Universit di Torino Facolt di Economia CourseofBusinessCombination

PrivateEquityFunds

November2012

Agenda

PrivateEquity
Definition andClassification TheInvestment Process Exit

CaseStudy

PrivateEquity:Definition
Acquisitionofmajorityandminoritystakesinthesharecapital offinancialand(mainly)industrial companies Theobjectiveistoinvesttosupportacompanyatdifferentstagesofitslifecycle,injectingcapital andmanagerialskillstocreateavaluehigherthantheinitialinvestmentcost Investmentscanbemadeintwoways: Usingthebuyersowncapital,or Creatingaclosedendfundfinancedbyinvestorsandmanagedbyaspecialistteam, i.e.a privateequityfund Aprivateequityfundisaninvestmentvehiclethatrealizesbetween720investmentsduringits existence(512years) Investmentsatdifferentdevelopmentstagesofacompany: Venture/StartUp/SeedCapital:earlystage ExpansionFinancing:growthstage ReplacementCapital:torestructure/changetheshareholderbase,typically: o LeveragedBuyOut:acquisitionwithlargeuseofdebt o ManagementBuyOut/In:acquisitionbyexternalorinternalmanagerswithlargeuse ofdebt Turnaround:fixingcorporatecrisis
3

PrivateEquity:Classification
Investmentswithmediumlonghorizonrealisedbyprincipalsorclosedendfunds Theobjectiveistorealiseaperformanceof1530%ofInternalRateofReturn(IRR)bybuyingand, fewyearslater,sellingastakeinatargetcompany

Businesscycleofthetargetcompany
Earlystagefinancing(seed capital/startup):createa newcompany Expansioncapital:realise developmentprojectswithan internalorexternalgrowth Replacementcapital/buy out/bridge:changethe corporateownership/financial structure Turnaround:execute restructuringandrecovering ofacompany Private Equity Venture Capital

Investments
Majorityinvestments(industrialrationale)
Investors handsoninvolvementinthe operationalmanagement,alsothrough trustedmanagementteams Noconstraintsforextraordinarytransactions Exitusuallyviathesaleofthecompany

Minorityinvestments(financialrationale)
Agreementbetweenthemajorityshareholder andtheindustrialpartnerto: Disciplinethecompanysgovernance Setthebusinessplanstargets Formalizetheexitparameters

PrivateEquity:Classification
PrivateEquitycombinesthetypicalactivityoffinancialintermediaries,realisedbyacquiring participationsandtakingcapitalrisk

Advantages/Objectivesofthetargetcompany Privateequitytransactionsareawayfor privatecompaniestoaccessthe financial/capitalmarkets,astheyallowto: Gainaccesstonewfinancialresources, managerialskills,knowhowandalarge networkofrelationshipstoeffectively implementtheirstrategies Increasetheliquidityofthecompanysshare capital Developinternalmanagerialstrengths Helpthegenerationaltransition Increasethecompanysvisibilityonthe market

Instruments Traditionalsituations Startupsandspinoffs Expansioncapital MBOs andLBOs BridgefinancingforIPO Complexsituations Extrajudicial/corporate/debt restructuringofcompanieswith insolvency,leverageorliquidityproblems (eg,debtforequityswaps) Turnaround:capitalaimedatfinancing companiesintroublestorecoverlost competitivenessandtofixtough,butnot final,situations
5

PrivateEquity:Classification
SeedCapital Investmentinanentrepreneurialideaor venture Principalfeatures: Highlyspecialisedinvestors Highriskofprojectfailure Seedinmanysituations,ofwhichonly fewwillusuallysucceed StartUp Aproduct/serviceisalreadyexisting (prototype),butitscommercial effectivenesshasnotbeentestedyet Principalfeatures: Highlyspecialisedinvestors Highriskofprojectfailure
Early stage

Expansion/DevelopmentCapital Acceleratethetargetcompanysgrowth withtheuseofcapitalfinalisedtosupport internalorexternalgrowthstrategies Growthofcapacity/volumes/market share Expansioninnewmarkets/productsor verticalintegration Acquisitions

ReplacementCapitalandBuyOut Replacement:Assetacquisitionfromother shareholders(eg,generationaltransition, secondary) Buyout:Acquisitionofmajoritystakes togetherwithamanagerialandstrategic change Significantuseofleverage(LBO,MBO)

PrivateEquity:Organization
LegalStructure: Limitedpartnerships(sponsoredbyPEfirms) PEfirmsaresmallorganizations(averaging10professionals)whoserveasthe GeneralPartners(GP)forPEfunds Investors: Pensionfunds,banks,insurancecompanies,foundations Committoinvestoveracertainnumberofyears Fees: ManagementFee:TypicalarrangementisforLPstopayasetpercentageof committedcapitaleveryyear,mostcommonly2% Sometimesthefeeisconstantovertime,sometimesitdropsafterthefirstfive years CarriedInterest(Carry):Thebasicideaissimple:ifthecommittedcapitalis100 ml.andtotalexitproceedsare200ml.,thetotalprofitis100ml.A20%carried interestwouldproduce20ml.Thestandardcarriedinterestisindeed20% Timing:5yearinvestmentperiod,10yearfundhorizon PriorityReturn,Clawback
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PrivateEquityClassification:Summary
InvestmentType Earlystage Spinoff Expansion/ Development Replacement/ Buyout Bridgefinancing Turnaround Extrajudicialrestructuring Specialsituationfunds Industryfunds Operator Venturecapitalist Generalistfund Generalistfund Countryfund Industryfund Generalistfund

Dualroleofbanks,giventheirroleofcreditintermediaries: preventivefunction monitoringfunction

8

PrivateEquity:LeverageImpact

P=200 150

P=200 110

E
P D=150 100 P D=110 110vs 10 100 10 50 Return11x 150vs. 50 Return3x

90 50 D D 50

90

PrivateEquity:Classification
Turnaround Theobjectiveofturnaroundinvestmentsistorestructureacompanyinacritical state,viaextraordinaryoperationsthatprovide: Financialresources Financialdiscipline Managerialskillsandknowhow Synergies Challenges: Managerialexpertiseisrequired Potentialconflictofinterestsandnegotiationswiththestakeholdersinvolved (existingshareholders,lenders,unions,management)

Inturnaroundsituations,theprivateequityfundassumescontrolofthecompany throughdirectmanagementoftherestructuringprocess
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis

Temporarycrisis:e.g., Usuallyaninvestmentbankandalawfirmactasadvisors causedbyliquidity Debt/EquitySwap shortage,thenrescue planisfeasible Success DebtRenegotiation Structuralcrisis:ifthe Writeoffofpartofthe fairvalueoftheassets Extrajudicial loansbythebanks issignificantlylower Not Liquidation thantheliabilities, Success Restructuring thenliquidation Oncethecrisis becomesevident,the companyandits Bankruptcy/Liquidation Company Judicial inastate lendershaveto: ofcrisis agreeona restructuringplan L= Valueofthecompanyintheevent oftenappoint ofliquidation consultants Merger V= Valueofthecompanyafter restructuring lookforalternative L>V Liquidation capitalsources, L<V Restructuring suchasprivate Liquidation L=V Indifferent equityfunds
11

Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
InjectionofNewCapital/Resources Original Founder/ Ownership

Injection of capital by the original owners represents one of thefirstoptions Lack of commitment of capital by the original owners could makeitdifficulttopursuearestructuringplan A second alternative is a direct involvement of the lenders in thetarget companyscapital, througha debtequityswap, i.e. thetransformationofloansintoastakeinthecompany From an accounting point of view, the effect is an increase in the companys equity and a reduction in its debt, without changingitscashposition This alternative could result in extreme cases and depending on the level of leverage in the banks taking over thecompany.Thisisusuallyanoptionnotfavouredbybanks

Oncechosenthe recoveryplan,the investmentbya privateequityfund representsjustone ofthepossible alternatives

Lending Banks

Anotheralternativeistheentryofathirdpartyinvestor,either:

ThirdParty Investors

Anindustrialpartner,or A financial partner, i.e. a private equity fund, or another

institutional investor specialized in distressed/critical situationswiththeskillstopursueacorporateturnaround
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Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
KeyElementsoftheRestructuringPlan

Redefinethecompanysstrategicpositioningthrough: Rationalizeproduct/marketstrategies Recoverthecashrequiredtorelaunchthebusiness Redefinetheoperating/organizationstructureandrecoverproductivity

Selectedactions: Replacemanagement Disposeofnoncoreactivitiesandrefocusonthecorebusiness Revampproductionprocesses Industrialpartnerships/JVs Redefinecommercialandmarketingstrategies

Short/mediumtermforecast(e.g.,volumes,sales,GOP) keyelementsofthebusinessplan

13

Turnaround:StrategicAlternativesinManagingaCompanyinCrisis
KeyElementsoftheRestructuringPlan

Actionstoreestablishanappropriatefinancialstructureofthecompany:
Setnewtermstoremunerateandrepaytheoutstandingdebt Definetheoptionstoprovidethecompanywithnewresourcesinorderto(i)continuethe ordinarybusinessactivity,and(ii)pursuenewprojects

Debtrenegotiationcanbeachievedwiththefollowing:
Extendmaturitiesanddefinenewrepaymentschedule(generallybetween3 8years) Lenderstowriteoffpartofcapital/interests Lower ranking in repayment however, senior ranking to certain lenders (e.g., new investors) datio in solutum, i.e. agreement to transfer the ownership of assets/rights in place of a loanrepayment Debt/equityswap Replaceoutstandingbondswithanewbondissue Sweeten writeoffs of part of the capital / interests by offering warrants and/or convertiblebonds
14

Agenda

PrivateEquity
Definition andClassification TheInvestment Process Exit

CaseStudy

15

ProcessofaPrivateEquityInvestment

Theprocessofaprivateequityinvestmentconsistsofthefollowingactivities: Identification of Opportunities /Dealsourcing Apotentialdealcanbesourcedthroughtheshareholdersofthetargetcompany,whoapproachesthe privateequityfund,orabrokerwhowilltrytobringbothpartiestoclosethedeal Alternatively,theprivateequityfundcanapproachcompanieswhoareexpandingandwishtogrowfurther Structuring andExecution Thebusinessduediligenceisperformedbytheprivateequityteamondifferentareas/potentialofthe company.Auditorsandconsultantsareappointedtoconductthefinancial, taxandlegalduediligence Thepartiesandtheirlegaladvisorsnegotiatetheagreements PostAcquisition Management Themanagementteamappointedbytheprivateequityfundclosely monitorsthecompanysperformance, fromanoperationalandfinancialpointofview,benchmarkingit againsttheoriginalbusinessplan Thenewshareholderusuallydrivesimprovementsinmanyareasofthecompany,suchasoperations, corporategovernance,financialstructure/disciplineandgeneral reporting Exit ExecutedviaIPO,atradesaleoraBuyBackbytheoriginalowners Afterexitingthetargetcompany,theprivateequityfundreturnstoinvestorsthecapitalinvestedwiththe profitearned

16

StructuringaPrivateEquityInvestment
TheobjectiveofaPrivateEquityinvestoristomaximizethecapitalinvestedinthecompany throughanincreaseinitsvalue.ThetargetIRR isusually1530%

Principalstagesoftheinvestmentprocess
Identifytheinvestmentopportunity:analysisbasedonthebusinessmodelofthecompany,the attractivenessofreferencemarket/industry,thefuturepotentialandtheexitopportunitiesinthe mediumterm
Objectives Growthpotentialofthereferencemarket Profitabilitydrivers Preliminarycompanysvaluation Exitprospects

FinancialAnalysis:
Sales,historicalandexpectedgrowth Coststructureandoperatingprofitability/margins Capitalabsorption Financialsituationandleveragepotential

17

StructuringaPrivateEquityInvestment
Principalstagesoftheinvestmentprocess
BusinessPlan Mainbasetoassesstheexpectedvaluecreation Setthemediumlongtermobjectivesofthecompany,itscompetitivepositioning andstrategies,the developmentofthefinancialstructure/economicresults Valuation Basedondifferentmethodologies(e.g.tradingcomparables,prepaids andDCF) Sensitivityanalysisisperformedonthebusinessplansmainassumptions DueDiligence Analysisconductedtoreviewthecompanysdataandinformationandtoidentifypotentialareasof riskandvaluecreation Usuallyfocusedonthefinancialaccounts,managementcontrol,legalandtaxrisk Agreements Thelegaladvisorsprepareandnegotiateallthedocumentsneededforthetransaction(e.g. ConfidentialityAgreement,MemorandumofUnderstanding,SharePurchaseAgreement) Governance Definethecompanysdecisional,reportingandmanagementprocesses Regulatetherelationsbetweentheprivateequityinvestorandtheothershareholders

18

Agenda

PrivateEquity
Definition andClassification TheInvestment Process Exit

CaseStudy

19

ValueCreationinaPrivateEquityInvestment

ThevaluecreationisalwaysmeasuredintermsofIRR ortimestheinitialcost Leversofthevaluearethefollowing: entryprice expectationsontheexitprice investmentduration thevaluecreationpotential Theseaspectsreflect: theeconomicresults thepotentialmarket thecompanysattractiveness themultiplevaluesatthetimeoftheexit

20

ExitfromaPrivateEquityInvestment
Exit Keyisthechoiceoftheexitstimingandmethodinordertomaximizethereturnonthe investedcapital: IPO:floatationofthetargetcompany Tradesale:saletoathirdparty,generallyanindustrialbuyer Buyback: repurchasebytheoriginalfounder Putoption:givestheprivateequityinvestortherighttosellinthefuture Secondarybuyoutoreplacement:saletoanotherprivateequityinvestor Writeoff:followingavaluereductionoftheshareholdinginthetargetcompany

Target Characteristics Target Characteristics

Size Sector Organizationandmanagement

EXIT

Economic Cycle Economic Cycle

Macroeconomicsituation Financialmarketconditions Regulatorychanges

Achievementsoftargetsof businessplan Peersposition/strength

Industrial Industrial

21

Agenda

PrivateEquity
Definition andClassification TheInvestment Process Exit

CaseStudy:Banca Profilo

22

Autumn2008:TheGlobalFinancialEarthquake

320

7-Sep-08 GSE bailout

22-Sep-08 $9 bn Mitsubishi / MS (LoI)

23-Sep-08 $5 bn Berkshire / Goldman Sachs

25-Sep-08 JPMorgan / WaMu

3-Oct-08 WFC / Wachovia

3-Oct-08 TARP approval

300

280

260

15-Sep-08 Lehman bankruptcy BofA / Merrill Lynch

6-Oct-08 Fortis carve up Rescue package for HRE 6.0 bn Govt recap of Dexia

8-Oct-08 Central banks rate cuts UK Govt announces UK bank recapitalisation Iceland takes control of Glitnir and Landsbanki 9-Oct-08 Icelandic FSA takes over Kaupthing's operations

14-Oct-08 US Government temporary liquidity guarantee $250 bn Govt recap of US Banks

20-Oct-08 10 bn Govt recap of ING

240

16-Sep-08 AIG bailout 7-Oct-08 6.6 bn UniCredit capital increase 13-Oct-08 Eurozone Govts announce action plan 37 bn Govt. recap of UK banks MUFJ / MS close
30-set 02-ott 06-ott 08-ott

27-Oct-08 3.5 bn Govt recap of KBC

220

200

180

17-Sep-08 Barclays buys Lehmans North America ops

02-set 04-set 08-set

18-Sep-08 Lloyds / HBOS

29-Sep-08 Congress fails to pass TARP Fed expands liquidity programs Citi / Wachovia B&B nationalized Government support to Fortis, HRE and Glitnir

28-Oct-08 3.0 bn Govt recap of Aegon

30-Sep-08 Ireland guarantees deposits

24-set 26-set

16-Oct-08 CHF10 bn CS capital increase CHF6 bn Govt recap of UBS

10-ott 14-ott

21-Oct-08 10.5 bn Government recap of French banks

16-ott 20-ott 22-ott 24-ott 28-ott

160 10-set 12-set 16-set 18-set 22-set

DJ EU Stoxx Banks

Source

Bloomberg as at 28 October 2008

Bankruptcies GovernmentInterventions

Recapitalizations Mergers

23

The10biggest bankinggroups by marketcapitalization

InthelasttenyearstheEuropeanbankenvironmenthaschanged in terms of players and market cap with the creation of Pan European banks Europeanbanks,alongwithUSbanks,arethosethathavesufferedthemostduringthelastcrisisintermsofcapitalization

1996 ( bn)
Top10marketcap:225 bn
1.UBS 2.Allianz 3.HBOS 4.HSBC 5.CS 6.Barclays 7.ING 8.CA 9.AXA 10.SocGen

2007 ( bn)
Top10marketcap:896 bn 50 35 33 33 15 15 15
1.HSBC 2.UCI 3.UBS 4.RBS 5.BNP 6.Santander 7.ING 8.IntesaSP 9.SocGen 10.Barclays

2008 ( bn)
Top10marketcap:407 bn 161 99 93 89 87 84 73 73 69 68
1.HSBC 2.BNP 3.Santander 4.UBS 5.IntesaSP 6.BBVA 7.CS 8.UCI 9.SocGen 10.CA

116 49 48 35 32 31 30 23 21 20

12 9 8

Average:22.5bn

+298%

Average:89.6bn

54%

Average:40.7bn
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BancaProfilo:Overview
Founded 21 years ago, Banca Profilo is a private banking and brokerage boutique, headquartered in Milan TheBanksmainactivitiesare: PrivateBanking:performedthrough9branches mostlylocatedinthewealthyareasofNorthern Italy,andbyitsSwiss60%ownedsubsidiary Socit Bancaire Prive (SBP)inGeneva.The GroupsFuM amountedto1.5bn asof31/12/08 CapitalMarketsandBrokerage:oneofthelargest domesticplayersinequityandfixedincome products ProprietaryTrading:centeredona897mln bond andsecuritiesportfolioanda1bn derivatives portfolioasof31/12/08,bothintheprocessof beingdownsized AssetManagement:managedaccounts Investment and Merchant Banking: performed by Profilo Merchant, focusing on SMEs and private equity In 2008 the Bank reported a consolidated loss of 78 mln, mainly resulting from the negative performance ofitsproprietarytradingactivities
KeyFinancialData( mln)
31/12/07(1) 31/12/08 (13.0) (52.3) (77.9) 2,363 1,632 29 1,494 194 1H09 23.9 3.7 9M 09 33.3 3.8

BancaProfiloGroupStructure

P&L
TotalIncome OperatingIncome NetIncome (Loss) 59.0 17.2 10.6 2,402 1,755 115 2,386 208

3Q 2009 0.9 0.9

1,903 1,242 33 1,420 196 1,595 967 103 1,489 194

BalanceSheet
TotalAssets TradingAssets ShareholdersEquity

OtherData
FuM Employees
(1) 2007P&Lfigures donotincludeSBP

25

CompletedtheFirstPhaseoftheTurnaround
TimetableandMainAchievements
January09 Feb.09 March09 April09 May09 June09 July09 August09 Sept.09 October09 November09

19/02

27/03

8/06 Regulatory authorization sandclosing

6/07 Capital increase reservedto Sator

5/10 Rightsissue

19/11 Business Plan approved

Signingofthe Agreement withSator

Restructuring Planapproved

Firsteveracquisitionofcontrolofa bankbyaprivateequityfundinEurope Received5regulatoryauthorizations within3months(ie,BankofItaly, Consob,ItalianAntitrust,FINMA,FSA) Noloss ofPrivateBankersandincrease offundsundermanagement (+5%in6 months)

Completerestructuring ofgovernance, managementandorganizationinlight ofthenewbusinessmodel,inItalyand Switzerland Significantrestorationoffinancial stability,bringingtheBanktobreak even

26

BancaProfilo:Restructuring andGrowth/Value Creation Potential

Turnaroundbasedonthreepillars:
1. Strongcapitalbase:TierIratioexpectedabove23%(oneofthehighestinEurope)attheendof2009 2. Managerialapproachaskeydrivertobusinessrelaunch:Sator willhavegovernancecontrolandkey managementinvolvement 3. Disciplineinaccountingandbusinessrestructuring:tacklingcurrentissuesaffectingfinancialmarkets
Refocusonprivatebankinganddisposalofnoncorebusinessesandnonperformingbranches HeavyrestructuringoftheItalianoperationsthrough:
ReorganizationanddownsizeoftheFinancedivision Strengtheningofthirdpartybrokerageactivityoncashandderivatives Rationalizationofstaffandcostdiscipline Saleofthemostcomplexsecurities UnwindingofCDSandotherderivatives Optimizationoffundingsources

Restructuring
Phase1

Downscaleofproprietarytradingactivityandrestructuring/runoffofcurrentportfoliosthrough:

StrengtheningthemanagementteamthroughtheinjectionofSator resources GrowAuM:

RevampboththeItalianandSwissbanks Hirenewprivatebankersandattractnewcustomers Implementaninnovativeapproachtoprivatebanking:highend,highqualityfamilyofficetype services,openarchitecture,ancillaryservicessuchasadvisory Advisoryservices Revampedassetmanagementproducts Purebrokerageactivity

Growth/ ValueCreation
Phase2

Growrevenues:

27

1)CapitalStrengthening
RecapitalizationStructure Tier1Ratio
>25% Amongthe highestin Europe

Capitalincreaseofupto110mln 30mln viaarightsissue fully underwrittenbythemarketon 5/11/2009 80mln withoutpreemptiverights,of which70mln alreadyunderwrittenby Arepo BPon6/7/2009and10mln to beallocatedbyyearend
Shareholders EquityEvolution
2007ConsolidatedShareholders'Equity 2008NetLoss o/wNetTradingLosses o/wGoodwillwriteoff o/wProvisions 2008ConsolidatedShareholders'Equity 20099MOrdinaryChanges SatorCapitalIncrease(6/07/09) RightIssues(5/11/09) 20099MConsolidatedShareholders'EquityPF mln 115,5 (77,9) (49,6) (15,0) (9,4) 29,5 3,9 70,0 29,8 133,2

23.6%

10.2% 6.1%

2007

2008

09/09PF

2009F

ShareholderStructurePostCapitalIncrease
ReferenceShareholders 18.5% Arepo BP S.p.A. 55.8%

0.21 per share

Market 25.7%

Arepo BPS.p.A.: parentcompanyoftheBanca Profilo Group,100%ownedbySator PEFund

CapitalstructuresignificantlystrengthenedtolevelsofexcellencebyEuropeanstandards
*Aftertheallocationoftheadditional10mln,Arepo BPsshareholdingwillbedilutedto52%

28

2)RenewalofManagementandOrganization
NewOrganization
142
Internal Audit Communication s Chairman M. Arpe Board of Directors Compliance CEO F. Candeli GM N. Angileri

PersonnelTurnover
18 21 145

Risk Mgmt Planning & Control Research

Savings:
Legal HR

1.9mln

Investments: 2.1mln

Private Banking (R. Lagorio) Client Relations Family Office Central Office - Milan - R. Emilia - Brescia- Genoa - Rome - Forl - Turin - Pistoia

Products and Services (P. Moia) Asset Management Advisory Wealth Planning Credits

Finance (C. Marino, L. Barone) Treasury & FX Markets Sales & Trading

Administration (G. Panzeri)

Organization and IT (P. Muselli)

Headcountat 01/01/09

Dismissals

Hirings

HeadcountYTD

Accounting Regulatory Reporting Back Office Middle Office

Organization IT General Services

NewOngoingProjects
Complete review of Management Control in terms ofmodelandmetrics,supportedbynewITsystems Overhaul of Risk Management in terms of model andsystem,to guaranteefullcontrolofrisks Riskbasedreviewofoperatingprocesses Development of FrontEnd systems to support the commercialnetwork
Strongorganizationaldrivethroughinvestmentsin people,systemsandprojects

New Hirings

New Responsibiliti es

Topmanagement salariesreducedand noncompetition agreementsreviewed

Strongmanagementrenewal,particularlyinthe businessareas,inordertoimplementthechangein strategy

Appointednewmanagementteam,streamlinedorganizationoftheBank
29

3)SignificantReductionofFinancialAssetsandRebalanceofFunding
FinancialAssetDevelopment
Securities&CDSPortfolios( mln) VAR(99%,10days mln)
52% 1,225 700 586 6.7 3.9 2.7 60% 879 717 474 7x

FundingDevelopment
Funding( mln)
46% 30x

FinancialLeverage
87%

4x

12/08

06/09

09/09

12/08

06/09

09/09

12/08

06/09

09/09

12/08

06/09PF* 09/09PF*

LoansSensitivity:11 mln (100bp shift)

InterestRateSensitivity: 0.1mln (100bp shift)

FundingfromECB at15 Nov:22%(78%vs.2008)

Averagematurityfunding: >30days(+36%vs.2008)

Reducedpositionsinexoticsecurities(75%YTD)

Rebalancedfinancialstructure

Exposuretointerestrateseffectivelydowntozero Reducednetexposuretoderivates(77%YTD)

Createdliquidityreserves Extendedmaturities

Deleveragingprocesstobecompletedby2009withadditionaldisposals
*Ittakesintoaccountthecapitalincreaseunderwrittenon06/07/09and5/10/09

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FeaturesoftheItalianPrivateBankingMarketToday:theGoodNews
Underdevelopedmarket vs.therestofEurope,polarized betweenlargecommercialbanksandfewnicheplayers Hugegrowthpotentialswithfewclientsservedby specializedoperators Attractivemomentumasaresultofpressureonoffshore markets,despitethecyclicaldownturnsufferedin20072008 Consolidatedtrendofrepatriationofcapitals Concentratedmarketintermsofnumberofclientsand geography Abroaddistributionnetworkisnotaprerequisiteforthe business Negativecurrentsituation formanyplayersduetothe internationalcontext(e.g.,SwissandUSbanks) Independentandfocusedplayersfavoredbythemarket environment
30% 5%
Above10 mln 5 10mln 15mln 0.5 1

ExpectedMarketEvolution
+4% +10.2%

bn 80 4
80 4

CAGR 1012 +4% 886

836 83 6

2009 2009 2008 (incl.Tax NonSpecializedPlayers(58%)Shield) PrivatePlayers(42%)

WealthConcentration
No.of Households Assets

Thecombinationofstructuralandcyclicalelementscreatessignificantgrowthopportunities, particularlyforaspecializedplayerwithasmallshare(0.1%)ofahugemarket(836bn)
31

 andtheBadNews:theCurrentBusinessModelisNoLongerSustainable
Strongcompetitionintheacquisitionofnewassetsthrough externalhiringofprivatebankers
Highacquisitioncosts AssetProfitability
Italy Asset Management Loans Insurance products TotalIncome Margin 53 2 6 61 Europe 78 10 6 94

Lowanddecliningprofitabilityasaresultof distrusttowards managedproducts andlowpenetrationofbankingservices(61 bpsvs.94bpsinEurope)

Profitabilitydeclineoffsetbyriskierproductsforclients

Clientsrequireincreasinglygreater technicalskillsandthe abilitytosolvecomplexproblems

Lowimpactoftraditionalclientandproductsegmentation strategies

NumberofBanksRelations
2008 2007

64%

Strongcommercialandorganizationalimpact ofrecentEU regulations(MiFid)

Organizationalflexibilityistheprerequisitenecessarytomanage regulatorydevelopments

3% 5% 16%

4% 5% 16%

68%

5Is ti tuti

40%

41%

4Is ti tuti 3Is ti tuti 2Is ti tuti 1Is ti tuto

36%

32%

Widespreaduseofmultiplebanks(64%ofclientsusemore thanonebank)

Anewparadigmisnecessarytotakeadvantageofthemarketopportunities
32

Banca Profilo:theNewBusinessModel
PillarsoftheNewBusinessModel 1

Modifytherevenuestructureinasustainableway
MainLevers

Increasetherangeofassetsundermanagement Provideauniqueandnotsimplyreplicablerangeofservicesorproducts,alsoin exclusivity

Implications Movefromabankmanaging: Financialwealthonly toabankmanaging: Financialwealth Corporatewealth Realestatewealth Familywealth Services/RelationCulture
33

Product/InvestmentCulture

Banca Profilo:TheNewBusinessModel
PillarsoftheNewBusinessModel 2

RedefinetherelationbetweenthePrivateBankerandtheBank

PrivateBankerowneroftheclient Makeclientsloyal throughnoncompetitionagreementswithPrivateBankers Current PrivateBankings Cost/IncomeRatiohigherthanthatofInvestmentBanking Logic Lowappreciationofthecommercialnetworkforhighvalueproducts/services,thatimplysharingof clients

MainLevers TransformationfromdistributionnetworktoagroupofManagers, partnersoftheBankinthe corporatedecisionprocessesandinsharingitsresults Implications

Scalabilityof FortheBank: For the Private Banker : (noagreements) business Newcompensationmodel: Highmanagerialskills Noentrybonus Abilitytomanagemoreassetsand Nobonusonnetinflows moreclients Nobonusonamountofmanagedassets Abilitytomakeclientsloyalwithunique Yesbonusontherelationdepth servicesofhighquality Yesparticipationatriskadjusted Fromdistributorofproducts to profitability banker Newparticipationmodelincorporatedecision Possibilitytooperateinaflatand 34 making independentorganization Costreduction

Banca Profilo:theNewBusinessModel
PillarsoftheNewBusinessModel 3

MakeclientsandPrivateBankersloyaltotheBank, overcomingthetraditionaltradeoff

MainLevers

Fromcommercialpoliciesaimedatmaximizingprofitabilitytocommercialpolicies aimedatmaximizingtheanswerstoclientneedsandthesolutionstotheirproblems
Implications Benefitsforclients: Reliability: Fullyindependentbank Excellentcapitalstrength Relations: Oneonlyreferencepointforthe managementofwealthandany othercomplexneed ServiceLevels: Opportunitytoaccessdirectlythe Qualityofofferandmanagementatall TopManagementoftheBank levels,supportedbyprovenexperienceand RelationBank professionalskills Shareofwallet Breadthofofferrange(onestopshop) increaseand Uniqueservices(servicesinexclusivity) reductionofclient Nonaggressivecommercialpolicy turnover (profitabilitynotlinkedtorisks)
35

BancaProfilo:2012Consolidated Targets
Tangible Tangible
TotalClientFuM

Intangible Intangible 8.4 1.7 09/200 9 2012E >100 Cohesiveteamwithstrong corporatespiritatalllevels RecognizedBrand

bn

Revenues

mln

33

Cost/Income

09/200 2012E 9 Ann.*89% 58% 09/200 9 2012E 17%

% Satisfiedclients

ROAE %

2% 09/200 9 2012E
36

*NetProfit9Mannualized,excludingpreviousportfolio

BancaProfilo:StockPerformance
Banca Profilo sharesarelistedontheItalianStockExchange Sharepriceof0.62asof30October2009 MarketCapof389mln UntiltheannouncementofthedealwithSator*(19Feb2009),Banca Profilo stockhadperformedinlinewiththe Italianbankingsystem,ie 60%LTM and70%L6M Thestockwasup30%onthedayoftheannouncement,atmorethantwiceSators issueprice,showingthepositive marketreactiontotheinvolvementofSator inBanca Profilo Sincethedealannouncement,Banca Profilo stockpricehasincreasedbynearlythreefold,despitethelargedilution resultingfromthecapitalincrease
BancaProfiloSharePrice(since Jan2007;)

1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00

Aug 08 Feb 07 Jan07

Signingofthe Agreement withSator

RightsIssue Starts Sator Capital Increase

Sator'sInvestmentPrice

Aug 09

Jul07

Jul08

Oct07

Oct08

May07

May08

May09

Nov07

Apr07

Apr08

Apr09

Sep 07

Feb 08

Sep 08

Feb 09

Mar07

Mar09

BancaProfiloshareprice

Dec07

ItalianbankingIndex rebased

Source:BloombergandCompanydata Profilostockpricereinstated to reflect thecapitalincrease

*SatorPrivateEquityFund completed theacquisition of BancaProfiloviaArepo BP,37 currently holdingcompanyof theBancaProfiloBankingGroup

Dec08

Sep 09

Oct09

Jan08

Jan09

Jun07

Jun08

Jun09

Banca Profilo:InvestmentCase
AttractiveMarket Potentialand Timing
Italyhasoneofthehighestsavingsratesintheworld Lack of a real independent, high quality serviceoriented private bank in Italy due to historical attractionofoffshorebankingmarket(Switzerland,Monaco) Appropriatetimingduetocurrentturmoilinthebankingindustry,withclientsinsearchofsafehavens Possiblepotentialrepatriationoftheoffshorewealthduetointernationalpressureonbankingsecrecy andtaxhavens Noloanportfolio(90%A financialassets,noCDO,subprimeorothertoxic assets) Goodplatformtorelaunch theprivatebankingbusiness Potential to reshape the service model, leveraging on existing infrastructure while revamping brand andproductportfolio Injectionofnewexperiencedmanagementteam Downsizingofproptradingactivity/risksandoptimizationoffundingsources Attractive valuation at 26 mln for the Group, reflecting a discount on current NAV (vs. premia for EuropeanBanks) Issue price at 0.20 per share, implying a 93% discount to peak market price in 2007, and approximately1/3ofthecurrentprice Sator PEssweetspot:Italy,turnaround,financialservices,managerialinvolvementandcontrol Complextransactionstructuringandnegotiationsduetothepubliclistingandregulatoryrequirements Criticalduediligenceasaresultofdistressedsituationandfundingconstraints

Turnaround Upside

Attractive Valuation

FitwithSator Investment Strategy

Exit

Expectedtradesalewhenthebusinesshasreachedcriticalmassandprofitability ScarcitypremiumattachedtoasuccessfulItalianprivatebankbystrategicbuyers First bank bailout with private capital in Europe as an alternative to the current Government interventions FirsteveracquisitionofabankscontrolbyaprivateequityfundinItaly FirsteverexemptiononaminoritytenderofferforabankinItaly
38

LandmarkDeal

Universit di Torino Facolt di Economia CourseofBusinessCombination

PrivateEquityFunds

November2012