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Macroeconomic highlights
The third quarter of 2011 was marked by the deepening of the Euro Zone debt crisis, with an increase in fears over Greeces default, a more visible effect of contagion to Spain and Italy and the growing difficulties of European financial institutions to access the interbank money market and medium and long term debt issues. Reflecting high risk aversion levels, the deposits of monetary financial institutions with the ECB increased from Eur 66 billion to Eur 200 billion (reaching Eur 256 billion in October). The period of July to September 2011 was also marked by the worsening of expectations about global economic growth, which, together with fears of contagion to the financial sector, was responsible for the poor performance of the main stock market indices. In this context, the Fed maintained the fed funds target rate close to 0% and announced new measures to contain long-term interest rates. In Europe, by contrast, the ECB lifted in July the key benchmark rate by 25 bps, to 1.5% (having in October announced a reinforcement of liquidity injections in the financial system). Demand for safe haven assets caused the yield on 10-year Bunds to fall from 3.025% to 1.887%. In Portugal, the first assessment of Portugals adjustment program by the IMF/EU/ECB (carried out in August) was globally favourable, citing the broad and ambitious compliance of the program. This gave way to the disbursement of additional tranches of the financial assistance program. The early identification of some deviations from the 2011 fiscal target has allowed for the adoption of timely corrective measures. The commitment of the Government to the targets agreed in the MoU has been highlighted in this first assessment. The Government presented the 2012 Budget to Parliament, maintaining the targets for the public deficit agreed with the IMF/EU/ECB. This deficit is expected to be cut from 5.9% to 4.5% of GDP, with GDP falling 2.8%. Should the 2011 and 2012 fiscal targets be met, we expect Portugal to avoid a Greek-style vicious circle and to return to growth in 2013-2014, with the economy showing sounder economic indicators, including an external deficit close to 2% of GDP and a declining public debt ratio. Exports and net external demand are growing (real annual growth in exports should reach close to 7% in 2011 and slightly above 4% in 2012) and should continue to show strong potential, as firms increasingly focus on external markets and, particularly, on fast growing markets in Africa, Latin America and Asia. Over the medium term, economic growth should be supported by the ongoing structural reforms, implemented in the context of the MoU. 27 October 2011
9M11 Results Presentation
27 October 2011
9M11 Results Presentation
A strict financial discipline has been the main focus of BES, implementing a wide set of measures focusing on deleveraging the balance sheet, reinforcing provisioning coverage and strengthening capital ratios, while maintaining a sound international profile and a strict cost control, key to sustain future profitability
Deleverage the Balance Sheet
Early adoption of a deleverage plan since 2H10 has driven a significant decrease of the LTD ratio from 198% in Jun 10 to 146% in Sep 11 Strong focus on deposit growth (+ Eur 7.8bn since Jun 10), bolstered by BES franchise Reduction of the net loan portfolio (- Eur 1.8 bn since Jun 10) focused on international credit has allowed to continue supporting Portuguese SME sector, namely exporting and innovative companies
On-balance sheet provisions have been significantly reinforced to Eur 2.1 bn (4.04% of gross loans) in Sep 11, in anticipation of an expected macro deterioration Asset quality indicators consistently better that system average, even in periods of recession, and despite higher weight of corporate loans (73% of loan book) Low European sovereign exposure, concentrated in Portuguese short term sovereign debt (total Eur 3.6bn Portugal, 4% of net assets, 84% maturing within 1Y. Total potential loss on European sovereign debt amounts to Eur 121mn, an impact of 13bps in core capital as of Sep 11. Following the latest EU Summit, BES announced that according to BoP and applying EBAs methodology, total capital needs for the new 9% EBA CTI is Eur 687mn. In October, BES convened an EGM to propose, among other items, the increase of BES share capital by new contributions in kind, up to Eur 790.7mn to boost core capital ratios. This transaction could generate a positive impact of up to 145 bp in core capital (which stands at 8.1% in Sep 11) 27 October 2011 3
Main KPI show managements focus on deleverage plan and balance sheet strength. Resilient core operating performance backed by sustained international business and domestic cost control
Deleverage of the B/S on track
Loans to Deposit Ratio
198%
171%
3.07
165% 163%
2.29
2.38
155%
146 %
* 120%
2Q11 3Q11
() Target
2007
2008
2009
2010
1Q11
2Q11
3Q11
3 595 0 0 0 5 3 600
250.00
+ 43%
242
200.00
197
150.00
169
100.00
3M to 1Y 51%
50.00
0.00
1Q11
2Q11
3Q11
27 October 2011
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
In the absence of debt markets for 18 months, BES management has implemented a deleverage programme in 2H2010, acting on both assets and liabilities. LTD ratio continues a downward trend, having decreased to 146% from 198% in 1H2010
Loans to Deposits Ratio Net Loan Portfolio Evolution
(EUR bn; excludes securitised credit) +4.6 bn
51.7 51.0
-1.8 bn
50.8
49.0
49.9
49.9
49.7
49.9
120%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
Target
Total Deposits
(EUR bn) +0.8 bn +7.8 bn
33.9
LTD of 120% should be achieved by reducing the loan portfolio, namely by disposing of international credit portfolios (such as project finance), and simultaneously focusing on increasing core deposits.
30.8
30.5
32.0
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
27 October 2011
On the asset side, the sale of international loans coupled with the reduction of the Spanish loan book more than offset increasing loans in Angola. Consolidated portfolio decreased Eur 1.4bn since 2H10, with domestic loan book barely unchanged
Gross Loan Portfolio Evolution since 2H10 (beginning of deleverage plan)
(EUR bn)
Total: Eur -1.4 bn, o.w: Domestic: Eur -0.2bn International: Eur -1.2bn 53.4 -0.2 +0.2 +1.1 -0.1 Dom.: 41.7 (78%) Int.: 11.7 (22%) -1.8 -0.6 Dom.: 41.5 (80%) Int.: 10.5 (20%)
US Spain Angola Brazil
UK & US Loan Book Jun-10 Angola Loan Book 3Q11 Domestic Spain Brazil Other
YtD
Domestic International -10% 0%
0%
-6%
52.0
UK
-23% -36%
-13%
+27%
+45%
Other
-20%
27 October 2011
9M11 Results Presentation
On the liability side, the focus has been on growing core deposits, which increased 13% YoY (Eur 3.9bn) or 30% since 2H10 (Eur 7.8 bn)
Total Deposits
(EUR bn)
Domestic deposits
(EUR bn) Weight in total deposits
30%
23.3 20.0
32%
24.6 26.4
10%
23.0
6%
77%
76%
75%
77%
78%
Jun-10
Dec-10
Mar-11
Jun-11
Set-11
International deposits
(EUR bn)
30.5
32.0
23%
7.4 7.5
Jun-10
Dec-10
Mar-11
Jun-11
Set-11
23% 24% 25% 23% 22%
Jun-10
Dec-10
Mar-11
Jun-11
Set-11
27 October 2011
9M11 Results Presentation
The credit sale programme as well as domestic Retail and Private Banking had a strong contribution to the deleverage program
Investment Banking and International Commercial Banking
27pp
Total Group
Retail*
-31pp
Loans-toDeposits 3Q11.
146%
116%
46%
209%
154%
* Excludes securitized credit. Including these portfolios, Retails Loans-to-Deposits ratio is 27 152% (-50pp YoY)
Domestically, Retail and Private Banking showed a remarkable ability to grow deposits, that more than compensated the impact of the current economic context in terms of the treasury levels of corporations
Private Banking Small Businesses Corporate and Institutional
Affluent
3.0%
117.8%
On-Balance Sheet Client Funds YoY. %. 3Q11
-11.4%
* Includes securitized credit
27 October 2011
10
Total MLT debt maturing in 2011 was fully repaid. BES closed a 3-year USD 300mn credit facility agreement with China Development Bank (senior unsecured)
Medium and Long Term Debt maturing in 2011
(EUR bn; Total Eur 4.3bn)
Already repaid
2.6
0.0 4Q12
1Q11
2Q11
3Q11
14% 3Q11
3.3 2.1
26% 2Q11
60% 1Q11
27 October 2011
9M11 Results Presentation
11
ECB liquidity facilities have been key to cope with short term liquidity needs. BES increased its exposure to ECB to Eur 9.3bn as of Sep-11. The buffer of repoable securities (ECB and other) continues to be increased
BES use of ECB liquidity facilities (net)
(EUR bn)
9.3
3.9
9.7
-3.1
Deposits
Short-term funding
Other
FY2010
1Q11
2Q11
3Q11
ECB Eligible
Total
27 October 2011
9M11 Results Presentation 15 Mar
12
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
13
An expected deterioration of macro conditions in 2011 and 2012 led to a continued effort to reinforce the provision reserve. Total provisions increased to Eur 660.7 in 9M11 (+88.3% YoY)
Total Provisions
(Eur mn)
Credit Provisions
700 (EUR mn)
76%
88% 661
146
600
62
351
56 37
126
327 258
9M10
9M11
In order to adapt the risk structure to the Medium Term Plan assumptions, total provisions reached Eur 661mn (+88% YoY). Credit provisions totalled Eur 453mn (including an additional credit provision charge of Eur 126mn in 1H11). Additionally, Securities and Other provisions were also reinforced in a total amount of Eur 208mn
500
453
400
300
225 81
126
99
258 148
200
100
1Q11
2Q11
3Q11
9M10
9M11
2.2x
250
207
200 150
142 93 22 43
100
50
1Q11
2Q11
3Q11
9M10
9M11
27 October 2011
9M11 Results Presentation
14
Credit provisions continued to be increased in light of the expected deterioration of asset quality. The new austerity measures announced by the government reinforce the need of a prudent stance vis--vis 2012. Including additional LLC in 2Q11, accumulated cost of risk stands at 1.16% in 9M11
Quarterly Credit Provisions
(Eur mn)
Cost of Risk
(%)
1.74% including additional LLC
1.47%, including additional LLC Eur 66 mn additional charge 1.28%, including additional LLC
126
150
40
0.33
66
0.98 0.52
100
138
50
148 104 96 80 95 84 94 81 99
97
1.14 0.8 0.85 0.76 0.71 2Q10 0.63 3Q10 0.71 4Q10 0.63 1Q11 0.76
1.14
0.62 1Q10
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
1Q09
2Q09
3Q09
4Q09
2Q11
3Q11
27 October 2011
9M11 Results Presentation
15
Total provisions reserve is now Eur 2.1 bn, or 4.04% of the loan portfolio. Total credit at risk totals 6.2% of the loan portfolio, with a 65% coverage by provisions on BS
BES On-BS Provisions Reserve
(Eur mn) 2.29% 2.38% 3.07% 3.38% 3.47% 3.83% 4.04%
2.1x
2 101 1 983 1 777 1 552 1 790
6.22%
2.60%
2.85%
1 148 990
Credit at Risk
2007
2008
2009
2010
1Q11
2Q11
3Q11
(*) According to Instruction 23/2011 of Bank of Portugal. Credit at risk includes: a) total value of credit with capital or interest past due by 90 days or more; b) other restructured credit, where the principal or interest payments were past due by more than 90 days and have been capitalized or refinanced without full coverage by collaterals or the interest fallen due have not been fully paid by the debtor and c) credits of an insolvent or bankrupt debtors.
27 October 2011
9M11 Results Presentation
16
On top of a strong coverage, BESs overdue loans ratios have been consistently below the Portuguese average
5.57% Corporate
4. 3 % 3 . 9% 3.8% 3 . 4%
4. 8 %
3.33%
2 . 1% 2 . 1% 1. 9% 1. 9 % 1. 8 % 1. 8 % 1. 5 % 1. 3 % 1. 3 % 1. 2 %
2Q11
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
1Q11
3Q11
9.15% 4.87%
Total Overdue Loans/Gross Loans BES Total Overdue Loans/Gross Loans System
Source: BES and BoP. Data for System as of Aug 2011 * Overdue loans + 30 days
27 October 2011
9M11 Results Presentation
17
Credit portfolio is mainly composed by Corporate loans. Despite its higher weight, there is no major concentration per sector
Credit Portfolio as of September 2011 (Eur 52.0 bn Gross Loans)
Excludes securitised credit % of Total Credit Portfolio (2Q11)
15.7% (15.5%)
Mortgage 22.3% (Eur 11.6 bn) Corporate 72.8% (Eur 37.9 bn)
13.5%
(11.7%)
6.7%
(4.2%) (4.9%)
(6.3%)
12.6%
(12.7%)
Represents a composite of other sectors of the economy none representing more than 2% per se.
27 October 2011
9M11 Results Presentation
18
International loans accounts for 20.2% (Eur 10.5bn) of total credit portfolio. Main exposures are Angola, Spain and UK which, individually, do not represent more than 7% each
Credit Portfolio as of September 2011 (Eur 52.0 bn Gross Loans)
Excludes securitised credit
Angola
6.9%
(Eur 3.6bn)
Spain
6.9%
(Eur 3.6bn)
4.0%
(Eur 2.1bn)
EUA
Brazil
Other
0.4%
(Eur 0.2bn)
27 October 2011
9M11 Results Presentation
19
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
20
BES European sovereign exposure amounts to Eur 3.6 bn (4% of net assets) in Sep 11, concentrated in short term Portuguese public debt. No exposure to Greece or Ireland. Total potential loss on European sovereign debt amounts to Eur 121mn
European Sovereign Exposure
(Eur mn)
Treasury Bills Portugal Ireland Greece Italy Spain Total Total 1H11 2 430 0 0 0 1 2 431 2 436
3M to 1Y 53%
AFS 95%
27 October 2011
9M11 Results Presentation
21
Core capital at 8.1% in Sep 11. Proposed Debt / Equity transaction could add up to 145bps in core capital, considering Sep 11 RWA of Eur 66.7bn. The mark-to-market of total European sovereign debt would impact 13bps on core capital
Solvency Ratios (%) Risk weighted assets and Capital
Eur bn
RWA (BoP) Banking book Trading book Oper. Risk Total Capital Core Tier I ow deductions: - AFS - Actuarial Dif. Tier I
Jun-10
Dec-10
Core
Jun-11
Tier I
Sep-11
Notes: BIS II IRB corresponds to calculations based on IRB Foundation for credit risk and standardised approach for operational risk. Preliminary data as of Sep 11.
27 October 2011
9M11 Results Presentation
22
Following the latest EU Summit, BES announced that according to BoP and applying EBAs methodology, total capital needs for the new 9% EBA CTI is Eur 687mn. In October, BES convened an EGM to propose, among other items, the increase of BES share capital by new contributions in kind, up to Eur 790.7mn
Targeted securities
Outstanding Amount 265.0 4.9 50.0 152.7 158.1 409.4 1,040.1
Issuer BES BES BES Investimento BES Finance BES Finance BES Finance -
Number of new shares Nominal value / Max (P5; Eur 1.8) Nominal value / Max (P5; Eur 1.8) Nominal value / Max (P5; Eur 1.8) 74% * Nominal value / Max (P5; Eur 1.8) 66% * Nominal value / Max (P5; Eur 1.8) 61% * Nominal value / Max (P5; Eur 1.8) P5 = Volume-weighted average price of BES on the 5 trading days prior to the date of launching the Public Offer
In order to continue to reinforce its capital ratios, BES will maintain its deleverage plan and will consider, if necessary, other options in capital markets
27 October 2011
9M11 Results Presentation
23
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
24
Resilient core operating performance backed by international business and strict cost control measures. Profitability hampered by conservative provision charges and international credit sales.
Core Operating Performance
(Core Net Operating Income: Commercial Bkg Income Op. Costs; Eur mn)
+14.3%
700
600
+43.7%
500
400
460.9
484.8
526.6
300
300
200
100
250
242.4
200
1Q11
2Q11
3Q11
197.1
150
Operating Costs
(Eur mn)
500 450
168.6
-2.8%
100
50
250 200 150
292.3
287.7
284.2
0
100
1Q11
2Q11
3Q11
50 0
1Q11
2Q11
3Q11
27 October 2011
9M11 Results Presentation
25
Operating costs under strict control, with cost cutting measures already producing results. Like-for-like costs decreased 4.8% YoY
Operating costs
(Eur mn)
9M10 9M11 472.0 313.5 78.8 864.3 YoY 3.9% -3.2% 4.0% 1.2% 1Q11 158.7 107.5 26.1 292.3 2Q11 153.6 107.9 26.2 287.7 3Q11 159.6 98.1 26.5 284.2 QoQ 3.9% -9.0% 1.0%
300
-4.7%
653
622
600
Includes Eur 10.1mn related to additional social contribution costs. Without these effect, domestic costs would have decreased 6.2% YoY
500
400
-3%
200
-1.2%
211
100
209
202
Operating costs affected by the incorporation of domestic employees in Social Security and by international expansion (namely the consolidation of Execution Noble). Excluding these effects, costs would have reached Eur 812.9mn, decreasing 4.8%
1.2%
9M10
9M11
1Q11
2Q11
3Q11
20%
854
864
51 813 -1%
250
241
Includes Eur 41.3mn related to changes in consolidation perimeter. Without these effect, international costs would have decreased 0.2% YoY
201
200 150
4%
100
292
288
284 3Q11
50
81
79
82
9M10
9M11
1Q11
2Q11
9M10
9M11
1Q11
2Q11
3Q11
27 October 2011
9M11 Results Presentation
26
Domestic activity reflects Portuguese adverse macro conditions and focus on balance sheet management, with a significant increase in provisioning coverage. International activity affected by loan sales in UK, but supported by the Strategic Triangle
Domestic
(Eur million)
International YoY -3.3% -2.5% -2.9% 37.6% 4.8% -4.7% 16.5% 0.9% 110.7% -96.0% -25.7% n.a. -97.1% 9M10 399.1 144.9 544.0 29.0 573.0 201.0 372.0 343.0 65.9 306.1 52.3 87.6 166.2 9M11 396.9 149.6 546.5 18.0 564.5 241.9 322.6 304.6 60.2 262.4 37.4 94.1 130.9 YoY -0.6% 3.2% 0.5% -38.2% -1.5% 20.3% -13.3% -11.2% -8.7% -14.3% -28.6% 7.4% -21.2% % of Total (Consolid.) 45.4% 25.0% 37.1% 5.5% 31.4% 27.9% 34.6% 50.1% 9.1% 96.5% n.a. n.a. 95.0%
9M10 493.5 460.2 953.7 222.9 1,176.6 652.9 523.7 300.9 284.9 238.8 2.4 -2.8 239.2
9M11 477.3 448.6 925.9 306.7 1,232.6 622.4 610.2 303.5 600.5 9.7 1.7 1.1 6.9
+ + = + = =
Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results & Other Banking Income Operating Costs Net Operating Income Net operating Income ex-Mkts & Other
= =
Net Provisions Income Bef. Taxes and Minorities Taxes Minority Interests Net Income
27 October 2011
9M11 Results Presentation
27
Net income from the Strategic Triangle (Africa, Brazil and Spain) reached Eur 95.4mn and already accounts for 73% of international business. Deleverage plan with a significant impact on UK and US
International Net Income Breakdown 9M11
(Eur mn) ( ) 9M10
International Business
(Eur mn)
9M11 95.4
73% 69%
YoY -6%
101.7
61% 25%
% of consolidated
27 October 2011
9M11 Results Presentation
28
Investment Banking: Focusing on Advisory and Capital Markets with increased geographic diversification
Domestic Market: Leadership of the Brokerage and M&A activities Banking Income: Eur 182 mn (-7.5%)
200
197
182 71%
International Domestic
the M&A market, by both number and value of announced transactions (Mergermarket/Bloomberg). Mandated Lead Arranger (MLA) on the financing to Mares Lusos, S.A. for the acquisition of ETE Group. International activity: continued business flow with emphasis in Brazil
150
68%
100
50
32%
0
29%
9M10
NII 31%
9M11
Fees & Commissions 59%
and #3 in the Iberian M&A market, by number of announced deals (Bloomberg). Co-Bookrunner on the Banca Cvicas IPO (Eur 599mn) and Financial Adviser and MLA on the financing to Gusanitos I for a 3,5 MW solar photovoltaic power generation facility in Crdoba.
- Energias do Brasil, (R$ 811mn); Joint Bookrunner in the debentures issue by IESA (R$ 60 mn) and in the commercial paper issue by Unidas (R$ 325mn). Financial adviser to Bascol Group on the sale of a 50% stake in Bascol Brasil Incorporao Imobiliria to Esprito Santo Property Brasil.
50
49
40
30
20
10
10
Group Plc.
9M10
9M11
27 October 2011
9M11 Results Presentation
29
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
30
Under an extremely challenging environment, BES has been deleveraging the balance sheet, strengthening capital ratios and reinforcing provision levels, while maintaining a resilient core operating performance backed by international business and strict cost control measures
Implementation of a balance sheet deleverage plan in 2H10 aiming to reduce the LTD ratio to 120%. Core deposits increased 30% since Jun 10 (+Eur 7.8bn), reflecting Portuguese depositors confidence. Net loan portfolio decreased Eur 1.8bn in the same period, leading the LTD ratio to fall by 52 p.p., from 198% to 146%. Proposal of a Debt/Equity exchange transaction that could increase core capital up to 145bps (which reached 8.1% in Sep 11).
Low exposure to European sovereign debt (Eur 3.6bn, 4% of net assets), concentrated in Portugal, of which 84% matures within 1 year. No exposure to Greece, Ireland or Italy and immaterial exposure to Spain. Strong provision reserve covering 4.04% of gross loans provides a cushion to expected asset quality deterioration in domestic business. Resilient core operating performance backed by international business and strict cost control measures. International activity affected by loan sales in UK, but supported by the Strategic Triangle, which accounted for 73% of 9M11 international net income. Operating costs under strict control, with cost cutting measures already producing results: 9M11 like-for-like costs decreased 4.8% YoY.
27 October 2011
9M11 Results Presentation
31
Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
27 October 2011
9M11 Results Presentation
32
(EUR million) + + = + + Net Interest Income Fees and Commissions Commercial Banking Income Capital Markets Results Other results o.w. Sale of other assets = = Banking Income Operating Costs Net Operating Income Net Op. Income ex-Mkts & Other = Net Provisions Income Bef. Taxes and Minorities Taxes o.w. Special tax on banks = Minority Interests Net Income
9M10 892.6 605.1 1,497.7 240.9 11.0 -1.4 1,749.6 853.9 895.7 643.8 350.8 544.9 54.7 84.8 405.4
9M11 874.2 598.2 1,472.4 378.8 -54.1 -68.8 1,797.1 864.3 932.8 608.1 660.7 272.1 39.1 22.9 95.2 137.8
YoY -2.1% -1.1% -1.7% 57.2% n.a. n.a. 2.7% 1.2% 4.1% -5.5% 88.3% -50.1% -28.5% n.a. 12.3% -66.0%
1Q11 271.3 189.6 460.9 100.4 -35.9 -38.6 525.3 292.3 233.0 168.6 103.1 129.8 29.9 7.6 39.1 60.9
2Q11 271.5 213.3 484.8 244.7 15.7 -7.2 745.3 287.7 457.5 197.1 366.5 91.0 -21.0 7.6 16.9 95.1
3Q11 331.4 195.2 526.6 33.7 -33.9 -23.0 526.4 284.2 242.2 242.4 191.0 51.1 30.2 7.6 39.2 -18.2
QoQ 22.1% -8.5% 8.6% -86.2% n.a. n.a. -29.4% -1.2% -47.1% 23.0% -47.9% -43.8% n.a. 132.3% n.a.
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(EUR million) + Net Interest Income + Fees and Commissions = Commercial Bkg Income + Capital Mkts & Other Results = Banking Income - Operating Costs = Net Operating Income Net Op. Income ex-Mkts & Other - Net Provisions = Income Bef. Taxes and Min. - Taxes - Minorities = Net Income Cost to Income Cost to Income ex-Markets
1Q10 136.8 149.3 286.1 98.9 385.0 206.7 178.3 79.4 92.8 85.5 16.3 -1.8 71.0 53.7% 72.2%
2Q10 184.9 147.8 332.7 89.2 421.9 227.4 194.4 105.2 101.4 93.1 -20.5 -1.5 115.0 53.9% 68.4%
3Q10 171.8 163.1 334.9 34.8 369.7 218.8 150.9 116.1 90.7 60.2 6.7 0.4 53.2 59.2% 65.3%
4Q10 117.7 149.8 267.4 186.0 453.5 233.7 219.8 33.8 145.5 74.1 -18.4 25.1 67.5 51.5% 87.3%
1Q11 124.8 134.2 259.0 61.8 320.9 211.3 109.6 47.8 90.7 18.8 14.2 -0.2 4.9 65.8% 81.6%
2Q11 164.4 163.7 328.1 252.1 580.2 208.9 371.3 119.2 335.1 36.2 -30.5 -1.1 67.8 36.0% 63.7%
3Q11 188.2 150.6 338.8 -7.1 331.7 202.7 128.9 136.0 174.7 -45.7 18.0 2.4 -65.8 61.0% 59.7%
YoY 9.5% -7.7% 1.2% n.m. -10.2% -7.4% -14.4% 17.1% 92.5% n.m. n.m. n.m. n.m.
QoQ 14.5% -8.1% 3.2% n.m. -42.8% -3.0% -65.3% 14.1% -47.9% n.m. n.m. n.m. n.m.
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Angola (EUR million) + Net Interest Income + Fees and Com. = Com. Bkg Income + Markets & Other = Banking Income - Operating Costs = Net Op. Income - Net Provisions = Income Bef. Tax & Min. - Taxes & Min. = Net Income Cost to Income 9M10 203.4 19.5 222.9 14.6 237.5 51.7 185.8 9.0 176.8 112.1 64.6 21.8% 9M11 236.3 18.2 254.6 13.0 267.6 56.5 211.1 17.2 193.9 123.2 70.7 21.1% YoY 16.2% -6.7% 14.2% -11.0% 12.7% 9.2% 13.6% 90.6% 9.7% 9.9% 9.4% 9M10 39.3 28.5 67.9 5.2 73.1 27.0 46.0 3.9 42.1 16.1 26.0 37.0%
Brazil 9M11 38.3 28.9 67.3 -0.6 66.6 29.2 37.4 3.2 34.3 15.7 18.6 43.8% YoY -2.5% 1.4% -0.9% n.m. -8.8% 7.9% -18.7% -19.8% -18.5% -2.5% -28.5% 9M10 70.2 40.1 110.2 5.2 115.5 66.1 49.3 36.5 12.8 2.6 10.2 57.3%
Spain 9M11 68.1 37.5 105.6 7.6 113.1 63.6 49.5 44.6 4.9 0.0 4.9 56.2% YoY -2.9% -6.5% -4.2% 44.7% -2.0% -3.8% 0.3% 22.1% -61.7% n.m. -51.8%
Strategic Triangle 9M10 312.6 88.1 401.0 25.0 426.1 144.8 281.1 49.4 231.7 130.8 100.8 34.0% 9M11 342.7 84.6 427.5 20.0 447.3 149.3 298.0 65.0 233.1 138.9 94.2 33.4% YoY 9.6% -4.0% -4.0% -20.0% 5.0% 3.1% 6.0% 31.6% 0.6% 1.1% -6.5%
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(EUR million) + Net Interest Income + Fees and Commissions = Commercial Bkg Income + Capital Mkts & Other = Banking Income - Operating Costs = Net Operating Income - Net Provisions = Income Bef. Taxes & Min. - Taxes & Minority Interests = Net Income Cost to Income Total Assets Total Credit (Gross) Equity
1Q10 48.7 5.8 54.4 11.2 65.6 14.9 50.7 2.3 48.4 30.4 18.0 22.8% 4,775.5 1,966.9 303.1
2Q10 38.6 7.5 46.1 3.9 50.0 17.6 32.4 3.0 29.5 18.6 10.8 35.2% 5,520.8 2,443.1 369.0
3Q10 116.1 6.3 122.4 -0.5 121.9 19.2 102.7 3.8 98.9 63.1 35.8 15.7% 5,211.6 2,553.9 419.0
4Q10 92.3 6.0 98.3 8.8 107.1 20.0 87.1 14.2 72.9 46.6 26.3 18.6% 5,923.9 2,823.6 485.7
1Q11 86.8 6.2 93.0 5.3 98.3 19.2 79.2 4.7 74.4 47.3 27.1 19.5% 6,210.1 3,029.4 526.9
2Q11 57.3 6.3 63.6 -1.8 61.8 16.5 45.3 5.1 40.2 25.6 14.6 26.7% 5,992.8 3,221.2 556.1
3Q11 92.3 5.8 98.0 9.4 107.5 20.8 86.7 7.4 79.3 50.3 29.0 19.4% 6,880.8 3579.5 653.6
YoY -20.5% -8.1% -19.9% n.m. -11.8% 8.8% -15.6% 94.5% -19.9% -20.3% -19.1% 23.3% 32.0% 40.2%
QoQ 61.2% -8.6% 54.3% n.m. 73.9% 26.2% 91.3% 44.9% 97.2% 96.4% 98.7% -27.4% 14.8% 11.1%
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(EUR million) + Net Interest Income + Fees and Commissions = Commercial Bkg Income + Capital Markets & Other = Banking Income - Operating Costs = Net Operating Income - Net Provisions = Income Bef. Taxes & Min. - Taxes & Minority Interests = Net Income Cost to Income Assets
1Q10 12.5 6.8 19.3 -2.8 16.5 8.5 8.0 2.6 5.4 2.3 3.1 51.6% 1,962.4
2Q10 14.0 7.9 21.9 0.2 22.1 8.9 13.2 -0.1 13.3 6.0 7.3 40.2% 2,340.5
3Q10 12.8 13.9 26.7 7.8 34.5 9.6 24.8 1.4 23.4 7.8 15.7 28.0% 2,301.5
4Q10 14.0 8.5 22.4 -3.2 19.2 10.2 9.1 1.2 7.9 1.8 6.1 55.8% 2,672.2
1Q11 14.1 10.1 24.2 -1.8 22.4 9.6 12.8 1.5 11.3 5.6 5.7 42.7% 2,755.7
2Q11 10.7 11.9 22.6 3.0 25.5 10.3 15.2 1.6 13.6 5.6 8.0 40.4% 2,711.4
3Q11 13.6 6.9 20.5 -1.8 18.7 9.3 9.4 0.0 9.4 4.4 5.0 49.7% 2,502.1
YoY 6.0% -50.1% -23.1% n.m. -45.8% -3.6% -62.2% -59.9% -43.3% -68.2%
QoQ 27.4% -41.9% -9.2% n.m. -26.9% -10.0% -38.3% -31.1% -22.1% -37.6%
8.7%
-7.7%
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(EUR million) + Net Interest Income + Fees and Commissions = Commercial Bkg Income + Capital Markets & Other = Banking Income - Operating Costs = Net Operating Income - Net Provisions = Income Bef. Taxes & Min. - Taxes & Minority Interests = Net Income Cost to Income Credit (Gross) Cost of Risk (bp) Assets
1Q10 24.5 14.6 39.1 1.6 40.7 23.1 17.5 14.6 2.9 0.4 2.5 56.9% 4,156.1 141 bp 6,029.4
2Q10 23.9 12.8 36.7 1.4 38.1 21.0 17.2 11.1 6.0 0.5 5.6 55.0% 4,197.7 105 bp 5,722.3
3Q10 21.7 12.8 34.5 2.2 36.7 22.0 14.6 10.7 3.9 1.8 2.1 60.1% 4,111.7 103 bp 5,527.0
4Q10 24.5 11.1 35.6 -0.5 35.1 22.7 12.4 8.8 3.5 1.0 2.6 64.7% 4,093.7 60 bp 5,498.4
1Q11 25.4 12.5 37.9 5.1 43.0 22.3 20.7 13.3 7.4 1.6 5.8 51.9% 3,736.4 142 bp 5,502.6
2Q11 22.3 12.7 34.9 2.5 37.5 20.3 17.2 16.9 0.2 -0.6 0.8 54.1% 3,690.5 178 bp 4,792.0
3Q11 20.5 12.3 32.8 -0.1 32.7 21.1 11.6 14.4 -2.7 -1.0 -1.7 64.5% 3,564.8 161 bp 4,874.2
YoY -5.8% -3.2% -4.8% n.m. -10.9% -4.5% -20.5% 33.8% n.m. n.m. n.m.
QoQ -8.1% -2.5% -6.1% n.m. -12.7% 3.9% -32.3% -15.2% n.m. n.m. n.m.
-13.3%
-0.7%
-11.8%
1.7%
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(EUR million) + Net Interest Income + Fees and Commissions = Commercial Bkg Income + Capital Markets & Other = Banking Income - Operating Costs = Net Operating Income - Net Provisions = Income Bef. Taxes & Min. - Taxes & Minority Interests = Net Income Cost to Income Credit (Gross)
1Q10 20.5 6.5 26.9 -0.3 26.7 4.4 22.2 -0.2 22.4 1.9 20.5 16.5% 2,814
2Q10 19.0 11.3 30.3 0.8 31.1 4.4 26.7 3.6 23.1 2.2 20.9 14.0% 2,987
3Q10 15.2 5.7 20.9 1.2 22.2 4.9 17.3 6.1 11.2 2.9 8.3 22.0% 2,980
4Q10 12.9 13.3 26.2 -10.8 15.4 13.1 2.3 11.5 -9.1 -6.7 -2.5 84.9% 2,699
1Q11 12.8 18.4 31.1 -7.2 24.0 18.3 5.7 -4.3 10.0 -0.2 10.2 76.2% 2,349
2Q11 9.7 8.5 18.2 0.6 18.9 17.5 1.3 7.6 -6.3 -3.6 -2.7 92.9% 2,123
3Q11 9.6 13.0 22.6 -2.6 20.0 18.7 1.3 -6.2 7.5 -4.0 11.5 93.5% 2,079
YoY -36.7% n.m. 8.2% n.m. -9.7% n.m. n.m. n.m. -33.0% n.m. 38.4%
QoQ -1.0% 53.0% 24.2% n.m. 6.1% 6.7% -2.3% n.m. n.m. n.m. n.m.
-30.5%
-2.5%
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195
199
171 141141
190 161
175 4 155 3
100
2
2.01
135
50
NII
1
1Q08 258
2Q08 253
3Q08 269
4Q08 306
1Q09 315
2Q09 335
3Q09 300
4Q09 250
1Q10 254
2Q10 293
3Q10 346
4Q10 271
1Q11 271
2Q11 272
3Q11 331
50 0
NIM
0
0
1.09
1.41 1.56
115
95
75
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
Credit Margin
3.58 3.38 3.25 3.55 3.92 3.3 3.55 3.02 3.03 3.08 2.98
Deposit Margin
-36 -47
-39
-41
-52
-57
-66
423 406 395 375 380 401 397 437 454 455 507
3Q 10 3Q 09 1Q 09 2Q 09 4Q 09 1Q 10 2Q 10
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
-1.45
4Q 10
1Q 11
3Q11
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(EUR million) Account Management Fees Commissions on Loans Trade Finance & Exp. related (1) Corporate & Project Finance Guarantees Securities related fees (2) Asset Management (3) Cards Bancassurance Factoring Other Total Fees & Commissions
(1) Includes trade finance and letters of credit (2) Includes Brokerage (3) Includes discretionary management
1Q10 19.6 27.1 27.6 13.9 18.1 15.6 25.2 8.9 13.0 2.2 20.6 191.8
2Q10 21.2 32.6 16.3 17.2 23.6 12.1 24.7 9.8 17.0 1.9 21.3 197.8
3Q10 21.6 35.8 35.0 22.8 22.1 8.4 25.9 10.5 13.5 2.2 17.8 215.5
4Q10 22.4 35.3 15.4 15.6 28.4 14.8 26.1 10.8 12.9 2.1 17.8 201.8
1Q11 19.4 23.8 12.3 15.0 25.6 29.6 23.7 9.7 11.7 1.9 16.8 189.6
2Q11 19.6 27.7 21.4 21.9 36.9 22.6 25.0 10.0 10.2 2.0 16.1 213.3
3Q11 20.0 24.9 32.9 10.8 27.4 19.5 21.2 10.2 10.3 2.2 16.2 195.4
YoY -7.8% -30.4% -5.8% -52.7% 24.1% 131.5% -18.2% -3.5% -23.6% 1.6% -9.4% -9.3%
QoQ 2.0% -10.2% 53.5% -50.8% -25.7% -14.0% -15.3% 2.1% 1.9% 12.0% -0.2% -8.4%
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VAR Value at Risk Interest Rate FX Equity & Commodities Diversification Effect Global VAR Global VAR as % of Tier I 4.9 18.7 35.1 -15.5 43.3 0.8% 9.5 31.6 13.4 -20.0 34.5 0.6% 13.5 15.1 43.2 -33.2 38.6 0.7% 16.2 14.2 19.1 -27.1 22.4 0.4% 15.0 9.4 32.9 -19.1 38.2 0.6% 10.0 10.3 19.0 -17.1 22.2 0.4% 10.71 11.51 13.03 -13.42 21.83 0.4%
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155 109 124 108 97 98 84 51 50 54 53 55 36 24 2 3 -1 -14 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 15 28 35 25 35 19 26 13 51 46 80 82 66 68 44 73 55 39 16 72 48 46 34 128 100
109 84 64 49 27 88
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Equity Accounted Earnings and Other Results (Quarterly) (EUR million) Equity Accounted Earnings BES Vida Other Other Results, ow Results from sale other assets Total Equity Accounted and Other Results Equity Accounted Earnings and Other results (Accumulated) (EUR million) Equity Accounted Earnings, ow BES Vida Other Results, ow Results from sale of other assets 3M10 8.6 4.8 4.1 4.1 6M10 20.8 7.0 -10.0 -10.0 9M10 29.2 12.3 -26.5 -26.5 FY10 37.2 15.5 18.4 18.4 3M11 4.1 2.9 -40.0 -40.0 6M11 12.9 2.7 -33.1 -33.1 9M11 3.4 -9.9 -57.5 -68.8 1Q10 8.6 4.8 3.8 4.1 -0.6 12.7 2Q10 12.2 2.2 1.7 -14.1 -2.6 -1.9 3Q10 8.4 5.3 11.4 -16.5 1.9 0.2 4Q10 8.0 3.2 4.8 44.9 35.4 52.9 1Q11 4.1 2.9 1.2 -40.0 -38.6 -35.9 2Q11 8.8 -0.2 9.0 6.9 -7.2 15.7 3Q11 -9.5 -12.6 3.1 -24.5 -23.0 -33.9
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Quarterly (EUR million) Other Results (IFRS), ow Fees Capital Markets Special Tax on Banks Other 1Q09 98.5 9.2 96.5 -7.2 2Q09 3.8 5.3 10.2 -11.7 3Q09 -1.7 9.1 13.3 -24.1 4Q09 -4.8 14.2 -16.7 -2.2 1Q10 16.1 10.7 0.8 4.6 2Q10 -11.2 8.2 -8.1 -11.4 3Q10 -5.1 12.6 -7.6 -10.0 4Q10 -13.4 6.2 -29.1 9.5 1Q11 36.0 9.0 36.0 -7.6 -1.4 2Q11 127.2 9.3 111.4 -7.6 14.1 3Q11 190.7 7.7 192.1 -7.6 -1.4
Accumulated (EUR million) Other Results (IFRS), ow Fees Capital Markets Special Tax Banks Other 3M09 98.5 9.2 96.5 -7.2 6M09 102.3 14.5 106.7 -18.9 9M09 100.6 23.6 120.0 -43.0 FY09 95.8 37.8 103.3 -45.2 3M10 16.1 10.7 0.8 4.6 6M10 4.9 18.9 -7.3 -6.8 9M10 -0.2 31.5 -14.9 -16.8 FY10 -13.6 37.7 -44.0 -7.3 3M11 36.0 9.0 36.0 -7.6 -1.4 6M11 163.2 18.3 147.4 -15.2 12.7 9M11 353.9 26.0 339.5 -22.9 11.3
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Accumulated Operating Costs (EUR million) Staff costs Remunerations Pension Benefits Long term service benefits & Other Admin costs Depreciation Total Operating Costs
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(EUR million) Domestic Staff costs Remunerations Pension Benefits Long term service benefits & Other Admin costs Depreciation Domestic Operating Costs
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
YoY
QoQ
International Staff Costs Remunerations Pension Benefits Long term service benefits & Other Admin costs Depreciation International Operating Costs 37.2 35.2 0.8 1.1 21.0 4.3 62.5 37.3 34.0 1.0 2.3 24.1 5.3 66.7 40.3 37.3 1.1 1.9 25.1 6.4 71.8 46.8 41.4 0.4 5.0 30.4 4.7 81.9 46.3 43.2 0.9 2.2 28.9 5.8 81.0 43.4 40.3 0.8 2.2 29.3 6.2 78.9 48.0 45.9 0.8 1.3 27.8 6.2 81.5 19.1% 23.1% -27.3% -31.6% 10.8% -3.1% 13.6% 10.6% 13.9% 0% -40.9% -5.1% 0% 3.4%
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(EUR million) Domestic Staff costs Remunerations Pension Benefits Long term service benefits & Other Admin costs Depreciation Domestic Operating Costs
3M10
6M10
9M10
12M10
3M11
6M11
9M11
YoY
International Staff Costs Remunerations Pension Benefits Long term service benefits & Other Admin costs Depreciation International Operating Costs 37.2 35.2 0.8 1.1 21.0 4.3 62.5 74.6 69.3 1.8 3.4 45.0 9.6 129.2 114.8 106.5 2.9 5.3 70.2 16.0 201.0 161.6 147.9 3.3 10.3 100.6 20.7 282.9 46.3 43.2 0.9 2.2 28.9 5.8 81.0 89.6 83.5 1.7 4.4 58.2 12.0 159.9 137.6 129.4 2.5 5.7 86.0 18.2 241.9 19.9% 21.5% -13.8% 7.5% 22.5% 13.7% 20.3%
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Quarterly provisions
(EUR million) Credit cost of risk (bp) Domestic cost of risk (bp) International cost of risk (bp) Securities Other Total Provisions
1Q10 80.0 62bp 60.1 59bp 19.9 74bp 16.4 18.7 115.1
1Q11 80.9 63bp 70.1 68bp 10.7 40bp 0.6 21.6 103.0
2Q11 224.6 174bp 197.4 191bp 27.2 104bp 55.7 86.1 366.5
3Q11 147.8 114bp 132.4 128bp 15.4 59bp 5.3 37.9 191.0
YoY 76.8% 51bp 106.5% 66bp -20.8% -9bp 9.6% 60.9% 70.5%
QoQ -34.2% -60bp -32.9% -63bp -43.2% -45bp -90.5% -56.0% -47.9%
9M10 258.1 65bp 195.8 63bp 62.3 73bp 37.2 55.5 350.8
9M11 453.2 116bp 399.7 128bp 53.5 68bp 61.7 145.8 660.7
YoY 75.6% 51bp 104.2% 65bp -14.4% -5bp 65.9% 162.6% 88.3%
Note: Detailed credit provisions and asset quality data in following slides
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(1) Considering the outstanding amounts of securitised credit. Securitised credit only includes domestic loans.
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(EUR million) Loans to Individuals ow Mortgages Domestic International ow Other Domestic International Corporate Lending Domestic International Loan portfolio Domestic International Int as % total
Mar 10 14,371 11,576 11,072 504 2,794 2,461 333 37,137 27,164 9,972 51,507 40,697 10,810 21%
Jun 10 14,532 11,739 11,242 497 2,794 2,451 343 38,823 27,990 10,833 53,355 41,682 11,673 22%
Sep 10 14,479 11,722 11,225 496 2,757 2,428 329 38,279 27,701 10,577 52,757 41,354 11,403 22%
Dec 10 14,523 11,701 11,217 483 2,822 2,468 354 38,083 27,734 10,349 52,606 41,420 11,186 21%
Mar 11 14,333 11,650 11,177 473 2,683 2,348 335 37,319 27,441 9,878 51,652 40,966 10,686 21%
Jun 11 14,292 11,646 11,172 474 2,646 2,305 341 37,409 27,764 9,645 51,701 41,241 10,460 20%
Sep 11 14,157 11,595 11,112 483 2,562 2,228 334 37,876 28,159 9,717 52,033 41,499 10,534 20%
YoY -2.2% -1.1% -1.0% -2.7% -7.1% -8.2% 1.4% -1.0% 1.7% -8.1% -1.4% 0.4% -7.6%
QoQ -0.9% -0.4% -0.5% 1.9% -3.2% -3.4% -2.1% 1.3% 1.4% 0.8% 0.6% 0.6% 0.7%
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Mar 10 Overdue Loans >90 days / Gross Loans Coverage of Overdue Loans > 90 days Overdue Loans >30 days / Gross Loans Mortgage (>30d) Consumer (>30d) Corporates (>30d) Coverage of Overdue Loans >30 days Provisions for Credit / Total Gross Loans QoQ Provision Charge Domestic International Spain (1) 1.67% 187.5% 1.94% 0.86% 3.59% 2.16% 160.7% 3.12% 62 bp 59 bp 74 bp 141 bp
Jun 10 1.70% 184.9% 1.90% 0.82% 3.64% 2.09% 166.3% 3.15% 71 bp 69 bp 78 bp 106 bp
Sep 10 1.90% 172.5% 2.07% 0.84% 4.14% 2.30% 157.8% 3.27% 63 bp 62 bp 68 bp 103 bp
Dec 10 1.95% 173.0% 2.10% 0.80% 4.08% 2.36% 160.6% 3.38% 71 bp 61 bp 110 bp 60 bp
Mar11 2.17% 159.4% 2.38% 0.84% 4.46% 2.27% 145.4% 3.47% 63bp 68bp 40bp 142bp
Jun11 2.35% 163.0% 2.59% 0.82% 4.55% 3.00% 148.3% 3.83% 174bp 191bp 104bp 183bp
Sep11 2.60% 155.0% 2.85% 0.85% 4.87% 3.33% 141.6% 4.04% 114bp 128bp 59bp 165bp
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174%
161%
166%
158%
1.77%
1.94%
1.90%
2.07%
192%
2.60%
1.29%
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
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(EUR million) Gross Loans Domestic International Total Overdue Loans (> 30 days) Domestic International Overdue Loans > 90 days Domestic International Total Credit Provisions (BS) Domestic International
Mar 10 51,509.2 40,697.3 10,809.8 1,001.3 812.4 189.0 858.0 719.0 139.0 1,608.9 1,367.1 241.8
Jun 10 53,355.1 41,682.3 11,672.8 1,011.4 837.4 174.0 909.3 764.6 144.7 1,681.5 1,421.9 259.6
Sep 10 52,757.0 41,354.3 11,402.7 1,093.4 900.9 192.5 1,000.1 833.1 167.9 1,725.3 1,469.2 256.0
Dec 10 52,606.1 41,419.6 11,186.5 1,106.7 913 193 1,027.1 850.4 176.7 1,777.0 1,494.7 282.3
Mar11 51,652.1 40,966.3 10,685.8 1,231.5 1018.7 212.8 1,122.7 931.7 191.0 1,790.1 1,516.3 273.8
Jun11 51,700.5 41,240.9 10,459.7 1,337.1 1,101.1 236 1,216.2 996.0 220.2 1,982.6 1,694.8 287.8
Sep11 52,033.5 41,499.2 10,534.3 1,483.4 1,213.5 270 1,355.2 1,101.3 253.9 2,100.6 1,798.7 301.8
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Mar 10 Overdue Loans >90 days / Gross Loans Domestic International Coverage of Overdue Loans > 90 days Domestic International Overdue Loans >30 days / Gross Loans Domestic International Coverage of Overdue Loans >30 days Domestic International 1.67% 1.77% 1.29% 187.5% 190.1% 174.0% 1.94% 2.00% 1.75% 160.7% 168.3% 127.9%
Jun 10 1.70% 1.83% 1.24% 184.9% 186.0% 179.4% 1.90% 2.01% 1.49% 166.3% 170.4% 149.2%
Sep 10 1.90% 2.01% 1.47% 172.5% 176.4% 152.5% 2.07% 2.18% 1.69% 157.8% 163.1% 133.0%
Dec 10 1.95% 2.05% 1.58% 173.0% 175.8% 159.5% 2.10% 2.21% 1.73% 160.6% 163.7% 146.0%
Mar 11 2.17% 2.27% 1.79% 159.4% 162.7% 143.3% 2.38% 2.49% 1.99% 145.4% 148.8% 128.6%
Jun 11 2.35% 2.41% 2.11% 163.0% 170.2% 130.7% 2.59% 2.67% 2.26% 148.3% 153.9% 121.9%
Sep 11 2.60% 2.65% 2.41% 155.0% 163.3% 118.9% 2.85% 2.92% 2.56% 141.6% 148.2% 111.8%
(1) According to Bank of Portugal rules (Circular Letter N. 99/09/2003) 9M11 Results Presentation
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Quarterly and accumulated credit provision charge & net new entries
(EUR million; % annualised) P&L Credit Provisions Quarter Domestic International ow Spain As % Loan Portfolio (bp) Domestic International ow Spain P&L Credit Provisions Accumulated Domestic International ow Spain As % Loan Portfolio (bp) Domestic International ow Spain Net new entries as % Performing Loans (quarter) Net new entries as % Performing Loans (accum.) Quarterly Write Offs (Eur mn) 1Q10 80.0 60.1 19.9 14.6 62 bp 59 bp 74 bp 141 bp 80.0 60.1 19.9 14.6 62 bp 59 bp 74 bp 141 bp 103 bp 103 bp 28.8 2Q10 94.5 71.6 22.9 11.1 71 bp 69 bp 78 bp 106 bp 174.5 131.7 42.8 25.7 65 bp 63 bp 73 bp 123 bp 23 bp 61 bp 20.0 3Q10 83.6 64.1 19.5 10.6 63 bp 62 bp 68 bp 103 bp 258.1 195.8 62.3 36.3 65 bp 63 bp 73 bp 118 bp 74 bp 66 bp 14.1 4Q10 93.7 62.9 30.8 6.2 71 bp 61 bp 110 bp 60 bp 351.8 258.7 93.1 42.5 67 bp 62 bp 83 bp 104 bp 37 bp 59 bp 34.8 1Q11 80.9 70.1 10.7 13.3 63bp 68bp 40bp 142bp 80.9 70.1 10.7 13.3 63bp 68bp 40bp 142bp 123bp 123bp 30.0 2Q11 224.6 197.4 27.2 16.4 174bp 191bp 104bp 183bp 305.4 267.5 37.9 29.7 118bp 130bp 71bp 331bp 88bp 105bp 5.0 3Q11 147.8 132.4 15.4 14.3 114bp 128bp 59bp 161bp 453.2 399.7 53.5 44.0 116bp 128bp 68bp 167bp 129bp 113bp 16.4
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(EUR million) Deposits Sight Term Certificates of Deposits Debt Securities placed with Clients On-BS Customer Funds Off-BS Funds Total Domestic International % total
Mar 10 26,522 7,053 19,469 8,626 6,460 41,609 18,985 60,594 41,728 18,865 31%
Jun 10 26,082 7,974 18,108 5,834 5,924 37,841 18,006 55,847 40,375 15,472 28%
Sep 10 29,923 7,929 21,994 3,653 5,596 39,171 17,763 56,934 43,969 12,965 23%
Dec 10 30,819 8,676 22,143 1,749 6,326 38,894 17,094 55,988 43,147 12,841 23%
Mar 11 30,545 8,145 22,401 2,006 5,747 38,298 17,715 56,013 41,732 14,281 25%
YoY 13.1% 10.1% 14.2% -56.9% -5.8% 3.9% -16.7% -2.5% -4.3% 3.6%
QoQ 5.9% 3.1% 6.9% -4.7% -11.9% 2.7% -10.5% -1.1% -0.7% -2.5%
39,610 40,699 16,522 14,788 56,132 55,487 42,351 42,057 13,781 13,430 25% 24%
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(*) Other includes off-BS structured products, discretionary management and venture capital
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Available for Sale Portfolio main equity holdings potential gains & losses. Potential losses on equity holdings are deducted to Core Tier I
Potential Gains and Losses Acquis. (EUR million) Value Bradesco 284.9 185.1 291.5 170.2 135.0 0.0 0.0 Stake (%) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
EDP
197.5
1.98%
-18.9
-74.7
-55.8
-49.9
0.0
-20.1
-30.1
PT
777.7
11.70%*
51.4
46.5
141.2
-7.3
-28.7
-146.8
-200.9
BMCE
2.5
0.25%
7.1
6.0
6.5
7.3
6.3
5.2
6.2
Total
977.7
324.5
162.9
383.4
120.3
112.6
-161.7
-224.8
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Mar 10 (EUR million) (IRB) RWA (BoP) Banking Book Trading Book Oper. Risk Total Capital Core Tier I Tier I Tier II and Other Hybrid Capital As % Tier I Core Tier I (%) Tier I (%) Total (%) 67,063 59,092 4,303 3,668 7,104 5,276 5,405 1,699 600 11% 7.9% 8.1% 10.6%
Jun 10 (IRB) 67,191 59,115 4,408 3,668 7,516 5,300 5,668 1,857 600 11% 7.9% 8.4% 11.2%
Sep 10 (IRB) 67,210 59,642 3,900 3,668 7,393 5,303 5,589 1,807 600 11% 7.9% 8.3% 11.0%
Dec 10 (IRB) 68,802 60,610 4,219 3,973 7,798 5,416 6,040 1,758 920 15% 7.9% 8.8% 11.3%
Mar 11 (IRB) 68,576 60,214 4,389 3,973 7,838 5,395 6,033 1,805 920 15% 7.9% 8.8% 11.4%
Jun 11 (IRB) 66,431 59,482 2,976 3,973 7,577 5,445 6,127 1,517 775 13% 8.2% 9.2% 11. 5%
Sep 11 (IRB) 66,715 60,524 2,218 3,973 7,038 5,380 6,020 1,018 729 12% 8.1% 9.0% 10.6%
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Notes: BIS II IRB corresponds to calculations based on IRB Foundation for credit risk and standardised approach for operational risk. Preliminary data as of Sep 2011.
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Table of contents
I.
Focus on Balance Sheet: deleverage plan delivering. Funding and liquidity still affected Conservative risk management: continued increase of provision reserve to anticipate asset quality deterioration in the domestic portfolio
II.
III.
Solvency: Low sovereign exposure, concentrated in Portugal. Proposed Debt/Equity transaction to reinforce core capital
IV.
9M 2011 P&L: Resilient core operating performance. Focus on international business to sustain future profitability. Strict cost control measures producing results
V.
Wrap up Appendix 1: Detailed financial data Appendix 2: Macro fundamentals and forecasts: Portugal, Spain, Angola and Brazil
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Following several rating downgrades, Portugal requested financial aid on April 6th. The MoU signed between the new Portuguese government and IMF / EC / ECB implies several adjustments for the economy and for the banking sector
European summit of July seemed to calm down markets. However, in August fears regarding contagion effects spread and the European debt crisis worsened EBA released Stress Tests results. All Portuguese banks passed ECB suspended minimum credit rating threshold for Portuguese debt Moodys downgraded Portugal to Ba2, below investment grade Portuguese Government announced new austerity measures, including a new social one-off tax on income New government announced Portuguese General Elections took place. A coalition between Social Democrats and Popular party obtained a right-wing majority in the Parliament MoU signed between Portugal and IMF / EC and ECB Portugal announced the financial aid request Potugal faced several rating downgrades 4th Growth & Stability Programme rejected by the Parliament
Jul-Aug
15 Jul
8 Jul
5 Jul
30 Jun
17 Jun
5 Jun
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Structural Reforms Economy Labor Market: Lower value and duration of unemployment benefits. Reduction in severance payments, with gradual alignment with average EU practices. Higher flexibility in dismissals and working time arrangements. Promotion of the rental market. Reform of the judicial system and higher competition in energy, transports and telecoms.
Fiscal consolidation is going in the right direction, but there is still a lot to do
State Budget Balance on a Cash Basis (EUR million)
12
General Government Deficit on a National Accounts Basis (% GDP)1 Deficit for the year ending in each quarter 2Q 2011 8.8%
10 8 6 4 2
OE2011 target
Jan Feb Mar Apr May Jun Jul Aug Set Oct Nov Dec
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Inclusion of some public companies and PPP projects in the Public Administration perimeter, and the one off accounting Government assistance to two minor banks resulted in upward revision of the 2010 deficit, to 9.8% of GDP. The State deficit on a cash basis fell 30% y-o-y in September. On a National Accounts basis (the relevant criteria for the 5.9% of GDP 2011 target), the General Government deficit1 reached 8.3% of GDP in 1H 2011 and 8.8% of GDP in the year ending in 2Q 2011, in this case down from a peak of 10.5% in 2Q 2010.
(1) Includes the deficit for the State, Autonomous Funds, Social Security and Local/Regional Government. In contrast with the cash basis criteria, revenues and spending in the National Accounts criteria are accounted for when they are earned and incurred, and not necessarily when a payment is made or received.
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Estimated deviations from the 2011 fiscal target (5.9% of GDP ) on a National Accounts basis. Wages
EUR 300 mn 0.8% of GDP EUR 560 mn EUR 200 mn EUR 250 mn EUR 220 mn EUR 500 mn EUR 80 mn EUR 350 mn EUR 570 mn EUR 350 mn 0.5% of GDP or around EUR 0.8bn or around EUR 1.3 bn
Expenditure side
Intermediate consumptions Interests Concessions and sales Dividends Fees and other revenues (from Justice) Social Security contributions BPN privatization Consolidation of two SOEs debt (from Madeira) Other operations
Revenue side
execution
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Additional fiscal consolidation measures to cover the estimated deviations from the 2011 fiscal target, on a National Accounts basis.
0.5% of GDP
1.6% of GDP
0.1% of GDP
Concessions
Sources: IMF, ES Research NCPAMoU.
-0.2% of GDP
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Number
Implementation
5
Previous Previous actions actions June June July July August August September September
Implemented or decided
5 12 9 3 59
No decision or no implementation
11
Public financial
3
36
23
Renegotiated
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+
Positive remarks Negative remarks
Deviation from fiscal target; Recourse to one-off revenue measures, with low expenditure cuts; Not all measures related to SOEs have been attended.
Reviews of the Economic and Financial Assistance Program 1st Assessment 2nd Assessment June July August
September
October
November
December
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IMF, EFSM and EFSF Disbursements within the Economic Adjustment Program for Portugal, 2011 (EUR billion and percentages) Tranches already received Coupon Rate (%) Est. Interest Rate1 (%) Tranches to receive by end-2011 Est. Exp. Date Entity Est. Value Interest Rate (EUR billion) IMF
1 1 1 1 2 1 2 25/May 01/Jun 04/Jun 23/Jun 30/Jun IMF EFSM EFSM EFSF EFSF 7.5 10 5 10 5 6.3 1.75 4.75 4.6 2.5 Variable 5.65 4.90 3.375 2.75. 3.25 5.69 4.96 5.81 5.03
Tranche
Loan
Date
Entity
Maturity (N Years)
(%)
2.7 5.0
15/Dec
EFSM EFSF
2 2
1 1 2
7.5f 10 15
Sources: IMF, EC, EFSF, Bank of Portugal, ES Research NCPAMoU. (1) Not including administrative costs.
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EUR Million
8000 6000 4000 2000 0 Nov. 2011 Mai. 2012 Nov. 2012 Mai. 2013 Nov. 2013 10163 9738
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The Government presented the 2012 Budget to Parliament, maintaining the targets for the public deficit agreed with the IMF/EU/ECB
Budget 2012: Macroeconomic Environment
Real growth in %
Fiscal Consolidation
The deficit is expected to be cut from 5.9% to 4.5% of GDP. However, because of the deviations in the budget execution identified in 1H 2011, the 2011 target will be met through one-off revenues, which means that the underlying 2011 deficit (and the actual starting point for the 2012 deficit) will be higher than 5.9% (around 2 p.p. higher, or 7.9% of GDP). The need for a stronger deficit reduction effort next year has resulted in the adoption of new, tough, austerity measures in the 2012 Budget. Overall, measures on the revenue side will represent 1.7% of GDP, while expenditure cuts will reach 4.4% of GDP, or 72% of the effort. Naturally, this strongly restrictive nature of fiscal policy will have a negative short-term impact on economic activity, deepening the recession that was already expected. The Government expects GDP to fall 2.8% in 2012, with a significant retreat in all components of domestic demand. Exports are seen decelerating, following a deterioration in the external environment (particularly in Europe). But, with imports also contracting as a result of lower domestic demand, the contribution of net external demand to growth should remain supported. The unemployment rate should increase to 13.4% of the labour force. Although these macroeconomic assumptions should be seen as credible, we see downside risks to GDP growth in 2012, mainly related to the possibility of a worse than expected external environment (leading to lower than expected exports growth), as well as to the possibility of a slightly stronger decline in private domestic demand. Our own forecast now points to a real fall in GDP of around 3% in 2012, after a 2% fall in 2011.
GDP Private Consumption Public Consumption Investment (GFCF) Exports Imports Unemployment rate (%) Inflation rate (%) GDP deflator (%)
2011 -1.9 -3.5 -5.2 -10.6 6.7 -4.5 12.5 3.5 1.0
2012 -2.8 -4.8 -6.2 -9.5 4.8 -4.3 13.4 3.1 1.7
Source: Ministry of Finance, Budget 2012. * Excluding any support to bank recapitalisation.
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with very tough new measures, mainly (but not only) on the spending side.
Breakdown of fiscal savings, 2012 Budget (% of GDP)
3 2 1 0 1 2 3 4 5
1.7
0.5
Consumption& Subsidies
Expenditure
Socialtransfers
Wagebill
Revenue
SocialContributions
Capitalexpenditure
NonTaxRevenue
IndirectTaxes
DirectTaxes
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with very tough new measures, mainly (but not only) on the spending side.
On the spending side
A reduction in public sector pay, in the amount of EUR 2.7 billion (or 1.6% of GDP). This will be achieved through (i) a freeze in wages (with the 5% average cut implemented in 2011 still in place), (ii) a further cut in public sector employment in the Central Government (2%, at least, or close to 10000 workers) and, above all, (iii) the suspension (for the duration of the financial adjustment programme) of the holiday and Christmas bonuses (basically equivalent to 2 months wages) for public sector workers with wages above EUR 1000. Between EUR 485 and EUR 1000, the average reduction will amount to 1 months wage. Cuts in social transfers. Pecuniary social payments will be reduced in the amount of EUR 2.1 billion (or 1.2% of GDP), mainly through the suspension of the holiday and Christmas bonuses in pension payments in the general pension system. Social payments in kind will be cut by EUR 1 billion (or 0.6% of GDP), mainly through reductions in health related spending. Cuts in intermediate consumption (EUR 690 million, 0.4% of GDP) and in subsidies (EUR 88 million, 0.1% of GDP). Cuts in public investment of public institutes, State Owned Enterprises (SOEs) and Local and Regional Government (EUR 923 million, 0.5% of GDP).
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* Assumptions: Nominal GDP growth: 2013, 0%; 2014, 2%; 20152020, 3.5%. Interest spending (% GDP): 2013, 5%; 2014-2020, 4.5%. Primary balance (% GDP): 2013, 2.1%; 2014, 3.3%; 2015, 4.5%; 2016-2020, 3%. Sources: Ministry of Finance (Budget 2012), ES Research.
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The Stabilisation Program is being implemented by a Government supported by an absolute majority in Parliament
The June 2011 General Election resulted in a change in Government. The new Government is supported by a coalition between two centre-right parties, PSD and CDS-PP. Together, these two parties hold a comfortable majority in Parliament. The IMF/EU/ECB stabilisation program is being implemented in an environment of political stability. It should be highlighted that the three parties that publicly supported the IMF/EU/ECB stabilisation program (PSD, PS and CDS-PP) received close to 80% of the votes. The Budget will be discussed in Parliament in the beginning of November, with a first general vote expected for November 4th. The different Parliamentary commissions will then hold discussions on the specific sectoral issues of the Budget, which could give way to minor changes in the document. The final vote in Parliament will take place on November 29th. There is no doubt that the Budget will be approved.
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Year Quarter
2009
2010
2011
2009
2010
2011
Sources: INE, Bank of Portugal.
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Households savings rate remains supported, and loans to households are showing a decelerating trend, reflecting the ongoing deleverage in the economy
Private consumption coincident indicator (y-o-y) and consumer confidence indicator (net balances).
0 -10 -20 Balance -30 -40 -50 -60 2000 2002
September 2011
Lower private consumption is expected for 2011, mainly as a result of restrictive fiscal policy measures (eg. lower wages, higher taxes and social contributions) and a fall in confidence levels. Domestic demand should also be constrained by tighter financing conditions. Loans to households are showing a decelerating trend, reflecting the ongoing deleverage in the economy. Non-performing loans have remained contained as a proportion of total loans.
Households savings rate (% disposable income) and 12-month savings intentions (net balances)
5 4
13 12 11 10
Percent
2Q 2011
September 2011
3 2 1 0 -1 -2 -3 -4 -5
September 2011
-10 -15 -20 -25 -30 -35 -40 -45 -50 -55 -60 -65 -70
2004
2006
2008
2010
-7.9
Percent
-0.5
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External demand remains strong, partially compensating the ongoing decline in domestic demand
Stronger external demand has continued to support business activity. In August 2011, merchandise exports were up by 13.2% YoY and services exports were up by 8.2% YoY (nominal growth, 3 month MA). New external orders to the manufacturing sector increased close to 21% YoY in August (6 month MA). Loans to non-financial corporations are showing low growth, reflecting lower demand for business investment and tighter financing conditions.
21%
20 15 10 5 0 -5
August 2011
-0.4
Nov. Abr. Set. Fev. Jul. Dez. Mai. Out. Mar. Ago. Jan. Jun. 2006 2007 2007 2008 2008 2008 2009 2009 2010 2010 2011 2011
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Portugal with stronger growth in exports to the Euro Area in 2011, while also expanding its relevant market to fast growing emerging markets
Portuguese Exports to selected countries and regions
(growth rate, %, August 2010 / August 2011)
29.8
(1)
Middle East 6.0 China Mozambique Brazil Germany France Italy Angola Spain USA
0
UK 5.7
10 20 30 40 50 60
*African Countries of Official Portuguese Language (Angola, Cape Verde, Mozambique, Guinea-Bissau and Sao Tome and Principe)
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Portuguese exports profile has been changing, with an increase in the weight of high value added goods and services
Portuguese Exports Profile (1996-2010)
76%
Goods
Goods
Traditional goods (from 56% to 48%)
68%
24%
Services 1996
Services 2010
32%
Goods with high technological components: machinery and equipment, transport material, optical products, chemical products, plastic products. Traditional goods: textiles, food products, shoes, cork. Sources: INE, Eurostat, ES Research.
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Strong transport and logistic potential. Portuguese ports can play an important role in the trade flows between America, Africa, Asia and Europe
Potential routes to the Portuguese ports Container cargo, Portuguese Ports, 2009-2010 (annual change)
()
22%
19%
11%
39%
Share in total
Main maritime trade routes from South America and Western Africa are experiencing very strong growth. Portuguese ports are becoming privileged gateways into the European market given the signs of congestion at the major seaports of Europe.
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Portuguese banks fundamentals remain solid, as they had no exposure to toxic assets, are not suffering any effects of a real estate bubble and non-performing loans are contained, in spite of the recent increase
The increase in Portuguese banks demand for central bank liquidity has been a direct result of the downgrade in sovereign ratings. It has not been the result of any intrinsic fragilities of the banking system.
EUR Billion
Without access to wholesale funding market for a year, Portuguese banks have been pursuing an aggressive deleverage process. Households deposits reached a historical high in June, reflecting the ongoing confidence in the banking sector. Portuguese banks deposits continue to show a rising trend in 2011, in contrast with deposits in Greek and Irish banks. Portuguese Banks deposits
250 240 230 220 210 200
+13.7% YoY
-7.0% YoY
190 180 170 160 150 Jan. 2008 Jul. 2008 Jan. 2009 Jul. 2009 Jan. 2010 Jul. 2010 Jan. 2011 Jul. 2011
200 190 180 Jan-08 Jun-08 Nov-08 Abr-09 Set-09 Fev-10 Jul-10 Dez-10 Mai-11
Sources: Reuters EcoWin Pro, Bank of Portugal, European Commission, INE; Central Bank of Greece.
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Households deposits continue to show a rising trend. External financial assistance to the Portuguese Government should contribute to an improvement in liquidity
Households deposits the most important component of Banks deposits have maintained a steady rising trend, as a result of (i) higher financial savings efforts on the part of households; (ii) a re-intermediation of savings and (iii) sustained confidence in the Portuguese banking sector. External financial assistance should allow for a recovery in Public Administrations deposits.
Households deposits
130
40
120
35
110
30
100
25
90
20
80
15
70 Jan. 2008 Jul. 2008 Jan. 2009 Jul. 2009 Jan. 2010 Jul. 2010 Jan. 2011 Jul. 2011
10 Jan. 2008 Jul. 2008 Jan. 2009 Jul. 2009 Jan. 2010 Jul. 2010 Jan. 2011 Jul. 2011
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Housing indebtedness (left scale) Consumption indebtebdness (left scale) Interest payments (right scale)
3 2 1 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
After reaching a peak of 129% of disposable income in 2009 (or 95% of GDP), aggregate household indebtedness started a correction trend in 2010, reflecting the beginning of a deleverage process that is expected to proceed in the future. In 2010, aggregate household indebtedness represented 127% of disposable income (and 93.8% of GDP). The increase in household indebtedness over the last decade has mainly reflected an increase in the number of households with access to mortgage loans, and not any significant increase in individual situations of heavy debt burdens. In average, mortgage debt service ratios remain contained across all income quartiles. Vulnerability to interest changes is higher among lower income households. 27 October 2011
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No bubble in house prices. Between 1998 and 2010, Portugal real estate prices have shown very little real growth, in clear contrast with other Euro Area economies
Nominal House Price Index 1998 = 100
300 280 260 240 220 200 180 160 140 120 100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
103
Spain
95 75
Euro Area
Ireland
55 35
43
46
Portugal
15 5
10
Portugal
Sources: ECB, Bloomberg, ES Research. (1) Accumulated nominal house price growth minus accumulated CPI growth
EuroArea
Ireland
Spain
The Portuguese housing market faced the recent global financial crisis in a very different cyclical position from those in economies such as Ireland or Spain. House price growth has been moderate over the last years, essentially reflecting macroeconomic developments and fundamentals. In this context, Portuguese banks havent been facing the hangover of a bubble burst in house prices. The lack of evidence of overvaluation mitigates any potential downside expectations in prices. 27 October 2011
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Ongoing deleverage process in the Portuguese economy has already translated into a lower external deficit
The deleverage of the economy is underway, with the domestic savings rate (including all sectors of the economy) stabilising above 9% of GDP (9.1% in 2Q 2011 vs. 9% one year earlier). Net external financing needs have declined from 11.1% of GDP in 2008 to 7.7% of GDP in June 2011. This trend is expected to proceed in the near future, to an estimated external deficit around 6% and 4% of GDP by the end of 2011 and 2012, respectively. External Deficit (net external financing needs of the economy), % GDP
20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
12 10
2Q 2011 9.1%
11.1 9.1 9.5 6.9 6.1 4.6 10 9.2 6.8 8.9 10.1 8.8 7.7
8 6 4 2 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Jun- Est. 11 Dec 2011
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Ample external assets provide stability in the face of a tough financing environment. Portugal is one of the main world holders of gold reserves
Portugals gross external assets (% GDP)
200
176
175 150 125
% of GDP
9.0
100 75 50
%of GDP
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (2Q)
2
25 0
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Oct (Est.)
In the face of a difficult financing environment, Portugal benefits from holding ample external assets (close to 176% of GDP in 2Q2011). Also, Portugal is one of the main world holders of gold reserves (currently estimated at 9% of GDP).
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2006 1.4 1.8 -0.7 -0.6 11.6 7.2 3.1 -4.1 63.9 7.7 -10.0
2007 2.4 2.5 0.5 2.0 7.6 5.5 2.5 -3.1 68.3 8.0 -8.9
2008 0.0 1.3 0.4 -0.1 -0.1 2.3 2.6 -3.6 71.6 7.6 -11.1
2009 -2.5 -1.1 3.7 -13.7 -11.6 -10.6 -0.8 -10.1 83.0 9.5 -10.1
2010 1.3 2.3 1.2 -5.3 8.8 5.1 1.4 -9.8 93.3 10.8 -8.8
2011F -2.0 -3.8 -3.7 -10.2 6.7 -3.2 3.6 -5.9 100.3 12.6 -6.1
2012F -3.0 -4.9 -4.6 -8.7 4.1 -3.5 2.3 -4.5 105.8 13.7 -3.9
GDP Private Consumption Public Consumption Investment Exports Imports Inflation (%) Budget Balance (% GDP) Public Debt (% GDP) Unemployment (% Labour Force) Current & Capital Account Balance (% GDP)
E: Estimate; F: Forecast. Sources: Bank of Portugal, INE, ES Research, European Commission, IMF, OECD.
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Macro Spain Highlights: Return to growth, but feeling the contagion of the debt crisis
GDP growth
(%, y-o-y and q-o-q).
% 6 5 Y-o-Y 4 3 2 0.7 1 0.2 0 -1 Q-o-Q -2 -3 -4 -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
After the deep recession lived in 2009 (-3.7%) and stagnation in 2010 (-0.1%), the Spanish economy picked up in the first half of 2011, subsiding in the second half due to the slowdown of activity in the Euro Zone. The outlook for the European economy gradually deteriorated, largely as a result of persistent doubts over Greeces financial situation, constant wavering on the part of several Euro Zone policy makers and fears of contagion of the debt crisis to the European financial system. This economic performance should not allow any improvement at the labour market level, with the rate of unemployment still above 20% of the labour force.
Sources: INE & Bloomberg (Spain) 9M11 Results Presentation
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2006 3.9 3.9 4.6 7.1 6.7 10.3 3.4 2.0 39.6 -8.4 8.5
2007 3.6 3.6 5.5 4.6 6.6 8.0 2.8 1.9 36.1 -9.6 8.3
2008 0.9 -0.6 5.8 -4.8 -1.1 -5.3 4.1 -4.2 39.9 -9.1 11.3
2009 -3.7 -4.3 3.2 -16.0 -11.6 -17.8 -0.3 -11.1 53.3 -4.5 18.0
2010F -0.1 1.3 -0.1 -7.4 9.2 3.5 1.8 -9.2 60.1 -3.7 20.0
2011F 0.6 0.5 -0.2 -3.3 10.0 4.0 3.0 -6.0 71.9 -3.5 20.5
2012F 0.5 0.5 -0.3 -1.5 5.0 2.0 1.6 -4.4 73.5 -3.1 20.5
GDP Private Consumption Public Consumption Investment Exports Imports Inflation (%) Budget Deficit (% GDP) Public Debt (% GDP) Current & Capital Account Balance (% GDP) Unemployment (% of Labour Force)
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22.6
13.8 10.8
2.4
3.4
3.7
25 23 21 19 17 15 13 11 9 7 5
USD billions
mb/diay
Jan. May Sep. Jan. May Sep. Jan. May Sep. Jan. May Sep. 2011 2008 2009 2010
The outlook for the Angolan economy for the final months of this year and 2012 is extremely bright. The International Monetary Fund estimates that the Angolan economy will grow by 10.8% in 2012, quite above the world economys (4%) and above the estimated average growth of emerging and developing economies (6.1%). Even against a background surrounded by uncertainties, namely global deceleration and consequent decrease in raw-materials prices, including oil, Angolas growth will mainly derive from the resuming of oil production, after an interruption in 2011. The upward revision of Angolas risk rating by the three main rating agencies, all with a stable outlook, attests for the confidence placed in the country.
* IMF Forecast 9M11 Results Presentation Sources: BNA, OPEC & Bloomberg
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2006 GDP (real growth rate, %) GDP per capita (USD, current prices) Inflation (%) Current Account Balance (% GDP) Budget Balance (% GDP) Exchange Rate (USD/KZ), annual average BNA Rediscount Rate (%), end of period 14.0 20.7 2 445 13.3 25.6 11.8
80.4
76.8
75.0
79.2
91.9
93.0
93.0
19.6
19.6
30.0
25.0
20.0
15.0
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7.3%
11.5%
2007
2008
2009
2010
2011
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
The financial instability of the summer months (August and September), driven largely by the sovereign debt crisis in the Euro Zone, rapidly deteriorated the growing environment of global economy. The shock waves were felt in Brazil, which was forced to reverse the cycle of rising rates, in order to contain inflation. The Central Bank made two cuts of 50 bp at the end of August and at mid-October, putting the Selic rate at 11.5%. Until the end of the year it can be admitted a further 50 bp cut to 11%, a level that should be kept in 2012. The continued acceleration of inflation since October 2010 peaked in September, 7.31% y-o-y, with an estimated a value at the end of this year at 6.5% and 5.7% in 2012. GDP should grow by only 3.5% this year and 4.5% in 2012.
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2006 GDP (real growth rate, %) Inflation (%) Primary Budget Balance (% GDP) Public Debt (% GDP) Unemployment (% of Labour Force) Current Account Balance (% GDP) Exchange Rate (USD/BRL), annual average SELIC Interest Rate (%, End of Period)
Sources: IBGE, Central Bank of Brazil, ES Research.
2.18
1.95
1.84
1.99
1.76
1.64
1.63
13.25
11.25
13.75
8.75
10.75
11.00
11.00
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Disclaimer
This news release may include certain statements relating to the Banco Esprito Santo Group that are neither reported financial results nor other historical information. These statements, which may include targets, forecasts, projections, descriptions of anticipated cost savings, statements regarding the possible development or possible assumed future results of operations and any statement preceded by, followed by or that includes the words believes, expects, aims, intends, may or similar expressions or negatives thereof are or may constitute forward-looking statements.
By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by forward-looking statements. These factors include, but are not limited to, changes in economic conditions in individual countries in which the BES Group conducts its business and internationally, fiscal or other policies adopted by various governments and regulatory authorities of Portugal and other jurisdictions, levels of competition from other banks and financial services companies as well as future exchange and interest rates.
Banco Esprito Santo does not undertake to release publicly any revision to the forward-looking information included in this news release to reflect events, circumstances or unanticipated events occurring after the date hereof.
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Investor Relations
1,167 million EUR 3.5 bn Financial Services: Banking 36 Indices, including: PSI20, Euronext 100, Eurostoxx, Stoxx Banks FTSE4GOOD
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