The global financial system crisis - Banco do Brasil · Banco do Brasil Bradesco Itaú Unibanco...

1

The global financial The global financial

system crisis system crisis Opportunities forOpportunities for

Banco do BrasilBanco do Brasil

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This presentation contains references and statements, planned synergies,

increasing estimates, projections of results and future strategy for Banco do

Brasil, it’s Associated and Affiliated Companies and Subsidiaries. Although these

references and statements reflect the management’s belief, they also involve

imprecision and high difficult risks to be foreseen, consequently, they may

conduct to a different result than the one anticipated here. These expectations

are highly dependent on market conditions, on Brazil’s economic performance,

as well as on the financial system and on the international market ones. Banco

do Brasil is not responsible for bringing up to date any estimate in this

presentation.

Disclaimer

3

The financial crisis impacts on Brazil

Opportunities for Banco do Brasil

Agenda

BB’s Fundamentals

4

The financial crisis worsening restricted access to international funding to Brazilian banks and companies and trembled the C ountry’s capital market and exchange rate...

∆∆∆∆+35.06%

-39.59%

Dec/07 Mar/08 Jun/08 Sep/08

Exchange Rate – R$/US$ Ibovespa

5

Brazilian Government and Central Bank performed pro mptly to reduce the financial crisis impacts on the Brazilian financial system and economy

Brazil’s reserve requirements and international reserves levels allow the Central Bank to keep providing liquidity to the country's economy as much in R$ as in US$.

Regulation Amount

Circular 3.405 R$ 13 billion



Resolution 3.622 Not established

Oct 13th Circulars R$ 100 billionTime, demand and interbank deposits’ compulsory and reserve requirements release.

Description

Interbank loan portfolios purchase with up to 40% deduction of time depositsreserve requirement.

Reserve requirement decrease on interbank deposits from leasing companies.

3% reserve requirement decrease on time and demand deposits.

Establishes procedures for loan and rediscount operations regulated by MP 442.

-

50,000

100,000

150,000

200,000

250,000

300,000

Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08

Reserve Requirements - R$ million International Reserves - US$ million

6

Although Brazilian banks have no exposure to subpri me-related assets, their market cap continued falling due to the globa l confidence crisis...

� The market lost its rationality with the crisis.

� Since Sep 30th, BB market cap fell R$ 22 billion, which does not reflect the Bank’s fundamentals.

� The P/B and P/E ratios are 1.3 and 5.3, close to 2003 levels.

... and Banco do Brasil leads the market cap underp erformance, even thought it has the best fundamentals

Jan/08 Feb/08 Mar/08 Apr/08 May/08 Jun/08 Jul/08 Aug/08 Sep/08 Oct/08

Lehman Brothers

Bankruptcy

Fed puts a rescue package

for AIG

A bail-out plan is announced by the US

government

Morgan Stanley and Goldman

Sachs become commercial banks

The US House of Representatives voted against the

bail-out plan

Sep-Oct/08

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 01 02 03 04 05 06 07 08 09 10

Banco do Brasil Bradesco Itaú Unibanco Ibovespa

Iceland banks collapsed. Icesave

accounts are declared in

default

The US House of Representatives voted in favor of the bail-out plan,

but it did not improved the

markets confidence

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Agenda


BB’s Fundamentals


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Payroll loan has the largest share of individual loan portfolio

BB has increased its market share in consumer finan ce, loans to agribusiness, foreign trade, SME and large-sized co mpanies...

11.0%

10.9%

10.0%

6.3%

6.0%5.8%5.8%

44.2%

Oil

Foodstuff of vegetable Origin

Metalworking and Steel

Services

Electricity

TelecommunicationsAutomotive

Others

Well diversified business loan portfolio, with maximum concentration of 11% in the

oil sector (Aug/2008)

BB is the main Brazilian financerMarket Share

23.3 33.6 40.9 49.0 49.5 50.015.218.3

24.629.2 29.7 30.7

18.423.9

31.940.5 41.4 42.1

30.5

36.6

40.2

43.2 42.2 41.5

5.3

8.5

11.7

18.4 18.2 18.0

9.2

12.2

11.4

9.7 9.8 11.0

2005 2006 2007 Jun/2008 Jul/2008 Aug/2008

Corporate SME IndividualsAgribusiness - Individuals Agribusiness - Business Abroad

R$ billion

101.9

15.3%16.5% 16.0%

16.9% 16.7% 16.4%

133.1

160.7

190.0 190.8 193.3

-5

1015202530354045

2005 2006 2007 Jun/2008 Aug/2008

R$ billion

Individuals Payroll Loan

Agribusiness loan portfolio is diversified by purpose, customer size, region and financed items (Aug/08)

Product R$ million Share

Livestock 7,080 11.90%

Soybean 3,493 5.87%

Sugar Cane 3,465 5.82%

Corn 3,221 5.41%

Coffee 1,412 2.37%

Poultry 1,380 2.32%

Orange 1,352 2.27%

Machinery and Equipment 1,347 2.26%

Others 36,764 61.77%

T o t a l 59,515 100.00%

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... maintaining the credit book quality along with delinquency better than the Brazilian Financial System one...

BB’s delinquency is 3.3%, lower than Brazilian Financial System

7.7%7.5%8.0%

7.7%

8.3%8.6%

8.0%

5.6%5.3%

6.1%

5.6%

6.4%6.4%6.1%

4.1%

4.7% 4.6%4.3% 4.1% 4.0% 4.2%

3.3%3.3%3.3%3.7%3.7%3.7%

3.3%Mar/07 Jun/07 Sep/07 Dec/07 Mar/08 Jun/08 Aug/08

Past Due Loans +15 – Financial System

Past Due Loan +15 - BB


Past Due Loans +90 - BB

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...lower delinquency ratios are seen in every BB’lo an segments.

Individual book delinquency shows falling trend and it is below market

In the business book delinquency is in line with the Financial System

Agribusiness delinquency is under control and presents improving average risk (*)

(*) agri-industrial loan is not included

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

12/04 12/05 12/06 12/07 01/08 02/08 03/08 04/08 05/08 06/08 07/08 08/08 09/080.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Balance - R$ billion Average Risk Past Due Loans +90

3.4%3.0%2.9%

3.2%3.3%

4.3%

4.2%

3.7%

4.2%3.9%

2.9%2.6%

3.9%

2.6%

3.3%

4.7%

1.7%

1.7%2.0%

2.5%2.7%

2.3%2.0%

1.8%

2.4%2.0%

1.7%

1.6%

2.6%

2.5%

2.8%

2.3%

Dec/04 Dec/05 Jun/06 Dec/06 Jun/07 Dec/07 Jun/08 Aug/08





12.0%

13.7%13.4%13.0%13.5%13.8%14.2%

12.9% 12.4%

13.1%15.3%

9.6%10.2%9.9% 9.7%

10.7%

7.0% 7.5%7.0%7.1%7.6%7.2%

6.7%6.2% 6.0% 5.8%

6.7%

9.1%

6.3%5.8%

5.8%

7.9%

Dec/04 Dec/05 Jun/06 Dec/06 Jun/07 Dec/07 Jun/08 Aug/08





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Additionally, BB has adopted preventive measures to monitor the crisis impact in its customer operations, with special mon itoring of segments and companies.

� Risk analysis prior to assuming customer credit risk;

� Credit risk exposure limitation per customer and macroeconomic sector;

� Market and liquidity risk management are guided by preestablished limits and levels of decision;

� Mismatches between financial indexes are protected.

In the crisis momentum, BB’s credit policies and ris k management have been proving to be appropriated.

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BB’s Global Risk Committee has always been conservat ive in its exposure to market risk, avoiding major impacts of foreign exchange and interest rates.

� Derivatives are used for protection, aiming at minimum variance between assets and liabilities;

� There is no speculation with derivatives;

� There is no relevant exposure to foreign currencies.

Term Option and Currency Swap Term Option and Currency Swap –– Major Customers (R$ million)Major Customers (R$ million)

BB’s customers exposure to currency swap is intensiv ely monitored. Until October 1 st, BB was expected to receive R$ 614.5 million from its customersand to repay them R$ 243.0 million, a net effect of R$ 371.5 million.

Currently, BB’s net foreign exchange exposure, included currency swaps contracted by BB’s customers, is around US$ 100 million, below June 2008 level.

Client NotionalValue BB Debtor

A 261.1 78.5B 271.7 50.2C 189.1 46.4D 82.1 10.5E 212.5 8.0

Others² 556.6 49.4Total 1.573.2 243.0

(2) It involves 38 contracts and average notional value of R$ 14.7 million

Client NotionalValue B B C reditor

A 252.5 (64.8)B 320.1 (56.5)C 115.7 (31.6)D 174.5 (30.1)E 121.0 (28.9)

Others¹ 3,616.8 (402.7)Total 4,600.6 (614.5)

(1) It involves 152 contracts and average notional value ofR$ 23.8 million

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� 34.1% of the individual loan portfolio;

� Leadership – 19.4% market share;

� Focused on the public servants (90% of the portfolio);� Average term – 34 months;

� Average ticket – R$ 5.3 thousand.

Loans to individuals still concentrated in payroll line, the lower risk one.

Car loan is the second largest line in the individu al portfolio.

� 11.6% of the individual portfolio;� Average term – 42 months (account holders) and 44 months (non-account holders);

� Average ticket – R$ 22.7 thousand;

� Past Due Loans +90 days – 4.3%.

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� Preventive measures to serve the largest number of customers being taken since August (ACC/ACE):

� Term reduction;

� Financed amount reduction.

� 33% market share, with growth perspective

BB has kept its leadership in financing exporting c ompanies, offering foreign trade credit lines, such as ACC/ACE, despit e the lower availability of foreign funding.

-200400600800

1,0001,2001,4001,600

Jun/08 Jul/08 Aug/08 Sep/08-0.20.40,60.81.01.21.41.61.82.02.2

thousand

Contracted Amount (US$ million) Quantity of Contracts

ACC/ACE Contract

3.6 3.8 3.9 4.14.6

Mar/08 Jun/08 Jul/08 Aug/08 Sep/08

ACC/ACE Average Balance Portfolio– US$ billion

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FeB/02 Aug/02 Feb/03 Aug/03 Feb/04 Aug/04 Feb/05 Aug/05 Feb/06 Aug/06 Feb/07 Aug/07 Feb/08 Aug/08

Source: Bloomberg.(1) FX Exchange Rate from Feb 12nd 2002 to Oct 2nd 2008

CRB Food Index – US$ 1

CRB Food Index – R$ 2

(2) Original index converted by the FX Exchange Rate R$/US$

The agribusiness loan portfolio outlook remains fav orable, despite the commodities volatility.

� The Brazilian crop is in the planting season, mainly;

� The sector inputs purchase decisions took into account the price rise that occurred in the 1H08;

� Estimated global stockpiles sign adjusted supplies;

� The lower volume of anticipated sales will mean lower use of fertilizers;

� Cropped area will keep unchanged, but with productivity reduction;

� Researches indicate that the rain will be adequate to the crop season.

The commodities price drop down in American Dollars is being offset by the Real devaluation.

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Agenda


BB’s Fundamentals


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9.3

16.213.5

24.0

Jun/08 Jul/08 Aug/08 Sep/08

Customers who made new deposits

New Deposits

68.8

111.2120.6

139.286.7

138.3 149.4

175.3

Funding Volume

R$ billion

thousand

BB’s funding has increased above the goal. Its the f light to qualityphenomenon benefiting BB’s funding expansion...

CDB195.5 203.0 214.1R$ billion

97.6%

96.5%

97.5%97.4%

Average Cost - % Selic CDB Balance – BRL billion

96.7 106.7 117.8

49.1 50.0 50.243.6 40.6 39.75.6 5.3 6.1

Jun/08 Jul/08 Aug/08Time Deposits Savings Demand Deposits Interbank Deposits

35.243.7

49.055.1

Jun/08 Jul/08 Aug/08 Sep/08

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...allowing liquidity increase and vigorous credit growth...

150.5 153.6161.0

166.7175.6 178.5 179.1 180.2

Jan/08 Feb/08 Mar/08 Apr/08 May/08 Jun/08 Jul/08 Aug/08

R$ billion

Average Liquidity Minimum Reserve Domestic Loan Portfolio*

* It does not include installment purchases made with credit card and financed by retailers.

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... besides placing the Loan/Deposits ratio in a be tter level, without affecting the BIS ratio.

BIS Ratio - %

15.6 15.313.1 13.6 13.7

4Q07 1Q08 2Q08 Jul/08 Aug/08*(*) Estimated Ratio

Loan / Deposits - %

85.4 90.9 97.2 94.0 90.3

4Q07 1Q08 2Q08 Jul/08 Aug/08

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The reserve requirements drop, approved by CMN, wil l increase BB’sliquidity as well as the Financial System’s...

R$ 160 billion reserve requirements are being added up to the economy

BB gets extra R$ 11.4 billion due to the reserve requirements drop

Reserve Requirements

41.6 42.4 42.6 44.3

11.4

213.6235.8 241.1 249.4

259.4

160.0

45.7

Apr/08 May/08 Jun/08 Jul/08 Aug/08

BB Financial System

R$ billion

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� Individual loan portfolio reached R$ 42.1 billion balance in Aug/08;

� In the last 18 months, BB acquired loan portfolios with joint risk of R$ 1.5 billion;

� The reserve requirements drop generates opportunities to loan portfolio purchase;

� R$ 3 billion loan portfolios with joint risk proposals are currently under analysis;

� The acquire decision considers good banking governance and the risk x return equation;

� The acquisition process is automated and centralized, minimizing operational risks.

BB’s Analysis

Limit establishment

Portfolio Analysis

Operations Filter

Valuation

... allowing BB to leverage its individual loan por tfolio with the purchase of other banks portfolios.

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Interbank

� Reduction of credit lines over 90 days;

� No liquidity;

� No parameters to valuate;

� Reduced number of partners.

Repurchase Agreements

� Unlisted;

� No partners.

The Brazilian international reserves, as an alterna tive funding source, will allow BB to keep its highlighted position in t he foreign trade financing, even with the global liquidity restricti on.

Alternative sources such as Proex and Proger Exportação collaborate to finance the foreign trade market.

MP 442 / Resolution CMN 3622:

It will bring liquidity to the market (ACC/ACE).

BB’s international diversified funding basis has cushioned the liquidity restrictions

Time Deposits

� Customers’ Return – BB is seen as safe harbor.

Issuing

� Unavailable;

� Closed market, awaiting for behavior clearness.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Dec/0

7Ja

n/08

Feb/0

8M

ar/0

8Apr

/08

May

/08

Jun/

08Ju

l/08

Aug/0

8Sep

/08

US

$ m

illio

nIssuingIndividualsSpecialBusinessRepurchase AgreementsInterbank

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In agribusiness, the 2008/09 crop is already plante d at an American Dollar exchange rate of R$1.60. When the harvest season co mes (2Q09), the margins will be lower than in the previous crop, bu t still profitable.

� To the 2008/2009 crop, BB was expecting to grant R$ 30.8 billion in loans, setting R$ 19.3 billion for cost finance (R$ 11.5 billion from July to December/2008 and R$ 7.8 billion from January to June/2009)

� To compensate the tradings lower share in agribusiness financing, R$ 5 billion from funds with equalization are being anticipated when previously expected to be disbursed in the 1H09.

� If by the end of the crop (Jun/09) that amount anticipated needs to be replaced or increased, the Federal Government can use its budget funds or other source to be defined.

The 2007/2008 crop good performance improved the 2008 payment flow (until Sep) :

...Each crop agribusiness sector is funded by farme rs their own, tradings/suppliers and rural credit (ban ks), which has the following share in the 2008/09 crop:

Production Cost and Agribusiness Loan2008 Estimative – R$ billion

17.2

4. 9 4.3 5.3

51.3

8.7

20.2

36.0

Grains Coffee Sugar Cane

Livestock

Granted Loans Production Cost

15%56%

21%

33%

61%

3%

36%

Paid Default To be paid

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Investor Relations UnitSCN Quadra 2 Bloco A - 6º andar – Sala 602

Ed. Corporate Financial Center CEP - 70.712-900

Brasília – DF Phone: (61) 3101-8781

Fax: (61) 3101-8793

[email protected]

For further information access bb.com.br/ri

The global financial system crisis - Banco do Brasil · Banco do Brasil Bradesco Itaú Unibanco...

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