CONFIDENTIAL

SEPTEMBER 2010

FINANCIAL SERVICES INDUSTRY

Financial Services Discussion Materials

FINANCIAL SERVICES DISCUSSION MATERIALS

Table of Contents

FINANCIAL SERVICES DISCUSSION MATERIALS

Banking Industry Overview

FINANCIAL SERVICES DISCUSSION MATERIALS

BANKING INDUSTRY OVERVIEW

Banking Industry Market Overview

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The banking sector comprises of three segments including:

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Mortgage lending: accounts for 2-3% of the countrys GDP

Major player includes Caixa Economica Federal, a government-owned mortgage lender

Insurance: includes life and non life insurance

Generated a gross premium income of $41.5 bn in 2008

Payroll lending: a new loan market where lenders collect repayments directly from the payrolls of borrowers

Major player includes Banco do Brasil, Brazils largest public sector bank
NUMBER OF BANKS
No. of Ba nks

MARKET SHARE BY OWNERSHIP (2008)

200
Foreign Ba nks 19% Public Sector Ba nks 40%

192 190 182 180 170 160 167

165

164

161

159

156

159

Priva Sector Ba te nks 41%

150 2000 2001 2002 2003 2004 2005 2006 2007 2008

FINANCIAL SERVICES DISCUSSION MATERIALS

BANKING INDUSTRY OVERVIEW

Banking Industry Key Players

Bank Rank Ownership Assets (in US$ bn) No. Of Branches

Private

$343.83

3,732

Public

249.30

4,973

Private

246.93

22,177

Private

146.19

2,283

Public

134.97

2,069

FINANCIAL SERVICES DISCUSSION MATERIALS

BANKING INDUSTRY OVERVIEW

Banking Industry Credit Operations

2008, SEPTEMBER BEFORE CRISIS
Credit Ca rd 6% Rea esta fina l te ncing 1% Overdra a ft ccounts 4% Goods Purcha se a Lea nd sing 38% Persona Credit l 32%

2009, JULY AFTER CRISIS

Credit Ca rd 6 % Rea esta l te fina ncing 1% Overdra a ft ccounts 4%

Others 15% Credit Unions 4%

Others 16% Credit Unions 4 %

Persona Credit l 3 4%

Goods Purcha se a Lea nd sing 35%

Credit Operations - Individuals

Credit Operations - Individuals

2008, SEPTEMBER BEFORE CRISIS

Adva nced on Hot Money Excha nge 1% Contra & cts Foreign Lendings Working Ca l pita 18 % 42 % Vendor 2% Goods Purcha se a Lea nd sing Discount of tra de 20 % bills & promissory 4 % Gua nteed ra Account Credit Operations - Corporations 13%

2009, JULY AFTER CRISIS

Adva nced on Excha nge Contra & cts Foreign Lendings 1 4% Hot Money 1%

Goods Purcha se a Lea nd sing 18% Discount of tra de bills & promissory 4% Gua nteed ra Account 12%

Vendor 2%

Working Ca l pita 4 9%

Credit Operations - Corporations

FINANCIAL SERVICES DISCUSSION MATERIALS

BANKING INDUSTRY OVERVIEW

Banking Industry Market Dynamics

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The Basel Ratio in Brazil is 17.5%, above the 8% recommended by the Basel Accord and the 11% minimum defined in Brazilian legislation In 2008, number of Checking Accounts and Saving Accounts includes 1,257 mn and 92 mn As of Nov 2008, three banks held 51% of the market and the top 5 banks held 74% of total assets
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The participation of the top 5 banks in total assets grew from 58.6% in June 2008 to 74.6% in Dec 2008, mainly due to the incorporation of ABN by Santander and the merger of Ita with Unibanco

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The Central Bank registers all credit operations above BRL 5000 As of Oct 2008, Brazilian bank financial strength rating was C
BANKING SEGMENT BY CAPITAL ORIGIN (2008)
Public 8 % Domestic with foreign ownership 35% Domestic with foreign pa rticipa tion 4% Foreign - Bra nches 4%

Domestic 49%

FINANCIAL SERVICES DISCUSSION MATERIALS

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Insurance Industry Overview

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Insurance Industry Overview

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The Brazilian insurance sector is comprised of two segments including:

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Non-life Insurance: generated a gross premium income of $24.9 bn in 2008

Sub segments, Property & Casualty and Accident & Health generated a premium incomes of $17.7 bn & $7.2 bn

Life Insurance: generated a gross premium income of $16.7 bn in 2008

Sub segments, Pension/Annuity and Life Insurance generated a premium incomes of $12.8 bn & $3.9 bn

Brazil accounts for 2.9% of the Americas insurance market's gross premium income
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The US leads the Americas insurance market with 87.1% of the regional market gross premium income

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

BRAZILIAN INSURANCE MARKET SEGMENTATION (BY SALES)

BRAZILIAN INSURANCE MARKET SEGMENTATION (BY GEOGRAPHY)

Bra zil 3% Ca da na 7% Rest of the America s 2%

Mexico 1%

Non Life Insura nce 60% Life Insura nce 40%

U.S. 8 7%

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Insurance Industry Key Players

I C

I V

S S E

( I N

S $

$ 9 9 . 5 4

$ 3 4 3 . 8 3

$ 2 4 6 . 9 3

1 , 2 4 5

3 , 7 3 2

2 2 , 1 7 7

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Insurance Industry Market Dynamics

The Brazilian insurance market grew by 15.3% in 2008 to generate a gross premium income of $41.5 bn
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Brazil represents the largest insurance market in Latin America, representing ~40% of the gross premiums in the region Compound annual growth rate for the market was 14.4% for the period 2004 - 08 Expects a CAGR of 9.1% for the five-year period 2008 - 13, which will drive the market to a value of $64.2 bn by the end of 2013 In comparison, the US and Canadian markets grew with CAGRs of 2.9% and 4.9% respectively, over the same period to reach respective values of $1243.9 bn and $103.2 bn in 2008 Insurance companies are setting up automatic treaties & struggling to adapt to the new market situation Underwriting knowledge is being developed The number of registered companies with SUSEP continues to grow

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The Industry is poised to witness the following trends:

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s s

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

BRAZILIAN INSURANCE MARKET VALUE (2008)

($ in billions) $ 50 40 30 10 20 10 0 2004 2005 2006 2007 2008 5 0
4.4 CAGR 1 %

20% 15

FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Insurance Industry Market Dynamics

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(contd)

The Brazilian Non Life Insurance market grew by 15.2% in 2008 to generate a gross premium income of $24.9 bn
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Compound annual growth rate for the market was 12.3% for the period 2004 - 08 Expects a CAGR of 9% for the five-year period 2008 - 13, which will drive the market to a value of $38.3 bn by the end of 2013 In comparison, the US and Canadian markets grew with CAGRs of 2.3% and 2.6% respectively, over the same period, to reach respective values of $665.7 bn and $55.3 bn in 2008

The Brazilian Life Insurance market grew by 15.4% in 2008 to generate a gross premium income of $16.7 bn
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Compound annual growth rate for the market was 18% for the period 2004 - 08 Expects a CAGR of 9.3% for the five-year period 2008 - 13, which will drive the market to a value of $26 bn by the end of 2013 In comparison, the US and Canadian markets grew with CAGRs of 3.6% and 7.8% respectively, over the same period to reach respective values of $578.2 bn and $47.9 bn in 2008

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FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

BRAZILIAN NON LIFE INSURANCE MARKET VALUE (2008)

($ in billions) $ 30 25 20 15 10 5 2004 2005 2006 2007 2008
12.3% CA GR

BRAZILIAN LIFE INSURANCE MARKET VALUE (2008)

($ in billions)

30% 25 20 15 10 5 0

$ 20 15 10 5 0 2004 2005

8.0 CAGR 1

30% 25 20 15 10 5 0

2006

2007

2008

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FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Insurance Industry Benefits and Risks

STRENGTHS & OPPORTUNITIES
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CONCERNS & RISKS

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Well-developed market for personal and commercial products

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Sovereign/macroeconomic risk for Brazil

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In general & life insurance and retirement savings, supported by a large economy and population base
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Alleviated by recent improvements in the government's debt structure, Moody's foreign currency ceiling at Ba1 & local currency ceiling at A1

Established distribution systems

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Primarily through bank branches and affiliates for life insurance and pension products
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Intense price competition and customer turnover

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Increased utilization of technology

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In commodity-like personal and small business insurance products

Should improve operational efficiency including underwriting, claim & policy processing, risk management and product distribution

Significant wealth and income disparity among the population

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Improved economic stability and growth

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Limits insurance and savings product utilization, especially among the less affluent population

Together with an increased public awareness of insurance and retirement savings products

Crime and fraud are major risks

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Supportive and increasingly sophisticated insurance regulatory regime

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Affecting both personal and commercial lines of business

Has implemented important new financial disclosure, accounting, governance and internal control standards
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Market inefficiencies caused by lack of pricing differentiation and open competition in reinsurance
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Related to the monopolistic status of IRB

Modest exposures to natural catastrophes

Potential margin compression as a result of falling interest rates and tighter credit

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FINANCIAL SERVICES DISCUSSION MATERIALS

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INSURANCE INDUSTRY OVERVIEW

Relative to other major Latin American markets

spreads
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For insurers that are dependent on investment returns to offset underwriting losses

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