CONFERENCE CALL - ITAÚ HOLDING PARTNERSHIP BETWEEN ITAÚ AND CBD July 28 th, p.m. (Brasília)

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1 Transcription CONFERENCE CALL - ITAÚ HOLDING PARTNERSHIP BETWEEN ITAÚ AND CBD July 28 th, p.m. (Brasília) Mr. Thomas Karsten: Good afternoon, ladies and gentlemen. Welcome to the conference call for, being held in conjunction with Companhia Brasileira de Distribuição, CBD. During today s call, the details of a strategic partnership between these two groups, as announced yesterday to the market, will be discussed. We would like to remind you that the conference call is accompanied by a slide presentation, which is being webcasted simultaneously over the Bank s investor relations website, at Before proceeding let me mention that forward-looking statements are being made under the safe harbor provision of the Security Litigation Reform Act of Actual performance may differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. With us this afternoon in São Paulo, representing Banco Itaú, are Mr. Alfredo Setubal, Investor Relations Director and Executive Vice President of Capital Markets; Mr. Henri Penchas, Senior Vice President and CFO; Mr. Silvio de Carvalho, the Executive Director of Controllership; Mr. Hélio de Mendonça Lima, the Executive Director of Itaucard; Mr. José Francisco Canepa, the Executive Director of Consumer Credit. And representing CBD we have Mr. Fernando Queiroz Tracanella, Investor Relations Director, Mr. Luiz Antonio Amarante, CFO; and Mr. Aymar Giglio Junior, the Director of Financial Operations. First, Mr. Alfredo Setubal and Fernando Tracanella will present the details of the strategic partnership between Itaú and CBD. Then the executives will be available to answer any questions submitted by telephone or by . It is now my pleasure to turn the call over to Mr. Setubal. Please go ahead, sir. Mr. Alfredo Setubal: Thank you, good afternoon, it s a pleasure for Itaú Holding and CBD to be here this afternoon to explain the new venture that we are announcing today in the consumer finance business. For those who are following through the Internet we are in slide number 2, when we say that we are founding a new company that probably will be a financial consumer company that will be responsible for structuring and selling products and the offer of financial services for all the clients of CBD. 1

2 Going to the slide number 3 we show you that this partnership will be 50% held by Itaú and 50% held by CBD. This new company will have a capital of R$ 150 million that will support all the transactions and all the services to be offered to the clients of CBD. Slide number 4, this association of these two companies, companies that are leaders in their markets, in the business that are engaged, companies that are recognized both as having a good management and both companies with high value brands that will, of course, help a lot in terms of attracting customers for the new business that will start during this by the end of this year. This new venture will help in the consumer credit of Brazil, of course this new business will be very important in the strategy of Banco Itaú Holding in strengthening our position in this consumer credit market. 2

3 Today, in slide number 5, we can see that Itaú has already a good position in the consumer credit; we have already 6, almost 6 million credit cards holders; we have already R$ 8 billion in consumer credit for individuals and we have 9.1 active clients of Banco Itaú, so we already have a very good position in the financial market and in the consumer side of this financial market. When we go to slide number 6 we can see the current position of the customers of CBD that today have use the consumer credits through the partnership they offer today, so we can see that today have 580 thousand consumer credit contracts; we believe that through the next ten years we can increase these numbers to more than 3.5 million contracts. In terms of credit cards, talking specifically about the private label credit cards, today it has 3.3 million customers of CBD that already have these credit cards; we believe that through the next ten years we can achieve 9.3 million cards; and credit cards of private label, credit cards that use other brands, already have 480 thousand cards and we believe that we can achieve 2.6 million cards through the next ten years; and personal contracts, loan contracts, we believe that we can have 1.6 million personal contracts, so in very, very important, very big, the potential is increasing and if Brazil continues to grow in terms of GDP, of course these numbers can be much better in the future. 3

4 Going to the slide number 7, we can see that we will have some synergy gains with this new company for both sides; today CBD uses many partnerships to offer financial services through their retail network. This new company will consolidate all this offering of products that today are through many partners into this new company that will have its own team that will be totally focused on this new business and with technology that Itaú will introduce, both in terms of systems and in terms of financial operations. This offer of products will focus on the private label credit cards; all the credit cards as we mentioned before and in the consumer credit and personal loans. Itaú, through this partnership with CBD, will be able to use all the retail network, all the brands that today CBD has and new ones that can be acquired in the future and the new stores that will CBD open in the next years, everything will be available for this financial, new financial institution to offer financial services to the clients of CBD. So you can see that the potential is very good and very important for both companies to provide financial services to the clients. Mr. Fernando Tracanella: Good afternoon everyone, this is Fernando Tracanella from CBD. We are in chart number 8 and just to reinforce the importance and the potential of this association, I d like to comment a little bit about the current structure of CBD. Today we have 555 stores in 12 states in Brazil; 40 million transactions per month; gross revenues last year, including Sendas, of R$ 15 billion through the banners Pão de Açúcar, Extra Hypermarket, Compre Bem Barateiro, 4

5 ABC Barateiro, Sendas and Extra-Eletro. With this we believe that this new association can meet its goals in terms of growth. We see Brazil still extremely understored and with a lot of potential in terms of growth, either organically or through acquisitions. In slide number 9 we have some additional features about the new company, the new association. We re going to have a board of directors; an operation support committee comprised equally by the shareholders; the chairman of the new company will be appointed by Itaú. We also are going to have an executive board made up of market professionals with broad experience in the area; operating management under the responsibility of Itaú and own structure and personal. In next slide some additional points about the strategy of the operation. We have a big focus on the growth of the direct consumer credit. It s a long term partnership, we re talking here about 20 years and a renew option at the end. It s an exclusivity association for Itaú in terms of exploration of financial products and services to CBD customers and we see this as a very strong partnership, we intend to reinforce the commercial relations between CBD and Itaú. 5

6 Mr. Setubal: The next slide - slide 11, we now talk about the implications on Itaú Holding on these new transactions. The total investment of the Itaú Holding will be R$ 455 million that includes a goodwill of R$ 380 million; the difference is the R$ 75 million that is our part in the 50% of the new company. This goodwill was determined on the forecast of the new company using the numbers that I showed you some slides before in terms of number of contracts, credit cards and the total business that we believe is able to be done through this new company. Of course, this new company will strengthen a lot our position in the retail financial market, it is important to say that this new company is a different company from the consumer financial company that we established and started operations one month ago Taií is the name of the company this company will continue their operations, opening new branches and establishing their position in the market, so we are going to have also this new company with CBD, just to focus services and consumer credit to these clients of CBD. This deal will offer also to Itaú to prospect clients to our banking, traditional banking operations if we want to do that; of course, the main objective, the focus of this new business is to increase consumer credit for the clients of CBD. We believe that due to the high level of investment that we are going to have to do to establish this new company in the next years, to open the branches and kiosks in the stores of CBD, we 6

7 don t believe that this will have a major impact in the results of Itaú Holding in the first three years of the operations of this new company. Mr. Tracanella: About the main effects in CBD I d like to stress our higher focus on the retail; we see this as a world trend that retailers are increasing their focus in the real operation and working with financial and services, financial products and services with a financial partner, so we re going to have a very strong financial partner to offer a better and a much broader offer of financial services and products in our stores and the consequence of this will be a higher traffic of consumers in CBD stores. We have a big focus in terms of same store sales increase and this will be extremely important to achieve this objective. We also see this as a very interesting opportunity to increase the revenues that will come from the financial products and services; it s an important point also that we re going to have the consolidation, through a consolidation process, R$ 380 million; R$ 75 million capitalized in the new company and the remaining installment balance in the amount of million will be contingent up of achievement of the new company goals over a five year maximum period. We see also many synergies with this new association; CBD estimates that the potential to reduce selling expenses will be around the range of R$ 20 to R$ 30 million per year. Mr. Setubal: On the slide number 13 we can see some economic evaluations of this investment. We believe that the new company, as I said before, is expected to have ROE around the same level that Itaú s financial companies have, by 2008 and we expect, for these operations, we are using what we consider a capital that we have in excess; as everybody knows, Itaú has a BIS ratio of around 20%, so we have a huge capital basis and most of this capital basis is in excess for the level of assets that we have today. We believe that this capital, that excess capital that today are invested mainly in CDI and SELIC, we believe that the return of the operation for Itaú on this new company, will be CDI plus 10.5% a year, so we expect a very good return for this new business that we are establishing with CBD. 7

8 Mr. Tracanella: The fulfillment of this operation is depended upon the approval of the Brazilian Central Bank and the appropriate authorities and we also expect the startup of the operations to take place some time in the second half of Just as a final message, on the basis of this operation Itaú and CBD, proud to be Brazilian companies, reaffirm their commitment to the Brazilian market and the assurance that they will extend and satisfy their customers and also create value for their shareholders. 8

9 So, this was the presentation that we would like to call in with you and now we can open for questions and answers. Thank you. Q&A Session Operator: Thank you. Ladies and gentlemen, we will now begin the Question and Answer session. If you have a question, please press the star key, followed by the one key on your touchtone phone. If at any time you would like to remove yourself from the questioning queue, press the star key followed by the two key. Operator: Our first question comes from Jason Mollin of Bear Stearns. Please go ahead. Mr. Mollin: Good afternoon, everyone. My first question is related to the size of the current outstanding credit portfolio that CBD has today, I guess if you could break that down at what you have on your private label, post-dated checks for special loan contracts. And if you could talk a little bit about the terms or the terms on these loans, as well as the past-due loan experience, the past-due loan today in those segments, as well as the losses. My second question is really related to how the new company is going to deal with the current outstanding customers and how will you transfer those, if that s the idea, to the new company? Mr. Tracanella: Hello, this is Fernando from CBD. Regarding the first part of your question, currently we have a credit financing receivables line in our balance sheet around R$ 200 million, between R$ 150 and R$ 200 million and the remaining we have with credit card companies, posted-dated checks and also food vouchers that will not be part of this new association. Mr. Mollin: And what kind of interest rate are you earning on this current receivables of R$ 150 to R$ 200 million and what s the past-due loans? Mr. Tracanella: We have currently an interest, an average interest rate of 6% per month. Mr. Mollin: 6% per month. And non-performing loans? Are they highly performing? Operator: Pardon me, sir? Mr. Tracanella: I m sorry; we have now currently the most updated number around 6%. 9

10 Mr. Mollin: So, these receivables; you will try to transfer to the new company or no? Mr. Giglio: No, the balance of receivables won t be transferred to the new company, only the clients and the potential of the new products that will be sold to the new clients, to these clients. About the second part of your question, we will negotiate with our current partners and implement an organized process of migration of the current clients holding our credit cards to the credit cards and other products that will be issued by the new company. Then it will be agreeable and organized and negotiated process in order to avoid any kind of attrition with the current clients. Mr. Mollin: And just to confirm then that all new financial products will be done through the new company, correct? Mr. Giglio: Correct, it s an exclusivity agreement. Mr. Mollin: Thank you very much. Operator: Thank you for your question, Mr. Mollin. Our next question comes from Paul Tucker of Merrill Lynch. Mr. Paul Tucker: Thank you and good afternoon, everybody. I have two questions, one of them which, Alfredo, you alluded to, was just looking at the liabilities side of things, do you anticipate, maybe, a subsequent expansion into offering other financial services, such as deposits, insurance, mutual funds and if so, would that just be by virtue of flowing customers from CBD into Itaú or could you even envisage creating a bank within the retailer, if you like, as we ve seen with some European banks? And secondly maybe you could just give us an idea of the impact you expect on the return on equity between the years of 2004 and 2008, while this business is in its build-up phase? Operator: Pardon me, sir? Mr. Tucker: Hello? Mr. Setubal: Hello, Paul. Well, the first part of your question, we have the license to offer as prospect clients to our commercial bank Itaú commercial bank; of course, we are going to use that as we can, but it s not the focus of this transaction to conquest, to prospect these clients to this, to Itaú s business, the focus will be the consumer credit and developing this consumer credit company, both with CBD. The second part of your question. Mr. Henri Penchas: Paul, is Henri speaking. How are you? The second part of your question, the facts will not be material to Itaú until We don t believe it will affect the net income of Itaú until there. The amount is very, very small, taking into consideration all the net income, the investments and the profitability of actual profitability of Itaú. Mr. Tucker: Ok, thank you very much and thank you for doing the call. Operator: Thank you for your question, Mr. Tucker. The next question comes from Robert Ford of Merrill Lynch. Please, go ahead. Mr. Robert Ford: Hi guys, with respect to the earlier question, I just want to get this straight. How will you be taking deposits or how will you fund receivables at the new joint venture? 10

11 Mr. Penchas: Henri speaking. The funding will be the capital, the net worth of the company and the interbank deposits. Mr. Ford: So, you will not be offering any deposit products to consumers at CBD? Mr. Penchas: For the moment we don t intend to offer any consumer deposit to the customers. Mr. Ford: And will the joint venture be paying rent to CBD for the bank allocations? Mr. Penchas: Yes. Mr. Ford: And how is that being determined? Mr. Penchas: We have established a market rates per square meter in all the CBD stores. Obviously, depending on the size of the store, we will have our branch there, directly proportional to the size of the store. Mr. Ford: OK and what s the estimated Capex to build out the network branches? Mr. Penchas: Excuse me, I did not understand. We believe that the actual capital net worth of the company of R$ 150 million will be enough for all the investments that the new company will need to consolidate its branches inside the 555 stores of CBD. Probably the number will be between 70 and 100 millions for the 555 stores including furniture, fixtures and electronic network needed to operate this kind of product. That will be during two or three years. Mr. Ford: Ok and then with respect to the 305 million payment there was some ambiguity both on the Portuguese call and this call with respect to the timing and what set of conditions need to be satisfied for the remaining R$ million to be paid out. Could you clarify that, please and perhaps expand on the set of conditions that need to be satisfied, the timing of the subsequent payments Mr. José Francisco Canepa: Hi, this is Canepa. Basically, the 152 million will be, you know, delivered according to targets regarding new stores inside CBD s hypermarkets and to business volumes according to the next five years. Mr. Ford: OK, so but there s 305 million that will be paid out, right? So, is there million to be paid out immediately upon closure of this agreement and then are we to understand that there will be a series of payments that add up to the or is it at the back end or how does that function? Mr. Canepa: There is 152 million basically according to targets to be reached the next five years and another 152, which would show up on consolidation to CBD during the next couple of months. Mr. Ford: So, is that something that is in deposit at Itaú and that s why you re saying that s shown as held in deposit by CBD? Mr. Canepa: Sorry, could you repeat that, please? Mr. Ford: The way you just characterized the initial 152 million, I didn t really understand, does that mean that CBD holds it in deposit with Itaú initially? They don t have access to those funds? Mr. Canepa: Yes. 11

12 Mr. Ford: And then at some point in the future that s freed Mr. Canepa: Yes, during the next five years it will be freed up against the targets, yes. Mr. Tracanella: And Bob, let me just add something, since the very beginning the whole 205 million will generated financial revenues for CBD. Mr. Ford: OK, so you perfect. Thank you very much. Operator: Thank you for your question, Mr. Ford. Our next question comes from Daniel Parker of Bear Stearns. Please, go ahead. Mr. Parker: Hi guys, just I want to clarify a couple of things first Fernando you said that the total outstanding receivables for installment sales and post-dated checks is R$ 150 million to R$ 200 million, so does that include private label cards as well? Mr. Tracanella: No, Daniel, actually I meant just credit financing, the installment sales, I was not also including post-dated checks. Mr. Parker: Could you tell us how much the post-dated checks are? Mr. Giglio: Currently around R$ 60 million in terms of balance. Mr. Parker: And if I understood correctly none of the existing loans will be transferred to the new company Mr. Tracanella: Yes, that s right. Mr. Parker: OK and you guys securitize your receivables. How much do you have securitized at the moment? Mr. Giglio: Our fund of receivables has now a net equity of R$ 730 million; 80% of this volume is securitized by CBD. Mr. Parker: OK and just a couple of questions, I guess I m still confused, how much is the total payment that Itaú is making to CBD? Is it 305 million or 380 million? Mr. Penchas: The total amount of the goodwill is 380 million; we will invest 75 million more to constitute the 50% of the new finance company that, with 75 million of CBD, will complete the net worth of the new financial company of R$ 150 million. So the total investment of Itaú, the net investment of Itaú will be of 380 millions plus 75 millions. Mr. Parker: So the 380 million is effectively a payment to CBD Mr. Penchas: Is not a payment to CBD, is increasing the capital of a company that will be held partially by CBD and partially by Itaú. Mr. Parker: So that s an increase in capital to the new joint venture? Mr. Penchas: The financial company, the financial institution will have a capital of 150 millions. Mr. Parker: I m sorry, then where does the 380 million go? 12

13 Mr. Penchas: We have another company with CBD that will have this amount of money and that has other things in its assets. Mr. Parker: And this other company, what will the 380 million be used for then? Mr. Penchas: That company that will be partially consolidated, 50% consolidated by CBD and 50% consolidated by Itaú, in the part of CBD the 50% will reduce the consolidated debt of CBD by the amount of R$ 305 million. Mr. Parker: Ok and Fernando, are you guys going to consolidate this new company on your financial statements? Mr. Tracanella: Yes, Daniel, that will be consolidated. Mr. Parker: OK. All right, thank you. Operator: Thank you for your question, Mr. Parker. The next question comes from Lori Sierra from Morgan Stanley. Ms. Lori Sierra: Thank you, I do have just a few questions of clarification. First, just in terms of the migration of the Itaú accounts to new JV, to the extent that you have credit cards extended to CBD customers; can you just clarify what the mechanism is or if there is one for transferring those customers to the JV? Mr. Hélio Lima: Hi, this is Hélio Lima speaking. Currently we do not have credit cards issued at CBD partnerships; those cards are private label cards issued by other financial institutions and they also have co-branded cards by another financial institutions. What is going to happen is over the next semester all those contracts are going, is being expired and therefore we will begin the new company with a new portfolio and those ones will be run off. The credit card operations of Itaú are an independent operations from this, so this is exclusively for the deal in terms of selling financial products to CBD customers. Ms. Sierra: But do you have a sense of what your client overlap is between your current credit card portfolio and CBD s credit card portfolio? Mr. Lima: We estimated about 8% to 10% based on a randomly selected basis that could be fairly reliable on the statistical basis. Ms. Sierra: OK, but those clients that you are both serving will not be consolidated within CBD you may continue to offer them services outside of this new JV? Mr. Lima: No, we can offer other cards but not consolidated. Ms. Sierra: OK. Second question, again I guess for Fernando; when you spoke in the earlier conversation or the opening comments, rather, about 20 to 30 million of operating synergies is that the rental payment that you were referring to or those 20 to 30 million on top of the rental payment? Mr. Tracanella: On the top of rental, Lori, we are talking here about selling expenses related to the credit business in CBD. Ms. Sierra: OK and I guess my last question is just going back to the prior question; I guess I m not understanding, you see there the 305 million that s going to CBD part upfront and part 13

14 overtime stays in this other company? And it s a 50/50 other company partnership agreement? I don t understand that. Mr. Tracanella: It s a different company, Lori, that will be created. We are not talking here about the new financial institution and by consolidation, CBD will have this 305 million; out of this, 152 will be used according to targets established for the next five years. Ms. Sierra: OK, thank you. Operator: Thank you for your question, Ms. Sierra. Our next question comes from Jason Mollin of Bear Stearns. Mr. Mollin: I just wanted to clarify that in Itaú s case, from an accounting perspective we re going to see, how is this going to be accounted for, we re going to see an additional goodwill charge or goodwill account of R$ 380 million? That will be amortized according over time or according to the profitability of this venture or all at once as we ve seen you doing in the past? Mr. Penchas: Henri speaking. We intend to amortize this year this goodwill; as you know we have excess of provisions, we have a huge amount of difference between the fair market value of our financial instruments and accounting value of that, at this moment we intend to fully amortize this amount this year. Mr. Mollin: And just as a follow-up, based on your growth expectations for this business, would it be accurate to say that we shouldn t expect additional capital contributions to be needed over the next five years on the part of the shareholders? That this R$ 150 million in capital is sufficient to fund, to capitalize this financial institution, given the growth you expect over the next several years? Mr. Penchas: Following our assumptions that are pretty conservatives we believe that in the next five years this company will not need additional capital. Mr. Mollin: So and in that, well, I guess you could securitize. I m just trying to figure out the size of the portfolio. You talked about target number of clients. Is there any way to get a sense of the target receivables or credit outstanding that you are expecting to generate? Operator: Pardon me, sir? Mr. Tracanella: Just a second, please, we are getting the information Mr. Canepa: Hi, this is Canepa. Basically, the forecast for the plans for the next ten years we have today all private labels, you know, consumer credit in CBD, roughly 3.5 million clients; for the next ten years we ll have around 13.5 million clients, which will be an increase of 10 million clients. That s what the prime calls for and depending on the average balance and everything under receivables will vary here and there, but, you know, the plan was made for 10 million additional clients. Mr. Mollin: And what does that represent, what s the typical average outstanding balance for this types of clients? Mr. Canepa: I would say about R$ 300. Local currency, OK? Mr. Mollin: Thank you. 14

15 Mr. Canepa: Very welcome. Operator: The next question comes from Tina Barroso of UBS. Please, go ahead. Ms. Tina Barroso: Yes, I have a question for Fernando. Itaú said that they don t expect this new company to impact their profits for the next three years. What s the estimated impact for CBD s bottom line, you know, from 2005 to 08, for example, excluding the effect of the additional 305 million in your balance sheet at this time? That s my first question. Mr. Tracanella: Hi Tina, this is Fernando. In 2004, we are not expecting any significant impact also in CBD numbers. As we mentioned in the presentation, this company will start operations in January. It will start generating more significant results from 2005 on. Basically, what you can expect in CBD s numbers from 2005 on, is that the net financial result of the credit financing will be entirely reflected in our equity income line, it will come from the new association, the new company. We also believe that we can increase the revenues of financial products, something that we haven t explored well so far and we see a big potential and we believe that also the traffic of customers in CBD will increase. But this is the only guidance that we are giving right now. During the second half, probably, we ll be able to give you something more precise in terms of the potential, in terms of results of the new company for CBD. Ms. Barroso: OK, so you have no estimates for 05 right now in terms of bottom line for this company on top of your results? Mr. Tracanella: In terms of bottom line, we prefer to wait and see how things will behave in terms of consumption in Brazil. If I have to give you a precise projection in terms of bottom line, I would have to give you also an estimate in terms of sales for next year and we see that consumption is just starting to improve, so we intend to wait a little bit more, see more clearly how things will be in 2005 and then give you a guidance in terms of bottom line. Ms. Barroso: My second question is: do you have an estimate of the difference in funding cost between the new company and CBD s current funding cost? And finally, would this new company at some point, if you decide to make a bank out of it, would you be serving other retailers? You know, CBD s composition, basically? That s it for me, thank you. Operator: Pardon me, sir, are you ready for your next question? Mr. Canepa: Hi. Will be a reduction in the cost of funds, we would say, basically on an annual basis, we could say around 200 basis points and, you know, the answer for the second question is, basically the new company will not serve new retailers; we will focus on CBD. Ms. Barroso: OK, thanks. Operator: Thank you for your question Ma am. Our next question comes from Philipe Cruz, from Merrill Lynch. Please, go ahead. Mr. Philipe Cruz: Thank you very much, hello everyone. I have two questions, the first one is, I wanna know how would a roller plan work for the 555 branches in the CBD stores and then my second question; Itaú has recently announced an agreement with Moneygram for emmitances, given that the people that receive these funds tend to spend a lot of them in food and the like. Are there any plans to introduce this kind of service in your JV? Is that something that could be contemplated? 15

16 Mr. Lima: Well, we have worked together this is Hélio Lima, from Itaú - and we work together that of the 555/560 in the next three to five years, we are planning 156 in the first year and about 190 in the second year of operations, therefore the remaining balance of that for the year after and, again, we will be looking more on those outlets that have more traffic. With respect to Moneygram other products is something that we can consider in the future but is not in the scope of this product, because we re really looking here at the credit financing area, specifically to the CBD customers. Mr. Cruz: OK, thank you very much. Operator: Thank you for your question, Mr. Cruz. The next question comes from Daniella Bretthauer of Santander Investments. Ms. Daniella Bretthauer: Good afternoon. A question to Aymar on the receivables funds, you can remind us on the breakdown of the receivables funds, just trying to gather here if there is any impact from the setup of this new company with Itaú on your receivables funds Mr. Aymar Giglio Jr: Daniella, our receivables funds currently have around 80% of its volume in credit cards receivables and 20% in CDC installments consumer credit receivables, then, potentially, I will have this 20% of room, of space, in the receivables funds in the future, in 2005 to use these funds to put more credit card receivables in the fund. Ms. Bretthaeur: So, these installments cannot go into the receivables fund of CBD, because now they belong to the new company that CBD will have with Itaú, so you have to find other types of receivables to put in that money. That s what you are saying? Mr. Giglio: Daniella, there is a possibility in the next year of credit cards installment operations to take place to substitute the traditional CDC operations inside the operations of the new financial institution; it is a possibility of development that can happen in the Brazilian market and it s possible. For us, to CBD, the importance is that the new operations of installments of crediário, of CDC, will be financed by the new financial institution. Ms. Brettheur: So, in other words, you will gradually display this 20% portion of your fund with other sort of receivables? Mr. Giglio: Yes. Ms. Brettheur: OK, thank you. Operator: Thank you for your question, Ma am. Our next question comes from Daniel Parker of Bear Stearns. Please, go ahead. Mr. Parker: Guys, sorry, but I m still confused on the math and I want to go through it step by step. In the press release you said that Itaú is going to make total investments of R$ 455 million and it would make investments of R$ 75 million as capital into this new company; I thought that would leave R$ 380 million left, while you re saying that there is 305 million that would go to this new company. Can you just explain that? Mr. Tracanella: Daniel, the difference between the 380 million and the 305 million is that CBD will capitalize R$ 75 million in this new company, so that s why we have the R$ 305 million. Mr. Parker: What happens to the R$ 455 million investment that Itaú is making? 16

17 Mr. Setubal: Daniel, is Alfredo. Itaú will invest 455; 75 will go to the new company as capital, OK? So, CBD remains with 380; that 380 and invests 75 in the new company and remains with 305, OK? Mr. Parker: I m sorry, say that one more time? Mr. Setubal: Itaú invests 455; 75 will go to the new company; 380 is goodwill; CBD gets the goodwill, 380, and invests 75 of this 380 into the new company also, so will be 150, that s the capital of the new company and CBD will remain with 305. Mr. Tracanella: Daniel: that will reduce in this first moment our net debt through consolidation. Mr. Parker: OK, thanks. Operator: Thank you for your question, sir. Our next question comes from Carlos Gomez, of Citigroup. Mr. Carlos Gomez: Yes, hi, good afternoon. I would like to know if you could tell us what other banks you are working with until now and what type of outstandings will be transferred, eventually, when they expire to Itaú? Thank you. Mr. Tracanella: Unibanco and Credicard were the partners that we currently have and all the transactions will migrate to this new company. Mr. Gomez: Can you give us the sizes for Unibanco and for Credicard? Mr. Tracanella: I m sorry can you repeat your question? Mr. Gomez: Yes. Could you give us the amounts for Unibanco and for Credicard? Mr. Giglio: What we can say is that our partnership with Unibanco and with Credicard currently, operates the private labels that we have in CBD and the co-branded cards that we have in CBD; these two kinds of operations will be transferred to the new financial institution and our current contracts with these companies will be gradually discontinued by the next semesters. Mr. Gomez: But again, can t you give us an idea about the size? Maybe if not individually, together, between Unibanco and Credicard, that we are talking about? Mr. Giglio: In terms of size, we have currently 3.3 million clients in private label cards; 3.3 million card holders in private label and almost 600 thousand card holders in co-branded credit cards. Mr. Gomez: And the amount of the outstanding? Mr. Giglio: And we have around 500 thousand clients with installments contract. Mr. Gomez: OK, thank you. Mr. Giglio: The amounts outstanding in credit cards private label and co-branded operations, are amounts in their balance sheet, not in our company. We don t have this information. Mr. Gomez: OK, thank you. 17

18 Operator: Thank you for your question, sir. Our next question comes from Robert I m sorry, our next question comes from Mr. Palacios of Citigroup. Please, go ahead, sir. Mr. Eliecer Palacios: All right, good afternoon. I only have a question regarding operating efficiency. Will the new company have the same efficiency ratio as Itaú or have a different number? Could you give us an estimate, please? Thank you. Mr. Silvio de Cavalho: Like we mentioned, we expect in this company that will achieve the efficiency of the return on equity of Itaú in 2008 and the same efficiency ratio because of some synergies that we ll have with this company in Mr. Palacios: Thank you. Operator: Thank you for your question, sir. Our next question comes from Robert Ford of Merrill Lynch. Please, go ahead. Mr. Ford: Thank you again. I almost feel like apologizing for asking you additional questions, but how will this new structure change the way you shape your credit policies; how you respond to competition; how you authorize credit; how you determine rates and promotions? You know, how do you do it today? How will you do in the future through this joint venture and how will it affect the way you react to competition in the market place? Mr. Canepa: Hi, the new company will have its own credit policies that will be developed, you know, together between the partners, basically the new credit policy will be managed by Itaú, OK? According to our own credit scores and electronic basically approvals, OK? So, with the management of credit from Itaú and its policies, you know, that basically will be managed by Itaú, but the total strategy will be put together by both companies. Mr. Ford: So, in certain cases, say, for example, the market becomes intensely competitive, CBD waives its profitability to subsidize more aggressive promotions, that sort of thing? Mr. Canepa: Basically no, basically the company on its own will stand alone, I mean, the total, you know, credit policy from the new company will have to stand alone on its own merits independent of anything else. Mr. Ford: So then CBD will have to cut a deal with the credit company in terms of giving the company, perhaps, some of its gross profit revenue on a particular product category in which they are pursuing that type of a promotion, is that correct? Mr. Giglio: It s important to say that CBD, even with the existence of this new partnership, CBD won t change its commercial policies related to its clients. We will continue promoting our sales, doing our marketing policies and we will agree or not with the financial institution that we are partner, with certain promotions or not, we can continue making our own promotions and we will open our stores to the promotions and the marketing policies that the institution will want to do in the future. That it will continue to exist the retail company promotion policies and we will work together with this institutions that we are partners as we worked together with the other partners that we had in the past, in joint promotions. Mr. Ford: Thanks, Aymar. Who controls the database on this? Mr. Giglio: The database it will be in fact it will be constructed a new database that will be shared by the companies. 18

19 Mr. Ford: Great. Thank you very much. Operator: Thank you for your question, sir. Our next question comes from Jason Mollin, of Bear Stearns. Please, go ahead. Mr. Mollin: My question has been answered, thank you very much. Operator: At this time this concludes today s question and answer session. Mr. Setubal, at this time would you like to proceed with your closing statements? Mr. Setubal: Thank you for your time, being with us for this conference call. I hope everything is more clear for the structure and for the business that we are going to develop together - Itaú Holding and CBD, we are very confident that this new company will play a very important role in the consumer financial market in the next years, both companies are very confident of the success of this new venture and we are inviting you for the conference call of CBD that will announce the results tonight and Itaú Holding will release first semester results next Tuesday and the conference calls will be next Wednesday. Thank you. Operator: That does conclude our Banco Itaú CBD conference for today. Thank you very much for your participation, you may now disconnect. 19