SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 20-F. Banco Bradesco S.A. (exact name of registrant as specified in its charter)

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1 As filed with the Securities and Exchange Commission on September 28, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, DC FORM 20-F REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) AND 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: Banco Bradesco S.A. (exact name of registrant as specified in its charter) Bank Bradesco (translation of registrant s name into English) Federative Republic of Brazil (jurisdiction of incorporation or organization) Cidade de Deus, s/n, Vila Yara, , Osasco, SP, Brazil (address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class American Depositary Shares, each representing 5,000 Preferred Shares, without par value ( ADSs ) Preferred Shares, without par value ( Preferred Shares ) Name of each exchange on which registered New York Stock Exchange New York Stock Exchange (for listing purposes only) Securities registered or to be registered pursuant to Section 12(g) of the Act: None. Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. The number of outstanding shares of each of the issuer s classes of capital or common stock as of August 31, 2001 was: 732,488,290,385 Common Shares 711,268,311,452 Preferred Shares Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 X

2 TABLE OF CONTENTS Presentation of Information... iii Item 1. Identity of Directors, Senior Management and Advisers... 1 Item 2. Offer Statistics and Expected Timetable... 2 Item 3. Key Information... 2 Selected Financial Data... 2 Exchange Rate Information Capitalization and Indebtedness Risk Factors Item 4. Information on the Company The Company Regulation and Supervision...72 Selected Statistical Information...91 Item 5. Operating and Financial Review and Prospects Item 6. Directors, Senior Management and Employees Item 7. Major Shareholders and Related Party Transactions Item 8. Financial Information Item 9. The Offer and Listing Description of Securities Trading on the São Paulo Stock Exchange Item 10. Additional Information Share Capital Memorandum and Articles of Incorporation Material Contracts Exchange Controls Taxation Dividends And Paying Agents Statement by Experts Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description of Securities Other than Equity Securities American Depositary Shares Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Item 15. [Reserved] Item 16. [Reserved] Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits ii

3 You should assume that the information appearing in this registration statement is accurate only as of the date hereof. Our business, financial condition, results of operations and prospects may have changed since that date. We have prepared this registration statement on the basis of information which we have or have obtained from sources we believe to be reliable. PRESENTATION OF INFORMATION In this registration statement, the terms Bradesco, the Company, we or us refer to Banco Bradesco, S.A., a sociedade anônima organized under the laws of Brazil and, unless the context otherwise requires, its consolidated subsidiaries. We are a full service financial institution providing, directly or through our subsidiaries, a full range of banking, financial, insurance and private pension plan services to all segments of the Brazilian domestic market. Our operations are based primarily in Brazil. Item 18 of this registration statement includes our audited consolidated financial statements as of December 31, 1999 and 2000 and for the years ended December 31, 1998, 1999 and 2000, including the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States, known as U.S. GAAP. Certain additional information in Item 3 herein has been prepared in accordance with accounting principles prescribed by the Brazilian corporate law, which we refer to as the Corporate Law Method. The Corporate Law Method differs significantly from U.S. GAAP in some respects. For more information, see Item 3. Key Information Selected Financial Data Corporate Law Method Presentation Summary of Differences Between the Corporate Law Method and U.S. GAAP. References herein to the real, reais or R$ are the Brazilian real, the official currency of Brazil. References to U.S. dollars or U.S.$ are to United States dollars. The exchange rate of reais to U.S. dollars was R$ to U.S.$1.00 at December 31, 1998, R$ to U.S.$1.00 at December 31, 1999, R$ to U.S.$1.00 at December 31, 2000 and R$ to U.S.$1.00 at August 31, 2001, based on the noon buying rate in New York City as reported by the Federal Reserve Bank of New York. The exchange rate of reais to U.S. dollars was R$ to U.S.$1.00 at December 31, 1998, R$ to U.S.$1.00 at December 31, 1999, R$ to U.S. $1.00 at December 31, 2000 and R$ to U.S.$1.00 at September 24, 2001, based on the U.S. dollar selling rate as reported by the Central Bank of Brazil, which we call the Central Bank at closing. As a result of recent fluctuations in the real/u.s. dollar exchange rate, the closing selling exchange rate at August 31, 2001 may not be indicative of current or future exchange rates. Therefore, you should not read these exchange rate conversions as representations that any such amounts have been or could be converted into U.S. dollars at those or any other exchange rates. For your convenience, certain amounts have been converted from reais to U.S. dollars. These conversions have been calculated using the U.S. dollar selling rate at closing published by the Central Bank. See Item 3. Key Information Exchange Rates for more information regarding the exchange rates applicable to the Brazilian currency since January 1, Certain figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. iii

4 PART I Item 1. Identity of Directors, Senior Management and Advisers. We are managed by our Conselho de Administração, which we call the Board of Directors, together with our Board of Executive Officers. The Board of Directors establishes our corporate strategy and policies and supervises and monitors the Board of Executive Officers. In turn, the Board of Executive Officers implements the strategy and policies set by the Board of Directors and is responsible for our day-to-day management. Our Board of Executive Officers is currently made up of (1) the Diretoria Executiva, which is the board of senior executive officers, and (2) our departmental and regional directors. The Diretoria Executiva is made up of the president, seven executive vice presidents and 12 managing executive directors. For more information on our senior management, see Item 6. Directors, Senior Management and Employees Management of Banco Bradesco. As of the date of this registration statement, our directors and the members of our Diretoria Executiva, which together make up our senior management, are: Directors Lázaro de Mello Brandão... Antônio Bornia... Durval Silvério... Edson Borges... Dorival Antônio Bianchi... João Aguiar Alvarez... Denise Aguiar Alvarez Valente... Members of the Diretoria Executiva Márcio Artur Laurelli Cypriano... Ageo Silva... Décio Tenerello... Laércio Albino Cezar... Arnaldo Alves Vieira... Luiz Carlos Trabuco Cappi... Sérgio Socha... Julio de Siqueira Carvalho de Araujo... Alcino Rodrigues Vieira de Assunção... Armando Trivelato Filho... Carlos Alberto Rodrigues Guilherme... Cristiano Queiroz Belfort... José Alcides Munhoz... José Guilherme Lembi de Faria... Luiz Pasteur Vasconcellos Machado... Milton Almicar Silva Vargas... Milton Matsumoto... Ozias Costa... Sérgio de Oliveira... Odair Afonso Rebelato... Position Chairman Vice-Chairman Director Director Director Director Director Position President Executive Vice-President Executive Vice-President Executive Vice-President Executive Vice-President Executive Vice-President Executive Vice-President Executive Vice-President Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director Managing Executive Director The business address of each member of our senior management is Cidade de Deus, s/n, Vila Yara, Osasco, SP, Brazil. 1

5 Independent Accountants The audited consolidated financial statements in Item 18 herein have been audited by PricewaterhouseCoopers Auditores Independentes (formerly Price Waterhouse Auditores Independentes), our independent accountants. Their offices are located at Avenida Francisco Matarazzo, 1700, , São Paulo, SP, Brazil. Item 2. Offer Statistics and Expected Timetable. Not applicable. Item 3. Key Information. SELECTED FINANCIAL DATA You should read the following selected financial data in conjunction with Presentation of Information and Item 5. Operating and Financial Review and Prospects included in this registration statement. We have presented below selected financial information prepared in accordance with U.S. GAAP as of December 31, 1999 and 2000 and for the years ended December 31, 1998, 1999 and The selected U.S. GAAP financial information is derived from and should be read in conjunction with our consolidated financial statements prepared in accordance with U.S. GAAP provided in Item 18. Our U.S. GAAP audited consolidated financial statements at and for the years ended December 31, 1998, 1999 and 2000 were audited by PricewaterhouseCoopers Auditores Independentes. The independent accountants report is included in this registration statement. Information at and for the years ended December 31, 1996 and 1997 is not available in U.S. GAAP. Accordingly, we have also presented selected financial information prepared in accordance with the Corporate Law Method at and for the years ended December 31, 1996 through December 31, 2000, so that you may review trends over a five year period. This financial information is derived from our consolidated financial statements prepared in accordance with the Corporate Law Method, which are the consolidated financial statements we present to shareholders in Brazil. Our consolidated financial statements prepared in accordance with the Corporate Law Method for the years ended December 31, 1996 through December 31, 2000 were audited by PricewaterhouseCoopers Auditores Independentes. The Corporate Law Method selected financial information set forth below differs significantly from our U.S. GAAP financial statements. For a description of significant differences between the Corporate Law Method and U.S. GAAP, see Summary of Differences Between the Corporate Law Method and U.S. GAAP. We have not presented a reconciliation between our financial statements prepared under U.S. GAAP and our financial statements prepared under the Corporate Law Method. U.S. GAAP Presentation The selected financial information set forth below has been derived from our consolidated financial statements provided in Item 18, which have been prepared in accordance with U.S. GAAP. 2

6 This information is qualified in its entirety by reference to the U.S. GAAP financial statements and the notes thereto provided in Item 18. Year ended December 31, (R$ in millions) (U.S.$ in Income Statement Data millions)(1) Net interest income... R$ 5,646 R$ 7,021 R$ 6,846 U.S.$ 2,683 Provision for loan losses... (1,322) (1,845) (1,244) (488) Net interest income after provision for loan losses... 4,324 5,176 5,602 2,195 Fee and commission income... 1,775 2,100 2,593 1,016 Insurance premiums... 3,133 3,581 3,701 1,450 Pension fund income... 1,006 1,694 2, Certificated savings plans(2) Equity in earnings (losses) of unconsolidated affiliates(3)... (53) (173) Other non-interest income(4) , Operating expenses(5)... (4,537) (4,767) (5,816) (2,279) Insurance claims... (2,449) (2,699) (2,866) (1,123) Changes in provisions for insurance, pension fund and certificated savings plans... (1,277) (2,487) (3,001) (1,176) Pension plan operating expenses... (395) (558) (913) (358) Insurance and pension plan selling expenses... (469) (635) (645) (253) Other non-interest expense(6)... (1,460) (1,689) (1,887) (739) Income before income taxes and minority interest , Income taxes... (136) 61 (417) (163) Minority interest... (20) (39) (18) (7) Net income... R$ 539 R$ 744 R$ 1,799 U.S.$ 705 (R$, except numbers of shares) Year ended December 31, (U.S.$)(1) (R$, except numbers of shares) (U.S.$)(1) (R$, except numbers of shares) (U.S.$)(1) Per Share Data(7) Net income per 1,000 shares(8) Common... R$ 0.44 R$ 0.58 R$ 1.31 U.S.$ 0.51 Preferred Dividends/interest on capital per 1,000 shares Common U.S.$ U.S.$ Preferred... R$ 0.62 U.S.$ 0.24 R$ 0.73 U.S.$0.25 R$ 0.62 U.S.$ 0.24 Weighted average number of shares outstanding (in millions of shares) Common , , ,143 Preferred , , ,827 3

7 4 December 31, (R$ in millions) (U.S.$ in millions)(1) Consolidated Balance Sheet Data Assets Cash and due from banks... R$ 822 R$ 717 R$ 1,155 U.S.$ 453 Interest-bearing deposits in other banks... 1,204 1,136 1, Federal funds sold and securities purchased under agreements to resell... 9,232 7,847 12,328 4,831 Central bank compulsory deposits... 6,410 8,540 5,271 2,066 Trading and available-for-sale securities, at fair value... 14,823 24,331 22,814 8,941 Loans... 24,989 28,019 39,439 15,456 Allowance for loan losses... (1,178) (1,783) (2,345) (919) Investment in unconsolidated companies and other investments Premises and equipment, net... 2,582 2,630 2,680 1,050 Goodwill and other intangibles, net Other assets... 6,245 7,771 7,889 3,091 Total assets... R$ 66,194 R$ 80,036 R$ 91,852 35,996 Liabilities Deposits... 28,235 34,595 36,506 14,307 Federal funds purchased and securities sold under agreements to repurchase... 9,307 7,814 12,114 4,747 Short-term borrowings... 5,033 6,013 7,018 2,750 Long-term debt... 5,415 8,336 9,060 3,551 Other liabilities... 11,848 15,647 19,175 7,514 Total liabilities... 59,838 72,405 83,873 32,869 Minority interest in consolidated subsidiaries Shareholders Equity Common shares(9)... 1,769 1,933 2, Preferred shares(10)... 1,695 1,867 2, Capital stock... 3,464 3,800 4,746 1,860 Total shareholders equity... 6,133 7,343 7,881 3,089 Total liabilities and shareholders equity... 66,194 80,036 91,852 35,996 Average assets(11)... 58,976 69,604 91,275 35,770 Average liabilities(11)... 52,884 62,733 84,540 33,131 Average shareholders equity(11)... R$ 5,846 R$ 6,574 R$ 6,596 U.S.$2,585 (1) Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$ = U.S.$1.00, the Central Bank exchange rate of August 31, We have used the exchange rate of August 31, 2001, instead of December 31, 2000, because there has been a material devaluation in the real U.S. dollar exchange rate since December 31, For more information, see Item 5. Operating and Financial Review and Prospects Overview Brazilian Economic Conditions. Such translations should not be construed as representation that the Brazilian real amounts represent, have been or could be converted into U.S. dollars at that rate. (2) For a description of certificated savings plans, see Item 4. Information on the Company The Company. (3) For more information on the results of equity investees, see Item 5. Operating and Financial Review and Prospects and note 8 to our consolidated financial statements in Item 18. (4) Other non-interest income consists of trading income (loss), net gain (loss) on sale of available-for-sale securities, net gain on foreign currency transactions and other non-interest income. (5) Operating expenses consists of salaries and benefits and administrative expenses. (6) Other non-interest expense consists of amortization of goodwill and other intangibles, depreciation and amortization and other non-interest expenses. (7) Per share data reflects, on a retroactive basis, a split of our capital stock on December 22, 2000, in which we issued one new share for each five existing shares. (8) Preferred shares are common stock equivalents for the purposes of calculating earnings per share in accordance with U.S. GAAP. For a description of our two classes of shares, see Item 10. Additional Information Memorandum and Articles

8 of Incorporation. We do not have outstanding any obligations exchangeable for or convertible into our equity securities. Accordingly, diluted net income per share does not differ from net income per share. (9) Common shares outstanding, no par value: 706,227,545,166 authorized and issued at December 31, 2000; 520,898,730,421 authorized and issued at December 31, 1999, and 505,568,913,816 authorized and issued at December 31, (10) Preferred shares outstanding, no par value: 685,808,656,671 authorized and issued at December 31, 2000; 503,216,603,394 authorized and issued at December 31, 1999; and 483,595,112,987 authorized and issued at December 31, (11) See Item 4. Information on the Company Selected Statistical Information. Preferred shareholders are entitled to receive dividends per share in an amount 10% greater than the dividends per share paid to our common shareholders. Corporate Law Method Presentation The selected financial information for the five most recent financial years set forth below has been derived from our previously published consolidated financial statements, which have been prepared in accordance with the Corporate Law Method. The Corporate Law Method selected financial information set forth below differs significantly from financial information we have included in this registration statement and prepared in accordance with U.S. GAAP. We have not included per share data prepared in accordance with the Corporate Law Method due to the differences in calculations method as compared to U.S. GAAP. For further details see Summary of Differences Between the Corporate Law Method and U.S. GAAP. Corporate Law Method presentation for the year ended December 31, Income Statement Data (R$ in millions) Income from financial intermediation (1)... R$3,348 R$3,320 R$4,494 R$5,351 R$6,234 Commissions and fees... 1,165 1,446 1,775 2,100 3,043 Insurance premiums, pension fund contributions and certificated savings plans... 2,541 4,065 5,015 5,975 6,920 Changes in provisions for insurance, pension funds and certificated savings plans... (541) (906) (1,392) (2,342) (3,001) Insurance claims and redemption of certificated savings plans... (1,559) (2,437) (2,631) (2,844) (2,866) Insurance and pension plan selling expenses... (256) (309) (518) (635) (645) Expenses related to pension plan benefits... (209) (247) (423) (558) (913) Operating expenses(2)... (3,569) (3,722) (4,801) (5,350) (6,198) Equity in earnings of unconsolidated affiliates Others(3) (166) (836) (987) (766) Income before taxes... 1,135 1, ,060 Provision for income tax and social contribution... (288) (199) (302) Minority interest... (23) (43) (68) (39) (18) Net income... R$ 824 R$ 831 R$1,012 R$1,105 R$1,740 (1) Consists of interest and charges on deposits, borrowings, credit assignments and onlendings, and leasing operations. (2) Operating expenses consists of salaries and benefits and other administrative expenses. (3) Others consists of tax expenses, other operating revenue (expense) and non-operating income (expense). Additionally, information for 2000 considers, among others, the following items originally presented as extraordinary items: (a) gain on the sale of shares related to the Spinoff (see Item 4. Information on the Company History Spin-off ); (b) gain on the operation with BUS Serviços de Telecomunicações S.A. (see Item 4. Information on the Company History Recent Important Acquisitions and Joint Ventures ); and (c) expense related to a provision for variations in the fair value of the portfolio of fixed interest securities and securities indexed to foreign currency. 5

9 Corporate Law Method presentation for December 31, (R$ in millions) Consolidated Balance Sheet Data Assets Cash and due from banks... R$ 861 R$ 1,408 R$ 710 R$ 827 R$ 1,342 Interest-bearing deposits in other banks... 7,481 9,953 5,167 2,591 2,308 Securities... 8,503 11,849 19,705 28,359 32,094 Credit and leasing operations... 12,381 22,524 23,592 25,028 34,573 Other receivables... 4,846 7,474 8,599 12,549 16,311 Allowance for loan losses... (661) (1,058) (1,215) (1,908) (2,507) Other assets... 2,165 4,695 6,079 6,854 5,546 Equity interests and other investments... 1,261 1,911 2,307 3,291 1,857 Premises and equipment, net... 1,457 1,579 1,584 1,605 1,922 Deferred charges ,128 1,432 Total assets... 38,539 61,135 67,338 80,324 94,878 Liabilities and shareholders equity Deposits... 14,621 24,029 28,250 34,724 36,469 Deposits received under agreements to repurchase... 6,158 10,683 9,307 7,814 12,108 Funds from acceptance and issuance of securities ,067 4,628 4,111 Borrowings and local onlendings short term... 4,490 6,518 5,667 6,491 7,893 Borrowings and local onlendings long term... 1,249 2,832 3,035 2,683 3,776 Provision for insurance, pension funds and certificated savings plans... 2,460 3,451 4,741 6,904 9,648 Other liabilities... 3,625 6,595 7,695 10,006 12,649 Deferred income Minority interest Shareholders equity... 5,460 5,573 6,321 6,769 8,092 Total liabilities and shareholders equity... R$ 38,539 R$ 61,135 R$ 67,338 R$ 80,324 R$ 94,878 Summary of Differences Between the Corporate Law Method and U.S. GAAP The consolidated financial information included under Corporate Law Method Presentation differs significantly from information presented in accordance with U.S. GAAP. We have summarized below the differences between the Corporate Law method and U.S. GAAP relevant to our consolidated financial information. The Brazilian Accounting Council, the Brazilian securities commission, which is know as the CVM, the Central Bank, the Brazilian Institute of Accountants, known as IBRACON, and the Private Insurance Superintendency, known as SUSEP, establish the accounting principles and standards generally applicable to our consolidated financial information prepared in accordance with the Corporate Law Method. These principles and standards differ in certain significant respects from the accounting principles and standards generally accepted in the United States. Financial Instruments Our derivatives do not meet the requirements for classification as hedges under U.S. GAAP. Consequently, all changes in the market value of futures, forward and swap or option contracts are presented in the statement of income throughout the term of the relevant instrument. Under the Corporate Law Method there is no specific accounting literature related to hedge accounting. In accordance with Brazilian banking practices, we treat certain of our swap contracts as hedges. We record all our derivatives, including those considered hedges, at their notional values as of the balance sheet date, and those that are not considered hedges are subject to loss provisions if, in the judgment of management, their market value at settlement will be less than book value. 6

10 Investments in Debt and Equity Securities Under U.S. GAAP, all of our investments in debt and equity securities are recorded at fair value whether they are classified as trading securities or available-for-sale securities. Unrealized gains and losses on investments in debt and equity securities classified as available-for-sale are reported in a separate component of shareholders equity. Under the Corporate Law Method, all securities are reported at the lower of monetarily corrected cost or market value. Unrealized losses are reflected in earnings and unrealized gains are not recorded. Leasing Operations Where We Are the Lessee Under U.S. GAAP, capitalization of leases is required if certain conditions are met. Under the Corporate Law Method, all leases are treated as operating leases by the lessee, and the related expense is recognized as the lease installments fall due. Consolidation Under U.S. GAAP, the equity method of accounting is used to account for jointly controlled entities. Under the Corporate Law Method, jointly controlled entities are proportionally consolidated. Goodwill Under U.S. GAAP goodwill is calculated as the excess of the purchase price over the fair market value of the identifiable assets acquired less liabilities assumed. If the market value of the identifiable assets acquired less liabilities assumed exceeds the purchase price, the excess (negative goodwill) is allocated to reduce the value of property and equipment acquired. Goodwill and negative goodwill may be adjusted, within one year of the closing date of the purchase transaction, for differences from the original values allocated to assets acquired and liabilities assumed that are identified within that one-year period. When they are recognized, tax benefits related to an acquired entity s deferred tax assets that were subject to valuation allowances at the acquisition date are recorded as a reduction in the goodwill as of the acquisition date. Under the Corporate Law Method, goodwill is calculated as the excess of the purchase price over the book value of the assets acquired less liabilities assumed. An excess of book value of assets acquired less liabilities assumed over the purchase price is recorded as deferred income. Assets acquired and liabilities assumed under the Corporate Law Method are not subject to subsequent alterations. When they are recognized, tax benefits related to an acquired entity s deferred tax assets that were subject to valuation allowances at the acquisition date are recorded in the statement of income. Credit Card Fees Under U.S. GAAP, credit card fees periodically charged to cardholders are deferred and recognized on a straight line basis over the period the fee entitles the cardholder to use the credit card. The Corporate Law Method does not provide for any specific treatment of credit card fees. 7

11 We recognize credit card fees when billed, which treatment is consistent with standard banking practice. Restatement of Financial Statements for General Price-Level Changes Under U.S. GAAP, inflation accounting adjustments for financial statements were required for Brazilian companies through December 31, Under the Corporate Law Method, inflation accounting adjustments were required for Brazilian companies only through December 31, Recognition of Gains Under U.S. GAAP, Staff Accounting Bulletin No. 101 prohibited the recognition of gains on the sale of our telecommunications infrastructure in 2000 because the sale was subject to non-perfunctory contingencies. Under the Corporate Law Method, gains on the sale of the our telecommunications infrastructure were recognized during 2000, at which time the risks and rewards of ownership were considered substantially transferred, although final approval by a regulatory authority was still required. Employee Pension Costs and Other Benefits Under U.S. GAAP, employee pension costs are recognized in accordance with SFAS No. 87 Employers Accounting for Pensions, as amended by SFAS No. 132 Employers Disclosures about pensions and other Post-retirement Benefits and SFAS No. 88 Curtailment of Defined Benefit Plans and for Termination of Benefits. SFAS No. 87 requires the use of an actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specified corridor) that result from changes in assumptions or actual experience that differs from assumptions. SFAS No. 87 also requires disclosure of the components of periodic pension costs and the funded status of pension plans. Under the Corporate Law Method, employee pension costs and other benefits, not covered by our insurance plans are expensed as they fall due. Equity Accounting Under U.S. GAAP, the equity method of accounting is used for investments in less than majorityowned entities, over which the company has ability to exercise significant influence and for joint ventures in which neither party has control. Absent evidence to the contrary, an investment of less than 20% of the voting capital of an investee is presumed to indicate lack of significant influence. Investments where we hold less than 20% of the voting capital are valued at cost. Under the Corporate Law Method, a Brazilian company is required to use the equity method of accounting to record investments in entities in which it owns 20% or more of the capital, or in which it owns at least 10% of the issued share capital and over the management of which it exerts significant influence. 8

12 Deferred Charges Under U.S. GAAP start-up costs are recognized as expenses when incurred. Under the Corporate Law Method start-up expenses are capitalized as deferred charges and amortized over a period of up to 10 years. Income Taxes and Social Contribution Under U.S. GAAP, only enacted tax rates may be used to calculate deferred taxes. Tax rates for future periods, which are determined by provisional measures ( medidas provisórias ), are not considered to have been enacted and are ignored. Provisional measures currently in effect, however, are used for determining the amount of current tax payable. Deferred tax assets and liabilities are recorded in the case of differences between net assets shown for U.S. GAAP purposes and the tax basis of these net assets determined in accordance with accounting principles prescribed by Corporate Law. Under the Corporate Law Method, the Company fully accrues for deferred income taxes on temporary differences between tax and book values. Additionally, rather than the gross amounts of deferred income taxes being presented, they are presented net of valuation allowances. In Brazil, the tax law is sometimes significantly altered by provisional measures ( medidas provisórias ). The provisional measures can affect tax rates as well as other areas that could impact deferred taxes. These measures remain in force for 30 days and expire automatically if they are not extended for an additional period, although they are normally extended. When calculating the effect of tax changes or other changes on deferred income taxes under the Corporate Law Method, the provisional measures are substantively considered as enacted law. For the calculation of deferred taxes, the Corporate Law Method requires the use of the tax rate which is expected to be in effect when the temporary differences or tax loss carryforwards will be realized. Statement of Cash Flows Under U.S. GAAP, presentation of a statement of cash flows describing the cash flows provided by or used in operating, investing and financing activities is required. SFAS No. 95, Statement of Cash Flows, establishes specific presentation requirements and requires additional disclosures, such as the amount of interest and income taxes paid and noncash transactions such as acquisition of property and equipment through capital leases and acquisitions of companies in stock transactions, among others. Under the Corporate Law Method, a statement of cash flows is not required, but a statement of changes in financial position that reflects the sources and uses of funds related to changes in working capital is required. Cash and Cash Equivalents Under U.S. GAAP, SFAS No. 95, Statement of Cash Flows, defines cash equivalents as shortterm highly liquid investments that are both (i) readily convertible to known amounts of cash and (ii) so near their maturity that they represent insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition. Under the Corporate Law Method, cash equivalents are neither defined nor presented. 9

13 Permanent Assets Under U.S. GAAP, permanent assets as defined by the Corporate Law Method would be classified as noncurrent assets. Under U.S. GAAP, gains and losses on the disposal of permanent assets are recorded as adjustments to operating income. Under the Corporate Law Method, the financial statements present a category of assets called permanent assets. This is the collective name for all assets on which indexation adjustments were calculated under the Corporate Law Method and for tax purposes in the financial statements of Brazilian companies through Under the Corporate Law Method, gains and losses on the disposal of permanent assets are classified as non-operating income (expense). Extraordinary Items Under U.S. GAAP, extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. We have not presented any extraordinary items under U.S. GAAP. Under the Corporate Law Method, separate disclosure of extraordinary items, net of tax, is required when such items are considered to be unusual and of an infrequent (non-recurring) nature. The criteria are less well defined compared to U.S. GAAP. We recorded extraordinary items in 2000 under the Corporate Law Method. In the selected financial data tables above, for presentation purposes, these items have been reclassified into the appropriate line items. Classification of Other Income Statement Line Items Under U.S. GAAP our operating revenues and costs are classified as interest income, interest expense, non-interest income and non-interest expense. Interest income on securities and related gains and losses on their sale are presented separately in the income statement. Employee profit sharing expenses are included within salaries and benefits. Interest on capital is treated in a manner similar to dividends. Under the Corporate Law Method, interest, gains and losses on sales of all securities and related income and expenses are included in a single line item. Employee profit sharing expenses are recorded in a separate line item after income taxes. Companies are permitted to distribute or capitalize an amount of interest, subject to certain limitations, calculated based on a government interest rate, on shareholders' equity called interest on capital. Such amounts are deductible for tax purposes and are presented as a deduction from shareholders' equity. Although not affecting net income except for the tax benefit, in our interim financial statements, we include this notional charge in interest expense and reverse out the same amount before the net income total. Earnings Per Share Under U.S. GAAP, since preferred and common shareholders have different voting and liquidation rights, basic and diluted earnings per share have been calculated using the two-class method, pursuant to SFAS No. 128, Earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for preferred and common stock according to the dividends to be paid as required by the Company's by-laws and rights of participation in undistributed earnings. Basic earnings per share are computed by dividing net income available to all shareholders by the weightedaverage number of common and preferred shares outstanding during the period, after giving retroactive effect to stock splits. 10

14 Under the Corporate Law Method, net income per share is calculated on the number of shares outstanding at the balance sheet date, with no retroactive application of stock splits. Segment Reporting Under U.S. GAAP, SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information establishes the standards for the manner in which public enterprises are required to report financial and descriptive information about their operating segments. The standard defines operating segments as components of an enterprise for which separate financial information is available and evaluated regularly as a means for assessing segment performance and allocating resources to segments. The measurement of profit or loss, total assets and other related information is required to be disclosed for each operating segment. Under the Corporate Law Method, no separate segment reporting is required. Comprehensive Income Under U.S. GAAP, the Company has adopted SFAS No. 130, Reporting Comprehensive Income. Comprehensive income consists of the total of net income and unrealized gains and losses on available-for-sale securities. The Corporate Law Method has no concept analogous to comprehensive income. Related Parties Under U.S. GAAP, related parties are defined in a broader manner and require more disclosures than under the Corporate Law Method. As a result, certain disclosures required under U.S. GAAP are not required under the Corporate Law Method. Additional Financial Statement Note Disclosure Under U.S. GAAP, note disclosure requirements in general require more information than the Corporate Law Method. Disclosures required under U.S. GAAP but not under the Corporate Law Method include, but are not limited to, the following: off-balance sheet risks and commitments, concentration of credit risk and major customers; details of guarantees provided to third parties; irrevocable commitments such as take-or-pay or minimum sales contracts; financing facilities and terms; and analysis of loan portfolio and allowance for loan losses. 11

15 EXCHANGE RATE INFORMATION The real was introduced in July 1994, and from that time through March 1995 the real appreciated against the U.S. dollar. In March 1995 the Central Bank introduced exchange rate policies that established a trading band within which the real/u.s. dollar exchange rate could fluctuate, allowing the gradual devaluation of the real against the U.S. dollar. In January 1999, in response to increased pressure on Brazil s foreign currency reserves, the Central Bank allowed the real to float freely. During 1999 the real experienced high volatility and suffered a sharp decline against the U.S. dollar. During 2000 and the first eight months of 2001 the real continued to decline against the U.S. dollar. The real-u.s. dollar exchange rate has varied significantly since December 31, Under the current free convertibility exchange system, the real may undergo further devaluation or may appreciate against the U.S. dollar and other currencies. The following table sets forth the period-end, average, high and low noon buying rate reported by the Federal Reserve Bank expressed in reais per U.S. dollars for the periods and dates indicated. Noon Buying Rate for U.S. dollars R$ per U.S.$1.00 Period Period-End Average(1) High Low January February March April May June July August (1) Average of the month-end rates beginning with December of previous period through last month of period indicated. Source: Federal Reserve Bank of New York. On September 24, 2001, the noon buying rate reported by the Federal Reserve Bank of New York was R$ to U.S.$

16 The following table sets forth the period-end, average, high and low selling rate reported by the Central Bank at closing, expressed in reais per U.S. dollars for the periods and dates indicated. Closing Rate Selling Rate for U.S. dollars R$ per U.S.$1.00 Period Period-End Average(1) High Low January February March April May June July August (1) Average of the month-end rates beginning with December of previous period through last month of period indicated. Source: Central Bank On September 24, 2001, the U.S. dollar selling rate reported by the Central Bank at the close of day was R$ to U.S.$

17 CAPITALIZATION AND INDEBTEDNESS The following table sets forth our capitalization and indebtedness at July 31, 2001, as derived from our unaudited consolidated financial statements prepared in accordance with the Corporate Law Method. At July 31, 2001 we had fully subscribed and paid up capital of 1,443,756,601,837 registered shares with no par value, of which 732,488,290,385 were common shares and 711,268,311,452 were preferred shares. At July 31, 2001 (R$ in millions) Long-term debt (1) Deposits... R$ 3,458 Funds from acceptance and issuance of securities... 1,691 Borrowings and local onlendings... 4,692 Other obligations... 3,088 Total... 12,929 Secured and guaranteed long-term debt Federal funds purchased and securities sold under agreements to repurchase (2)... 1,040 Total long-term debt... 13,969 Provisions related to insurance, pension funds and certificated savings plans... 10,959 Deferred income Minority interest Shareholders equity (3)... 9,291 Total capitalization (4)... R$ 34,401 (1) Unsecured and not guaranteed long-term debt. (2) Secured by federal funds sold and securities purchased under agreements to resell. (3) Retained earnings available for distribution are restricted to earnings recorded in our consolidated financial statements prepared in accordance with the Corporate Law Method. At July 31, 2001, retained earnings available for distribution were R$3,447 million. (4) Total capitalization is equal to the sum of long-term debt, provisions related to insurance, pension funds and certificated savings plans, deferred income, minority interest and shareholders equity. 14

18 RISK FACTORS Risks Relating to Brazil Brazilian political and economic conditions have a direct impact on our business and the market price of the preferred shares and ADSs Substantially all of our operations and customers are located in Brazil. Accordingly, our financial condition and results of operations are substantially dependent on Brazil s economy, which has been characterized by frequent and occasionally drastic intervention by the Brazilian government and volatile economic cycles in the past. In the first eight months of 2001 the real has declined in value by 30.49% against the U.S. dollar, from reais per U.S. dollars at December 31, 2000 to at August 31, 2001 and the Central Bank has raised Brazil s base interest rate by a total of 3.75 percentage points as a result of a growing economic crisis in Argentina, one of Brazil s primary trading partners, and the lower level of growth of the U.S. economy. In the past, the Brazilian government has often changed monetary, fiscal, taxation and other policies to influence the course of Brazil s economy. We have no control over, and cannot predict, what measures or policies the Brazilian government may take in response to the current Brazilian economic situation or how Brazilian government intervention and government policies will affect the Brazilian economy and, both directly and indirectly, our operations and revenues. Our operations, financial condition and the market price of the preferred shares and ADSs may be adversely affected by changes in policy involving exchange controls, tax and other matters, as well as factors such as: fluctuations in exchange rates; base interest rate fluctuations; inflation; and other political, diplomatic, social and economic developments within and outside of Brazil that affect the country. In addition, the next Brazilian presidential elections are scheduled to occur in October We cannot anticipate the outcome of the elections, the policies the new administration may adopt or the impact such policies may have on Brazilian economic conditions or our results of operations. These and other future developments in the Brazilian economy and government policies may reduce Brazilian demand for our services or products, adversely affect our financial condition and results of operations, and impact the market price of the preferred shares and ADSs. A devaluation of the real may lead to substantial losses on our liabilities denominated in or indexed to foreign currencies, a reduction in our revenues, and a decline in the market price of the preferred shares and ADSs The Central Bank has periodically devalued the Brazilian currency during the last four decades. The exchange rate between the real and the U.S. dollar has varied significantly in recent years. For example, the U.S. dollar real exchange rate fell from R$ per U.S. dollar at December 31, 2000 to R$ at March 31, 2001 and R$ at June 30, At September 24, 2001, the U.S. dollar-real exchange rate was R$ per U.S. dollar. 15

19 A significant amount of our financial assets and liabilities are denominated in foreign currencies, primarily U.S. dollars. When the Brazilian currency is devalued, we incur losses on our liabilities denominated in or indexed to foreign currencies, such as our U.S. dollar-denominated long-term debt and foreign currency loans, and experience gains on our monetary assets denominated in or indexed to foreign currencies, as the liabilities and assets are translated into reais. If a devaluation occurs when the value of such liabilities significantly exceeds the value of such assets, including any financial instruments entered into for hedging purposes, we could incur significant losses, even if their value has not changed in their original currency. In addition, our lending and leasing operations depend significantly on our capacity to match the cost of funds indexed to the U.S. dollar with the rates charged to our customers. A significant devaluation may affect our ability to attract customers on such terms or to charge rates indexed to the U.S. dollar. A devaluation would reduce the U.S. dollar value of distributions and dividends on the ADSs and could reduce the market price of the preferred shares and ADSs. If Brazil experiences substantial inflation in the future, our revenues and the market price of the preferred shares and ADSs may be reduced Brazil has in the past experienced extremely high rates of inflation, with annual rates of inflation during the last ten years reaching as high as 1,158% in 1992, 2,708% in 1993 and 1,093% in More recently, Brazil s rates of inflation were 20.0% in 1999, 9.8% in 2000 and 7.4% for the eight months ended August 31, Inflation itself and governmental measures to combat inflation have in the past had significant negative effects on the Brazilian economy. Inflation, actions taken to combat inflation and public speculation about possible future actions have also contributed to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets. If Brazil experiences substantial inflation in the future our costs (if not accompanied by an increase in interest rates) may increase, our operating and net margins may decrease and, if investor confidence lags, the price of the preferred shares and ADSs may fall. Inflationary pressures may also curtail our ability to access foreign financial markets and may lead to further government intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Brazilian economy. Adverse changes in Brazilian economic conditions could cause an increase in customer defaults on their outstanding obligations to us, which could materially reduce our earnings Our banking, leasing, and other businesses are significantly dependent on our customers ability to make payments on their loans and meet their other obligations to us. If the Brazilian economy worsens because of, among other factors: the level of economic activity; devaluation of the real; inflation; or an increase in domestic interest rates, a greater portion of our customers may not be able to repay loans when due or to meet their debt service requirements, which would increase our past due loan portfolio and could materially reduce our net earnings. 16

20 The current Brazilian energy crisis could adversely affect our operations Brazil is currently experiencing a severe shortage of capacity to generate electrical energy. The crisis is due in part to the worst drought in 60 years, which has caused water levels at hydroelectric plants (which account for 90% of the country s generating capacity) to fall to less than one-third of capacity, and in part to a lack of past investment in power generation. In order to avoid the possibility of rolling blackouts, in May 2001 the Brazilian government announced general compulsory measures aimed at a reduction of electricity consumption by an average of 20% and announced surcharges and the temporary suspension of energy supplies for those who do not meet their cutback quotas and rewards for those who do. Under the reduced electricity consumption rules, we are required to reduce our electricity consumption by 20%. The restrictions went into effect in June 2001 and will remain in effect for an indefinite period. The reduction in energy consumption is expected to have an adverse effect on the level of economic activity in Brazil, and frequent blackouts would likely have an even greater negative effect on the Brazilian economy. Such economic consequences could reduce our customers ability to service their debt obligations and materially reduce our net earnings. The economic crisis in Argentina could adversely affect the Brazilian economy, may hurt our ability to finance our operations and may affect the market price of the preferred shares and ADSs Since 1999, the Argentine economy has been in an economic recession marked by reduced levels of consumption and investment and an elevated unemployment rate. The Argentine gross domestic product decreased by 3.1% in 1999 and 0.5% in During the first eight months of 2001, Argentine depositors, facing the ongoing recession and fearing a devaluation of the Argentine peso, have withdrawn money from banks and remitted much of it abroad. A continuing fiscal deficit has given rise to concerns that the Argentine government might be pushed to default on its debt service obligations or to devalue its currency. As a result, foreign investment in Argentina has declined, and the Argentine government s cost of borrowing has increased, further contributing to the continuing recessionary conditions. Investors perception of increased risk for investments in Argentina and fear of devaluation or default may lead to reduced levels of investment in Brazil and, more directly, may hurt our ability to finance our operations through the international capital markets. In addition, the continuation of the Argentine recession could adversely affect the Brazilian economy, as Argentina is one of Brazil s principal trading partners, accounting for 9.9% of Brazil s exports in the first seven months of Adverse developments in the Brazilian economy could, in turn, negatively impact our business. Finally, the market price of the preferred shares and ADSs may be adversely affected by the Argentine recession as Brazilian securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially those in Argentina. Access to international capital markets for Brazilian companies is influenced by the perception of risk in emerging economies, which may hurt our ability to finance our operations Since the end of 1997, and in particular during the first eight months of 2001, as a result of economic problems in various emerging market countries, including the current economic crisis in Argentina, investors have had a heightened risk perception for investments in emerging markets. As a result, in some periods Brazil has experienced a significant outflow of U.S. dollars, and Brazilian companies have faced higher costs for raising funds, both domestically and abroad and have been impeded from accessing international capital markets. We cannot assure you that international capital 17