Fitch Ratings says in a special report that major Italian banks will generate solid operating profit also in 2007, as demonstrated by UCI's Q107 results. The expected pick-up in the Italian economy is likely to be one of the key drivers.

Operating revenues should grow further at most major Italian banks as loan growth continues. "Legislative changes, however, are likely to put ongoing pressure on Italian banks' ability to generate commission income, as a series of new laws and regulations curb their ability to charge for account closures, early mortgage redemptions or current account overdrafts" says Christian Scarafia, Senior Director in Fitch's Financial Institutions team. Operating expenses tend to remain well controlled. Only two banks, Banca Nazionale del Lavoro ('AA-' (AA minus)) and Banca Popolare Italiana ("BPI", 'BBB' on Rating Watch Positive'), both involved in restructuring processes, reported weak results for 2006.

The consolidation of the Italian banking sector has remained a key theme over the past six months as medium-sized banks have explored further mergers. The composition of the Italian banking sector has already changed markedly as a result of the latest transactions. To account for these changes, Fitch will from now on include in its semi-annual review major Italian banks Unione di Banche Italiane - UBI Banca (the product of the merged Banche Popolare Unite and Banca Lombarda ('A', Positive Outlook)) and Gruppo Banco Popolare (the group that will be created from the merger of Banco Popolare di Verona e Novara, ('A+, Rating Watch Negative) and BPI in July 2007) which have respectively become the fifth- and sixth-largest Italian banks by customer loans and customer deposits.

The improved performance and reduced risk exposure of the major Italian banks have been reflected in a number of positive rating actions over the past 18 months, which included upgrades of the Issuer Default Ratings ("IDR") of Banca Intesa ('AA-' (AA minus)) and Capitalia ('A') during 2006 and a change in UCI's (rated 'A+') Outlook to Positive from Stable in September 2006, when the bank's Individual rating was also upgraded. In April 2007, on the merger between BPU and BL, the Outlook on the IDR of UBI Banca was changed to Positive from Stable to reflect Fitch's expectations of a further strengthening in the group's performance.

The 2006 performance of the major Italian banks, confirmed the trend of sound improvements in operating profitability, driven by good business growth, tight control over operating expenses and continuing modest credit costs.