Acquisition of Control of 1
Disclaimer This presentation contains references and statements, planned synergies, increasing estimates, projections of results and future strategy for Banco do Brasil, it s Associated and Affiliated Companies and Subsidiaries. Although these references and statements reflect the management s belief, they also involve imprecision and high difficult risks to be foreseen, consequently, they may conduct to a different result than the one anticipated here. These expectations are highly dependent on market conditions, on Brazil s economic and banking system performances, as well as on international market one. Banco do Brasil is not responsible for bringing up to date any estimate in this presentation. 2
Section 1 Transaction Description 3
Main terms of the transaction Structure The acquisition of Nossa Caixa s controlling stake will be made through the purchase of 76,262,912 common shares of Nossa Caixa from the State of São Paulo, equivalent to 71.25% of voting and total capital Price of the Transaction Acquisition price for 71.25% of Nossa Caixa s equity: R$ 5,386.5 million (equivalent to R$ 7,560 million for 100% of Nossa Caixa s equity, or R$ 70.63 per share) P / BV 3Q08: 2.4x P / Earnings 1 : 13.0x Payment 18 monthly payments of R$ 299.25 million, starting on March 2009 Precedent Conditions Law approval by the House of Representatives of the State of São Paulo Transaction approval by the Brazilian Central Bank (Banco Central) Tag Along Based on the Novo Mercado regulation, BB will offer to minority shareholders the possibility to sell their shares under the same terms of those agreed with the Government of the State of São Paulo Source of Funds Proceeds available (cash) 1 Based on the net income over the last twelve months, ending September 30 th, 2008. 4
Section 2 Growth Strategy 5
Strategic growth Scenario Banco do Brasil s Initiatives Consolidation of the Brazilian Banking Industry Number of Banks 1 240 156 % of total deposits owned by the 5 largest banks 2 59% 75% Incorporação/aquisição Merger/acquisition of state-owned de bancos estaduais banks 1995 Jun-08 International Financial Crisis: lack of liquidity, change of compulsory regulation, and acceleration of consolidation process of the Brazilian Banking Sector Credit Evolution in Brazil - R$ billion CAGR 8.9% 1995 Jun-08 CAGR 21.2% 1,148.9 Purchase of loan portfolios / payroll Assessment of potential acquisitions of stakes in financial institutions 209.3 1995 379.5 2000 Financial partnership + economic growth 379.5 2000 2007 Expansion to international markets Source: Brazilian Central Bank (Banco Central do Brasil). 1 Includes only multiple and commercial banks authorized to operate by the Central Bank. 2 Pro-forma for the merger of Itaú/Unibanco, Santander/Real, BB/BESC and BB/BEP. 6
Nossa Caixa is a unique asset, given its strong presence in the strategic State of São Paulo Footprint in the State of São Paulo The State accounts for 31% of the Brazilian GDP More than 40 million inhabitants Highlights Among the top Brazilian banks 7 th largest in deposits 3 rd largest state-owned bank Stable and predictable funding at competitive costs Judicial deposits and savings represents 79.0% of the total deposits Stable and attractive client base Financial agent of the State of São Paulo Financial Highlights R$ billion 2006 2007 % 9M07 9M08 % Net Income 0.5 0.3 (33%) 0.3 0.5 65% Shareholders' Equity 2.6 2.8 6% 2.8 3.2 14% Deposits 27.5 32.3 17% 28.8 34.0 18% Loan Portfolio 7.2 8.7 22% 8.6 11.5 34% Total Assets 39.3 47.4 21% 46.5 53.4 15% Operational Highlights 559 branches, out of which 552 located in the State of São Paulo, 386 services outlets and 3,723 ATM s 5.7 million clients, of which 5.5 million are individuals 1.7 million credit cards R$ 27.3 billion of assets under management 1.7 million life insurance policies, and 283.1 thousand active pension plan policies 7
The transaction complements Banco do Brasil s growth strategy + R$ billion Banco do Brasil 1 Nossa Caixa BB + Nossa Caixa Growth Total Assets 458.9 53.4 512.4 12% Loan Portfolio 202.2 11.5 213.7 6% Total Deposits 230.1 34.0 264.0 15% Assets Under Management 244.2 27.3 271.5 11% # of Employees (thousands) 88.7 14.3 103.0 16% # of Branches 4,329 559 4,888 13% # of Clients (million) 47.6 5.7 53.3 12% Basel Ratio 2 13.6% 15.6% 12.8% (74) bps 3 Figures relative to September 30th, 2008. 1 Considers BB + BESC + Bescri. 2 Considers the Basel Ratio of BB s financial business group. 3 Not assuming the merger of Nossa Caixa into Banco do Brasil. 8
Section 3 Transaction Rationale 9
Transaction Rationale Grow and gain scale in a scenario of increasing consolidation within the banking industry 7 th largest bank in total deposits 9 th largest bank in terms of total assets 1 10 th largest group in terms of loan portfolio 1 Increase presence in the State of São Paulo 552 branches, being the 5 th largest branch network in the State of São Paulo Complementary distribution networks 21.4% of combined market share in the State of São Paulo (in number of branches) Increase client base and deposits Low product penetration within client base Large and stable base of judicial and savings deposits at attractive costs Capture synergies Enhance profitability of client base Expansion of loan portfolio with improvement on credit quality Efficiency gains and economies of scale 1 Considering the mergers between Itaú/Unibanco and Santander/Real. 10
The combination of BB and Nossa Caixa will create the largest branch network in the State of São Paulo Branches Located in the State of São Paulo 1.168 846 772 755 552 449 394 Bradesco Itaú BB Santander Nossa Caixa Real Unibanco Consolidation Branches Located in the State of São Paulo After the Recent Consolidation Process 1.324 1.240 1.204 1.168 BB + Nossa Caixa Itaú + Unibanco Santander + Real Bradesco Source: Brazilian Central Bank figures as of June 2008. Branches 11
BB and Nossa Caixa hold the largest deposits base, lowest funding costs and strongest leverage potential In R$ Billions Demand Deposits Savings Deposits Judicial Deposits Total Low-cost Deposits Loan Portfolio Credit / Total Deposits Credit / Low-cost Deposits Banco do Brasil 43.0 52.7 32.7 128.4 202.2 88% 157% Nossa Caixa 3.4 11.0 15.8 30.2 11.5 34% 38% BB + Nossa Caixa 46.4 63.7 48.6 158.6 213.7 81% 135% Itaú + Unibanco 23.3 37.2 0.0 60.5 225.3 135% 372% Bradesco 27.6 35.7 0.0 63.3 160.6 115% 254% Santander + Real 13.5 19.1 0.0 32.6 130.5 107% 400% Total 110.8 155.7 48.6 315.0 730.1 105% 232% Figures relative to September 30, 2008. 12
The complementarity between the networks should generate attractive opportunities to increase the profitability of Nossa Caixa s clients Overlap of the Distribution Network 1 Client Profile 5.7 million clients 1.5 million public employees 3.7% 10% 2.8% 3.7% 7.3% 0.1 million municipal and federal employees 1.4 million state employees 7.3% 3.7% 4.6% 7.3% 14% 4.6% Client Segmentation by Income (Individuals) 1 Level of Overlap: Up to 2.5% From 2.5% to 5% From 5% to 15% Over 25% 3.7% 0% 26% 2% Prime 4 6,5% 36,3% Preferential 3 57,2% Standard 2 1 As of December 31 st, 2007. 2 Monthly income up to R$800.00. 3 Monthly income between R$800.00 and R$4,000.00. 4 Monthly income over R$4,000.00. 13
Section 4 Benefits of the Transaction 14
The transaction will allow BB to capture potential synergies, mainly through the following sources: 1 2 3 Expansion of Credit Portfolio Enhancement of Services Improvement of Credit Quality Leverage on Nossa Caixa s deposits base to increase credit operations Under penetrated client base Enhance the profitability of Nossa Caixa s client base by using Banco do Brasil s business model and product portfolio Improvement of credit analysis (credit scoring), leading to reduction in delinquency 4 5 6 Optimization of Expenses Efficiency Gains Tax Benefit from Goodwill Amortization Optimization of IT and administrative expenses 4 Improvement of revenue and cost efficiency, combined with economies of scale, through the implementation of Banco do Brasil s operational model Tax benefit from the goodwill amortization after the merger of Nossa Caixa with BB 15
1 Potential expansion of the loan portfolio using Nossa Caixa s attractive funding base Loans / Deposits Deposits Profile 1 230.1 Judicial 47% 202.2 Time 11% Demand 10% Loan Portfolio and Deposits Savings 32% 34.0 In R$ billions 11.5 Deposits 1 Loans 1 Deposits 1 Loans 1 87.9% 33.8% Judicial Deposits Stable and predictable Attractive cost (TR + 6%) Highly disperse No compulsory deposits Savings One of the bank s most traditional products 5 th largest Brazilian bank in saving deposits in terms of market share Attractive cost (TR + 6%) Currently, Nossa Caixa invests R$28.4 billion of its funding in marketable securities that yields approximately CDI There is a strong potential to increase the credit penetration within Nossa Caixa s individual client base Banco do Brasil s credit portfolio represents 88% of the bank s total deposits, which indicates a great potential for credit expansion within Nossa Caixa Assuming that Nossa Caixa reaches BB s loans to deposits ratio, there is a potential to increase its net interest margin result by approximately R$ 2.0 billion 2 per year 1 As of September 30, 2008. 2 Based on the average spread for loans to individuals of BB after allowances for loans losses during 9M08. Not considering any marginal operational expenses and/or taxes. 16
1 The synergies with Nossa Caixa credit growth can be captured even with an average spread of 4% R$ million Scenario 1 - Spread BB 9M08 Scenario 2 - Spread for Payroll Loans Scenario 3 - Conservative Spread Loan Portfolio BB 1 202,201 Loan Portfolio BB 202,201 Loan Portfolio BB 202,201 Total Deposits BB 1 230,050 Total Deposits BB 230,050 Total Deposits BB 230,050 Loan / Deposits 87.9% Loan / Deposits 87.9% Loan / Deposits 87.9% Loan Portfolio NC 2 11,489 Loan Portfolio NC 11,489 Loan Portfolio NC 11,489 Total Deposits NC 2 33,960 Total Deposits NC 33,960 Total Deposits NC 33,960 Loan / Deposits 33.8% Loan / Deposits 33.8% Loan / Deposits 33.8% 3 Additional Credit NC 18,360 Additional Credit NC 18,360 Additional Credit NC 18,360 Spread 4 4 7.1% Spread 5 5 11.0% Spread 6 6 4.0% Gains before Taxes 1,303.5 Gains before Taxes 2,019.6 Gains before Taxes 734,4 IR + CSLL 40% IR + CSLL 40% IR + CSLL 40% Gains after Taxes 782.1 Gains after Taxes 1,211.7 Gains after Taxes 440.6 Under different scenarios, even considering conservative assumptions, suggests gains after taxes in excess of R$440 million per year, in a recurring basis 1 Data from Banco do Brasil as of September 30, 2008. 2 Data from Nossa Caixa as of September 30, 2008. 3 Additional credit calculated based on the difference between the loan to deposits ratio of Banco do Brasil and Nossa Caixa. 4 Consolidated spread of Banco do Brasil as of September 30, 2008. 5 Average spread for individuals of Banco do Brasil as of September 30, 2008. 6 Conservative spread. 17
2 Nossa Caixa s low product penetration presents strong potential gains for BB in banking services Banking Service Fees as a % of Total Revenues 3 Product Penetration (Individuals) 1 32.2% 31.4% 5.1 20.0% 22.6% 2.9 2.6 3.2 1.5 1.6 2007 9M08 High Income Medium Income Low Income Segmentation Credit Cards/ Current Account Holders (Individuals) 2 54% 89% Assets Under Management / Current Account Holders (Individuals) (R$ / client) 2 8.5 9.1 Assuming that Nossa Caixa Banking Service Fees reach 25% of total revenues 3, gains resulted from the change in mix could reach approximately R$ 130 million per year 1 As of December 31 st, 2007. 2 As of September 30 th, 2008. 3 Gross interest margin + banking service fees 18
3 Enhancement of the credit quality Rationale for Credit Quality Enhancement Enhancement in risk management technology (automatic credit scoring) Economies of scale in credit analysis and collections Allowances for Loan Losses / Loan Portfolio 11.4% 9.1% 9.0% 6.8% 5.9% 7.1% 2006 2007 3T08 Coverage Ratio 3 Allowances for Loan Losses Expenses / Average Loan Portfolio 134.1% 134.1% 146.5% 119.3% 95.1% 107.7% 4.9% 10.1% 3.6% 7.5% 3.3% 6.4% 2006 2007 9M08 2006 2007 9M08 4 1 As of December 31 st, 2007. 2 As of September 30 st, 2008. 3 Allowance for loan losses expenses over charge-offs. 4 Accumulated over the last 12 months ended on September 30 th, 2008. 19
4/5 Strong potential to reduce the implied acquisition multiple through efficiency gains in Nossa Caixa Efficiency Ratio 1 72,0% 45,0% 45,7% 69,6% R$ million Nossa Caixa's Efficiency Ratio 1 Potential Gain with Synergies after-tax 2 Pro-forma Net Income LTM Implied Price/Earnings Multiple 3 69.6% 0.0 581.1 13.0x 65.0% 114.9 696.0 10.9x 60.0% 238.7 819.8 9.2x 55.0% 362.6 943.6 8.0x 50.0% 486.4 1,067.5 7.1x 45.7% 592.8 1,173.9 6.4x 2007 9M08 4 1 Personnel Expenses + Other Administrative Expenses + Other Tax Expenses/ (Gross Profit form Financial Intermediation + Service Revenues + Other Operational Revenues /Expenses). Does not consider amortization of the FOPAG for the Government of the State of São Paulo. 2 Considers 40% of effective tax rate (IR and CSLL). 3 Assuming a transaction value of R$7,560 million for 100% of Nossa Caixa. 4 Accumulated over the last twelve months ended as of September 30 th, 2008. 20
Banco do Brasil has conditions to make the transaction accretive in a earnings per share perspective since 2009 In R$ millions except otherwise mentioned Banco do Brasil Nossa Caixa Opportunity Cost of Cash in the Transaction 2 Banco do Brasil + Nossa Caixa Synergies after taxes Banco do Brasil + Nossa Caixa after Synergies 3 Net Income 2009E 1 6,790 248 (347) 6,692 1004 6,792 2009E # Shares (million) 2,565 76 3 2,565 2,565 Earnings per Share (R$) 2.65 3.25 2.61 2.65 Even under conservative scenarios, we estimate annual synergies in excess to R$100 million 1 BB and Nossa Caixa net earnings estimates based in market consensus. The estimates above were not prepared by Banco do Brasil, and therefore, Banco do Brasil does not take any responsibility for the numbers above. These estimates refer to the average of market analyst forecasts according to the information published by Bloomberg. Source: Bloomberg. 2 Opportunity cost based on current Selic interest rate (13.75%) over the transaction value assuming 100% of minority shareholders acceptance to tag-along offer (R$ 7,560 million) and excluding taxes. Considering 10 installments for 2009 and considering 8 additional installments for 2010. 3 Considering only the controlling stake of Nossa Caixa. 4 Minimum net gains necessary to make the transaction accretive in a earnings per share perspective. 21
Synergies with credit expansion are possible even considering a reduction in growth expected for 2009 Spread 4.1% 7.0% 11.0% Loan Portfolio R$ million # of Clients - million Loan / Clients R$ Loan / Clients BB / Nossa Caixa BB São Paulo 44,662 11,489 5.9 5.7 7,570 2,016 3.8 x Average balance of additional credit R$ million 1 Net Gains - R$ million 1,000 24.84 42.00 66.00 2,000 49.68 84.00 132.00 3,000 74.52 126.00 198.00 4,000 99.36 168.00 264.00 5,000 124.20 210.00 330.00 6,000 149.04 252.00 396.00 2 EPS - R$ 1,000 2.62 2.63 2.63 2,000 2.63 2.64 2.66 3,000 2.64 2.66 2.69 4,000 2.65 2.67 2.71 5,000 2.66 2.69 2.74 6,000 2.67 2.71 2.76 Figures relative to September 30, 2008. 1 Net gains calculated considering spread net of taxes (40% tax rate of IR + CSLL). 2 EPS of 2.65 forecasted for 2009 (Bloomberg consensus) was considered as the break-even point. 22
Why acquiring Nossa Caixa now? Timing Considerations Banco do Brasil s Historical P / BV 1 Favorable regulation MP n o 443 Scenario of increasing consolidation within the Brazilian banking sector Complementary operations with focus in the State of São Paulo and strong potential to capture synergies 4.0 3.5 3.0 Average = 2.7x Average 2008 = 2.4x Price paid reflects strategic value of Nossa Caixa to BB and is in line with BB s historical trading multiple and recent transactions in the sector 2.5 2.0 Precedent Transaction Multiples Date Buyer Target P/BV Nov-08 Itaú Unibanco 2.0x Sep-07 BB BESC 1.7x May-07 Santander Real 3.6x Feb-07 Societe Generale Cacique 2.6x Jan-07 Bradesco BMC 2.8x May-06 Itaú Bank Boston 2.1x Dec-05 Bradesco BEC 1.9x Feb-04 Bradesco BEM 2.3x Average 2.4x 1.5 1.0 0.5 - Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 1.2x (19-Nov-08) 1 Price to book value based on Banco do Brasil s common shares (ON). Based on closing market prices and on the last available published shareholders equity. Source: Economática, Companies' reports and Brazilian Central Bank. 23
Section 5 Indicative Timetable 24
Next steps indicative timetable Announcement of acquisition of Nossa Caixa s controlling stake Signing of the sales and purchase Agreement BB s shareholders meeting call notice Filing of the tagalong offer documentation with CVM Transaction approval by the Central Bank Announcement of tag along offer terms Auction of tagalong offer D D1-15 D1 D1+10 D1+15 D1+30 D2 (?) D3 (?) Mar-09 D3 + 10 D3 + 30 Signing of memorandum of understanding TJSP s approval Announcement to the market SPA and tagalong offer Filling of regulatory documentation with Central Bank Transaction approval by State of São Paulo House of Representatives Transaction closing and financial settlement Assuming shortest possible timeframe 25
Section 6 Conclusion 26
Conclusion + Nossa Caixa is a unique asset for Banco do Brasil Another major step for BB s growth and value creation strategy Expansion of BB s presence in the State of São Paulo Consolidation of BB s position as a leading financial institution in the Brazilian financial industry Combined market share of 16% in total assets Combined market share of 22% in total deposits Combination of highly complementary assets with significant potential to capture synergies Enhancement of services to clients through the expansion of distribution network and product portfolio Expansion of BB s funding base, with the addition of Nossa Caixa s attractive deposits Value creation for shareholders, with benefits for Nossa Caixa, employees and clients 27
Transaction advisors Financial Advisor Valuation and Due Diligence Synergies & Integration Fairness Opinion 28
Investor Relations SBS Qd.01 Ed.Sede III, 5º andar CEP - 70.073-901 Brasília DF Phone: (61) 3310.3990 Fax: (61) 3310-3735 bb.com.br ri@bb.com.br For further details, please access www.bb.com.br/ri 29