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Conference Call Transcript 2Q11 Results

Banco do Brasil (BBAS3 BZ) August 10th, 2011

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Operator: Good morning, ladies and gentlemen, thank you for standing by. We will now begin Banco do Brasil’s 2Q11 results conference call. At this time, all participants are in a listen-‐only mode. Later we will conduct a question and answer session and instructions will be given at that time. If you should require any kind of assistance during the call, please press *0. As a reminder, this conference is being recorded and live broadcasted with a slide presentation on the Bank’s web site, at Investor Relations site from where questions may be sent through. Before proceeding, let me mention that this presentation may include references and statements, planned synergies, increasing estimates, projections of results and future strategy for Banco do Brasil, its Associated and Affiliated Companies and Subsidiaries. These expectations are highly dependent on market conditions, on Brazil’s economic and banking system performances, as well as on international market one. Banco do Brasil is not responsible for bringing up to date any estimate in this presentation. First, we are going to have some details of the results. At the end of the presentation, the executives will answer the questions from the participants. Mr. Gilberto, you may now begin the conference call. Gilberto Lourenço da Aparecida: Good morning, everybody. Moving straight to slide number three we can see that we delivered the best results of Banco do Brasil’s history for the 1H11; R$6.3 billion. Besides that we kept our return on equity close to 25% this year in the quarter; we reached a return on net income of R$3.2 billion, and a return on equity above 26%. On slide number four we showed how we were able to deliver this consistent operation of results with a recording net income 40% above the one recorded in the 1H10. The net interest income, which was responsible for 71.2% of the revenues in the 1H10, and the 1H11 was even better, increasing 50 b.p. A better performance was recorded by the insurance operation, which came from 3.4% to 4% of the total revenue generation. One year ago the operating expenses were responsible for 50% of the total revenues of the Bank, and the 1H11 the share dropped to 47.1%. It is also worth to highlight the loan loss provision, whose share in the total expense reduced from 22.3% to 19%. Moving to slide number five we observe that we are still the largest bank in Latin America, with assets amounting more than R$900 billion. On the next slide we observe that along with the assets, slide number six, we kept our leadership in the main segments of the Brazilian bank industry. This leadership is based on credit assets, on our ability to raise funds as we see in the deposit and asset management line.



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From slide seven on we will see the four main drivers that led Banco do Brasil results funding and credit, delinquency control, efficiency and business diversification. Here on slide eight we have the fund expansion. Banco do Brasil’s distribution network once again allowed the maintenance of our leadership in deposits, highlight to time deposits, which grew 21.5% LTM. Banco do Brasil also had an increase excess to funding source abroad. On slide nine we show that the amount raised grew substantially 22.2% in one year, interbank fund and bonds issued have presented quite good track records. Within bond issues, we have our less R$1.5 billion subordinated debts accounting for Tier 2 capital. On slide ten, we see that besides the traditional funding, Banco do Brasil is diversifying its base mainly through agricultural and financial letters, which together grew 406% in one year. On slide 11 we observe that the global spread was flat quarter over quarter, the risk-‐adjusted margin decreased 20 b.p. due to the 1Q seasonal delinquency which will be explained later. On slide 12 we have the spread by segment. On individuals portfolio observed, a slight increase in spread due to the repricing of credit lines. In this business and agribusiness portfolio, the drop seen is explained by mix effects. Fast growing portfolio has been at big tickets, as those mid and large corporate in agri-‐industrial loans. On slide 13 we can observe that Banco do Brasil kept its leadership in the credit market, with 19.6% market share. The portfolio reached R$421 billion, including private securities and guarantees granted. We got a 6% growth in the quarter and more than 20% LTM. On slide 14 we have the individuals’ portfolio, where once again we can see the increase in operations in lower risk profile, such as those linked to payrolls, auto loans and mortgage. Those operations represent more than 79% of the total portfolio to individuals. Regarding the partnership with Banco Votorantim on slide 15, we observe that Banco Votorantim shared a car financing market origination, reaching 21.9%. The production of auto and payroll loans of the bank started to grow again after the impact from the adoption of macroprudential measures, achieving R$8.2 billion in the quarter. Talking about mortgage on slide 16 we have disbursements and contracts to individuals since the 2Q10. 2Q disbursements were 2.5x higher than in the same quarter last year. Next slide, we have more information about the business segment. As you can see, the number of contracts increased 3x in one year, while disbursement grew 3.4x. Now on slide 18 we have the evolution of our business portfolio, with highlights to security and investment lines, which became 31% of the total portfolio, from 25.9% last year. Moving now to slide 19, we have the breakdown of the business portfolio. Besides the increase in both lines, please observe that the strongest growth was in the operation with mid and large companies, which explain the spread reduction for those operations as mentioned before. On slide 20, on SME segment we are focused on operation with collaterals. That is the case of guarantee fund called FGO. In June 2011 there were more than 437 thousand operations with



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this collateral, which reached the balance of R$8.2 billion, or 13.7% of the total loans granted to SME in Banco do Brasil. Banco do Brasil presents abroad its fundamentals to support the Brazilian foreign trade as we can see on slide 21. Banco do Brasil remains leader in the import and export markets and also in trading finance. Slide 22 brings us the quarterly disbursement of investment loans, which reached R$7.5 billion in the 2Q. We would like to highlight once again that investments finance will bring great opportunities to Brazilian banks in the next years, as an important cross-‐selling driver. Slide 23 presents the quarterly disbursement of BNDES cards, a product in which Banco do Brasil is a wide range leader, in terms of amount disbursed, number of cards and transactions made. Slide 24 shows us that the disbursement with funding from Fundo Constitucional de Financiamento do Centro-‐Oeste, a Middle-‐West fund in Brazil, FCO, surpassed R$1.2 billion in the 2Q11. The next slide brings us some information about agribusiness portfolio. Banco do Brasil has a stake of 62% in the market, being the major part in our Brazilian agribusiness. The portfolio is increasing in a consistent way, with highlight to corporate loans, which in one year grew more than 28%, and became 35.5% of the total book of agribusiness. Slide 26 brings us the breakdown of Banco do Brasil credit disbursement to the crop since crop 2007–2008. For the next crop, crop 2011–2012, we estimate a growth of almost 30% in investment line when compared to the previous crop. Actually, we are planning to lend R$45.7 billion for that crop. Slide 27 shows us that investment in Agribusiness with granting more efficiency through the production, better seeds, fertilizers, and machineries, have made possible the increase in the productivity in the sector. Slide 28 shows us that the main cultures bring good profitability to producers, as soybean with 54% margin, and corn with 56% margins, both for this last crop 2010–2011. Slide 29 summarizes our expectation to the Agribusiness for the next crop. We expect continuity in the margins behavior, good price, and costs under control, besides a favorable weather. All of these together should benefit the producers and bring new opportunities to Banco do Brasil, including improvement in the book quality. Moving to slide 30, we have the risk quality evolution. The operation with better risk, AA to C, came from 92.5% in June last year to 93.6% this year, a consequence of the quality of loans granted by Banco do Brasil.



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Also regarding the quality of the portfolio, slide 31 brings us the delinquency and confirms the strategy of concentrating the book in the lower-‐risk operations. The NPL ratios are sustainable and better than those presented by Brazilian bank and increasing to attain 2% in June 2011. Slide 32 pictures the delinquency by portfolio. Steadiness in individuals’ book and a slight worsening of 20 b.p. in the corporate loans pretty much clear the outstanding decrease in Agribusiness’ NPL, where the ratio dropped by half quarter over quarter. This behavior already reflects the decrease in the amount of rolled over operation in the portfolio. I would like to drag your attention to the next slide, slide number 33. Many were wondering what could explain the provision expense increase comparing the 2Q and the 1Q. The graph is picturing a GAAP analysis, comparing the early delinquency of the previous quarter with the changes in the worst risk D to H in the next quarters. As you can see in the seasonal hike of the early delinquency, those between 15 to 89 days of the 1Q11, drove the growth verified in the risk D to H in the 2Q11. As a result, it also explained why we got that 15% rise in the provision expenses quarter over quarter. On the other hand, we have already seen a decrease in the current early delinquency of the Bank that may be positively supportive for the following quarters. I mean we accounted March 2011 1.9%, 15 to 89 days, and now it decreased to 1.7%, 15 to 89 days in June 2011. In slide 34, moreover, we see that the coverage ratio of past due loans over 90 days was more than 226%, quite above the banking industry that accounted 167%. On slide 35, we observed that the focus on quality service, part of our Retail Transformation Program, is already reflected on the increase in the number of employees in the distribution network, I mean, in the branches, doing business with our customer base. The share of employees working at branches was 75.3%, while June last year 73.6%. Moving to slide 36, we have the commercial revenues that comprise net interest income, fee income, insurance income, divided per customer, which increased 11% in one year, also a consequence of the Retail Transformation Program. And all of this has a consequence to Banco do Brasil cost income ratio. As we can see on slide 37, the ratio improves every quarter. In the 2Q it was below 40%, reflecting synergy gains of recent acquisitions and a strict cost control. We recently restructured our insurance area, including reorganization of all our affiliated companies, and it is already bringing good results. On slide 38 we see that the insurance results in Banco do Brasil increased almost 30% in one year. In slide 39 we see a great future to the insurance business in Banco do Brasil. Before the partnership with Mapfre, Banco do Brasil had a market share of 16.5% in the insurance business, including pension plans and savings linked to lottery. With the partnership, the market share increased to 20.3%, very close to the leaders. And on slide 40 we have the comparison, only considering personal insurance: life insurance, land insurance, and personal accident. In this case, the partnership with Mapfre would be the market leader.



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Moving to slide 41, we observed that the cards billings grew more than 28% in one year. The expansion of the business in segment was important to guarantee the increase in fee income and market share, which came from 20.3% to 21.1% at the end of June 2011. One slide 42, we observed the consolidation of Banco do Brasil and capital market with leadership in fixed-‐income operation. Talking about the internationalization, on slide 43 we have some pictures of our new branch in New York. On slide 44, we bring some information of Banco Patagonia. We expect to reinforce Banco Patagonia’s position in the corporate market in order to turn it in the first bank of Brazilian company in Argentina. From slide 45 to slide 51, we have the multiple channels offered by Banco do Brasil to its customers, from the beach to several communities spread around the Country, using boats or mobile phones to provide more comfort in service to our customer base. Finally, as we can see on slide 52, our most recent movement, Banco Postal. We have Banco do Brasil’s distribution network in the Brazilian municipalities before and after Banco Postal. We will be, from January 2012, positioned to be in 96% Brazilian municipalities. On slide 53, we have the BIS ratio, which at the end of June reached 14.4% with Tier 1 capital representing 11.1%. This ratio would allow Banco do Brasil to expand its credit portfolio by R$157 billion. Finally, on slide 54 we have our performance compared to the estimates from our guidance, which led us to review some of them. We changed the estimates to credit portfolio, while we reduced the growth range to the total individuals and business portfolio. We increased the growth range to Agribusiness portfolio, part of the credit demand from large companies being met by agri-‐industrial credit lines and also by private securities, which explains the adjustment of the business portfolio and also of the Agribusiness portfolio. We also reviewed the G&A expense guidance, which had a quite good performance in the 1H11, far below the estimates. The guidance came from 10% to 13%, to 9% to 12%. Now, let us talk about the items that do not reach, do not make any change. For net interest income, which we estimate are between 16% to 20%, we expect the expansion of the earning asset during the 2011, as well as the gradual incorporation of the reprice effect in our credit portfolio to reach this range of 16% to 20% in that item. Regarding credit cost, allowance for loan losses, we maintained the guidance between 3.3% and 3.7%, in order to be conservative, the way we would like to see our credit portfolio, so to maintain quite good level of provision to prevent from delinquency. Related to fee income, the expectation also to deploy 12% to 17%, of course, we expect to see it happening in the second part of the year. So, those were the information I would like to share with you. Now, we can move on to the Q&A session. Thank you for your attention.



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Boris Molina, Santander: Yes. Thank you so much, and thanks for taking my question, Gilberto. I had a couple of questions. The first one regarding asset quality, you noticed that delinquency increase in the Company loan portfolio. I just wanted to know what type of companies, in which sectors, were they large companies or SMEs? And what were the drivers behind this increase and how do you expect this going forward? And secondly, regarding your allowance for loan losses, you kept the guidance despite that asset quality has been performing pretty well. If we were to meet this guidance provisions in the 3Q and 4Q we would have to rise very sharply. So, I do not know what underlies your decision to keep this guidance. I mean, are you expecting to increase your coverage ratio even further? What is the underlying expectation for non-‐performing loans or the 2H loans that drives this expectation? Finally, regarding Patagonia, you consolidated the Patagonia in the 2Q. What is the impact on your capital ratios? Are these loans included in your risk-‐weighted assets or are you deducting them from risk-‐weighted assets or not consolidating as you did with Banco Votorantim? Thank you. Gilberto Lourenço da Aparecida: Thank you, Boris. Talking about delinquency, if you take a look at the breakdown in the Company, the bulk of the growth in the delinquency was in SMEs, but it was the same movement that we have in our portfolio that was seasonal. The early delinquency, we have a hiccup in the 1Q and we expect to see a decrease in the 2Q in the early delinquencies. So, taking a look to 90 days delinquencies, the bulk was SMEs, but the trend is the same as the total portfolio to see improvement in the following quarters, because of this seasonal effect that we have in the 1Q. Talking about the guidance and the next provision expenses credit costs, 3.3% to 3.7%, we got 3%, you are right. We are far from reaching the low end of the guidance, but our call is to maintain the guidance in that level, because last year we had quite a good year and we accounted 3.3%, so behind this guidance the expectation is to have provision in Banco do Brasil at least fall in the rhythm of our credit portfolio. So there is no increase in the provision expenses because of any deterioration. So, behind of this guidance there is the same old that we had last year, in terms of credit quality. Talking about the calculation of the BIS ratio in Banco Patagonia, different than Banco Votorantim, which is consolidated proportionally, and Banco Patagonia is fully consolidated. We have 100% Banco Patagonia and Banco do Brasil balance sheet. So, we have minority interest in our balance sheet, when it comes to Banco Patagonia; it is not the case of Banco Votorantim when we have for the BIS purpose only the equity amount. Boris Molina: So, you already interring your risk of weighted assets.



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Gilberto Lourenço da Aparecida: Yes. Boris Molina: OK, perfect. Excellent, thank you. Carlos Macedo, Goldman Sachs: Good morning, I have a couple of questions on your solid results for the quarter. The first one is on Banco Votorantim. We saw the Bank’s results suffer very significantly in the quarter, on the back of significantly higher provision expenses, I was wondering if you could comment a bit about what is going on there, if we should continue to see the Bank deliver weak profitability, if the provision expenses or the asset quality issues that hurt the bank this quarter, something that are recurring or something that we should see go away on the 2H of the year. The second question has to do with your guidance that you have on slide 54. You lowered the loan growth expectations, individuals and corporate loan growth, however you increase expectations for agribusiness, which is a lower margin portfolio, and you did not lower your net interest growth expectation. I was wondering if there is something there that I am missing, or if there will be some other way that this net interest income will expand throughout the year, or this is really all due to the increasing in margins that you expect to see in the 2H? Gilberto Lourenço da Aparecida: I am going to take your questions by the last one. So, we measure our net interest income following the rhythm of the growth that we have in our earning assets. The earning assets of the Bank tend to growth following the rhythm of our deposit pace, so probably we are going to have earning assets growing 14% to 18%, which could maintain this quite feasible dislevel net interest income, considering the high interest rate that we have in the Country. But, talking about the correct portfolio, along with this reduction, we have to have, bear in mind, the repricing process that we have, especially in the individual portfolio. Individual portfolio in Banco do Brasil has an average ratio of 18 months, so we are going to be able to reprice 60% of the total book until the end of this year. So, we are going to have a recovering margin as we expect to see, because individual portfolio, if I am not wrong, increased its margin from 15.3% to 15.4%, so that is intended to be the case for the following quarters. That is why we maintain our guidance when it comes to net interest income. Talking about Banco Votorantim, what we saw in Banco Votorantim was an increase in its provision expenses, on the back of the deterioration of this portfolio. I would say to you that, the same that we have, of course, more intense than in Banco do Brasil, but the same seasonal effect that we have, early delinquency hike in the 1Q kind of contaminating the worst risk in the 2Q, and demand more provision because of it; some adjustment that we have in methodology in Banco Votorantim, to be closer to our methodology, also drag more provision in that Bank, so a poorer result was mainly because of this movement related to provision.



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We start to see early delinquency in Banco Votorantim improving, along with a better shape in their business, because, as I have mentioned during the presentation, the production of the Bank has started to increase as well. If you take a look at the graph, we were originating in a pace of R$6 billion something per quarter, and now we are in a pace of R$8.2 billion per quarter. So, Banco Votorantim starts to be back again and grant a very good level of production. Deterioration in this portfolio is quite manageable, considering the recent delinquency that we have seen in the Bank. We are in the Bank, of course, Banco Votorantim has a quite a good challenge to follow in the rhythm of Banco do Brasil in terms of profitability, but we are going to be there to follow and to pursue it. Carlos Macedo: OK. Thank you. Marcelo Telles, Credit Suisse: Good afternoon everyone. Two questions, one just a follow-‐up on Banco Votorantim. Given that a lot of the increase as you said was due to the alignment of credit risk criteria between Votorantim and Banco do Brasil, is it fair to expect a decline in the provisions for Votorantim in the 3Q11 in absolute terms, given that most like there was kind of a non-‐recurring provision expense there? And my second question is regarding Previ. Given the big markets selloff, and probably there was a decline in your surplus, my question is more an accounting one: what happens if the amount of surplus is actually lower than the amount of surplus you have already recognized in your balance sheet? Do you have to amortize that difference over time, or you have to do all at once? Or you amortize based on the remaining time for retirement? If you could clarify on that would be great. Thank you. Gilberto Lourenço da Aparecida: Thank you, Marcelo. Talking about Banco Votorantim alignment with Banco do Brasil, no, the bulk of it happened during the 2Q, so there is few remaining alignments to our methodologies, so the provision expense will follow the quality of the portfolio of that bank, that has improving in the 2Q considering the early delinquency we have seen in that portfolio. Talking about Previ, of course, we bear in mind that is only an exercise, it is not the case, because to have this situation of reduction in the surplus of Previ, it is quite difficult to have considered the condition, even with this condition in the market that we have nowadays. If you by any chance, on an exercise, please, reduce the surplus below the assets that we have already accounted, we have to write-‐off, to match the fair value of this surplus. That is the case. We have to impair the assets. But we do it considering this corridor method. We can have a range of 5% of the assets or the liability. We are going to follow this range of 5%; if by any chance non-‐recognized losses are below 5% of the total assets or the total liabilities, the bigger of them, we have to do nothing.



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If by any chance the non-‐recognized losses surpass 5% of this amount, then we have to start to amortize the assets. That is the way it works. Marcelo Telles: But you do not amortize all at once, right? You amortize the same way that you divide your surplus by the amount of years. It is valid also on the downside as well, so at the end of every semester you would have to amortize. Gilberto Lourenço da Aparecida: Following the accrual rule. Ivan, please you can add something if you want. Ivan Monteiro: I would like to add something about Banco Votorantim. The priority there is to increase the ROE of the bank. That is given the 13% level in comparison with Banco do Brasil, 24%, or above 20%. Even with this focus to increase the ROE of the bank, we keep the conservative approach talking about the provision chart. That is why we put in the single levers at Banco do Brasil. We did not expect any kind of increase in the 2Q; some slight increase to finalize this process. But again, the focus there is to keep the same level in the wholes sale to increase the middle market; we are doing a very good job talking about the middle markets there, and to keep the same level, this 22%, in the market share of card finance. Marcelo Telles: Great. Thank you. Mario Pierry, Deutsche Bank: Good morning. Let me ask you two questions. The first is on asset quality. I just want to go back to this topic. I think you made it clear that you expect asset quality to remain stable, but at the same time you do expect to be increasing the amounts you provisioned. So I am just trying to understand why the need to be increasing provisions as a percentage of loans, since you already have such a robust coverage ratio, probably one of the best in the industry today? And what kind of macroeconomic variables do you watch when you say that you expect asset quality to remain stable? Basically what I am trying to get at it is what should we be worried about? Is it if we see a pickup in unemployment? Is it if GDP slows down? What you think is the key variable for asset quality going forward? And then the second question is unrelated, it has to do more with costs. You have shown very good cost control, and then you also reduced your guidance for expense growth for this year. I wanted to know if this reduction in guidance has anything to do with the acquisition of Banco Postal, because now you will not have to open as many branches as you were planning. What is really behind this reduction in your expense growth? Thank you.



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Ivan Monteiro: Talking about the deterioration, we did not expect any kind of deterioration talking about the credit quality of the Bank. Why? Because we are more close to the quality of the assets that we originate. Talking about the, for example, the credit portfolio related to individuals, we are focused on car finance, payroll finance, mortgage that we have the collateral. That is why it is different our behavior in comparison with the average in the market. If there is a huge deterioration in this scenario for the future, it will affect the Bank, but it will affect the whole market. What we expect is to be in a better situation in comparison with our peers, because we choose in the past to do these new assets based on the line spread, line that we have the collateral. In my opinion, the general measures that you mentioned, the unemployment ratio, the GDP growth and everything, they are measures that we always follow. But again, we are pretty confident, and I can tell you that in July we have the same NPL ratio, 2%. That is why we are confident that we will have a better performance in comparison with the market in general, especially our main competitors. Mario Pierry: OK, but on your guidance you are guiding for allowance for loan losses to represent between 3.3% and 3.7% of your loan book, while they have represented only 3% so far. So basically you are expecting to be increasing your provisions quite sharply in the 2H11, even though your coverage ratio is already 227% of NPL. So I just want to understand this disconnect. It seems like a very comfortable asset quality, but at the same time you increasing provisions. Ivan Monteiro: We did not expect to increase provisions. We are pretty confident about, again, the quality of our assets, but I can tell it is a conservative approach. We are only doing these because we would like to see what is going to happen, especially with this scenario that is, you know, there is a lot of volatility right now. But it is only because of that. We are pretty confident about the quality assets inside Banco do Brasil. Mario Pierry: OK. And then, the question on the costs. Ivan Monteiro: We gained efficiency because of the synergies. When we acquired Banco Nossa Caixa, we promised that we would increase, and we get all the synergies that we promised. We are able to do this, and we are always concerned about the general expenses inside the Bank. Why? Because we believe that in the future we need to build a bank, not basically in this actual level of the spreads in Brazil. The spreads in Brazil, the trend in our opinion in the future will go down. And because of that, we need to build a bank with the profitability or with the efficiency not based in this spread,



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basically on the spread in the future that will go down. That is why we invest a lot in technology. And that is why in Banco Postal, we had a very good opportunity not only to reduce the cost, this is a very good approach. But the most important thing talking about Banco Postal is to increase the revenues and increase the products per customer that we have now inside Banco do Brasil. We have 35 million customers in the class C, D, and E, and we would like to increase the revenues with these customers that we have now. We do not need to acquire this customer, we have them now. That is why Banco Postal we believe is a very good opportunity not only to increase our branch network, but to increase the profitability with the customers that we have now inside the Bank. Mario Pierry: OK. But does this acquisition though, does it change at all your guidance that you had given previously to the market about branch expansions? Should we then assume that you will not need to open as many branches as you originally were guiding? Ivan Monteiro: Yes, you can assume this. We postponed a lot of investments because of Banco Postal. Mario Pierry: Great. Thank you. Regina Sanchez, Itaú: Hi, guys. Good morning. Thanks for taking my questions. I have actually a follow-‐up question on Previ’s surplus results. Is there any chance of reevaluating the current criteria in order to, no longer any mark-‐to-‐market Previ’s assets in order to reduce any volatility in the Bank’s results? And also, it is a technical doubt, I mean, do you apply the corridor rule on odd quarters still in the 3Q and 1Q or you only apply the corridor rule on the end of each semester? And then I will make my second question. Gilberto Lourenço da Aparecida: We apply the corridor rules only in the end of each semester, when we are reassessing the total assets and the liabilities. During the 1Q and the 3Q, what we have, of course during the year, what we have is the updated revenues, the application of the interest rate and inflation of the asset and the liability side. So when we reassess the assets and the liabilities at the end of June and December, then we apply the corridor rules. Ivan, do you have any other comments on Regina’s question?



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Ivan Monteiro: No, that is it. Gilberto Lourenço da Aparecida: Your first point was, Regina? Regina Sanchez: If there is any chance of reevaluating this criteria, I mean change the mind, maybe applying the corridor rule even on this odd quarters or even changing not to make the mark-‐to-‐market anymore, I mean in order to reduce volatility, I mean is there any point on the regulation behind this recognition that would allow you to change the criteria? Gilberto Lourenço da Aparecida: No, we have to follow the regulation established to that purpose. So that is the Regulation 600 of CVM and the Regulation 26 of the pension funds agency. Regina Sanchez: OK. And my second question is regarding the guidance for loan growth that we have seen the Bank posting a very good loan growth in the quarter, above 5% and even above the market average. But you reduced a little bit the loan growth guidance, is there any specific portfolio that you expect to decelerate? I mean, maybe vehicle financing given the higher NPL ratios in seen at Banco Votorantim, or is it going to be more across the board? Gilberto Lourenço da Aparecida: Regina, bear in mind that the comparison that we have when we looked at the guidance was with December 2010 and December 2010 is pretty much higher than June. We gave this number to the market, last 12 months performance, but when compared to December last year, the growth is slower. So, of course, we maintain the same approach in increasing more individual user portfolio and in agribusiness, the change was the behavior in the corporate loans; that is the major change. Relatively speaking, the approach is the same, increasing more individual portfolio in order to have a better yield in our portfolio and those of course more protected portfolio in individual side. In corporate loans, we got a better shape, in terms of growth, I mean in SMEs. SMEs during this quarter increased 6%. So, it started to deploy some recovery, so we expect to have more growth in SMEs when it comes to corporate loans. So, in total book of individuals following by the SMEs portfolio. Regina Sanchez: OK. Thank you.



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Saul Martinez, JPMorgan: Thanks for taking my questions. First question, I also have a follow-‐up, a follow-‐up on Previ, what is the expected gain, the expected monthly gain that you expect to have in the 2H by applying the expected returns and cost on actuarial assets and liabilities given the decline in the Previ surplus in the 1H? What is the monthly gain that you expect to have in the 2H? Gilberto Lourenço da Aparecida: Hold on a second, Saul. We have not decided yet, but if we doing so, it could be R$176 million per month. Saul Martinez: More or less R$176 million, so a little bit lower than what you had obviously in the 1H. And then, secondly, on your capital position, your BIS did increase 30 b.p., and I know in the past, you have indicated that how Basel III will be implemented, will obviously be important for what your capital position may look like starting next year. Any update in terms of how you are viewing your capital position today, and also how you think the regulators are thinking about Basel III? Especially with the global backdrop being as uncertain as it is, do you think that perhaps that will play a role in their minds in terms of maybe implementing it a little bit less harshly than maybe they thought they were going to implement it? Just if you can provide us with any kind of thoughts about your capital and Basel III. Gilberto Lourenço da Aparecida: OK. Thank you. Can you answer that, Ivan? Ivan Monteiro: Yes, we did not talk with the regulators about that, we have only one notice that they would like to do in advance, talking about the general rule in comparison with other parts of the world. We are pretty comfortable about this. We are doing a lot of simulations in our balance sheet trying to be sure that we will comply with all the rules related to Basel III. We are pretty comfortable now and we are expecting the final decision from the Brazilian Central Bank. Saul Martinez: When do you expect a final decision? Ivan Monteiro: I believe that is in November this year. Saul Martinez: November still, OK.



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Ivan Monteiro: Yes. November, December. Saul Martinez: OK. All right, great. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back to Ivan Monteiro for closing remarks. Ivan Monteiro: Thank you very much. Gilberto, if you would like to add something? Thank you very much for your participation. If you have any further questions, please call our IR department. Gilberto. Gilberto Lourenço da Aparecida: Thank you, everybody. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect. “This document is a transcript produced by MZ. MZ uses its best efforts to guarantee the quality (current, accurate and complete) of the transcript. However, it is not responsible for possible flaws, as outputs depend on the quality of the audio and on the clarity of speech of participants. Therefore, MZ is not responsible or liable, contingent or otherwise, for any injury or damages, arising in connection with the use, access, security, maintenance, distribution or transmission of this transcript. This document is a simple transcript and does not reflect any investment opinion of MZ. The entire content of this document is sole and total responsibility of the company hosting this event, which was transcribed by MZ. Please, refer to the Company’s Investor Relations (and/or institutional) website for further specific and important terms and conditions related to the usage of this transcript.”

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