Annual Report 2013 - UBI Banca International
Transcripción
Annual Report 2013 - UBI Banca International
ANNUAL REPORT 2013 UBI BANCA INTERNATIONAL S.A. Luxembourg Registered Office: 37A, avenue J.F. Kennedy R.C. Luxembourg: B.61018 P.O. Box 308 – L-2013 Luxembourg Banking Group UBI Banca www.ubibanca.lu Madrid Branch Torre Espacio Planta 45 P° Castellana, 259 E-28046 Madrid Munich Branch Nymphenburgerstraße 5 D-80335 München Postfach 10 03 01 D-80077 München ANNUAL REPORT For the Sixteenth Fiscal Year January 1st, 2013 – December 31st, 2013 Meeting of Shareholders of March 25th, 2014 1 CONTENTS Highlights............................................................................................................... page 3 Board of Directors and Independent Auditors....................................................... page 4 Divisions, Staff Units and Branches...................................................................... page 4 Auditors’ Report .................................................................................................... page 7 Board of Directors’ Report to the Annual Meeting of Shareholders .................... page 9 Balance Sheet as at December 31st, 2013 .............................................................. page 18 Statement of off-balance sheet items as at December 31st, 2013........................... page 20 Statement of Profit and Loss for the year ended as at December 31st, 2013 ......... page 21 Notes to the Annual Accounts as at December 31 st, 2013 ................................... page 22 2 Highlights (Euro/millions) Dec. 31st, 2013 Dec. 31st, 2012 Deposits from customers (1) 1.661,1 2.010,2 Institutional debt certificates 3.074,8 2.266,5 Securities from customers on custody 2.781,7 2.498.3 Loans and Advances to customers 767,6 973,7 Shareholders Equity 126,2 125,5 Operating Margin 11,05 16,3 Net Income/(Loss) (11,4) 0,8 (1) Including debts evidenced by certificates placed with non institutional clients The Ordinary General Meeting of Shareholders of March 25th, 2014 resolved to carry forward the loss to the next Financial Year, such as proposed by the Board of Directors. Consequently, regulatory capital after allocation of result amounts to EUR 114,9 m. 3 BOARD OF DIRECTORS As of March 25th, 2014 Chairman (as of June 10 th, 2013) Vice Chairman Chief Executive Officer Director Director Director Director Chairman (up to April 30 th, 2013) Director Director Director (as of December 9 th, 2013) Pietro Gussalli Beretta Costantino Vitali Massimo Amato Stefan Grundmann Guy Harles Massimo Merola Juan Perez Calot Flavio Pizzini Giorgio Ricchebuono Vincenzo Sardone Elvio Sonnino INDEPENDENT AUDITORS As of March 25th, 2014 Deloitte Audit S.à r.l. Luxembourg DIVISIONS, STAFF UNITS AND BRANCHES Corporate Banking Division Alessandro Maggi Head of Division and Deputy General Manager Member of the Management Committee Madrid Branch Alessandro Maggi Gabriel Gomez Medina Arturo Guijarro Saiz Enrique Salomone Merello Maria Sanz Ruiz Munich Branch Vitale Bonacina Lucio Benaglia Alessandro Moretuzzo Corporate Banking & Factoring Desk Benelux Roberto Rampino 4 Private & Wealth Structures Division Manlio Unfer Head of Division and Deputy General Manager Member of the Management Committee Asset Management Eddy Heynderickx Wealth Structures Roberto Rampino Private Banking Davide Dolfini John Sanctobin Renato Strillacci Private Banking Spain Eduardo Ripollés UBI Trustee S.A. Massimo Lodi Finance Division Giancarlo Plebani Chief Financial Officer and Joint General Manager Member of the Management Committee Treasury & Capital Markets Massimo Monzini Giovanni Palai Accounting and Reporting Paolo Crapanzano Clients Accounts Administration Marylène Ska 5 Internal Control, Reconciliation & Collection Office Rita Bernardo Human Resources Maria Grazia Serra Operations Division Sonja Colli Chief Operating Officer and Deputy General Manager Member of the Management Committee Operations Carlo Antonicelli Nicolas Pisanu Information Technology, Organization & Branches Support Sonja Colli Nicola Losito Credit Department Stefano Alliata Risk Management Massimo Politi Internal Audit Michel Di Tore Legal, Compliance and Secretary General Christian Pedone François Gratz 6 REPORT OF THE REVISEUR D’ENTREPRISES AGREE To the Board of Directors of UBI Banca International S.A. Luxembourg: Report on the annual accounts Following our appointment by the General Meeting of the Shareholders dated March 26, 2013, we have audited the accompanying annual accounts of UBI Banca International S.A., which comprise the balance sheet as at December 31, 2013 and the profit and loss account for the year then ended and a summary of significant accounting policies and other explanatory information. Responsibility of the Board of Directors for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts, and for such internal control as the Board of Directors determines is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error. Responsibility of the réviseur d’entreprises agréé Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the réviseur d’entreprises agréé’s judgement, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the réviseur d’entreprises agréé considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the annual accounts give a true and fair view of the financial position of UBI Banca International S.A. as of December 31, 2013, and of the results of its operations for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts. Emphasis of Matter We draw attention to Note 3 “Loans and advances to credit institutions and customers” and Note 34 “Significant post balance sheet events” to the annual accounts which describes in detail the uncertainties relating to the quantification of the credit risk for one major debtor of the Bank which entered on March, 1 2013 under the scope of Section 5.bis of the Spanish Bankruptcy Law (“Ley 22/2003 de 9 de Julio 2003”). On March 3, 2014 one restructuring offer has been filed with the 7 Bankruptcy Court and is subject to creditors’ approval. In the case that the creditors do not approve the restructuring offers, the debtor entity maybe put into non-voluntary liquidation. The outcome of the decision of the creditors cannot be reliably assessed as of December 31, 2013. The Bank has estimated the provision for loan losses as of December 31, 2013 based on the assumptions that the creditors of the entity will approve the restructuring offer allowing the entity to continue its activities and that the Bank will continue to provide liquidity to the debtor in accordance with the current factoring contractual agreement. Should an agreement not be reached the Bank would likely incur losses higher than the amount of the current provisions for doubtful loans. The parent company of the Bank has confirmed its irrevocable commitment i) to proceed with the recapitalisation of the Bank in the case that additional losses in respect to this debtor would cause the regulatory capital of the Bank to fall below the minimum threshold and ii) to cover any additional residual exposures of the Bank against this debtor in excess of the 25% of the regulatory capital of the Bank, once the outcome of the ongoing insolvency procedure will be finalised and after accounting for any possible value adjustment resulting thereof. Our opinion is not qualified in respect of this matter. Report on other legal and regulatory requirements The management report, which is the responsibility of the Board of Directors, is consistent with the annual accounts. For Deloitte Audit, Cabinet de révision agréé Emmanuelle Miette, Réviseur d’entreprises agréé Partner March 10, 2014 8 BOARD OF DIRECTORS’ REPORT TO THE ANNUAL MEETING OF SHAREHOLDERS Dear Shareholders, The global economy showed some signs of recovery during 2013, especially with reference to the United States. The return to a growth path is also evident in Europe, both for core and peripheral countries, in a context of exceptionally-low interest rates. The markets in which your Bank develops its business (mainly Italy, Benelux, Spain and Germany) followed a common economic trend with some differences: whilst Italy’s GDP remained in a stagnant mood, only increasing during the fourth quarter of the year, Spain showed some stronger signs of recovery and Germany continued reinforcing its growth. Unemployment has decreased in all three countries compared to 2012 figures. Considering the lack of inflationary pressures in the Eurozone, the ECB continued in easing its monetary policy, acting through conventional measures, by reducing its reference rate twice in the year to 0,25%, and through unconventional monetary policy instruments (e.g. LTRO and SMP). On June 26, 2013, the European Commission has adopted the Basel III regulatory framework by transposing in a Directive (the Capital Requirement Directive - CRD IV) and in a Regulation (Capital Requirement Regulation – CRR) its main features. The local regulator (CSSF) has transposed this new framework, which will become effective in 2014, through Circular 13/570. Moreover, early in 2014, the CSSF issued a new Circular (14/583) and a Regulation (14-01), specifying some aspects of the prudential regulation, still under the discretionary power of local regulators, in terms of own funds structure, capital buffers, large exposures, leverage and liquidity. The total number of banks registered for supervision in Luxembourg as of December 31, 2013 is 147 (up from 142 a year earlier), and total employment in the local banking sector amounts to 26,231 (-1,1% on 2012). The overall income of the Luxembourg banking sector increased by 6,1% over 2012; this rise is determined by a strong improvement of other net income items, which is mainly driven by the increase of the market value of the banks’ securities portfolio. The operating income of the Luxembourg banks declined by 2,7% on a yearly basis, with a net interest margin down by 9%, partially offset by net commissions revenues (+6,8%). In 2013 general expenses have increased by 2,4% compared to 2012, and so have staff costs (+4,2%). Overview The Bank’s Parent Company, Unione di Banche Italiane S.c.p.a. (hereinafter in short UBI Banca) is a cooperative group listed on the Milan Stock Exchange with a market capitalization of Euro 4.4 bn. as of December 31, 2013; its stock is included in the FTSE/MIB Index. UBI Banca ranks fifth in the Italian banking market, with a total domestic branch network of about 1.700 branches. Its ratings from international rating agencies Standard & Poor’s, Moody’s and Fitch, at the date of this report, are respectively A-3, P-3 and F2 on the short term, and BBB-, Baa3 and BBB+ on the long term, with negative outlooks. Consistently with UBI Group strategies, your Bank provides through its headquarters in Luxembourg and its branches in Madrid and Münich corporate banking and private banking/ wealth management services. Target clients are mostly based in Italy, Benelux, Spain and Germany and in the core countries of continental Europe, who require cross-border assistance for trade, investments or portfolio management. The customer base concentrates in the middle market (affluent and high-net-worth individuals; mid-sized and large corporations), which is the natural target of the UBI Group. Retail services outside the Italian domestic market, as well as investment banking and proprietary trading, remain outside the scope of the Bank’s activities. 9 The credit portfolio has decreased during 2013, as a consequence of a policy which has pursued the downsizing of all the large single-name exposures. The Bank’s funding from customers has also decreased vis-à-vis 2012, as a consequence of the lower liquidity needs and of the repricing action on some marginal deposits. The Bank acts as an issuer of Euro Commercial Papers (hereinafter ECP) and French Certificates of Deposit (CD), offered to international institutional investors and fully guaranteed by the parent company UBI Banca. ECP and CD may be denominated in any major currency, with maturities ranging between 1 and 365 days, and up to a maximum outstanding amount of Euro 11 bn. The liquidity raised through these issues is placed with the parent company. ECP have been assigned ratings by Fitch and Moody’s whilst CD have been rated by Standards & Poor’s. The global outstanding amount of the two programmes sums up to about Euro 3.2 bn. as of December 31, 2013 and represents the main component of the Bank’s total assets. Financial year 2013 closes out with a gross operating profit, before depreciation, provisions and taxes, of Euro 11,05 m. versus Euro 16,32 m. in 2012. The major revenue and cost items which have contributed to the gross profit are analysed below. On the revenue side, net interest income decreased from Euro 25,4 m. in 2012 to Euro 19,9 m. in 2013, due to the reduced stock of loans to customers (Euro 767,6 m. versus Euro 973,7 m. in 2012). Net commissions slightly increased to Euro 10,3 m. from Euro 10,1 m. in 2012. Out of total net commissions, Euro 2,1 m. stem from trading fees on clients’ orders; Euro 1,1 m. from guarantees fees; Euro 1,1 m. from asset management and fiduciary fees; whereas the balance arises from various administrative services, such as account maintenance, custody and payments, factoring. Net profits from financial operations amount to Euro 1,04 m. versus Euro -0,12 m. in 2012 mainly due to profit taking strategies put in place on the Bank’s structural portfolio in the last quarter of the 2013. The Bank’s Treasury, in November 2013, took advantage of the favourable moment in the bonds market, by selling the residual proprietary portfolio positions. On the cost side, total operating expenses sum up to Euro 20,7 m. (about +5% over 2012). Staff expenses, at Euro 10,4 m., representing 51,3% of the general administrative expense, registered an increase of 7,4% on a yearly basis, due to one-off charges related to some settlement agreements for early departures; the balance arises from the wages indexation registered in October. Overhead expenses, at Euro 9,9 m., slightly increased by 2,4% vis-à-vis 2012. Since total operating revenues amount to Euro 31,8 m. and total operating costs to Euro 20,7 m., the resulting cost/income ratio stands at 65%. The overall situation of impaired loans has been significantly impacted by the default of one of the major borrowers of the Bank. This default was announced on March 1, 2013, when the Bank was informed that its client had applied for protection under the scope of Section 5 bis of the Spanish Bankruptcy Law. This specific provision provides legal coverage to a debtor, before a formal request of a bankruptcy proceeding, granting a three months grace period for entering into negotiations with its main creditors in order to readdress its financial situation. On April 5, 2013, the Borrower, which did not file any audited Financial Statements for Financial Year 2012, informed the C.N.M.V. (the “Comision Nacional del Mercado de Valores”, the Spanish Stock Exchange Regulator) that the Company’s Board of Directors resolved to apply for admission to a voluntary insolvency procedure in the scope of the Spanish Bankruptcy Law. This default has unearthed accounting irregularities in the borrower’s books, which had materially understated its financial debt. As a result, an amount of Euro 86 m. has been acknowledged by the Bankruptcy Court as being the total credit attributable to your Bank, of which Euro 41 m. have materialized after the insolvency filing, as a consequence of unexpected accounting irregularities linked to the factoring operations. At the date of this Report, the insolvency procedure is expected to come to an end by July 2014, through the implementation of a restructuring plan which pursues the operational continuity of the borrower and has been submitted to the vote of the creditors on March 3, 2014. 10 As at December 31, 2013, the total stock of impaired loans amounts to Euro 132,4 m., covered by Euro 54,4 m. of specific provisions. Doubtful loans sum up to Euro 96.5 m. with related loss provisions at Euro 36,1 m.: the increase vis-à-vis 2012 final figures is largely attributable to the classification as impaired position of the exposures related to the default described above. On the other hand, the Bank has prudentially reclassified amongst non-performing loans, some exposures previously classified as doubtful loans, for an amount of Euro 16,4 m., mainly composed by two positions with an average coverage ratio of 48% of specific provisions. As a consequence of the above, the total stock of non-performing loans, net of recoveries and write-offs, sums up at Euro 35,9 m. and is covered by Euro 18,3 m. of specific provisions. Total net provisions for specific loan losses charged against 2013 profit and loss account have amounted to Euro 16,6 m. The provisioning policy against doubtful loans keeps into account the value, estimated in a conservative manner, of all pledges and mortgages held by the Bank, so that the Board believes existing provisions fairly reflect the loss probability on all identified positions. The reduction of the total credit portfolio has determined a reduction of the provisions for collective impairment on performing loans, decreased to Euro 1,91 m. from Euro 2,12 m. a year earlier; this stock has been set aside in order to create a buffer against future unforeseen credit losses, and confirms the commitment of the Board to a conservative accounting policy. Provisions have been booked also with respect to the Bank’s participation to the Luxembourg depositors’ protection scheme (AGDL) for an amount of Euro 280 thousand and the new AGDL fund now amounts to Euro 861 thousand. Tax provisions on income have been booked for a total amount of Euro 0,687 m., of which Euro 0,233 m. due in Spain and Euro 0.454 m. due in Germany. In Luxembourg only the Net Worth Tax has been booked, for an amount of Euro 600.000. As a result of the provisioning policy described above, Financial Year 2013 closes with a loss of Euro 11,378,117. As at year end 2013, the Bank’s solvency ratio stands at 11,66% (10,08% in 2012), versus a minimum supervisory requirement of 9%, and its liquidity ratio stands at 85,90% (79,30% in 2012) versus a minimum requirement of 30%. In conclusion, although profitability has been under pressure due to credit issues, all indicators of balance sheet solidity have continued to improve over last year. Funding from customers decreased to Euro 1,660.8 m. (Euro 2,010.2 m. in 2012), of which Euro 1,568.1 m. are deposits from private and corporate clients, and Euro 92,7 m. are medium term certificates of deposit issued by the Bank without parent company guarantee and placed with its clients. In an environment of exceptionally low interest rates, the total cost of funding provided by customers declined over 2013; this effect has partially offset the reduction of lending revenues, produced by a lower stock of credits to customers. The value of securities deposited at the Bank on behalf of customers has increased from Euro 2,453 m. to Euro 2,728 year-on-year basis (+11%), as a consequence of a general appreciation in market prices of bonds and shares. These figures remain largely exposed to the fluctuating market prices of shares held in custody on behalf of a few large corporate clients. Internal audit activities have been regularly performed all through the year according to plan, and have included in their range of action the operations of the two foreign branches. The Internal Audit function reported periodically to the Board of Directors and audit recommendations have been implemented and followed up in order to improve security in the Bank’s operations. In order to improve the Bank’s risk governance, the Board of Directors has approved the establishment of an Audit Committee, which will advise the Board in its supervisory role upon the audit and compliance areas: this Committee will start operating as of January 1, 2014. The Compliance Function has ensured prompt and full adherence of the Bank to anti-money laundering legislation and best practices in the conduct of its business. It has handled professionally 11 and with mutual satisfaction its relationships with local Prosecutors and other relevant authorities in the AML field. The Compliance Officer is part of the Legal, Compliance and Secretary General Unit that handles customers’ claims, which have remained negligible during the year; as at year end, no material litigation was pending with clients. He is also actively working in ensuring the full adherence of the Bank policy to the above mentioned Private Wealth Management Charter of Quality. The Bank has retained in 2013 its status as a Qualified Intermediary vis-à-vis the U.S. authorities, as well as its European passport for free cross-border services in many European Union countries; the process of implementing FATCA regulation is at its final stage and will be completed during next year. Management of risks As required by Supervisory authorities, the present section provides a summary of the risk policies and guidelines implemented by the Bank in the ordinary course of its business. Such policies and guidelines are strictly dependent upon Group policies, set by the Parent Company in the framework of its overall supervision and guidance responsibilities. The Bank’s Risk Management Function operates within the framework defined by specific internal policies, developed in 2009 and inspired by Group guidelines. Its mission is the control of interest rate, liquidity and operational risks; furthermore, similar controls are performed by the Parent Company Risk Management Function, and double-checked with the Bank. Liquidity risk reporting has been improved by implementing, since April 2010, a new gap analysis requested by the Central Bank of Luxembourg in application of its regulations 2009/4; this new report shows the liquidity gaps of the bank over a period of five days and the liquid stock available to cover possible net outflows. The short term liquidity position of the Bank, as shown by the daily liquidity report, is closely monitored by the Risk Management Unit that, within a boundary framework of limits and early warnings, compares both daily gaps and cumulative five-days gaps with daily liquid stock. The Treasury department and the Management are promptly informed in case a breach occurs. Lending risks are analyzed by the Credit Departments of the branches and the Luxembourg headquarter, approved by the Bank’s appropriate decision-making body, and monitored both by the Bank and by the Parent Company’s Credit Risk Management Function, which duly consolidates at Group level all credit risks undertaken vis-à-vis the same borrower. Aside from lending, counterparty risk is negligible in the financial markets activities, since most deposits, foreign exchange and derivative contracts on interest rates are negotiated with the centralized UBI Group Treasury Function: lines are allocated within global limits set by the Parent Company International Division on a Group-wide basis. Issuer risk on the securities held for the Bank’s own trading portfolio is regulated by the internal Powers & Authorities, and supervised by the Parent Company Finance Division, which monitors the overall Group exposure by issuer. Payments are handled by dedicated back-office teams at headquarters and branches, which also operate the Target system to which the Bank is a direct participant in Luxembourg, Spain and Germany (where it is also a member of SEPA): security is pursued through segregation of duties and double controls at input and message validation, as well as by a daily double check performed by separate Internal Control functions, reporting directly to branch and headquarter Management. In the course of 2013 market risks have not been a component of the Bank’s business model, since the Bank is not a market maker in any financial instrument and it mostly focuses on best execution of financial transactions on behalf of its customers. Treasury mismatching policies are limited to the very short term and such as to put at risk, under severely adverse market conditions, a 12 small fraction of the Bank’s expected profits. They are monitored through a gap analysis produced by the Risk Management function. The Notes to the Financial Accounts provide a fair view of the interest rate sensitivity of the Bank, and of the credit risk associated to derivative financial instruments. Treasury is centralized at Luxembourg headquarters, which therefore perform all funding activities in favor of its foreign branches and ensure a centralized supervision over mismatching and liquidity risks. Capital requirements, both for regulatory purposes and internal policy guidelines, are constantly monitored, and an ICAAP procedure is implemented according to regulations and best practices. Foreign exchange positions, which might only be generated for very limited amounts by the execution of clients orders, are squared daily; overnight position limits are tightly set (not to exceed Euro 1 m.), and are monitored daily by the Bank’s Risk Management Function. The Bank does not take positions of its own, and all client business concentrates in the spot and outright markets. Management of foreign exchange trading is also centralized at Luxembourg headquarters, which operate on behalf of the branches. The Bank does not trade in options and futures for its own account; it offers, however, exchangetraded options on shares to a limited number of its clients at its Luxembourg headquarters. In these cases, when clients sell options, a credit decision is taken and underlying assets are pledged in order to secure the delivery risk. Settlement risks are minimized by trading shares and bonds with a limited number of counterparts, approved by top management and belonging to major international financial Groups. The Bank monitors the so called “operational risks” based on a common set of procedures and criteria implemented at Group level by the Parent Company’s Risk Management Function; results are regularly reported to the Parent Company. The Bank calculates its capital requirement with the “standardized” approach. Following the issuance of CSSF Circular 10/496, as amended by the Circular 11/505, the Bank has modified its own policies on remuneration and bonuses, introduced during 2010 in accordance with specific UBI Group guidelines. These policies are intended to foster prudent risk management at all levels of the organization, and exclude any guaranteed bonus or golden parachute for Directors or top managers; no Director is remunerated with a variable fee according to results. A formal bonus system has been introduced, applicable to all staff, which is triggered if the Bank’s annual profits hit the budgeted results, and only once the Group has attained its global targets; the related bonus pool is set by the Parent Company, as a share of a consolidated pool, and is distributed to staff based on the results of a formal performance assessment procedure, these individual bonuses not exceeding in any case 35% of annual gross salary. For a restricted group of high ranking executives, the entitlement to bonus is triggered both by individual Bank’s results and by Group consolidated results. This same principle applies to the CEO, in whose case the cap is set at 50% of annual gross salary but 70% of the amount is subject to a four-year deferral mechanism, with the possibility to cancel this deferred entitlement as foreseen in the claw-back adjustment mechanisms. Considering the final net result of the Bank, no amount for performance bonuses has been provisioned with respect to the year 2013. As requested by the CSSF circular 11/506 the Bank has adopted an internal procedure concerning its stress testing program. The document specifies all relevant aspects in terms of internal governance as well as of principles and methodologies applied to the stress test framework. The Bank has adopted a threefold approach: single risk scenarios, global risks scenarios and a reverse stress scenario; direct stress testing scenarios are characterized by two degrees of severity (medium and high) while reverse stress testing is conducted through a qualitative analysis. The stress test program is set to perform one test a year, the result of which are included in the ICAAP report and presented to the Board of Directors. 13 Private Banking, Investment Management and Wealth Structures Private Banking and Wealth Structures This activity continues to be offered from the Luxembourg headquarters of the Bank, since its international branches do not perform investment and related services; it targets an international set of affluent and high net-worth individuals, to whom a wide array of specialized and tailor-made services are offered, such as estate planning, investment advice and discretionary portfolio management. Services are provided by a team of multinational Private Bankers, who assist the clientele in its investment decisions and in the execution of its ordinary banking business. The Private Banking Department has evolved by offering cross-services between traditional private banking (investment advice; best execution of orders) and wealth structuring, through solutions of financial engineering or trusts. A growing demand has been registered during 2013 for those services related to the “family business”, which the Bank provides through its subsidiary UBI Trustee S.A., and which supports clients in estate and succession planning. The decision of the Luxembourg Government to adhere, as of 2015, to the intra-E.U. automatic exchange of information on financial revenues has confirmed the validity of the Bank’s commercial policies which target tax-compliant customers only, and will deploy its full effects over the next couple of years, by contributing to the redesign of the business model in this market segment. Asset Management The Asset Management team provides its support to private banking both through discretionary portfolio management and through advisory services which are made available to clients within the framework of the MIFID rules. These services are integrated, for purposes of quality assurance, within the UBI Group thanks to a strict cooperation with the Group asset management operations. The regain of confidence on the financial markets in the second half of the year as well the continuing downward trend on interest rates have contributed to generate positive performances on all managed portfolio profiles for 2013. The Bank continues to apply a multi-brand distribution policy for financial products, offering clients its Group SICAVs (UBI Sicav) as well as third parties funds, hedge funds and insurance products, in addition to direct investments in equities and bonds on all major markets. The Bank acts as a custodian bank for the assets of different Luxembourg insurance companies, upon agreement of the Luxembourg supervisory authority for the insurance industry; in this capacity, it may receive a mandate to invest the assets of the individual policies. Corporate banking The lending activity of the Bank has been hugely affected by the crisis of one of its major borrowers; in order to safeguard its balance sheet structure and its solvency equilibrium, the Bank has adopted a very conservative approach, by downsizing both its country and single-name risk exposure. This led to an overall reduction of the loan book, year-on-year, from Euro 974 m to Euro 768 m. At the Luxembourg headquarters, lending policies towards corporate clients focus on servicing well known counterparts on structured or corporate finance transactions, through direct term loans or participations to syndicated loans. Commercial lending and trade related facilities have been implemented in the second part of 2012 and are planned for further developing within the Bank’s three years industrial plan. Margin loans are made available to private banking clients, guaranteed by pledge on liquid assets, in order to allow them temporary financing without divesting their portfolios. Also, credit cards facilities are made available, on a fully collateralised basis. 14 At the Madrid and Munich branches commercial lending and trade-related facilities (import/ export finance, letters of credit) are the core activities, with a special focus placed on the factoring business. Factoring is offered both in the direct and the reverse form, and with or without recourse; its turnover was about Euro 1.08 bn. in Spain and Euro 404 m. in Germany. The breakdown by economic sectors of the credit portfolio is quite well balanced, and mostly focused on energy and wholesale distribution. The Bank’s branches and subsidiaries The Madrid Branch, which started operations on June 1, 2008, provides a wide range of prime corporate clients with credit facilities in the form of factoring, confirming, lending, trade-related loans and guarantees: factoring and confirming account for about 53% of total loans at year end. At the end of 2013, the Branch had total loans amounting to Euro 394 m. and guarantees outstanding for about Euro 36 m., with doubtful loans for Euro 91,8 m.; net loss for the year was Euro 9,2 m. and total staff employed 16. The Munich Branch, which started operations as of July 1, 2008, offers its corporate clients lending, factoring, trade finance and guarantees facilities, in addition to all payment services through its SEPA and Target membership. At the end of 2013, it had total loans amounting to Euro 221 m. and guarantees outstanding for Euro 14 m., with doubtful loans amounting at Euro 1,5 m.; net profit for the year was Euro 0,669 m. and total staff employed 11. Both Branches serve either Italian corporations doing business, through exports or direct subsidiaries, in Spain and Germany, or Spanish and German corporations with business interests in the Italian market. UBI Trustee S.A., a fully owned subsidiary based in Luxembourg and established on December 18, 2009, offers advisory services in wealth structuring as well as trustee services to a selected number of clients who wish to set up a trust under U.K. law in order to achieve estate planning objectives. The company, which employs a staff of four, has a share capital of Euro 250,000 and has successfully closed the 2013 financial year with total fee revenues of Euro 1 m. and a net profit of about Euro 30 thousand. The activity performed by UBI Trustee S.A. is mainly instrumental to the offer of sophisticated services to Group clients, both private and corporate. To this extent UBI Trustee participated actively to the marketing initiatives realized by UBI Banca International during 2013. With an Extraordinary General Meeting of the UBI Capital Singapore Pte Ltd, held on June 14, 2013, it was resolved to put the Bank’s subsidiary into a voluntary winding-up procedure; in the meantime, its Board of Directors has resigned and the Liquidators of the Company have been appointed. Since then, the Company has neither clients nor employees and it has also ceased holding its CMS (Capital Market Services) license granted by the local Regulator (MAS). On December 31, 2013 the winding-up procedure is almost concluded and all debts have been settled, with the exception of the Liquidators’ fees. The fiscal declarations for the period 2012 and 2013 (up to June 14, 2013) have been filed and the approval by the local authorities to the cancellation of the Company from the local commercial registry is expected within the year-end, since it has no pending fiscal issues. Future outlook Both the financial and the business outlook for 2014 are dependent upon the successful restructuring of the defaulted debt related to the large corporate client of the Bank, mentioned in an earlier section of this report. Whilst at the date of this report the loan-loss provisions set 15 aside against 2013 income are consistent with the available information and the probability of recovery, should a worse-case scenario materialize (such as the winding up of the counterparty, or a haircut higher than expected), then the Bank might suffer further losses and might require a capital injection in order to protect its solvency ratio at a 9% threshold or above. To this end, its controlling shareholder UBI Banca S.c.p.A. has released a written binding commitment to cover any capital shortfall and preserve a solid equity level. Allocation of profits Consistently with the financial results registered during 2013, no dividend will be paid to shareholders. EUR Financial result for the fiscal year 2013 (11.378.117) 5% to legal reserves – Allocation to free reserves – Dividend distribution 0 The Board hereby reaffirms the Bank’s commitment to serve its clients according to the best professional standards, and wishes to thank its staff for operating in the constant pursuit of such standards. Luxembourg, March 7, 2014 16 17 BALANCE SHEET AS AT DECEMBER 31, 2013 (expressed in EUR) ASSETS Notes CASH IN HAND, BALANCES WITH CENTRAL BANKS AND POST OFFICE BANKS 2013 2012 EUR EUR 31 55.395.142 LOANS AND ADVANCES TO 225.722.855 3, 31 CREDIT INSTITUTIONS: Repayable on demand 308.538.810 112.921.106 3.745.976.256 3.020.760.986 4.054.515.066 3.133.682.092 767.630.050 973.749.140 4, 5, 8, 31 – 88.789.872 SHARES AND OTHER VARIABLE-YIELD SECURITIES 4, 31, 8 11 11 PARTICIPATING INTERESTS 4, 6, 8 149.489 1.211.324 SHARES IN AFFILIATED UNDERTAKINGS 4, 7, 8 250.000 250.000 Other loans and advances LOANS AND ADVANCES TO CUSTOMERS DEBT SECURITIES AND OTHER FIXED-INCOME SECURITIES Issued by other borrowers 3, 31 INTANGIBLE ASSETS 9 5.304.029 6.643.505 TANGIBLE ASSETS 10 759.901 1.003.482 OTHER ASSETS 11 5.259.818 2.700.836 PREPAYMENTS AND ACCRUED INCOME 15 7.179.936 9.830.320 4.896.443.442 4.443.583.437 TOTAL ASSETS The accompanying notes form an integral part of these annual accounts. 18 UBI BANCA INTERNATIONAL S.A. LIABILITIES Notes AMOUNTS OWED TO CREDIT INSTITUTIONS: Repayable on demand With agreed maturity dates or periods of notice 12, 31 AMOUNTS OWED TO CUSTOMERS: 2013 2012 EUR EUR 11.631.206 16.871 12.546.781 16.704.450 24.177.987 16.721.321 1.065.796.938 749.718.322 12, 31 Other debts: Repayable on demand With agreed maturity dates or periods of notice 502.289.816 1.155.374.968 1.568.086.754 1.905.093.290 3.167.926.963 2.371.628.187 DEBTS EVIDENCED BY CERTIFICATES Debt securities in issue 13, 31 OTHER LIABILITIES 14 9.881.152 6.968.182 ACCRUALS AND DEFERRED INCOME 15 4.996.404 10.571.121 17, 18 3.751.560 2.239.566 3.927.588 1.912.575 5.991.126 5.840.163 500.000 500.000 PROVISIONS Provisions for taxation Other provisions FUND FOR GENERAL BANKING RISKS SUBSCRIBED CAPITAL 16 70.613.580 70.613.580 SHARE PREMIUM ACCOUNT 16 37.286.954 37.286.954 RESERVES 16 18.360.639 17.587.121 (11.378.117) 773.518 4.896.443.442 4.443.583.437 (LOSS)/PROFIT FOR THE FINANCIAL YEAR TOTAL LIABILITIES The accompanying notes form an integral part of these annual accounts. 19 STATEMENT OF OFF-BALANCE SHEET ITEMS AS AT DECEMBER 31, 2013 (expressed in EUR) Off Balance Sheet Notes CONTINGENT LIABILITIES Of which Guarantees and assets pledged as collateral security 20, 31 COMMITMENTS Of which Credit confirmed, not used 21, 31 FIDUCIARY TRANSACTIONS 23 UBI BANCA INTERNATIONAL S.A. 2013 2012 EUR EUR 69.114.627 89.536.747 64.876.620 86.109.186 45.129.535 98.772.154 44.305.552 98.174.582 60.483.774 52.055.555 The accompanying notes form an integral part of these annual accounts. 20 STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED AS AT DECEMBER 31, 2013 (expressed in EUR) Notes INTEREST RECEIVABLE AND SIMILAR INCOME UBI BANCA INTERNATIONAL S.A. 2013 2012 EUR EUR 39.051.393 76.159.169 144.838 1.956.478 (19.116.186) (50.737.074) INCOME FROM TRANSFERABLE SECURITIES 4.632 66.232 INCOME FROM PARTICIPATING INTERESTS 4.632 66.232 Of which Income arising from fixed-income securities INTEREST PAYABLE AND SIMILAR CHARGES COMMISSION RECEIVABLE 14.668.612 13.283.892 COMMISSION PAYABLE (4.344.845) (3.201.525) 1.044.593 (124.722) 450.668 615.227 (20.246.453) (19.300.529) (10.390.002) (9.674.376) Wages and salaries (8.359.840) (7.874.150) Social security costs Of which: Social security costs relating to pensions (1.243.483) (1.251.546) (877.719) (881.747) 33 (9.856.451) (9.626.153) 9, 10 (2.075.713) (2.568.140) NET PROFIT/(LOSS) ON FINANCIAL OPERATIONS OTHER OPERATING INCOME 25 GENERAL ADMINISTRATIVE EXPENSES: a) Staff costs 28 Of which b) Other administrative expenses VALUE ADJUSTMENTS IN RESPECT OF TANGIBLE AND INTANGIBLE ASSETS OTHER OPERATING CHARGES 26 (460.837) (444.907) VALUE ADJUSTMENTS IN RESPECT OF LOANS AND ADVANCES AND PROVISIONS FOR CONTINGENT LIABILITIES AND FOR COMMITMENTS 3 (37.379.448) (7.030.521) VALUE RE-ADJUSTMENTS IN RESPECT OF LOANS AND ADVANCES AND PROVISIONS FOR CONTINGENT LIABILITIES AND FOR COMMITMENTS 3 18.312.297 1.440.395 VALUE ADJUSTMENTS ON SECURITIES HELD AS FINANCIAL FIXED ASSETS, PARTICIPATING INTERESTS AND SHARES IN AFFILIATED UNDERTAKINGS 7 – (3.241.534) TAX ON PROFIT ON ORDINARY ACTIVITIES 27 (686.830) (3.317.944) (10.778.117) 1.598.019 (600.000) (824.501) (11.378.117) 773.518 (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAX OTHER TAXES NOT SHOWN UNDER THE PRECEDING ITEMS 27 (LOSS)/PROFIT FOR THE FINANCIAL YEAR The accompanying notes form an integral part of these annual accounts. 21 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 1. GENERAL UBI Banca International S.A. (the “Bank”) was incorporated in Luxembourg on October 1, 1997, under the name of CAB International S.A.. Following an extraordinary shareholders’ meeting on April 19, 1999, the Bank’s changed its name to Banca Lombarda International S.A.. At an extraordinary shareholders’ meeting on June 13, 2002, the share capital of the Bank was increased from EUR 10.200.000 to EUR 19.958.340, through the issuance of 19.134 new shares of EUR 510 par value fully underwritten by Banca Lombarda S.p.A. for a total amount of EUR 13.975.902 (including a share premium of EUR 4.217.562). The underwriting took place through the contribution in kind by Banca Lombarda S.p.A. of 32.000 ordinary shares in Artesia Bank Luxembourg S.A., representing the entire share capital of the latter. Banca Lombarda International S.A. and Artesia Bank Luxembourg S.A. were subsequently merged on July 21, 2002 and with accounting effects retroactive as of January 1, 2002. At an extraordinary shareholders’ meeting on June 26, 2007, the share capital of the Bank was increased from EUR 19.958.340 to EUR 43.267.380, through the issuance of 45.704 new shares of EUR 510 par value fully underwritten by UBI Banca S.c.p.a. for a total amount of EUR 40.750.230 (including a share premium of EUR 17.441.190). The underwriting took place through the contribution in kind by UBI Banca S.c.p.a. of 40.000 ordinary shares in BPU Banca International S.A., representing the entire share capital of the latter. Banca Lombarda International S.A. and BPU Banca International Luxembourg S.A. were subsequently merged on June 26, 2007 and with accounting effects retroactive as of April 1, 2007. The Bank changed its name to UBI Banca International S.A.. On April 15, 2008, the Bank registered UBI Banca International S.A., Madrid Branch, with the Bank of Spain. Effective May 31, 2008, the Bank acquired the net assets of Financera Veneta EFC a group entity providing factoring services. These net assets were subsequently transferred to the Madrid Branch in June 2008. The Madrid Branch operates banking activities according to current Spanish law provisions, and including leasing and factoring. On June 26, 2008, in the framework of a group reorganisation, another bank of UBI Group, Banca Popolare di Bergamo, became a shareholder of the Bank through the contribution in kind of its branch located in Munich, Germany. As a result of this operation 3,906 shares with a par value of EUR 510 were issued for EUR 1.992.060 with a share premium of EUR 1.507.716. The Munich Branch is specialised in the lending business and factoring. On January 6, 2009, following an extraordinary meeting of shareholders, the Bank increased its share capital by issuing 24.079 additional shares with a par value of EUR 510 amounting to EUR 12.280.290 with a share premium of EUR 386 per share amounting to EUR 9.294.494, involving a total increase by EUR 21.574.784. On December 10, 2010 the Bank finalised an intra-group corporate operation: after having obtained all relevant authorisations from Luxembourg and Italian authorities, the Bank merged with the Luxembourg Branch of Banco di Brescia S.p.A. (hereafter “the Branch”) through the transfer of all assets and liabilities of the Branch to the Bank. The merger had been submitted to the regime of the demergers (“scissions”) as provided for in articles 285 to 308 (with the exception of article 303) of the Luxembourg law on commercial companies dated August 10, 1915, as amended. Banco di Brescia S.p.A. transferred to the Bank its Luxembourg Branch, consisting in the private and corporate bank activities for companies and private clients and, more particularly, all assets and liabilities pertaining thereto (including the employment contracts), as contemplated in the Contribution Agreement signed on December 10, 2010, and the terms and conditions regulating the Branch of activity transfer. The extraordinary meeting of shareholders, held on December 10, 2010, resolved to increase the share capital of the Bank by EUR 1.531.020 so as to raise it from its current amount of EUR 57.539.730 to EUR 59.070.750 by issuance of 3.002 new shares of the Bank, with a nominal value of EUR 510 each, 22 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. together with an aggregate share premium of EUR 1.368.912. Banco di Brescia S.p.A. subscribed all newly issued 3.002 shares. On April 3, 2012, an Extraordinary Meeting of Shareholders, resolved to increase the share capital of the Bank by EUR 11.542.830 by converting some free reserves in capital for EUR 7.090.530 and by cash subscription for EUR 4.452.300. The share capital increased from EUR 59.070.750 to EUR 70.613.580 by the issue of 22.633 new shares and the booking of a share premium amounting EUR 3.457.080. The objective of this capital increase was to prepare the Bank to the acquisition from Banque de Dépôt et de Gestion S.A., Lausanne (a Swiss subsidiary of UBI Group) of its Singapore subsidiary BDG Singapore Private Ltd, planned for the end of May 2012. The operation has been duly finalized on May 30, 2012, and the subsidiary changed its name into UBI Capital Singapore Pte Ltd.. On October 22, 2012, within a reorganization of UBI Banca Group, Banca Regionale Europea S.p.A., Cuneo absorbed Banco di San Giorgio S.p.A., Genova: the consequence of the merger was that the shareholder Banco di San Giorgio S.p.A. became Banca Regionale Europea S.p.A., without any modification of its capital share. After a full impairment of its fully owned subsidiary UBI Capital Singapore Pte at the end of financial year 2012, due to the poor results and the difficult environment in which the company had to develop business, the Bank resolved during the first half of 2013 to liquidate its subsidiary. The liquidation procedure started on June 14, 2013 and at the end of 2013 is still ongoing waiting for the Tax Clearance by the Tax Authorities in Singapore. As of December 31, 2013, the Bank is authorized to perform all banking activities as defined by the Luxembourg law. The Bank is a subsidiary of Unione di Banche Italiane S.c.p.a., whose registered office is at Piazza Vittorio Veneto, 8, Bergamo, Italy. The consolidated financial statements of Unione di Banche Italiane S.c.p.a. are available at its head office. Therefore, the Bank is exempt from the requirement to establish consolidated accounts and a consolidated management report on the basis of the criteria set out by the Luxembourg law of June 17, 1992 as amended. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The annual accounts have been prepared in conformity with the legal and regulatory requirements applicable in the Grand-Duchy of Luxembourg. The accounting policies and the valuation principles are determined and applied by the Board of Directors, except those which are defined by law and by the Luxembourg Supervisory Authority the Commission de Surveillance du Secteur Financier (CSSF). The preparation of annual accounts requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the accounting policies. The Board of Directors makes estimates and assumptions that affect the reported amounts of assets and liabilities in the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations and future events under the circumstances. The books and records of the Bank are kept in euro (“EUR”) and the annual accounts have been prepared using the following significant accounting policies: 23 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 2.1 Reclassification of prior year comparative figures Certain prior year comparatives in the Profit and Loss Account have been reclassified to conform to the current year’s presentation. These changes primarily relate to the realignment of the Income from the subcaption shares and other variable yield securities to the sub-caption Income from participating interest. 2.2 Foreign currencies translation The Bank uses a multi-currency accounting system, which consists of recording each transaction in the respective currency of the transaction based on position accounts. The year-end exchange rates of the main currencies used by the Bank are summarised as follows: 1 EUR 1 EUR 1 EUR 1 EUR 1 EUR = = = = = 2013 1,3791 USD 1,2276 CHF 8,8591 SEK 7,4593 DKK 0,8337 GBP 1 EUR 1 EUR 1 EUR 1 EUR 1 EUR = = = = = 2012 1,3194 USD 1,2072 CHF 8,582 SEK 7,461 DKK 0,8161 GBP The translation of accounts in a currency other than EUR is done in accordance with the following criteria: • Assets and liabilities expressed in a foreign currency other than EUR are translated at year-end rates; • Income and expenses in foreign currencies are translated into EUR at exchange rates applicable at the date of their recording in the statement of profit and loss; • The exchange differences resulting from the valuation of spot positions are recorded in the profit and loss account in the current year; • Foreign exchange gains and losses resulting from spot transactions hedged by forward transactions (“swaps”) are neutralized through “Prepayment and accrued income” and “Accruals and deferred income” accounts. Differences arising due to the gap between spot and forward exchange rates are amortised in the profit or loss accounts on a prorate temporis basis”. Foreign currency swap transactions have not been contracted during the year. 2.3 Financial derivative instruments 2.3.1 Interest rate swaps The Bank has entered into interest rate swaps for the purpose of hedging underlying specific term loans. The accrued interest, either receivable or payable, are recorded on a prorata basis in the profit and loss account and are included in the captions Interest receivable/payable and similar income/charges over the period of the respective contracts. The revaluation of these swap transactions used for hedging purpose does not affect the result of the financial year. 2.3.2 Forward foreign exchange contracts Forward foreign exchange transactions, which are exclusively contracted on behalf of customers, are covered by reverse forward foreign exchange transactions and do not have a valuation impact 24 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. on the profit and loss account. Unrealised valuation gains on uncovered forward foreign exchange transactions are not accounted for in the profit and loss account for the year, whereas unrealised valuation losses are recorded under “Other provisions”. Uncovered forward foreign exchange transactions have not been contracted during the year. The calculation of the unrealised gains or losses is based on the forward exchange rate for each currency applied to all outrights with the same maturity date. 2.3.3 Options For the options traded over the counter and unallocated to determined assets or liabilities, the premiums received or paid appear on the balance sheet until the exercise or the expiration date of the options, if the option is not exercised before that date. Commitments on written options are booked off balance sheet. Option contracts entered into for hedging purposes are not marked to market-to-market. Option contracts traded on a regulated market and entered into for the purpose of hedging identical reverse options also traded on a regulated market, are booked as follows: as the position on these instruments is closed, the result arising from premiums received and paid is accounted for in the profit and loss account. 2.4 Loans, advances and debts The loans, advances and debts repayable on demand include amounts, which can be withdrawn at any time without notice or with a 24 hours notice. The term loans and advances and term debts include amounts whose residual maturity exceeds 24 hours. Loans and advances are stated at disbursement value less repayment made and any value adjustments required. As mentioned under “2.8 value adjustments”, the policy of the Bank is to set up specific value adjustments for doubtful loans in accordance with the circumstances and for the amounts specified by the Board of Directors. These value adjustments are deducted from the asset account balances concerned. Accrued interest not received is recorded under the heading “Prepayments and accrued income” on the asset side of the balance sheet. Debts are recorded under liabilities at the amount of reimbursement. Where the amount to be repaid is greater than the amount received, the difference may be recorded in the assets, and must be disclosed separately in the balance sheet or in the notes to the annual accounts. This difference must be amortised on an annual basis over a reasonable period, which cannot exceed the date of repayment of the debt (this option does not apply to differences resulting from debts arising from transactions on a primary market, for which provisions must be made). Premiums are recognised prorata temporis over the life of the debt. 2.5 Securities Debts securities and other fixed-income securities and shares and other variable-yield securities are allocated into three different categories of portfolio that are valued in accordance with their specific rules: • Investment portfolio • Structural portfolio • Trading portfolio 25 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 2.5.1 UBI BANCA INTERNATIONAL S.A. Investment portfolio Securities held in the investment portfolio are intended to be held in the long term and, in case of fixed-income securities, until maturity. The debt securities and other fixed-income securities are recorded at acquisition date in the balance sheet at acquisition cost, which includes incidental expenses but excludes accrued interest. Except for zero coupon bonds, accrued interest since the last coupon date or since issuance are recorded in the transitory account until the next coupon date. Accrued interest related to zero coupon bonds are recorded in the portfolio account, in addition to the purchase price of the underlying security. Premiums and discounts related to securities classified in the investment portfolio and resulting from the difference between the acquisition price and the reimbursement amount at maturity are recorded prorata temporis in the liabilities, respectively the assets under the caption “Accruals and deferred income”, respectively “Prepayments and accrued income”. Premiums and discounts are considered as interest expense and interest income respectively. Share and other variable-yield securities, as well as share in affiliated undertakings and participating interests having the characteristics of financial fixed financial assets and classified under investment portfolio are recorded at acquisition cost, including incidental expenses. Companies in which the Bank directly or indirectly exercise a significant influence are considered to be affiliated undertakings. Participating interests comprise rights in the capital of other undertakings, the purpose of which is to contribute to the activity of the company through a durable link. A value adjustment is made if the Board of Directors considers that there exists a durable depreciation in their value at the balance sheet date. Income from shares is accounted for at ex-dividend date. Income from fixed-income securities is accounted for on an accrual basis. 2.5.2 Structural portfolio Securities held in the structural portfolio are intended to be held in the medium term for the purpose of interest income and capital gains. Securities classified in the structural portfolio are valued at the lower of cost or market. If no official quotation is available, valuation is made at the probable realisable value or at a price which most closely corresponds to the intrinsic value of the securities. Unrealised depreciation in value is recorded in the annual accounts in the caption “Net profit/(loss) on financial operations”. In cases where fixed-income securities are acquired at a premium, the difference between acquisition cost and redemption value is written off in instalments to profit and loss and recorded as “interest payable and similar charges”. Instalments are charged pro rata temporis over the life of the security. The cumulative amortisation from the date of acquisition is included in “Accruals and deferred income” on the liability side of the balance sheet. In cases where fixed-income securities are acquired at a discount and cost is used as the basis of valuation, the difference between acquisition cost and redemption value is taken to profit and loss account at the date of maturity or date of disposal, if earlier. Income from shares is accounted for at ex-dividend date. Income from fixed-income securities is accounted for on an accrual basis. 26 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 2.5.3 UBI BANCA INTERNATIONAL S.A. Trading portfolio Securities held in the trading portfolio are intended to be held in the short term. Securities classified in the trading portfolio are valued at the lower of cost or market. If no official quotation is available, valuation is made at the probable realisable value or at a price which most closely corresponds to the intrinsic value of the securities. Unrealised depreciation in value is recorded in the annual accounts in the caption “Net profit on financial operations”. Income from shares is accounted for at ex-dividend date. Income from fixed-income securities is accounted for on an accrual basis. 2.6 Tangible and intangible assets The tangible and intangible assets are recorded at their acquisition cost less depreciation. These assets, whose useful economic life is limited, are depreciated over their estimated useful life on a straight line basis. The depreciation rates used are as follows: Formation costs Goodwill (*) Leasehold improvements Machinery & Equipment Automobiles Computer equipment & software 20% 10% - 20% 20% 20% 33% 10-25% (*) The goodwill arising from the acquisition of Banco di Brescia Luxembourg Branch on December 10, 2010 by the Bank is a tax deductible expense in Luxembourg. In case of a permanent reduction in value, appropriate write-downs are recorded at balance sheet date. The Bank resolved to amortize the goodwill relating to the merger with Banco di Brescia, Luxembourg Branch on a 10 years period (instead of 5 years as foreseen in the Law of June 17, 1992, as modified). The Bank applied the derogation envisaged in art. 2(5) of the law because of the economic reality and nature of assets and liabilities acquired with the merger. The assets and liabilities of the absorbed entity, migrated to the Bank books, were a portfolio of loans and deposits of private and corporate customers. A 10 years amortization is in line with the time horizon used by the expert in the framework of the Branch evaluation and with the period accepted by the Tax Authorities. 2.7 Debt evidenced by certificates Debts evidenced by certificates are presented at their redemption amounts. Transaction costs and premiums/ discounts are amortised in the profit and loss account on a straight line basis over the life of the debt through item “Accruals and deferred income” or “Prepayments and accrued income”. 2.8 Value adjustments Value adjustments include provisions for bad debts, provisions for value adjustments on securities in portfolio, amortisation and depreciation of tangible and intangible assets. For a determined asset, the adjustments are deducted from the nominal value of the asset or from the acquisition cost. The related assets are thus presented net of any value adjustments. 27 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. The value adjustments related to the interest on doubtful debts are determined as follows: accrued interest or interest receivable on doubtful debts are fully provided for, whereas for receivable for which the interest can be reasonably considered as non recoverable the Bank stops accruing interest and any accrued interest up to that point is reversed. 2.9 Lump-sum provision In accordance with the Luxembourg tax legislation, it is the Bank’s policy to establish a lump sum provision for risk exposures, as defined in the legislation governing prudential supervision of banks. The purpose of the provision is to take account of risks that are likely to occur but which have not yet been identified as at the date of preparation of the annual accounts. Pursuant to the Instructions issued by the “Directeur des Contributions” on December 16, 1997, the provision, recorded as a tax exemption, is made before taxation and may not exceed 1,25% of the Bank’s risk exposures. The lump-sum provision for risk exposures is broken down in proportion to the weighting of the items that form of the basis for its calculation, between: • A portion which is deemed to represent a value adjustment, and which is deducted from the assets items which constitute risk exposures; and • A portion which is deemed to represent a provision attributable to credit risk associated with off-balance sheet items, foreign exchange risk and market risk, and which is booked under “Other provisions” 2.10 Fund for general banking risks The Bank has created a fund for general banking risks in 2000 for an amount of EUR 500.000. The fund is intended to cover particular risks associated with banking operations. Increases or decreases to this fund are determined based on the profit after tax, but before determining the profit of the financial year and are not subject to any limitations. 2.11 Taxes Taxes are accounted for on an accrual basis, based on the profit and loss account for the year under review. Based on the tax treaties concluded between Luxembourg, Germany and Spain respectively, profits and wealth attributable to the Munich and Madrid branches of the Bank are exempt from taxation in Luxembourg. The Munich and Madrid branches are subject to taxation in their respective countries, Germany and Spain. Consequently, the Luxembourg entity is only subject to Corporate Income Tax, Municipal Business Tax and Net Wealth Tax in Luxembourg. Tax provisions are disclosed in the caption “provisions for taxation” while tax advances are included in the caption “other assets” (see Note 11). 2.12 Repurchase agreements and reverse repurchase agreements The Bank enters into purchases (sales) of securities and financial instruments under agreements to resell (repurchase) those securities at a certain date in the future at a fixed price. Securities purchased with a firm commitment to resell at future dates are not recognised on the balance sheet. The amounts paid for the purchase of the securities are recognised as a receivable in loans and advances to either credit institutions or customers. Securities sold with a firm commitment to repurchase at future dates continue to be recognized on the balance sheet and are measured in 28 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. accordance with the accounting policy of the category to which they relate. The proceeds from the sale of the securities are reported as amounts owed to either credit institutions or customers. The difference between the purchase (sale) and resell (repurchase) price is recognised on an accrual basis over the period of the transaction as interest income (expense). 3. LOANS AND ADVANCES TO CREDIT INSTITUTIONS AND CUSTOMERS Loans and advances to credit institutions are split in accordance with their remaining maturity as follows: Loans and advances to credit institutions At sight Less than 3 months (other than at sight) 3 months to 1 year 2013 EUR 2012 EUR 308.538.810 3.665.294.942 80.681.314 4.054.515.066 112.921.106 2.994.709.145 26.051.841 3.133.682.092 Loans and advances to credit institutions include amounts paid by the Bank for a total of EUR 249.839.632 (2012: EUR 292.593.229) in the context of purchase of investments subject to commitment to resell them at a future date under reverse repurchase agreements contracted with the Parent Company. Loans and advances to customers are split in accordance with their remaining maturity as follows: 2013 EUR Loans and advances to customers At sight Less than 3 months 3 months to 1 year 1 year to 5 years Greater than 5 years Specific value adjustments Lump-sum provision allocation 414.780.867 62.684.537 92.071.606 170.414.827 84.020.974 (54.436.026) (1.906.735) 767.630.050 2012 EUR 563.673.081 86.321.090 69.582.955 232.411.774 44.451.072 (20.571.379) (2.119.453) 973.749.140 On December 31, 2013 the Bank set up a lump-sum provision taking into consideration in-bonis nonguaranteed assets which constitute risk exposure of EUR 1.906.735 (2012: EUR 2.119.453). Specific value adjustments include an amount of EUR 34.976.589 that relates to the provision on the Bank’s exposure to one major customer of the Branch in Madrid, an important multinational Company, which entered on March 1, 2013 under the scope of Section 5.bis of the Spanish Bankruptcy Law (“Ley 22/2003 de 9 de Julio 2003”). In 2013 the defaulted entity has initiated discussions with its creditor banks in order to restructure its debt and avoid non-voluntary liquidation. Until March 3, 2014 restructuring proposals will need to be submitted to the bankruptcy court. The creditors of the entity need to approve with 51% quorum one of the restructuring proposals until April 3, 2014. If none of the restructuring proposals is approved by the creditors of the entity, the bankruptcy court will put the entity into non-voluntary liquidation. 29 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. The above mentioned provision as of December 31, 2013 is analyzed per type of exposure as follows: Type of exposure Direct exposure Other exposure Total Exposure (EUR) % provision 43.956.782 70% 41.420.049 10% 85.376.831 Provision (EUR) 30.769.747 4.206.842 34.976.589 For the above direct exposures of EUR 43,956,782 the provision has been determined to 70% of the balance which represents the best estimate of the sustainable debt of the group and is consistent with the current proposals’ haircut levels negotiated by the entity and the creditors. The above reported as “other exposures” of EUR 41.420.049 relate to financing arrangements that are supported by some local subsidiaries of the group which are currently not under an insolvency procedure and have formally acknowledged their co-obligation. The above amount of provision of EUR 34.976.589 has been recorded in the income statement under the caption “Value adjustment in respect of loans and advances and provisions for contingent liabilities and for commitments”. Concerning the large exposures of the Bank, the Parent Bank in Italy, namely Unione di Banche Italiane S.c.p.a guarantees exposures greater than 25% of the Bank’s own funds (for the amount exceeding the 25% threshold). Consequently, at the end of June 2013, the Bank requested the exercise of the guarantee issued by its Parent Bank, with respect to the defaulted borrower above. In this context, Unione di Banche Italiane S.c.p.a. paid in 2013 the amount of EUR 17.262.517 to the Bank which has been recorded in the income statement under the caption “Value re-adjustment in respect of loans and advances and provisions for contingent liabilities and for commitments”. In addition to the above exposures presented in the table above, the Bank continues to support with working capital some operating subsidiaries of the defaulted borrower that are not involved in the bankruptcy procedure, through a non-recourse factoring with notification agreement. The credit risk of this exposure is linked to final customers of the entities and not to the group. As of December 31, 2013, the total amount of outstanding assigned invoices from the operating entities’ amounts to EUR 41.116.000 and corresponds to sales of the operating entities to a large number of third parties customers (more than 1.000 customers). The Board of Directors of the Bank has estimated the above levels of provision based on the information available to the Bank as at December 31, 2013. Based on the scenarios developed by the Bank, even in the case where future events will affect the ability of the non-defaulted co-obligating subsidiaries of the entity to serve the existing financing agreements and additional provisions will be required to cover 70% of the balance of the “other exposures”, the “solvency Ratio” of the Bank will still be sufficient to meet current minimum regulatory capital requirements. As described above, the uncertainties relating to the estimation of the respective provision will be removed in the following months and the credit risk will be able to be reliably estimated during the first half of 2014. The finalization of the restructuring procedure could impact the future profitability of the Bank and its capital adequacy ratio requirements. Considering that, as of December 31, 2013, it is not possible to quantify the risk of additional losses given the fact that the insolvency procedure is on-going, the Parent Bank has confirmed through a comfort letter dated July 9, 2013 i) its irrevocable commitment to proceed with the recapitalization of the Bank at the occurrence of losses as resulting from the outcome of the insolvency procedures, should the regulatory capital of the Bank be lower than the thresholds established from time to time by the CSSF and ii) its irrevocable commitment to cover any additional residual exposures of the Bank against this debtor in excess of the 25% of the regulatory capital of the Bank, once 30 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. the outcome of the ongoing insolvency procedure will be finalised and after accounting for any possible value adjustment resulting thereof. 4. TRANSFERABLE SECURITIES Transferable securities shown under the various items “Debt securities and other fixed-income securities”, “Shares and other variable-yield securities”, “Shares in affiliated undertakings”, “Participating interests” may be broken down as follows into listed and unlisted securities: 2013 Listed EUR Cost Debt securities and other fixed-income securities Shares and other variable-yield securities Participating interests Shares in affiliated undertakings 2013 Unlisted EUR – – – – – – 11 149.489 3.491.534 3.641.034 Provisions (specific value adjustments) Net amount (EUR) 2013 Total EUR – 11 149.489 3.491.534 3.641.034 (3.241.534) 399.500 2012 Listed EUR Cost Debt securities and other fixed-income securities Shares and other variable-yield securities Participating interests Shares in affiliated undertakings 2012 Unlisted EUR 89.055.903 – – – 89.055.903 – 11 1.211.324 3.491.534 4.702.869 Provisions (specific value adjustments) Net amount (EUR) 2012 Total EUR 89.055.903 11 1.211.324 3.491.534 93.758.772 (3.507.565) 90.251.207 5. DEBT SECURITIES AND OTHER FIXED-INCOME SECURITIES Transferable securities shown under “Debt securities and other fixed-income securities” may be analysed as follows: 2013 EUR 2012 EUR Investment portfolio Structural portfolio – – – 80.000.000 9.055.903 89.055.903 Value adjustments – – (266.031) 88.789.872 31 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. As of December 31, 2012, debt securities and other fixed income securities included: • An investment of EUR 80.000.000 (EMTN issued by UBI Banca Group) with a maturity date of January 26, 2013. This security was reimbursed on maturity date. • Four fixed income securities that were sold during the last quarter of 2013 for a total amount of EUR 9.038.884. Net amortised values of premiums and discounts since the acquisition date for the debt securities and other fixed-income securities amount to: 2012 EUR Premiums Discounts 2012 EUR 4.839 616 – – 6. PARTICIPATING INTERESTS As at December 31, 2013, the Bank directly held shares in participating interests in the following company: Company Corporation Financière Européenne SA. Registered Office Proportion of capital held (%) Book value Luxembourg 0,30% 149.489 As at December 31, 2013, the Bank held unquoted participating interests into Corporation Financière Européenne S.A., a Luxembourg registered company offering asset management and other related financial services in Switzerland, for EUR 149.489 (2012: EUR 1.211.324) i.e. the 0.30% of its share capital (2012: 2.4309%). As at June 20, 2013, the Bank signed a “Share Purchase Agreement” by which Corporation Financière Européenne S.A. bought back 241.911 shares on a total of 275.968 of the Bank’s participation. As at December 31, 2013 and 2012, the Bank has no participating interests in credit institutions. 7. SHARES IN AFFILIATED UNDERTAKINGS As of December 31, 2013, the Bank directly held shares in the share capital of the following affiliated undertakings: Net Book value (EUR) Shareholders’ equity December 31, 2013 (EUR) (*) Profit/(Loss) for the financial year ended 2013 (EUR) Registered Office Proportion of capital held (%) UBI Trustee S.A. Luxembourg 100% 250.000 406.665 34.106 UBI Capital Singapore Pte Ltd (in liquidation) Singapore 100% – 322.719 (**) (1.528.119) (**) Company Including the Profit/Loss for the year. (*) As per unaudited annual accounts as at December 31, 2013. (**) As at December 31, 2013, the Bank held unquoted shares in affiliated undertakings for a purchase price of EUR 3.491.534 (2012: EUR 3.491.534). A value adjustment of EUR 3.241.534 has been made on UBI Capital Singapore Pte Ltd.. 32 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. As of December 31, 2013 and 2012, the Bank has a participation of 100% for an amount of EUR 3.241.534 in a subsidiary based in Singapore, UBI Capital Singapore Pte Ltd.. At the end of 2012, due to the poor performance of the subsidiary and the stagnation in the business development, the Bank decided to fully impair the value of participation. During the first half of 2013, the Bank resolved to liquidate its subsidiary. The liquidation procedure started on June 14, 2013 and at the end of 2013 is still ongoing waiting for the Tax Clearance by the Tax Authorities in Singapore. The liquidation closing is expected for 2014 and no liabilities shall result for the Bank. As at December 31, 2013 and 2012, the Bank has no shares in credit institutions. 8. MOVEMENTS IN FINANCIAL FIXED ASSETS During 2013, the movements in financial fixed assets can be summarised as follows (in EUR): Debt securities and other fixed-income securities (note 5) Participating interests (note 6) Shares in affiliated undertakings (note 7) Total Additions Accumulated Value Adjustments as of December 31, 2013 Net Book Value as of December 31, 2013 Net Book Value as of December 31, 2012 Acquisition cost as of January 1, 2013 Disposals 80.000.000 (80.000.000) – – – 80.000.000 1.211.324 (1.061.835) – – 149.489 1.211.324 3.491.534 84.702.858 – (81.061.835) – – (3.241.534) (3.241.534) 250.000 399.489 250.000 81.461.324 Disposals of debt securities are explained by a security matured in January 2013 (see Note 5). Disposals of participating interest result from the partial sale of the shares in Corporation Financière Européenne S.A.. 9. INTANGIBLE ASSETS During 2013, the movements in intangible assets were as follows: Acquisition cost January 1, 2013 Additions Value Adjustment of the year Disposals Accumulated Value Adjustments as of December 31, 2013 Net Book Value as of December 31, 2013 Net Book Value as of December 31, 2012 Formation costs Goodwill – – (110.200) – – (732.808) (7.678.153) 2.005.786 2.738.594 Software – – – 9.683.939 7.085.528 390.012 (4.510) (996.681) (4.172.787) 3.298.243 3.904.911 16.879.667 390.012 (4.510) (1.729.489) (11.961.140) 5.304.029 6.643.505 Total Intangible Assets (EUR) 110.200 Goodwill corresponds to the purchase of Artesia Bank Luxembourg S.A. for EUR 2.161.576, the acquisition of the Madrid Branch for EUR 1.122.655, the acquisition of the Munich Branch for EUR 3.499.776 and the acquisition in 2010 of UBI Banco di Brescia Luxembourg Branch for EUR 2.899.932. 33 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 10. TANGIBLE ASSETS During 2013, the movements in tangible assets were as follows: Acquisition cost January 1, 2013 Leasehold Improvements Machinery & Equipment Computer equipment & software Total Tangible Assets (EUR) Additions Accumulated Value Value Adjustments Adjustment as of of the year December 31, 2013 Disposals 285.160 – – 1.573.707 44.006 1.836.206 3.695.073 (27.826) Net Book Value as of December 31, 2013 Net Book Value as of December 31, 2012 (253.746) 31.414 59.240 – (183.943) (1.409.511) 208.202 348.138 58.637 (14.161) (134.455) (1.360.397) 520.285 596.104 102.643 (14.161) (346.224) (3.023.654) 759.901 1.003.482 11. OTHER ASSETS Other assets are analysed as follows: 2013 EUR 1.469.370 17.309 2.461.710 1.311.429 5.259.818 Short term receivables Premium on options purchased Tax advances Other 2012 EUR 691.833 29.093 672.874 1.307.036 2.700.836 The amount comprised in the caption “Other” is mainly composed of withholding tax for EUR 645.896 (2012: EUR 494.942) and VAT to receive for EUR 287.357 (2012: EUR 97.116). The caption “Short term receivables” is mainly composed of unsettled transactions for clients accounts. 12. AMOUNTS OWED TO CREDIT INSTITUTIONS AND CUSTOMERS The split of the amounts owed to credit institutions and customers according to their remaining maturity is as follows: Amounts owed to credit institutions At sight Less than 3 months 3 months to 1 year 1 year to 5 years 34 2013 EUR 2012 EUR 11.631.206 4.522.500 6.569.281 1.455.000 24.177.987 16.871 5.252.500 9.921.950 1.530.000 16.721.321 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 2013 EUR Amounts owed to customers At sight Less than 3 months 3 months to 1 year 1 year to 5 years 2012 EUR 1.065.796.938 355.130.078 89.043.738 58.116.000 1.568.086.754 749.718.322 1.020.569.609 134.805.359 – 1.905.093.290 2013 EUR 92.726.963 1.186.500.000 1.888.700.000 3.167.926.963 2012 EUR 105.138.586 1.242.000.000 1.024.489.601 2.371.628.187 13. DEBTS EVIDENCED BY CERTIFICATES Debts evidenced by certificates are split as follows: Certificates of Deposit to customers French Certificates of Deposit Euro Commercial Paper Debts evidenced by certificates are split in accordance with their remaining maturity as follows: 2013 EUR Less than 3 months 3 months to 1 year 1 year to 5 years 2012 EUR 3.075.200.000 31.400.000 61.326.963 2.266.489.601 5.850.000 99.288.586 3.167.926.963 2.371.628.187 Certificates of Deposit to customers The issue program of Certificates of Deposit (“Bons de Caisse”), amounts to EUR 92.726.963 at the end of 2013 (EUR 105.138.586 at the end of 2012). These certificates are direct, unconditional, unsubordinated and unsecured obligations of the Bank and rank pari passu with any other similar obligation. They receive an ISIN Code and are issued in a dematerialized form hence they are also freely transferable. No physical delivery is foreseen. Clients Certificates of Deposit consist in 1.761 debt certificates, with a nominal value of EUR 50.000 and 129 debt certificates with a nominal value of USD 50.000 each. Interests in EUR are paid on a 3 or 6 month basis at Euribor + margin. Interests in USD are paid on a 3 month basis at Libor + margin. French Certificates of Deposit The Bank established on September 22, 2010 (modified on December 17, 2010) a EUR 5.000.000.000 (five billion euro) “Certificats de Dépôt” Program for the issuance of French Certificates of Deposit. They are governed by and construed in accordance with French law. The payments of principal and interest in respect of the Certificates of Deposit are irrevocably and unconditionally guaranteed by the Parent Company of UBI Banca International S.A., Unione di Banche Italiane S.c.p.a.. Euro Commercial Paper The Bank established on August 13, 2010 (modified on December 20, 2010) a EUR 6.000.000.000 (six billion euro) Euro Commercial Paper Program for the issuance of euro-commercial paper 35 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. notes. The notes are governed by and construed in accordance with English law. The payments of principal and interest in respect of the notes are irrevocably and unconditionally guaranteed by the parent company of UBI Banca International S.A., Unione di Banche Italiane S.c.p.a.. 14. OTHER LIABILITIES Other liabilities are split as follows: 2013 EUR Short term payables Premiums on options written Sundry creditors Preferential creditors Others 2012 EUR 7.442.170 17.309 305.764 1.689.865 426.044 4.823.210 29.094 53.923 1.850.843 211.112 9.881.152 6.968.182 The amount in caption “Short term payables” is mainly composed of unsettled transactions for client accounts and includes an amount of EUR 265.932 (2012: EUR 2.899.386) concerning a credit entry in favour of a customer, subject to approval by authorities. 15. TRANSITORY ACCOUNTS “Prepayments and accrued income” in the assets and “Accruals and deferred income” in the liabilities mainly consist of accrued interest income and expense. 16. CAPITAL AND RESERVES The evolution of the capital and the reserves for 2013 can be summarised as follows: Subscribed Capital At the beginning of the year 70.613.580 Transfer from special reserve to free reserve – Allocation of prior year profit – At the end of the year 70.613.580 Share premium account Legal reserve 37.286.954 3.343.029 – Special reserve for NWT (Note 27) Free reserve 9.307.600 4.936.492 17.587.121 773.518 Total reserve Prior year profit – (1.985.500) 1.985.500 – – 734.842 773.518 (773.518) 7.656.834 18.360.639 – – 38.676 - 37.286.954 3.381.705 7.322.100 Subscribed capital and share premium As of December 31, 2013, the subscribed and fully paid capital of the Bank is made up of 138.458 (2012: 138.458) shares with a par value of EUR 510 each. The Bank’s shareholders, as of December 31, 2013, are the following four banks, all of them belonging to UBI Banca S.c.p.a. Group: Shareholders UBI Banca Scpa – Bergamo Banco di Brescia S.p.A. – Brescia Banca Popolare di Bergamo S.p.A. – Bergamo Banca Regionale Europea S.p.A. - Cuneo 36 Shares Shares 126.268 7.591 4.375 224 91,20 % 5,48 % 3,16 % 0,16 % NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. Legal reserve Under Luxembourg law an amount equal to at least 5% of the annual net profits must be allocated to a legal reserve until equals 10% of the issued share capital. This reserve is not available for dividend distribution. Special reserve for net wealth tax The special reserve for Net Wealth Tax (“NWT”) is a reserve whose objective is to free the Bank of the Net Wealth Tax charge, in accordance with Luxembourg law (Note 27) and it can be summarised as follows: NWT 2007 NWT 2009 NWT 2010 NWT 2011 2013 EUR 2012 EUR – 1.942.000 2.663.600 2.716.500 7.322.100 1,985,500 1.942.000 2.663.600 2.716.500 9.307.600 2013 EUR 2012 EUR 860.880 1.378.686 2.239.566 580.792 1.331.783 1.912.575 17. OTHER PROVISIONS AGDL (Note 18) Other provisions Other provisions are mainly composed of Directors’ fees provision for EUR 130.137 (2012: EUR 118.115), of various provisions for suppliers for EUR 347.340 (2012: EUR 153.791), of audit fees provision for EUR 132.320 (2012: EUR 122.881), of Service Level Agreement signed with UBI Banca International S.A.’s parent company for EUR 22.165 (2012: EUR 155.600), of portion of the lump-sum provision attributable to off balance sheet items for EUR 39.165 (2012: EUR -) and of guarantee fees provision concerning Large Exposures greater than 25% of the Bank’s own funds EUR 505.558 (2012: EUR 619.404). 18. THE LUXEMBOURG ASSOCIATION FOR THE GUARANTEE OF DEPOSITS The Bank is a member of the “Association pour la Garantie des Dépôts, Luxembourg” (AGDL), establishing a mutual guarantee scheme covering deposits made by customers of member credit institutions (the “Guarantee”). AGDL approved its new statutes on December 17, 2010. Customers guaranteed by the Association in virtue of their investment transactions include all natural persons without distinction on grounds of nationality or residence of such persons. The Guarantee in virtue of their investment transactions is likewise extended to companies governed by Luxembourg law or by the law of another Member State of the European Community whose size is such that they are authorised to establish abridged balance sheet pursuant to the law and those of comparable size governed by the law of another Member State of the European Community. With respect to each member, the Guarantee is limited to a maximum amount per depositor of EUR 100.000 or its foreign currency equivalent of the amount of his guaranteed cash deposits. No depositor can receive more than this sum, regardless of the number of accounts or deposits held in the sole or joint name of the depositor with the same credit institution. 37 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. The AGDL also covers claims arising out of investment transactions. The association shall reimburse to the investor the amount of his guaranteed claim up to a maximum values equivalent in all currencies to EUR 20.000. Following three Icelandic banks incorporated in Luxembourg going into liquidation, the Bank has been called by the AGDL to pay two installments in 2008 for an amount of EUR 251.791 and three installments in 2009 for a total amount of 357.088. The maximum quota share of the Bank (0,1962589%) in respect of this commitment was estimated at EUR 636.762. During 2009, two amounts were reimbursed by the AGDL for EUR 169.247 and EUR 24.919. During 2010, three amounts were reimbursed by the AGDL for EUR 17.333, EUR 10.509 and EUR 55.239. During 2011, two amounts were reimbursed by the AGDL for EUR 23.797 and EUR 15.163. During 2012, three amounts were reimbursed by the AGDL for EUR 4.320, EUR 17.870 and EUR 14.511. During 2013, an amount of EUR 7.172 was reimbursed by the AGDL (see Note 25). Nevertheless, the CSSF asked the Bank to increase its AGDL Provision up to 1% of guaranteed deposits within December 31, 2016. The Bank resolved to book the needed complementary amount of EUR 545.837 through two instalments of EUR 280.088 each in the Financial Years 2013 and 2014. As at December 31, 2013 a provision of EUR 860.880 (2012: EUR 580.792) is recorded in the annual accounts in respect of AGDL scheme. 2012 (In EUR) AGDL Provision Provision 580.792 280.088 580.792 280.088 Payment Payable – – 2013 – – 860.880 860.880 19. ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES As of December 31, 2013, the equivalent of assets and liabilities denominated in currencies other than EUR amounts to EUR 128.795.307 (2012: EUR 168.979.989) and EUR 128.554.591 (2012: EUR 168.518.585) respectively. 20. CONTINGENT LIABILITIES At December 31, 2013 and December 31, 2012, guarantees and other direct substitutes for credit exclusively represent the contingent liabilities. 21. COMMITMENTS The Bank’s commitments may be analysed as follows: 2013 EUR Forward purchase of assets Forward sales of assets Confirmed credits not used 411.703 412.280 44.305.552 45.129.535 38 2012 EUR 298.610 298.962 98.174.582 98.772.154 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 22. DERIVATIVE FINANCIAL INSTRUMENTS The following derivative financial instruments are outstanding: Notional value 2013 EUR Transactions linked to foreign exchange rates: Forward exchange contracts Spot transactions not settled Transactions linked to interest rates: Interest rate swaps Transactions linked to other market rates: Options on variable-yield securities Positive Fair Value 2013 EUR Negative Fair Value 2013 EUR 40.055.963 211.707 40.267.670 88.068 8.422 96.490 (82.182) (6) (82.188) 41.390.762 41.390.762 12.940 12.940 190.600 190.600 81.849.032 Notional value 2012 EUR Positive Fair Value 2012 EUR Negative Fair Value 2012 EUR 55.218.420 151.906 55.370.326 247.996 662 248.658 (230.034) (1) (230.035) (3.561.753) (3.561.753) 42.358.648 42.358.648 13.135 13.135 (5.291.808) (5.291.808) NC NC NC – 803.932 803.932 NC NC NC NC 109.430 (3.643.941) 98.532.906 261.793 (5.521.843) The outstanding forward currency and interest rate instruments (over the counter) are used for hedging purposes. The options on variable-yield securities (organised markets) have been entered into on behalf of customers who have pledged to the Bank the underlying collateral. The Bank does not fair value these derivatives on the basis of immateriality. The table below presents the notional values for each category of derivative financial instruments as at December 31, 2013 and 2012. Financial instruments December 31, 2013 (notional amounts) Instruments linked to foreign exchange rates – forward currency transactions – spot transactions not settled Instruments linked to interest rates Instruments linked to other market rates Financial instruments December 31, 2012 (notional amounts) Instruments linked to foreign exchange rates – forward currency transactions – spot transactions not settled Instruments linked to interest rates Instruments linked to other market rates Less than three months Between three months and one year Between one year and five years More than five years Total 33.537.468 211.707 6.518.495 – – – – – 40.055.963 211.707 – – 41.390.762 – 41.390.762 – 190.600 – – 190.600 33.749.175 6.709.095 41.390.762 – 81.849.032 Less than three months Between three months and one year Between one year and five years More than five years Total 46.493.215 151.906 8.725.205 – – – – – 55.218.420 151.906 – – 42.358.648 – 42.358.648 771.432 32.500 – – 803.932 47.416.553 8.757.705 42.358.648 – 98.532.906 39 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 23. FIDUCIARY OPERATIONS As of December 31, 2013 and 2012, there are no assets and liabilities resulting from fiduciary operations, which are not expressively governed by the law of July 27, 2003. 24. MANAGEMENT AND AGENCY SERVICES The Bank provides management and agency services to third parties in the following areas: • Portfolio management and advice; • Custody and administration of transferable securities; • Fiduciary operations; • Asset management; • Syndicated loans facilities and factoring services. 25. OTHER OPERATING INCOME The other operating income is split as follows: 2013 EUR Release of tax provisions in excess Rental income Previous year VAT credit AGDL Reimbursement (Note 18) Service Outsourcing Other 2012 EUR 632 66.786 2.564 48.000 300.350 199.357 7.172 28.142 36.701 27.541 47.586 301.064 450.668 615.227 The amount comprised in the caption “Other” mainly relates to the amount refunded by the Government for vocational courses of EUR 16.076. The comparative amount of 2012 mainly related to the reversal of a suppliers’ provision of EUR 116.629 and an amendment on a client’s time deposit interest of EUR 72.207. 26. OTHER OPERATING CHARGES As of December 31, 2013, the other operating charges are mainly composed of the AGDL provision for EUR 280.089 (2012: EUR 36.701), a prior year tax adjustment EUR 2.429 (2012: EUR 200.339), operational errors for EUR 28.864 (2012: EUR 129.718), closing customers’ accounts for EUR 20.156, non-recoverable tax for securities transactions for EUR 24.267. 27. TAXES The Bank is liable for all taxes to which the credit institutions are subject to in Luxembourg and to which the branches are subject to in Spain and Germany. The Bank reduced its net wealth tax charge by considering it on the amount of the Corporate Income tax. In order to comply with the law, following conditions need to be fulfilled: • A reserve equivalent to five times the net wealth tax liability is created (see Note 16). A new reserve has to be created each year. This requires a decision of the general meeting of shareholders and this reserve has to appear in the commercial balance sheet. If the profit of the year is sufficient to create the reserve, it is possible to transfer the profit of the previous years to create such reserve; and 40 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. • This reserve is maintained for a period of at least five years after the year of the credit. The amount of the wealth tax that can be reduced is the lower of the net wealth tax and corporate income tax before tax credits, and the reduction will be equalled to one fifth of the reserve booked. 28. STAFF NUMBERS, ADVANCES AND CREDITS TO MEMBERS OF THE DIFFERENT BODIES IN THE BANK In 2013, the Bank employed an average number of personnel of 101 (2012: 97) who were registered on its payroll. As of December 31, 2013 and 2012, the personnel working for the Bank is detailed as follows: Category Management Employees TOTAL 2013 6 94 100 2012 6 95 101 As of December 31, 2013, remuneration paid to Management amounts to EUR 1.418.691 (6 people concerned) (2012: EUR 1.176.710 (6 people concerned)). In addition, a total amount of EUR 19.946 has been paid in 2013 as a pension plan in favour of members of Management (2012: EUR 19.739). As of December 31, 2013, two loans of total amount EUR 70.169 have been granted to members of Management (2012: EUR 72.083). 41 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 29. RELATED PARTIES The annual accounts as of December 31, 2013 and 2012 include the following related party balances or transactions before value adjustments and lump sum provisions: 2013 EUR 2012 EUR 3.999.946.222 7.779.157 – 250.000 30.382 765.335 19.677.986 391.005.057 172.532 1.286.658 3.094.979.567 18.055.481 80.000.000 250.000 254.261 1.598.118 11.491.321 291.562.293 34.857 1.658.564 Off balance sheet Forward exchange contracts Interest Rate Swaps – 41.390.762 4.350.253 42.358.648 Profit and loss account Interest receivable and similar income Interest payable and similar charges Income from shares and other variable-yield securities Commission receivable Commission payable Profit/(Loss) on financial operations Other operating income Wages and salaries Others administrative expenses Other operating expense 12.647.368 (2.120.423) – 233.366 (1.840.327) – 72.142 (478.829) (242.394) (28.818) 41.880.637 (4.687.176) – 436.068 (1.820.031) – 75.541 (355.827) (211.003) – Balance sheet Loans and advances to credit institutions Loans and advances to customers Debt securities and other fixed-income securities Shares in affiliated undertakings Other Assets Prepayments and accrued income Amounts owed to credit institutions Amounts owed to customers Other Liabilities Accruals and deferred income 30. ASSETS HELD FOR THIRD PARTIES As of December 31, 2013, the total assets held by the Bank on behalf of third parties amount to EUR 2.781.766.969 (2012: EUR 2.498.265.375). 31. ADDITIONAL INFORMATION ON THE FINANCIAL INSTRUMENTS As of December 31, 2013 and 2012, the Bank computes the integrated ratio for capital adequacy purpose. As of December 31, 2013 and 2012, except for the debts and other fixed-income securities, which have been detailed in Note 4, all below primary financial instruments are unquoted. 42 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. Analysis of financial instruments – Primary non-trading instruments As of December 31, 2013, the primary financial instruments detail as follows, based on their booking value after deduction of specific adjustments but before allocation of lump sum provision: Less than 3 Months 3 Months to 1 Year More than 5 Years Undetermined Total Years 1 to 5 EUR EUR EUR EUR EUR EUR 2013 Balance with Central Bank Zone A 55.360.644 – – – – 55.360.644 Cash in hand and post office banks Zone A 34.498 – – – – 34.498 Loans and Advances Bank Zone A 3.968.308.108 78.000.000 – – – 4.046.308.108 Loans and Advances Bank Zone B 5.525.644 2.681.314 – – – 8.206.958 Loans and Advances Financial Institutions Zone A 59.495.628 27.885.585 92.368.215 29.515.000 – 209.264.428 Loans and Advances Financial Institutions Zone B 589.080 3.000.000 – – – 3.589.080 Loans and Advances Corporates Zone A 326.277.678 10.139.563 76.340.167 49.976.843 – 462.734.251 Loans and Advances Corporates Zone B 13.683.872 – – – – 13.683.872 Loans and Advances Public Issuers Zone A 21.167.283 50.000.000 – – – 71.167.283 Loans and Advances Individuals Zone A 6.621.736 1.046.458 1.106.446 322.288 – 9.096.928 Loans and Advances Individuals Zone B 943 – – – – 943 Debts and Other Fixed-Income Securities Public Issuers Zone A – – – – – – Debts and Other Fixed-Income Securities Banks Zone A – – – – – – Debts and Other Fixed-Income Securities Banks Zone B – – – – – – Debts and Other Fixed-Income Securities Financial Institutions Zone A – – – – – – Debts and Other Fixed-Income Securities Financial Institutions Zone B – – – – – – Shares and other variable yield Securities Financial Institutions Zone A – – – – 11 11 Shares and other variable yield Securities Financial Institutions Zone B – – – – – – Total of Primary Financial Instruments (Assets) 4.457.065.114 172.752.920 169.814.828 79.814.131 11 4.879.447.004 Less than 3 Months 3 Months to 1 Year 1 Year to 5 Years More than 5 Years Total EUR EUR EUR EUR EUR 2013 Deposits Bank Zone A 16.153.706 6.569.281 1.455.000 - 24.177.987 Deposits Public Bodies Zone A 338.245 - - - 338.245 Deposits Financial Institutions 1.251.611.435 84.413.470 58.116.000 - 1.394.140.905 Deposits Corporates 76.371.727 26.484 - - 76.398.211 Deposits Individuals 92.605.608 4.603.785 - - 97.209.393 Debt evidenced by certificates Other 3.075.200.000 31.400.000 61.326.963 - 3.167.926.963 16.285.779 16.599.232 7.569.380 28.660.236 69.114.627 5.440.324 22.348.732 6.742.481 10.597.998 45.129.535 4.534.006.824 165.960.984 135.209.824 39.258.234 4.874.435.866 Contingent liabilities Commitments Total of Primary Financial Instruments (Liabilities) 43 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. Analysis of financial instruments – Primary non-trading instruments As of December 31, 2012, the primary financial instruments detail as follows, based on their booking value after deduction of specific adjustments but before allocation of lump sum provision: Less than 3 Months 3 Months to 1 Year More than 5 Years Undetermined Total Years 1 to 5 EUR EUR EUR EUR EUR EUR 2012 Balance with Central Bank Zone A 225.646.055 – – – – 225.646.055 Cash in hand and post office banks Zone A 76.800 – – – – 76.800 Loans and Advances Bank Zone A 3.107.599.981 26.051.841 – – – 3.133.651.822 Loans and Advances Bank Zone B 30.270 – – – – 30.270 Loans and Advances Financial Institutions Zone A 82.670.926 52.086.610 81.717.321 24.568.011 – 241.042.868 Loans and Advances Financial Institutions Zone B 1.671.187 3.175.000 116.667 – – 4.962.854 Loans and Advances Corporates Zone A 478.057.544 10.696.366 91.573.949 19.433.594 – 599.761.453 Loans and Advances Corporates Zone B 40.975.116 – – – – 40.975.116 Loans and Advances Public Issuers Zone A 23.106.995 1.289.798 53.009.530 – – 77.406.323 Loans and Advances Individuals Zone A 7.436.677 1.335.181 2.494.307 449.467 – 11.715.632 Loans and Advances Individuals Zone B 4.347 – – – – 4.347 Debts and Other Fixed-Income Securities Public Issuers Zone A – – – – – – Debts and Other Fixed-Income Securities Banks Zone A 80.000.000 – 2.347.000 – – 82.347.000 Debts and Other Fixed-Income Securities Banks Zone B – – – – – – Debts and Other Fixed-Income Securities Financial Institutions Zone A – – 6.210.040 232.832 – 6.442.872 Shares and other variable yield Securities Financial Institutions Zone A – – – – 11 11 Total of Primary Financial Instruments (Assets) 4.047.275.898 94.634.796 237.468.814 44.683.904 11 4.424.063.423 Less than 3 Months 3 Months to 1 Year 1 Year to 5 Years More than 5 Years Total EUR EUR EUR EUR EUR 2012 Deposits Bank Zone A 5.269.371 9.921.950 1.530.000 - 16.721.321 Deposits Public Bodies Zone A 800 - - - 800 Deposits Financial Institutions 1.552.272.193 121.552.287 - - 1.673.824.480 Deposits Corporates 133.992.871 1.662.162 - - 135.655.033 Deposits Individuals 84.022.066 11.590.911 - - 95.612.977 Debt evidenced by certificates Other 2.266.487.601 5.850.000 99.288.586 - 2.371.626.187 Contingent liabilities 26.781.431 14.760.941 14.715.476 33.278.899 89.536.747 Commitments 34.719.745 39.971.328 10.687.321 13.393.760 98.772.154 4.103.546.078 205.309.579 126.221.383 46.672.659 4.481.749.700 Total of Primary Financial Instruments (Liabilities) Zone A includes all member states of the European Union, together with all other full members of OECD and those countries which have concluded special lending agreements with the International Monetary Fund (“IMF”) or are party to the IMF General Lending Agreements. 44 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. Analysis of financial instruments – Derivative non trading instruments As of December 31, 2013, the derivative financial instruments outstanding detail as follows, based on their nominal value: Financial derivative instruments Linked to foreign interest rates: Swap contracts Linked to foreign exchange rates: Forward contracts Spot transactions not settled Linked to other market rates: Options on variable-yield securities Total of financial derivative instruments (EUR) At sight to 3 months 3 months to 1 year 1 Year to 5 years More than 5 years 2013 Total 2012 Total – – 41.390.762 – 41.390.762 42.358.648 33.537.468 6.518.495 – – 40.055.963 55.218.420 211.707 – – – 211.707 151.906 – 190.600 – – 190.600 803.932 33.749.175 6.709.095 41.390.762 – 81.849.032 98.532.906 All above derivative instruments, except options on variable-yield securities, are unquoted. None of them are classified in the trading book of the Bank. Credit Risk schedule of derivative financial instruments The below schedule details the credit risk associated with the derivative financial instruments (except options on variable-yield securities) of the Bank, concluded over-the-counter, based on the value at risk method. December 31, 2013 Degree of solvability of counterparties Notional amounts Replacement cost Risk equivalent amounts Net credit exposures Bank counterparties - weighted at 20% - weighted at 100% Customer counterparties - weighted at 75% - weighted at 100% Total (EUR) 61.420.173 20.029.411 41.390.762 20.238.259 20.238.259 – 81.658.432 26.138 (1) 26.138 – 70.352 (2) 70.352 – 96.490 407.248 200.294 206.954 202.383 202.383 – 609.631 433.386 226.432 206.954 272.735 272.735 – 706.121 (1) (2) This amount is the net fair value of the instruments linked to foreign exchange rates and interest rate swaps with Bank counterparties. This amount is the net fair value of the instruments linked to foreign exchange rates with private customer counterparties. December 31, 2012 Degree of solvability of counterparties Notional amounts Replacement cost Bank counterparties - weighted at 20% - weighted at 100% Customer counterparties - weighted at 75% - weighted at 100% Total (EUR) 69.990.483 27.631.835 42.358.648 27.738.491 5.347.315 22.391.176 97.728.974 24.798 (1) 24.798 – 15.438 (2) (1) (2) – 15.438 40.236 Risk equivalent amounts Net credit exposures 488.111 276.318 211.793 277.263 53.473 223.790 765.374 512.909 301.116 211.793 292.701 53.473 239.228 805.610 This amount is the net fair value of the instruments linked to foreign exchange rates and interest rate swaps with Bank counterparties. This amount is the net fair value of the instruments linked to foreign exchange rates with private customer counterparties. Prior year figures have been restated in the above table in order to ensure comparability with current year presentation. 45 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. Analysis by geographical area – Loans and advance, contingent liabilities and commitments As of December 31, 2013, the loans and advances, contingent liabilities and commitments detail as follows, based on their booking value after deduction of specific adjustments but before allocation of lump sum provision: Loans and advances Loans and advances Contingent liabilities and commitments Contingent liabilities and commitments Geographical areas 31.12.2013 EUR 31.12.2012 EUR 31.12.2013 EUR 31.12.2012 EUR Italy Luxembourg USA Great Britain Netherlands Belgium Germany Denmark Switzerland France Greece Panama Austria Turkey Ireland Iceland Chile Ecuador British Virgin Islands Spain Portugal Andorra Argentina Namibia Saudi Others 1.010.454.144 89.437.672 24.757.054 8.186.242 1.869.720 16.103.164 175.462.209 470.628 18.948.201 11.291.566 54.790 3.626.117 4.648.279 33.337.886 628.149 353.089 2.810.229 2.905.794 1.151 293.056.931 23.986.897 45.546 1.699.519 3.601.737 800 21.621.864 920.430.987 103.011.584 33.177.799 8.214.682 3.271.709 23.018.391 169.858.351 2.828.541 18.339.383 9.494.229 141.025 3.590.143 2.229.473 29.419.595 69.041 353.089 556.278 11.933.812 2.476 447.356.340 15.934.691 194.807 11.988.402 11.230.438 887.655 16.514.388 8.369.623 14.269.105 3.106.442 247.835 35.500 15.852.153 158.642 28.760 1.467.091 55.877 4.000 36.753 66.503.656 4.108.725 11.035.984 44.830.508 3.157.681 201.602 7.500 44.320 23.710.678 3.511.681 108.815 4.000 1.202.600 56.369 112.738 96.145.721 4.178.704 Total (EUR) 1.749.359.378 1.844.047.308 114.244.162 188.308.901 Within the program of the issuance of French Certificates of Deposit and Euro Commercial Paper (Note 13), the Bank places the inflow liquidity with its Parent Company. These amounts are not included in the table above as they are irrevocably and unconditionally guaranteed by the Parent Company of UBI Banca International S.A., Unione di Banche Italiane S.c.p.a.. 32. GEOGRAPHICAL ANALYSIS OF INCOME The Bank derives most of its income from transactions with customers and credit institutions established in European Union countries. 46 NOTES TO THE ANNUAL ACCOUNTS AS AT DECEMBER 31, 2013 UBI BANCA INTERNATIONAL S.A. 33. AUDIT FEES Fee billed to the Bank by Deloitte Audit S.à r.l., and other members firms of the Deloitte network during the year are as follows: (excluding VAT) Audit fees Audit related fees TOTAL 2013 193.634 24.000 2012 184.000 24.000 217.634 208.000 Such fees are presented under “other administrative expenses” in the profit and loss account. 34. SIGNIFICANT POST BALANCE SHEET EVENTS With respect to the insolvency procedure of one of the major customers of the Branch in Madrid, discussed under Note 3 to these accounts, it should be noted that on March 3rd, 2014 one restructuring proposal has been submitted to the competent bankruptcy Court, which is expected to admit it or reject it on procedural grounds by March 14th; in case of admission, the deadline of March 31st, 2014 would then apply for the creditors to vote in favor or against such a proposal. Although at the date of these accounts it is not known whether a majority of creditors will approve the restructuring plan, and although a certain number of uncertainties still remain with respect to the individual position of the Bank, based on a preliminary assessment of its complex legal and financial provisions the Board is of the opinion that, should this proposal be approved, the amount of provisions already booked appears to be sufficient to cover the resulting haircut. 47