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LIMITED COMPANY SHARE CAPITAL €444,169,467.50
HEAD OFFICE: PIAZZETTA ENRICO CUCCIA 1, MILAN, ITALY
REGISTERED AS A BANK.
PARENT COMPANY OF THE MEDIOBANCA BANKING GROUP.
REGISTERED AS A BANKING GROUP
Financial Statements
Mediobanca Group
30 June 2023
Mediobanca S.p.A.
Registered Office: Piazzetta Enrico Cuccia, 1 - Milan, Italy
Tel. +39 02 88291 – Fax +39 02 8829.550
Enrolled in the Bank of Italy Register of Banks as No. 4753
Parent Company of Mediobanca Banking Group
Enrolled in the Register of Banking Groups with ABI code No. 10631.0
www.mediobanca.com;
Tax identification number and Milan-Monza-Brianza-Lodi Companies’ Register Enrolment No. 00714490158
VAT No. 10536040966
Fully paid-up share capital: €444,169,467.50
Member of the Interbank Deposit Guarantee Fund and the National Guarantee Fund Ordinary shares listed on MTA Market
www.mediobanca.com
Corporate Bodies 3
BOARD OF DIRECTORS
Term of
office
Renato Pagliaro
Chairman
2023
*
Maurizia Angelo Comneno
Deputy Chairman
2023
*
Alberto Nagel
Chief Executive Officer
2023
*
Francesco Saverio Vinci
General Manager
2023
Virginie Banet
Director
2023
Maurizio Carfagna
Director
2023
Laura Cioli
Director
2023
Maurizio Costa
Director
2023
Angela Gamba
Director
2023
Valérie Hortefeux
Director
2023
Maximo Ibarra
Director
2023
Alberto Lupoi
Director
2023
Elisabetta Magistretti
Director
2023
Vittorio Pignatti Morano
Director
2023
*
Gabriele Villa
Director
2023
*
Members of the Executive Committee
STATUTORY AUDIT COMMITTEE
Francesco Di Carlo
Chairman
2023
Elena Pagnoni
Standing Auditor
2023
Ambrogio Virgilio
Standing Auditor
2023
Marcella Caradonna
Alternate Auditor
2023
Roberto Moro
Alternate Auditor
2023
Stefano Sarubbi
Alternate Auditor
2023
* * *
Massimo Bertolini
Secretary of the Board of Directors
Emanuele Flappini
Head of Company Financial Reporting
CONTENTS
Review of the Mediobanca Group’s operations as at 30 June 2023 8
Declaration by head of Company Financial Reporting 78
External auditors’ report 80
Consolidated accounts
Consolidated financial statements 91
Notes to the accounts 100
Part A - Accounting policies 103
Part B - Notes to the consolidated balance sheet 164
Part C - Notes to the consolidated income statement 231
Part D - Consolidated comprehensive income 252
Part E - Information on risks and related hedging policies 253
Part F - Information on consolidated capital 365
Part G - Combinations involving Group companies or business units 373
Part H - Related-party transactions 375
Part I - Share-based payment schemes 378
Part L - Segment reporting 381
Part M - Disclosure on leasing 388
***
Index 5
Accounts of the Bank
Review of the Bank’s operations as at 30 June 2023 393
Declaration by head of company financial reporting 415
External auditors’ report 417
Accounts of the Bank
Individual financial statements 427
Notes to the accounts 436
Part A - Accounting policies 439
Part B - Notes to the balance sheet 486
Part C - Notes to the income statement 528
Part D - Comprehensive income 542
Part E - Information on risks and related hedging policies 543
Part F - Information on capital 618
Part G - Combinations involving Group companies or business units 624
Part H - Related-party disclosure 625
Part I - Share-based payment schemes 628
Part M - Disclosure on leasing 631
Attached tables:
Consolidated Financial Statements 636
Parent Company’s Individual Financial Statements 643
A - Breakdown, pursuant to Article 10 of Law No. 72 of 19 March 1983, of assets held by the Group for which revaluations were made 646
B - Balance sheets and income statements of investments
in Group undertakings (including indirect investments)647
C - Associated undertakings: balance sheets and income statements
(as required under Article 2359 of the Italian Civil Code)683
D - Fees paid for auditing and sundry other services 695
***
Other documents
Glossary 696
CONSOLIDATED ACCOUNTS
MEDIOBANCA GROUP REVIEW OF OPERATIONS
AS AT 30 JUNE 2023
Review of Group Operatrions
9
MEDIOBANCA GROUP REVIEW OF OPERATIONS AS AT 30 JUNE 2023
The Mediobanca Group continues with its long-term growth path, ending the financial year with record results in terms of revenues (€3,304.5m, up 15.9% YoY), net profit (€1,026.8m, up 13.2% YoY), earnings per share (EPS €1.21 up 15% YoY), ROTE 1 (13%, up 2pp YoY), and RORWA 2 (2.4%, up 40 bps YoY), in an operating scenario affected by significant geopolitical events, the abrupt change in monetary policies, and high volatility on financial markets. The results posted significantly exceed the targets set four years ago in the 2019-23 Strategic Plan (revenues €3bn, ROTE 11%, EPS €1.1).
Revenues reached a record total of €3.3bn (up 15.9% YoY; CAGR 4Y +7%). The growth was driven by net interest income (€1.8bn; up 21.8% YoY; CAGR 4Y +7%), improving progressively in the past four quarters as a result of the Group’s ALM position in view of the scenario with interest rates rising sharply. The growth in lending (€52.5bn; up 1.6% YoY) reflects a healthy balance between Corporate & Investment Banking (CIB) (37%), Wealth Management (WM) (32%) and Consumer Finance (CF) (28%), and is coupled with the increase in banking book securities which now total €10.5bn (compared with €8.6bn last year). The higher assets are financed by the funding stock which remains high (€60.5bn) but is well diversified in terms of the technical forms, meaning the cost of funding remains lower. Total Financial Assets (TFAs) amounted to €88bn (up 9.7% on last year), with deposits of €28.2bn (almost 50% of the Group’s funding), and contributed to the growth in fee income (€843.9m), which has risen at an average rate of 8% per annum over the past four years, in Wealth Management in particular (WM contribution: €449.6m; up 6.6% YoY; CAGR 4Y +12.5%), and which, in the latter stages of this year, has enabled the lower contribution from Investment Banking to be absorbed.
The gross operating profit for the twelve months totalled €1,621.3m (up 25.1% YoY; CAGR 4Y +9%), with the cost/income ratio decreasing to 42.8% (from 46% last year) and the cost of risk at low levels (Group: 52 bps; Consumer Finance: 145 bps) despite maintaining the majority of the overlays intact to cushion the impacts of persistent inflation on businesses and households (the stock of overlays decreased from €293.4m to €268m, €208.6 of which in Consumer Finance). The quality of the
1 ROTE = Adjusted Return On Tangible Equity.
2 RORWA = Adjusted Return On RWAs.
10 Consolidated financial statements as at 30 June 2023
loan book remains high, with the NPL ratio stable at 2.5%, and the Consumer Finance component falling to 5.6% (30/6/22: 5.7%).
In view of these solid results, the Board has adopted a resolution to submit the following proposals to the approval of shareholders at the next Annual General Meeting:
—Distribution of an €0.85 per share dividend, corresponding to a payout ratio of 70%, meeting the target set in the 2019-23 Strategic Plan (€1.9bn cumulative dividends to be distributed);
—In line with the guidance contained in the new 2023-26 Strategic Plan, for FY 2023-24 the first tranche of the new share buyback and cancellation scheme, for a total amount as of today of some €200m (17 million shares, or approx. 2% of the company’s share capital).
The top-line performance was driven by growth at all divisions (Wealth Management revenues up 12.9% to €820.5m, equal to 25% of the Group total; Corporate & Investment Banking, up 11.4% to €712.4m, 22%; Consumer Finance, up 6.1% to €1,122.5m, 34%; Insurance, up 24.8% to €463.6m, 14%; Holding Functions, up virtually 3x to €220.4m; and by growth in all income sources (net interest income up 21.8% to over €1,800m, fees stable at €843.9m, net trading income up 27.1% to €205.7m).
The main income items performed as follows:
—Net interest income rose by 21.8%, from €1,479m to €1,801m, helped by the rising interest rates which drove increasing QoQ growth to reach €502.1m in 4Q (up 10% QoQ). The following factors contributed to this performance: greater selectiveness in lending volumes (lower relatively low-margin corporate loans, higher consumer loans and mortgages); and resilience in the cost of funding, which increased because of the interest rate trend and the substantial position in debt securities, but for which the increase was limited, being mitigated by the WM deposits (the external cost of which rose from 0.2% to 0.60%). Overall the spread between lending and funding widened by approx. 60 bps, enhanced further by positive interest rate risk management in treasury operations and the increase in the securities portfolio;
Review of Group Operatrions
11
—Net fee and commission income totalled €843.9m, on healthy contributions from Wealth Management 3 (€410m; up 7%; approx. 50% of the total) and lending operations 4 (€245m up 8%), more than half of which by the CF division. Compared to last year (€850.5m), the slight reduction is due to the lower contribution from Investment Banking 5 already referred to (where fees were down 10%, from €225m to €200m) in line with the market. By division the results were as follows: CF reported growth in fee income of 12.1%, to €138.4m, reflecting the new operations in BNPL (which contributed €12m); WM (fees up 6.6%, to €449.6m) managed to absorb the reduced contribution from performance fees by an increase in the upfront component; while CIB (fees down 5.5%, to €289.4m) reflects the marked downturn in business levels in the early months of 2023 following a very healthy performance in 1H (€185.3m);
—Net trading income totalled €205.7m, higher than last year (up 27.1%) as a result of the proprietary portfolio’s contribution doubling (from €44.2m to €104.9m), that of the trading book in particular (€62.1m, compared to a €4.1m loss last year). Client trading retreated slightly from last year’s levels, at €72.7m (€83.1m), due to substantial one-off items for arbitrage trades on the equity side (which reduced from €68m to €55.5m, €43.6m of which in 1H), while fixed-income desk’s performance improved slightly, to €16.1m (€14.8); proactive banking book hedging activity delivered a net €42.7m, offsetting the lack of gains realized on disposals of securities (which last year contributed €23.2m); while the other segments (Wealth Management and Insurance-PI) contributed trading income of €25.4m (€30.4m);
—The contribution from Assicurazioni Generali, accounted for using the equity method, was €442.8m, much higher than last year (€356.6m), helped by the improvement in ordinary operations, plus the contribution of certain one-off items which also coincided with the introduction of the new IFRS 17 and IFRS 9; the other investments in associates defined by IAS 28 contributed €11.1m (€2.7m last year).
3 Wealth Management fee income composition: gross management and upfront fees reported by the WM division.
4 Lending fee income composition: Corporate Lending, DCM and Factoring (CIB), Leasing (HF). Retail Lending (consumer finance, CF division) and mortgages and sale of Compass products (WM).
5 Investment banking and corporate services fee income: investment banking and equity placements; sales fees and capital market activities, NPL portfolio management (CIB division).
12 Consolidated financial statements as at 30 June 2023
Operating costs totalled €1,413.1m, higher than last year (€1.312,1m); such growth (7.7%) was more pronounced for the labour cost component (up 8.5%, from €671.5m to €728.3m), split equally between the trend in terms of rising headcounts (staff numbers up from 5,016 to 5,227; fixed costs up 8.5%) and the variable cost component (up 9%) in line with the top-line performance and the need to retain talent; the rise in administrative expenses (up 6.9%, from €640.6m to €684.8m) was concentrated in the following areas: projects (IT expenses: up 10%; consultancy expenses: up 17%), marketing and communications (up 19%); plus travel and entertainment expenses, which have returned to normal levels (up 32%).
Loan loss provisions were up 11%, from €242.6m to €270.1m, reflecting a cost of risk (CoR) of 52 bps (48 bps last year, the lowest ever); provisioning in CIB, which took charges of €32m (compared with a writeback of €42m last year), reflect one performing exposure being reclassified as UTP (70%-covered) and one item being reclassified among bad loans (written off in full), mitigated only in part by writebacks in respect of the performing portfolio following repayments and improvements in ratings. The increase in CF, where loan loss provisions increased from €190m to €204m (CoR up from 142 bps to 145 bps), was due mostly to the higher volumes, while WM, where LLPs decreased from €14m to €10.5m, was helped by the low default rates. Provisioning in HF (for leasing and the Revalea NPLs acquired from third parties) remain at purely structural levels (€23.4m). At the consolidated level the credit quality remains excellent and the level of provisioning high (NPLs: 72.1%; performing: 1.34%), not least due to the large stock of overlays (which has reduced slightly, from €294m to €268m).
Net profit of €1,026.8m includes approx. €190m in non-operating/one-off charges (approx. €80m of which taken in 4Q), net of which the bottom line would have been almost €1.2bn:
—Payments to the Single Resolution Fund of €45.4m (which come to an end with this financial year); conversely, the payments to the Deposit Guarantee Scheme (which this year totalled €25m) will continue next year as well;
—Asset impairment charges totalling €67.2m, due to the RAM goodwill being written off (€49.5m) in view of the way in which the new interest rate scenario has affected the systematic funds market, reducing its growth prospects, and to the loss taken on the disposal of Revalea (€17.7m, in application of IFRS 5);
—Provisions totalling €26m for the launch of an early retirement scheme to encourage generational turnover in view of the Strategic Plan;
Review of Group Operatrions
13
—Other items totalling €22.2m, including contingent liabilities for client activities, increases in the risk provisions, adjustments for financial assets, and costs related to acquisitions (Soisy and Polus).
Provisions for financial assets were also taken in an amount of €7.3m, €5.4m of which due to holdings in funds being recognized at fair value and €1.9m in adjustments for banking book securities, and net tax totalled €394.7m, €375.7m of which in ordinary taxation (tax rate of 26.3%) and €19.2m deriving from the release of €320m in CMB Monaco reserves.6
* * *
On the balance-sheet side, total assets amounted to €91.6bn (30/6/22: €90.6bn), with the main items reflecting the following performances:
—Customer loans rose from €51.7bn to €52.5bn (up 1.6%), reflecting increases in WM (up 10%, from €15.3bn to €16.8bn) and CF (up 5.2%, from €13.8bn to €14.5bn), which offset the reduction in CIB (down 5.3% to €19.6bn, €16.8bn of which in Wholesale Banking; a decrease of 6.7%);
—Banking book securities increased €8.6bn to €10.5bn (€4.7bn of which in the HTC portfolio and €5.8bn in the HTC&S portfolio), following higher purchases of government securities (up €1.2bn), most of which were Italian; the interest rate trend increased the negative balance on the OCI reserve (from minus €60.9m to minus €73.2m, in part due to payment of inflation-linked coupons), and unrealized losses on HTC securities rose from €70.4m to €119.7m);
—Net treasury assets decreased f rom €7.2bn to €5bn, largely in order to make the early repayments on the TLTRO ahead of the contractual expiry (which accounted for €2.9bn) by using surplus liquidity (indeed, the ECB deposits halved, from €6.9bn to €3.5bn). The market scenario required a more prudent approach to the equity component, benefiting the fixed-income side which more than doubled (to €1.4bn). The Counterbalancing Capacity totalled €16.6bn (from €14.7bn), and serves to support the liquidity ratios which remain excellent: NSFR 119%, LCR 180%;
6 Cf. Italian Budget Law 2023 (Article 1, paras 87-95); Italian Law 197/2022.
14 Consolidated financial statements as at 30 June 2023
—Funding was stable at €60.5bn, virtually stable compared to last year (€61.2bn), due to the TLTRO repayment mentioned earlier (€2.9bn, reducing the facility to €5.6bn), most of which was offset by the higher debt security funding (up from €18.5bn to €22.3bn); Wealth Management deposits decreased slightly, to €28.2bn, while other forms of funding totalled €4.5bn (compared with €28.8bn and €5.4bn respectively);
—Total Financial Assets (TFAs) rose to €88bn (up 9.7% YoY), driven by AUM/AUA inflows of over €7.9bn coupled with the €511m positive market effect. AUM/AUA refer to Premier Banking as to €20.6bn, and to Private Banking as to €27.6bn; Asset Management is responsible for €25.9bn, €11.7bn of which external to the Group.
As at 30 June 2023 the CET1 ratio, phase-in and fully loaded including the Danish Compromise, totalled 15.9%,7 with a buffer of over 700 bps compared to the SREP minimum requirement. CET1 rose by approx. 30 bps in the twelve months: the organic growth (65 bps added from retained earnings, net of the 70% payout, corresponding to a DPS of €0.85) was in part eroded by the LGD Foundation being restored for the Large Corporate portfolio (which accounted for 45 bps in 1Q). Conversely, the impact of the Assicurazioni Generali deductions (25 bps) was offset by the ongoing RWAs efficiency activity (which added 25 bps).
The total capital ratio, phase-in and fully loaded with the Danish Compromise, rose from 17.6% to 17.9%, due to the new subordinated issue worth a nominal €300m.
The leverage ratio remained stable at 8.4%, as the higher Tier 1 equity was offset by the higher exposures.
The MREL ratio remained high and stable during 12M: 36.8% of RWAs and 19.5% of LREs, once again comfortably above the minimum requirements, which were set at 22.13% of RWAs and 5.91% of LREs.
* * *
7 CET1 fully loaded, pro forma including the Danish Compromise applied on a permanent basis (benefit approx. 100 bps).
Review of Group Operatrions
15
The divisional performances for the twelve months were as follows:
—Wealth Management (WM): Net profit for the twelve months totalled €161.9m, up 20.6% on last year, with ROAC 8 of 35% (28%) and the cost/income decreasing to 67.7% (from 71.1%). Revenues were up 12.9% to €820.5m reflecting increases in net interest income (up 22.7%, to €361.5m), and fees (up 6.6%, to €449.6m) linked to the trend in assets (AUM/AUA up 16.2% to €59.8bn), on indirect NNM of €7.9bn. Costs also increased but less sharply (rising by 7.4%, to €555.1m);
—Corporate & Investment Banking (CIB):9 net profit totalled €225.2m (following the €32.3m loan loss provisions for the items referred to above), with ROAC of 13% and a cost/income ratio of 45.9% (46.6%). Growth of 11.4% in revenues, to €712.4m, was driven by higher net interest income (up 14%, to €288m) and net trading income (up 67.9%, to €135m), which by far offset the reduction in fees (down 5.5% to €289.4m); operating costs rose by 9.8% to €327.3m, the labour component in particular (up 8.2%);
—Consumer Finance (CF): this division delivered a net profit of €374.3m, reflecting ROAC of 32%. The higher lendings (up 5%), driven by regular flows of new business (€1.9-€2bn per quarter) drove top-line growth of 6% (to €1.1bn); while a cost/income ratio of 30.9% (29.7%) reflects the investments in technology and marketing to support the new initiatives (Buy Now Pay Later in particular) and the upturn in credit recovery expenses; the quality of the loan book remained high, with a CoR of 145 bps (142 bps);
—Insurance-Principal Investing (PI): this division delivered a net profit of €439.5m, up 37.5% on last year (€319.7m), with a contribution from Assicurazioni Generali for the twelve months of €442.8m (€356.6m). The company’s results have been positive in all four quarters and in 4Q in particular, when the performance was boosted by certain non-recurring items as well as the impact of application of the new IFRS 17/IFRS 9. Dividends and other income from holdings in funds amounted to €16m (€30.2m); recognized at fair value the holdings in funds reflect a positive valuation of €2.4m (versus minus €32.4m last year);
8 Adjusted Return On Allocated Capital.
9 On 1 July 2022, the NPL acquisition business owned first by MBCS prima and then – since 1 January 2023 – by Revalea was transferred to the Holding Functions. On 22 May 2023 an agreement was signed to sell the business to Banca Ifis, since when the company has been treated as a non-current asset held for sale in accordance with IFRS 5.
16 Consolidated financial statements as at 30 June 2023
—Holding Functions (HF): The net loss incurred by the Holding Functions division decreased from €165m to €95.3m, reflecting the excellent performance in terms of net interest income (in positive territory at €145.1m) which offset the reduction in net treasury income (down from €48m to €42.8m) and in fees (from €52.9m to €32.5m) linked to Revalea’s NPL business. Operating costs were stable at €202m, with the central cost component (€107.4m) representing 7.7% of the consolidated total. As at end-June 2023 the stock of NPLs attributable to the Leasing business totalled €32.8m, and for Revalea (subsequently sold) €238.8m.
* * *
Review of Group Operatrions
17
Significant events in the twelve months include the following:
—On 24 May 2023, the Board of Directors approved the guidelines of the new 2023-26 Strategic Plan, with which the Group aims to deliver positive growth in all segments in which it operates, by leveraging on its distinctive features: a responsible approach to banking, focus and distinctive positioning in highly specialized and highly profitable business segments, a solid capital position, and the strength of the Mediobanca brand, which as from the coming financial year will underpin the repositioning of CheBanca! which will be rebranded as Mediobanca Premier. In particular the Group intends to achieve ongoing growth in annual revenues to €3.8bn (3Y CAGR +6%), driven by all business segments, with RWAs remaining stable due to the focus on capital-light activities and optimization actions to allow capital to be managed more efficiently. The growth in earnings (EPS up 15% ,from ~€1.15 to €1.80) and profitability (ROTE 15% from 12%, RORWA 2.7% from 2.1%) will enable the Group to generate capital (~220 bps per annum, compared to 150 bps at present);
—Launch of a growth strategy in the Buy Now Pay Later (BNPL) segment by Compass Banca through the acquisition of 100% of fintech operator Soisy and the partnership with Swiss company HeidiPay AG, specialized in the development of digital platforms in the e-commerce segment, with the acquisition of an initial 19.5% stake in HeidiPay, followed by the acquisition of 100% of its subsidiary HeidiPay Switzerland AG, which grants finance through the over 400 commercial agreements it has in place with major distributors, luxury brands and technology operators (the deal is expected to close by end-2023);
—the strengthening of Investment Banking in activities with less capital absorption and with a significant contribution to fees includes the investment in Arma Partners, a leader in the field of advisory in digital technologies. The closing of the transaction, having obtained the authorization from the European Central Bank (ECB), is expected by the end of 2023, followed by full consolidation;
—The Group’s exit from the third-party NPH acquisition and management business through the sale of Revalea 10 to Banca Ifis as part of a wide-ranging servicing agreement, whereby MBCredit Solutions will continue to support the buyer in managing the portfolio and in credit collection activity. The deal is scheduled to close by end-2023, subject to receipt of the relevant authorizations; in the financial statements for the year ended 30 June 2023, as required under IFRS 5,
10 Group Legal Entity set up in April 2022 following the spinoff of assets deriving from the NPL portfolio acquisition business.
18 Consolidated financial statements as at 30 June 2023
the assets and liabilities being disposed of have been classified as non-current assets/liabilities held for sale, and a €17.7m charge has been taken to profit and loss representing the difference between the price agreed for the company and its book value;
—Release and distribution of CMB Monaco profit reserves for a total of €320m, as permitted by the Italian Budget Law for 2023, against payment of €29m in withholding tax, approx. €10m of which has been set aside in previous years;
—Complete writeoff of RAM goodwill (€49.5m); the continuing low interest rates and abundant liquidity seriously affected the systematic funds market in previous years and reduced its growth prospects, even though the good performances by the company’s funds (which are well positioned in the Morningstar rankings) limited outflows. However, in the current market scenario, a return to the company’s historical profitability levels appears incompatible with the timeframe required by the reporting standards (i.e. 3-5 years); but the existing funds’ performances justify retaining the brand’s value which is still well viewed by the market.
* * *
Review of Group Operatrions
19
The Group, which has always assigned great importance to Environmental, Social and Governance (ESG) issues, has stepped up its efforts in the area of sustainability, which remains one of the fundamental pillars on which its growth model is based.
This is model is based on ESG criteria being incorporated increasingly and more rigorously into every area of the Group’s activity, and has been recognized by the leading ESG rating companies, including: MSCI, which has raised its rating for Mediobanca from “A” to “AA”, and Morningstar, which has included us in its annual list of the best companies in the Sustainalytics ESG Risk Ratings that have distinguished themselves in the ESG space by developing and implementing responsible investment strategies.
These results, coupled with delivery of the ESG targets included in the 2019-23 Strategic Plan, are doubly significant because they have been achieved i n a geopolitical and market scenario marked by instability and uncertainty, where consolidation of a sustainable, fair and inclusive model for growth is demanded by the initiatives implemented by the regulators, supervisory bodies and international organizations, and confirmed by the increasing attention being focused on such issues by institutional investors and savers’ decisions.
The Group’s commitment to consolidating the responsible approach to banking for which it has always been known, has contributed to defining the qualitative and quantitative targets set in the new 2023-26 Strategic Plan and the staff performance evaluation and remuneration policies, for the entire corporate population and for senior management in particular.
The objectives will be pursued through a series of cross-divisional actions to help contribute to a more sustainable future in terms of reducing impacts on the environment, being sensitive to the issues of inclusion and diversity, and expressing support for the local community.
The Group has renewed its commitment to the Global Compact, the Principles for Responsible Banking and the Net-Zero Banking Alliance and has become a signatory to the Task Force on Climate-related Financial Disclosures (TCFD).
The decision to adhere to these global protocols is line with the Group’s commitment to achieve carbon neutrality by 2050, with the interim target of cutting emissions financed by 35% before 2030, by when Mediobanca expect to exit the coal industry completely.
In order to further address the issue of climate change, the Group also intend to continue the path undertaken to reduce its direct impact, confirming the decision for 100% of its electricity to come from renewable sources and remaining carbon neutral with regard to our emissions.
20 Consolidated financial statements as at 30 June 2023
In addition to these actions, climate and environmental factors are being increasingly integrated into risk management processes, and lending and investment policies.
The pursuit of such challenging objectives is made possible by the Group’s people, whose welfare is promoted through a collaborative and inclusive working environment which values the contributions of everyone and seeks to improve the level of social cohesion.
To this end a Group Diversity, Equity and Inclusion Code has been adopted, published on the Bank’s website, defining the approach in terms of objectives, strategies and active practices in this area.
Social inclusion is a priority for Mediobanca, including versus the communities of which it forms part. The Group has supported these communities with donations of approx. €6m in FY 2022-23, developing numerous initiatives for the benefit of the more socially vulnerable categories at the greatest risk of exclusion, especially young people from disadvantaged areas.
* * *
Review of Group Operatrions
21
Developments on capital markets
The 2022-23 financial year was marked by the Chinese government’s decision to abandon its Zero Tolerance Policy towards the spread of Covid, the continuing war between Russia and Ukraine, and the decisive monetary policy action taken to combat inflation in many jurisdictions with the exception of Japan (where monetary policy remains accommodating). China’s decision, which was taken towards the end of 1H, reversed the loss of momentum in the global economy that had set in during the second half of 2021, and restored impetus in 3Q as the constraints that had throttled production chains began to ease. In 2H, a combination of the turmoil seen in the US and Swiss banking sectors, plus the emergence of the economic effects of the monetary restrictions, caused the recovery in economic activity to slow, and resulted in the economic cycles being desynchronized in the economic areas of North America, the European continent and the Far East.
In 1H there were average increases in GDP of 0.7% QoQ in the United States, 1.9% in China, and 0.2% in the Eurozone, against a 0.2% reduction in Japan.
In the Western economies, planning investments with more favourable prospects was helped from the end of 2H by the momentum coming from spending from Eastern countries, allied to the use of savings accumulated by households for final purchases (directed primarily towards services rather than assets).
In 3Q there was a material rebound in growth prospects driven by the demand coming from China, even though the changes in GDP for the three months continued to vary: in the United States growth was 0.5% QoQ, in China 2.2%, in the European Union 0.0%, and in Japan 0.7%. The production sector confidence surveys suggest an acceleration in growth in 4Q as well, despite the turmoil in the financial system in the United States and Switzerland (which subsequently abated) and despite the structural weaknesses of the Chinese economy. The average GDP growth rates reported in 2H were 0.6% QoQ in the United States, 1.5% in China, 0.2% in the European Union, and 1.2% in Japan, and prospects for growth remain generally modest the coming quarters.
After a sharp drop in oil prices in 1H (down 25%), due to the reduction in combined raw industrial materials prices (down 8%) against a modest increase in the price of copper (up 3%), the downward trend for both oil and raw industrial material prices continued in 2H well (down 12% and 3% respectively).
22 Consolidated financial statements as at 30 June 2023
Food prices declined significantly from the record prices reported in 1H 2022, down 15% in 1H FY 2022-23 and down 7% in 2H. This drove a material reduction in the contribution from inflation in all geographies.
In the twelve months deflationary phenomena directly related to the food and energy components began to consolidate. This led to differing trends in inflation and underlying inflation (the latter defined as inflation net of the energy and food components). From June to December 2022 inflation in the Eurozone increased from 8.6% YoY to 9.2% YoY before ending the financial year at 5.5% YoY, whereas in the United States it decreased from 9.1% YoY to 6.5% YoY in December 2022, and to 3.0% YoY at end-June 2023. Conversely, the trend in underlying inflation net of the energy and food components in the Eurozone in the same period increased from 3.7% YoY to 5.2% YoY in December 2022, and to 5.5% YoY at end-June 2023. In the United States the same indicator fell from 5.9% YoY in June 2022 to 5.7% YoY in December 2022, before ending the financial year at 4.8% YoY.
During the year, the central bankers remained firm in their conviction that a significant tightening in financial conditions was necessary to bring inflation back in line with the objectives. Of the main players, only the Bank of Japan continued its monetary stimulus, leaving interest rates unchanged in the twelve months. The European Central Bank raised interest rates from -0.50% to 3.50%, the Bank of England from 1.25% to 5.00%, the Federal Reserve increased the range from 1.75-2.00% to 5.25-5.50%. The policies of gradually reducing the central banks’ balance sheets 2022 (the Fed at a rate of USD 95bn per month, the ECB at €15bn per month).
In this scenario, share prices remained virtually unchanged in the first half of the financial year (MSCI World Index up 1.7%), and accelerated sharply in the second (MSCI World Index up 14.0%), with those in the Far East retreating marginally in 1H (MSCI Asia Pacific down 1.4%) before recovering in 2H (MSCI Asia up 4.8%). In this region in particular, the substantial gains by the Japanese market (Nikkei up 27.2%) more than offset the weakness of China (MSCI China down 6.1%), due to the weak economic cycle and regulatory uncertainties that increased risk levels in the eyes of non-domestic investors. Credit spreads narrowed from the start of the period (iTraxx Europe 118 bps, US high grade 101 bps), when the Chinese government announced it was abandoning its Zero Tolerance Policy, and the narrowing trend continued in the second half as well, even after the financial turmoil that originated in the United States and Switzerland had ended (overall, in 2H the iTraxx Europe narrowed by a further 15 bps to 75 bps at end-June 2023, and the US high-grade CDS narrowed by 15 bps to 67 bps), while absolute interest rate levels increased, as
Review of Group Operatrions
23
the restrictive policies by the central banks spread in the first half of the financial year in particular, before stabilizing in the second. The yield on 10Y Treasury bonds increased from 3.01% to 3.87% at end-December 2022 before closing at 3.84% at end-June 2023; the corresponding yields on 10Y Bund were 1.34%, 2.57% and 2.39% respectively.
The short-term prospects for the global economy depend on how the production chain unfolds for sectors with important production phases carried out in China: whether allied countries are targeted as an alternative to China (known as “friend-shoring”), or other competitors are sought in addition (known as the “China plus one” strategy). Other factors include the ongoing Russia-Ukraine conflict and the geopolitical tensions in the Far East.
* * *
The European economy’s performance has been affected by the weakening of the global economy due to the continuation of the Zero Tolerance Policy in China, the weakening of the fiscal momentum post-Covid in the Western economies, and the ongoing uncertainties linked to the Russia-Ukraine conflict. The structural reforms imposed by the Chinese government on the country’s economy have impacted on growth and indirectly hampered European exports. The resolution of Credit Suisse imposed by the Swiss Confederation authorities also triggered a shock to the financial stability which compounded the one caused by the structural weaknesses in the peripheral US banking system. Only swift intervention by the public authorities and public institutions was able to calm fears on financial markets and assuage investors’ concerns. The roadmap to economic growth has been underpinned by the Next Generation EU (NGEU) programme, but difficulties have emerged in the transition from the project to the implementation phase. As in the wider international scenario, the trend in price changes has been significantly affected by changes in the price of raw materials since the second half of the previous year. As already mentioned, the HICP Index EU rose from 8.6% YoY in June 2022 to 9.2% YoY in December 2022, before falling back to 5.5% YoY in June 2023. Conversely, the trend in underlying inflation was upward in 1H and roughly stable at 5.5% YoY in 2H. In the twelve months, inflationary pressure from the energy sector also affected the other basket components, and this, together with the robust job market, contributed to prices continuing to increase in 2H.
24 Consolidated financial statements as at 30 June 2023
The GDP growth trend for the year under review was sluggish, with a modest average of 0.2% QoQ. The growth prospects for Europe continue to be linked to the economic consequences of the Russia-Ukraine conflict and the growth dynamics of the Chinese economy.
Against this scenario, the ECB has accelerated the process of removing its accommodative monetary policy by combining, starting from March 2023, the reduction in the stock of paper accumulated during the expansive phases at a rate of €15bn a month, with the process of rapidly increasing base interest rates (which have been raised from -0.50% to 3.50% as already mentioned).
It should also be noted that Croatia joined both the Eurozone and the Schengen area on 1 January 2023. The Croatian Republic’s contribution to the ECB’s capital is 0.66%, as compared, for example, to that of Italy, which is 13.81%.
The modest level of economic growth, declining inflation rates (with underlying inflation stabilizing at high levels) and low unemployment rates, have led to the following in the course of the twelve months:
―Stabilization of market inflation expectations: five-year average expectations fell from 2.9% in 1H to 2.5% in 2H, while ten-year expectations averaged around 2.5% with slight fluctuations;
―Rising share prices: the Euro Stoxx 600 climbed by 13%, the German, French and Italian stock market indexes by between 25% and 33%, and the Spanish index by 18%;
―After widening in 1Q, spreads on EU government securities tightening to levels not far off those seen at the start of the year; the spread on 10Y Italian paper narrowed by approx. 25 bps to 170 bps, and that on Spanish paper by approx. 10 bps to 100 bps;
―Narrowing spreads on high-yield credit; the Xover decreased from 575 bps to 475 bps at end-December 2022 before closing at approx. 475 bps at end-June 2023;
―After 1Q was marked by the weakness due to the Chinese economy’s difficulties and the ECB’s cautious approach to tackling inflation, the EUR began to gain value, ending the twelve months 4.1% stronger versus the USD and 3.8% stronger than the trade-weighted average of other currencies.
* * *
Review of Group Operatrions
25
In line with the European economy, Italy saw economic growth slow in the first half of the financial year, before recovering strongly in 3Q 2023 as a result of the change in Chinese public healthcare policy, before ending the twelve months weakly with the emergence of structural issues in China and the restrictive monetary policies launched from the end of the previous financial year starting to take effect. GDP growth slowed from 0.4% QoQ in 1Q to -0.1% QoQ in 2Q (in line with the Eurozone), recovered strongly in 3Q to 0.6% QoQ, before declining strongly in 4Q to -0.3%.
Against this backdrop, the growth prospects for the Italian economy depend primarily on the external scenario, in particular developments in the Russia-Ukraine conflict, the prospects of economic recovery in the Far East, and the ability to implement the structural reforms underpinning the National Recovery and Resilience Plan (NRRP). Economic activity will be driven by the enhanced purchasing capability afforded to nominal salaries as a result of the decreasing inflation and by stabilization of the international scenario.
For the longer-term prospects, it is important that business expectations should be consistent with investment plans that do not rely exclusively on NRRP guidance but are based also on original projects. The Bank of Italy surveys of companies’ prospects confirm that investment expectations are stable at historically high levels, and that the difficulties in sourcing raw materials and energy costs are impacting less and less on investment decisions.
On financial markets Italian stock prices have recorded some of the best performances in Europe, having started from some relatively unchallenging valuations. The movement towards non-Italian and non-European risk assets was kick-started by China’s decision to abandon its Zero Tolerance Policy at the start of 2Q, and driven by the prospect of less aggressive action by the central banks than had been seen at the end of the financial year: the FTSE MIB gained 11.3% in 1H (Eurostoxx 600 4.3%) and 19.1% in 2H (Eurostoxx 600 8.7%), for an overall change in the twelve months of 32.6% (Eurostoxx 600 16.5%).
* * *
26 Consolidated financial statements as at 30 June 2023
Regarding the Italian consumer credit market, the data for 1H 2023 confirms the slowdown that began in 4Q 2022: new loans granted in the six months ended 30 June 2023 were up 0.2% year-on-year, totalling €27.2bn.
This result reflects differing trends in the individual products: the reduction in new business in the personal loans segment (down 4.1%), due to the wait-and-see attitude adopted by households and to greater selectivity on the part of operators, was in part offset by the good performance in special purpose loans. In particular the “other” special purpose loan segment reported growth of 10.9%, due to the healthy trend in loans to support the acquisition of equipment to improve residential energy efficiency, while the cars and motorbikes segment reported an increase of 9.7% as a result of the state incentives being repackaged and the supply chain crisis starting to ease. Salary-and pension-backed finance also remained in positive territory, posting growth of 1%, chiefly from private sector employees and pensioners. Credit cards and instalment credit, by contrast, posted reductions, with the latter down 2.5% in the period.
2018
2019
2020
2021
2022
1 H 2023
(€/m)
%
(€/m)
%
(€/m)
%
(€/m)
%
(€/m)
%
(€/m)
%
Vehicle credit
7,088
14.9
7,657
14.7
6,664
16.6
7,896
16.6
7,416
14.–
4,122
15.1
Specific purpose loans
4,997
10.5
5,635
10.8
4,965
12.4
5,686
12.–
6,419
12.1
3,199
11.7
Personal loans
24,726
52.–
26,387
50.8
17,563
43.7
22,370
47.–
26,454
49.8
13,829
50.9
Credit cards
5,128
10.8
6,254
12.–
5,516
13.7
5,347
11.2
5,664
10.7
2,678
9.8
Salary-backed finance
5,632
11.8
6,067
11.7
5,491
13.6
6,262
13.2
7,109
13.4
3,398
12.5
47,571
100.–
52,000
100.–
40,199
100.–
47,561
100.–
53,062
100.–
27,226
100.–
Source: Assofin – for the car/motorbike segment, the figures refer to volumes generated by independent operators; while for credit cards only volumes generated by pure credit cards and cards with instalment options have been considered.
* * *
In 2022 the Italian real estate sector reported a total of 784,000 sales, up 5% on 2021, whereas in 1Q 2023, the 167,000 sales recorded reflects an over 8% decrease compared to the same period in 2022.
The mortgage market for the purchase of properties by Italian households reflects the rising trend in interest rates, and slowed by 9.2% compared to 2021 (down from €60.9bn to €55.3bn). The contraction became more pronounced in 1Q 2023, declining by 26% YoY to €10.3bn (€13.9bn).
Review of Group Operatrions
27
* * *
In 2022 the Italian leasing market financed €31.5bn worth of new investments, up 9.7% on 2021. The trend in volumes was positive at all times during the year, but accelerated sharply in December, up 15.8% YoY and up 31.3% on November 2022. This trend was confirmed also in terms of the number of transactions: new leases started to rise year-on-year from 2H 2022, with the high recorded in 4Q (up nearly 40% on the same period in 2021). Overall, a total of over 648,000 new leases were executed, 5.6% higher than in the previous year.
In 1H 2023 over 411,000 new leases were taken out (22.2% more than in 1H 2022), worth a total of over €17.8bn (up 13.1%).
2019
2020
2021
2022
1 H 2023
Leases executed
(€/m)
%
(€/m)
%
(€/m)
%
(€/m)
%
(€/m)
%
Automotive
14,132
50.6
11,775
51.4
13,991
48.6
15,967
50.6
10,936
61.3
Plant and equipment
9,426
33.7
7,762
33.9
11,526
40.1
12,297
39.–
5,483
30.7
Property
3,805
13.6
2,720
11.9
2,964
10.3
2,835
9.–
1,203
6.7
Shipping
516
2.1
631
2.8
291
1.–
449
1.4
224
1.3
27,879
100.–
22,888
100.–
28,772
100.–
31,548
100.–
17,846
100.–
Source: Dataforce data compiled by Assilea.
28 Consolidated financial statements as at 30 June 2023
C onsolidated profit-and-loss/balance-sheet data
The consolidated profit and loss account and balance sheet have been restated – including by business area – based on the structure that provides the most accurate reflection of the Group’s operations.
CONSOLIDATED BALANCE SHEET
(€ m)
12 mths ended
30 June 2023
12 mths ended
30 June 2022
Assets
Financial assets held for trading
9,546.2
9,530.9
Treasury financial assets and cash
10,378.5
12,800.8
Banking book securities
10,471.3
8,577.3
Customer loans
52,549.2
51,701.4
Equity Investments
4,367.7
4,046.2
Tangible and intangible assets
1,327.6
1,350.2
Other assets
2,998.5
2,561.6
Total assets
91,639.–
90,568.4
Liabilities and net equity
Funding
60,506.2
61,169.4
Treasury financial liabilities
5,470.–
5,905.8
Financial liabilities held for trading
9,436.7
9,206.7
Other liabilities
4,614.3
3,377.9
Provisions
182.6
159.7
Net equity
10,298.3
9,740.3
Minority interests
104.1
101.6
Profit for the period
1,026.8
907.–
Total liabilities and net equity
91,639.–
90,568.4
Key Performance Indicators (KPIs)
(€ m)
30 June 2023
30 June 2022
KPI
Tier 1 capital
8,177.6
7,894.3
Regulatory capital
9,217.–
8,874.4
RWA (1)
51,431.5
50,378.–
CET1 ratio (Phase-in) (2)
15.9%
15.7%
RWA density (3)
56.1%
55.6%
Regulatory capital / risk-weightes assets
17.9%
17.6%
Leverage ratio (4)
8.4%
8.4%
Gross NPL/ Gross loans ratio (5)
2.48%
2.50%
Net NPL / Net loans ratio (6)
0.72%
0.70%
No. of shares in issue (million)
849.3
864.7
1 Risk Weighted Assets.
2 CET1/RWAs.
3 RWAs/total assets.
4 CET1/total leveraged exposures.
5 Gross NPLs (net of positions acquired by Revalea)/gross loans.
6 Net NPLs (net of positions acquired by Revalea)/net loans.
Review of Group Operatrions
29
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(€ m)
12 mths ended
30 June 2023
12 mths ended
30 June 2022
Chg (%)
Profit-and-loss data
Net interest income
1,801.–
1,479.2
21.8%
Net treasury income
205.7
161.8
27.1%
Net fee and commission income
843.9
850.5
-0.8%
Equity-accounted companies
453.9
359.3
26.3%
Total income
3,304.5
2,850.8
15.9%
Labour costs
(728.3)
(671.5)
8.5%
Administrative expenses
(684.8)
(640.6)
6.9%
Operating costs
(1,413.1)
(1,312.1)
7.7%
Loan loss provisions
(270.1)
(242.6)
11.3%
Provisions for other financial assets
(7.3)
(37.4)
-80.5%
Other income (losses)
(185.8)
(90.1)
n.m.
Profit before tax
1,428.2
1,168.6
22.2%
Income tax for the period
(394.7)
(250.3)
57.7%
Minority interest
(6.7)
(11.3)
-40.7%
Net profit
1,026.8
907.–
13.2%
Key Performance Indicators (KPIs)
30 June 2023
30 June 2022
Chg (%)
KPI
ROTE adj. (1)
13.–%
10.3%
26.2%
Cost / Income ratio (2)
42.8%
46%
-7.1%
CoR (bps) (3)
52
48
8.3%
EPS (4)
1.21
1.05
15.1%
DPS (5)
0.85
0.75
1 Adjusted Return On Tangible Equity.
2 Cost/income ratio.
3 Cost of Risk.
4 Earnings Per Share.
5 Dividend Per Share.
30 Consolidated financial statements as at 30 June 2023
EARNINGS/BALANCE-SHEET DATA BY DIVISION*
(€ m)
12 mths ended 30/6/23
Wealt h Management
Consumer
Finance
Corporate and Investment Banking
Insurance - Principal Investing
Holding Functions
Group (1)
Profit-and-
l
o
s
s
Net interest income
361.5
984.9
288.–
(7.1)
145.1
1,801.–
Net treasury income
9.4
—
135.–
16.–
42.8
205.7
Net fee and commission income
449.6
138.4
289.4
—
32.5
843.9
Equity-accounted companies
—
(0.8)
—
454.7
—
453.9
Total income
820.5
1,122.5
712.4
463.6
220.4
3,304.5
Labour costs
(294.2)
(113.8)
(183.–)
(4.–)
(133.4)
(728.3)
Administrative expenses
(260.9)
(233.6)
(144.3)
(1.–)
(68.6)
(684.8)
Operating costs
(555.1)
(347.4)
(327.3)
(5.–)
(202.–)
(1,413.1)
Gain/(loss) on disposal of investments
—
—
—
—
—
—
Loan loss provisions
(10.5)
(203.9)
(32.3)
—
(23.4)
(270.1)
Provisions for other financial assets
(1.2)
—
(10.1)
2.4
1.8
(7.3)
Other income (losses)
(20.9)
(14.–)
—
—
(83.5)
(185.8)
Profit before tax
232.8
557.2
342.7
461.–
(86.7)
1,428.2
Income tax for the period
(70.–)
(182.9)
(113.8)
(21.5)
(6.5)
(394.7)
Minority interest
(0.9)
—
(3.7)
—
(2.1)
(6.7)
Net profit
161.9
374.3
225.2
439.5
(95.3)
1,026.8
Cost/Income (%)
67.7
30.9
45.9
n.m.
n.m.
42.8
ROAC adj. 2
35%
32%
13%
20%
—
Balance-sheet data
Loans and advances to customers
16,827.3
14,465.–
19,625.9
—
1,631.–
52,549.2
Risk-weighted assets
5,959.4
13,516.9
19,410.2
8,713.9
3,831.2
51,431.5
No. of staff
2,197
1,520
648
9
853
5,227
Notes:
* Divisions comprise:
–Wealth Management (WM): this division brings together all wealth management services offered to the various client segments, plus asset management. It includes CheBanca!, which targets the Premier client brackets; the MBPB and CMB Monaco private banking networks, and the asset management companies (Polus Capital, Mediobanca SGR, Mediobanca Management Company, and RAM Active Investments), plus Spafid;
–Consumer Finance (CF): this division provides retail clients with a full range of consumer credit products, ranging from personal loans to salary-backed finance, to the Pagolight solution (Compass Banca, Soisy and Compass RE);
–Corporate & Investment Banking (CIB): this division brings together all services provided to corporate clients in the following areas: investment banking (lending, advisory, capital markets activities) and proprietary trading (businesses performed by Mediobanca and Mediobanca International, Mediobanca Securities and Messier et Associés), and specialty finance, which in turn consists of factoring and credit management activities for third parties performed by MBFACTA and MBCredit Solutions;
–Insurance - Principal Investing (PI): division which brings together the Group’s portfolio of equity investments and holdings;
–Holding Functions: division which includes SelmaBipiemme Leasing, MIS, NPL management and other minor companies, plus the following Group units: treasury and ALM, operations, support and control, as well as the senior management of Mediobanca S.p.A.; for further details please see p. 69.
1 The sum of divisional data differs from Group total due to adjustments/differences arising on consolidation between business areas (equal to €11.6m), and, for FY 2022-23, the net impact through profit and loss of the RAM goodwill impairment charge (€49.5m) plus the effect of the Revalea disposal on earnings under IFRS 5 (€17.7m) not attributable to any single business line.
2 Adjusted Return On Allocated Capital.
Review of Group Operatrions
31
(€ m)
12 mths ended 30/6/22
Wealth Management
Consumer Finance
Corporate and Investme nt Banking
Insurance - Principal Investing
Holding Functions
Group (1)
Profit-and-
l
o
s
s
Net interest income
294.6
934.3
252.6
(7.1)
(22.–)
1,479.2
Net treasury income
10.3
0.4
80.4
20.1
48.–
161.8
Net fee and commission income
421.6
123.5
306.3
(0.7)
52.8
850.5
Equity-accounted companies
—
—
—
359.3
—
359.3
Total income
726.5
1,058.2
639.3
371.6
78.8
2,850.8
Labour costs
(265.7)
(105.9)
(169.2)
(4.–)
(126.–)
(671.5)
Administrative expenses
(251.–)
(208.9)
(128.9)
(1.–)
(75.5)
(640.6)
Operating costs
(516.7)
(314.8)
(298.1)
(5.–)
(201.5)
(1,312.1)
Gain/(loss) on disposal of investments
—
—
—
—
—
-
Loan loss provisions
(14.–)
(190.1)
41.7
—
(80.1)
(242.6)
Provisions for other financial assets
(0.1)
—
(3.8)
(32.4)
(1.2)
(37.4)
Other income (losses)
(4.7)
—
(0.6)
—
(86.2)
(90.1)
Profit before tax
191.–
553.3
378.5
334.2
(290.2)
1,168.6
Income tax for the period
(55.9)
(182.9)
(122.9)
(14.5)
127.–
(250.3)
Minority interest
(0.9)
—
(8.6)
—
(1.8)
(11.3)
Net profit
134.2
370.4
247.–
319.7
(165.–)
907.–
Cost/Income (%)
71.1
29.7
46.6
n.m.
n.m.
46.–
ROAC adj. 2
35%
32%
13%
20%
—
Balance-sheet data
Loans and advances to customers
15,297.9
13,750.1
20,734.1
—
1,919.3
51,701.4
Risk-weighted assets
5,685.7
12,981.1
20,164.5
8,203.8
3,342.8
50,378.–
No. of staff
2,104
1,454
626
11
821
5,016
1 The sum of divisional data differs from Group total due to adjustments/differences arising on consolidation between business areas.
2 Adjusted Return On Allocated Capital.
32 Consolidated financial statements as at 30 June 2023
Balance sheet
The Group’s total assets rose from €90.6bn to €91.7bn, with parent company Mediobanca’s contribution totalling 54%. The main balance-sheet items showed the following trends for the twelve months under review (comparative data as at 30 June 2022).
Funding – funding totalled €60.5bn (30/6/22: €61.2bn); the uncertain economic scenario that affected much of the year did not prevent the Group from implementing an ambitious and diversified funding strategy, which involved major primary market activity, with record bond issuance of €7bn, more than twice the redemptions (€3.3bn), at a cost of approx. 148 bps and consistent with the planned T-LTRO funding replacement (€2.9bn repaid in the period). Debt securities, the stock of which rose from €18.5bn to €22.3bn, include €1.9bn in notes sold to Wealth Management clients through the proprietary network and €2.8bn through third-party networks. Wealth Management deposits declined slightly (from €28.8bn to €28.2bn), reflecting the increasing competition with demand deposits being converted into AUA, but continue to reflect an extremely low cost of funding (60 bps), albeit increasing slightly. Interbank funding decreased from €5.4bn to €4.5bn, despite a positive contribution of €220m from the new financial bills of exchange programme. The twelve months also saw the ABS Quarzo €450m issue at Euribor 3M +95 bps (duration 2.5 years), the €500m Sustainable Senior Preferred Bond issue with six-year duration and fixed rate at 4.625%, and the issue of a €300m subordinate note at Euribor 3M +480 bps with expiry at ten years and callable at five.
30 June 2023
30 June 2022
Chg.
(€ m)
%
(€ m)
%
Debt securities (incl. ABS)
22,282.8
37%
18,536.9
30%
20.2%
Premier Banking deposits
16,983.6
28%
17,449.8
29%
-2.7%
Private Banking deposits
11,194.6
19%
11,347.5
19%
-1.3%
LTRO
5,586.2
9%
8,442.2
14%
-33.8%
Interbank funding (+CD/CP)
4,459.–
7%
5,393.–
8%
-17.3%
Total funding
60,506.2
100%
61,169.4
100%
-1.1%
Interest rate risk hedging activity, which is used for virtually all the Bank’s funding using plain vanilla swaps with qualified market counterparties, regards the transformation of funding to floating rate (for bond issues and part of the modelled deposits). The sharp increase in interest rates drove a significant reduction in the fair value of fixed-rate funding, the value of which (€1.8bn) is perfectly offset by the valuations for the derivatives (which are booked as other liabilities).
Review of Group Operatrions
33
Loans and advances to customers — the loan book continues to grow, up 1.6% (from €51.7bn to €52.5bn), albeit at a slower rate than in previous half-years. All sectors performed well, in particular Wealth Management, where customer loans climbed by 10%, from €15.3bn to €16.8bn) with good flows in mortgages (up 8.9%, from €11.4bn to €12.4bn, including approx. €707.7m in downward adjustments to reflect the fair value of the mortgages hedged) and Private Banking loans (up 13.1%, from €3.9bn to €4.4bn). Customer loans in Consumer Finance were up 5.2% (from €13.8bn to €14.5bn), on a higher contribution from vehicle finance (up 12.6% from €3.1m to €3.5m), special purpose loans (up 8.1%, from €1.2bn to €1,3bn), and personal loans (up 2.6%, from €6.9bn to €7.1bn). Conversely, customer loans decreased in Corporate & Investment Banking (down 5.3%, from €20.7bn to €19.6bn) and Leasing (down 11.2%, from €1.6bn to €1.4bn), reflecting the reduced demand, in part generated by the rising interest rates and the abundant liquidity on the market. For the CIB division specifically, the reduction in lending (down 7.5%, from €15.6bn to €14.4bn) was markedly higher than the increase in factoring (up 3.7%, from €2.7bn to €2.9bn).
Consumer Finance reported 2.5% growth in new loans for the twelve months, from €7.7bn to €7.8bn, on higher vehicle loans (up 7.5%, from €1.5bn to €1.6bn) and special purpose loans (up 5.7%, from €1.1bn to €1.2bn), which offset the slight reduction in personal loans (down 2.2%, from €3.6bn to €3.5bn) despite a strong performance from the direct channel (up 14%, to €2.7bn). CheBanca! mortgage loans grew by 3.7% (from €2.1bn to €2,2bn). The performance by Corporate & Investment Banking reflects the difficulties encountered in Wholesale Banking, which was impacted by the reduced demand (new loans down 24.4%, to €7.2bn) plus a major flow of early repayments (€8.4bn), marginally offset by the increase in factoring turnover (up 12.6%, from €10.7bn to €12.1bn). Customer loans in Leasing were down more than 8% (from €335m to €307m).
34 Consolidated financial statements as at 30 June 2023
30 June 2023
30 June 2022
(€ m)
%
(€ m)
%
(€ m)
Chg.
Corporate and Investment Banking *
19,625.9
37%
20,734.1
40%
-5.3%
Consumer Banking
14,465.–
28%
13,750.1
27%
5.2%
Wealth Management
16,827.3
32%
15,297.9
30%
10.–%
Holding Functions (leasing and NPL management)
1,631.–
3%
1,919.3
3%
-15.–%
Total loans and advances to customers
52,549.2
100%
51,701.4
100%
1.6%
* Data regarding NPLs purchased by MBCredit Solutions as at 30 June 2022 have been restated from Corporate & Investment Banking to Holding Functions.
(€ m)
30 June 2023
30 June 2022
Performing
Performing
Stage1
Stage2
NPL 1
Total
Stage1
Stage2
NPL 1
Total
Corporate and Investment Banking *
19,279.9
323.7
22.3
19,625.9
20,118.4
590.9
24.8
20,734.1
Consumer Banking
12,901.4
1,364.2
199.4
14,465.–
12,091.7
1,476.7
181.7
13,750.1
Wealth Management
15,981.3
726.1
119.9
16,827.3
14,346.3
838.1
113.5
15,297.9
Holding Functions (leasing)
1,281.8
77.6
271.6
1,631.–
1,380.2
124.–
415.–
1,919.2
Total loans and advances to customers
49,444.4
2,491.6
613.2
52,549.2
47,936.6
3,029.7
735.–
51,701.4
As % of total
94.1%
4.7%
1.2%
100%
92.7%
5.9%
1.4%
100%
Total loans and advances to customers excluding POCI
49,444.4
2,491.6
374.3
52,310.3
47,936.6
3,029.7
384.4
51,350.8
As % of total
94.5%
4.8%
0.7%
100%
93.4%
5.9%
0.7%
100%
1 Including Stage 3 and POCI held by Revalea (previously MB Credit Solutions).
* Data regarding NPLs purchased by MBCredit Solutions as at 30 June 2022 have been restated from Corporate & Investment Banking to Holding Functions.
(€ m)
30 June 2023
30 June 2022
Gross
Net
Coverage ratio %
Gross
Net
Coverage ratio %
Corporate and Investment Banking *
135.7
22.2
83.6%
106.1
24.8
76.6%
Consumer Banking
878.–
199.4
77.3%
858.3
181.7
78.8%
Wealth Management
218.2
119.9
45.1%
222.2
113.5
48.9%
Holding Functions (leasing)
107.8
32.8
69.6%
140.7
64.4
54.2%
Total net non-performing loans**
1,339.7
374.3
72.1%
1,327.3
384.4
71.–%
– of which: bad loans
430.8
41.2
419.1
53.5
As % of total loans and advances
2.5%
0.7%
2.5%
0.7%
* Data regarding NPLs purchased by Revalea (prevously MBCredit Solutions) Solutions as at 30 June 2022 have been restated from Corporate & Investment Banking to Holding Functions.
** Excluding NPLs purchased by Revalea (HF).
Review of Group Operatrions
35
Gross NPLs totalled €1.339,7m, virtually unchanged from last year both in absolute terms (30/6/22: €1,327.3m) and relative terms, at 2.5% of total loans (unchanged).11 Consumer Finance continues to show extremely low default rates (approx. 20% below pre-Covid levels), despite the introduction of stricter forbearance, UTP and definition of default classification rules; although one large corporate position in CIB was reclassified as UTP during the twelve months. The prudent provisioning policy (with the coverage ratio rising from 71% to 72.1%) is reflected in the reduction in net NPLs (from €384.4m to €374.3m, €41.3m of which bad debts), which represent less than 1% of total loans, albeit slightly higher than last year (0.7%). This item does not include the NPLs acquired by the Group which decreased from €360.2m to €242.3m, and will exit the scope of operations entirely once the Revalea disposal has been completed.
Net Stage 2 positions decreased from €3,029.7m to €2,491.6m, and represent 4.7% of net loans; of these positions, €1,364.2m relate to CF (9.3% of the stock), €323.7m to CIB (1.7%), €726.3m to WM (4.3%), and €77.6m Leasing.
The coverage ratio for all performing loans remains at 1.34% for the Group and at 3.75% for CF, because of the overlays available to cushion possible increases in provisioning triggered by the deterioration in the macroeconomic scenario, linked in particular to inflation remaining at high levels.
Direct exposures outstanding versus the Russian Federation, Ukraine and Belarus are not significant as almost all of them refer to counterparties not subject to restrictions.
Investment holdings 12 — these increased from da from €4bn to €4.4bn, €3.6bn of which involves the IAS 28 investments accounted for using the equity method, €562.9m investments in funds, and €241m investments in equities (listed and unlisted), for which changes in fair value are taken through net equity.
The book value of the Assicurazioni Generali investment 13 increased over the twelve months, from €3,069.4m to €3,472.2m, after profits of €442.8m, changes to equity totalling €197m, and payment of the dividend (€237m). The book value of the
11 The Finrep gross NPL ratio (calculated net of NPLs acquired) was stable at 2.1% (30/6/22: 2%); please see Part E of the Notes to the Accounts for further details.
12 This heading brings together investments covered by IAS 28, investments measured at fair value t hrough other comprehensive income (formerly AFS) and holdings in funds (including s eed capital) measured at fair value through profit and loss.
13 During the year under review, the 1.6 million shares owned by MB INV AG were added to those held by Mediobanca S.p.A. (202.7 million) The book value refers to the whole stake owned by the Group (13.25%).
36 Consolidated financial statements as at 30 June 2023
Group’s investment as at 30 June 2023 (calculated on the basis of the company’s net equity as at 31 March 2023), also reflecting the impact of the adoption of the new IFRS 17 and IFRS 9 as from 1 January 2023 14 which generated a substantial reduction in the valuation reserves (from minus €8.6bn to minus €2.4bn) due to a substantial share of it being transferred to liability heading il Contractual Service Margin (CSM). The profit for 4Q was also boosted by certain non-recurring components (in particular the sale of a property asset in London) and the positive effects of liabilities being valued in accordance with IFRS 17 in a rising interest rate scenario.
The Group’s investment in IEO (25.37%) remained stable at €39.1m following a slight loss (€0.2m); while the holding in Finanziaria Gruppo Bisazza S.r.l. (22.67%) was worth €7.1m (30/6/22: €7.4m), after profits for the period of €160,000, distribution of dividends totalling €272,000, and other downward value adjustments of €172,000; while the investment in CLI Holdings II Limited decreased from €41.8m to €38.6m, following the collection of dividends (€8.4m) and profits for the period (€5.2m)
During the twelve months Compass acquired a 19.45% stake in HeidiPay for an outlay of €7.4m, with a book value of €6.6m (including the losses for 9M).
Holdings in investments in funds decreased from €627.7m to €562.9m; of this, approx. €312.4m of which involve funds managed by the Group (seed capital), which decreased by some €91.9m in the twelve months, after downward adjustments to reflect fair value totalling €13.6m and fund liquidations amounting to €78.3m; other holdings in funds (mostly private equity) totalled €250.5m, after investments of €38.8m and downward valuations of €9.9m.
Holdings in equities (including equity-like instruments) decreased from €260.7m to €241m, following the redemption of the Burgo equity-like instrument (minus €54m), the holding in MB INV AG exiting the scope of consideration post-demerger (vminus €12.1m), fair value adjustments totalling €40m, €25.7m of which in respect of the equity-like instruments (Tirreno Power and Burgo), and new investments amounting to approx. €7.4m.
14 For further details regarding the application of the new financial reporting standards and their impact on the investee company’s valuation, please refer to Part A and Part B of the Notes to the Accounts.
Review of Group Operatrions
37
(€ m)
30 June 2023
30 June 2022
Book value
HTC&S
reserve
Book value
HTC&S
reserve
IAS28 investments (1)
3,563.8
n.a.
3,157.8
n.m.
Listed shares
115.1
56.8
114.6
56.3
Other unlisted shares
125.9
90.8
146.1
118.–
Seed capital
312.4
—
404.3
—
Private equity
142.5
—
103.8
—
Other funds
108.–
—
119.6
—
Total equity holdings
4,367.7
147.6
4,046.2
174.3
(1) Differs from the figure shown in the following table by €0.1m due to minor associate companies (30/6/22: €0.1m).
The Group’s investment in Assicurazioni Generali at 30 June 2023 had a market value of €3,804.8m (€18.6 per share), which is higher than its book value (€17 per share); based on current stock market prices, the value rises to €3.9bn. As required by IAS 36 the impairment test was carried out on the investment which it passed; the value in use too was calculated according to the Group policy, and was significantly higher than the book value.
For further details please see the Notes to the Accounts, Assets, section 7 – Equity investments.
(€ m)
% ownership
30/6/23
30/6/22
Assicurazioni Generali
13.25
3,472.2
3,069.4
CLI Holding II (*)
35.67
38.6
41.8
Finanziaria Gruppo Bisazza
22.67
7.1
7.4
Istituto Europeo di Oncologia
25.37
39.1
39.1
HeidiPay
19.45
6.6
n.m.
Total IAS28 investments
3,563.6
3,157.7
* Percentage calculated based on the nominal among of the notes issued.
38 Consolidated financial statements as at 30 June 2023
Banking book debt securities — Fixed-income securities held as part of the banking book totalled €10.5bn, split between Hold to Collect & Sell (€5.8bn) and Hold to Collect (€4.7bn). The book’s low duration facilitated turnover (approx. €2.1bn), which benefited quickly from the increase in yields.
Conversely, the rise in interest rates is reflected in the stocks’ valuations: the OCI reserve has declined further into negative territory, from minus €60.9m at 30 June 2022, to minus €73.2m, mainly due to Italian debt securities (down €36.5m) only in part mitigated by corporate and financial bonds (up €25m), while unrealized losses on the Hold to Collect portfolio (which are recognized at cost) amount to €119.7m (€70.4m), in part offset by the positive performance of hedges (€34.4m).
Approx. 72% of the banking book is made up of sovereign debt (€7.9bn), split equally between HTC and HTC&S, with a very short duration (approx. 2 years); the share accounted for by Italian government securities totals €5.1bn (approx. 49% of the entire portfolio, with a duration of approx. 2.6 years).
(€ m)
30 June 2023
30 June 2022
(€ m)
%
(€ m)
%
Hold to Collect
4,669.3
45%
4,703.7
55%
Hold to Collect & Sell
5,801.1
55%
3,873.1
45%
Other (Mandatorily measured at FV)
0.9
n.m.
0.5
n.m.
Total banking book securities
10,471.3
100%
8,577.3
100%
(€ m)
30 June 2023
30 June 2022
Book value
Book value
HTC
HTC&S
OCI
reserve
HTC
HTC&S
OCI
reserve
Italian government bonds
2,111.1
3,020.–
(35.–)
2,197.5
1,698.4
1.5
Foreign government bonds
1,278.2
1,528.3
(7.7)
1,090.9
1,198.5
(5.7)
Bond issued by financial institutions
446.–
829.7
(16.3)
534.5
458.5
(27.–)
Corporate bonds
204.2
236.5
(11.8)
135.6
242.1
(26.1)
Asset Backet Securities (ABS)
629.8
186.6
(2.4)
745.2
275.6
(3.6)
Total banking book securities
4,669.3
5,801.1
(73.2)
4,703.7
3,873.1
(60.9)
Review of Group Operatrions
39
Net treasury assets — net treasury assets totalled €5bn, down €2.2bn in the twelve months due to part of the deposits being used to repay a share of the T-LTRO ahead of the contractual expiry dates. The new interest rate scenario and geopolitical tensions have required approx. €800m in assets to be converted from equities to bonds. In detail, deposits payable were eliminated due to the repo market being tapped less, matched by the reduction in ECB deposits receivable which halved to €3.5bn, with no effect on the indicators, all of which reflect the abundant liquidity position. Liquid assets deposited on current accounts were stable at €1.5bn (€1.4bn), with priority being given to instruments that are more sensitive to the central banks’ money market rate interventions.
30 June 2023
30 June 2022
(€ m)
(€ m)
Chg.
Financial assets held for trading
9,546.2
9,530.9
0.2%
Treasury financial assets and cash
10,378.5
12,800.8
-18.9%
Financial liabilities held for trading
(9,436.7)
(9,206.7)
2.5%
Treasury financial liabilities
(5,470.–)
(5,905.8)
-7.4%
Net treasury assets
5,018.–
7,219.2
-30.5%
30 June 2023
30 June 2022
(€ m)
(€ m)
Chg.
Equities
1,147.5
1,900.9
-39.6%
Bond securities
1,388.1
576.1
n.m.
Derivative contract valuations
(139.5)
(326.1)
-57.2%
Certificates
(2,290.6)
(1,830.3)
25.1%
Trading loans
4.1
3.7
10.8%
Financial instruments held for trading
109.6
324.3
n.m.
30 June 2023
30 June 2022
(€ m)
(€ m)
Chg.
Cash and current accounts
1,495.3
1,430.8
4.5%
Cash available at BCE
3,499.9
6,926.7
-49.5%
Deposits
(86.8)
(1,462.6)
-94.1%
Net treasury
4,908.4
6,894.9
-28.8%
30 June 2023
30 June 2022
(€ m)
(€ m)
Assets
Liabilities
Assets
Liabilities
Italian government bonds
1,999.4
(1,925.2)
1,435.6
(1,544.1)
Foreign government bonds
1,263.6
(2,120.8)
636.9
(1,945.3)
Bond issued by financial institutions
1,840.8
(44.–)
1,401.7
(8.3)
Corporate bonds
110.–
—
338.3
—
Asset Backet Securities (ABS)
264.3
—
261.3
—
Equities
1,187.6
(40.1)
2,132.8
(231.9)
Total securities
6,665.7
(4,130.1)
6,206.6
(3,729.6)
30 June 2023
30 June 2022
(€ m)
(€ m)
Assets
Liabilities
Assets
Liabilities
Interest rate swaps
541.9
(550.8)
1,089.3
(1,211.4)
Foreign exchange
408.3
(329.9)
699.–
(634.2)
Interest rate options/futures
7.8
(23.6)
11.9
(14.9)
Equity swaps e options
1,747.–
(1,886.3)
2,122.8
(2,323.7)
Credit derivatives (others)
158.8
(212.7)
232.4
(297.3)
Derivative contract valuations
2,863.8
(3,003.3)
4,155.4
(4,481.5)
40 Consolidated financial statements as at 30 June 2023
30 June 2023
30 June 2022
(€ m)
(€ m)
Assets
Liabilities
Assets
Liabilities
Securities lending/repos deposits
3,006.9
(3,295.1)
2,379.9
(3,749.–)
Stock lending deposits
442.5
(584.7)
248.1
(1,194.1)
Other deposits
2,063.–
(1,719.4)
1,815.2
(962.7)
Deposits
5,512.4
(5,599.2)
4,443.2
(5,905.8)
Tangible and intangible assets – these totalled €1.3bn, with intangible assets decreasing from €838.3m to €796.9m and tangible assets rising from €511.9m to €530.7m.
During the twelve months under review, the movements in intangible assets reflect the writeoff of the RAM goodwill (€49.5m), against the Soisy goodwill being recognized for the first time (€6.4m), including, post-PPA, the client list with a definite useful life for an amount of €1.1m. The heading also includes software acquired for €28.7m and amortization totalling €30.2m. There were also changes for exchange rate adjustments totalling €1.6m.
Tangible assets increased from €511.9m to €530.7m and as usual involve transactions accounted for under IFRS 16 (€47.9m, most of which attributable to rent contracts), acquisitions of furniture and equipment for €26.6m, and capitalized improvement expenses amounting to €13.2m. Depreciation charges totalled €62.1m (€44.7m of which due to IFRS 16 and €17.4m in relation to properties and other tangible assets).
Following the RAM goodwill writeoff, all the other assets have passed the impairment tests carried out in accordance with IAS 36 15 and the Group Impairment Policy with no problems noted. For further information, reference is made to section 10 of the Notes to the Accounts.
30 June 2023
30 June 2022
Chg.
(€ m)
%
(€ m)
%
Land and properties
457.2
34%
456.7
34%
0.1%
- of which: core
171.4
13%
174.5
13%
-1.8%
buildings RoU ex IFRS16
229.9
17%
216.9
16%
6.–%
Other tangible assets
73.5
6%
55.2
4%
33.2%
- of which: RoU ex IFRS16
11.7
1%
9.3
1%
25.8%
Goodwill
574.6
43%
616.8
46%
-6.8%
Other intangible assets
222.3
17%
221.5
16%
0.4%
Total tangible and intangible assets
1,327.6
100%
1,350.2
100%
-1.7%
15 Account has also been taken of the ESMA and Consob recommendations.
Review of Group Operatrions
41
(€ m)
Transaction
30 June 2023
30 June 2022
Polus Capital
57.–
56.9
MB Private Banking
52.1
52.1
RAM
—
48.7 (*)
Messier et Associés
93.2
93.2
Consumer
372.3
365.9
of which:
- Soisy
6.4
—
- Compass-Linea
365.9
365.9
Total Goodwill
574.6
616.8
1 Corresponding to CHF 48.4m; €49.5m based on the exchange rate as at 30 June 2023.
An updated list of the core properties owned by the Group is provided below:
Squ. M
Book value (€m)
Book value per squ. m (€/000)
Milan:
– Piazzetta Enrico Cuccia n. 1
9,318
14.2
1.5
– Via Filodrammatici n. 1, 3, 5, 7 - Piazzetta Bossi n. 1 - Piazza Paolo Ferrari n. 6
13,390
62.3
4.7
– Foro Buonaparte n. 10
2,926
9.–
3.1
– Via Siusi n. 1-7
22,608
22.5
1.–
Rome (*)
1,790
7.7
4.3
Vicenza
4,239
4.4
1.–
Luxembourg
442
3.5
7.9
Monaco
4,721
46.5
9.8
Other minor properties
2,911
0.5
0.2
Total
62,345
170.6
* The Piazza di Spagna property, carried at a book value of €23.4m, is used only in part by Mediobanca, and has therefore not been included among its core assets.
42 Consolidated financial statements as at 30 June 2023
Provisions for liabilities – These amounted to €182.6m, higher than last year (€159.7m), due to the increase in the provision for risks and charges (from €113.4m to €139.6m); while the provision for commitments and guarantees and the provision for statutory end-of-service payments were virtually unchanged, at €22.2m and €20.8m respectively.
Movements in the provision for risks and charges primarily involve transfers made to cover the early retirement scheme (€26m), disputes relating to the recruitment of bankers and FAs (€7m), and potential litigation in Consumer Finance arising from the Italian Constitutional Court’s verdict on the effects of the Lexitor ruling (€3.3m).16 Some provisions were also released (approx. €5.5m) following recalculation of the amounts involved in the tax disputes as a result of changes introduced by the 2023 Italian budget law.
The provision at end-June 2023 was made up as follows: Mediobanca (€67.3m), Compass (€29m), CheBanca! (€32m), SelmaBipiemme (€6.1m) and CMB (€2.2m).
For further details, reference is made to section 10 of the Notes to the Accounts.
30 June 2023
30 June 2022
(€ m)
%
(€ m)
%
Chg.
Commitments and financial guarantees given
22.2
12%
24.3
15%
-8.6%
Provisions for risks and charges
139.6
77%
113.4
71%
23.1%
Staff severance indemnity provision
20.8
11%
22.–
14%
-5.5%
of which: staff severance provision discount
-0.5
n.s.
0.6
—
n.s.
Total provision
182.6
100%
159.7
100%
14.3%
Net equity – net equity totalled €11.3bn, higher than last year (€10.6bn), due to the Assicurazioni Generali equity share being adjusted following the transition to the new IFRS 9/17, which reduced the valuation reserve drastically; the other valuation reserves show an increase in the cash flow hedge reserve (up €95.9m), more than half of which was eroded by the reduction in the OCI reserves (down €51.9m). The dividend distributed (€629.1m) was more than offset by the profits generated during the period (€1,026.8m).
16 The Italian Constitutional Court’s ruling no. 263 issued in December 2022 declared Italian Decree law no. 73 of July 2021 to be unconstitutional (the decree law had made the “Lexitor” ruling applicable to consumer credit and salary-backed finance contracts on which early repayments had been made after 25 July 2021). The upfront fees have therefore been restored to the calculation of the amount payable for early repayment (having been subtracted from the amounts under Lexitor). Given that the ruling is retroactive, a total of €13.2m remains set aside in the provision in this connection to cover the risk of possible disputes with the arbitrator.
Review of Group Operatrions
43
As at 30 June 2023, the Group owned a total of 8,454,929 (or 1% of the shares in issue), lower than previously due to shares used being used in the period plus the major cancellation implemented in September 2022 (16,500,000 shares).
(€ m)
30 June 2023
30 June 2022
Chg.
Share capital
444.2
443.6
0.1%
Other reserves
9,792.–
8,863.1
10.5%
Valuation reserves
62.1
433.6
n.m.
- of which: financial assets recognized at FVOCI
71.1
123.–
-42.2%
cash flow hedge
272.4
176.5
54.3%
equity investments
(277.8)
133.5
n.m.
Profit for the period
1,026.8
907.–
13.2%
Total Group net equity
11,325.1
10,647.3
6.4%
The OCI valuation reserve decreased from €123m to €71.1m, much of which was due to the valuations of Italian and core Europe government securities (down €38.9m). The reduction in the reserve for equities (including for equity-like instruments) refers to the partial redemption for €67m, almost half of which was absorbed by the year-end adjustments (€40m).
(€ m)
30 June 2023
30 June 2022
Chg.
Equity shares
147.5
174.3
-15.4%
Bonds
(73.3)
(61.–)
20.2%
of which: Italian government bonds
(35.–)
1.5
n.m.
Tax effect
(3.1)
9.7
n.m.
Total OCI reserve
71.1
123.–
-42.2%
44 Consolidated financial statements as at 30 June 2023
Profit and loss account
Net interest income — Net interest income rose by 21.8%, from €1,479.2m to €1,801m, reflecting ongoing improvement throughout the twelve months, helped by the higher lending volumes and by liquidity being redeployed in banking book securities, government bonds in particular on which the yields have again become appealing. The ALM position reacted favourably to the rise in interest rates, fully absorbing the anticipated increase in the cost of funding which nonetheless remained limited, because of the substantial Wealth Management component (where repricing was minimal) and the diversification of the debt security channels. Consumer Finance, on the back of the healthy flows in new loans, was again the leading contributor, with NII up from €934.3m to €984.9m (an increase of 5.4%), after managing to pass much of the increase in the cost of the hedges onto the new business. Wealth Management posted net interest income of €361.5m (up 22.7%), helped by the rise in the lending rate, against a cost of funding that increased by just a fraction compared to the market rates (average external cost in the 12M 0.60%). Treasury management delivered net interest income of €98.1m, after more than eight years of negative results; the approx. €180m improvement reflects the good performance by the banking book (helped by the presence of the BTP Inflation notes). Centralized management of interest rate risk at Parent Company level enabled all of the extra cost of the debt security funding to be absorbed and also the change in the method used to calculate the interest payable on the T-LTRO loans as from 23 November 2022. Net interest income increased in Corporate & Investment Banking, too, up 14% to €288m, as a result of the higher average volumes and resilience of spreads, in Wholesale Banking in particular (Lending and Structured Finance) and an increased contribution from the Markets division due to the repricing of the securities owned.
(€ m)
30 June 2023
30 June 2022
Chg.
Consumer Banking
984.9
934.3
5.4%
Wealth Management
361.5
294.6
22.7%
Corporate and Investment Banking
288.–
252.5
14.–%
Holding Functions and other (including IC)
166.6
(2.2)
n.m.
Net interest income
1,801.–
1,479.2
21.8%
Net treasury income — net treasury income totalled €205.7m, a sharp increase on last year (€161.8m) as a result of material growth for the proprietary portfolio, which more than doubled, to €104.9m. The slowdown in client trading in the Market Division (down 13.4%, from €82.8m to €71.6m), reflects equity trading returning to standard levels (€55.5m) following last year’s exceptional performance (€68m) coupled with a slight recovery by fixed-income trading (from €14.8m to €16.1m), the
Review of Group Operatrions
45
recovery in the performance of which is, however, mostly reflected in net interest income. The proprietary portfolio was boosted by good positioning versus interest rates, with the trading desk’s contribution was markedly higher than last year (up from €3.5m to €36.2m), plus the resumption in equity arbitrage trading, which posted a profit of €12.6m for the twelve months (compared with a €9.8m loss last year). Treasury management, the result of which is accounted for as part of the; Holding Functions, delivered trading income of €42.8m, despite the lack of gains on disposals of banking book securities (which generated €23.2m last year) due to active management of the portfolio’s hedging. Dividends and other income from Principal Investing decreased from €20.1m to €16m.
(€ m)
30 June 2023
30 June 2022
Chg.
Corporate Investment Banking
135.–
80.4
67.9%
of which: client fixed income
71.6
82.8
-13.5%
Principal Investing
16.–
20.1
-20.4%
Holding Functions
42.8
48.–
-10.8%
Other (including Intercompany)
11.9
13.3
-10.5%
Net treasury income
205.7
161.8
27.1%
Net fee and commission income — this item totalled €843.9m, almost flat versus last year (down just 0.8%) on higher fees in Wealth Management (up 6.6%, from €421.6m to €449.6m), which offset the anticipated slowdown in Corporate & Investment Banking (fees down from €306.3m to €289.4m), which in any case was less pronounced than the slowdown recorded by the market generally. WM delivered a healthy performance in management fees in particular (up from €321.5m to €329.6m), pronounced growth in upfront fees from placements (up 26%, to €77.1m), and an increase in banking fees (up 8.8%, to €92m); conversely, the slowdown in CIB was concentrated in 2H in particular (with only €104m contributed in 6M), and mainly regards investment banking (which generated fees of just €50m, compared to €120m) and lending activity (€28m, versus €56m). Consumer Finance posted 12.1% growth in fees, from €123.5m to €138.4m, reflecting the lower rappel fees (which were down €10m) and the first impact of the new BNPL business, which generated fees of €12m (€8m more than last year).
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Wealth Management
449.6
421.6
6.6%
Corporate & Investment Banking
289.4
306.3
-5.5%
Consumer Banking
138.4
123.5
12.1%
Holding Functions and other (including intercompany)
(33.5)
(0.9)
n.m.
Net fee and commission income
843.9
850.5
-0.8%
1 For the Holding Functions division (fees of €32.5m, down 38.5%), the slowdown was due to Revalea’s activities and to the impact of treasury fees in connection with the high Mediobanca securities placement activity levels via the proprietary networks.
46 Consolidated financial statements as at 30 June 2023
Insurance sector and other equity-accounted investments — the strong growth here, up 26.3%, from €359.3m to €453.9m, reflects the contribution from Assicurazioni Generali (up 24.2%, from €356.6m to €442.8m), which in 4Q in particular (up 77.1% to €158.8m) was boosted by the first application of IFRS 17 (in particular the valuation of liabilities against rising interest rates) plus the gain realized on disposal of a property in London. The other investments contributed a total of €11.1m (€2.7m).
Operating costs — operating costs were up 7.7%, from €1,312.1m to €1,413.1m, reflecting the expansion of the commercial structures (with 76 new bankers added in Wealth Management and 22 in CIB), IT investments (infrastructure consolidation and digital agenda), and the increase in business volumes and resumption of marketing/communication activities. The rise in costs was in any case lower than the growth in revenues, so the cost/income ratio decreased according, to 42.8%, (46% last year). The main items performed as follows:
—Labour costs rose by 8.5% (from €671.5m to €728.3m), with the fixed component (which represents 71% of the total), reflecting the rising headcounts (with staff numbers up 211), and the initiatives to attract and retain key figures. Just over half the increase is attributable to Wealth Management (labour costs up 10.7%, to €294.2m; 2,197 FTEs), whereas the rest is split between Corporate & Investment Banking (up 8.2% to €183m; 648 FTEs), Consumer Finance (up 7.5% to €113.8m; 1,520 FTEs, including 35 from Soisy) and HF (up 5.9% to €133.4m; 853 FTEs);
—Administrative expenses rose by 6.9% (from €640.6m to €684.8m), reflecting the Group’s increased operations and strong project activities. IT costs rose by 10% (from €203m to €224m), operational expenses were up 5.5% (€202m, including costs relating to branch and head offices), investments in marketing climbed 14% (from €40m to €48m); while consultancy expenses, most of which related to the projects implemented, increased from €41m to €49m. Wealth Management reflects administrative expenses of €260.9m (up 3.9%), Consumer Finance of €233.6m (up 11.8%), and Corporate & Investment Banking of €144.3m (up 12%).
Review of Group Operatrions
47
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Labour costs
728.3
671.5
8.5%
of which: directors
11.3
12.8
-11.7%
stock option and performance share schemes
11.2
13.3
-15.8%
Sundry operating costs and expenses
684.8
640.6
6.9%
of which: depreciations and amortizations (incl. IFRS16)
92.3
86.6
6.6%
administrative expenses
592.5
554.–
6.9%
Operating costs
1,413.1
1,312.1
7.7%
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Legal, tax and professional services
16.3
18.2
-10.4%
Other consultancy expenses
39.–
36.2
7.7%
Credit recovery activities
59.3
57.3
3.5%
Marketing and communication
49.2
42.1
16.9%
Rent and property maintenance
23.–
22.5
2.2%
EDP
162.2
151.7
6.9%
Financial information subscriptions
54.1
48.9
10.6%
Bank services, collection and payment commissions
32.9
31.3
5.1%
Operating expenses
66.6
60.5
10.1%
Other labour costs
18.–
11.2
60.7%
Other costs
41.–
42.2
-2.8%
Direct and indirect taxes
30.9
31.9
-3.1%
Total administrative expenses
592.5
554.–
6.9%
Loan loss provisions — loan loss provisions rose by 11.3%, from €242.6m to €270.1m, with the cost of risk (COR) still low at 52 bps, albeit slightly higher (48 bps) due to prudent provisioning which meant that the majority of the overlays were retained (€268m). The risk indicators remain excellent: loan loss provisions in Consumer Finance increased from €190.1m to €203.9m, due mostly to the higher volumes, as the COR remained basically flat at 145 bps (30/6/22: 142 bps); recovery rates remain very high, and non-performing assets remain at very low levels (gross NPL ratio: 5.59%); the coverage ratios were at adequate levels (NPLs: 77.3%; performing loans: 3.75%) with the overlay stock basically unchanged, at €208.6m. Corporate & Investment Banking recorded provisions for the twelve months of €31.6m, €32.1m of which in Wholesale Banking, with the COR rising to 16 bps; the increase in provisions was due to one performing exposure being reclassified as UTP (70% covered, resulting in a charge of €35m being taken at the balance-sheet date) and one UTP item being reclassified among bad debts (written off entirely, resulting in a charge of €16.6m for the twelve months), only in part offset by writebacks in respect of the performing portfolio following repayments and re-ratings (minus €36.7m) including the reduction in overlays, following careful review of the sectors most impacted by inflation and the ongoing nature of the phenomenon. Wealth Management reported loan loss provisions of €10.5m, down 25% on last year (€14m)
48 Consolidated financial statements as at 30 June 2023
at a COR of 7 bps (30/6/22: 9 bps); the segment continues to benefit from positive risk indicators and good performances in terms of credit recovery; the impact on profit and loss was helped by the release of some of the overlays (which decreased from €14.9m to €11.3m).
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Corporate and Investment Banking
32.3
(41.7)
n.m.
Consumer Banking
203.9
190.1
7.3%
Wealth Management
10.5
14.–
-25.–%
Holding Functions (leasing and NPL management)
23.4
80.2
-70.8%
Loan loss provisions
270.1
242.6
11.3%
Cost of risk (bps)
52
48
Provisions for other financial assets 17 – charges of €7.3m were taken, compared to last year, when provisions of €37.4m were recorded. This was due to the improvement in holdings in investment funds measured at fair value, for which charges of just €5.4m were taken (€34.3m) last year. This heading also includes the provisioning for the banking book securities (€1.9m).
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Hold-to-Collect securities
(2.6)
(0.8)
n.m.
Hold-to-Collect & Sell securities
0.7
(2.3)
n.m.
Financial assets mandatorily FVTPL
(5.4)
(34.3)
-84.3%
Provisions for other financial assets
(7.3)
(37.4)
-80.5%
Other gains (losses) – this heading reflects a net loss of €185.8m (€90.1m last year), of which:
—€70.4m in payment to the resolution funds (€45.4m as the final payment to the Single Resolution Fund, €25m to the Italian Deposit Guarantee Scheme, the target for which must be guaranteed by end-2024);
—€49.5m due to the RAM goodwill being written off, in view of how the new interest rate scenario has radically affected the systematic funds market, reducing
17 Under IFRS 9, the impairment process applies to all financial assets (securities, repos, deposits and current accounts) recognized at cost (the “Hold to Collect” model) and to all bonds recognized at fair value through other comprehensive income (the “Hold to Collect and Sell” model).
Review of Group Operatrions
49
its growth prospects; the funds’ good performances (they are well positioned in the Morningstar rankings) staunched the outflows but it is unlikely that the company will be able to return to its historical profitability levels within a timeframe that is compatible with the reporting standards (i.e. 3-5 years); but the existing funds’ performances justify retaining the brand’s value which is still well viewed by the market;
—€26m in staff-related provisions for the launch of an early retirement and redundancy scheme to encourage generational turnover, in conjunction with the launch of the 2023-26 Strategic Plan which is focused on innovation and technology in all business segments;
—€13.6m in net contingent liabilities in respect of a refund to a customer who was the victim of fraud committed as part of a complex system of payments, in which the Bank has taken charge of all recovery actions versus the parties involved, including activating the relevant insurance claims; negotiations are ongoing, and additional collections in the coming months are not to be ruled out;
—€17.7m in losses as a result of the Revalea disposal in application of IFRS 5, which stipulates that a charge is taken when the sale price is lower than the book value;
—€3.8m in movements in the provision for risks as a result of new transfers (in particular the adjustment to the Lexitor provision in Consumer Finance and revisions to the amounts to be paid out in relation to disputes over the recruitment of bankers and FAs in Wealth Management) in part offset by the revaluation of the tax risk at Mediobanca level, in view of the regulatory changes and in particular the measure on dividends paid by non-Italian companies;
—€4.8m in other charges, chiefly in relation to the acquisitions (put-and-call agreement valuations, one-off incentives to the former Bybrook partners, and adjustments to items for Soisy) and to management of properties collected under the terms of leasing agreements.
Income tax – income tax totalled €394.7m, and includes the share of the withholding tax payable after the option to release CMB Monaco profit reserves was exercised (net effect of €19.2m).18 Net of this non-recurring item, the tax rate was 26.3%, higher than last year (24.6%) primarily because of the higher amount of non-deductible charges. The Mediobanca Group adheres to the consolidated tax regime
18 Cf. Italian Budget Law 2023 (Article 1, paras 87-95); Italian Law 197/2022.
50 Consolidated financial statements as at 30 June 2023
provided by Articles 117ff of the Italian Income Tax Act (known also as “national tax consolidation”). Of the various effects deriving from this decision, the main benefit is being able to determine an overall amount of comprehensive income, which is equal to the algebraic sum of the tax income or losses reported by the parties that have opted into this system; this amount is subject to IRES at 24%.
* * *
Review of Group Operatrions
51
Balance-sheet/profit-and-loss data by division
WEALTH MANAGEMENT
This division brings together all asset administration and management services offered to the following client segments:
—Private Banking (Mediobanca Private Banking and CMB Monaco).
—Premier (CheBanca!);
Wealth Management also includes the Asset Management division, primarily captive business (Mediobanca SGR, Polus Capital,19 RAM Active Investments) plus the fiduciary activities performed by Spafid, Spafid Family Office SIM and Spafid Trust.
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. (%)
Profit-and-
l
o
s
s
Net interest income
361.5
294.6
22.7
Net trading income
9.4
10.3
-8.7
Net fee and commission income
449.6
421.6
6.6
Total income
820.5
726.5
12.9
Labour costs
(294.2)
(265.7)
10.7
Administrative expenses
(260.9)
(251.–)
3.9
Operating costs
(555.1)
(516.7)
7.4
Loan loss provisions
(10.5)
(14.–)
-25.–
Provisions for other financial assets
(1.2)
(0.1)
n.m.
Other income (losses)
(20.9)
(4.7)
n.m.
Profit before tax
232.8
191.–
21.9
Income tax for the period
(70.–)
(55.9)
25.2
Minority interest
(0.9)
(0.9)
n.m.
Net profit
161.9
134.2
20.6
Cost/Income (%)
67.7
71.1
€ m
12 mths ended
30/6/23
12 mths ended
30/6/22
Balance-sheet data
Loans and advances to customers
16,827.3
15,297.9
of which:
Chebanca! mortgage loans
12,384.1
11,368.2
Private Banking
4,443.2
3,929.7
New loans
2,244.7
2,163.7
Risk-weighted assets
5,959.4
5,685.7
ROAC
35%
28%
No. of staff
2,197
2,104
19 Rebranding of Cairn Capital following the merger with Bybrook Capital.
52 Consolidated financial statements as at 30 June 2023
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. (%)
Commercial data
Relationship managers
522
507
3.–%
Financial advisors
565
516
9.5%
No. of branches/agencies CheBanca!
208
207
0.5%
Private Banker
149
137
8.8%
Net profit for the twelve months totalled €161.9m, up 20.6% on last year (€134.2m), with revenues up 12.9% to €820.5m driven by increases in net interest income (up 22.7%) and fees (up 6.6%, 53% of the Group’s total). The results were attributable to the higher AUM/AUA volumes (€8.4bn, €5.4bn of which in 2H) helped by the conversion of deposits primarily into AUA (government securities and certificates worth a total of €3.9bn) and profitability (average slightly above 90 bps). The cost/income ratio decreased to 67.7% (71.1%), and ROAC 20 reached 35%.
The results obtained contribute to the establishment of the Wealth Management division as a leading operator on the domestic market – in line with the objectives of the 2019-23 Strategic Plan – helped by multiple factors (brand strength, contents of offering, high focus on HNWI/UHNWI clients, and valorization of the global advisory offering for entrepreneurs and their businesses). These results have laid the foundations for growth in the 2023-26 three-year period which is expected to outperform the system in terms of TFAs (€115bn CAGR +11%), revenues (€1bn), and profitability (RORWA 4%). Thus the division is set to become the second contributor to the Group’s results in terms of revenues and the first for fee income.
The distribution network now has 1,236 professionals, 1,087 of whom working in the Premier segment split equally between (522, with 15 recruited during the period) and FAs (565, with 49 added) working at 105 branches and 103 points of sale. The number of Private Bankers rose by 12 to reach 149, including a team of six bankers of high seniority who the space of a few months have contributed assets worth approx. €300m.
At the divisional level, the interaction between the distributors and the Group’s product factories, and between the distributors themselves, has been strengthened with the launch of the new One Brand-One Culture Strategic Plan, with the aim of presenting a single commercial product and service offering tailored differently to the individual client segments, based on their specific needs and requirements, and
20 Adjusted Return on Allocated Capital.
Review of Group Operatrions
53
leveraging synergies with the CIB division to consolidate the private and investment banking model.
As for the Private Banking segment, in Public Markets the focus has been on the division’s core portfolio management products, where, in view of the macroeconomic interest rate scenario, five new strategies have been introduced (four Buy & Hold bond strategies and one equity strategy).
In Private Markets, the fifth Russell Investments initiative has been launched (with €80m placed), and marketed to Premier clients as well, as has the Apollo Aligned Alternative semi-liquid fund, which combines the advantages of private equity strategies with increased liquidity compared to the traditional funds in this asset class. The BlackRock programme investment activity has also continued, which in 4Q saw the completion of two initiatives worth over €90m, taking the total invested under the programme to over €370m.
As for club deals with high potential Italian SMEs as target, the first €500m investment programme is being completed with two initiatives, one in the area of motor sport (already complete), and one in the skin care/beauty sector still in progress.
As part of the development of the Private and Investment Banking model, the co-operation with CIB in providing joint coverage has also continued, enabling approx. €600m in liquidity events to be generated during the year.
During the twelve months under review, the Premier segment has successfully leveraged the improved market interest rate conditions, offering its affluent and wealthy clients various types of fixed-income products which differ by duration and currency, and access to new direct funding promotions.
With regard to investment products, issues have been placed for which subscriptions have exceeded €800m, approx. €300m of which in 2H.
The range of funds under management has been expanded during the twelve months, with three new strategies added in partnership with leading international asset managers (Mediobanca Nordea Climate Engagement, Mediobanca Morgan Stanley Step In Global Balanced ESG Allocation, Mediobanca Fidelity World Fund) for a total of €172.2m. Three new target maturity bond funds have also been introduced: MB Diversified Credit Portfolio 2025 (€26.5m), MB Credit Opportunities 2028 (€34.1m), MB ESG Credit Opportunities 2026 (€52,2m), including the first SFDR Article 8 ESG fund, raising a total of €112.7m.
54 Consolidated financial statements as at 30 June 2023
A new Mediobanca target maturity fund, Credit Opportunities ESG 2027, was launched at the end of the financial year, once again to take advantage of the favourable market interest rates and to meet client demand for fixed-income products.
Coming now to direct funding, in April and May 2023 a promotional rate of 3.5% was offered on new amounts deposited for twelve months in deposit account, which resulted in over €1.7bn being raised.
In alternative asset management, Polus won the Best Hedge Fund award in the Event-Driven category at the Preqin Awards for 2023; the Master Fund has continued its upward trend, with $84m collected in 4Q.
In the Special Situations space, a $200m fund was launched in April 2023 ($40m of which have already been invested) for a US institution; whereas CLO activity has resumed slowly in Europe (with two CLOs at the pre-marketing stage) and is in the process of being launched on the US market.
RAM continues with its turnaround process, refocusing on core areas and leveraging on its brand by offering high-quality funds (four segments obtained five-star ratings from Morningstar, including RAM Mediobanca Strata UCITS). As part of the structure and offering range rationalization process, the company has wound up its Diversified Alpha and I/O funds, and has closed its Systematic Macro team.
Total Financial Assets (TFAs) stood at €88bn, and include €28.2bn in deposits (30/6/22: €28.8bn) and €59.8bn in AUM/AUA, which were boosted by €7.9bn in NNM and helped further by the €511m positive market effect. The composition is as follows: Premier €37.5bn (€20.6bn AUM/AUA, €17bn deposits), Private Banking €38.8bn (€27.6bn AUM/AUA, and €11.2bn deposits), and Asset Management €25.9bn, €14.2bn placed internally within the Group (30/6/22: €13.5bn).
Review of Group Operatrions
55
Chg. %
Net TFA
30 June 2023
31 December 2022
30 June 2022
June 23 / June 22
June 23 / Dec 22
Premier Banking
37,548
34,988
33,917
10.7%
7.3%
Private Banking
38,788
36,177
34,319
13.–%
7.2%
Asset Management
25,914
25,516
25,459
1.8%
1.6%
Intercompany
(14,217)
(13,464)
(13,450)
5.7%
5.6%
Wealth Management
88,033
83,217
80,245
9.7%
5.8%
Chg. %
Deposits
30 June 2023
31 December 2022
30 June 2022
June 23 / June 22
30 June 2023
Premier Banking
16,984
17,042
17,450
-2.7%
-0.3%
Private Banking
11,205
11,700
11,315
-1.–%
-4.2%
Asset Management
—
—
—
n.a.
n.a.
Wealth Management
28,189
28,742
28,765
-2.–%
-1.9%
Chg. %
AUM/AUA
30 June 2023
31 December 2022
30 June 2022
June 23 / June 22
30 June 2023
Premier Banking
20,564
17,946
16,467
24.9%
14.6%
Private Banking
27,583
24,477
23,003
19.9%
12.7%
Asset Management
25,914
25,516
25,459
1.8%
1.6%
Intercompany
(14,217)
(13,464)
(13,450)
5.7%
5.6%
Wealth Management
59,844
54,475
51,479
16.2%
9.9%
2021-2022
Net New Money
IQ
IIQ
IIIQ
IVQ
Premier Banking
867
589
876
434
Private Banking
978
2,029
1,299
1,747
Asset Management
(416)
311
368
(70)
Wealth Management
1,429
2,929
2,543
2,111
2022-2023
Net New Money
IQ
IIQ
IIIQ
IVQ
Premier Banking
222
1,109
381
1,625
Private Banking
1,001
1,061
740
1,591
Asset Management
(85)
82
(120)
(331)
Wealth Management
1,138
2,252
1,001
2,885
Customer loans were up 10% on last year, from €15.3bn to €16.8bn; mortgage loans grew by 8.9% (from €11.3bn to €12.3bn), on new business totalling €2.2bn, in line with last year; the Private Banking segment too saw an increase, of 13.1% (from €3.9bn to €4.4bn), on a higher contribution from CMB Monaco (up 17%, from €2.5bn to €2.9bn) and the Mediobanca Private Banking division (up 7%, from €1.4bn to €1.5bn).
Gross NPLs were stable at €218m, equal to 1.3% of total loans, split between CheBanca! mortgage loans (€166m, 1.3% of the stock), CMB Monaco (€39m), and the Mediobanca Private Banking division (€13m). The coverage ratio was 45.1% (69.7% for bad debts). Net NPLs totalled €119.9m (0.7% of net total loans), €78.4m of which are attributable to CheBanca! mortgage loans; net bad debts totalled €29.5m, all of which were attributable to CheBanca! products. Stage 2 loans decreased from €838.1m to €726.1m (or 4.3% of total loans), approx. 80% of which attributable to CheBanca!.
The division’s revenues grew from €726.5m to €820.5m, with a balanced contribution in both half-years (1H: €407.3m; 2H: €413.2m); the main income items reflect the following performances:
56 Consolidated financial statements as at 30 June 2023
—Net interest income rose by 22.7% (from €294.6m to €361.5m), driven by the growth in lending volumes, with deposits stable at moderate costs (external cost 0.60%). In particular, NII generated by Private Banking doubled, from €58.5m to €114.9m, whereas the increase reported by the Premier segment was lower (up 3.6%, from €236.4m to €245m) because of the different ALM structure, with interest rate and liquidity risk management fully centralized at Parent Company level;
—Net fee and commission income grew by 6.6% (from €421.6m to €449,6m), with a significant contribution from management fees (up 2.5%, from €321.5m to €329.6m) and banking fees (up from €84.7m to €95.1m, an increase of 12.3%), and especially upfront fees (up 26.1% from €61.1m to €77.1m) deriving from the substantial placements of fixed-income securities (sovereign debt, bonds and certificates), which comfortably offset the lower performance fees (down €1.8m, to €8.4m).
Operating costs increased from €516.7m to €555.1m (up 7.4%) on higher labour costs (up 10.7%, from €265.7m to €294.2m) reflecting the strengthening of the workforce (with 93 new staff added, two-thirds of whom in Premier Banking), and the variable remuneration component being aligned to the good results. Administrative expenses rose by 3.9% (from €251m to €260.9m), due chiefly to IT and project expenses (up 7.5% from €111m), plus investments to refurbish premises (up 11% to €43m) and professional consultancy services (up 13.5%, to €14m).
Loan loss provisions totalled €10.5m (COR a 7 bps), with the reduction compared to last year (€14m) being due to the low default rates for CheBanca! mortgage loans, which led to a reduction in the overlays (from €15m to €11.3m).
Non-recurring items totalled €20.9m, and chiefly regard €7.8m in increased provisions for disputes in connection with the recruitment of bankers and FAs, approx. €8m to establish an early retirement provision in the Premier segment, and €3.6m in adjustments to commitments undertaken in connection with acquisitions (Polus earn-out and put & call clauses).
Review of Group Operatrions
57
CORPORATE & INVESTMENT BANKING
This division provides services to Corporate customers in the following areas:
—Wholesale Banking: lending, capital market activities, advisory services, and trading (client and proprietary), performed by Mediobanca, Mediobanca International, Mediobanca Securities and Messier et Associés);
—Specialty Finance: factoring, performed by MBFACTA, and c redit management (on behalf of third parties only), performed by MBCredit Solutions and MBContact Solutions.21
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. %
Profit-and-
l
o
s
s
Net interest income
288.–
252.6
14.–
Net treasury income
135.–
80.4
67.9
Net fee and commission income
289.4
306.3
-5.5
Total income
712.4
639.3
11.4
Labour costs
(183.–)
(169.2)
8.2
Administrative expenses
(144.3)
(128.9)
12.–
Operating costs
(327.3)
(298.1)
9.8
Loan loss provisions
(32.3)
41.7
n.m.
Provisions for other financial assets
(10.1)
(3.8)
n.m.
Other income (losses)
—
(0.6)
n.m.
Profit before tax
342.7
378.5
-9.5
Income tax for the period
(113.8)
(122.9)
(7.4)
Minority interest
(3.7)
(8.6)
(57.1)
Net profit
225.2
247.–
-8.8
Cost/Income (%)
45.9
46.6
12 mths ended
30/6/23
12 mths ended
30/6/22
Balance-sheet data
Loans and advances to customers
19,625.9
20,734.1
of which: Corporate
16,765.2
17,975.8
Factoring
2,860.7
2,758.3
Corporate new loans
7,154.7
9,464.2
Factoring turnover
12,084.1
10,733.1
Risk-weighted assets
19,410.2
20,164.5
ROAC
13%
14%
No. of staff
648
626
Front Office Wholesale
344
320
The CIB division reported a net profit of €225.2m, lower than last year (30/6/22: €247m), after the good earnings performance was impacted by the higher provisions taken in respect of two large corporate exposures. Revenues for the twelve months totalled €712.4m, up 11.4% on last year (€639.3m), with another healthy
21 As previously disclosed, last year the Group decided to spin off its NPL portfolio acquisition business unit, commencing a gradual and orderly disposal process. Accordingly, the business has been spun off to the newly-incorporated company Revalea (set up in April 2022 and 100%-owned by Compass. Thus, as from FY 2022-23, all NPL management activities have been transferred to the Holding Functions division.
58 Consolidated financial statements as at 30 June 2023
performance in terms of fees (€289.4m) despite the expected slowdown in 2H in line with the trends seen in the European and US markets. ROAC 22 for the division stood at 13%, with a cost/income ratio of 45.9% and a COR of 16 bps.
These results confirm the feasibility of the targets set as part of the 2023-26 Strategic Plan: by expanding and enhancing its European platform, the division will increase the share of both non-domestic revenues (from 40% to 55%) and capital-light revenues, and by leveraging on the effective Private & Investment Banking model and synergies with Messier et Associés and Arma Partners,23 will become the partner of choice for medium-size and large companies in the Group’s reference geographies (Italy, France and Spain). The division will also become the Group’s main source of capital optimization (with RWAs set to be cut by 13% in 3Y) and its second-best performer in terms of revenues and fee income.
In 2H FY 2022-23 the global M&A 24 market reported a drop of 37% in deal volumes and of 9% in the number of deals announced compared to the same period last year. This trend was even more pronounced on the European market, where the reduction was 49% in volume terms and 18% in the number of deals. In France and Spain in particular, the reductions in volumes were 25% and 54% respectively, while the Italian market reported an 88% drop in volumes, further accentuating the figure at end-December 2022 (the reduction would be 70% without counting the Atlantia takeover).
Against this backdrop, Mediobanca reported a reduction in Advisory business that was below the market average, helped by the Bank’s strong relations with its clients and the resilience of the domestic market, in the mid-corporate segment in particular. Some of the most important advisory deals completed in the period include the business combination between Autogrill and Dufry in the Consumer sector, the recapitalization of Ansaldo Energia, the joint venture between Wind Tre and Iliad in the TMT sector, and the strategic agreement between Intesa San Paolo and Nexi in the Financial Institutions sector. In the Mid-Cap space Mediobanca confirmed its position as advisor of choice, completing five deals despite the difficult market situation, including the partnership between Charme Capital Partners SGR and Tema Sinergie, and the sale of Tikedo to White Bridge Investments.
Strategic discussions with leading clients and funds have been intensifying recently. However, the uncertainties linked to the current macroeconomic scenario,
22 Adjusted return on allocated capital.
23 See above in the section on significant events in the twelve months.
24 Source: Refinitiv – deals announced.
Review of Group Operatrions
59
the increased complexity of deal execution, and the situation on loan markets are all slowing down the timeframes for deal announcements and closures, which is impacting on pipeline construction for the new financial year.
With reference to Debt Capital Markets activity, Mediobanca played an important role in numerous Italian bond issues (including Alperia, Intesa San Paolo, Stellantis, Lottomatica, Assicurazioni Generali, Hera, and Iccrea) and in some major deals in others of its core markets (notably Société Générale and EDP), with an increasing presence in the ESG segment.
In Equity Capital Markets, the Bank participated in the stake-building in Anima, as part of which Mediobanca successfully executed the largest-ever Italian reverse ABB on behalf of FSI. The Bank also played a leading role in the convertible bond issued by Greenvolt in Portugal, assisting KKR as financial advisor, and in the Lottomatica IPO, where Mediobanca was joint bookrunner.
As for Lending, the Bank has financed companies and sponsors in all the geographies it covers, supporting them in both their ordinary activities (such as Recordati, Cellnex and Enagas) and extraordinary activities (for example, Dufry in its business combination with Autogrill, and Perfetti Van Melle Group in its acquisition of Mondel ē z Gum); this effort was reflected in an increase in both net interest income and fees, coupled with an improvement in the quality of the loan book (with the Investment Grade share rising to 74%, up 10 pp in the last two years).
The Markets division delivered an excellent performance, showed good resilience in terms of its positions in a turbulent market scenario, and was boosted by growing demand for certificates, as a result of the growing synergies between the CIB and WM divisions.
* * *
Loans and advances to customers decreased by 5.3% in the twelve months, from €20.7bn to €19.6bn, with the 6.7% reduction in Wholesale Banking (from €18bn to €16.8bn) reflecting the lower new business levels in Lending and Structured Finance (€6.9bn, down 15% YoY); 26% of the new finance was disbursed against revolving credit lines, while 52% (€3.6bn) refers to new contracts. For the CIB division as a whole, new loans for the twelve months totalled approx. €7.2bn, against redemptions
60 Consolidated financial statements as at 30 June 2023
which totalled €8.4bn. Turnover in Factoring business rose from last year (up 12.6%, from €10.7bn to €12.1bn), as a result of growth in the client base ceding the loans (up 7%, from 347 to 370), 43% of which are classified in the large corporate segment and represent 90% of the turnover.
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
(€ m)
%
(€ m)
%
Italy
10,375.9
52.8%
10,990.3
53.7%
-5.6%
France
2,591.7
13.2%
2,432.8
11.5%
6.5%
Spain
1,579.4
8.–%
1,472.–
7.–%
7.3%
Germany
980.–
5.–%
980.5
4.7%
-0.1%
U.K.
1,124.3
5.7%
1,281.2
6.1%
-12.2%
Other non resident
2,974.6
15.1%
3,577.4
17.–%
-16.8%
Total loans and advances to customers CIB
19,625.9
100.–%
20,734.2
100.–%
-5.3%
- of which: Specialty Finance
2,860.7
14.6%
2,758.3
14.7%
3.7%
Gross NPLs increased from €106.1m to €135.7m, with a gross NPL ratio of 0.7% (vs 0.5% last year) due to one substantial position being reclassified as UTP; while on a net basis a reduction was reported, with net NPLs reducing from €24.8m to €22.2m, following the intervention to one UTP position which has been reclassified among bad debts and has contributed to the increase in the coverage ratio for the stock (now 83.6%).
Gross Stage 2 positions decreased from €631.8m to €338.4m (1.7% of total loans), due to the sharp reduction in Wholesale Banking (from €518.8m to €280.3m) following repayments and/or individual positions being revised in connection with the counterparties’ ratings being increased.
The coverage ratio for performing loans (Stages 1 and 2) was 0.4%, slightly below the figure of 0.5% reported last year, with overlays of €40m, reflecting a reduction in the Large Corporate segment (from €44.4m to €25.2m) following careful revision of the industrial sectors most affected by the macroeconomic uncertainties (in particular inflation).
Revenues for the twelve months were up 11.4%, from €639.3m to €712.4m, driven by the growth in net interest income (up 14%) and in net trading income (up 67.9%); Wholesale Banking contributed €641.8m (up 13,5%) and Specialty Finance €70.6m (down 4.2%;). The main income items performed as follows:
—Net interest income totalled €288m, up 14% on last year (€252.5m), due to the higher average volumes traded; NII in Wholesale Banking rose by 18.7% (from
Review of Group Operatrions
61
€208.7m to €247.8m), helped by the contribution from securities held for trading (which added €34m, €22.7 of which in the Markets division), and a slight improvement in Lending and Structured Finance (from €150m to €157.9m); while factoring slowed by 8.3% (from €43.8m to €40.2m), reflecting the difficulties in increasing spreads due to the high market competition;
—Net fee and commission income remained at high levels (€289.4m) due to the excellent 1H performance (€185.3m) which offset the slowdown reported in 2H (€104.1m) in line with the market; the contribution from Equity Capital Markets business totalled €27m (up 15%), while Lending fees were up 9.1% to €67.2m, fees from Debt Capital Market business decreased from €19.3m to approx. €17m, while M&A advisory reflected the most pronounced downturn (from €158.9m to €143,8m), with the Mid-Corporate share remaining very healthy at €26.2m; Specialty Finance contributed €30.4m (€29.4m), €24.3m of which in credit recovery fees in connection with MBCS (€22.3m);
—Net trading income totalled €135m (up 67.9% YoY), on the back of an excellent 1H performance (€109.5m) in conjunction with the first sharp rise in interest rates. The proprietary trading book contributed revenues of €62.1m this year (compared with a €4.1m loss last year), while client trading reported a slight downturn with revenues of €72.7m (€83.1m), with the equity trading contribution lower than last year, at €55.5m (€68m); the fixed-income trading desk reported a slight increase (from €14.8m to €16.1m), with an even higher contribution at the level of net interest income.
Revenues
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. %
Capital Market
43.5
42.7
2.–%
Lending
226.1
212.–
6.6%
Advisory M&A
143.8
158.9
-9.5%
Trading Prop
61.9
-5.3
n.s.
Market, sales and other gains
166.5
157.3
5.9%
Specialty Finance
70.6
73.7
-4.2%
Total Revenues
712.4
639.3
11.4%
Commissions
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. %
Capital Market, Sales and other gains
48.–
56.4
-14.8%
Lending
67.2
61.6
9.1%
Advisory M&A
143.8
158.9
-9.5%
Specialty Finance
30.4
29.4
3.4%
Total Commissions
289.4
306.3
-5.5%
Operating costs rose by 9.8% (from €298.1m to €327.3m), with labour costs up 8.2% (from €169.2m to €183m) reflecting the rise in headcount (with 22 new staff, for a total of 648) attributable to the growth in Wholesale Banking in both the
62 Consolidated financial statements as at 30 June 2023
domestic and international markets. This is reflected in both the fixed component, which was up 10%, and also, to a lesser degree, the variable component (up 3%) which, however, accounts for almost 40% of the total. The material increase in administrative expenses (up 12%, from €128.9m to €144.3m), reflects various cost components returning to normal post-Covid (such as travel and marketing), plus the increased weight of IT costs (up from €39m to €44m) and project activities (which climbed 18%, from €9.6m to €11.3m) in the Wholesale Banking division in particular for Markets and Lending.
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. %
CIB loans
(32.1)
49.2
n.m.
Specialty Finance loans
(0.2)
(7.5)
-97.3%
Other financial assets
(10.1)
(3.8)
n.m.
Total provisions
(42.4)
37.9
n.m.
Loan loss provisions totalled €32.3m, reflecting a cost of risk of 16 bps for the year. The increase is attributable to provisions for Wholesale Banking of €32.1m (compared with writebacks of €49.2m in the previous 12M) due to the IFSR 9 models being adjusted to the new macroeconomic scenario (in 2Q) and to writedowns of individual positions, in part offset by writebacks credited for the performing loan book, plus the release of part of the overlays which nonetheless remain at high levels (approx. €40m, €25.2 of which in the Large Corporate sector). Writebacks were credited in 3Q and 4Q, albeit minor, despite certain items being reclassified.
Provisions for other financial instruments (holdings in bonds and fund stock units) for a total of €10.1m were also taken during the year, most of which as a result of the sudden rise in interest rates.
Review of Group Operatrions
63
CONSUMER FINANCE
This Division provides retail clients with the full range of consumer credit products: personal and special-purpose loans, salary-backed finance, credit cards, plus the buy-now-pay-later solution called “Pagolight”. This year for the first time the division also includes the Group’s investments in the two fintech operators HeidiPay and Soisy. Also included in Consumer Finance are Compass RE, which reinsures retail insurance policies, Compass Rent, which operates in second-hand vehicle and car hire, and Compass Link, which distributes Compass products and services via external collaborators).
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Profit-and-
l
o
s
s
Net interest income
984.9
934.3
5.4
Treasury income
—
0.4
n.m.
Net fee and commission income
138.4
123.5
12.1
Equity-accounted companies
(0.8)
—
n.m.
Total income
1,122.5
1,058.2
6.1
Labour costs
(113.8)
(105.9)
7.5
Administrative expenses
(233.6)
(208.9)
11.8
Operating costs
(347.4)
(314.8)
10.4
Loan loss provisions
(203.9)
(190.1)
7.3
Provisions for other financial assets
—
—
n.m.
Other income (losses)
(14.–)
—
n.m.
Profit before tax
557.2
553.3
0.7
Income tax for the period
(182.9)
(182.9)
n.m.
Net profit
374.3
370.4
1.1
Cost/Income (%)
30.9
29.7
12 mths ended
30/6/23
12 mths ended
30/6/22
Balance-sheet data
Loans and advances to customers
14,465.–
13,750.1
- of which:
Personal loans
7,117.–
6,934.7
Salary-backed finance
1,736.4
1,790.–
New loans
7,848.8
7,658.6
Risk-weighted assets
13,516.9
12,981.1
ROAC
32%
33%
No. of staff
1,520
1,454
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Commercial data
Branches Consumer
181
181
n.m.
Agencies Consumer
72
65
10.8%
64 Consolidated financial statements as at 30 June 2023
The Consumer Finance division delivered a net profit of €374.3m for the twelve months, slightly higher than last year (€370.4m) with a ROAC of 32%.25 Revenues for the year were up 6.1%, to €1.1bn, driven by net interest income (up 5.4%, to €984.9m), with a significant rise in costs (up 10.4%, to €347.4m) driving the cost/income ratio to 30.9% and the cost of risk remaining at last year’s levels (145 bps).
The excellent performance posted in FY 2022-23 gives grounds for optimism regarding delivery of the 2023-26 Strategic Plan which provides for major enhancement of the distribution structure (direct and digital) and the development of innovative products (e-commerce and BNPL especially) for Compass to establish itself further in Italy as a multichannel platform in Consumer Finance and tap new markets and client clusters digitally (as opposed to physically), confirming the division’s growth story (revenues to reach €1.3bn in three years) with high profitability (RORWA 2.9%) helped by the de-risking policies.
The Italian consumer credit market reported flows of €43.2bn in the first six months of the 2023 calendar year, 5% higher than the same period in 2022. This performance was largely due to the positive trend in credit cards (up 11%) and special purpose loans (up 10%), while personal loans were down 4.1% (4.4% in June 2023), due to a reduction in the amount financed, against a 10.9% increase in the number of loans disbursed, due to the amount of the instalments remaining the same as they were before interest rates started to rise.
New business for the twelve months was up 2.5%, with a total of 1.8 million deals completed (up 6.9%), despite the stricter acceptance levels which have helped preserve asset quality. The positive commercial performance was attributable to the following segments: automotive finance (up 7.5%, from €1,508m to €1,621m), special purpose loans (up 5.7%, from €1,124m to €1,188m), credit cards (up 3.6%, from €901m to €934m), and BNPL (up 180%, from €68m to €190m) which recorded a total of 170,000 transactions. In personal loans, which were down 2.2% (from €3,587m to €3,508m), the growth reported by the direct network (up 14%, from €2.4bn to €2.7bn) with 275,000 transactions (up 21%) almost offset the decline reported by the third-party channels (down 35%, from €1,170m to €764m), in particular the banking channel, which, however, entailed an advantage in terms of profitability. Salary-backed finance also reported a decrease (down 13%, to €408m), against a 15% in loans granted via the direct channel (up from €173m to €199m).
25 Adjusted return on allocated capital.
Review of Group Operatrions
65
Expansion of the distribution network, based on a strategy in which priority is given to variable cost solutions, has resulted in the opening of seven new agencies (two in 4Q), for a total of 312 active POS within Italy.
With the objective of further strengthening its leadership position in the consumer credit market, Compass has continued to invest in developing its offering from an increasingly multi-channel perspective, analysing innovative credit selection methodologies, developing its BNPL product, digitalizing all processes, including those based on physical POS and targeting international expansion. In this connection, in June 2023 Compass signed an agreement to acquire 100% of HeidiPay Switzerland AG from HeidiPay AG. This acquisition will allow Compass to become a fully-fledged consumer credit operator on Swiss territory, as well as continuing to benefit from the technology and services of HeidiPay AG.
The asset quality ratios remain extremely robust; the coverage ratio for performing loans stands at 3.75%, gross NPLs (€878m) represent 5.59% of total loans (down from 5.74% last year); and net NPLs declined to 1.38% of total loans (30/6/22: 1.32%), on a slightly reduced coverage ratio of 77.3% (78.8%) reflecting the expanded scope of exposures classified as non-performing, to the benefit of those offering improved prospects of recovery.
The growth in revenues (up 6.1%, from €1,058.2m to €1,122.5m) is in line with the performance in average lending volumes (which rose by 6%). The main income items performed as follows:
—Net interest income reached a record high of €984.9m (up 5.4% on last year’s €934.3m); the good performance reflects growth in lendings concentrated in the more profitable product of direct personal loans, where margins have been preserved through intense repricing activity which has managed to offset the increase in the cost of funding almost entirely;
—Net fee and commission income rose from €123.5m to €138.4m (up 12.1%), with an increasing contribution from Buy Now Pay Later activities (€12m), and lower rappel fees credited back to third party networks (which declined from €24.1m to €14.6m) offsetting the reduction in sales of insurance products (down from €43m to €40m).
Operating costs, up 10.4%, from €314.8m to €347.4m, reflect the generalized increase in prices due to inflation, but also the substantial investments to grow the division which is undergoing profound technological transformation. Labour costs totalled €113.8m (up 7.5%), in line with the growth in headcount (with 66 new staff
66 Consolidated financial statements as at 30 June 2023
added during the period, for a total of 1,520); administrative expenses rose by 11.8%, to €233.6m due to the rising credit recovery expenses (up 9%, to €59m) and operating costs (up 12%, to €57m); IT and project expenses totalled €43m (up 14% YoY), whereas marketing activities increased to €32m, due to new investments in the BNPL product and digital initiatives, as well as the more traditional activities involving the use of television advertising campaigns.
Loan loss provisions totalled €203.9m, higher than last year (€190.1m), but in view of the trend in volumes, reflect a COR that is basically unchanged, at 145 bps (142 bps), having regard also to the different mix of products.
The bottom line also reflects non-recurring items of €14m, €8m of which in connection with an early retirement provision set up to facilitate generational turnover in what will become an increasingly digital environment as the 2023–26 Strategic Plan progresses, and a €3.3m increase in the provision for Lexitor-related claims in order to take into account the effects of the most recent ruling issued by the Italian Constitutional Court; it also includes €2.5m in extraordinary charges deriving from the merger with Soisy.
Review of Group Operatrions
67
INSURANCE - PRINCIPAL INVESTING
The Insurance – Principal Investing (PI) division comprises the Group’s portfolio of equity investments and holdings, including the 13.25% stake in Assicurazioni Generali.26 The latter investment has been this division’s main constituent for many years, and is distinguished for its sound management, consistency of results, high profitability and contributions in terms of diversification and stabilization of the Mediobanca Group’s revenues. The division includes the Group’s investments in funds and SPVs and/or managed by the Group’s asset management companies (seed capital) based on an approach that combines mid-term profitability for the Group with synergies between the divisions, as well as investment activity in private equity funds managed by third parties.
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Profit-and-
l
o
s
s
Other incomes
8.9
12.3
-27.6
Equity-accounted companies
454.7
359.3
26.6
Total income
463.6
371.6
24.8
Labour costs
(4.–)
(4.–)
n.m.
Administrative expenses
(1.–)
(1.–)
n.m.
Operating costs
(5.–)
(5.–)
n.m.
Provisions for other financial assets
2.4
(32.4)
n.m.
Other income (losses)
—
—
n.m.
Profit before tax
461.–
334.2
37.9
Income tax for the period
(21.5)
(14.5)
48.3
Net profit
439.5
319.7
37.5
12 mths ended
30/6/23
12 mths ended
30/6/22
Balance-sheet data
Banking book equity securities
675.6
741.2
IAS28 investments
3,557.1
3,157.8
Risk-weighted assets
8,713.9
8,203.8
ROAC adj.
20%
16%
The insurance division delivered a net profit of €439.5m, up 37.5% on last year (€319.7m), due to a higher contribution from the equity method (up from €359.3m to €454.7m), for Assicurazioni Generali in particular (€442.8m), confirming the excellent profitability of the investment (ROAC 27 20%), which will remain at these
26 The Group’s stake has increased to 13.25%, as a result of the share buyback scheme implemented by the company, which led to an increase in the percentage consolidated, plus the new shares owned by MB INV AG S.r.l. to which the 1.6 million shares previously held by INV AG have been transferred.
27 Adjusted return on allocated capital.
68 Consolidated financial statements as at 30 June 2023
levels after 31 December 2024 now that the Danish Compromise has been made permanent under the new CRR III; the impact on P&L for 4Q confirms the investment’s decorrelation from the Group’s other core businesses (investment banking in particular) and its high cash flow generation capability through dividends; and it remains an important value option for the Mediobanca Group, ensuring it has available resources (which have increased further with the rise in stock market prices) that can be activated in the event of opportunities to grow via acquisitions.
Dividends and other income from holdings in funds amounted to €16m, half of which from seed capital in the Group’s own funds. Recognized at fair value, the holdings in funds reflect a positive valuation of €2.4m.
The book value of the Assicurazioni Generali investment rose by 13.1%, from €3,069.4m to €3,472.2m, reflecting the impact of the adoption of the new IFRS 17 and IFRS 9 on the company’s net equity (as from the financial statements for the period ended 31 March 2023; our valuation for end-June is based on this situation). The investment’s contribution to the Group’s earnings for 12M was €442.8m, up 24.2% (€356.6m), boosted by the result for 4Q which reflects the adoption of the new reporting standards (such as valuation of liabilities with rising interest rates) plus the gain deriving from the disposal of a real estate investment in London. The market value of the investment is €3.8bn.
The other banking book securities totalled €675.6m (€741.2m): holdings in funds decreased from €482m to €435.4m, following two liquidations and upward adjustments to reflect fair value totalling €3.9m; the equity segment decreased from €259.2m to €240.1m, following the redemption of the Burgo equity-like instrument (€54m), the demerger of INV AG (€12.1m), and revaluations to fair value (€40m, €25.7m of which in respect of the Tirreno Power and Burgo equity-like instruments) and new investments totalling €7.4m.
Review of Group Operatrions
69
HOLDING FUNCTIONS (CENTRAL, TREASURY AND LEASING)
The Holding Functions comprises SelmaBipiemme Leasing, MIS and other minor companies, Group Treasury and ALM 28 (with the aim of optimizing funding and liquidity management on a consolidated basis, including the securities held as part of the banking book), Group central function costs including the operations, support units (Chief Financial Office, Corporate Affairs, Investor Relations, etc.), senior management and the control units (Risk Management, Group Audit and Compliance), for the shares not attributable to the business lines. As from this year, the NPL portfolio management business spun off to Revalea S.p.A. has been included as part of the division.29 An agreement has recently been signed to sell the company to Banca Ifis, hence its activities have been classified as non-current assets held for sale in accordance with the provisions of IRFS 5.
(€ m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg. (%)
Profit-and-
l
o
s
s
Net interest income
145.1
(22.–)
n.m.
Net trading income
42.8
48.–
-10.8
Net fee and commission income
32.5
52.8
-38.5
Total income
220.4
78.8
n.m.
Labour costs
(133.4)
(126.–)
5.9
Administrative expenses
(68.6)
(75.5)
-9.2
Operating costs
(202.–)
(201.5)
0.3
Loan loss provisions
(23.4)
(80.1)
-70.8
Provisions for other financial assets
1.8
(1.2)
n.m.
Other income (losses)
(83.5)
(86.2)
-3.2
Profit before tax
(86.7)
(290.2)
-70.1
Income tax for the period
(6.5)
127.–
n.m.
Minority interest
(2.1)
(1.8)
16.7
Net profit
(95.3)
(165.–)
(42.3)
12 mths ended
30/6/23
12 mths ended
30/6/22
Balance-sheet data
Loans and advances to customers
1,631.–
1,919.3
Banking book securities
8,740.–
7,074.3
No. of staff 30
853
821
Risk-weighted assets
3,831.2
3,342.8
28 Group Treasury finances the individual business areas’ operations, applying the funds transfer pricing (FTP) rate based on the relevant curves, with spreads varying depending on the expiries agreed for the respective use of funds.
29 Revalea was set up in April 2022, and received authorization to operate from the supervisory authorities at the year-end.
30 The 853 resources are divided as follows: 94 in SelmaBipiemme (98 last year); 21 in Revalea (24); 28 in Group Treasury and ALM (33); 151 in MIS (138), 219 in operations (209), 175 in support functions (164), 159 in control functions (149) plus 6 in management (senior management and assistants, 6 last year too). Of these, the cost of approximately 258 FTEs is reallocated to the business lines (238).
70 Consolidated financial statements as at 30 June 2023
The net loss incurred by the Holding Functions division decreased from €165m to €95.3m, due to the good performance in terms of total income (which rose from €78.8m to €220.4m), driven by net interest income, which after being negative for several years, is now once again comfortably in positive territory at €145.1m (€77.2m of which in 4Q), helped by a major contribution from the securities portfolio (which added €55m in 12M) and management of other treasury items (which added €48m), with the cost of funding under control. Central costs totalled €107.4m ((30/6/22: €102.3m), and represent 7.6% of the Group’s total costs.
The main segments performed as follows:
―Treasury: considerable efforts were made during the twelve months to expand funding and optimize CoF, which in practice led to TFAs remaining stable in WM (these account for 48% of the Group’s total funding) and to an increase in the debt security component, leveraging on the reopening of the retail and private channels (not only the Group’s). This enabled the planned TLTRO repayment process to begin, which in turn improved the regulatory ratios that recorded their highest ever levels (LCR: 180%; NSFR: 119%); MREL liabilities also rose from 30% of RWAs to 34%, far above the requirement for 2023 of 23.13%. The growth in net interest income (up €180m) totally offset the decline in net treasury income (down €5m) and in fees (down €10m);
―Leasing: a net profit of €3.2m was earned from leasing operations, slightly higher than last year (€2.7m), despite reflecting a reduction in customer loans (down 10%, from €1.6bn to €1.5bn), impacted by the decline in new business in 2H especially. Loan loss provisions fell from €16.7m to €6.6m, mostly due to the resolution of real estate positions previously classified as NPLs. Equally, gross NPLs decreased, from €138m to €107m, and the reduction was more pronounced still on a net basis (down from €64.3m to €32.9m);
―NPL acquisition management: as mentioned previously, this business was disposed of as part of the Revalea transaction. In the financial statements, the transaction has been represented in accordance with the provisions of IFRS 5. Until the deal closes (expected by end-2023), the cost and income items will continue to be allocated in kind, in view inter alia of the minimal size of the figures involved. The loss for 12M has been kept down to €0.5m, after revenues of €51.6m, approx. €32.3m of which in income collected from NPL portfolios, and writedowns totalling €16.8m. Gross NPLs decreased from €350.6m to €238.8m, against a net worth of €117.7m.
Review of Group Operatrions
71
The financial highlights for the other Group companies in the twelve months under review are shown below:
(€m)
Company
Percentage shareholding
Business Line
Total assets
Loan and advanced to customers
Total net equity 1
No. of staff
Mediobanca Securities (dati in USDm)
100%
CIB
8.4
—
6.3
5
Messier et Associés S.A.S. (*)
100%
CIB
73.6
—
20.8
36
Messier et Associés L.L.C. (dati in USDm) (*)
100%
CIB
0.3
—
0.3
3
Mediobanca International
100%
CIB
5,576.4
3,994.5
455.6
19
MBFACTA
100%
CIB
3,126.3
2,862.1
226.9
51
MBCredit Solutions
100%
CIB
57.4
0.3
32.8
167
MB Contact Solutions
100%
CIB
1.4
—
0.5
5
Compass Banca
100%
CF
16,781.2
14,938.9
3,109.7
1,472
Quarzo S.r.l.
90%
CF
0.2
—
—
—
Quarzo CQS S.r.l.
90%
CF
0.1
—
—
—
Compass RE
100%
CF
317.1
1.–
167.3
1
Compass Rent
100%
CF
7.5
—
0.9
12
Compass Link
100%
CF
1.6
—
(0.9)
1
Soisy
100%
CF
10.3
—
1.1
36
CheBanca!
100%
WM
31,783.7
13,138.8
928.3
1,554
Mediobanca Covered Bond
90%
WM
0.8
—
0.1
—
CMB Monaco
100%
WM
8,962.5
2,935.3
1,021.1
248
Spafid
100%
WM
48.4
—
41.1
39
Spafid Family Office SIM
100%
WM
1.3
—
0.8
6
Polus Capital Management Group Limited (dati in GBPm) (*)
89,07%
WM
119.4
—
93.8
62
RAM Active Investments (dati in CHFm) (*)
98,28%
WM
17.9
—
15.5
32
RAM Active Investments (Luxembourg) (dati in CHFm)
98,28%
WM
9.9
—
3.3
5
RAM UK (in liquidazione) (dati in CHFm) (*)
98,28%
WM
—
—
—
—
CMG Monaco
100%
WM
11.2
—
0.4
12
Spafid Trust S.r.l.
100%
WM
1.2
—
1.1
2
Mediobanca SGR S.p.A.
100%
WM
75.1
33.6
62.6
57
Mediobanca Management Company S.A.
100%
WM
13.5
—
9.3
6
CMB RED
100%
WM
50.–
—
49.5
1
MB INV AG S.r.l.
100%
I-PI
30.6
—
18.3
—
Revalea (**)
100%
HF
280.2
238.8
117.7
21
Mediobanca International Immobilière
100%
HF
2.1
—
2.1
—
Mediobanca Funding Luxembourg
100%
HF
1.2
—
1.–
—
SelmaBipiemme Leasing
60%
HF
1,532.9
1,392.–
229.3
94
Mediobanca Innovation Services
100%
HF
81.2
—
35.5
149
Spafid Connect
100%
HF
—
—
—
—
1 Includes the profit for the period.
* Taking into account the put and call option; see Part A1 – section 3 – Area and methods of consolidation, p. 116.
** An agreement to sell Revalea has been signed with Banca Ifis, hence the company has been accounted for as a non-current asset held for sale.
72 Consolidated financial statements as at 30 June 2023
(€m)
Company
Percentage Shareholding
Business Line
Income
Costs
Provisions
Gain/(loss) fot the period
Mediobanca Securities (dati in USDm)
100%
CIB
3.9
(3.9)
—
—
Messier et Associés S.A.S. (*)
100%
CIB
43.7
(28.9)
—
11.1
Messier et Associés L.L.C. (dati in USDm) (*)
100%
CIB
0.–
0.2
—
0.2
Mediobanca International
100%
CIB
32.6
(9.5)
3.9
18.6
MBFACTA
100%
CIB
46.3
(13.6)
—
22.1
MBCredit Solutions
100%
CIB
51.1
(41.4)
(8.6)
0.4
MB Contact Solutions
100%
CIB
1.5
(1.4)
—
0.1
Compass Banca
100%
CF
1,100.4
(340.9)
(204.–)
367.9
Quarzo S.r.l.
90%
CF
—
—
—
—
Quarzo CQS S.r.l.
90%
CF
0.–
—
—
—
Compass RE
100%
CF
34.9
(0.9)
—
25.2
Compass Rent
100%
CF
0.8
(3.–)
—
(1.5)
Compass Link
100%
CF
0.3
(1.–)
—
(0.8)
Soisy
100%
CF
2.–
(6.6)
—
(4.7)
CheBanca!
100%
WM
418.1
(301.1)
(11.1)
48.7
Mediobanca Covered Bond
90%
WM
0.1
(0.1)
—
—
CMB Monaco
100%
WM
161.5
(85.7)
(0.8)
58.5
Spafid
100%
WM
8.7
(9.–)
—
(2.1)
Spafid Family Office SIM
100%
WM
1.4
(1.5)
—
(0.1)
Polus Capital Management Group Limited (dati in GBPm) (*)
89,07%
WM
43.7
(33.3)
—
7.9
RAM Active Investments (dati in CHFm) (*)
98,28%
WM
7.1
(14.–)
—
(7.–)
RAM Active Investments (Luxembourg) (dati in CHFm)
98,28%
WM
3.8
(2.3)
—
1.5
RAM UK (in liquidazione) (dati in CHFm) (*)
98,28%
WM
1.1
(1.2)
—
(0.1)
CMG Monaco
100%
WM
4.1
(5.–)
—
(0.7)
Spafid Trust S.r.l.
100%
WM
0.7
(0.8)
—
(0.1)
Mediobanca SGR S.p.A.
100%
WM
31.5
(18.4)
—
9.–
Mediobanca Management Company S.A.
100%
WM
2.1
(1.9)
—
0.2
CMB RED
100%
WM
0.–
(0.4)
—
(0.4)
MB INV AG S.r.l.
100%
I-PI
1.9
(0.1)
—
1.8
Revalea (**)
100%
HF
19.8
(15.9)
(3.4)
0.9
Mediobanca International Immobilière
100%
HF
0.2
(0.1)
—
0.1
Mediobanca Funding Luxembourg
100%
HF
0.5
(0.5)
—
—
SelmaBipiemme Leasing
60%
HF
35.–
(21.8)
(6.6)
5.3
Mediobanca Innovation Services
100%
HF
2.5
0.1
—
0.2
Spafid Connect
100%
HF
0.1
(0.5)
—
0.1
* Taking into account the put and call option; see Part A1 – section 3 – Area and methods of consolidation, p. 116.
** An agreement to sell Revalea has been signed with Banca Ifis, hence the company has been accounted for as a non-current asset held for sale.
Finally, it should be noted that:
—CMB Monaco closed its local financial statements for the twelve months ended 31 December 2022 with a net profit of €18.6m, higher than last year (€16.3m), following transfers to the provisions for risks totalling €9.4m. Net interest income rose by 45%, from €45.2m to €65.3m), on higher lending volumes (customer loans were up from €2,337m to €2,847m) and interest rates; while net fee and
Review of Group Operatrions
73
commission income declined slightly, by 2% (from €74.1m to €72.6m); and costs were up 9% (from €78m to €84.8m). In the twelve months TFAs rose by 7% (from €13bn to €13.9bn), with a substantial contribution from direct funding (which grew from €4.3bn to €6.1bn) and AUM under advisory mandates, which more than offset the negative market effect (valuations down €921m).
74 Consolidated financial statements as at 30 June 2023
Other information
Related party disclosure
Financial accounts outstanding as at 30 June 2023 between companies forming part of the Mediobanca Group and related parties, and transactions undertaken between such parties during the financial year, are illustrated in Part H of the Notes to the Accounts, along with all the information required in terms of transparency pursuant to Consob resolution no. 17221 issued on 12 March 2010 (amended most recently by resolution no. 21264 of 10 December 2020). All such accounts form part of Group companies’ ordinary operations, are maintained on an arm’s length basis, and are entered into solely in the interests of the companies concerned. No atypical or irregular transactions have been entered into with such counterparties.
Article 15 of Consob’s market regulations
With reference to Article 15 (previously Article 36) of Consob resolution 16191/07 (Market Regulations) on the subject of prerequisites for listing in respect of parent companies incorporated or regulated by the laws of non-EU member states and relevant to the preparation of the consolidated accounts, CMB Monaco is the only Group company affected by this provision, and adequate procedures have been adopted to ensure it is fully compliant.
Principal risks facing the Group
In addition to the customary information on financial risks (credit, market, liquidity and operational risks), the notes to the accounts contain a description of the other risks to which the Group is exposed in the course of its business, as they emerged from the ICAAP self-assessment process now required by the regulations in force. In particular, this involves concentration risk versus Italian groups in the Group’s corporate activities, financial risk on the banking book (primarily interest rate risk), strategic or business risk, risk deriving from exposure to volatility on financial markets for the equities held in the HTCS portfolio, and exposure to sovereign debt.
Review of Group Operatrions
75
Consolidated Non-Financial Statement
The Group publishes a Consolidated Non-Financial Statement which is drawn up in accordance with Article 4 of Italian Legislative Decree 254/16, and contains information on environmental and social issues, human resources, protection of human rights and anti-corruption measures, in order to facilitate understanding of the Group’s activities, performance, results and impact generated.
The Group’s consolidated non-financial statement is published annually on the Bank’s website at www.mediobanca.com (in the section entitled “Responsible Business”), and is drawn up in accordance with the provisions of Italian Legislative Decree 254/16 and based on the GRI-Sustainability Reporting Standards “in accordance” option defined in 2016 and updated in 2021 by the GRI-Global Reporting Initiatives (the “GRI Standards”). The standards developed by the Sustainability Accounting Standards Board (“SASB”) have also been taken into consideration, where applicable, and information useful for purposes of EU Taxonomy Eligibility.
The document is accompanied by the second TCFD Report, containing the Group’s decarbonization objectives for the cement and aviation sectors (in addition to those for the energy and automotive industries), and also, for the first time, separate reporting of the results reached based on the Principles for Responsible Banking.
Research
Economic research is carried on by the Mediobanca Research Area. The Research Area’s catalogue includes the customary publications which have been produced for many years now (“Leading Italian Companies”, “Financial Aggregates of Italian Companies”, “Medium-Sized Industrial Companies”), plus a series of industrial economic reports on the sectors in which the Italian market is most involved internationally. Research covers the sectors of most importance to Italian manufacturing industry (e.g. “Made-in-Italy” products), and sectors at the cutting edge in technology terms. Special attention is also devoted to family business issues.
76 Consolidated financial statements as at 30 June 2023
Credit rating
In the past twelve months the ratings and outlooks assigned to the Bank have remained unchanged: Baa1 with negative outlook for Moody’s, BBB with stable outlook for S&P Global Rating, and BBB with stable outlook for Fitch Ratings.
Other reports
The following reports are available on the Bank’s official website at www.mediobanca.com in the Governance section: the “Statement on corporate governance and ownership structure” and the “Group Remuneration Policy and Report” required by Article 123-bis of the Italian Legislative Decree No. 58 of 24 February 1998 (the Italian Finance Act), and the “Disclosure to the public required under Basel III pillar III” (“Pillar III”).
Outlook
Having delivered on the 2019-23 Strategic Plan (despite the outbreak of the Covid-19 pandemic and the Russia-Ukraine war), the Group is now committed to implementing its new 2023-26, “One Brand-One Culture” Strategic Plan unveiled on 24 May. The Group’s strong positioning in business sectors offering opportunities for growth, its unceasing investments in distribution, innovation and talent, the selective increase in lendings coupled with the capital optimization policies being deployed, and the ongoing control of both asset quality and operating costs, means that Mediobanca can face with confidence a macroeconomic scenario that is still characterized by uncertainty, with low growth expected in the leading European economies given the level of interest rates and inflation that will remain high at least until the end of 1H FY 2023-24.
For FY 2023-34 the Mediobanca Group confirms its capability to deliver growth in revenues, earnings and shareholder remuneration, in line with the trajectory outlined in the new 2023-26 “One Brand – One Culture” Strategic Plan.
The guidance is as follows:
—Growth in TFAs, driven by NNM, helped by the enhanced commercial structures and CheBanca! being rebranded as Mediobanca Premier;
Review of Group Operatrions
77
—RWAs stable, with selective growth in lendings complemented by the first optimization actions;
—Healthy growth in Group revenues, with an increase in net interest income in 1H in particular, plus, in 2H, higher fees, which should benefit from the recovery in investment banking activity, the consolidation of Arma, and the higher WM assets);
—Cost/income ratio to be kept at around 43-44%: the growth in revenues will be used to drive enhancement of both the Group’s workforces and platforms;
—Cost of risk flat at ~50/52 bps, with a slight deterioration in the CF component which should, however, be offset by CIB;
—Significant reduction in one-off items, likely offset in part by the new bank windfall tax law;
—Increase in shareholder remuneration, with the cash payout to be maintained at 70%, and launch of an approx. €200m share buyback and cancellation programme;
—Capital ratios to remain solid at around 15.5%, including the effects of the acquisitions.
Reconciliation of shareholders’ equity and net profit
Shareholders’ equity
(€'000)
Net profit (loss)
Balance at 30/06 as per Mediobanca S.p.A. accounts
4,460,009
607,377
Net surplus over book value for consolidated companies
14,822
561,060
Differences on exchange rates originating from conversion of accounts made up in currencies other than the Euro
10,194
—
Other adjustments and restatements on consolidation, including the effects of accounting for companies on an equity basis
5,813,284
(141,641)
Dividends received during the period
—
—
Total
10,298,309
1,026,796
Milan, 20 September 2023
T HE B OARD OF D IRECTORS
DECLARATION BY HEAD OF COMPANY FINANCIAL REPORTING
Declaration by Head of Company Financial Reporting 79
Declaration concerning the consolidated financial statements pursuant to Article 81-ter of CONSOB Regulation No. 11971 of 14 May 1999, as amended
1.The undersigned Alberto Nagel and Emanuele Flappini, in their respective capacities as Chief Executive Officer and Head of Company Financial Reporting of Mediobanca, hereby, and in view inter alia of the provisions contained in Article 154-bis, paragraphs 3 and 4, of Italian Legislative Decree No. 58 of 24 February 1998, declare that the administrative and accounting procedures used in the preparation of the consolidated financial statements:
–were adequate in view of the company’s characteristics and
–were effectively adopted during the period 1 July 2022- 30 June 2023.
2.Assessment of the adequacy of said administrative and accounting procedures for the preparation of the consolidated financial statements as at 30 June 2023 was based on a model defined by Mediobanca in accordance with benchmark standards for internal control systems which are widely accepted at international level (CoSO and CobiT frameworks).
3.It is further hereby declared that
3.1 the consolidated financial statements:
–were drawn up in accordance with the International Financial Reporting Standards adopted by the European Union pursuant to Regulation (EC) 1606/02 issued by the European Parliament and Council on 19 July 2002;
–correspond to the data recorded in the company’s books and accounting ledgers;
–are adequate for the purpose of providing a true and fair view of the capital, earnings and financial situation of the issuer and of the group of companies included within its area of consolidation.
3.2 the review of operations includes a reliable analysis of the operating performance, data and situation of Mediobanca and of the set of companies included within the consolidation area, and contains a description of the main risks and uncertainties to which such companies are exposed.
Milan, 20 September 2023
Chief Executive Officer
Alberto Nagel
Head of company financial reporting
Emanuele Flappini
Consolidated financial statements as at 30 June 2023
80
EXTERNAL AUDITORS’ REPORT
Consolidated financial statements as at 30 June 2023
82
Consolidated financial statements as at 30 June 2023
84
Consolidated financial statements as at 30 June 2023
86
Consolidated financial statements as at 30 June 2023
88
Consolidated financial statements as at 30 June 2023
90
CONSOLIDATED FINANCIAL STATEMENTS
92 Consolidated financial statements as at 30 June 2023
Consolidated Balance Sheet
(€/000)
Assets
30 June 2023
30 June 2022 *
10. Cash and cash equivalents
4,236,982
7,861,601
20. Financial assets measured at fair value through profit or loss
10,654,399
10,681,019
a) financial assets held for trading
9,546,212
9,530,935
b) Financial assets designated at fair value
538,590
516,483
c) Other financial assets mandatorily at fair value
569,597
633,601
30. Financial assets measured at fair value through other comprehensive income
6,042,119
4,133,685
40. Financial assets measured at amortized cost
62,555,709
60,822,518
a) Due from banks
4,478,644
4,068,584
b) Due from customers
58,077,065
56,753,934
50. Hedging derivatives
1,321,883
872,431
60. Adjustment of hedging financial assets (+/-)
-
-
70. Investments
3,563,831
3,157,866
80. Reinsured portion of technical reserve
-
-
90. Tangible assets
530,742
511,828
100. Intangible assets
796,700
838,413
of which:
goodwill
574,550
616,791
110. Tax assets
769,127
808,257
a) current
244,746
211,290
b) prepaid
524,381
596,967
120. Non-current assets and disposal groups classified as held for sale **
251,987
191
130. Other assets
915,534
880,611
Total assets
91,639,013
90,568,420
* The balance sheet as at 30 June 2022 includes the reclassification of some guarantee deposits on derivatives from item 10 to item 40.
** These refer to disposal transactions: as at 30 June 2022, of the Spafid Connect business unit closed in December 2022; as at 30 June 2023, sale of Revalea to Banca Ifis.
Consolidated Financial Statements 93
(€/000)
Liabilities and net equity
30 June 2023
30 June 2022
10. Financial liabilities measured at amortized cost
64,903,066
66,715,625
a) Due to banks
13,275,089
15,751,826
b) Due to customers
30,750,602
32,723,575
c) Securities in issue
20,877,375
18,240,224
20. Trading liabilities
9,436,672
9,206,705
30. Financial liabilities designated at fair value
1,580,956
641,664
40. Hedging derivatives
2,069,542
1,361,863
50. Adjustment of hedging financial liabilities (+/-)
-
-
60. Tax liabilities
867,266
659,787
a) current
416,935
257,268
b) deferred
450,331
402,519
70. Liabilities included in disposal groups classified as held for sale *
8,134
-
80. Other liabilities
1,051,080
955,196
90. Provision for statutory end-of-service payments
20,584
21,969
100. Provisions for risks and charges:
161,127
137,768
a) commitments and financial guarantees
22,166
24,264
b) post-employment and similar benefits
-
-
c) other provisions for risks and charges
138,961
113,504
110. Technical reserves
111,338
119,001
120. Revaluation reserves
62,127
433,592
130. Redeemable shares
-
-
140. Equity instruments
-
-
150. Reserves
7,675,283
6,908,263
160. Share premium reserves
2,195,606
2,195,606
170. Capital
444,169
443,640
180. Treasury shares (-)
(78,876)
(240,807)
190. Minority interests (+/-)
104,143
101,571
200. Profit (loss) for the year (+/-)
1,026,796
906,977
Total liabilities and net equity
91,639,013
90,568,420
* These refer to the disposal of Revalea to Banca Ifis.
94 Consolidated financial statements as at 30 June 2023
Consolidated Income Statement
(€/000)
Items
30 June 2023
30 June 2022
10. Interest and similar income
2,834,084
1,847,987
of which: interest income calculated according to the effective interest method
2,394,371
1,655,536
20. Interest and similar charges
(1,026,491)
(353,681)
30. Net interest income
1,807,593
1,494,306
40. Commission income
835,972
834,723
50. Commission expenses
(158,005)
(166,719)
60. Net fee and commission
677,967
668,004
70. Dividends and similar income
78,758
117,764
80. Net trading income (expense)
99,411
(10,663)
*
90. Net hedging income (expense)
1,439
(2,115)
100. Gain (loss) on disposal/repurchase:
4,827
24,952
a) Financial assets measured at amortized cost
4,427
6,212
b) Financial assets measured at fair value through other comprehensive income
(6,739)
19,760
c) Financial liabilities
7,139
(1,020)
110. Net result from other financial assets and liabilities measured at fair value through profit or loss:
9,674
(20,770)
a) financial assets and liabilities designated at fair value
15,055
13,288
b) Other financial assets mandatorily measured at fair value
(5,381)
(34,058)
120. Total income
2,679,669
2,271,478
130. Net write-offs (write-backs) for credit risk:
(231,373)
(206,182)
a) Financial assets measured at amortized cost
(232,089)
(203,877)
b) Financial assets measured at fair value through other comprehensive income
716
(2,305)
140. Gains (losses) from contractual modifications without derecognition
(617)
(55)
150. Net income from financial operations
2,447,679
2,065,241
160. Premiums earned (net)
40,022
44,374
170. Other income (net) from insurance activities
(10,185)
(12,916)
180. Net profit from financial and insurance activities
2,477,516
2,096,699
190. Administrative expenses:
(1,487,108)
(1,381,467)
a) Personnel costs
(731,643)
(671,474)
b) Other administrative expenses
(755,465)
(709,993)
200. Net transfers to provisions:
(35,817)
(6,941)
a) commitments and financial guarantees
2,134
2,893
b) other sums set aside (net)
(37,951)
(9,834)
210. Net adjustments to tangible assets
(62,144)
(57,057)
220. Net adjustments to intangible assets
(30,192)
(29,528)
230. Other operating income (expense)
173,634
177,335
240. Operating costs
(1,441,627)
(1,297,658)
250. Gain (loss) on equity investments
453,860
359,254
260. Net result from fair value measurement of tangible and intangible assets
(1,253)
-
270. Goodwill write-offs
(49,536)
(3,733)
280. Gain (loss) on disposal of investments
(14,385)
7,087
290. Profit/(Loss) on ordinary activities before tax
1,424,575
1,161,649
300. Income tax for the year on ordinary activities
(394,745)
(251,995)
310. Profit (loss) on ordinary operations after tax
1,029,830
909,654
320. Gain (loss) of discontinued operating assets, after tax
-
-
330. Net profit (loss) of the year
1,029,830
909,654
340. Profit (loss) for the period attributable to minority interests
(3,034)
(2,677)
350. Net profit (loss) for the period attributable to Mediobanca
1,026,796
906,977
* The effect of the exchange rate valuations of banking book securities was reclassified from heading 100 to heading 80.
Consolidated Financial Statements 95
Statement of Consolidated Comprehensive Income
(€/000)
30 June 2023
30 June 2022
10.
Profit (Loss) for the period
1,029,830
909,654
Other income items net of tax without passing through profit and loss
59,373
98,187
20.
Equity securities designated at fair value through other comprehensive income
18,906
37,918
30.
Financial liabilities designated at fair value through profit or loss (changes in own credit risk)
(6,636)
4,425
40.
Hedging of equity securities designated at fair value through other comprehensive income
-
-
50.
Tangible assets
-
-
60.
Intangible assets
-
-
70.
Defined benefit plans
1,012
4,718
80.
Non-current assets held for sale
-
-
90.
Valuation reserves from equity-accounted investments:
46,091
51,126
Other income items net of tax passing through profit and loss
(367,686)
(596,480)
100.
Foreign investments hedges
319
(10,606)
110.
Exchange rate differences
1,172
8,156
120.
Hedging of cash flows
96,448
193,621
130.
Hedging instruments (non-designated components)
-
-
140.
Financial assets (other than equity securities) measured at fair value through other comprehensive income
(8,210)
(89,644)
150.
Non-current assets held for sale
-
-
160.
Valuation reserves from equity-accounted investments:
(457,415)
(698,007)
170.
Total other income items, after tax
(308,313)
(498,293)
180.
Comprehensive income (Heading 10+170)
721,517
411,361
190.
Consolidated comprehensive income attributable to minority interests
3,628
3,793
200.
Consolidated comprehensive income attributable to Mediobanca
717,889
407,568
96 Consolidated financial statements as at 30 June 2023
Statement of Changes in Consolidated Net Equity
(€/000)
Changes during the year
Allocation of profit for previous period
Net equity transactions
Total net equity at 30/6/22
Reserves
Dividends and other allocations
Changes in reserves
New shares issued
Purchase of treasury shares
Extra-ordinary dividend payouts
Changes to equity instruments
Treasury shares derivatives
Stock options (1)
Changes in equity investments
Comprehensive income for the year
Total net equity at 30/6/23
Net equity attributable to the Group at 30/6/23
Net equity attributable to minority interests at 30/6/23
Capital:
460,269
-
-
-
529
-
-
-
-
-
-
-
460,798
444,169
16,629
a) ordinary shares
460,269
-
-
-
529
-
-
-
-
-
-
-
460,798
444,169
16,629
b) other shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share premium reserves
2,197,454
-
-
-
-
-
-
-
-
-
-
-
2,197,454
2,195,606
1,848
Reserves:
6,989,271
909,654
(629,164)
635,810
(529)
(160,713)
-
-
-
13,583
-
-
7,757,912
7,675,283
82,629
a) retained earnings
7,060,452
909,654
(629,164)
573,252
(529)
-
-
-
-
-
-
-
7,913,665
7,831,663
82,002
b) other
(71,181)
-
-
62,558
-
(160,713)
-
-
-
13,583
-
-
(155,753)
(156,380)
627
Revaluation reserves
433,001
-
-
(62,558)
-
-
-
-
-
-
-
(308,313)
62,130
62,127
3
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Treasury shares
(240,807)
-
-
-
-
161,931
(2)
-
-
-
-
-
-
(78,876)
(78,876)
-
Profit (loss) for the period
909,654
(909,654)
-
-
-
-
-
-
-
-
-
1,029,830
1,029,830
1,026,796
3,034
Total net equity
10,748,842
-
(629,164)
573,252
-
1,218
-
-
-
13,583
-
721,517
11,429,248
X
X
Net equity attributable to the Group
10,647,271
-
(629,164)
574,308
-
1,218
-
-
-
13,583
-
717,889
X
11,325,105
X
Net equity attributable to minority interests
101,571
-
-
(1,056)
-
-
-
-
-
-
-
3,628
X
X
104,143
(1) This represents the effects on performance shares related to the ESOP schemes.
(2) This represents the effect of the repurchase of RAM Active Investments shares against Group reserves.
Consolidated Financial Statements 97
Statement of Changes in Consolidated Net Equity
(€/000)
Changes during the year
Allocation of profit (loss) for the previous period
Net equity transactions
Total net equity at 30/6/21
Reserves
Dividends and other allocations
Changes in reserves
New shares issued
Treasury shares acquired
Extraordinary dividend payouts
Changes in equity instruments
Treasury shares derivatives
Stock options (1)
Changes in equity investments
Comprehensive income for the year
Total net equity at 30/6/22
Net equity attributable to the Group at 30/6/22
Net equity attributable to minority interests at 30/6/22
Capital:
460,269
-
-
-
-
-
-
-
-
-
-
-
460,269
443,640
16,629
a) ordinary shares
460,269
-
-
-
-
-
-
-
-
-
-
-
460,269
443,640
16,629
b) other shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share premium reserves
2,197,454
-
-
-
-
-
-
-
-
-
-
-
2,197,454
2,195,606
1,848
Reserves:
6,921,421
809,199
(569,164)
33,029
-
(217,360)
-
-
-
12,146
-
-
6,989,271
6,908,263
81,008
a) retained earnings
6,785,617
809,199
(569,164)
34,800
-
-
-
-
-
-
-
-
7,060,452
6,980,071
80,381
b) other
135,804
-
-
(1,771)
-
(217,360)
-
-
-
12,146
-
-
(71,181)
(71,808)
627
Revaluation reserves
929,523
-
-
1,771
-
-
-
-
-
-
-
(498,293)
433,001
433,592
(591)
Equity instruments
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Treasury shares
(216,736)
-
-
-
-
(24,071)
-
-
-
-
-
-
(240,807)
(240,807)
-
Profit (loss) for the period
809,199
(809,199)
-
-
-
-
-
-
-
-
-
909,654
909,654
906,977
2,677
Total net equity
11,101,130
-
(569,164)
34,800
-
(241,431)
-
-
-
12,146
-
411,361
10,748,842
X
X
Net equity attributable to the Group
11,012,818
-
(569,164)
25,334
-
(241,431)
-
-
-
12,146
-
407,568
X
10,647,271
X
Net equity attributable to minority interests
88,312
-
-
9,466
(2)
-
-
-
-
-
-
-
3,793
X
X
101,571
(1) This includes the effects of the first adoption of accounting standard IFRS 16 deriving from sub-leasing contracts.
(2) This represents the effects on performance shares related to the ESOP schemes.
98 Consolidated financial statements as at 30 June 2023
Consolidated Cash Flow Statement Direct Method
(€/000)
Amount
30 June 2023
30 June 2022*
A.
CASH FLOW FROM OPERATING ACTIVITIES
1.
Operating activities
730,214
536,428
- interest income collected (+)
2,977,529
1,616,990
- interest expense paid (-)
(1,359,051)
(293,903)
- dividends and similar income (+)
77,658
117,945
- net fees and commission income (+/-)
507,467
256,591
- personnel costs (-)
(552,436)
(511,278)
- net premium income (+)
34,584
33,458
- other insurance income / charges (+/-)
(150,626)
(149,719)
- other costs (-)
(832,059)
(498,788)
- other revenues (+)
284,545
252,774
- income taxes paid (-)
(257,397)
(287,642)
- expenses/income from discontinued asset groups after taxes (+/-)
-
-
2.
Cash generated/absorbed by financial assets
(1,871,607)
(2,359,320)
- financial assets held for trading
376,596
1,258,324
- financial assets designated at fair value
16,345
63,529
- other financial assets mandatorily measured at fair value
58,885
(26,991)
- Financial assets measured at fair value through other comprehensive income
(1,883,759)
406,218
- financial assets measured at amortized cost
282,581
(3,537,825)
- other assets
(722,255)
(522,575)
3.
Cash generated/absorbed by financial liabilities
(2,019,567)
6,968,561
- financial liabilities measured at amortized cost
(1,835,890)
7,244,844
- trading liabilities
183,423
(70,086)
- financial liabilities designated at fair value
850,676
(61,075)
- other liabilities
(1,217,776)
(145,122)
Net cash flow (outflow) from operating activities
(3,160,960)
5,145,669
B.
CASH FLOWS FROM INVESTMENT ACTIVITY
1.
Cash generated from:
253,890
322,163
- disposal of shareholdings
-
-
- dividends received in respect of equity investments
243,847
313,833
- disposals of tangible assets
9,702
2,075
- disposals of intangible assets
95
6,255
- disposals of subsidiaries or business units
246
-
2.
Cash absorbed by:
(83,598)
(58,620)
- purchases of shareholdings
(7,400)
-
- purchases of tangible assets
(39,751)
(26,460)
- purchases of intangible assets
(36,447)
(32,160)
- purchases of subsidiaries or business units
-
-
Net cash flow (outflow) from investment activity
170,292
263,543
C.
CASH FLOWS FROM FUNDING ACTIVITY
- issue/purchase of treasury shares
-
(241,431)
- issue/ purchase of capital instruments
-
-
- distribution of dividends and other purposes
(633,951)
(579,618)
- sales/acquisition of control by minority interests
-
-
Net cash inflow / outflow from funding activities
(633,951)
(821,049)
NET CASH FLOW (OUTFLOW) DURING THE PERIOD
(3,624,619)
4,588,163
*The data as at 30 June 2022 have been newly processed following the reclassification of some security deposits from Balance Sheet heading 10 to heading 40.
Consolidated Financial Statements 99
Reconciliation
(€/000)
Amount
Accounting items
30 June 2023
30 June 2022
*
Cash and cash equivalents: balance at start of period
7,861,601
3,273,438
Total cash flow (outflow) during the period
(3,624,619)
4,588,163
Cash and cash equivalents: exchange rate effect
-
-
Cash and cash equivalents: balance at end of period
4,236,982
7,861,601
* The data as at 30 June 2022 have been newly processed following the reclassification of some security deposits from Balance Sheet heading 10 to heading 40.
NOTES TO THE ACCOUNTS
Index 101
NOTES TO THE ACCOUNTS
Part A - Accounting Policies 103
A.1– General part 103
Section 1 - Statement of Compliance with IAS/IFRS 103
Section 2 - General Basis of Preparation 104
Section 3 - Area and methods of consolidation 114
Section 4 - Events Subsequent to the Reporting Date 120
Section 5 - Other Aspects 121
A.2- Part concerning the main financial items 122
A.3- Information on transfers between financial asset portfolios 145
A.4- Information on fair value 145
A.5- Disclosure on Day one profit/loss 163
Part B - Notes to the consolidated balance sheet 164
Assets 164
Section 1 - Heading 10: Cash and Cash Equivalents 164
Section 2 - Heading 20: Financial Assets Measured at Fair Value
through Profit or Loss 165
Section 3 - Heading 30: Financial Assets Measured at Fair Value through
Other Comprehensive Income 169
Section 4 - Heading 40: Financial Assets Measured at Amortized Cost 172
Section 5 - Heading 50: Hedging Derivatives 176
Section 7 - Heading 70: Equity Investments 178
Section 9 - Heading 90: Property, Plant and Equipment 185
Section 10 - Heading 100: Intangible Assets 190
Section 11 - Asset Heading 110 and Liability Heading 60: Tax Assets
and Liabilities 203
Section 12 - Asset Heading 120 and Liability Heading 70: Non-current assets and group of assets being sold and related liabilities 208
Section 13 - Heading 130: Other Assets 209
Liabilities 210
Section 1 - Heading 10: Financial Liabilities Measured at Amortized Cost 210
Section 2 - Heading 20: Trading Liabilities 213
Section 3 - Heading 30: Financial Liabilities Measured at Fair Value 214
Section 4 - Heading 40: Hedging Derivatives 215
Section 6 - Heading 60: Tax Liabilities 216
Section 7 - Heading 70: Liabilities associated to disposal group of assets 216
Section 8 - Heading 80: Other Liabilities 216
Section 9 - Heading 90: Provision for statutory end-of-service payments 217
Section 10 - Heading 100: Provisions for Risks and Charges 218
Section 11 - Heading 110: Technical reserves 223
Section 13 - Headings 120, 130, 140, 150, 160, 170 and 180: Net equity 224
Section 14 - Heading 190: Net equity attributable to minority interests 226
Other information 227
Part C - Notes to the Consolidated income statement 231
Section 1 - Headings 10 and 20: Net interest income 231
Section 2 - Headings 40 and 50: Net fee and commission income 233
Section 3 - Heading 70: Dividends and similar income 234
Section 4 - Heading 80: Net Trading Income 235
Section 5 - Heading 90: Net Hedging Income (Expense)236
Section 6 - Heading 100: Net Gains (Losses) on Disposals/Repurchases 236
102 Consolidated financial statements as at 30 June 2023
Section 7 - Heading 110: Net Gains (Losses) on Other Financial Assets and Liabilities Measured at Fair Value through Profit or Loss 237
Section 8 - Heading 130: Net value adjustments for credit risk 238
Section 9 - Heading 140: Net gains (losses) from modifications without derecognition 241
Section 10 - Heading 160: Net premium income 241
Section 11 - Heading 170: Other net income (expense) from insurance operations 242
Section 12 - Heading 190: Administrative Expenses 243
Section 13 - Heading 200: Net Transfers to Provisions for risks and charges 244
Section 14 - Heading 210: Net Adjustments to Tangible Assets 245
Section 15 - Heading 220: Net Adjustments to Intangible Assets 245
Section 16 - Heading 230: Other Operating Income (Expense)246
Section 17 - Heading 250: Gains (Losses) on Equity Investments 247
Section 19 - Heading 270: Write-downs to goodwill 248
Section 20 - Heading 280: Gains (losses) on disposal of investments 248
Section 21 - Heading 300: Income Tax on Ordinary Activities 249
Section 23 - Heading 340: Profit (loss) for the year attributable to minority interests 250
Section 25 - Earning per share 251
Part D - Consolidated comprehensive income 252
Part E - Information on risks and related hedging policies 253
Introduction 253
Section 1 – Consolidated accounting risks 253
Section 2 – Consolidated prudential risks 263
Part F - Information on consolidated capital 365
Section 1 - Consolidated capital 365
Section 2 - Own Funds and Banking Supervisory Ratios 367
Part G - Combinations Involving Group Companies or Business Units 373
Part H - Related Party Transactions 375
Part I - Share-based payment schemes 378
Part L - Segment reporting 381
Part M - Disclosure on leasing 388
Notes to the Accounts| Part A - Accounting Policies 103
Part A - Accounting Policies
A.1 - General Part
SECTION 1
Statement of conformity with IAS/IFRS
The consolidated financial statements at 30 June 2023 have, as required by Italian Legislative Decree 38/05, been drawn up in accordance with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB), and the respective interpretations issued by the IFRS Interpretations Committee (IFRIC), which were adopted by the European Commission in accordance with the procedure laid down in Article 6 of Regulation (EC) No. 1606/02 issued by the European Parliament and Council on 19 July 2002. In particular, account was taken of the “Instructions on preparing statutory and consolidated financial statements for banks and financial companies which control banking groups” issued by the Bank of Italy under Circular No. 262 of 22 December 2005 - seventh update of 29 October 2021 (31), as subsequently amended - which define the structure to be used in compiling and preparing the financial statements and the contents of the notes to the accounts. This report was drawn up in accordance with the provisions of Article 154-ter of Legislative Decree No. 58 of 24 February 1998 (Italian Consolidated Law on Finance).
31 The eighth update of the Circular was published on 17 November 2022. This update is mainly aimed at adopting the new international accounting standard IFRS 17 “Insurance Contracts” for financial years starting on 1 January 2023 or after and the resulting amendments introduced in other international accounting standards, including IAS 1 “Presentation of Financial Statements” and IFRS 7 “Financial Instruments: Disclosures”. For the Mediobanca Group, this update will become effective as of 1 July 2023.
104 Consolidated financial statements as at 30 June 2023
SECTION 2
General drafting principles
These consolidated financial statements comprise:
—Consolidated balance sheet;
—Consolidated income statement;
—Consolidated statement of other comprehensive income;
—Statement of changes to consolidated net equity;
—Consolidated cash flow statement, drawn up using the direct method;
—Notes to the accounts.
All the statements have been drawn up in conformity with the general principles provided for under IAS and the accounting policies illustrated in part A.2, and show data for the period under review compared with that for the previous financial year in the case of balance-sheet figures or the corresponding period of the previous financial year for profit-and-loss data.
During the year under review, the European Commission approved two regulations, which include certain changes to accounting standards already in force (IFRS 17 and IAS 12):
Under Regulation (EU) 2021/2036 of 19 November 2021, IFRS 17 “Insurance Contracts” entered into force and was applicable as of 1 January 2023. Under Regulation 2022/1491 of 8 September 2022, published in the Official Journal L 234 of 9 September 2022, some amendments to IFRS 17 were introduced. In particular, the amendment to the transitional provisions of IFRS 17 allows companies to overcome the one-off classification differences in comparative information regarding the previous year upon first-time adoption of IFRS 17 and IFRS 9 “Financial Instruments”. Companies may apply the amendment only upon first-time adoption of IFRS 17 and IFRS 9.32
32 For more details, please refer to the paragraph on the new standard.
Notes to the Accounts| Part A - Accounting Policies 105
On the same topic, it should also be noted that the Bank of Italy - IVASS - Consob issued a joint press release entitled “IAS/IFRS Financial Statements at 31 December 2022 - Information on the transition to IFRS 17 and IFRS 9” on 27 October 2022 calling upon all companies that draft (separate and consolidated) financial statements in compliance with international accounting standards to provide adequate disclosure on the entry into force of the new accounting standard from 1 January 2023, in compliance with paragraph 30 of IAS 8. The above joint press release also refers to the Recommendations of the European Securities and Markets Authority (ESMA), which, in its Public Statement ESMA32-339-208 “Transparency on implementation of IFRS 17 Insurance Contracts” of last May 13, aims to identify some information that listed companies are encouraged to provide in their 2022 Interim and Annual Financial Reports regarding impacts deriving from the first-time adoption of IFRS 17.
As is well known, the Mediobanca Group holds an equity investment in Assicurazioni Generali recorded among associated companies in light of its significant influence and whose value is measured in the consolidated financial statements by using the equity method in line with IAS 28. Applying the provisions of paragraphs 33 and 34 of IAS 28, for consolidation, the Group uses the affiliate’s accounting statement referring to the previous three months only based on public information. The official financial statement and approved by the Board of Directors of Insurance General used for the purposes of preparing this Annual Report is the situation at 31 March 2023 that transposes the effects of the application of IFRS9-IFRS17 as required by applicable law. Consequently, the income statement and the result of the overall profitability resulting from the application of the equity method for the first three quarters of the year reflects the application of IAS39/IFRS4, only the fourth quarter follows IFRS9/IFRS17.
The subsidiary Compass RE will apply the new standards as of 1 July 2023. These will therefore be incorporated in the Group’s quarterly report as at 30 September next.
Regulation 2022/1392 of 11 August 2022, published in Official Journal L 211 of 12 August 2022, adopted the amendments to IAS 12 “Income Taxes “. These amendments clarify how companies should account for deferred taxes on transactions such as leases and decommissioning obligations and aim to reduce differences in the recognition of deferred tax assets and liabilities on leases and decommissioning obligations. Companies will apply these provisions starting from 1 January 2023 or later. The Mediobanca Group as of 1 July 2023.
106 Consolidated financial statements as at 30 June 2023
The measures and statements published by regulatory and supervisory authorities in the past 12 months regarding the most suitable way to apply accounting standards that supplement the measures contained in the latest financial statements at 30 June 2022 are shown below. Please refer to the above financial statements for more details.
In October 2022, ESMA published the annual statement “European common enforcement priorities for 2022 annual financial reports” outlining the priorities on which listed companies must focus when preparing the annual reports for December 2022. ESMA in particular recommended that disclosure should be provided in the 2022 IFRS financial statements regarding: the possible impacts of the conflict between Russia and Ukraine 33 both in terms of financial results and of alternative performance measures (APM), the impacts of the current difficult macroeconomic context (exit from the pandemic period, inflation, rise in interest rates and deteriorated business outlook),34 communications on the alignment of economic activities pursuant to Article 8 of the Taxonomy Regulation (EU 2020/852)35, the effects of climate risks (climate change) with impacts, estimates and strategies implemented for their mitigation 36 giving particular importance to the consistency between assessments and estimates applied in the notes to the accounts and disclosure in the review of operations 37 and in the Non-Financial Statement. Lastly, in the same document, ESMA recalls that, starting from financial year 2022 38 the iXBRL marking requirement will come into force for financial statements templates and for the notes to the accounts in compliance with the ESEF Regulation.39
In September 2022, three European Supervisory Authorities (EBA, EIOPA and ESMA - referred to as ESA) published a joint report on the autumn 2022 risks (Joint Committee - Autumn 2022 Report on Risks and Vulnerabilities). The report emphasizes how Russia’s war against Ukraine, compounded by pre-existing inflationary pressures, caused a sharp increase in energy and commodity prices thereby weakening the purchasing power of households and increasing the risk of stagflation. Consequently, the ESA Joint Committee advised the national competent authorities, financial institutions and market operators to take adequate measures to limit any adverse effects. Finally, financial institutions and supervisors should
33 Please refer to Part E – SECTION 1 – Consolidated prudential risks; especially paragraph 6 on Impacts caused by the war in Ukraine.
34 ESMA expects the potential effects of the difficult economic situation to be taken into account by entities within the scope of IFRS standards, in particular within the scope of IAS 36 and IFRS 9.
35 Please refer to the contents of the consolidated Non-Financial Report published on www.mediobanca.com.
36 Please refer to Part E – ESG and Climate Change Risk.
37 ESMA expects the impact of climate issues to be taken into account by entities within the scope of IFRS standards, in particular within the scope of IAS 16, IAS 36 and IAS 38.
38 For the Mediobanca Group, the Regulation will be applied as of the financial statements at 30 June 2023.
39 Please refer to Part A - New ESEF Regulation.
Notes to the Accounts| Part A - Accounting Policies 107
continue to carefully manage environmental risks 40 and cyber risks 41 to address threats to IT security and business continuity.
Lastly, on 16 December 2022, at the time of the publication of the “Closure Report of Covid-19 Measures”, the EBA announced the repeal of its reporting and disclosure guidelines regarding the Covid-19 pandemic starting from 1 January 2023.
Going-concern statement
With reference to the requirements of the Bank of Italy, CONSOB and ISVAP under Joint Document No. 4 of 3 March 2010, the Group’s consolidated financial statements at 30 June 2023 were prepared on a going-concern basis: the Directors believe that no risks and uncertainties have arisen such as to raise doubts on the Group’s going-concern assumption. The Directors consider that the Group has a reasonable expectation of continuing to operate in the foreseeable future.
For information on the Group’s risks and related safeguards, please refer to the contents of “Part E - Information on risks and related hedging policies” in these Notes to the Accounts and in the Group’s Review of Operations.
Discretionary assessments, risks and uncertainties linked to the use of significant accounting estimates
In compliance with IFRS, senior management are required formulate assessments, estimates and assumptions that may influence the adoption of the accounting standards and the amounts of assets, liabilities, costs and revenues recognized in the financial statements, as well as the disclosure relating to contingent assets and liabilities.
The assumptions underlying such estimates take into account all the information available at the date of preparation of the financial statements, as well as assumptions considered reasonable, including in light of past experience.
40 For a discussion of this topic, please refer to Part E - ESG and Climate Change Risk.
41 For a discussion of this topic, please refer to Part E - IT Risk and Cyber Risk.
108 Consolidated financial statements as at 30 June 2023
In this regard, it should be noted that financial estimates may, due to their very nature and insofar as reasonable, need to be revised as a result of changes in the circumstances on which they have been based, of the availability of new information or of greater experience accrued.
The main cases requiring the use of subjective assessments and opinions on the part of senior management are as follows:
a)quantification of losses due to the impairment of receivables and, in general, of other financial assets;
b)assessment of the fair value of equity investments and other non-financial assets (goodwill, tangible assets, including the value in use of assets acquired under lease, and intangible assets);
c)use of valuation models to measure the fair value of financial instruments not listed on active markets;
d)estimates of liabilities deriving from company defined benefit retirement plans;
e)quantification of legal and fiscal provisions for risks and charges.
The above list of valuation processes is provided for the sole purpose of allowing the reader to better understand the main areas of uncertainty, but it should not be understood in any way to suggest that alternative assumptions may, at present, be more appropriate. For the most relevant items being estimated, information on the main hypotheses and assumptions used in the estimate is provided in the specific sections of the Notes to the Accounts, including a sensitivity analysis with respect to alternative hypotheses.
Notes to the Accounts| Part A - Accounting Policies 109
The new accounting standard IFRS 17 - Insurance Contracts: overview of the standard and required disclosures
IFRS 17 will replace IFRS 4 as the new standard for the representation of insurance contracts providing for a single, harmonized method that favours a more immediate comparison between statutes of different countries. IFRS 17 will be applied in combination with IFRS 9, replacing the previous combination IFRS 4-IAS 39.
IFRS 17 applies to all insurance contracts, including reinsurance contracts and contracts that contain an investment component as part of an insurance contract, including with discretionary profit-sharing features.
Upon initial recognition, IFRS 17 requires insurance contracts and reinsurance transfer contracts to be aggregated into homogenous groups (“cohorts”), to which the rules on their recognition, measurement and presentation in the financial statements are applied. However, Regulation (EU) 2021/2036 of the Commission allows companies to derogate from the above method by not imposing the requirement to divide contracts into cohorts.
The new standard provides for the introduction of new equity amounts and different ways of recognizing the profitability of insurance products in the companies’ financial statements, which - together with the choices that will be made on the transition approach - could have both capital impacts upon first adoption of the standard and target income statement volatility.
In particular, with reference to the changes made to the templates of the consolidated financial statements and Notes to the accounts, in the eighth update of Circular no. 262 of 22 December 2005 the Bank of Italy aligned itself with the instructions given by IVASS 42 on this topic, namely:
―in the consolidated balance sheet template, the items “Insurance liabilities” and “Insurance assets” show the insurance contracts issued and the reinsurance cessions;
―in the consolidated income statement template, the interim profit (loss) referring to insurance operations separately states revenues/costs for insurance services and net financial revenues/costs relating to insurance contracts issued and reinsurance cessions;
42 See ISVAP Regulation No.7 of 13 July 2007, as amended by Decision No.121 of 7 June 2022.
110 Consolidated financial statements as at 30 June 2023
―the Notes to the consolidated accounts were adapted in order to present information on the nature and amount of risks arising from insurance contracts pursuant to the IFRS 17.
The Bank of Italy, on the other hand, made no changes with reference to the representation of IFRS 9 quantities. Therefore, financial instruments pertaining to insurance companies (including the insurance products to which IFRS 9 applies) in the financial statement templates pursuant to Circular 262 will be represented together with those of the bank, except for providing appropriate evidence, if any, in the tables of the Notes to the accounts.
Transition to the New Standard: Impacts on the Mediobanca Group
The Mediobanca Group operates directly in the insurance market through Compass RE, a company specializing in reinsurance, wholly owned by Compass Banca. Furthermore, as part of the adoption of the equity method for associated investments, it incorporates the effects of the transition of Assicurazioni Generali to the new standard and IFRS 9, as required by legislation.
The regulatory provisions require the adoption of IFRS 17 as of the financial statements for years starting on 1 January 2023 (for the Mediobanca Group the adoption of the standard fell in the year starting on 1 July 2023), the transition date (FTA) being the beginning of the financial year immediately preceding the date of first adoption (1 January 2022, for the Mediobanca Group the financial year starting on 1 July 2022).
The disclosure made public by Assicurazioni Generali showed that the impact of the transition to the new standards was contained upon First-Time Adoption as at 1 January 2022, while it was more significant as at 31 December 2022. The transition of a large part of the OCI reserve from Net Equity to liabilities, resulting from the adoption of the new standards, had an effect on the computation of the book value of the equity investment in the Mediobanca Group’s consolidated financial statements and led to its increase in value, as reported in Part B of the Notes to the accounts.
Lastly, it should be noted that the “Value reserves for investments accounted for using the equity method” were also calculated in these consolidated financial statements of the Mediobanca Group pursuant to IFRS 17/IFRS 9 without making any adjustments.
Notes to the Accounts| Part A - Accounting Policies 111
The transition to Compass RE will only concern IFRS 17 as IFRS 9 was applied by the company since its entry into force in order to make the data homogeneous with the rest of the Group. The approach chosen, considering the type of insurance contracts in the Compass RE portfolio, is the simplified Premium Allocation Approach (PAA). The analyses carried out revealed non-material impacts on the Group’s equity and earnings.
Targeted Longer-Term Refinancing Operations – T-LTRO
The T-LTRO III refinancing operation consists in a disbursement plan, for up to 10 operations, each with a three-year maturity, starting from September 2019 on a quarterly basis, which calculated the final interest at maturity based on the average quarterly refinancing rate on bank deposits, plus a bonus (50 bps) for transactions in place between 24 June 2020 and 23 June 2022. Such bonus will be granted at the expiry of each transaction subject to compliance with a certain level of loans to households and businesses (referred to as “eligibility criteria”).
As a result of changes in the macroeconomic scenario in recent months, on 27 October 2022 the ECB decided to recalibrate the way interest should be calculated for the period from 23 November 2022 until the maturity date or early repayment date of each outstanding tranche, indexing it to the average ECB reference interest rates applicable over that period instead of over the entire duration of the programme.
The instrument is accounted for at amortized cost in accordance with IFRS 9. The change made by the ECB in computing the interest rate did not cause either derecognition or modification, and led to the recalculation of the effective rate at maturity, which, continuing with the same method used at 30 June 2022, incorporates the expected evolution of rates and payment of a premium on the maturity date of the instrument.
The effect on the profit and loss account within the twelve-month period of the recalibration of the rate generated interest expense of approximately €105m with an impact of €140m on net interest income, compared to the previous financial year.
112 Consolidated financial statements as at 30 June 2023
Group Project on Interbank Benchmark Rate Transition
Activities relating to the transition of the USD Libor rate, scheduled for the end of June 2023, were concluded during the year under review without significant impacts on the profit and loss account. In line with the ECB recommendations of May 2021, activities providing for the revision and strengthening of the fall-back clauses relating to contracts and products indexed to the Euribor rate, as well as for the identification of the necessary actions in the operating and technological chains, are underway for a possible future transition, although the disposal thereof has not been planned for the time being.
Hedge Accounting
The Group’s hedge accounting manual details the methodological and procedural choices for hedge accounting and the testing methods to verify its economic relationship.
The use of a behavioural model for accounts and fixed rate loans led to a reduction of the Group’s exposure to interest rate risk with a benefit on net interest income in light of the extension of the duration of deposits.
ESEF Regulation
Directive (EU) 2013/50, amending Directive (EC) 2004/109 (Transparency Directive), established that all annual financial reports of issuers whose securities are admitted to trading on a regulated market should be drawn up in a single electronic communication format. The European Commission implemented these rules in Delegated Regulation 2019/815 of 17 December 2018 (ESEF Regulation - European Single Electronic Format). The Regulation requires issuers who prepare consolidated financial statements in accordance with IFRS to prepare and publish their annual financial report in the XHTML (eXtensible HyperText Markup Language) format, using the “Inline Extensible Business Reporting Language (iXBRL)” for the mark-up of consolidated financial statements (Balance Sheet, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity, Cash Flow Statement). The Mediobanca Group implemented it for the first time in the financial statements as at 30 June 2022, while the information contained in the Notes to the accounts will have to be marked starting from this financial year.
Notes to the Accounts| Part A - Accounting Policies 113
The combination of the XHTML format with i-XBRL mark-ups aims to:
―make annual financial reports readable both by human users and by automatic devices;
―improve the accessibility, analysis and comparability of the information included in annual financial reports.
However, issuers may still continue to publish their Financial Statements in other formats (i.e. PDF).
Finally, it should be noted that some information contained in the Notes to the Financial Statements when extracted from the XHTML format in an XBRL instance, due to certain technical limitations, may not be reproduced identically, compared to the corresponding information displayed in the consolidated financial statements in XHTML format.
114 Consolidated financial statements as at 30 June 2023
SECTION 3
Area and methods of consolidation
The consolidated financial statements comprise the financial position and the results of the Group Legal Entities and companies directly or indirectly controlled by them, including those operating in sectors other than the one in which the Parent Company operates.
Based on the combined provisions of IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of Interests in Other Entities”, the Group has proceeded to consolidate its Legal Entities on a line-by-line basis, and its associates and joint arrangements using the net equity method.
The following events in the twelve months should be noted:
―completion of the demerger of the “NPL Operations” business unit of the subsidiary MBCS, which merged into the new company Revalea (established on 19 April 2022 and wholly owned by Compass Banca) after obtaining the necessary authorizations to operate in credit management at the end of December 2022;
―establishment of MB INVAG S.r.l. (wholly owned by Mediobanca and consolidated using the line-by-line method), into which the pro-rata assets (represented by Assicurazioni Generali shares) and liabilities of INV AG S.r.l. (shareholding on 13.5%) merged. The Board of Directors held on 27 July last approved the merger by acquisition into Mediobanca S.p.A.;
―purchase of a 19.5% stake of Heidi Pay, where the significant influence of Compass Banca was identified. The acquisition of Soisy (wholly owned by Compass Banca) fully consolidated. The Purchase Price Allocation (PPA) under IFRS 3 was concluded as illustrated in Part B of the Notes to the accounts. The merger by acquisition into Compass Banca is expected by the end of 2023;
―cancellation of Spafid Connect from the Register of Companies after its liquidation has been completed;
―change of name of Cairn Capital to Polus Capital Management.
Notes to the Accounts| Part A - Accounting Policies 115
The following agreements, which will have an effect on the Group’s area of consolidation in the next financial year, should also be noted:
―the strategic agreement with the partners of Arma Partners, with the aim of strengthening the advisory services offered within the Digital Economy for the benefit of CIB and Wealth Management customers. The closing of the transaction, having obtained the authorization from the European Central Bank (ECB), is expected by the end of 2023, followed by full consolidation;
―agreement for the purchase of 100% of Heidi Pay Switzerland AG, (investee company of the associate Heidi Pay acquired in the first few months of the year) specialising in BNPL with over 400 commercial agreements with major distributors, luxury brands and technology operators (the closing is expected by the end of 2023);
―agreement with Ifis for the sale of Revalea S.p.A. as part of a broader collaboration agreement for the management of non-performing loans involving MBCredit Solutions (it will support the purchaser in the management and recovery of bad and non-performing loans). The closing of the transaction, subject to obtaining the relevant regulatory approvals, should take place by the end of 2023;
―partnership agreement with Founders Factory, aimed at launching a new venture project and a fintech accelerator with the aim of facilitating innovation in financial services, providing support to international fintech start-ups in the early-stage phase and through investments in the thriving Italian start-up ecosystem.
116 Consolidated financial statements as at 30 June 2023
1. Equity Investments in Group Legal Entities
Ownership
Company name
Registered office
Type of relationship (1)
Controlling entity
% shareholding
Voting rights in % (2)
A.
COMPANIES INCLUDED IN AREA OF CONSOLIDATION
A.1
Line-by-line method
1.
MEDIOBANCA - Banca di Credito Finanziario S.p.A.
Milan
1
—
—
—
2.
SPAFID S.P.A
Milan
1
A.1.1
100.—
100.—
3.
MEDIOBANCA INNOVATION SERVICES - S.C.P.A.
Milan
1
A.1.1
100.—
100.—
4.
CMB MONACO S.A.M.
Monte Carlo
1
A.1.1
100.—
100.—
5.
CMG MONACO S.A.M.
Monte Carlo
1
A.1.4
99.92
99.92
6.
CMB ASSET MANAGEMENT S.A.M.
Monte Carlo
1
A.1.4
99.5
99.5
7.
MEDIOBANCA INTERNATIONAL (LUXEMBOURG) S.A.
Luxembourg
1
A.1.1
99.—
99.—
1
A.1.8
1.—
1.—
8.
COMPASS BANCA S.P.A.
Milan
1
A.1.1
100.—
100.—
9.
CHEBANCA! S.P.A.
Milan
1
A.1.1
100.—
100.—
10.
MBCREDIT SOLUTIONS S.P.A.
Milan
1
A.1.8
100.—
100.—
11.
SELMABIPIEMME LEASING S.P.A.
Milan
1
A.1.1
60.—
60.—
12.
MB FUNDING LUXEMBOURG S.A.
Luxembourg
1
A.1.1
100. —
100. —
13.
MEDIOBANCA SECURITIES USA LLC
New York
1
A.1.1
100.—
100.—
14.
MB FACTA S.P.A.
Milan
1
A.1.1
100.—
100.—
15.
QUARZO S.R.L.
Milan
1
A.1.8
90.—
90.—
16.
QUARZO CQS S.R.L.
Milan
1
A.1.8
90.—
90.—
17.
MEDIOBANCA COVERED BOND S.R.L.
Milan
1
A.1.9
90.—
90.—
18.
COMPASS RE (LUXEMBOURG) S.A.
Luxembourg
1
A.1.8
100.—
100.—
19.
MEDIOBANCA INTERNATIONAL IMMOBILIERE S. A R.L.
Luxembourg
1
A.1.7
100.—
100.—
20.
POLUS CAPITAL MANAGEMENT GROUP LIMITED
London
1
A.1.1
89.07(*)
64.4
21.
POLUS CAPITAL MANAGEMENT LIMITED
London
1
A.1.20
100.—
100.—
22.
POLUS CAPITAL MANAGEMENT (US) INC.
Wilmington (USA)
1
A.1.20
100.—
100.—
23.
POLUS CAPITAL MANAGEMENT INVESTMENTS LIMITED (non-operating)
London
1
A.1.20
100.—
100.—
24.
POLUS INVESTMENT MANAGERS LIMITED (non-operating)
London
1
A.1.20
100.—
100.—
25.
Bybrook Capital Management Limited
Grand Cayman
1
A.1.20
100.—
100.—
26.
Bybrook Capital LLP
Reading
1
A.1.25
100.—
100.—
27.
Bybrook Capital Services (UK) Limited
Reading
1
A.1.25
100.—
100.—
28.
Bybrook Capital Burton Partnership (GP) Limited
Grand Cayman
1
A.1.25
100.—
100.—
29.
Bybrook Capital (GP) LLC
Wilmington
1
A.1.25
100.—
100.—
30.
Bybrook Capital (US) LP
Wilmington
1
A.1.25
100.—
100.—
31.
SPAFID FAMILY OFFICE SIM
Milan
1
A.1.2
100. —
100. —
32.
SPAFID TRUST S.R.L.
Milan
1
A.1.2
100. —
100. —
33.
MEDIOBANCA MANAGEMENT COMPANY S.A.
Luxembourg
1
A.1.1
100. —
100. —
34.
MEDIOBANCA SGR S.P.A.
Milan
1
A.1.1
100. —
100. —
35.
RAM ACTIVE INVESTMENTS S.A.
Geneva
1
A.1.1
98.3 (**)
95.8
36.
RAM ACTIVE INVESTMENTS (LUXEMBOURG) S.A.
Luxembourg
1
A.1.35
100. —
100. —
37.
MESSIER ET ASSOCIES S.A.S.
Paris
1
A.1.1
100.—(***)
79.6
38.
MESSIER ET ASSOCIES L.L.C.
New York
1
A.1.37
100.—(***)
50. —
39.
MBCONTACT SOLUTIONS S.R.L.
Milan
1
A.1.10
100. —
100. —
40.
COMPASS RENT S.R.L.
Milan
1
A.1.8
100. —
100. —
41.
COMPASS LINK S.R.L.
Milan
1
A.1.8
100. —
100. —
42.
RAM ACTIVE INVESTMENTS LIMITED (UK) (in liquidation)
London
1
A.1.35
100. —
100. —
43.
CMB REAL ESTATE DEVELOPMENT SAM
Monte Carlo
1
A.1.4
60. —
60. —
1
A.1.1
40. —
40. —
44.
REVALEA S.P.A.
Milan
1
A.1.8
100.—
100.—
45.
SOISY S.P.A.
Milan
1
A.1.8
100.—
100.—
46.
MB INV AG S.R.L.
Milan
1
A.1.1
100.—
100.—
(*)Taking into account the put and call option exercisable as from the third anniversary of the closing date of the transaction.
(**)Taking into account the put and call options exercisable from the third to the tenth anniversary of the closing date of the transaction.
(***)Taking into account the put and call option exercisable from the fifth anniversary of the closing date of the transaction.
Legend
(1) Type of relationship:
1 = Majority of voting rights in ordinary AGMs.
2 = Effective and potential voting rights in ordinary AGMs.
Notes to the Accounts| Part A - Accounting Policies 117
2.Considerations and significant assumptions used to determine consolidation area
The area of consolidation is defined on the basis of IFRS 10, “Consolidated Financial Statements”, which provides that control occurs when the following three conditions apply:
–when the investor has power over the investee, defined as having substantive rights over the investee’s relevant activities;
–when the investor has exposure, or rights, to variable returns from its involvement with the investee; and
—when the investor has the ability to exert power over the investee to affect the amount of the variable returns.
Group Legal Entities are consolidated on a line-by-line basis, which means that the carrying amount of the parent’s investment and its share of the Group Legal Entity’s equity after minority interests are eliminated against the addition of that company’s assets and liabilities, income and expenses to the parent company’s totals. Any surplus arising following allocation of asset and liability items to the Group Legal Entity is recorded as goodwill. Any assets and liabilities, income and expenses from transactions between consolidated companies are eliminated upon consolidation.
Investments in associates and joint arrangements are consolidated using the equity method. Associates are companies that are subject to significant influence, a concept defined as the power to participate in activities which are significant for the company without having control of it. Significant influence is assumed to exist in cases where one company holds at least 20% of the voting rights of another. When establishing whether or not significant influence exists, account is also taken of potential rights, rights exercisable under options, warrants or conversion rights embedded in financial instruments; the ownership structure is also considered, as well as voting rights owned by other investors.
The definition of joint arrangement used is that provided in IFRS 11, which involves the twofold requirement of the existence of a contractual arrangement and that such an arrangement must provide joint control to two or more parties.
Under the equity method of accounting, any changes in the net equity of the investee company (including gains and losses) since the acquisition date should be
118 Consolidated financial statements as at 30 June 2023
included in the book value of the investment (originally recognised at cost). This value is reduced in the event that the investment distributes dividends. The gain or loss generated by the investment is recorded pro rata in the consolidated income statement, including any value impairment or write-ups; while all other changes are recognized directly in net equity.
The financial statements of the consolidated companies represented in currencies other than the Euro are converted by applying the exchange rate prevailing at the end of the accounting period to the balance sheet items, and the average exchange rates for the same period to the income statement items. All exchange rate differences arising as a result of the translation are recorded in a specific net equity valuation reserve which, as and when the investment is sold, is eliminated and the relevant amount is debited from or credited to the income statement as the case may be.
With regard to the determination of the stake used for equity-based consolidation, it should be noted that it was determined as the ratio of the shares owned excluding those held for trading and/or through securities lending transactions (which transfer ownership, but not risks and benefits) and voting capital, represented by share capital after deducting treasury shares.
As required by paragraph 5-A of IFRS 12, the companies included within the area of consolidation, which must be disclosed in this paragraph, also include the equity investments of entities classified as held for sale (or included in a disposal group which is classified as held for sale).
In these financial statements, Group Legal Entity Revalea S.p.A. was the subject of a sale agreement and the conditions were met for its classification in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”.
Notes to the Accounts| Part A - Accounting Policies 119
3.Investments in Group Legal Entities with significant minority interests
Nothing to report.
4.Significant restrictions
The Group considers that no restrictions currently in force, under the terms of its Articles of Association, shareholders’ agreements or external regulations, would prevent it or otherwise limit its ability to access its assets or settle its liabilities.
The Group also considers that no rights are in force to protect the interest of minority or third parties.
5.Other Information
The reporting date for the consolidated financial statements is the date on which the Parent Company’s financial year ends. In cases where Group Legal Entities have reporting periods ending on different dates, these companies are consolidated based on financial and earnings situations prepared as at the reporting date for the consolidated financial statements.
The financial statements of all Group Legal Entities have been drawn up based on the same accounting principles used at Group level.
Associates which have reporting periods ending on different dates compared to the Parent Company prepare a pro-forma accounting statement as at the consolidated reporting date, or alternatively send a statement referring to a previous date as long as it is not more than three months previously. This eventuality is expressly provided for by IAS 28 (paras. 33-34) provided that due account is taken of any material transactions or events that occur between said date and the reporting date for the financial statements.
120 Consolidated financial statements as at 30 June 2023
SECTION 4
Events subsequent to the reporting date
At the end of June Mediobanca gave its consent to the rescue process of Eurovita in the dual role of distribution bank and systemic bank through the underwriting of two lines of financing to Newco consisting of five insurance companies that will buy the business of the company in crisis. Please note that the termsheets signed between the parties in June had no binding nature and therefore did not entail the creation of a legal obligation on the group from which could have had impacts for the purposes of this financial statements. The signing of the final commitments, expected in days, will be for a total commitment not exceeding 77 million, to be used on the basis of the requested refunds, First of all, by our private customers and that will be largely guaranteed by the liquid assets of Newco (Cronos Vita SpA). At the same time, Mediobanca undertakes to recognise an annual service fee linked to the policies in force. Given the limited exposure of wealth customers and the fact that the terms of both loans are market-based, the Eurovita transaction will not have a material effect on Mediobanca’s numbers.
Article 26 of Law-Decree No. 104/2023 (published in Official Journal no. 186 of 10 August 2023), limited to the year 2023, introduced an extraordinary levy of 40% on the extra profits of banks, calculated as the higher value of: a) the amount of interest income relating to the financial year prior to the one in progress as at 1 January 2023 which exceeds such income by at least 5 per cent in the year prior to the one in progress as at 1 January 2022 and b) the amount of interest income relating to the year prior to the one in progress as at 1 January 2024 which exceeds such income by at least 10 per cent in the financial year prior to the one in progress as at 1 January 2022. However, the amount of this extraordinary tax cannot exceed 0.1 per cent of total balance sheet assets relating to the finan-cial year prior to the one in progress as at 1 January 2023. Recognition through profit or loss will only be required after the law-decree has been enacted; in light of the current bill, the extra profits of Mediobanca will be those accrued as at 30 June 2023 and 30 June 2022 and therefore, the tax should be paid by 31 January 2024. It should be noted that on the date of approval of the Directors' report, the approval process of the decree is underway and therefore the rule may be subject to changes.
No other events requiring an adjustment to be made to the data shown in the individual Financial Statements at 30 June 2023 occurred after such date.
Notes to the Accounts| Part A - Accounting Policies 121
SECTION 5
Other aspects
In compliance with Directive (EC) 2004/109 (the “Transparency Directive”) and Delegated Regulation (EU) 2019/815 (the “ESEF Regulation”), this document was drawn up in XHTML and the consolidated financial statements were “marked up” using the integrated computer language iXBRL, approved by ESMA. For further information, please refer to the paragraph “New ESEF Regulation: Group project” in “Part A Accounting Policies - A.1 General Part” of the consolidated notes to the accounts. The entire document was lodged at the company offices and with the competent institutions as pursuant to the law.
The consolidated financial statements are accompanied by the Declaration by head of company financial reporting pursuant to Article 154-bis of the Italian Consolidated Law on Finance and are subject to a limited audit by the independent auditing firm EY S.p.A., according to the provisions of Legislative Decree No. 39 of 27 January 2010.
122 Consolidated financial statements as at 30 June 2023
A.2 - Significant Accounting Policies
1 - Financial assets measured at fair value through profit or loss
These include financial assets held for trading and other financial assets mandatorily measured at fair value, and assets to which the Fair Value Option is applied.
Financial assets held for trading are assets which have been acquired principally for the purpose of being traded. This category comprises debt securities, equities, loans held for trading purposes, and the positive value of derivatives held for trading, including those embedded in complex instruments (such as structured bonds), which are recorded separately.
Financial assets mandatorily measured at fair value include financial assets that are not held for trading but which are mandatorily measured at fair value through profit or loss since they do not meet the requirements for classification at amortized cost or at fair value through other comprehensive income. In particular, as clarified by the IFRS Interpretation Committee, this category includes units in mutual investment funds.43
Initial recognition occurs at the settlement date for securities and at the subscription date for derivatives. At initial recognition, such financial assets are booked at fair value not including any transaction expenses or income directly attributable to the asset concerned, which are taken through the income statement. Following their initial recognition, they will continue to be measured at fair value, and any changes in fair value will be recognized in the income statement. Interest on instruments mandatorily measured at fair value will be recognized according to the interest rate stipulated contractually. Dividends paid on equity instruments will be measured through profit or loss when the right to collect them becomes effective.
Equities and linked derivatives whose fair value may not be reliably measured using the methods described above are stated at cost (these too qualify as Level 3 assets). If the assets suffer impairment, they are written down to their current value.
Gains and losses upon disposal and/or redemption and the positive and negative effects of changes in fair value over time are reflected in the income statement under
43 The IFRS Interpretation Committee’s clarification rules out any possibility of such instruments being treated as equities.
Notes to the Accounts| Part A - Accounting Policies 123
the respective headings.
Assets held for trading mandatorily to be measured at fair value also include loans which do not guarantee full repayment of principal in the event of the counterparty’s financial difficulties and which have therefore failed the SPPI test. The process followed to write down these positions is aligned with that used for other loans, on the grounds that the exposure is basically attributable to credit risk, with both the gross exposure and related provisioning stated.
The heading also includes financial assets designated at fair value upon initial recognition. In such cases, financial assets are recognized irrevocably at fair value through profit or loss if, and only if, their being included in this category eliminates or significantly reduces a measurement inconsistency.
2- Financial assets measured at fair value through other comprehensive income
These are financial instruments, mostly debt securities, which meet both the following conditions:
―the instruments are held on the basis of a business model whose objective is the collection of contractual cash flows and of proceeds deriving from the sale of such instruments;
―the contractual terms have passed the SPPI test.
Financial assets measured at fair value through other comprehensive income (FVOCI) are recognized at fair value, including transaction costs and income directly attributable to them. Thereafter, they will continue to be measured at fair value. Changes in fair value are measured through other comprehensive income, while interest and currency exchange gains/losses are recorded in the income statement (in the same way as financial instruments measured at amortized cost).
Expected losses of financial assets measured at fair value through other comprehensive income (debt securities and equities) are calculated (as per the impairment process) in the same way as those of financial assets measured at amortized cost, with the resulting value adjustment recorded in the income statement.
124 Consolidated financial statements as at 30 June 2023
Retained earnings and accumulated losses recorded in other comprehensive income will be measured through profit or loss when the instrument is removed from the balance sheet.
The category also includes equities not held for trading which meet the definition provided by IAS 32, and which the Group decided to classify irrevocably in this category at the initial recognition stage. As the instruments in question are equities, they are not subject to impairment and no gains/losses on equities will be measured through profit or loss, including following the sale of the instrument. Conversely, dividends on the instruments will be measured through profit or loss when the right of collection takes effect.
3 - Financial assets measured at amortized cost
These include loans and advances to customers and banks, debt securities and repo transactions which meet the following conditions:
—the financial instrument is held and managed according to the hold-to-collect business model, i.e., with the objective of holding it in order to collect the cash flows provided for in the contract;
—such contractual cash flows consist entirely of payment of principal amount and interest (and therefore meet the requirements set by the SPPI test).
This heading also includes receivables originated from finance leases, the valuation and classification rules for which are governed by IAS 16 (cf. below), even though the impairment rules introduced by IFRS 9 apply for valuation purposes.
The Group’s business model should reflect the ways in which financial assets are managed at a portfolio level and not at instrument level, on the basis of factors observable at the portfolio level and not at the instrument level, such as the following:
—operating procedure adopted by management in the performance evaluation process;
—risk type and procedure for managing risks taken, including indicators for portfolio rotation;
—means for determining remuneration mechanisms for risk-takers.
Notes to the Accounts| Part A - Accounting Policies 125
The business model is based on expected reasonable scenarios (without considering “worst case” and “stress case” scenarios). In the event of cash flows differing from those estimated at initial recognition, the Group is not bound to change the classification of financial instruments forming part of the portfolio, but uses the information for deciding the classification of new financial instruments.44
At initial recognition, the Group analyses contractual terms for the instruments to check whether the instrument, product or sub-product has passed the SPPI test. In this connection, the Group has developed a standardized process for performing the test, which involves analysing the loans using a specific tool, developed internally, which is structured on the basis of decision-making trees, at the level of the individual financial instrument or product based on their different degrees of customisation. If the test is not passed, the tool will show that the assets should be measured at fair value through profit or loss (FVTPL). The method by which loans are tested differs according to whether or not the asset is a retail or corporate loan: at product level for retail loans, individually for corporate loans. An external info-provider is used to test debt securities; if, however, no test results are available, the instrument is analysed using the SPPI tool. When contractual cash flows for the instrument do not represent solely payments of principal and interest on the outstanding amount, the Group mandatorily classifies the instrument at fair value through profit or loss.
At the initial recognition date, financial assets are measured at fair value, including any costs or income directly attributable to individual transactions that can be established from the outset even if they are actually settled at later stages. The recognition value does not, however, factor in costs with the above characteristics which are repaid separately by the borrower, or may be classified as ordinary internal administrative expenses.
The instrument is measured at amortized cost, i.e. the initial value less/plus the repayments of principal made, write-downs/write-ups, and amortization – calculated using the effective interest rate method – of the difference between the amount disbursed and the amount repayable at maturity, adjusted to reflect expected losses.
The amortized cost method is not used for short-term receivables, as the discounting effect is negligible; for this reason, such receivables are recognized at
44 These considerations are stated in the internal management policies, which reiterate the link between business model and accounting treatment and introduce frequency and materiality thresholds for changes in portfolios of assets measured at amortized cost.
126 Consolidated financial statements as at 30 June 2023
historical cost. The original effective interest rate is defined as the rate of interest which renders the discounted value of future cash flows deriving from the loan or receivable by way of principal and interest equal to the initial recognition value of the loan or receivable.
The original effective interest rate for each loan will remain unchanged in subsequent years, even if new terms are negotiated leading to a reduction to below market rates, including non-interest-bearing loans. The relevant value adjustment is recognized in the income statement.
In accordance with the provisions of IFRS 9, the impairment model involves financial assets being classified at one of three different risk stages (Stage 1, Stage 2 and Stage 3), depending on developments in the borrower’s credit quality, to which different criteria for measuring expected losses apply. Accordingly, financial assets are split into the following categories:
—Stage 1: this includes exposures at their initial recognition date for as long as there is no significant impairment to their credit quality; for such instruments, the expected loss should be calculated depending on default events which may occur within twelve months of the reporting date;
—Stage 2: this includes exposures whose credit risk underwent a significant deterioration from the initial recognition date, although the exposures were performing as such; in the transition from Stage 1 to Stage 2, the expected loss will be calculated throughout the residual lifetime of the instrument;
—Stage 3: this category consists of impaired exposures according to the definition provided in the regulations. In the transition to Stage 3, exposures are valued individually, that is, the value adjustment is calculated as the difference between the carrying value at the reference date (amortized cost) and the discounted value of the expected cash flows, which are calculated by applying the original effective interest rate. The expected cash flows consider the anticipated collection times, the probable net realizable value of any guarantees, and the costs which are likely to be incurred for the recovery of the credit exposure from a forward-looking perspective which factors in alternative recovery scenarios and developments in the economic cycle.
In the model for calculating expected losses applied by the Group, forward-looking information was taken into consideration by referring to three possible macroeconomic scenarios (baseline, mild-positive and mild-negative) that may have an impact on PD and LGD, including any sales scenarios where the Group’s NPL
Notes to the Accounts| Part A - Accounting Policies 127
strategy considers that such assets should be recovered through sale on the market.
The Group adopts qualitative and quantitative criteria to establish whether there has been a significant increase in credit risk, using backstop indicators, such as accounts which are thirty or more days overdue or have been classified as forborne, to assess whether or not they should be treated as Stage 2. Cases of low-risk instruments at the recording date are identified, compatible with classification as Stage 1 (low credit risk exemption), where there is a BBB- rating on the Standard & Poor’s scale, or a corresponding internal PD estimate.
Purchased or originated credit impaired items (POCIs) are receivables that are already impaired at the point in time when they are acquired or disbursed. At the initial recognition date, they are measured at amortized cost on the basis of an internal rate of return which is calculated using an estimate of the recovery flows expected for the item; expected recovery flows are periodically updated in light of new evidence and discounted using the above-mentioned internal rate of return.
Following initial recognition, all financial assets measured at amortized cost are subject to the impairment model based on the expected loss, i.e. performing as well as non-performing exposures.
Impairment regards losses which are expected to materialize in the twelve months following the reporting date, or losses which are expected to materialize throughout the rest of the instrument’s lifetime in the event of a significant increase in credit risk. Both the twelve-month and lifetime expected losses can be calculated on an individual or collective basis according to the nature of the underlying portfolio.
Expected credit losses are recorded and released only to the extent that changes have occurred. For financial instruments considered to be in default, the Group records an expected loss on the residual lifetime of the instrument (similar to Stage 2 above); value adjustments are determined for all the exposures of the different categories considering forecast information reflecting macro-economic factors (forward-looking approach).
4 - Derecognition of assets
A financial asset must be derecognized from the balance sheet if, and only if, the contractual rights to the cash flows deriving from it have expired, or if the asset has
128 Consolidated financial statements as at 30 June 2023
been transferred in accordance with the circumstances permitted under IFRS 9. In such cases the Group checks if the contractual rights to receive the cash flows in respect of the asset have been transferred, or if they have been maintained while a contractual obligation to pay the cash flows to one or more beneficiaries continues to exist. It is necessary to check that basically all risks and benefits have been transferred, and any right or obligation originated or maintained as a result of the transfer is recorded separately as an asset or liability where appropriate. If the Group retains virtually all risks and benefits, the financial asset must continue to be recorded.
If the Group has neither transferred nor maintained all risks and benefits, but at the same time has retained control of the financial asset, this continues to be recognized up to the residual interest retained in that asset.
The main forms of activity currently carried out by the Group which do not require underlying assets to be derecognized are the securitization of receivables, repo trading and securities lending. Conversely, items received as part of deposit bank activity, the return on which is collected in the form of a commission, are not recorded, as the related risks and benefits continue to accrue entirely to the end-investor.
When a financial asset measured at amortized cost is renegotiated, the Group derecognizes it only if the renegotiation entails a change of such magnitude that the initial instrument effectively becomes a new one. In such cases, the difference between the original instrument’s carrying value and the fair value of the new instrument is measured through profit or loss, taking due account of any previous write-downs. The new instrument is classified as Stage 1 for the purpose of calculating the expected loss (save in cases where the new instrument is classified as a POCI).
In cases where the renegotiation does not result in substantially different cash flows, the Group does not derecognize the instrument, but the difference between the original carrying value and the estimated cash flows discounted using the original internal rate of return must be measured through profit or loss (taking due account of any provisions already set aside to cover it).
Notes to the Accounts| Part A - Accounting Policies 129
5 - Leases (IFRS 16)
An agreement is classified as a lease 45 (or contains a lease) based on the substance of the agreement at the execution date. An agreement is, or contains, a lease if its performance depends on the use of a specific good (or goods) and confers the right to use such good (goods) – the “Right of Use” (RoU) – for an agreed period of time and in return for payment of a fee (Lease liabilities). This definition of leasing therefore also includes long-term rentals or hires.
Right-of-use assets are recognized among “Tangible assets”, and calculated as the sum of the current value of future payments (which corresponds to the current value of the recognized liability), the initial direct costs, any instalments received in advance or on the effective date of the lease (down payment), any incentives received from the lessor, and estimates of any costs for removing or restoring the asset underlying the lease.
The lease liability, which is booked under “Financial liabilities measured at amortized cost”, is equal to the discounted value of payments due in respect of the lease discounted, as required by the Standard, to the marginal financing rate, equal for the Group to the Funds Transfer Pricing rate (FTP) as at the date concerned.
The duration of the lease agreement must not only consider the non-cancellation period established by contract, but also the extension options if their use is considered reasonably certain; in particular, the counterparty’s past behaviour, the existence of corporate plans for the disposal of the leased business and any other circumstances indicative of the reasonable certainty of renewal must be considered when providing for automatic renewal.
After initial recognition, right-of-use assets are amortized over the lease duration and written down as appropriate. The liability will be increased by the interest expense accrued and progressively reduced as a result of the payment of fees; in the event of a change in payments, the liability will be recalculated against the right-of-use asset.
For sub-leases, i.e. when an original lease has been replicated with a counterparty, and there are grounds for classifying it as a finance lease, the liability
45 Leases in which the Group is a lessor may be divided into finance leases and operating leases. A lease is defined as a finance lease if all risks and benefits typically associated with ownership are transferred to the lessee. Such leases are accounted for by using the financial method, which involves a receivable being booked as an asset for an amount equal to the amount of the lease, after any expired instalments on principal paid by the lessee, and the interest receivable being taken through the income statement.
130 Consolidated financial statements as at 30 June 2023
in respect of the original lease is matched by an amount receivable from the sub-lessee rather than the value in use.
6 - Hedging
With reference to hedging transactions, the Group has chosen to adopt the provisions of IFRS 9 starting on 1 July 2018, and not to make use of the exception granted, i.e. to continue to apply the IAS 39 rules to these transactions, with the exception of the specific cases set forth in IFRS 9 (para. 6.1.3)46 and not governed by the same.
The types of hedges used by the Group are the following:
—fair value hedges, which aim to offset the Group’s exposure to changes in the fair value of a financial item or homogeneous group of assets in terms of risk profile;
—cash flow hedges, which are intended to offset the exposure of recognized assets and liabilities to changes in future cash flows attributable to specific risks relating to the items concerned;
—hedges of foreign investments in currencies other than the Euro: these refer to the hedging of risks in an investment in a non-Italian company denominated in a foreign currency.
For the process to be effective, the item must be hedged with a counterparty from outside the Group.
Hedge derivatives are recognized and measured at fair value as follows:
—for fair value hedges, a change in the fair value of the hedged item is offset by the change in fair value of the hedging instrument, both of which recognized in the income statement, should a difference emerge as a result of the partial ineffectiveness of the hedge;
46 IFRS 9 par 6.1.3: “For a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only for such a hedge), an entity may apply the hedge accounting requirements in IAS 39 instead of those in this Standard. In that case, the entity must also apply the specific requirements for the fair value hedge accounting for a portfolio hedge of interest rate risk and designate as the hedged item a portion that is a currency amount (see paragraphs 81 A, 89 A and AG114–AG132 of IAS 39).”
Notes to the Accounts| Part A - Accounting Policies 131
—for cash flow hedges, a change in fair value is recognized in net equity for the effective portion of the hedge and in the income statement only when, with reference to the hedged item, the change in the cash flows to be offset actually occurs.
Hedge accounting is permitted for derivatives where the hedging relationship is formally designated and documented and provided that the hedge is effective at its inception and is expected to be so for its entire life.
At inception, the Group formally designates and documents the hedging relationship, with an indication of the risk management objectives and strategy for the hedge. The documentation includes identification of the hedging instrument, the item hedged, the nature of the risk hedged and how the entity intends to assess if the hedging relationship meets the requisites for the hedge to be considered effective (including analysis of the sources of any ineffectiveness and how this affects the hedging relationship). The hedging relationship meets the eligibility criteria for accounting treatment reserved for hedges if, and only if, the following conditions are met:
—The effect of the credit risk does not prevail over the changes in value resulting from the economic relationship;
—The coverage provided by the hedging relationship is the same as the coverage which results from the quantity of the item hedged which the entity effectively hedges, and the quantity of the hedge instrument which the Group actually uses to hedge the same quantity of the item hedged.
Fair value hedges
As long as the fair value hedge meets the qualifying criteria, the gain or loss on the hedging instrument must be recognized in the income statement or under one of the other comprehensive income headings if the hedging instrument hedges another equity instrument for which the Group has chosen to measure changes in fair value through OCI. The hedge profit or loss on the hedged item is recorded as an adjustment to the book value of the hedge with a matching entry through the income statement, even in cases where the item hedged is a financial asset (or one of its components) measured at fair value with changes taken through OCI. However, if the hedged item is an equity instrument for which the entity has opted to measure
132 Consolidated financial statements as at 30 June 2023
changes in fair value through OCI, the amounts remain in the statement of other comprehensive income.
If the hedged item is an unrecognised irrevocable commitment (or a component thereof), the cumulative change in fair value of the hedged item resulting from its designation is recognized as an asset or liability with a corresponding gain or loss recorded in the profit (loss) for the period.
Cash flow hedges
As long as the cash flow hedge meets the qualifying criteria, it is accounted for as follows:
—the gain or loss on the hedging instrument in relation to the effective portion of the hedge is measured through OCI in the cash flow reserve, whereas the ineffective part is measured through profit or loss.
—the cash flow reserve is adjusted to the lower of:
—The cumulative gain or loss on the hedge instrument since the hedge’s inception; and
—The cumulative change in fair value (at the present value) of the hedged item (i.e. the present value of the cumulative change in the estimated future cash flows hedged) since the hedge’s inception.
The cumulative amount in the cash flow hedge reserve will be reclassified from the cash flow hedge reserve to profit (loss) for the period as a reclassification adjustment in the same period or periods in which the estimated future cash flows being hedged have an impact on the profit (loss) for the period (e.g. in periods when interest receivable or payable are recorded, or when the planned sale takes place). However, if the amount constitutes a loss and the entity does not expect to recover the whole loss or part of it in one or more future periods, the entity must classify the amount it does not expect to recover in the profit (loss) for the period (as an adjustment due to reclassification) immediately.
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Foreign currency investment hedges
As far as it complies with eligibility criteria, a cash flow hedge is accounted for in the following ways:
—the portion of gain or loss on the hedging instrument that results in an effective hedge is booked into other comprehensive income; and
—the ineffective share is booked in profit (loss) for the year.
The cumulative gain or loss on the hedging instrument related to the effective part of the hedge which had been accumulated into the foreign currency exchange rate reserve will be reclassified from net equity to profit and loss as a reclassification adjustment (see IAS 1), as required by par. 48 and 49 of IAS 21 regarding the partial or total disposal of the foreign investment.
7 - Equity investments
This heading consists of interests 47 held in jointly-controlled entities and associates. Companies subject to joint control, otherwise known as joint ventures, are defined as entities whose control is contractually stipulated as being shared between the Group and one or more other parties, or when the unanimous consent of all parties which share control of the entity is required for decisions regarding relevant activities.
Companies subject to significant influence, otherwise known as associates, are defined as entities in which the Group holds at least 20% of the voting rights (including “potential” voting rights) or for which – despite holding a lower share of the voting rights – it is entitled to participate in deciding the financial and management policies of the investee company by virtue of its being represented in that company’s management bodies, without actually having control over it.
47 As specified in IAS 28, the stake in an associated company is the book value of the investment in the affiliated company calculated using the equity method together with any other long-term stake which, in substance, represents the entity’s further net investment in the affiliated company. Any short-term transactions (trading and securities lending) are not relevant for the computation of the stake for equity-based consolidation purposes.
134 Consolidated financial statements as at 30 June 2023
The Group uses the net equity method to account for these investments; hence they are initially recognized at cost and subsequently adjusted to reflect changes in the net assets attributable to the Group since the acquisition date.
Following application of the net equity method, if there is objective evidence that the value of an investment may have reduced, estimates are made of its recoverable value, taking into account the value of the discounted future cash flows which the investment might generate, including the final sale value of the investment itself.
If the recoverable value is lower than the book value, the difference is measured through profit or loss.
If, in a period following the year in which an impairment loss has been recorded, a change occurs in the estimates used to determine the recoverable value, the book value of the investment will be revised to reflect the recoverable value and the adjustment will give rise to a write-back.
In cases where significant influence or joint control are lost, the Group recognizes and values any residual share still held at fair value. Any difference between the book value at the date on which the loss of significant influence or joint control occurs, plus the fair value of the share still held and the consideration received on disposal, will be recognized in the income statement.
8 - Tangible assets
This heading comprises land, core and investment properties, plant, furniture, fittings and equipment of all kinds. It also includes right-of-use assets acquired under leases and related use of tangible assets (for lessees) and assets used under the terms of finance leases (for lessors), despite the fact that such assets remain the legal property of the lessor rather than the lessee.
Assets held for investment purposes refer to investments in real estate, if any (whether owned or acquired under leases), which are not core to the Group’s main activities and/or are chiefly leased out to third parties.
The heading also includes tangible assets classified pursuant to IAS 2 – Inventories, namely assets deriving from guarantees being enforced or acquired at an auction which the firm has the intention of selling in the near future, without carrying out any major refurbishment work and which do not fall into any of the previous
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categories.
Such assets are recognized at cost, which, in addition to the purchase price, includes any ancillary charges directly attributable to the purchase and/or commissioning of the asset. Extraordinary maintenance charges are accounted for by increasing the asset’s value, while ordinary maintenance charges are recorded in the income statement.
Fixed assets are depreciated over the length of their useful life on a straight-line basis, with the exception of land, which is not depreciated on the grounds that it has indefinite useful life. If on such land the property is wholly owned by the Group, the value of the building is recorded separately on the basis of valuations prepared by independent experts.
At annual and interim reporting dates, where there is objective evidence that the value of an asset may be impaired, its carrying amount is compared to its current value, which is the higher of its fair value after any costs to sell and its related value in use. Adjustments, if any, are recognized in the income statement. If the reasons for recognizing a loss in value no longer apply, the adjustment will be written back, with the proviso that the amount credited may not exceed the value which the asset would have had after depreciation, which is calculated assuming no impairment took place.
9 - Intangible assets
These chiefly comprise goodwill, long-term computer software applications and other intangible assets deriving from business combinations subject to IFRS 3.
Goodwill may be recognized where this is representative of the investee company’s ability to generate future income. At annual and interim reporting dates, goodwill recorded as an asset is tested for impairment.48 Any reduction in value due to impairment is calculated as the difference between the initial recognition value of goodwill and its realizable value, the latter being equal to the higher of the fair value
48 The Group has adopted a policy for the impairment testing process in line with the provisions of Organismo Italiano di Valutazione (OIV), Impairment test dell’avviamento in contesti di crisi finanziaria (Impairment test of goodwill during financial crises) of 14 June 2012, Principi Italiani di Valutazione (PIV, Italian Valuation Standards) published in 2015, Discussion Paper of 22 January 2019, Discussion Paper no. 01/2021 issued on 16 March 2021 by Organismo Italiano di Valutazione (O.I.V.) “L’uso di informazione finanziaria prospettica nella valutazione d’azienda” (Use of forward-looking financial information in company valuation), Discussion Paper no. 02/2021 issued on 16 March 2021 by Organismo Italiano di Valutazione (O.I.V.) “Linee Guida per l’Impairment Test dopo gli effetti della pandemia da Covid-19” (Guidelines for Impairment Tests after the effects of the Covid-19 pandemic), with suggestions published by ESMA, the guidelines of the joint document Bank of Italy, Consob, IVASS (document no.4 of 3 March 2010 and no.8 of 21 December 2018) and various Consob communications and warning notices.
136 Consolidated financial statements as at 30 June 2023
of the related cash-generating unit after any costs to sell and its value in use, if any. Any adjustments will be recognized in the income statement.
Other intangible assets are measured at cost, adjusted to reflect ancillary charges only where it is likely that future earnings will derive from the asset and the cost of the asset itself may be reliably determined. Otherwise, the cost of the intangible asset is booked through the income statement in the year in which the expense was incurred.
The cost of intangible assets is amortized on a straight-line basis over the useful life of the related asset. If its useful life is indefinite the cost of the asset is not amortized, but the value at which it is initially recognized is tested for impairment on a regular basis.
At annual and interim reporting dates, if there is evidence of impairment the realizable value of the asset is estimated.49 The impairment is recognized in the income statement as the difference between the carrying amount and the recoverable value of the asset concerned.
10 - Tax assets and liabilities
Income taxes are recorded through the income statement, with the exception of tax payable on items debited or credited directly to net equity. Provisions for income tax are calculated on the basis of current, advance and deferred obligations. In particular, prepaid and deferred taxes are calculated on the basis of temporary differences – without time limits – between the value attributed to an asset or liability according to (Italian) statutory regulations and the corresponding values used for tax purposes.
Advance tax assets are recognized in the balance sheet based on the reasonable certainty that they will be recovered.
Deferred tax liabilities are recognized with the exception of tax-suspended reserves, if the size of available reserves previously subjected to taxation is such that it may be reasonably assumed that no transactions will be carried out on the Group’s
49 Under IAS 36, impairment testing, i.e. tests to ascertain whether or not there has been a loss in the value of individual tangible and intangible assets, must be carried out at least once a year, in conjunction with preparation of the financial statements, or more frequently if events have taken place or materialized that would indicate there has been a reduction in the value of such assets (known as “impairment indicators”).
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own initiative that might lead to their being taxed.
Tax assets and liabilities are adjusted as and when changes occur in the regulatory framework or in applicable tax rates, inter alia to cover charges that might arise in connection with inspections by or disputes with the tax revenue authorities.
Contributions to Deposits Guarantee Schemes and resolution funds are accounted for according to IFRIC 21.
11 - Non-current assets held for sale and disposal groups (IFRS 5)
Under assets heading “Non-current assets held for sale and disposal groups” and under liability heading “Liabilities associated to disposal groups” the Group classifies non-current assets or groups of assets/liabilities whose booking value will be presumably recovered by mean of a sale process. To be classified in this heading, assets or liabilities (or disposal groups) should be readily available for sale and selling plans should be identified, which are active and realistic in a way that their completion is considered highly probable. After the classification in the identified heading, these assets are valued at the lower of the booking value and the fair value after costs to sell, with the exception of some categories of assets (i.e. assets falling under the scope of standard IFRS 9) for which IFRS 5 requires specifically that the valuation provisions of the applicable standard should be used. In case of held-for-sale assets to be still depreciated, this process ends when assets are classified in the mentioned Heading.
In case of discontinued operations, i.e. the sale of operating assets relating to an important business sector or geographical area, the standard requires gains and losses related thereto to be grouped together, after any tax effect, in the profit and loss heading “320. Gains (losses) of discontinued financial assets, after tax”.
If the fair value of assets and liabilities held for sale, after costs to sell, is lower than their book value, a write-off will be calculated and booked through profit or loss.
Non-current assets held for sale and disposal groups are derecognized from the balance sheet when the sale occurs.
138 Consolidated financial statements as at 30 June 2023
12- Provisions for Risks and Charges
These regard risks linked to loan commitments and guarantees issued, and to the Group’s operations that may lead to future charges and retirement plans (cf. below).
In the first case (provisions for risks and charges to cover commitments and guarantees issued), the amounts set aside are quantified in accordance with the rules on impairment of financial assets measured at amortized cost.
In the other cases the rules of IAS 37 apply, i.e. the potential charge must be estimated reliably; if the time effect is material, provisions are discounted using current market rates; and the provision is recognized in the income statement.
Provisions are reviewed on a regular basis, and where the charges that gave rise to them are deemed unlikely to crystallize, the amounts involved are written back to the income statement in part or in full.
Withdrawals are only made from provisions to cover the expenses for which the provision was originally set aside.
As permitted by IAS 37, paragraph 92, no precise indication has been given of any contingent liabilities where this could compromise the company in any way.
13 - Provision for statutory end-of-service payments and post-retirement schemes
Provision for statutory end-of-service payments qualify as a defined-contribution retirement plan for units accruing from 1 January 2007 (the date on which the reform of supplemental retirement plans came into force under Legislative Decree No. 252/05), for cases where the employee opts into a supplemental retirement plan, and also for cases where contributions are paid into the treasury fund held with Istituto Nazionale di Previdenza Sociale (INPS, Italian national social security institution). For such payments, the amount accounted for under labour costs is determined on the basis of the contributions due without using actuarial calculation methods.
Provision for statutory end-of-service payments accrued up to 1 January 2007 qualify as defined benefit retirement plans, and as such will be recorded depending on the actuarial value calculated in line with the projected unit method. Therefore, future payments will be estimated based on past statistical analyses (for example turnover and retirements) and on the demographic curve; these flows will then be
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discounted according to a market interest rate that takes the market yield of bonds of leading companies as a benchmark taking into account the average residual duration of the liability weighted on the basis of the percentage of the amount paid or advanced for each maturity with respect to the total amount to be paid or advanced until the final settlement of the entire obligation.
Post-retirement plan provisions have been set aside under company agreements and also qualify as defined benefit plans. In this case, the current value of the liability is reduced by the fair value of any assets to be used under the terms of such plan.
Actuarial gains and/or losses are recorded in the statement of other comprehensive income, while the interest component is recognized in the income statement.
14 - Financial liabilities measured at amortized cost
These include the items Due to banks, Due to customers and Debt securities in issue less any amounts bought back. The heading also includes amounts payable in respect of finance lease transactions, whose valuation and classification rules are governed by IFRS 16, but which are also affected by the impairment rules under IFRS 9. For a description of the rules for valuing and classifying lease receivables, see the relevant section.
Initial recognition takes place when funds raised are collected or debt securities are issued, and occurs at fair value, which is equal to the amount collected after transaction costs incurred directly or indirectly in connection with the liability concerned. After initial recognition, liabilities are measured at amortized cost on the basis of the original effective interest rate, with the exception of short-term liabilities which will continue to be stated at the original amount collected.
Derivatives embedded in structured debt instruments are stripped out from the underlying contract and recognized at fair value when they are not closely correlated to the host instrument. Subsequent changes in fair value are recognized through the income statement.
Financial liabilities are derecognized upon expiry or repayment, even if
140 Consolidated financial statements as at 30 June 2023
buybacks of previously issued bonds are involved. The difference between the liabilities’ carrying value and the amount paid to repurchase them is recognized through the income statement.
The sale of treasury shares over the market following a buyback (even in the form of repos and securities lending transactions) is treated as a new issue. The new sale price is recorded as a liability without passing through the income statement.
15 - Trading liabilities
This item includes the negative value of trading derivatives and any derivatives embedded in complex instruments. Liabilities in respect of technical shortfalls deriving from securities trading activity are also included. All trading liabilities are measured at fair value and changes are taken through the income statement.
16- Financial Liabilities Designated at Fair Value
These include the value of financial liabilities designated at fair value with a balancing entry in the Income Statement, on the basis of the option granted to companies (referred to as “fair value option”) by IFRS 9 and in compliance with the cases set forth by legislation.
Such liabilities are measured at fair value and the earnings accounted for based on the following rules provided by IFRS 9:
—changes in fair value attributable to changes in one’s credit quality must be recognized in the Statement of Other Comprehensive Income (Net Equity);
—other changes in fair value must be recognized through profit or loss;
—amounts stated in other comprehensive income will not flow through profit or loss. This method cannot be adopted, however, if the recognition of the effects of the issuer’s own credit standing in net equity generates or accentuates an accounting mismatch in profit and loss. In such cases, gains or losses related to the liability, including those caused as the effect of the change in the issuer’s credit standing, must be measured through profit or loss.
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17 - Financial liabilities measured at present value of redemption amount
These consist of financial liabilities originating from agreements to buy out minorities in connection with acquisitions of controlling interests. These items, accounted for in heading “80. Other liabilities” of balance sheet, must be recognized at the present value of the redemption amount.
18 - Foreign currency transactions
Transactions in foreign currencies are recorded by applying the exchange rates as at the date of the transaction to the amount in the foreign currency concerned.
Assets and liabilities denominated in currencies other than the Euro are translated into Euros using exchange rates prevailing at the transaction dates. Differences on cash items due to translation are recorded through the income statement, whereas those on non-cash items are recorded according to the valuation criteria used in respect of the category they belong to (i.e. at cost, through profit or loss or on an equity basis).
The assets and liabilities of non-Italian entities consolidated on a line-by-line basis have been converted at the exchange rate prevailing at the reporting date, whereas the income statement items have been converted using the average of the average monthly exchange rate readings for the period; any differences emerging after the conversion are recognized among the Net Equity valuation reserves.
19 - Other information
Stock Options, Performance Shares and Long-Term Incentives
Stock option, performance share and long-term incentive (LTI) schemes operated on behalf of Group staff members and collaborators are treated as a component of labour costs.
Schemes which involve payment through the award of shares are measured through profit or loss, with a corresponding increase in net equity, based on the fair value of the financial instruments allocated at the award date, thus spreading the cost of the scheme throughout the period of time in which the requirements in terms of service have been met and the performance targets, if any, have been achieved.
142 Consolidated financial statements as at 30 June 2023
The overall cost of the scheme is recorded in each financial year up to the date on which the plan vests, so as to reflect the best possible estimate of the number of shares that will actually vest. Requirements in terms of service and performance targets are not considered in determining the fair value of the instruments awarded, but the probability of such targets being reached is estimated by the Group and this is factored into the decision as to the number of instruments that will vest. Conversely, market conditions will be included in establishing the fair value, whereas conditions unrelated to the requirements in terms of service are considered “non-vesting conditions” and are reflected in the fair value established for the instruments, and result in the full cost of the scheme being recorded in the income statement immediately in the event that no service requirement and/or performance conditions have been met.
In the event of performance or service conditions not being met and the benefit failing to be allocated as a result, the cost of the scheme is written back. However, if any market conditions fail to be reached, the cost must be recorded in full if the other conditions have been met.
In the event of changes to the scheme, the minimum cost to be recorded is the fair value at the scheme award date prior to the change, if the original conditions for vesting have been met. An additional cost, established at the date on which the change is made to the scheme, must be recorded if the change has entailed an increase in the overall fair value of the scheme for the beneficiary.
For schemes which will involve payments in cash upon expiry, the Group records an amount payable equal to the fair value of the scheme measured at the award date of the scheme and at every reporting date thereafter, up to and including the settlement date, with any changes recorded as labour costs.
Treasury shares
These are deducted from net equity. Any differences between the initial disbursement upon acquisition and the revenues on disposal are also recognized in net equity.
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Fees and commissions receivable in respect of services
This heading includes all revenues deriving from the provision of services to customers with the exception of those relating to financial instruments, leases and insurance contracts.
Revenues from contracts with customers are measured through profit or loss when control over the service is transferred to the customer, in an amount that reflects the fee to which the Group considers to be entitled in return for the service rendered.
For revenue recognition purposes, the Group analyses the contracts to establish whether they contain more than one obligation to provide services to which the price of the transaction should be allocated. The revenues are then recorded throughout the time horizon over which the service is rendered, using suitable methods to recognize the measurement in which the service is provided. The Group also takes into consideration the effects of any variable commissions, and whether or not a significant financial component is involved.
In the event of additional costs being incurred to perform or execute the contract, where such costs meet the requirements of IFRS 15, the Group will assess whether to capitalize them and then amortize them throughout the life of the contract, or to make use of the exemption provided by IFRS 15 to expense the costs immediately in cases where their amortization period would be complete within twelve months.
Dividends
Dividends are recognized through profit or loss during the financial year in which their distribution is approved; they concern distributions from equity securities that are not part of affiliated investments and/or joint ventures measured according to the provisions of IAS 28.
Recognition of costs
Costs are measured through profit or loss in accordance with the revenues to which they refer, except in case their capitalization requirements apply and where provided in order to determine amortized cost. Any other costs which cannot be
144 Consolidated financial statements as at 30 June 2023
associated with revenues are accounted for immediately in the income statement.
Related parties
Related parties are defined, inter alia in accordance with IAS 24 and taking into account the Group’s policy adopted in compliance with the CONSOB Regulation, as follows:
a)individuals or entities which, directly or indirectly, exercise significant influence over the Bank;
b)shareholders with stakes of 3% or more in the Bank’s share capital;50
c)The legal entities controlled by the Bank;
d)Associated companies, joint ventures and entities controlled by them;
e)Key management personnel, that is, individuals with powers and responsibilities, directly or indirectly, for the planning, direction and control of the Parent Company’s activities, including the members of the Board of Directors and Statutory Audit Committee;
f)Entities controlled or jointly controlled by one or more of the entities listed under the foregoing letters a) and e) and the joint ventures of entities referred to under letter a);
g)Close family members of the individuals referred to in letters a) and e) above, that is, individuals who may be expected to influence them or be influenced by them in their relations with Mediobanca (this category includes children, spouses and their children, partners and their children, dependants, spouses’ dependants and their partners’ dependants), as well as any entities controlled, jointly controlled or otherwise associated with such individuals.
50 Excluding Italian and international market-makers and asset managers, which, in the exercise of their collective fund management activity, undertake not to take an active part in the management of the companies in which they are investing.
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A.3 – Information on transfers between financial asset portfolios
A.3.1 Reclassification of financial assets: changes to the business model, book value and interest income
A.3.2 Reclassification of financial assets: changes to the business model, Fair Value and effects on other comprehensive income
A.3.3 Reclassification of financial assets: changes to the business model and interest rate
At 30 June 2023, there were no data to be reported for any of the sections above.
A.4 – Information on fair value
QUALITATIVE INFORMATION
Fair value
In line with the international accounting standards, the fair value of financial instruments stated in the financial statements is the so-called exit price, i.e. 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 (exit price), regardless of whether such price is directly observable or estimated using another valuation technique (IFRS 13 §24).
Fair value, therefore, is “the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in a regular transaction between market operators at the measurement date”.
The Fair Value hierarchy of an instrument is a direct consequence of the Fair Value estimation approach: in principle, a financial instrument is considered to be listed on an active market if its price represents its current exchange value in normal, effective and regular market operations.
If the market is not active, the fair value of the instrument being estimated is measured by using market prices for similar instruments on active markets (comparable approach) or, in the absence of similar instruments, using a valuation technique that uses market and non-observable information (observable/unobservable inputs).
146 Consolidated financial statements as at 30 June 2023
The Group has laid down precise guidelines regarding three key aspects: independent calculation of Fair Value, conducted by the Group’s control units; the adoption of any Fair Value adjustments to consider aspects of uncertainty/liquidity; and classification of financial instruments according to a Fair Value hierarchy based on the level of uncertainty of the valuation. In addition to the book fair value, which affects both the balance sheet and the income statement, the Group is required to make prudent valuation adjustments in order to calculate prudential requirements.
These guidelines, set out in Policies approved by the Board of Directors and related implementation Directives approved by the competent Committees, were defined in compliance with the main international regulations (IFRS 13 51 and CRR art 105 52) and corroborated by a benchmarking test; the main activities for calculating the exit price of the financial instruments in the portfolio are shown below.53
Independent Price Verification (IPV) Processes
Independent Price Verification (IPV) is the process through which prices and market data, used to calculate Fair Value and to measure prudent value, are subject to a verification process according to specific accuracy standards defined internally by the Group. The Independent Price Verification Policy and Directive meet the requirements laid down in Article 105, para. 8 of Regulation (EU) 575/2013, which requires Institutions to perform independent price verification in addition to daily marking-to-market or marking-to-model and establish and maintain sufficient procedures for providing valuation estimates.
Independent Price Verification has the following objectives: formalisation of control methodologies, definition of a market parameter validation approach, definition of the methodologies for quantifying control thresholds, methods and types of escalation and reporting to Senior Management.
Verification of the correctness of the valuation will be based on verification of market parameters used for the valuation of instruments that present a risk profile for
51 IFRS 13 establishes guidelines for identifying the exit price by using available prices, valuation models and any corrections (FVA) to consider elements of illiquidity/risk which, if not applied, would lead to overestimating the financial instrument, and the need to classify financial instruments according to the level of objectivity in the computation of fair value (FVH).
52 The guiding principles of the IPV and PVA processes are defined in the CRR Directive art 105.
53 It should be emphasized that the accuracy and consistency of these guidelines are subject to rigorous supervision by the Group Audit unit, which verifies the effectiveness and adequacy thereof. Furthermore, a specific internal validation unit has been established, i.e. the Quantitative Risk Methodologies (QRM), which focuses on the validation of the quantitative methods used.
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the Group and individual Desks by analysing the correct import of data from info providers and the fairness of the financial value through comparison with other info providers, indicative quotations provided by brokers and implicit parameters deduced from such quotations. With regard to illiquid financial instruments, verification should also be performed as regards the valuation methodology input data.
IPV performs data analysis in order to ensure consistency with a comparison source to ensure a correct evaluation of the Bank’s and of individual Desks’ risk positions of the main Profit and Loss drivers. Any changes to the data will have an impact not only on the balance sheet but also on the Profit and Loss reporting process of the portfolio concerned. Furthermore, the decision to change the source of valuation of any market data during Independent Price Verification process, as well as the verification method itself, may generate a different classification of the instrument being analysed with respect to the Fair Value Hierarchy.
For the calculation of Independent Price Verification adjustments, the Mediobanca Group uses available and reliable sources. Where possible, these are also used for the prudent valuation adjustment (PVA) process in line with the provisions of Article 3 of Delegated Regulation (EU) 2016/101. These data sources are validated in accordance with the provisions of internal documentation and/or regulations.
The validation process focuses on the asset classes that have a direct impact on the Group’s Income Statement, both for proprietary instruments and for guaranteed instruments. In this regard, before proceeding with the analysis of the market parameters, the scope of analysis where to perform the certification is divided into asset classes. However, materiality thresholds (at risk factor level) are established for each exposure above which to apply the calculation described below.
IPV requires daily checks to be performed on all Group positions (trading and banking book), which include the year-by-year price of financial instruments, market curves and volatility surfaces. Furthermore, monthly checks, at the latest, are carried out for some asset classes, based on consensus services, given the nature and frequency with which valuation data is available in the systems.
148 Consolidated financial statements as at 30 June 2023
Fair Value Adjustment (FVA)
Fair Value Adjustment (FVA) plays a fundamental role in the valuation of financial instruments, as it ensures that the fair value reflects the price actually realizable in a practical market transaction. The guidelines defined in the Fair Value policy fully reflect the requirements defined by accounting standard IFRS 13, according to which the valuation of financial instruments should use the exit price method and allow for corrections to be made to the valuations in specific circumstances.
This fair value approach ensures that the valuations made by the Group are based on prices that are realistic and representative of current market conditions, guaranteeing adequate consideration to exit conditions and to the actual possibilities of selling or purchasing the financial instruments being valued. This ensures accurate and reliable financial information to be provided internally and to external stakeholders. In particular:
—Inputs based on Bid and Ask Prices - §70: when measuring an asset or liability at fair value and having at one’s disposal both a bid and an ask price (as in the case of inputs from a market of operators), the price within the bid-ask spread that best represents fair value in the specific circumstances should be chosen. The Group uses bid or ask prices in order to align with the closing price.
—Inputs derived from Bid and Ask Prices - §71: the standard does not prohibit the use of average market prices or other pricing conventions commonly used by market participants to measure fair value within the bid-ask spread. However, in the Group’s approach preference was given to the adoption of bid and ask prices in order to obtain a more precise fair value measurement, particularly in line with a reliable closing price.
Fair value adjustments have an impact on profit or loss and take into account market liquidity, the uncertainties of parameters, the financing costs, and the complexity of the valuation models used in the absence of shared market practices.
The scope of fair value adjustments includes the following categories:
—Market price uncertainty (MPU): This consists in uncertainties in valuations based on market quotations;
—Closed-out cost (COC): This indicates uncertainties regarding the liquidity cost that the Group may incur in the event of a partial or total sale of an asset
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measured at fair value;
—Model risk (MR): adjustments aimed at mitigating the risk of discrepancy with respect to market practice in the valuation of a product in relation to the choice and implementation of the valuation model;
—Concentrated positions: This reflects uncertainties in the valuation of the exit price for positions classified as concentrated (i.e. positions whose disposal would significantly affect the market price);
—Additional investment and financing costs: Investment and financing costs may be incurred for own bond issues with an early redemption clause or in the event of early closure of positions in derivative instruments. These costs may vary depending on fluctuations in financing costs.
Credit Value Adjustments (CVA) and Debt Value Adjustments (DVA) are incorporated into the valuation of derivatives to reflect the impact on fair value of the counterparty’s credit risk and the Group’s credit quality. CVA (Credit Value Adjustment) represents a negative amount that takes into account cases where the counterparty could go bankrupt before the Group/Bank, with a positive market value against the counterparty. DVA (Debt Value Adjustment) represents an amount that takes into account the cases in which the Group/Bank could go bankrupt before the counterparty, with an impact for the counterparty. These adjustments are calculated taking into account any risk mitigating arrangements, such as collateral and netting arrangements for each counterparty.
The method used to calculate CVA/DVA is based on the following inputs:
—Expected Positive (EPE) and Expected Negative (ENE) Exposure, derived from simulations, which reflect the positive and negative valuation exposures of derivatives;
—Probability of Default (PD), which may be derived from historical default probabilities or implied in the market prices of Credit Default Swaps or bonds;
—Loss given default (LGD) based on the estimated value of expected recovery in the event of bankruptcy of the counterparty, as defined by analyses conducted by the Group or by the recovery rates conventionally used for Credit Default Swap quotations.
Furthermore, the fair value of non-collateralized derivatives may be affected by
150 Consolidated financial statements as at 30 June 2023
the Group’s funding costs (Funding Value Adjustment). Therefore, adjustments are made for the different funding costs using a discount curve that represents the average funding level of banks operating in the European corporate derivatives market.
Fair Value Hierarchy (FVH) – Observability and materiality of inputs
The Observability Levelling and Day-one Profit Directive, as specified in Bank of Italy Circulars No. 285 and No. 262 and in IFRS 13, requires a hierarchy of levels reflecting the significance of inputs used in the valuations. These inputs, called “valuation inputs,” are the market data used to estimate the fair value of financial instruments. The term “valuation input” refers to the market data used to estimate the fair value of instruments. To estimate the fair value of instruments, the Group uses valuation techniques that are adequate to the circumstances and for which sufficient data are available. Valuation techniques can be based on various approaches:
—market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
—cost approach (or current method), which reflects the amount that would currently be required to replace an asset’s service capacity;
—income approach, which converts future amounts (e.g. cash flows or revenues and expenses) into a single discounted amount through, for example: present value methods and option pricing models.
These valuation methods may use different types of inputs, which may be observable or unobservable. Prices quoted in active markets are classified as “observable inputs”. In other cases, the information is considered observable when the valuation is based on market information obtained from sources independent of the Group or from actual transactions. Under IFRS 13, paragraph B34, some examples of markets from which observable inputs can be derived include the following:
—exchange markets: In an exchange market, closing prices are both readily available and generally representative of fair value. An example of such a market is the London Stock Exchange.
Notes to the Accounts| Part A - Accounting Policies 151
—dealer markets: In a dealer market, dealers stand ready to trade (either buy or sell for their own account), thereby providing liquidity by using their capital to hold an inventory of the items for which they make a market. Typically, bid and ask prices (representing the price at which the dealer is willing to buy and the price at which the dealer is willing to sell, respectively) are more readily available than closing prices. Over-the-counter markets (for which prices are publicly reported) are dealer markets. Dealer markets also exist for some other assets and liabilities, including some financial instruments, commodities and physical assets.
—brokered markets: In a brokered market, brokers attempt to match buyers with sellers but do not stand ready to trade for their own account. Brokers do not use their own capital to hold an inventory of the items for which they make a market, but they know the prices bid and asked by the respective parties. Prices of completed transactions are sometimes available. Brokered markets include electronic communication networks, in which buy and sell orders are matched, and commercial and residential real estate markets;
—principal-to-principal markets: In a principal-to-principal market, transactions, both originations and resales, are negotiated independently with no intermediary. Little information about those transactions may be made available publicly.
All cases in which it is not possible to demonstrate the observability of inputs are classified as “unobservable inputs” and, in particular, when the information on which the valuation techniques are based reflects the Group’s judgement formulated using the best information available in such circumstances.
Under IFRS 13, para. 67, valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
In more detail, based on their observability and considering additional criteria, inputs can be classified into three different levels.
Level 1 inputs:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value and are prices to be used preferentially to measure financial assets and liabilities held by the Group. If a quoted price recorded on an active market is available, alternative
152 Consolidated financial statements as at 30 June 2023
valuation techniques based on quotes for comparable instruments or quantitative models cannot be used and the instrument is classified as a “Level 1 instrument” in its entirety. The objective is to reach a price at which a financial instrument would be traded at the reporting date (without altering the instrument) on an active market considered to be the main one or the most advantageous one for the Group and to which it has immediate access.
Level 2 inputs:
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following:
—quoted prices for similar assets or liabilities in active markets.
—quoted prices for identical or similar assets or liabilities in markets that are not active.
Inputs other than quoted prices that are observable for the asset or liability, for example:
(i) Interest rates and yield curves observable at commonly quoted intervals;
(ii) Implied volatility;
(iii) Credit spread.
Market-corroborated inputs.
Level 2 inputs may require adjustments for example relating to:
—the condition or location of the asset;
—the extent to which inputs relate to items that are comparable to the asset or liability;
—the volume or level of activity in the markets within which the inputs are observed.
If there is no public quotation on an active market for the price of the financial instrument as a whole, but active markets exist for its components, Fair Value will be calculated by reference to the relevant market prices for those components. In this
Notes to the Accounts| Part A - Accounting Policies 153
case, valuation will not be based on active market quotations for the financial instrument in question, but on observable market inputs or through the use of inputs that are not observable but are supported and confirmed by market data. The use of this approach does not exclude the use of a calculation method, or rather, of a pricing model, through which it is possible to establish the correct price of the transaction at the reference date, in an ideal and independent trading environment justified by normal market considerations.
Level 3 inputs:
Level 3 inputs are not directly observable inputs that are used to measure the Fair Value in the event that relevant observable inputs are not available, making it possible to estimate a closing price even in situations of low market activity for the asset or liability as at the measurement date. The Group estimates unobservable inputs using the best information available in the circumstances, which could include its own data, considering all information on the assumptions of market participants that is reasonably available. Unlike Level 2 inputs, in this case the inputs must be internally estimated according to quantitative methods, such as the use of historical series and comparable underlying instruments. Both Level 2 and Level 3 inputs may be used for a certain instrument. In this case, the final classification of the instrument is defined by applying the materiality assessment.
There are two stages in the process of determining the levels and observability of inputs. In the first stage, a level is assigned to all inputs applied in the instrument valuation model. In the second stage, the materiality of the various inputs used to determine the relevance of unobservable inputs on the overall valuation of the instrument is verified.
Materiality is a crucial step in establishing whether unobservable inputs (Level 2 or 3) are meaningful to the entire measurement of the instrument. This materiality analysis also extends to inputs used to calculate any adjustments, such as the Fair Value Adjustment (FVA) or the Credit Value Adjustment (CVA).
In summary, the observability and materiality process ensures that the Fair Value of financial instruments is classified correctly based on the significance of the inputs used, ensuring an adequate valuation of the Group’s financial assets and liabilities.
Prudent Valuation Adjustment (PVA)
The Prudent Valuation Policy and Directive meet the regulatory requirements of Article 34 and Article 105, para. 2, of Regulation (EU) 575/2013, which, solely for
154 Consolidated financial statements as at 30 June 2023
prudential purposes and therefore without accounting impacts, requires a prudential valuation 54 to be performed by applying adjusted inputs in order to capture stressed events. The difference between Prudent Value and Fair Value (exit price used for recording the instruments in the Group’s financial statements) is called Additional Valuation Adjustment (AVA). The aggregation of AVAs, called Prudent Value Adjustment (PVA), is deducted directly from Common Equity Tier 1 - CET1.
The final adjustment is defined by the Regulator as the aggregation of nine AVAs:
—Market Price Uncertainty (MPU): This refers to the uncertainty of a valuation based on market prices, calculated at the level of the exposure being measured;
—Close-out Costs (CoC): This consists in the uncertainty of the exit price, calculated at the level of the exposure being measured;
—Model Risk (MR): This refers to the valuation uncertainty arising from the uncertainty of the model used and/or of the calibration thereof used by various market participants;
—Unearned Credit Spreads (UCS): This consists in uncertainty in the measurement necessary to include the present value of expected losses in the event of counterparty default on derivative positions;
—Investing and Funding Costs (IFC): This is the uncertainty of the valuation of funding costs used in the valuation of the exit price in accordance with the applicable accounting framework;
—Concentrated Positions (CP): This is the uncertainty of the exit price for positions defined as concentrated;
—Future and Administrative Costs (FAC): This considers administrative costs and future hedging costs over the life of the exposures being measured to which a direct exit price has not been applied for CoC AVAs;
—Early Termination (ET): This considers contingent losses arising from non-contractual early closures of the clients’ trading positions;
—Operational Risk (OR): This considers contingent losses that may be incurred as a result of the operational risks associated with the measurement processes.
54 Prudential valuation is understood as an exit exit price with a level of certainty equal to 90%.
Notes to the Accounts| Part A - Accounting Policies 155
Positions designated at Fair Value include various categories of financial assets and liabilities, as defined by International Financial Reporting Standards (IFRS); however, some positions are excluded from the AVA calculation if a change in the valuation of their amount does not affect capital resources. These exclusions include positions available for sale (FVOCI) to the extent that valuation changes are subject to prudential filtering, perfectly matching opposite positions (back-to-back) and positions subject to hedging transactions (hedge accounting).
A.4.1 Valuation processes and sensitivity analysis
As required by IFRS 13, quantitative information on the significant non-observable inputs used for the assessment of Level 3 instruments is provided below.
Uncertainties of the inputs and impact on the Mark-to-Market method for equity products
Non-observable inputs
Quantification of parameter uncertainty
MtM +/- delta
(€/000)
30/6/23
Implied volatility
Defined as a standard deviation from the consensus provided by the data provider Markit. For underlying instruments for which no data is contributed, a proxy is derived from the underlying instruments for which data is contributed.
(4.4)
Equity-equity correlation
Defined as a standard deviation from the consensus provided by the data provider Markit. For underlying instruments for which no data is contributed, a proxy is derived from the underlying instruments for which data is contributed.
(16.3)
During the year under review, a new monitoring process of equity volatility and correlation was introduced, in particular with regard to auto-callable equity instruments.
156 Consolidated financial statements as at 30 June 2023
Measurement techniques - Equity - receivables and interest rate products
Product
Measurement technique
Non-observable inputs
Fair value (*) Assets 30/6/23(€m)
Fair value *Liabilities 30/6/23(€m)
Fair value (*) Assets 30/6/22(€m)
Fair value (*)Liabilities 30/6/22(€m)
OTC equity single name options, variance swap
Black-Scholes/Black model
Implied volatility 1
11.70
(5.68)
10.59
(14.08)
OTC equity basket options,
best of/ worst of, equity autocallable multi-asset
options
Black-Scholes model, local volatility model
Implied volatility
Equity-equity correlation 2
7.45
(11.56)
13.08
(16.40)
CDS on Single Names with Recovery Rate 0
Arbitrage Free Credit Spread Model
Recovery Rate
0.37
—
—
—
Put options securing
the financial yield of
retirement plans
Black-Scholes model
Projection of future premium flows and mortality rates of policyholders 3
0.01
(29.25)
0.46
(30.52)
(*)The carrying amount shown above is equal to the full fair value of structures and includes fair value adjustments.
1 Volatility in a financial context is a measurement of how much the price of an underlying instrument may vary over time. The higher the volatility of the underlying instrument, the greater the risk associated with it. In general, long positions in options benefit from increases in volatility, whereas short positions in options lose out from them. For equity derivatives, the implicit volatility area may be obtained from the price of the call and put options, as they have regulated markets. The uncertainty of this input is attributable to one of the following scenarios: illiquidity of quoted prices (wide bid/ask spreads, typical of long maturities or moneyness far from the At-The-Money spot), concentration effects and non-observable market data (again when maturities are considered too long or moneyness far from the At-The-Money spot).
2 Equity-equity correlation is a measurement of the correlation between two equity underlying instruments. Variations in the correlation levels may impact an instrument’s fair value positively or negatively, depending on the correlation type.
Equity-equity correlations are less observable than volatility, because correlation products are not quoted on any regulated markets. For this reason, correlations are more subject to data uncertainties.
3 The contractual form has been structured as a put option with an original term of between 10 and 30 years, the valuation of which is subject to uncertainty regarding both the estimate of future premiums and the NAV level of the underlying pension funds.
The main factors contributing to transitions between fair value levels include changes in market conditions and refinements in the measurement models and/or the non-observable inputs.
Fair value of an instrument may transition from Level 1 to Level 2 or vice versa mainly as a result of the loss (increase) in significance of the price expressed by the active market of the instrument.
Conversely, transfers from Level 2 to Level 3 or vice versa mainly arise as a result of the loss (increase) in significance of inputs, in particular the predominance of non-observable inputs over observable inputs.
Notes to the Accounts| Part A - Accounting Policies 157
A.4.4 Other information
The Group uses the exception provided under IFRS 13, paragraph 48 from measuring fair value of financial assets and liabilities on a net basis by offsetting market and counterparty credit risks.
158 Consolidated financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
A.4.5 Fair value hierarchy
A.4.5.1 Assets and liabilities measured at fair value on a non-recurring basis, breakdown by fair value hierarchy
(€/000)
30 June 2023
30 June 2022
Financial assets/liabilities measured at fair value
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Financial assets measured at fair value through profit or loss
6,871,089
2,883,005
900,305
6,112,824
3,249,512
1,318,683
a) financial assets held for trading
6,714,689
2,343,281
488,242
5,836,934
2,732,339
961,662
b) financial assets designated at fair value
—
538,590
—
—
516,483
—
c) other financial assets mandatorily measured at fair value
156,400
1,134
412,063
275,890
690
357,021
2. Financial assets measured at fair value through other comprehensive income
5,680,235
51,050
310,834
3,696,496
17,793
419,396
3. Hedging derivatives
—
1,321,883
—
—
872,431
—
4. Tangible assets
—
—
—
—
—
—
5. Intangible assets
—
—
—
—
—
—
Total
12,551,324
4,255,938
1,211,139
9,809,320
4,139,736
1,738,079
1. Financial liabilities held for trading
4,968,008
4,166,238
302,426
4,604,876
3,897,854
703,975
2. Financial liabilities designated at fair value
—
1,540,419
40,537
—
638,151
3,513
3. Hedging derivatives
—
2,069,542
—
—
1,361,863
—
Total
4,968,008
7,776,199
342,963
4,604,876
5,897,868
707,488
The Group’s trading book is mainly concentrated on liquid transactions with a low level of uncertainty. A residual, more complex part remains which, however, even in this context of greater volatility and uncertainty, has not undergone significant changes.
A portion of Level 3 instruments consists in sold options, i.e., derivatives traded with the same underlying risk parameter and which therefore do not involve volatility for the income statement; during the year under review, the value of these transactions essentially ceased to exist after more than half of the options expired (€220.8m) and another €176.6m in contracts reached the parameter liquidity level to be transferred to Level 2.
Other Level 3 assets held for trading decreased from €551.9m to €487.4m after the partial conversion (€-122m) of the exposure in unlisted convertible preference shares which remained outstanding for €152.3m (moreover equalized by the valuation of the forward sale of perfect hedging stipulated on the same underlying and classified at Level 2), to which new entries of €81.5m and transfers of €7m to other levels should be added.
Notes to the Accounts| Part A - Accounting Policies 159
Level 3 liabilities mainly concerned autocallable certificates on baskets of shares, which increased from €294.2m to €301.6m following new issues of €129.7m, only partly absorbed by redemptions of €76.9m; transfers to other levels amounted to €18.3m, while adjustments to fair value were positive by €27.1m.
Financial assets mandatorily measured at fair value (consisting in investments in funds) increased from €357m to €412m after net purchases of €34m, transfers of €29.9m from other levels and negative changes of €8.8m in fair value.
Financial assets designated at fair value through comprehensive income (bonds, shares and SFPs) decreased from €419.4m to €310.9m with sales and redemptions of €166.8m (of which €54m relating to the partial repayment on SFP Burgo and €77.3m on ABS). Purchases amounted to €7.4m and changes in Fair Value were positive by €50.8m (mainly the revaluation of SFPs).
160 Consolidated financial statements as at 30 June 2023
A.4.5.2 Annual changes in financial assets measured at fair value on a recurring basis (Level 3)
(€/000)
Financial assets measured at fair value through profit or loss
Total
of which: a) financial assets held for trading (1)
of which: b) financial assets designate d at fair value
of which: c) other financial assets mandatorily measured at fair value
Financial assets measured at fair value through other comprehen sive income
Hedgin g derivati ves
Tangible assets
Intangi ble assets
1. Opening amount
908,907
551,886
—
357,021
419,396
—
—
—
2. Increases
261,092
173,810
—
87,282
61,823
—
—
—
2.1 Purchases
190,243
146,684
—
43,559
7,416
—
—
—
2.2 Gains recognized in:
39,054
25,213
—
13,841
54,407
—
—
—
2.2.1 Income statement
39,054
25,213
—
13,841
14,171
—
—
—
- of which, capital gains
22,985
22,985
—
—
—
—
—
—
2.2.2 Net equity
—
—
—
—
40,236
—
—
—
2.3 Transfers from other levels
31,795
1,913
—
29,883
—
—
—
—
2.4 Other increases
—
—
—
—
—
—
—
—
3. Decreases
(270,492)
(238,253)
—
(32,239)
(170,385)
—
—
—
3.1 Disposals
(74,756)
(65,225)
—
(9,531)
(25,340)
—
—
—
3.2 Redemptions
(119,511)
(119,511)
—
—
(141,422)
—
—
—
3.3 Losses recognized in:
(27,348)
(5,238)
—
(22,110)
(3,253)
—
—
—
3.3.1 Income statement
(27,348)
(5,238)
—
(22,110)
—
—
—
—
- of which, capital losses
(4,927)
(4,927)
—
—
—
—
—
—
3.3.2 Net equity
—
—
—
—
(3,253)
—
—
—
3.4 Transfers to other levels
(8,850)
(8,850)
—
—
—
—
—
—
3.5 Other decreases
(40,027)
(39,429)
—
(598)
(370)
—
—
—
4. Closing amount
899,507
487,443
—
412,065
310,834
—
—
—
(1) After the market value of sold options (€0.8m at 30 June 2023 and €409.7m at 30 June 2022) the values of which are stated in the assets and liabilities for the same amount.
Notes to the Accounts| Part A - Accounting Policies 161
A.4.5.3 Annual changes in liabilities measured at fair value on a recurring basis (Level 3)
(€/000)
Financial liabilities held for trading(1)
Financial liabilities designated at fair value
Hedging derivatives
1. Opening amount
294,196
3,513
—
2. Increases
137,544
37,024
—
2.1 Issues
129,706
35,591
—
2.2 Losses recognized in:
7,838
1,433
—
2.2.1 Income statement
7,838
1,433
—
- of which, capital losses
7,838
—
—
2.2.2 Net equity
—
—
—
2.3 Transfers from other levels
—
—
—
2.4 Other increases
—
—
—
3. Decreases
130,112
—
—
3.1 Redemptions
76,898
—
—
3.2 Buybacks
—
—
—
3.3 Gains recognized in:
34,935
—
—
3.3.1 Income statement
34,935
—
—
- of which, capital gains
29,990
—
—
3.3.2 Net equity
—
—
—
3.4 Transfers to other levels
18,279
—
—
3.5 Other decreases
—
—
—
4. Closing amount
301,628
40,537
—
(1)After the market value of sold options (€0.8m at 30 June 2023 and €409.7m at 30 June 2022) the values of which are stated in the assets and liabilities for the same amount.
162 Consolidated financial statements as at 30 June 2023
A.4.5.4 Assets and liabilities not measured at fair value or measured at fair value on a non-recurring basis: breakdown by fair value hierarchy
(€/000)
30 June 2023
30 June 2022
Assets/liabilities not measured at fair value or measured at fair value on a non-recurring basis
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
1. Financial assets measured at amortized cost
62,555,709
3,963,714
16,948,503
39,522,590
60,822,518
3,999,535
18,298,303
40,219,422
2. Tangible assets held for investment purposes
50,486
—
—
125,440
59,644
—
—
145,673
3. Non-current assets and disposal groups classified as held for sale
251,987
—
—
—
191
—
—
—
Total
62,858,182
3,963,714
16,948,503
39,648,030
60,883,761
3,999,535
18,298,303
40,365,095
1. Financial liabilities measured at amortized cost
64,903,066
1,038,611
63,352,460
261,493
66,715,625
859,014
65,729,829
59,252
2. Liabilities associated with assets classified as held for sale
8,134
—
—
—
—
—
—
—
Total
64,911,200
1,038,611
63,352,460
261,493
66,715,625
859,014
65,729,829
59,252
Notes to the Accounts| Part A - Accounting Policies 163
A.5 - Information on Day One Profit/Loss
Pursuant to IFRS 7, paragraph 28, the “Day-one Profit/Loss” is understood as the difference between the fair value of a financial instrument at the initial recognition date (transaction price) and the amount estimated at that date using a valuation technique. This difference may be positive or negative.
In the event that the difference is positive (day-one profit) and based on market quotations and models that almost exclusively include the use of observable market inputs, this amount can be included in the positive components of the income statement. However, if the positive difference is based on non-observable market inputs, the fair value of the instrument must be adjusted for such difference and charged through profit or loss when the inputs become observable.
In the event, however, that the difference attributable to non-observable inputs is negative (day-one loss), it is immediately recorded through profit or loss on a prudential basis.
The Group applies the day-one profit suspension rule to financial instruments classified as Level 3 of the Fair Value hierarchy, i.e. instruments for which the impact of one or more non-observable inputs on the fair value is considered significant, as defined in paragraph 73 of IFRS 13. The day-one profit, calculated after fair value adjustments, is amortized over the expected period for which the input data will remain unobservable. The day-one profit is not applied if the risks generated by the transaction are hedged with a market counterparty (back-to-back) and therefore there are no impacts on profit or loss due to the non-observable input.
During the year under review, use was made of the day-one profit method for two types of transactions:
—contingent derivatives: deals subject to a positive outcome of a corporate action whose impacts on the income statement are entirely suspended pending the corporate event. As at 30 June 2023 there were no transactions in the Group’s portfolio;
—certificates: as at 30 June 2023 profits of approximately €4.3m were suspended (of which, €4.2m for autocallables with underlying basket of shares) relating to certificates worth €238.6m (of which, €224.3m for autocallables), which at the date of issue were classified as Level 3.
164 Consolidated financial statements as at 30 June 2023
Part B - Notes to the Consolidated Balance Sheet
Assets
SECTION 1
Heading 10: Cash and cash equivalents
1.1 Cash and cash equivalents: breakdown (*)
Total
30 June 2023
Total
30 June 2022
a) Cash
123,417
116,919
b) Current accounts and demand deposits with Central Banks
3,499,866
6,926,748
c) Current accounts and demand deposits with banks
613,699
817,934
Total
4,236,982
7,861,601
(*) This item as at 30 June 2022 contained the guarantee deposits on derivatives now reported under Heading 40 - Assets at amortized cost. The amounts for the previous year were restated for an improved comparison.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 165
SECTION 2
Heading 20: Financial assets measured at fair value(*) through profit or loss
2.1 Financial assets held for trading: product breakdown
Total
Total
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
A. Cash assets
1. Debts securities
4,993,089
188,834
296,172
3,334,975
499,618
239,124
1.1 Structured securities
1,310
10,625
47,821
9,570
8,134
46,138
1.2 Other debt securities
4,991,779
178,209
248,351
3,325,405
491,484
192,986
2. Equity securities (1)
1,020,812
—
163,498
1,851,609
—
274,971
3. UCIT units
25
—
3,258
802
—
5,534
4. Loans
4,085
—
—
3,698
—
—
4.1 Reverse Repos
—
—
—
—
—
—
4.2 Other
4,085
—
—
3,698
—
—
Total (A)
6,018,011
188,834
462,928
5,191,084
499,618
519,629
B. Derivative instruments
1. Financial derivatives
696,678
2,001,019
19,964
645,850
1,997,471
433,912
1.1 trading (2)
696,678
2,001,019
19,964
645,850
1,997,383
433,826
1.2 related to the fair value option
—
—
—
—
—
—
1.3 other
—
—
—
—
88
86
2. Credit derivatives
—
153,428
5,350
—
235,250
8,121
2.1 trading
—
153,428
5,350
—
235,250
8,121
2.2 related to the fair value option
—
—
—
—
—
—
2.3 other
—
—
—
—
—
—
Total (B)
696,678
2,154,447
25,314
645,850
2,232,721
442,033
Total (A+B)
6,714,689
2,343,281
488,242
5,836,934
2,732,339
961,662
(1)Equities include shares committed in securities lending transactions totalling €399,599 at 30/6/23 and €918,557 at 30/6/22.
(2)This includes €798 and (€409,629 in June 2022) relating to brokered options, whose contra-item was recorded among trading liabilities.
(*)For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
166 Consolidated financial statements as at 30 June 2023
2.2 Financial assets held for trading: by borrower/issuer
Items/Values
30 June 2023
30 June 2022
A. Cash assets
1. Debts securities
5,478,095
4,073,717
a) Central Banks
—
—
b) Public administrations
3,253,899
2,072,555
c) Banks
1,514,688
1,229,430
d) Other financial companies
599,285
432,986
of which: insurance companies
—
69
e) Non-financial companies
110,223
338,746
2. Equity securities
1,184,310
2,126,580
a) Banks
217,180
154,928
b) Other financial companies
271,147
384,051
of which: insurance companies
9,977
27,584
c) Non-financial companies
695,983
1,587,601
d) Other issuers
—
—
3. UCIT units
3,283
6,336
4. Loans
4,085
3,698
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
4,085
3,698
f) Households
—
—
Total (A)
6,669,773
6,210,331
B. Derivative instruments
a) Central Counterparties
1,487,126
1,029,987
b) Other
1,389,313
2,290,617
Total (B)
2,876,439
3,320,604
Total (A+B)
9,546,212
9,530,935
2.3 Financial assets designated at fair value (*): product breakdown
Total
Total
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Debt securities
—
—
—
—
—
—
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
—
—
—
—
—
—
2. Loans
—
538,590
—
—
516,483
—
2.1 Structured
—
—
—
—
—
—
2.2 Other (1)
—
538,590
—
—
516,483
—
Total
—
538,590
—
—
516,483
—
(1) This item refers to a loan matched on the liability side by the issue of a certificate.
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 167
2.4 Financial assets designated at fair value (*): by borrower/issuer
Items/Values
30 June 2023
30 June 2022
1. Debt securities
—
—
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
—
—
2. Loans
538,590
516,483
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
538,590
516,483
of which: insurance companies
538,590
516,483
e) Non-financial companies
—
—
f) Households
—
—
Total
538,590
516,483
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
168 Consolidated financial statements as at 30 June 2023
2.5 Other financial assets mandatorily measured at fair value (*): product breakdown
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Debt securities
412
—
451
74
—
459
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
412
—
451
74
—
459
2. Equity securities
—
—
7,474
—
—
9,503
3. UCIT units
155,988
—
399,449
275,816
—
342,418
4. Loans
—
1,134
4,689
—
690
4,641
4.1 Reverse Repos
—
—
—
—
—
—
4.2 Other
—
1,134
4,689
—
690
4,641
Total
156,400
1,134
412,063
275,890
690
357,021
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
2.6 Other financial assets mandatorily measured at fair value(*): by borrower/issuer
Items/Values
30 June 2023
30 June 2022
1. Equity securities
7,474
9,503
of which: banks
—
—
of which: other financial companies
7,474
9,503
of which: other non-financial companies
—
—
2. Debt securities
863
533
a) Central Banks
—
—
b) Public administrations
412
74
c) Banks
—
—
d) Other financial companies
451
459
of which: insurance companies
—
—
e) Non-financial companies
—
—
3. UCIT units
555,437
618,234
4. Loans
5,823
5,331
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
1,134
690
of which: insurance companies
1,134
690
e) Non-financial companies
4,689
4,641
f) Households
—
—
Total
569,597
633,601
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 169
SECTION 3
Heading 30: Financial assets measured at fair value (*) through other comprehensive income
3.1 Financial assets measured at fair value through other comprehensive income: product breakdown
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3 (1)
Level 1
Level 2
Level 3 (1)
1. Debt securities
5,563,499
51,050
186,571
3,579,684
17,793
275,590
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
5,563,499
51,050
186,571
3,579,684
17,793
275,590
2. Equity securities
116,736
—
124,263
116,812
—
143,806
3. Loans
—
—
—
—
—
—
Total
5,680,235
51,050
310,834
3,696,496
17,793
419,396
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
(1) Level 3 includes equity financial instruments (Burgo €66.2m and Tirreno Power €15.4m).
170 Consolidated financial statements as at 30 June 2023
3.2 Financial assets measured at fair value through other comprehensive income: by borrower/issuer
Items/Values
30 June 2023
30 June 2022
1. Debt securities
5,801,120
3,873,067
a) Central Banks
—
—
b) Public administrations
4,548,278
2,896,867
c) Banks
627,515
383,030
d) Other financial companies
433,068
394,816
of which: insurance companies
38,163
38,273
e) Non-financial companies
192,259
198,354
2. Equity securities
240,999
260,618
a) Banks
120
125
b) Other issuers:
240,879
260,493
- other financial companies
30,530
34,014
of which: insurance companies
—
—
- non-financial companies
210,349
226,479
– other
—
—
3. Loans
—
—
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
—
—
f) Households
—
—
Total
6,042,119
4,133,685
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 171
3.3 Financial assets measured at fair value through other comprehensive income: gross value and total accumulated impairment
Gross value
Write-downs
Stage 1
of which: Low credit risk instruments (*)
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Overall partial write-offs
Debt securities
5,771,319
31,064
37,723
—
6,537
1,385
—
—
Loans
—
—
—
—
—
—
—
—
Total at 30 June 2023
5,771,319
31,064
37,723
—
6,537
1,385
—
—
Total at 30 June 2022
3,805,027
—
78,174
—
6,787
3,347
—
—
of which: purchased or originated credit impaired financial assets
X
X
—
—
X
—
—
—
(*) As required by Bank of Italy circular no. 262, seventh amendment, the column headed “Of which: instruments with low credit risk” must show the gross value of the low credit risk instruments as defined by IFRS 9, para. 5.5.10. For the Mediobanca Group, the concept of “low credit risk” is equivalent to that of rating, hence low credit risk applies to the case of counterparties rated as investment grade.
172 Consolidated financial statements as at 30 June 2023
SECTION 4
Heading 40: Financial assets measured at amortized cost
4.1 Financial assets measured at amortized cost: product breakdown of amounts due from banks
Total
Total
30 June 2023
30 June 2022
Book value
Fair value (*)
Book value
Fair value (*)
Transaction Type/Values
Stage 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
Stage 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
A. Due from Central Banks
520,930
—
—
—
520,930
—
314,714
—
—
—
314,714
—
1. Term deposits
200,003
—
—
X
X
X
—
—
—
X
X
X
2. Compulsory reserves
320,927
—
—
X
X
X
314,714
—
—
X
X
X
3. Repos
—
—
—
X
X
X
—
—
—
X
X
X
4. Other
—
—
—
X
X
X
—
—
—
X
X
X
B. Due from banks
3,957,714
—
—
190,356
3,774,273
19,427
3,753,870
—
—
343,890
3,284,996
161,527
1. Loans
3,760,248
—
—
—
3,774,262
19,427
3,410,250
—
—
—
3,284,996
161,527
1.1 Current accounts
—
—
—
X
X
X
0
—
—
X
X
X
1.2. Term deposits
38,557
—
—
X
X
X
99,188
—
—
X
X
X
1.3. Other loans:
3,721,691
—
—
X
X
X
3,311,062
—
—
X
X
X
- Reverse repos
1,796,987
—
—
X
X
X
1,411,168
—
—
X
X
X
- Finance leases
284
—
—
X
X
X
1,254
—
—
X
X
X
- Other (1)
1,924,420
—
—
X
X
X
1,898,640
—
—
X
X
X
2. Debt securities
197,467
—
—
190,356
11
—
343,620
—
—
343,890
—
—
2.1 Structured securities
—
—
—
—
—
—
0
—
—
—
—
—
2.2 Other debt securities
197,467
—
—
190,356
11
—
343,620
—
—
343,890
—
—
Total
4,478,644
—
—
190,356
4,295,203
19,427
4,068,584
—
—
343,890
3,599,710
161,527
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
(1) The item contains the guarantee deposits on derivatives previously reported under Heading 10 - Cash and cash equivalents. The amounts for the previous year were restated for improved comparison.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 173
4.2 Financial assets measured at amortized cost: product of amount due from customers
Total
Total
30 June 2023
30 June 2022
Book value
Fair value (*)
Book value
Fair value (*)
Transaction Type/Values
Stage 1 and 2
Stage 3
Purchased or originated credit impaired
Level 1
Level 2
Level 3
Stage 1 and 2
Stage 3
Purchased or originated credit impaired
Level 1
Level 2
Level 3
1. Loans
53,235,519
369,701
—
—
12,634,270
38,908,792
51,663,437
379,796
350,583
—
14,688,673
39,311,239
1.1. Current accounts
2,744,448
138
—
X
X
X
2,239,242
—
65,048
X
X
X
1.2. Reverse Repos
1,652,332
—
—
X
X
X
1,216,869
—
—
X
X
X
1.3. Mortgages
28,627,106
96,614
—
X
X
X
28,631,387
118,266
30,277
X
X
X
1.4. Credit cards, personal loans and salary-backed finance
9,293,671
170,706
—
X
X
X
9,155,989
161,433
236,278
X
X
X
1.5 Finance leases
1,343,227
32,333
—
X
X
X
1,486,323
63,713
18,980
X
X
X
1.6. Factoring
2,401,346
2,084
—
X
X
X
2,615,935
3,862
—
X
X
X
1.7. Other loans
7,173,389
67,826
—
X
X
X
6,317,692
32,522
—
X
X
X
2. Debt securities
4,471,845
—
—
3,773,358
19,030
594,371
4,360,118
—
—
3,655,645
9,920
746,656
2.1. Structured securities
—
—
—
—
—
—
—
—
—
—
—
—
2.2. Other debt securities
4,471,845
—
—
3,773,358
19,030
594,371
4,360,118
—
—
3,655,645
9,920
746,656
Total
57,707,364
369,701
—
3,773,358
12,653,300
39,503,163
56,023,555
379,796
350,583
3,655,645
14,698,593
40,057,895
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – “Accounting Policies”.
As at 30 June 2022, the column “Purchased or originated credit impaired” contains the Non-Performing Loans (NPLs) purchased by the subsidiary MBCredit Solutions. These loans were subsequently transferred to the newly established Revalea S.p.A. Following the sale of Revalea S.p.A. last May, the residual exposures (equal to €238.8m as at 30 June 2023) are included in the table “12.1 Non-current assets and disposal groups held for sale: breakdown by type of asset” in accordance with IFRS 5 and the Bank of Italy Circular No. 262/2005.
174 Consolidated financial statements as at 30 June 2023
4.3 Financial assets measured at amortized cost: breakdown by borrower/issuer of amounts due from customers
Total
Total
30 June 2023
30 June 2022
Transaction Type/Values
Stage 1
and 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
and 2
Stage 3
Purchased or originated credit impaired assets (*)
1. Debt securities
4,471,845
—
—
4,360,118
—
—
a) Public administrations
3,389,280
—
—
3,288,430
—
—
b) Other financial companies
880,348
—
—
955,577
—
—
of which: insurance companies
177,265
—
—
186,079
—
—
c) Non-financial companies
202,217
—
—
116,111
—
—
2. Loans to:
53,235,519
369,701
—
51,663,437
379,796
350,583
a) Public administrations
220,453
1,217
—
651,066
1,403
—
b) Other financial companies
6,502,771
3,554
—
5,409,857
4,260
336
of which: insurance companies
299,474
—
—
433,307
—
—
c) Non-financial companies
18,002,204
74,572
—
18,785,619
81,367
65,121
d) Households
28,510,091
290,358
—
26,816,895
292,766
285,126
Total
57,707,364
369,701
—
56,023,555
379,796
350,583
(*) At 30 June 2022 the item was entirely attributable to the purchased impaired credits of MBCS. These receivables were subsequently transferred to the newly established Revalea S.p.A., then sold last May, the exposures of which, in accordance with IFRS 5, were merged under the item “Assets held for sale”. More details in table 12.1 Non-current assets and groups of assets held for sale: breakdown by type of asset.
4.4 Financial assets measured at amortized cost: gross value and total accumulated impairment
Gross value
Accumulated write-downs
Stage 1
of which: Low credit risk instruments
Stage 2
Stage 3
Purchased
or
originated
credit
impaired
Stage 1
Stage 2
Stage 3
Purchased
or
originated
credit
impaired(*)
Overall partial write-offs
Debt securities
4,666,518
168,509
11,195
—
—
3,577
4,823
—
—
—
Loans
55,341,435
446,409
2,880,850
1,328,389
—
326,069
379,521
958,688
—
3,667
Total at 30 June 2023
60,007,953
614,918
2,892,045
1,328,389
—
329,646
384,344
958,688
—
3,667
Total at 30 June 2022
57,358,129(1)
968,977
3,427,224
1,316,866
360,269
309,504
383,710
937,070
9,686
4,312
(*) At 30 June 2022 the item was entirely attributable to the purchased impaired credits of MBCS. These receivables were subsequently transferred to the newly established Revalea S.p.A., then sold last May, the exposures of which, in accordance with IFRS 5, were merged under the item “Assets held for sale”. More details in table 12.1 Non-current assets and groups of assets held for sale: breakdown by type of asset.
(1) The item contains the guarantee deposits on derivatives previously reported under Heading 10 – Cash and cash equivalents. The amounts for the previous year were restated for improved comparison.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 175
4.4a Loans measured at amortized cost subject to Covid-19 support measures: gross value and total accumulated impairment
Gross value
Accumulated write-downs
Stage 1
of which: Low credit risk instrument s
Stage 2
Stage 3
Purchased
or
originated
credit
impaired
Stage 1
Stage 2
Stage 3
Purchased
or
originated
credit
impaired
Overall partia l write-offs(*)
1. Loans that have received concessions in conformity with EBA Guidelines
—
—
124
—
—
—
2
—
—
—
2. Loans in place subject to moratoria no longer compliant with GL and not eligible for forbearance purposes
—
—
—
—
—
—
—
—
—
—
3. Loans subject to other forbearance measures
—
—
14,098
1,242
—
—
408
467
—
—
4. New loans
86,099
—
167
455
—
239
78
250
—
—
Total at 30 June 2023
86,099
—
14,389
1,697
—
239
488
717
—
—
Total at 30 June 2022
122,112
—
36,244
2,016
—
188
939
747
—
—
(*) The row headed “Loans that have received concessions in conformity EBA Guidelines” shows information on financial assets for which moratoria have been granted under the scope of the “Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID 19 crisis” published by EBA (EBA/GL/2020/02), as amended.
176 Consolidated financial statements as at 30 June 2023
SECTION 5
Heading 50: Hedging derivatives
5.1 Hedging derivatives: by hedge type and level
Fair value
30 June 2023
Fair value
30 June 2022
Level 1
Level 2
Level 3
Notional value
30 June 2023
Level 1
Level 2
Level 3
Notional value
30 June 2022
A. Financial derivatives
1. Fair value
—
890,006
—
30,279,394
—
591,900
—
18,686,508
2. Cash flows
—
431,877
—
8,556,000
—
280,531
—
10,551,074
3. Foreign investments
—
—
—
—
—
—
—
—
B. Credit derivatives
—
—
—
—
—
—
—
—
1. Fair value
—
—
—
—
—
—
—
—
2. Cash flows
—
—
—
—
—
—
—
—
Total
—
1,321,883
—
38,835,394
—
872,431
—
29,237,582
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 177
5.2 Hedging derivatives: by portfolio hedged and hedge type
Fair value
Cash flows
Specific
Transaction / Type of hedging
debt securities and interest rates
equities and stock indexes
currencies and gold
credit
commodities
other
Generic
Specific
Generic
Foreign investments
1. Financial assets measured at fair value through other comprehensive income
78,459
—
—
—
X
X
X
—
X
X
2. Financial assets measured at amortized cost
732,061
X
—
—
X
X
X
—
X
X
3. Portfolio
X
X
X
X
X
X
—
X
—
X
4. Other transactions
—
—
—
—
—
—
X
—
X
—
Total assets
810,520
—
—
—
—
—
—
—
—
—
1. Financial liabilities
79,487
X
—
—
—
—
X
431,877
X
X
2. Portfolio
X
X
X
X
X
X
—
X
—
X
Total liabilities
79,487
—
—
—
—
—
—
431,877
—
1. Highly probable transactions
X
X
X
X
X
X
X
—
X
X
2. Financial assets and liabilities portfolio
X
X
X
X
X
X
—
X
—
—
178 Consolidated financial statements as at 30 June 2023
SECTION 7
Heading 70: Equity investments
7.1 Equity investments: disclosure on relationships
Ownership
Name
Head Office
Operating office
Control type
Controlling entity
% shareholding
Votes available in %
A. Entities under significant influence
1. Assicurazioni Generali S.p.A.
Trieste
Trieste
2
Mediobanca S.p.A.
13.10
13.25
2. Istituto Europeo di Oncologia S.r.l.
Milan
Milan
2
Mediobanca S.p.A.
25.37
25.37
3. CLI Holdings II Ltd
London
London
2
Mediobanca S.p.A.
35.67
35.67
4. Finanziaria Gruppo Bisazza S.r.l.
Montecchio Maggiore (VI)
Montecchio Maggiore (VI)
2
Mediobanca S.p.A.
22.67
22.67
5. Heidi Pay AG
Geneva
Geneva
2
Compass Banca S.p.A.
19.45
19.45
Legend: “Control type”
(1) Joint control.
(2) Subject to significant influence.
(3) Exclusively controlled and not consolidated.
Table 7.1 provides the following information for each associated entity: name; registered office; shareholding; shareholding calculated as a percentage of the share capital issued by the associated entity; and availability of votes calculated as a percentage of the shares actually voting (i.e. excluding the associated entity’s treasury shares from the denominator).55
It should be noted that any temporary transactions (such as securities lending transactions, repurchase agreements, etc.) involving shares in the associate are not considered for purposes of determining the consolidation percentage.
The criteria and methods for establishing the area of consolidation are illustrated in “Section 3 – Part A – Accounting Policies”, to which reference is made.
All the equity investments have been measured using the net equity method, as required by the reference accounting standard (IAS 28), which includes treasury shares owned in the calculation, plus the value of any shares in Mediobanca owned by the investee company. Dividends collected are not taken through the income statement but are deducted from the investee company’s book value.
55 The latter is the percentage used for the purposes of consolidation by the equity method.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 179
7.2 Significant investments: book values, fair values and dividends received
Name
Book value
Fair Value (*)
Dividend Received (**)
A. Entities under significant influence
1. Assicurazioni Generali S.p.A.
3,472,192
3,804,842
237,036
2. Istituto Europeo di Oncologia S.r.l.
39,101
n.a.
n.a.
3. CLI Holdings II Ltd
38,624
n.a.
8,427
4. Finanziaria Gruppo Bisazza S.r.l.
7,148
n.a.
272
5. Heidi Pay AG.
6,599
n.a.
n.a.
Total (1)
3,563,664
(1)The amount stated here differs from that represented in the balance sheet for Other investments, which are minor in terms of both percentage share owned and amount (€167,000).
(*)Available only for listed companies.
(**)Dividends collected in the course of the financial year have been deducted from the book value of the investment (as described in Part A – “Accounting Policies” of the Notes to the Accounts).
As at 30 June 2023, the book value carried under the “Equity investments” heading totalled €3,563.8m.
In the year under review, a new equity investment in Heidi Pay (19.45%, with a book value of €6.6m) and an increase in the Assicurazioni Generali investment with shares deriving from the INV AG S.r.l. demerger (1,628,148 shares, representing 0.104% of the capital) were recorded.
Heidi Pay is a Swiss-based fintech specializing in the development of digital platforms to support the Buy-Now-Pay-Later (BNPL) approach in the world of e-commerce. The company is also included among the entities subject to significant influence, although the shareholding is less than 20%, as the other assumptions required by IAS28 have been met. As a start-up Heidi Pay has low net equity, the company’s high potential justifies the delta over the price paid. At 30 June 2023, the book value of the equity investment was €6.6m.
With regard to the affiliate Assicurazioni Generali, it should be noted that Mediobanca held a minority stake (13.5%) in the company INV AG S.r.l., a special purpose vehicle set up for the management of a package of Assicurazioni Generali shares (0.76% of the capital); on 22 December 2022, following the vehicle’s liquidation, Mediobanca set up MB INV AG S.r.l., to which 1,600,000 Assicurazioni Generali shares were transferred by demerger, for a value of €27.4m.
The stake in Assicurazioni Generali increased from 12.77% to 13.10% also taking into account changes in the Company’s treasury shares 56 (13.25% if
56 Increased during the year following the buyback operation and then cancelled last April by resolution approved on 13 March for approximately 70% of the outstanding amount.
180 Consolidated financial statements as at 30 June 2023
calculated on outstanding shares). During the year, the book value increased from €3,069.4m to €3,472.2m after profits of €442.8m, changes in assets of €197m and the ex-dividend (€-237m). The value as at 30 June 2023 reflects the adoption of the new standards IFRS17/IFRS9, which led to a substantial reduction in the valuation reserves (from €-8.6bn to €-2.4bn). For further information on the impacts and on the new accounting standards, please refer to Part A – Accounting Policies.
Regarding other equity investments: IEO (25.37%) has a book value of €39.1m, in line with last 30 June; Finanziaria Gruppo Bisazza S.r.l. (22.67%) had a book value of €7.1m, slightly lower tha the one recorded on 30 June last (€7.4m), CLI Holdings II Limited (35.67%) was held for €38.6m (€41.8m last June) after the collection of dividends (€8.4m) and profits for the period (€5.2m).
Impairment test on equity investment
The value of equity investments has been tested for impairment as required by the accounting standards used (IAS 28, IAS 36, IFRS 10 and IFRS 11), in order to ascertain whether there is objective evidence to suggest that the initial recognition value of the investment might not be recovered in full.
The process involves ascertaining whether there are any indicators of impairment and, eventully, quantifying the amount of the adjustment necessary in order to reflect the value loss. Impairment indicators may be split into two main types of category:
—Quantitative indicators: the investee company’s stock market value falling below its net asset value for stocks quoted on active markets;
—Qualitative indicators: manifested financial difficulties, reporting negative earnings results or results which are significantly behind budget objectives or targets set in long-term business plans disclosed to the market, announcement and/or launch of composition procedures or restructuring plans, deterioration in ratings (especially if below investment grade).
IAS 28 paragraph 41A stipulates that:
⎯impairment losses are incurred for an asset if the book value is higher than the recoverable amount, defined under IAS 36 as the higher between the asset’s fair value (less costs of disposal) and its value in use;
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 181
⎯to measure fair value (governed by IFRS 13), reference must be made to:
−stock market prices, if the investee company is listed on an active market;
−valuation models generally recognized by the market, including market multiples for transactions, especially if deemed significant;
⎯to measure value in use (as governed by IAS 28 paragraph 42), the methodologies are either:
−the discounted value of cash flows generated by the investee company, both as cash flows generated from the company’s assets and as income deriving from the disposal of the same assets; or
−the discounted value of cash flows that may be assumed to derive from dividends and from the eventual sale of the investment.
For more information on the parameters used to calculate the value in use, refer to the considerations made on impairment testing for goodwill contained in the dedicated section of the Notes to the Consolidated Accounts.
* * *
Accounting data for the investee companies is shown below taken from the respective financial statements as at 31 December 2022, the most recent available.
182 Consolidated financial statements as at 30 June 2023
7.3 Significant investments: accounting data
(€m)
Entities under significant influence
Name
Assicurazioni Generali S.p.A. (1)
Istituto Europeo di Oncologia S.r.l.
Cash and liquid assets
X
X
Financial assets
451,317
83
Non-financial assets
60,490
156
Financial liabilities
48,653
126
Non-financial liabilities
452,260
69
Total revenues
81,530
382
Profit/(Loss) on ordinary operations before tax
4,738
6
Profit/(Loss) on ordinary operations after tax
3,189
4
Profit/(Loss) on held-for-sale asset groups after tax
—
—
Profit/(Loss) for the period (1)
3,189
4
Other profit/(loss) components after tax (2)
(15)
—
Total profit/(loss) for the period (3) = (1) + (2)
3,174
4
(1) The financial data shown above refer to the year ended 31 December 2022 and therefore prior to the FTA of the IFRS 9/IFRS 17.
7.4 Non-significant investments: accounting data
(€m)
Entities under significant influence
Name
CLI Holdings II Ltd
Finanziaria Gruppo Bisazza S.r.l.
Heidi Pay AG
Book value of investments
38,624
7,148
6,599
Total assets
106,252
38,721
12,449
Total liabilities
106,249
6,396
8,408
Total revenues
X
X
X
Profit/(Loss) on ordinary operations after tax
1
1,361
(4,676)
Profit/(Loss) on operations after tax
—
—
—
Profit/(Loss) for the year (1)
1
1,361
(4,676)
Other profit/(loss) components after tax (2)
—
—
—
Comprehensive income (3)=(1) + (2)
1
1,361
(4,676)
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 183
The table below shows a reconciliation between the book value of the investments and the data used for valuation purposes.
(€m)
Entities under significant influence
Aggregate net equity
Pro rata net equity
Differences arising upon consolidation
Consolidated book value
Assicurazioni Generali S.p.A.
26,236.5(1)
3,475.3
(3.1)(2)
3,472.2
Istituto Europeo di Oncologia S.r.l.
154.1(3)
39.1
—
39.1
CLI Holdings II Ltd
108.3(4)
38.6
—
38.6
Finanziaria Gruppo Bisazza S.r.l.
31.5
7.1
—
7.1
Heidi Pay AG
33.9(5)
6.6
—
6.6
(1) Total net equity includes the dividends paid in May 2023 (€1,790m).
(2) The differences upon consolidation refer to the Mediobanca shares held by Assicurazioni Generali as part of its securities portfolio (€23.2m, pro rata €3.1m).
(3) Net equity as at 31 March 2023 of €137.8m (pro rata: €35m) was adjusted to reflect the property asset revaluations after depreciation and amortization charges accruing (pro rata: €4.3m).
(4) Total net equity includes the dividends paid in April 2023 (€1.7m).
(5) Heidi Pay’s net equity includes the higher value attributed at the time of the acquisition.
For the nature of the relationships, please refer to section 7.1 above.
As at 30 June 2022, the market value of the Assicurazioni Generali investment was €3,804.8m (€18.62 per share), higher than its book value (€3,472.2m). In line with previous financial years, the value in use of the investment has been calculated in any case, resulting well above its value in use.
To determine the value in use, the Dividend Discount Model was used, in particular the Excess Capital version. The valuation was made in continuity with the method used in previous financial years and based exclusively on information in the public domain, i.e.:
⎯In order to identify cash flows to be discounted, reference has been made to the most recent analysts’ estimates available;
⎯The cost of capital (9.83%) has been determined based on the Capital Asset Pricing Model method, a growth rate consistent with the rate of inflation was assumed, as estimated by the International Monetary Fund for the Eurozone in 2028, i.e. 1.87%;
⎯Sensitivity analysis has been carried out on the results obtained to assess their sensitivity to changes in the valuation parameters.
The recoverable value per share was much higher than the book value (€17 per share) and in line with the average target prices of the analysts covering the stock (€19.7 per share) in place at 30 July.
Regarding Istituto Europeo di Oncologia, this investment has a book value in
184 Consolidated financial statements as at 30 June 2023
line with the entity’s Net Asset Value adjusted to reflect the property values being realigned to their market values at acquisition. As at 30 June 2023, there was no (internal or external) evidence that could lead to a review of such higher value.
The equity investments in CLI Holdings II and Finanziaria Gruppo Bisazza (whose book value is the pro-rata share of their net equity) do not show critical issues such as to require proceeding with an impairment test.
Lastly, with regard to Heidi Pay, the value of the acquired company was assessed internally confirming the value attributed to it at the time of acquisition.
7.5 Equity investments: changes during the period
30 June 2023
30 June 2022
A. Opening balance
3,157,866
3,702,990
B. Increases
659,655
408,590
B.1 Purchases (1)
7,472
—
B.2 Writebacks
—
—
B.3 Revaluations
—
—
B.4 Other changes (2)
652,183
408,590
C. Decreases
253,690
953,714
C.1 Sales
—
—
C.2 Value adjustments
—
—
C.3 Write-offs
—
—
C.4 Other changes (3)
253,690
953,714
D. Closing balance
3,563,831
3,157,866
E. Total revaluations
—
—
F. Total adjustments
733,478
733,478
(1) This refers to the acquisition of Heidi Pay.
(2) The new stake in Assicurazioni Generali held through the vehicle MB INV AG for €27.4m was transferred here.
(3) This includes dividends received.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 185
SECTION 9
Heading 90: Property, plant and equipment
9.1 Core tangible assets: breakdown of assets stated at cost
Total
Total
Assets/Values
30 June 2023
30 June 2022
1. Property assets
232,425
220,369
a) land
100,239
100,239
b) buildings
70,359
72,866
c) furniture
28,405
19,265
d) electronic systems
6,490
6,649
e) other
26,932
21,350
2. Right of use acquired through lease
242,458
226,262
a) land
—
—
b) buildings
230,702
216,945
c) furniture
—
—
d) electronic systems
—
—
e) other
11,756
9,317
Total
474,883
446,631
of which: obtained by the enforcement of collateral
69
71
9.2 Properties held for investment purposes: breakdown of assets stated at cost
Total
30 June 2023
Total
30 June 2022
Fair value
Fair value
Assets/Values
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
1. Property assets
50,486
—
—
125,440
59,644
—
—
145,673
a) land
25,253
—
—
58,914
28,494
—
—
90,980
b) buildings
25,233
—
—
66,526
31,150
—
—
54,693
2. Right of use acquired through lease
—
—
—
—
—
—
—
—
a) land
—
—
—
—
—
—
—
—
b) buildings
—
—
—
—
—
—
—
—
Total
50,486
—
—
125,440
59,644
—
—
145,673
of which: obtained by the enforcement of collateral
27,078
—
—
36,940
35,825
—
—
43,460
186 Consolidated financial statements as at 30 June 2023
9.3 Core tangible assets: composition of revalued activities
At 30 June 2023 the item was not present within the Group.
9.4 Tangible assets held for investment purposes: composition of activities measured at fair value
At 30 June 2023 the item was not present within the Group.
9.5 Inventories pursuant to IAS 2: breakdown
Total
Total
Items/Values
30 June 2023
30 June 2022
1. Inventories of tangible assets arising from the enforcement of guarantees received
5,373
5,553
a) land
313
483
b) buildings
5,060
5,070
c) furniture
—
—
d) electronic systems
—
—
e) other
—
—
2. Other inventories of tangible assets
—
—
Total
5,373
5,553
of which: measured at fair value less costs to sell
—
—
The above includes assets received under leasing contracts, which were originally recorded as Investment Property (under IAS 40), and have now been restated as Inventories in accordance with IAS 2 in cases where only minor amounts are involved, and where leasing the properties out is not economically feasible and sale is expected to take place in the next three years.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 187
9.6 Core assets: changes for the year
Land
Buildings
Furniture
Electronic devices
Other
Total
A. Gross opening balance
100,239
475,630
72,255
45,707
89,319
783,150
A.1 Decreases in total net value
—
(185,819)
(52,990)
(39,058)
(58,652)
(336,519)
A.2 Net opening balance
100,239
289,811
19,265
6,649
30,667
446,631
B. Increases
—
69,236
12,849
1,658
23,320
107,063
B.1 Purchases
—
—
12,816
1,658
12,073
26,547
- of which business combinations
—
—
—
—
—
—
B.2 Capitalized improvement costs
—
13,190
—
—
—
13,190
B.3 Write-backs
—
—
—
—
—
—
B.4 Positive changes in fair value allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
B.5 Positive foreign exchange differences
—
13
1
—
3
17
B.6 Transfer from investment properties
—
—
—
—
—
—
B.7 Other changes
—
56,033
32
—
11,244
67,309
C. Decreases:
—
57,986
3,709
1,817
15,299
78,811
C.1 Sales
—
—
151
16
396
563
- of which business combinations
—
—
—
—
—
—
C.2 Depreciation
—
43,171
3,438
1,759
11,948
60,316
C.3 Impairment losses allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
C.4 Negative changes in fair value allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
C.5 Negative foreign exchange differences
—
—
—
—
6
6
C.6 Transfers to:
—
—
—
—
—
—
a) tangible assets held for investment purposes
—
—
—
—
—
—
b) non-current assets and asset groups held for sale;
—
—
—
—
—
—
C.7 Other changes
—
14,815
120
42
2,949
17,926
D. Net closing balance
100,239
301,061
28,405
6,490
38,688
474,883
D.1 Decreases in total net value
—
(210,758)
(54,319)
(40,745)
(64,919)
(370,741)
D.2 Gross closing balance
100,239
511,819
82,724
47,235
103,607
845,624
E. Carried at cost
—
—
—
—
—
—
Changes in tangible assets for core purposes also include the right of use acquired from finance leasing operations under IFRS 16. New leases executed during the year amount to €56.3m (shown in row B.7 “Other changes”), while depreciation and amortization for rights in use amount to €44.7m (stated in row C.2 “Depreciation/amortization”).
188 Consolidated financial statements as at 30 June 2023
9.7 Assets held for investment purposes: changes for the year
Total
Land
Buildings
A. Opening balance
28,494
31,150
B. Increases
1,279
5,128
B.1 Purchases
—
—
- of which business combinations
—
—
B.2 Capitalized improvement costs
—
14
B.3 Positive changes in fair value
—
—
B.4 Write-backs
—
—
B.5 Currency exchange gains
—
—
B.6 Transfers from core tangible assets
—
—
B.7 Other changes (1)
1,279
5,114
C. Decreases
4,520
11,045
C.1 Sales
2,936
6,203
- of which business combinations
—
—
C.2 Depreciation
—
1,828
C.3 Negative changes in fair value
—
—
C.4 Write-downs
—
—
C.5 Currency exchange losses
—
—
C.6 Transfers to:
—
—
a) core properties
—
—
b) non-current assets and asset groups held for sale;
—
—
C.7 Other changes
1,584
3,014
D. Closing balance
25,253
25,233
E. Measured at fair value
58,914
66,526
(1) These include a property redeemed following the termination of the related lease agreement.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 189
These consist of the following properties:
Location of Property
Sqm.
Book value (€/000)
Book value per squ. m (€/000)
Rome
10,015
29,674
0.3
Lecce
21,024
14,705
1.4
Bologna (*)
6,913
5,043
1.4
Pavia
2,250
1,064
2.1
Total
40,202
50,486
(*) These include warehouses and office facilities.
9.8 Inventory of tangible assets pursuant to IAS 2: changes for the year
Inventories of tangible assets arising from the enforcement of guarantees received
Land
Buildings
Furniture
Electronic devices
Other
Other inventories of tangible assets
Total
A. Opening balance
483
5,070
—
—
—
—
5,553
B. Increases
—
2,122
—
—
—
—
2,122
B.1 Purchases
—
—
—
—
—
—
—
B.2 Write-backs
—
—
—
—
—
—
—
B.3 Positive exchange differences
—
—
—
—
—
—
—
B.4 Other changes
—
2,122
—
—
—
—
2,122
C. Decreases
170
2,132
—
—
—
—
2,302
C.1 Sales
170
879
—
—
—
—
1,049
C.2 Write-downs
—
—
—
—
—
—
—
C.3 Negative exchange differences
—
—
—
—
—
—
—
C.4 Other changes (1)
—
1,253
—
—
—
—
1,253
D. Closing balance
313
5,060
—
—
—
—
5,373
(1) This includes the impairment of two properties whose fair value was aligned to the market value based on a sale offer received, in the first case, and following an updated appraisal in the second case.
190 Consolidated financial statements as at 30 June 2023
SECTION 10
Heading 100: Intangible assets
Intangible assets with indefinite duration consist of goodwill, brands and contracts acquired as part of business combinations, whereas those with definite duration are the client lists similarly acquired and software. For details on the methods by which intangible assets are valued, reference is made to Part A – Accounting Policies.
10.1 Intangible assets: breakdown by asset type
Total
30 June 2023
Total
30 June 2022
Assets/Values
Definite life
Indefinite life
Definite life
Indefinite life
A.1 Goodwill
X
574,550
X
616,791
A.1.1 attributable to the group
X
574,550
X
616,791
A.1.2 attributable to minority interests
X
—
X
—
A.2 Other intangible assets
67,996
154,154
68,200
153,422
of which: software
50,319
—
48,103
—
A.2.1 Assets measured at cost:
67,996
154,154
68,200
153,422
a) intangible assets generated internally
—
—
—
—
b) other assets
67,996
154,154
68,200
153,422
A.2.2 Assets measured at fair value:
—
—
—
—
a) intangible assets generated internally
—
—
—
—
b) other assets
—
—
—
—
Total
67,996
728,704
68,200
770,213
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 191
10.2 Intangible assets: changes for the year
Other intangible assets generated internally
Other intangible assets: other
Goodwill
Definite life
Indefinite life
Definite life
Indefinite life
Total
A. Opening balance
616,791
—
—
338,513
153,422
1,108,726
A.1 Decreases in total net value
—
—
—
270,315
—
270,315
A.2 Net opening balance
616,791
—
—
68,198
153,422
838,411
B. Increases
7,302
—
—
30,574
739
38,615
B.1 Purchases
6,444
—
—
30,003
—
36,447
- of which business combinations
—
—
—
—
—
—
B.2 Increases of internal intangible assets
X
—
—
—
—
—
B.3 Write-backs
X
—
—
—
—
—
B.4 Positive changes in fair value
—
—
—
—
—
—
- net equity
X
—
—
—
—
—
- to P&L
X
—
—
—
—
—
B.5 Positive exchange differences
858
—
—
8
739
1,605
B.6 Other changes
—
—
—
563
—
563
C. Decreases
49,543
—
—
30,776
7
80,326
C.1 Sales
—
—
—
95
—
95
- of which business combinations
—
—
—
—
—
—
C.2 Write-offs:
49,536
—
—
30,192
—
79,728
- Amortization
X
—
—
30,192
—
30,192
- Write-downs
49,536
—
—
—
—
49,536
+ net equity
X
—
—
—
—
—
+ to P&L
49,536
—
—
—
—
49,536
C.3 Negative changes in fair value
—
—
—
—
—
—
- net equity
X
—
—
—
—
—
- to P&L
X
—
—
—
—
—
C.4 Transfer to non-current assets held for disposal
—
—
—
195
—
195
C.5 Currency exchange losses
1
—
—
14
7
22
C.6 Other changes
6
—
—
280
—
286
D. Net closing balance
574,550
—
—
67,996
154,154
796,700
D.1 Adjustment of net total values
—
—
—
(290,238)
—
(290,238)
E. Gross closing balance
574,550
—
—
358,234
154,154
1,086,938
F. Measurement at cost
—
—
—
—
—
—
192 Consolidated financial statements as at 30 June 2023
Information on intangible assets and goodwill
During the year, as part of the Buy Now Pay Later growth strategy, Compass Banca acquired 100% of the fintech company Soisy; the Purchase Price Allocation process identified a customer list with a finite useful life of €1.1m and goodwill of €6.4m.
Moreover, Mediobanca’s management prudentially decided to cancel the residual goodwill of RAM AI of CHF48.4m (€49.5m at the exchange rate as at 30 June 2023). The persistence of low interest rates and abundant liquidity which radically conditioned the market for systematic funds, reducing its development prospects despite the good performance of the funds together with the current market outlook, made it difficult to predict a return to the long-standing profitability of RAM AI.
A table summarizing the effects of the PPA process for all the acquisitions carried out by the Group over years is shown below:
Table 1: Summary of PPA effects: ITALIAN acquisitions
Linea
IFID
Spafid Connect
Barclays(*)
Esperia
Soisy
Acquisition date
27/6/2008
1/8/2014
18/6/2015
26/8/2016
6/4/2017
10/10/2022
Price paid
406,938
3,600
5,124
(240,000)
233,920
5,999
of which: ancillary charges
2,000
200
—
—
—
—
Liabilities
—
—
—
80,000
—
—
Intangible assets, defined life
(44,200)
(700)
(3,250)
(26,000)
(4,508)
(1,056)
no. of years amortization
8
7
10
5
5
5
Trademarks
(6,300)
—
—
—
(15,489)
—
Fair value adjustments
—
—
—
84,200
11,232
—
Imbalance of other assets (liabilities)
(2,659)
420
(466)
98,300
(176,585)
1,152
Tax effects
12,155
220
934
3,500
6,613
349
Total goodwill
365,934
3,540
2,342
—
55,183
6,444
(*) The deal generated badwill.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 193
Table 1: Summary of PPA effects: NON-ITALIAN acquisitions
Cairn
RAM (1)
MMA
Bybrook (Cairn) (2)
Acquisition date
31/12/2015
28/2/2018
11/4/2019
31/8/2021
Currency
GBP
CHF
EURO
GBP
Price consideration
24,662
164,732
107,856
66,900
of which: ancillary charges
—
—
—
—
Liabilities
20,813
46,850
54,540
—
Intangible assets, indefinite life
—
—
—
(58,903)
Intangible assets, defined life
—
(2,398)
(11,330)
(8,455)
no. of years amortization
—
5
8
10
Trademarks
—
(37,395)
(10,230)
—
Fair value adjustments
—
—
—
—
Imbalance of other assets (liabilities)
(8,345)
(6,853)
(13,353)
(3,759)
Tax effects
—
7,163
6,684
15,934
Total goodwill
37,130
172,099
134,167
11,717
(1) All amounts are calculated pro rata (89.25%) acquired at the acquisition date.
(2) Bybrook’s business and shares were acquired by Cairn Capital, in which Mediobanca S.p.A. holds an 89.07% stake.
The situation for the Group’s other main acquisitions is as follows:
—the Linea acquisition (€407m) generated goodwill of €365.9m, which is now the only amount still recorded in the books following the write-off of the brands with the useful life of the intangible assets having ended;
—the Spafid Connect acquisition (€5.1m) generated goodwill of €2.3m and intangible assets with time-limited life of €3.3m. The deal has been allocated to the “Corporate Services” CGU. The business unit to which the goodwill referred had been sold in the previous financial year, while the company Spafid Connect as at 30 June 2023 was closed and cancelled from the Register of Companies in which it was listed;
—the deal to acquire the Barclays’ Italian business unit required the seller to pay negative goodwill of €240m, which in the purchase price allocation process was treated as a contingent liability in an amount of €59m (linked to the restructuring process) and loan loss provisions for mortgages totalling €21m, roughly half of which for non-performing exposures. Taking account intangible assets with time-limited life of €26m related to a list of clients with AUM and AUA with a useful life of five years,57 the bargain purchase generated a gain of €98.3m, most of which was absorbed by the one-off costs related to integrating the Barclays’ geographical and IT networks into CheBanca! (approximately €80m);
57 The client list was entirely amortized.
194 Consolidated financial statements as at 30 June 2023
—the Cairn Capital acquisition 58 (£24.7m for a 51% stake, along with put-and-call options over the other 49% valued at £20.8m) generated goodwill of £37.1m (calculated based on 100%). This goodwill was confirmed at the end of the purchase price allocation process; Cairn Capital Group has been treated as a single CGU. Following exercise of various tranches, the interest held in the company is now equal to 85.16%, while the outstanding liability, valued at the presumed realizable value, is equal to €12.5m. The Put and Call agreements, including the Bybrook share, were valued £31.7m at 30 June 2023;
—acquisition of 50% of Banca Esperia held by Banca Mediolanum in return for a consideration of €141m (the deal closed in April 2017); in December 2017 Banca Esperia was merged into Mediobanca, and the purchase price allocation process was completed the same month, which led to a brand being recognized worth €15.5m, a customer list of €4.5m to be amortized over five years, and a goodwill of €52.1m split between the Private Banking and Mid-Cap CGUs (for €29.4m and €22.7m respectively). At the same time, the companies Esperia Servizi Fiduciari and Esperia Trust Company (wholly owned by Esperia) were sold to Spafid, becoming part of the Trust Services CGU with the contribution of a pre-existing goodwill of €3.1m, fully written down in June 2022;
—in February 2018 a 69.4% stake was acquired in RAM AI under the terms of a put-and-call arrangement which allows the investment to be increased to 89.25%. The purchase price allocation process led to recognition of a brand worth CHF 41.9m with indefinite life and a client list (related to the AUM management contracts held by Reyl) worth CHF 2.7m, to be amortized over five years.59 Goodwill post-PPA was calculated at CHF 172.1m, including the liability in respect of the put-and-call option (over the other 20.25% not acquired) valued at CHF 46.9m. In the following years, the recognized goodwill was progressively written down: in June 2020, when a significant negative difference between actual results and budgeted results had been identified, management decided to write it down by 60% with an impact on the P&L of CHF 103.3m. In June 2021, following the reorganization resulting from the exit of the minority shareholder Reyl and the two founding partners, management decided to write it down by a further CHF 20.4m and in the current year, as mentioned above, it was fully written off. At 30 June 2023, the put and call liability amounted to CHF1.7m;
—a stake of 66.4% of the share capital of Messier Maris & Associés – MMA (April
58 Renamed Polus Capital.
59 Amortization ended last February.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 195
2019), was acquired at a price of €107.9m, settled with 11,600,000 Mediobanca shares in portfolio (1.3% of the share capital). A put-and call agreement was also executed, exercisable as from the fifth year following the acquisition, that would allow the interest acquired to rise to 100%. In conjunction with the deal closing, the Messier Maris brand was transferred at a value of €17m, which was increased to €27.2m following the PPA process, along with a client list worth €11.3m to be amortized over eight years, which reduced the goodwill to €134.2m. During financial year 21/22, the company was affected by the exit of one of the two founding partners, a circumstance that, according to the original agreements, led to activating a clawback clause on escrow and Put & Call shares. Overall extraordinary income of €41m was thus generated and was fully offset by adjusting goodwill in the same amount. As at 30 June 2023, goodwill recognized in the financial statements amounted to €93.2m and the put and call liability amounted to €28.5m;
—the acquisition of Bybrook Capital LLP, a manager specializing in distressed assets, was completed. The closing of the strategic partnership agreement with Polus Capital Management (previously called Cairn Capital) took place on 31 August 2021 after obtaining the ECB and FCA authorizations. This operation took place in two successive phases: initially the subsidiary Polus Capital took over the Revenue Sharing Agreement (“RSA”) that Bybrook had signed with an institutional investor to retrocede 25% of annual commissions generated and subsequently proceeded with the actual acquisition of Bybrook from the two founding partners for a consideration of £43.3m, which included £18.1m in cash and £25.2m in new Polus shares (D Shares) representing 21.86% of the company, on half of which a Put & Call agreement with Mediobanca is in place. The sale/purchase price for Bybrook shares and its other Group Legal Entities was set at £1. The acquisition was merged into the Polus Capital Management CGU, the goodwill of which increased from £37.1m to £48.4m, in addition to other ex-PPA intangible assets relating to asset management contracts of £67.4m (which includes £58.9m with an indefinite life and £8.5m with a finite life to be amortized over 10 years) and deferred tax liabilities totalling £15.9m.
Finally, as mentioned above, on 10 October 2022 Compass acquired 100% of the capital of Soisy S.p.A. The purchase price, settled in cash, amounted to €6m. As required by IFRS 3, the Purchase Price Allocation process was carried out leading to the identification of a customer list with a finite useful life worth €1.1m to be amortized over 5 years, goodwill of €6.4m and deferred taxes of €0.4m.
* * *
196 Consolidated financial statements as at 30 June 2023
The tables below show a list of the intangible assets acquired as part of M&A transactions and summarizing the goodwill recognized in the accounts as broken down both by deal and cash-generating unit (CGU).
Table 2: Other intangible assets acquired as a result of extraordinary transactions
Type
Deal
30 June 2023
30 June 2022
Customer relationship
86,304
88,731
Spafid
—
57
CMB
3,263
3,914
Bybrook/Polus (1)
76,673
77,666
RAM Active Investments
—
366
Messier et Associés
5,312
6,728
Soisy
1,056
—
Trademarks
68,525
67,786
MB Private Banking
15,489
15,489
RAM Active Investments (1)
42,806
42,067
Messier et Associés
10,230
10,230
Total PPA intangible assets
154,829
156,517
(1) Increase entirely attributable to the currency exchange effect.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 197
Table 3: Goodwill
Deal
30 June 2023
30 June 2022
Consumer credit
372,378
365,934
Of which Soisy
6,444
—
Of which the former Linea
365,934
365,934
Polus Capital Management (1)
56,916
56,923
MB Private Banking
52,103
52,103
RAM Active Investments
—
48,678
Messier et Associés
93,153
93,153
Total goodwill
574,550
616,791
(1) Increase entirely attributable to the currency exchange effect.
Table 4: Summary of Cash Generating Units
CGU
30 June 2023
30 June 2022
Consumer credit
372,378
365,934
Of which Soisy
6,444
—
Of which the former Linea
365,934
365,934
Polus Capital Management (1)
56,916
56,923
Mid corporate
22,650
22,650
MB Private Banking
29,453
29,453
RAM Active Investments
—
48,678
Messier et Associés
93,153
93,153
Total goodwill
574,550
616,791
(1) Increase entirely attributable to the currency exchange effect.
198 Consolidated financial statements as at 30 June 2023
Information on impairment testing
As stated in the Accounting Policies section, IAS 36 requires any loss of value, or impairment, of individual tangible and intangible assets to be tested at least once a year, in preparing the annual financial statements, or more frequently if events or circumstances occur which suggest that there may have been a reduction in value.
If it is not realistically possible to establish the recoverable value of the individual asset directly, the standard allows the calculation to be made based on the recoverable value of the cash-generating unit, or CGU, to which the asset belongs. The CGU is defined as the smallest identifiable group of assets able to generate cash flows that do not present synergies with the other parts of the company, and may be considered separately and sold individually.
In order to establish the recoverable value relative to the book value at which the asset is recognized in the accounts, reference is made to the higher of the fair value of such asset (net of any sales costs) and its value. In particular, value in use was obtained by discounting the expected future cash flows from an asset or from a cash generating unit; cash flow projections must reflect reasonable assumptions and must therefore be based on recent budgets/forecasts approved by the Company’s governing bodies; furthermore, assets must be discounted at a rate that includes the current cost of money and the specific risks associated with the business activity.
The Group adopted a policy, the latest update of which was submitted to the approval of the Board of Directors in June 2021, which regulates the impairment test process and incorporates the guidelines issued by Organismo Italiano di Valutazione (OIV, Italian Valuation Body), the suggestions of the ESMA 60 and the Recommendations of national regulators.61
60 European Security and Markets Authority (ESMA): “European common enforcement priorities for 2013 financial statements”, emphasizing the specific aspects of the impairment testing for goodwill and intangibles asset; and Public Statement of 28 October 2020, “European common enforcement priorities for 2020 annual financial reports”, in which all issuers are invited to pay particular attention to the effects of the Covid-19 pandemic.
61 Joint Bank of Italy, Consob and ISVAP (now IVASS) document no. 3, of 3 March 2010, which requires, among other things, that the financial statements of listed companies (annual and interim reports) should contain more detailed disclosure on how goodwill, other intangibles with indefinite useful life, and equity investments are valued, providing a description of the methodologies and indicators used which must be submitted to formal and deliberate approval by the Board of Directors; Joint Bank of Italy, Consob and ISVAP (now IVASS) document no. 8, containing guidance on the valuation of fund stock units to be applied in measuring holdings in funds at fair value; Consob communication no. DIE/17131 of 3 March 2014, containing guidance on the timescales for carrying out impairment testing, and the duties and responsibilities of the management body in this process; Consob communication no. 3907 of 19 January 2015, laying down guidelines with which listed companies must comply to ensure high quality disclosure on the issue of impairment; Consob “Warning notice” no. 8/20 of 16 July 2020, no. 6/20 of 9 April 2020, and no. 1/21 of 16 February 2021, concerning: "Covid-19 - Warning notice on financial reporting", which draws the attention of the members of governing and control bodies and financial reporting officers to the need to observe the principles that govern the production process of the financial reporting taking into account of the impacts that the effects due to the pandemic may have with reference, among other things, to the valuations of non-financial assets (referred to as Impairment test).
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 199
The recoverable value for goodwill has been estimated using the dividend discount model methodology, with the excess capital version applied which is commonly employed by financial institutions for this purpose for capital-intensive CGUs.
The cash flows have been projected over a time horizon of three to five years, based on the Group’s strategic plans and the annual budgets formulated by the management of the individual CGUs concerned.
To estimate the cost of equity, which is determined via the Capital Asset Model (CAPM) in accordance with IAS 36, certain parameters common to all CGUs have been used, namely:
−the risk-free rate which corresponds to the remuneration of exempt or minimum risk investments over a recent period of time not exceeding one year. In practice, it is generally identified with the yield on government bonds of the country in which the asset being valued resides;
−the market risk premium, i.e. the reward which investors require in order to increase the risk on their investments. During the year under review, senior management reviewed the previously used methodology, i.e. determination based on multiple sources including company searches and academic scholars, with the use of an unseparated equity risk premium equal to the premium for the US stock market risk estimated according to a historical data series by the New York University - Stern School of Business, based on the difference between the return of the American stock market compared to return of the bond market since 1928 (geometric mean);
−the growth rate (g), to calculate the terminal value, using the so-called “perpetuity” methodology, established taking into account the inflation rate expected over the long term in the country where the specific CGU is based; in some cases, however, other factors are also considered, such as the real growth scenario in the sector where the CGU operates;
−the Beta parameter is different for different types of business estimated according to trends in the data series of returns for sample groups of listed companies comparable to those being valued and the respective data series of returns of market indices of the countries in which the companies are listed.
It should also be emphasized that in calculating the cost of equity (Ke), account must also be taken of risk specific to the CGU, if any, through an additional risk
200 Consolidated financial statements as at 30 June 2023
premium (alpha coefficient/factor) to take into account (specific and/or systematic) risk factors not perceived in the flows and/or not fully reflected by the underlying CAPM indicators. Senior management opted to increase the estimates of the opportunity cost of capital for all CGUs, except for the Consumer Banking CGU, by at least 1.50%. With regard to RAM and Polus, senior management opted to apply a higher additional risk premium of 3.20%, in consideration of the risk inherent in the plan (with longer time horizons than the horizon assumed for all the other CGUs, i.e., 3 years).
Table 5: Cost of equity parameters per CGU
30 June 2023
Risk-free rate
Equity risk premium
Beta 2y
Factor
Cost of equity
Expected growth rate
CGU
Rf
Erp
b
a
Ke
g
Consumer credit
4.08
5.06
1.13
0.–
9.79
2.–
MB Private Banking
4.08
5.06
1.04
1.50
10.85
2.–
MB Mid corporate
4.08
5.06
0.97
1.50
10.47
2.–
Polus Capital Management
4.31
5.06
1.15
3.20
13.32
2.–
RAM Active Investments
0.92
5.06
1.15
3.20
9.93
1.9
Messier et Associés
2.92
5.06
0.97
1.50
9.32
1.6
30 June 2022
Risk-free rate
Risk premium
Beta 2y
Factor
Cost of equity
Expected growth rate
CCGU
Rf
Erp
b
a
Ke
g
Consumer credit
3.53
5.13
1.10
0.–
9.19
2.–
MB Private Banking
3.53
5.13
1.04
1.50
10.35
2.–
MB Mid corporate
3.53
5.13
0.83
1.50
9.27
2.–
Polus Capital Management
2.37
5.13
0.98
3.20
10.58
2.–
RAM Active Investments
1.18
5.13
0.98
3.20
9.40
1.9
Messier et Associés
2.03
5.13
0.83
1.50
7.77
1.6
Compared to the previous year, the Cost of Equity of all the CGUs was higher due to the increase in the risk-free rate and the beta. The risk-free rates (calculated - in line with the previous year - as an average over 1 month at the impairment test date of the daily yields at maturity of the 10-year government benchmarks where the CGU being valued is located) underwent a progressive increase due to restrictive monetary measures to contain inflation pursued by the main Central Banks; the risk-free rate in Italy went from 3.53% to 4.08%, while only for Switzerland there was a decrease from 1.18% to 0.92%. With regard to the Equity Risk Premium, the reference for all the CGUs was the very long-term historical average of the risk premiums observed in
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 201
the US market (i.e. 5.06%) as representative of the premium associated with the global investment in the market stock. This value was assumed once the alignment with the range of the different risk premium measures adopted for the different European countries (based on shorter historical averages) had been verified. The Betas were all up except for the Private Banking CGU of Mediobanca, which was steady at 1.04. Finally, the growth rate (g), equal to the expected long-term inflation rate in the countries of residence of the CGUs, was set at 2% for Italy and the UK, at 1.87% for Switzerland, and 1.56% for France.
The adoption of the valuation formula requires estimating the present value of the expected flows of each CGU beyond the explicit forecast period (the plan period) which defines the so-called Terminal Value. With regard to Terminal Value, it should be noted that it was obtained by capitalizing the average of distributable profits over the last two or three years of the Plan, which, on a prudential basis, was considered the value that best reflected a normalized cash flow that took into account the income prospects of individual CGUs according to an across-the-cycle approach.
All of the Group’s CGUs passed the impairment test as their value in use exceeded the carrying amount taking into account any account undertaken during the year.
This situation is borne out by the sensitivity analysis conducted on the following variables:
—Cost of equity +/- 0.25%, with an overall increase and decrease of up to 50 bps;
—Long-term growth rate +/- 0.20%, with an overall increase and decrease of up to 60 bps;
—Flow distributable at terminal value +/-5%, with an overall increase and decrease of up to 10%;
In addition, a sensitivity analysis was performed on the cost/income ratio with the aim of identifying the increase percentage in the parameter necessary to eliminate the delta between value in use and book value of each CGU.
Moreover, a further impairment test (referred to as Level 2 impairment test) was carried out by verifying whether the value in use of the various operating segments
202 Consolidated financial statements as at 30 June 2023
(Consumer Banking, Wealth Management and Corporate and Investment Banking), taking into account the allocation of all the corporate costs of the Holding Functions, was higher than the respective carrying amount, computed as the sum of absorbed regulatory capital integrated with goodwill and other allocated intangibles. The impairment test was passed by all three operating segments.
Lastly, an analysis of the fairness of the Group’s value - obtained as the sum of parts - and the stock market prices and target prices stated by financial analysts was conducted. With regard to the performance of stock market prices and the Price to Book value indicator, it should be noted that at the closing date of the financial year (30 June 2023) the stock was listed at €11 (and grew to €12 as of the end of July), lower than the Group’s net equity per share. However, it should be emphasized that in an economic phase such as the current one, the valuation incorporated in stock market prices places maximum emphasis on market multiples based on: i) short-term income expectations, ii) discount rates consistent with the perpetuity projections of the current macroeconomic scenario (high risk-free rates and inflation) and iii) different value configurations (fair value from the perspective of the minority shareholder with holding discount applications) not necessarily being reflected in the Group’s fundamentals. Stock market prices may therefore be lower than value in use due to the different value configuration.
* * *
Before the goodwill impairment test, the brands with indefinite useful life were allocated to the various CGUs. In particular, these are the brands referring to Mediobanca Private Banking, RAM and Messier et Associés. The brands’ recoverable values were estimated using criteria based on royalty relief method, whereby the brand’s value is obtained from the discounted value of the income deriving from it, which in turn is estimated as the product of the royalty rate implied in the valuations of the respective brands made during the PPA process (Business Combinations under IFRS 3) and the value of the operating income.
All of the other brands’ values were confirmed and no evidence of impairment was noted.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 203
SECTION 11
Assets heading 110 and liabilities heading 60: Tax assets and liabilities
11.1 Advanced tax assets: breakdown
Total
Total
30 June 2023
30 June 2022
- Against Profit and Loss
493,245
559,819
- Against Net Equity
31,136
37,148
Total
524,381
596,967
All advance taxes qualifying as “ineligible” were subjected to a “probability test”, i.e. an annual assessment as to the probability of recovering them, taking into account whether or not they fall within the scope of the National Tax Consolidation of the companies to which they refer.
In this regard, it should be noted that:
⎯the estimate of the forecast taxable income for the periods beyond the time horizon of individual business plans was made on a prudential basis, assuming the opening result to be substantially consistent with that of the previous financial year;
⎯temporary decreases were examined by using the above period for decreases whose release period is governed by regulatory provisions, while a time horizon of 5 or 10 years, depending on the type of item, was used for decreases whose release period is not governed by regulatory provisions.
Taking into account the Group’s and the individual entities’ forward-looking plans, the above analyses confirmed the “probability of recovery” of such decreases while applying the prudential corrections described above and taking into account the large income-earning capacity demonstrated by the Group in its long history.
204 Consolidated financial statements as at 30 June 2023
Total
Total
30 June 2023
30 June 2022
A – Gross advance tax assets
524,381
596,967
Loan loss provisions (*)
341,798
379,158
Provisions for sundry risks and charges
20,531
34,767
Goodwill and other intangible assets (**)
106,198
116,774
Financial instruments recognized at FVOCI
30,935
32,378
Tax losses
582
1,526
Other
24,337
32,364
B – Offset by deferred tax liabilities
—
—
C – Net advance tax assets
524,381
596,967
(*) Among other figures, this item includes: i) prepaid taxes recognized on write-downs and losses on loans to customers, which will be absorbed by 30 June 2027 according to the plan pursuant to Article 16 of Legislative Decree No. 83/2015, as amended; ii) prepaid taxes recognized on the components allocated to the provision for expected credit losses upon IFRS 9 FTA, which will be absorbed in tenths by 30 June 2029.
(**) The figure mainly includes goodwill redemptions on the Compass/Linea merger transaction (€101.5m), of which €18.2m pursuant to Article 176 of Presidential Decree No. 917/1986 and €83.3m in implementation of the provisions of Article 110 of Law-Decree No. 104/2020, with an amortization period of 18 years.
11.2 Deferred tax liabilities: breakdown
Total
Total
30 June 2023
30 June 2022
- Against Profit and Loss
286,798
302,098
- Against Net Equity
163,533
100,421
Total
450,331
402,519
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 205
11.3 Changes in advance tax during the period (against profit and loss)
Total
Total
30 June 2023
30 June 2022
1. Opening balance
559,819
556,808
2. Increases
18,432
106,864
2.1 Prepaid taxes for the year
18,127
103,871
a) relating to previous years
—
—
b) due to changes in accounting parameters
—
—
c) write-backs
—
—
d) other
18,127
103,871
2.2 New taxes or increases in tax rates
—
—
2.3 Other increases
305
2,993
3. Decreases
85,006
103,853
3.1 Prepaid taxes derecognized in the year
72,178
96,861
a) reversals of temporary differences
70,617
96,062
b) write-downs due to intervening unrecoverable status
—
—
c) changes in accounting policies
—
—
d) other
1,561
799
3.2 Reductions in tax rates
—
—
3.3 Other decreases:
12,828
6,992
a) conversion into tax receivables pursuant to Italian Law No. 214/2011
—
—
b) other
12,828
6,992
4. Closing balance
493,245
559,819
206 Consolidated financial statements as at 30 June 2023
11.4 Changes in prepaid taxes pursuant to Italian Law No. 214/11 (*)
Total
Total
30 June 2023
30 June 2022
1. Opening balance
400,281
476,065
2. Increases
—
—
3. Decreases
57,719
75,784
3.1 Reversals of temporary differences
49,384
71,065
3.2 Conversion into tax credit:
—
946
a) arising from losses for the year
—
946
b) arising from tax losses
—
—
3.3 Other decreases
8,335
3,773
4. Closing balance
342,562
400,281
(*) Italian Law-Decree No. 59/16 of 29 April 2016 on deferred tax assets pursuant to Italian Law-Decree No. 214/11, as amended by Italian Law-Decree No. 237 of 23 December 2016, enacted with amendments as Law No. 15/2017, provides that in order to be able to retain the right to take advantage of the possibility of converting DTAs into tax credits, an irrevocable option must be specifically exercised, which involves payment of an annual instalment equal to 1.5% of the difference between the increase in advance tax assets at the reporting date since 30 June 2008 and the tax paid during the same period each year until 2029. Mediobanca has exercised this option in order to retain the possibility of converting DTAs for all companies adhering to the tax consolidation. No payment will be due in this respect, given that the payments made to the tax consolidation exceed the increase in DTAs recorded since 30 June 2008.
11.5 Changes in deferred tax during the period (against profit and loss)
Total
Total
30 June 2023
30 June 2022
1. Opening balance
302,098
301,938
2. Increases
1,085
2,692
2.1 Deferred taxes for the year
102
1,563
a) relating to previous years
—
—
b) due to changes in accounting standards
—
—
c) other
102
1,563
2.2 New taxes or increases in tax rates
—
—
2.3 Other increases
983
1,129
3. Decreases
16,385
2,532
3.1 Deferred taxes derecognized in the year
15,842
231
a) reversals of temporary differences
14,780
228
b) due to changes in accounting standards
—
—
c) other
1,062
3
3.2 Reductions in tax rates
—
—
3.3 Other decreases
543
2,301
4. Closing balance
286,798
302,098
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 207
11.6 Changes in prepaid taxes during the period (against net equity) (*)
Total
Total
30 June 2023
30 June 2022
1. Opening balance
37,148
27,395
2. Increases
161,046
47,242
2.1 Prepaid taxes for the year
160,947
47,218
a) relating to previous years
—
7
b) due to changes in accounting parameters
—
—
c) other
160,947
47,211
2.2 New taxes or increases in tax rates
—
—
2.3 Other increases
99
24
3. Decreases
167,058
37,489
3.1 Prepaid taxes derecognized in the year
165,537
37,089
a) reversals of temporary differences
164,409
32,286
b) write-downs due to intervening unrecoverable status
—
—
c) due to changes in accounting policies
—
—
d) other
1,128
4,803
3.2 Reductions in tax rates
—
—
3.3 Other decreases
1,521
400
4. Closing balance
31,136
37,148
(*) Tax deriving from cash flow hedges and valuations of financial instruments recognized at fair value through Other Comprehensive Income.
11.7 Changes in deferred tax during the period (against net equity)
Total
Total
30 June 2023
30 June 2022
1. Opening balance
100,421
36,847
2. Increases
147,052
202,018
2.1 Deferred taxes for the year:
135,086
200,110
a) relating to previous years
—
—
b) due to changes in accounting parameters
—
—
c) other
135,086
200,110
2.2 New taxes or increases in tax rates
—
—
2.3 Other increases
11,966
1,908
3. Decreases
83,940
138,444
3.1 Deferred taxes derecognized in the year
78,079
127,278
a) reversals of temporary differences
78,079
127,278
b) due to changes in accounting parameters
—
—
c) other
—
—
3.2 Reductions in tax rates
—
—
3.3 Other decreases
5,861
11,166
4. Closing balance
163,533
100,421
208 Consolidated financial statements as at 30 June 2023
SECTION 12
Assets heading 120 and Liability heading 70: Non-current assets and disposal groups classified as held for sale
12.1 Non-current assets and disposal groups classified as held for sale: breakdown by asset type
30 June 2023
30 June 2022
A. Assets held for sale
A.1 Financial assets
242,164
—
A.2 Equity investments
—
—
A.3 Tangible assets
105
—
of which: obtained by the enforcement of collateral
—
—
A.4 Intangible assets
195
191
A.5 Other non-current assets
9,523
—
Total (A)
251,987
191
of which carried at cost
251,987
191
of which designated at fair value - level 1
—
—
of which designated at fair value - level 2
—
—
of which designated at fair value - level 3
—
—
C. Liabilities associated with assets held for sale
C.1 Debts
2,149
—
C.2 Securities
—
—
C.3 Other liabilities
5,985
—
Total (C)
8,134
—
of which carried at cost
8,134
—
of which designated at fair value - level 1
—
—
of which designated at fair value - level 2
—
—
of which designated at fair value - level 3
—
—
As at 30 June 2023, assets and liabilities held for sale of the subsidiary Revalea S.p.A. being sold to Banca Ifis were recorded. These assets mainly consist of the NPL portfolio managed by the company (under item “A.1 Financial assets” i.e. €238.8m). Other non-current assets mainly include tax assets, while other liabilities include employee severance indemnities.
At 30 June 2022, assets held for disposal (under IFRS 5) were stated in relation to the last portion of the sale of the business unit of the Group Legal Entities Spafid Connect to Euronext.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 209
SECTION 13
Heading 130: Other assets
13.1 Other assets: breakdown
30 June 2023
30 June 2022
1. Gold, silver and precious metals
695
695
2. Accrued income other than capitalized income from the related assets
71,130
63,283
3. Trade receivables or invoices to be issued
237,258
304,665
4. Amounts due from tax revenue authorities (not recorded under Heading 110)
351,639
239,720
5. Other items:
254,812
272,248
- bills for collection
69,933
66,818
- amounts due in respect of premiums, grants, indemnities, and other items in respect of lending transactions
23,986
22,023
- advance payments on deposit commissions
2,475
2,687
- other items in transit
87,850
89,084
- sundry items (1)
70,568
91,636
Total Other Assets
915,534
880,611
(1) This includes accrued income.
This item, as required by the Bank of Italy/Consob/IVASS Document No. 9,62 includes tax credits (eco-bonuses and subsidies for energy-intensive enterprises) recorded in the financial statements in compliance with the so-called Group tax ceiling. The book value was €185m (€76m as at 30 June 2022); in detail, purchases during the year amounted to €179m (€95m as at 30 June 2022), while receivables offset against tax liabilities of the individual entities amounted to €71m. The nominal value as at 30 June 2023 was €204m, of which €153.3m referable to the ‘Superbonus 110’ discount pursuant to Article 119 of Law-Decree No. 34/2020, which may be offset in the next 4 years.
62 The Bank of Italy/Consob/Ivass Document No. 9 - Coordination table between the Bank of Italy, Consob and IVASS for the purpose of adopting the IAS/IFRS Accounting treatment of tax credits connected with the "Cura Italia" and "Rilancio" Law-Decrees purchased following the transfer by the direct beneficiaries or previous purchasers indicates the item "Other assets" as the most appropriate to receive the tax credits referred to in the "Cura Italia" and "Rilancio" Law-Decrees.
210 Consolidated financial statements as at 30 June 2023
Liabilities
SECTION 1
Heading 10: Financial liabilities measured at amortized cost
1.1 Financial liabilities measured at amortized cost: product breakdown of amounts due to banks
Total
Total
30 June 2023
30 June 2022
Fair value
Fair value
Transaction Type/Values
Book value
Level 1
Level 2
Level 3
Book value
Leve l 1
Level 2
Level 3
1. Due to Central Banks
5,634,137
X
X
X
8,442,206
X
X
X
2. Due to banks
7,640,952
X
X
X
7,309,620
X
X
X
2.1 Current accounts and demand deposits
268,655
X
X
X
461,414
X
X
X
2.2 Term deposits
68,864
X
X
X
29,131
X
X
X
2.3 Loans
7,125,681
X
X
X
6,704,893
X
X
X
2.3.1 Repos
3,467,320
X
X
X
3,160,595
X
X
X
2.3.2 Other
3,658,361
X
X
X
3,544,298
X
X
X
2.4 Liabilities in respect of commitments to repurchase own equity instruments
—
X
X
X
—
X
X
X
2.5 Lease liabilities
228
X
X
X
82
X
X
X
2.6 Other liabilities
177,524
X
X
X
114,100
X
X
X
Total
13,275,089
—
13,275,089
—
15,751,826
—
15,751,826
—
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 211
1.2 Financial liabilities measured at amortized cost: composition of due to customers
Total
Total
30 June 2023
30 June 2022
Fair value
Fair Value
Transaction Type/Values
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
1. Current accounts and on demand deposits
17,795,987
X
X
X
24,528,643
X
X
X
2. Term deposits
11,712,096
X
X
X
5,924,530
X
X
X
3. Loans
649,255
X
X
X
1,893,112
X
X
X
3.1 Repos
614,310
X
X
X
1,782,550
X
X
X
3.2 Other
34,945
X
X
X
110,562
X
X
X
4. Liabilities in respect of commitments to repurchase own equity instruments
—
X
X
X
—
X
X
X
5. Lease liabilities
216,381
X
X
X
208,765
X
X
X
6. Other liabilities (1)
376,883
X
X
X
168,525
X
X
X
Total
30,750,602
—
30,750,602
—
32,723,575
—
32,723,575
—
(1) As at 30 June 2023 the item included liabilities related to the purchase of MBFACTA’s unfunded loans.
1.3 Financial liabilities measured at amortized cost: composition of debt securities in issue
30 June 2023
30 June 2022
Fair value*
Fair value*
Type of exposure/Amounts
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
A. Securities
1. Bonds
19,875,779
1,038,611
18,586,665
—
17,398,373
859,014
16,471,829
—
1.1 Structured
2,999,458
—
3,005,730
—
2,493,001
—
2,535,107
—
1.2 Other
16,876,321
1,038,611
15,580,935
—
14,905,372
859,014
13,936,722
—
2. Other securities
1,001,596
—
740,103
261,493
841,851
—
782,599
59,252
2.1 Structured
—
—
—
—
—
—
—
—
2.2 Other (1)
1,001,596
—
740,103
261,493
841,851
—
782,599
59,252
Total
20,877,375
1,038,611
19,326,768
261,493
18,240,224
859,014
17,254,428
59,252
(*) Fair value amounts are shown after deducting issuer risk, which at 30 June 2023 suggested a capital gain of €156.4m.
(1) This item includes transactions in financial bills, which began in the financial year ended June 2023 for a value of €219,763.
Bonds increased from €17.4bn to €19.9bn after new issues of €4.8bn covered by redemptions and repurchases of €2.8bn (realizing gains of €7.1m), to which other increases of €533.5m (exchange rate adjustment, amortized cost and effect of hedges) should be added.
The bonds in issue include €1.7bn 63 (of which, €1.6bn issued by the subsidiary Mediobanca International and guaranteed by the Parent Company) related to arbitrage strategies leveraging derivative basis indexes (skew) mainly linked to
63 €1.7bn in the previous financial year.
212 Consolidated financial statements as at 30 June 2023
credit derivatives and commodity derivatives and, to a lesser extent, to interest rate arbitrage, inflation and equity risk (underlying transaction). All these issues involve payment of interest in the form of a coupon (including a premium – extra yield) and full repayment of capital at maturity. In case of the subscriber opting for early repayment, the issuer has the faculty, at its discretion, to choose a repayment price that takes into account the current fair value including that of the underlying transactions. As required by para. 4.3.3 of IFRS 9, the embedded derivative, identified by the right to include the arbitrage value within the repayment price, has been separated by the obligation valued at amortized cost and booked at the fair value of underlying transactions.
1.4 Breakdown of subordinated debt securities
“Outstanding securities” include the following five subordinated Tier 2 issues, for a total of €1,351,237. During the year, an issue matured in April 2023 and a 5-year callable 10-year bond was issued for €300m at the 3-month Euribor rate +480 bps.
30 June 2023
Issue
ISIN code
Nominal Value
Book value
MB SUBORDINATO TV with 3% minimum rate 2025
IT0005127508
496,805
501,129
MB SUBORDINATO 3.75% 2026
IT0005188351
299,750
272,969
MB SUBORDINATO 1.957% 2029
XS1579416741
50,000
50,735
MB SUBORDINATO 2.3% 2030
XS2262077675
248,854
226,414
MB SUBORDINATO TF 10Y Callable
XS2577528016
299,950
299,990
Total subordinated issues
1,395,359
1,351,237
1.6 Lease liabilities
Amounts due under leases are calculated by applying the criteria set forth in IFRS 16.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 213
SECTION 2
Heading 20: Trading liabilities
2.1 Trading financial liabilities: composition
30 June 2023
30 June 2022
Fair value
Fair Value
Transaction Type/Values
Nominal or notional value
Level 1
Level 2
Level 3
Fair value (*)
Nominal or notional value
Level 1
Level 2
Level 3
Fair value (*)
A. Cash liabilities
1. Due to banks
42,854
34,173
10,552
—
44,725
9,642
8,981
—
—
8,981
2. Due to customers
4,160,964
4,085,164
205
—
4,085,369
3,732,348
3,720,646
—
—
3,720,646
3. Debt securities
—
—
—
—
—
—
—
—
—
—
3.1 Bonds
—
—
—
—
—
—
—
—
—
—
3.1.1 Structured
—
—
—
—
X
—
—
—
—
X
3.1.2 Other bonds
—
—
—
—
X
—
—
—
—
X
3.2 Other securities
—
—
—
—
—
—
—
—
—
—
3.2.1 Structured
—
—
—
—
X
—
—
—
—
X
3.2.2 Other
—
—
—
—
X
—
—
—
—
X
Total (A)
4,203,818
4,119,337
10,757
—
4,130,094
3,741,990
3,729,627
—
—
3,729,627
B. Derivative instruments
1. Financial derivatives (1)
—
848,671
3,739,098
302,426
—
—
875,249
3,367,400
703,975
—
1.1 Trading
X
848,671
3,739,040
302,426
X
X
875,249
3,366,543
703,490
X
1.2 Related to the fair value option
X
—
—
—
X
X
—
-
—
X
1.3 Other
X
—
58
—
X
X
—
857
485
X
2. Credit derivatives
—
—
416,383
—
—
—
—
530,454
—
—
2.1 Trading
X
—
416,383
—
X
X
—
530,454
—
X
2.2 Related to the fair value option
X
—
—
—
X
X
—
—
—
X
2.3 Other
X
—
—
—
X
X
—
—
—
X
Total (B)
X
848,671
4,155,481
302,426
X
X
875,249
3,897,854
703,975
X
Total (A+B)
X
4,968,008
4,166,238
302,426
X
X
4,604,876
3,897,854
703,975
X
(*) Fair value computed by excluding variations due to changes in the issuer’s credit score following the date of emission.
(1) This includes €789 (€409,692 in June 2022) for options traded, matching the amount recorded among assets held for trading.
214 Consolidated financial statements as at 30 June 2023
SECTION 3
Heading 30: Financial liabilities designated at fair value
3.1 Financial liabilities designated at fair value: product breakdown
Total
Total
30 June 2023
30 June 2022
Fair value
Fair value
Transaction Type/Values
Nominal value
Level 1
Level 2
Level 3
Fair value (*)
Nominal value
Level 1
Level 2
Level 3
Fair value (*)
1. Due to banks
—
—
—
—
—
—
—
—
—
—
1.1 Structured
—
—
—
—
X
—
—
—
—
X
1.2 Other
—
—
—
—
X
—
—
—
—
X
of which:
—
- loan commitments
—
X
X
X
X
X
X
X
X
X
- financial guarantees issued
—
X
X
X
X
X
X
X
X
X
2. Due to customers
—
—
—
—
—
—
—
—
—
—
2.1 Structured
—
—
—
—
X
—
—
—
—
X
2.2 Other
—
—
—
—
X
—
—
—
—
X
of which:
- loan commitments
—
X
X
X
X
X
X
X
X
X
- financial guarantees issued
—
X
X
X
X
X
X
X
X
X
3. Debt securities
1,679,786
—
1,540,419
40,537
1,580,905
751,428
—
638,151
3,513
641,664
3.1 Structured
1,679,786
—
1,540,419
40,537
X
751,428
—
638,151
3,513
X
3.2 Other
—
—
—
—
X
—
—
—
—
X
Total
1,679,786
—
1,540,419
40,537
1,580,905
751,428
—
638,151
3,513
641,664
(*) Fair value computed by excluding variations due to changes in the issuer’s credit score following the date of emission.
The item contains certificates of €1,479.3m (which includes €596.3m, i.e. the delta one without Mediobanca risk and backed by specific financial assets at fair value recorded under Item 20) and structured issues of €101.7m.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 215
SECTION 4
Heading 40: Hedging derivatives
4.1 Hedging derivatives: by hedge type and level
30 June 2023
30 June 2022
Fair value
Fair value
Level 1
Level 2
Level 3
Nominal value
Level 1
Level 2
Level 3
Nominal value
A. Financial derivatives
—
2,069,542
—
49,729,652
—
1,361,863
—
38,300,798
1) Fair value
—
2,068,723
—
49,699,652
—
1,358,504
—
38,164,524
2) Cash flows
—
819
—
30,000
—
3,359
—
136,274
3) Foreign investments
—
—
—
—
—
—
—
—
B. Credit derivatives
—
—
—
—
—
—
—
—
1) Fair value
—
—
—
—
—
—
—
—
2) Cash flows
—
—
—
—
—
—
—
—
Total
—
2,069,542
—
49,729,652
—
1,361,863
—
38,300,798
4.2 Hedging derivatives: by portfolio hedged and hedge type
Fair value
Cash flows
Specific
Generic
Specific
Generic
Foreign investments
Transaction / Type of hedge
Debt securities and interest rates
Equities and stock indexes
Currencies and gold
Credit
Commodities
Other
1. Financial assets measured at fair value through other comprehensive income
—
—
—
—
X
X
X
—
X
X
2. Financial assets measured at amortized cost
85,440
X
—
—
X
X
X
—
X
X
3. Portfolio
X
X
X
X
X
X
—
X
—
X
4. Other transactions
—
—
—
—
—
—
X
—
X
—
Total assets
85,440
—
—
—
—
—
—
—
—
—
1. Financial liabilities
1,983,283
X
—
—
—
—
X
819
X
X
2. Portfolio
X
X
X
X
X
X
—
X
—
X
Total liabilities
1,983,283
—
—
—
—
—
—
819
—
—
1. Highly probable transactions
X
X
X
X
X
X
X
—
X
X
2. Financial assets and liabilities portfolio
X
X
X
X
X
X
—
X
—
—
216 Consolidated financial statements as at 30 June 2023
SECTION 6
Heading 60: Tax liabilities
Please see asset section 11.
SECTION 7
Heading 70: Liabilities associated to assets held for disposal
Please see asset section 12.
SECTION 8
Heading 80: Other liabilities
8.1 Other liabilities: composition
30 June 2023
30 June 2022
1. Working capital payables and invoices pending receipt
338,827
368,606
2. Amounts due to revenue authorities
78,426
58,740
3. Amounts due to staff
300,129
254,751
4. Other items
333,698
273,099
- bills for collection
24,838
25,698
- coupons and dividends pending collection
3,557
2,638
- available sums payable to third parties
90,475
74,134
- premiums, grants, and other items in respect of lending transactions
20,552
20,400
- sundry items (1)
194,276
150,229
Total other liabilities
1,051,080
955,196
(1) This includes the liability in respect of the put-and-call agreements relating to Polus Capital, RAM AI and MA.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 217
SECTION 9
Heading 90: Staff severance indemnity provisions
9.1 Staff severance indemnity provisions: changes during the period
Total
Total
30 June 2023
30 June 2022
A. Opening balance
21,969
26,886
B. Increases
9,826
9,878
B.1 Provisions for the year
7,750
7,630
B.2 Other changes
2,076
2,248
- of which business combinations
—
—
C. Decreases
11,211
14,795
C.1 End-of service payments
2,120
3,132
C.2 Other changes (1)
9,091
11,663
- of which business combinations
—
—
D. Closing balance
20,584
21,969
Total
20,584
21,969
(1) This includes €5,255 in transfers to external, defined contribution pension schemes (€4,750 at 30 June 2022).
The Provision for statutory end-of-service payments concerns Group companies residing in Italy; for a detailed explanation of the accounting standards adopted, please refer to Part A – Accounting policies.
9.2 Other information
The provision for statutory end-of-service payments is configured as a defined benefit plan; the actuarial model used is based on various demographic and economic assumptions. For some of the assumptions used, reference has been made directly to the Group’s own experience (e.g. estimates of disability incidence, frequency of early retirement, annual increase in rate of remuneration, frequency with which advance withdrawals from the provision are requested, etc.), while for the others, account has been taken of the relevant best practice (e.g. the mortality rate has been determined using the IPS55 life tables, whereas the retirement age has been determined taking into account the most recent legislation in this area); for the discount rate, the iBoxx Eurozone Corporate AA index as at 30 June 2023 has been used for similar companies to those being valued (equal to 3.67%, compared with 2.47% at end-June 2022), while the inflation rate is 2.40%.
218 Consolidated financial statements as at 30 June 2023
SECTION 10
Heading 100: Provisions for risks and charges
10.1 Provisions for risks and charges: breakdown
Items/Components
30 June 2023
30 June 2022
1. Provisions for credit risk related to commitments and financial guarantees issued
21,581
23,727
2. Provisions for other commitments and guarantees issued
585
537
3. Company retirement plans
—
—
4. Other risk and obligation funds
138,961
113,504
4.1 legal and tax disputes
—
—
4.2 obligations for employees
28,235
2,458
4.3 others
110,726
111,046
Total
161,127
137,768
IAS 37 requires provisions to be set aside in cases where there is an obligation, whether actual, legal or implicit, the amount of which may be reliably determined and the resolution of which is likely to entail a cash outflow for the company. The amount of the provision is determined in a best estimate, based on experience of similar operations or the opinion of independent experts. Provisions are revised on a regular basis in order to reflect the best current estimate.
As at 30 June, the item “Provisions for risks and charges” amounted to €161.1m (up compared to €137.8m in the previous year) with the component of commitments and guarantees issued being slightly down (from €23.7m to €21.6m). The increase in “other provisions for risks and charges” covering legal/tax disputes and other liabilities including personnel costs (€26m) refers to the extraordinary provision made by some Group companies (Mediobanca, Compass and CheBanca!) for the launch of an early retirement and turnover plan aiming to promote generational turnover. The stock at the end of the year was divided as follows: Mediobanca €67.3m (€67.9m), Compass €29m (€18.4m), CheBanca! €32m (€17.2m), SelmaBPM €6.1m (€5,2m) and CMB Monaco €2.2m (€2.1m); other Group companies €2.3m (€2.7m).
With reference to the main legal proceedings, the following should be noted:
—regarding the claim for damages made by Lucchini S.p.A. in A.S. (“Lucchini”) against 12 banks (including Mediobanca) on the assumption that they had allegedly contributed to the company’s economic and financial failure, by ruling dated 28 December 2022, the Court of Appeal of Milan dismissed the claims
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 219
brought by Lucchini splitting legal expenses among the parties. As at 30 June 2023, the deadline for the appeal had expired without Lucchini having notified the appeal to the Court of Cassation; as a result, the sentence of the Court of Appeal of 28 December 2022 became final and the dispute may be considered as settled on a final basis;
—in relation to the effects of the so-called “Lexitor” ruling of the Court of Justice of the European Union, the Italian Constitutional Court, by ruling dated 22 December 2022, stated that Article 11-octies, paragraph 2, of the Italian government’s Sostegni Bis Decree was partially unconstitutional. As a result of such ruling of the Constitutional Court, consumers will be entitled to a proportional reduction of all costs incurred in relation to consumer credit agreements, even if they were concluded before 25 July 2021, without prejudice to the statute of limitations provided by law (10 years). On the basis of such ruling, it was deemed appropriate to set aside €3.3m which, after withdrawals, brings the balance of the specific provision to €13.2m;
—with regard to disputes relating to the hiring of bankers and financial advisers and relating to the indemnification policy, it was decided to increase the provisions to €13.7m with a net provision of approximately €7m.
With regard to disputes pending with the Italian Tax Authorities, the following significant changes should be noted:
—with reference to the alleged failure to apply transparency tax rules as required by the legislation on Controlled Foreign Companies (CFC) on income earned by CMB Monaco and CMG Monaco in financial years 2013, 2014 and 2015 (for a total of €124.4m of income and €53.7m in disputed taxes, plus penalties and interest), three disputes were pending against the Tax Authorities, at different levels of judgement. In detail, Mediobanca won the case in the first and second instances of the dispute relating to financial year 2013/2014 (2013 profits, tax of €21.3m, plus interest and penalties), but an appeal before the Court of Cassation is pending. The Bank won the case in the first instance in the joint proceedings relating to financial years 2014/2015 and 2015/2016 (respectively 2014 and 2015 profits) for a total tax of €32.5m, plus interest and penalties, but an appeal in the second instance brought by the Italian Revenue Agency is still pending;
—with reference to Mediobanca’s alleged failure to apply withholding taxes on interest expense paid as part of a secured financing transaction in 2014, 2015 and 2016 (tax of €6.4m, plus interest and penalties), after the Milan Provincial Tax Commission dismissed the first two disputed years, the Bank proceeded to
220 Consolidated financial statements as at 30 June 2023
file an appeal at second instance, while the first-level judgement for the year 2016 is pending;
—dispute before the Court of Cassation concerning a transfer of money abroad involving the operations of Banca Esperia fully expensed in prior financial year.
In addition to the foregoing, the pending disputes at 30 June were as follows:
—two disputes relating to non-repayment of interest accrued on VAT credits claimed by SelmaBipiemme for the year 2008 (total amount of €2.5m);
—six disputes involving direct and indirect tax of minor amounts and at different stages of the ruling process, involving a total certified amount of €1.5m in tax.
Lastly, there is nothing to report on the disputes in which Mediobanca SGR was sued as manager of a real estate fund, in relation to the alleged failure to pay the substitute tax on three transactions for a higher assessed tax of €746,000 (to be borne by the fund). The Company, which won the case in the first instance but lost the appeal, lodged an appeal with the Court of Cassation and is still awaiting the hearing to be set.
The provisions for risks and charges set aside in the financial statements adequately cover the amount mentioned above.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 221
10.2 Provisions for risks and charges: changes during the period
Provisions for other commitments and guarantees given
Retirement plans
Other risk and obligation funds:
Obligations for employees
Other risk and obligation funds:
Other
Total
A. Opening balance
537
—
2,458
111,046
114,041
B. Increases
873
869
26,437
30,577
58,756
B.1 Provisions of the year
873
869
26,000
24,491
52,233
B.2 Changes due to the passage of time
—
—
—
—
—
B.3 Changes due to fluctuations in the discount rate
—
—
—
—
—
B.4 Other changes (1)
—
—
437
6,086
6,523
of which business combinations
—
—
—
—
—
C. Decreases
825
869
660
30,897
33,251
C.1 Uses during the year
—
—
360
29,942
30,302
C.2 Changes due to fluctuations in the discount rate (2)
—
404
—
—
404
C.3 Other changes
825
465
300
955
2,545
of which business combinations
—
—
—
—
—
D. Closing balance
585
—
28,235
110,726
139,546
(1) In light of the changes introduced by the 2023 Budget Law and the progress of the dispute, a reassessment of the tax risk as a whole was carried out, leading to a release of funds in the order of €6m.
(2) Due entirely to the recalculation of the discount rate on the defined benefit plan subscribed by the Group Legal Entity RAM AI for its employees.
10.3 Provisions for credit risk related to commitments and financial guarantees given
Provisions for credit risk related to commitments and financial guarantees issued
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Total
Loan commitments
18,064
1,941
135
—
20,140
Financial guarantees issued
978
463
—
—
1,441
Total
19,042
2,404
135
—
21,581
10.5 Defined benefit company retirement pension schemes
This refers to the defined benefit company retirement pension scheme operated by Caisse Bâloise on behalf of RAM AI staff as required by Swiss law. The provision is subject to actuarial quantification by an independent actuary using the Projected Unit Credit Method.64 The current value of the liability is adjusted by the fair value of any assets to be used under the terms of such plan.
In particular, the “technical” surplus encountered for the first time in June 2022 persisted in the year under review, albeit decreasing, and it led to an adjustment
64 This method involves future outflows being projected on the basis of historical statistical analysis and the demographic curve, and then being discounted based on market interest rates.
222 Consolidated financial statements as at 30 June 2023
pursuant to IFRIC 14 65 in the same amount and a derecognition of the net liability.
The following Table shows the breakdown of the net defined benefit obligation as at the most recent reporting date (30 June 2023):
CHF/1000
EUR/1000
IAS 19 Net obligation (*)
30 June 2023
30 June 2022
30 June 2023
30 June 2022
Present value of defined benefit obligation
(6,823)
(6,440)
(6,971)
(6,466)
Present value of assets servicing the fund
7,426
7,221
7,586
7,250
Surplus/(deficit)
603
781
616
784
IFRIC 14 adjustment
(603)
(781)
(616)
(784)
Net accounting (liability)/asset
—
—
—
—
(*) Financial assumptions (discount rate of 1.85% against 2.30% in December 2022 and 2.25% in June 2022; salary increase of 1%) and demographic assumptions were used to determine the value of the liability.
A sensitivity analysis is performed on the DBO to measure its sensitivity to changes in the main assumptions adopted.
65 Paragraph 64 of IAS 19 limits the measurement of an asset serving a defined benefit plan to the lower of the surplus in the defined benefit plan and the asset ceiling. Paragraph 8 of IAS 19 defines the asset ceiling as ‘the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan’. Questions arose in regard of the time in which the refunds or reductions in future contributions should be considered available. Under IFRIC 14, the IASB provided the required clarifications by establishing that an entity must determine the availability of a refund or a reduction in future contributions in compliance with the terms and conditions of the plan and the statutory provisions applicable in the jurisdiction in which the plan is in operation. In the case at issue, the independent expert did not find that a right to a refund had arisen for the employees as the amount consisted in a surplus that did not derive from “operational” changes to the fund generating a better economic condition but from changes in valuation rates that had an impact on “Actuarial Gains and Losses” resulting in the reduction and cancellation of the liability without recognizing an asset.
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 223
SECTION 11
Heading 110: Technical reserves
11.1 Technical reserves: composition
Direct business
Indirect business
30 June 2023
30 June 2022
A. Non-life business
—
111,338
111,338
119,001
A1. Premium reserves
—
101,895
101,895
108,097
A2. Accident reserves
—
9,443
9,443
10,904
A3. Other reserves
—
—
—
—
B. Life business
—
—
—
—
B1. Mathematical reserves
—
—
—
—
B2. Reserves for sums to be paid out
—
—
—
—
B3. Other reserves
—
—
—
—
C. Technical reserves when investment risk is incurred by insured parties
—
—
—
—
C1. Reserves related to contracts whose performance is linked to investment funds and market indexes
—
—
—
—
C2. Reserves originated by retirement funds management
—
—
—
—
D. Total technical reserves
—
111,338
111,338
119,001
11.2 Technical reserves: changes during the period
30 June 2023
30 June 2022
A. Non-life business
Opening balance
119,001
131,350
Business combinations
—
—
Changes in reserves (+/-)
(7,663)
(12,349)
Other changes
—
—
Closing balance
111,338
119,001
B. Life business and other technical reserves
Opening balance
—
—
Business combinations
—
—
Changes due to premiums
—
—
Changes due to sums to be paid out
—
—
Changes due to payments
—
—
Changes due to income and other bonuses paid out to insurers (+/-)
—
—
Changes to other technical reserves (+/-)
—
—
Other changes
—
—
Closing balance
—
—
C. Total technical reserves
111,338
119,001
224 Consolidated financial statements as at 30 June 2023
SECTION 13
Heading 120, 130, 140, 150, 160, 170 and 180: Group net equity
13.1 “Capital” and “treasury shares”: composition
For the composition of the group’s capital, please see part F of the notes to the accounts.
13.2 Capital – Number of parent company shares: changes for the year
Items/Values
Ordinary
A. Shares in issue at the start of the period
864,698,552
- fully paid up
864,698,552
- partially paid up
—
A.1 Treasury shares (-)
(25,812,945)
A.2 Shares in issue: opening balance
838,885,607
B. Increases
1,916,938
B.1 New shares issuance as a result of:
1,058,922
- for consideration
—
- business combinations
—
- bond conversions
—
- exercise of warrants
—
- other
—
- free of charge:
1,058,922
- to employees
1,058,922
- to directors
—
- other
—
B.2 Disposals of treasury shares
858,016
B.3 Other changes
—
C. Decreases
—
C.1 Cancellation
—
C.2 Treasury shares’ buybacks
—
C.3 Disposal of business
—
C.4 Other changes
—
D. Shares in issue: closing balance
840,802,545
D.1 Treasury shares (+)
(8,454,929)
D.2 Shares in issue at the end of the period
849,257,474
- fully paid up
849,257,474
- partially paid up
—
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 225
On 2 September last, 16,500,000 treasury shares were cancelled, keeping in the Group’s portfolio the number needed to cover its performance share plans and other commitments. As part of the performance share plans, 1,916,938 shares were allocated during the year, 858,016 of which through treasury shares and 1,058,922 through a capital increase.
The changes in the Reserve for treasury shares during the year were as follows:
Items/Values
Number of shares
Value (€/000)
Reserve for treasury shares: opening amount at 30 June 2022
25,812,945
240,807
Increases
—
—
- Newly issued shares
—
—
- Treasury shares’ buybacks
—
—
- Other changes
—
—
Decreases
17,358,016
161,931
- Cancellation
16,500,000
153,928
- Treasury shares’ disposal
858,016
8,003
- Other changes
—
—
Reserve for treasury shares: closing amount at 30 June 2023
8,454,929
78,876
13.4 Profit reserves: other information
Items/Values
30 June 2023
30 June 2022
Legal reserve
88,728
88,728
Statutory reserve
720,073
836,680
Treasury shares
78,876
240,807
Other
6,787,606
5,742,048
Total
7,675,283
6,908,263
13.5 Equity instruments: breakdown and annual changes
There is no other information to be disclosed other than that already reported on this section.
226 Consolidated financial statements as at 30 June 2023
SECTION 14
Heading 190: Minority interests
14.1 Heading 190: Minority interests: composition
Company Name
30 June 2023
30 June 2022
1. SelmaBipiemme S.p.A.
91,719
90,232
2. RAM Active Investments S.A.
906
995
3. Polus Capital Group Ltd.
11,499
10,331
4. Other minor
19
13
Total
104,143
101,571
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 227
Other Information
1. Commitments and financial guarantees given
Nominal value of commitments and financial guarantees given
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Total
30 June 2023
Total
30 June 2022
1. Loan commitments
15,441,080
89,254
1,066
—
15,531,400
15,079,889
a) Central Banks
2,901
—
—
—
2,901
-
b) Public administrations
3,158,946
—
—
—
3,158,946
2,724,900
c) Banks
30,050
—
—
—
30,050
46,867
d) Other financial companies
1,543,909
350
—
—
1,544,259
1,935,724
e) Non-financial companies
7,726,313
57,708
373
—
7,784,394
7,701,716
f) Households
2,978,961
31,196
693
—
3,010,850
2,670,682
2. Financial guarantees issued
496,741
10,998
—
—
507,739
572,551
a) Central Banks
—
—
—
—
—
—
b) Public administrations
—
—
—
—
—
—
c) Banks
500
—
—
—
500
11,563
d) Other financial companies
13,288
—
—
—
13,288
19,961
e) Non-financial companies
459,562
10,998
—
—
470,560
509,381
f) Households
23,391
—
—
—
23,391
31,646
2. Other commitments and guarantees given
Nominal Value
30 June 2023
Nominal Value
30 June 2022
1. Other guarantees issued
159,776
177,447
of which: non-performing exposures (1)
—
300
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
478
478
d) Other financial companies
47,839
61,198
e) Non-financial companies
25,782
35,125
f) Households
85,677
80,646
2. Other commitments
132,587
111,333
of which: non-performing exposures
—
—
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
32,016
101,645
d) Other financial companies
60,774
—
e) Non-financial companies
39,797
9,688
f) Households
—
—
(1) These concern other guarantees issued by the Parent Company to non-performing counterparties.
228 Consolidated financial statements as at 30 June 2023
3. Assets established as collateral to secure own liabilities and commitments
Amount
Amount
Portfolios
30 June 2023
30 June 2022
1. Financial assets measured at fair value through to profit or loss
2,957,778
4,194,222
2. Financial assets measured at fair value through other comprehensive income
2,166,220
2,370,377
3. Financial assets measured at amortized cost
22,234,273
23,634,127
4. Tangible assets
—
—
of which: tangible assets that constitute surplus
—
—
5. Investments
22,765
210,435
5. Assets managed on behalf of third parties
Value
Value
Type of service
30 June 2023
30 June 2022
1. Orders executed on behalf of customers
a) Purchases
50,053,053
39,869,719
1. settled
49,699,700
38,948,514
2. unsettled
353,353
921,205
b) Sales
41,972,612
30,693,114
1. settled
41,619,259
29,771,909
2. unsettled
353,353
921,205
2. Portfolio management
a) Individual
7,856,270
7,044,324
b) Collective
18,317,545
18,922,300
3. Custody and administration of securities
a) Third-party securities on deposits: relating to depositary banks activities (excluding portfolio management)
9,097,812
8,894,618
1. securities issued by companies included in the area of consolidation
2,524,304
613
2. other securities
6,573,508
8,894,005
b) Third-party securities held in deposits (excluding portfolio management): other
26,179,576
17,986,082
1. securities issued by companies included in the area of consolidation
30,000
30,000
2. other securities
26,149,576
17,956,082
c) Third-party securities deposited with third parties
16,240,406
16,448,308
d) Own securities deposited with third parties
11,893,879
7,875,485
4. Other operations
13,563,348
13,015,912
Notes to the Accounts | Part B - Information on Consolidated Balance Sheet 229
6. Financial assets subject to netting arrangements or master netting or similar agreements
Related amounts not offset in the balance sheet
Instrument type
Gross amount of financial assets (a)
Amount of financial liabilities offset (b) (1)
Net amount of financial assets stated in the balance sheet (c=a-b)
Financial instruments (d)
Cash deposits received as guarantee (e)
Net amount (f=c-d-e)
30 June 2023
Net amount
30 June 2022
1. Derivatives
3,265,444
1,870,581
1,394,863
1,318,420
18,827
57,616
291,527
2. Reverse Repos
3,449,319
—
3,449,319
3,449,319
—
—
—
3. Securities lending
—
—
—
—
—
—
—
4. Other
—
—
—
—
—
—
—
Total as at 30 June 2023
6,714,763
1,870,581
4,844,182
4,767,739
18,827
57,616
X
Total at 30 June 2022
5,882,805
1,245,133
4,637,672
4,236,507
109,638
X
291,527
(1) Relating to derivative financial instruments under relationships with a central counterparty with which there is a master netting agreement in place with daily computations.
7.Financial liabilities subject to netting arrangements or master netting or similar agreements
Related amounts not offset in the balance sheet
Net amount (f=c-d-e)
30 June 2023
Net amount (f=c-d-e)
30 June 2022
Instrument type
Gross amount of financial liabilities (a)
Amount of financial assets offset (b)
Net amount of financial liabilities stated in the balance sheet (c=a-b)
Financial instruments (d)
Cash deposits established as guarantee (e)
1. Derivatives
2,254,881
—
2,254,881
1,318,420
377,349
559,112
319,299
2. Repos
4,080,842
—
4,080,842
4,080,842
—
—
—
3. Securities lending
—
—
—
—
—
—
—
4. Other transactions
—
—
—
—
—
—
—
Total at 30 June 2023
6,335,723
—
6,335,723
5,399,262
377,349
559,112
X
Total at 30 June 2022
7,275,846
—
7,275,846
6,551,860
404,687
X
319,299
230 Consolidated financial statements as at 30 June 2023
8. Securities lending operations
The tables below illustrate the Group’s operations in securities lending (and borrowing), broken down by type of instrument (sovereign debt, bank bonds and others), market counterparty (banks, financial intermediaries and clients) and form (loan secured by cash, other instruments, or unsecured).
Securities lending transactions for which collateral is put up in the form of cash fully available to the borrower are represented in the balance sheet as amounts due to or from banks or customers under the heading “repos”. Securities lending transactions for which collateral is put up in the form of other instruments, or which are unsecured, are represented as “off-balance-sheet exposures”.
Type of security
Type of securities lending transaction
Government bonds
Securities issued by banks
Other securities
1. Cash-collateralized securities lending received from:
60,071
27,496
424,331
a) Banks
—
26,889
410,218
b) Financial brokers
60,071
607
14,113
c) Customers
—
—
—
2. Cash-collateralized securities lending provided to:
—
(200,895)
(363,625)
a) Banks
—
(200,789)
(363,143)
b) Financial brokers
—
(106)
(482)
c) Customers
—
—
—
Total securities lending (book value)
60,071
(173,399)
60,706
Type of security
Type of securities lending transaction
Government bonds
Securities issued by banks
Other securities
1. Security-collateralized or non-collateralized securities lending received from:
1,848,627
588,000
189
a) Banks
—
588,000
72
b) Financial brokers
1,848,627
—
—
c) Customers
—
—
117
2. Security-collateralized or non-collateralized securities lending provided to:
(1,923,436)
(35,856)
(767,244)
a) Banks
(451,929)
—
(399,041)
b) Financial brokers
(1,471,507)
(35,856)
(368,203)
c) Customers
—
—
—
Total securities lending (fair value)
(74,809)
552,144
(767,055)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 231
Part C – Notes to the Consolidated Income Statement
SECTION 1
Headings 10 and 20: Net interest income
1.1 Interest and similar income: breakdown
Items/Instrument type
Debt securities
Loans
Other transactions
12 mths ended 30/6/23
12 mths ended 30/6/22
1. Financial assets measured at fair value through to profit or loss:
74,188
20,620
—
94,808
62,191
1.1 Financial assets held for trading
74,114
158
—
74,272
40,876
1.2 Financial assets designated at fair value
—
20,460
—
20,460
21,108
1.3 Other financial assets mandatorily measured at fair value
74
2
—
76
207
2. Financial assets measured at fair value through other comprehensive income
129,128
—
X
129,128
58,295
3. Financial assets measured at amortized cost:
99,195
2,502,227
—
2,601,422
1,630,285
3.1 Due from banks
6,846
173,350
X
180,196
12,863
3.2 Due from customers
92,349
2,328,877
X
2,421,226
1,617,422
4. Hedging derivatives (1)
X
X
—
—
60,936
5. Other assets
X
X
8,603
8,603
821
6. Financial liabilities (2)
X
X
X
123
35,459
Total
302,511
2,522,847
8,603
2,834,084
1,847,987
of which: interest income on impaired assets
697
50,285
—
50,982
71,143
of which: interest income on finance leases
X
62,023
X
62,023
40,173
(1) Mostly hedges of funding.
(2) Item 6 “Financial liabilities” includes interest expense as the result of negative interest rates.
1.2 Interest and similar income: other information
As at 30 June 2023, the balance of the account includes €231.8m (€105.2m) in connection with financial assets in foreign currencies.
232 Consolidated financial statements as at 30 June 2023
1.3 Interest expenses and similar charges: composition
Items/Instrument type
Debts
Securities
Other transactions
12 mths ended 30/6/23
12 mths ended 30/6/22
1. Financial liabilities measured at amortized cost
(485,966)
(439,404)
—
(925,370)
(317,767)
1.1 Due to central banks
(105,542)
X
X
(105,542)
(112)
1.2 Due to banks
(156,729)
X
X
(156,729)
(8,618)
1.3 Due to customers
(223,695)
X
X
(223,695)
(40,537)
1.4 Securities in issue
X
(439,404)
X
(439,404)
(268,500)
2. Trading liabilities
—
—
—
—
—
3. Financial liabilities designated at fair value
—
(22,043)
—
(22,043)
(20,420)
4. Other liabilities and funds
X
X
(6)
(6)
(255)
5. Hedging derivatives
X
X
(77,121)
(77,121)
—
6. Financial assets (1)
X
X
X
(1,951)
(15,239)
Total
(485,966)
(461,447)
(77,127)
(1,026,491)
(353,681)
of which: interest expense related to lease liabilities
(2,671)
X
X
(2,671)
(2,092)
(1) Item 6 “Financial assets” includes interest expense as the result of negative interest rates.
1.4 Interest expense and similar charges: other information
As at 30 June 2023, the balance of the account included €131.8m (€90.6m) in connection with financial liabilities in foreign currencies.
1.5 Margins on hedging transactions
Items
12 mths ended
30/6/23
12 mths ended
30/6/22
A. Positive margins on hedging transactions
732,225
362,643
B. Negative margins on hedging transactions
(809,346)
(301,707)
C. Net balance (A-B)
(77,121)
60,936
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 233
SECTION 2
Headings 40 and 50: Net fee and commission income
2.1 Fee and commission income: breakdown
Type of income/Values
12 mths ended
30/6/23
12 mths ended
30/6/22
a) Financial instruments
260,779
255,613
1. Placement of securities
163,858
164,313
1.1 With underwriting commitment and/or on the basis of an irrevocable commitment
—
—
1.2 Without irrevocable commitment
163,858
164,313
2. Receipt and transmission of orders and execution of orders on behalf of clients
27,332
22,512
2.1 Receipt and transmission of orders for one or more financial instruments
27,332
22,512
2.2 Execution of orders on behalf of clients
—
—
3. Others commissions connected with activities relating to financial instruments
69,589
68,788
of which: trading on own account
18,464
17,795
of which: individual portfolio management
51,125
50,993
b) Corporate Finance
146,974
161,718
1. Advice on mergers and acquisitions
146,974
161,718
2. Treasury services
—
—
3. Other commissions connected with corporate finance services
—
—
c) Investment advisory activities
5,034
5,411
d) Offsetting and settlement
—
—
e) Collective portfolio management
108,674
106,170
f) Custody and administration
31,079
29,529
1. Custodian bank
7,458
7,458
2. Other fees associated with custody and administration
23,621
22,071
g) Central administrative services for collective portfolio management
—
—
h) Fiduciary activities
5,648
5,587
i) Payment services
41,488
34,770
1. Current accounts
14,285
10,172
2. Credit cards
15,823
14,637
3. Debit cards and other payment cards
7,958
7,021
4. Wire transfers and payment orders
523
461
5. Other fees linked to payment services
2,899
2,479
j) Distribution of third-party services
95,961
100,021
1. Collective portfolio management
4,344
4,023
2. Insurance products
80,765
80,872
3. Other products
10,852
15,126
of which: individual portfolio management
10,724
15,107
k) Structured finance
—
—
l) Securitization servicing
526
393
m) Loan commitments
73,383
75,894
n) Financial guarantees issued
6,400
6,228
of which: credit derivatives
—
—
o) Lending transactions
20,501
16,089
of which: factoring services
18,263
13,642
p) Currency trading
119
91
q) Commodities
—
—
r) Other commission income
39,406
37,209
of which: for the management of multilateral trading facilities
—
—
of which: for the management of organized trading systems
—
—
Total
835,972
834,723
234 Consolidated financial statements as at 30 June 2023
2.2 Fee and commission expenses: composition
Services/Amounts
12 mths ended 30/6/23
12 mths ended 30/6/22
a) Financial instruments
(9,309)
(10,044)
of which: securities trading
(8,098)
(8,426)
of which: financial instruments placement
(1,187)
(1,541)
of which: individual portfolio management
(24)
(77)
- Own assets
(24)
(77)
- Under mandate to third parties
—
—
b) Offsetting and settlement
—
—
c) Collective portfolio management
(8,185)
(8,304)
1. Own instruments
—
—
2. Delegated to third parties
(2,419)
(2,842)
d) Custody and administration
(4,861)
(4,092)
e) Collection and payment services
(18,867)
(15,206)
of which: credit cards, debit cards and other payment cards
(9,730)
(7,124)
f) Securitization servicing
—
—
g) Borrowing commitments
—
—
h) Financial guarantees received
(142)
(141)
of which: credit derivatives
—
—
i) Off-site distribution of financial instruments, products, and services
(15,356)
(24,677)
j) Currency trading
—
—
k) Other commission expense
(101,285)
(104,255)
Total
(158,005)
(166,719)
SECTION 3
Heading 70: Dividends and similar income
3.1 Dividends and similar income: breakdown
12 mths ended 30/6/23
12 mths ended 30/6/22
Item / Income
Dividends
Similar income
Dividends
Similar income
A. Financial assets held for trading
62,524
24
84,439
3
B. Other financial assets mandatorily measured at fair value
—
10,654
16
26,249
C. Financial assets measured at fair value through other comprehensive income
5,556
—
7,057
—
D. Equity investments
—
—
—
—
Total
68,080
10,678
91,512
26,252
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 235
SECTION 4
Heading 80: Net trading income
4.1 Net trading income: breakdown
Transactions/Income components
Capital gains (A)
Trading income (B)
Capital losses (C)
Trading loss (D)
Net result [(A+B) - (C+D)]
1. Financial assets held for trading
177,771
628,370
(210,560)
(188,629)
406,952
1.1 Debt securities
133,244
126,308
(78,677)
(77,892)
102,983
1.2 Equity securities
44,187
499,951
(131,844)
(109,725)
302,569
1.3 UCIT units
3
2,111
(39)
(1,012)
1,063
1.4 Loans
337
—
—
—
337
1.5 Other
—
—
—
—
—
2. Trading liabilities
—
—
—
—
—
2.1 Debt securities
—
—
—
—
—
2.2 Debts
—
—
—
—
—
2.3 Other
—
—
—
—
—
3.Financial assets and liabilities: currency exchange gains/losses (1)
X
X
X
X
(14,287)
4. Derivatives instruments
2,169,201
2,215,878
(2,547,299)
(2,162,864)
(293,254)
4.1 Financial derivatives:
1,708,970
1,717,443
(2,054,607)
(1,714,865)
(311,229)
- on debt securities and interest rates
294,581
947,895
(508,183)
(962,000)
(227,707)
- on equity securities and share indexes
1,377,640
768,103
(1,517,215)
(748,074)
(119,546)
- on currencies and gold
X
X
X
X
31,830
- other
36,749
1,445
(29,209)
(4,791)
4,194
4.2 Credit derivatives
460,231
498,435
(492,692)
(447,999)
17,975
of which: natural hedges related to the fair value option
X
X
X
X
—
Total
2,346,972
2,844,248
(2,757,859)
(2,351,493)
99,411
(1) Of which €336 in negative margins on interest rate derivatives (a negative €12,178 at 30 June 2022).
236 Consolidated financial statements as at 30 June 2023
SECTION 5
Heading 90: Net hedging income (expense)
5.1 Net hedging income (expense): breakdown
Income items/Amounts
12 mths ended 30/6/23
12 mths ended 30/6/22
A. Income from:
A.1 Fair value hedging instruments
489,724
1,134,281
A.2 Hedged asset items (fair value)
145,523
108,420
A.3 Hedged liability items (fair value)
582,802
1,565,842
A.4 Cash-flow hedging derivatives
3
6
A.5 Assets and liabilities denominated in foreign currency
—
—
Total gains on hedging activities (A)
1,218,052
2,808,549
B. Charges relating to:
B.1 Fair value hedging instruments
(916,297)
(1,832,714)
B.2 Hedged asset items (fair value)
(247,748)
(927,461)
B.3 Hedged liability items (fair value)
(52,568)
(50,489)
B.4 Cash-flow hedging derivatives
—
—
B.5 Assets and liabilities denominated in foreign currency
—
—
Total charges for hedging activities (B)
(1,216,613)
(2,810,664)
C. Net gain (loss) from hedging activities (A-B)
1,439
(2,115)
of which: gain (loss) of hedges on net exposures
—
—
SECTION 6
Heading 100: Gain (loss) on disposals/repurchases
6.1 Gain (loss) on disposals/repurchases: breakdown
12 mths ended 30/6/23
12 mths ended 30/6/22 (*)
Items / Income components
Gains
Losses
Net profit (loss)
Gains
Losses
Net gain (loss)
A. Financial assets
1. Financial assets measured at amortized cost
21,308
(16,881)
4,427
18,092
(11,880)
6,212
1.1 Due from banks
1,559
(1,668)
(109)
2,009
(198)
1,811
1.2 Due from customers
19,749
(15,213)
4,536
16,083
(11,682)
4,401
2. Financial assets measured at fair value through other comprehensive income
7,117
(13,856)
(6,739)
19,959
(199)
19,760
2.1 Debt securities
7,117
(13,856)
(6,739)
19,959
(199)
19,760
2.2 Loans
—
—
—
—
—
—
Total assets (A)
28,425
(30,737)
(2,312)
38,051
(12,079)
25,972
B. Financial liabilities measured at amortized cost
—
1. Due to banks
—
—
—
—
—
—
2. Due to customers
—
—
—
—
—
—
3. Debt securities in issue
7,831
(692)
7,139
849
(1,869)
(1,020)
Total liabilities (B)
7,831
(692)
7,139
849
(1,869)
(1,020)
(*) The numbers relating to financial year 2021/2022 were reclassified following the transfer from heading 100 to Heading 80 of the banking book exchange rate valuations of securities.
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 237
SECTION 7
Heading 110: Net result of other financial assets and liabilities measured at fair value through profit or loss
7.1 Net variation in the value of other financial assets and liabilities measured at fair value through profit or loss: composition of financial assets and liabilities designated at fair value
Transactions/ Income components
Capital gains (A)
Proceeds from disposal (B)
Capital losses (C)
Losses on disposal (D)
Net result [(A+B) - (C+D)]
1. Financial assets
22,107
—
—
—
22,107
1.1 Debt securities
—
—
—
—
—
1.2 Loans
22,107
—
—
—
22,107
2. Financial liabilities
39,848
130
(24,238)
(22,526)
(6,786)
2.1 Debt securities in issue
39,848
130
(24,238)
(22,526)
(6,786)
2.2 Due to banks
—
—
—
—
—
2.3 Due to customers
—
—
—
—
—
3. Foreign-currency denominated financial assets and liabilities: exchange rate differences
X
X
X
X
(266)
Total
61,955
130
(24,238)
(22,526)
15,055
7.2 Net change in the value of other financial assets and liabilities measured at fair value through profit or loss: breakdown of other financial assets mandatorily measured at fair value
Transactions/ Income components
Capital gains (A)
Proceeds from disposal (B)
Capital losses (C)
Losses on disposal (D)
Net result [(A+B) - (C+D)]
1. Financial assets
18,073
3,520
(25,199)
(30)
(3,636)
1.1 Debt securities
338
—
(8)
—
330
1.2 Equity securities
525
—
(2,532)
—
(2,007)
1.3 UCIT units
17,210
3,520
(22,659)
(30)
(1,959)
1.4 Loans
—
—
—
—
—
2. Financial assets: currency exchange gains / losses
X
X
X
X
(1,745)
Total
18,073
3,520
(25,199)
(30)
(5,381)
238 Consolidated financial statements as at 30 June 2023
SECTION 8
Heading 130: Net write-offs (writebacks) for credit risk
8.1 Net write-offs for credit risk related to financial assets measured at amortized cost: breakdown
Write-downs (1)
Writebacks (2)
Third stage
Purchased or originated credit impaired assets
Transactions/ Income components
First stage
Second stage
Write-offs
Other
Write-offs
Other
Stage 1
Second stage
Third stage
Purchased or originated credit impaired assets
12 mths ended 30/6/23
12 mths ended 30/6/22
A. Due from banks
(104)
—
—
—
—
—
549
—
—
—
445
1,430
- Loans
(54)
—
—
—
—
—
371
—
—
—
317
1,173
- Debt securities
(50)
—
—
—
—
—
178
—
—
—
128
257
B. Due from customers
(185,775)
(209,930)
(6,163)
(319,675)
(44,980)
(86)
204,208
145,842
116,585
67,440
(232,534)
(205,307)
- Loans
(182,174)
(206,329)
(6,163)
(319,572)
(44,980)
(86)
202,128
145,842
115,796
67,440
(228,098)
(204,355)
- Debt securities
(3,601)
(3,601)
—
(103)
—
—
2,080
—
789
—
(4,436)
(952)
Total
(185,879)
(209,930)
(6,163)
(319,675)
(44,980)
(86)
204,757
145,842
116,585
67,440
(232,089)
(203,877)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 239
8.1a Net write-offs for credit risk related to financial assets measured at amortized cost for which Covid-19 related concessions have been granted: breakdown
Net loss provisions
Third stage
Purchased or originated credit impaired assets
Transactions/ Income components
First stage
Second stage
Write-offs
Other
Write-offs
Other
12 mths ended 30/6/23
12 mths ended 30/6/22
1. Loans that have received concessions in conformity with EBA Guidelines (*)
—
(2)
—
—
—
—
(2)
—
2. Loans in place subject to moratoria no longer compliant with GL and not eligible for forbearance purposes (**)
—
—
—
—
—
—
—
—
3. Loans subject to other forbearance measures
—
(71)
—
(16)
—
—
(87)
77
4. New loans
(162)
-
—
(138)
—
—
(300)
341
Total at 30 June 2023
(162)
(73)
—
(154)
—
—
(389)
X
Total at 30 June 2022
443
241
—
(266)
—
—
—
418
(*)The row headed “Loans that have received concessions in conformity with EBA Guidelines” shows information on financial assets for which moratoria have been granted under the scope of application of the “Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID 19 crisis” published by the EBA (EBA/GL/2020/02), as amended.
(**)The row headed “Loans in place subject to moratoria no longer compliant with GL and not eligible for forbearance purposes” shows information relating to financial assets subject to moratoria, in place at the reporting date, assessed as compliant with EBA/GL/2020/02 at the date on which the concession was granted and no longer compliant at the reporting date, which were not classified by the bank as “exposures subject to forbearance” following the assessment made upon the occurrence of the event that generated non-compliance with EBA/GL/2020/02.
240 Consolidated financial statements as at 30 June 2023
8.2 Net value adjustments for credit risk related to financial assets measured at fair value through other comprehensive income: breakdown
Write-downs (1)
Writebacks (2)
Total
Third stage
First stage
Purchased or originated credit impaired assets
Other
Transactions/ Income components
First stage
Second stage
Write-offs
Other
Write-offs
Other
First stage
Second stage
Third stage
Purchased or originated credit impaired assets
12 mths ended 30/6/23
12 mths ended 30/6/22
A. Debt securities
(74)
—
—
—
—
—
—
790
—
—
716
(2,305)
B. Loans
—
—
—
—
—
—
—
—
—
—
—
—
- To customers
—
—
—
—
—
—
—
—
—
—
—
—
- To banks
—
—
—
—
—
—
—
—
—
—
—
—
Total
(74)
—
—
—
—
—
—
790
—
—
716
(2,305)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 241
SECTION 9
Heading 140: Gains (losses) from contractual modifications without derecognition
9.1 Gains (losses) from contractual modifications: breakdown
This heading, which reflects a loss of €-617,000, includes the impact of modifications to contracts for financial assets which, as they do not constitute substantial modifications, under IFRS 9 and the Group’s own accounting policies, do not entail derecognition of the assets but require the modifications to the cash flows provided for contractually to be recognized in the income statement.
SECTION 10
Heading 160: Net premium income
10.1 Net premium income: breakdown
Insurance premiums
Direct business
Indirect business
12 mths ended 30/6/23
12 mths ended 30/6/22
A. Life business
A.1. Gross premiums accounted (+)
—
—
—
—
A.2. Outward reinsurance premiums (-)
—
X
—
—
A.3. Total
—
—
—
—
B. Non-life business
—
B.1. Gross premiums accounted (+)
—
33,820
33,820
32,074
B.2. Outward reinsurance premiums (-)
—
X
—
—
B.3. Change in gross value of premium reserve (+/-)
—
6,202
6,202
12,300
B.4. Change in premium reserve for premiums ceded to reinsurers (+/-)
—
—
—
—
B.5. Total
—
40,022
40,022
44,374
C. Total net premiums
—
40,022
40,022
44,374
242 Consolidated financial statements as at 30 June 2023
SECTION 11
Heading 170: Other (net) income from insurance activities
11.1 Other (net) income from insurance activities: breakdown
Items
12 mths ended
30/6/23
12 mths ended
30/6/22
1. Net change in technical reserves
—
—
2. Claims paid out during the year
(7,916)
(8,877)
3. Other income and expense from insurance operations
(2,269)
(4,039)
Total
(10,185)
(12,916)
11.3 Breakdown of sub-heading “Claims paid out during the year”
Charges for claims
12 mths ended
30/6/23
12 mths ended
30/6/22
Life-business: expense related to claims, after reinsurance ceded
A. Amounts paid out
—
—
A.1 Gross annual amount
—
—
A.2 (-) Amounts reinsured with third parties
—
—
B. Change in reserve for amounts payable
—
—
B.1 Gross annual amount
—
—
B.2 (-) Amounts reinsured with third parties
—
—
Total life-business claims
—
—
Non-life business: expense related to claims, after recoveries and reinsurance ceded
C. Amounts paid out
(7,916)
(8,927)
C.1 Gross annual amount
(7,916)
(8,927)
C.2 (-) Amounts reinsured with third parties
—
—
D. Change in recoveries after amounts ceded to reinsurers
—
—
E. Change in claims reserves
—
50
E.1 Gross annual amount
—
50
E.2 (-) Amounts reinsured with third parties
—
—
Total non-life business claims
(7,916)
(8,877)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 243
SECTION 12
Heading 190: Administrative expenses
12.1 Personnel cost: breakdown
Type of expense/Sectors
12 mths ended
30/6/23
12 mths ended
30/6/22
1) Employees:
(710,812)
(650,012)
a) wages and salaries
(526,313)
(479,587)
b) social security contributions
(112,958)
(99,771)
c) severance pay
(3,456)
(3,718)
d) social security costs
—
—
e) provisions for statutory end-of-service payments
(16,401)
(13,245)
f) provisions for retirement plans and similar provisions:
269
(219)
- defined-contribution
—
—
- defined-benefit
269(1)
(219)
g) payments to external pension funds:
(17,795)
(16,289)
- defined-contribution
(17,795)
(16,289)
- defined-benefit
—
—
h) expenses resulting from share-based payments
(11,177)
(13,266)
i) other employee benefits
(22,981)
(23,917)
2) Other staff in service
(6,514)
(6,332)
3) Directors and Statutory Auditors
(11,309)
(12,751)
4) Early retirement costs
(3,008)
(2,379)
Total
(731,643)
(671,474)
(1) This figure refers to the benefit deriving from the “curtailment cost” and the “Plan amendments” decided by Caisse Bâloise.
12.2 Average number of staff by category
12 mths ended
30/6/23
12 mths ended
30/6/22
Employees:
a) Senior executives
491
447
b) Middle managers
2,211
2,073
c) Other employees
2,330
2,324
Other staff
335
268
Total
5,367
5,112
244 Consolidated financial statements as at 30 June 2023
12.5 Other administrative expenses: breakdown
Type of income/Values
12 mths ended 30/6/23
12 mths ended 30/6/22
OTHER ADMINISTRATIVE EXPENSES
- legal, tax and professional services
(60,369)
(55,832)
- loan recovery activity
(75,941)
(73,745)
- marketing and communications
(49,157)
(42,073)
- real property expenses
(23,005)
(22,514)
- data processing
(162,180)
(151,738)
- info-providers
(54,104)
(48,925)
- bank charges, collection and payment fees
(32,889)
(31,272)
- operating expenses
(66,635)
(60,488)
- other staff expenses
(19,434)
(12,197)
- other (1)
(99,960)
(102,109)
- indirect and other taxes
(111,791)
(109,100)
Total other administrative expenses
(755,465)
(709,993)
(1) This item includes contributions to the various resolution funds: €70.4m for the year ended at 30 June 2023, and €76.6m for the year ended at 30 June 2022.
SECTION 13
Heading 200: Net transfers to provisions for risks and charges
13.1 Net transfers for credit risk related to loan commitments and financial guarantees issued: breakdown
12 mths ended 30/6/23
12 mths ended 30/6/22
Provisions
Reallocation of surplus
Total
Total
Loan commitments
(8,849)
10,409
1,560
3,067
Financial guarantees issued
(293)
915
622
66
Total
(9,142)
11,324
2,182
3,133
13.2 Net transfers related to other commitments and guarantees issued
12 mths ended 30/6/23
12 mths ended 30/6/22
Provisions
Reallocation of surplus
Total
Provisions
Reallocation of surplus
Total
Other commitments
—
825
825
—
—
—
Other guarantees issued
(873)
—
(873)
(241)
1
(240)
Total
(873)
825
(48)
(241)
1
(240)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 245
13.3 Net transfers to other provisions for risks and charges: breakdown
12 mths ended 30/6/23
Provisions
Reallocation of surplus
Total
12 mths ended 30/6/22
Total
1. Other funds
1.1 Legal disputes
—
—
—
—
1.2 Staff costs
(26,000)
—
(26,000)
(584)
1.3 Other
(25,254)
13,303
(11,951)
(9,250)
Total
(51,254)
13,303
(37,951)
(9,834)
SECTION 14
Heading 210: Net adjustments to tangible assets
14.1 Net adjustments to tangible assets: breakdown
Asset/Income component
Depreciation
(a)
Impairment losses
(b)
Write-backs
(c)
Net gain (loss)
(a + b - c)
A. Property, plant and equipment
1 Core
(60,316)
—
—
(60,316)
- Owned
(15,596)
—
—
(15,596)
- Right-of-use assets acquired under lease
(44,720)
—
—
(44,720)
2 Held for investment purposes
(1,828)
—
—
(1,828)
- Owned
(1,828)
—
—
(1,828)
- Right-of-use assets acquired under lease
-
—
—
—
3 Inventories
X
—
—
—
Total
(62,144)
—
—
(62,144)
SECTION 15
Heading 220: Net adjustments to intangible assets
15.1 Net adjustments/writebacks of intangible assets: breakdown
Asset/Income components
Depreciation
(a)
Impairment losses
(b)
Writebacks
(c)
Net gain (loss)
(a + b - c)
A. Intangible assets
of which: software
(17,018)
—
—
(17,018)
A.1 Owned
(30,192)
—
—
(30,192)
- Generated by the company internally
—
—
—
—
- Other
(30,192)
—
—
(30,192)
A.2 Right-of-use assets acquired under lease
—
—
—
—
Total
(30,192)
—
—
(30,192)
246 Consolidated financial statements as at 30 June 2023
SECTION 16
Heading 230: Other operating income (expense)
16.1 Other operating expenses: breakdown
Type of income/Values
12 mths ended
30/6/23
12 mths ended 30/6/22
a) Leasing activity
(8,797)
(8,451)
b) Sundry costs and expenses (1) (2)
(35,335)
(20,975)
Total other operating expenses
(44,132)
(29,426)
(1) This item includes the provision for the portion of ordinary and extraordinary dividends pertaining to minority interests of Messier et Associés, equal to €3.7m (€8.6m in June 2022). The extraordinary dividend component was calculated on the basis of the company’s 2022 net calendar year profits.
(2) This heading includes €20m linked to reimbursement to a client due to fraudulent action.
16.2 Other operating income: breakdown
Type of income/Values
12 mths ended
30/6/23
12 mths ended 30/6/22
a) Amounts recovered from customers
104,164
96,143
b) Leasing activity
8,096
8,251
c) Other income (1)
105,506
102,367
Total other operating income
217,766
206,761
(1) This heading includes €6,5m for indemnification on a fraud suffered by a Private client.
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 247
SECTION 17
Heading 250: Gain (loss) on equity investments
17.1 Gain (loss) on equity investments: breakdown
Income components/ Sectors
12 mths ended
30/6/23
12 mths ended
30/6/22
1) Joint venture
A. Income
—
—
1. Write-ups
—
—
2. Gains on disposal
—
—
3. Writebacks
—
—
4. Other gains
—
—
B. Expenses
—
—
1. Write-downs
—
—
2. Impairment losses
—
—
3. Losses on disposal
—
—
4. Other expenses
—
—
Net gain (loss)
—
—
2) Companies subject to significant influence
A. Income
454,912
359,322
1. Write-ups
454,912
359,322
2. Gains on disposal
—
—
3. Writebacks
—
—
4. Other gains
—
—
B. Expenses
(1,052)
(68)
1. Write-downs
(1,052)
(68)
2. Impairment losses
—
—
3. Losses on disposal
—
—
4. Other expenses
—
—
Net gain (loss)
453,860
359,254
Total
453,860
359,254
248 Consolidated financial statements as at 30 June 2023
SECTION 19
Heading 270: impairment changes to goodwill
19.1 Value adjustments to goodwill: breakdown
Income components
12 mths ended
30/6/23
12 mths ended
30/6/22
Value adjustments to goodwill
(49,536)
(3,733)
The amount for financial year 2022/2023 refers to the derecognition of the goodwill of the subsidiary RAM AI. For further information on the methods for calculating the impairment of goodwill, please refer to the content of Part A – Accounting Policies; for a description of the results of the goodwill impairment test and procedures used to carry it out, please refer to the content of Part B – Information on the consolidated balance sheet.
SECTION 20
Heading 280: Gain (loss) on disposal of investments
20.1 Gain (loss) on disposal of investments: breakdown
Income components/ Sectors
12 mths ended
30/6/23
12 mths ended
30/6/22
A. Real property
2,911
(331)
- Gains on disposal
2,911
121
- Losses on disposal
—
(452)
B. Other assets
(17,296)
7,418
- Gains on disposal
423
9,259
- Losses on disposal
(17,719)
(1,841)
Net gain (loss)
(14,385)
7,087
As at 30 June 2023, the item included the capital loss recorded following the agreement for the sale of the subsidiary Revalea S.p.A. to Banca Ifis.
As at 30 June 2022, this item included the capital gains reported by Spafid and Spafid Connect following the conclusion of negotiations for the sale of part of the issuing services branch to Euronext.
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 249
SECTION 21
Heading 300: Income tax for the year on ordinary operations
21.1 Income tax for the year on ordinary activity: breakdown
Income components/ Sectors
12 mths ended
30/6/23
12 mths ended
30/6/22
1. Current taxes (-)
(354,106)
(254,427)
2. Changes in current taxes of previous years (+/-)
3,621
(2,058)
3. Reduction in current taxes for the year (+)
570
—
3.bis Reduction in current taxes for the year due to tax credits pursuant to Law No. 214/2011 (+)
8
1,261
4. Changes in prepaid taxes (+/-)
(60,138)
2,675
5. Changes in deferred taxes (+/-)
15,300
554
6. Taxes on income for the year (-) (-1+/-2+3+3bis+/-4+/-5)
(394,745)
(251,995)
In general, for IRES (corporate income tax) purposes, the tax loss generated by a company not participating in a tax consolidation may be calculated as a decrease in the income earned in subsequent years, in an amount not exceeding 80% of the taxable income for each period. In other words, the loss incurred in a financial year will generate future tax savings which, under certain conditions, may be presented for accounting purposes through the entry of credits for deferred tax assets. Within a tax consolidation, on the other hand, the share of tax losses incurred by a member company which is covered by the income earned by the other participating companies generates an immediate tax saving, which is recognized as income by the company that contributed the loss.
The item “Current taxes” includes the allocation of the substitute tax (€19.2m) on profit reserves earned abroad (by the subsidiary CMB Monaco) and not distributed relating to the year ended in the tax period prior to the year in progress as at 1 January 2022, in compliance with the provisions of the Italian budget law for 2023 (Article 1, paragraphs 87 to 95, Law No. 197/2022).
During the year ended as at 30 June 2022, extraordinary provisions of €11.6m were set aside for contingent taxation of the potential distribution of dividends by the Group’s non-Italian Legal Entities outside the scope of the participation exemption regime. Of this amount, €9m were allocated to cover IRAP (regional tax on production activities) taxation on such items.
250 Consolidated financial statements as at 30 June 2023
21.2 Reconciliation between theoretical and effective tax burden
12 mths ended 30/6/23
Value in %
Absolute value
Total profit or loss before tax
100.–%
1,424,575
Theoretical tax rate
27.50%
391,758
Dividends (-)
0.31%
4,345
Gains on equity-accounted investments (-)
-7.68%
(109,412)
Other tax rates (non-financial and non-Italian companies) (+/-)
0.17%
2,412
Non-taxable income 10% IRAP and staff cost (-)
-0.05%
(646)
Impairment (+/–)
1.09%
15,544
Release of CMB reserves under Article 1 of Law No. 197/2022
1.35%
19,200
Other changes (+/-)
-0.25%
(3,496)
TOTAL IRES
22.44%
319,705
IRAP
5.27%
75,040
TOTAL HEADING (¹)
27.71%
394,745
(1) Compared with a tax rate of 25.14% in the previous year.
SECTION 23
Heading 340: Net profit (loss) attributable to minority interests
23.1 Breakdown of Heading 340, “Net profit (loss) for the year attributable to minority interests”
Company name
12 mths ended
30/6/23
12 mths ended
30/6/22
1. SelmaBipiemme S.p.A.
(2,140)
(1,810)
2. RAM Active Investments S.A.
101
85
3. Polus Capital Group Ltd.
(995)
(952)
Total
(3,034)
(2,677)
Notes to the Accounts | Part C - Notes to the Consolidated Income Statement 251
SECTION 25
Earnings per share (*)
25.1 Average number of ordinary shares on a diluted basis
12 mths ended
30/6/23
12 mths ended
30/6/22
Net profit
1,026,796
906,977
Average number of shares in issue
840,761,242
838,844,304
Average number of potentially diluted shares
4,561,321
4,131,090(1)
Average number of diluted shares
845,322,563
842,975,394
Earnings per share
1.22
1.08
Earnings per share, diluted
1.21
1.08
(1) The number of shares in issue at 30 June 2022 takes into account the shares repurchased under the buyback plan.
(*) For management purposes, as published in the Press Release and in the “excel divisional” document available on the website www.mediobanca.com, the so-called normalized EPS calculated on profit adjusted for non-operating/non-recurring items and applying a normalized tax rate amounted to 1.42 (1.12 as at 30 June 2022).
252 Consolidated financial statements as at 30 June 2023
Part D – Consolidated comprehensive income
Breakdown of comprehensive profit income constituencies
Items
30 June 2023
Net amount
30 June 2022
Net amount
10.
Net profit (loss) of the year
1,029,830
909,654
Other comprehensive income not reclassified through profit or loss
20.
Equity instruments designated at fair value through other comprehensive income:
18,906
37,918
a) fair value changes
(43,652)
36,871
b) transfers to other net equity items
62,558
1,047
30.
Financial liabilities measured at fair value through profit or loss (own creditworthiness changes):
(6,636)
4,425
a) fair value changes
(6,636)
7,243
b) transfers to other shareholders’ equity items
—
(2,818)
40.
Hedge accounting of equity instruments measured at fair value through other comprehensive income:
—
—
a) fair value change (hedged instrument)
—
—
b) fair value change (hedging instrument)
—
—
50.
Tangible assets
—
—
60.
Intangible assets
—
—
70.
Defined benefit plans
1,012
4,718
80.
Non-current assets and disposal groups classified as held for sale
—
—
90.
Valuation reserves from equity-accounted investments:
46,091
51,126
100.
Tax expenses (income) relating to items not reclassified to profit or loss
—
—
Other income items passing through P&L
110.
Hedges of non-Italian investments:
319
(10,606)
a) fair value changes
319
(10,606)
b) reclassification through profit or loss
—
—
c) other changes
—
—
120.
Currency exchange gains/losses:
1,172
8,156
a) value changes
—
—
b) reclassification through profit or loss
—
—
c) other changes
1,172
8,156
130.
Cash flow hedging:
96,448
193,621
a) fair value changes
96,448
193,621
b) reclassification through profit or loss
—
—
c) other changes
—
—
of which: income of net position
—
—
140.
Hedging instruments (not designated items):
—
—
a) value changes
—
—
b) reclassification through profit or loss
—
—
c) other changes
—
—
150.
Financial assets (other than equity instruments) measured at fair value through other comprehensive income:
(8,210)
(89,644)
a) fair value changes
(10,584)
(78,161)
b) reclassification through profit or loss
2,374
(11,483)
- credit risk adjustments
(480)
1,542
- gains/losses on disposals
2,854
(13,025)
c) other changes
—
—
160.
Assets held for sale
—
—
a) fair value changes
—
—
b) reclassification through profit or loss
—
—
c) other changes
—
—
170.
Valuation reserves from equity-accounted investments
(457,415)
(698,007)
a) fair value changes
—
—
b) reclassification through profit or loss
—
—
- impairment losses
—
—
- gains/losses on disposals
—
—
c) other changes
(457,415)
(698,007)
180.
Income tax relating to other income items reclassified through profit or loss
—
—
190.
Total other comprehensive income
(308,313)
(498,293)
200.
Other comprehensive income (Item 10+190)
721,517
411,361
210.
Consolidated comprehensive income attributable to minority interests
3,628
3,793
220.
Consolidated comprehensive income attributable to the parent company
717,889
407,568
Notes to the Accounts | Part E – Information on risks and related hedging policies 253
Part E – Information on risks and related hedging policies
INTRODUCTION
As part of the Group’s risks governance process, a key role is played by the Risk Management unit, which identifies, measures and monitors all the risks to which the Banking Group 66 (or, the “Group”) is exposed, and manages and mitigates them in co-ordination with the various business areas. The unit’s main duties and responsibilities are described below, along with its characteristics in terms of independence, plus an indication of the role of the other company units in risk management.
For the qualitative disclosure, please refer to Section 2 - Prudential Consolidation Risks.
SECTION 1
Consolidated accounting risks
The accounting consolidation area includes the line-by-line consolidation of controlled entities Compass RE (reinsurance), Compass Rent, RAM UK, and MBContact Solutions (other companies), which under the banking group method of consolidation are accounted under the equity method.
66 The following subsidiaries of the Group’s legal entities are excluded from the prudential scope of application: Compass RE (reinsurance), Compass Rent, MBContact Solutions, and RAM UK (other companies).
254 Consolidated financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
A. Credit quality
A.1 Non-performing and performing accounts: amounts, adjustments, trends and segmentation by earnings
A.1.1 Financial assets by portfolio and credit quality (book value)
Portfolio/quality
Bad loans
Unlikely to pay
Overdue exposures (NPLs)
Overdue performing exposures
Other performing exposures
Total
1.
Financial assets measured at amortized cost
41,256
211,024
117,421
244,388
61,941,620
62,555,709
2.
Financial assets measured at fair value through other comprehensive income
—
—
—
—
5,801,120
5,801,120
3.
Financial assets designated at fair value
—
—
—
—
538,590
538,590
4.
Other financial assets mandatorily measured at fair value
—
4,689
—
—
1,997
6,686
5.
Financial assets held for sale (*)
238,455
378
—
—
—
238,833
Total 30/6/23
279,711
216,091
117,421
244,388
68,283,327
69,140,938
Total 30/6/22
402,779
248,095
84,146
198,303
64,284,609
65,217,932
(*) This includes the NPLs acquired by Revalea in an amount of €236.8m, €238.5m of which bad loans (net values).
Overdue performing loans concern overdue performing loans and mainly refer to factoring (€60.6m, 0.1% of total performing loans of the segment) and mortgage loans (€59.1m, i.e. 0.1%). The item also includes net exposures being renegotiated under the terms of collective agreements amounting to €108.1m, consisting primarily of mortgage loans totalling €106.5m. Of the overdue performing loans, the instalments actually unpaid stood at 22% (gross value of €66.2m).
Notes to the Accounts | Part E – Information on risks and related hedging policies 255
A.1.2 Financial assets by portfolio/credit quality (gross/net values)
Non-performing
Performing
Portfolio/quality
Gross exposure
Overall value adjustments
Net exposure
Overall partial write-offs*
Gross exposure
Overall value adjustments
Net exposure
Total (Net exposure)
1.
Financial assets measured at amortized cost
1,328,389
(958,688)
369,701
3,662
62,899,997
(713,989)
62,186,008
62,555,709
2.
Financial assets measured at fair value through other comprehensive income
—
—
—
—
5,809,042
(7,922)
5,801,120
5,801,120
3.
Financial assets designated at fair value
—
—
—
—
X
X
538,590
538,590
4.
Other financial assets mandatorily measured at fair value
11,325
(6,636)
4,689
—
X
X
1,997
6,686
5.
Financial assets held for sale
242,354
(3,521)
238,833
—
—
—
—
238,833
Total 30/6/23
1,582,068
(968,845)
613,223
3,662
68,709,039
(721,911)
68,527,715
69,140,938
Total 30/6/22
1,688,411
(953,391)
735,020
4,307
64,668,553
(703,347)
64,482,912
65,217,932
Assets with obviously poor credit quality
Other assets
Portfolio/quality
Accumulated capital losses
Net exposure
Net exposure
1. Financial assets held for trading
—
—
9,428,794
2. Hedging derivatives
—
—
243,217
Total 30/6/23
—
—
9,672,011
Total 30/6/22
—
—
8,270,450
Net non-performing assets include €238.8m held by Revalea (purchases of Non-Performing Loans) corresponding to a nominal value of €6.5bn at 30 June 2023; of these €4.6m, for a nominal value of €371.5m, relate to assets (essentially Consumer Banking) purchased from other Group companies. It should be noted that, as stated in Part A of the Notes to the accounts, the agreement for the sale of Revalea to Banca Ifis was signed recently. Its assets therefore fall under assets held for sale based on the provisions of IFRS 5 and were stated under Heading “5. Financial assets held for sale”.
256 Consolidated financial statements as at 30 June 2023
Information on sovereign debt exposures
A.1.2a Exposures to sovereign debt securities by state, counterparty and portfolio (*)
Non-performing
Performing
Portfolio/quality
Gross exposure
Individual adjustments
Collective adjustments
Net exposure
Gross exposure
Collective adjustments
Net exposure
Total net exposure (1)
1. Financial assets held for trading
—
—
—
—
X
X
(917,768)
(917,768)
France
—
—
—
—
X
X
74,208
74,208
Germany
—
—
—
—
X
X
—
—
Italy
—
—
—
—
X
X
(447,179)
(447,179)
Belgium
—
—
—
—
X
X
(712,776)
(712,776)
Other
—
—
—
—
X
X
167,979
167,979
2. Financial assets measured at fair value through other comprehensive income
—
—
—
—
4,548,276
—
4,548,276
4,548,276
Italy
—
—
—
—
3,019,973
—
3,019,973
3,019,973
Germany
—
—
—
—
266,821
—
266,821
266,821
United States
—
—
—
—
779,543
—
779,543
779,543
Spain
292,899
292,899
292,899
Other
—
—
—
—
189,040
—
189,040
189,040
3. Financial assets measured at amortized cost
—
—
—
—
3,389,278
—
3,389,278
3,389,278
Italy
—
—
—
—
2,111,125
—
2,111,125
2,111,125
Germany
—
—
—
—
443,361
—
443,361
443,361
United States
—
—
—
—
399,705
—
399,705
399,705
France
—
—
—
—
402,986
—
402,986
402,986
Other
—
—
—
—
32,101
—
32,101
32,101
Total 30/6/23
—
—
—
—
7,937,554
—
7,019,786
7,019,786
(*) This does not include financial or credit derivatives.
(¹) The net exposure includes positions in securities (long and short) measured at fair value (including the outstanding accrual) except for assets held to maturity which are measured at amortized cost, whose implied fair value is €-74m.
Notes to the Accounts | Part E – Information on risks and related hedging policies 257
A.1.2b Exposures to sovereign debt securities by portfolio of financial assets (*)
Trading Book (1)
Banking Book (2)
Portfolio/quality
Nominal Value
Book value
Duration
Nominal Value
Book value
Fair value
Duration
Italy
21,340
74,208
2.30
5,256,719
5,131,098
5,092,855
3.24
United States
—
—
—
750,046
710,182
699,516
1.38
Germany
(475,090)
(447,179)
4.13
1,195,000
1,179,248
1,169,294
0.72
France
(701,225)
(712,776)
0.81
710,400
695,885
682,641
1.21
Other
179,846
167,979
—
224,000
221,142
219,322
—
Total 30/6/23
(975,129)
(917,768)
8,136,165
7,937,555
7,863,628
(*)This figure does not include forward sales with a notional amount of €278m.
(¹) This item does not include sales on the Bund/Bobl/Schatz future (Germany) for €215m (with a positive fair value of €0.6m) and sales on the BTP future (Italy) for €464m (with a negative fair value of €0.6m); moreover, net hedging purchases of €667m, €318m of which attributable to France country risk and €370m of which to Germany country risk, were not counted.
(²) This item does not include the instrument linked to the appreciation of Greek GDP (referred to as “GDP Linkers Securities”) with a notional value of €127m.
B. Information on structured entities
In accordance with the provisions of IFRS 12, the Group treats the entities it sets up in order to achieve a limited or well-defined objective regulated by contractual agreements that often impose narrow restrictions on the decision-making powers of its governing bodies as structured entities (i.e. special purpose vehicles, SPV, or special purpose entities, SPE). Such entities are structured to ensure that the voting rights (or similar) are not the main factor in establishing who controls them (the relevant activities are often governed by contractual agreements agreed when the entity itself is structured and are therefore difficult to change).
B.1 Consolidated structured entities
As stated in Part A – Section 3 of the Notes to the Accounts, the securitization SPVs instituted pursuant to Italian law 130/99, namely Quarzo S.r.l., Quarzo CQS S.r.l. and MB Funding Lux S.A., a company incorporated under Luxembourg law and 100%-owned by Mediobanca S.p.A., are included in the Group’s area of consolidation.
258 Consolidated financial statements as at 30 June 2023
B.2 Structured entities not consolidated in accounting terms
The Group has no other interests in the capital of structured entities to report, apart from the stock units held in UCITs in connection with its activities as sponsor (CheBanca!, CMB Monaco, Polus Capital Management and RAM Active Investments) and as investor in funds promoted by Mediobanca S.p.A., which include Seed Capital activities for funds managed by Group companies (Polus Capital Management, Mediobanca SGR and RAM Active Investments).
B.2.1 Structured entities consolidated prudentially
As at 30 June 2023 there was no disclosure to be made as no instances of this type of interest apply.
B.2.2 Other structured entities
QUALITATIVE INFORMATION
The Group’s operations are performed through special purpose vehicles (SPVs), as follows:
UCITS
With regard to RAM Active Investments SA funds, the Parent Company subscribed to investments for a NAV of €149.4m, namely RAM Global Sustainable Income Equities (€14.1m), RAM Stable Climate Global Equities (€30.3m), RAM Global Multi-Asset (€36.4m), RAM Asia Bond Total Return (€16m), Palladium FCP - RAM Mediobanca Strata UCITS Credit (€52.6m); all of the above investments are UCITS established under Luxembourg law with a NAV calculated daily, to which direct investments of €3m should be added.
With regard to Polus Capital Management, the Parent Company subscribed to investments for a NAV of €163.3m, namely: Polus European Loan Fund (€108.5m), direct investments for €3.7m in addition to €51.1m invested in the CLO special purpose vehicles called CLI Holdings I (€12.5m) and CLI Holdings II (€38.6m), the latter recognized by the Parent Company using the equity method (IAS 28) due to
Notes to the Accounts | Part E – Information on risks and related hedging policies 259
holding a stake higher than 35% and to its status as Qualifying Noteholder.
With regard to funds managed by Mediobanca SGR and Mediobanca Management Company, the Group subscribed to investments for a total NAV of €38.4m, of which €13.4m subscribed by the Parent Company in the funds Mediobanca Fondo per le Imprese II (€1.6m), Mediobanca Euro High Yield (€4.1m) and Mediobanca Social Impact (€7.7m); to these €24.9m subscribed by CheBanca! as part of the distribution business and relating to Mediobanca MFS Prudent Capital Euro Hedged (€2.3m), Mediobanca Global Multimanager 15 (€6.1m), Palladium Protetto (€1.5m) and the new Mediobanca Morgan Stanley funds Step ES and Mediobanca Fidelity World (€5m and €10m respectively) should be added.
CMB Monaco has placed six segments of CMB Global Lux (a company authorized under Luxembourg law) with its clients; the SICAV is managed by CMB Monaco itself, while the management and custody of the funds is the responsibility respectively of its subsidiary CMG Monaco and CACEIS Luxembourg. As at 30 June 2023, the Parent Company held no investment in the segments referred to above.
Mediobanca also invests in the Negentropy RAIF fund, an alternative investment fund incorporated under Luxembourg law managed by Negentropy Capital Partners Limited, with an investment of €64.1m.
The process of delegating and sub-delegating investment activities, along with the broad powers of discretion afforded to delegates and the temporary nature of the investments mean that the ability to impact on returns stipulated by IFRS 10 as a precondition for establishing control of SICAVs does not apply in these cases; hence Mediobanca does not have direct control.
Asset-backed SPEs
The entities in this case have been set up to acquire, build or manage physical or financial assets, for which the prospect of recovering the credit concerned depends largely on the cash flows to be generated by the assets.
As part of its ordinary lending operations, the Group finances asset-backed SPEs but without holding any form of direct equity stake or interest in them, hence this does not qualify as acting as sponsor.
Hold to Collect lending transactions, recorded under asset Heading 40,
260 Consolidated financial statements as at 30 June 2023
“Financial assets measured at amortized cost – due from customers: composition”, in which the Group is the sole lender, involve an amount of €539m.
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QUANTITATIVE INFORMATION
Balance-sheet item/SPE type
Accounted for under asset heading
Total assets(A)
Accounted for under liability heading
Total liabilities(B)
Net asset value (NAV)(C=A-B)
Maximum exposure to risk of loss(D)
Difference between exposure to risk of loss and NAV(E=D-C)
Mediobanca Global Multimanager 15
Financial assets mandatorily measured at fair value
6,150
—
—
6,150
6,150
—
Mediobanca MFS Prudent Capital Euro Hedged
Financial assets mandatorily measured at fair value
2,267
—
—
2,267
2,267
—
Palladium Protetto
Financial assets mandatorily measured at fair value
1,478
—
—
1,478
1,478
—
Mediobanca Morgan Stanley Step ES
Financial assets mandatorily measured at fair value
5,045
—
—
5,045
5,045
—
Mediobanca Fidelity World
Financial assets mandatorily measured at fair value
10,000
—
—
10,000
10,000
—
CMG Funds
Financial assets mandatorily measured at fair value
45
—
—
45
45
—
Polus European Loan Fund
Financial assets mandatorily measured at fair value
108,462
—
—
108,462
108,462
—
CLI Holdings I
Financial assets mandatorily measured at fair value
12,452
—
—
12,452
12,452
—
CLI Holdings II
Investments measured using the Equity Method under IAS 28
38,624
—
—
38,624
38,624
—
Other Polus Funds
Financial assets mandatorily measured at fair value
3,729
—
—
3,729
3,729
—
Palladium FCP - RAM Mediobanca Strata UCITS Credit Fund
Financial assets mandatorily measured at fair value
52,564
—
—
52,564
52,564
—
RAM - Asia Bond Total Return
Financial assets mandatorily measured at fair value
16,004
—
—
16,004
16,004
—
RAM - Global Sustainable Income Equities
Financial assets mandatorily measured at fair value
14,105
—
—
14,105
14,105
—
RAM - Global Multi-Asset
Financial assets mandatorily measured at fair value
36,412
—
—
36,412
36,412
—
RAM Stable Climate Global Equities
Financial assets mandatorily measured at fair value
30,283
—
—
30,283
30,283
—
Mediobanca Funds
Financial assets held for trading
230
—
—
230
230
—
Mediobanca Social Impact
Financial assets mandatorily measured at fair value
7,657
—
—
7,657
7,657
—
Mediobanca Fondo per le Imprese II
Financial assets mandatorily measured at fair value
1,643
—
—
1,643
1,643
—
Mediobanca Euro High Yield
Financial assets mandatorily measured at fair value
4,134
—
—
4,134
4,134
—
Negentropy RAIF Fund
Financial assets mandatorily measured at fair value
64,067
—
—
64,067
64,067
—
Asset-backed SPEs
Financial assets at amortized cost
538,926
—
—
538,926
538,926
—
262 Consolidated financial statements as at 30 June 2023
B.2 Leveraged finance transactions
The scope of Leveraged Transactions, according to the ECB definition confirmed in the letter to the system of July 2022, concerned exposures to counterparties with sub-investment grade ratings and:
⎯whose ratio between the total committed gross debt and EBITDA, at the time of disbursement, was 4 times higher (if it is 6 times higher, the transactions would be classified as “Highly Leveraged Transactions”), or;
⎯Group Legal Entities (with more than 50% of the share capital owned or possessed) by a financial sponsor.
Based on the instructions of the ECB,67 exposures to Holding and Margin Loans (about €1bn last June), whose transactions were characterized by a high degree of guarantee coverage with a low Loan to Value were not included.
At 30 June 2023, the total exposure of Leveraged Transactions amounted to €3,453m,68 a decrease of 1% on the previous year (from €3,471m to €4,486m including Holding and Margin Loans) representing 20% of the total loan portfolio, i.e. approximately 7% of the Group’s RWA.
The portion of “Highly Leveraged Transactions” (HLT) amounted to €1,106m, representing 32% of the total Leveraged Portfolio, down by 26% compared to June 2022 (€1,490m); the exposure in “Pure LBOs” remained contained (€219m, down 22% compared to last June). The NPL portion fell by 15%, from €131m to €112m, following the reclassification of a UTP position as performing.
The leveraged exposure is mainly related to the Corporate (73%) and Infrastructure (16%) categories.
During the financial year, overall new loans of €890m were recorded, offsetting terminations of €888m, and net repayments on revolving lines of €93m. Exits from the Leveraged scope due to an improvement in the classification parameters amounted to €40m.
67 However, starting from July 2023, the ECB stated the need to include the Holding and Margin Loan categories in the scope of Leveraged Finance, unchanged in June 2023, at around €1bn (€989m disbursed and €1,007m committed, including off balance).
68 To which off-balance sheet exposures (commitments and derivatives) of €1,026m should be added (down 46% compared to 30 June last, which included a transaction with a significant ticket disbursed in July and now merged into the Corporate segment).
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SECTION 2
Prudential consolidation risk (*)
1.1 CREDIT RISK
QUALITATIVE INFORMATION
Although risk management is the responsibility of each individual business unit, the Risk Management Unit presides over the functioning of the Group’s risk system, defining the appropriate global methodologies for measuring risks, current and future, in conformity with the regulatory requirements and the Group’s own operating choices identified in the RAF,69 monitoring risks, and ascertaining that the various limits established for the various business lines are complied with.
Risk Management is organized around local teams based at the various Group companies, in accordance with the principle of proportionality, under the co-ordination of the Risk Management unit at Parent Company Mediobanca S.p.A. (the “Group Risk Management Unit”), which also performs specific activities for the Parent Company scope of risk, in the same way that the local teams do for their own companies. The Group Risk Management unit, which directly reports to the Chief Executive Officer, under the direction of the Group Chief Risk Officer, comprises the following organizational units: i) Supervisory Relations & Risk Governance, which manages relations with the Supervisory Authorities; ii) Enterprise Risk Management, which carries out the Group’s integrated processes (ICAAP, RAF, Recovery Plan, planning support); iii) Quantitative Risk Methodologies, responsible for the development of quantitative methodologies for measuring and managing credit risk; iv) Credit Risk Management, which is responsible for carrying out credit risk analysis, assigning the internal rating to counterparties and the loss-given default indicator in the event of insolvency; v) Market Risk Management and Transformation, which is in charge of monitoring market and counterparty risks and developing, coordinating, streamlining and harmonizing the evolution of information technology within Risk Management; vi) Asset and Liability Risk Management, which is in charge of monitoring the Banking Book liquidity and interest rate risks; vii) Non-Financial Risk Management, responsible for overseeing Operational Risks and risks associated with the distribution of investment products and services to
(*) The prudential consolidation scope does not include the companies Compass RE, Compass Rent, MBContact Solutions, and RAM UK.
69 On 27 June 2023, the Board of Directors approved the Policy update on the definition of Risk Appetite and calibration of the risk appetite statement (RAS). In this Framework, based on the strategic plan and the maximum tolerable risk, the Group defines the level and type of risks which the Bank intends to assume, plus any objectives, tolerance thresholds and operating limits to be complied with under normal operating and stress conditions.
264 Consolidated financial statements as at 30 June 2023
customers; viii) Internal & Validation Control, which defines the methodologies, processes, tools and reporting used in internal validation activities, carries out the validation of the Group’s risk measurement systems, and defines and carries out control activities concerning the Parent Company’s main credit processes.
With reference to the authorization process to use AIRB models in order to calculate the regulatory capital requirements for credit risk, the Group has been authorized by the supervisory authorities to calculate its capital requirements using its own internal rating system (based on the Probability of Default and Loss Given Default indicators) for the Mediobanca and Mediobanca International corporate loan books and for the CheBanca! Italian mortgage loan book. As an integral part of this process, in accordance with the regulatory provisions in force on prudential requirements for credit institutions (Regulation (EU) No. 575/2013 of the European Parliament and of the Council, as amended – the “CRR”), the Group has compiled a roll-out plan for the gradual adoption of the internal models for the various credit exposures (the “Roll-Out Plan”). The next step in the extension of the portfolio covered by IRB models will be attributable to Compass, which received the ECB authorization to use its rating system for consumer exposures starting from the quarterly reporting of 30 September 2023. The development of the model applicable to Corporate exposures relating to the factoring activities of MBFACTA is also in progress. The related Application Package is expected to be submitted by the end of 2023. For the exposures, for which the standardized methodology is used to calculate the regulatory capital requirements, the Group has nonetheless developed internal credit risk models that are used for management purposes.
The Group has also adopted a portfolio model in order to calculate the economic capital for credit risk, which enables geographical and sector concentration and diversification effects to be factored in.
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Impacts deriving from the war in Ukraine
The Group’s portfolio does not show significant direct credit exposures to the Russian Federation, Ukraine and Belarus.
Exposures in place as at 30 June 2023 concerned approximately €12m in Corporate and Investment Banking (down from €28m last year), €307m in private loans (€240m) and €92m in retail (basically unchanged).
The CIB direct exposure was provided by Mediobanca International and is classified at Stage 2 but is covered by insurance (Sace).
Private Banking exposures concern 57 households of CMB Monaco customers of Russian or Ukrainian nationality, most of whom reside in Europe or in any case abroad (only 6 households of persons residing in the Russian Federation remain for €12.3m); however, these are largely loans secured by prestigious properties in the Monaco – Côte d’Azur area and/or by financial instruments deposited with the Bank (sureties altogether established on such exposures entail a limited Loan to Value, under 40%).
Retail Banking exposures concerned Compass clients (€61.8m) and CheBanca! clients (€30m), classified according to their Russian and Ukrainian nationality, even though residing in Italy in nearly all cases.
266 Consolidated financial statements as at 30 June 2023
2. Credit risk management policies
2.1 Organizational aspects
The Group has adopted a risk governance and control system structured across a variety of organizational units involved in the process, ensuring that all relevant risks to which the Group is or might be exposed are managed effectively, and at the same time guaranteeing that all forms of operations are consistent with their own risk appetite.
The Board of Directors, in view in particular of its role of strategic supervision, is responsible for approving strategic guidelines and directions of the Risk Appetite Framework (RAF), the adoption of Internal Rating Systems (IRB) at the Parent Company level and the Roll-Out Plan for gradually extending the IRB approach across the whole Group, business and financial plans, budgets, risk management and internal control policies, and the Recovery Plan drawn up in accordance with the provisions of the Bank Recovery and Resolution Directive (Directive 2014/59/EU).
The Executive Committee is responsible for the ordinary management of the Bank and for co-ordination and management of the Group companies, without prejudice to the matters for which the Board of Directors has sole jurisdiction. The Risk Committee assists the Board of Directors in performing monitoring and instruction duties in respect of the internal controls, risk management, and accounting and IT systems. The Statutory Audit Committee supervises the risk management and control system as defined by the RAF and the internal controls system generally, assessing the effectiveness of the structures and units involved in the process and coordinating them.
As part of the Parent company’s risk governance system, the following managerial committees have specific responsibilities in the processes of taking, managing, measuring and controlling risks: Group Risk Management Committee, responsible for issuing guidance at the Group level in respect of all risks, responsible for investigating proposals addressed to the Risk Committee and to the Board of Directors, and with powers of approval on market risks; Lending and Underwriting Committee, with decision-making powers over credit, counterparty and issuer risks; New Operations Committee, for the preventive evaluation of new activities and approval of the entry into new sectors, new products and related pricing models.
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2.2 Management, measurement and control systems
In the process of defining its Risk Appetite Framework (“RAF”), Mediobanca has determined the level of risk (overall and by individual type) which it intends to assume in order to pursue its own strategic objectives, and has identified the metrics to monitor and the relevant tolerance thresholds and risk limits. The RAF is the framework which links risks to the company’s strategy (translating mission and strategy into qualitative and quantitative risk variables) and risk objectives to the company’s operations (translating risk objectives into limits and incentives for each area).
As required by the prudential regulations, the formalization of risk objectives, through definition of the RAF, which are consistent with the maximum risk that can be taken, the business model and strategic guidance is a key factor in establishing a risk governance policy and internal controls system with the objective of enhancing the bank’s capability in terms of governing its own company risks, and also ensuring sustainable growth over the medium and long term. In this connection, the Group has developed a Risk Appetite Framework governance model which identifies the roles and responsibilities of the corporate bodies and units involved, with co-ordination mechanisms instituted to ensure the risk appetite is suitably incorporated into the management processes.
In the process of defining its Risk Appetite, the Parent Company:
⎯identifies the risks which it is willing to assume;
⎯defines, for each risk, the objectives and limits in normal and stressed conditions;
⎯identifies the action necessary to bring the risk back within the set objective.
To define the RAF, based on the strategic positioning and risk profile set by the Group as its objective, the Risk Appetite statement is structured into metrics and risk thresholds, to be identified with reference to the following framework risk pillars, in line with best international practice: capital adequacy, liquidity and funding adequacy, profitability, external risk metrics, bank-specific factors and non-financial risks. The Board of Directors has a proactive role in defining the RAF, guaranteeing that the expected risk profile is consistent with the Strategic Plan, budget, ICAAP and Recovery Plan, and structured into adequate and effective metrics and limits. For each pillar analysed, the risk assumed is set against a system of objectives and limits representative of the regulatory restrictions and the Group’s
268 Consolidated financial statements as at 30 June 2023
general attitude towards risk, as defined in accordance with the strategic planning, the internal capital adequacy assessment process ICAAP and risk management processes.
In addition to identifying and setting the risk appetite parameters, the Bank also governs the mechanisms regulating the governance and processes for establishing and implementing the RAF, in terms of updating/reviewing, monitoring, and reporting to the Committees and corporate bodies. Based on its operations and the markets in which it operates, the Group has identified the relevant risks to be submitted to specific assessment in the course of the reporting for the ICAAP (Internal Capital Adequacy Assessment Process),70 appraising its own capital adequacy from both a present and future perspective which takes into account the strategies and development of the reference scenario. As required by the provisions of the Capital Requirements Directive IV (“CRD IV”), the Group prepares an Internal Liquidity Adequacy Assessment Process document (ILAAP), describing the set of policies, processes and instruments put in place to govern liquidity and funding risks. The Group’s objective is to maintain a level of liquidity that enables it to meet ordinary and extraordinary payment obligations, while minimizing costs at the same time. The Group’s liquidity management strategy is based on the desire to maintain an appropriate balance between potential inflows and potential outflows, in the short and the medium/long term, by monitoring both regulatory and management metrics, in accordance with the risk profile defined as part of the RAF.
2.3 Methods for measuring expected losses
Under IFRS 9 “Financial Instruments”, assets not measured at fair value on a regular basis (i.e. financial assets and liabilities measured at amortized cost and off-balance sheet exposures) must be tested for impairment based on expected losses.
The internal rating models are the baseline instrument for determining the risk parameters to be used in calculating expected losses, subject to the regulatory indicators being adjusted for aspects which are not suitable to be used directly in an accounting environment (e.g. in some cases reconverting the data to reflect a “point-in-time” approach). Under IFRS 9, expected losses are calculated as the product of the PD, LGD and EAD metrics. This calculation takes place on the basis of the residual life of instruments that have undergone a significant deterioration in risk
70 In line with the provisions of the Bank of Italy contained in Circular No. 285 "Supervisory instructions for banks" of 17 December 2013 and subsequent updates.
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(referred to as “Stage 2”) or which show objective signs of deterioration (“Stage 3”) and over a 12-month horizon for instruments that do not fall within the previous categories (“Stage 1”). For off-balance sheet exposures, credit conversion factors arising from internal models are used to calculate expected losses; if there are no specific models, the factors associated with the standard EAD calculation are used.
The Group adopts qualitative and quantitative criteria to establish whether there has been a significant increase in credit risk, using backstop indicators, such as accounts which are thirty or more days overdue or have been classified as forborne, to assess whether or not they should be treated as Stage 2. Cases of low-risk instruments at the recording date are identified, compatible with classification as Stage 1 (low credit risk exemption), where there is a BBB- rating on the Standard & Poor’s scale, or a corresponding internal PD estimate.
Consistent with the options granted by IFRS 9, a change in forward-looking twelve-month PD is used as the benchmark quantitative metric for measuring the Significant Increase in Credit Risk (SICR) for the purpose of identifying positions to be classified as Stage 2. The Group verifies whether the 12-month PD represents a reasonable approximation of risk increases on a lifetime basis.71 The change in PD selected to determine reclassification to Stage 2, and the qualitative elements observed, are specific to each Group company.
Provisioning reflects the sum of the expected credit losses (over a time horizon of twelve months or based on a lifetime approach 72 depending on the relevant Stage), discounted at the effective interest rate. The expected credit loss is the result of a joint assessment of three scenarios, a baseline scenario and two alternative scenarios. The scenarios, drawn up at Group level, are revised at least once every six months. In particular, the Group defines the forecasts of scenarios by processing the economic variables through customizations obtained through an external macroeconomic model, as specified in paragraph 6.
The weights of the scenarios used in calculating ECL were set at 50% for the
71 During 2022, the Supervisory Authority conducted a specific assessment of the Parent Company’s Corporate portfolio by analysing, among other things, quantitative aspects relating to the IFRS 9 scope. Based on the findings of the above analysis, the methodological approach is currently being perfected for the purpose of refining the "Low Credit risk Exemption" criteria and moving towards a life-time approach for the evaluation of SICR. The new features identified will be progressively introduced over the course of the next financial year.
72 The lifetime approach considers the contractual expiry of the exposure where possible. For products which do not have a contractual expiry date (e.g. credit cards, bill repayment plans, cancellable credit lines, current accounts or overdrafts on current account), the calculation is made over a 12-month time horizon.
270 Consolidated financial statements as at 30 June 2023
baseline scenario and 25% for the alternative ones; the values were quantified in detail on the basis of historical analyses.
In light of the main assumptions characterizing the base case scenario relating to a level of inflation that will remain steadily very high, and in consideration of the fact that the impact will be distributed in a different way across the various product categories, the Mediobanca Group, confirming the decision taken in the previous financial year, decided to adopt additional provisions (“overlays”). Unlike the previous financial year, which was mainly characterized by the effects of the continuation of the pandemic, the current overlays have been applied in the Corporate division (including Factoring and Leasing) concerning sectors particularly exposed to inflationary pressure in order to enhance any risk peaks in specific industrial sectors that the quantitative methodology captures only on average. Overlays on retail positions (Consumer Banking and mortgage loans) were maintained against the uncertainties of the macroeconomic scenario, as done in the previous financial year.
With regard to the calculation of ECLs, sensitivity analyses were also carried out with respect to possible alternative macroeconomic scenarios in order to assess how the forward-looking factors could affect expected losses in different scenarios based on consistent forecasts during the evolution of the various macroeconomic factors. The number of possible interrelations between the individual macroeconomic factors is so high that a sensitivity analysis of expected losses based on one factor alone is practically meaningless. In particular, the impact, in terms of ECLs, resulting from applying the risk parameters obtained respectively through the adoption of a baseline scenario and two alternative scenarios, mild-positive and mild-negative, was estimated on a historical-statistical basis.
The analysis covered the exposures of the Group’s main portfolios: the Wholesale portfolio of Mediobanca S.p.A. and Mediobanca International, the Mediobanca Private Banking portfolio, the CheBanca mortgages! Compass’s consumer credit, MBFACTORING, Selma’s leases.
The ECL calculated at the realization of the mild-negative, baseline, mild-positive scenarios correspond to a variation of respectively +5.9%, +0.7% and -4.0% compared to the budget ECL.
Assuming that each of the mild-negative, baseline and mild-positive scenarios is carried out with certainty, the change in the incidence of the Stage2 exposure on the total performing exposure, gross carrying amount including both on-balance and off-
Notes to the Accounts | Part E – Information on risks and related hedging policies 271
balance, is equal respectively to +0.90%, +0.04% and -0.16% regarding what accounted.
2.4 Credit risk mitigation techniques
The Group has put in place a system for managing credit risk mitigation techniques, which covers the entire process of obtaining, assessing, supervising and implementing the mitigation instruments in use. The requirements for eligibility of collateral and guarantees are set out in Regulation (EU) 575/2013 of the European Parliament and of the Council as amended (the “CRR”). The Group has also compiled specific criteria by which collateral not recognized for regulatory purposes may in any case be recognized at the operating level as effective to mitigate credit risk.
The use of financial instruments or of moveable and immoveable assets as collateral and of personal guarantees is widespread in lending activity. In particular:
−mortgage guarantees: when mortgages are taken out, valuations are required from independent experts; specific procedures are also in place to calculate the fair value of the asset and monitor it at regular intervals, based on market indicators furnished by external information providers; further valuations are also required in cases where significant departures are noted from the most recent valuation available;
−pledges: pledges are valued according to the market value for listed financial instruments, or on the basis of their expected realizable value; prudential haircuts are then applied to the values thus calculated which differ according to the financial instruments over which the pledge has been made.
The Group also adopts risk mitigation policies by entering into netting and collateral agreements, verifying whether the agreements are legally valid and meet the regulatory criteria to be recognized for prudential purposes.
Credit Risk Mitigation activities are governed by specific Directives adopted by the Group companies concerned. The specific nature of the products originated by the individual businesses and the forms of collateral securing them, as well as the different organizational models necessarily adopted by the various Group Legal Entities, means that different CRM processes must coexist within the Group as a whole. In particular, the phases of obtaining the collateral, checking, reporting and
272 Consolidated financial statements as at 30 June 2023
assessing its eligibility may be performed by different units. However, the role of Risk Management unit in setting eligibility criteria for regulatory and management purposes remains central, and the Group Risk Management Unit is responsible for supervising overall consistency in this area. Controls of the mitigation instruments are included in the general risk control and management framework.
In Private Banking in particular, the situations most at risk have been identified, and for “Lombard” credit in particular work has begun quickly on restoring the collateral margins typically associated with this form of credit. The overall exposure reflects both portfolio diversification for the collateral and the haircuts required when the lending value is determined.
Notes to the Accounts | Part E – Information on risks and related hedging policies 273
3. Non-performing credit exposures
The Group is distinguished by its prudent approach to risk, which is reflected in the fact that its overdue exposure levels (Non-performing loan - NPL) are among the lowest seen in the Italian national panorama. The Group’s management of non-performing loans also helps to keep their level low on the books, including the use of different options typically available, such as disposals (of both individual assets and portfolios), collateral enforcement, and negotiation of restructuring agreements.
The Group uses a single, like-for-like definition for the concepts of “default” as defined by the regulations on regulatory capital requirements, “non-performing”, used for supervisory reporting statistics, and Stage 3 assets, or “credit-impaired” assets, as defined by the accounting standards in force. In this regard, the Group has implemented the EBA Guidelines on the adoption of the definition of default (EBA/GL/2016/07), Delegated Regulation (EU) 2018/171 of the Commission of 19 October 2017, and Regulation (EU) 2018/1845 of the ECB of 21 November 2018. In line with these principles, instances of assets which qualify as “non-performing” include:
―exposures identified using the 90 days past due principle, based on which the regulations referred to above have standardized the calculation criteria in use at EU level (in particular with reference to the applicable materiality thresholds, and the irrelevance of which instalment in particular is established as being past due for calculation purposes);
―cases in which the credit obligation has been sold, leading to material losses in relation to the credit risk;
―debt restructuring which entails a cost, i.e. restructuring the debt of a borrower who is in or is about to encounter difficulties in meeting their own financial obligations, which may imply a significantly reduced financial obligation;
―cases of insolvency or other systems of protection covering all creditors or all unsecured creditors, the terms and conditions of which have been approved by a judge in a court of law or another competent institution;
―instances identified through other indicators of a borrower being unlikely to pay, such as the enforcement of guarantees, breach of given financial leverage ratios, negative evidence in information systems such as central credit databases, or the borrower’s sources of income suddenly becoming unavailable.
This approach is adopted differently within the individual Group companies, which, depending on the specific monitoring processes they have implemented, may choose to detect non-performing positions before the 90 days past due status by running individual analyses or applying automatic algorithms. Equally, the
274 Consolidated financial statements as at 30 June 2023
accounting measurement of non-performing exposures may reflect either the analysis of individual positions, or be based on identifying clusters of similar positions, depending on the specific nature of the Group company’s business.
At the monitoring stage, the write-off for credit losses on financial assets is also assessed, i.e. when in part or in whole. Those write-offs are possible even before completion of the legal action to recover the asset, and this does not necessarily entail waiving the Group’s legal right to recover the amount.
In order to adequately monitor the management of NPL portfolios, in recent years, several measures have been issued by the Regulator for the purpose of directing the financial sector towards minimizing their stocks of non-performing portfolios and speeding up recovery. On 26 April 2019, the European Parliament published an amendment to Regulation (EU) 575/2013 (CRR) in the Official Journal with the inclusion of new rules to be applied for the coverage of NPLs (referred to as Calendar Provisioning) deriving from loans granted starting from the date of issue of the amended Regulation. Calendar Provisioning requires the full hedging of non-performing loans once they have been held in the portfolio for a defined period.
Notes to the Accounts | Part E – Information on risks and related hedging policies 275
4 Financial assets subject to commercial renegotiations and concessions
Financial assets may be subject to contractual amendments based primarily on two different needs: maintaining a mutually satisfactory commercial relationship with clients, or re-establishing/improving the credit position of customers who are facing, or about to face, difficulties in complying with the commitments they have entered into.
The former case, defined as commercial renegotiation, recurs when the client might want to end the relationship, as a result of its credit quality and of favourable market conditions. In a situation such as this, changes can be made at the client’s initiative or on a preventative basis in order to maintain the relationship with the client by improving the commercial terms offered, without prejudice to a satisfactory return on the risk and in compliance with the general strategic objectives (e.g. in terms of target customers).
The second case, which corresponds to the notion of forbearance measure, is detected in accordance with the specific regulations when contractual amendments are made, refinancing arrangements entered into, or when clauses provided for in the contract are exercised by the client.
For an exposure to be classified as forborne, the Group assesses whether or not such concessions (typically rescheduling expiry dates, suspending payments, refinancing operations or waivers to covenants) occur as a result of a situation of financial difficulty which can be traced to the accumulation, actual or potential (if concessions are not granted), of more than thirty days past due. Assessment of the borrower’s financial difficulties is based primarily on individual analysis carried out as part of corporate banking and leasing business, whereas certain predefined conditions apply in the case of consumer credit activities (for example, observation of deferrals granted) and real estate loans (e.g. whether the borrower has been made unemployed, cases of serious illness and/or divorce and separation).
Both non-performing exposures and exposures whose difficulties are still compatible with their being treated as performing may be classified as forborne. However, as described in the previous sections, a position being assigned the status of “forborne” is considered to be incompatible with its being treated as Stage 1. For this reason, based on the regulations on supervisory statistical reporting, there is a minimum period of time during which an exposure can be classified as “forborne” and this is reflected in the prudential transitions between Stages 1, 2 and 3. For instance, when concessions have been made in respect of Stage 2 exposures, these
276 Consolidated financial statements as at 30 June 2023
exposures cannot return to Stage 1 in less than two years, in line with the minimum duration requirement of two years provided for the “forborne performing exposure” status (during this period, the status can only be downgraded to reflect the exposure’s transition to non-performing). Similarly, exposures in Stage 3 cannot return to Stage 1 in less than three years, in line with the one-year duration requirement for “forborne non-performing exposure” status, followed (unless the non-performing status needs to be prolonged) by the two-year minimum duration requirement for the “forborne performing exposure” status.
To return to Stage 1, exposures must give proof of having fully recovered their credit quality and the conditions requiring them to be classified as “forborne” must have ceased to apply. Accordingly, monitoring activities over transitions to Stages 2 or 3 are the same as monitoring activities over exposures which have not moved from Stage 1. However, “forborne” exposures that have returned from Stage 3 to Stage 2 are subject to enhanced monitoring, providing that if there is a delay of more than thirty days in payment or if a new forbearance measure is applied, the exposure will immediately return to Stage 3 for prudential purposes.
Notes to the Accounts | Part E – Information on risks and related hedging policies 277
5 Details by business segment
Corporate activity
The Bank’s internal system for managing, evaluating and controlling its credit risk exposure reflects its traditional policy based on prudence and a highly selective approach: risk assumption is based on an analytical approach grounded on an extensive knowledge of the entrepreneurial, asset and management operations of each financed company, as well as of the economic framework in which it operates. During the analysis, all the necessary documentation was acquired in order to carry out an adequate assessment of the borrower’s credit quality and define the correct remuneration of the risk assumed; the analysis included assessments of the duration and amount of credit lines, monitoring of suitable collateral and use of contractual commitments (covenants) aimed at preventing the deterioration of the counterparty’s credit quality.
With reference to the correct adoption of Credit Risk Mitigation techniques, specific activities are implemented to define and meet all the requirements to ensure that the real and personal guarantees have the maximum mitigating effects on the exposures.
To determine credit risk, all counterparties are analysed and an internal rating is assigned by the Risk Management unit on the basis of internal models which take into account the specific quantitative and qualitative characteristics of the counterparty. The proposed transactions are also subject to the application of LGD models where appropriate.
Loans originated by the business divisions are appropriately assessed by the Risk Management unit and regulated in accordance with the powers for approval and management of the most significant transactions, through screening at different operating levels.
The Credit Risk Management unit also carries out a review of the ratings assigned to the counterparties at least once a year. Approved loans must also be confirmed by the approving body with the same frequency.
Expected credit losses is calculated individually for non-performing items and based on PD and LGD indicators of the performing portfolio. For individual provisioning, valuations based on discounted cash flows and ratio analysis balance sheet are applied to businesses under the going-concern assumption, while an asset valuation is used in case of liquidation. With regard to performing loans, the PD
278 Consolidated financial statements as at 30 June 2023
parameters are obtained starting from the through-the-cycle rating approach used to develop the internal rating model which is then converted to the point-in-time approach. The LGD parameters are determined based on the modelling used for the regulatory calculation, after removing the downturn effect. The forward-looking component of the models is the result of the risk indicators applied to the macroeconomic scenarios defined internally.
In terms of monitoring the performance of individual credit exposures, Mediobanca has adopted an early warning system to identify a list of counterparties (known as the “watch list”) requiring in-depth analysis on account of their potential or obvious weaknesses. The exposures identified are then classified by level of alert (Amber or Red for performing accounts, Black for non-performing items) and are reviewed regularly to identify the most appropriate mitigation actions to be taken. The watch list is used to provide qualitative information regarding allocation to Stage 2, which includes counterparties classified as “Amber” or “Red”. Furthermore, all forborne positions are subject to specific monitoring and revisions can be applied to single-name classifications based on internal decisions supported by individual analyses.
Leases
Individual applications are processed using similar methods to those described above for Corporate Banking. Applications for smaller amounts are approved using a credit scoring system developed on the basis of historical series of data, tailored to both asset type and the counterparty’s legal status (type of company).
The activities of analysis, disbursement, monitoring, and credit risk control are significantly supported by the Company’s Information System; the asset being leased is also subject to a technical assessment.
With a view to aligning risk management with the current complex financial and market scenario, the approval rights have also been revised and the measurement and control processes enhanced through the institution of regular valuations of performing loans, including from an early warning (i.e. watch list) perspective. Disputes are managed in a variety of ways which prioritize either recovery of the amount owed or the asset under lease, according to the specific risk profile of the account concerned.
The quantification of provisions for non-performing accounts requires individual
Notes to the Accounts | Part E – Information on risks and related hedging policies 279
analysis to establish the estimated loss, taking into account the protection value of the assets resulting from regularly updated expert valuations, prudentially revised downwards, and any other form of collateral. Scenarios for sales strategies are also factored in. The portfolio of performing accounts is measured on the basis of internal PD and LGD parameters. To define the PD parameters, through-the-cycle transition matrices for the management models based on internal data are used, which are then converted to point-in-time versions. The forward-looking component is factored in by applying the macroeconomic scenarios defined internally to the PD estimates. The LGD estimates for the exposures differ according to type of product (vehicle leasing, core goods, yachts and property), and are subjected to the same macroeconomic scenarios defined internally to obtain forward-looking data.
In terms of criteria for the transition of leasing transactions to Stage 2, in addition to the positions identified using the PD increase quantitative method, with regard to forborne performing positions, i.e. positions 30 days past due, the evidence deriving from the Parent Company’s watchlist for Corporate customers is used (counterparties classified as “Amber” or “Red” will be included in Stage 2).
Consumer credit
Consumer credit operations are performed primarily by Compass, where applications for finance are approved on the basis of a credit scoring system tailored to individual products. The scoring grids have been developed from internal historical series, enhanced by data provided by central credit bureaux. Points of sale are linked electronically to the Company’s headquarters, to ensure that applications and credit scoring results are processed and transmitted swiftly. Under the system of powers for approval assigned by the Company’s Board of Directors, approval is required by the relevant headquarters units for increasing combinations of amount and expected loss, in accordance with the authorization levels established by the Board of Directors.
From the first instance of non-payment, accounts are managed using the entire range of recovery procedures, including postal and telephone reminders, external recovery agents, or legal recovery action. During the financial year, Compass strengthened its NPE early detection criteria since, in the presence of minor signs such as queuing (still considered forbearance) or slight but repeated delays in association with negative evidence on external databases, the account is classified as default according to the “unlikely-to-pay” principle. After six unpaid instalments (or
280 Consolidated financial statements as at 30 June 2023
four unpaid instalments in particular cases, such as credit cards), the client is deemed to have lapsed from the time benefit allowed under Article 1186 of the Italian Civil Code. As from the six months after such lapse has been established, accounts for which legal action has been ruled out on the grounds of being uneconomic are sold via competitive procedures to factoring companies, for a percentage of the value of the principal outstanding, which reflects their estimated realizable value.
Provisioning is determined collectively on the basis of PD, LGD and CCF metrics which are estimated using internal models. To estimate PD and LGD parameters for the purpose of calculating lifetime losses, through-the-cycle transition matrices calculated separately by product type were used in line with internal operating processes (revolving / balance payment credit cards, special-purpose loans, low-risk personal loans, high-risk personal loans, small tickets and salary-backed loans to public servants, private individuals or retirees). Once the parameters not conditioned by recent historical evidence have been obtained, the forward-looking component is factored in by conditioning PDs, the transition matrices related thereto, and LGDs with specific macroeconomic models based on the Group’s internal scenarios and on recent trends in internal default and loss rates.
In consumer credit, in addition to the quantitative criterion based on changes in the PD, specific quality indicators are used to classify exposures as Stage 2, such as the existence of suspension measures, the existence of other non-performing accounts for the same borrower, and evidence of irregularities in payment in the recent past.
Factoring
Factoring, a business in which MBFacta specializes, includes both traditional factoring (i.e. acquisition of short-term trade receivables, often backed by insurance cover) and instalment factoring (acquiring loans from the selling counterparty, to be repaid via monthly instalments by the borrowers whose accounts have been sold, which in virtually all cases is a retail customer).
For traditional factoring, the internal units appraise the solvency of the sellers and the original borrowers via individual analysis using methodologies similar to those adopted for corporate lending; whereas for instalment factoring the acquisition price is calculated following a due statistical analysis of the accounts being sold, and takes into consideration the projected recoveries, costs and expected margins.
Notes to the Accounts | Part E – Information on risks and related hedging policies 281
Non-performing exposures to corporate counterparties are quantified analytically, while non-performing exposures to retail counterparties are based on the identification of clusters of exposures with similar characteristics. The portfolio of performing assets is valued on the basis of PD and LGD parameters. PD parameters are defined by using the revised parameters supplied by external providers or internal estimates based on the retail portfolio. For transactions valued by the Parent Company as part of its corporate business, the parameters set in the Parent Company’s process apply. The evidence obtained from the Parent Company’s watch list for corporate clients is also used as qualitative information for reclassification to Stage 2, which includes counterparties classified as “Amber” or “Red”.
NPL business
73
This business is performed by Revalea, which operates on the NPLs market, acquiring non-performing loans on a non-recourse basis at a price well below the nominal value.
The purchase price for non-performing loans is determined by following well-established procedures which include appropriate sample-based or statistical analysis of the positions being sold, and take due account of projections of expected amounts recovered, expenses and expected margins. At each annual or interim reporting date, the amounts expected to be collected for each individual position are compared systematically with the amounts actually collected. This activity is no longer among Mediobanca’s core activities. In the financial statements as at 30 June 2023 it was included among assets held for sale pursuant to IFRS 5.
Premier and Private Banking
Premier and Private Banking operations include granting loans as a complementary activity in serving “Affluent”, “High Net Worth” and institutional clients, with the aim of providing them with Wealth Management and Asset Management services. Credit risk exposure takes various forms, such as cash loans (by granting credit on a bank account or through short-, medium- or long-term loans), authorizing overdrafts on current account, endorsements, mortgage loans and
73 Please refer to Part A of the Notes to the Accounts for a definition and discussion of POCIs.
282 Consolidated financial statements as at 30 June 2023
credit limits on credit cards.
Loans are normally secured by collateral or unsecured guarantees (pledges over the client’s financial instruments in case of managed or administered assets, mortgages over properties or guarantees issued by other credit institutions).
Lending activity is governed through operating powers which require the proposed loan to be assessed at various levels of the organization and approved by the appointed bodies according to the level of risk resulting from the size of the loan, the guarantees/collateral and the type of finance involved. Such loans are reviewed on a regular basis (at least annually).
Provisioning for all non-performing contracts is calculated on an individual basis, and takes into account the value of the collateral. Instead, provisioning for the performing contracts is made based on the estimated PD and LGD values, supplied by an external provider, distinguished by counterparty and whether or not there are guarantees. The evidence obtained from the Parent Company’s watch list for corporate clients is also used as qualitative information for reclassification to Stage 2, which includes counterparties classified as “Amber” or “Red”.
Notes to the Accounts | Part E – Information on risks and related hedging policies 283
Mortgage lending
Mortgage lending is provided primarily by CheBanca! and processing and approval exposures in this area are performed centrally at the headquarters. The applications are approved, using an internal rating model, based on individual appraisal of the applicant’s income and maximum borrowing levels, as well as the value of the property itself. A constant monitoring of the portfolio, carried out on a monthly basis, ensures control over the risks assumed.
Properties established as collateral are subject to a statistical revaluation process, which is carried out once a quarter. If the review shows a significant reduction in the value of the property, a new valuation is carried out by an independent expert. A new valuation is generally requested for properties established as collateral for positions which have become non-performing.
Accounts (both performing and non-performing) are monitored through a reporting system which allows operators to monitor the trend in the asset quality and, with the help of the appropriate indicators, to enter positions at risk, also to ensure that the necessary corrective actions to credit policies can be taken.
Non-performing accounts are managed, for out-of-court credit recovery procedures, by a dedicated organizational structure with the help of external collectors. In cases where a borrower becomes insolvent (or in fundamentally similar situations), the property enforcement procedures are initiated through external lawyers. Internal procedures require the following to be recorded as unlikely to pay: all cases with four or more unpaid instalments (not necessarily consecutive), cases with persistent irregularities, concessions generating a reduction of more than 1% in the financial obligation, and cases which the unit responsible assesses as unlikely to pay, based on internal or external information (e.g. central databases, public and/or private). Exposures are classified as bad loans once the ineffectiveness of the recovery actions has been certified.
Exposures for which concessions have been granted are defined as forborne exposures, i.e. exposures subject to tolerance measures, performing or non-performing mortgages for which CheBanca! grants amendments to the original terms and conditions of the contract in the event of the borrower finding itself in a (proven or assumed) state of financial difficulty, by virtue of which it is considered to be unlikely to be able to meet its borrowing obligations fully or regularly.
ECLs are quantified analytically for bad loans and based on clusters of similar positions for unlikely to pay, other overdue and performing accounts. With regard to
284 Consolidated financial statements as at 30 June 2023
the analytical portion for bad loans, account is taken of expert valuations of the assets (prudentially deflated), as well as the timing and costs of the recovery process. The PD parameters are obtained from through-the-cycle transition matrices used to develop the internal model, which are then converted to point-in-time versions. The forward-looking component is factored in by applying the macroeconomic scenarios defined internally to the PD estimates. The LGD calculation is based on modelling aimed at regulatory calculation, with respect to which the downturn effect is removed; the inclusion of forward-looking elements is based on satellite models applied to macroeconomic scenarios defined internally.
For the purposes of the Stage 2 classification of real estate mortgage loans, a qualitative identification element is used, consisting in assigning the position to the worst internal rating class before default.
Notes to the Accounts | Part E – Information on risks and related hedging policies 285
6 Macroeconomic scenarios and impacts
The macroeconomic environment in the first half of 2023 governing the IFRS 9 provision of June 2023 is characterized by the same assumptions underlying the scenario available in December 2022.
Stagflation has been confirmed as the most probable feature for 2023 with an increase in the price level associated with weak growth, especially in the second half of the current year.
However, the macroeconomic forecasts for 2023 are slightly better than the baseline scenario available in December 2022 due to the improved performance of the overall economic system observed between November 2022 and March 2023.
Starting from 2024, growth will remain contained but positive for the following two-year period.
For example, concerning the Italian domestic economy, despite the continuous increase in prices, the year 2022 was characterized by economic growth well beyond expectations with a growth rate of the domestic product over 3.8%, i.e. half a percentage point higher than basic level forecast for 2022 in the past half-year period.
However, growth in 2023 has been more modest, also following the ongoing monetary tightening. The forecast for the annual closing shows that the level of GDP growth will be reduced to 0.7%, despite being higher than as expected in the previous six-month period which estimated negative numbers. For the European context in general, and for the related main national economies such as Germany, the same trend has been observed. Growth in 2022 will be above the initial expectations even if with a lower intensity than the one observed in Italy, while the year 2023 will be characterized by a sharp reduction in growth compared to previous forecasts.
However, the greater resilience of the main European economies compared to Italy regarding the effects of the energy crisis, due both to the possibility of enjoying effective price containment measures in some cases (e.g. Germany) or alternative energy supplies to fossil fuels in other cases (e.g. France), will allow them to resume a more sustained growth path than in Italy starting from 2024. For example, for the EU in the two-year period 2024-2025 the growth rates will be 1.9% and 2.4% respectively against 1.3% and 1.2% in Italy.
Furthermore, an additional aspect that could penalize the Italian domestic
286 Consolidated financial statements as at 30 June 2023
economy is the level of unemployment, with an average rate that will mark a significant increase in the three-year period 2023-2025 for Italy and is expected to stand at 8.5% against 8.1% in 2022, remaining steadily above 8% throughout the next three-year period, compared to a European trend that will remain steady and at more contained levels (6.2% on average in the three-year period 2023/25).
Table 1 - Baseline macro-economic scenario at 30/6/2023 74
GDP forecasts
2022
2023
2024
2025
Italy
3.8%
0.7%
1.3%
1.2%
EU
3.5%
0.6%
1.9%
2.4%
USA
2.1%
0.6%
0.5%
2.4%
Unemployment rate
2022
2023
2024
2025
Italy
8.1%
8.5%
8.4%
8.2%
EU
6.1%
6.4%
6.2%
6.–%
USA
3.6%
4.1%
4.6%
3.9%
Interest rate on Government bonds (10 years)
2022
2023
2024
2025
Italy
3.1%
4.8%
4.8%
4.7%
Germany
1.2%
2.7%
2.7%
2.7%
USA
3.–%
4.–%
4.1%
3.9%
Table 2 – Mild-positive macro-economic scenario at 30/6/2023
GDP forecasts
2022
2023
2024
2025
Italy
3.8%
1.9%
2.9%
2.4%
EU
3.5%
2.6%
4.7%
4.6%
USA
2.1%
2.4%
2.3%
3.8%
Unemployment rate
2022
2023
2024
2025
Italy
8.1%
8.2%
7.6%
7.1%
EU
6.1%
6.1%
5.4%
4.9%
USA
3.6%
3.7%
3.7%
2.8%
Interest rate on Government bonds (10 years)
2022
2023
2024
2025
Italy
3.1%
5.1%
5.6%
5.7%
Germany
1.2%
3.1%
3.8%
4.2%
USA
3.–%
5.1%
5.6%
5.7%
74 As described in section 2.3, the Group sets the estimates for the baseline scenario, compiling the economic variables using an external macroeconomic model which factors in the internal expectations for interest rates.
Notes to the Accounts | Part E – Information on risks and related hedging policies 287
Table 3 – Mild-negative macro-economic scenario at 30/6/2023
GDP forecasts
2022
2023
2024
2025
Italy
3.8%
-0.6%
-0.5%
-0.2%
EU
3.5%
-1.4%
-0.9%
0.1%
USA
2.1%
-1.1%
-1.4%
0.8%
Unemployment rate
2022
2023
2024
2025
Italy
8.1%
8.8%
9.2%
9.4%
EU
6.1%
6.7%
7.–%
7.1%
USA
3.6%
4.5%
5.4%
5.–%
Interest rate on Government bonds (10 years)
2022
2023
2024
2025
Italy
3.1%
4.4%
4.–%
3.7%
Germany
1.2%
2.3%
1.7%
1.3%
USA
3.–%
3.5%
2.8%
2.3%
The Group has maintained the additional provisions (referred to as “overlays”) with the aim of including the uncertainties of the evolution of the macroeconomic context in hedging levels. Unlike the previous financial year, which was mainly characterized by the effects of the continuation of the pandemic, in the year under review overlays were applied in the Corporate division (including Factoring and Leasing) concerning sectors particularly exposed to inflationary pressure in order to enhance any risk peaks in specific industrial sectors that the quantitative methodology captures only on average. Lastly, overlays on Consumer Banking positions and mortgage loans were maintained against the uncertainties of the macroeconomic scenario, as done the previous financial year.
Overall, such overlays amounted to €268.5m, split between Consumer (€208.6m), Corporate (€39.9m, which includes €25.3m in Wholesale, €14.6m in Factoring), Leasing (€8.7m) and Wealth Management (€11.3m, entirely attributable to CB! mortgage loans). The reduced overlays (€294m in June 2022) mainly regarded the Corporate and Investment Banking segment, following the reduced scope of counterparties with a high inflation impact.
The overlays have increased the level of provisioning, which for performing loans now stands at €703.7m, i.e. 1.34%.
288 Consolidated financial statements as at 30 June 2023
Table 4 – Overlay Stock
Overlay stock at
30 June 2023
30 June 2022
Corporate and Investment Banking
39.9
57.8
Consumer Banking
208.6
215.3
Wealth Management
11.3
14.8
Leasing (Holding Functions)
8.7
6.1
Total
268.5
294.–
Consumer Credit continues to increase the level of provisioning (with a coverage ratio of performing loans of 3.75% as in the previous financial year) by allocating overlays in line with the previous year (€208.6m against €215.3m). In particular, these conservative levels cover the current economic uncertainties and have offset recent default rates that were significantly lower than the typical levels for this market segment and emerged after the pandemic crisis. They may only in part be explained by more stringent disbursement policies in recent months.
With reference to Corporate and Investment Banking, overlays of €39.9m were allocated (€25.3m of which in the Large Corporate segment and €14.6m in Factoring) and provided to sectors especially exposed to inflationary pressures. Overlays were reduced compared to the previous year in consideration of the good responsiveness of the models to the worsening scenarios expected for 2023/2024 and for the classification of some sectors from High/Medium impact to Low Impact for inflation risk in consideration of their ability to overcome the increase in costs of raw materials by adjusting selling prices and maintaining volumes unchanged in general. The overlay portion of leasing amounted to €8.7m and includes a small portion to cover the possible request for a moratorium by customers residing in the areas affected by the floods in Emilia-Romagna.
With reference to mortgage loans, the overlay amount was €14.6m (€13.2m in June 2022). Overlays were applied to all performing exposures with a higher level of conservativeness on the portion of portfolio identified as risky following monitoring by the Monitoring and Credit Recovery Unit.
Notes to the Accounts | Part E – Information on risks and related hedging policies 289
QUANTITATIVE INFORMATION
A. Credit quality
A.1 Non-performing and performing accounts: amounts, adjustments, trends and segmentation by earnings
A.1.1 Prudential consolidation – Financial assets by past due brackets (book value)
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Portfolios/risk stages
1 to 30 days
30 to 90 days
After 90 days
1 to 30 days
30 to 90 days
After 90 days
1 to 30 days
30 to 90 days
After 90 days
1 to 30 days
30 to 90 days
After 90 days
1. Financial assets measured at amortized cost
212,493
24,483
36,409
40,779
77,399
19,578
115,134
34,951
174,758
—
—
—
2. Financial assets measured at fair value through other comprehensive income
—
—
—
—
—
—
—
—
—
—
—
—
3. Financial assets held for sale
—
—
—
—
—
—
—
—
—
—
—
238,833
Total 30/6/23
212,493
24,483
36,409
40,779
77,399
19,578
115,134
34,951
174,758
—
—
238,833
Total 30/6/22
36,007
9,650
21,313
50,744
50,486
30,103
99,024
31,864
172,702
—
—
350,583
290 Consolidated financial statements as at 30 June 2023
A.1.2 Prudential consolidation - financial assets, loan commitments and financial guarantees issued: trend in overall value adjustments and overall provisioning
Overall value adjustments
Stage 1 assets
Stage 2 assets
Stage 3 assets
Purchased or originated credit-impaired financial assets
Overall provisions for loan commitments and financial guarantees issued
Motivations/risk stages
On-demand loans to banks and Central Banks
Financial assets measured at amortized cost
Financial assets measured at fair value through other comprehensi ve income
Financial assets held for sale
of which: individual writedowns
of which: collective writedowns
On-demand loans to banks and Central Banks
Financial assets measured at amortized cost
Financial assets measured at fair value through other comprehensi ve income
Financial assets held for sale
of which: individual writedowns
of which: collective writedowns
On-demand loans to banks and Central Banks
Financial assets measured at amortized cost
Financial assets measured at fair value through other comprehensive income
Financial assets held for sale
of which: individual writedowns
of which: collective writedowns
Financial assets measured at amortized cost
Financial assets measured at fair value through other comprehensi ve income
Financia l assets held for sale
of which: individual writedowns
of which: collective writedowns
First stage
Second stage
Third stage
Purchase d or originate d credit-impaired loan commitm ents and financial guarante es issued
Total
Opening balance overall amount
290
309,457
6,787
—
—
316,530
—
383,711
3,347
—
—
387,059
—
937,069
—
—
230,100
706,969
9,686
—
—
735
8,951
19,554
4,013
160
—
1,674,074
Increases due to purchased or originated financial assets
4
172,066
3,897
—
—
175,967
—
92,248
—
—
—
92,248
—
51,767
—
—
1,092
50,675
X
X
X
X
X
7,004
216
94
—
327,296
Derecognition other than write-offs
(30)
(26,625)
(1,153)
—
—
(27,808)
—
(14,940)
(1,008)
—
—
(15,948)
—
(151,397)
—
—
(5,567)
(145,830)
—
—
—
—
—
(1,554)
(12)
—
—
(196,719)
Net write-offs (write-backs) for credit risk:
(94)
(119,129)
(2,994)
—
—
(121,631)
—
(61,339)
(954)
—
—
(62,310)
—
178,908
—
—
63,343
118,814
—
—
3,521
—
3,521
(5,232)
(616)
(119)
—
(8,048)
Contractual changes without derecognition
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Changes in estimation methods
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Write-offs not recognized directly through profit or loss
—
(1,963)
—
—
—
(1,963)
—
(1,993)
—
—
—
(1,993)
—
(57,567)
—
—
(33,739)
(23,828)
—
—
—
—
—
—
—
—
—
(61,523)
Other changes
—
(4,225)
—
—
—
(4,225)
—
(13,342)
—
—
—
(13,342)
—
(92)
—
—
(92)
—
(9,686)
—
—
(735)
(8,951)
(729)
(1,198)
—
—
(29,272)
Closing overall adjustments
170
329,581
6,537
—
—
336,870
—
384,345
1,385
—
—
385,714
—
958,688
—
—
255,137
706,800
—
—
3,521
-
3,521
19,043
2,403
135
—
1,705,808
Recoveries for collections of written-off financial assets
—
—
—
—
—
—
—
—
—
—
—
—
—
1,165
—
—
825
340
2,832
—
1,392
2,832
1,392
—
—
—
—
5,389
Write-offs recognized directly through profit or loss
—
(581)
—
—
—
(581)
—
(956)
—
—
—
(956)
—
(5,162)
—
—
(1,926)
(3,236)
(26,313)
—
(18,667)
(26,313)
(18,667)
—
—
—
—
(51,679)
Notes to the Accounts | Part E – Information on risks and related hedging policies 291
A.1.3 Prudential consolidation – Financial assets, commitments to disburse funds and financial guarantees given: transfers between different stages of credit risk (gross and nominal values)
Gross value / nominal value
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
Portfolios/risk stages
From Stage 1 to Stage 2
From Stage 2 to Stage 1
From Stage 2 to Stage 3
From Stage 3 to Stage 2
From Stage 1 to Stage 3
From Stage 3 to Stage 1
1. Financial assets measured at amortized cost
1,423,760
1,000,125
261,059
123,908
216,135
5,439
2. Financial assets measured at fair value through other comprehensive income
—
—
—
—
—
—
3. Financial assets held for sale
—
—
—
—
—
—
4. Loan commitments and financial guarantees issued
51,752
88,458
—
416
260
3,087
30 June 2023
1,475,512
1,088,583
261,059
124,324
216,395
8,526
30 June 2022
1,631,750
1,044,661
201,829
179,912
171,262
9,651
292 Consolidated financial statements as at 30 June 2023
A.1.3a Loans covered by Covid-19 support measures: transfers between different credit risk stages (gross values)*
Gross value
Transfers between Stage 1 and Stage 2
Transfers between Stage 2 and Stage 3
Transfers between Stage 1 and Stage 3
Portfolios/risk stages
From Stage 1 to Stage 2
From Stage 2 to Stage 1
From Stage 2 to Stage 3
From Stage 3 to Stage 2
From Stage 1 to Stage 3
From Stage 3 to Stage 1
A. Loans measured at amortized cost
135
—
—
130
391
—
A.1 subject to forbearance measures in compliance with the EBA Guidelines
—
—
—
—
—
—
A.2 subject to moratoria in place that are no longer compliant with GL and not assessed as eligible for forbearance measures.
—
—
—
—
—
—
A.3 subject to other forbearance measures
—
—
—
99
—
—
A.4 New issues
135
—
—
31
391
—
B. Loans measured at fair value through other comprehensive income
—
—
—
—
—
—
B.1 subject to forbearance measures in compliance with the GLs
—
—
—
—
—
—
B.2 subject to moratoria in place that are no longer compliant with GL and not assessed as eligible for forbearance measures.
—
—
—
—
—
—
B.3 subject to other forbearance measures
—
—
—
—
—
—
B.4 New issues
—
—
—
—
—
—
Total 30/6/23
135
—
—
130
391
—
Total 30/6/22
5,259
—
—
53
600
—
(*) On 16 December 2022, at the time of the publication of the “Closure Report of Covid-19 Measures”, the EBA announced the repeal of its reporting and disclosure guidelines regarding the Covid-19 pandemic starting from 1 January 2023.
Notes to the Accounts | Part E – Information on risks and related hedging policies 293
A.1.4 Prudential consolidation - On- and off-balance sheet exposures to banks: gross and net values
Gross exposure
Overall value adjustments and overall provisions
Types of exposure / value
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Net exposure
Overall partial write-offs
A. On-Balance sheet credit exposures
A.1 On-demand
4,112,241
4,112,241
—
—
—
170
170
—
—
—
4,112,071
—
a) Non-performing
—
X
—
—
—
—
X
—
—
—
—
—
b) Performing
4,112,241
4,112,241
—
X
—
170
170
—
X
—
4,112,071
—
A.2 Other
6,480,485
4,965,794
—
—
—
3,533
3,533
—
—
—
6,476,952
—
a) Bad debts
—
X
—
—
—
—
X
—
—
—
—
—
- of which: forborne exposures
—
X
—
—
—
—
X
—
—
—
—
—
b) Unlikely to pay
—
X
—
—
—
—
X
—
—
—
—
—
- of which: forborne exposures
—
X
—
—
—
—
X
—
—
—
—
—
c) Overdue non-performing exposures
—
X
—
—
—
—
X
—
—
—
—
—
- of which: forborne exposures
—
X
—
—
—
—
X
—
—
—
—
—
d) Overdue performing exposures
—
—
—
X
—
—
—
—
X
—
—
—
- of which: forborne exposures
—
—
—
X
—
—
—
—
X
—
—
—
e) Other performing exposures
6,480,485
4,965,794
—
X
—
3,533
3,533
—
X
—
6,476,952
—
- of which: forborne exposures
—
—
—
X
—
—
—
—
X
—
—
—
Total (A)
10,592,726
9,078,035
—
—
—
3,703
3,703
—
—
—
10,589,023
-
B. Off-balance sheet credit exposures
a) Non-performing
—
X
—
-
—
—
X
—
—
—
—
—
b) Performing
16,214,708
33,429
—
X
—
—
—
—
X
-
16,214,708
—
Total (B)
16,214,708
33,429
—
—
—
—
—
—
—
—
16,214,708
—
Total (A+B)
26,807,434
9,111,464
—
—
—
3,703
3,703
—
—
—
26,803,731
—
294 Consolidated financial statements as at 30 June 2023
A.1.5 Prudential consolidation - On- and off-balance sheet exposures to customers: gross and net values
Gross exposure
Overall value adjustments and overall provisions
Types of exposure / value
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Net exposure
Partial write off*
A. ON-BALANCE SHEET CREDIT EXPOSURES
a) Bad loans
672,799
X
—
424,187
241,976
393,088
X
—
382,931
3,521
279,711
3,627
- of which: forborne exposures
169,477
X
—
162,841
—
163,623
X
—
156,987
—
5,854
—
b) Unlikely to pay
635,865
X
—
630,798
378
419,774
X
—
419,774
—
216,091
35
- of which: forborne exposures
291,084
X
—
286,395
—
182,725
X
—
182,725
—
108,359
35
c) Overdue exposures (NPLs)
273,404
X
—
273,404
—
155,983
X
—
155,983
—
117,421
—
- of which: forborne exposures
62,484
X
—
62,484
—
48,224
X
—
48,224
—
14,260
—
d) Overdue performing exposures
294,813
136,658
158,155
X
—
50,427
1,736
48,691
X
—
244,386
—
- of which: forborne exposures
16,127
—
16,127
X
—
4,350
—
4,350
X
—
11,777
—
e) Other performing exposures
67,659,725
60,381,170
2,771,611
X
—
667,888
330,849
337,039
X
—
66,991,837
5
- of which: forborne exposures
657,711
—
657,711
X
—
91,376
—
91,376
X
—
566,335
—
TOTAL (A)
69,536,606
60,517,828
2,929,766
1,328,389
242,354
1,687,160
332,585
385,730
958,688
3,521
67,849,446
3,667
B. OFF-BALANCE SHEET CREDIT EXPOSURES
a) Non-performing
1,066
X
—
1,066
—
135
X
—
135
—
931
—
b) Performing
26,683,320
15,923,619
100,253
X
—
22,030
19,627
2,404
X
—
26,661,290
—
TOTAL (B)
26,684,386
15,923,619
100,253
1,066
—
22,165
19,627
2,404
135
—
26,662,221
—
TOTAL (A+B)
96,220,992
76,441,447
3,030,019
1,329,455
242,354
1,709,325
352,212
388,134
958,823
3,521
94,511,667
3,667
(*) This includes NPLs acquired by Revalea.
Notes to the Accounts | Part E – Information on risks and related hedging policies 295
At 30 June 2023, gross non-performing loans decreased from €1,687.6m to €1,582.1m, i.e., 2.9% of on-balance sheet credit exposures to customers (3.2%), the lowest level in the last decade. The increase in the coverage ratio (61.2% against 56.4%) led to a more marked reduction in net non-performing loans (from €735m to €613.2m). The impact of gross non-performing assets without including NPLs purchased by Revalea stood at 2.5%, as at 30 June 2022.
Gross NPL ratio Finrep *
(€m)
30/6/2023
30/6/2022
Loans
52,642.2
51,654.8
NPLs
1,339.7
1,327.3
Loans to customers
53,981.9
52,982.1
NPLs purchased
242.4
360.3
Treasury financial assets 1
10,229.–
12,664.1
Total loans and advances
64,453.3
66,006.5
Gross NPL ratio Finrep %
2.5%
2.6%
(*) In the EBA Risk Dashboard, the gross NPL ratio is defined as the ratio of gross book value of NPLs (loans and advances) to total loans and advances. Source: EBA Risk Dashboard, Risk Indicators in the Statistical Annex (AQT_3.2).
(1) In line with the guidelines of the EBA Risk Dashboard, this item excludes cash and includes untied deposits held with Central Banks.
At 30 June 2023, the Mediobanca Group recorded a Finrep Gross NPL ratio of 2.5%, a slight improvement on the previous year (2.6%). The Finrep Gross NPL ratio calculated without NPLs purchased by Revalea (a business that was sold and is being discontinued) may stand at 2.1%, i.e. a slight increase compared to June 2022 (2%), but still confirming the Group’s alignment with the domestic market.75
75 Source: EBA Risk Dashboard in 1Q2023 (2.4%).
296 Consolidated financial statements as at 30 June 2023
A.1.5a On-balance sheet exposures to customers benefiting from Covid-related support measures: gross and net values*
Gross exposure
Overall value adjustments and overall provisions
Type of exposure/Amounts
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Net exposure
Overall partial write-offs
A. BAD LOANS
117
—
—
117
—
117
—
—
117
—
—
—
a) Subject to forbearance measures compliant with GLs
—
—
—
—
—
—
—
—
—
—
—
—
b) Subject to moratoria in place no longer compliant with GLs and not eligible for forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
c) Subject to other forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
d) New loans
117
—
—
117
—
117
—
—
117
—
—
—
B. UNLIKELY-TO-PAY LOANS
1,553
—
—
1,553
—
589
—
—
589
—
964
—
a) Subject to forbearance measures compliant with GLs
—
—
—
—
—
—
—
—
—
—
—
—
b) Subject to moratoria in place no longer compliant with GLs and not eligible for forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
c) Subject to other forbearance measures
1,242
—
—
1,242
—
467
—
—
467
—
775
—
d) New loans
311
—
—
311
—
122
—
—
122
—
189
—
C. OVERDUE NON-PERFORMING LOANS
27
—
—
27
—
11
—
—
11
—
16
—
a) Subject to forbearance measures compliant with GLs
—
—
—
—
—
—
—
—
—
—
—
—
b) Subject to moratoria in place no longer compliant with GLs and not eligible for forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
c) Subject to other forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
d) New loans
27
—
—
27
—
11
—
—
11
—
16
—
D. OTHER OVERDUE PERFORMING LOANS
1,163
275
888
—
—
42
—
42
—
—
1,121
—
a) Subject to forbearance measures compliant with GLs
—
—
—
—
—
—
—
—
—
—
—
—
b) Subject to moratoria in place no longer compliant with GLs and not eligible for forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
c) Subject to other forbearance measures
721
—
721
—
—
42
—
42
—
—
679
—
d) New loans
442
275
167
—
—
—
—
—
—
—
442
—
E. OTHER PERFORMING LOANS
99,325
85,824
13,501
—
—
685
317
368
—
—
98,640
—
a) Subject to forbearance measures compliant with GLs
124
—
124
—
—
2
—
2
—
—
122
—
b) Subject to moratoria in place no longer compliant with GLs and not eligible for forbearance measures
—
—
—
—
—
—
—
—
—
—
—
—
c) Subject to other forbearance measures
13,377
—
13,377
—
—
366
—
366
—
—
13,011
—
d) New loans
85,824
85,824
—
—
—
317
317
—
—
—
85,507
—
TOTAL (A+B+C+D+E)
102,185
86,099
14,389
1,697
—
1,444
317
410
717
—
100,741
—
(*)On 16 December 2022, at the time of the publication of the “Closure Report of Covid-19 Measures”, the EBA announced the repeal of its reporting and disclosure guidelines regarding the Covid-19 pandemic starting from 1 January 2023.
Notes to the Accounts | Part E – Information on risks and related hedging policies 297
A.1.7 Prudential consolidation – On-balance sheet exposures to customers: trend in gross NPLs
Reason/Category
Bad loans*
Unlikely to pay (*)
Overdue non-performing exposures
A. Opening balance (gross amount)
778,882
661,399
248,130
- of which: sold but not derecognized
28,573
59,110
35,696
B.Increases
153,688
403,688
209,149
B.1 inflows from performing exposures
22,962
282,202
160,137
B.2 inflows from purchased or originated credit impaired financial assets
661
—
—
B.3 transfers from other categories of non-performing exposures
106,423
60,754
15,371
B.4 contractual changes without cancellations
—
—
—
B.5 other increases
23,642
60,732
33,641
C. Decreases
259,771
429,222
183,875
C.1 transfers to performing exposures
1,266
117,558
11,579
C.2 write-offs
64,760
25,221
19,883
C.3 collection
63,832
87,564
57,388
C.4 gains on disposal
81,315
9,465
2,522
C.5 losses on disposal
38
364
2
C.6 transfers to other categories of non-performing exposures
1,665
108,097
72,786
C.7 contractual changes without cancellations
—
—
—
C.8 other decreases
46,895
80,953
19,715
D. Final gross exposures
672,799
635,865
273,404
- of which: sold but not derecognized
22,148
57,417
30,192
(*) This includes NPLs purchased by Revalea.
The headings “Inflows from purchased or originated credit-impaired financial assets” refer to the portfolios purchased by Revalea.
The heading “Other increases” refers primarily to Consumer Credit and the NPLs purchased by Revalea.
The heading “Other decreases” refers to the stock of receivables sold to factoring firms in consumer credit operations.
298 Consolidated financial statements as at 30 June 2023
A.1.7bis Prudential consolidation – On-balance sheet exposures to customers: trend in gross forborne exposures, by credit quality
Reason/Category
Forborne non-performing exposures
Forborne performing exposures
A. Opening balance (gross amount)
547,774
735,490
- of which: sold but not derecognized
41,334
27,653
B. Increases
206,408
443,608
B.1 inflows from not forborne performing exposures
56,626
282,302
B.2 inflows from forborne performing exposures
34,400
X
B.3 inflows from forborne non-performing exposures
X
102,369
B.4 inflows from not forborne non-performing exposures
80,045
755
B.5 other increases
35,337
58,182
C. Decreases
231,137
505,260
C.1 outflows to not forborne performing exposures
X
307,993
C.2 outflows to forborne performing exposures
102,369
X
C.3 outflows to forborne non-performing exposures
X
34,400
C.4 write-offs
6,408
117
C.5 collection
65,880
104,398
C.6 gains on disposal
4,162
106
C.7 losses on disposal
109
7
C.8 other decreases
52,209
58,239
D. Final gross exposures
523,045
673,838
- of which: sold but not derecognized
41,177
53,875
As at 30 June 2023, gross impaired positions subject to forbearance 76 decreased from €547.8m to €523m. The coverage ratio increased from 67.1% to 75.4%, and is reflected in the reduction in the net position, from €180.5m to €128.5m.
Forborne performing loans have a gross value of €673.8m, down on the previous year (€735.5m) mainly following the transfer to non-forborne performing exposures (due to the end of the probation period). On a net basis, forborne performing exposures decreased from €606m to €578.1m with a coverage ratio of 14.2% (17.6%).
Net forborne non-performing exposures account for 0.2% (0.3%) of total customer loans, whereas net forborne performing exposures account for 1.1% (1.3%).
76 By definition, “forbearance” is when a specific concession is offered to a client which is undergoing, or risks encountering, temporary financial difficulties in meeting their payment obligations.
Notes to the Accounts | Part E – Information on risks and related hedging policies 299
A.1.9 Prudential consolidation – Non-performing on-balance sheet exposures to customers: trend in overall adjustments
Bad loans
Unlikely to pay
Overdue exposures (NPLs)
Description/Category
Total
of which: forborne exposures
Total
of which: forborne exposures
Total
of which: forborne exposures
A. Opening balance overall amount of writedowns
376,103
91,771
413,304
234,048
163,984
41,466
- of which: sold but not derecognized
27,316
4,986
45,467
22,701
24,318
5,684
B. Increases
183,507
99,370
295,909
105,189
124,767
35,871
B.1 Value adjustments to purchased or originated credit impaired assets
—
X
—
X
—
X
B.2 other value adjustments
71,408
22,999
195,493
45,634
88,609
14,023
B.3 losses on disposal
38
28
364
79
2
2
B.4 transfers from other categories of non-performing exposures
77,956
46,085
52,821
13,830
11,405
6,485
B.5 contractual changes without cancellations
—
—
—
—
—
—
B.6 Other increases
34,105
30,258
47,231
45,646
24,751
15,361
C. Decreases
166,522
27,518
289,439
156,512
132,768
29,113
C.1 write-backs from assessments
2,369
356
25,918
15,000
5,127
1,589
C.2 write-backs from recoveries
37,640
8,187
23,491
12,482
21,239
6,687
C.3 gains on disposal
6,594
1,476
7,517
2,066
1,499
255
C.4 write-offs
64,760
2,485
25,221
3,495
19,883
428
C.5 transfers to other categories of non-performing exposures
2,986
398
78,233
51,747
60,963
15,213
C.6 contractual changes without cancellations
—
—
—
—
—
—
C.7 Other decreases
52,173
14,616
129,059
71,722
24,057
4,941
D. Closing overall amount of adjustments
393,088
163,623
419,774
182,725
155,983
48,224
- of which: sold but not derecognized
21,611
7,161
40,959
18,749
20,164
6,224
300 Consolidated financial statements as at 30 June 2023
A.2 Classification of credit exposures by internal and external ratings
A.2.1 Prudential consolidation – Distribution of financial assets, loan commitments and financial guarantees issued by class of external ratings (gross values)
External rating classes
Exposures
Class 1
Class 2
Class 3
Class 4
Class 5
Class 6
Unrated
Total
A. Financial assets measured at amortized cost
1,913,163
4,935,894
5,358,070
1,970,876
679,826
31,551
49,042,220
63,931,600
- First Stage
1,910,528
4,920,497
5,354,248
1,932,994
619,796
25,318
44,947,785
59,711,166
- Second Stage
2,635
15,397
3,822
37,882
60,030
6,233
2,766,046
2,892,045
- Third Stage
—
—
—
—
—
—
1,328,389
1,328,389
- Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
B. Financial assets measured at fair value through other comprehensive income
1,506,406
157,967
3,328,081
425,068
161,123
—
230,396
5,809,041
- First Stage
1,506,406
157,967
3,328,081
425,068
123,400
—
230,396
5,771,318
- Second Stage
—
—
—
—
37,723
—
—
37,723
- Third Stage
—
—
—
—
—
—
—
—
- Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
C: Financial assets being sold
—
—
—
—
—
—
242,354
242,354
- First Stage
—
—
—
—
—
—
—
—
- Second Stage
—
—
—
—
—
—
—
—
- Third Stage
—
—
—
—
—
—
—
—
- Purchased or originated credit impaired assets
—
—
—
—
—
—
242,354
242,354
Total (A+B+C)
3,419,569
5,093,861
8,686,151
2,395,944
840,949
31,551
49,514,970
69,982,995
D. Loan commitments and financial guarantees issued
134,972
1,026,817
7,090,978
531,653
334,866
2,973
6,916,380
16,038,639
- First Stage
134,972
1,026,817
7,090,978
531,493
321,042
2,973
6,829,046
15,937,321
- Second Stage
—
—
—
160
13,824
—
86,268
100,252
- Third Stage
—
—
—
—
—
—
1,066
1,066
Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
Total (D)
134,972
1,026,817
7,090,978
531,653
334,866
2,973
6,916,380
16,038,639
Total (A+B+C+D)
3,554,541
6,120,678
15,777,129
2,927,597
1,175,815
34,524
56,431,350
86,021,634
The Mediobanca Group adopts the Standard & Poor’s ratings for all portfolios subject to assessment.
The table is compliant with the classification provided by the Bank of Italy Circular No. 262/05 (seventh update), which requires external ratings to be divided into six different classes of credit quality.
The first three risk classes (classes 1, 2 and 3) consist of investment grade exposures, with a Standard & Poor’s rating of between AAA and BBB-, and represent 84% of the entire portfolio (86% also considering loan commitments and financial guarantees issued), excluding unrated counterparties and non-performing loans.
The unrated exposures refer chiefly to retail clients and to small and medium-sized enterprises.
Notes to the Accounts | Part E – Information on risks and related hedging policies 301
A.2.2 Prudential consolidation – Distribution of financial assets, loan commitments and financial guarantees issued by class of internal ratings (gross values)
Internal rating classes
Exposures
Class 1
Class 2
Class 3
Class 4
Class 5
Class 6
Non-performing
Unrated
Total
A. Financial assets measured at amortized cost
2,434,962
9,366,709
19,794,453
15,572,916
8,045,805
1,292,736
1,283,043
6,140,976
63,931,600
- First Stage
2,433,934
9,352,311
19,755,900
14,992,914
6,987,588
212,804
—
5,975,715
59,711,166
- Second Stage
1,028
14,398
38,553
580,002
1,058,217
1,079,932
—
119,915
2,892,045
- Third Stage
—
—
—
—
—
105,418
1,283,043
45,346
1,328,389
- Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
—
B. Financial assets measured at fair value through other comprehensive income
1,381,153
333,808
3,350,177
355,021
108,780
—
—
280,102
5,809,041
- First Stage
1,381,153
333,808
3,350,177
317,298
108,780
—
—
280,102
5,771,318
- Second Stage
—
—
—
37,723
—
—
—
—
37,723
- Third Stage
—
—
—
—
—
—
—
—
—
- Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
—
C: Financial assets being sold
—
—
—
—
—
—
242,354
—
242,354
- First Stage
—
—
—
—
—
—
—
—
—
- Second Stage
—
—
—
—
—
—
—
—
—
- Third Stage
—
—
—
—
—
—
—
—
—
- Purchased or originated credit impaired assets
—
—
—
—
—
—
242,354
—
242,354
Total (A+B+C)
3,816,115
9,700,517
23,144,630
15,927,937
8,154,585
1,292,736
1,525,397
6,421,078
69,982,995
D. Loan commitments and financial guarantees issued
87,980
1,251,372
9,565,387
1,821,083
565,543
42,077
1,066
2,704,131
16,038,639
- First Stage
87,980
1,251,372
9,565,352
1,792,556
520,415
21,026
—
2,698,620
15,937,321
- Second Stage
—
—
35
28,527
45,128
21,051
—
5,511
100,252
- Third Stage
—
—
—
—
—
—
1,066
—
1,066
Purchased or originated credit impaired assets
—
—
—
—
—
—
—
—
—
Total (D)
87,980
1,251,372
9,565,387
1,821,083
565,543
42,077
1,066
2,704,131
16,038,639
Total (A+B+C+D)
3,904,095
10,951,889
32,710,017
17,749,020
8,720,128
1,334,813
1,526,463
9,125,209
86,021,634
Mediobanca uses models developed internally in the process of managing credit risk to assign ratings to each counterparty.
The models’ different rating scales are mapped against a single Group master scale consisting of six different rating classes based on the underlying probability of default (PD) attributable to the S&P master scale.
The companies within the Group which use the internal ratings and contribute to the various rating classes indicated apart from Mediobanca S.p.A. (for corporate customers) are: SelmaBPM, Compass Banca, CheBanca! and MBFACTA (for corporate customers).
302 Consolidated financial statements as at 30 June 2023
A.3 Distribution of secured exposures by type of security
A.3.1 Prudential consolidation – On- and off-balance sheet secured exposures to banks
Personal guarantees
(2)
Collaterals
(1)
Credit derivatives
Unsecured loans
Total
(1)+(2)
Other derivatives
Gross exposure
Net exposure
Property mortgages
Real properties – Finance leases
Securities
Other collateral guarantees
CLN
Central counterparts
Banks
Other financial companies
Other entities
Public administrat ions
Banks
Other financial companies
Other entities
1. Secured on-balance sheet credit exposures:
2,580,127
2,580,086
—
—
2,516,382
283
—
—
—
—
—
—
—
—
—
2,516,665
1.1 fully secured
2,279,593
2,279,558
—
—
2,216,382
283
—
—
—
—
—
—
—
—
—
2,216,665
- of which non-performing
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.2. partially secured
300,534
300,528
—
—
300,000
—
—
—
—
—
—
—
—
—
—
300,000
- of which non-performing
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2. Secured off-balance sheet credit exposures:
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.1 fully secured
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
- of which non-performing
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.2. partially secured
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
- of which non-performing
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Notes to the Accounts | Part E – Information on risks and related hedging policies 303
A.3.2 Prudential consolidation – On- and off-balance sheet secured exposures to customers
Collaterals
(1)
Personal guarantees
(2)
Credit derivatives
Unsecured loans
Other derivatives
Gross exposure
Net exposure
Property mortgages
Real properties – Finance leases
Securities
Other collateral guarantees
CLN
Central counterpart s
Banks
Other financial companies
Other entities
Public administra tions
Banks
Other financial companies
Other entities
Total
(1)+(2)
1. Secured on-balance sheet credit exposures:
25,259,414
24,972,190
13,710,926
731,569
3,132,927
3,952,059
—
—
—
—
—
644,149
28,166
772,486
991,223
23,963,505
1.1 fully secured
20,834,774
20,612,839
12,511,029
731,569
3,045,289
2,270,815
—
—
—
—
—
525,150
28,166
572,844
718,238
20,403,100
- of which non-performing
263,794
117,530
78,908
26,444
87
7,232
—
—
—
—
—
80
27
—
4,701
117,479
1.2. partially secured
4,424,640
4,359,351
1,199,897
—
87,638
1,681,244
—
—
—
—
—
118,999
—
199,642
272,985
3,560,405
- of which non-performing
98,399
39,670
39,395
—
108
—
—
—
—
—
—
151
—
—
—
39,654
2. Secured off-balance sheet credit exposures:
2,544,868
2,541,834
59,086
—
422,570
472,099
—
—
—
—
—
14,554
18
99,566
241,630
1,309,523
2.1 fully secured
1,189,937
1,188,227
48,872
—
397,663
467,818
—
—
—
—
—
1,455
—
60,489
141,677
1,117,974
- of which non-performing
434
407
38
—
—
369
—
—
—
—
—
—
—
—
—
407
2.2. partially secured
1,354,931
1,353,607
10,214
—
24,907
4,281
—
—
—
—
—
13,099
18
39,077
99,953
191,549
- of which non-performing
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
304 Consolidated financial statements as at 30 June 2023
A.4 Prudential consolidation – Financial and non-financial assets obtained from collateral enforcement
Book value
Derecognized credit exposures
Gross value
Cumulative write-downs
Of which: obtained during the period
A. Property, plant and equipment
52,540
51,169
(18,649)
32,520
7,686
A.1. Core assets
82
76
(7)
69
—
A.2. Held for investment purpose
45,620
45,561
(18,483)
27,078
6,265
A.3. Inventories
6,838
5,532
(159)
5,373
1,421
B. Equity and debt securities
—
—
—
—
—
C. Other assets
—
—
—
—
—
D. Non-current assets and asset groups being sold
—
—
—
—
—
D.1. Tangible assets
—
—
—
—
—
D.2. Other assets
—
—
—
—
—
Total 30/6/23
52,540
51,169
(18,649)
32,520
7,686
Total 30/6/22
61,482
61,346
(19,897)
41,449
95
The table includes properties originating from the enforcement of leasing contracts by SelmaBPM. Such properties are booked, to the consolidated accounts and the individual financial statements of Selma itself, on the basis of their characteristics and in accordance with the internal procedures, as tangible assets under IAS 40 or IAS 2. In very few instances are they classified as core properties, whereas IFRS 5 is not applied as the conditions provided for in this standard do not apply.
Notes to the Accounts | Part E – Information on risks and related hedging policies 305
B. Distribution and concentration of credit exposures
B.1 Prudential consolidation – Distribution of on- and off-balance sheet exposures to customers by sector
Public administrations
Financial companies
Financial companies (of which: insurance companies)
Non-financial companies
Households
Exposures/Counterparts
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
A. On-Balance sheet credit exposures
A.1 Bad loans
—
(145)
309
(6,636)
—
—
60,774
(86,468)
218,628
(299,839)
- of which: forborne exposures
—
—
—
(6,636)
—
—
4,869
(69,531)
985
(87,456)
A.2 Unlikely to pay
419
(563)
3,416
(3,853)
—
—
39,916
(80,210)
172,340
(335,148)
- of which: forborne exposures
—
—
1,279
(2,846)
—
—
17,925
(31,620)
89,155
(148,259)
A.3 Overdue exposures (NPLs)
798
(119)
138
(201)
—
—
31,837
(4,734)
84,648
(150,929)
- of which: forborne exposures
—
—
—
—
—
—
228
(319)
14,032
(47,905)
A.4 Performing exposures
11,412,322
(7,466)
8,863,897
(25,897)
1,059,606
(1,624)
18,449,911
(74,358)
28,510,093
(610,593)
- of which: forborne exposures
—
—
9,138
(529)
—
—
200,382
(10,652)
368,592
(84,545)
Total (A)
11,413,539
(8,293)
8,867,760
(36,587)
1,059,606
(1,624)
18,582,438
(245,770)
28,985,709
(1,396,509)
B. Off-balance sheet credit exposures
B.1 Non-performing exposures
—
—
—
—
—
—
369
(4)
562
(131)
B.2 Performing exposures
3,163,895
(31)
8,736,209
(1,089)
916,858
(262)
11,659,280
(12,211)
3,101,906
(8,699)
Total (B)
3,163,895
(31)
8,736,209
(1,089)
916,858
(262)
11,659,649
(12,215)
3,102,468
(8,830)
Total (A+B) 30/6/2023
14,577,434
(8,324)
17,603,969
(37,676)
1,976,464
(1,886)
30,242,087
(257,985)
32,088,177
(1,405,339)
Total (A+B) 30/6/2022
11,644,185
(9,649)
17,016,190
(28,821)
1,965,484
(1,402)
32,858,916
(226,305)
30,169,755
(1,411,567)
306 Consolidated financial statements as at 30 June 2023
B.2 Prudential consolidation – Distribution of on- and off-balance sheet exposures to customers by geography
Italy
Other European countries
America
Asia
Rest of the world
Exposures/geographical area
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
A. On-Balance sheet credit exposures
A.1 Bad loans
276,329
(335,688)
2,927
(57,235)
137
(165)
13
—
305
—
A.2 Unlikely to pay
193,139
(382,751)
17,119
(36,334)
—
—
5,833
(689)
—
—
A.3 Overdue exposures (NPLs)
79,009
(155,115)
12,131
(370)
2
—
—
—
26,279
(498)
A.4 Performing exposures
49,681,551
(674,552)
14,809,750
(35,765)
2,324,042
(6,752)
107,772
(213)
313,110
(1,033)
Total (A)
50,230,028
(1,548,106)
14,841,927
(129,704)
2,324,181
(6,917)
113,618
(902)
339,694
(1,531)
B. Off-balance sheet credit exposures
B.1 Non-performing exposures
931
(135)
—
—
—
—
—
—
—
—
B.2 Performing exposures
11,396,101
(14,931)
14,537,871
(6,200)
434,251
(590)
16,455
—
276,612
(309)
Total (B)
11,397,032
(15,066)
14,537,871
(6,200)
434,251
(590)
16,455
—
276,612
(309)
Total (A+B) 30/6/2023
61,627,060
(1,563,172)
29,379,798
(135,904)
2,758,432
(7,507)
130,073
(902)
616,306
(1,840)
Total (A+B) 30/6/2022
58,567,067
(1,571,103)
27,741,778
(86,223)
3,264,045
(17,506)
1,362,455
(383)
753,702
(1,126)
Notes to the Accounts | Part E – Information on risks and related hedging policies 307
B.3 Prudential consolidation – Distribution of on- and off-balance sheet exposures to banks by geography
Italy
Other European countries
America
Asia
Rest of the world
Exposures/geographical area
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
Net exposure
Accumulated impairment
A. On-Balance sheet credit exposures
A.1 Bad loans
—
—
—
—
—
—
—
—
—
—
A.2 Unlikely to pay
—
—
—
—
—
—
—
—
—
—
A.3 Overdue exposures (NPLs)
—
—
—
—
—
—
—
—
—
—
A.4 Performing exposures
6,321,180
(3,518)
4,205,600
(184)
61,588
(1)
851
—
(196)
—
Total (A)
6,321,180
(3,518)
4,205,600
(184)
61,588
(1)
851
—
(196)
—
B. Off-balance sheet credit exposures
B.1 Non-performing exposures
—
—
—
—
—
—
—
—
—
—
B.2 Performing exposures
1,135,677
—
15,076,130
—
—
—
—
—
2,901
—
Total (B)
1,135,677
—
15,076,130
—
—
—
—
—
2,901
—
Total (A+B) 30/6/2023
7,456,857
(3,518)
19,281,730
(184)
61,588
(1)
851
—
2,705
—
Total (A+B) 30/6/2022
10,203,356
(4,766)
17,762,865
(130)
76,883
(7)
4,201
(2)
39
—
308 Consolidated financial statements as at 30 June 2023
B.4a Credit risk indicators
30/6/2023
30/6/2022
a) Gross bad loans/total loans
1.08%
1.31%
b) Non-performing accounts receivable / on-balance sheet credit exposures
2.33%
2.66%
c) Net bad loans / Regulatory capital (1)
3.03%
4.54%
(1) Net bad loans include the NPL portfolios purchased and held by Revalea, which went from €350.6m to €238.8m.
B.4b Large exposures
30/6/2023
30/6/2022
a) Book value
9,360,267
8,940,901
b) Weighted value
7,115,015
6,697,929
c) Number of positions
8
7
At 30 June 2023, exposures (including market risk and equity investments) exceeding 10% of CET 1 concerned eight customer groups (one more than in the previous financial year) for a gross exposure of €9.4bn (€7.1bn taking into account guarantees and weightings), a slight increase compared to June 2022 (€8.9bn and €6.7bn, respectively). In detail, the eight positions concerned an industrial group, an insurance company and six banking groups.
Notes to the Accounts | Part E – Information on risks and related hedging policies 309
C. Securitization
QUALITATIVE INFORMATION
The Group has a portfolio of securities deriving from securitizations by other issuers totalling €1,053m (€1,282.6m at 30 June last), €788.8m of which as part of the banking book and €264.3m as part of the trading book (respectively, €1,021.2m and €261.3m).
In the early months of 2023, the ABS market reversed the trend of widening spreads in line with the general market trend, which, despite inflationary fears, showed good resistance to rising rates, also benefiting from the BTP-Bund tightening (for the domestic component).
The primary market partially reopened for high standing issuers in the core European area (for example German and French autoloans), while for issuers in Southern Europe the lack of the Central Bank in bookbuilding translated into a very limited investor base.
After the repayment of the TLTRO in June (with the simultaneous repayment of liquidity and release of collateral), issuers will continue to evaluate the issuance of ABS against the cost-effectiveness of other forms of refinancing.
Exposures in the banking book decreased from €1,021.2m to €788.8m with a prevalence of senior securities with underlying NPLs (€486.3m, down b y €217.3m) and CLOs (€259.4m, steady over the period). Positions on mezzanine tranches (€3.5m) and junior tranches (€0.5m) remained limited and essentially unchanged. The difference between book value (amortized cost) and fair value (taken from market platforms) amounted to €15.2m, mainly due to the rate increase.
The trading book stood at €264.3m (€261.3m): the senior portion amounted to €149.3m (€143.3m), €100.5m of which in the Transferable Custody Receipt transaction;77 €23.9m in performing consumer loans and €24.8m in CLOs (€19.5m in June 2022). The mezzanine portion amounted to €115m (€115.3m) divided between €66.1m in the “negative basis” strategy, €27.4m in CLOs and 3 tranches in Italian consumer ABS. There are no junior exposures any longer.
77 In financial year 21/22, the Bank signed a note issued by the custodian bank in which three CLO positions (with underlying European corporate loans) purchased by Mediobanca and some financial guarantees on the same CLOs with which the Bank purchased hedging had been contributed in the form of a trust; TCR pays out principal and interest of the underlying CLOs after the premium of financial guarantees.
310 Consolidated financial statements as at 30 June 2023
Mediobanca also has an exposure to:
⎯CLI Holdings I and CLI Holdings II,78 SPVs under English law, which respectively subscribed to the capital of Cairn Loan Investments and Cairn Loan Investments II, independent managers of Polus-branded CLOs, which invested in the junior tranches of the CLOs they manage in order to comply with prudential regulations (Article 405 of Regulation [EU] 585/2013); As at 30 June, CLI H I was recognized for €12.5m and CLI H II for €38.6m;
⎯Italian Recovery Fund, a closed-end alternative investment fund (AIF) incorporated under Italian law and managed by DeA Capital SGR S.p.A. which is currently invested in five securitizations (Valentine, Berenice, Cube, Este and Sunrise I) with Italian banks’ NPLs as the underlying instrument; the €30m commitment has to date been drawn as to €29m;
⎯Negentropy RAIF – Debt Select Fund, an alternative investment fund instituted under Luxembourg law and managed by Negentropy Capital Partners Limited, for which Mediobanca acted as advisor; the fund has senior tranches of real estate NPLs and loans as the underlying instrument, with an aggregate NAV of €118.8m (the share of Mediobanca being €64.1m), which takes into account uncertainties on recoveries and rate hikes.
QUANTITATIVE INFORMATION
C.2 Prudential consolidation – Exposures from main “third-party” securitizations divided by asset type / exposure type
Cash exposure
Senior
Mezzanine
Junior
Type of securitized asset/Exposure
Book value
Writedowns /writeback
Book value
Writedowns /writeback
Book value
Writedown s /writeback
A. Italy NPLs (residential mortgages and real estate properties)
486,305
(2,387)
—
—
—
—
B. Consumer ABS Italy
15,990
2
21,516
99
—
—
C. Performing Loans Netherlands
12,759
(14)
992
—
451
(8)
D. Performing Loans UK
34,262
—
—
—
—
—
E. Other loans (*)
384,757
(75)
96,006
2,291
—
—
Total 30/6/23
934,073
(2,474)
118,514
2,390
451
(8)
Total 30/6/22
1,160,628
(4,277)
118,778
(12,860)
3,185
(402)
(*) CLO transactions, €100m of which relating to TCR.
78 CLI H I is reported in the disclosure on structured entities not consolidated for accounting purposes, while CLI H II is an investment consolidated using the equity method pursuant to IAS 28.
Notes to the Accounts | Part E – Information on risks and related hedging policies 311
C.3 Prudential consolidation – Interests in SPVs
Assets
Liabilities
Name of securitization / name of SPV
Head Office
Consolidation
Receivables
Debt securities
Other
Senior
Mezzanine
Junior
Quarzo 7 - Quarzo S.r.l.
Milan
Accounting
888,979
—
113,385
654,114
—
290,900
Quarzo 9 - Quarzo S.r.l.
Milan
Accounting
201,587
—
46,117
124,978
—
120,915
Quarzo 10 - Quarzo S.r.l.
Milan
Accounting
744,472
—
75,883
570,477
—
248,800
Quarzo 11 - Quarzo S.r.l.
Milan
Accounting
508,123
—
57,487
477,949
—
72,000
Quarzo 12 - Quarzo S.r.l.
Milan
Accounting
685,338
—
29,049
605,500
—
94,500
Quarzo CQS S.r.l. Quarzo 2018
Milan
Accounting
63,564
—
7,650
13,480
—
52,000
MB Funding Lux S.A.
Luxembourg
Accounting
1,012,488
343,701
—
1,100,896
—
—
C.5 Prudential consolidation – Servicing – Collecting securitized receivables and redeeming securities issued by SPVs
Securitized assets (end-of-period figure)
Receivables collected during the year
Percentage share of securities repaid (end-of-period figure)
Senior
Mezzanine
Junior
Servicer
Vehicle company
Non-performing
Performing
Non-performing
Performing
Non-performing
Performing
Non-performing
Performing
Non-performing
Performing
Compass
Quarzo CQS (2018)
6,511
61,527
—
43,598
—
95
—
—
—
—
Compass
Quarzo Srl (Q7)
63,303
906,320
—
739,645
—
46
—
—
—
—
Compass
Quarzo Srl (Q8)
—
—
—
35,395
—
100
—
—
—
—
Compass
Quarzo Srl (Q9)
20,397
206,102
—
170,762
—
84
—
—
—
—
Compass
Quarzo Srl (Q10)
56,863
756,103
—
665,616
—
68
—
—
—
—
Compass
Quarzo Srl (Q11)
17,609
494,071
—
316,696
—
9
—
—
—
—
Compass
Quarzo Srl (Q12)
3,127
682,427
—
76,057
—
—
—
—
—
—
C.6 Prudential consolidation – Consolidated securitization-related SPVs
Quarzo S.r.l. (Compass Banca)
This SPV currently has five securitizations in place with performing loans granted by Compass Banca as the underlying instrument (Compass has subscribed for the entire number of junior securities), which are ceded on a revolving basis for a period of between 6 and 66 months, at the end of which the amortization phase of the securitization may begin. In some of the deals the Parent Company and/or other Group’s companies have subscribed to the senior notes. The five deals in place are summarized in the table below:
312 Consolidated financial statements as at 30 June 2023
senior
Issue date
A1
A2
junior
Credit transferred in the year
From the repayment date
15/2/2017
—
1,215
285
131
15/11/2022
25/11/2019
600
183
117
—
15/7/2020
17/4/2020
—
1,760
240
—
15/12/2021
06/4/2022
528
—
72
196
15/5/2023
11/5/2023
450
155
95
35
17/6/2024
Legend:
A1: issued on the market
A2: subscribed to by the Parent Company and/or Group companies
During the year, the Quarzo 8 transaction was closed for a consideration of €159.4m following the repurchase of the remaining receivables.
On 11 May last, this special purpose vehicle completed the Quarzo 12 securitization through the sale of a portfolio of performing loans worth €700m, subsequently supplemented by additional revolving loans of €35m.
Quarzo CQS S.r.l. (Compass Banca, formerly Futuro)
This special purpose vehicle has only one transaction in place, completed in 2018 with underlying some salary-backed loans of Futuro (now merged into Compass Banca) sold in a single non-revolving tranche. The senior securities (originally issued in a total amount of €598m, with €13.5m currently in issue) are listed on the Dublin stock exchange and sold on the market, while the junior securities (€52m) are held by Compass Banca entirely. The transaction is currently expected to be closed during the month of September 2023.
MB Funding Lux S.A. (Mediobanca)
This SPV was set up by Mediobanca S.p.A. in order to execute secured transactions with a corporate syndicated loan originated by Mediobanca International (Luxembourg) SA or Mediobanca S.p.A. as the underlying instrument, of which it retains the credit risk. The notes, which form part of the Parent Company’s “Medium-Term Note” programme of issuance, have been subscribed for entirely by other Group legal entities and used as collateral for transactions on the interbank market.
Notes to the Accounts | Part E – Information on risks and related hedging policies 313
During the year under review, action was taken to carry out a restructuring of the transactions in place as at 30 June 2022 by combining three transactions with issue dates 22 May 2017, 1 December 2017, and 10 October 2018 into a single transaction and proceeding to increase their operations by €100m. The three transactions in place, for a total nominal value of €1.1bn, are therefore divided as follows:
Issue Date
Nominal Value
Repayment Date
22/5/2017
800
03/7/2028
20/2/2019
200
15/10/2026
11/12/2020
100
11/6/2026
For a better understanding, the table published as at 30 June 2022 is also shown below:
Issue Date
Nominal Value
Repayment Date
25/6/2017
200
25/6/2028
20/12/2017
100
20/12/2024
30/10/2018
400
30/10/2023
11/12/2020
100
11/6/2026
13/10/2021
200
15/10/2026
Please note that a single unsecured issue of €10m expired in the month of in June 2023.
* * *
Transactions between the originators and the SPVs during the year under review were as follows:
Vehicle company
Credit disposal
Proceeds
Servicing fees
Junior interest
Additional return accrued
Quarzo CQS S.r.l. Quarzo 2018
—
47.2
0.2
1.1
4.8
Quarzo S.r.l.
1,062.1
2,020.1
6.8
22.2
276.3
MB Funding Lux
215,741.3
142,715.–
—
—
2.7
314 Consolidated financial statements as at 30 June 2023
D. Disposals
A. Financial assets sold but not entirely derecognized
QUALITATIVE INFORMATION
With regard to the description of transactions represented in Tables D.1 and D.3 below, reference should be made to the descriptions found under the tables themselves. With regard, in particular, to transactions in debt securities against medium and long-term repurchase agreements, please refer to the contents of these Notes to the Accounts - Part B.
Notes to the Accounts | Part E – Information on risks and related hedging policies 315
QUALITATIVE INFORMATION
D.1 Prudential consolidation – Financial assets sold entirely recognized and related financial liabilities: book values
Financial assets sold as a whole
Associated financial liabilities
Book value
of which: subject to securitization transactions
of which: subject to repurchase agreements
- of which non-performing
Book value
of which: subject to securitization transactions
of which: subject to repurchase agreements
A. Financial assets held for trading
1,499,821
—
1,499,821
X
1,364,696
—
1,364,696
1. Debt securities
1,349,542
—
1,349,542
X
1,219,563
—
1,219,563
2. Equity securities
150,279
—
150,279
X
145,133
—
145,133
3. Loans
—
—
—
X
—
—
—
4. Derivatives
—
—
—
X
—
—
—
B. Other financial assets mandatorily measured at fair value
—
—
—
—
—
—
—
1. Debt securities
—
—
—
—
—
—
—
2. Equity securities
—
—
—
X
—
—
—
3. Loans
—
—
—
—
—
—
—
C. Financial assets designated at fair value
—
—
—
—
—
—
—
1. Debt securities
—
—
—
—
—
—
—
2. Loans
—
—
—
—
—
—
—
D. Financial assets measured at fair value through other comprehensive income
1,184,230
—
1,184,230
—
847,866
—
847,866
1. Debt securities
1,184,230
—
1,184,230
—
847,866
—
847,866
2. Equity securities
—
—
—
X
—
—
—
3. Loans
—
—
—
—
—
—
—
E. Financial assets measured at amortized cost
3,703,385
2,355,717
1,347,668
27,023
2,817,053
1,852,999
964,054
1. Debt securities
1,341,450
—
1,341,450
—
953,981
—
953,981
2. Loans
2,361,935
2,355,717
6,218
27,023
1,863,072
1,852,999
10,073
Total 30/6/23
6,387,436
2,355,717
4,031,719
27,023
5,029,615
1,852,999
3,176,616
Total 30/6/22
7,687,785
2,628,586
5,059,199
26,278
5,808,973
1,610,451
4,198,522
316 Consolidated financial statements as at 30 June 2023
D.3 Prudential consolidation – Disposals related to financial liabilities with repayment exclusively based on assets sold and not fully derecognized: fair value
Total
Fully booked
Partially booked
30/6/2023
30/6/2022
A. Financial assets held for trading
1,499,821
—
1,499,821
2,324,398
1. Debt securities
1,349,542
—
1,349,542
1,798,008
2. Equity securities
150,279
—
150,279
526,390
3. Loans
—
—
—
—
4. Derivatives
—
—
—
—
B. Other financial assets mandatorily measured at fair value
—
—
—
—
1. Debt securities
—
—
—
—
2. Equity securities
—
—
—
—
3. Loans
—
—
—
—
C. Financial assets designated at fair value
—
—
—
—
1. Debt securities
—
—
—
—
2. Loans
—
—
—
—
D. Financial assets measured at fair value through other comprehensive income
1,184,230
—
1,184,230
1,610,176
1. Debt securities
1,184,230
—
1,184,230
1,610,176
2. Equity securities
—
—
—
—
3. Loans
—
—
—
—
E: Financial assets measured at amortized cost (fair value)
3,914,581
—
3,914,581
4,065,285
1. Debt securities
1,383,584
—
1,383,584
1,112,925
2. Loans
2,530,997
—
2,530,997
2,952,360
Total financial assets
6,598,632
—
6,598,632
7,999,859
Total associated financial liabilities
5,781,150
—
X
X
Net value 30/6/2023
817,482
—
6,598,632
X
Net value 30/6/2022
1,425,926
—
X
7,999,859
Notes to the Accounts | Part E – Information on risks and related hedging policies 317
B. Financial assets sold and fully derecognized with continuing involvement recorded
QUALITATIVE AND QUANTITATIVE INFORMATION
At the end of the year, there were no fully cancelled transactions in place for the sale of financial assets that led to the recognition of a continuing involvement.
C. Financial assets sold but not entirely derecognized
QUALITATIVE AND QUANTITATIVE INFORMATION
At the end of the year, there were no fully cancelled transactions in place for the sale of financial assets.
D. Covered bond transactions
Mediobanca Covered Bond S.r.l., an SPV incorporated under Article 7-bis of Italian Law 130/99, is owned as to 90% by CheBanca! and as to 10% by SPV Holding.
At a Board meeting held in December 2020, the Bank’s Directors approved a resolution to renew the programme of covered bond issuance for a further ten years compared to the original expiry date (December 2021) for a total amount of €10bn.
The deal entails the involvement of:
⎯Mediobanca, as the issuer of the covered bonds;
⎯CheBanca! as the seller (including on a revolving basis) of assets eligible for sale under the regulations in force, up to the limits on Mediobanca’s regulatory capital ratios, and servicer for the transaction;
⎯Mediobanca Covered Bond S.r.l. (SPV) as non-recourse transferee of the assets and guarantor of the covered bonds.
Fitch assigned an AA rating to the issues of this programme; after the Italian sovereign rating was raised, the issues of Mediobanca S.p.A.’s covered bonds also obtained an upgrade (previous rating AA-).
318 Consolidated financial statements as at 30 June 2023
The programme includes 7 transactions in place for a value of €5,250m placed with institutional investors and secured by assets sold by CheBanca! to Mediobanca Covered Bond for €7,099.3m, broken down as follows:
Issue date
Nominal value
Rate
Maturity date
Oct-13
750
Fix: 3.625%
Oct-23
Nov-15
750
Fix: 1.375%
Nov-25
Nov-17
750
Fix: 1.25%
Nov-29
Jul-18
750
Fix: 1.125%
Aug-24
Jul-19
750
Fix: 0.5%
Oct-26
Jan-21
750
Fix: 0.01%
Feb-31
Jun-22*
750
Fix: 2.375%
Jun-27
* On 10/8/2022, there was an increase of €250m over the issue of €500m in June.
During the year under review, assets were sold by CheBanca! to the special purpose vehicle Mediobanca Covered Bond in the amount of €672.1m, with the simultaneous repurchase of assets for €14.5m.
Following the enactment of the new Title 1-bis within Law No. 130/1999 (the “Title 1-bis”) and the 42nd update of Circular No. 285/2013 (the “Provisions”), Mediobanca and CheBanca!, respectively as Issuing Bank and Assignor Bank under the covered bond programme in place, carried out a series of activities aimed at adapting the programme, operating procedures, control measures the related contractual documentation to the new regulatory framework included in the aforementioned Title 1-bis and in the new Provisions.
* * *
Notes to the Accounts | Part E – Information on risks and related hedging policies 319
E. Prudential consolidation – Models for managing credit risk
The Mediobanca Group uses the IRB Advanced method (PD and LGD parameters) in order to quantify the capital requirement for credit risk on the corporate loan book of Mediobanca and Mediobanca International and the CheBanca! Italian mortgage portfolio. A plan has also been adopted to progressively roll out the internal models to cover other categories of credit asset as well (the “Roll-Out Plan”), as part of which Compass will be applying the IRB method to Consumer exposures as of 30 September 2023. For exposures for which the standardized methodology is currently used to calculate the regulatory capital requirements, the Group has nonetheless developed internal credit risk models that are used for management purposes. The Group has also adopted a portfolio model in order to calculate the economic capital for credit risk, which enables geographical and sector concentration and diversification effects to be factored in. For further information, please refer to the content of “Section 1.1 Credit risks” of this Part of the Notes to the accounts.
320 Consolidated financial statements as at 30 June 2023
1.2 MARKET RISKS
1.2.1 INTEREST RATE RISK AND PRICE RISK – REGULATORY TRADING PORTFOLIO
QUALITATIVE INFORMATION
The operating exposure to market risks generated by the positions held as part of the trading portfolio are measured and monitored, and operating earnings are calculated, on a daily basis principally through use of the following indicators:
–Sensitivity – mainly Delta and Vega – to the principal risk factors (interest rates, share prices, exchange rates, credit spreads, inflation and volatility, dividends, correlations, etc.); sensitivity analysis shows the increase or decrease in the value of financial assets and derivatives to local changes in these risk factors, providing a static representation of the market risk of the trading portfolio;
–Value-at-risk calculated using a weighted historical simulation method with scenarios updated daily, assuming a liquidation horizon of one business day and a confidence level of 99%.
Thresholds are monitored daily through VaR and sensitivity analyses to ensure compliance with operating limits, managing the risk appetite established by the Bank for its trading book and, in case of VaR, also to evaluate the robustness of the model through back-testing. The expected shortfall on the set of positions subject to VaR calculation is also calculated daily by means of historical simulation; this represents the average potential losses over and beyond the level of confidence for the VaR. Stress tests are also carried out daily (on specific positions) and monthly (on the entire portfolio) concerning the main risk factors to show the impact which more substantial movements in the main market variables might have (e.g. share prices and interest or exchange rates) calibrated on the basis of extreme changes in market variables.
Other complementary and more specific risk metrics are also calculated in order to assess risks not fully measured by VaR and sensitivity analyses. The weight of products which require such metrics to be used is in any case extremely limited compared to the overall size of Mediobanca’s trading portfolio.
Notes to the Accounts | Part E – Information on risks and related hedging policies 321
The financial year was characterized by persistent volatility in all asset classes, especially interest rates. The reason for this can be ascribed to the macroeconomic context, characterized by a high inflation rate in the main Western economies. Furthermore, in March, the default of Silicon Valley Bank and the forced takeover of Credit Suisse by UBS raised fears of the onset of a new banking crisis, which quickly subsided. Last but not least, the Russian-Ukrainian conflict contributed to a period of market instability.
The inflationary push which began at the end of 2021 as an effect of the post-Covid recovery accelerated during 2022 also due to the war in Ukraine and the consequent tensions on the market of energy commodities. To deal with the increase in prices, the Central Banks (in particular the Fed and the ECB) resorted to restrictive monetary policies through repeated increases in the discount rates (+525 bps in the US and +400 bps in the Euro Area compared to 2020). Despite this, inflation in the United States and in the European Union remained well above monetary policy targets. This generated volatility on the markets due to uncertainties as to the end of such restrictive policies and due to the fear of a recession, given the high cost of money. A more marked decrease in the inflation rate in Europe and in the United States only occurred in the period May-June. In the context described above, the peak of volatility was recorded in March when news on the state of the accounts of Silicon Valley Bank (SVB) and its subsequent default raised fears about the stability of the banking sector both in the US and in Europe. In the following weeks, the sell-off panic moved to Credit Suisse, which was considered to be the most fragile global financial institution, causing a sudden drop in prices until the Swiss authorities pushed for its acquisition by its rival UBS. During the same days, stock market movements were compounded by unprecedented fluctuations on the interest rates market, especially for US government securities - the short-term yield curve lost more than 80 bps in a single session; this situation occurred due to an erroneous forecast by market operators of a sudden change in monetary policy by the Fed, aimed at avoiding the contagion effect on other American banking institutes considered to be unsound.
The VaR and Stop Loss limits were exceeded during the month of March, at the time of the exceptional volatility peaks on the interest rate market.
The Value-at-Risk of the Trading aggregate fluctuated over the year under review between a minimum of €4.5m in September and a maximum of €16.7m, as recorded in mid-March. The average figure (€8.4m) was 35% higher than the average figure in the previous year (€6.1m). After the peak, the VaR figure progressively decreased until it reached €6.7m, well below the average for the year.
322 Consolidated financial statements as at 30 June 2023
The risk factors that explain the VaR trend are mainly as follows: (i) short-term USD interest rates (futures on the 3-month forward curve, SOFR) underlying some call and put option positions brokered on listed markets; (ii) yields of Italian Government Bonds and of countries in the core Euro Area. The contribution of other risk factors, such as share prices or exchange rates, is marginal. With respect to these, the Bank’s position is conservative or substantially neutral.
In line with the VaR trend, the Expected shortfall - which measures a further stress scenario on the same VaR historical series - shows a higher average figure than in the previous period (€12.8m against €8.2m).
Daily back-testing results (based on the comparison with the theoretical Profits and Losses) showed three cases of deviation from the VaR during the twelve-month observation period. Thresholds were exceeded at the time of the interest rate volatility peaks in March.
Table 1: Value-at-risk and Expected Shortfall of the trading portfolio
€/000
Financial year 2022-2023
FY 2021/2022
Risk factors (€/000)
30 June
Min
Max
Avg
Avg
Interest rates
5,044
1,697
15,354
7,071
2,735
Credit
2,571
1,483
3,641
2,548
1,532
Shares
2,359
815
8,852
3,609
3,817
Exchange rates
1,145
543
2,327
904
633
Inflation
47
43
1,586
365
140
Volatility
5,469
1,884
15,083
6,254
3,421
Diversification effect (*)
(9,918)
(20,769)
(6,664)
(12,369)
(617)
Total
6,717
(14,304)
40,179
8,382
11,661
Expected Shortfall
11,048
5,581
27,851
12,846
8,190
(*) Associated with a less-than-perfect correlation between risk factors.
Apart from the general VaR limit on Trading positions, a system reflecting a greater degree of granularity for the individual trading desks is also in place.
Furthermore, each desk has sensitivity limits to changes in the various risk factors, which are monitored on a daily basis. Compared to the previous year, there was an increase in the average delta of interest rates (from €83,000 to €218,000), consistent with the general change in rates. Please also note that the average equity vega decreased from €1.4m to €757,000 per percentage point. The average exposure to exchange rates also decrease from €427,000 to €142,000 per percentage point.
Notes to the Accounts | Part E – Information on risks and related hedging policies 323
The equity delta was essentially closed at the end of the financial year.
Table 2: Summary of trends in the main trading portfolio sensitivities
(€/000)
FY 2022/2023
Risk factors
30 June
Min
Max
Avg
FY 2021/2022
Equity delta (+1%)
(24,805)
(513,481)
6,330,451
418,680
318,529
Equity vega (+1%)
239,406
(461,445)
3,166,955
757,496
1,438,665
Interest rate delta (+1 bp)
183,720
(173,610)
612,456
218,649
82,913
Inflation delta (+1 bp)
3,705
(245)
42,311
13,079
221
Exchange rate delta (+1%) (*)
137,294
(3,739,534)
763,080
142,539
427,898
Credit delta (+1 bp)
460,497
(4,356)
730,681
421,632
514,646
(*) This refers to the Euro gaining versus other foreign currencies.
Trends in VaR of trading portfolio
324 Consolidated financial statements as at 30 June 2023
Trends in VaR constituents (Trading)
Notes to the Accounts | Part E – Information on risks and related hedging policies 325
QUANTITATIVE INFORMATION
1. Regulatory trading portfolio: distribution by residual maturity (repricing date) of financial cash assets and liabilities and financial derivatives
Type/residual duration
On demand
Up to 3 months
From 3 months to 6 months
From 6 months to 1 year
From 1 year to 5 years
From 5 years to 10 years
Over 10 years
Not specified
1. Cash assets
—
576,197
365,394
1,844,709
1,904,444
330,350
456,999
—
1.1 Debt securities
—
576,197
365,394
1,844,709
1,904,444
330,350
456,999
—
- with early redemption option
—
—
—
—
—
—
—
—
- other
—
576,197
365,394
1,844,709
1,904,444
330,350
456,999
—
1.2 Other assets
—
—
—
—
—
—
—
—
2. Cash liabilities
3,428
26,806
616,511
810,676
2,090,077
403,444
139,024
—
2.1 Debt securities in issue
—
—
—
—
—
—
—
—
2.2 Other liabilities
3,428
26,806
616,511
810,676
2,090,077
403,444
139,024
—
3. Financial derivatives
3.1 With underlying securities
– Options
+ Long positions
—
—
—
—
—
—
—
—
+ Short positions
—
—
—
—
—
—
—
—
– Other
+ Long positions
—
713,906
72,696
—
204,380
—
—
—
+ Short positions
—
713,906
72,696
—
204,380
—
—
—
3.2 Without underlying securities
– Options
+ Long positions
—
5,721,196
1,078,673
1,187,570
4,602,679
1,467,297
—
—
+ Short positions
—
5,721,196
1,078,673
1,187,570
4,602,679
1,467,297
—
—
– Other
+ Long positions
9,925
18,199,251
23,494,283
32,600,624
34,765,334
10,421,303
6,545,566
—
+ Short positions
9,925
44,758,814
26,199,416
15,156,741
27,814,701
8,848,824
3,247,866
—
326 Consolidated financial statements as at 30 June 2023
2. Regulatory trading portfolio: cash exposures in equities and UCITS units
Book value
Type of exposure/Amounts
Leve 1
Level 2
Level 3
A. Equities (¹)
A.1 Shares
980,684
—
163,498
A.2 Innovative equity instruments
—
—
—
A.3 Other equity instruments
—
—
—
B. UCITS
B.1 Under Italian law
—
—
230
- harmonized open
—
—
—
- non-harmonized open
—
—
—
- closed
—
—
230
- reserved
—
—
—
- speculative
—
—
—
B.2 Under other EU states law
25
—
—
- harmonized
25
—
—
- non-harmonized open
—
—
—
- non-harmonized closed
—
—
—
B.3 Under non-EU states law
—
—
—
- open
—
—
—
- closed
—
—
—
Total
980,709
—
163,728
(1) Mismatch between trading assets and technical shortfalls booked as trading liabilities: over 75% of the net exposure is related to EU member states.
Notes to the Accounts | Part E – Information on risks and related hedging policies 327
1.2.2 INTEREST RATE RISK AND PRICE RISK – BANKING BOOK
QUALITATIVE INFORMATION
The Mediobanca Group monitors and manages interest rate risk through sensitivity testing of net interest income and economic value. The sensitivity of the net interest income quantifies the impact on current earnings in the worst-case scenario among those outlined in the guidelines of the Basel Committee (BCBS) implemented in the document published by the EBA in October 2022 (EBA/GL/2022/14). In this testing, the asset stocks are maintained constant, renewing the items falling due with the same financial characteristics and assuming a time horizon of twelve months.
Conversely, the sensitivity of economic value measures the impact of future flows on the current value in the worst-case scenario of those contemplated in the Basel Committee guidelines (BCBS).
All the scenarios present a floor set by the EBA guidelines at minus 1.5% on the demand maturity with linear progression up to 0% at the fifty-year maturity. In the current market environment, this floor has a very limited impact on sensitivity metrics.
For both sensitivities, balance sheet items have been treated based on their contractual profile, except for the items related to current account deposits for retail clients (which have been treated on the basis of proprietary behavioural models) and consumer credit items and mortgages (which reflect the possibility of early repayment).
To determine the discounted value of cash flows, various benchmark curves have been used, based on the value date on which the balance sheet item itself is traded (multi-curve). The credit component has been stripped out of the cash flows for the economic value sensitivity only.
With reference to the Group’s banking book positions as at 30 June, in the event of a parallel decline of the curve (“Parallel Down”), the expected net interest income would undergo a negative change of €142m, a clear worsening compared to the previous year (€-57m), due to a sudden rise in market interest rates and the resulting loss of the benefit of the regulatory floor. However, the expected net interest income is significantly lower than the one recorded at the end of December (€-262m), which resulted in the RAF threshold being exceeded and promptly returned to normal levels in the first few months of 2023.
328 Consolidated financial statements as at 30 June 2023
In detail, the reduction in the sensitivity of the net interest income concerned the management of the refixing risk by restructuring hedges in place, reducing the liquidity deposited with the Central Bank, and purchasing fixed-rate government bonds.
With reference to the analysis of the present value of future cash flows in the Group’s banking book, the shock that may cause the worst change would occur in the event of a flattening of the interest rate curve (“Flattener”).
The change would in fact be negative by €76m, mainly due to the impact of Mediobanca (€-42m) and Compass (€-35m) against a positive change for the other subsidiaries. In the previous year, the maximum change amounted to €201m in the “Short Up” scenario.
(€m)
Banking Book
Data at 30 June 2023
Maximum level scenario
Group
Mediobanca S.p.A.
CheBanca!
Compass
Other
Net interest income sensitivity
Parallel Down
(142)
(66)
(14)
(18)
(44)
Sensitivity of discounted value of expected cash flows
Flattener
(76)
(42)
9
(35)
(8)
At Group level, the values obtained for the net interest income sensitivity are lower than the Group RAF limit of 14.5% (net interest income/Group expected net interest income sensitivity), while the economic value sensitivity is lower than the Group RAF limit by 4.5% (Economic Value sensitivity/CET1).
The SOT regulatory indicator is 1.75% (net interest income/Tier 1 Capital sensitivity) and well below the regulatory threshold recently raised from 2.5% to 5%.
The reduction in the sensitivity of the net interest income reflects the corrective actions undertaken in recent months, including: management of the refixing risk by restructuring hedges in place, reducing liquidity deposited with the Central Bank, and purchasing fixed-rate government bonds, all elements that, on the other hand, determined a surge at the end of December.
Notes to the Accounts | Part E – Information on risks and related hedging policies 329
In addition to the scenarios envisaged from a regulatory standpoint, other scenarios were analysed:
⎯Steepening-Up is a scenario where the curve grows but more pronounced on the long part of the curve;
⎯Flattening-Up is a scenario in which the curve grows but more pronounced in the short part of the curve;
⎯+50 bps is a scenario where the curve moves in parallel upwards by 50 basis points.
(€m)
Data at 30 June 2023
Banking Book
Scenario
Group
Mediobanca S.p.A.
Steepening-Up
49
15
Flattener
186
75
+50 bps
36
17
Hedging
Hedges are intended to neutralize possible losses that may be incurred on a given asset or liability, due to the volatility of certain financial risk factors (interest rate, exchange rate, credit or some other risk parameter) through the gains that may be realized on a hedging instrument that is capable of offsetting changes in fair value or cash flows of the hedged instrument. For fair value hedges in particular, the Group seeks to minimize the financial risk on interest rates by bringing the entire interest-bearing exposure in line with Euribor (generally Euribor 3 months).79
A.Fair value hedging
Fair value hedges are used to neutralize exposure to interest rate or price risk for specific asset or liability positions, via derivative contracts entered into with leading market counterparties with high credit rating. In particular, with regard to interest rate risk, the Group applies specific hedges to individual items or clusters
79 This target is maintained even in the presence of hedging contracts with market counterparties with which netting agreements and CSAs (collateralized standard agreements) have been entered into and whose valuation is carried out at Ester interest rates.
330 Consolidated financial statements as at 30 June 2023
of like-for-like assets and liabilities in terms of interest rate risk. The objective of these hedges is to reduce the interest rate risk through swaps that convert fixed-rate into floating rate assets and/or liabilities. The items being mainly hedged are fixed-rate or structured liabilities issued by Mediobanca, investments in fixed-rate securities under assets held in the HTC and HTCS portfolio, the portfolio of fixed-rate mortgage loans, the floors implicit in the floating-rate loans of the Lending division and floating-rate mortgage loans granted by CheBanca! and the deposits of CheBanca! for which the new behavioural model is being taken into account with a benefit on the effective maturity.
Some structured bond issues remain in the portfolio without causing any risks correlated to the main risk, broken down into the interest rate component (hedged) and other risks which are represented in the trading book and are usually covered by external positions of the opposite sign; for structured bonds issued during the year, mostly interest rate, the Bank applied the fair value option in the initial recognition phase of the liability and the related risks were hedged with derivatives measured at Fair Value Through Profit or Loss in order to deal with the impacts through profit or loss.
Fair value hedges are also used by the Parent Company to mitigate the price risk of an equity investment recorded within the portfolio of assets measured at fair value through other comprehensive income.
The CheBanca! mortgage loan book is hedged via amortizing swaps, the notional and maturity profile of which follows the mortgage repayment plan and the expected prepayment rate for the loan book based on the model developed by Risk Management and subject to internal approval, considering a prudential margin on prepayments.
At the beginning of the year under review, a new behavioural model relating to CheBanca! deposits was newly calibrated in order to make the coverage of these balance sheet items more efficient, further reducing the Group’s exposure to interest rate risk, thus benefiting, in terms of margins, from the change in maturity dates.
Finally, it should be noted that the transition to SOFR (for USD) of all hedge-accounting items, and associated hedging instruments related thereto, was completed without recording significant changes in the effectiveness of the hedges, as expected.
Notes to the Accounts | Part E – Information on risks and related hedging policies 331
B.Cash flow hedging
This form of hedging is mainly used in the context of some Group companies’ operations (in particular with reference to consumer credit and leasing), where provisions at a floating rate are set aside for a significant amount against a large number of transactions for a negligible amount, generally at a fixed rate. The hedge is made in order to transform these positions into fixed-rate positions, correlating the relevant cash flows with investments. Normally, the Group uses derivatives to fix the expected cost of deposits over the reference period to cover floating-rate loans in place and future transactions linked to systematic renewals of such loans upon expiry.
C.Foreign investment hedging activities
This involves hedging an exposure to a controlling interest in a company and the goodwill associated with it (including any intangibles identified as a result of the Purchase Price Allocation process) in currencies other than the Euro. The exposure may be hedged via derivatives or other financial instruments in different currencies, such as bond issues. The exchange rate effect of the hedge is taken through the net equity reserve to cover the effects of the hedged instrument.
332 Consolidated financial statements as at 30 June 2023
D.Hedging instruments
E.Hedged items
Hedged items and hedging instruments have been exhaustively described in the previous paragraphs and throughout the document.
Counterparty risk
Counterparty risk generated by market transactions with institutional customers or counterparties is measured in terms of expected potential future exposure. With regard to derivative and short-term collateralized loan products (repos and securities lending), the calculation is based on determining the maximum potential exposure (assuming a 95% likelihood) at various points in time up to 30 years. The scope of application regards all groups of counterparties which have relations with the Bank, taking into account the presence of netting (e.g. ISDA, GMSLA or GMRA) and collateralized loan agreements (e.g. CSA), if any, plus exposures deriving from interbank market transactions. Exposures deriving from transactions on the interbank market should be added to these. For these three types of transactions, different exposure limits are granted to each counterparty and/or group subject to internal analysis and approval by the Lending and Underwriting Committee.
For derivative transactions, as required by IFRS 13, fair value incorporates the effects of the counterparty’s credit risk (referred to as Credit Valuation Adjustments, CVA) and Mediobanca’s credit risk (referred to as Debit Valuation Adjustment, DVA) based on the future exposure profile of all contracts in place.
Notes to the Accounts | Part E – Information on risks and related hedging policies 333
QUANTITATIVE INFORMATION
1.Banking book by outstanding maturity (repricing date) of financial assets and liabilities
Type/residual duration
On demand
Up to 3 months
From 3 months to 6 months
From 6 months to 1 year
From 1 year to 5 years
From 5 years to 10 years
Over 10 years
Not specified
1. Cash assets
8,006,982
28,640,272
7,583,236
5,325,770
15,323,138
4,384,371
3,743,565
500
1.1 Debt securities
44,961
1,346,746
2,046,064
2,371,534
3,524,090
956,667
112,289
—
– with early repayment option
—
—
—
—
—
—
—
—
– other
44,961
1,346,746
2,046,064
2,371,534
3,524,090
956,667
112,289
—
1.2 Loans to banks
5,331,214
1,636,345
631,093
367,960
707
—
128,550
98
1.3 Loans to customers
2,630,807
25,657,181
4,906,079
2,586,276
11,798,341
3,427,704
3,502,726
402
– current accounts
1,544,870
—
—
—
—
—
—
—
– other loans
1,085,937
25,657,181
4,906,079
2,586,276
11,798,341
3,427,704
3,502,726
402
– with early redemption option
199,265
6,623,341
1,133,657
2,054,903
9,883,033
3,354,249
3,443,778
—
– other
886,672
19,033,840
3,772,422
531,373
1,915,308
73,455
58,948
402
2. Cash liabilities
18,009,241
19,895,493
5,323,128
10,598,118
13,769,150
1,046,041
1,271,453
—
2.1 Due to customers
17,167,715
7,562,102
2,810,186
3,738,399
373,219
69,824
41,002
—
– current accounts
15,598,614
1,876,569
—
—
—
—
—
—
– other liabilities
1,569,101
5,685,533
2,810,186
3,738,399
373,219
69,824
41,002
—
– with early redemption option
—
—
—
—
—
—
—
—
– other
1,569,101
5,685,533
2,810,186
3,738,399
373,219
69,824
41,002
—
2.2 Due to banks
840,465
6,722,802
398,885
2,457,694
3,849,576
29,348
629,130
—
– current accounts
268,656
—
—
—
—
—
—
—
– other liabilities
571,809
6,722,802
398,885
2,457,694
3,849,576
29,348
629,130
—
2.3 Debt securities
1,061
5,610,589
2,114,057
4,402,025
9,546,355
946,869
601,321
—
– with early redemption option
—
—
—
—
—
—
—
—
– other
1,061
5,610,589
2,114,057
4,402,025
9,546,355
946,869
601,321
—
2.4 Other liabilities
—
—
—
—
—
—
—
—
– with early redemption option
—
—
—
—
—
—
—
—
– other
—
—
—
—
—
—
—
—
3. Financial derivatives
3.1 With underlying securities
– Options
+ long positions
—
—
—
—
—
—
—
—
+ short positions
—
—
—
—
—
—
—
—
– Other derivatives
+ long positions
—
—
—
—
—
—
—
—
+ short positions
—
—
—
—
—
—
—
—
3.2 Without underlying securities
– Options
+ long positions
22,120
130,000
—
2,917
721,204
—
835,704
—
+ short positions
22,120
130,000
—
2,917
721,204
—
835,704
—
– Other derivatives
+ long positions
—
57,270,174
6,331,537
9,319,835
8,551,181
2,312,573
3,067,800
—
+ short positions
—
56,215,408
1,177,180
3,361,721
15,827,994
3,905,298
6,365,500
—
4. Other off-balance sheet trades
2,019,612
12,100,379
2,616,406
4,009,396
17,036,323
1,356,444
414,087
—
+ long positions
4,686
6,988,747
1,264,399
2,053,871
8,662,328
678,094
124,198
—
+ short positions
2,014,926
5,111,632
1,352,007
1,955,525
8,373,995
678,350
289,889
—
334 Consolidated financial statements as at 30 June 2023
2. Banking book: cash exposures in equities and UCITS units
Book value
Type of exposure/Amounts
Level 1
Level 2
Level 3
A. Equities (¹)
A.1 Shares
115,868
—
128,550
A.2 Innovative equity instruments
—
—
—
A.3 Other equity instruments
—
—
244,396
B. UCITS
B.1 Under Italian law
36,730
—
153,850
- harmonized open
32,596
—
—
- non-harmonized open
—
—
—
- closed
—
—
152,207
- reserved
—
—
—
- speculative
4,134
—
1,643
B.2 Under other EU states law
122,987
—
245,058
- harmonized
—
—
—
- non-harmonized open
—
—
72,593
- non-harmonized closed
122,987
—
172,465
B.3 Under non-EU states law
—
—
—
- open
—
—
—
- closed
—
—
—
Total
275,585
—
771,854
(¹) Of which 54% Italian and 46% of other EU member states.
1.2.3 EXCHANGE RATE RISK
QUALITATIVE INFORMATION
A.General aspects, operating processes and measurement techniques of exchange rate risk
B.Exchange rate risk hedging
The trend in the exchange rate component of VaR shown on page 323 is an effective representation of changes in the risks taken on the forex market, because exposure to exchange rate risk is managed globally.
The equity investment in RAM (CHF) was hedged in the same currency until March, when the related bond expired. The currency exchange effect of both items
Notes to the Accounts | Part E – Information on risks and related hedging policies 335
was managed according to “Net Investment of foreign operations”, i.e. currency exchange gains / losses deriving from asset items, and the related goodwill, and from the liability issued were directly accounted for in a net equity reserve.
QUANTITATIVE INFORMATION
1.Breakdown of assets, liabilities and derivatives by currency
Currencies
Items
US Dollar
Great Britain Pound
Japanese Yen
Swedish Krona
Swiss Franc
Other currencies
A. Financial assets
3,273,893
776,168
14,082
36,720
140,593
85,477
A.1 Debt securities
864,204
93,506
—
—
4,556
—
A.2 Equity securities
293,569
151,143
—
261
17,257
1,263
A.3 Due from banks
212,085
76,577
5,718
1,775
22,930
45,587
A.4 Due from customers
1,755,216
453,284
8,234
34,621
95,779
38,436
A.5 Other financial assets
148,819
1,658
130
63
71
161
B. Other assets
1,283
17,253
—
—
11,522
5
C. Financial liabilities
4,084,617
519,996
120,271
13,197
119,218
84,222
C.1 Due to banks
130,377
153,788
—
12,071
3
8,113
C.2 Due to customers
2,386,941
346,024
6,210
1,126
113,875
76,105
C.3 Debt securities
1,403,097
15,943
114,061
—
—
—
C.4 Other financial liabilities
164,202
4,241
—
—
5,340
4
D. Other liabilities
15,376
1,148
5,681
127
6,937
83
E. Financial derivatives
- Options
+ Long positions
368,639
39,942
1,278
9,255
25,644
9,056
+ Short positions
400,370
46,253
941
9,550
25,035
8,357
- Other derivatives
+ Long positions
3,338,517
425,467
354,328
131,197
697,473
721,501
+ Short positions
2,486,617
688,937
189,493
176,973
767,457
706,766
Total assets
6,982,332
1,258,830
369,688
177,172
875,232
816,009
Total liabilities
6,986,980
1,256,334
316,386
199,847
918,647
799,428
Difference (+/-)
(4,648)
2,496
53,302
(22,675)
(43,415)
16,581
2.Internal models and other methodologies used for sensitivity analysis
During the year under review, the Euro-dollar rate moved around the average value of 1.04, with a minimum of 0.95 and a maximum of 1.10, to close at 1.08, i.e. near the values recorded at the beginning of the year. The overall Forex VaR remained relatively steady at 800,000 with short-lived peaks at 2m during phases of maximum fluctuation of the EUR/USD exchange rate.
336 Consolidated financial statements as at 30 June 2023
1.3 DERIVATIVE INSTRUMENTS AND HEDGING POLICIES
1.3.1 TRADING DERIVATIVES
A.Financial derivatives
A.1 Trading financial derivatives: reporting-date notional values
30/6/2023
30/6/2022
Over the counter
Over the counter
Without central counterparties
Without central counterparties
Underlying assets / Type of derivatives
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
1.
Debt securities and interest rate
94,215,475
22,556,759
1,258,298
2,115,793
51,140,611
24,802,696
2,223,147
243,799,846
a) Options
—
4,802,779
613,240
1,269,393
—
5,824,722
708,379
242,979,042
b) Swaps
94,215,475
13,709,595
645,058
—
51,140,611
14,862,262
1,514,768
—
c) Forwards
—
277,076
—
—
—
348,654
—
—
d) Futures
—
—
—
846,400
—
—
—
820,804
e) Other
—
3,767,309
—
—
—
3,767,058
—
—
2.
Equity securities and stock price indexes
—
14,285,141
3,047,327
18,361,567
—
24,930,392
2,337,731
18,485,564
a) Options
—
13,792,650
744,742
17,860,244
—
23,520,849
328,337
18,079,439
b) Swaps
—
492,491
—
—
—
1,409,543
—
—
c) Forwards
—
—
—
—
—
—
—
—
d) Futures
—
—
—
501,323
—
—
—
406,125
e) Other (1)
—
—
2,302,585
—
—
—
2,009,394
—
3.
Currencies and gold
—
20,148,517
789,845
—
—
18,773,897
1,377,560
—
a) Options
—
3,604,697
—
—
—
458,175
—
—
b) Swaps
—
6,601,337
504,598
—
—
7,820,925
528,736
—
c) Forwards
—
9,942,483
285,247
—
—
10,494,797
848,824
—
d) Futures
—
—
—
—
—
—
—
—
e) Other
—
—
—
—
—
—
—
—
4.
Commodities
—
1,750,000
169,947
—
—
1,700,000
127,453
—
5.
Other
—
—
—
—
—
—
—
—
Total
94,215,475
58,740,417
5,265,417
20,477,360
51,140,611
70,206,985
6,065,891
262,285,410
(1) This exclusively regards Certificates issued.
Notes to the Accounts | Part E – Information on risks and related hedging policies 337
A.2 Trading financial derivatives: gross positive and negative fair values by product
Total 30/6/23
Total 30/6/22
Over the counter
Over the counter
Without central counterparties
Without central counterparties
Established markets
Types of derivatives
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
Central counterparts
With offsetting arrangements
Without offsetting arrangements
1. Positive fair value
a) Options
—
616,293
270,054
688,152
—
1,039,048
427
784,678
b) Interest rate swaps
242,613
239,367
59,887
—
169,330
196,220
4,753
—
c) Cross currency swaps
—
238,334
—
—
—
381,596
—
—
d) Equity swaps
—
172,525
—
—
—
161,284
—
—
e) Forwards
—
148,770
21,239
—
—
286,453
41,523
—
f) Futures
—
—
—
7,826
—
—
—
11,923
g) Other (1)
—
—
12,602
—
—
—
—
—
Total
242,613
1,415,289
363,782
695,978
169,330
2,064,601
46,703
796,601
2. Negative fair value
a) Options
—
724,524
325,764
833,108
—
1,053,244
22,965
1,200,474
b) Interest rate swaps
21,750
510,238
18,861
—
19,959
385,617
2,088
—
c) Cross currency swaps
—
198,055
22,994
—
—
308,391
36,283
—
d) Equity swaps
—
2,875
—
—
—
685
—
—
e) Forwards
—
104,804
4,089
—
—
252,588
51,894
—
f) Futures
—
—
—
23,631
—
—
—
14,886
g) Other (1)
—
—
2,099,503
—
—
—
1,597,551
—
Total
21,750
1,540,496
2,471,211
856,739
19,959
2,000,525
1,710,781
1,215,360
(1) This exclusively regards Certificates issued.
338 Consolidated financial statements as at 30 June 2023
A.3 OTC trading financial derivatives: notional values, gross positive and negative fair values by counterparty
Underlying assets
Central counterparts
Banks
Other financial companies
Other entities
Contracts not included in offsetting arrangements
1) Debt securities and interest rates (1)
- notional amount
X
127,912
200,000
930,386
- positive fair value
X
59,930
—
344
- negative fair value
X
592
793
47,169
2) Equity instrument and stock indexes
- notional amount
X
2,335,835
711,469
22
- positive fair value
X
282,235
3,161
577
- Negative fair value (1)
X
2,369,187
27,754
2,260
3) Currencies and gold
- notional amount
X
7,047
241,713
541,084
- positive fair value
X
17
3,445
868
- negative fair value
X
—
464
22,992
4) Commodities
- notional amount
X
169,947
—
—
- positive fair value
X
13,206
—
—
- negative fair value
X
—
—
—
5) Other
—
—
—
- notional amount
X
—
—
—
- positive fair value
X
—
—
—
- negative fair value
X
—
—
—
Contracts included in offsetting arrangements
1) Debt securities and interest rates
- notional amount
94,215,475
10,845,932
6,291,468
5,419,357
- positive fair value
242,613
299,982
197,153
65,825
- negative fair value
21,750
314,325
228,787
278,957
2) Equity instrument and stock indexes
- notional amount
—
7,902,678
4,638,683
1,743,780
- positive fair value
—
72,842
247,906
118,100
- negative fair value
—
205,572
109,008
44,347
3) Currencies and gold
- notional amount
—
13,723,586
2,619,479
3,805,454
- positive fair value
—
250,206
66,599
90,991
- negative fair value
—
211,954
60,755
84,859
4) Commodities
- notional amount
—
1,150,000
600,000
—
- positive fair value
—
5,116
570
—
- negative fair value
—
1,932
—
—
5) Other
- notional amount
—
—
—
—
- positive fair value
—
—
—
—
- negative fair value
—
—
—
—
(1) Of which certificates with a nominal value of €2,302,585 and fair value of €-2,086,902.
Notes to the Accounts | Part E – Information on risks and related hedging policies 339
A.4 Outstanding life of OTC financial derivatives: notional amounts
Underlying / Outstanding life
Up to 1 year
From 1 year to 5 years
Over 5 years
Total
A.1 Financial derivative contracts on debt securities and interest rates
45,753,883
51,077,286
21,199,364
118,030,533
A.2 Financial derivative contracts on equity securities and stock indexes
6,037,479
10,999,400
295,589
17,332,468
A.3 Financial derivatives on currency and gold
15,532,959
4,830,205
575,198
20,938,362
A.4 Financial derivatives on goods
1,590,043
329,904
—
1,919,947
A.5 Other financial derivatives
—
—
—
—
Total 30/6/2023
68,914,364
67,236,795
22,070,151
158,221,310
Total 30/6/2022
45,261,940
63,563,824
18,587,723
127,413,487
B. Credit derivatives
B.1 Trading credit derivatives: reporting-date notional values
Trading derivatives
Type of transaction
With a single counterparty
With more than one counterparty (basket)
1. Hedge purchases
a) Credit default products
4,245,934
23,081,608
b) Credit spread products
—
—
c) Total rate of return swap
—
—
d) Other (1)
218,385
—
Total 30/6/2023
4,464,319
23,081,608
Total 30/6/2022
4,525,642
26,446,452
2. Hedge sales
a) Credit default products
2,834,997
23,071,967
b) Credit spread products
—
—
c) Total rate of return swap
—
—
d) Other (1)
—
—
Total 30/6/2023
2,834,997
23,071,967
Total 30/6/2022
2,199,753
26,791,001
(1) This exclusively regards Certificates issued.
The column headed “Basket” includes the positions in credit indexes matched by positions on single names which go to make up the same index for the skew issues.80 The arbitrage structures have a notional value of €18bn (€17.6bn in the previous year). The embedded derivative of the issues consists in purchases of hedges of €1.4bn 81 (€1.6bn) on individual entities.
80 Please refer to “Part B - Liabilities - Liabilities at amortized cost” herein.
81 Embedded items with underlying commodities (€170m) and related derivatives (€1,750m) are shown in Table A.3.
340 Consolidated financial statements as at 30 June 2023
B.2 Trading credit derivatives: gross positive and negative fair values by product
Types of derivatives
30/6/2023
30/6/2022
1. Positive fair value
a) Credit default products
158,778
243,371
b) Credit spread products
—
—
c) Total rate of return swap
—
—
d) Other
—
—
Total
158,778
243,371
2. Negative fair value
a) Credit default products
212,650
297,714
b) Credit spread products
—
—
c) Total rate of return swap
—
—
d) Other (1)
203,733
232,740
Total
416,383
530,454
(1) This exclusively regards Certificates issued.
B.3 OTC trading credit derivatives: notional values and gross positive/negative fair value, by counterparty
Central counterparts
Banks
Other financial companies
Other entities
Contracts not included in offsetting arrangements
1) Hedge purchases
− notional value (1)
X
2,196,177
70,829
—
− positive fair value
X
8,861
5,349
—
− Negative fair value (1)
X
203,910
—
—
2) Hedge sales
− notional value
X
14,526
—
—
− positive fair value
X
25,504
—
—
− negative fair value
X
1,973
—
—
Contracts included in offsetting arrangements
1) Hedge purchases
− notional value
7,240,601
3,032,757
15,005,563
—
− positive fair value
—
1,629
31,933
—
− negative fair value
—
34,902
123,186
—
2) Hedge sales
− notional value
7,233,083
3,831,156
14,828,199
—
− positive fair value
30,048
55,454
—
− negative fair value
14,847
12,748
24,817
—
(1) Which includes Certificates with a nominal value of €218,385 and a fair value of €-203,733.
Notes to the Accounts | Part E – Information on risks and related hedging policies 341
B.4 Outstanding life of OTC trading credit derivatives: notional values
Underlying / Outstanding life
Up to 1 year
From 1 year to 5 years
Over 5 years
Total
1 Hedges sales
9,312,916
15,942,610
651,438
25,906,964
2 Hedges purchases
10,723,278
16,327,427
495,222
27,545,927
Total 30/6/2023
20,036,194
32,270,037
1,146,660
53,452,891
Total 30/6/2022
12,662,552
46,263,232
1,037,063
59,962,847
342 Consolidated financial statements as at 30 June 2023
1.3.2 ACCOUNTING HEDGES
QUANTITATIVE INFORMATION
A. Financial hedging derivatives
A.1 Financial hedging derivatives: reporting-date notional value
30/6/2023
30/6/2022
Over the counter
Over the counter
Without central counterparties
Without central counterparties
Underlying assets / Type of derivatives
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
1. Debt securities and interest rate
59,316,375
28,878,165
10,000
—
62,909,859
4,301,921
20,000
—
a) Options
—
1,711,945
—
—
—
2,146,137
—
—
b) Swaps
59,316,375
27,166,220
10,000
—
62,909,859
1,913,236
20,000
—
c) Forwards
—
—
—
—
—
242,548
—
—
d) Futures
—
—
—
—
—
—
—
—
e) Other
—
—
—
—
—
—
—
—
2. Equity securities and stock price indexes
—
—
—
—
—
—
—
—
a) Options
—
—
—
—
—
—
—
—
b) Swaps
—
—
—
—
—
—
—
—
c) Forwards
—
—
—
—
—
—
—
—
d) Futures
—
—
—
—
—
—
—
—
e) Other
—
—
—
—
—
—
—
—
3. Currencies and gold
—
360,506
—
—
—
306,600
—
—
a) Options
—
—
—
—
—
—
—
—
b) Swaps
—
360,506
—
—
—
306,600
—
—
c) Forwards
—
—
—
—
—
—
—
—
d) Futures
—
—
—
—
—
—
—
—
e) Other
—
—
—
—
—
—
—
—
4. Commodities
—
—
—
—
—
—
—
—
5. Other
—
—
—
—
—
—
—
—
Total
59,316,375
29,238,671
10,000
—
62,909,859
4,608,521
20,000
—
Notes to the Accounts | Part E – Information on risks and related hedging policies 343
A.2 Financial hedging derivatives: gross positive and negative fair values by product
Positive and negative fair value
Change in the value used to calculate the hedge effectiveness
30/6/2023
30/6/2022
Over the counter
Over the counter
Without central counterparties
Without central counterparties
Types of derivatives
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Established markets
Central counterparts
With offsetting arrangements
Without offsetting arrangements
Establis hed markets
30 June
2023
30 June
2022
1. Positive fair value
a) Options
—
27,932
—
—
—
36,604
—
—
—
—
b) Interest rate swaps
1,207,709
84,865
—
—
817,030
17,164
—
—
299,123
454,468
c) Cross currency swaps
—
1,377
—
—
—
894
—
—
—
—
d) Equity swaps
—
—
—
—
—
—
—
—
—
—
e) Forwards
—
—
—
—
—
739
—
—
—
—
f) Futures
—
—
—
—
—
—
—
—
—
—
g) Other
—
—
—
—
—
—
—
—
—
—
Total
1,207,709
114,174
—
—
817,030
55,401
—
—
299,123
454,468
2. Negative fair value
a) Options
—
6,461
—
—
—
6,788
—
—
—
—
b) Interest rate swaps
1,870,620
191,934
61
—
1,245,183
108,810
1,035
—
905,674
1,828,809
c) Cross currency swaps
—
466
—
—
—
—
—
—
—
—
d) Equity swaps
—
—
—
—
—
—
—
—
—
—
e) Forwards
—
—
—
—
—
48
—
—
—
—
f) Futures
—
—
—
—
—
—
—
—
—
—
g) Other
—
—
—
—
—
—
—
—
—
—
Total
1,870,620
198,861
61
—
1,245,183
115,646
1,035
—
905,674
1,828,809
344 Consolidated financial statements as at 30 June 2023
A.3 OTC financial hedging derivatives: notional values, gross positive and negative fair values by counterparty
Underlying assets
Central counterparts
Banks
Other financial companies
Other entities
Contracts not included in offsetting arrangements
1) Debt securities and interest rates
- notional amount
X
10,000
—
—
- positive fair value
X
—
—
—
- negative fair value
X
61
—
—
2) Equity instrument and stock indexes
- notional amount
X
—
—
—
- positive fair value
X
—
—
—
- negative fair value
X
—
—
—
3) Currencies and gold
- notional amount
X
—
—
—
- positive fair value
X
—
—
—
- negative fair value
X
—
—
—
4) Commodities
- notional amount
X
—
—
—
- positive fair value
X
—
—
—
- negative fair value
X
—
—
—
5) Other
- notional amount
X
—
—
—
- positive fair value
X
—
—
—
- negative fair value
X
—
—
—
Contracts included in offsetting arrangements
1) Debt securities and interest rates
- notional amount
59,316,375
25,651,940
3,256,226
—
- positive fair value
1,207,709
86,923
25,874
—
- negative fair value
1,870,620
148,114
50,281
—
2) Equity instrument and stock indexes
- notional amount
—
—
—
—
- positive fair value
—
—
—
—
- negative fair value
—
—
—
—
3) Currencies and gold
- notional amount
—
315,965
44,541
—
- positive fair value
—
1,377
—
—
- negative fair value
—
370
96
—
4) Commodities
- notional amount
—
—
—
—
- positive fair value
—
—
—
—
- negative fair value
—
—
—
—
5) Other
- notional amount
—
—
—
—
- positive fair value
—
—
—
—
- negative fair value
—
—
—
—
Notes to the Accounts | Part E – Information on risks and related hedging policies 345
A.4 Outstanding life of OTC financial hedging derivatives: notional values
Underlying / Outstanding life
Up to 1 year
From 1 year to 5 years
Over 5 years
Total
A.1 Financial derivative contracts on debt securities and interest rates
11,267,564
40,669,775
36,267,201
88,204,540
A.2 Financial derivative contracts on equity securities and stock indexes
—
—
—
—
A.3 Financial derivative contracts on currencies and gold
—
315,965
44,541
360,506
A.4 Financial derivatives on goods
—
—
—
—
A.5 Other financial derivatives
—
—
—
—
Total 30/6/2023
11,267,564
40,985,740
36,311,742
88,565,046
Total 30/6/2022
15,776,070
31,716,336
20,045,974
67,538,380
C. Non-derivative hedging instruments
C.1 Hedging instruments other than derivatives: breakdown by accounting portfolio and hedge type
Book value
Change in the value used to calculate the hedge ineffectiveness
Fair value hedges
Hedging of cash flows
Hedging of foreign investment
Fair value hedges
Hedging of cash flows
Hedging of foreign investment
Financial assets other than derivatives
—
—
—
—
—
—
of which: trading activities
—
—
—
—
—
—
of which: other assets mandatorily measured at fair value
—
—
—
—
—
—
of which: assets designated at fair value
—
—
—
—
—
—
Total 30/6/2023
—
—
—
—
—
—
Total 30/6/2022
—
—
—
—
—
—
Financial liabilities other than derivatives
—
—
—
—
—
320
Trading liabilities
—
—
—
—
—
—
Liabilities designated at fair value
—
—
—
—
—
—
Liabilities measured at amortized cost
X
X
—
—
—
320
Total 30/6/2023
—
—
—
—
—
320
Total 30/6/2022
—
—
150,319
—
—
(10,606)
346 Consolidated financial statements as at 30 June 2023
D.Hedged instruments
D.1 Fair value hedges
Specific hedges
Specific hedges: book value
Specific hedges - net positions: balance sheet value of assets or liabilities (before offsetting)
Accumulated changes in fair value of the hedged instrument
Ending of hedge: residual accumulated changes in fair value
Changes in value used to calculate the hedge ineffectiveness
Generic hedges: Book value
A. Assets
1. Financial assets measured at fair value through other comprehensive income - hedges of:
1,243,481
—
15,485
—
8,418
—
1.1 Debt securities and interest rate
1,243,481
—
15,485
—
8,418
X
1.2 Equity securities and stock price indexes
—
—
—
—
—
X
1.3 Currencies and gold
—
—
—
—
—
X
1.4 Receivables
—
—
—
—
—
X
1.5 Other
—
—
—
—
—
X
2. Financial assets measured at amortized cost - hedges of:
10,630,590
—
519,469
—
211,412
—
1.1 Debt securities and interest rate
3,328,076
—
70,039
—
27,828
X
1.2 Equity securities and stock price indexes
—
—
—
—
—
X
1.3 Currencies and gold
—
—
—
—
—
X
1.4 Credits
7,302,514
—
449,430
—
183,584
X
1.5 Other
—
—
—
—
—
X
Total 30/6/2023
11,874,071
—
534,954
—
219,830
—
Total 30/6/2022
12,842,462
—
390,700
—
808,804
—
B. Liabilities
1. Financial liabilities measured at amortized cost - hedges of:
26,574,907
—
1,788,619
—
526,817
—
1.1 Debt securities and interest rate
26,574,907
—
1,788,619
—
526,817
X
1.2 Currencies and gold
—
—
—
—
—
X
1.3 Other
—
—
—
—
—
X
Total 30/6/2023
26,574,907
—
1,788,619
—
526,817
—
Total 30/6/2022
26,684,699
—
1,295,748
—
1,469,976
—
Notes to the Accounts | Part E – Information on risks and related hedging policies 347
D.2 Hedging of cash flows and foreign investments
Changes in value used to calculate the hedge ineffectiveness
Hedge reserves
Ending of hedge: residual value of hedging reserves
A. Cash flow hedging
1. Assets
—
—
—
1.1 Debt securities and interest rate
—
—
—
1.2 Equity securities and stock price indexes
—
—
—
1.3 Currencies and gold
—
—
—
1.4 Credits
—
—
—
1.5 Other
—
—
—
2. Liabilities
143.221
272,383
—
1.1 Debt securities and interest rate
143.221
272,383
—
1.2 Currencies and gold
—
—
—
1.3 Other
—
—
—
Total (A) 30/6/2023
143.221
272,383
—
Total (A) 30/6/2022
287.699
176,525
—
B. Hedging of foreign investments
X
(15,947)
—
Total (A+B) 30/6/2023
143.221
256,436
—
Total (A+B) 30/6/2022
287.699
160,259
—
E. Effects of hedging through net equity
E.1 Reconciliation of net equity components
Cash flow hedging reserve
Foreign investment hedging reserve
Debt securities and interest rate
Equity securities and stock price indexes
Currencies and gold
Receivables
Other
Debt securities and interest rate
Equity securities and stock price indexes
Currencies and gold
Receivables
Other
Opening balance
176,525
—
—
—
—
—
—
(16,266)
—
—
Changes in fair value (effective portion)
95,858
—
—
—
—
—
—
319
—
—
Transfers to P&L
—
—
—
—
—
—
—
—
—
—
Of which: future transactions no longer expected
—
—
—
—
—
X
X
X
X
X
Other changes
—
—
—
—
—
—
—
—
—
—
Of which: transfers of hedged instruments at book value
—
—
—
—
—
X
X
X
X
X
Closing amount
272,383
—
—
—
—
—
—
(15,947)
—
—
348 Consolidated financial statements as at 30 June 2023
1.3.3 OTHER INFORMATION ON DERIVATIVE INSTRUMENTS (TRADING AND HEDGING)
A. Financial and credit derivatives
A.1 OTC financial and credit derivatives: net fair value by counterpart
Central counterparts
Banks
Other financial companies
Other entities
A. Financial derivatives
1) Debt securities and interest rates
- notional amount
153,531,850
36,635,784
9,747,694
6,349,743
- net positive fair value
1,450,322
446,835
214,876
66,169
- net negative fair value
1,892,370
463,092
271,710
326,126
2) Equity instrument and stock indexes
- notional amount
—
10,238,513
5,350,152
1,743,802
- net positive fair value
—
355,077
251,067
118,677
- net negative fair value
—
2,574,759
136,762
46,607
3) Currencies and gold
- notional amount
—
14,046,598
2,905,733
4,346,538
- net positive fair value
—
251,600
70,044
91,859
- net negative fair value
—
212,324
61,315
107,851
4) Commodities
- notional amount
—
1,319,947
600,000
—
- net positive fair value
—
18,322
570
—
- net negative fair value
—
1,932
—
—
5) Other
- notional amount
—
—
—
—
- net positive fair value
—
—
—
—
- net negative fair value
—
—
—
—
B. Credit derivatives
1) Hedge purchases
- notional amount
7,240,601
5,228,934
15,076,392
—
- net positive fair value
—
10,490
37,282
—
- net negative fair value
—
238,812
123,186
—
2) Hedge sales
- notional amount
7,233,083
3,845,682
14,828,199
—
- net positive fair value
—
55,552
55,454
—
- net negative fair value
14,847
14,721
24,817
—
Notes to the Accounts | Part E – Information on risks and related hedging policies 349
1.4 LIQUIDITY RISK
QUALITATIVE INFORMATION
A. General aspects, operating processes and measurement techniques of liquidity risk
Banks are normally exposed to the liquidity risk inherent in the maturity transformation process that is typical of banking operations.
Liquidity risk is distinguished according to its timing profile:
⎯the current or potential risk of the bank not being able to manage its own liquidity needs in the short term (“liquidity risk”);
⎯the risk of the bank not having stable funding sources in the medium or long term, resulting in its inability to meet its financial obligations without incurring an excessive increase in the cost of financing (“funding risk”).
An adequate liquidity and funding risk management system is fundamental to ensure the stability of the Group and the financial system in general, given that a single bank’s difficulties would affect the system as a whole. The liquidity and funding risk management system is developed as part of the Risk Appetite Framework and the risk tolerance levels contained in it. In particular, one of the management objectives contained in the Risk Appetite Framework is to maintain a liquidity position in the short and long term which is adequate to cope with a period of prolonged stress (combining Bank-specific and systemic stress factors).
The Group Liquidity Risk Management Policy (the “Policy”) approved by the Parent company’s Board of Directors defines the target amount in terms of highly liquid assets in order to hedge the anticipated cash flows to be maintained in the short and medium/long term.
The Policy also sets out the roles and responsibilities of the company units and governing bodies, the risk measurement metrics used, the guidelines for carrying out the stress testing process, the funds transfer pricing system and the Contingency Funding Plan.
To ensure that liquidity risk is managed according to an integrated and consistent approach within the Group as a whole, strategic decisions are taken by
350 Consolidated financial statements as at 30 June 2023
the Parent Company’s Board of Directors, to which the Policy assigns several important duties, including: definition and approval of the guidelines and strategic direction, responsibility for ensuring that the risk governance system is fully reliable, and monitoring of trends in the Group’s liquidity and funding risk and Risk Appetite Framework.
Moreover, the Group ALM Committee discusses the most significant liquidity risk issues, defining the asset and liability structure and the related acceptance of the risk of mismatches between assets and liabilities and managing them in line with the commercial and financial objectives set out in the Group’s budget and Risk Appetite Framework.
Implementing Article 86 of Directive 2013/36/EU, the Mediobanca Group identifies, measures, manages and monitors liquidity risk as part of its internal liquidity adequacy assessment process (ILAAP). In this process, which constitutes an integral part of the supervisory authority’s activities (Supervisory Review and Evaluation Process, or SREP), the Mediobanca Group performs a self-assessment of its liquidity risk management and measurement from both a qualitative and quantitative perspective. The findings of the risk profile adequacy assessment and overall self-assessment are presented to the governing bodies annually.
The liquidity governance process for the Mediobanca Group as a whole is centralized at the Parent Company level by setting the strategy and guidelines which the Group companies must comply with, thereby ensuring that the liquidity position is managed and controlled at the consolidated level.
The units of the Parent Company that are responsible for ensuring that the Policy is applied accurately are:
⎯Group Treasury, responsible at Group level for the management of liquidity, funding, collateral, internal transfer pricing system and for the preparation of the Group Funding Plan in line with budget objectives;
⎯Risk Management which, in accordance with the principles of separation and independence, is responsible for the Group’s integrated, second-level control system for current and future risks, in accordance with the Group’s regulations and governance strategies.
The Group Audit Unit is responsible for evaluating the functioning and reliability of the control system for liquidity risk management and for reviewing adequacy and compliance with the requirements laid down in the regulations. The
Notes to the Accounts | Part E – Information on risks and related hedging policies 351
findings of such reviews are submitted to the governing bodies at least once a year.
The Group’s objective is to maintain a level of liquidity that will enable it to meet its ordinary and extraordinary payment obligations at the established expiry dates, while at the same time keeping costs to a minimum and hence without incurring losses. The Mediobanca Group short-term liquidity policy is intended to ensure that the mismatch between cash inflows and outflows, whether expected or unexpected, remains sustainable in the short term, including over an intra-day time horizon.
The Group, through its Group Treasury Unit, manages its own liquidity position actively, with the objective of being able to meet its own clearing obligations within the time frame required.
Intra-day liquidity risk is the risk of a mismatch in terms of timing within a single day between payments made by Mediobanca and those received from other market counterparties. Management of this risk requires careful and ongoing monitoring of cash flows exchanged, and, more importantly, adequate liquidity reserves. To mitigate this risk, the Group has implemented a system of indicators and monitoring to check the availability of reserves at the start of the day and their capacity to meet possible situations of stress that could involve other market counterparties or the value of the assets used in the risk mitigation.
The monitoring metric adopted over time horizons longer than intra-day is the net liquidity position, obtained from the sum of the counterbalancing capacity (defined as the cash, bonds traded on the market, receivables eligible for refinancing with the ECB available post-haircut) and cumulative net cash flows.
The system of limits is structured on the basis of the normal course of business up to a time horizon of three months, a 1-month systemic stress and a combined stress scenario of 45 days, thus effectively functioning as an early warning system if the limit is approached in normal conditions.
The short-term and intra-day liquidity monitoring is supplemented by stress testing which assumes three scenarios:
⎯Systemic Scenario: this scenario represents a pandemic crisis inspired by the events observed during the spread of the SARS-CoV-2 virus, influenced by a deep economic recession over a twelve-month time horizon which leads to effects such as the deterioration of the loan portfolio and related contraction in volumes (mainly for the consumer loan component), increase in perceived risk
352 Consolidated financial statements as at 30 June 2023
with impacts on the values of liquidity reserves and increase in netting requests, reduction in the supply of capital on the financial markets for the Group but also for customers who have been granted credit lines, which they will consequently be forced to use.
⎯Idiosyncratic Scenario: this scenario starts with a specific cyber-attack event that affects the Group’s internal systems with a resulting limitation in operations on the market. On the one hand, this leads to an operational loss, on the other, to reputation damage. The latter component causes retail and wholesale customers to withdraw their deposits. In this context, the rating agencies initiate a downgrade of the issuer Mediobanca compromising even more its ability to access financial markets thus causing an increase in the cost of funding and impacts on liquidity reserves with regard to self-retained assets, having an impact on initial margins and outflows from triggers linked to downgrade events.
⎯Combined: a combined scenario between Systemic and Idiosyncratic Scenario.
In addition to the above, the Group prepares a report on its liquidity position on a weekly basis, as required by the Bank of Italy; the Maturity Ladder report, compiled according to the instructions of the Supervisory Authority, in addition to highlighting the main transactions maturing within the three months following the reference date, is supplemented by a summary of the Group’s assets that can be allocated to the Central Bank.
Monitoring structural liquidity, on the other hand, is intended to ensure that the structure has an adequate financial balance for maturities of more than twelve months. Maintaining an appropriate ratio between assets and liabilities in the medium/long term also serves the purpose of avoiding future pressures in the short term. The operating methods adopted involve analysing the maturity profiles for both assets and liabilities over the medium and long term checking that on average the cumulative inflows cover the cumulative outflows for maturities of more than one, three and five years.
Throughout the financial year under review, both indicators, short- and long- term, have shown that the Group maintained an adequate level of liquidity at all times.
The Group complied with the minimum requirement in terms of Net Stable
Notes to the Accounts | Part E – Information on risks and related hedging policies 353
Funding Ratio (NSFR)82 and short-term Liquidity Coverage Ratio (LCR).83 In line with the Group Risk Appetite Framework, they remained above internal and regulatory limits at all times.
In detail, the LCR figure at 30 June stood at 179.5% (compared to 159% in June 2022), including the prudential estimate of the “additional outflows for other products and services” in compliance with Article 23 of Delegated Regulation (EU) 2015/61. The indicator showed a limited variability around its average value of 161% during the year under review. The latter rose compared to the average annual figure recorded in the previous financial year. This annual average increase allowed the Group Treasury to keep the Group’s funding and liquidity positions steady, making it possible to repay approximately €3bn TLTROs during the year under review. In a still uncertain context, threatened by geopolitical risk and by rising interest rates, Group Treasury managed highly liquid assets by trying to combine commercial strategies with the need to always have an adequate instrument, in terms of quantity and quality.
The NSFR indicator, calculated according to Regulation (EU) 2019/876, stood at 119.3%, an increase compared to 30 June last (115.5%). This indicator remained steady on the liabilities side because the TLTRO repayments and the reduction in Wealth Management funding were offset by an increase in securities funding; in terms of loans, the indicator benefited from an increase in free assets following the reduction in funding secured with the Central Bank.
As the above indicators are included in Group Risk Appetite Framework, their sustainability is also analysed in preparing the Group Funding Plan, through future analysis over a time horizon of at least three years, with monitoring and half-yearly updates. A multi-risk stress test is also run as part of the same framework based on the scenario analysis. A stress scenario is defined which may involve the Group, and its simultaneous impacts are assessed, taking into account the inter-relations between risks and the capability to adapt the business strategies defined in the budget to the changed scenario.
In addition to the risk measurement system described above, an event governance model has been devised, known as the Contingency Funding Plan (described in the Policy), to be implemented in the event of a crisis by following a procedure approved by the Board of Directors.
82 Directive (EU) 2019/878 (referred to as CRD V) and Regulation (EU) 2019/876 (referred to as CRR2)
83 Commission Delegated Regulation (EU) 2015/61, as supplemented and amended.
354 Consolidated financial statements as at 30 June 2023
The objective pursued by the Contingency Funding Plan is to ensure prompt implementation of effective action to tackle a liquidity crisis through precise identification of stakeholders, powers, responsibilities, communication procedures and related reporting criteria in order to increase the likelihood of coming through the state of emergency successfully. This objective is achieved primarily by activating an extraordinary operational and liquidity governance model, supported by consistent internal and external disclosures and a number of specific indicators.
In order to identify a “contingency” state in a timely manner, a system of early warning indicators (EWIs) has been prepared to monitor situations that could lead to deterioration in the Group’s liquidity position deriving from external factors and/or situations which are specific to the Group itself.
The foregoing sections show how stress testing is a fundamental instrument in managing liquidity risk. Liquidity risk materializes less frequently but it may have a significant impact. Instruments are needed to diagnose the Group’s vulnerabilities over different time horizons. The findings of the stress tests are therefore used principally in order to:
⎯define the funding strategies for the Funding Plan and planning activities more generally (liquidity profile of assets and liabilities);
⎯assess the adequacy of the system of limits, and establish significant events for the purpose of the regular process of revising the limits themselves;
⎯provide support in assigning the actions to be taken in managing states of operating crisis or stress.
The liquidity risk mitigation factors adopted by the Mediobanca Group are as follows:
⎯an adequate level of high-quality, highly liquid assets to address any liquidity imbalances, even prolonged over time;
⎯accurate short-term and long-term liquidity planning, alongside careful forecasting and monitoring activities;
⎯a robust and constantly updated stress testing framework;
⎯an efficient Contingency Funding Plan to identify crisis states and the actions to be taken in such circumstances, through a reliable early warning indicator
Notes to the Accounts | Part E – Information on risks and related hedging policies 355
system.
The counterbalancing capacity at 30 June amounted to €16.6bn, an increase compared to the previous year (€14.7bn); TLTRO repayments freed up credit assets falling with the counterbalancing capacity. The amount for available securities eligible for spot refinancing with the ECB to immediately obtain liquidity stood at €12.5bn (€7bn). The balance of collateral allocated to the Central Bank amounted to €12bn (€13.6bn one year ago). Out of the collateral, the amount of €6.4bn approximately was allocated to the Central Bank free and immediately available (€5.3bn) and was, therefore, included in the Group’s counterbalancing capacity.
356 Consolidated financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
1. Time distribution of financial assets and liabilities by residual contract term
Items / maturities
On demand
From 1 day to 7 days
From 7 days to 15 days
From 15 days to 1 month
From 1 to 3 months
From 3 months to 6 months
From 6 months to 1 year
From 1 year to 5 years
Over 5 years
Not specified
Cash assets
7,918,694
1,706,674
1,127,529
1,694,218
4,161,336
5,937,292
9,468,240
33,215,464
16,811,659
267,237
A.1 Government securities
1,035
—
46,130
12,672
250,017
878,394
3,296,822
4,466,795
2,058,269
—
A.2 Other debt securities
1,228
10,531
1,394
49,703
99,872
569,314
255,025
2,907,618
1,784,276
—
A.3 UCIT units
31,740
—
—
—
—
—
—
—
—
—
A.4 Loans
7,884,691
1,696,143
1,080,005
1,631,843
3,811,447
4,489,584
5,916,393
25,841,051
12,969,114
267,237
– Banks
5,312,038
218,776
80,144
104,695
35,947
541,851
388,877
900,708
128,552
262,246
– Customers
2,572,653
1,477,367
999,861
1,527,148
3,775,500
3,947,733
5,527,516
24,940,343
12,840,562
4,991
Cash liabilities
18,000,758
3,260,539
955,851
2,803,821
7,980,423
6,591,094
11,410,163
21,240,324
5,514,370
—
B.1 Deposits and current accounts
17,213,984
1,989,757
279,664
582,639
1,351,199
1,872,243
3,431,213
338,360
5,000
—
– Banks
268,944
—
—
—
—
—
—
26,227
—
—
– Customers
16,945,040
1,989,757
279,664
582,639
1,351,199
1,872,243
3,431,213
312,133
5,000
—
B.2 Debt securities
1,059
8
27,319
512,633
645,766
1,364,037
1,535,492
13,166,562
4,498,212
—
B.3 Other liabilities
785,715
1,270,774
648,868
1,708,549
5,983,458
3,354,814
6,443,458
7,735,402
1,011,158
—
Off-balance sheet transactions
C.1 Financial derivatives with exchange of principal
– long positions
9,925
866,610
544,905
3,653,348
3,096,560
1,783,949
2,389,964
25,422,072
7,364,945
—
– short positions
9,925
263,295
111,384
2,966,229
2,537,722
1,344,878
1,655,099
3,723,794
356,842
—
C.2 Financial derivatives without exchange of principal
– long positions
2,391,863
7,283
24,400
151,840
169,603
487,343
747,777
—
1,069
—
– short positions
2,627,201
21,903
12,708
207,110
233,787
553,169
1,098,835
—
1,069
—
C.3 Deposits and loans for collection
– long positions
—
4,450,153
—
—
127,602
675,489
49,190
1,000
14,884
—
– short positions
—
—
—
9,974
109,881
365,372
1,991,060
2,405,124
436,906
—
C.4 Irrevocable loan commitments (*)
– long positions
39,111
849
—
77,179
221,767
731,361
1,623,624
1,813,553
1,704,792
—
– short positions
276,331
3,376,191
195,509
238,300
260,274
765,787
54,919
16,421
1,028,505
—
C.5 Financial guarantees issued
66,503
—
—
—
—
—
—
—
—
—
C.6 Financial guarantees received
—
—
—
—
—
—
—
—
—
—
C.7 Credit derivatives with exchange of principal
– Long positions
—
—
—
—
4,000
282,300
1,081,880
1,158,771
563,945
—
– Short positions
—
—
—
—
4,000
291,900
1,132,180
1,294,699
368,117
—
C.8 Credit derivatives without exchange of principal
– Long positions
789,200
—
—
—
—
—
—
—
—
—
– Short positions
847,424
—
—
—
—
—
—
—
—
—
(*)This item includes hedge sales perfectly matched by purchases for the same amount.
Notes to the Accounts | Part E – Information on risks and related hedging policies 357
1.5 OPERATIONAL RISK
Definition
Operational risk is the risk of incurring losses as a result of the inadequacy or malfunctioning of procedures and IT systems, human error or external events.
Capital Requirement
Mediobanca has adopted the Basic Indicator Approach (“BIA”) to calculate its capital requirement for operational risk by applying the regulatory coefficient of 15% of the three-year average of the relevant indicator. Based on this calculation method, the capital requirement at 30 June 2023 was €374.7m (€341.5m as at 30 June 2022).
Risk Mitigation
The Group’s Non-Financial Risks Committee, with the task of guiding, monitoring and mitigating non-financial risks (including IT & Cyber risk, fraud risk, third-party/outsourcing risk, reputation risk) and the Conduct Committee, with the task of guiding, supervising and making decisions on the Group’s conduct risks, operate within the scope of risk management.
Operational risks are supervised, at the level of Parent Company and main subsidiary companies, by a specific Operational Risk Management team within the Non-Financial Risk Management unit.
Based on the Group’s operational risk management policy and in line with the principle of proportionality, the processes for identifying operational risks, including through the collection and analysis of data concerning operational risk loss, mitigation and estimation, and the processes for identifying and initiating the related mitigation actions, are defined and implemented within the Parent Company and main group legal entities. Based on the evidence obtained, actions to mitigate the most relevant operational risks are proposed, implemented and monitored.
The operating losses recorded during the year under review affected total revenues by approximately 1.2%.
358 Consolidated financial statements as at 30 June 2023
As for the different classes of operational risk, the percentage composition of the various Basel II event types for the Group is shown below.
Event Type
% of Total Loss
External fraud
55%
Execution, delivery and process management
23%
Clients, products and business practices
19%
Employment practices and workplace safety
3%
Other
0%
Most of the Group’s operating losses during the year were due to “External Fraud” following extraordinary events of particular significance, especially the fraud suffered by a Mediobanca Private Banking client and Spafid in the context of payments associated with investments. In the face of such fraudulent events, in addition to strengthening safeguards and controls, recovery actions were also activated, which, it is estimated, will make it possible to significantly reduce gross losses. The second category of losses in terms of amount, “Execution, delivery and process management”, includes litigation provisions and expenses with other banks and losses due to process failures.
The category “Clients, products and business practices” includes provisions and costs for the management of claims or disputes with Consumer and Premier customers concerning financial conditions or interest rates applied to loan products (those deriving from the ‘Lexitor’ ruling are significant). Subsequently, provisions are recorded for the management of disputes with personnel.
In terms of Business Lines, operational risk losses were higher in Wealth Management, also due to the main types of events mentioned above (“External fraud” in particular). The Consumer Banking business line was the second-ranking line in terms of volume of losses recorded; very limited losses were recorded in the CIB and in the Holding Function.
In terms of potential risks, since the Wealth Management and CIB business lines are characterized by non-standard and large-scale transactions, they were exposed to low frequency and high severity events.
Moreover, while not generating significant losses, both at Industry and Group level, there was an increase in some cases (classes) of operational risk, such as IT & Cyber Risk and Outsourcing Risk.
Notes to the Accounts | Part E – Information on risks and related hedging policies 359
In view of the foregoing, the Group launched a Non-Financial Risk Management project in order to strengthen and evolve specific frameworks for each risk class (such as IT & Cyber risk, third-party risk, fraud risk and reputation risk), while providing an overview of the risks themselves.
In particular, IT & Cyber risk, characterized by rapidly evolving components, are potentially relevant for the Group’s financial position and business model in the medium term.
IT Risk and Cyber Risk
During the year under review, in compliance with the requirements of the 40th update to Circular No. 285, the Mediobanca Group prepared activities for the establishment of the new second-level unit “ICT & Security Risk” within the Non-Financial Risks Unit, which is part of the Group Risk Management Unit. The Unit will be responsible for monitoring and controlling IT and security risks, as well as verifying compliance of IT operations with the IT and security risk management system.
Security risk (including cyber risk) is understood as the risk of incurring financial, reputation and market share losses due to:
⎯any unauthorized access or attempted access to the Group’s IT system or to the data and digital information contained therein;
⎯any (malicious or involuntary) event fostered or caused by the use of, or connected to, technology that has or could have an adverse impact on the integrity, availability, confidentiality and/or authenticity of company data and information, or on the continuity of corporate processes;
⎯improper use and/or dissemination of data and information, including if not directly produced and managed by the Group.
IT or technological risk is understood as the risk of incurring financial loss, reputation damage and market share loss in relation to the use of the company’s information system and in connection with hardware, software and network malfunctions.
IT or technological risk means the risk arising from inadequate information
360 Consolidated financial statements as at 30 June 2023
system management processes, or from the inability to transform technological assets. Risks arising from the adoption of new technologies.
While not inherently new risks, it is reasonable to expect significant potential exposure due to the enterprises’ growing dependence on IT systems and consequent increase in the number of users of virtual channels and interconnected devices, to the growth in the amount and quality of managed data that must be protected and to a greater use of IT services offered by third parties.
Over the last few years, the Group has constantly strengthened its ICT and security risk management strategy, providing for specific risk management oversight in line with regulatory indications. This has made it possible to enlarge and evolve the system principles and rules for the purpose of identifying and measuring the ICT & security risks to which company assets are exposed, assessing the safeguards in place and identifying the appropriate methods to handle such risks.
Continuous security checks and ICT & security risk analysis activities are carried out for the purpose of ensuring adequate control, organizational and technological safeguards, across the entire Group.
* * *
Other Risks
As part of the process of assessing the current and future capital required to perform its internal capital adequacy assessment process (ICAAP), the Group has identified the following main types of risk as relevant, in addition to the risks described above (credit and counterparty, market, interest rate, liquidity and operational risk):
⎯concentration risk, understood as the risk deriving from the concentration of exposures with single counterparties or groups of connected counterparties (referred to as “single names”) and with counterparties belonging to the same business sector or who carry out the same activity or belonging to the same geographical area (geo-sectoral concentration risk);
Notes to the Accounts | Part E – Information on risks and related hedging policies 361
⎯strategic risk, i.e. exposure to current and future changes in profits/margins compared to estimated data, due to volatility in volumes or changes in customer behaviour (business risk), and of current and future risk of reductions in profits or capital deriving from disruption to business as a result of adopting new strategic choices, wrong management decisions or inadequate execution of decisions taken (pure strategic risk);
⎯risk from equity investments held as part of the “Hold to collect and sell” banking book (“HTC&S”), deriving from the potential reduction in value of the equity investments, listed and unlisted, which are held as part of the HTC&S portfolio, due to unfavourable movements in financial markets or to the downgrade of counterparties (where these are not already included in other risk categories);
⎯sovereign risk, in regard to the potential downgrade of countries or national central banks to which the Group is exposed;
⎯compliance risk, attributable to the possibility of incurring legal or administrative penalties, significant financial losses or damages to the Bank’s reputation as a result of breaches of internal laws and regulations or self-imposed regulations;
⎯reputation risk, due to reductions in profits or capital deriving from a negative perception of the Bank’s image by customers, counterparties, shareholders, investors or regulatory authorities.
Risks are monitored and managed via the respective internal units (risk management, planning and control, compliance and Group audit units) and by specific management committees.
362 Consolidated financial statements as at 30 June 2023
ESG and Climate Change
The Group has accepted the challenges that climate change and other risk factors pose to society and intends to manage them by also seizing the opportunities associated with decarbonization. For this purpose, starting from financial year 2018-2019, the Group has launched a process for defining a Risk Assessment and Reporting framework for ESG and Climate Change risks, followed by an analysis of the reference environment aimed at identifying and managing any risks that may be relevant to the Group according to the approach proposed by the TCFD 84 and in the guidelines issued on the subject. ESG risks are therefore included in the Group’s overall Risk Management framework as they potentially constitute adverse impacts that an organization or activity may have on the environment, on people and on communities, including risks associated with corporate governance, on profitability, on reputation and on credit quality with possible legal consequences. Among ESG risks, climate risk is of particular importance, i.e. the financial risk deriving from exposure to physical 85 and transition 86 risk associated with climate change. The risks and opportunities related to climate change are identified and analysed in a coordinated manner by the various corporate units without treating them as a separate risk but as a series of factors that interact with the traditional risk categories (credit, market, operational, and liquidity risk).
In light of a strong and rapidly evolving regulatory framework and of the European Commission’s adoption of an ambitious package of measures aimed at encouraging capital flows towards sustainable activities throughout the Union, the Group has integrated risks involving ESG, disclosure and financial sustainability of products and adaptation to the European Taxonomy: the “ESG Program” is a path of a progressive adaptation to the new ESG-related regulations and is divided into three project areas:
―Ownership, which focuses on the process of compliance with the following regulations: ECB Guide on climate-related and environmental risk and EBA Guidelines on Loan Origination and Monitoring and on the integration of ESG criteria in credit and investment management processes, as well as, in a broad sense, in business strategy;
84 F or more information, see paragraph 3.3 Compliance, internal control and risk management, paragraph 8.1 Relevant policies and risks of the Non-Financial Statement, and chapters 2.6.1 ESG Program and 4 Risk Management in the TCFD Report.
85 Physical risks consist in an adverse financial impact deriving from climate change, including more frequent extreme weather events and gradual climate change, in addition to environmental degradation, i.e. air, water and soil pollution, water stress, biodiversity loss and deforestation.
86 Transition risks consist in adverse financial impacts that a company may, directly or indirectly, incur as a result of the process of adaptation to a low-carbon and more environmentally sustainable economy.
Notes to the Accounts | Part E – Information on risks and related hedging policies 363
―Customers and Markets, mainly pertaining to the implementation of Regulation (EU) 2019/2088 Sustainable ﬁ nance disclosure regulation (SFDR);
―Disclosure, which focuses on the adoption of the European taxonomy (Regulation (EU) 2020/852) as part of the reporting requirements pursuant to the Consolidated Non-Financial Disclosure (regulatory framework which is still being completed). The scope also includes the Disclosure on environmental, social and governance risks required by Article 18-bis of Implementing Regulation (EU) 2021/637, under which credit institutions must disclose qualitative information on environmental, social and governance risks, quantitative information on transition risk and physical risks associated with climate change, quantitative information on mitigating actions associated with economic activities considered environmentally sustainable under the EU Taxonomy and, finally, quantitative information on other mitigating actions and exposures to climate change-related risks that are not considered environmentally sustainable economic activities under the EU Taxonomy.87 This disclosure is included in a special section in Pillar III – Disclosure to the public.
As part of the 2023-2026 “One Brand - One Culture” Strategic Plan, the Mediobanca Group has renewed its commitment to Climate and Environmental issues, setting itself the objective of supporting customers in their ESG transition strategies with ad-hoc advisory activities and allocating capital with an ESG focus. The new strategic plan contains specific targets relating to environmental issues. The intention to achieve carbon neutrality by 2050 has been confirmed (with approximately a 35% reduction in the carbon intensity of loans by 2030 (-18% by 2026).
These commitments are consistent with the Group’s Sustainability and ESG Policies, which transpose detailed business sector guidelines by introducing restrictions on operators with a negative impact on the climate.88 The achievement of the above strategic objectives will also be ensured by the implementation of new metrics in the Group’s Risk Appetite Framework, aiming to promote responsible business activities, while maintaining a low profile in terms of exposure to climate risk. The path undertaken provides for greater and continuous integration, which, to date, includes the implementation of new metrics in the Group’s Risk Appetite Framework, the offering of ESG products and the adoption of ESG policies,
87 With regard to the required quantitative disclosure, a phase-in period has been planned until June 2024. On the other hand, the BTAR is on a voluntary basis until December 2024.
88 For further information, please refer to the Group’s ESG Policy published on the corporate website https://www.mediobanca.com/static/upload_new/pol/politica-esg.pdf.
364 Consolidated financial statements as at 30 June 2023
including exclusion rules.
Greenhouse gas emission reduction targets were also formalized for counterparties operating in the four sectors identified by the NZBA, the initiative promoted by the United Nations with the aim of accelerating the sustainable transition of the international banking sector. This has confirmed the Group’s willingness to be an active part in the “green” transition, a natural outlet after signing the Principles for Responsible Banking (PRB), promoted by the United Nations Environment Programme Finance Initiative (UNEP FI), a section of the UN Environment Programme dedicated to financial institutions.
In addition, Mediobanca has decided to integrate, in its capital planning process (including the Internal Capital Adequacy Assessment Process, ICAAP), the potential impacts deriving from exposure to climate risk factors arising from specific climate scenarios on its capital adequacy.
With reference to asset management, the implementation of PAI monitoring and RTS adjustment for financial products classified as ESG under Articles 8/9 continued, while, in relation to consultancy activities, the ESG integration in the MIFID adequacy/Product Governance model proceeded.
It should be noted that the Group does not have significant exposures to counterparties with high climate and environmental risk (as at 30 June the exposure to high-risk counterparties for the Wholesale Banking loan and investment portfolio was less than 1% of the portfolio, as shown in the ESG heatmap analysis).
For more information, please refer to the Pillar III Disclosure section on ESG Risk, to the Consolidated Non-Financial Disclosure, and to the Task Force on Climate-Related Financial Disclosure (TCFD) Report, all of which published at the same time as this Annual Report and available on the website www.mediobanca.com.
Notes to the Accounts | Part F – Information on consolidated capital 365
Part F - Information on consolidated capital
SECTION 1
Consolidated capital
QUANTITATIVE INFORMATION
B.1 Consolidated net equity: breakdown by type of company (*)
Net equity items
Prudential consolidation
Insurance companies
Other companies
Consolidation adjustments and eliminations
Total
of which: Third parties
1. Share capital
460,798
—
—
—
460,798
16,629
2. Share premium
2,197,454
—
—
—
2,197,454
1,848
3. Reserves
7,757,912
—
—
—
7,757,912
82,629
4. Equity instruments
—
—
—
—
—
—
5. (Treasury shares)
(78,876)
—
—
—
(78,876)
—
6. Valuation reserves:
62,130
—
—
—
62,130
3
- Equity instruments measured at fair value through other comprehensive income
120,118
—
—
—
120,118
—
- Hedging of equity instruments measured at fair value through other comprehensive income
—
—
—
—
—
—
- Financial assets (other than equity instruments) measured at fair value through other comprehensive income
(49,000)
—
—
—
(49,000)
—
- Tangible assets
—
—
—
—
—
—
- Intangible assets
—
—
—
—
—
—
- Hedging of foreign investments
(15,947)
—
—
—
(15,947)
—
- Hedging of cash flows
272,516
—
—
—
272,516
133
- Hedging instruments [not designated instruments]
—
—
—
—
—
—
- Currency exchange gains/losses
10,192
—
—
—
10,192
(2)
- Non-current assets and asset groups being sold
—
—
—
—
—
—
- Financial liabilities designated at fair value through profit or loss (change in own credit risk)
(5,806)
—
—
—
(5,806)
—
- Actuarial gains (losses) on defined benefits pension schemes
(1,796)
—
—
—
(1,796)
(128)
- Portion of valuation reserves of equity-accounted interests
(277,779)
—
—
—
(277,779)
—
- Extraordinary revaluation laws
9,632
—
—
—
9,632
—
7. Profit (loss) for the period (+/-) attributable to the Group and to minority interests
1,029,830
—
—
—
1,029,830
3,034
Total
11,429,248
—
—
—
11,429,248
104,143
(*) This includes the equity-accounted consolidation of Compass RE (insurance companies), Compass Rent, MBContact Solutions, and RAM UK (other companies).
366 Consolidated financial statements as at 30 June 2023
B.2 Valuation reserves for financial assets measured at fair value through other comprehensive income: breakdown
Prudential consolidation
Insurance companies
Other companies
Consolidation adjustments and eliminations
Total
Assets/Values
Positive reserve
Negative reserve
Positive reserve
Negative reserve
Positive reserve
Negative reserve
Positive reserve
Negative reserve
Positive reserve
Negative reserve
1. Debt securities
4,417
(53,417)
—
—
—
—
—
—
4,417
(53,417)
2. Equity securities
124,058
(3,940)
—
—
—
—
—
—
124,058
(3,940)
3. Loans
—
—
—
—
—
—
—
—
—
—
Total 30/6/2023
128,475
(57,357)
—
—
—
—
—
—
128,475
(57,357)
Total 30/6/2022
181,452
(5,699)
—
—
—
—
—
—
181,452
(5,699)
B.3 Valuation reserves of financial assets measured at fair value through other comprehensive income: changes during the period
Debt securities
Equity securities
Loans
Total
1. Opening balance
(40,790)
163,770
—
122,980
2. Increases
34,862
32,657
—
67,519
2.1 Increases in fair value
22,258
32,657
54,915
2.2 Value adjustments for credit risk
1,418
—
—
1,418
2.3 Profit and loss reversal of negative reserves: from disposals
11,186
—
—
11,186
2.4 Transfers to other equity components (equity instruments)
—
—
—
—
2.5 Other changes
—
—
—
—
3. Decreases
43,072
76,309
—
119,381
3.1 Decreases in fair value
32,842
14,626
47,468
3.2 Writebacks for credit risk
1,897
—
—
1,897
3.3 Profit and loss reversal from positive reserves: from disposals
8,333
61,683
—
70,016
3.4 Transfers to other equity components (equity instruments)
—
—
—
—
3.5 Other changes
—
—
—
—
4. Closing balance
(49,000)
120,118
—
71,118
Notes to the Accounts | Part F – Information on consolidated capital 367
SECTION 2
Own funds and supervisory capital requirements for banks
The Mediobanca Group confirmed its strong capital soundness with ratios well above the regulatory thresholds, as evidenced by the Group’s results in stress tests conducted by the Supervisor in recent years, by the large margin found in the Internal Capital Adequacy Assessment Process (ICAAP) and by the SREP assessment process performed by the Supervisor.
Effective 1 March 2023, the SREP 2022 Decision, laying down an additional Pillar 2 requirement of 1.68%, entered into force; the Mediobanca Group will therefore be required to hold a CET1 ratio of 7.95% on a consolidated basis, including 2.50% capital preservation buffer and 0.95% additional Pillar 2 requirement (“P2R”), i.e. 56.25% of the 1.68% required at the level of Overall Capital Requirement (OCR), which is equal to 12.18% (Tier1 at 9.76%).89 The “SREP 2022 Decision” provides for an increase of 10 bps attributable exclusively to the adoption of the Calendar provisioning mechanism with reference to the stock of non-performing exposures in place at 31 December 2022 and that originated before 26 April 2019, a component that is bound to be reduced following the sale of the NPL portfolios purchased by Revalea.
2.1 Scope of application for regulations
During the year under review,the AIRB PD and LGD models were revised following the conclusion of the Internal Model Investigation on the Large Corporate portfolio, which introduced a Limitation on the LGD model through a 45% floor for the performing portfolio. This action resulted in an increase in the order of €1.5bn in RWA (approximately -45 bps of CET1 ratio), an impact expected to subside after the implementation of Basel 4, which, as of 1 January 2025, will entail the use of the new 40% Foundation parameter.
At the same time, according to the provisions of Regulation (EU) 2022/954 of 12 May 2022, starting from 30 September last a weighting factor of 100% was applied to purchased NPL exposures instead of the previous 150%, since the provisioning level is higher than 20% (under Article 127 of the CRR), with a benefit of approximately 5 bps on the CET1 ratio (€170m in RWA).
89 Requirements do not include the counter-cyclical capital buffer, at 30 June 2023 equal to 0.09%.
368 Consolidated financial statements as at 30 June 2023
Finally, the activation of a fourth ECAI (Modefinance, in addition to the ratings provided by Standard & Poor’s, Moody’s and Fitch) for the standard Corporate portfolio risk should be noted. This led to a benefit of approximately +5 bps on the CET1 ratio (RWA €130m less than a standard weighting of 100%, mainly on the Factoring and Leasing portfolios).
The Group continued to forgo the enforcement of the right to extend the transitional regime of higher IFRS 9-related adjustments, neutralize valuation reserves on government bonds and exclude certain exposures to central banks for the purpose of calculating the leverage ratio.90
2.2 Bank equity
QUALITATIVE INFORMATION
The Common Equity Tier1 (CET1) reflects the portion pertaining to the Group and to minority interests of paid-in capital, reserves, including the net income for the period (€1,026.8m), after dividends (€714.7m, corresponding to a payout of 70%) and includes the negative portion of reserves relating to securities of €-34.2m measured at fair value through other comprehensive income, €-105.3m of which resulting from the equity consolidation of Assicurazioni Generali (highly reduced liabilities after the transition to the new accounting standards IFRS 9 and IFRS 17, as transposed by Mediobanca in the last quarter).
The deductions regarded:
―treasury shares of €78.9m after cancellation of a part of the buybacks made under the latest buyback plan;
―intangible assets of €182m and goodwill of €574.6m, the latter decreasing following the write-down of the RAM investment;
―prudential changes of €80.3m relating to valuations of financial instruments (AVA and DVA) of €75.1m, which slightly increased compared to last year (€68.6m) due to valuations of financial instruments and the trend in gains and losses on liabilities due to the evolution of the institution’s credit standing;
90 Regulation (EU) 2020/873 amending Regulations (EU) 575/2013 and (EU) 2019/876 regarding some adjustments in response to the COVID-19 pandemic (“CRR Quick Fix”).
Notes to the Accounts | Part F – Information on consolidated capital 369
―interests in Assicurazioni Generali for a total of €1,439.5m (taking into account that the transition to IFRS 17/IFRS 9 increased the book value of the investment).
No Additional Tier 1 (referred to as AT1) instruments were issued. AT1)
Tier 2 capital includes subordinated liabilities, up slightly from €911.8m to €966.6m after the nominal issue of €300m, which more than absorbed the amortization for the year (€234m). No subordinated Tier 2 issue benefits from grand-fathering, as permitted under Articles 483 and ff of the CRR.
30/6/2023
Issue
ISIN code
Nominal Value
Computed value (*)
MB SUBORDINATO TV with 3% minimum rate 2025
IT0005127508
496,805
214,646
MB SUBORDINATO 3.75% 2026
IT0005188351
299,750
172,256
MB SUBORDINATO 1.957% 2029
XS1579416741
50,000
48,495
MB SUBORDINATO 2.3% 2030
XS2262077675
248,854
240,387
MB FIX TO FLOAT 0233
XS2577528016
299,950
290,865
Total subordinated issues
1,395,359
966,649
(*) The computed value differs from the book value because of fair value and amortized cost components and buyback commitments.
Tier 2 also includes the buffer which results from book value write-downs being higher than the prudential expected losses calculated using the advanced models (“buffer”): the positive amount stood at €75.3m; the value calculated, i.e. €72.7m, slightly increased during the year (+€4.4m) due to the greater exposures, as the maximum amount that is allowed is the amount corresponding to the regulatory threshold of 0.6% of the weighted exposure amounts for risk calculated with advanced models (under Article 159 CRR).
370 Consolidated financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
30/6/2023
30/6/2022
A. Common equity tier 1 (CET1) prior to application of prudential filters
10,653,459
10,061,450
of which: CET1 instruments subject to phase-in regime
—
—
B. CET1 prudential filters (+/-)
(290,846)
(200,929)
C. CET1 before items to be deducted and effects of phase-in regime (A +/- B)
10,362,612
9,860,521
D. Items to be deducted from CET1
(3,551,325)
(3,379,799)
E. Phase-in regime - impact on CET1 (+/-), including minority interests subject to phase-in regime (*)
1,366,352
1,413,612
F. Total Common Equity Tier 1 (CET1) (C-D+/-E)
8,177,639
7,894,334
G. Additional tier 1 (AT1) gross of items to be deducted and effects of phase-in regime
—
—
of which: AT1 instruments subject to phase-in regime
—
—
H. Items to be deducted from AT1
—
—
I. Phase-in regime - impact on AT1 (+/-), including instruments issued by branches and included in AT1 as a result of phase-in provisions
—
—
L. Total Additional Tier 1 (AT1) (G-H+/-I)
—
—
M. Tier 2 (T2) before items to be deducted and effects of phase-in regime
1,039,389
980,165
of which: T2 instruments subject to phase-in regime
—
—
N. Items to be deducted from T2
—
(69)
O. Phase-in regime - Impact on T2 (+/-), including instruments issued by branches and included in T2 as a result of phase-in provisions
—
—
P. Total T2 Capital (M-N+/-O)
1,039,389
980,096
Q. Total own funds (F+L+P)
9,217,028
8,874,429
(*) Adjustments include the adoption of phase-in provisions for the introduction of IFRS 9 and greater deductions for the adoption of Calendar Provisioning.
2.3 Capital adequacy
QUALITATIVE INFORMATION
The phase-in Common Equity Ratio – ratio of Common Equity Tier1 to total weighted assets with the adoption of the Danish Compromise 91 – stood at 15.9%, up by around 30 bps compared to last June (15.7%): self-financing for the year and lower RWAs (+65 bps) covered the effects of the Internal Model Investigation (IMI) on Mediobanca’s Large Corporate model (-45 bps); the greater deductions of the investment in Assicurazioni Generali (-25 bps) were instead offset by the constant improvements in efficiency (overall +25 bps, including the introduction of the new ECAI, the 100% weighting of NPL exposures and other efficiency improvements on counterparty and market risks).
91 Benefit of ~100 bps
Notes to the Accounts | Part F – Information on consolidated capital 371
Changes in RWAs
Amount
RWA as at 30 June 2022
50,377,953
Regulatory impact
1,328,000
Optimization
(187,500)
Volume effect
(86,904)
Corporate Investment Banking - CIB
(2,702,139)
Wholesale Banking- WS
(1,937,079)
Specialty Finance - SF
(765,060)
Consumer credit
535,730
Wealth Management - WM
273,679
Holding Functions - HF - (Leasing)
(165,650)
Other PI
1,971,476
RWA as at 30 June 2023
51,431,549
The Total Capital Ratio phase-in with the adoption of the Danish Compromise 92 grew from 17.6% to 17.9%, due to the new subordinated issue of a nominal value of €300m partly offset by the prudential amortization of Tier2 instruments.
The other indicators performed as follows:
—the Leverage ratio, calculated without benefiting from the temporary possibility granted by the Regulator to exclude reserves to central banks from exposures, remained steady at 8.4%, since the higher Tier1 capital was offset by higher exposures;
—the MREL ratio, calculated according to the hybrid approach, remained high and steady, standing at 36.8% of RWAs 93 and 19.5% of LREs, both considerably higher than the minimum requirement set by the Single Resolution Board, i.e. respectively 22.13% and 5.91%. With reference to the MREL ratio, it should also be noted that, starting from 2025, Mediobanca will be subject to the subordination requirement with no impact since the current and expected MREL eligible subordinated liabilities are around 20%.
92 Benefit of ~100 bps
93 Ratio calculated using the hybrid approach introduced by the Regulator, which takes into consideration consolidated own funds and eligible liabilities (other than own funds) issued by the resolution entity to entities outside the resolution group.
372 Consolidated financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
Unweighted amounts (7)
Weighted amounts/requirements
Categories/Amounts
30/6/2023
30/6/2022
30/6/2023
30/6/2022
A. RISK ASSETS
A.1 Credit and counterpart risk
81,616,495
83,002,780
44,254,236
43,304,396
1. Standard methodology
50,437,658
52,395,447
32,028,909
31,810,452
2. Internal rating methodology
30,824,323
30,278,802
12,123,625
11,390,437
2.1 Basic
—
—
—
—
2.2 Advanced
30,824,323
30,278,802
12,123,625
11,390,437
3. Securitization
354,514
328,531
101,702
103,507
B. REGULATORY CAPITAL REQUIREMENTS
B.1 Credit and counterparty risk
3,540,339
3,464,352
B.2 Credit valuation adjustment risk
32,028
29,872
B.3 Settlement risk
—
—
B.4 Market risk
167,426
194,477
1. Standard methodology
167,426
194,477
2. Internal models
—
—
3. Concentration risk
—
—
B.5 Other prudential requirements
374,731
341,535
1. Basic method
374,731
341,535
2. Standard method
—
—
3. Advanced method
—
—
B.6 Other calculation items
—
—
B.7 Total prudential requirements
4,114,524
4,030,236
C. RISK ASSETS AND REGULATORY RATIOS
C.1 Risk-weighted assets
51,431,549
50,377,953
C.2 CET1 capital/risk-weighted assets (CET1 capital ratio)
15.90%
15.67%
C.3 Tier 1 capital/risk-weighted assets (Tier 1 capital ratio)
15.90%
15.67%
C.4 Regulatory capital/risk-weighted assets (total capital ratio)
17.92%
17.62%
(7) For the standardized methodology, the “unweighted amounts”, as provided by the regulations in force, correspond to the value of the exposure taking into account the prudential filters, risk mitigation techniques and credit conversion factors. For the internal rating-based approach, the “unweighted amounts” correspond to the “exposure at default” (EAD). For guarantees issued and commitments to disburse funds, credit conversion factors are also included in the EAD calculation.
For more details on the disclosure concerning own funds and capital adequacy, please refer to the Basel 3 Third Pillar file at 30 June 2023, published on the Bank’s website in the section “Capital adequacy”.
Notes to the Accounts | Part G – Combinations involving Group companies or business units 373
Part G - Combinations involving Group companies or business units
SECTION 1
Transactions completed during the period
In the year under review, Compass Banca completed two corporate transactions: the purchase of a 19.45% stake in Heidi Pay AG and a 100% stake in Soisy S.p.A. With regard to the latter, the purchase price, settled by cash, amounted to €6m. During the year under review, the Purchase Price Allocation process was carried out leading to the identification of a customer list with a finite useful life worth €1.1m, to be amortized over 5 years, goodwill of €6.4m, and deferred taxes of €0.4m.
The Parent Company established the special purpose vehicle MB INVAG S.r.l., to which the assets and liabilities of INV AG S.r.l. (liquidated on 28 December 2022) attributable to the shareholder Mediobanca were contributed.
For more details, please refer to “Section 3 – Area and methods of consolidation” in Part A - Accounting Policies and “Section 10 - Intangible assets” in part B - Assets of the Notes to the consolidated balance sheet.
374 Consolidated financial statements as at 30 June 2023
SECTION 2
Transactions completed since the reporting date
It should be noted that the Board of Directors of Mediobanca held on 27 July 2023 approved the merger by acquisition of MB INVAG S.r.l. into Mediobanca while the Board of Compass Banca held on 7 June last approved the acquisition of Soisy. Both mergers are expected in the first months of next year.
On May 17, Mediobanca signed a strategic agreement with the partners of Arma Partners. The closing of the transaction is expected by the end of 2023, followed by full consolidation.
On 19 June, Compass Banca signed an agreement to acquire 100% of HeidiPay Switzerland AG, specialized in the Buy Now Pay Later business, from HeidiPay AG (acquired during the year). The closing is expected by the end of 2023 and the company will enter the scope of consolidation as a wholly owned subsidiary.
Lastly, please note the partnership agreement with Founders Factory, aimed at launching a new joint venture in the fintech sector. The new joint venture will be consolidated using the equity method.
For more details, please refer to “Section 3 – Area and methods of consolidation” in Part A - Accounting Policies of the Notes to the consolidated accounts.
SECTION 3
Retrospective adjustments
No adjustments have been made to the accounts in connection with previous business combinations for the year under review.
Notes to the Accounts | Part H – Related-Party Transactions 375
Part H – Related-Party Transactions
1. Information on remuneration for key management personnel
With regard to the disclosure on compensation paid to key management personnel, reference should be made to the “Report on remuneration and compensation paid” published on the Mediobanca website www.mediobanca.com, where the following are disclosed (with reference to the Mediobanca Group):
―the analytical detail of compensation paid to members of governing and supervisory bodies and other key management personnel;
―the detail and the evolution of performance shares schemes awarded to members of the Board of Directors, other key management personnel and long-term incentive schemes.
Group compensation includes amounts paid to managers of Group Legal Entities not listed in the Table published in the Report (for a total of €2m).
2. Related-party disclosure
The Regulation on Related-Party Transactions, implementing CONSOB Regulation No. 17221 of 12 March 2010, as most recently amended by Resolution No. 21264 of 10 December 2020, was introduced in 2011 for the purpose of ensuring the transparency and substantial correctness of transactions with related parties carried out directly or through subsidiaries. The Board of Directors of Mediobanca, having received favourable opinions from the Bank’s Related Parties and Statutory Audit Committees, has incorporated the Bank of Italy’s most recent instructions on this subject into this procedure, which introduce prudential limits for risk activities versus related parties; this Regulation came into force during December 2012, and was updated most recently in June 2021. The full document is published on the Bank’s website at www.mediobanca.com.
For the definition of related parties, please refer to Part A of the Notes to the Accounts (Accounting Policies).
Transactions with related parties fell within the Group companies’ ordinary course of business, were maintained on an arm’s length basis, and were entered into
376 Consolidated financial statements as at 30 June 2023
in the interests of the individual companies concerned. Details of the Directors’ and the key management personnel’s compensation are provided in a footnote to the table.
2.1 Regular financial disclosure: Most significant transactions
There are no transactions to report for the period under review.
2.2 Quantitative information
During the year under review, the Heidi Pay AG Group became a related party following Compass’s acquisition of the investment (19.45% of the share capital) in October 2022.
The overall exposure to related parties remained low, decreasing slightly.
Notes to the Accounts | Part H – Related-Party Transactions 377
Situation at 30 June 2023
(€m)
Directors and key management personnel
Associates
Others related parties
Total
Assets
3.1
12.–
129.4
144,5
of which: other assets
—
—
109.2
109,2
loans and advances
3.1
12.–
20.2
35,3
Liabilities
20.6
—
31.1
51,7
Guarantees and commitments
—
—
390.–
390,–
Interest income
—
0.3
1.6
1,9
Interest expense
(0.1)
—
(0.6)
(0,7)
Net fee income
—
1.–
50.7
51,7
Other income (costs)
(51.4)(1)
(0.1)
(26.7)(2)
(78.2)
(1) Of which: short-term benefits amounting to (€42.4m) and performance shares worth (€8.8m). This figure includes resources considered key management personnel during the period under review.
(2) This item also includes the valuation of derivative contracts, including bond forwards with underlying Government securities.
Situation at 30 June 2022
(€m)
Directors and key management personnel
Associates
Others related parties
Total
Assets
3.1
0.1
168.1
171.3
of which: other assets
—
0.1
133.7
133.8
loans and advances
3.1
—
34.4
37.5
Liabilities
24.6
—
51.3
75.9
Guarantees and commitments
—
—
390.–
390.–
Interest income
—
0.1
0.8
0.9
Interest expense
(0.1)
—
(1.4)
(1.5)
Net fee and commission
—
2.8
50.4
53.2
Other income (costs)
(42.5)(1)
(0.1)
91.4(2)
48.8
(1) Of which: short-term benefits amounting to (€37.2m) and performance shares worth (€4.9m). This figure includes resources considered key management personnel during the period under review.
(2) This item also includes the valuation of derivative contracts, including bond forwards with underlying Government securities.
378 Consolidated financial statements as at 30 June 2023
Part I – Share-based payment schemes
A. QUALITATIVE INFORMATION
1. Summary of share-based payment schemes approved by the Shareholders’ Meeting.
The following table shows the resolutions taken by the Parent Company’s Extraordinary Shareholders’ Meeting regarding the current performance share plans:
Extraordinary general meeting
Maximum number of shares approved
Awards expire on
No. of options and performance shares awarded
Performance Share schemes
28/10/2015
20,000,000
X
1,353,143
*
28/10/2020
20,000,000
X
934,074
*
28/10/2021
4,000,000
X
2,036,901
*
28/10/2022
3,000,000
X
237,203
**
(*) Relating to assignments made in the five-year period 2018 - 2022.
(**) Relating to assignments to be made for the variable remuneration for financial year 2022/2023.
2.Description of performance share schemes and parent company LTI
In the area of equity instruments used for staff remuneration, Mediobanca has decided to adopt a performance share scheme, for the purpose of the award of short-term annual variable remuneration and of the LTI Plan 19-23. The performance share Plan was approved by the shareholders in its most recent version at the Annual General Meeting held on 28 October 2022.
Under the terms of the scheme, in certain conditions Mediobanca shares may be awarded to staff free of charge at the end of a vesting period. The rationale for the scheme is to:
—bring the Bank’s remuneration structure into line with the regulations requiring that a share of the variable remuneration component to be paid in the form of equity instruments, over a time horizon of several years, subject to performance conditions and hence consistent with results sustainable over time;
—align the interests of Mediobanca’s management with those of the shareholders to create value over the medium/long term.
The maximum number of shares that can be assigned to the Group’s personnel by the plan approved by the Shareholders’ Meeting held on 28 October 2022 is
Notes to the Accounts | Part I – Share-based payment schemes 379
3,000,000 for their variable remuneration to be paid out for the financial year ending at 30 June 2023. Treasury shares will be used in connection with the scheme.
As part of the variable remuneration for financial year 2022, 2,001,456 performance shares drawn, through treasury shares, from the Plan approved by the shareholders in October 2021 were awarded on 27 September 2022. The shares, the award of which is conditional upon performance objectives being met over a five-year period or less, will be made available in tranches in November 2023 (up to 894,267), November 2024 (up to 267,234), November 2025 (up to 455,742), November 2026 (up to 193,552) and November 2027 (up to 190,661). As at 31 January 2023, 237,203 shares drawn from the Plan approved on 28 October 2022 were awarded (for CMB compensation cycle and layoff incentives).
During the year under review, the rights over 22,054 were forfeit against attributions (including to subsidiaries) of 1,786,374 shares, 727,452 of which through treasury shares and the remainder through a capital increase.
Starting on 30 June 2023, in connection with the variable remuneration for financial year 2023, a total of 1,403,351 performance shares were awarded at a figurative cost of €12.1m, as part of the variable remuneration component only. These shares, the award of which is conditional upon performance objectives being achieved over a maximum time period of five years, will be made available in tranches as follows: November 2024 (up to 619,191), November 2025 (up to 211,397), November 2026 (up to 329,932), November 2027 (up to 122,465), and November 2028 (up to 120,366).
In addition, other Group companies have equipped themselves with incentive plans based on equity instruments:
–Messier et Associés approved a plan of free-of-charge shares for up to 10% of the share capital to be attributed to employees (at the time of promotions and/or for retention purposes) who, after the vesting period (not exceeding 2 years) and a further holding period of one year, are resold to the Parent Company settles the price with Mediobanca shares. As at 30 June last, 31,925 shares had been assigned as part of seven plans. Of these 7,050 were recovered, 6,000 were repossessed by the Parent Company through an exchange with Mediobanca shares, 4,250 shares are subject to a holding period, and the remaining 14,625 shares in the vesting period;
380 Consolidated financial statements as at 30 June 2023
–Polus has an investment plan in place for employees (for retention purposes), which allows them to purchase special shares of the company (C shares) which, after a vesting period (maximum 3 years) and the achievement of certain results (hurdle), they can sell to the Parent Company which will liquidate them through Mediobanca shares. As at 30 June, 35,633 C shares had been subscribed, all still in the vesting period.
QUANTITATIVE INFORMATION
1. Changes in performance share schemes during the year
30/6/2023
30/6/2022
Items/Performance shares
No. of performance shares
Avg. price
No. of performance shares
Avg. price
A. Opening balance
4,131,090
7.03
4,916,003
6.48
B. Increases
2,238,659
—
1,665,114
—
B.1 New issues
2,238,659
6.08
1,665,114
7.96
B.2 Other changes
—
—
—
—
C. Decreases
1,808,428
—
2,450,027
—
C.1 Performance shares cancelled
—
—
—
—
C.2 Performance shares made available
1,786,374
7.62
2,386,798
7.09
C.3 Performance shares expired
—
—
—
—
C.4 Other changes
22,054
7.76
63,229
7.28
D. Closing balance
4,561,321
6.32
4,131,090
7.03
Notes to the Accounts | Part L – Segment Reporting 381
Part L – Segment Reporting
INTRODUCTION
Under IFRS 8, an entity must disclose information to enable users of its financial statements to evaluate the nature and financial effects of the different business activities in which it engages and the different economic environments in which it operates.
Disclosure is therefore required regarding the contribution of the different “operating segments” to the formation of the Mediobanca Group’s earnings.
The aggregation of the “operating segments” illustrated in this section is consistent with the means adopted by the Group’s management to take business decisions, and is based on the internal reporting used in order to allocate resources to the various segments, and to analyse their respective performances as described in the Review of Operations, to which reference is made for detailed and exhaustive analysis of the individual business lines’ earnings and financial performances.
A.PRIMARY SEGMENT REPORTING
At Group level the following business lines have been identified:
Wealth Management (WM): This division brings together all portfolio management/administration services offered to the various client segments, plus asset management. This division includes CheBanca!, which targets the Premier client bracket; the MBPB and CMB Monaco private banking networks and the Asset Management companies (Polus Capital Management, Mediobanca SGR, Mediobanca Management Company and RAM Active Investment), in addition to the fiduciary activities of Spafid;
Corporate and Investment Banking (CIB): This includes services for corporate customers in the Wholesale Banking areas (loans, Capital Market activities, Advisory, Client and proprietary trading carried out by Mediobanca, Mediobanca International, Mediobanca Securities and Messier et Associés) and Specialty Finance or Factoring carried out by MBFACTA, and Credit Management referring only to the management on behalf of third parties carried out by MBCredit Solutions and
382 Consolidated financial statements as at 30 June 2023
MBContact Solutions.
Consumer Finance (CF): This provides retail customers with a complete range of consumer credit products: personal loans, special purpose loans, salary-backed loans, credit cards, in addition to the new and innovative Buy Now Pay Later solution called “Pagolight”, which grew during the year also thanks to the investments in the two fintechs HeidiPay and Soisy. The division also includes Compass RE, which reinsures retail insurance policies, Compass Rent, which operates in second-hand vehicle and car hire, and Compass Link, which distributes Compass products and services via external collaborators.
Insurance - Principal Investing (PI): This division includes the Group’s portfolio of equity investments and shares, in particular the stake in Assicurazioni Generali. Investments in funds and vehicles promoted and managed by the Group’s asset management companies (referred to as seed capital) also contribute to the division, with a view to combining medium-term profitability for the Group and a synergistic approach between the divisions, as well as investment activities in private equity funds managed by third parties.
Holding Functions comprise SelmaBPM Leasing, MIS and other minor companies, Group Treasury and ALM 94 (with the aim of minimizing the cost of funding and optimizing liquidity management on a consolidated basis, including the securities held as part of the banking book), all costs relating to central Group departments, including Operations, support units (such as Chief Financial Officer, Corporate Affairs, Investor Relations, etc.), senior management and control units (Risk Management, Internal Audit and Compliance Unit) for the part that cannot be allocated to the business lines. This also includes the NPL portfolio management activity previously performed by MBCS, following the spin-off of the business unit merged into Revalea S.p.A.95
A.1 Profit-and-loss figures by business segment
A list of the main points requiring attention with regard to the allocation of earnings results is provided below:
94 Group Treasury finances the individual business areas by applying funds transfer prices (based on the FTP curve) with different spreads depending on the expiry dates of the funds’ usage.
95 Revalea was established in April last year and obtained the Supervisory Authorities’ authorization to operate at the end of 2022. The agreement for the sale of the company to Banca Ifis was recently signed, as this type of business is not among the activities considered to be core activities by the Group.
Notes to the Accounts | Part L – Segment Reporting 383
―Net interest income 96 is obtained by applying the internal funds transfer pricing (FTP) rates consistent with the financial characteristics of the products concerned. Notional interest is allocated using a centralized FTP model which assigns volumes, costs and revenues of liquidity based on durations, without distinction between lending and funding (referred to as “bid-ask” difference) with the same maturity;
―The costs incurred by the service units, plus a part of the central function costs, are charged back by the relevant Corporate Centre (the Holding Functions division) to the operating segments that use the services. The 853 staff are divided as follows: 94 in Selma BPM (98 in the previous year); 21 in Revalea (24), 28 in Group Treasury and ALM (33), 151 in MIS (138); 219 in Operations (209); 175 in support units (164); 159 in control units (149); plus 6 in senior management (senior management and assistants), out of which the cost of approx. 258 FTEs (238) was reallocated to the business lines;
―Intercompany items are netted out only if they involve companies belonging to the same segment; items involving different segments are cross-checked and recorded as adjustments, along with the consolidation entries regarding companies belonging to different segments.
96 The Mediobanca Group only reports net interest income based on the requirements of IFRS 8, which specifies that an institution must record interest income and interest expense separately for each reporting segment, unless the majority of the revenue generated by that segment derives from interest and unless management base their evaluations primarily on net interest income in order to assess the segment’s results and take decisions regarding the resources to be allocated to the segment. In this case, an institution may refer to the segment’s interest revenue net of interest expense, provided it specifies this [IFRS 8.23].
384 Consolidated financial statements as at 30 June 2023
A.1 Profit-and-loss figures by business segment
(€m)
Profit-and-loss figures
Wealth Managemen t
Consume r Banking
Corporate and Investmen t Banking
Principa l Investing
Holding Function s
Adjustment s (1)
Group
Net interest income
361.5
984.9
288.–
(7.1)
145.1
28.6
1,801.–
Treasury income
9.4
—
135.–
16.–
42.8
2.5
205.7
Net fee and commission income
449.6
138.4
289.4
—
32.5
(66.–)
843.9
Share in profits earned by equity- accounted companies
—
(0.8)
—
454.7
—
—
453.9
Total revenues
820.5
1,122.5
712.4
463.6
220.4
(34.9)
3,304.5
Personnel costs
(294.2)
(113.8)
(183.–)
(4.–)
(133.4)
0.1
(728.3)
Administrative expenses
(260.9)
(233.6)
(144.3)
(1.–)
(68.6)
23.6
(684.8)
Overheads
(555.1)
(347.4)
(327.3)
(5.–)
(202.–)
23.7
(1,413.1)
Gains (losses) from equity investments sale
—
—
—
—
—
—
—
Net (adjustments) writebacks of loans to customers
(10.5)
(203.9)
(32.3)
—
(23.4)
—
(270.1)
Net (adjustments) writebacks of other financial assets
(1.2)
—
(10.1)
2.4
1.8
(0.2)
(7.3)
Other income (losses)
(20.9)
(14.–)
—
—
(83.5)
(67.4)
(185.8)
Profit before tax
232.8
557.2
342.7
461.–
(86.7)
(78.8)
1,428.2
Income tax for the period
(70.–)
(182.9)
(113.8)
(21.5)
(6.5)
—
(394.7)
Net income attributable to minority interest
(0.9)
—
(3.7)
—
(2.1)
—
(6.7)
Profit (loss) for the period
161.9
374.3
225.2
439.5
(95.3)
(78.8)
1,026.8
Cost/income ratio (%)
67.7
30.9
45.9
n.s.
n.s.
n.s.
42.8
(1) The column adjustments includes intercompany eliminations within the individual business lines (zero sum), adjustments/differences arising upon consolidation and, in the year under review, the net impact on P&L of the impairment of RAM goodwill (€49.5m) and the economic effect of the Revalea sale pursuant to IFRS 5 (€17.7m).
A.1 Balance-sheet data by business segment
The balance-sheet items shown below represent each business area’s contribution to the consolidated balance sheet, hence no adjustments have been made between the sum of the components and the Group total.
(€m)
Balance-sheet data
Wealth Management
Consumer Banking
Corporate & Investment Banking
Principal Investing
Holding Functions
Adjustments (1)
Group
Total assets
18,249.–
15,346.3
31,919.8
4,239.4
21,309.9
574.6
91,639.–
Banking book debt securities
609.9
293.7
826.8
—
8,740.9
—
10,471.3
Loans to customers
16,827.3
14,465.–
19,625.9
—
1,631.–
—
52,549.2
Funding
28,182.5
3,398.6
—
—
28,925.1
—
60,506.2
(1) Goodwill was not included in the total assets of business areas and was entirely attributed to the Group.
Notes to the Accounts | Part L – Segment Reporting 385
B. SECONDARY SEGMENT REPORTING
B.1 Profit-and-loss figures by business segment
(€m)
Profit-and-loss figures
Italy
International (1)
Group
Net interest income
1,679.1
121.9
1,801.–
Net trading income
198.7
7.–
205.7
Net fee and commission income
631.7
212.2
843.9
Equity-accounted companies
453.9
0.–
453.9
Total revenue
2,963.4
341.1
3,304.5
Personnel costs
(615.1)
(113.2)
(728.3)
Administrative expenses
(667.7)
(17.1)
(684.8)
Operating costs
(1,282.8)
(130.3)
(1,413.1)
Net loss provisions
(278.–)
0.6
(277.4)
Other gains (losses)
(130.6)
(55.2)
(185.8)
Profit before tax
1,272.–
156.2
1,428.2
Income tax for the period
(359.6)
(35.1)
(394.7)
Minority interest
(3.–)
(3.7)
(6.7)
Net profit
909.4
117.4
1,026.8
Cost/income ratio (%)
43.3%
38.2%
42.8%
(1) This item includes the P&L data of the companies Mediobanca International, CMB Monaco, Compass RE, MB USA, Polus Capital Management, Mediobanca Management Company, RAM Active Investments and Messier et Associés, in addition to the foreign branches (Paris, Madrid and London).
B.2 Balance-sheet data by geographical area
(€m)
Balance-sheet data
Italy
International (1)
Group
Total assets
76,384.–
15,255.–
91,639.–
Banking book debt securities
9,477.4
993.9
10,471.3
Loans to customers
45,618.4
6,930.8
52,549.2
Funding
(47,743.3)
(12,762.9)
(60,506.2)
(1) This item includes the balance sheet closing amounts of the companies Mediobanca International, CMB Monaco, Compass RE, MB USA, Polus Capital Management, Mediobanca Management Company, RAM Active Investments and Messier et Associés, in addition to the foreign branches (Paris, Madrid and London).
386 Consolidated financial statements as at 30 June 2023
Information required under letters a), b) and c) of Annex A, First Part, Title III, Section 2 of Bank of Italy circular 285/13
Situation at 30 June 2023
(€m)
Heading 120 Total revenues (*)
Heading 290 Profit (loss) before taxes
Heading 300 Income taxes
Full Time Employees (1)
Business Line
Breakdown
Italy
International
Group
Italy
International
Group
Italy
International
Group
Italy
International
Group
Wholesale Banking
Includes Client Business (lending, advisory, capital markets activities) and proprietary trading (businesses performed by Mediobanca S.p.A., Mediobanca International, MB USA and Messier & Associés)
558
107
665
219
87
306
(99)
(4)
(103)
267
154
421
Specialty Finance
Comprises factoring and credit management activities (including the NPLs portfolio) headed up by MBFACTA and MBCredit Solutions
70
—
70
37
—
37
(12)
—
(12)
222
—
222
Consumer Banking
Provides retail clients with the full range of consumer credit products, ranging from personal loans to salary-backed finance (Compass and Compass RE, a reinsurance company)
1,005
5
1,010
523
34
557
(174)
(9)
(183)
1,415
1
1,416
Affluent & Premier
Comprises deposit-taking, mortgage lending and retail banking services addressed by CheBanca!
414
—
414
100
—
100
(34)
—
(34)
1,482
—
1,482
Private & High Net Worth Individuals
Includes asset management activities, addressed in Italy by the new division Mediobanca Private Banking and Spafid and in Monaco by CMB Monaco and CMB Assets Management; it includes also (for what regards Alternative Asset Management activities) Cairn Capital, Compagnie Monegasque de Gestion and RAM Active Investment
163
233
396
44
88
132
(20)
(20)
(40)
269
360
629
Principal Investing
Manages the Group’s portfolio of equity investments and holdings
9
—
9
461
—
461
(22)
—
(22)
9
—
9
Holding Functions
Houses the Group’s Treasury and ALM activities (as part of Mediobanca S.p.A.); and continues to include the leasing operations (headed up by SelmaBPM) and the services and minor companies.
156
—
156
(87)
—
(87)
(6)
—
(6)
829
23
852
Adjustments (2)
(40)
—
(40)
(81)
0
(81)
3
2
5
—
—
—
Group total
2,335
345
2,680
1,216
209
1,425
(364)
(31)
(395)
4,493
538
5,031
(*) This refers to P&L heading 120 pursuant to Bank of Italy Circular No. 262/2005. The figure here differs from the amount stated as “Total revenues” in the statements found on pages 384 and 385, which provide a more accurate reflection of the Group’s operations. P&L heading 120 “Total revenues” pursuant to Bank of Italy circular 262/2005 does not include net premiums earned, other income from insurance activities or other operating income.
(1) Full-time employees at Group level.
(2) The column headed “Adjustments” includes various adjustments in connection with differences arising on consolidation (e.g. inter-company elisions) between the different business segments.
Notes to the Accounts | Part L – Segment Reporting 387
Situation at 30 June 2022
(€m)
Heading 120 Total revenues (*)
Heading 290 Profit (loss) before taxes
Heading 300 Income taxes
Full Time Employees (1)
Business Line
Breakdown
Italy
International
Group
Italy
International
Group
Italy
International
Group
Italy
International
Group
Wholesale Banking
Includes Client Business (lending, advisory, capital markets activities) and proprietary trading (businesses performed by Mediobanca S.p.A., Mediobanca International, MB USA and Messier & Associés)
418
143
561
352
(10)
342
(103)
(9)
(112)
252
145
397
Specialty Finance
Comprises factoring and credit management activities (including the NPLs portfolio) headed up by MBFACTA and MBCredit Solutions
87
—
87
6
—
6
(3)
—
(3)
250
—
250
Consumer Banking
Provides retail clients with the full range of consumer credit products, ranging from personal loans to salary-backed finance (Compass and Compass RE, a reinsurance company)
946
3
949
520
33
553
(174)
(9)
(183)
1,381
1
1,382
Affluent & Premier
Comprises deposit-taking, mortgage lending and retail banking services addressed by CheBanca!
385
—
385
93
—
93
(32)
—
(32)
1,424
—
1,424
Private & High Net Worth Individuals
Includes asset management activities, addressed in Italy by the new division Mediobanca Private Banking and Spafid and in Monaco by CMB Monaco and CMB Assets Management; it includes also (for what regards Alternative Asset Management activities) Cairn Capital, Compagnie Monegasque de Gestion and RAM Active Investment
150
183
333
53
45
98
(18)
(18)
(36)
249
349
598
Principal Investing
Manages the Group’s portfolio of equity investments and holdings
(20)
—
(20)
334
—
334
(15)
—
(15)
11
—
11
Holding Functions
Houses the Group’s Treasury and ALM activities (as part of Mediobanca S.p.A.); and continues to include the leasing operations (headed up by SelmaBPM) and the services and minor companies.
(38)
—
(38)
(260)
—
(260)
118
—
118
763
23
786
Adjustments (2)
6
8
14
(34)
30
(4)
6
5
11
—
—
—
Group total
1,934
337
2,271
1,064
98
1,162
(221)
(31)
(252)
4,330
518
4,848
(*) This refers to P&L heading 120 pursuant to Bank of Italy Circular No. 262/05. The figure here differs from the amount stated as “Total revenues” in the statements found on pages 384 and 385, which provide a more accurate reflection of the Group’s operations. P&L heading 120 “Total revenues” pursuant to Bank of Italy circular 262/2005 does not include net premiums earned, other income from insurance activities or other operating income.
(1) Full-time employees at Group level.
(2) The column headed “Adjustments” includes various adjustments in connection with differences arising on consolidation (e.g. inter-company elisions) between the different business segments.
Part M – Disclosure on leasing
SECTION 1
Lessee
QUALITATIVE INFORMATION
With reference to the transactions governed by IFRS 16 and the contracts which fall within its scope of application, virtually the only leases the Mediobanca Group has in place in this connection are for properties and company cars, plus some hardware leases for only a residual amount. The property leases mostly involve premises used as offices. Such leases normally have durations of more than twelve months, and typically contain renewal or termination clauses which both lessor and lessee can exercise in accordance with the provisions of law and/ or specific contractual arrangements, if any. Generally, such leases do not contain an option to buy at expiry or entail substantial reinstatement costs for the Group. As for the car leases, these are long-term agreements for the fleet of company cars available for use by staff members for work-related purposes in accordance with Group policy in this area.
When the standard was adopted, some simplifications were adopted, and are still applied. In particular contracts with a duration of 12 months or less (referred to as “short-term”), those with a value of less than €5,000 (referred to as “low value”) and those relating to intangible fixed assets, are not included. It was also decided not to strip out the service component from the lease proper; hence the full contract was recognized as a lease. The discount rate used has been derived from the Funds Transfer Pricing curve used in treasury management by the Group Treasury unit.
In cases where the original lease has been replicated with another counterparty (i.e., sub-leased), the related lease liability is matched by an amount receivable from the counterparty at the date rather than by its value in use. Sub-leasing arrangements involve only negligible amounts.
382
QUANTITATIVE INFORMATION
For quantitative information on the impact on the Group’s financial and earnings situation, reference is made to the contents of the following sections of the Notes to the Accounts:
⎯Information on rights of use acquired, in “Part B Notes to the consolidated balance sheet - Assets - Section 9”;
⎯Information on amounts due under leases, in the “Part B Notes to the consolidated balance sheet - Liabilities - Section 1”;
⎯For the effects on earnings, “Part C Notes to the Consolidated income statement”, in particular the headings for interest income and expense and net adjustments to tangible assets.
The value in use recorded in the balance sheet at 30 June 2023 was €242.4m, broken down as follows:
—Value in use of properties: €231m;
—Value in use of vehicles: €11.6m;
—Value in use of other assets: €0.1m.
SECTION 2
Lessor
QUALITATIVE INFORMATION
The Group has finance lease agreements in place through its subsidiary Selma BPM Leasing. These mostly involve leases of real property, core goods and registered moveable assets. The contracts are represented in the accounts by the amount receivable under the finance lease being recorded under Heading 40, Financial assets measured at amortized cost, the income received under Heading 10, Interest and similar income, the related proceeds determined by accrual and, under Heading 130, Net write-offs (write-backs) for credit risk, provisions for expected loan losses.
QUANTITATIVE INFORMATION
In relation to quantitative information regarding the impact on the Group’s financial position and earnings, reference should be made to the contents of the relevant sections in the Notes to the Accounts. In particular, the book value of leases is found in Part B - Notes to the consolidated balance sheet - Assets - Section 4 - Heading 40: Financial assets measured at amortized cost. During the year under review, these leases generated interest income as shown in Part C - Notes to the Consolidated income statement - Section 1 - Headings 10 and 20: Net interest income and Section 14 - Heading 210: Net adjustments to tangible assets of the Notes to the Consolidated Accounts.
1.Balance-sheet and Profit-and-loss data
2.Finance leases
2.1 Maturity analysis of lease payments receivable by timing bracket and reconciliation of undiscounted lease payments to the net investment in the lease
30/6/2023
30/6/2022
Time bands
Lease payments to be received
Lease payments to be received
Up to 1 year
384,424
372,977
From 1 year to 2 years
304,337
299,989
From 2 year to 3 years
228,455
231,486
From 3 year to 4 years
182,838
221,170
From 4 year to 5 years
98,426
104,248
Over 5 years
203,522
228,772
Total lease payments to be received
1,402,002
1,458,642
Reconciliation with loans
(26,158)
92,264
Not accrued gains (-)
(221,046)
(126,070)
Not guaranteed residual value (-)
194,888
218,334
Lease loans
1,375,844
1,550,906
384
The table provides a maturity analysis of the lease payments receivable, and a reconciliation of the undiscounted lease payments to the net investment in the lease, as required by IFRS 16, paragraph 94. In particular, it should be noted that the payments receivable under the lease, which consist of the sum of minimum payments due by way of principal and interest, are stated net of any provisions and the discounted unguaranteed residual value due to the lessor. These are reconciled with the net investment in the lease, recognized in the balance sheet under financial assets measured at amortized cost, by subtracting financial profits not accrued and adding the unguaranteed residual value. Non-performing leases acquired are not included.
2.4 Other information
In finance lease transactions, the credit risk associated with the contract is managed in accordance with the principles described in Part E – Information on risks and related hedging policies - Section 2 – Prudential consolidated risk - 1.1. Credit quality in the Notes to the Consolidated Accounts to which reference is made.
Contracts are classified as finance leases based on whether the risks and benefits associated with ownership of the asset in question are transferred to the lessee throughout the duration of the contract, whether the contract itself contains a final option to acquire the asset on terms that would make its failure to exercise such an option uneconomic, and whether the contract has a duration which is basically the same as the economic lifetime of the asset itself. The same may also apply in cases where the contracts do not contain options to buy or have a duration which is significantly shorter than the asset’s economic lifetime, but are accompanied by arrangements with third party buyers that guarantee the asset will be bought when the lease expires.
3.Operating leases
The Group currently has no operating leases in place.
ACCOUNTS OF THE BANK
Draft
394 Individual financial statements as at 30 June 2023
REVIEW OF OPERATIONS
Review of Operations 395
REVIEW OF OPERATIONS AT 30 JUNE 2023
Overview
Mediobanca S.p.A. delivered a net profit of €606.5m in the twelve months under review, much higher than last year (up 18.2%, to €513.1m), following an excellent performance in revenues (up 29.3%), which rose by more than operating costs (up 10.5%), reflected in a reduction in the cost/income ratio declining from 42% to 36%. The results were impacted by loan loss provisions of €36.3m (compared with net writebacks of €48.3m last year), impairment charges taken in respect of Group Legal Entity RAM (€54.3m), and other non-recurring items totalling €50.4m.
The growth in revenues, from €1,073.4m to €1,387.9m, was driven by net interest income (which was three times higher than last year) and by higher dividends from investee companies (up from €488m to €527.3m). The main income items performed as follows:
-Net interest income totalled €333.2m, a sharp increase on last year’s result (€114.4m); this item benefited from the increase in market interest rates, with assets repricing much faster than the cost of funding, the rise in which was mitigated by careful management of the various sources;
-Net treasury income increased by 34.6% (from €154.2m to €207.5m) due primarily to the trading portfolio, which reflected a gain of €62.1m (compared to a €3.5m loss last year); while the banking book reported a slightly lower profit (down from €51.3m to €47.1m), largely because of the absence of gains realized on disposals which totalled just €1m (versus €23m last year); and client trading declined (from €79.2m to €69.3m), as did dividends and other income from funds (from €37.4m to €28.9m);
-Net fee and commission income improved slightly, up 1% (from €316.8m to €319.9m), with all businesses contributing: Private Banking (up 9%, from €101.5m to €110.6m), Advisory M&A (up 5%, from €95.3m to €100.1m), Lending (up 6.7%, from €50.8m to €54.7m), and Capital Markets (up 1.9%, from €42.7m to €43.5m), which offset the reduction posted by the Markets
396 Individual financial statements as at 30 June 2023
division (down from €26.5m to €11.5m), reflecting the higher share of the costs entailed by certificates placement activity which has grown strongly;
—Dividends from investments amounted to €527.3m, higher than the €488m reported last year, due to an increased contribution from Group Legal Entity Compass (up from €150m to €275m) which more than compensated for the reductions posted by Messier et Associés (from €24.2m to €6.6m) and Assicurazioni Generali (from €310.2m to €235.1m).
Operating costs rose 10.5% from €450.9m to €498.4m, and were split between labour costs (up 9.4% from €263.9m to €288.8m), and administrative expenses (up 12.1%, from €187m to €209.6m). Labour costs reflect an increase in headcount plus the retention policies, which impacted on both fixed and variable components; while the higher administrative expenses reflects the increase in project activities and IT investments.
The loan book reflects provisions of €36.3m, after €48.3m in writebacks last year, after one performing exposure was reclassified as UTP (coverage ratio 70%) and one UTP position was reclassified among bad loans (coverage ratio 100%), only in part offset by writebacks in respect of the performing loan book due to repayments, re-ratings and release of overlays.
Provisions for other financial assets totalled €7m, much lower than last year (€31.7m) due to lower downward adjustments to holdings in funds of €4.5m (€34.9m), with new provisions for positions in banking book securities totalling €2.5m.
As for other income (losses), a loss of €50.4m (€56m) was recorded, following contributions to the resolution funds totalling €36.2m (€42.8m). The heading also reflects €12m in costs incurred by way of damages refunded to one client who was the victim of fraud, for which the Bank offered to promote the recovery action, plus a €10m charge taken in connection with the launch of an early retirement and staff turnover scheme, much of which was offset by the writebacks from the risks provisions (€7.9m), mostly amounts released in respect of tax disputes in view of the regulatory changes introduced by the 2023 Italian budget law.
In the twelve months an impairment charge was taken in respect of Group Legal Entity RAM in an amount of €54.3m, the new carrying amount of which represents the company’s net equity and brand value.
Review of Operations 397
Income taxes amounted to €135m and reflect a tax rate of 18.2% (11.9%). The heading includes €19m in higher taxes due to the release and distribution of €320m in CMB Monaco unavailable reserves.97 Ordinary taxation therefore totalled €116m, with a tax rate 15.6%.
On the balance-sheet side, the Bank’s total assets increased from €79.7bn to €81.3bn, on higher customer loans (which rose by 3.7%) and higher banking book securities (up 10.4%), against a reduction in treasury assets (down 8.9%) offset by higher debt security issuance (up 22.6%).
Mediobanca’s capital ratios remain at high levels, albeit approx. 50 bps lower post-application of the LGD Foundation for the Large Corporate model following the IMI (which accounted for 65 bps); the Common Equity Ratio phase-in 98 was 12.78% (13.26%), following the profit for the year (which added 190 bps) and the reduction in RWAs (adding 40 bps), fully absorbing the expected dividend distribution (which will cost 230 bps, or 70% of the consolidated net profit).
Conversely, the Total Capital Ratio was down 30 bps, from 15.84% to 15.57%, including the new €300m subordinated issue, which in part offsets the reduction due to the higher RWAs.
* * *
Earnings/financial data
The profit and loss account and balance sheet have been restated to provide the most accurate reflection of the Bank’s operations. The results are also presented in the format recommended by the Bank of Italy in the annex.
97 Cf. Italian Budget Law 2023 (Article 1, paras 87-95); Italian Law 197/2022.
98 CET1 fully loaded, pro forma including the Danish Compromise applied on a permanent basis (benefit approx. 170 bps).
398 Individual financial statements as at 30 June 2023
RESTATED PROFIT AND LOSS ACCOUNT
(€m)
12 mths ended 30/6/23
12 mths ended 30/6/22
Change (%)
Earnings data
Net interest income
333.2
114.4
n.m.
Net treasury income
207.5
154.2
34.6%
Net fee and commission income
319.9
316.8
1.-%
Dividends and other income
527.3
488.-
8.1%
Total income
1.387.9
1.073.4
29.3%
Labour costs
(288.8)
(263.9)
9.4%
Administrative expenses
(209.6)
(187.-)
12.1%
Operating costs
(498.4)
(450.9)
10.5%
Loan loss provisions
(36.3)
48.3
n.m.
Provisions for other financial assets
(7.-)
(31.7)
-77.9%
Impairment charges in respect of equity investments
(54.3)
(0.9)
n.m.
Other gains (losses)
(50.4)
(56.-)
-10.-%
Gross operating profit
741.5
582.2
27.4%
Income taxes
(135.-)
(69.1)
n.m.
Profit (loss) for the period
606.5
513.1
18.2%
Key Performance Indicators (KPIs)
30/6/23
30/6/22
Change (%)
ROTE 1
12.4%
10.5%
18.1%
C/I ratio 2
36%
42%
-14.3%
CoR (bps)3
9.-
12.5
-28.-%
DPS 4
0.85
0.75
13.3%
(1) Return On Tangible Equity.
(2) Cost/Income ratio.
(3) Cost of Risk.
(4) Dividend Per Share.
Review of Operations 399
RESTATED BALANCE SHEET
(€m)
Balance-sheet data
30/6/23
30/6/22
Assets
Financial assets held for trading
10,509.4
10,160.3
Treasury assets
12,790.5
14,038.6
Banking book debt securities
11,118.7
10,072.6
Customer loans
41,446.9
39,955.0
Investment securities
4,542.9
4,645.3
Tangible and intangible assets
169.3
169.4
Other assets
690.2
624.4
Total assets
81,267.9
79,665.6
Liabilities and net equity
Funding
55,893.0
55,408.6
Treasury liabilities
6,585.1
6,994.1
Financial liabilities held for trading
10,592.2
10,026.5
Other liabilities
3,041.4
2,053.7
Provisions
102.8
119.9
Net equity
4,446.9
4,549.7
Profit for the period
606.5
513.1
Total liabilities and net equity
81,267.9
79,665.6
Key Performance Indicators (KPIs)
30/6/23
30/6/22
Tier 1 capital
4,056.6
4,160.2
Regulatory capital
4,940.8
4,968.9
RWAs 1
31,738.4
31,376.2
CET1 ratio phase-in 2
12.78%
13.26%
RWA density 3
39.1%
39.4%
Regulatory capital/RWAs
15.57%
15.84%
Leverage ratio 4
6.0%
6.3%
Gross NPLs/gross loans ratio 5
0.3%
0.2%
Net NPLs/net loans ratio 6
0.05%
0.05%
No. of shares in issue (millions)
849.3
864.7
1 Risk-Weighted Assets.
2 Tier 1 capital/RWAs.
3 RWAs/total assets.
4 Tier 1 capital/total leverage exposures.
5 Gross NPLs/total loans.
6 Net NPLs/total loans.
400 Individual financial statements as at 30 June 2023
Review of key items
Funding – Funding increased from €55.4bn to €55.9bn: the material reduction in the T-LTRO exposure (from €8.4bn to €5.6bn) as part of the funding substitution plan, was more than offset by the increase in the debt security component (€16.3bn to €20bn). Wealth Management deposits also decreased slightly, from €25.3bn to €23.8bn, reflecting client conversions (to AUA), in part offset by increased use of the interbank channel (up from €5.3bn to €6.5bn).
A new funding programme has been launched in the form of financial certificates (€220m), and a new €500m Sustainable Senior Preferred Bond has been issued with six-year duration and fixed rate at 4.625%. A €300m subordinated note has also been issued at Euribor 3M +480 bps, with expiry at 10Y and callable at 5Y.
30/6/23
30/6/22
(€m)
%
(€m)
%
Chg.
Debt securities
20,025.7
36%
16,334.2
29%
22.6%
Interbank funding
6,458.-
11%
5,291.6
10%
22.-%
ECB (T-LTRO / LTRO)
5,586.2
10%
8,442.2
15%
-33.8%
Other funding
23,823.1
43%
25,340.6
46%
-6.-%
- of which: CheBanca! intercompany
17,407.8
31%
16,744.5
30%
4.-%
- of which: private banking
5,247.-
9%
6,471.-
12%
-18.9%
Total funding
55,893.-
100%
55.408,6
100%
0.9%
Loans and advances to customers – customer loans rose by €1.4bn, or 3.7% (from €40bn to €41.4bn), chiefly regarding loans to Group Legal Entities (which rose from €25bn to €26.3bn), whereas loans to Private Banking and Corporate clients remained virtually unchanged.
30/6/23
30/6/22
Chg.
(€m)
%
(€m)
%
Corporate customers
13,591.5
33%
13,543.2
34%
0.4%
Private customers
1,507.9
3%
1,411.1
3%
6.9%
Group companies
26,347.5
64%
25,000.7
63%
5.4%
Total loans and advances to customers
41,446.9
100%
39,955.-
100%
3.7%
– of which: impaired assets
18.9
19.6
-3.5%
Review of Operations 401
30/6/23
30/6/22
(€m)
%
(€m)
%
Chg.
Italy
9,489.5
63%
9,751.3
65%
-2.7%
France
2,132.5
14%
2,056.5
14%
3.7%
Spain
1,351.3
9%
1,289.6
9%
4.8%
Germany
751.9
5%
813.3
5%
-7.5%
UK
500.-
3%
500.-
3%
—
Other non-resident
874.2
6%
543.6
4%
60.8%
Total loans and advances to customers
15,099.4
100%
14,954.3
100%
1.-%
30/6/23
30/6/22
(€m)
%
(€m)
%
Chg.
Compass Banca
8,114.6
31%
7,297.5
29%
11.2%
CheBanca!
12,672.6
48%
11,062.8
44%
14.6%
CMB
1,631.6
6%
1,004.5
4%
62.4%
Mediobanca International
2,096.7
8%
3,882.8
16%
-46.-%
Others
1,832.1
7%
1,753.1
7%
4.5%
Total loans and advances to Group companies
26,347.5
100%
25,000.7
100%
5.4%
Non-performing loans grew from €68.9m to €118.3m, after one performing loan was reclassified as UTP, which caused the NPL ratio to rise (from 0.46% of total loans to 0.78%); meanwhile, net NPLs were virtually unchanged, at €18.9m, or 0.12% of total loans (0.13%) due to the higher coverage ratio (up from 71.5% to 84%). Gross bad loans totalled €62.4m (€8.3m of which attributable to Private Banking activity, in addition to the €54.3m Corporate exposure referred to above), and were written off entirely. There was also one non-performing exposure in respect of a position 100%-backed by an intercompany guarantee to Mediobanca International for an amount of €4.4m.
The net balance of positions classified as Stage 2 decreased from €214.3m to €173.4m (0.4% of total net customer loans), and were principally attributable to Large Corporate activity (down from €189.1m to €157.3m), reflecting the above reclassification to Stage 3; the reduced risk level is reflected in the performing loan coverage ratio (which decreased from 0.16% to 0.15%), in part due to the corresponding reduction in overlays compared to last year (which declined from €18.3m to €13.6m).
402 Individual financial statements as at 30 June 2023
Equity investments - This item includes controlling interests and investments in associates, any other equity instruments issued by the Group Legal Entities, the shares held in the banking book (recognized FVOCI), and holdings in funds which, under IFRS 9, must be measured at fair value through profit or loss.
(€m)
30/6/23
30/6/22
Book value
HTC&S Reserve
Book value
HTC&S Reserve
Associates and subsidiaries
3,528.5
n.m.
3,563.-
n.m.
Other listed shares
115.1
56.8
114.6
56.3
Other unlisted shares
125.1
90.1
144.6
117.1
Other equity assets
244.3
(19.7)
242.-
(18.-)
Seed capital
283.7
—
364.5
—
Private equity
138.2
—
96.9
—
Other funds
108.-
—
119.7
—
Total equities
4,542.9
127.3
4,645.3
155.4
Investments in associated companies were unchanged at €1,185.5m and consist of the following:
-Assicurazioni Generali (12.8% of the company’s ordinary share capital), carried at a book value of €1,096.3m, which at the reporting date reflected an unrealized gain of €2,708.6m (€1,470.1m based on current stock market prices);
-Istituto Europeo di Oncologia (25.37% of the company’s ordinary share capital) carried at a book value of €39m;
-Finanziaria Gruppo Bisazza S.r.l. (22.67%) carried at a book value of €6.9m; and
-CLI Holdings II Limited carried at a book value of €43.3m.
The book value of the investments in the Group Legal Entities decreased from €2,380m to €2,343m, reflecting the balance between:
-The impairment charges taken in respect of RAM (€54.3m) to align its book value to net equity plus the value of the brand, after the goodwill was written off at the consolidated level (which became necessary because of the reduced growth prospects for its sector of operation in view of the current interest rate scenario which has radically impacted the systematic funds market);
-The inclusion of MB INV AG S.r.l. with a book value of €15.4m: this 100%-owned SPV holds 1.6 million Assicurazioni Generali shares following the demerger of INV AG in which Mediobanca had a minority interest (13.5%).
Review of Operations 403
Equities (listed and unlisted) and equity-like instruments decreased from €501.2m to €484.5m following the demerger of INV AG (€12.1m), the partial redemption of the Burgo equity-like instrument Burgo (€54m), the portfolio’s valuation being adjusted to reflect fair value resulting in a €38m adjustment (€25.7m of which linked to the Tirreno Power and Burgo equity-like instruments), and new investments for approx. €11.4m.
Investments in funds dropped from €581.1m to €529.9m; approx. €283.7m (€364.5m) of these concerned assets managed by the Group (referred to as seed capital), which declined after two funds were wound up (€78.3m), and adjustments to reflect fair value at the year-end (minus €2.4m); the other holdings in funds (chiefly private equity funds) totalled €246.2m (€216.6m), on new investments of €37m and downward adjustments totalling €7.3m.
Percentage
shareholding
30/6/23
30/6/22
Associates
Assicurazioni Generali
12.80
1,096.3
1,096.3
Istituto Europeo di Oncologia
25.37
39.–
39.–
Bisazza
22.67
6.9
6.9
CLI Holdings
42.68
43.3
43.3
Total associates
1,185.5
1,185.5
Total subsidiaries
2,343.-
2,377.5
Total equity investments
3,528.5
3,563.-
404 Individual financial statements as at 30 June 2023
Banking book debt securities – these include securities measured at amortized cost (referred to as Hold to Collect, HTC) and securities measured at fair value through net equity reserves (referred to as Hold to Collect and Sell, HTC&S), plus debt securities that have failed to pass the SPPI test required pursuant to IFRS 9, and so must be measured at fair value through profit or loss.
30/6/23
30/6/22
(€m)
%
(€m)
%
Hold to Collect
5,316.7
47,8%
6,199.-
61.5%
Hold to Collect & Sell
5,801.1
52,2%
3,873.1
38.5%
Other (mandatorily measured at FV)
0.9
—
0.5
—
Total banking book securities
11,118.7
100%
10,072.6
100%
This segment ended the year at €11.1bn, split between Hold to Collect (€5.3bn) and Hold to Collect & Sell (€5.8bn). The portfolio’s short duration facilitated turnover (approx. €2.1bn), benefiting swiftly from the increase in yields.
By contrast, the increase in interest rates is reflected in the stocks’ valuations. The OCI reserve worsened, from minus €60.9m to minus €73.2m, and chiefly regards Italian government securities (for which the reserve deteriorated from plus €1m to minus €35m), only in part offset by the writebacks credited for the corporate and financial segment (which again was in negative territory, at minus €30.6m, but better than last year, when it was €56.8m). Gains on disposal in the twelve months totalled €4.3m, while unrealized losses on Hold to Collect securities (recognized at cost) amounted to €123.8m (€81m), a trend which in part was mitigated by the positive effect of hedging activity, which contributed €34.4m.
Approx. 77% of the portfolio is made up of government securities (€7.3bn), split between fixed assets (Hold to Collect: €2.8bn) and assets available for sale (Hold to Collect & Sell: €4.5bn) with a very short duration (approx. 2 years); the share of Italian government securities is worth €4.8bn (approx. 50% of the entire portfolio, with a duration of approx. 2.6 years).
30/6/23
30/6/22
Book value
Book value
HTC
HTC&S
OCI Reserve
HTC
HTC&S
OCI Reserve
Italian government securities
1,767.3
3,020.-
(35.-)
2,022.8
1,698.4
1.5
Other government securities
1,012.3
1,528.3
(7.7)
931.9
1,198.5
(5.7)
Bonds issued by financial institutions
2,433.3
1,016.3
(18.8)
3,165.9
734.1
(30.7)
of which: Consumer Banking ABS securities
1,282.1
186.6
(2.4)
1,951.8
275.6
(3.6)
Corporate bonds
103.8
236.5
(11.8)
78.4
242.1
(26.1)
Total banking book securities
5,316.7
5,801.1
(73.2)
6,199.-
3,873.1
(61.-)
Review of Operations 405
Treasury assets — these totalled €6.1bn, lower than last year’s figure (€7.2bn), reflecting the T-LTRO repayment (€2.9bn, six months ahead of the contractual expiry dates) using a substantial amount of the ECB deposits (which declined from €6.3bn to €3.3bn). It should be noted that the market scenario required a more prudent approach both for the equity side and for the fixed-income side.
30/6/23
30/6/22
Chg.
(€m)
(€m)
%
Financial assets held for trading
10,509.4
10,160.3
3.4%
Treasury funds
12,790.5
14,038.6
-8.9%
Financial liabilities held for trading
(10,592.2)
(10,026.5)
5.6%
Treasury funding
(6,585.1)
(6,994.1)
-5.8%
Total Net treasury assets
6,122.6
7,178.3
-14.7%
406 Individual financial statements as at 30 June 2023
30/6/23
30/6/22
Chg.
(€m)
(€m)
%
Loan trading
4.1
3.7
11%
Derivatives contract valuations
(271.1)
(463.8)
-42%
Certificates
(2,285.-)
(1.815.4)
26%
Equities
1,144.4
1.895.7
-40%
Bond securities
1,324.8
513.7
n.m.
Financial instruments held for trading
(82.8)
133.9
n.m.
30/6/23
30/6/22
Chg.
(€m)
(€m)
%
Cash and current accounts
488.2
612.6
-20%
Cash available at BCE
3,273.8
6,334.1
-48%
Deposits
2,443.4
97.7
n.m.
Net treasury
6,205.4
7,044.4
-11.9%
30/6/23
(€m)
30/6/22
(€m)
Assets
Liabilities
Assets
Liabilities
Italian government securities
1,999.4
(1,925.2)
1,435.6
(1,544.1)
Other government securities
1,263.6
(2,120.8)
636.9
(1,945.3)
Bonds issued by financial institutions
1,844.-
(44.-)
1,402.5
(8.3)
Corporate bonds
110.-
—
338.3
—
Asset Backet Securities (ABS)
198.1
—
197.9
—
Shares
1,184.6
(40.1)
2,127.7
(232.-)
Total banking book securities
6,599.7
(4,130.1)
6,139.-
(3,729.6)
30/6/23
(€m)
30/6/22
(€m)
Assets
Liabilities
Assets
Liabilities
Interest rate swaps
1,631.2
(1,756.-)
1,089.3
(1,211.4)
Foreign exchange
374.6
(297.7)
699.-
(634.2)
Interest rate options/futures
7.8
(23.6)
11.9
(14.9)
Equity swaps e options
1,727.2
(1,873.9)
1,985.1
(2,323.7)
Credit derivaties
152.5
(213.2)
232.3
(297.2)
Pricing derivates
3,893.3
(4,164.4)
4,017.6
(4,481.4)
30/6/23
(€m)
30/6/22
(€m)
Assets
Liabilities
Assets
Liabilities
Deposits for securities lending/PCT
3,016.9
(3,706.-)
2,400.9
(4,419.5)
Depositsper stock lending
432.4
(172.9)
227.1
(523.7)
Other Deposit
5,579.2
(2,706.2)
4,463.8
(2,050.9)
Deposits
9,028.5
(6,585.1)
7,091.8
(6,994.1)
Review of Operations 407
Tangible and intangible assets – this item stood at €169.3m, basically unchanged compared to last year (€169.4m), after depreciation and amortization charges totalling €9.6m, against new investments, in particular due to higher rights of use, and various forms of plant and equipment.
30/6/23
30/6/22
(€m)
%
(€m)
%
Chg.
Land and properties
128.5
75%
131.1
77%
-2%
- of which: core
85.5
51%
85.6
51%
—
buildings RoU ex IFRS16
19.6
12%
21.7
13%
-10%
Other tangible assets
11.1
7%
9.6
6%
16%
- of which: RoU ex IFRS16
4.1
2%
3.4
2%
21%
Other intangible assets
29.7
18%
28.7
17%
3%
- Of which: goodwill
12.5
7%
12.5
7%
—
- Of which: brand
15.5
9%
15.5
9%
—
Total tangible and intangible assets
169.3
100%
169.4
100%
—
A list of core properties owned by the Bank is provided below:
Sqm.
Book value(€m)
30/6/23
Book value per sqm
(€/000)
Milan:
– Piazzetta Enrico Cuccia n. 1
9,318
14.2
1.5
– Via Filodrammatici n. 1, 3, 5, 7 - Piazzetta Bossi n. 1 - Piazza Paolo Ferrari n. 6
13,390
62.3
4.7
– Foro Buonaparte n. 10
2,926
9.-
3.1
Total core properties
25,634
85.5
Provisions – this item stood at €102.8m, below last year’s figure (€119.9m), due to the reduction in provisions for loan commitments and guarantees issued (which were down from €46.7m to €30.4m). The portion of the statutory end-of-service payment declined from €5.4m to €5.1m, as the discounting reserve was aligned with the rise in interest rates. Other provisions for risks and charges totalled €67.3m, slightly lower than last year (€67.8m), following reversals and withdrawals amounting to €12m, virtually all of which was offset by fresh transfers, most of which in order to establish an early retirement and redundancy provision to facilitate generational turnover.
30/6/23
30/6/22
(€m)
%
(€m)
%
Chg.
Commitments and financial guarantees given
30.4
30%
46.7
39%
-34.9%
Provisions for risks and charges
67.3
65%
67.8
56%
-0.7%
Staff severance provision
5.1
5%
5.4
5%
-5.6%
of which: staff severance provision discount
(0.3)
—
—
—
n.m
Total provisions
102.8
100%
119.9
100%
-14.3%
408 Individual financial statements as at 30 June 2023
Shareholders’ equity – the reduction in net equity, from €5,062.8m to €5,053.4m, reflects the decrease in the valuation reserves (from €118m to €59.2m) attributable to the performance of financial assets recognized at FVOCI. The share capital stands at €444.2m, slightly higher than last year (€443.6m), reflecting as usual the issue of new shares for use in connection with the performance share scheme. The dividend to be distributed (€629.1m) is almost entirely offset by the profits generated during the twelve months (€606.5m). As at 30 June 2023 the number of treasury shares held by the Bank had fallen to 8,454,929 (equal to 1% of the shares in issue) after the uses made during the period and the major share cancellation implemented in September 2022 (when a total of 16,500,000 shares were cancelled).
(€m)
30/6/23
30/6/22
Chg.
Share capital
444.2
443.6
0.1%
Other reserves
3,943.5
3,987.7
-1.1%
Valuation reserves
59.2
118.4
-50.-%
- of which: OCI
57.4
110.1
-47.9%
- of which: cash flow hedge
—
0.5
n.s.
Profit for the period
606.5
513.1
18.2%
Total net equity
5,053.4
5,062.8
-0.2%
The OCI reserve is in positive territory at €57.4m, but lower than last year (€110.2m), while the fixed-income reserve was in negative territory, at minus €73.2m (minus €60.9m), reflecting the valuation of Italian government securities (which declined by €36.5m in the period), only in part offset by the recovery in the corporate and financial sectors (which rose by €25m in the twelve months); the lower equity reserve (which includes equity-like instruments) is due to reimbursements totalling €67m only partially absorbed by year-end revaluations (€40m)..
(€m)
30/6/23
30/6/22
Chg.
Equity shares
127.3
155.4
-18.1%
Bonds
(73.2)
(60.9)
20.-%
of which: Italian government bonds
-35.-
1.5
n.m.
Tax effect
3.4
15.7
-78.4%
Total OCI reserve
57.4
110.2
-0.5
Review of Operations 409
Profit and loss account
Net interest income — net interest income was three times higher than last year, at €333.2m (€114.4m), due to the rise in interest rates which advocated liquid assets being redeployed to banking book securities (sovereign debt securities in particular). The favourable ALM position impacted more than positively, fully absorbing the anticipated increase in the cost of funding, which remained low for the Wealth Management component (where repricing was no more than structural) and the good diversification of the various debt security channels against a very low credit spread alignment.
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Interest income
1,734.4
495.5
n.m.
Interest expense
(1,401.2)
(381.1)
n.m.
Interest margin
333.2
114.4
n.m.
Net treasury income totalled €207.5m, up 34.6% on last year (€154.2m), on a substantial increase in the proprietary trading contribution, which more than doubled to €109.2m, just under half of which was attributable to banking book activity, despite the lack of gains realized on disposal of securities (compared with €23.2m last year). The slowdown in client trading, which decreased by 12.5% (from €79.2m to €69.3m), reflects the return of equity trading to standard levels (€55.6m) following last year’s outstanding performances (€68m), and a slight recovery in fixed-income trading (from €8m to €13m), the performance of which is more reflected in net interest income. Dividends and other income decreased from €37.4m to €28.9m.
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Dividends
28.9
37.4
-22.7%
Fixed-income trading profit
98.2
67.2
46.1%
Equity trading profit
80.4
49.6
62.1%
Net trading income
207.5
154.2
34.6%
Net fee and commission income remained high at €319.9m, and indeed slightly higher than last year (€316.8m), with virtually all segments contributing positively: fees in Lending business rose by 6.7% a €54.2m, in Advisory M&A by 5% to €100.1m (with the Mid-Corporate segment contributing €25.6m), and in Capital Markets by 1.9% to €43.5m. Private Banking fees rose by 9% to €110.6m, on
410 Individual financial statements as at 30 June 2023
management fees of €65.5m (up 7% YoY) and upfront fees which more than offset the lack of performance fees. The reduction in fees earned by the Markets division (from €26.5m to €11.5m) regards exclusively the cost of selling certificates, an activity that is growing strongly.
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Lending
54.2
50.8
6.7%
Advisory M&A
100.1
95.3
5.-%
Capital Market
43.5
42.7
1.9%
Private Banking
110.6
101.5
9.-%
of which perfomance fees
0.7
5.6
-87.5%
Other income
11.5
26.5
-56.6%
Net fee and commission income
319.9
316.8
1.-%
Dividends and other income totalled €527.3m, higher than last year (€488m) because of an increased contribution from Group Legal Entity Compass (from €150m to €275m), which more than offset the reductions reported by Messier et Associés (from €24.2m to €6.6m) and Assicurazioni Generali (from €310.2m to €235.1m) which last year was boosted by an extraordinary dividend (€93.2m). The heading also contains dividends collected from CLI Holdings in an amount of €8.4m (€2.8m) and from SelmaBipiemme of €1.9m.
Operating costs – operating costs rose by 10.5%, from €450.9m to €498.4m, in both segments, labour costs and administrative expenses. Labour costs were up 9.4% (from €263.9m to €288.8m), reflecting the increase in headcount (with 68 new staff added) and the adoption of initiatives to attract and retain figures, which impacted on both fixed remuneration (up 5.6%) and the variable component (up 3.8%); administrative expenses rose by 12.1% (from €187m to €209.6m), driven by the increased project activity and related consultancy expenses, including info-provider costs which are more sensitive to inflation and exchange rate changes, and by the resumption in client marketing activity.
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Labour costs
288.8
263.9
9.4%
of which: directors
4.7
4.-
16.6%
stock options and performance shares schemes
11.3
9.8
15.4%
Sundry operating costs and expenses
209.6
187.-
12.1%
of which: depreciations and amortizations
9.6
9.2
4.1%
administrative expenses
200.3
180.1
11.2%
Operating costs
498.4
450.9
10.5%
Review of Operations 411
The following table shows the details of other administrative expenses by type.
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Legal, tax and professional services
11.5
11.-
4.5%
Other consultancy expenses
24.-
18.8
27.7%
Marketing and communication
5.6
4.1
36.6%
Rent and property maintenance
4.9
4.8
2.1%
EDP
87.-
80.2
8.5%
Financial information subscription
27.8
24.4
13.9%
Bank services, collection and payment commissions
1.4
1.4
—
Operating expenses
6.9
4.9
40.8%
Other labour costs
5.8
3.9
48.7%
Other costs
19.6
18.1
8.3%
Direct and indirect taxes
5.8
8.5
-31.8%
Total administrative expenses
200.3
180.1
11.2%
Loan loss adjustments – these totalled €36.3m for the twelve months, compared with writebacks of €48.3m last year. This year’s results were impacted by one performing exposure being reclassified as UTP (coverage ratio 70%, impact on profit and loss €35m), and one UTP exposure being reclassified among bad loans (written of entirely, with impact of €16.6m). The performing loan book, meanwhile, recorded an improvement following repayments and re-ratings; in light of the improving trend and following careful review of the industrial sectors most impacted by inflation, overlays of €23m have been set aside (€12m less than last year).
Provisions for other financial assets – net provisions of €7m were taken for the twelve months (€31.7m), reflecting the balance between writedowns to financial assets recognized at fair value (investments in Group funds and other private equity and real estate funds) totalling €4.5m (€34.9m) and the increase in provisioning for banking book activity (€2.5m).
(€m)
12 mths ended
30/6/23
12 mths ended
30/6/22
Chg.
Hold-to-Collect securities
(3.3)
5.5
n.m.
Hold-to-Collect & Sell securities
0.7
(2.3)
n.m.
Other
(4.4)
(34.9)
-87.4%
Provisions for other financial assets
(7.-)
(31.7)
-77.9%
412 Individual financial statements as at 30 June 2023
—Impairment charges on equity investments amounted to €54.3m and regard RAM, the book value of which has been aligned with its net asset value plus the brand value after the goodwill was written off, a step that became necessary in order to reflect the new interest rate scenario which has impacted radically on the systematic funds market and seriously affected its growth prospects.
Other gains (losses) – this heading reflects a net loss of €50.4m (compared with a €56m net loss last year) and is made up as follows:
—€36.2m by way of payment to the resolution funds, including €35.5m (€39m) to the Single Resolution Fund which is now complete, and €0.7m by way of payment to the Deposit Guarantee Scheme (€0.6m);
—€10m in staff-related provisions for the launch of an early retirement and redundancy scheme in order to facilitate generational turnover and so start work on implementation of the 2023-26 Strategic Plan straight away which is focused on innovation and technology;
—€12m in net contingent liabilities deriving from damages refunded to one client who was the victim of fraud committed as part of a complicated system of payments made in relation to investments by the client, for which the Bank offered to promote the recovery action versus the parties involved, including activating the respective insurance indemnities;
—€7.9m in reversals from the risks provisions, primarily due to revaluation of the tax risk, in view of the ruling on dividends collected from non-Italian companies introduced by the 2023 Italian budget law;
Income tax – this heading totalled €135m, and includes the provision for withholding tax due to release of the CMB Monaco profit reserves (€19m), the option for which will be exercised when the 2023 tax declaration is presented. Net of this non-recurring charge, the tax rate is equal to 15.6%, higher than last year (10%) partly as a result of the higher non-deductible charges (RAM impairment charges).
Mediobanca (as consolidating entity) has adopted tax consolidation, which
Review of Operations 413
includes Compass Banca, SelmaBipiemme Leasing, MBFACTA,99 MIS, CheBanca!, MB SGR, Revalea, MBCredit Solutions, MB Contact, Spafid, Spafid Trust, Spafid Connect, Spafid Family Office SIM, Quarzo, Quarzo CQS, MB Covered Bond, Compass Link and Compass Rent. Transactions between the consolidating and consolidated entities are governed by bilateral agreements regulating cash flows, exchanges of information and the individual companies’ responsibilities vis-à-vis the revenue authorities.
* * *
Related party disclosure
Financial accounts outstanding as at 30 June 2023 between companies forming part of the Mediobanca Group and related parties, and transactions undertaken between such parties during the financial year, are illustrated in Part H of the Notes to the Accounts, along with all the information required in terms of transparency pursuant to Consob resolution no. 17221 issued on 12 March 2010 (amended most recently by resolution no. 21264 of 10 December 2020).
Operations towards related parties are carried out in light of the Group’s ordinary activity, are maintained on an arm’s length basis, and are entered into solely in the interests of the companies concerned. No atypical or irregular transactions have been entered into with such counterparties.
Other information
As part of the Bank’s securities transactions on behalf of customers, a total of 28.8 million Mediobanca shares were bought and sold for a value of €279.8m.
The information on corporate governance and ownership structures pursuant to Article 123-bis of Legislative Decree No. 58/98 is included in the Report on Corporate Governance, attached hereto and available on the Bank’s website (Governance section).
The assets for which monetary revaluations were made, as recognized in the financial statements, are detailed in Table A.
Further information on Research and Studies can be found on p. 75 of the consolidated report.
99 Adhered to the tax consolidation regime starting from 1 July 2022.
414 Individual financial statements as at 30 June 2023
Moreover, Section 10 of Liabilities contains information regarding the most significant pending legal proceedings and tax disputes.
Outlook
The Bank, in line with the objectives of its 2023-26 Strategic Plan, confirms its capability to deliver balanced revenue growth for the coming financial year, well distributed between the ordinary component (net interest income, net treasury income, and net fee and commission income) and its activities as Parent Company (dividends). In particular, a strong increase in dividends from Group Legal Entities is expected, which will serve to protect the individual capital ratios, in view of the higher shareholder remuneration envisaged in line with the new targets contained in the 2023-26 Strategic Plan, and to increase the Bank’s profits against a cost/income ratio that, despite substantial investments, will benefit from the higher dividend flow and a cost of risk that remains low.
Milan, 20 September 2023
I
L
CONSIGLIO DI
A
M
M
I
N
I
S
T
R
A
Z
I
O
N
E
Review of Operations 415
Financial year ended 30 June 2023: proposal to approve financial statements and allocation of profit
Dear shareholders,
The net profit for the year was € 606,490,778.95 to be allocated as follows:
€
105,892.20
To the Legal reserve, which accordingly would amount € 88,833,893.50, or 20% of the Bank’s share capital;
€
60,543,185.69
To the Statutory reserve;
€
210,000,000.00
To the unavailable Reserve 1
€
335,841,701.06
Profit remaining
We therefore propose to distribute a € 0.85 dividend on each of the 840,802,545 shares in issue entitling their holders to such rights, taking account of the redistribution of treasury shares attributable, for a total amount of € 714,682,163.25, consisting of the remaining profit plus € 378,840,462.19 taken from the Statutory Reserve, as shown in the table below.
It is to be noted that the unit amount of the dividend will remain unchanged also in case the Bank owning, at the record date, a greater amount of treasury shares. In this case, the total amount of the distributed profit would be reduced accordingly, with the difference taken to the Statutory Reserve.
Accordingly, you are invited to approve the financial statements for the year ended 30 June 2023, including the balance sheet, profit and loss account and accompanying schedules, plus the following profit allocation:
Net profit for the year...........................................................................................
€
606,490,778.95
To the Legal Reserve.............................................................................................
€
105,892.20
To the Statutory Reserve........................................................................................
€
60,543,185.69
To the unavailable Reserve....................................................................................
€
210,000,000.00
Remaining profit ..................................................................................................
€
335,841,701.06
From the Statutory Reserve....................................................................................
€
378,840,462.19
Dividend of € 0.85 per share on 840,802,545 shares............................................
€
714,682,163.25
The dividend of € 0.85 per share will be paid on 22 November 2023, with the shares going ex-rights on 20 November 2023.
Milan, 29 September 2023
THE BOARD OF DIRECTORS
1 The unavailable reserve will be called "ex art. 26 of the D.L. 10 August 2023 n. 104" provided that the conversion law provides for the power to constitute such a reserve and is promulgated by the 28 October 2023. Otherwise, this reserve may be made available by a subsequent resolution of the Shareholders' Meeting.
416 Individual financial statements as at 30 June 2023
DECLARATION BY HEAD OF COMPANY FINANCIAL REPORTING
Financial Statements 417
Declaration concerning the financial statements
pursuant to Article 81-ter of CONSOB Regulation No. 11971
of 14 May 1999, as amended
1.The undersigned Alberto Nagel and Emanuele Flappini, in their respective capacities as Chief Executive Officer and Head of Company Financial Reporting of Mediobanca, hereby, and in view inter alia of the provisions contained in Article 154-bis, paragraphs 3 and 4, of Italian Legislative Decree No. 58 of 24 February 1998, declare that the administrative and accounting procedures used in the preparation of the financial statements:
—were adequate in view of the company’s characteristics and
—were effectively adopted during the period 1 July 2022- 30 June 2023.
2.Assessment of the adequacy of said administrative and accounting procedures for the preparation of the financial statements at 30 June 2023 was based on a model defined by Mediobanca in accordance with benchmark standards for internal control systems which are widely accepted at international level (CoSO and CobiT frameworks).
3.It is further hereby declared that
3.1 The financial statements:
—were drawn up in accordance with the International Financial Reporting Standards adopted by the European Union pursuant to Regulation (EC) 1606/2002 issued by the European Parliament and Council on 19 July 2002;
—correspond to the data recorded in the company’s books and accounting ledgers;
—are adequate for the purpose of providing a true and fair view of the capital, earnings and financial situation of the issuer.
3.2 the review of operations includes a reliable analysis of the performance and operating result and position of Mediobanca, together with a description of the main risks and uncertainties to which it is exposed.
Milan, 20 September 2023
Chief Executive Officer
Head of Company Financial Reporting
Alberto Nagel
Emanuele Flappini
418 Individual financial statements as at 30 June 2023
AUDITORS’ REPORT
Financial Statements 419
420 Individual financial statements as at 30 June 2023
Financial Statements 421
422 Individual financial statements as at 30 June 2023
Financial Statements 423
424 Individual financial statements as at 30 June 2023
Financial Statements 425
426 Individual financial statements as at 30 June 2023
Financial Statements 427
428 Individual financial statements as at 30 June 2023
INDIVIDUAL FINANCIAL STATEMENTS (*)
(*) Figures in Euros
Financial Statements 429
Mediobanca S.p.A. Balance Sheet
Assets
30 June 2023
30 June 2022 *
10. Cash and cash equivalents
4,426,851,422
7,049,780,795
20. Financial assets measured at fair value through profit or loss
11,578,775,208
11,262,575,796
a) financial assets held for trading
10,509,409,892
10,160,298,943
b) financial assets designated at fair value
538,590,262
516,482,970
c) other financial assets measured mandatorily at fair value
530,775,054
585,793,883
30. Financial assets measured at fair value through other comprehensive income
6,285,647,040
4,374,269,928
40. Financial assets measured at amortized cost
54,588,649,643
52,622,161,338
a) due from banks
30,114,592,653
27,803,742,623
b) due from customers
24,474,056,990
24,818,418,715
50. Hedging derivatives
245,954,010
157,119,705
60. Value adjustment to generic hedging financial assets (+/-)
—
—
70. Equity investments
3,528,481,749
3,563,039,187
80. Tangible assets
139,642,079
140,734,419
90. Intangible assets
29,662,462
28,693,202
of which:
Goodwill
12,514,145
12,514,145
100. Tax assets
277,484,768
259,317,000
a) current
182,106,141
153,824,241
b) prepaid
95,378,627
105,492,759
110. Non-current assets and asset groups as held for sale
—
—
120. Other assets
166,765,825
207,941,431
Total assets
81,267,914,206
79,665,632,801
(*) The Balance Sheet at 30 June 2022 includes the restatement of some security deposits on derivatives from heading 10 to heading 40.
430 Individual financial statements as at 30 June 2023
Liabilities and net equity
30 June 2023
30 June 2022
10. Financial liabilities measured at amortized cost
60,979,649,706
61,793,306,327
a) due to banks
34,324,113,115
35,171,128,505
b) due to customers
8,770,681,018
11,388,129,818
c) securities in issue
17,884,855,573
15,234,048,004
20. Trading financial liabilities
10,592,249,162
10,026,502,228
30. Financial liabilities designated at fair value
1,524,041,446
637,589,428
40. Hedging derivatives
2,116,466,694
1,385,980,889
50. Value adjustment to generic hedging financial liabilities (+/-)
—
—
60. Tax liabilities
521,354,135
361,394,113
a) current
298,185,828
134,042,994
b) deferred
223,168,307
227,351,119
70. Liabilities associated with assets held for sale
—
—
80. Other liabilities
377,990,584
278,170,067
90. Provision for statutory end-of-service payments
5,049,967
5,400,129
100. Provisions for risks and charges
97,730,658
114,548,703
a) commitments and guarantees issued
30,405,631
46,692,459
b) post-employment and similar benefits
—
—
c) other provisions for risks and charges
67,325,027
67,856,244
110. Revaluation reserves
59,188,850
118,414,457
120. Redeemable shares
—
—
130. Equity instruments
—
—
140. Reserves
1,826,802,801
2,032,800,953
150. Share premium
2,195,605,653
2,195,605,653
160. Capital
444,169,468
443,640,007
170. Treasury shares (-)
(78,875,697)
(240,807,324)
180. Profit (loss) for the year (+/-)
606,490,779
513,087,171
Total liabilities and net equity
81,267,914,206
79,665,632,801
Financial Statements 431
Mediobanca S.p.A. Income statement
Items
30 June 2023
30 June 2022
10. Interest and similar income
1,740,230,742
651,092,014
of which: interest income calculated according to the effective interest method
1,372,632,946
460,413,273
20. Interest and similar charges
(1,407,695,291)
(543,206,066)
30. Net interest income
332,535,451
107,885,948
40. Commission income
355,647,161
361,798,728
50. Commission expenses
(59,965,423)
(72,217,500)
60. Net fee and commission
295,681,738
289,581,228
70. Dividends and similar income
618,793,528
612,705,477
80. Net trading income
95,331,702
(6,294,774)*
90. Net hedging income (expense)
3,711,934
(714,152)
100. Gain (loss) on disposal/repurchase of:
8,334,693
22,547,773
a) financial assets measured at amortized cost
8,271,179
3,808,942
b) financial assets measured at fair value through other comprehensive income
(6,738,593)
19,760,545
c) financial liabilities
6,802,107
(1,021,714)
110. Net income from other financial assets and liabilities measured at fair value through profit or loss
9,123,942
(21,863,002)
a) financial assets and liabilities designated at fair value
13,562,153
13,133,799
b) other financial assets mandatorily measured at fair value
(4,438,211)
(34,996,801)
120. Total revenues
1,363,512,988
1,003,848,498
130. Net write-offs (write-backs) for credit risk:
(53,311,167)
42,486,846
a) financial assets measured at amortized cost
(54,027,631)
44,792,012
b) financial assets measured at fair value through other comprehensive income
716,464
(2,305,166)
140. Gains (losses) from contractual modifications without derecognition
—
—
150. Net income from financial operations
1,310,201,821
1,046,335,344
160. Administrative expenses:
(543,300,136)
(502,192,028)
a) personnel costs
(288,799,716)
(263,944,924)
b) other administrative expenses
(254,500,420)
(238,247,104)
170. Net transfers to provisions for risks and charges
12,760,571
8,675,190
a) commitments and guarantees issued
14,683,885
9,081,759
b) other sums set aside (net)
(1,923,314)
(406,569)
180. Net value adjustments to /write-backs of tangible assets
(8,908,072)
(8,748,483)
190. Net value adjustments to /write-backs of intangible assets
(665,530)
(484,777)
200. Other operating income (expense)
25,665,634
38,356,514
210. Operating costs
(514,447,533)
(464,393,584)
220. Gain (loss) on equity investments
(54,262,649)
(854,619)
230. Net income from fair value valuation of tangible and intangible assets
—
—
240. Goodwill write-offs
—
—
250. Gain (loss) on disposal of investments
(860)
30
260. Profit (loss) on ordinary operations before tax
741,490,779
581,087,171
270. Income tax for the year on ordinary operations
(135,000,000)
(68,000,000)
280. Profit (loss) on ordinary operations after tax
606,490,779
513,087,171
290. Gains (losses) of ceded operating assets, after tax
—
—
300. Net profit (loss) for the year
606,490,779
513,087,171
(*) The effect of the exchange rate valuations of banking book securities was reclassified from heading 100 to heading 80.
432 Individual financial statements as at 30 June 2023
Mediobanca S.p.A. Comprehensive Income statement
Items
30 June 2023
30 June 2022
10.
Net profit (loss) for the year
606,490,779
513,087,171
Other income items after tax without transfers through profit or loss
12,005,200
21,777,154
20.
Equity securities designated at fair value through other comprehensive income
18,101,102
16,995,756
30.
Financial liabilities designated at fair value through profit or loss (change in own credit risk)
(6,273,934)
4,345,695
40.
Hedging of equity securities designated at fair value through other comprehensive income
—
—
50.
Tangible assets
—
—
60.
Intangible assets
—
—
70.
Defined benefit plans
178,032
435,703
80.
Non-current assets and asset groups as held for sale
—
—
90.
Portion of valuation reserves of equity-accounted investments:
—
—
Other income items after tax with transfers through profit or loss
(8,672,544)
(89,181,825)
100.
Foreign investment hedges
—
—
110.
Currency exchange gains/losses
—
—
120.
Cash flow hedges
(462,516)
462,516
130.
Hedging instruments (non-designated items)
—
—
140.
Financial assets (other than equity securities) measured at fair value through other comprehensive income
(8,210,028)
(89,644,341)
150.
Non-current assets and asset groups as held for sale
—
—
160.
Portion of valuation reserves of equity-accounted investments
—
—
170.
Total other income items after tax
3,332,656
(67,404,671)
180.
Comprehensive income (Item 10+170)
609,823,435
445,682,500
Financial Statements 433
Statement of Changes in Mediobanca Net Equity
Changes for the year
Allocation of profit (loss) for the previous year
Net equity transactions
Total net equity at 30/6/22
Reserves
Dividends and other allocations
Changes in reserves
Newly issued shares
Treasury shares purchased
Extraordinary dividend payouts
Changes to equity instruments
Treasury share derivatives
Stock options (1)
Comprehensive income for the year 2022/2023
Total net equity at 30/6/23
Capital:
443,640,007
—
—
—
529,461
—
—
—
—
—
—
444,169,468
a) ordinary shares
443,640,007
—
—
—
529,461
—
—
—
—
—
—
444,169,468
b) other shares
—
—
—
—
—
—
—
—
—
—
—
—
Share premium
2,195,605,653
—
—
—
—
—
—
—
—
—
—
2,195,605,653
Reserves:
2,032,800,953
513,087,171
(629,164,205)
57,738,810
(529,461)
(160,713,601)
—
—
—
13,583,134
—
1,826,802,801
a) retained earnings
2,102,513,639
513,087,171
(629,164,205)
(4,819,453)
(529,461)
—
—
—
—
—
—
1,981,087,691
b) other
(69,712,686)
—
—
62,558,263
—
(160,713,601)
—
—
—
13,583,134
—
(154,284,890)
Revaluation reserves
118,414,457
—
—
(62,558,263)
—
—
—
—
—
—
3,332,656
59,188,850
Equity instruments
—
—
—
—
—
—
—
—
—
—
—
—
Treasury shares
(240,807,324)
—
—
—
—
161,931,627(2)
—
—
—
—
—
(78,875,697)
Profit (loss) for the year
513,087,171
(513,087,171)
—
—
—
—
—
—
—
—
606,490,779
606,490,779
Total net equity
5,062,740,917
—
(629,164,205)
(4,819,453)
—
1,218,026
—
—
—
13,583,134
609,823,435
5,053,381,854
(1) Represents the effects of the performance shares related to the ESOP schemes.
(2) Concerns the cancellation (on 2 September 2022, by resolution dated 28 October 2021) of 16,500,000 treasury shares without reduction of the share capital.
434 Individual financial statements as at 30 June 2023
Statement of Changes in Mediobanca Net Equity
Changes for the year
Allocation of profit (loss) for the previous year
Net equity transactions
Net equity at 30/6/21
Reserves
Dividends and other allocations
Changes in reserves
Newly issued shares
Treasury shares purchased
Extraordinary dividend payouts
Changes to equity instruments
Treasury share derivatives
Stock options (1)
Comprehensive income for the year 2021/2022
Total net equity at 30/6/22
Capital:
443,640,007
—
—
—
—
—
—
—
—
—
—
443,640,007
a) ordinary shares
443,640,007
—
—
—
—
—
—
—
—
—
—
443,640,007
b) other shares
—
—
—
—
—
—
—
—
—
—
—
—
Share premium
2,195,605,653
—
—
—
—
—
—
—
—
—
—
2,195,605,653
Reserves:
2,230,584,380
578,366,245
(569,164,138)
(1,770,754)
—
(217,360,414)
—
—
—
12,145,634
—
2,032,800,953
a) retained earnings
2,093,311,532
578,366,245
(569,164,138)
—
—
—
—
—
—
—
—
2,102,513,639
b) other
137,272,848
—
—
(1,770,754)
—
(217,360,414)
—
—
—
12,145,634
—
(69,712,686)
Revaluation reserves
184,048,374
—
—
1,770,754
—
—
—
—
—
—
(67,404,671)
118,414,457
Equity instruments
—
—
—
—
—
—
—
—
—
—
—
—
Treasury shares
(216,736,473)
—
—
—
—
(24,070,851)
—
—
—
—
—
(240,807,324)
Profit (loss) for the year
578,366,245
(578,366,245)
—
—
—
—
—
—
—
—
513,087,171
513,087,171
Total net equity
5,415,508,186
—
(569,164,138)
—
—
(241,431,265)
—
—
—
12,145,634
445,682,500
5,062,740,917
(1) Represents the effects of performance shares related to the ESOP schemes.
Financial Statements 435
Mediobanca Cash Flow Statement Direct Method
Value
30 June 2023
30 June 2022 (*)
A.
CASH FLOWS FROM OPERATING ACTIVITIES
1.
Operating activities
(377,489,913)
(144,693,462)
- interest received (+)
1,025,321,483
147,025,110
- interest paid (-)
(1,117,930,723)
(219,837,968)
- dividends and similar income (+)
90,610,894
125,282,674
- net fees and commission income (+/-)
270,657,494
60,319,542
- personnel costs (-)
(207,478,385)
(190,846,219)
- other costs (-)
(506,235,968)
(61,084,935)
- other revenues (+)
15,231,346
68,275,135
- taxes and duties (-)
52,333,946
(73,826,801)
- expenses/income from asset groups held for sale after tax effect (+/-)
—
—
2.
Cash inflow/outflow from financial assets
(783,986,131)
(533,008,239)
- financial assets held for trading
468,285,607
1,209,061,958
- financial assets designated at fair value
20,460,000
63,529,373
- financial assets mandatorily measured at fair value
50,334,366
(1,996,427)
- financial assets measured at fair value through other comprehensive income
(1,884,434,791)
306,218,461
- financial assets measured at amortized cost
332,245,876
(3,851,960,343)
- other assets
229,122,811
1,742,138,739
3.
Cash inflow/outflow from financial liabilities
(1,338,514,866)
4,903,982,044
- financial liabilities measured at amortized cost
(887,099,119)
5,682,207,950
- financial liabilities held for trading
250,415,531
222,345,417
- financial liabilities designated at fair value
866,112,267
(56,418,609)
- other liabilities
(1,567,943,545)
(944,152,714)
Net cash inflow/outflow from operating activities
(2,499,990,910)
4,226,280,343
B.
CASH FLOWS FROM INVESTING ACTIVITIES
1.
Cash generated from:
527,750,408
491,070,884
- disposal of shareholdings
—
2,899,906
- dividends received in respect of equity investments
527,323,408
487,991,978
- disposals of tangible assets
427,000
179,000
- disposals of intangible assets
—
—
- disposals of business units
—
—
2.
Cash absorbed by:
(21,600,061)
(59,223,399)
- purchases of shareholdings
(16,251,061)
(56,009,399)
- purchases of tangible assets
(3,714,000)
(2,835,000)
- purchases of intangible assets
(1,635,000)
(379,000)
- purchases of business units
—
—
Net cash inflow/outflow from investing activities
506,150,347
431,847,485
C.
CASH FLOWS FROM FUNDING ACTIVITIES
(629,088,812)
(810,526,903)
- issue/purchase of treasury shares
—
(241,431,265)
- issue/purchase of equity instruments
—
—
- distribution of dividends and other purposes
(629,088,812)
(569,095,638)
Net cash inflow/outflow from funding activities
(629,088,812)
(810,526,903)
NET CASH INFLOW/OUTFLOW DURING THE PERIOD
(2,622,929,375)
3,847,600,925
436 Individual financial statements as at 30 June 2023
Reconciliation
Value
Accounting items
30 June 2023
30 June 2022 (*)
Cash and cash equivalents: balance at start of period
7,049,780,795
3,202,179,870
Total cash inflow/outflow during the period
(2,622,929,373)
3,847,600,925
Cash and cash equivalents: exchange rate effect
—
—
Cash and cash equivalents: balance at end of period
4,426,851,422
7,049,780,795
(*) The Cash Flow Statement at 30 June 2022 includes the restatement of some security deposits on derivatives from heading 10 to heading 40.
Notes to individual accounts | Part A – Accounting Policies 437
NOTES TO THE ACCOUNTS
438 Individual financial statements as at 30 June 2023
NOTES TO THE ACCOUNTS
Part A - Accounting Policies 439
A.1 - General part 439
Section 1 - Statement of Compliance with IAS/IFRS 439
Section 2 - General Basis of Preparation 439
Section 3 - Events Subsequent to the Reporting Date 445
Section 4 - Other Aspects 446
A.2 - Significant accounting policies 447
A.3 - - Information on transfers between financial asset portfolios 470
A.4 - Information on fair value 470
A.5 - “Day-one profit/loss” disclosure 485
Part B - Notes to the Balance Sheet 486
Assets 486
Section 1 - Heading 10: Cash and Cash Equivalents 486
Section 2 - Heading 20: Financial Assets Measured at Fair Value through Profit or Loss 487
Section 3 - Heading 30: Financial Assets Measured at Fair Value through Other Comprehensive Income 490
Section 4 - Heading 40: Financial Assets Measured at Amortized Cost 492
Section 5 - Heading 50: Hedging Derivatives 497
Section 7 - Heading 70: Equity Investments 498
Section 8 - Heading 80: Property, Plant and Equipment 502
Section 9 - Heading 90: Intangible Assets 504
Section 10 - Asset Heading 100 and Liability Heading 60: Tax Assets and Liabilities 507
Section 12 - Heading 120: Other Assets 510
Liabilities 511
Section 1 - Heading 10: Financial Liabilities Measured at Amortized Cost 511
Section 2 - Heading 20: Trading Liabilities 514
Section 3 - Heading 30: Financial Liabilities Designated at Fair Value 515
Section 4 - Heading 40: Hedging Derivatives 516
Section 6 - Heading 60: Tax Liabilities 517
Section 8 - Heading 80: Other Liabilities 517
Section 9 - Heading 90: Provision for Statutory End-of-service Payments 517
Section 10 - Heading 100: Provisions for Risks and Charges 518
Section 12 - Headings 110, 130, 140, 150, 160, 170 and 180: Net Equity 522
Other information 524
Part C - Notes to Income statement 528
Section 1 - Headings 10 and 20: Net Interest Income 528
Section 2 - Headings 40 and 50: Net fee and commission income 530
Section 3 - Heading 70: Dividends and Similar Income 531
Notes to individual accounts | Part A – Accounting Policies 439
Section 4 - Heading 80: Net Trading Income 532
Section 5 - Heading 90: Net Hedging Income (Expense)533
Section 6 - Heading 100: Net Gains (Losses) on Disposals/Repurchases 533
Section 7 - Heading 110: Net Gains (Losses) on Other Financial Assets and Liabilities Measured at Fair Value through Profit or Loss 534
Section 8 - Heading 130: Net value adjustments for credit risk 535
Section 10 - Heading 160: Administrative Expenses 536
Section 11 - Heading 170: Net Transfers to Provisions for Risks and Charges 537
Section 12 - Heading 180: Net value adjustments to /write-backs of tangible assets 539
Section 13 - Heading 190: Net value adjustments to /write-backs of intangible assets 539
Section 14 - Heading 200: Other Operating Income (Expense)539
Section 15 - Heading 220: Gains (Losses) on Equity Investments 540
Section 19 - Heading 270: Income Tax on Ordinary Activities 540
Section 22 - Earning per share 541
Part D - Comprehensive Income 542
Part E - Information on Risks and Related Hedging Policies 543
Section 1 - Credit Risk 543
Section 2 - Market Risk 584
Section 3 - Derivative Instruments and Hedging Policies 599
Section 4 - Liquidity Risk 611
Section 5 - Operational Risk 615
Part F - Information on Capital 618
Section 1 - Capital of the Company 618
Section 2 - Own Funds and Banking Supervisory Ratios 619
Part G - Combinations Involving Group Companies or Business Units 624
Part H - Related Party Transactions 625
Part I - Share-Based Payment Schemes 628
Part M - Disclosure on Lease 631
440 Individual financial statements as at 30 June 2023
Part A - Accounting Policies
A.1 - General Part
SECTION 1
Statement of Compliance with IAS/IFRS
The financial statements as at 30 June 2023, as required by Italian Legislative Decree No. 38 of 28 February 2005, were drawn up in accordance with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB), and the respective interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), which were adopted by the European Commission in accordance with the procedure laid down in Article 6 of Regulation (EC) No. 1606/2002 issued by the European Parliament and Council on 19 July 2002. In particular, account was taken of the “Instructions on preparing statutory and consolidated financial statements for banks and financial companies which control banking groups” issued by the Bank of Italy under Circular No. 262 of 22 December 2005 - seventh update of 29 October 2021,101 as subsequently amended - which define the structure to be used in compiling and preparing the financial statements and the contents of the notes to the accounts. This report was drawn up in accordance with the provisions of Article 154-ter of Legislative Decree No. 58 of 24 February 1998 (Italian Consolidated Law on Finance).
SECTION 2
General Basis of Preparation
These individual financial statements comprise:
101 The eighth update of the Circular was published on 17 November 2022. This update is mainly aimed at transposing the new international accounting standard IFRS 17 “Insurance Contracts”, and the resulting amendments introduced in other international accounting standards, including IAS 1 “Presentation of Financial Statements” and IFRS 7 “Financial Instruments: Disclosures”, for financial years starting on or after 1 January 2023. For the Mediobanca Group, this update will enter into force as of 1 July 2023.
Notes to individual accounts | Part A – Accounting Policies 441
―individual balance sheet;
―individual income statement;
―individual statement of other comprehensive income;
―statement of changes in individual net equity;
―individual cash flow statement, drawn up using the direct method;
―notes to the accounts.
All the statements have been drawn up in conformity with the general principles provided for under IAS and the accounting policies illustrated in part A.2, and show data for the period under review compared with that for the previous financial year in the case of balance-sheet figures or the corresponding period of the previous financial year for profit-and-loss data.
* * *
During the year under review, the European Commission approved two regulations, which include certain amendments to accounting standards already in force (IFRS 17 and IAS 12).
Under Regulation (EU) 2021/2036 of 19 November 2021, IFRS 17 “Insurance Contracts” entered into force and was applicable as of 1 January 2023. Under Regulation 2022/1491 of 8 September 2022, published in the Official Journal L 234 of 9 September 2022, some amendments to IFRS 17 were introduced. In particular, the amendment to the transitional provisions of IFRS 17 allows companies to overcome the one-off classification differences in comparative information regarding the previous year upon first-time adoption of IFRS 17 and IFRS 9 “Financial Instruments”. Companies may apply the amendment only upon first-time adoption of IFRS 17 and IFRS 9.102
On the same topic, it should also be noted that the Bank of Italy - IVASS - Consob issued a joint press release entitled “IAS/IFRS Financial Statements at 31 December 2022 - Information on the transition to IFRS 17 and IFRS 9” on 27 October 2022 calling upon all companies that draft (separate and consolidated) financial statements in compliance with international accounting standards to
102 For more details, please refer to the paragraph on the new standard.
442 Individual financial statements as at 30 June 2023
provide adequate disclosure on the entry into force of the new accounting standard from 1 January 2023, in compliance with paragraph 30 of IAS 8. The above joint press release also refers to the Recommendations of the European Securities and Markets Authority (ESMA), which, in its Public Statement ESMA32-339-208 “Transparency on implementation of IFRS 17 Insurance Contracts” of last May 13, aims to identify some information that listed companies are encouraged to provide in their 2022 Interim and Annual Financial Reports regarding impacts deriving from the first-time adoption of IFRS 17.
The entry into force of the new standard will have no effects on the financial statements of Mediobanca S.p.A., as the investments in Assicurazioni Generali and Compass RE are valued at cost.
* * *
Regulation 2022/1392 of 11 August 2022, published in Official Journal L 211 of 12 August 2022, adopts amendments to IAS 12 “Income Taxes“. These amendments clarify how companies should account for deferred taxes on transactions such as leases and decommissioning obligations and aim to reduce differences in the recognition of deferred tax assets and liabilities on leases and decommissioning obligations. Companies will apply these provisions starting from 1 January 2023 or later. The Mediobanca Group as of 1 July 2023.
The measures and statements published by regulatory and supervisory authorities in the past 12 months regarding the most suitable way to apply accounting standards that supplement the measures contained in the latest financial statements at 30 June 2022 are shown below. Please refer to the above financial statements for more details.
On 28 October last, ESMA published the annual statement “European common enforcement priorities for 2022 annual financial reports” outlining the priorities on which listed companies must focus when preparing the annual reports for December 2022. ESMA in particular recommended that disclosure should be provided in the 2022 IFRS financial statements regarding: the possible impacts of the conflict between Russia and Ukraine 103 both in terms of financial results and of alternative performance measures (APM), the impacts of the current difficult macroeconomic context (exit from the pandemic period, inflation, rise in interest rates and
103 Please refer to Part E – SECTION 1 – Consolidated prudential risks of the Consolidated Financial Statements.
Notes to individual accounts | Part A – Accounting Policies 443
deteriorated business outlook),104 communications on the alignment of economic activities pursuant to Article 8 of the Taxonomy Regulation (EU 2020/852),105 the effects of climate risks (climate change) with impacts, estimates and strategies implemented for their mitigation 106 giving particular importance to the consistency between assessments and estimates applied in the notes to the accounts and disclosure in the review of operations 107 and in the Non-Financial Statement. Lastly, in the same document, ESMA recalls that, starting from financial year 2022,108 the iXBRL marking requirement will come into force for financial statements templates and for the notes to the accounts in compliance with the ESEF Regulation.109
On 12 September 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA - referred to as ESA) published a joint report on the autumn 2022 risks (Joint Committee - Autumn 2022 Report on Risks and Vulnerabilities). The report emphasizes how Russia’s war against Ukraine, compounded by pre-existing inflationary pressures, caused a sharp increase in energy and commodity prices thereby weakening the purchasing power of households and increasing the risk of stagflation. Consequently, the ESA Joint Committee has advised the national competent authorities, financial institutions and market operators to take adequate measures to mitigate adverse effects. Lastly, financial institutions and supervisors should also continue to carefully manage environmental risks 110 and cyber risks 111 to address threats to IT security and business continuity.
Lastly, on 16 December 2022, at the time of the publication of the “Closure Report of Covid-19 Measures”, the EBA announced the repeal of its reporting and disclosure guidelines regarding the Covid-19 pandemic starting from 1 January 2023.
Going-concern statement
With reference to the requirements of the Bank of Italy, CONSOB and ISVAP
104 ESMA expects the potential effects of the difficult economic situation to be taken into account by entities within the scope of IFRS standards, in particular within the scope of IAS 36 and IFRS 9.
105 Please refer to the contents of the consolidated Non-Financial Report published on www.mediobanca.com.
106 Please refer to Part E – ESG and Climate Change Risk of the consolidated financial statements.
107 ESMA expects the impact of climate issues to be taken into account by entities within the scope of IFRS standards, in particular within the scope of IAS 16, IAS 36 and IAS 38.
108 For the Mediobanca group, the Regulation will be applied as of the financial statements at 30 June 2023.
109 Please refer to Part A - New ESEF Regulation.
110 For a discussion of this topic, please refer to Part E - ESG and Climate Change Risk within the consolidated financial statements at 30 June 2023.
111 For a discussion of this topic, please refer to Part E - IT Risk and Cyber Risk within the consolidated financial statements at 30 June 2023.
444 Individual financial statements as at 30 June 2023
under Joint Document No. 4 of 3 March 2010, the individual financial statements at 30 June 2023 were prepared on a going-concern basis: the Directors believe that no risks and uncertainties have arisen such as to raise doubts on the going-concern assumption. The Directors consider that the Bank has a reasonable expectation of continuing to operate in the foreseeable future.
For information on the Group’s risks and related safeguards, please refer to the contents of “Part E - Information on risks and related hedging policies” in these Notes to the Accounts and in the Group’s Review of Operations.
Discretionary assessments, risks and uncertainties linked to the use of significant accounting estimates
In compliance with IFRS, senior management are required to formulate assessments, estimates and assumptions that may influence the adoption of the accounting standards and the amounts of assets, liabilities, costs and revenues recognized in the financial statements, as well as the disclosure relating to contingent assets and liabilities.
The assumptions underlying such estimates take into account all the information available at the date of preparation of the financial statements, as well as assumptions considered reasonable, including in light of past experience.
In this regard, it should be noted that financial estimates may, due to their very nature and insofar as reasonable, need to be revised as a result of changes in the circumstances on which they have been based, of the availability of new information or of greater experience accrued.
The main cases requiring the use of subjective assessments and opinions on the part of senior management are as follows:
a)quantification of losses due to the impairment of receivables and, in general, of other financial assets;
b)assessment of the fair value of equity investments and other non-financial assets (goodwill, tangible assets, including the value in use of assets acquired under lease, and intangible assets);
Notes to individual accounts | Part A – Accounting Policies 445
c)use of valuation models to measure the fair value of financial instruments not listed on active markets;
d)estimates of liabilities deriving from company defined benefit retirement plans;
e)quantification of legal and fiscal provisions for risks and charges.
The above list of valuation processes is provided for the sole purpose of allowing the reader to better understand the main areas of uncertainty, but it should not be understood in any way to suggest that alternative assumptions may, at present, be more appropriate. For the most relevant items being estimated, information on the main hypotheses and assumptions used in the estimate is provided in the specific sections of the Notes to the Accounts, including a sensitivity analysis with respect to alternative hypotheses.
Group Project on Interbank Benchmark Rate Transition
Activities relating to the transition of the USD Libor rate, scheduled for the end of June 2023, were concluded during the year under review without significant impacts to profit and loss. In line with the ECB recommendations of May 2021, activities providing for the revision and strengthening of the fall-back clauses relating to contracts and products indexed to the Euribor rate, as well as for the identification of the necessary actions in the operating and technological chains, are underway for a possible future transition, although the disposal thereof has not been planned for the time being.
Targeted Longer-Term Refinancing Operations – T-LTRO
The T-LTRO III refinancing operation consists in a disbursement plan, up to 10 disbursements and each with a three-year maturity, starting from September 2019 with a quarterly frequency which included final interest at maturity to be calculated on the average quarterly refinancing rate detected on bank deposits, plus a premium (50 bps), for transactions in place between 24 June 2020 and 23 June 2022. Payment of the premium is required upon maturity of each transaction subject to compliance with a certain level of loans to households and enterprises (referred to as “eligibility criteria”).
446 Individual financial statements as at 30 June 2023
Following the changed macroeconomic scenario, on 27 October 2022 the ECB decided to recalibrate the interest calculation method for the period from 23 November 2022 until the maturity date or early repayment date of each outstanding tranche, indexing it to the ECB average reference interest rates applicable over that period, rather than over the entire duration of the program.
The instrument is accounted for at amortized cost in accordance with the provisions of IFRS 9. The change made by the ECB in the computation of the interest rate will not cause derecognitions or modifications, and has led to the recalculation of the effective rate at maturity, which, as for the year ending 30 June 2022, incorporates the expected evolution of rates and payment of the premium at the maturity date of the instrument.
The effect on the profit and loss account within the 12-month period, including the rate recalibration, generated interest expense of approximately €105m with an impact of €140m on net interest income, compared to the previous financial year.
Group’s Hedge Accounting Manual
The Group’s hedge accounting manual details the methodological and procedural choices for hedge accounting and the testing methods to verify its economic relationship.
The use of a behavioural model for accounts and fixed rate mortgage loans led to a reduction of the Group’s exposure to interest rate risk with a benefit on net interest income in light of the extension of the duration of deposits.
SECTION 3
Events subsequent to the reporting date
At the end of June, Mediobanca gave its assent to the rescue process of Eurovita in the dual role of distributing and system bank by subscribing to two credit lines granted to the Newco, which comprises five insurance companies which will purchase the assets of the company that entered a liquidity crisis. It is worth noting that termsheets signed during the month of June had no binding nature and thus no legal liability had arisen for the Group, that could lead to changes to the present
Notes to individual accounts | Part A – Accounting Policies 447
financial statement. During the week from 18 th to 22 th September 2023 the final commitment letters are forecast to be signed, for a total amount not higher than €77m, which will be drawn on the basis of repayments requested first of all by Private customers and will largely be guaranteed by the Newco’s liquid assets (Cronos Via SpA). At the same time, Mediobanca undertook to pay an annual service fee linked to the policies in force from time to time. In light of the limited exposure of Wealth customers and taking into account that the conditions of both loans were at fair market value, the Eurovita transaction will not produce material effects on Mediobanca’s numbers.
Article 26 of Law-Decree No. 104/2023 (published in Official Journal no. 186 of 10 August 2023), limited to the year 2023, introduced an extraordinary levy of 40% on the extra profits of banks, calculated as the higher value of: a) the amount of interest income relating to the financial year prior to the one in progress as at 1 January 2023 which exceeds such income by at least 5 per cent in the year prior to the one in progress as at 1 January 2022 and b) the amount of interest income relating to the year prior to the one in progress as at 1 January 2024 which exceeds such income by at least 10 per cent in the financial year prior to the one in progress as at 1 January 2022. However, the amount of this extraordinary tax cannot exceed 0.1 per cent of total balance sheet assets relating to the finan-cial year prior to the one in progress as at 1 January 2023. Recognition through profit or loss will only be required after the law-decree has been enacted; in light of the current bill, the extra profits of Mediobanca will be those accrued as at 30 June 2023 and 30 June 2022 and therefore, the tax should be paid by 31 January 2024. It should be noted that on the date of approval of the Directors' report, the approval process of the decree is underway and therefore the rule may be subject to changes.
No other events requiring an adjustment to be made to the data shown in the individual Financial Statements at 30 June 2023 occurred after such date.
SECTION 4
Other aspects
In compliance with Directive 2004/109/EC (Transparency Directive) and Delegated Regulation 2019/815 of 17 December 2018 (ESEF Regulation, European Single Electronic Format), these Individual Financial Statements are being published, together with the Consolidated Financial Statements, in XHTML format (eXtensible HyperText Markup Language). It should be noted that the “Inline
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Extensible Business Reporting Language (iXBRL)” required by the ESEF Regulation has been applied to information contained in the consolidated financial statements only (balance sheet, income statement, statement of comprehensive income, statement of changes in equity, and cash flow statement) and in the notes to the consolidated accounts. For further information, please refer to the paragraph “New ESEF Regulation” in “Part A Accounting Policies - A.1 General Part” of the notes to the consolidated accounts.
Nevertheless, issuers may continue to publish their (consolidated and individual) financial statements in other formats (e.g. PDF).
The Bank’s individual financial statements are accompanied by the Declaration of the Head of Company Financial Reporting pursuant to Article 154-bis of the Italian Law on Finance and are subject to audit by the independent auditing firm EY S.p.A., according to the provisions of Legislative Decree No. 39 of 27 January 2010.
A.2 – Significant Accounting Policies
1 - Financial assets measured at fair value through profit or loss
These include financial assets held for trading and other financial assets mandatorily measured at fair value, and assets to which the Fair Value Option is applied.
Financial assets held for trading are assets which have been acquired principally for the purpose of being traded. This category comprises debt securities, equities, loans held for trading purposes, and the positive value of derivatives held for trading, including those embedded in complex instruments (such as structured bonds), which are recorded separately.
Assets not held for trading will be mandatorily measured at fair value through profit or loss if they do not meet the requirements to be measured at amortized cost or at fair value through other comprehensive income. In particular, as clarified by the IFRS Interpretation Committee, this category includes units in mutual investment funds.112
Initial recognition occurs at the settlement date for securities and at the
112 The IFRS Interpretation Committee’s clarification rules out any possibility of such instruments being treated as equities.
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subscription date for derivatives. At initial recognition, such financial assets are booked at fair value not including any transaction expenses or income directly attributable to the asset concerned, which are taken through the profit and loss account. Following their initial recognition, they will continue to be measured at fair value, and any changes in fair value will be recognized in the profit and loss account. Interest on instruments mandatorily measured at fair value will be recognized according to the interest rate stipulated contractually. Dividends paid on equity instruments will be measured through profit or loss when the right to collect them becomes effective.
Equities and linked derivatives whose fair value may not be reliably measured using the methods described above are stated at cost (these too qualify as Level 3 assets). If the assets suffer impairment, they are written down to their current value.
Gains and losses upon disposal and/or redemption and the positive and negative effects of changes in fair value over time are reflected in the profit and loss account under the respective headings.
Assets held for trading mandatorily to be measured at fair value also include loans which do not guarantee full repayment of principal in the event of the counterparty’s financial difficulties and which have therefore failed the SPPI test. The process followed to write down these positions is aligned with that used for other loans, on the grounds that the exposure is basically attributable to credit risk, with both the gross exposure and related provisioning stated.
The heading also includes financial assets designated at fair value upon initial recognition. In such cases, financial assets are recognized irrevocably at fair value through profit or loss if, and only if, their being included in this category eliminates or significantly reduces a measurement inconsistency.
2 - Financial assets measured at fair value through other comprehensive income
These are financial instruments, mostly debt securities, which meet both the following conditions:
―the instruments are held on the basis of a business model whose objective is the collection of contractual cash flows and of proceeds deriving from the sale of such instruments;
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―the contractual terms have passed the SPPI test.
Financial assets measured at fair value through other comprehensive income (FVOCI) are recognized at fair value, including transaction costs and income directly attributable to them. Thereafter, they will continue to be measured at fair value. Changes in fair value are measured through other comprehensive income, while interest and currency exchange gains/losses are recorded in the profit and loss account (in the same way as financial instruments measured at amortized cost).
Expected losses of financial assets measured at fair value through other comprehensive income (debt securities and loans and advances to customers) are calculated (as per the impairment process) in the same way as those of financial assets measured at amortized cost, with the resulting value adjustment recorded in the profit and loss account.
Retained earnings and accumulated losses recorded in other comprehensive income will be measured through profit or loss when the instrument is removed from the balance sheet.
The category also includes equities not held for trading which meet the definition provided by IAS 32, and which the Group decided to classify irrevocably in this category at the initial recognition stage. As the instruments in question are equities, they are not subject to impairment and no gains/losses on equities will be measured through profit or loss, including following the sale of the instrument. Conversely, dividends on the instruments will be measured through profit or loss when the right of collection takes effect.
3 - Financial assets measured at amortized cost
These include loans and advances to customers and banks, debt securities and repo transactions which meet the following conditions:
—the financial instrument is held and managed according to the hold-to-collect business model, i.e. with the objective of holding it in order to collect the cash flows provided for in the contract;
—such contractual cash flows consist entirely of payment of principal amount and interest (and therefore meet the requirements set by the SPPI test).
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This heading also includes receivables originated from finance leases, the valuation and classification rules for which are governed by IFRS 16 (cf. below), even though the impairment rules introduced by IFRS 9 apply for valuation purposes.
The Bank business model should reflect the ways in which financial assets are managed at a portfolio level and not at instrument level, on the basis of factors observable at a portfolio level and not at instrument level, such as the following:
— operating procedure adopted by management in the performance evaluation process;
— risk type and procedure for managing risks taken, including indicators for portfolio rotation;
— means for determining remuneration mechanisms for risk-takers.
The business model is based on expected reasonable scenarios (without considering “worst case” and “stress case” scenarios). In the event of cash flows differing from those estimated at initial recognition, the Group is not bound to change the classification of financial instruments forming part of the portfolio, but uses the information for deciding the classification of new financial instruments.113
At initial recognition, the Group analyses contractual terms for the instruments to check whether the instrument, product or sub-product has passed the SPPI test. In this connection, the Bank has developed a standardized process for performing the test, which involves analysing the loans using a specific tool, developed internally, which is structured on the basis of decision-making trees, at the level of the individual financial instrument or product based on their different degrees of customization. If the test is not passed, the tool will show that the assets should be measured at fair value through profit or loss (FVTPL). The method by which loans are tested differs according to whether or not the asset is a retail or corporate loan: at product level for retail loans, individually for corporate loans. An external info-provider is used to test debt securities; if, however, no test results are available, the instrument is analysed using the SPPI tool. When contractual cash flows for the instrument do not represent solely payments of principal and interest on the outstanding amount, the Bank mandatorily classifies the instrument at fair value
113 These considerations are stated in the internal management policies, which reiterate the link between business model and accounting treatment and introduce frequency and materiality thresholds for changes in portfolios of assets measured at amortized cost.
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through profit or loss.
At the initial recognition date, financial assets are measured at fair value, including any costs or income directly attributable to individual transactions that can be established from the outset even if they are actually settled at later stages. The recognition value does not, however, factor in costs with the above characteristics which are repaid separately by the borrower, or may be classified as ordinary internal administrative expenses.
The instrument is measured at amortized cost, i.e. the initial value less/plus the repayments of principal made, write-downs/write-ups, and amortization – calculated using the effective interest rate method – of the difference between the amount disbursed and the amount repayable at maturity, adjusted to reflect expected losses.
The amortized cost method is not used for short-term receivables, as the discounting effect is negligible; for this reason, such receivables are recognized at historical cost. The original effective interest rate is defined as the rate of interest which renders the discounted value of future cash flows deriving from the loan or receivable by way of principal and interest equal to the initial recognition value of the loan or receivable.
The original effective interest rate for each loan will remain unchanged in subsequent years, even if new terms are negotiated leading to a reduction to below market rates, including non-interest-bearing loans. The relevant value adjustment is recognized in the profit and loss account.
In accordance with the provisions of IFRS 9, the impairment model involves financial assets being classified at one of three different risk stages (Stage 1, Stage 2 and Stage 3), depending on developments in the borrower’s credit quality, to which different criteria for measuring expected losses apply. Accordingly, financial assets are split into the following categories:
—Stage 1: this includes exposures at their initial recognition date for as long as there is no significant impairment to their credit quality; for such instruments, the expected loss should be calculated depending on default events which may occur within twelve months of the reporting date;
—Stage 2: this includes exposures which, while not classified as impaired as such, have nonetheless experienced significant impairment to their credit quality since the initial recognition date; in the transition from Stage 1 to Stage 2, the expected loss will be calculated for the outstanding life of the instrument;
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—Stage 3: this category consists of non-performing (impaired) exposures according to the definition provided in the regulations. In the transition to Stage 3, exposures are valued individually, that is, the value adjustment is calculated as the difference between the carrying value at the reference date (amortized cost) and the discounted value of the expected cash flows, which are calculated by applying the original effective interest rate. The expected cash flows consider the anticipated collection times, the probable net realizable value of any guarantees, and the costs which are likely to be incurred for the recovery of the credit exposure from a forward-looking perspective which factors in alternative recovery scenarios and developments in the economic cycle.
In the model for calculating expected losses applied by the Group, forward-looking information was taken into consideration by referring to three possible macroeconomic scenarios (baseline, mild-positive and mild-negative) that may have an impact on PD and LGD, including any sales scenarios where the Group’s NPL strategy considers that such assets should be recovered through sale on the market.
The Group’s policy to establish a significant increase in credit risk is based on qualitative and quantitative criteria and uses the 30-day past due loans or their classification as forborne as conditions to be otherwise included in Stage 2 (referred to as backstop indicators). Cases of low-risk instruments at the recording date are identified, compatible with classification as Stage 1 (low credit risk exemption), where there is a BBB- rating on the Standard & Poor’s scale, or a corresponding internal PD estimate.
Purchased or originated credit impaired items (POCIs) are receivables that are already impaired at the point in time when they are acquired or disbursed. At the initial recognition date they are measured at amortized cost on the basis of an internal rate of return which is calculated using an estimate of the recovery flows expected for the item; recovery flows are periodically updated in light of new evidence and discounted using the above-mentioned internal rate of return.
Following initial recognition, all financial assets measured at amortized cost are subject to the impairment model based on the expected loss, i.e. performing as well as non-performing exposures.
Impairment regards losses which are expected to materialize in the twelve months following the reporting date, or losses which are expected to materialize throughout the rest of the instrument’s lifetime in the event of a significant increase in credit risk. Both the twelve-month and lifetime expected losses can be calculated on an
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individual or collective basis according to the nature of the underlying portfolio.
Expected credit losses are recorded and released only to the extent that changes have occurred. For financial instruments considered to be in default, the Group records an expected loss on the residual lifetime of the instrument (similar to Stage 2 above); value adjustments are determined for all the exposures of the different categories considering forecast information reflecting macro-economic factors (forward-looking approach).
4 - Derecognition of assets
A financial asset must be derecognized from the balance sheet if, and only if, the contractual rights to the cash flows deriving from it have expired, or if the asset has been transferred in accordance with the circumstances permitted under IFRS 9. In such cases the Group checks if the contractual rights to receive the cash flows in respect of the asset have been transferred, or if they have been maintained while a contractual obligation to pay the cash flows to one or more beneficiaries continues to exist. It is necessary to check that basically all risks and benefits have been transferred, and any right or obligation originated or maintained as a result of the transfer is recorded separately as an asset or liability where appropriate. If the Group retains virtually all risks and benefits, the financial asset must continue to be recorded.
If the Group has neither transferred nor maintained all risks and benefits, but at the same time has retained control of the financial asset, this continues to be recognized up to the residual interest retained in that asset.
The main forms of activity currently carried out by the Group which do not require underlying assets to be derecognized are the securitization of receivables, repo trading and securities lending. Conversely, items received as part of deposit bank activity, the return on which is collected in the form of a commission, are not recorded, as the related risks and benefits continue to accrue entirely to the end-investor.
When a financial asset measured at amortized cost is renegotiated, the Group derecognizes it only if the renegotiation entails a change of such magnitude that the initial instrument effectively becomes a new one. In such cases, the difference
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between the original instrument’s carrying value and the fair value of the new instrument is measured through profit or loss, taking due account of any previous write-downs. The new instrument is classified as Stage 1 for the purpose of calculating the expected loss (save in cases where the new instrument is classified as a POCI).
In cases where the renegotiation does not result in substantially different cash flows, the Group does not derecognize the instrument, but the difference between the original carrying value and the estimated cash flows discounted using the original internal rate of return must be measured through profit or loss (taking due account of any provisions already set aside to cover it).
5 - Leases (IFRS 16)
An agreement is classified as a lease 114 (or contains a lease) based on the substance of the agreement at the execution date. An agreement is, or contains, a lease if its performance depends on the use of a specific good (or goods) and confers the right to use such good (goods) – the “Right of Use” (RoU) – for an agreed period of time and in return for payment of a fee (Lease liabilities). This definition of leasing therefore also includes long-term rentals or hires.
Right-of-use assets are recognized among “Tangible assets”, and calculated as the sum of the current value of future payments (which corresponds to the current value of the recognized liability), the initial direct costs, any instalments received in advance or on the effective date of the lease (down payment), any incentives received from the lessor, and estimates of any costs for removing or restoring the asset underlying the lease.
The lease liability, which is booked under “Financial liabilities measured at amortized cost”, is equal to the discounted value of payments due in respect of the lease discounted, as required by the Standard, to the marginal financing rate, equal for the Group to the Funds Transfer Pricing rate (FTP) as at the date concerned.
The duration of the lease agreement must not only consider the non-cancellable period established by contract, but also the extension options if their use is considered reasonably certain; in particular, the counterparty’s past behaviour, the
114 Leases in which the Group is a lessor may be divided into finance leases and operating leases. A lease is defined as a finance lease if all risks and benefits typically associated with ownership are transferred to the lessee. Such leases are accounted for by using the financial method, which involves a receivable being booked as an asset for an amount equal to the amount of the lease, after any expired instalments on principal paid by the lessee, and the interest receivable being taken through the income statement.
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existence of corporate plans for the disposal of the leased business and any other circumstances indicative of the reasonable certainty of renewal must be considered when providing for automatic renewal.
After initial recognition, right-of-use assets are amortized over the lease duration and written down as appropriate. The liability will be increased by the interest expense accrued and progressively reduced as a result of the payment of fees; in the event of a change in payments, the liability will be recalculated against the right-of-use asset.
For sub-leases, i.e. when an original lease has been replicated with a counterparty, and there are grounds for classifying it as a finance lease, the liability in respect of the original lease is matched by an amount receivable from the sub-lessee rather than the value in use.
6 - Hedging
With reference to hedging transactions, the Group has chosen to adopt the provisions of IFRS 9 starting on 1 July 2018, and not to make use of the exception granted, i.e. to continue to apply the IAS 39 rules to these transactions, with the exception of the specific cases set forth in IFRS 9 (para. 6.1.3)115 and not governed by the same.
The following types of hedges are used by the Group:
–fair value hedges, which aim to offset the exposure to changes in the fair value of a financial item or homogeneous group of assets in terms of risk profile;
–cash flow hedges, which are intended to offset the exposure of recognized assets and liabilities to changes in future cash flows attributable to specific risks relating to the items concerned;
–hedges of foreign investments in currencies other than the Euro: these refer to the hedging of risks in an investment in a non-Italian company denominated in a foreign currency.
115 IFRS 9 par. 6.1.3: “For a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only for such a hedge), an entity may apply the hedge accounting requirements in IAS 39 instead of those in this Standard. In that case, the entity must also apply the specific requirements for the fair value hedge accounting for a portfolio hedge of interest rate risk and designate as the hedged item a portion that is a currency amount (see paragraphs 81A, 89A and AG114–AG132 of IAS 39)”.
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For the process to be effective, the item must be hedged with a counterparty from outside the Group.
Hedge derivatives are measured at fair value as follows:
–for fair value hedges, a change in the fair value of the hedged item is offset by the change in fair value of the hedging instrument, both of which recognized in the profit and loss account, should a difference emerge as a result of the partial ineffectiveness of the hedge;
–for cash flow hedges, a change in fair value is recognized in net equity for the effective portion of the hedge and in the profit and loss account only when, with reference to the hedged item, the change in the cash flows to be offset actually occurs.
Hedge accounting is permitted for derivatives where the hedging relationship is formally designated and documented and provided that the hedge is effective at its inception and is expected to be so for its entire life.
At inception, the Group formally designates and documents the hedging relationship, with an indication of the risk management objectives and strategy for the hedge. The documentation includes identification of the hedging instrument, the item hedged, the nature of the risk hedged and how the entity intends to assess if the hedging relationship meets the requisites for the hedge to be considered effective (including analysis of the sources of any ineffectiveness and how this affects the hedging relationship). The hedging relationship meets the eligibility criteria for accounting treatment reserved for hedges if, and only if, the following conditions are met:
–the effect of the credit risk does not prevail over the changes in value resulting from the economic relationship;
–the coverage provided by the hedging relationship is the same as the coverage which results from the quantity of the item hedged which the entity effectively hedges, and the quantity of the hedge instrument which the Group actually uses to hedge the same quantity of the item hedged.
Fair value hedges
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As long as the fair value hedge meets the qualifying criteria, the gain or loss on the hedging instrument must be recognized in the profit and loss account or under one of the other comprehensive income headings if the hedging instrument hedges another equity instrument for which the Bank has chosen to measure changes in fair value through OCI. The hedge profit or loss on the hedged item is recorded as an adjustment to the book value of the hedge with a matching entry through the income statement, even in cases where the item hedged is a financial asset (or one of its components) measured at fair value with changes taken through OCI. However, if the hedged item is an equity instrument for which the entity has opted to measure changes in fair value through OCI, the amounts remain in the statement of other comprehensive income.
If the hedged item is an unrecognized irrevocable commitment (or a component thereof), the cumulative change in fair value of the hedged item resulting from its designation is recognized as an asset or liability with a corresponding gain or loss recorded in the profit (loss) for the period.
Cash flow hedges
As long as the cash flow hedge meets the qualifying criteria, it is accounted for as follows:
—the gain or loss on the hedging instrument in relation to the effective portion of the hedge is measured through OCI in the cash flow reserve, whereas the ineffective part is measured through profit or loss.
—the cash flow reserve is adjusted to the lower of:
— the cumulative gain or loss on the hedge instrument since the hedge’s inception; and
— the cumulative change in fair value (at the present value) of the hedged item (i.e. the present value of the cumulative change in the estimated future cash flows hedged) since the hedge’s inception.
The cumulative amount in the cash flow hedge reserve will be reclassified from the cash flow hedge reserve to profit (loss) for the period as a reclassification adjustment in the same period or periods in which the estimated future cash flows being hedged have an impact on the profit (loss) for the period (e.g. in periods when
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interest receivable or payable are recorded, or when the planned sale takes place). However, if the amount constitutes a loss and the entity does not expect to recover the whole loss or part of it in one or more future periods, the entity must classify the amount it does not expect to recover in the profit (loss) for the period (as an adjustment due to reclassification) immediately.
Foreign currency investment hedges
As far as it complies with eligibility criteria, a cash flow hedge is accounted for in the following ways:
―the portion of gain or loss on the hedging instrument that results in an effective hedge is booked into Other Comprehensive Income; and
―the ineffective share is booked through profit or loss.
The cumulative gain or loss on the hedging instrument related to the effective part of the hedge which had been accumulated into the foreign currency exchange rate reserve will be reclassified from net equity to profit and loss as a reclassification adjustment (see IAS 1), as required by par. 48 and 49 of IAS 21 regarding the partial or total disposal of the foreign investment.
7 - Investments
This heading includes investments in:
― subsidiary companies;
― affiliated companies. These are defined as companies in which an entity holds at least 20% of voting rights and companies in which the size of the investment is sufficient to ensure an influence in the investee’s governance;
― jointly-controlled companies;
― other investments of negligible value.
These are valued at cost if there is evidence that the value of an equity investment may have decreased. The updated value is estimated, where possible,
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taking into account market prices and the present value of the future cash flows that the investment may generate, including the closing value. If the value thus determined is lower than the book value, the difference is recognized in the profit and loss account.
8 - Tangible assets
This heading comprises land, core and investment properties, plant, furniture, fittings and equipment of all kinds. It also includes the R-o-U assets acquired under leases and related use of tangible assets (for lessees) and assets used under the terms of finance leases, despite the fact that such assets remain the legal property of the lessor rather than the lessee.
Assets held for investment purposes refer to investments in real estate, if any (whether owned or acquired under leases), which are not core to the Bank’s main activities and/or are chiefly leased out to third parties.
The heading also includes tangible assets classified pursuant to IAS 2 – Inventories, namely assets deriving from guarantees being enforced or acquired at an auction which the firm has the intention of selling in the near future, without carrying out any major refurbishment work and which do not fall into any of the previous categories.
Such assets are recognized at historical cost, which, in addition to the purchase price, includes any ancillary charges directly attributable to the purchase and/or commissioning of the asset. Extraordinary maintenance charges are accounted for by increasing the asset’s value, while ordinary maintenance charges are recorded in the profit and loss account.
Fixed assets are depreciated over the length of their useful life on a straight-line basis, with the exception of land, which is not depreciated on the grounds that it has unlimited useful life. Properties built on land owned by the Bank are recorded separately on the basis of valuations prepared by independent experts.
At annual and interim reporting dates, where there is objective evidence that the value of an asset may be impaired, its carrying amount is compared to its current value, which is the higher of its fair value after any costs to sell and its related value in use. Adjustments, if any, are recognized in the profit and loss account. If the reasons for recognizing a loss in value no longer apply, the adjustment will be written
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back, with the proviso that the amount credited may not exceed the value which the asset would have had after depreciation, which is calculated assuming no impairment took place.
9 - Intangible assets
These chiefly comprise goodwill, long-term computer software applications and other intangible assets deriving from business combinations subject to IFRS 3R.
Goodwill may be recognized where this is representative of the investee company’s ability to generate future income. At annual and interim reporting dates, goodwill recorded as an asset is tested for impairment.116 Any reduction in value due to impairment is calculated as the difference between the initial recognition value of goodwill and its realizable value, the latter being equal to the higher of the fair value of the related cash-generating unit after any costs to sell and its value in use, if any. Any adjustments will be recognized in the profit and loss account.
Other intangible assets are measured at cost, adjusted to reflect ancillary charges only where it is likely that future earnings will derive from the asset and the cost of the asset itself may be reliably determined. Otherwise, the cost of the intangible asset is booked through the profit and loss account in the year in which the expense was incurred.
The cost of intangible assets is amortized on a straight-line basis over the useful life of the related asset. If its useful life is indefinite the cost of the asset is not amortized, but the value at which it is initially recognized is tested for impairment on a regular basis.
At annual and interim reporting dates, if there is evidence of impairment the realizable value of the asset is estimated.117 The impairment is recognized in the
116 The Group has adopted a policy for the impairment testing process in line with the provisions of Organismo Italiano di Valutazione (OIV), Impairment test dell’avviamento in contesti di crisi finanziaria (Impairment test of goodwill during financial crises) of 14 June 2012, Principi Italiani di Valutazione (PIV, Italian Valuation Standards) published in 2015, Discussion Paper of 22 January 2019, Discussion Paper no. 01/2021 issued on 16 March 2021 by Organismo Italiano di Valutazione (O.I.V.) “L’uso di informazione finanziaria prospettica nella valutazione d’azienda” (Use of forward-looking financial information in company valuation), Discussion Paper no. 02/2021 issued on 16 March 2021 by Organismo Italiano di Valutazione (O.I.V.) “Linee Guida per l’Impairment Test dopo gli effetti della pandemia da Covid-19” (Guidelines for Impairment Tests after the effects of the Covid-19 pandemic), with suggestions published by ESMA, the guidelines of the joint document Bank of Italy, Consob, IVASS (document no.4 of 3 March 2010 and no.8 of 21 December 2018) and various Consob communications and warning notices.
117 Under IAS 36, impairment testing, i.e. tests to ascertain whether or not there has been a loss in the value of individual tangible and intangible assets, must be carried out at least once a year, in conjunction with preparation of the financial statements, or more frequently if events have taken place or materialized that would indicate there has been a reduction in the value of such assets
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profit and loss account as the difference between the carrying amount and the recoverable value of the asset concerned.
10 - Tax assets and liabilities
Income taxes are recorded through the profit and loss account, with the exception of tax payable on items debited or credited directly to net equity. Provisions for income tax are calculated on the basis of current, advance and deferred obligations. In particular, prepaid and deferred taxes are calculated on the basis of temporary differences – without time limits – between the value attributed to an asset or liability according to (Italian) statutory regulations and the corresponding values used for tax purposes.
Advance tax assets are recognized in the balance sheet based on the likelihood of their being recovered.
Deferred tax liabilities are recognized with the exception of tax-suspended reserves, if the size of available reserves previously subjected to taxation is such that it may be reasonably assumed that no transactions will be carried out on the Bank’s own initiative that might lead to their being taxed.
Deferred taxes arising upon business combinations are recognized when this is likely to result in an actual charge for one of the consolidated companies.
Tax assets and liabilities are adjusted as and when changes occur in the regulatory framework or in applicable tax rates, inter alia to cover charges that might arise in connection with inspections by or disputes with the tax revenue authorities.
Contributions to Deposits Guarantee Schemes and resolution funds are accounted for according to IFRIC 21.
11 - Non-current assets and asset groups as held for sale (IFRS 5)
Under assets heading “Non-current assets and asset groups as held for sale” and under liability heading “Liabilities associated with assets held for sale” the Group
(known as “impairment indicators”).
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classifies non-current assets or groups of assets/liabilities whose booking value will be presumably recovered by mean of a sale process. To be classified in this heading, assets or liabilities (or disposal groups) should be readily available for sale and selling plans should be identified, which are active and realistic in a way that their completion is considered highly probable. After the classification in the identified heading, these assets are valued at the lower of the booking value and the fair value after costs to sell, with the exception of some categories of assets (i.e. assets falling under the scope of standard IFRS 9) for which IFRS 5 requires specifically that the valuation provisions of the applicable standard should be used. In case of held-for-sale assets to be still depreciated, this process ends when assets are classified in the mentioned heading.
In case of discontinued operations, i.e. the sale of operating assets relating to an important business sector or geographical area, the standard requires gains and losses related thereto to be grouped together, after any tax effect, in the profit and loss heading “320. Gains (losses) of ceded operating assets, after tax”.
If the fair value of assets and liabilities held for sale, after costs to sell, is lower than their book value, a write-off will be calculated and booked through profit or loss.
Non-current assets held for sale and disposal groups are derecognized from the balance sheet when the sale occurs.
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12 - Provisions for risks and charges
These regard risks linked to loan commitments and guarantees issued, and to the Group’s operations which could lead to expenses in the future as well as post-retirement plan provisions (cf. below).
In the first case (provisions for risks and charges to cover commitments and guarantees issued), the amounts set aside are quantified in accordance with the rules on impairment of financial assets measured at amortized cost.
In the other cases the rules of IAS 37 apply, i.e. the potential charge must be estimated reliably; if the time effect is material, provisions are discounted using current market rates; and the provision is recognized in the profit and loss account.
Provisions are reviewed on a regular basis, and where the charges that gave rise to them are deemed unlikely to crystallize, the amounts involved are written back to the profit and loss account in part or in full.
Withdrawals are only made from provisions to cover the expenses for which the provision was originally set aside.
It should be noted that, as required by IAS 37, par. 92, no precise indication has been given of any contingent liabilities where this could compromise the company in any way.
13 - Provisions for statutory end-of-service payments and post-retirement schemes
Provisions for statutory end-of-service payment qualify as a defined-contribution retirement plan for units accruing from 1 January 2007 (the date on which the reform of supplemental retirement plans came into force under Legislative Decree No. 252 of 5 December 2005), for cases where the employee opts into a supplemental retirement plan, and also for cases where contributions are paid into the treasury fund held with Istituto Nazionale di Previdenza Sociale (INPS, Italian national social security institution). For such payments, the amount accounted for under labour costs is determined on the basis of the contributions due without using actuarial calculation methods.
Provision for statutory end-of-service payment accrued up to 1 January 2007 qualify as defined benefit retirement plans, and as such will be recorded depending
Notes to individual accounts | Part A – Accounting Policies 465
on the actuarial value calculated in line with the projected unit method. Therefore, future payments will be estimated based on past statistical analyses (for example turnover and retirements) and on the demographic curve; these flows will then be discounted according to a market interest rate that takes the market yield of bonds of leading companies as a benchmark taking into account the average residual duration of the liability weighted on the basis of the percentage of the amount paid or advanced for each maturity with respect to the total amount to be paid or advanced until the final settlement of the entire obligation.
Post-retirement plan provisions have been set aside under company agreements and also qualify as defined benefit plans. In this case, the current value of the liability is adjusted by the fair value of any assets to be used under the terms of such plan.
Actuarial gains and/or losses are recorded in the Other Comprehensive Income statement, while the interest component is recognized in the profit and loss account.
14 - Financial liabilities measured at amortized cost
These include the items Due to banks, Due to customers and Debt securities in issue less any amounts bought back. The heading also includes amounts receivable in respect of finance lease transactions, whose valuation and classification rules are governed by IFRS 16, but which are also affected by the impairment rules under IFRS 9. For a description of the rules for valuing and classifying lease receivables, see the relevant section.
Initial recognition takes place when funds raised are collected or debt securities are issued, and occurs at fair value, which is equal to the amount collected after transaction costs incurred directly in connection with the liability concerned. After initial recognition, liabilities are measured at amortized cost on the basis of the original effective interest rate, with the exception of short-term liabilities which will continue to be stated at the original amount collected.
Derivatives embedded in structured debt instruments are stripped out from the underlying contract and recognized at fair value when they are not closely correlated to the host instrument. Subsequent changes in fair value are recognized through the profit and loss account.
Financial liabilities are derecognized upon expiry or repayment, even if buybacks
466 Individual financial statements as at 30 June 2023
of previously issued bonds are involved. The difference between the liabilities’ carrying value and the amount paid to repurchase them is recognized through the profit and loss account.
The sale of treasury shares over the market following a buyback (even in the form of repos and securities lending transactions) is treated as a new issue. The new sale price is recorded as a liability without passing through the profit and loss account.
15 - Trading liabilities
This item includes the negative value of trading derivatives and any derivatives embedded in complex instruments. Liabilities in respect of technical shortfalls deriving from securities trading activity are also included. All trading liabilities are measured at fair value and changes are taken through the profit and loss account.
16 - Financial liabilities designated at fair value
These include the value of financial liabilities designated at fair value with a balancing entry in the Profit and Loss Account, on the basis of the option granted to companies (referred to as “fair value option”) by IFRS 9 and in compliance with the cases set forth by legislation.
Such liabilities are measured at fair value and the earnings accounted for based on the following rules provided by IFRS 9:
―changes in fair value attributable to changes in one’s credit quality must be recognized in the Statement of Other Comprehensive Income (Net Equity);
―other changes in fair value must be recognized through profit or loss;
―amounts stated in other comprehensive income will not flow through profit or loss. This method cannot be adopted, however, if the recognition of the effects of the issuer’s own credit quality in net equity generates or accentuates an accounting mismatch in profit and loss. In such cases, the profits or losses related to the liability, including those caused as the effect of the change in the issuer’s credit quality, must be measured through profit or loss.
Notes to individual accounts | Part A – Accounting Policies 467
17 - Financial liabilities recognized at present value of redemption amount
These consist of financial liabilities originating from agreements to buy out minorities in connection with acquisitions of controlling interests. These items, accounted for in heading “80. Other liabilities” of balance sheet, must be recognized at the present value of the redemption amount.
18 - Foreign currency transactions
Transactions in foreign currencies are recorded by applying the exchange rates as at the date of the transaction to the amount in the foreign currency concerned.
Assets and liabilities denominated in currencies other than the Euro are translated into Euros using exchange rates prevailing at the reference dates. Differences on cash items due to translation are recorded through the profit and loss account, whereas those on non-cash items are recorded according to the valuation criteria used in respect of the category they belong to (i.e. at cost, through profit or loss or on an equity basis).
The assets and liabilities of non-Italian entities consolidated on a line-by-line basis have been converted at the exchange rate prevailing at the reporting date, whereas the profit-and-loss items have been converted using the average of the average monthly exchange rate readings for the period; any differences emerging after the conversion are recognized among the Net Equity valuation reserves.
19 - Other Information
Stock Options, Performance Shares and Long-Term Incentives
Stock option, performance share and long-term incentive (LTI) schemes operated on behalf of Group staff members and collaborators are treated as a component of labour costs.
Schemes which involve payment through the award of shares are measured through profit or loss, with a corresponding increase in net equity, based on the fair value of the financial instruments allocated at the award date, thus spreading the cost of the scheme throughout the period of time in which the requirements in terms
468 Individual financial statements as at 30 June 2023
of service have been met and the performance targets, if any, have been achieved.
The overall cost of the scheme is recorded in each financial year up to the date on which the plan vests, so as to reflect the best possible estimate of the number of shares that will actually vest. Requirements in terms of service and performance targets are not considered in determining the fair value of the instruments awarded, but the probability of such targets being reached is estimated by the Group and this is factored into the decision as to the number of instruments that will vest. Conversely, market conditions will be included in establishing the fair value, whereas conditions unrelated to the requirements in terms of service are considered “non-vesting conditions” and are reflected in the fair value established for the instruments, and result in the full cost of the scheme being recorded in the income statement immediately in the event that no service requirement and/or performance conditions have been met.
In the event of performance or service conditions not being met and the benefit failing to be allocated as a result, the cost of the scheme is written back. However, if any market conditions fail to be reached, the cost must be recorded in full if the other conditions have been met.
In the event of changes to the scheme, the minimum cost to be recorded is the fair value at the scheme award date prior to the change, if the original conditions for vesting have been met. An additional cost, established at the date on which the change is made to the scheme, must be recorded if the change has entailed an increase in the overall fair value of the scheme for the beneficiary.
For schemes which will involve payments in cash upon expiry, the Group records an amount payable equal to the fair value of the scheme measured at the award date of the scheme and at every reporting date thereafter, up to and including the settlement date, with any changes recorded as labour costs.
Treasury shares
These are deducted from net equity. Any gains/losses realized on disposal are recognized in net equity.
Notes to individual accounts | Part A – Accounting Policies 469
Fees and commissions receivable in respect of services
This heading includes all revenues deriving from the provision of services to customers with the exception of those relating to financial instruments, leases and insurance contracts.
Revenues from contracts with customers are measured through profit or loss when control over the service is transferred to the customer, in an amount that reflects the fee to which the Group considers to be entitled in return for the service rendered.
For revenue recognition purposes, the Group analyses the contracts to establish whether they contain more than one obligation to provide services to which the price of the transaction should be allocated. The revenues are then recorded throughout the time horizon over which the service is rendered, using suitable methods to recognize the measurement in which the service is provided. The Group also takes into consideration the effects of any variable commissions, and whether or not a significant financial component is involved.
In the event of additional costs being incurred to perform or execute the contract, where such costs meet the requirements of IFRS 15, the Group will assess whether to capitalize them and then amortize them throughout the life of the contract, or to make use of the exemption provided by IFRS 15 to expense the costs immediately in cases where their amortization period would be complete within twelve months.
Dividends
Dividends are recognized through profit or loss during the financial year in which their distribution is approved; they concern distributions from equity securities that are not part of affiliated investments and/or joint ventures measured according to the provisions of IAS 28.
Recognition of costs
Costs are measured through profit or loss in accordance with the revenues to which they refer, except in case their capitalization requirements apply and where provided in order to determine amortized cost. Any other costs which cannot be associated with revenues are accounted for immediately in the profit and loss
470 Individual financial statements as at 30 June 2023
account.
Related parties
Related parties are defined, inter alia in accordance with IAS 24, as follows:
a)individuals or entities which, directly or indirectly, exercise significant influence over the Bank;
b)shareholders with stakes of 3% or more in the Bank’s share capital;118
c)legal entities controlled by the Bank;
d)associated companies, joint ventures and entities controlled by them;
e)key management personnel, that is, individuals with powers and responsibilities, directly or indirectly, for the planning, direction and control of the Parent Company’s activities, including the members of the Board of Directors and Statutory Audit Committee;
f)entities controlled or jointly controlled by one or more of the entities listed under the foregoing letters a) and e) and the joint ventures of entities referred to under letter a);
g)close family members of the individuals referred to in letters a) and e) above, that is, individuals who may be expected to influence them or be influenced by them in their relations with Mediobanca (this category includes children, spouses and their children, partners and their children, dependants, spouses’ dependants and their partners’ dependants), as well as any entities controlled, jointly controlled or otherwise associated with such individuals.
118 Excluding Italian and international market-makers and asset managers, who, during the conduct of their collective fund management activities, undertake not to take an active part in the management of the companies in which they are investing.
Notes to individual accounts | Part A – Accounting Policies 471
A.3 – Information on transfers between financial asset portfolios
A.3.1 Reclassification of financial assets: changes to the business model, book value and interest income
There are no data to report at 30 June 2023.
A.3.2 Reclassification of financial assets: changes to the business model, Fair Value and effects on other comprehensive income
There are no data to report at 30 June 2023.
A.3.3 Reclassification of financial assets: changes to the business model and effective interest rate
There are no data to report at 30 June 2023.
A.4 – Information on fair value
QUALITATIVE INFORMATION
Fair Value
In line with the international accounting standards, the fair value of financial instruments stated in the financial statements is the so-called exit price, i.e. 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 (exit price), regardless of whether such price is directly observable or estimated using another valuation technique (IFRS 13, §24).
Fair value, therefore, is “the price that would be received for the sale of an asset or that would be paid for the transfer of a liability in a regular transaction between market operators at the measurement date”.
The Fair Value hierarchy of an instrument is a direct consequence of the Fair Value estimation approach: in principle, a financial instrument is considered to be listed on an active market if its price represents its current exchange value in normal, effective and regular market operations.
472 Individual financial statements as at 30 June 2023
If the market is not active, the fair value of the instrument being estimated is measured by using market prices for similar instruments on active markets (comparable approach) or, in the absence of similar instruments, using a valuation technique that uses market and non-observable information (observable/unobservable inputs).
The Bank has laid down precise guidelines regarding three key aspects: independent calculation of Fair Value, conducted by the control units; the adoption of any Fair Value adjustments to consider aspects of uncertainty/liquidity; and classification of financial instruments according to a Fair Value hierarchy based on the level of uncertainty of the valuation. In addition to the book fair value, which affects both the balance sheet and the profit and loss account, the Bank is required to make prudent valuation adjustments in order to calculate prudential requirements.
These guidelines, set out in Policies approved by the Board of Directors and related implementation Directives approved by the competent committees, were defined in compliance with the main international regulations (IFRS 13 119 and CRR, Article 105 120) and corroborated by a benchmarking test. The main activities for calculating the exit price of the financial instruments in the portfolio are shown below. It should be emphasized that the accuracy and consistency of these guidelines are subject to rigorous supervision by the Group Audit unit, which verifies their effectiveness and adequacy. Furthermore, a specific internal validation unit has been set up, Quantitative Risk Methodologies (QRM), which focuses on the validation of the quantitative methods employed.
Independent Price Verification (IPV)
Independent Price Verification (IPV) is the process through which prices and market data, used to calculate Fair Value and to measure prudent value, are subject to a verification process according to specific accuracy standards defined internally by the Bank. The Independent Price Verification Policy and Directive meet the requirements laid down in Article 105, para. 8 of Regulation (EU) 575/2013, which requires institutions to perform independent price verification in addition to daily marking-to-market or marking-to-model and establish and maintain sufficient
119 IFRS 13 establishes guidelines for identifying the exit price by using available prices, valuation models and any corrections (FVA) to consider elements of illiquidity/risk which, if not applied, would lead to overestimating the financial instrument, and for assessing the need to classify financial instruments according to the level of objectivity in the fair value computation (FVH).
120 The guiding principles of the IPV and PVA processes are defined in the CRR Directive, Article 105.
Notes to individual accounts | Part A – Accounting Policies 473
procedures for providing valuation estimates.
Independent Price Verification has the following objectives: formalization of control methodologies, definition of a market parameter validation approach, definition of the methodologies for quantifying control thresholds, methods and types of escalation and reporting to Senior Management.
Verification of the correctness of the valuation will be based on verification of market parameters used for the valuation of instruments that present a risk profile for the Bank and individual Desks by analysing the correct import of data from info providers and the fairness of the financial value through comparison with other info providers, indicative quotations provided by brokers and implicit parameters deduced from such quotations. With regard to illiquid financial instruments, verification should also be performed as regards the valuation methodology input data.
IPV performs data analysis in order to ensure consistency with a comparison source to ensure a correct evaluation of the Bank’s and of individual Desks’ risk positions of the main profit and loss drivers. Any changes to the data will have an impact not only on the balance sheet but also on the Profit and Loss reporting process of the portfolio concerned. Furthermore, the decision to change the source of valuation of any market data during the Independent Price Verification process, as well as the verification method itself, may generate a different classification of the instrument being analysed with respect to the Fair Value Hierarchy.
For the calculation of Independent Price Verification adjustments, Mediobanca uses available and reliable sources. Where possible, these are also used for the prudent valuation adjustment (PVA) process in line with the provisions of Article 3 of Delegated Regulation (EU) 2016/101. These data sources are validated in accordance with the provisions of internal documentation and/or regulations.
The validation process focuses on the asset classes that have a direct impact on the Bank’s Profit and Loss Account, both for proprietary instruments and for guaranteed instruments. In this regard, before proceeding with the analysis of the market parameters, the scope of analysis where to perform the certification is divided into asset classes. However, materiality thresholds (at risk factor level) are established for each exposure above which to apply the calculation described below.
IPV requires daily checks to be performed on all Bank positions (trading book and banking book), which include the year-by-year price of financial instruments, market curves and volatility surfaces. Furthermore, monthly checks, at the latest, are
474 Individual financial statements as at 30 June 2023
carried out for some asset classes, based on consensus services, given the nature and frequency with which valuation data is available in the systems.
Fair Value Adjustment (FVA)
Fair Value Adjustment (FVA) plays a fundamental role in the valuation of financial instruments, as it ensures that the fair value reflects the price actually realizable in a practical market transaction. The guidelines defined in the Fair Value policy fully reflect the requirements defined by accounting standard IFRS 13, according to which the valuation of financial instruments should use the exit price method and allow for corrections to be made to the valuations in specific circumstances.
This fair value approach ensures that the valuations made by the Bank are based on prices that are realistic and representative of current market conditions, guaranteeing adequate consideration to exit conditions and to the actual possibilities of selling or purchasing the financial instruments being valued. This ensures accurate and reliable financial information to be provided internally and to external stakeholders. In particular:
Inputs based on Bid and Ask Prices - §70: when measuring an asset or liability at fair value and having at one’s disposal both a bid and an ask price (as in the case of inputs from a market of operators), the price within the bid-ask spread that best represents fair value in the specific circumstances should be chosen. However, Mediobanca uses bid or ask prices in order to align with the closing price, even though the accounting standards allow the use of average market prices.
Inputs derived from Bid and Ask Prices - §71: the standard does not prohibit the use of average market prices or other pricing conventions commonly used by market participants to measure fair value within the bid-ask spread. However, in the Bank’s approach preference is given to the adoption of bid and ask prices in order to obtain a more precise fair value measurement, particularly in line with a reliable closing price. This practice allows the Bank to ensure a more accurate measurement of its assets and liabilities at fair value.
Fair value adjustments, as required by IFRS 13 and with an impact on profit or loss, are key to align the measurement of financial instruments to the actual exit price, taking into account market liquidity, the uncertainties of parameters, the financing costs, and the complexity of the valuation models used in the absence of
Notes to individual accounts | Part A – Accounting Policies 475
shared market practices.
The scope of fair value adjustments includes the following categories:
—Market price uncertainty (MPU): this consists in uncertainties in valuations based on market quotations;
—Closed-out cost (COC): this indicates uncertainties regarding the liquidity cost that the Group may incur in the event of a partial or total sale of an asset measured at fair value;
—Model risk (MR): adjustments aimed at mitigating the risk of discrepancy with respect to market practice in the valuation of a product in relation to the choice and implementation of the valuation model;
—Concentrated positions: this reflects uncertainties in the valuation of the exit price for positions classified as concentrated (i.e. positions whose disposal would significantly affect the market price);
—Additional investment and financing costs: investment and financing costs may be incurred for own bond issues with an early redemption clause or in the event of early closure of positions in derivative instruments. These costs may vary depending on fluctuations in financing costs.
Credit Value Adjustments (CVA) and Debt Value Adjustments (DVA) are incorporated into the valuation of derivatives to reflect the impact on fair value of the counterparty’s credit risk and the Group’s credit quality. CVA represents a negative amount that takes into account cases where the counterparty could go bankrupt before the Bank, with a positive market value against the counterparty. DVA represents an amount that takes into account the cases in which the Group could go bankrupt before the counterparty, with an impact for the counterparty. These adjustments are calculated taking into account any risk mitigating arrangements, such as collateral and netting arrangements for each counterparty.
The method used to calculate CVA/DVA is based on the following inputs:
—Expected Positive (EPE) and Expected Negative (ENE) Exposure, derived from simulations, which reflect the positive and negative valuation exposures of derivatives;
—Probability of Default (PD), which may be derived from historical default
476 Individual financial statements as at 30 June 2023
probabilities or implied in the market prices of Credit Default Swaps or bonds;
—Loss given default (LGD) based on the estimated value of expected recovery in the event of bankruptcy of the counterparty, as defined by specific analysis conducted by the Group or by the recovery rates conventionally used for the Credit Default Swap quotations.
Furthermore, the fair value of non-collateralized derivatives may be affected by the Group’s funding costs (Funding Value Adjustment). Therefore, adjustments are made for the different funding costs using a discount curve that represents the average funding level of banks operating in the European corporate derivatives market.
Fair Value Hierarchy (FVH) – Observability and materiality of inputs
The Observability Levelling and Day-one Profit Directive, as specified in Bank of Italy Circulars No. 285 and No. 262 and in IFRS 13, requires a hierarchy of levels reflecting the significance of inputs used in the valuations. These inputs, called “valuation inputs,” are the market data used to estimate the fair value of financial instruments. The term “valuation input” refers to the market data used to estimate the fair value of instruments. To estimate the fair value of instruments, the Bank uses valuation techniques that are adequate to the circumstances and for which sufficient data are available. Valuation techniques can be based on various approaches:
—market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
—cost approach (or current replacement method), which reflects the amount that would currently be required to replace an asset’s service capacity;
—income approach, which converts future amounts (e.g. cash flows or revenues and expenses) into a single discounted amount through, for example: present value methods and option pricing models.
These valuation methods may use different types of inputs, which may be observable or unobservable. Prices quoted in active markets are classified as “observable inputs”. In other cases, the information is considered observable when the valuation is based on market information obtained from sources independent of the Bank or from actual transactions. Under IFRS 13, paragraph B34, some
Notes to individual accounts | Part A – Accounting Policies 477
examples of markets from which observable inputs can be derived include the following:
—exchange markets. In an exchange market, closing prices are both readily available and generally representative of fair value. An example of such a market is the London Stock Exchange;
—dealer markets: In a dealer market, dealers stand ready to trade (either buy or sell for their own account), thereby providing liquidity by using their capital to hold an inventory of the items for which they make a market. Typically bid and ask prices (representing the price at which the dealer is willing to buy and the price at which the dealer is willing to sell, respectively) are more readily available than closing prices. Over-the-counter markets (for which prices are publicly reported) are dealer markets. Dealer markets also exist for some other assets and liabilities, including some financial instruments, commodities and physical assets;
—brokered markets: In a brokered market, brokers attempt to match buyers with sellers but do not stand ready to trade for their own account. In other words, brokers do not use their own capital to hold an inventory of the items for which they make a market. Brokers know the prices bid and asked by the respective parties, but usually each party is unaware of the price demands of the other party. Prices of completed transactions are sometimes available. Brokered markets include electronic communication networks, in which buy and sell orders are matched, and commercial and residential real estate markets;
—principal-to-principal markets: In a principal-to-principal market, transactions, both originations and resales, are negotiated independently with no intermediary. Little information about those transactions may be made available publicly.
All cases in which it is not possible to demonstrate the observability of inputs are classified as “unobservable inputs” and, in particular, when the information on which the valuation techniques are based reflects the Bank’s judgement formulated using the best information available in such circumstances.
Under IFRS 13.67, valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
In more detail, based on their observability and considering additional criteria, inputs can be classified into three different levels.
478 Individual financial statements as at 30 June 2023
Level 1 inputs:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value and it is the price to be used preferentially to measure financial assets and liabilities held by the Bank. If a quoted price recorded on an active market is available, alternative valuation techniques based on quotes for comparable instruments or quantitative models cannot be used and the instrument is classified as a “Level 1 instrument” in its entirety. The objective is to reach a price at which a financial instrument would be traded at the reporting date (without altering the instrument) on an active market considered to be the main one or the most advantageous one for the Bank and to which it has immediate access.
Level 2 inputs:
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include the following:
—quoted prices for similar assets or liabilities in active markets.
—quoted prices for identical or similar assets or liabilities in markets that are not active.
Inputs other than quoted prices that are observable for the asset or liability, for example:
(i) Interest rates and yield curves observable at commonly quoted intervals.
(ii) Implicit volatility.
(iii) Credit spread.
Market-corroborated inputs.
Level 2 inputs may require adjustments for example relating to:
—the condition or location of the asset;
Notes to individual accounts | Part A – Accounting Policies 479
—the extent to which inputs relate to items that are comparable to the asset or liability;
—the volume or level of activity in the markets within which the inputs are observed.
If there is no public quotation on an active market for the price of the financial instrument as a whole, but active markets exist for its components, Fair Value will be calculated by reference to the relevant market prices for those components. In this case, valuation will not be based on active market quotations for the financial instrument in question, but on observable market inputs or through the use of inputs that are not observable but are supported and confirmed by market data. The use of this approach does not exclude the use of a calculation method, or rather, of a pricing model, through which it is possible to establish the correct price of the transaction at the reference date, in an ideal and independent trading environment justified by normal market considerations.
Level 3 inputs:
Level 3 inputs are not directly observable inputs that are used to measure the Fair Value in the event that relevant observable inputs are not available, making it possible to estimate a closing price even in situations of low market activity for the asset or liability as at the measurement date. The Bank estimates unobservable inputs using the best information available in the circumstances, which could include its own data, considering all information on the assumptions of market participants that is reasonably available. Unlike Level 2 inputs, in this case the inputs must be internally estimated according to quantitative methods, such as the use of historical series and comparable underlying instruments. Both Level 2 and Level 3 inputs may be used for a certain instrument. In this case, the final classification of the instrument is defined by applying the materiality assessment.
There are two stages in the process of determining the levels and observability of inputs. In the first stage, a level is assigned to all inputs applied in the instrument valuation model. In the second stage, the materiality of the various inputs used to determine the relevance of unobservable inputs on the overall valuation of the instrument is verified.
Materiality is a crucial step in establishing whether unobservable inputs (Level 2 or 3) are meaningful to the entire measurement of the instrument. This materiality analysis also extends to inputs used to calculate any adjustments, such as the Fair Value Adjustment (FVA) or the Credit Value Adjustment (CVA).
480 Individual financial statements as at 30 June 2023
In summary, the observability and materiality process ensures that the Fair Value of financial instruments is classified correctly based on the significance of the inputs used, ensuring an adequate valuation of the Bank’s financial assets and liabilities.
Prudent Valuation Adjustment (PVA)
The Prudent Valuation Policy and Directive meet the regulatory requirements of Article 34 and Article 105, para. 2, of Regulation (EU) 575/2013, which, solely for prudential purposes and therefore without accounting impacts, requires a prudential valuation 121 to be performed by applying adjusted inputs in order to capture stressed events. The difference between Prudent Value and Fair Value (exit price used for recording the instruments in the Bank’s financial statements) is called Additional Valuation Adjustment (AVA). The aggregation of AVAs, called Prudent Value Adjustment (PVA), is deducted directly from Common Equity Tier 1 - CET1.
The final adjustment is defined by the Regulator as an aggregation of nine AVAs:
—Market Price Uncertainty (MPU) is the valuation uncertainty based on market prices, calculated at the level of the exposure being measured;
—Close-out Costs (CoC) consist in the uncertainty of the exit price, calculated at the level of the exposure being measured;
—Model Risk (MR): this refers to the valuation uncertainty arising from the uncertainty of the model used and/or of the calibration thereof used by various market participants;
—Unearned Credit Spreads (UCS): this consists in uncertainty in the measurement necessary to include the present value of expected losses in the event of counterparty default on derivative positions;
—Investing and Funding Costs (IFC): this is the uncertainty of the valuation of funding costs used in the valuation of the exit price in accordance with the applicable accounting framework;
—Concentrated Positions (CP) refer to the uncertainty of the exit price for positions defined as concentrated;
121 Prudential valuation is understood as an exit price with a level of certainty equal to 90%.
Notes to individual accounts | Part A – Accounting Policies 481
—Future and Administrative Costs (FAC): this considers administrative costs and future hedging costs over the life of the exposures being measured to which a direct exit price has not been applied for CoC AVAs;
—Early Termination (ET) considers contingent losses arising from non-contractual early closures of the clients’ trading positions;
—Operational Risk (OR): this considers contingent losses that may be incurred as a result of the operational risks associated with the measurement processes.
Positions measured at Fair Value include various categories of financial assets and liabilities, as defined by International Financial Reporting Standards (IFRS); however, some positions are excluded from the AVA calculation if a change in the valuation of their amount does not affect capital resources. These exclusions include positions available for sale (FVOCI) to the extent that valuation changes are subject to prudential filtering, perfectly matching opposite positions (back-to-back) and positions subject to hedging transactions (hedge accounting).
482 Individual financial statements as at 30 June 2023
QUANTITATIVE INFORMATION
A.4.5 Fair value hierarchy
A.4.5.1 Assets and liabilities measured at fair value on a recurring basis, breakdown by fair value hierarchy
(€’000)
30 June 2023
30 June 2022
Financial assets/liabilities measured at fair value
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Financial assets measured at fair value through profit or loss
6,846,149
3,916,806
815,820
6,074,639
3,954,989
1,232,948
a) financial assets held for trading
6,714,688
3,378,216
416,506
5,836,934
3,438,506
884,859
b) financial assets designated at fair value
—
538,590
—
—
516,483
—
c) other financial assets mandatorily measured at fair value
131,461
—
399,314
237,705
—
348,089
2. Financial assets measured at fair value through other comprehensive income
5,679,367
51,050
555,230
3,695,081
17,793
661,396
3. Hedging derivatives
—
245,954
—
—
157,120
—
4. Tangible assets
—
—
—
—
—
—
5. Intangible assets
—
—
—
—
—
—
Total
12,525,516
4,213,810
1,371,050
9,769,720
4,129,902
1,894,344
1. Financial liabilities held for trading
4,968,008
5,319,418
304,823
4,604,875
4,717,651
703,976
2. Financial liabilities designated at fair value
—
1,497,845
26,196
—
634,073
3,516
3. Hedging derivatives
—
2,116,467
—
—
1,385,981
—
Total
4,968,008
8,933,730
331,019
4,604,875
6,737,705
707,492
The Bank’s trading book is mainly concentrated on liquid transactions with a low level of uncertainty. A residual, more complex part remains which, however, even in this context of greater volatility and uncertainty, has not undergone significant changes.
A portion of Level 3 instruments consists in sold options, i.e. derivatives traded with the same underlying risk parameter and which therefore do not involve volatility for the profit and loss account; during the year under review, the value of these transactions fell sharply from €409.7m to €0.8m after more than half of the options expired (€220.8m) and another €176.6m in contracts reached the parameter liquidity level to be transferred to level 2.
Level 3 assets held for trading, after the above transactions, decreased from €475.1m to €415.7m, including an exposure to unlisted convertible preference shares whose value went from €274.5m to €152.3m as a result of its partial conversion into listed security. This change was balanced by the valuation of the
Notes to individual accounts | Part A – Accounting Policies 483
perfect hedging forward sale concluded on the same underlying and classified at level 2 since it was entirely prepaid in cash. During the year under review, net purchases of €84.3m and net transfers of €7m to other levels were recorded altogether.
Level 3 liabilities, after sold options, mainly relate to autocallable certificates on baskets of shares that increased from €294.2m to €304m, after redemptions of €74.5m on certificates and new issues of €129.7m; transfers to other levels amounting to €18.3m and positive fair value adjustments amounting to €27.1m were recorded during the year under review.
Financial assets mandatorily measured at fair value, consisting in investments in funds, increased from €348.1m to €399.3m after net purchases of €34m. Transfers from other levels stood at €29.9m and were partially offset by negative changes of €12.7m in fair value.
Financial assets measured at fair value through other comprehensive income decreased from €661.4m to €555.2m with sales of €89.5m (nearly all of which due to the partial divestment of the Burgo equity-like instrument) and redemptions of €77.3m (mainly linked to a securitization transaction of a leading Italian bank). Purchases amounted to €7.4m and changes in Fair Value were positive by €53.2m.
484 Individual financial statements as at 30 June 2023
A.4.5.2 Annual changes in assets measured at fair value on a recurring basis (Level 3 assets)
(€’000)
Financial assets measured at fair value through profit or loss
Total
of which: a) financial assets held for trading (1)
of which: b) financial assets designated at fair value
of which: c) other financial assets mandatorily measured at fair value
Financial assets measured at fair value through other comprehens ive income
Hedging derivatives
Tangible assets
Intangible assets
1. Opening amount
823,169
475,080
—
348,089
661,396
—
—
—
2. Increases
261,823
176,670
—
85,153
65,638
—
—
—
2.1 Purchases
193,103
149,544
—
43,559
7,416
—
—
—
2.2 Profits recognized in:
36,924
25,213
—
11,711
54,407
—
—
—
2.2.1 Profit and loss
36,924
25,213
—
11,711
14,171
—
—
—
- of which: capital gains
22,985
22,985
—
—
—
—
—
—
2.2.2 Net equity
—
X
X
X
40,236
—
—
—
2.3 Transfers from other levels
31,796
1,913
—
29,883
—
—
—
—
2.4 Other increases
—
—
—
—
3,815
—
—
—
3. Decreases
269,970
236,042
—
33,928
171,804
—
—
—
3.1 Disposals
74,753
65,222
—
9,531
89,514
—
—
—
3.2 Redemptions
119,511
119,511
—
—
77,248
—
—
—
3.3 Losses recognized in:
24,845
5,238
—
19,607
5,042
—
—
—
3.3.1 Profit and loss
24,845
5,238
—
19,607
—
—
—
—
- of which: capital losses
4,927
4,927
—
—
—
—
—
—
3.3.2 Net equity
—
X
X
X
5,042
—
—
—
3.4 Transfers to other levels
8,850
8,850
—
—
—
—
—
—
3.5 Other decreases
42,011
37,221
—
4,790
—
—
—
—
4. Closing amount
815,022
415,708
—
399,314
555,230
—
—
—
(1) After the market value of sold options (€0.8m at 30 June 2023 and €409.7m at 30 June 2022) the values of which are stated in the assets and liabilities for the same amount.
Notes to individual accounts | Part A – Accounting Policies 485
A.4.5.3 Annual changes in liabilities measured at fair value on a recurring basis (Level 3)
(€’000)
Financial assets held for trading (1)
Financial assets designated at fair value
Hedging derivatives
1. Opening amount
294,196
3,516
—
2. Increases
137,544
22,680
—
2.1 Issues
129,706
22,359
—
2.2 Losses recognized in:
7,838
321
—
2.2.1 Profit and loss
7,838
321
—
- of which: capital losses
7,838
—
—
2.2.2 Net equity
X
—
—
2.3 Transfers from other levels
—
—
—
2.4 Other increases
—
—
—
3. Decreases
127,715
—
—
3.1 Redemptions
74,501
—
—
3.2 Buybacks
—
—
—
3.3 Profits recognized in:
34,935
—
—
3.3.1 Profit and loss
34,935
—
—
- of which: capital gains
29,990
—
—
3.3.2 Net equity
X
—
—
3.4 Transfers to other levels
18,279
—
—
3.5 Other decreases
—
—
—
4. Closing amount
304,025
26,196
—
(1) After the market value of sold options (€0.8m at 30 June 2023 and €409.7m at 30 June 2022) the values of which are stated in the assets and liabilities for the same amount.
A.4.5.4 Assets and liabilities not measured at fair value or measured at fair value on a non-recurring basis: breakdown by fair value hierarchy
(€’000)
30 June 2023
30 June 2022
Assets/liabilities not measured at fair value or measured at fair value on a non-recurring basis
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
1. Financial assets measured at amortized cost
54,588,650
3,073,365
41,655,476
9,623,462
52,622,162
3,387,131
38,650,176
10,318,582
2. Tangible assets held for investment purposes
23,408
—
—
88,500
23,819
—
—
102,213
3. Non-current assets and asset groups as held for sale
—
—
—
—
—
—
—
—
Total
54,612,058
3,073,365
41,655,476
9,711,962
52,645,981
3,387,131
38,650,176
10,420,795
1. Financial liabilities measured at amortized cost
60,979,650
—
60,507,403
261,493
61,793,306
—
61,666,438
59,252
2. Liabilities associated with assets held for sale
—
—
—
—
—
—
—
—
Total
60,979,650
—
60,507,403
261,493
61,793,306
—
61,666,438
59,252
486 Individual financial statements as at 30 June 2023
A.5 - “Day-One Profit/Loss” Disclosure
Pursuant to IFRS 7, paragraph 28, the “Day-one Profit/Loss” is understood as the difference between the fair value of a financial instrument at the initial recognition date (transaction price) and the amount estimated at that date using a valuation technique. This difference may be positive or negative.
In the event that the difference is positive (day-one profit) and based on market quotations and models that do not include uncertain market inputs, this amount can be included in the positive components of the profit and loss account. However, if the positive difference is based on uncertain market inputs, the fair value of the instrument must be adjusted for such difference and charged through profit or loss when the inputs become certain.
In the event that the difference is negative (day-one loss), it is recorded directly in the profit and loss account on a prudential basis.
The group applies the day-one profit rule only to financial instruments classified as Level 3 of the Fair Value hierarchy, i.e. instruments for which the impact of one or more uncertain inputs on the fair value is considered significant, as defined in paragraph 73 of IFRS 13. The day-one profit, calculated after fair value adjustments, is amortized over the expected period for which the input data will remain unobservable. The day-one profit is not applied if the risks generated by the transaction are hedged with a market counterparty (back-to-back) and therefore there are no impacts on profit or loss due to the uncertain input.
During the year under review, the day-one profit method was used for two types of transaction:
—contingent derivatives: deals subject to a positive outcome of a corporate action whose impacts on the profit and loss account are entirely suspended pending the corporate event. As at 30 June 2023, there were no such transactions in the Bank’s portfolio;
—certificates: as at 30 June 2023 profits of approximately €4.3m were suspended (of which, €4.2m for autocallables with underlying basket of shares) relating to certificates worth €238.6m (of which, €224.3m for autocallables), which at the date of issue were classified as Level 3.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 487
Part B - Notes to the Individual Balance Sheet (*)
Assets
SECTION 1
Heading 10: Cash and cash equivalents
1.1 Cash and cash equivalents: breakdown
Total
30 June 2023
Total
30 June 2022
a) Cash
566
547
b) Current accounts and demand deposits with Central Banks
3,273,797
6,334,133
c) Current accounts and demand deposits with banks (1)
1,152,488
715,101
Total
4,426,851
7,049,781
(1) This item contained the guarantee deposits on derivatives now reported under Heading 40 - Assets at amortized cost. The amounts for the previous year were restated for improved comparison.
(*) Figures in €’000.
488 Individual financial statements as at 30 June 2023
SECTION 2
Heading 20: Financial assets measured at fair value through profit or loss
2.1 Financial assets held for trading: product breakdown (*)
Total
Total
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
A. Cash assets
1. Debt securities
4,993,088
189,264
232,440
3,334,975
500,643
175,678
1.1 Structured securities
1,310
10,625
-
9,570
8,134
-
1.2 Other debt securities
4,991,778
178,639
232,440
3,325,405
492,509
175,678
2. Equity securities (1)
1,020,812
—
163,498
1,851,609
—
274,971
3. UCIT units
25
—
230
802
—
298
4. Loans
4,085
—
—
3,698
—
—
4.1 Reverse Repos
—
—
—
—
—
—
4.2 Other
4,085
—
—
3,698
—
—
Total (A)
6,018,010
189,264
396,168
5,191,084
500,643
450,947
B. Derivative instruments
1. Financial derivatives
696,678
3,036,813
19,964
645,850
2,705,493
433,912
1.1 trading
696,678
3,036,813
19,964(2)
645,850
2,705,405
433,826
1.2 related to the fair value option
—
—
—
—
—
—
1.3 other
—
—
—
—
88
86
2. Credit derivatives
—
152,139
374
—
232,370
—
2.1 trading
—
152,139
374
—
232,370
—
2.2 related to the fair value option
—
—
—
—
—
—
2.3 other
—
—
—
—
—
—
Total (B)
696,678
3,188,952
20,338
645,850
2,937,863
433,912
Total (A+B)
6,714,688
3,378,216
416,506
5,836,934
3,438,506
884,859
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) Equity securities include shares committed in securities lending transactions totalling €399,599 (€918,557 in the financial previous year).
(2) Respectively, €798 and €409,692 relating to traded options, whose contra-item was recorded among financial liabilities held for trading.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 489
2.2 Financial assets held for trading: breakdown by borrower/issuer/counterparty
Items/Values
30 June 2023
30 June 2022
A. CASH ASSETS
1. Debt securities
5,414,792
4,011,296
a) Central Banks
—
—
b) Public administrations
3,253,899
2,072,555
c) Banks
1,517,530
1,230,455
d) Other financial companies
533,140
369,540
of which: insurance companies
—
69
e) Non-financial companies
110,223
338,746
2. Equity securities
1,184,310
2,126,580
a) Banks
217,180
154,928
b) Other financial companies
271,147
384,051
of which: insurance companies
9,977
27,584
c) Non-financial companies
695,983
1,587,601
d) Other issuers
—
—
3. UCIT units
255
1,100
4. Loans
4,085
3,698
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
4,085
3,698
f) Households
—
—
Total (A)
6,603,442
6,142,674
B. DERIVATIVE INSTRUMENTS
a) Central Counterparties
1,487,126
1,029,987
b) Other
2,418,842
2,987,638
Total (B)
3,905,968
4,017,625
Total (A+B)
10,509,410
10,160,299
2.3 Financial liabilities designated at fair value: product breakdown (*)
Total
Total
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Debt securities
—
—
—
—
—
—
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
—
—
—
—
—
—
2. Loans
—
538,590
—
—
516,483
—
2.1 Structured
—
—
—
—
—
—
2.2 Other (1)
—
538,590
—
—
516,483
—
Total
—
538,590
—
—
516,483
—
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) This item refers to a loan matched on the liability side by the issue of a certificate.
490 Individual financial statements as at 30 June 2023
2.4 Financial assets designated at fair value: breakdown by borrower/issuer
Items/Values
30 June 2023
30 June 2022
1. Debt securities
—
—
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
—
—
2. Loans
538,590
516,483
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
538,590
516,483
of which: insurance companies
538,590
516,483
e) Non-financial companies
—
—
f) Households
—
—
Total
538,590
516,483
2.5 Other financial assets mandatorily measured at fair value: product breakdown
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
1. Debt securities
412
—
451
74
—
459
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
412
—
451
74
—
459
2. Equity securities
—
—
3,187
—
—
2,662
3. UCIT units
131,049
—
395,676
237,631
—
340,776
4. Loans
—
—
—
—
—
4,192
4.1 Reverse Repos
—
—
—
—
—
—
4.2 Other
—
—
—
—
—
4,192
Total
131,461
—
399,314
237,705
—
348,089
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 491
2.6 Other financial assets mandatorily measured at fair value: breakdown by borrower/issuer
Items/Values
30 June 2023
30 June 2022
1. Equity securities
3,187
2,662
of which: banks
—
—
of which: other financial companies
3,187
2,662
of which: non-financial companies
—
—
2. Debt securities
863
533
a) Central Banks
—
—
b) Public administrations
412
74
c) Banks
—
—
d) Other financial companies
451
459
of which: insurance companies
—
—
e) Non-financial companies
—
—
3. UCIT units
526,725
578,407
4. Loans
—
4,192
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
4,192
of which: insurance companies
—
—
e) Non-financial companies
—
—
f) Households
—
—
Total
530,775
585,794
SECTION 3
Heading 30: Financial assets measured at fair value through other comprehensive income
3.1 Financial assets measured at fair value through other comprehensive income: product breakdown(*)
30 June 2023
30 June 2022
Items/Values
Level 1
Level 2
Level 3 (1)
Level 1
Level 2
Level 3
1. Debt securities
5,563,499
51,050
186,571
3,579,684
17,793
275,590
1.1 Structured securities
—
—
—
—
—
—
1.2 Other debt securities
5,563,499
51,050
186,571
3,579,684
17,793
275,590
2. Equity securities
115,868
—
368,659
115,397
—
385,806
3. Loans
—
—
—
—
—
—
Total
5,679,367
51,050
555,230
3,695,081
17,793
661,396
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) These include the AT1 instruments of CheBanca! (€150.4m), MB International (€90m) and Polus Capital Management Group (€4m), as well as the equity like instruments in Burgo Group (€66.2m) and in Tirreno Power (€15.4m).
492 Individual financial statements as at 30 June 2023
3.2 Financial assets measured at fair value through other comprehensive income: breakdown by borrower/ issuer
Items/Values
30 June 2023
30 June 2022
1. Debt securities
5,801,120
3,873,067
a) Central Banks
—
—
b) Public administrations
4,548,278
2,896,867
c) Banks
627,515
383,030
d) Other financial companies
433,068
394,816
of which: insurance companies
38,163
38,273
e) Non-financial companies
192,259
198,354
2. Equity securities
484,527
501,203
a) Banks (1)
240,520
242,125
b) Other issuers:
244,007
259,078
- other financial companies
33,658
32,599
of which: insurance companies
—
—
- non-financial companies
210,349
226,479
- other
—
—
3. Loans
—
—
a) Central Banks
—
—
b) Public administrations
—
—
c) Banks
—
—
d) Other financial companies
—
—
of which: insurance companies
—
—
e) Non-financial companies
—
—
f) Households
—
—
Total
6,285,647
4,374,270
3.3 Financial assets measured at fair value through other comprehensive income: gross value and overall value adjustments
Gross value
Overall value adjustments
Stage 1
of which: Low credit risk instruments (*)
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Overall partial write-offs
Debt securities
5,771,319
31,064
37,723
—
—
6,537
1,385
—
—
—
Loans
—
—
—
—
—
—
—
—
—
—
Total 30 June 2023
5,771,319
31,064
37,723
—
—
6,537
1,385
—
—
—
Total 30 June 2022
3,805,027
—
78,174
—
—
6,787
3,347
—
—
—
(*) As required by Bank of Italy circular no. 262, fifth amendment, the column headed “of which” must show the gross value of the low credit risk instruments as defined by IFRS 9, paras. B5.5.29. For the Mediobanca Group, the concept of “low credit risk” is equivalent to that of rating, hence low credit risk applies to the case of counterparties rated as investment grade.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 493
SECTION 4
Heading 40: Financial assets measured at amortized cost
4.1 Financial assets measured at amortized cost: product breakdown of amounts due from banks (30/6/23) (*)
Total
30 June 2023
Book value
Fair value (*)
Operation Type/Values
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
A. Due from Central Banks
255,059
—
—
—
255,059
—
1. Term deposits
—
—
—
X
X
X
2. Compulsory reserves
255,059
—
—
X
X
X
3. Repos
—
—
—
X
X
X
4. Other
—
—
—
X
X
X
B. Due from banks
29,859,534
—
—
58,649
29,520,376
35,792
1. Loans
28,900,888
—
—
—
28,631,075
35,792
1.1 Current accounts and demand deposits
—
—
—
X
X
X
1.2. Term deposits
333,879
—
—
X
X
X
1.3. Other loans:
28,567,009
—
—
X
X
X
1.4 Reverse repos
1,796,987
—
—
X
X
X
1.5 Finance lease
—
—
—
X
X
X
1.6 Other (1)
26,770,022
—
—
X
X
X
2. Debt securities
958,646
—
—
58,649
889,301
—
2.1 Structured securities
—
—
—
—
—
—
2.2 Other debt securities
958,646
—
—
58,649
889,301
—
Total
30,114,593
—
—
58,649
29,775,435
35,792
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) The item contains amounts for the guarantee deposits on derivatives previously reported under Heading 10 - Cash and cash equivalents. The amounts for the previous year were restated for improved comparison.
494 Individual financial statements as at 30 June 2023
4.1 Financial assets measured at amortized cost: product breakdown of amounts due from banks (30/6/22) (*)
Total
30 June 2022
Book value
Fair value (*)
Operation Type/Values
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
A. Due from Central Banks
260,370
—
—
—
260,370
—
1. Term deposits
—
—
—
X
X
X
2. Compulsory reserves
260,370
—
—
X
X
X
3. Repos
—
—
—
X
X
X
4. Other
—
—
—
X
X
X
B. Due from banks
27,543,373
—
—
113,529
26,983,735
181,503
1. Loans
26,531,041
—
—
—
26,083,460
181,503
1.1 Current accounts
—
—
—
X
X
X
1.2. Term deposits
299,087
—
—
X
X
X
1.3. Other loans:
26,231,954
—
—
X
X
X
- Reverse repos
1,411,168
—
—
X
X
X
- Finance leases
—
—
—
X
X
X
- Other (1)
24,820,786
—
—
X
X
X
2. Debt securities
1,012,332
—
—
113,529
900,275
—
2.1 Structured securities
—
—
—
—
—
—
2.2 Other debt securities
1,012,332
—
—
113,529
900,275
—
Total
27,803,743
—
—
113,529
27,244,105
181,503
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) The item contains amounts for the guarantee deposits on derivatives previously reported under Heading 10 - Cash and cash equivalents. The amounts for the previous year were restated for improved comparison.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 495
4.2 Financial assets measured at amortized cost: product breakdown of amounts due from customers (30/6/23) (*)
Total
30 June 2023
Book value
Fair value (*)
Operation Type/Values
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
1. Loans
20,097,040
18,928
—
—
11,861,011
8,334,466
1.1 Current accounts
1,353,073
—
—
X
X
X
1.2 Reverse Repos
1,652,332
—
—
X
X
X
1.3 Mortgages
14,141,038
18,562
—
X
X
X
1.4 Credit cards, personal loans and salary-backed finance
—
—
—
X
X
X
1.5 Finance lease
2,580
—
—
X
X
X
1.6 Factoring
—
—
—
X
X
X
1.7 Other loans
2,948,017
366
—
X
X
X
2. Debt securities
4,358,089
—
—
3,014,716
19,030
1,253,204
2.1 Structured securities
—
—
—
—
—
—
2.2 Other debt securities (1)
4,358,089
—
—
3,014,716
19,030
1,253,204
Total
24,455,129
18,928
—
3,014,716
11,880,041
9,587,670
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) Of which, 652,314 relating to the Group’s securitizations (Compass Banca).
4.2 Financial assets measured at amortized cost: product breakdown of amounts due from customers (30/6/22) (*)
Total
30 June 2022
Book value
Fair value (*)
Operation Type/Values
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
Level 1
Level 2
Level 3
1. Loans
19,612,096
19,646
—
—
11,396,151
8,183,748
1.1. Current accounts
1,241,942
—
—
X
X
X
1.2. Reverse Repos
1,216,869
—
—
X
X
X
1.3. Mortgages
13,901,246
19,646
—
X
X
X
1.4. Credit cards, personal loans and salary-backed finance
—
—
—
X
X
X
1.5 Finance lease
3,820
—
—
X
X
X
1.6. Factoring
—
—
—
X
X
X
1.7. Other loans
3,248,219
—
—
X
X
X
2. Debt securities
5,186,677
—
—
3,273,602
9,920
1,953,331
2.1. Structured securities
—
—
—
—
—
—
2.2. Other debt securities (1)
5,186,677
—
—
3,273,602
9,920
1,953,331
Total
24,798,773
19,646
—
3,273,602
11,406,071
10,137,079
(*) For the criteria used to determine fair value and classification of financial instruments within the three fair value ranking levels, see Part A – Accounting Policies.
(1) Of which, 1,306,615 relating to the Group’s securitizations (Compass Banca).
496 Individual financial statements as at 30 June 2023
4.3 Financial assets measured at amortized cost: breakdown by borrower/issuer of amounts due from customers
Total
30 June 2023
Total
30 June 2022
Operation Type/Values
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
Stages 1 and 2
Stage 3
Purchased or originated credit impaired assets
1. Debt securities
4,358,089
—
—
5,186,677
—
—
a) Public administrations
2,779,579
—
—
2,954,747
—
—
b) Other financial companies
1,440,016
—
—
2,162,002
—
—
of which: insurance companies
177,265
—
—
186,079
—
—
c) Non-financial companies
138,494
—
—
69,928
—
—
2. Loans to:
20,097,040
18,928
—
19,612,096
19,646
—
a) Public administrations
104,776
—
—
354,168
—
—
b) Other financial companies
9,192,574
2,142
—
8,306,672
2,160
—
of which: insurance companies
185,673
—
—
390,769
—
—
c) Non-financial companies
9,938,174
15,692
—
10,135,087
16,645
—
d) Households
861,516
1,094
—
816,169
841
—
Total
24,455,129
18,928
—
24,798,773
19,646
—
4.4 Financial assets measured at amortized cost: gross value and overall value adjustments
Gross value
Overall value adjustments
Stage 1
of which: Low credit risk instruments
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
Overall partial write-offs
Debt securities
5,315,207
168,509
11,035
—
—
4,686
4,821
—
—
—
Loans
49,135,363
47,824
179,490
111,714
—
55,759
6,107
92,786
—
—
Total 30 June 2023
54,450,570
216,333
190,525
111,714
—
60,445
10,928
92,786
—
—
Total 30 June 2022
52,436,406
114,957
235,758
62,233
—
59,021
10,627
42,587
—
—
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 497
4.4a Loans measured at amortized cost subject to Covid-19 support measures: gross value and overall value adjustments
Gross value
Overall value adjustments
Overall partial write-offs*
Stage 1
of which: Low credit risk instruments
Stage 2
Stage 3
Purchased or originated credit impaired assets
Stage 1
Stage 2
Stage 3
Purchased or originated credit impaired assets
1. Loans subject to forbearance compliant with the GLs (*)
—
—
—
—
—
—
—
—
—
—
2. Loans in place subject to moratoria no longer compliant with the GLs and not eligible for forbearance purposes
—
—
—
—
—
—
—
—
—
—
3. Loans subject to other forbearance measures
—
—
—
—
—
—
—
—
—
—
4. New loans
53,559
—
—
—
—
217
—
—
—
—
Total 30 June 2023
53,559
—
—
—
—
217
—
—
—
—
Total 30 June 2022
86,255
—
19,307
—
—
169
592
—
—
—
(*) The row headed “Loans subject to forbearance compliant with the GLs” shows information on financial assets for which moratoria have been granted under the scope of application of the “Guidelines on legislative and non-legislative moratoria on loan repayments applied in the light of the COVID-19 crisis” published by the EBA (EBA/GL/2020/02) as amended.
498 Individual financial statements as at 30 June 2023
SECTION 5
Heading 50: Hedging derivatives
5.1 Hedging derivatives: by hedge type and level
Fair Value
Fair Value
30 June 2023
30 June 2022
Level 1
Level 2
Level 3
Notional value
30 June 2023
Level 1
Level 2
Level 3
Notional value
30 June 2022
A. Financial derivatives
1. Fair value
—
245,954
—
16,569,403
—
156,381
—
6,746,708
2. Cash flows
—
—
—
—
—
739
—
146,274
3. Foreign investments
—
—
—
—
—
—
—
—
B. Credit derivatives
1. Fair value
—
—
—
—
—
—
—
—
2. Cash flows
—
—
—
—
—
—
—
—
Total
—
245,954
—
16,569,403
—
157,120
—
6,892,982
5.2 Hedging derivatives: breakdown by portfolio hedged and hedge type
Fair Value
Cash flows
Specific
Transaction / Type of hedging
debt securities and interest rates
Equity securities and stock indexes
currencies and gold
credit
commodities
other
Generic
Specific
Generic
Foreign investments
1. Financial assets measured at fair value through other comprehensive income
78,459
—
—
—
X
X
X
—
X
X
2. Financial assets measured at amortized cost
85,271
X
—
—
X
X
X
—
X
X
3. Portfolio
X
X
X
X
X
X
—
X
—
X
4. Other transactions
—
—
—
—
—
—
X
—
X
—
Total assets
163,730
—
—
—
—
—
—
—
—
—
1. Financial liabilities
82,224
X
—
—
—
—
X
—
X
X
2. Portfolio
X
X
X
X
X
X
—
X
—
X
Total liabilities
82,224
—
—
—
—
—
—
—
—
1. Expected transactions
X
X
X
X
X
X
X
—
X
X
2. Financial assets and liabilities portfolio
X
X
X
X
X
X
—
X
—
—
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 499
SECTION 7
Heading 70: Equity investments
At 30 June 2023, the book value of the item “Equity investments” amounted to €3,528.5m.
7.1 Equity investments: disclosure on relationships
Company Name
Head Office
Operating office
Shareholding in %
Votes available in %
A. Wholly controlled companies
Polus Capital Management Group Limited Capital GBP 527 in shares worth GBP 0.005 each
London
London
64.40 (*)
64.40
CheBanca! S.p.A.Capital €506.3m in shares worth €0.50 each
Milan
Milan
100.00
100.00
CMB MONACO S.A.M.Capital €111.1m in shares worth €200 each
Monte Carlo
Monte Carlo
100.00
100.00
Compass Banca S.p.A.Capital €587.5m in shares worth €5 each
Milan
Milan
100.00
100.00
Mediobanca Innovation Services - MIS S.c.p.A.Capital €35m in shares worth €5 each
Milan
Milan
100.00
100.00
Mediobanca Management Company Capital €500,000 in shares worth €10 each
Luxembourg
Luxembourg
100.00
100.00
Mediobanca SGR Capital €10.3m in shares worth €51.65 each
Milan
Milan
100.00
100.00
Messier et Associés Sas Capital €50,000 in shares worth €0.1 each
Paris
Paris
79.66 (**)
79.66
MB Facta S.p.A.Capital €120m in shares worth €1 each
Milan
Milan
100.00
100.00
MB Funding Lux S.A.Capital €831,000 in shares worth €1 each
Luxembourg
Luxembourg
100.00
100.00
MB International (Luxembourg) S.A.Capital €10m in shares worth €10 each
Luxembourg
Luxembourg
100.00
100.00
MB Securities USA LLC Capital $2.25m
New York
New York
100.00
100.00
RAM Active Investments S.A.Capital CHF1m in shares worth CHF10 each
Geneva
Geneva
95.80 (***)
95.80
SelmaBipiemme Leasing S.p.A.Capital €41.3m in shares worth €0.50 each
Milan
Milan
60.00
60.00
CMB Real Estate Development Capital €75.2m in shares worth €75,200 each
Monte Carlo
Monte Carlo
40.00
40.00
Spafid S.p.A.Capital €6.1m in shares worth €10 each
Milan
Milan
100.00
100.00
MB INVAG S.r.l.Capital €10,000
Milan
Milan
100.00
100.00
B. Entities under significant influence
Assicurazioni Generali S.p.A.Capital €1,586.8m in shares worth €1 each
Trieste
Trieste
12.78
13.25
Istituto Europeo di Oncologia S.r.l.Capital €80.6m
Milan
Milan
25.37
25.37
Finanziaria Gruppo Bisazza Capital €100,000
Vicenza
Vicenza
22.67
22.67
CLI Holdings II (fund units)
London
London
35.67
35.67
(*) The percentage rises to 89.07% if account is taken of the put & call option agreements concluded at the time of acquisition.
(**) The percentage rises to 100% if account is taken of the put & call option agreements concluded at the time of acquisition.
(***)The percentage rises to 98.28% if account is taken of the put & call option agreements concluded a t the time of acquisition.
500 Individual financial statements as at 30 June 2023
7.2 Significant investments: book values, fair values and dividends received
Company name
Book value
Fair Value
Dividends received
A. Wholly controlled companies
Polus Capital Management Group Limited
89,893
n.a.
—
CheBanca! S.p.A.
665,822
n.a.
—
CMB MONACO S.A.M.
374,092
n.a.
—
Compass Banca S.p.A.
768,440
n.a.
75,000
Mediobanca Innovation Services - MIS S.c.p.A.
35,040
n.a.
—
Mediobanca Management Company
3,993
n.a.
—
Mediobanca SGR
38,139
n.a.
—
Messier et Associés Sas
92,556
n.a.
6,576
MBFACTA S.p.A.
120,391
n.a.
—
MB Funding Lux
831
n.a.
—
MB International (Luxembourg) S.A.
6,095
n.a.
—
MB Securities USA LLC
211
n.a.
—
RAM Active Investments S.A.
60,215
n.a.
—
SelmaBipiemme Leasing S.p.A.
32,947
n.a.
1,901
CMB Real Estate Development
30,060
n.a.
—
Spafid S.p.A.
8,888
n.a.
—
MB INVAG S.r.l.
15,428
n.a.
B. Entities under significant influence
Assicurazioni Generali S.p.A.
1,096,272
3,774,525
235,147
Istituto Europeo di Oncologia S.r.l.
38,995
n.a.
—
Finanziaria Gruppo Bisazza
6,879
n.a.
272
CLI Holdings II
43,295
n.a.
8,427
Total
3,528,482
527,323
The description of the reasons why an investee is subject to joint control or significant influence is contained in “Section 3 - Part A - Accounting Policies”, to which reference should be made.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 501
7.3 Significant investments: accounting data (*)
Company name
Cash and cash equivalents
Financial assets
Non-financial assets
Financial liabilities
Non-financial liabilities
Total revenues (**)
Net interest income
Adjustments and write-backs of tangible and intangible assets
Profit (loss) on ordinary operations before tax
Profit (loss) on ordinary operations after tax
Profit (loss) on held-for-sale assets after tax
Profit (loss) for the period (1)
Other profit (loss) components after tax (2)
Total profit (loss) for the period (3) = (1) + (2)
A. Wholly controlled companies
Polus Capital Management Group Limited
26,903
4,068
108,172
251
29,604
50,103
314
-1,161
11,807
9,101
—
9,101
—
9,101
CheBanca! S.p.A.
1,495,457
29,798,912
489,329
30,554,390
301,024
414,107
245,619
-29,904
73,893
48,672
—
48,672
239
48,911
CMB MONACO S.A.M.
2,008,860
6,853,387
100,265
7,883,984
57,405
155,890
94,239
-10,796
72,408
58,547
—
58,547
—
58,547
Compass Banca S.p.A.
726,638
15,107,164
947,434
13,196,890
474,618
1,018,467
979,173
-14,532
540,584
367,887
—
367,887
120,584
488,471
Mediobanca Innovation Services - MIS S.c.p.A.
89
—
81,132
24,323
21,401
1,980
-853
-18,266
28
242
—
242
16
258
Mediobanca Management Company
2,367
6,065
5,022
30
4,173
2,068
102
-115
205
151
—
151
—
151
Mediobanca SGR
8,613
48,601
17,879
1,393
11,081
31,488
621
-510
12,807
9,007
—
9,007
32
9,039
Messier et Associés Sas
5,677
801
67,080
26,227
26,556
43,534
-324
-1,096
14,838
11,074
—
11,074
—
11,074
MBFACTA S.p.A.
48,475
2,862,086
215,764
2,860,229
39,191
46,076
39,793
-202
32,579
22,099
—
22,099
35
22,134
MB Funding Lux
879
—
290
—
183
0
—
—
38
23
—
23
—
23
MB International (Luxembourg) S.A.
372,426
5,190,018
13,945
5,100,326
20,438
31,528
28,522
-205
24,825
18,591
—
18,591
—
18,591
MB Securities USA LLC
6,357
—
1,382
—
1,969
3,693
—
-20
-2
-1
—
—
—
—
RAM Active Investments S.A.
7,519
3,838
6,934
246
2,262
7,182
6
-200
-7,030
-7,162
—
-7,163
—
-7,163
SelmaBipiemme Leasing S.p.A.
37,170
1,391,968
103,770
1,268,049
35,549
32,849
31,168
-2,190
8,203
5,349
—
5,349
1,496
6,845
CMB Real Estate Development
4,415
—
45,548
—
440
0
—
-1,331
-417
-417
—
-417
—
-417
Spafid S.p.A.
27,737
2,202
18,432
1,311
5,968
8,514
480
-609
-2,588
-2,092
—
-2,092
42
-2,050
MB INVAG S.r.l.
—
30,485
86
12,234
8
1,889
-
—
1,828
1,828
—
1,828
—
1,828
B. Entities under significant influence
Assicurazioni Generali S.p.A.
X
451,317,000
60,490,000
48,653,000
452,260,000
81,530,000
X
X
4,738,000
3,189,000
—
3,189,000
-14,627
3,174,373
Istituto Europeo di Oncologia S.r.l.
X
83,209
155,978
125,952
69,202
381,659
X
X
5,626
3,592
—
3,592
—
3,592
Finanziaria Gruppo Bisazza
X
6,205
—
707
—
X
X
X
3,950
3,915
—
3,915
—
3,915
CLI Holdings II
X
103,367
2,753
106,202
47
X
97
X
1
1
—
1
—
1
(*)All data are in Euros, including for foreign subsidiaries.
(**)This is understood as interim earnings: Total revenues stated in the accounting statements.
502 Individual financial statements as at 30 June 2023
7.5 Equity investments: changes during the period
30 June 2023
30 June 2022
A. Balance at start of period
3,563,039
3,457,430
B. Additions
20,025
108,509
B.1 Purchases
20,025
97,938
B.2 Write-backs
—
—
B.3 Revaluations
—
—
B.4 Other changes
—
10,571
C. Decreases
54,582
2,900
C.1 Sales
—
2,900
C.2 Write-offs
54,263
—
C.3 Other changes
319
—
D. Balance at end of period
3,528,482
3,563,039
E. Total revaluations
—
—
F. Total adjustments
946,192
891,929
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 503
SECTION 8
Heading 80: Property, plant and equipment
8.1 Core tangible assets: breakdown of assets stated at cost
Assets/Values
Total
30 June 2023
Total
30 June 2022
1. Property assets
92,498
91,836
a) lands
67,896
67,896
b) buildings
17,611
17,731
c) furniture
1,551
1,444
d) electronic system
2,448
2,174
e) others
2,992
2,591
2. 2 Leased assets
23,736
25,079
a) lands
—
—
b) buildings
19,617
21,672
c) furniture
—
—
d) electronic system
—
—
e) other
4,119
3,407
Total
116,234
116,915
of which: obtained by the enforcement of collateral
—
—
8.2 Properties held for investment purposes: breakdown of assets stated at cost
Total
Total
30 June 2023
30 June 2022
Fair value
Fair value
Assets/Values
Book value
Level 1
Level 2
Level 3
Book value
Level 1
Level 2
Level 3
1. Property assets
23,408
—
—
88,500
23,819
—
—
102,213
a) land
20,350
—
—
52,148
20,350
—
—
81,164
b) buildings
3,058
—
—
36,352
3,469
—
—
21,049
2. - Rights-of-use assets
—
—
—
—
—
—
—
—
a) land
—
—
—
—
—
—
—
—
b) buildings
—
—
—
—
—
—
—
—
Total
23,408
—
—
88,500
23,819
—
—
102,213
of which: obtained by enforcement of collateral
—
—
—
—
—
—
—
—
504 Individual financial statements as at 30 June 2023
8.6 Core assets: changes during the year
Land
Buildings
Furniture
Electronic system
Other
Total
A. Gross opening balance 30 June 2022
67,896
74,235
9,475
11,200
34,205
197,011
A.1 Decreases in total net value
—
(34,832)
(8,031)
(9,026)
(28,207)
(80,096)
A.2 Net opening balance 30 June 2022
67,896
39,403
1,444
2,174
5,998
116,915
B. Increases
—
2,468
484
882
4,490
8,324
B.1 Purchases
—
—
484
882
1,405
2,771
- of which, business combinations
—
—
—
—
—
—
B.2 Capitalized improvement costs
—
929
—
—
—
929
B.3 Write-backs
—
—
—
—
—
—
B.4 Positive changes in fair value allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
B.5 Currency exchange gains
—
—
—
—
—
—
B.6 Transfers from investment properties
—
—
X
X
X
—
B.7 Other changes
—
1,539
—
—
3,085
4,624
C. Decreases
—
4,643
377
608
3,377
9,005
C.1 Sales
—
—
126
—
301
427
- of which, business combinations
—
—
—
—
—
—
C.2 Depreciation
—
4,643
168
596
3,076
8,483
C.3 Impairment losses allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
C.4 Negative changes in fair value allocated to
—
—
—
—
—
—
a) net equity
—
—
—
—
—
—
b) profit & loss
—
—
—
—
—
—
C.5 Currency exchange losses
—
—
—
—
—
—
C.6 Transfers to:
—
—
—
—
—
—
a) assets held for investment purposes
—
—
X
X
X
—
b) non-current assets and assets groups held for sale
—
—
—
—
—
—
C.7 Other changes
—
—
83
12
—
95
D. Net closing balance
67,896
37,228
1,551
2,448
7,111
116,234
D.1 Decreases in total net value
—
(39,531)
(8,200)
(9,622)
(28,643)
(85,996)
D.2 Gross closing balance
67,896
76,759
9,751
12,070
35,754
202,230
E. Carried at cost
—
—
—
—
—
—
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 505
Changes in tangible assets for core purposes also include the right of use acquired from finance leasing operations under IFRS 16. New leases executed during the year amount to €4.2m (shown in row B.7 “Other changes”), while depreciation and amortization for rights in use amount to €5.6m (stated in row C.2 “Depreciation/amortization”).
8.7 Assets held for investment purposes: changes during the year
Total
Land
Buildings
A. Gross opening balance
20,350
3,469
B. Increases
—
14
B.1 Purchases
—
—
- of which, business combinations
—
—
B.2 Capitalized improvement costs
—
14
B.3 Positive changes in fair value
—
—
B.4 Write-backs
—
—
B.5 Currency exchange gains
—
—
B.6 Transfers from core tangible assets
—
—
B.7 Other changes
—
—
C. Decreases
—
425
C.1 Sales
—
—
- of which, business combinations
—
—
C.2 Depreciation
—
425
C.3 Negative changes in fair value
—
—
C.4 Write-downs
—
—
C.5 Currency exchange losses
—
—
C.6 Transfers to:
—
—
a) core tangible assets
—
—
b) non-current assets and asset groups held for sale
—
—
C.7 Other changes
—
—
D. Balance at end of period
20,350
3,058
D.1 Decreases in total net value
—
—
D.2 Gross closing balance
20,350
3,058
E. Measured at fair value
52,148
36,352
SECTION 9
Heading 90: Intangible assets
9.1 Intangible assets: breakdown by type of asset
506 Individual financial statements as at 30 June 2023
Total
Total
30 June 2023
30 June 2022
Assets/Values
Definite life
Indefinite life
Definite life
Indefinite life
A.1 Goodwill
X
12,514
X
12,514
A.2 Other intangible assets
1,659
15,489
690
15,489
of which: software
1,659
—
690
—
A.2.1 Assets measured at cost:
1,659
15,489
690
15,489
a) Intangible assets generated internally
—
—
—
—
b) Other assets
1,659
15,489
690
15,489
A.2.2 Assets measured at fair value:
—
—
—
—
a) Intangible assets generated internally
—
—
—
—
b) Other assets
—
—
—
—
Total
1,659
28,003
690
28,003
The values of the brand and of goodwill were tested for impairment. No write-downs were found to be needed.
Notes to individual accounts | Part B - Notes to the Individual Balance Sheet 507
9.2 Intangible assets: changes during the year
Other intangible assets generated internally
Other intangible assets: other
Goodwill
Defined
Undefined
Defined
Undefined
Total
A. Balance at start of period
12,514
—
—
97,112
15,489
125,115
A.1 Decreases in total net value
—
—
—
(96,422)
—
(96,422)
A.2 Net opening balance
12,514
—
—
690
15,489
28,693
B. Increases
—
—
—
1,635
—
1,635
B.1 Purchases
—
—
—
1,635
—
1,635
B.2 Increases of internal intangible assets
X
—
—
—
—
—
B.3 Write-backs
X
—
—
—
—
—
B.4 Positive changes in fair value
—
—
—
—
—
—
- net equity
X
—
—
—
—
—
- to P&L
X
—
—
—
—
—
B.5 Currency exchange gains
—
—
—
—
—
—
B.6 Other changes
—
—
—
—
—
—
C. Decreases
—
—
—
666
—
666
C.1 Sales
—
—
—
—
—
—
C.2 Write-offs:
—
—
—
666
—
666
- Amortizations
X
—
—
666
—
666
- Write-downs
—
—
—
—
—
—
+ net equity
X
—
—
—
—
—
+ to P&L
—
—
—
—
—
—
C.3 Negative changes in fair value
—
—
—
—
—
—
- net equity
X
—
—
—
—
—
- to P&L
X
—
—
—
—
—
C.4 Transfer to non-current assets held for sale
—
—
—
—
—
—
C.5 Currency exchange losses
—
—
—
—
—
—
C.6 Other changes
—
—
—
—
—
—
D. Net closing balance
12,514
—
—
1,659
15,489
29,662
D.1 Adjustment of net total values
—
—
—
(97,079)
—
(97,079)
E. Gross closing balance
12,514
—
—
98,738
15,489
126,741
F. Measurement at cost
—
—
—
—
—
—
508 Individual financial statements as at 30 June 2023
SECTION 10
Assets heading 100 and liabilities heading 60: Tax assets and liabilities
10.1 Advance tax assets: breakdown
Total
Total
30 June 2023
30 June 2022
- Against Profit and Loss
62,050
70,964
- Against Net Equity
33,329
34,529
Total
95,379
105,493
The above amounts were subjected to a sustainability test as required by IAS 12, taking into account the economic projections foreseeable for future financial years in order to verify whether any future taxable income against which to offset these tax assets had emerged.
10.2 Deferred tax liabilities: breakdown
Total
30 June 2023
Total
30 June 2022
- Against Profit and Loss
191,400
206,070
- Against Net Equity
31,768
21,281
Total
223,168
227,351
10.3 Changes in advance tax during the period (against profit and loss)
Total
Total
30 June 2023
30 June 2022