Financial Statements. Banco UBS Pactual S.A. and Subsidiaries. December 31, 2007 and 2006 with Report of Independent Auditors

Transcription

1 Financial Statements Banco UBS Pactual S.A. and Subsidiaries with Report of Independent Auditors

2 AND SUBSIDIARIES FINANCIAL STATEMENTS Contents Report of Independent Auditors...1 Audited Financial Statements Balance Sheets...3 Statements of Income...5 Statements of Changes in Shareholders Equity...6 Statements of Changes in Cash Position...7 Notes to Financial Statements...8

3 Praia de Botafogo, º andar Fone: (55) (21) Rio de Janeiro, RJ, Brasil Fax: (55) (21) A free translation from Portuguese into English of Report of Independent Auditors on financial statements prepared in accordance with the accounting practices adopted in Brazil REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Banco UBS Pactual S.A. 1. We have audited the accompanying balance sheet of Banco UBS Pactual S.A. and the consolidated balance sheet of Banco UBS Pactual S.A. and subsidiaries as of December 31, 2007 and the related statements of income, shareholders equity and changes in cash position for the year then ended. These financial statements are the responsibility of the Bank s management. Our responsibility is to express an opinion on these financial statements. 2. We conducted our audit in accordance with generally accepted auditing standards in Brazil which comprised: (a) the planning of our work, taking into consideration the materiality of balances, the volume of transactions and the accounting and internal control systems of the Bank; (b) the examination, on a test basis, of documentary evidence and accounting records supporting the amounts and disclosures in the financial statements; and (c) an assessment of the accounting practices used and significant estimates made by management of the Bank, as well as an evaluation of the overall financial statements presentation. 3. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banco UBS Pactual S.A. and the consolidated financial position of Banco UBS Pactual S.A. and subsidiaries at December 31, 2007, and the results of its operations, changes in its shareholders equity and changes in its cash position for the year then ended, in accordance with the accounting practices adopted in Brazil. 1

4 4. As mentioned in Note 1, in the year ended December 31, 2007, Banco UBS Pactual S.A. fully merged UBS Brasil Participações Ltda. and Banco UBS S.A. Pursuant to the provisions of the Central Bank of Brazil, we have audited the procedures adopted in the merger processes, which, in our opinion, are compliant with the regulatory standards. 5. The financial statements of Banco UBS Pactual S.A. and the consolidated financial statements of Banco UBS Pactual S.A. and subsidiaries for the year ended December 31, 2006, presented for comparison purposes, were audited by other independent auditors who issued an unqualified opinion thereon dated March 29, Rio de Janeiro, February 14, 2008 ERNST & YOUNG Auditores Independentes S.S. CRC - 2SP /O-6 - F - RJ Eduardo Wellichen Partner Flávio Serpejante Peppe Partner 2

5 A free translation from Portuguese into English of financial statements prepared in accordance with the accounting practices adopted in Brazil BANCO UBS PACTUAL S.A. BALANCE SHEETS Consolidated Banco UBS Pactual S.A ASSETS Current assets 20,781,686 18,808,221 16,737,764 15,314,995 Cash and cash equivalents 8,380 18, ,340 Short-term interbank investments 8,586,146 5,347,668 7,659,559 4,552,157 Open market investments 7,466,484 4,677,963 7,358,581 4,489,887 Interbank deposits 1,119, , ,978 62,270 Marketable securities and derivative financial instruments 8,638,098 10,523,650 6,447,854 8,847,575 Own portfolio 2,668,328 2,139,758 1,325, ,973 Subject to repurchase agreements 459,878 7,013,576-6,867,192 Derivative financial instruments 563, , , ,255 Linked to the Central Bank (BACEN) 153, ,678 - Subject to guarantees 4,792,766 1,034,188 4,703, ,155 Interbank transactions 398,368 40, ,368 40,066 Restricted credits Deposits with BACEN 397,728 38, ,728 38,622 SFH - National Housing System 590 1, ,307 Correspondents Credit operations 627, , , ,243 Credit operations - private sector 653, , , ,278 Allowance for loan losses (26,250) (9,035) (26,250) (9,035) Other credits 2,515,790 2,499,685 1,599,017 1,557,420 Foreign exchange portfolio 838,138 1,247, ,138 1,247,807 Income receivable 478,678 54, ,756 4,239 Securities trading and brokerage 1,090,832 1,109, , ,049 Sundry 108,646 88,276 88,688 80,714 Allowance for losses on other credits (504) (389) (504) (389) Other assets 7, , Temporary investments 7,023-7,023 - Other assets Prepaid expenses Long-term assets 2,048, ,910 2,019, ,795 Marketable securities and derivative financial instruments 46,444 37,424 45,499 34,430 Derivative financial instruments 46,444 37,424 45,499 34,430 Interbank transactions 10,912 9,011 10,912 9,011 Restricted credits SFH - National Housing System 10,912 9,011 10,912 9,011 Credit operations 532, , , ,030 Credit operations - private sector 542, , , ,450 Allowance for loan losses (10,680) (1,420) (10,680) (1,420) Other credits 1,458,516 87,704 1,437,070 73,324 Securities trading and brokerage Sundry 1,460,235 89,664 1,439,278 74,988 Allowance for losses on other credits (2,338) (2,582) (2,208) (2,242) Permanent assets 97,398 49,023 1,347, ,243 Investments 50,777 22,791 1,302, ,218 Subsidiary companies - in Brazil , ,004 Subsidiary companies - abroad , ,771 Other investments 52,909 26,320 20,096 10,647 Allowance for losses (2,132) (3,529) (2,014) (3,204) Property and equipment in use 31,767 16,426 30,661 16,273 Other property and equipment in use 61,198 32,519 56,849 30,581 Accumulated depreciation (29,431) (16,093) (26,188) (14,308) Deferred charges 14,854 9,806 14,768 9,752 Organization and expansion costs 25,230 16,288 25,139 16,234 Accumulated amortization (10,376) (6,482) (10,371) (6,482) Total assets 22,927,147 19,233,154 20,105,435 16,236,033 See accompanying notes. 3

6 BALANCE SHEETS Consolidated Banco UBS Pactual S.A LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities 17,821,104 17,445,160 15,042,837 14,456,187 Deposits 3,360,167 2,061,560 3,584,394 1,189,959 Demand deposits 1,228, ,047 1,068,918 75,843 Interbank deposits - related parties ,800 39,910 Time deposits 2,087,222 1,444,261 2,166,658 1,070,814 Other deposits 43,951 3,252 44,018 3,392 Open market funding 5,163,132 11,062,301 4,590,249 10,889,207 Own portfolio 444,736 6,863,034-6,735,421 Third-party portfolio 2,713,034 2,565,345 2,584,887 2,519,864 Freely-traded portfolio 2,005,362 1,633,922 2,005,362 1,633,922 Funds from securities issued and accepted 1,022, , Liabilities for foreign securities 1,022, , Interbank transactions Payables and receivables pending settlement Borrowings 179, , Foreign borrowings 179, , Local onlending - official institutions 3, , FINAME - Special Agency for Industrial Financing 3, , Foreign onlending 177, ,599 25,895 Foreign onlending 177, ,599 25,895 Derivative financial instruments 557, , , ,996 Derivative financial instruments 557, , , ,996 Other liabilities 7,357,433 3,337,952 6,220,288 2,203,376 Collection of taxes and contributions Foreign exchange portfolio 848,708 1,352, ,708 1,352,214 Corporate and statutory 806, , , ,532 Taxes and social security 256, , , ,022 Securities trading and brokerage 5,390,194 1,407,739 4,611, ,896 Sundry 55,925 38,580 38,216 20,355 Long-term liabilities 1,275, ,710 1,231, ,562 Deposits 712, , , ,930 Time deposits 712, , , ,930 Local onlending - official institutions 2,630 1,037 2,630 1,037 FINAME - Special Agency for Industrial Financing 2,630 1,037 2,630 1,037 Derivative financial instruments 78,642 4,171 46,552 3,677 Derivative financial instruments 78,642 4,171 46,552 3,677 Other liabilities 481, , ,783 97,918 Corporate and statutory 184, ,257 - Taxes and social security 276,290 89, ,330 84,664 Securities trading and brokerage Sundry 20,591 15,939 18,196 13,254 Deferred income 1,446 3,803 1,446 3,803 Shareholders equity 3,829,206 1,200,481 3,829,206 1,200,481 Capital - local residents 195, , , ,693 Capital - foreign residents 359, ,390 - Capital reserves 6,847 4,798 6,847 4,798 Income reserves 822, , , ,215 Retained earnings 2,444, ,775 2,444, ,775 Total liabilities and shareholders equity 22,927,147 19,233,154 20,105,435 16,236,033 See accompanying notes. 4

7 STATEMENTS OF INCOME Years ended (In thousands of reais, except per share information) Consolidated Banco UBS Pactual S.A nd semester Year Year 2nd semester Year Year Financial revenues 1,925,874 3,520,898 2,773,244 1,736,173 3,313,969 2,613,064 Credit operations 165, ,095 98, , ,720 86,829 Marketable securities 734,955 1,906,043 2,589, ,846 1,747,670 2,489,332 Derivative financial instruments 977,138 1,245,229 78, ,587 1,188,275 33,802 Foreign exchange 38,613 93,297 5,039 44, ,070 1,549 Compulsory investments 9,499 13,234 1,552 9,499 13,234 1,552 Financial expenses (1,262,746) (2,389,343) (1,793,814) (1,236,551) (2,305,884) (1,708,566) Funding operations (569,682) (1,245,352) (1,723,484) (535,243) (1,162,923) (1,656,171) Borrowings and onlending (680,268) (1,113,453) (63,816) (686,773) (1,114,116) (45,881) Allowance for losses on credit operations and other credits (12,796) (30,538) (6,514) (14,535) (28,845) (6,514) Gross income from financial operations 663,128 1,131, , ,622 1,008, ,498 Other operating income (expenses) 742, , , , , ,861 Income from services rendered 1,186,775 1,822, , , , ,219 Personnel expenses (205,179) (418,964) (41,538) (179,337) (364,547) (32,169) Other administrative expenses (115,984) (180,086) (117,275) (85,983) (138,552) (94,855) Tax expenses (139,303) (254,990) (82,904) (94,840) (188,303) (63,064) Equity pickup from subsidiaries , , ,750 Other operating income 24,472 41,385 20,759 13,160 18,930 10,244 Other operating expenses (8,512) (18,662) (14,426) (4,085) (9,665) (7,264) Net operating income 1,405,397 2,122,772 1,271,638 1,302,081 1,936,052 1,211,359 Non-operating income (loss) 420, ,682 6, , ,002 5,753 Income before taxes and profit sharing 1,826,074 2,543,454 1,277,867 1,442,099 2,076,054 1,217,112 Income and social contribution taxes (492,474) 904,167 (291,745) (294,589) 1,150,525 (250,270) Provision for income tax (280,599) (323,265) (234,103) (136,504) (145,562) (200,879) Provision for social contribution tax (97,468) (108,769) (82,405) (45,375) (44,270) (70,200) Deferred tax assets (114,407) 1,336,201 24,763 (112,710) 1,340,357 20,809 Profit sharing (339,129) (798,658) (300,839) (153,039) (577,616) (281,559) Net income for the semester/year 994,471 2,648, , ,471 2,648, ,283 Interest on equity , ,195 Number of outstanding shares at the end of the semester/year 1,253,583,889 1,253,583, ,300,085 Earnings per share - R$ See accompanying notes. 5

8 STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY Years ended (In thousands of reais, except dividends per share) Capital Capital Income reserves Unrealized Capital increase reserves Legal income Statutory Total Retained earnings Treasury shares Total Balances at December 31, ,693 88,000 2,177 49,765 86, , ,325 - (109,972) 625,223 Dividends distributed (R$0.51 per shares) (72,451) (72,451) - - (72,451) Capital increase 88,000 (88,000) Cancellation of own shares (109,972) (109,972) - 109,972 - Restatement of membership certificates - - 2, ,621 Net income for the year , ,283 Appropriation of net income Legal reserve , ,574 (9,574) - - Interest on equity (40,195) - (40,195) Statutory reserve , ,979 (119,979) - - Unrealized income , ,760 (113,760) - - Balances at December 31, ,693-4,798 59, , , , ,775-1,200,481 Balances at December 31, ,693-4,798 59, , , , ,775-1,200,481 Dividends (290,734) - (290,734) Restatement of membership certificates Effects of merger of Banco UBS S/A 258,314-1, , ,556 Net income for the year ,648,963-2,648,963 Appropriation of net income Legal reserve , ,663 (51,663) - - Statutory reserve , ,651 (206,651) - - Unrealized income ,988-66,988 (66,988) - - Balances at December 31, ,007-6, , , , ,517 2,444,835-3,829,206 See accompanying notes. 6

9 STATEMENTS OF CHANGES IN CASH POSITION Years ended Consolidated Banco UBS Pactual S.A nd semester Year Year 2nd semester Year Year SOURCES OF FUNDS 10,360,027 11,800,689 12,014,151 9,004,043 12,268,795 10,806,295 Adjusted net income 999,786 2,659, , ,212 2,036, ,360 Net income for the semester/year 994,471 2,648, , ,471 2,648, ,283 Depreciation and amortization 5,415 10,890 4,901 5,203 9,081 4,578 Equity pickup from subsidiaries (549,462) (621,222) (287,750) Allowance for losses on permanent investments (100) (100) 3, ,249 Changes in deferred income 38 (2,357) 3, (2,357) 3,129 Funds from shareholders Effects of merger of Banco UBS S/A - 269, ,556 - Funds from third parties arising from Increase in liabilities - 6,966,794 3,359,396-7,541,992 1,266,223 Deposits - 1,538, ,933-2,634, ,506 Funds from securities issued and accepted - 215, , Interbank transactions Borrowings and onlending - 361, ,155 - Derivative financial instruments - 456, ,474 - Other liabilities - 4,395,047 2,038,861-4,388, ,714 Decrease in assets 9,329,933 1,876,532 7,950,778 8,541,774 2,388,652 9,039,154 Short-term interbank investments 3,118, ,984, Marketable securities and derivative financial instruments 2,487,673 1,876,532 7,950,182 2,696,315 2,388,652 9,038,507 Credit operations 370, , Other credits 3,352, ,493, Other assets Disposal of assets and investments 30,270 30,411 5,155 12,019 12,054 9,950 Investments in subsidiaries ,795 Other investments 30,250 30, ,963 11, Property and equipment in use , ,955 Dividends received from subsidiaries ,076 82,479 APPLICATIONS OF FUNDS 10,896,424 11,811,173 12,019,186 9,135,051 12,276,399 10,809,307 Dividends distributed - 290, , , ,646 Acquisition of 17,360 79,346 11,916 16, ,675 11,460 Investments in subsidiaries - 6, ,465 4,717 Other investments 10,368 53,256 5,174 9,413 21,663 - Property and equipment in use 6,992 19,870 6,742 6,916 19,547 6,743 Deferred charges 2,222 9,290 2,745 2,218 8,973 2,720 Increase in assets 99,804 5,532,634 6,470,658 99,975 5,497,059 5,243,456 Short-term interbank investments - 3,238,478 4,828,440-3,107,402 4,550,158 Interbank transactions 93, ,203 32,640 93, ,203 32,640 Credit operations - 540, , , ,333 Other credits - 1,386,917 1,091,199-1,405, ,325 Other assets 6,789 6,923-6,960 7,103 - Decrease in liabilities 10,777,038 5,899,169 5,421,221 9,016,043 6,298,958 5,439,025 Deposits 1,367, , Open market funding 7,692,103 5,899,169 5,238,285 8,198,102 6,298,958 5,036,507 Funds from securities issued and accepted 180, Interbank transactions 11, , Borrowings and onlending 31, , ,305 Derivative financial instruments 73, ,619 81, ,213 Other liabilities 1,420, , Decrease in cash and cash equivalents (536,397) (10,484) (5,035) (131,008) (7,604) (3,012) Changes in financial position Cash and cash equivalents: At the beginning of the semester/year 544, ,641 23, ,744 8,340 11,352 At the end of the semester/year 8, ,157 18, ,340 Decrease in cash and cash equivalents (536,397) (10,484) (5,035) (131,008) (7,604) (3,012) See accompanying notes. 7

10 NOTES TO FINANCIAL STATEMENTS 1. Operations Banco UBS Pactual S.A. (the Bank) is a multiple bank duly authorized to operate jointly with its subsidiaries in offering financial products and services related to commercial banking activities, including foreign exchange, investments, credit, financing, leasing and mortgage financing. Pursuant to the planned corporate restructuring phases, on February 6, 2007, the Bank performed a downstream merger of its parent company UBS Brasil Participações Ltda. While the operation did not result in a capital increase, goodwill on this acquisition generated tax credits of R$ 1,501,200, which were accounted for upon the merger. As published in the Official Gazette of October 29, 2007, the Central Bank of Brazil approved the merger of Banco UBS S/A on May 1, 2007, on which occasion the Bank absorbed its total assets, in the amount of R$ 269,556. The operations are conducted as part of a group of institutions, which participate jointly in the financial market, and certain transactions are carried out with the participation or intermediation of other member institutions of the UBS Group. 2. Presentation of Financial Statements The financial statements of the Bank and its subsidiaries were prepared in accordance with the accounting practices established in Brazil, and with the standards and guidelines of the Central Bank of Brazil (BACEN), and are presented in conformity with the Chart of Accounts for Institutions of the National Financial System (COSIF). The preparation of the financial statements in accordance with the accounting practices adopted in Brazil requires that management use appropriate judgment to determine and record accounting estimates. The assets and liabilities subject to these estimates and assumptions basically refer to deferred tax assets and liabilities, the allowance for losses on loans and other receivables, the provision for the suspended collection of taxes and contributions, and the provision for contingent liabilities. Actual results may significantly differ from these estimates due to the underlying inaccuracy of the determination process. The Bank and its subsidiaries review these estimates and assumptions on a regular basis. 8

11 3. Consolidated Financial Statements The consolidated financial statements were prepared in accordance with the consolidation criteria issued by BACEN. Thus, intercompany shareholdings, assets, liabilities, income and expenses have been eliminated. These consolidated financial statements include the individual financial statements of Banco UBS Pactual S.A. and those of its direct and indirect subsidiaries as follows: Share in total capital - % Direct subsidiaries UBS Pactual Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários UBS Pactual Corretora de Títulos e Valores Mobiliários S.A UBS Pactual Serviços Financeiros S.A. Distribuidora de Títulos e Valores Mobiliários UBS Pactual Corretora de Mercadorias Ltda UBS Pactual Corporate Services Ltda UBS Pactual Securitizadora S.A UBS Pactual Agente Comercializador de Energia Ltda UBS Pactual Overseas Corporation UBS Pactual Banking Limited UBS Pactual Americas Investment Corp. S.A UBS Pactual Gestora de Recursos Ltda UBS Pactual Serviços de Administração Ltda Indirect subsidiaries UBS Pactual Asset Management F.I. S.A UBS Pactual Asset Management Equity S.A UBS Pactual Gestora de Recursos Ltda UBS Pactual Administradora de Recursos Internacionais Ltda UBS Pactual Equity Gestora de Recursos Ltda UBS Pactual Gestora de Investimentos Alternativos Ltda UBS Pactual WM Gestão de Recursos Ltda UBS Pactual Serviços de Administração Ltda The financial statements of foreign subsidiaries, originally prepared in U.S. dollars, were translated into Brazilian reais at the commercial U.S. dollar exchange rate in force at the balance sheet date. In the consolidated financial statements, the effects of the exchange variation on investments in foreign subsidiaries are presented in the statement of income according to the nature of the corresponding balance sheet accounts. 9

12 4. Significant Accounting Practices The most significant accounting practices adopted by the Bank and its direct and indirect subsidiaries are as follows: a) Operating results are determined on the accrual basis of accounting. b) Current and long-term assets are stated at their realizable values, including, when applicable, accrued interest and monetary (on a daily pro rata basis) and exchange variation, less the related unrealized income and/or allowance for losses. c) Marketable securities are valued and classified in accordance with the criteria established by BACEN Circular No. 3068/01, into the following categories: I - trading; II - available for sale; and III - held to maturity. Marketable securities classified into category I are adjusted to market value, with the related adjustments having a corresponding entry in the statement of income; marketable securities classified into category II are recorded at acquisition cost plus accrued interest, which is recorded in the statement of income and adjusted to market value, with the related adjustments having a corresponding entry in a specific shareholders equity account, net of tax effects; marketable securities classified into category III are valued at acquisition cost plus accrued interest and recorded in the statement of income. d) Financial instrument-based transactions carried out on the Bank s own behalf or which do not comply with hedging criteria (mainly derivatives used to manage global risk exposure) are stated at fair value, with the related gains and losses, whether realized or not, being recorded directly in the statement of income. Derivative financial instruments intended as a hedge against risk exposures or to change the characteristics of financial assets and liabilities, and which (i) closely relate to the hedged item with regard to changes in its fair value throughout the contract term; and, (ii) are considered to effectively hedge against the associated risk exposure, are classified as market risk hedge, with the financial assets and liabilities, as well as the related financial instruments, being recorded at fair value, and gains and losses, whether realized or not, are directly credited or charged to the statement of income, as applicable. 10

13 4. Significant Accounting Practices (Continued) e) The fair value of marketable securities, derivatives and other rights and liabilities, as applicable, is calculated considering market quotes, pricing models, or the price of other similar financial instruments. Thus, actual results may differ from the estimates on the financial settlement of the operations. f) The daily adjustments of futures operations are recorded as income or expenses as earned or incurred. The premiums paid or received in connection with operations involving share options, other financial assets and commodities are recorded in the related asset and liability accounts at the amounts paid or received, adjusted to market prices with a matching entry in the statement of income. The nominal value of share purchase and sale agreements, other financial assets and commodities traded in the futures and options markets is recorded in off-balance sheet accounts. g) Forward transactions involving financial assets and commodities are recorded at the ending value of the contract, less the difference between that value and the cash price of the asset or right, in the proper asset or liability account. Income and expenses are recognized over the contract period. h) Assets and liabilities resulting from swap and NDF operations are recorded in the balance sheet at book value, with the adjustments to market value being matched in the statement of income, and no amounts receivable and payable being offset. The notional amount of contracts is recorded in memorandum accounts. i) The allowance for losses on credit operations and other credits is estimated based on an analysis of operations and specific risks of each portfolio, pursuant to the criteria established by Resolution No. 2682/99, of the National Monetary Council (CMN). j) Investments in subsidiary companies are accounted for under the equity method. Membership certificates are recorded at acquisition cost and restated for the amounts informed by the related institutions, with the resulting adjustments being recorded as capital reserve under shareholders equity. Membership certificates in the Futures and Commodities Exchange (BM&F) and São Paulo Stock Exchange (BOVESPA) were restated through the demutualization date. Other permanent investments are valued at acquisition cost, less the provision for losses, as applicable. 11

14 4. Significant Accounting Practices (Continued) k) Property and equipment in use are stated at acquisition cost. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets. Deferred charges mainly comprise leasehold improvements. Amortization is calculated on the straight-line basis considering the estimated period of use and/or lease. l) Current and long-term liabilities are stated at known or estimated values, including, where applicable, accrued charges and monetary (on a daily pro rata basis) and foreign exchange variation. m) The provision for income and social contribution taxes is established based on taxable income adjusted by additions and exclusions defined in tax legislation. Deferred income and social contribution taxes are calculated on temporary differences where the realization of such amounts is considered to be probable. Income tax is calculated at 15%, plus a 10% surcharge on annual taxable income in excess of R$ 240; and social contribution tax is calculated at 9%. n) Contingent assets and liabilities and legal obligations are recognized, measured and disclosed pursuant to the following criteria: Contingent assets - Contingent assets are not recognized in the financial statements, unless there is evidence ensuring their realization; these are not subject to appeal. Contingent liabilities - These are recognized in the financial statements when, based on the opinion of legal advisors and management, the loss risk of a legal or administrative suit is considered probable, and when the amounts involved is can be measured reliably. Contingent liabilities classified by the legal advisors as possible losses are simply disclosed in the footnotes, while those classified as remote losses do not require provisions or disclosure. Legal liabilities - taxes and social security - These refer to legal disputes challenging the legal and constitutional nature of some taxes and contributions. The amount under dispute is measured and accounted for. o) Earnings per share are calculated based on the number of outstanding shares at the balance sheet date. 12

15 5. Cash and Cash Equivalents The balance of this account refers basically to foreign deposits with first-tier financial institutions. 6. Short-term Interbank Investments a) Open market investments Consolidated Banco UBS Pactual S.A Own portfolio Financial Treasury Bills 2,174,014-2,174,014 - National Treasury Bills 58,510-58,510 - National Treasury Notes 580, , , ,304 Corporate Bonds - 127, ,813, ,211 2,813, ,304 Third-party portfolio Financial Treasury Bills 2,200,336 4,999 2,200,336 4,999 National Treasury Bills 263,461 2,119, ,461 2,119,255 National Treasury Notes 122, , , ,143 Sovereign debt bonds 107,903 60, ,694,371 2,566,566 2,586,468 2,506,397 Short position National Treasury Bills - 616, ,304 National Treasury Notes 1,958, ,882 1,958, ,882 1,958,718 1,574,186 1,958,718 1,574,186 b) Interbank deposits 7,466,484 4,677,963 7,358,581 4,489,887 The balance of this account refers to short-term interbank investments with immediate liquidity placed with first-line banks. Consolidated Banco UBS Pactual S.A Interbank Deposit Certificates - CDI 151,865 28, ,865 28,075 Financial investments abroad - overnight 967, , ,113 34,195 1,119, , ,978 62,270 13

16 7. Marketable Securities and Derivative Financial Instruments a) Securities Securities comprising the Bank s and its subsidiaries own portfolio are classified as trading securities as follows: Consolidated Cost Market Cost Market Own portfolio Government securities Financial Treasury Bills 15,298 15,295 1,253 1,235 National Treasury Bills 6,126 6,121 1,568 1,575 National Treasury Notes 91,336 90,695 50,619 51,832 Certificates of Deposit 155, ,492 56,604 57,259 Debentures 46,513 44, , ,768 Bank Credit Certificate 143, , Certificates of Real Estate Receivables 4,571 4,587 4,099 4,264 Forward Certificate of Electric Power ,975 63,908 Investment fund shares 163, , , ,997 Public company shares 1,477,166 1,584, , ,080 Private company shares 104, , Securities issued to cover court-ordered debts 115, , Securitized credits 5,252 5, Sovereign debt bonds 8,273 8, Corporate Bonds (i) 200, , , ,367 T-Bill 26,253 26, ,563,169 2,668,328 2,045,548 2,139,758 Subject to repurchase agreements Government securities Financial Treasury Bills , ,350 National Treasury Bills - - 1,379,032 1,385,264 National Treasury Notes - - 4,471,117 4,542,578 Sovereign debt bonds ,419 54,206 Corporate Bonds (i) 464, ,878 92,083 92, , ,878 6,935,233 7,013,576 Linked to Central Bank Government securities Financial Treasury Bills 16,580 16, National Treasury Bills 1,733 1, National Treasury Notes 136, , , , Subject to guarantees Government securities Financial Treasury Bills 118, ,024 28,531 28,524 National Treasury Bills 416, , National Treasury Notes 3,861,641 3,788, , ,860 Public company shares 462, , , ,456 Certificates of Deposit ,859,198 4,792, ,796 1,034,188 (i) These refer to securities of Brazilian companies issued abroad, which are part of the portfolio of subsidiary UBS Pactual Overseas Corporation and UBS Pactual Banking Limited. 14

17 7. Marketable Securities and Derivative Financial Instruments (Continued) a) Securities (Continued) Banco UBS Pactual S.A Cost Market Cost Market Own portfolio Government securities Financial Treasury Bills 15,298 15,295 1,253 1,235 National Treasury Bills 6,126 6,121 1,568 1,575 National Treasury Notes 91,336 90,695 50,619 51,832 Certificates of Deposit 152, ,761 51,217 50,867 Debentures 46,513 44, , ,768 Bank Credit Certificate 143, , Certificates of Real Estate Receivables 4,571 4,587 4,099 4,264 Forward Certificate of Electric Power ,975 63,908 Investment fund shares 161, , , ,599 Public company shares 470, , , ,925 Private company shares 104, , Securities issued to cover court-ordered debts 115, , Securitized credits 5,252 5, ,316,526 1,325, , ,973 Subject to repurchase agreements Government securities Financial Treasury Bills , ,350 National Treasury Bills - - 1,379,032 1,385,264 National Treasury Notes - - 4,471,117 4,542, ,789,731 6,867,192 Linked to Central Bank Government securities Financial Treasury Bills 16,580 16, National Treasury Bills 1,733 1,714 National Treasury Notes 136, , , , Subject to guarantees Government securities Financial Treasury Bills 43,243 43, National Treasury Bills 416, , National Treasury Notes 3,861,641 3,788, , ,860 Public company shares 453, , , ,295 4,774,411 4,703, , ,155 15

18 7. Marketable Securities and Derivative Financial Instruments (Continued) b) Derivatives Assets Consolidated Liabilities 2007 Cost Market Cost Market Derivatives Swap transactions 85, , , ,776 Receivable and payable of forward transactions 188, , , ,530 Option premiums 231, , , ,009 Non-deliverable forward - NDF 49,114 69,907 40,256 34, , , , ,964 Current amount 563, ,322 Long-term amount 46,444 78, Cost Market Cost Market Derivatives Swap transactions 222, ,367 14,993 17,811 Receivable and payable of forward transactions 45,617 45,616 45,819 45,818 Option premiums 47,736 37,919 91,281 72,311 Non-deliverable forward - NDF 33,148 53,650 28,987 43, , , , ,683 Current amount 336, ,512 Long-term amount 37,424 4,171 16

19 7. Marketable Securities and Derivative Financial Instruments (Continued) b) Derivatives (Continued) Banco UBS Pactual S.A. Assets Liabilities 2007 Cost Market Cost Market Derivatives Swap transactions 85,053 81,322 85,818 85,746 Receivable and payable of forward transactions 49,256 49,256 49,256 49,256 Option premiums 113, , , ,496 Non-deliverable forward - NDF 49,114 58,214 40,256 34, , , , ,147 Current amount 265, ,595 Long-term amount 45,499 46, Cost Market Cost Market Derivatives Swap transactions 221, ,820 13,937 16,755 Receivable and payable of forward transactions 31,036 31,035 31,036 31,035 Option premiums 46,695 36,684 87,324 70,831 Non-deliverable forward - NDF 33,148 35,146 28,987 32, , , , ,673 Current amount 296, ,996 Long-term amount 34,430 3, Credit Operations Credit operations are classified into risk levels in accordance with the criteria established by CMN Resolution No This classification considers, among other aspects, a regular review of the operations, default levels, client s background and guarantees obtained, as applicable. The allowance for loan losses is calculated considering the client s risk level classification, in accordance with aforementioned Resolution. 17

20 8. Credit Operations (Continued) Credit operations and other credit-like operations are as follows: a) Credit operations i. By type of client, business activity and risk level Type of credit Client Consolidated Business activity Risk level Balance Allowance Balance Allowance Loans Corporate Manufacture AA 14,523-52,487 - Corporate Commerce AA 18, Corporate Services AA 2, Corporate Financ. Interm. AA ,326 - Individual - AA 41, Corporate Rural A 6,523 (33) 31,817 (159) Corporate Manufacture A 5,801 (29) 42,502 (213) Corporate Commerce A 20,330 (102) 74,914 (375) Corporate Services A 150,070 (750) 15,420 (77) Corporate Financ. Interm. A - - 2,376 (12) Individual - A 169,823 (849) 124,804 (624) Corporate Manufacture B 114,570 (1,146) 63,312 (633) Corporate Commerce B 109,923 (1,099) 5,673 (56) Corporate Services B 185,077 (1,851) 21,304 (213) Individual - B 102,141 (1,021) 369 (4) Corporate Manufacture C 8,472 (254) 18,042 (541) Corporate Commerce C 1,084 (33) 742 (22) Corporate Services C 33,736 (1,011) 10,321 (310) Individual - C (15) Corporate Manufacture D 2,899 (290) 321 (32) Corporate Manufacture E 36,146 (10,844) 62 (19) Corporate Manufacture G (96) Corporate Manufacture H 3,246 (3,246) 5,422 (5,422) Corporate Commerce H 14,178 (14,178) - - Corporate Services H (11) Individual - H 75 (75) 1,292 (1,292) 1,040,955 (36,811) 519,166 (10,126) Discounted notes Corporate Services B 317 (3) - - Financing Corporate Rural A 97 (1) 146 (1) Corporate Manufacture A 17,681 (88) - - Corporate Commerce A ,024 (150) Corporate Rural B ,041 (140) Corporate Manufacture B 2,205 (22) - - Corporate Commerce B - - 1,023 (10) Corporate Services C (21) 19,983 (111) 45,933 (322) Onlending FINAME/BNDES Corporate Rural A 972 (5) 1,292 (7) Securities financing 134,501-63,749-1,196,728 (36,930) 630,140 (10,455) Current amount 653,857 (26,250) 386,949 (9,035) Long-term amount 542,871 (10,680) 243,191 (1,420) 18

21 8. Credit Operations (Continued) a) Credit operations (Continued) i. By type of client, business activity and risk level (Continued) Type of credit Client Banco UBS Pactual S.A Business activity Risk level Balance Allowance Balance Allowance Loans Corporate Manufacture AA 6,006-14,401 - Corporate Commerce AA 18, Corporate Services AA 2, Individual - AA 41, Corporate Rural A 6,523 (33) 31,817 (159) Corporate Manufacture A 5,801 (29) 42,502 (213) Corporate Commerce A 20,330 (102) 74,914 (375) Corporate Services A 150,070 (750) 15,420 (77) Corporate Financ. Interm. A - - 2,376 (12) Individual - A 169,823 (849) 124,804 (624) Corporate Manufacture B 114,570 (1,146) 63,312 (633) Corporate Commerce B 109,923 (1,099) 5,673 (56) Corporate Services B 185,077 (1,851) 21,304 (213) Individual - B 102,141 (1,021) 369 (4) Corporate Manufacture C 8,472 (254) 18,042 (541) Corporate Commerce C 1,084 (33) 742 (22) Corporate Services C 33,736 (1,011) 10,321 (310) Individual - C (15) Corporate Manufacture D 2,899 (290) 321 (32) Corporate Manufacture E 36,146 (10,844) 62 (19) Corporate Manufacture G (96) Corporate Manufacture H 3,246 (3,246) 5,422 (5,422) Corporate Commerce H 14,178 (14,178) - - Corporate Services H (11) Individual - H 75 (75) 1,292 (1,292) 1,032,438 (36,811) 433,754 (10,126) Discounted notes Corporate Services B 317 (3) - - Financing Corporate Rural A 97 (1) 146 (1) Corporate Manufacture A 17,681 (88) - - Corporate Commerce A ,024 (150) Corporate Rural B ,041 (140) Corporate Manufacture B 2,205 (22) - - Corporate Commerce B - - 1,023 (10) Corporate Services C (21) 19,983 (111) 45,933 (322) Onlending FINAME/BNDES Corporate Rural A 972 (5) 1,292 (7) Securities financing 134,501-63,749-1,188,211 (36,930) 544,728 (10,455) Current amount 651,183 (26,250) 318,278 (9,035) Long-term amount 537,028 (10,680) 226,450 (1,420) 19

22 8. Credit Operations (Continued) a) Credit operations (Continued) ii. By maturity Type of credit Overdue Up to 6 months Consolidated Due 6 to 12 months 2007 After 12 months Total Loans 1, , , ,194 1,040,955 Discounted notes Financing - 19, ,984 Onlending FINAME/BNDES Securities financing - 134, ,501 1, , , ,871 1,196,728 Loans 7, ,818 78, , ,166 Financing - 15, ,119 45,933 Onlending FINAME/BNDES ,292 Securities financing - 62,535 1,214-63,749 7, ,117 80, , , Type of credit Overdue Up to 6 months Banco UBS Pactual S.A. Due 6 to 12 months 2007 After 12 months Total Loans 1, , , ,351 1,032,438 Discounted notes Financing - 19, ,984 Onlending FINAME/BNDES Securities financing - 134, ,501 1, , , ,028 1,188,211 Loans 7, ,147 78, , ,754 Financing - 15, ,119 45,933 Onlending FINAME/BNDES ,292 Securities financing - 62,535 1,214-63,749 7, ,446 80, , ,

23 8. Credit Operations (Continued) b) Other receivables Other receivables, which refer to the acquisition of credit rights, are as follows: i. By type of client, business activity and risk level Type of credit Client Consolidated and Banco UBS Pactual S.A Business activity Risk level Balance Allowance Balance Allowance Securities and credits receivable Corporate Rural AA Corporate Manufacture AA 8,832-9,539 - Corporate Commerce AA 111-2,569 - Individual - AA Corporate Manufacture A 11,859 (59) 41,411 (207) Corporate Commerce A 3,173 (16) 2,136 (11) Corporate Services A 12,373 (62) 17,396 (87) Individual - A - - 3,369 (17) Corporate Manufacture B 16,606 (166) 7,558 (75) Corporate Commerce B 2,756 (27) 1,694 (17) Corporate Services B 4,218 (42) 4,584 (46) Corporate Manufacture C 1,987 (60) - - Corporate Commerce C Corporate Services D 360 (36) - - Corporate Manufacture H Corporate Commerce H 73 (73) ,630 (541) 91,032 (460) Current amount 57,325 (504) 77,772 (390) Long-term amount 5,305 (37) 13,260 (70) ii. By maturity Consolidated and Banco UBS Pactual S.A. Due Overdue Up to 6 months 6 to 12 months After 12 months Total Type of credit Securities and credits receivable ,355 69,343 3,583 7,974 5,305 13,260 62,630 91,032 21

24 8. Credit Operations (Continued) c) Allowance The changes in the allowance for losses on loans other receivables from credit-like operations over the years were as follows: Consolidated Banco UBS Pactual S.A Opening balances (10,915) (11,023) (10,915) (10,139) Set-up of allowance (28,845) (3,789) (28,845) (4,673) Credits written off as losses 2,289 3,897 2,289 3,897 Closing balances (37,471) (10,915) (37,471) (10,915) Breakdown of closing balances Allowance for loan losses (36,930) (10,455) (36,930) (10,455) Allowance for losses on other receivables (541) (460) (541) (460) (37,471) (10,915) (37,471) (10,915) Current amount (26,754) (9,424) (26,754) (9,424) Long-term amount (10,717) (1,491) (10,717) (1,491) d) Renegotiation/recovery of written-off credits In the years ended December 31, 2006 and 2007, no credits previously written off as losses were renegotiated or recovered. 9. Other Credits/Other Liabilities a) Foreign exchange portfolio Consolidated and Banco UBS Pactual S.A Assets Liabilities Assets Liabilities Unsettled exchange purchases/sales 393, , , ,135 Rights on foreign exchange sold 455, ,579 - (-) Advances received in local currency (10,967) - (104,646) - Liabilities for foreign exchange purchases - 393, , , ,708 1,247,807 1,352,214 The guarantees given in connection with foreign exchange operations carried out by the parent company, with the intermediation of BM&F, are represented by government securities amounting to R$ 117,203 (R$ 133,234 in 2006). 22

25 9. Other Credits/Other Liabilities (Continued) b) Securities trading and brokerage Consolidated Assets Liabilities Assets Liabilities Clearing houses 24,087 23, ,419 16,456 Debtors/creditors - pending settlement (i) 1,065, , , ,169 Share loans - 4,001, ,650 Other receivables/other payables for securities trading and brokerage (ii) 1, , ,502 1,091,451 5,390,194 1,110,293 1,407,777 Current amount 1,090,832 5,390,194 1,109,671 1,407,739 Long-term amount Banco UBS Pactual S.A Assets Liabilities Assets Liabilities Clearing houses 24,019 15, ,419 14,711 Debtors/creditors - pending settlement (i) 513, ,868 80, ,174 Share loans - 3,961,447-88,529 Other receivables/other payables for securities trading and brokerage (ii) , , ,939 4,611, , ,896 Current amount 537,939 4,611, , ,896 Long-term amount (i) These basically represent amounts not settled within regulatory periods, relating to transactions involving securities trading and financial assets performed locally with BOVESPA and BMF, and abroad with first-tier stockbrokers, for the Bank and third parties. (ii) These basically represent liabilities for the sale of shares, to be settled within regulatory periods, and for swap intermediation transactions. 23

26 10. Other Credits a) Income receivable Consolidated Banco UBS Pactual S.A Dividends and bonuses 2,253 1,137 2,324 1,065 Receivables for provided services 129, ,736 - Management and performance fees for assets under management 341,601 45, Commissions on technical advisory services 2,284 4, Guarantee commissions 1,040 2,744 1,040 2,744 Other 1, , b) Sundry 478,678 54, ,756 4,239 Consolidated Banco UBS Pactual S.A Deferred tax assets (Note 23) 1,384,071 34,049 1,377,122 28,160 Legal deposits: Social contribution tax - suspended collection 9,459 9,030 8,480 8,074 PIS - suspended collection 7,750 4,849 6,587 3,694 Income tax - suspended collection 7,239 6,248 5,626 4,697 Fine by BACEN 12,460 11,797 12,460 11,797 Other 5,377 3,684 3,229 1,843 Recoverable taxes 32,479 3,463 19,858 1,466 Tax incentive options 2,171 2,460 2,171 2,171 Credits receivable (i) 62,630 91,032 62,630 91,032 Other 45,245 11,328 29,803 2,768 1,568, ,940 1,527, ,702 Current amount 108,646 88,276 88,688 80,714 Long-term amount 1,460,235 89,664 1,439,278 74,988 (i) These refer to acquired credits as described in Note 8(b). 24

27 11. Investments in Subsidiaries - Parent Company Subsidiaries Capital Shareholders equity Net income (loss) Brazilian companies UBS Pactual Asset Management S.A. DTVM 3,474 2, ,155 44, , ,374 UBS Pactual CTVM S.A. 161,870 16, ,683 47, ,247 12,669 UBS Pactual Serviços Financeiros S.A. DTVM 31,599 31, ,573 28,866 75,652 19,475 UBS Pactual Corretora de Mercadorias Ltda. 2,500 2,500 91,556 33,479 57,574 14,210 UBS Pactual Gestora de Recursos Ltda ,534-57,757 UBS Pactual Serviços de Administração Ltda ,021 6,864 27,573 11,654 UBS Pactual Corporate Services Ltda ,122 3, ,687 UBS Pactual Securitizadora S.A UBS Pactual Agente Comercializador de Energia Ltda Avenida Chile 230 Investimentos Imobiliários Ltda.(ii) Foreign companies UBS Pactual Overseas Corporation 1,771 2, , , ,819 68,007 UBS Pactual Banking Limited 24,787 30, , ,049 7,181 68,735 UBS Pactual Americas Investment Corporation S.A. (iii) (34) (35) Parent Company Equity participation Book value of investment Equity income (loss) Brazilian companies UBS Pactual Asset Management S.A. DTVM ,155 44, , ,612 UBS Pactual CTVM S.A ,683 47, ,423 14,286 UBS Pactual Serviços Financeiros S.A. DTVM ,573 28,866 75,706 19,526 UBS Pactual Corretora de Mercadorias Ltda ,556 33,479 58,077 15,479 UBS Pactual Gestora de Recursos Ltda UBS Pactual Serviços de Administração Ltda UBS Pactual Corporate Services Ltda ,098 3, ,635 UBS Pactual Securitizadora S.A UBS Pactual Agente Comercializador de Energia Ltda UBS Corretora de Câmbio e Valores Mobiliários S.A. (i) ,294 - Avenida Chile 230 Investimentos Imobiliários Ltda. (ii) Goodwill on investment in UBS Pactual Serviços Financeiros S.A. DTVM (iv) 7,396 8,552 (1,156) (693) 838, , , ,989 Foreign companies UBS Pactual Overseas Corporation , ,649 80,096 49,736 UBS Pactual Banking Limited , ,032 (13,074) 64,058 UBS Pactual Americas Investment Corporation S.A. (iii) (34) (33) 445, ,771 66, ,761 1,284, , , ,750 (i) On August 1, 2007, the Bank used the investment held in this subsidiary to increase the capital of UBS Pactual Corretora de Títulos e Valores Mobiliários S.A. (ii) Investment in this wholly-owned subsidiary was sold on June 30, (iii) This company was discontinued on November 30, (iv) Goodwill based on future profitability, realizable in 10 years. 25

28 11. Investments in Subsidiaries - Parent Company (Continued) Any differences between net income of subsidiaries and the equity adjustment refer to the restatement of membership certificates (in relation to Brazilian subsidiaries) and exchange variations on investments abroad (in relation to foreign subsidiaries). 12. Open Market Funding Open market funding is backed by the following securities: Consolidated Banco UBS Pactual S.A Own portfolio Financial Treasury Bills - 938, ,900 National Treasury Bills - 1,382,013-1,382,013 National Treasury Notes - 4,414,508-4,414,508 Corporate Bonds 444, , ,736 6,863,034-6,735,421 Third-party portfolio Financial Treasury Bills 2,199,576 4,997 2,199,576 4,997 National Treasury Bills 263,523 2,121, ,523 2,121,984 National Treasury Notes 121, , , ,883 Corporate Bonds 128,147 45, ,713,034 2,565,345 2,584,887 2,519,864 Freely-traded portfolio Financial Treasury Bills 2,005,362 1,633,922 2,005,362 1,633,922 5,163,132 11,062,301 4,590,249 10,889,207 26

29 13. Funds from Securities Issued and Accepted - Liabilities for Foreign Securities In the consolidated financial statements, this item refers to Commercial Papers in the amount of US$ 408,215 thousand (US$ 377,471 thousand in 2006), falling due by March 25, 2008 (February 14, 2007 in 2006), and an Enhanced Dual Currency in the amount of US$ 169,266 thousand, falling due by May 12, In 2006, this also included Currency Basket Notes in the amount of US$ 300 thousand. These securities were issued abroad by subsidiary UBS Pactual Overseas Corporation. 14. Foreign Borrowings As of December 31, 2007, this item is represented in the parent company s financial statements by a revolving credit facility amounting to US$ 100,477 thousand, maturing by December 31, Other Liabilities a) Corporate and statutory liabilities As of, these refer mainly to the provision for employees profit sharing. 27