A WHOLLY UNACCEPTABLE OFFER

Transcription

1 BANCO BPI, S.A. Publicly-held company Head office: Rua Tenente Valadim, no. 284, Porto Share capital : Corporate body no Registered at the Commercial Registry of Porto under number Report of the Board of Directors of Banco BPI, SA, prepared under the terms of item 1 of article 181.º of the Securities Market Code, on the acceptability and conditions of the Public Tender Offer for Banco BPI, S.A shares, preliminarily announced by Banco Comercial Português, S.A. on 13 March 2006 and registered on 5 April 2007, as amended by the revised conditions announced on 24 April In the terms of item 1 article 181.º of the Securities Market Code, the Board of Directors of Banco BPI, S.A. presents its report on the acceptability and conditions of the Public Tender Offer over Banco BPI, S.A, preliminarily announced by Banco Comercial Português, S.A. on 13 March 2006 and registered on 5 April 2007, as amended by the revised conditions announced on 24 April A WHOLLY UNACCEPTABLE OFFER BPI vs. BCP: Value Creation versus Value Destruction 26 April 2007

2 Legal Disclaimers This document, including the Business Plan attached to this document, includes forward-looking statements. These forward-looking statements include matters that are not historical facts, such being the case, amongst others, of: statements regarding the Board s or BPI s intentions, beliefs or current expectations concerning, among other things, BPI s results of operations, financial conditions, liquidity, prospects, growth, strategy, plans, operating efficiencies, competitive position, objectives of management, the industry in which BPI operates and other matters. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Board cautions shareholders that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which BPI operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. In addition, even if BPI s results of operations, financial condition and liquidity and the development of the industry in which it operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in future periods. BPI undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. This document does not seek to give an investor a complete picture of BPI, and should not be relied upon without further reference. Please also refer to previous press releases, publications and financial statements made by BPI which are available on and Certain statements reflect the views or opinions of BPI s Board and Management rather than verifiable facts. Portuguese law shall apply on and throughout this document. 2 BPI vs. BCP: Value Creation versus Value Destruction

3 Transition to International Accounting Standards (IAS/IFRS) Banco BPI s consolidated financial statements at 31 December 2005 and 31 December 2006 were prepared and presented in accordance with International Accounting Standards/International Financial Reporting Standards (IAS/IFRS), as adopted by the European Union in accordance with Regulation (EC) 1606/2002 of July 19 of the European Parliament and Council and incorporated into Portuguese legislation through Bank of Portugal Notice 1/2005 of February 21. Up to December 31, 2004 the BPI Group s financial statements were prepared and presented in accordance with the Chart of Accounts for the Portuguese Banking System (Plano de Contas para o Sistema Bancário - PCSB) established by the Bank of Portugal Regulation 4/96 of June 17. This document is a translation of the Portuguese version which, for all intents and purposes, should be considered as the prevailing one. BPI vs. BCP: Value Creation versus Value Destruction 3

4 Dear Shareholder: On 5 April 2007, Banco Comercial Português ( BCP ) registered with the CMVM the General Tender Offer for Banco BPI ( BPI ) preliminarily announced on 13 March On 24 April 2007, BCP revised its initial offer to 7.00 per BPI share. The Board of Directors of BPI (the Board ) believes that this offer is an attempt to buy BPI at a price that undervalues the bank and is not in the best interest of Shareholders, Clients and Employees as demonstrated in this report. The Board has, therefore, unanimously rejected the revised offer of 7.00 per BPI share and advises shareholders to do the same and not tender their shares. Ultimately, the decision rests with the shareholders, as to the future of BPI. The Board can only commit that, if shareholders do elect to reject the revised offer and allow management to execute our Business Plan , the Board offers its full support to our CEO, Fernando Ulrich, and the executive team to help them deliver the Business Plan included in the Annex to this report. Porto, 26 April 2007 Yours sincerely, On behalf of the Board Artur Santos Silva Chairman of the Board 4 BPI vs. BCP: Value Creation versus Value Destruction

5 Key Messages for BPI Shareholders 1. The revised price of 7.00 offered by BCP remains wholly unacceptable. A. BCP s 7.00 revised price is, in relative terms, even lower than its original 5.70 offer on 13 March 2006, given stock market performance since then. Since 10 March 2006, the day before the offer was preliminarily announced, up to 20 April 2007, comparable Iberian banks* share prices rose by 39.4%, on average. Accordingly, BCP would need to offer 7.95, only to replicate its wholly unacceptable initial 5.70 offer. B. BCP s revised 7.00 offer for BPI implies a lower relative valuation than its original 5.70 offer, in terms of price to earnings multiple (P/E): As of March 2006, BPI s 16.5x consensus 12-month forward P/E multiple implied in the 5.70 initial offer was 14% higher than the comparable Iberian banks 14.5x P/E average multiple. The actual BPI 15.3x consensus 12-month forward P/E multiple implied in the revised 7.00 offer represents a 8% discount over the comparable Iberian banks 16.7x P/E average multiple. Moreover, the implied BPI 14.0x 12-month forward P/E multiple of the revised 7.00 offer using BPI s Business Plan earnings per share (EPS) forecasts represents a 17% discount over comparable Iberian banks 16.7x average multiple. C. BCP 7.00 revised price does not fully reflect BPI standalone value, taking into account recent operational and financial performance, and the existing growth potential from the Business Plan , presented in the annex to this report. BPI net income and EPS are forecasted to grow 16.6% (cagr) per year from 2006 to 2011, meaning that net income is expected to more than double from 309 M. to 666 M. ; BPI share value would be between 8.41 and 8.35, applying 2007 and 2008 Iberian comparable banks P/E multiples to BPI s Business Plan expected EPS in 2007 and 2008, respectively. Excluding both the highest and lowest P/E from the peer group, the BPI share value would be between 8.21 and 8.03, based on 2007 and 2008 multiples, respectively. * BPI s comparable Iberian banks: Banesto, Bankinter, BES, Pastor, Popular and Sabadell BPI vs. BCP: Value Creation versus Value Destruction 5

6 BPI standalone value derived from a DCF calculation, on the basis of the Business Plan projections, stands in a range from 7.50 to 8.20 per share, assuming a blended cost of equity of 12.6% and 12.0%, respectively, a real growth rate of 1.5% in the perpetuity (1.0% for the domestic activity and 3.0% for the international activity) and a target core tier 1 ratio of 5.5%. D. BCP's revised offer does not event reflect BPI's standalone value. As such, none of the revised synergies announced by BCP (280 M., or 2.5 per BPI share) are being shared with BPI Shareholders. Additionally, if taking as reference cost to income levels of similar-sized Iberian banking benchmarks or recent M&A transactions, total synergies could be higher than those announced by BCP. 2. BPI can deliver much higher value to its shareholders. BPI shareholders should not exit as they would abandon a unique value creation proposition underpinned by: BPI s strong business prospects, consistent with its historical track record. This potential is illustrated by the Business Plan which is fully supported by BPI Board. BPI s balanced and well diversified future growth engines are further emphasised by the recent improvement in the Portuguese economy and the positive developments that reaffirmed the impressive growth opportunity in Angola. BPI s clear strategy, sound and improving asset quality, franchise, and operational excellence that has translated into superior growth. BPI s consistent out-performance of market expectations and of its own objectives over time. In 2006, again, BPI delivered robust operating performance and the net profit growth of 23% was well ahead of analysts forecasts and BPI s Business Plan. 3. Banco BPI s Board of Directors reaffirms key messages for Shareholders included in the Report issued in 10 April 2006 BPI s governance model allows it to deliver solid operating results which ultimately translate into superior value creation. BPI integration into BCP under the Offer would destroy a significant number of skilled jobs that have been critical to BPI s shareholder value creation. BPI integration into BCP under the Offer would be negative for our clients in terms of convenience, pricing, products and services. 6 BPI vs. BCP: Value Creation versus Value Destruction

7 The Price Offered by BCP Remains Wholly Unacceptable A. BCP s 7.00 revised price is actually lower than its original 5.70 offer of March 2006, in relative terms, taking into account the stock market evolution Since 10 March 2006, the day before the offer was preliminarily announced, up to 20 April 2007, comparable Iberian banks 1) share prices rose by 39.4%, on average. Accordingly, BCP would need to offer 7.95 only to replicate its wholly unacceptable initial 5.70 offer. Figure 1: Share Price Performance of BPI, comparable Iberian banks and indexes, since 10 March 2006 up to 20 April % Indexed Prices (%) 140% 130% 120% 110% 100% 90% 39.9% 39.4% 26.1% 20.2% 80% Mar-2006 May-2006 Jun-2006 Aug-2006 Oct-2006 Dec-2006 Feb-2007 Apr-2007 Banco BPI PSI-20 Euro Stoxx Banks Comparable Iberian Banks¹ Source: Bloomberg 1) BPI s comparable Iberian banks: Banesto, Bankinter, BES, Pastor, Popular and Sabadell BPI vs. BCP: Value Creation versus Value Destruction 7

8 Figure 2: Share Price Performance of BPI and comparable Iberian banks, since 10 March 2006 up to 20 April 2007 Pastor 54.5% Bane s to 45.6% BPI Com parable Iberian banks average Popular Sabadell 39.9% 39.4% 39.2% 38.5% Bank inte r BES 27.5% 31.3% 0% 10% 20% 30% 40% 50% 60% Source: Bloomberg BCP 7.00 revised offer price is actually 12% lower than the actual price ( 7.95) equivalent to the initial 5.70 offer, taking into account the Iberian comparable banks average performance since the initial offer, as shown in figure 3 below. Figure 3: BCP revised offer vs Iberian comparable Banks 2) performance BCP revised offer vs actual price equivalent to initial offer % % % 22.8% Com parable Iberian BCP's offer Increase Banks price from 5.70 to 7.00 performance (10 Mar. 06 to 20 Apr. 07) BCP's initial Com parable BCP's offer BCP's offer ( 5.70) Iberian Banks actual price revised offer price performance equivalent ( 7.00) 2) BPI s comparable Iberian banks: Banesto, Bankinter, BES, Pastor, Popular and Sabadell. 8 BPI vs. BCP: Value Creation versus Value Destruction

9 B. BCP s revised 7.00 offer implies a lower relative valuation than its original 5.70 offer in terms of price to earnings multiple (P/E) As of March 2006, BPI s 16.5x consensus 12-month forward P/E multiple implied in the 5.70 initial offer was 14% higher than the comparable Iberian banks 14.5x P/E average multiple. The actual BPI 15.3x consensus 12-month forward P/E multiple implied in the revised 7.00 offer represents a 8% discount over the comparable Iberian banks 16.7x P/E average multiple. Moreover, the implied BPI 14.0x 12-month forward P/E multiple of the revised 7.00 offer using BPI s Business Plan EPS forecasts represents a 17% discount over comparable Iberian banks 16.7x average multiple. Figure 4: BCP s revised and initial offer implied 12 month forward P/E multiples relative to comparable Iberian banks 3) corresponding multiples 10-Mar Apr % -17% 14.5x 16.5x 16.7x 15.3x 14.0x Com parable Iberian Banks P/E m ultiple Initial offer ( 5.70) / 12-m onth EPS Consensus Com parable Iberian Banks P/E m ultiple Revised offer ( 7.00) / 12-m onth EPS Consensus Revised offer ( 7.00) / 12-m onth EPS BusinessPlan Sources: Bloomberg estimates and BPI Business Plan where stated. Note: The 12-month forward P/E is calculated using the weighted average between 2007 and 2008 estimated EPS (weighted by the number of months that each year contributes for next twelve-month period; 8 and 4 months, respectively, as of April 2007). 3) BPI s comparable Iberian banks: Banesto, Bankinter, BES, Pastor, Popular and Sabadell. BPI vs. BCP: Value Creation versus Value Destruction 9

10 Figure 5: BCP s revised offer implied 12-month forward P/E vs comparable Iberian banks corresponding multiples 20-Apr x 19.5x 15.4x Comparable Iberian Banks average: 16.7x 15.4x 15.3x -17% 14.6x 14.0x 13.9x Pastor Bankinter Sabadell Banesto BPI@ 7.00 based on analysts Consensus Sources: Bloomberg estimates and BPI Business Plan where stated Popular BPI@ 7.00 based on BusinessPlan BES Should one exclude both the highest and lowest P/E from the Iberian comparable banks sample, the average would come to 16.2x. 10 BPI vs. BCP: Value Creation versus Value Destruction

11 C. BCP 7.00 revised price does not fully reflect BPI standalone value, taking into account recent operational and financial performance, and the existing growth potential from the Business Plan , presented in the annex to this report. BPI has strong business prospects, consistent with its historical track record. This potential is illustrated by its Business Plan, which is fully supported by BPI s Board. BPI net income and EPS are forecasted to grow 16.6% (cagr) per year from 2006 to 2011, meaning net income is expected to more than double from 309 M. to 666 M.. Figure 6: Net Income (M. ) 4 CAGR E: 16.6% CAGR : 18.3% F 2008F 2009F 2010F 2011F Business plan Business plan Source: Business Plan BCP s offer implies at least a 16% discount over BPI value derived from comparable Iberian banks P/E multiples. BPI s share value would be between 8.41 and 8.35 if applying 2007 and 2008 Iberian comparable banks P/E multiples to BPI s expected net income in 2007 and 2008, respectively. 4) Excluding early retirement costs of 64 M. (pre-tax). BPI vs. BCP: Value Creation versus Value Destruction 11

12 Figure 7: Valuation based on Comparable Iberian Banks PE Multiples 2007 Multiples 2008 Multiples 17.6x 0.48 x = x 0.55 x = 8.35 Iberian Comparable Banks P/E¹ BPI 2007E EPS² BPI Share Value Iberian Comparable Banks P/E¹ BPI 2008E EPS² BPI Share Value Source: 1) Bloomberg as of 20 April ) Business Plan Figure 8: BCP s revised Offer implied 2007 P/E vs Comparable Iberian Banks 2007 P/E multiples 20-Apr x 20.7x 16.4x Comparable Iberian Banks average: 17.6x 16.3x 15.4x 14.7x -15% 14.4x Pastor Bankinter Sabadell Banesto Popular BPI@ 7.00 based on BusinessPlan BES Source: Bloomberg and Business Plan BPI vs. BCP: Value Creation versus Value Destruction

13 Figure 9: BCP s revised Offer implied 2008 P/E vs Comparable Iberian Banks 2008 P/E multiples 20.1x 17.5x 20-Apr-2007 Comparable Iberian Banks average: 15.2x 13.8x 13.8x 13.2x 12.8x -16% 12.7x Pastor Bankinter Sabadell Banesto Popular BES BPI@ 7.00 based on BusinessPlan Source: Bloomberg and Business Plan Excluding both the highest and lowest P/E from the peer group, the BPI share value would be between 8.22 and 8.01, in 2007 and 2008, respectively. BPI vs. BCP: Value Creation versus Value Destruction 13

14 BCP s offer does not fully reflect BPI standalone value derived from a DCF calculation on BPI s Business Plan BPI standalone value derived from a DCF calculation on the basis of the Business Plan projections stands in a range from 7.50 to 8.20 per share, assuming a blended cost of equity of 12.6% and 12%, respectively, a perpetuity growth rate of 1.5% (real) and a target core tier 1 ratio of 5.5%. Figure 10: DCF assumptions Domestic International Group Perpetual growth rate (real) 1.0% 3.0% 1.5% Market risk premium 5.4%-6.0% Beta 1.0 Cost of equity 9.7% % 18.9% % 12.0% % Core capital 5.5% Tax rate in perpetuity 26.5% 35.0% 28.6% DCF valuation range ( per share) Source: BPI. On average, the cost of equity used by market analysts for the domestic business is of circa 9%. Therefore, the cost of equity assumptions used in the DCF valuation are conservative. For the international activity, the cost of equity used on average by market analysts ranges between 15% and 21%. BCP's revised offer does not even reflect BPI's standalone value. As such, none of the revised synergies announced by BCP (280 M. or 2.5 per BPI share 5 ) are being shared with BPI Shareholders. Additionally, if taking as reference cost to income levels of similarsized Iberian banking benchmarks or recent M&A transactions, total synergies could be higher than those announced by BCP. 5) Combines 215 M. cost synergies and 65 M. revenue synergies. Value per BPI share calculated assuming BCP's 2007 PE of 11.9x, 26.5% tax rate and 739 M. pre-tax restructuring costs. 14 BPI vs. BCP: Value Creation versus Value Destruction

15 2. BPI Can Deliver Much Higher Value to its Shareholders BPI has continued to deliver superior operational and financial performance in Figure 11: Net Income 6 (M. ) ROE Dividend per Share ( ) % 23% % 61bps 24.3% % Distribution Network Number of Clients ( 000s) Domestic 7) Angola 8) Total Assets (th.m. ) 1,557 5% 1, % % % Source: Annual Report. BPI has also outperformed its own Business Plan announced in April 2006, notably thanks to superior performance in its core Portuguese franchise. 6) Should BPI have used BCP's accounting practices in the treatment of pensions and preferred stock dividends, net profit would have stood even higher at respectively 329 M. in 2006 and 257 M. in 2005 (+28% YoY) 7) Distribution network in the domestic activity includes (figures for 2006 in brackets) high-street branches in Portugal (574), investment centres (19), housing shops (19) and corporate centres, project finance and institutional centres (48), branches in France (12) and the Madrid branch. 8) Distribution network in Angola includes (figures for 2006 in brackets) high-street branches (71), investment centres (3) and corporate centres (7), of which 5 branches, 1 investment centre and 1 corporate centre started operating already in BPI vs. BCP: Value Creation versus Value Destruction 15

16 Figure 12: Net Operating Revenue (M. ) Loans (th.m. ) Resources 9 (th.m. ) % % % % % % P Business Plan P P Business Plan Business Plan Operating Expenses (M. ) Net Income (M. ) % 11.0% % % P Business Plan Source: Q results release and BPI Business Plan P Business Plan BPI has strong business prospects, consistent with its historical track record. This potential is illustrated by its Business Plan. From a macroeconomic standpoint the Business Plan is underpinned by a recovery of the Portuguese economic environment, expected to be more favourable over the next years than it has been over the past five years. Figure 13: Portuguese Economy: a new growth cycle Real GDP (%) Business Climate (1) (2) Source: Bank of Portugal and INE (historical data); Ministry of Finance (as in Stability and Growth Programme , updated in December 2006) Business Sentiment and Consumer Confidence Investment and Exports 2006 Public Deficit (3.9)% 9) Excluding pension funds, pension funds deposits, preference shares and hedge funds. 16 BPI vs. BCP: Value Creation versus Value Destruction

17 BPI not only offers Shareholders a proven domestic play plus also an opportunity for focused growth in Angola, a Portuguese speaking emerging market in which BPI is the leading bank with 22% market share in deposits and 24% in lending 10 and where it can achieve very high growth and profitability. Angola, a market with a population of 14 million, will remain a key growth driver for the group as the economic outlook, notably driven by the oil sector, should remain strong. IMF foresees real GDP growth of 35% for 2007; Strong commitment from the government towards rebuilding the country should also help non-oil GDP to recover. The Angolan government has approved a 35 th.m. investment plan for the next seven years in order to rebuild the country s infrastructure following the civil war; Healthy economic environment has carried over into the financial system in 2006, with loans growing by 99% and deposits by 63%. This solid macro economic features in Angola will drive strong business growth for BPI in that market. Figure 14: Angola Attractive Macroeconomic Outlook Real GDP Growth Inflation 31.2% 329% 268% 20.6% 13.0% 3.0% 3.0% 15.0% 11.2% 3.0% 4.0% 19.5% 11.0% 10.0% 10.0% 106% 116% 77% 31% 12% 15% 8% 10% 7% 7% 7% E 07F 08F 09F 10F 11F E 07F 08F 09F 10F 11F Source: IMF, EIU The business plan for BPI s Portuguese franchise illustrates a capacity to further drive an efficient platform towards strong and profitable growth in all main business lines: customer lending is expected to grow 11% annually (cagr 06-11) mainly fuelled by corporate lending, project finance, mortgages and small businesses; customer resources are expected to increase 9.5% annually (cagr 06-11). Strong profitable growth is expected to come from other areas also, such as insurance and investment products. 10) Source: Banco Nacional de Angola (Central Bank), December BPI vs. BCP: Value Creation versus Value Destruction 17

18 Figure 15: Portugal Loans to Customers and Customer Resources Loans to Customers Customer Resources th.m CAGR F +11.3% th.m CAGR F +9.5% F 08F 09F 10F 11F F 08F 09F 10F 11F Source: Business Plan Projections for BPI's Angolan business are supported by expectations of continued rapid assets growth underpinned by strong economic growth, allowing for strong increases in lending and customer resources, leveraged by an enlarged distribution network. Figure 16: Angola Loans to Customers and Customer Resources Loans to Customers Customer Resources th.m CAGR F +47% th.m CAGR F +34% F 08F 09F 10F 11F F 08F 09F 10F 11F Source: Business Plan As a consequence of these positive factors across both our Portuguese and Angolan businesses and based on the Business Plan, group net income will experience strong growth of 16.6% per annum, growing from 309 M. in 2006 to 666 M. in 2011, driven by solid and balanced growth in revenues across all segments whilst keeping costs in check throughout with an overall annualised growth rate of 7.3%. 18 BPI vs. BCP: Value Creation versus Value Destruction

19 Figure 17: Net Income (M. ) CAGR: 16.6% F 2008F 2009F 2010F 2011F Source: Business Plan Although margins are expected to contract over the period, growth in loans and deposits implies a 13.0% annualised growth rate in net interest income. Figure 18: Net Operating Revenue (M. ) 12 CAGR F: 12.3% 1,296 1,154 1, , ,820 1, ,072 CAGR F: 10.0% CAGR F: 11.9% CAGR F: 13.0% F 2008F 2009F 2010F 2011F Net Interest Income Net Commissions Other¹² Source: Business Plan In the domestic activity, after the 2007 branch expansion program and 300 early retirements in 2008 (corresponding to a total cost of 64 M. ), the number of employees is expected to remain constant from 2009 onwards. In Angola, the distribution network should increase from 74 branches in 2006 to 177 in At group level, general expenses should grow 7.3% annually until ) Excluding early-retirements costs. 12) Gross margin from unit links, income from equity instruments, commissions related to amortised costs, technical results from insurance contracts, income on financial operations and operational gains and losses. BPI vs. BCP: Value Creation versus Value Destruction 19

20 Figure 19: General Expenses (M. ) CAGR F: 7.3% CAGR F: 8.6% CAGR F: 7.9% CAGR F: 6.8% F 2008F 2009F 2010F 2011F Staff Costs Depreciation and amortization Other Administrative Expenses Early retirement charges Source: Business Plan On a consolidated basis, as a result of operating revenues growing at 12% per annum and general expenses only growing at 7% per annum, BPI will benefit from jaws effect which will bring the cost to income ratio down to 45% by Figure 20: Cost to Income Ratio 57% 56% 53% -12 p.p. 50% 47% 45% F 2008F 2009F 2010F 2011F Source: Business Plan BPI expects to have a core capital of 6.4% in 2011 and a Tier 1 of 7.2%. The aforementioned calculation already assumes 50% of deductions registered in Tier 1 and 50% in Tier 2 (rather than fully reflected in total own funds), as per Basel II own funds calculation rules. 20 BPI vs. BCP: Value Creation versus Value Destruction

21 Figure 21: Capital Ratios % 7.4% 6.9% 6.9% 6.9% 7.1% 7.2% 5.6% 5.8% 5.9% 6.1% 6.4% F 2008F 2009F 2010F 2011F Core Capital¹³ Tier 1 Capital¹³ Source: Business Plan BPI expects to have excess core capital of 324 M. by year-end 2011, for a core capital ratio of 5.5%. Such excess capital could be used to either invest in profitable growth or for capital optimisation in the following ways: Business growth; Rationalisation of operating costs; Increase dividends distributed to shareholders or share buybacks; Acquisition opportunities. Figure 22: Excess Capital M F 2008F 2009F 2010F 2011F Core Capital 14) Risk Weighted Assets Excess Core Capital 15) Source: Business Plan The benefits of the redeployment of excess capital (324 M. by 2011) have not been factored into management s earnings projections, which conservatively assume that excess capital will only yield Euribor rate. 13) Including 50% of deductions as per Basel II rules. 14) Tier 1 excluding preference shares and reflecting 50% of deductions as per Basel II rules, from 2007 onwards. 15) Beyond a Core Tier 1 of 5.5%. BPI vs. BCP: Value Creation versus Value Destruction 21

22 Conclusion In conclusion, BPI s Board of Directors believes that BCP s revised offer is an attempt to buy BPI by significantly undervaluing it and is not in the best interest of BPI s Shareholders, Clients and Employees. Therefore, the Board of Directors unanimously rejects BCP s cash offer and advises our Shareholders to do the same and not tender their shares. 22 BPI vs. BCP: Value Creation versus Value Destruction

23 Annex: BPI Business Plan

24 Macroeconomic Forecasts - Portugal Assumptions: Exports and investment are the main drivers of growth acceleration. The 2006 public deficit stood at 3.9% of GDP against forecasts of 4.6%, evidencing Government s clear commitment to fiscal discipline. In order to accelerate the attainment of a balanced fiscal position as in the Stability and Growth Plan , the executive announced an estimated 3.3% deficit for 2007 (previously 3.7%). Ongoing structural reforms ensure sustainability to the consolidation of public accounts. The improvement of the fiscal situation will remove an obstacle to further economic growth, fostering the confidence of economic agents. Fixed capital formation is recovering, namely in machinery and equipment, spilling over to other economic sectors and boosting the sentiment in the labor market. Exports growth should stay strong, propelling investment. Amiable external environment and ongoing change in the prevailing export pattern, regarding products and markets, by increasing international competitive edge, will contribute to a persistent improved performance of the external sector. Global economies remain buoyant, with growth more evenly distributed amongst the main economic blocks. Table 1: Portugal Macroeconomic forecasts F 2008F 2009F 2010F 2011F Real GDP (annual) (0.7) Household Spending (0.1) Public Spending (0.3) (1.3) (1.5) (1.2) (1.1) (1.1) Investment 1.2 (4.7) (8.3) 2.1 (3.8) (1.7) Exports Imports 0.9 (0.7) (0.8) Inflation Rate (average) Euribor 3M (yearly average) Bund 10y (yearly average) Source: Bank of Portugal and INE for values registered in macroeconomic aggregates; Bloomberg for financial markets data. Macroeconomic forecasts are from the Ministry of Finance (Stability and Growth Plan from Dec 2006) and interest rates forecasts from BPI. 24 BPI Business Plan

25 Domestic Credit Assumptions: Credit to residents should keep expanding at a robust pace: Households: reduced spreads, increased maturities, new financial products and improved labor market prospects compensate the negative impact of interest rate rises on household budgets. Favorable evolution of second-home house market justify positive prospects for the mortgage credit market. Private corporations: credit to corporations should evolve favorably given the improvement seen in the investment scenario. Table 2: Credit to Residents Forecasts March 2007 Year Total Gross Loans including Securitisation 1) Annual Growth Rates Non-financial Corporations Total Households Housing Consumption and Other Purposes % 26.6% 23.3% 23.8% 22.1% % 18.2% 15.9% 16.6% 13.9% % 7.8% 12.2% 15.2% 3.8% % 6.4% 10.6% 14.3% -1.0% % 4.4% 10.7% 12.1% 5.8% % 3.4% 9.8% 11.5% 3.3% % 8.1% 10.0% 11.2% 4.9% 2007F 7.7% 6.0% 10.1% 11.0% 6.0% 2008F 7.7% 6.3% 10.0% 11.0% 5.5% F 7.8% 6.5% 9.9% 11.0% 5.0% Source: Bank of Portugal (historical data), BPI (forecasts). 1) Excludes loans to public administration. Figures adjusted for securitisation. BPI Business Plan

26 Deposits Assumptions: Growth in deposits held in the domestic banking system should stabilize: Sight Deposits: pace of expansion close to nominal GDP; higher short-term interest rates increase its opportunity cost in favour of longer term applications. Term Deposits: its relative attractiveness should persist in the near term, though corporations cash levels should decrease. Table 3: Deposits Forecasts March 2007 Domestic Deposits and deposit-like instruments 2) Average Annual Growth Rates Residents Deposits Non-Residents Deposits Total Sight Deposits Term Deposits Total % 11.3% 10.4% 10.7% 22.3% % 3.0% 1.4% 2.0% 15.0% % 6.7% -2.6% 0.9% 30.3% % 0.9% -0.1% 0.3% -11.0% % 1.9% 1.7% 1.8% 24.9% % 8.0% 7.0% 7.4% 12.5% % 2.9% 14.4% 9.7% 12.3% 2007F 9.8% 6.0% 12.0% 9.7% 11.0% 2008F 8.0% 3.0% 10.5% 7.6% 11.0% F 7.0% 2.5% 9.0% 6.5% 11.0% Source: Bank of Portugal (historical data), BPI (forecasts). 2) Considers all sectors; emigrants are considered residents; excludes all off-shore deposits apart from Açores and Madeira. 26 BPI Business Plan

27 ECB policy built-in in market expectations Expected ECB movements: June 2007: increase of 25 bp to 4%. Stable rates going forward. 6 3 MONTH EUROZONE INTEREST RATES (Euribor 3M and future prices from LIFFE ) Euribor 3M Euribor 3M LIFFE Source: Bloomberg BPI Business Plan

28 Macroeconomic forecasts Angola Angola s economy to continue to grow at a strong pace. Although the oil sector is the main responsible for Angolan growth, the contribution of remaining sectors has been increasing, showing annual growth above 10%. The intense effort in rebuilding infrastructures benefits the growth of the real economy. Angola enjoys a comfortable positive current account position, leading to a strong accumulation of reserves. The increase of reserves guarantees exchange rate stability, which facilitates the control of inflation and the decline of interest rates. Table 4: E 2007F 2008F 2009F 2010F 2011F Real GDP 11.2% 20.6% 19.5% 31.2% 13.0% 11.0% 10.0% 10.0% Nominal GDP (USD bn.) Popullation (millions) GDP per Capital (th.usd) Oil production thousand barrels/day Oil price (USD/barrel) Inflation rate (end of year) 31.0% 18.5% 12.2% 10.0% 8.0% 7.0% 7.0% 7.0% AKZ interest rate (TBC 181 days) 3) 60.5% 11.1% 7.4% 8.4% 8.3% 8.3% 8.3% 8.3% AKZ interest rate (TBC 365 days) 1) % 10.3% 10.0% 10.0% 10.0% 10.0% Libor 3M USD (average) 1.6% 3.6% 5.2% 5.1% 5.0% 5.0% 5.0% 5.0% Exchange rate AKZ/USD 1) Exchange rate AKZ/EUR 1) Exchange rate EUR/USD 1) Source: Angolan Finance Ministry; Angola Central Bank (BNA); Energy Information Administration (EIA); Bloomberg; World Bank; Angolan National Institute of Statistics (INE Angola); BPI. 3) End of year rates. 28 BPI Business Plan

29 Angola s Banking System The favourable external position accounts for the existence of high internal liquidity and low interest rates, creating a favourable environment for investment and promoting the demand for credit. The improvement of the population welfare and the consolidation of the communications network extend the effective and potential customer base. The existing liquidity will continue to foster deposits growth. Table 5: E 2007F 2008F 2009F 2010F 2011F Banking penetration 4) 5% 7% 9% 11% 13% 15% 17% Population with bank account (millions) Customer resources (USD bn) Loans to Customers (USD bn) Loans/Resources 33% 40% 43% 49% 53% 56% 60% Customer resources/gdp 5) 16% 22% 22% 23% 24% 24% 25% Loans to customers/gdp 6) 5% 9% 9% 11% 12% 14% 15% Resources/Population with bank account Loans/Population with bank account Source: Angolan Finance Ministry; BNA; EIA; Bloomberg; World Bank; INE Angola; BPI 4) Versus 39% in Venezuela, 25% in Brazil, 28% in Argentina and 30% in South Africa. 5) Versus 25% in Nigeria, 24% in Venezuela, 35% in Brazil, 38% in Argentina and 72% in South Africa. 6) Versus 12% in Nigeria, 17% in Venezuela, 22% in Brazil, 15% in Argentina and 58% in South Africa. BPI Business Plan

30 Macroeconomic Scenario Table 6: Macroeconomic Scenario F 2008F 2009F 2010F 2011F PORTUGAL GDP (real) 0.5% 1.3% 1.8% 2.4% 3.0% 3.0% 3.0% Inflation 1) 2.3% 3.1% 2.1% 2.1% 2.1% 2.1% 2.1% Short Term Interest Rate 7) 2.2% 3.1% 4.0% 4.1% 4.1% 4.1% 4.1% 10Y Interest Rate 1) 3.4% 3.9% 4.3% 4.6% 4.8% 4.8% 4.8% 30Y Interest Rate 1) 3.9% 4.0% 4.4% 4.7% 4.9% 4.9% 4.9% Discount rate for Pension Liabilities 4.50% 4.75% 5.15% 5.45% 5.65% 5.65% 5.65% Tax rate 27.5% 27.5% 26.5% 26.5% 26.5% 26.5% 26.5% Loans 5.7% 9.0% 7.7% 7.7% 7.8% 7.8% 7.8% o.w. Mortgages 11.5% 11.2% 11.0% 11.0% 11.0% 11.0% 11.0% Deposits 8.0% 10.0% 9.8% 8.0% 7.0% 7.0% 7.0% ANGOLA GDP (real) 20.6% 19.5% 31.2% 13.0% 11.0% 10.0% 10.0% Inflation (year-end) 18.5% 12.2% 10.0% 8.0% 7.0% 7.0% 7.0% Short Term Interest Rate AKZ (181 days) 11.1% 7.4% 8.4% 8.3% 8.3% 8.3% 8.3% Short term Interest Rate (USD) 1 3.6% 5.2% 5.1% 5.0% 5.0% 5.0% 5.0% Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Oil Price (USD/barrel) (avg.) Foreign Exchange Rate Eur/USD Foreign Exchange Rate AKZ/USD Foreign Exchange Rate AKZ/Eur Source: Portugal - Bank of Portugal and INE for observed data and Ministry of Finance projections (as in Stability and Growth Programme , updated as of Dec 06), interest rates forecasts from BPI; Bloomberg Angola Ministry of Finance; BNA; International Monetary Fund; EIA; BPI forecasts 7) Average annual rates. 30 BPI Business Plan

31 BPI Group Highlights Table 7: Highlights m F 2008F 2009F 2010F 2011F Net Profit 1) CAGR CAGR Change 23% 17% 15% 17% 17% 17% 16.6% 18.3% Net profit before preferred dividends % 16.4% Shareholders Equity ROE 15% 23% 23% 23% 23% 23% 23% 24% Net Operating Revenue / ATA 3.3% 3.2% 3.1% 3.0% 3.0% 3.0% 3.1% 3.1% Cost-to-Income 1) 66% 58% 57% 56% 53% 50% 47% 45% Pay-Out 44% 36% 39% 40% 47% 43% 44% 45% Core Capital 2) 4.3% 5.9% 5.9% 5.6% 5.8% 5.9% 6.1% 6.4% Tier 1 2) 5.9% 7.3% 7.4% 6.9% 6.9% 6.9% 7.1% 7.2% Domestic Activity Net Operating Revenue / ATA 3.1% 2.9% 2.8% 2.7% 2.6% 2.6% 2.6% 2.6% Cost-to-Income 1) 68% 63% 61% 59% 57% 54% 51% 48% Net Income 1) Change 34% 21% 11% 13% 17% 16% 15.6% 18.4% International Activity Net Operating Revenue/ ATA 11% 12% 9% 9% 8% 8% 7% 7% Cost-to-Income 1) 26% 24% 32% 39% 38% 37% 36% 35% Net Profit 1) Change -6% 5% 33% 28% 16% 19% 20.0% 17.7% Source: Management projections. 1) Excluding early retirements. 2) Considering 50% of deductions to Tier 1 from 2007 onwards. BPI Business Plan

32 BPI Group Profit and Loss Table 8: Profit and Loss m % 2007F % 2008F % 2009F % 2010F % 2011F % Net interest income % % % % % % Gross margin from unit links % 10 30% 11 17% 13 13% 15 12% 16 12% Income from equity instruments % 17 19% 19 9% 21 9% 23 9% 25 9% Commissions (net) related to amortised cost % 21 15% 24 12% 26 11% 29 11% 32 11% Net financial margin % % % % % % Technical result from insurance contracts % % 15 2% 15 2% 15 2% 15 2% Commissions (net) % % % % % % Income on financial operations (net) % 134 8% % % % 204 9% Operational gains and losses % % -1 2% - 1 2% - 1 2% - 2 2% Net operating revenue 899 1,018 13% 1,154 13% 1,296 12% % % % Staff costs % % % % % % Early retirements Other administrative expenses % % % % % % Depreciation and amortisation % % % % % % General expenses % % % % % % Operational income % % 541 5% % % 1,001 18% Recovery of credits, interest and expenses % 23 10% 25 10% 28 10% 31 10% 34 10% Provisions and impairment of loans (net) % % % % % % Impairment and other provisions (net) % -5-11% -5 2% % % % Profit before taxes % % 471 1% % % % Income tax % % % % % % Income from equity accounted subsidiaries % 26 16% 29 14% 33 14% 38 14% 44 14% Minority interests % -14 9% -15 2% % % % Net profit % % 371 2% % % % Net profit excluding preference sh. dividends % % 385 2% % % % Net profit excluding early retirements % % % % % % EPS (recurring) % % % % % % Dividends (euros per share) % % % % % % Dividends (total) Payout 36% 39% 40% 47% 43% 44% 45% Source: Management projections. 32 BPI Business Plan

33 BPI Group Balance Sheet Table 9: Balance Sheet m % 2007F % 2008F % 2009F % 2010F % 2011F % ASSETS Cash and deposits % % % % % % Financial assets held for trading % % % % % % Financial assets available for sale % % % % % % Loans and advances to credit institutions % 907 0% 966 7% % % 984-7% Loans and advances to customers % % % % % % Hedging derivatives % 428 5% 450 5% 472 5% 496 5% 521 5% Other tangible assets % % 365 4% 394 8% 415 5% 425 2% Intangible assets % 13 62% 13-7% 11-12% 10-7% 10 2% Investments in associated companies % 152 7% 165 9% 180 9% % % Tax assets % % 95-5% 76-21% 64-15% 54-16% Other assets % 710 0% 721 1% 739 3% 764 3% 789 3% TOTAL ASSETS % % % % % % LIABILITIES Financial liabilities held for trading % 212 5% 222 5% 234 5% 245 5% 258 5% Resources from banks % % % % % % Customer resources and other debts % % % % % % Debt securities % % % % % % Financial liabilities from securitized loans % % % % % % Hedging derivatives % 505 5% 530 5% 557 5% 585 5% 614 5% Provisions % 64 16% 71 11% 79 11% 87 10% 96 10% Technical provisions % % % % % % Tax liabilities % 95 12% 104 9% % % % Participating bonds % 27 0% 27 0% 27 0% 27 0% 27 0% Subordinated debt % 614 4% % 764 0% % 864 0% Other liabilities % 560 0% 577 3% 594 3% 613 3% 632 3% TOTAL LIABILITIES % % % % % % SHAREHOLDERS EQUITY Shareholders Equity Attributable to BPI % % % % % % Minority interests % 277 0% 277 0% 277 0% 277 0% 277 0% TOTAL SHAREHOLDERS EQUITY % % % % % % TOTAL LIABILITIES AND SHAREHOLDERS EQUITY % % % % % % Source: Management projections. BPI Business Plan

34 Capital ratio From the 1H07 onwards, Banco BPI will adopt the Standard methodology for calculation of own funds requirements, within the Basel II framework. We estimate that the reduction of risk weighted assets in mortgages and small businesses should be approximately offset by the introduction of operational risk requirements. In the calculation of own funds under Basel II, deductions will be reflected 50% in Tier 1 and 50% in Tier 2, rather than fully reflected in total own funds. Table 10: Capital ratio Reported With 50% deductions to Tier I Core capital Core capital 5.9% 5.3% Preferred stock 307 Tier 1 7.4% 6.8% Tier Total capital ratio 9.4% 9.4% Additional own funds 692 Deductions -249 Source: BPI Total own funds RWA Source: BPI The bank will start using IRB (Internal Ratings Based) methodology from 2011 onwards. 34 BPI Business Plan

35 BPI Group Excess Capital The excess capital for a core capital ratio of 5.5% and considering 50% of deductions in core capital will be of 324m in Table 11: Excess Capital m F 2008F 2009F 2010F 2011F Risk Weighted Assets Core Capital before deductions Core Capital after 50% deductions Capital for a 5.5% Core Capital ratio Excess Core Capital before deductions Excess Core Capital 1) Core capital 5.9% 5.9% 5.6% 5.8% 5.9% 6.1% 6.4% Tier 1 7.3% 7.4% 6.9% 6.9% 6.9% 7.1% 7.2% Total capital ratio 11.5% 9.4% 9.5% 9.8% 9.4% 9.5% 9.3% Source: Management projections. 1) After 50% deductions from 2007 onwards. This excess capital can be used for profitable growth or for capital optimisation, providing further EPS enhancement. In these projections, this excess capital is conservatively assumed to yield short term Euribor. Note: In the Business Plan , the excess capital was calculated relative to a core capital ratio of 5.0%, equivalent to the target presented by BCP in the Presentation to Investors regarding the Offer, on the 13th of March After considering 50% of deductions, the excess capital for a core capital of 5.0% is of Eur511mn in the Business Plan BPI Business Plan

36 Domestic Activity Main assumptions Loans and customer resources We have assumed an average annual growth rate of 11.3% for Customer Loans (mortgage lending with CAGR06-11 of 9.2%) and of 9.5% for Customer Resources Table 12: Balance Sheet Items m % 2007F % 2008F % 2009F % 2010F % 2011F % Loans to customers % % % % % % Mortgages % % % % % % Corporates % % % % % % Small businesses % % % % % % Other % % % % % % Customer resources % % % % % % On balance sheet % % % % % % Demand deposits % % % % % % Term deposits % % % % % % Capitalisation insurance % % % % % % Structured prod. and bonds % % % % % % Preferred stock % 60 0% 60 0% 60 0% 60 0% 60 0% Off-balance sheet % % % % % % 1) Not including deposits from pensions funds ( 625m in 2005 and 213m in 2006). Source: Management projections. 36 BPI Business Plan

37 Domestic Activity Main assumptions Volume Growth Between 2006 and 2011 loans to customers increase 17.0bn and customer resources increase 15.2bn. Table 13: Volume Growth m 2006 % 2007F % 2008F % 2009F % 2010F % 2011F % CAGR 06/11 Loans to customers % % % % % % 11% Mortgages 765 9% 895 9% % % % % 9% Corporates % % % % % % 14% Small businesses % % % % % % 12% Other 128 8% 124 7% 135 8% 145 8% 156 8% 168 8% 7% Customer resources % % % % % % 9% On balance sheet % % % % % % 9% Off-balance sheet 232 3% % % % % % 10% Source: Management projections. BPI Business Plan

38 Domestic Activity Other Balance Sheet assumptions - Assets Assets held for trading and available for sale BPI Vida s portfolio: growth linked to the evolution of capitalisation insurance products; Corporate bonds: 2.1bn in 2007; 5.5% of total assets in (CAGR06-11 of 12%); 5% annual growth in the remaining financial assets (trading) Table 14: m F 2008F 2009F 2010F 2011F CAGR Assets held for trading % BPI Vida % BBPI + other % Bonds % Equities % Derivatives % Assets available for sale % o.w. corporate bonds % Source: Management projections BPI Business Plan