of the Decree.
EY S.p.A.
Sede Legale: Via Po, 32 - 00198 Roma
Capitale Sociale deliberato Euro 3.250.000,00, sottoscritto e versato Euro 3.100.000,00 i.v.
Iscritta alla S.O. del Registro delle Imprese presso la C.C.I.A.A. di Roma
Codice fiscale e numero di iscrizione 00434000584 - numero R.E.A. 250904
P.IVA 00891231003
Iscritta al Registro Revisori Legali al n. 70945 Pubblicato sulla G.U. Suppl. 13 - IV Serie Speciale del 17/2/1998
Iscritta all’Albo Speciale delle società di revisione
Consob al progressivo n. 2 delibera n.10831 del 16/7/1997
A member firm of Ernst & Young Global Limited
Auditors’ independence and quality control
We are independent in accordance with the ethics and independence principles of the Code of
Ethics for Professional Accountants issued by the International Ethics Standards Board for
Accountants, based on fundamental principles of integrity, objectivity, professional competence
and diligence, confidentiality and professional behavior. Our audit firm applies the International
Standard on Quality Control 1 (ISQC Italia 1) and, as a result, maintains a quality control system
that includes documented policies and procedures regarding compliance with ethical
requirements, professional standards and applicable laws and regulations.
Auditors’ responsibility
It is our responsibility to express, on the basis of the procedures performed, a conclusion about
the compliance of the DNF with the requirements of the Decree and of the GRI Standards, with
reference to the selection of GRI Standards mentioned in paragraph “Methodological Note” of the
DNF. Our work has been performed in accordance with the principle of “International Standard on
Assurance Engagements ISAE 3000 (Revised) - Assurance Engagements Other than Audits or
Reviews of Historical Financial Information“ (hereinafter “ISAE 3000 Revised”), issued by the
International Auditing and Assurance Standards Board (IAASB) for limited assurance
engagements. This standard requires the planning and execution of work in order to obtain a
limited assurance that the DNF is free from material misstatements. Therefore, the extent of
work performed in our examination was lower than that required for a full examination according
to the ISAE 3000 Revised (“reasonable assurance engagement”) and, hence, it does not provide
assurance that we have become aware of all significant matters and events that would be
identified during a reasonable assurance engagement.
The procedures performed on the DNF were based on our professional judgment and included
inquiries, primarily with company’s personnel responsible for the preparation of the information
included in the DNF, documents analysis, recalculations and other procedures in order to obtain
evidences considered appropriate.
In particular, we have performed the following procedures:
1. analysis of the relevant topics in relation to the activities and characteristics of the Group
reported in the DNF, in order to assess the reasonableness of the selection process
applied in accordance with the provisions of article 3 of the Decree and considering the
reporting standard applied;
2. analysis and evaluation of the criteria for identifying the consolidation area, in order to
evaluate its compliance with the provisions of the Decree;
3. comparison of the economic and financial data and information included in the DNF with
those included in the Group's consolidated financial statements;
4. understanding of the following aspects:
o Group's management and organization business model, with reference to the
management of the topics indicated in article 3 of the Decree;
o policies adopted by the Group related to the matters indicated in article 3 of the
Decree, results achieved and related key performance indicators;
o main risks, generated or suffered related to the matters indicated in the article 3 of
the Decree.
2
With regard to these aspects, we obtained the documentation supporting the information
contained in the DNF and performed the procedures described in item 5. a) below.
5. understanding of the processes that lead to the generation, detection and management of
significant qualitative and quantitative information included in the DNF.
In particular, we have conducted interviews and discussions with the management of the
Bank and with its personnel and we have performed limited documentary evidence
procedures, in order to collect information about the processes and procedures that
support the collection, aggregation, processing and transmission of non-financial data
and information to the management responsible for the preparation of the DNF.
Furthermore, for significant information, considering the Group activities and
characteristics we have:
- at Group level,
a) with reference to the qualitative information included in the DNF, and in
particular to the business model, policies implemented and main risks, carried
out inquiries and acquired supporting documentation to verify its consistency
with the available evidence;
b) with reference to quantitative information, we have performed both analytical
procedures and limited assurance procedures to ascertain on a sample basis the
correct aggregation of data.
- for the subsidiaries (MPS Capital Services S.p.A. and MPS Leasing & Factoring S.p.A.),
selected based on their activity and contribution to the consolidated performance
indicators, obtained evidence about the appropriate application of the procedures and
the calculation methods used to determine the indicators.
Conclusion
Based on the procedures performed, nothing has come to our attention that causes us to believe
that the DNF of the Group for the year ended December 31, 2017 has not been prepared, in all
material aspects, in accordance with the requirements of articles 3 and 4 of the Decree and of
the GRI Standards, with reference to the selection of GRI Standards mentioned in paragraph
“Methodological Note” of the DNF.
Other Information
The comparative information presented in the DNF for the year ended December 31, 2016 have
not been examined.
Rome, March 14, 2018
EY S.p.A.
Signed by: Francesco Chiulli, partner
This report has been translated into the English language solely for the convenience of
international readers.
3
518
2017 ANNUAL REPORT
519
ANNEXES
Disclosure of independent auditors’ fees.................................................................................................................................................... 521
PENSION FUNDS – Defined benefit pension funds without plan assets ........................................................................................ 522
PENSION FUNDS – defined benefit and defined contribution pension funds with plan assets ................................................. 525
BANCA MONTE DEI PASCHI DI SIENA
520
2017 ANNUAL REPORT
521 Notes to the consolidated financial statements - Annexes
Disclosure of independent auditors’ fees
With the aim of making reporting on the Parent Company’s relations with its own Auditors more
transparent, Consob, with its resolutions No. 15915 of 3 May 2007 and No. 15960 of 30 May 2007,
implemented the delegation of authority contained in art. 160 of the Consolidated Law on Finance
(Incompatibility), introducing Part III, Title VI, of the Issuers’ Regulation, Part I-bis (Incompatibility)
which contains articles from 149-bis to 149-duodecies.
With this amendment, Consob chose to include this disclosure in the documents accompanying the
financial statements with a mandatory requirement to disclose payments received for auditing and
other services supplied by the Auditors or by entities forming part of their network.
The table below shows all payments made to the Auditors and to others forming part of its network,
broken down by type of service.
Disclosure of fees for the independent auditors and other entities of its network (pursuant to art. 149 duodecies of
CONSOB resolution no. 15915 of 3 May 2007)
31 12 2017
Type of services Service provider Total
Auditing Reconta Ernst & Young Spa 2,523
Other attest services Reconta Ernst & Young Spa 1,658
Other services Ernst & Young Financial Business Advisory S.p.a. 198
Total 4,379
Amounts are exclusive of V.A.T. and ancillary expenses.
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Annexes 522
PENSION FUNDS – Defined benefit pension funds without plan assets
Supplementary Pension Fund for personnel of former Tax Collection Agencies
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 22,543,872
Increases 1,382,242
- provisions for the year 152,265
- Other 1,229,977
Decreases 1,791,495
- Benefit paid 1,791,495
- Other -
Closing balance as at 31 12 2017 22,134,619
Supplementary Pension Fund for personnel of former Banca Operaia di Bologna
Accounting statement as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 6,138,102
Increases 92,428
- provisions for the year 62,103
- Other 30,325
Decreases 380,248
- Benefit paid 380,248
- Other -
Closing balance as at 31 12 2017 5,850,282
Supplementary Pension Fund for personnel of former Banca di Credito Popolare e
Cooperativo di Reggio Emilia
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 724,059
Increases 28,798
- provisions for the year 9,475
- Other 19,323
Decreases 38,288
- Benefit paid 38,288
- Other -
Closing balance as at 31 12 2017 714,569
2017 ANNUAL REPORT
523 Notes to the consolidated financial statements - Annexes
Supplementary Pension Fund for personnel of former Banca Popolare Veneta
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 1,107,166
Increases 104,380
- provisions for the year 2,142
- Other 102,238
Decreases 174,970
- Benefit paid 174,970
- Other -
Closing balance as at 31 12 2017 1,036,576
Supplementary Pension Fund for personnel of former General Managers
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 3,583,766
Increases 123,493
- provisions for the year 24,084
- Other 99,409
Decreases 286,131
- Benefit paid 286,131
- Other -
Closing balance as at 31 12 2017 3,421,128
Supplementary Pension Fund for personnel of former MPS Capital Services Banca per
l’imprese S.p.A.
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 5,035,635
Increases 84,288
- provisions for the year 21,352
- Other 62,936
Decreases 517,597
- Benefit paid 517,597
- Other -
Closing balance as at 31 12 2017 4,602,326
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Annexes 524
Supplementary Pension Fund for personnel of former Credito Lombardo.
Accounting statemet as at 31 12 2017 (in units of Eur)
Opening balance as at 01 01 2017 2,997,179
Increases 239,158
- provisions for the year 20,146
- Other 219,012
Decreases 265,818
- Benefit paid 265,818
- Other -
Closing balance as at 31 12 2017 2,970,519
2017 ANNUAL REPORT
525 Notes to the consolidated financial statements - Annexes
PENSION FUNDS – defined benefit and defined contribution pension funds with
plan assets
Supplementary Pension Fund for personnel of former BNA – Defined benefit section
BALANCE SHEET
(in units of Eur)
Assets 31 12 2017 31 12 2016 Changes
10 Direct investments 24,598,474 25,668,958 (1,070,483)
a) Deposits 389,156 339,641 49,516
b) Receivables from repo transactions - - -
c) Securities issued by Governments and other international institutions - - -
d) Listed debt securities 24,045,600 25,187,866 (1,142,266)
e) Listed equity securities - - -
f) Unlisted debt securities - - -
g) Unlisted equity securities - - -
h) Units of UCITS - - -
i) Options purchased - - -
l) Accrued income and prepayments 163,718 141,451 22,267
m) Profit guarantees released to pension fund - - -
n) Other assets from financial activities - - -
o) Accrued income not yet received - - -
20 Managed investments - - -
30 Profit guarantees on individual accounts - - -
40 Assets from administrative activities - - -
50 Tax receivables - - -
TOTAL ASSETS 24,598,474 25,668,958 (1,070,483)
Liabilities 31 12 2017 31 12 2016 Changes
10 Liabilities from social security - - -
20 Liabilities from financial activities - - -
30 Profit guarantees on individual accounts - - -
40 Liabilities from administrative activities - - -
50 Tax payables 16,662 6,738 9,924
b) tax payables for current period 16,662 - 16,662
a) tax credit for prior period - 6,738 (6,738)
TOTAL LIABILITIES 16,662 6,738 9,924
100 Net assets available for payment of benefits 24,581,812 25,662,220 (1,080,407)
Net assets availabe for payment of benefits in previous year 25,662,220 26,885,253 (1,223,033)
Changes in net assets available payment of benefits (1,080,407) (1,223,033) 142,625
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Annexes 526
INCOME STATEMENT
(in units of Eur)
31 12 2017 31 12 2016 Changes
10 Balance of social security management (1,197,040) (1,270,197) (73,157)
a) Contributions for benefits - - -
b) Advances - - -
c) Transfers and redemptions - - -
d) Transfers to annuities - - -
e) Payments in capital - - -
f ) Premiums for additional benefits - - -
g) Payments in annuities (1,197,040) (1,270,197) (73,157)
h) Other payments - - -
20 Profit (loss) from direct financial activities 133,294 53,902 (79,392)
a) Interest and profit on bondsand government securities 746,602 1,055,857 309,255
b) Interest on cash equivalents (613,308) (1,001,954) (388,647)
c) Profits and losses from financial transactions - - -
d) Interest (expense) from repo transactions - - -
e) Pension fund profit guarantee difference - - -
f) Contingent assets - - -
g) Forfeitures charged to the participants - - -
h) Kickbacks from UCITS - - -
i) Commission expense - - -
30 Profit (loss) from indirect financial activities - - -
40 Operating expenses - - -
a) Management companies - - -
b) Custodian bank - - -
c) Insurance policy - - -
d) "State supervision" contribution - - -
50 Financial and insurance income (loss) (20+30+40) 133,294 53,902 (79,392)
60 Balance from administrative activities - - -
a) General and administrative expenses - - -
Changesin net assets available for payment of benefits
70 (1,063,746) (1,216,295) (152,549)
before substitute tax (10+50+60)
80 Substitute tax (16,662) (6,738) 9,924
Changes in net assets available for payment of benefits
(1,080,407) (1,223,033) (142,625)
(70+80)
2017 ANNUAL REPORT
527 Notes to the consolidated financial statements - Annexes
Supplementary Pension Fund for personnel of former Banca Toscana - Defined benefit
section
BALANCE SHEET
(in units of Eur)
Assets 31 12 2017 31 12 2016 Changes
10 Direct investments 97,476,737 106,409,341 8,932,604
a) Deposts 83,474,200 91,473,437 7,999,237
b) Receivables from repo transactions - - -
c) Securities issued by Governments and other
- - -
international institutions
d) Listed debt securities 13,728,196 14,661,564 933,367
e) Listed equity securities - - -
f) Unlisted debt securities - - -
g) Unlisted equity securities - - -
h) Units of UCITS - - -
i) Options purchased - - -
l) Accrued income and prepayments 274,340 274,340 -
m) Profit guarantees released to pension fund - - -
n) Other assets from financial activities - - -
o) Accrued income not yet received - - -
20 Managed investments - - -
30 Profit guarantees on individual accounts - - -
40 Assets from administrative activities - - -
50 Tax receivables - - -
TOTAL ASSETS 97,476,737 106,409,341 8,932,604
Liabilities 31 12 2017 31 12 2016 Changes
10 Liabilities from social security - - -
20 Liabilities from financial activities - - -
30 Profit guarantees on individual accounts - - -
40 Liabilities from administrative activities - - -
50 Tax payables - - -
TOTAL LIABILITIES - - -
100 Net assets available for payment of benefits 97,476,737 106,409,341 8,932,604
Net assets availabe for payment of benefits in previous year 106,409,341 114,787,736 8,378,395
Changes in net assets available payment of benefits (8,932,604) (8,378,395) 554,209
BANCA MONTE DEI PASCHI DI SIENA
Notes to the consolidated financial statements - Annexes 528
INCOME STATEMENT
(in units of Eur)
31 12 2017 31 12 2016 Changes
10 Balance of social security management (8,549,425) (9,165,322) (615,897)
a) Contributions for benefits - - -
b) Advances - - -
c) Transfers and redemptions - - -
d) Transfers to annuities - - -
e) Payments in capital - - -
f ) Premiums for additional benefits - - -
g) Payments in annuities (8,549,425) (9,165,322) (615,897)
h) Other payments - - -
20 Profit (loss) from direct financial activities (383,179) 786,926 1,170,106
a) Interest and profit on bondsand government
550,188 550,937 749
securities
b) Interest on cash equivalents (933,367) 235,989 1,169,357
c) Profits and losses from financial transactions - - -
d) Interest (expense) from repo transactions - - -
e) Pension fund profit guarantee difference - - -
f) Contingent assets - - -
g) Forfeitures charged to the participants - - -
h) Kickbacks from UCITS - - -
i) Commission expense - - -
30 Profit (loss) from indirect financial activities - - -
40 Operating expenses - - -
a) Management companies - - -
b) Custodian bank - - -
c) Insurance policy - - -
d) "State supervision" contribution - - -
50 Financial and insurance income (loss) (20+30+40) (383,179) 786,926 1,170,106
60 Balance from administrative activities - - -
a) General and administrative expenses - - -
Changesin net assets available for payment of
70 (8,932,604) (8,378,395) 554,209
benefits before substitute tax (10+50+60)
80 Substitute tax - - -
Changes in net assets available for payment of
(8,932,604) (8,378,395) 554,209
benefits (70+80)
2017 ANNUAL REPORT
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