The speed of the changes occurring on the financial markets and in the real economy continues to surprise and shows no signs of slowdown.

Perhaps even more profound changes are happening in geopolitics, overturning balanced situations which have been unchanged for decades. Just think of the new role of Asian economies and companies and of countries which have made marked progress on the road to growth using models which are often untraditional and which use global resources en masse.

The close and, at times, difficult relationship between the USA and China, the size of some sovereign debts, and a general policy of easy debt are just some of the imbalances which these years bequeath to the future. There is a new world on the horizon, no longer a bipolar one focussed on Europe and the USA, but rather a multipolar world where the advantage will go to those who can best adapt to the instability of the times to come.

In 2010 Europe and Italy saw some recovery following the heavy fall in GDP and employment occurred in the previous two years. According to the International Monetary Fund, data show an increase of 1.8% for the European Union, driven by Germany with +3.6%, and of 1% for Italy. In Europe there has been widespread concern over the size of public debt, with well-known tensions in the most southerly countries, and over the state of some banks and of entire financial segments of some countries, such as Ireland. There has been a lively debate on the case for overcoming such problems by using the lever of public spending or containing debt.

The European Central Bank has played an important role in supporting the financial systems of member states and has extinguished any possible hotbeds of tension by injecting abundant liquidity. Interest rates have therefore stayed very low, with ECB key interest rate steady at 1% and with inflation at times seeming to slide towards a negative figure, only to then recover in the second part of the year on the back of a more solid recovery and the spike in commodity prices.

The Italian general scenario is still characterised by structural delays and unresolved problems which hold back the country’s growth; the cost of public debt is still contained for now due to low interest rates in the Eurozone, but which could prove to be much more burdensome should real interest rates increase.

Companies in Italy. The impact of 2008-2009, followed by a small recovery in 2010, resulted in an unemployment rate of 8.6%, with many companies struggling and widespread tensions on the liquidity front. Manufacturing companies, especially those in the Centre and North, found themselves having to measure up against new competitors and were not always able to find adequate solutions.

Many Italian and European entrepreneurs have opted for innovation and have recorded solid results. To compete successfully on markets, it is necessary to be totally flexible in processes and company organisation, and it is essential to correctly interpret the speed of change.

The European-wide discussion on banks’ position and solidity also continues with regard to the role of the banking business and its impact on the economic activity. The new Basel 3 supervisory parameters, which will require more capital for the same level of risk, may cause a slowdown in the supply of credit by banks and/or a dilution in banking profits.

Against this background, in 2010 Italian banks saw their margins fall due to spread narrowing between lending and borrowing rates (also due to the absolute low reached by market rates), and the gradual erosion in commission items which had made a significant contribution to turnover in the years up to 2007.

The already reduced margins were often hit by the downturn in the quality of lending, which has been a real problem over the last two years.

Some problems have also emerged with regard to debt capital funding. As regards this specific parameter, it is necessary to highlight that the unsecured interbank deposit market has largely maintained operations only for maturities of less than a month. In order to obtain financing for a longer period banks must use the Collateralised Interbank Market – providing high quality securities as a guarantee – in its various technical forms, or turn to the retail or institutional markets which have markedly higher costs. Italian sovereign debt has also played an important role and presumably will continue to act as a benchmark. Given its size such debt operates on the market by systematically "competing" with bank funding and. Those banks which can operate on the medium term market, had no other choice but to tag along and agree to pay interest which is higher than that on sovereign debt.

The position of Banca IFIS. Banca IFIS is characterised by its company support activity. The Bank finances the working capital of companies, mitigating credit risk through the use of contracts transferring trade receivables claimed by companies from their own customers (factoring).

The traditional segment in which Banca IFIS operates is represented by small enterprises, whose receivables are due from reliable customers; this segment is characterized by a higher client counterparty risk - although the credit risk is moved to the customer portfolio, thus being heavily mitigated - and a much higher profitability.

The new segment of operations for Banca IFIS’s loans is represented by medium and large companies which supply the Public Administration.

This sector has a relatively limited number of operators (mainly but not exclusively companies in the pharma industrial industry) generally of significant size, sometimes as part of leading multinational groups. Operations are based on the purchase of portfolios of receivables generated by these companies with regard to public healthcare entities, in consideration of the need demonstrated by these companies to receive payment for their supplies over short time spans.

Banca IFIS Group is also present at international level and in particular in France (Paris) with a branch office, and in Poland (Warsaw) with the subsidiary IFIS Finance Sp. Z o.o. which operates on the factoring market. The international activity is also carried out through a network of correspondents who refer to Factor Chain International for both import and export factoring. The range of international activities is completed by the import business managed by the Head Office and promoted by the representative offices in Bucharest and Budapest; and finally the recent start of operations (in January 2011) of the subsidiary India Factoring and Finance Solutions Private Limited which aims to develop the Indian domestic market and to support commercial relations between European and local companies.

The Group operates in a sector which is heavily influenced by the economic situation. Indeed, general cyclical aspects are often amplified in the SMEs industry compared to the traditional reference markets of general banks . Moreover, the strong dynamic trend characterizing the Italian companies' activity requires more and more often to obtain specific information in order to be aware of the risks taken.

In general, the Group’s activity is not seasonally affected although, in the fourth quarter of the year, volumes increase, traditionally leading to a modest increase in profitability.

In 2010, the Banca IFIS Group did not carry out any atypical or unusual transactions as defined in Consob Communication no. 6064293 of 28 July 2006.