Giuseppe LusignaniDeputy Chairman

LuxembourgJune 15-16, 2015

The new risk management paradigm: how investments, financial stability and regulation will shape the European and Global financial markets

IRMC 2015 | 2

PROMETEIA | who we are

a leading European company in financial consulting and economic research, serving more than 200 financial institutions in EMEA region

� Company founded in 1974 and fully owned by

private and independent shareholders

�More than 500 experts distributed among the

head office in Bologna and 6 regional centers:

Southern Europe, Northern Europe, Russia & CIS,

Turkey, MENA, Central & West Africa

� Presence in more than 20 countries

IRMC 2015 | 3

Prometeia Group | our companies

1974 1981 2006

leading institute for economic analysis and research

a group of highly specialisedresearchers interacting with colleagues in similar national and international organisations

one of the foremost consultancy firms in italy counting more than 400 professionals (consultants, financial engineers, statisticians, economists, etc.) providing risk and wealth management business consulting, IT systems, outsourcing and training services for financial institutions, industrial companies and public institutions

in 2009 Prometeia begins its international development by opening offices in London, Beirut, Istanbul, Moscow, Paris and Lagos

provides independent financial advisory services to institutional investors like banking foundations, pension funds, family office and hnwi

our services include: asset allocation and asset & liability management, performance | risk attribution and measurement, support for non-financial strategic decisions

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Prometeia | our business lines

� marketing and customer analysis

� strategic planning

� planning and commercial budgeting

� management information systems

� organization and human resources

� compliance

� analysis of institutional markets

� products benchmarking

� asset allocation

� performance | risk attribution and measurement

� independent financial advisory to institutional investors

� banking sector

� insurance sector

� industrial sectors

� territories and districts

� commodity prices

� household consumption

� asset & liability management

� market risk

� credit risk

� capital allocation

� pricing of structured products

� “skills certification”

� mono-client on-demand courses

� inter-companies courses

� training consultancy activities

business consulting

business information

enterprise risk management

financial advisory knowledge training

wealth management

� wealth financial planning

� wealth risk management

� compliance MiFID / ISVAP

� asset & portfolio management

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Enterprise Risk Management | what we do

we provide highly-specialized consulting and IT solutions, integrating analytical models, market and customer data, financial and economic scenarios

Risk & Performance Management

Models & Methodologies

SpecializedIT solutions

Consulting services

Data analysis servicesTraining

• ALM & Treasury RiskLiquidity Risk & Financial PlanningTraded & Non-traded Market Risk

• Credit RiskCredit Process Origination & MonitoringRating SystemsPortfolio Management & Economic Capital

• Performance ManagementFund Transfer PricingProfitability ControlPlanning & Forecasting

• Regulatory & AccountingPillar I, II, IIIIAS & IFRS compliance

IRMC 2015 | 6

capital adequacy | European banks’ capital strengthened markedly since 2008

common equity ratio (Dec-14) vs core tier1 (Dec-08)

source: Prometeia calculations on SNL and balance sheet data

Note: 80 European groups (of which: Italy (15), Germany (16), France (5), Spain (6), Netherlands,( 3). ECB significant groups: 76

7%

2008

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capital adequacy | uncertainty over “final rules” could be a further drag on credit supply and profitability

� removal of national discretion in the calculation of capital ratios

� revision of risk weights in the standard approach and introduction of a floor in

the IRB approach

� revision of risk weights for operational risk and market risk

� revision of risk weights on government bonds

� non realised gains/losses on government bonds in the AFS portfolio

� treatment of Deferred tax assets

� Total Loss-Absorbing Capacity (TLAC) for G-SIBs

IRMC 2015 | 8

regulatory developments | uncertainty on final capital requirements still weighing on the sector

Italian banksimpacts on CET1 ratio 2014, bps

source: Prometeia calculations on balance sheets and Pillar 3 data, 13 Italian banking groups** includes the impacts of risk weights for sovereign debt and the removal of prudential filter on AFS sovereign exposures

Consultation Paper(Basel Committee)

new supervisory approach

EBA • «the future of IRB

approach «• ELBE• LGD defaulted assets

credit risk operational risk sovereign rwa P/L AFS

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SREP | central role in the new EA supervisory framework

categorization of institutions

monitoring of key indicators

business model

analysis

assessment of internal

governance and intitution-wide

controls

overall SREP assessment

supervisory measures

quantitative capital measures qualitative liquidity measures other supervisory measures

early intervention measures

assessment of risks to capital

assessment of risks to liquidity

and funding

source: EBA, guidelines on common procedure and methodologies, 19 December 2014

IRMC 2015 | 10

SREP | assessment and interaction with the resolution authority (SRB)

GONESUPERVISION

BRRD

resolution authority

ONGOINGSUPERVISION

CRR/CRDIV

SSM

F(failing or likely to fail)

overall SREP assessment

1 (no identifiable risk)2 ( ……) 3 ( ……) 4 (high risk)

supervisory view of the identified risks regarding the viability of the institution

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cost of equity | European banks

COE and ROE for a large sample^ of listed euro area banks%

source: Ecb, Financial Stability Review, May 2015^sample of 33 euro area banks included in the EURO STOXX index

IRMC 2015 | 12

Italian banks | the «return on equity gap» is still large

%Italian banking sector

source: Prometeia calculations on Ecb and Thomson Reuters data*estimation from the application of different market models on individual quoted banks

-10

-5

0

5

10

15

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Cost of Equity ROE

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Prometeia approach to EW stress testing

Loss function(1 or 2 dimensions)

2.5%

4%

10%

Severity probability distribution

Scenario ranking (severity and plausibility)

scenarios selection

stochastic scenarios derived from Monte Carlo simulation

macroeconomic scenario

impact on the bank

internationalmacroeconomic

stochastic model

credit risk stochastic models

market risk stochastic models

other risks (interest and liquidity risk on banking book,

strategic risk,….)

idiosyncratic Industry shocks

portfolio models,impact on the bank

key variablesBS & PL RK & EC

risk factors models

ICAAP systems

stressscenarios

Prometeia Ermas Credit/CreditRiskPro CRO models

CFO models

MKT models

Legacy CRO

DB Basilea 2

Legacy CFOPrometeia Ermas ALM/Liquidity

Prometeia Balance Sheet Simulation

Proxies definition

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www.prometeia.com

info@prometeia.com

prometeia

via g. marconi 43, 40122 bolognatel. +39 051 6480911, fax +39 051 220753

italy

offices in milan, rome, beirut, istanbul, london, moscow, paris, lagos