espÍrito santo financial group s.a.web3.cmvm.pt/sdi2004/emitentes/docs/conv38500.pdfespírito santo...

ESPÍRITO SANTO FINANCIAL GROUP S.A.

Sede: 21/25 Allée Scheffer, L2520 Luxembourg

Capital Social : Eur 105 034 522

Matriculada na Conservatória de Et e Luxemburgo sob o no.22.232

Espírito Santo Financial Group S.A. informa sobre ponto 1 da ordem de trabalhos da

Assembleia Geral de 27 de Abril de 2012

ESPÍRITO SANTO FINANCIAL GROUP SA

CONSOLIDATED FINANCIAL STATEMENTS

AS AT 31 DECEMBER 2011

21/25 Allée Scheffer

L-2520 Luxembourg RCS: Luxembourg B22.232

The Consolidated Financial Statements have still to be approved by the General Assembly of Shareholders to be held on 27 April 2012

Report of the Réviseur d’Entreprises agréé F-1Consolidated Income Statement for the years ended 31 December 2011 and 2010 Consolidated Statement of Comprehensive Income for the years ended 31 December 2011 and 2010 Consolidated Balance Sheet as at 31 December 2011 and 2010 Statement of changes in Consolidated Equity for the years ended 31 December 2011 and 2010 Consolidated Cash Flow Statement for the years ended 31 December 2011 and 2010 Notes to the Consolidated Financial Statements as at 31 December 2011 and 2010

F-3F-4 F-5 F-6 F-7 F-8


ESPÍRITO SANTO FINANCIAL GROUP S.A.

Société Anonyme

Registered Office: 21/25 Allée Scheffer, L- 2520 Luxembourg

RCS Luxembourg B 22.232

BOARD OF DIRECTORS’ REPORT

Overview of Operations and Consolidated Results

The Euro Zone debt crisis dominated the European economic picture in 2011. Fears over

Greece’s possible default lead not only to peripheral economies such as Spain and Italy coming

under increasing pressure, but also pressure on some of the core economies, namely France, the

Netherlands and Austria. The loss of confidence and growing risk aversion associated to the

financial instability in the Euro Zone led to a drying up of liquidity in the money and credit

markets, which was particularly noticeable between August and September. Despite this Espírito

Santo Financial Group S.A. (“ESFG”) posted resilient results for the full year 2011; it reflects its

prudent decision to reduce its indebtedness by tender and converting debt to equity, which

allowed it to report capital gains as well as the positive performance from its broad asset base.

ESFG’s un-audited consolidated net profit for the full year 2011, attributable to equity holders of

the Company, rose to EUR 121.4 million, a year-on-year decrease of 11.3%. (Changes in

accounting policy for recognition of actuarial differences have lead to a new accounting policy

impacted on accounts as of the beginning January 2011. The amortisation of actuarial differences

accounted for as Staff Costs in 2011 was reversed therefore the 2010 accounts were adjusted for

comparison purposes. The previously disclosed FY10 consolidated figure of EUR EU 122.2

million was adjusted to EUR 136.7 million).

Capital gains from the Liability Management Exercises (‘LME’), undertaken in the fourth

quarter of 2011, reached EUR 100.0 million. As part of the on-going deleveraging programme

total consolidated assets declined by 2.9% during the year. The deleveraging programme is

focused at ESFG’s principal banking subsidiary Banco Espírito Santo (‘BES’). Total

consolidated assets fell from EUR 86.5 billion at the end of 2010 to EUR 84.0 billion at the end

of 2011.

ESFG posted increases in consolidated Net Interest Income (‘NII’) of 4.6%, though Net Fees and

Commissions fell by 1.0%. Commercial Banking Income rose by 2.3%. NII increased to EUR

1.24 billion in the period. At BES Net Interest Margin (‘NIM’) rising by 7 basis points, from

1.61% at year end 2010 to 1.68% at the end of the year 2011. Fees and commissions fell to EUR

809.7 million from EUR 818.3 million in 2010 though it continues to reflect the Group’s banking

subsidiaries efforts to counter the on-going recessionary pressures and restrictions on loans. The

year however saw strong growth in fees on guarantees, driven by corporate banking and

commercial paper issues, and securities.


On the 31 October 2011, ESFG announced a EUR 400 million exchange offer on preferred

securities and on its subordinated bond. ESFG offered for exchange into new ESFG bearer

shares priced at EUR 10.00 per share. The results of the LME were announced on the 15

November 2011. ESFG reported that EUR 325.75 million of the Preferred Securities and EUR

48.9 million in principal amount of the Subordinated Notes were exchanged. The take up rate

reached 93.7%.

On the 9 December 2011, ESFG announced the results of its tender offer on its outstanding

convertible. ESFG announced that EUR 146.35 million in principal amount of the notes (Fixed

rate step-up notes due 2025) together with related Warrants had been offered for tender. On the

15 December ESFG announced that a further EUR 171.6 million were exchanged into EUR

130.4 million of a new convertible. The LME activities undertaken by ESFG between October

and December resulted in EUR 509.0 million of new core capital. External debt fell by EUR

562.2 million from EUR 1.3 billion to EUR 737.8 million. On the back of the debt reduction

programme interest liabilities are expected to decline.

Consolidated Operating Expenses rose by 17.6% to EUR 2.89 billion from EUR 2.46 billion in

2010, on the back of increased provisioning charges, primarily at BES and adjustments to

charges on Actuarial Differences on pension liabilities in 2010 which lead to a 2.4% rise in Staff

Costs in 2011. Portuguese staff costs at BES were affected by the integration of the Bank’s

employees into the General Social Security Scheme.

ESFG is approved by the Bank of Portugal to use the IRB (Internal Ratings Based) method for

calculating the minimum core capital requirements to cover credit risk. As of 31 December 2011

ESFG’s Core Tier 1 position reached 8.4% from 6.9% a year earlier. BES, which reported its

FY11 results on 3 February 2012, announced that the Core Tier 1 position for the operating

company had reached 9.2% by year-end 2011 from 7.9% in 2010.

Banking Subsidiaries

Banco Espírito Santo (‘BES’) took the prudent decision to further strengthen provisions for

impairments. Total provisions by the end of 2011 at the Bank reached EUR 848.3 million. The

Bank’s Loans to Deposits Ratio (‘LDR’) dropped to 141%, from 165% in Dec.10. This

improvement was underpinned by the increase in customer deposits, to EUR 34.2 billion. Sales

of international credits totalled EUR 2.0 billion, reducing the total portfolio by 2.7%.

Commercial banking income remained resilient during 2011 at EUR 1.97 bn. The decrease in

trading gains, one off charges in domestic activity and the reinforcement of provisions led to a

loss of EUR 108.8 million in 2011. The international activity posted a net profit of EUR 160.8

million (-21.1%). In late 2011 BES carried out a capital increase through an exchange offer

(LME): raising the share capital by EUR 530 million.

One off charges in 2011: EUR 107 million loss related to the transfer of pension liabilities to the

Social Security (EUR 76 million net of taxes); EUR 193.3 million loss in the stake of BES Vida

(EUR 144 million net of taxes); and EUR 78 million losses on the sale of international loans

(EUR 55.4 million net of taxes).


Banque Privée Espírito Santo (‘BPES’); ESFG’s Swiss banking operations, focusing on private

banking business, continues to make positive contributions to consolidated results for year-end

2011, with individual income at CHF 2.0 million, net of increased provisioning, from CHF 6.4

million. ES Bankers (Dubai) (‘ESBD’); ESBD reported a significant rise results with net

individual income reaching USD 6.4million from USD 2.1 million in 2010 (+343.3%) on the

back of a marked increase in fee related business. Assets under management at ESFG, including

assets under custody at the two private banks and at ESAF, the Asset Manager at BES, fell to

EUR 20.2 billion.

Banque Espírito Santo et de la Vénétie (‘BESV’) ; at ESFG’s French banking operations net

income reached EUR 9.9 million in the period, a rise of 16.5% year-on-year.

Espírito Santo Investment Bank (‘BESI’); ESFG investment banking subsidiary’s activities

include advisory services in project finance, mergers and acquisitions, placements of shares and

bonds, stock broking and other investment banking services. Banking Income at BESI fell by 8.1%

year-on-year to EUR 238.0 million. The investment bank continues with its strategy of

international expansion, with a focus on advisory and intermediation services and loan portfolio

turnover. In subsequent events, in early 2012, BESI announced that it had advised on both the

China Three Gorges’ (“CTG”) acquisition of a 21.35% stake in Energias de Portugal (‘EDP’)

and on State Grid Corporation of China’s (“State Grid”) acquisition of a 25.0% stake in Redes

Energéticas Nacionais, SGPS (‘REN’).

Insurance Subsidiaries

ESFG’s insurance operations contributed positively to overall net profit. When combining both

Life and non-Life business ESFG ranks as the fourth largest insurance group in Portugal, with a

combined market share of 6.7%.

ESFG's market share in the non-Life sector, through Tranquilidade, BES Seguros and Seguros

LOGO ('LOGO'), grew strongly during the period to 10.5%, and is now the second largest non-

Life group in Portugal. Tranquilidade's recurrent net individual income reached EUR 33.9

million, a 176.9% year-on-year rise. Tranquilidade's direct insurance business, LOGO, reported

that its customer base had reached 120,183 clients; LOGO reported a net individual loss of EUR

4.3 million, improving from a loss of EUR 8.0 million in 2010 and is now the second largest

direct insurer in Portugal.

The combined market share in the Life business of T-Vida and BES Vida reached 4.6%. T-Vida,

ESFG’s fully owned subsidiary, reported an individual net income of EUR 3.0 million from EUR

5.1 million a year earlier.

Healthcare Subsidiaries

Year-on-year operating revenues at ESFG’s healthcare operator Espírito Santo Saúde (‘ESS’)

rose by 10.0% to EUR 273.6 million. Individual Net income for the full year rose sharply year-

on-year to EUR 4.9 million (EUR 1.5 million). EBITDA rose to EUR 46.5 million.


ESFG’s Statutory results

The statutory profit for Espírito Santo Financial Group S.A. for the financial year 2011 reached

EUR 176.4 million, a rise of 285.2% from EUR 45.8 million in 2010. Income from participating

interests fell by 43.9% to EUR 79.9 million from EUR 142.6 million in 2010. The low interest

rate environment impacted on interest received, and similar income, which fell by 80.4% to EUR

3.1 million. Capital gains, reported under Extraordinary Income, from the Liability Management

Exercises (‘LME’), undertaken in the fourth quarter of 2011, reached EUR 205.5 million.

After the Board’s deliberation it proposed that no payment of dividend will be made with

reference to the year to 31 December 2011.

Changes to its Audit Committee

Mr. Horácio Lisboa Afonso resigned as a director of ESFG and a member of its Audit

Committee and will assume the Chairmanship of Banco Espírito Santo S.A.’S Audit Committee

and Mr. Alexandre da Paixão Coelho’s will become a member of Companhia de Seguros

Tranquilidade S.A.’s and Espírito Santo Financial Portugal S.A.’s.

Following these changes the Board of Directors proposes the confirmation of the appointment of

Mr. José Manuel Ruivo da Pena and Mr. Luís António Burnay Pinto de Carvalho Daun as

directors and members of its Audit Committee.

Directors’ Remuneration

ESFG as a holding company does not have activities of its own. The Board of Directors

recognizes that its members include representatives of some of its principal shareholders and of

major subsidiaries and as a consequence are remunerated by these entities and not directly by

ESFG. The remuneration of other members of the board consists of attendance fees with the

exception of members of the Audit Committee.

The remuneration of the directors is determined by the general meeting of shareholders. The total

remuneration received by ESFG’s board members in 2011 was EUR2,315,716.

ESFG has a Stock Options’ Plan in place, approved in 2008 for a period of 10 years. The Stock

Options Committee approved the granting of 2,940,000 options to some directors and officers of

ESFG and its principal subsidiaries. During 2011 30,000 were exercised and a total amount of

EUR 24,000 was paid out.

15 March 2012


CORPORATE GOVERNANCE REPORT

The 'Ten Principles of Corporate Governance' issued by the Luxembourg Stock Exchange recommend that listed companies should publish a Corporate Governance Chapter in its annual report, describing all the relevant events related to Corporate Governance which took place in the preceding financial year. The publication of a Corporate Governance Report is a requirement of Directive 2004/39/EC of the European Parliament and of the Council of21 April 2004 and Luxembourg Law of 10th December 2010, Art 68.

Composition of the Board of Directors

The current Board of Directors is composed of twenty four directors. In September 2011 Mr.Juan Villalonga Navarro resigned as a director. Some of the directors represent major shareholders, others are representatives from major subsidiaries and seven are independent. Their present mandate, including those of the directors who form part of the Executive, Audit and Stock Option Committees, started on the 30th

May 2008 and will expire in April 2014, when the Annual General Meeting will be held. The mandate of the Executive Committee is of indeterminate duration but will expire on the same date as that of the mandate of the board members.

The fact that the main subsidiaries of the ESFG Group are represented at board level facilitates the process of supervision and is the principal link with these subsidiaries.

Board of Directors

Ricardo Espirito Santo Silva Salgado, Chairman Jose Manuel Pinheiro Espirito Santo Silva, Vice Chairman Ant6nio Luis Raquette Ricciardi Mario Mosqueira do Amaral Manuel Fernando Moniz GaMio Espirito Santo Silva Jackson Behr Gilbert Patrick Monteiro de Barros Robert Studer Philippe Guiral Manuel Ant6nio Ribeiro Serzedelo de Almeida Jose Maria Espirito Santo Silva Ricciardi Pedro Guilherme Beauvillain de Brito e Cunha Carlos Augusto Machado de Almeida Freitas Amnal da Costa Reis Oliveira Othman Benjelloun Jose Pedro Torres Garcia Caldeira da Silva Yves Alain Marie Morvan Fernando Pedro Braga Pereira Coutinho Alexandre da Paixao Coelho (1) Jose Carlos Cardoso Castella Horacio Lisboa Afonso (1)

5 The Consolidated Financial Statements have still to be approved by the General Assembly of Shareholders to be held on 27 April 2012

CORPORATE GOVERNANCE REPORT

The 'Ten Principles of Corporate Governance' issued by the Luxembourg Stock Exchange recommend that listed companies should publish a Corporate Governance Chapter in its annual report, describing all the relevant events related to Corporate Governance which took place in the preceding financial year. The publication of a Corporate Governance Report is a requirement of Directive 2004/39/EC of the European Parliament and of the Council of21 April 2004 and Luxembourg Law of 10th December 2010, Art 68.

Composition of the Board of Directors

The current Board of Directors is composed of twenty four directors. In September 2011 Mr.Juan Villalonga Navarro resigned as a director. Some of the directors represent major shareholders, others are representatives from major subsidiaries and seven are independent. Their present mandate, including those of the directors who form part of the Executive, Audit and Stock Option Committees, started on the 30th

May 2008 and will expire in April 2014, when the Annual General Meeting will be held. The mandate of the Executive Committee is of indeterminate duration but will expire on the same date as that of the mandate of the board members.

The fact that the main subsidiaries of the ESFG Group are represented at board level facilitates the process of supervision and is the principal link with these subsidiaries.

Board of Directors

Ricardo Espirito Santo Silva Salgado, Chairman Jose Manuel Pinheiro Espirito Santo Silva, Vice Chairman Ant6nio Luis Raquette Ricciardi Mario Mosqueira do Amaral Manuel Fernando Moniz GaMio Espirito Santo Silva Jackson Behr Gilbert Patrick Monteiro de Barros Robert Studer Philippe Guiral Manuel Ant6nio Ribeiro Serzedelo de Almeida Jose Maria Espirito Santo Silva Ricciardi Pedro Guilherme Beauvillain de Brito e Cunha Carlos Augusto Machado de Almeida Freitas Amnal da Costa Reis Oliveira Othman Benjelloun Jose Pedro Torres Garcia Caldeira da Silva Yves Alain Marie Morvan Fernando Pedro Braga Pereira Coutinho Alexandre da Paixao Coelho (1) Jose Carlos Cardoso Castella Horacio Lisboa Afonso (1)

5

Bernard Basecqz Gherardo Laffineur Petracchini Manuel Guerrero Peman

1. Resigned in February 2012 to assume similar functions in ESFO's subsidiaries. Two new directors and members oftbe Audit Committee, Mr.Jose Manuel Pena and Mr. Luis Daun e Lorena, were co-opted at the Board Meeting held on lSIll March 2012 and their appointments will be confinned at the annua1 shareholders' meeting.

Information on the Directors

Ricardo Espirito Santo Silva Salgado Date of birth: 25/0611 944; Nationality: Portuguese; First appointed: 28/1111984; Independent: No. Academic qualifications: Degree in Economics from Instituto Superior de Ciencias Econ6micas e Financeiras of the Universidade Tecnica de Lisboa.

Mr. Ricardo Espirito Santo Silva Salgado was appointed to the Board of Directors in 1984, and has served as Chairman since 1991.

Posts in other listed companies Chairman - Banco Espirito Santo de Investimento S.A. Vice Chairman - Board of Directors of Banco Espirito Santo and Chairman of its Executive Committee. Director - Banco Bradesco S.A.

Jose Manuel Pinheiro Espirito Santo Silva Date of Birth: 02/0511945; Nationality: Portugnese; First appointed: 27/03/1987; Independent: No. Academic qualifications: Degree in Economics, specialising in Company Administration and Management, Evora University.

Mr. Jose Manuel Pinheiro Espirito Santo Silva is Vice Chairman of ESFG.

Posts in other listed companies Director - Banco Espfrito Santo S.A., Banco Espirito Santo de Investimento S.A.

Antonio Luis Roquette Ricciardi Date of Birth: 06/04/1919; Nationality: Portugnese; First Appointed: 28/1111984; Independent: No. Academic Qualifications: Degree from Faculdade de Ciencias, Lisbon; Degree from Academia Naval, Lisbon, Degree from Escola de A viayao Naval, Lisbon.

Mario Mosqueira do Amaral Date of Birth: 14111/1932; Nationality: Portuguese; First appointed: 28/1111984; Independent: No. Academic Qualifications: Degree in Economics from Instituto Superior de Ciencias Econ6micas e Financeiras, Lisbon.

Posts in other listed companies: Director - Banque Marocaine du Commerce Exterieur.


Bernard Basecqz Gherardo Laffineur Petracchini Manuel Guerrero Peman

1. Resigned in February 2012 to assume similar functions in ESFO's subsidiaries. Two new directors and members oftbe Audit Committee, Mr.Jose Manuel Pena and Mr. Luis Daun e Lorena, were co-opted at the Board Meeting held on lSIll March 2012 and their appointments will be confinned at the annua1 shareholders' meeting.

Information on the Directors

Ricardo Espirito Santo Silva Salgado Date of birth: 25/0611 944; Nationality: Portuguese; First appointed: 28/1111984; Independent: No. Academic qualifications: Degree in Economics from Instituto Superior de Ciencias Econ6micas e Financeiras of the Universidade Tecnica de Lisboa.

Mr. Ricardo Espirito Santo Silva Salgado was appointed to the Board of Directors in 1984, and has served as Chairman since 1991.

Posts in other listed companies Chairman - Banco Espirito Santo de Investimento S.A. Vice Chairman - Board of Directors of Banco Espirito Santo and Chairman of its Executive Committee. Director - Banco Bradesco S.A.

Jose Manuel Pinheiro Espirito Santo Silva Date of Birth: 02/0511945; Nationality: Portugnese; First appointed: 27/03/1987; Independent: No. Academic qualifications: Degree in Economics, specialising in Company Administration and Management, Evora University.

Mr. Jose Manuel Pinheiro Espirito Santo Silva is Vice Chairman of ESFG.

Posts in other listed companies Director - Banco Espfrito Santo S.A., Banco Espirito Santo de Investimento S.A.

Antonio Luis Roquette Ricciardi Date of Birth: 06/04/1919; Nationality: Portugnese; First Appointed: 28/1111984; Independent: No. Academic Qualifications: Degree from Faculdade de Ciencias, Lisbon; Degree from Academia Naval, Lisbon, Degree from Escola de A viayao Naval, Lisbon.

Mario Mosqueira do Amaral Date of Birth: 14111/1932; Nationality: Portuguese; First appointed: 28/1111984; Independent: No. Academic Qualifications: Degree in Economics from Instituto Superior de Ciencias Econ6micas e Financeiras, Lisbon.

Posts in other listed companies: Director - Banque Marocaine du Commerce Exterieur.

6

Manuel Fernando de Moniz GaMio Espirito Santo Silva Date of Birth: 20107/1958; Nationality: Portnguese; First Appointed: 08/1111995; Independent: No. Academic Qualifications: B.A.Business Administration, Richmond College, London International Bankers' Course at Barclays Bank and Midland Bank, London; Inter Alpha Banking Course, INSEAD, Fontainebleau. Posts in other listed companies Director - Banco Espirito Santo.

Jackson Behr Gilbert Date of Birth: 13/09/1932; Nationality: American; First appointed: 12/06/1990; Independent: No. Academic Qualifications: Degree in Law, University of Virginia Law School, USA.

Patrick Monteiro de Barros Date of Birth: 03/02/1945; Nationality: French and Portnguese; First appointed: 24/12/1994; Independent: No. Academic Qualifications: Degree from Ecole Superieure de Commerce et Administration d'Entreprise, Paris.

Robert Studer Date of Birth: 12/1111938; Nationality: Swiss; First Appointed: 22/10/1999; Independent: Yes. Academic Qualifications: Degree in Business Administration from the Zurich Management Institut.

Philippe Guiral Date of Birth: 1811111948; Nationality: French; First appointed;10/1112000; Independent: No. Academic Qualifications: Master in Economics, University ofMontpellier, l.A.E. (business administration) - Montpellier Advanced Executive Program, Anderson School at UCLA, Los Angeles.

Posts in other listed Companies Director (non executive) - Banco Espirito Santo de Investimento S.A.

Manuel Antonio Ribeiro Serzedelo de Almeida Date of Birth: 05108/1943; Nationality; Portnguese; First Appointed: 25105/2001; Independent: No. Academic Qualifications: Degree in mechanical engineering, Instituto Superior Tecnico Lisboa; MBA Insead - Fontainebleau.

Jose Maria Espirito Santo Silva Ricciardi Date of Birth: 27110/1954; Nationality: Portnguese; First appointed: 25105/2001; Independent: No. Academic Qualifications: Degree in Sciences Economiques Appliquees, Universite Catholique de Louvain, Faculte des Sciences Economiques, Sociales et Politiques, Institut d' Administration et de Gestion, Belgium.


Manuel Fernando de Moniz GaMio Espirito Santo Silva Date of Birth: 20107/1958; Nationality: Portnguese; First Appointed: 08/1111995; Independent: No. Academic Qualifications: B.A.Business Administration, Richmond College, London International Bankers' Course at Barclays Bank and Midland Bank, London; Inter Alpha Banking Course, INSEAD, Fontainebleau. Posts in other listed companies Director - Banco Espirito Santo.

Jackson Behr Gilbert Date of Birth: 13/09/1932; Nationality: American; First appointed: 12/06/1990; Independent: No. Academic Qualifications: Degree in Law, University of Virginia Law School, USA.

Patrick Monteiro de Barros Date of Birth: 03/02/1945; Nationality: French and Portnguese; First appointed: 24/12/1994; Independent: No. Academic Qualifications: Degree from Ecole Superieure de Commerce et Administration d'Entreprise, Paris.

Robert Studer Date of Birth: 12/1111938; Nationality: Swiss; First Appointed: 22/10/1999; Independent: Yes. Academic Qualifications: Degree in Business Administration from the Zurich Management Institut.

Philippe Guiral Date of Birth: 1811111948; Nationality: French; First appointed;10/1112000; Independent: No. Academic Qualifications: Master in Economics, University ofMontpellier, l.A.E. (business administration) - Montpellier Advanced Executive Program, Anderson School at UCLA, Los Angeles.

Posts in other listed Companies Director (non executive) - Banco Espirito Santo de Investimento S.A.

Manuel Antonio Ribeiro Serzedelo de Almeida Date of Birth: 05108/1943; Nationality; Portnguese; First Appointed: 25105/2001; Independent: No. Academic Qualifications: Degree in mechanical engineering, Instituto Superior Tecnico Lisboa; MBA Insead - Fontainebleau.

Jose Maria Espirito Santo Silva Ricciardi Date of Birth: 27110/1954; Nationality: Portnguese; First appointed: 25105/2001; Independent: No. Academic Qualifications: Degree in Sciences Economiques Appliquees, Universite Catholique de Louvain, Faculte des Sciences Economiques, Sociales et Politiques, Institut d' Administration et de Gestion, Belgium.

7

Posts in other listed Companies Vice Chainnan of the Board of Directors and President of the Executive Committee of Banco Espirito Santo de Investimento. Director - Banco Espirito Santo S.A.

Pedro Guilherme Beauvillain de Brito e Cunha Date of Birth: 12/07/1951; Nationality: Portuguese; First appointed: 25/05/2001; Independent: No. Academic Qualifications: Degree in Business Studies from College of Distributive Trades, London.

Carlos Augusto Machado de Almeida Freitas Date of Birth: 19/02/1950; Nationality: Portuguese; First appointed: 25/0512001; Independent: No. Academic Qualifications: Secondary Education.

AnibaI da Costa Reis Oliveira Date of Birth: 24/09/1935; Nationality: Portuguese; First appointed: 25/05/2001; Independent: No. Academic Qualifications: Course on General Commercial Management, Porto; Degree in Chemical Engineering, Gennany.

Posts in other listed companies: Director- Banco Espirito Santo

Othman Benjelloun Date of Birth: 0111111932; Nationality: Moroccan; First appointed: 3110512002; Independent: Yes. Academic Qualifications: Engineer, Ecole Polytechnique de Lausanne, Switzerland.

Posts in other listed companies: Chainnan - BMCE Bank

Jose Pedro Torres Garcia Caldeira da Silva Date of Birth: 22/02/1959; Nationality: Portuguese; First appointed: 3110512002; Independent: No. Academic Qualifications: BA in Economics, Universidade Cat6lica Portuguesa MA Operational Research and Systems Engineering- Universidade Tecnica de Lisboa; MBA Insead, Fontainebleau.

Member ofESFG's Executive Committee.

Fernando Pedro Braga Pereira Coutinho Date of Birth: 2611211946; Nationality: Portuguese; First appointed: 08/07/2005; Independent: Yes. Academic Qualifications: Degree in Economics, Institoto Superior de Ciencias Econ6micas e Financeiras, Lisbon.

Chainnan ofESFG's Audit Committee.


Posts in other listed Companies Vice Chainnan of the Board of Directors and President of the Executive Committee of Banco Espirito Santo de Investimento. Director - Banco Espirito Santo S.A.

Pedro Guilherme Beauvillain de Brito e Cunha Date of Birth: 12/07/1951; Nationality: Portuguese; First appointed: 25/05/2001; Independent: No. Academic Qualifications: Degree in Business Studies from College of Distributive Trades, London.

Carlos Augusto Machado de Almeida Freitas Date of Birth: 19/02/1950; Nationality: Portuguese; First appointed: 25/0512001; Independent: No. Academic Qualifications: Secondary Education.

AnibaI da Costa Reis Oliveira Date of Birth: 24/09/1935; Nationality: Portuguese; First appointed: 25/05/2001; Independent: No. Academic Qualifications: Course on General Commercial Management, Porto; Degree in Chemical Engineering, Gennany.

Posts in other listed companies: Director- Banco Espirito Santo

Othman Benjelloun Date of Birth: 0111111932; Nationality: Moroccan; First appointed: 3110512002; Independent: Yes. Academic Qualifications: Engineer, Ecole Polytechnique de Lausanne, Switzerland.

Posts in other listed companies: Chainnan - BMCE Bank

Jose Pedro Torres Garcia Caldeira da Silva Date of Birth: 22/02/1959; Nationality: Portuguese; First appointed: 3110512002; Independent: No. Academic Qualifications: BA in Economics, Universidade Cat6lica Portuguesa MA Operational Research and Systems Engineering- Universidade Tecnica de Lisboa; MBA Insead, Fontainebleau.


Fernando Pedro Braga Pereira Coutinho Date of Birth: 2611211946; Nationality: Portuguese; First appointed: 08/07/2005; Independent: Yes. Academic Qualifications: Degree in Economics, Institoto Superior de Ciencias Econ6micas e Financeiras, Lisbon.

Chainnan ofESFG's Audit Committee.

8

Yves Alain Marie Morvan Date of Birth: 1110411939; Nationality: French; First Appointed: 08/07/2005; Independent: No.

Academic Qualifications: Degree in Government Studies, Harvard University; MA in International Affairs from John Hopkins University, USA.

Alexandre da Paixiio Coelho (1) Date of Birth: 15/04/1942; Nationality: Portuguese; First appointed: 08/07/2005; Independent: Yes. Academic Qualifications: Degree in Audit Studies, Instituto Superior de Contabilidade e Administrayao de Lisboa.

Member ofESFG's Audit Committee.

Jose Carlos Cardoso Castella Date of Birth: 13/0911949; Nationality: Portuguese; Fh'st appointed: 25/05/07 Independent: No. Academic Qualifications: Degree in Business Administration, Degree in Finance, ISCEF, Universidade Tecnica de Lisboa.


Horacio Lisboa Afonso (1) Date of Birth: 05/02/1949; Nationality: Portuguese; First appointed: 2110912007; Independent: Yes. Academic Qualifications: Degree in Finance, Instituto Superior de Economia, Universidade Tecnica, Lisbon.

Member ofESFG's Audit Committee

Bernard Basecqz Date of Birth: 15/1011945; Nationality: Belgian; First appointed: 30/05/2008; Independent: Yes. Academic Qualifications: Doctor in Law, Universite Catholique de Louvain, Belgium; MBA - Finance, Michigan State University, USA.

Posts in other listed companies: Director (non-executive) - Banco Espirito Santo de Investimento

Gherardo Laffinenr Petracchini Date of Birth: 18/12/1961; Nationality: French and Italian; First appointed: 30/05/2008; Independent: No. Academic Qualifications: Degree in Agricultural Engineering from Ensia - Ecole Nationale Superieure des Industries Agricoles et Alimentaires, Paris; MBA from ESSEC- International Business School, Paris.

ESFG's Chief Executive Officer and member of the Executive Committee.


Yves Alain Marie Morvan Date of Birth: 1110411939; Nationality: French; First Appointed: 08/07/2005; Independent: No.

Academic Qualifications: Degree in Government Studies, Harvard University; MA in International Affairs from John Hopkins University, USA.

Alexandre da Paixiio Coelho (1) Date of Birth: 15/04/1942; Nationality: Portuguese; First appointed: 08/07/2005; Independent: Yes. Academic Qualifications: Degree in Audit Studies, Instituto Superior de Contabilidade e Administrayao de Lisboa.

Member ofESFG's Audit Committee.

Jose Carlos Cardoso Castella Date of Birth: 13/0911949; Nationality: Portuguese; Fh'st appointed: 25/05/07 Independent: No. Academic Qualifications: Degree in Business Administration, Degree in Finance, ISCEF, Universidade Tecnica de Lisboa.


Horacio Lisboa Afonso (1) Date of Birth: 05/02/1949; Nationality: Portuguese; First appointed: 2110912007; Independent: Yes. Academic Qualifications: Degree in Finance, Instituto Superior de Economia, Universidade Tecnica, Lisbon.

Member ofESFG's Audit Committee

Bernard Basecqz Date of Birth: 15/1011945; Nationality: Belgian; First appointed: 30/05/2008; Independent: Yes. Academic Qualifications: Doctor in Law, Universite Catholique de Louvain, Belgium; MBA - Finance, Michigan State University, USA.

Posts in other listed companies: Director (non-executive) - Banco Espirito Santo de Investimento

Gherardo Laffinenr Petracchini Date of Birth: 18/12/1961; Nationality: French and Italian; First appointed: 30/05/2008; Independent: No. Academic Qualifications: Degree in Agricultural Engineering from Ensia - Ecole Nationale Superieure des Industries Agricoles et Alimentaires, Paris; MBA from ESSEC- International Business School, Paris.

ESFG's Chief Executive Officer and member of the Executive Committee.

9

Manuel Guerrero Peman Date of Birth: 2711111949; Nationality: Spanish; First appointed: 30105/2008; Independent: Yes. Academic Qualifications: Degree in Law, Universidad Complutense de Madrid.

Audit Committee

Fernando Pedro Braga Pereira Coutinho, Chairman Alexandre da Paixao Coelho (1) Horiicio Lisboa Afonso (1)

Their current mandate expires on the date of the AGM in 2014 to coincide with that of the others directors.

The powers, responsibilities and functioning rules of the Audit Committee are included in the Company's Articles of Association (articles 20, 21 and 22).

In addition to the work carried out on a regular basis by its members to comply with their responsibilities, the Audit Committee met six times in 2011. All three members were present at the meetings.

The Audit Committee met 6 times in 2011. All three members were present at the meetings.

Committees of the Board of Directors

Executive Committee

Gherardo Laffineur Petracchini, Chairman Jose Carlos Cardoso Castella Jose Pedro Torres Garcia Caldeira da Silva

Summary Curriculum Vitae of each member of the Executive Committee:

Mr. Gherardo Laffineur Petracchini was appointed to the board of directors in 2008. Mr.Petracchini started his banking career with Credit Lyonnais in Paris in 1988; He worked for the Societe Generale Group from 1989-2008 in France, Spain and Italy namely at Fimat (Futures Brokerage), in Paris and in Madrid where he was General Manager and Managing Director of Fimat Spain from 1992 to 1996 and International Marketing Manager in SG Fimat Asset Management for Latin America and Southern Europe in 1996-1997; in 1998 he moved to Milan where he was Managing Director, Head of Global Banking and Securities Services in SG Milan, between 1998 and 2004; Managing Director, Head ofInternational Development in Fiditalia SpA (Consumer Finance) in 2005 and Managing Director of Locat Rent SpA (Long Telm Car Rental), a 50150 joint venture between SG and Unicredit Groups, until 2008. He is Conseiller du Commerce Exterieur de la France (French Foreign Trade Advisor) and Academician of the Accademia Angelica Costantiniana of Rome in Italy.


Manuel Guerrero Peman Date of Birth: 2711111949; Nationality: Spanish; First appointed: 30105/2008; Independent: Yes. Academic Qualifications: Degree in Law, Universidad Complutense de Madrid.

Audit Committee

Fernando Pedro Braga Pereira Coutinho, Chairman Alexandre da Paixao Coelho (1) Horiicio Lisboa Afonso (1)

Their current mandate expires on the date of the AGM in 2014 to coincide with that of the others directors.

The powers, responsibilities and functioning rules of the Audit Committee are included in the Company's Articles of Association (articles 20, 21 and 22).

In addition to the work carried out on a regular basis by its members to comply with their responsibilities, the Audit Committee met six times in 2011. All three members were present at the meetings.

The Audit Committee met 6 times in 2011. All three members were present at the meetings.

Committees of the Board of Directors

Executive Committee

Gherardo Laffineur Petracchini, Chairman Jose Carlos Cardoso Castella Jose Pedro Torres Garcia Caldeira da Silva

Summary Curriculum Vitae of each member of the Executive Committee:

Mr. Gherardo Laffineur Petracchini was appointed to the board of directors in 2008. Mr.Petracchini started his banking career with Credit Lyonnais in Paris in 1988; He worked for the Societe Generale Group from 1989-2008 in France, Spain and Italy namely at Fimat (Futures Brokerage), in Paris and in Madrid where he was General Manager and Managing Director of Fimat Spain from 1992 to 1996 and International Marketing Manager in SG Fimat Asset Management for Latin America and Southern Europe in 1996-1997; in 1998 he moved to Milan where he was Managing Director, Head of Global Banking and Securities Services in SG Milan, between 1998 and 2004; Managing Director, Head ofInternational Development in Fiditalia SpA (Consumer Finance) in 2005 and Managing Director of Locat Rent SpA (Long Telm Car Rental), a 50150 joint venture between SG and Unicredit Groups, until 2008. He is Conseiller du Commerce Exterieur de la France (French Foreign Trade Advisor) and Academician of the Accademia Angelica Costantiniana of Rome in Italy.

10

Mr. Jose Pedro Torres Garcia Caldeira da Silva was appointed to the Board of Directors in 2002.Mr. Caldeira da Silva has been chief executive officer of Banque Privee Espirito Santo since 1998. He is a director of ADEPA Asset Management S.A. ES Bankers (Dubai) Limited, ESFG International Limited, ES Bank (Panama) Ltd. and of the Association of Foreign Banks in Switzerland. He worked in the corporate finance division ofBASF AG in Germany and abroad from 1985 to 1989.

Mr. Jose Carlos Cardoso Castella has worked for the Espirito Santo group of companies since 1986. He worked atBES from 1976 to 1978.Between 1986 and 2002 he was assistant controller of the group. He is Chairman of: BEMS SGPS SA., , ES International Panama, S.A., Escopar SGPS S.A., Espirito Santo Industrial S.A., Espirito Santo Irmaos SGPS S.A.,Espfrito Santo Resources (Portugal) SA., Euroamerican Finance S.A., Gestres- Gestao Estrategica Espfrito Santo S.A. and Suliglor- Imobiliaria do SuI, Lda; Director of Control Development Limited, Enterprises Management Services Limited, ES Private Equity Limited, ES Resources Overseas Limited, ESAT SA,ESBN Inc. ESFG International Limited, ESGEREmpresa de Servi90s de Consultoria, S.A., ESPART- Espirito Santo Participa90es Financeiras, SGPS S.A., Espirito Santo Agriculture and Development Limited, Espfrito Santo BVI Participation Limited, Espirito Santo Industrial (BVI) SA, Espirito Santo Industrial (Portugal) SGPS SA, Espirito Santo International (BVI) SA, Espirito Santo Property (BVI) S.A., Espirito Santo Resources SA Espfrito Santo Tourism Limited, GES Finance Limited, S.D. Imoveis, S.A. and USHUAIAGestao e Trading Internacional Limitada. He is a Senior Manager of Espirito Santo International Limited, Espfrito Santo Property S.A., Espirito Santo Resources Limited, Espirito Santo Control SA., Espfrito Santo Services, S.A.,Espirito Santo Tourism (Europe) S.A. and of Euroamerican Finance Corporation Inc. He is Manager of Espirito Santo Services S.A. and f Rio Forte Investments S.A.

The Executive Committee met 23 times during the year. All three members were present at 20 of the meetings, with only two members present at 3 of the meetings.

Stock Option Committee

The Stock Option Committee is composed of three directors: Jackson Behr Gilbert Robert Studer and Bernard Basecqz.

The Stock Option Committee meets whenever a request for the exercise of an option is received and the primary function of the Committee is to ensure that the rules put down in the Stock Option Plan are complied with. The Committee met once in 2011. A total of 30,000 stock options were exercised during the year and a total amount of EUR 24,000 was paid out.

Nomination Committee

The Board of Directors assessed the need to establish a nomination committee to assist in the selection of directors. They did not consider it necessary, given the specific logic prevailing in the composition of ESFG's Board of Directors, where

II The Consolidated Financial Statements have still to be approved by the General Assembly of Shareholders to be held on 27 April 2012

Mr. Jose Pedro Torres Garcia Caldeira da Silva was appointed to the Board of Directors in 2002.Mr. Caldeira da Silva has been chief executive officer of Banque Privee Espirito Santo since 1998. He is a director of ADEPA Asset Management S.A. ES Bankers (Dubai) Limited, ESFG International Limited, ES Bank (Panama) Ltd. and of the Association of Foreign Banks in Switzerland. He worked in the corporate finance division ofBASF AG in Germany and abroad from 1985 to 1989.

Mr. Jose Carlos Cardoso Castella has worked for the Espirito Santo group of companies since 1986. He worked atBES from 1976 to 1978.Between 1986 and 2002 he was assistant controller of the group. He is Chairman of: BEMS SGPS SA., , ES International Panama, S.A., Escopar SGPS S.A., Espirito Santo Industrial S.A., Espirito Santo Irmaos SGPS S.A.,Espfrito Santo Resources (Portugal) SA., Euroamerican Finance S.A., Gestres- Gestao Estrategica Espfrito Santo S.A. and Suliglor- Imobiliaria do SuI, Lda; Director of Control Development Limited, Enterprises Management Services Limited, ES Private Equity Limited, ES Resources Overseas Limited, ESAT SA,ESBN Inc. ESFG International Limited, ESGEREmpresa de Servi90s de Consultoria, S.A., ESPART- Espirito Santo Participa90es Financeiras, SGPS S.A., Espirito Santo Agriculture and Development Limited, Espfrito Santo BVI Participation Limited, Espirito Santo Industrial (BVI) SA, Espirito Santo Industrial (Portugal) SGPS SA, Espirito Santo International (BVI) SA, Espirito Santo Property (BVI) S.A., Espirito Santo Resources SA Espfrito Santo Tourism Limited, GES Finance Limited, S.D. Imoveis, S.A. and USHUAIAGestao e Trading Internacional Limitada. He is a Senior Manager of Espirito Santo International Limited, Espfrito Santo Property S.A., Espirito Santo Resources Limited, Espirito Santo Control SA., Espfrito Santo Services, S.A.,Espirito Santo Tourism (Europe) S.A. and of Euroamerican Finance Corporation Inc. He is Manager of Espirito Santo Services S.A. and f Rio Forte Investments S.A.

The Executive Committee met 23 times during the year. All three members were present at 20 of the meetings, with only two members present at 3 of the meetings.

Stock Option Committee

The Stock Option Committee is composed of three directors: Jackson Behr Gilbert Robert Studer and Bernard Basecqz.

The Stock Option Committee meets whenever a request for the exercise of an option is received and the primary function of the Committee is to ensure that the rules put down in the Stock Option Plan are complied with. The Committee met once in 2011. A total of 30,000 stock options were exercised during the year and a total amount of EUR 24,000 was paid out.

Nomination Committee

The Board of Directors assessed the need to establish a nomination committee to assist in the selection of directors. They did not consider it necessary, given the specific logic prevailing in the composition of ESFG's Board of Directors, where

II

representatives from major shareholders and major subsidiaries are represented together with a sufficient number of independents.

Remuneration Committee

ESFG as a holding company does not have activities of its own. The Board of Directors recognizes that its members include representatives of some of its principal shareholders and of major subsidiaries and as a consequence are remunerated by these entities and not directly by ESFG. The remuneration of other members of the board consists of attendance fees with the exception of members of the Audit Committee. The remuneration of the directors is determined by the general meeting of shareholders. The total remuneration received by ESFG's board members in 2011 was EUR2,315,716.

Description of the main features of the Company's internal control and risk management systems in relation to the financial reporting process

Espirito Santo Financial Group S.A. together with its subsidiaries ("ESFG Group") has, over the years, established an internal control system with the objective of performing its respective activities efficiently and in accordance with the best practices. Although ESFG is a Luxembourg based company it is supervised on a consolidated basis by the Bank of Portugal.

The Bank of Portugal's regulations require that institutions under its supervision have in place an Internal Control Structure under the terms of Bank of Portugal's Notice no. 5/2008, to guarantee effective compliance with the legal obligations and duties to which institutions are subject and the appropriate management of the risks inherent to the activities developed. In addition, due to its primary listing in Luxembourg, ESFG follows the Bourse de Luxembourg'S recommendation to establish rules in the areas of financial reporting, internal control and risk management.

The Internal Control System is defined as a set of strategies, systems, processes, policies and procedures, defined by and implemented within the institution for the purpose of ensuring: (i) the efficient and profitable performance of activity, namely through the adequate management of risks; (ii) the existence of comprehensive, reliable, and timely financial information, to support decision making; (iii) compliance with applicable legal and regulatory dispositions, including those relative to the prevention of money laundering and the financing of terrorism.

Risk Management Function

Head of the Risk Management Function: Mr. Carlos Calvario (Coordinating Manager of Banco Esplrito Santo's ("BES") Global Risk Department)

The Risk Management Function is responsible for:

.. Ensuring that the risk management system is effectively and consistently implemented at the level of ESFG and that of its subsidiaries, monitoring the effectiveness of the measures taken to correct any deficiencies in the system;

.. advising the Board of Directors and preparing and submitting at least once a year to this body and to the supervisory body a report on risk management,


representatives from major shareholders and major subsidiaries are represented together with a sufficient number of independents.

Remuneration Committee

ESFG as a holding company does not have activities of its own. The Board of Directors recognizes that its members include representatives of some of its principal shareholders and of major subsidiaries and as a consequence are remunerated by these entities and not directly by ESFG. The remuneration of other members of the board consists of attendance fees with the exception of members of the Audit Committee. The remuneration of the directors is determined by the general meeting of shareholders. The total remuneration received by ESFG's board members in 2011 was EUR2,315,716.

Description of the main features of the Company's internal control and risk management systems in relation to the financial reporting process

Espirito Santo Financial Group S.A. together with its subsidiaries ("ESFG Group") has, over the years, established an internal control system with the objective of performing its respective activities efficiently and in accordance with the best practices. Although ESFG is a Luxembourg based company it is supervised on a consolidated basis by the Bank of Portugal.

The Bank of Portugal's regulations require that institutions under its supervision have in place an Internal Control Structure under the terms of Bank of Portugal's Notice no. 5/2008, to guarantee effective compliance with the legal obligations and duties to which institutions are subject and the appropriate management of the risks inherent to the activities developed. In addition, due to its primary listing in Luxembourg, ESFG follows the Bourse de Luxembourg'S recommendation to establish rules in the areas of financial reporting, internal control and risk management.

The Internal Control System is defined as a set of strategies, systems, processes, policies and procedures, defined by and implemented within the institution for the purpose of ensuring: (i) the efficient and profitable performance of activity, namely through the adequate management of risks; (ii) the existence of comprehensive, reliable, and timely financial information, to support decision making; (iii) compliance with applicable legal and regulatory dispositions, including those relative to the prevention of money laundering and the financing of terrorism.

Risk Management Function

Head of the Risk Management Function: Mr. Carlos Calvario (Coordinating Manager of Banco Esplrito Santo's ("BES") Global Risk Department)

The Risk Management Function is responsible for:

.. Ensuring that the risk management system is effectively and consistently implemented at the level of ESFG and that of its subsidiaries, monitoring the effectiveness of the measures taken to correct any deficiencies in the system;

.. advising the Board of Directors and preparing and submitting at least once a year to this body and to the supervisory body a report on risk management,

12

indicating whether all appropriate measures were taken to correct possible deficiencies.

In addition, the Risk Management Function must also ensure consistency in the process of preparation of the internal risk management reports of each subsidiary.

The Risk Management Function intervenes in the Group's subsidiaries either directly or by providing a functional framework to the subsidiaries that have in place their own structures to perform the Risk Management Function.

During 2011 ESFG progressed in its compliance with Basel II requirements through the gradual implementation of Internal Rated-Base (IRB) Foundation Methodology for Credit Risk and Standard Methodology for Operational Risk. It submitted to the Bank of Portugal its 4th Progress Report within the scope of ESFG' s application for the utilization of the Standard Method for the cover of credit risk with a reference date of 31 March 2011. ESFG also submitted to the Bank of Portugal within the scope of ESFG's application for the utilization of the Standard Method for the cover of operational risk its 4th Progress Report with a reference date of30 June 2011.

During the year under review ESFG completed Stress Tests as at 31112/10 and the Stress Test Exercise on the Funding and Capital Plan of the ESFG Group for the period 2011 to 2015. It also completed the ESFG Group's Reverse Stress Test with reference to 31/12110.

It submitted its ICAAP (Capital Assessment Adequacy Process) and Market Discipline reports as at 31 December 2010. ESFG's Annual Internal Control reports as at 31112/10 were submitted to the Bank of Portugal in June 2011.

Compliance Function

Head of the Compliance function: Mr. Joao Martins Pereira (Coordinating Manager of BES's Compliance Department)

The purpose of the Compliance Function is to monitor compliance with the legal obligations and regulatory duties to which the ESFG Group is subject, being responsible for:

• regularly monitoring and assessing the adequacy and effectiveness of the measures and procedures adopted to detect risks of non-compliance;

.. advising the Board of Directors and preparing and submitting at least once a year to this body and to the supervisory body, a report identifying any instances of non-compliance and the measures adopted to correct possible deficiencies.

In addition, the Compliance Function must also ensure consistency in the process of preparation of the internal compliance reports and Individual Internal Control Report issued by the Board of Directors of each subsidiary, namely by providing guidance on the methodology and structure that should be adopted in the drawing up of such reports in compliance with applicable regulatory requirements.

The Compliance Function intervenes in the Group's subsidiaries either directly or by providing a functional and consistent framework to the subsidiaries which have in place their own Compliance Function's structures.


indicating whether all appropriate measures were taken to correct possible deficiencies.

In addition, the Risk Management Function must also ensure consistency in the process of preparation of the internal risk management reports of each subsidiary.

The Risk Management Function intervenes in the Group's subsidiaries either directly or by providing a functional framework to the subsidiaries that have in place their own structures to perform the Risk Management Function.

During 2011 ESFG progressed in its compliance with Basel II requirements through the gradual implementation of Internal Rated-Base (IRB) Foundation Methodology for Credit Risk and Standard Methodology for Operational Risk. It submitted to the Bank of Portugal its 4th Progress Report within the scope of ESFG' s application for the utilization of the Standard Method for the cover of credit risk with a reference date of 31 March 2011. ESFG also submitted to the Bank of Portugal within the scope of ESFG's application for the utilization of the Standard Method for the cover of operational risk its 4th Progress Report with a reference date of30 June 2011.

During the year under review ESFG completed Stress Tests as at 31112/10 and the Stress Test Exercise on the Funding and Capital Plan of the ESFG Group for the period 2011 to 2015. It also completed the ESFG Group's Reverse Stress Test with reference to 31/12110.

It submitted its ICAAP (Capital Assessment Adequacy Process) and Market Discipline reports as at 31 December 2010. ESFG's Annual Internal Control reports as at 31112/10 were submitted to the Bank of Portugal in June 2011.

Compliance Function

Head of the Compliance function: Mr. Joao Martins Pereira (Coordinating Manager of BES's Compliance Department)

The purpose of the Compliance Function is to monitor compliance with the legal obligations and regulatory duties to which the ESFG Group is subject, being responsible for:

• regularly monitoring and assessing the adequacy and effectiveness of the measures and procedures adopted to detect risks of non-compliance;

.. advising the Board of Directors and preparing and submitting at least once a year to this body and to the supervisory body, a report identifying any instances of non-compliance and the measures adopted to correct possible deficiencies.

In addition, the Compliance Function must also ensure consistency in the process of preparation of the internal compliance reports and Individual Internal Control Report issued by the Board of Directors of each subsidiary, namely by providing guidance on the methodology and structure that should be adopted in the drawing up of such reports in compliance with applicable regulatory requirements.

The Compliance Function intervenes in the Group's subsidiaries either directly or by providing a functional and consistent framework to the subsidiaries which have in place their own Compliance Function's structures.

13

Internal Audit Function

Head of the Internal Audit function: Mr. Nelson Martins (Coordinating Manager of BES's Internal Audit Department)

The Internal Audit Function is responsible for:

• preparing and keeping updated an audit plan aimed at examining and assessing the adequacy and effectiveness of the various components of the institution's Internal Control System, as well as of the Internal Control System as a whole;

• issuing recommendations based on the results of the assessments made, and making sure they are followed;

• preparing and submitting at least once a year to the Board of Directors and supervisory body a report on audit issues containing a sunnnary of the main deficiencies detected in control actions, including deficiencies that although immaterial when considered separately may reveal a tendency for the deterioration of the internal control system, as well as indication of the recommendations that were followed.

In addition, the Internal Audit Function must also ensure consistency in the process of preparation of the internal audit reports of each subsidiary.

The Internal Audit Function intervenes in the Group's subsidiaries either directly or by providing a functional and consistent framework to the subsidiaries which have in place their own structures to perform the Internal Audit Function.

Shares, Capital and Shareholder Structure

ESFG's authorised capital is EUR 2 billion, represented by 2,000,000,000 shares with no par value. As at 31 December 2011 105,034,522 shares have been issued, subscribed and fully paid, representing an issued capital ofEUR 105,034,522.

In October 2011 at an Extraordinary General Meeting of shareholders a proposal was approved to cancel the nominal value of each share from EURIO to no par value. The accounting value of each share was reduced to EURl.OO per share without either the cancellation of any share in issue nor repayment of any share in issue. An amount of EUR 700,969,622 was attributed to a special non-distributable reserve account.

As at 31 st December 2011 the main shareholders ofESFG were:

Espirito Santo International S.A. Espirito Santo Irmaos SGPS S.A.

Total

Number of shares %

36,575,443 10,513,911

47,089,354

34.82 10.01

44.83

ESFG has its shares and other securities listed and admitted for trading on the Luxembourg Stock Exchange (primary listing), the London Stock Exchange and NYSE Euronext Lisbon, as well as being admitted to the official list maintained by


Internal Audit Function

Head of the Internal Audit function: Mr. Nelson Martins (Coordinating Manager of BES's Internal Audit Department)

The Internal Audit Function is responsible for:

• preparing and keeping updated an audit plan aimed at examining and assessing the adequacy and effectiveness of the various components of the institution's Internal Control System, as well as of the Internal Control System as a whole;

• issuing recommendations based on the results of the assessments made, and making sure they are followed;

• preparing and submitting at least once a year to the Board of Directors and supervisory body a report on audit issues containing a sunnnary of the main deficiencies detected in control actions, including deficiencies that although immaterial when considered separately may reveal a tendency for the deterioration of the internal control system, as well as indication of the recommendations that were followed.

In addition, the Internal Audit Function must also ensure consistency in the process of preparation of the internal audit reports of each subsidiary.

The Internal Audit Function intervenes in the Group's subsidiaries either directly or by providing a functional and consistent framework to the subsidiaries which have in place their own structures to perform the Internal Audit Function.

Shares, Capital and Shareholder Structure

ESFG's authorised capital is EUR 2 billion, represented by 2,000,000,000 shares with no par value. As at 31 December 2011 105,034,522 shares have been issued, subscribed and fully paid, representing an issued capital ofEUR 105,034,522.

In October 2011 at an Extraordinary General Meeting of shareholders a proposal was approved to cancel the nominal value of each share from EURIO to no par value. The accounting value of each share was reduced to EURl.OO per share without either the cancellation of any share in issue nor repayment of any share in issue. An amount of EUR 700,969,622 was attributed to a special non-distributable reserve account.

As at 31 st December 2011 the main shareholders ofESFG were:

Espirito Santo International S.A. Espirito Santo Irmaos SGPS S.A.

Total

Number of shares %

36,575,443 10,513,911

47,089,354

34.82 10.01

44.83

ESFG has its shares and other securities listed and admitted for trading on the Luxembourg Stock Exchange (primary listing), the London Stock Exchange and NYSE Euronext Lisbon, as well as being admitted to the official list maintained by

14

•

the UK Listing Authority and to trading on the London Stock Exchange's regulated market (secondary listings).

Performance of ESFG Shares

The Euro Zone debt crisis dominated the European economic picture in 2011. Fears over Greece's possible default led not only to peripheral economies as such as Spain and Italy coming under increasing pressure, but also to strain being placed on some of the core economies, namely France, the Netherlands and Austria. Fears over debt crisis contagion, especially within the financial sector, spilled over into the equity markets, with the main European indices suffering considerable retracement: the DAX, CAC40 and IBEX fell in the year by 14.69%, 16.95% and 13.11 %, respectively. In the US, the Fed's more aggressive monetary policy and the relatively bright outlook for economic activity helped cushion downside perfonnance in the equity markets: the Dow Jones gained 5.53%, the S&P 500 remained flat and the NASDAQ slid by 1.8%. ESFG's share are predominantly traded on the Lisbon NYSE Euronext exchange; the Portuguese PSI20 fell 27.6% in the period (on 19 March 2012 ESFG shares were included in the PSI20). ESFG's shares price decreased EUR 14.00 at year end 2012 to 5.15, a fall of 63.2%. ESFG's shares are predominantly traded on the Lisbon NYSE Euronext exchange, the Company's market capitalisation, at year end, reached of EUR 540.9 million. In June 2011 ESFG paid EUR 0.28 per share in dividend to shareholders.

15 March 2012

15


•

the UK Listing Authority and to trading on the London Stock Exchange's regulated market (secondary listings).

Performance of ESFG Shares

The Euro Zone debt crisis dominated the European economic picture in 2011. Fears over Greece's possible default led not only to peripheral economies as such as Spain and Italy coming under increasing pressure, but also to strain being placed on some of the core economies, namely France, the Netherlands and Austria. Fears over debt crisis contagion, especially within the financial sector, spilled over into the equity markets, with the main European indices suffering considerable retracement: the DAX, CAC40 and IBEX fell in the year by 14.69%, 16.95% and 13.11 %, respectively. In the US, the Fed's more aggressive monetary policy and the relatively bright outlook for economic activity helped cushion downside perfonnance in the equity markets: the Dow Jones gained 5.53%, the S&P 500 remained flat and the NASDAQ slid by 1.8%. ESFG's share are predominantly traded on the Lisbon NYSE Euronext exchange; the Portuguese PSI20 fell 27.6% in the period (on 19 March 2012 ESFG shares were included in the PSI20). ESFG's shares price decreased EUR 14.00 at year end 2012 to 5.15, a fall of 63.2%. ESFG's shares are predominantly traded on the Lisbon NYSE Euronext exchange, the Company's market capitalisation, at year end, reached of EUR 540.9 million. In June 2011 ESFG paid EUR 0.28 per share in dividend to shareholders.

15 March 2012

15

To the Shareholders

KPMG luxembourg S.1I r.l . g. anee Scheff Ell

l-2520 luxemboul{l

of Espirito Santo Financial Group S.A. 21/25 Al lee Scheffer L-2520 Luxembourg

TelephOfle +-3522251 51 1 Fax +35222 51 71 Inlemel wwwkpmglu Email Info" kpmg lu

REPORT OF THE REVISEUR D'ENTREPRISES AGREE

Report 011 tile cOllsolifilltei/jilUlllcia/ statements

We have audited the accom panying consol idmed financial statements of Espirito Santo Financial Group S.A., which comprise the consolidated statement of financial position as at December 31, 20 1 I and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accou llting policies and other explanatory infornlation.

Board 0/ Director 's responsibility/or the consolidatedjbulI/cial statements

The Board of Directors is responsible for the preparation and fair presen tation of these consol idated financial statements in accordance with Internationa l Financial Reporting Standards as adopted by the European Union, and for such inlernal con trol as the Board of Directors detenn ines is necessary to enable the preparat ion of conso lidated financia l statements that are free from material mi sstatement, whether due to fraud or error.

Respol1sibility oflhe Rel'i.~ellr d 'ElI/reprises agree

Our responsibility is to express an opi nion on these conso lidated financial stateme nts based on our audit. We conducted our audit in accordance wi th International Standards on Audit ing as adopted for Luxembourg by the Commission de Surve illance du Secteur Financ ier. Those standards require that we comply wi th eth ical requirements and plan and perfonn the audit to obtain reasonable aSsurance about whether the conso lidated financia l are free from material misstatement.

An audit involves perfonning procedures to obtain aud it evidence about the amounts and di sc losures in the consolidated financial statements. The procedures selected depend on the judgement of the Rev iseur d 'Entreprises agree. inc luding the assessmen t of the ri sks of material mi sstatement of the conso lidated financial statements. whether due to fraud or error. In mak ing those risk assessments, the Rcviseur d'Entreprises agree considers interna l con trol relevant to the entity' s preparation and fair presentation of the conso lidated financial slatemen ts in order to design audit procedures thai are appropriate in the circumstances, but not fo r the purpose of expressing an op inion on the effect iveness of the entity's internal control. An audi t also includes eva luating the appropriateness of accou nting pol icies used and the reasonableness of accounting est imates made by the Board of Directors, as well as evaluating the overa ll presentat ion of the conso lidated financia l stateme nts.

We believe that the aud it evidence we have obtai ned is sufficient and appropriate to provide a basis for our audit op inion.

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To the Shareholders

KPMG luxembOllrg S.1I r.l . 9. anee Scheff Ell

l-2520 luxemboul{l

of Espirito Sanlo Financial Grou p S.A. 21/25 Al lee Scheffer L-2520 Luxembourg

TelephOfle +-3522251 51 1 Fa~ +35222 51 71 Inlemel ..... wwkpmg lu Email Info" kpmg lu

REI'ORT OF THE REVISEUR D'ENTREPRISES AGREE

Report 011 tile cOllsolidlltelljilUlucifll stlltemellts

We have audited the accompanyi ng consol idaled financia l statements of Espirito Santo Financial Group S.A., which comprise the consolidated statement of financial position as at December 31 , 20 I I and the consolidated statement of comprehensive income, consolidated statement of changes in eq uity and consolidated cash flow statement for the year then ended, and a summary of sign ificant accoullting policies and other explanatory infomlalion.

Board 0/ Director 's respollsibility/or the cOllsolidatedjilulI/cia/ statemellts

The Board of Directors is responsible for the preparat ion and fair presen tation of these consol idated financia l statements in accordance with Internationa l Financia l Reporting Standards as adopted by the European Union, and for such internal con trol as the Board of Directors detenn ines is necessary to enable the preparation of conso lidated financia l statements that are free from material mi sstatement, whether due to fraud or error.

Respol1sibility oflhe Revisel/r d 'ElI/reprises agree

Our responsibi lity is to express an opinion on these conso lidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Audit ing as adopted for Luxembourg by the Commission de Surveillance du Secteur Financ ier. Those standards require that we comply with ethical requirements and plan and perfonn the audi t to obtain reasonable assurance about whether the conso lidated financia l are free from material misstatement.

An audit involves perfonn ing procedures 1'0 obtain aud it evidence about the amounts and di sc losures in the consolidated financial statements. The procedures selected depend on the judgement of th e Rev iseur d'Entreprises agree, including the assessment of the ri sks of material misstatement of the conso lidated financial stateme nts. whether due to fraud or error. In making those risk assessments, the Rcviseur d'Entreprises agree considers interna l control relevant to the entity' s preparation and fair presentation of the conso lidated financial slatemen ts in order to design audit procedures thai are appropriate in the circumstances, but not for the purpose of expressing an op inion on the effectiveness of the ent ity's internal control. An audit also includes eva luating the appropriateness of accou nting pol icies used and the reasonableness of accou nting est imates made by the Board of Directors, as well as evaluat ing the overa ll presentat ion o f the conso lidated financial statements.

We believe that the aud it evidence we have obta ined is sufficient and appropriate to provide a bas is for our audit opi nion.

,po"<;.;l __ S,,.1 .L...u.'>to<uiI~"'.Io-d~

<ll ...... ',.,"""""'.·,_,'~,_, , .. ,th~"'.' -"'~ '" ' '''.''"'.-s-.. .... ,

IV ... Il' N ,. c-,~ ( ~cs 1---...., B 14

Opil1ion

In our opinion. the consolidated financia l statements give a true and fair view of the consolidated financial pos ition of Esp irito Santo Financial Group S.A. as of December 31 , 20 11 , and o f its conso lidated financial performance and irs conso lidated cash flows for the year then ended in accordance with Internationa l Financia l Report ing Siandards as adopted by the European Union.

Reporl 0" oilier legal ami regulatory requiremellis

The consolidated management report, whi ch is the responsibility of the Board of Directors, is cons istent with the conso lidated financia l sl<.llernenls.

Luxembourg, March 26. 2012 KPMG Luxembourg S.iI r.l. Cabinet de revision agree

S. Chambourdon


Opil1ion

In our opinion. the conso lidated financia l statements give a true and fair view of thc consolidated financial pos ition of Esp irilo Santo Financial Group S.A. as of December 31, 20 II , and o f its conso lidated financ ial performance and its conso lidated cash flows for the year then ended in accordance with International Financia l Report ing Standards as adopted by the European Union.

Report 0" other legal ami regula/ory requiremellts

The consolidated management report, which is the responsibility of the Board of Directors, is cons istent with the conso lidated fi nancia l stnlernenls.

Luxembourg, March 26. 2012 KPMG Luxembourg S.a r.l. Cabinet de revis ion agree

S. Chambourdon

The following notes form an integral part of these consolidated financial statements.

ESPIRITO SANTO FINANCIAL GROUP SA

CONSOLIDATID ffiCOME STATIl\U l\,.

FOR THE \'EARS ENDED 31 DECEMBER 2Ull AND 2UIO

Int..-est and similar income

Int..-est expense and similar charges

.'let interest income

Di,,;dend income

h~ and commission incom~

Fee and commission expense,

Net (losse,) from financial assets and finaocialliabilities at fair value through profu or loss

Net (losse,)lgains from available-for -sale financial assets

Net (losse,)lgains from foreign exchange diff..-mc e,

Net (losse,) from the sale of oth..- asset,

Insurance earned premiums net of reinsurance

Oth..- op..-ating income

Operltin2 income

Staff costs

Gen..-al and admin:istrat;',e expenses

Claim, incurred net ofreinsurance

Change on the technical re,.,.,,'e, net of reinsuranc e

Insurance commissions

Depreciation and amOl"tisation Prov;s;ons net ofrev..-sals

Loans impairment net ofrev..-sals and recoverie,

hnpairment on oth..- financial assets net of rev..-sals

hnpairment on oth..- assets net of rev..-sals

Oth..- op..-ating expense,

Operl tin 2 expenses

Gains 011 disposal of investments in subsidiaries and associates

Share of profu of associate,

Profit before income tll

Income tll

Curren!!ax

Def.,-,-ed tax

Profit for tbe yur

Attributable to equiQ' bolder. of tbe Company

Attributable to noa -cootrollin2 interest

Earning' p..- share ofprofu attrlblIlable to the equity hold..-, of the Ccmpany

Basic (in Euro)

Diluted (in Euro)

• for furth..- details. , ee Note 54

Xotes

6 6

, " " "

" " " " '" 30 and 32

" " 24,25 and 27

29,30,32 and 35

"

B

41 41

" "

2l1ll 2l1 1 l1 Restated ~

(in tbousands of euro)

4247075

3002 789

1 244 286

169208

943904 (134157)

( 193 322)

(64 476)

(277]4)

(918%)

352 112

940 873

3 138 818

753410

490 642

289273

(53531)

39107

151540

10668

578 383

85423

167604

380161

2 892 68 11

I 305

(38619)

211 8 8114

90900 ( ]42 5(9)

( 51 6(19)

2611 413

121352

139 lI61

2611 413

251

251

3 838 928

2649887

1189 1I41

194 738

'"'091 (121782)

( 197 574)

374318

55334

(12773)

325 168

354080

3 l oo 642

735 839

495425

238404

2477

34 736

139512

" "" 338459

79390

60 839

278 802

2 458 982

.,." 37 592

725 653

68 558

( 17(64)

51494

674 159

136 739

537 42 11

674 159

ESPiRITO SMHO Fh'lANCIAL GROUP SA

COI'SOLIDATID ffiCOMI STATIl'I[[.r-.,

FOR THE \"EARS [ ""-DED 31 DECEMBER 20 ll A .. ND 2010

im..-e't and similar income

int..-e' t ex~e and similar charge,

.'lei interest income

Dividend income

Fee and commis;ioo income Fee and commission expenses

Net (losses) from financial asset, and financialliabilitie, at fair value tb-ough profu Of 10"

Net (lossf s)lgains from available- for · ,ale financial ass"',

Net (loS5fSygains from forrign exchange diiT..-roce,

Ket (losses) from the s.ale of other assets

Insurance earned prrmium, net of reinsuranc e

Orb..- ~aring income

Ol'e ... .!iojl: income

Staff cost,

Gen..-al and admtnistratt-"e expn='

Claim, incurred net or reinsurance

Change on the t~lmical re,",,,. , net ofrrinsuraoc r


Depreciation and amortisation

Provisions net ofrrv..-s.ais

Loans impairmmt net of rev..-s.aIs and r~ovrries

Impairment Of! OtMr financial as~, net ofrev..-s.als

Impairment 011 oth..- "sstt; net of r ..... .-s.ak

Other ~ating expenses

Gains 011 dispos.al of in'-estments in subsidiaries and associates

Share of profu of aSo;oOales

Profit before income III

Income lu

Curren! lax Ddm-Nlall

Profit for tbe yur

Attnbutable to "'Iui~' bolder. oftbe Company

Attributable to noa -coatrollin2 interest

Earning' 1= share of profit awibUlabk 10 the equity hold..-, of the Ccmpany_

Basic (in Euro)

Diluted (in Euro)

• fo.- further details. '~ NOle 54

-"ote.

6 6

, " " "

" " " " '" 30 and 32

" " 24,15 and 27

29,30,32 and 35

"

n

" "

2011 2010 Restated ~


4247075 3 838 928

] 002 789 2649 887

I 244 286 1 189 041

169208 194 738

<;JJ "" .., "" ( 134 157) ( 121782)

( 193322) ( 197 574)

(64 476) 374318

(17 714) 55334

( 91 896) ( 12 773)

352 112 325 168

94() 873 354080

3 138 818 3 100 641

753 41 0 735 819

490 642 495 425

28927] 238404

( 53531) 2477

]9107 34736

151540 139512

10 668 " "" 578 38] 118459

85421 79390

167604 60 839

380161 278 802

2 892 680 2 458 982

1 105 ... " ( 38639) 17 592

208804 715 653

'" "'" 68 558 ( 142 5(9) ( 17 (64)

( 51 6(9) 51494

260 413 674 159

IH 352 136 73 9

139 061 537 410

260 413 674 159

ESPiRITO SA.,'\'TO Fll'\'ANCIAL GROUP SA

COKSOLIDATID ffiCOMI STATBIL'\, FOR THE \"EARS [ 1\'1)[D 31 DECEMBER 2011 A .. ND 2UI0

im..-e't and similar income

im..-e't ex~e and similar cha.-g~,

.'lei iate re.t income

Dividend income

Fee and ~ommis;i()!l income Fcc and commission expenses

Net (loss •• ) from financial assets and finaoc:ialliabilitie, at fair value tb-ough profu Of loss

Ket (loss. s}/gains from avallable- for · ,ale financial asset,

Net (loS5 •• ygains from forrign exchange difT..-roc.,

-r--et (loss.s) from the s.ale of oth..- assets

Insurance earned prrmium, net of reinsurance

Orb..- opt"raring income

Ol'eralin2 income

Staff costs

Gen..-al and administrative expn=s

Claim, incurred net of reinsurance

Change on the t~hnical res .. "., net ofr.insurance


Depreciation and amonisation

Prov;sions net ofr."..-s.ais

Loans impairment net of rev..-s.aIs and r~overics Impairment 011 oth..- financial a,~, net of rcv..-s.als

Impairment 011 oth..- asstt; net of rc .... ·rs.als

Oth..- ~ating ex~s

Gains 011 dispos.al of ilwcstmmts in subsidiaries and associates

Share of profu of associates

Profit before income III

Income IU

Curren! lax Dcf=e<! lax

Profit for tbe ye ar

Attnbutable to equi~' bolders oftbe Company

Attributable to non -controllin2 interest

Earnings 1= share of profit allnbmabk 10 the equity hold..-s of the Ccmpany_

Basic (in Euro)

DiMe<! (in Euro)

• for furtM.- details. see NOle 54

-"ot e .

6 6

, " " "

" " " " " 30 and 32

" " 24, 25 and 27

29,30,32 and 35

"

n

" "



4247075 3 838 928

] 002 789 2649887

1 244 286 1 189 041

169208 194 738

.. J "" '"' '''' ( 134157) (121782)

( 193322) ( 197 574)

( 64 476) 374 318

( 17 714) 55334

( 91 896) (12773)

352 112 325 168

940 &73 354080

3 138 818 3 100 642

753410 735 839

490 642 495425

289273 238404

( 53531) 2477

]9 !O7 34736

151540 139512

10 668 " "" 578 38] 3]8459

85421 79390

167604 00 839

380161 278 802

2 892 680 2 458 982

1 305 .,." ( 38639) 37592

208804 725 653

'" <>00 68 558

( 142 509) ( 17 (64)

( 51 6(9) 51494

260 413 674 159

121 352 136 739

139 061 537 420

260 413 674 159


ESPiRITO SA.,'\'TO FINANCIAL GROUP SA

COXSOLIDATID ffiCOMI STATIl'IU", FOR THE \"EARS [ l\'"DED 31 DECEMBER 2011 .-\""1) 2010

im..-e,j and similar income

Int..-. ,! ex~e and similar charge,

.'let iatere.! income

Di"idend income

Fee and ~ommis;i()fl income Fcc and commission expenses

Net (loss •• ) from financial assets and financialliabilitie, at fair value through profu Of loss

Ket (loss.s}/gains from avallable- fOf-sale financial asset,

Net (Ioss • • y gains from fo.-rign exchange difT..-roces

Ket (loss.s) from the s.ale of oth..- assns

Insurance earned prrmium, net of reinsuranc e

Orb..- opt"raring income

Opera.!in jl: income

Staff cosls

Gen..-al and administrative expn=s

Claim, incurred net of reinsurance

Change on the t~hnical res .. "., net ofr.msurancc

Insuranc e commissions

Depreciation and am<ll1isation

Provisions net ofrc ... ..-s.aIs Loans impairment net of rev..-s.aIs and r~overics Impairment 011 oth..- financial aso;fi, net of rev..-s.als

Impairment 011 oth..- asstl<; net of r.,v..,-s.a!s

Oth..- ~ating ex~s

Gains 011 dispos.al of ilwcsnnmts in subsidiaries and associate,

Share of profu of associates

Profit before income In

Income lu

Curren! lax Def...,-ed lax

Profit for tbe yur

Attnbutable to equity bolders ortbe Company

Attributable to noa -controllin2 interest

Earning' 1= share ofprofu annbmabk 10 the equity hold..-, of the C""",any_

Basic (in Euro)

DiMe<! (in Euro)

• fOf furtM.- details. see NOle 54

-"ote .

6

6

, " " "

" " " " " 30 and 32

" " 24,25 and 27

29,30,32 and 35

"

n

42

42

" "



4247075 3 838 928

] 002 789 2649 887

1 244 286 1189 041

169208 194 738

.. J "" '"' '''' ( 134157) ( 121 782)

( 193 322) ( 197 574)

( 64 476) 3743 18

(17 714) 55334

( 91 896) ( 12773)

352 112 325 168

940 &73 354080

3 138 818 3 100 641

753410 735 839

490 642 495425

289273 238404

( 53531) 2477

39107 34736

151540 139512

10 668 " "" 578 383 3]8459

85 421 79 ]90

167604 60 839

380161 278 802

2 892 680 2 458 982

1 305 .,." (38639) 17592

208804 715653

'" <>00 68 558

( 142 509) ( 17(64)

( 51 6(9) 51494

260413 674 159

121 352 136 739

139 061 537 410

260413 674 159

20112010

Restated *

Profit for the year 260 413 674 159

Other comprehensive income, net of income tax

Actuarial gains and (losses) from defined benefit obligation (Note 14) 46 668 ( 93 560)Income taxes on actuarial gains and losses from defined benefit obligation ( 13 093) 13 359Exchange differences on translating foreign operations 16 885 32 125Income taxes on exchange differences on translating foreign operations ( 2 712) ( 3 017)Other comprehensive income from associates ( 8 053) -

39 695 ( 51 093)

Fair value reserve (available-for-sale financial assets):Net change in fair value ( 667 255) ( 47 228)Net amount transferred to the income statement 132 537 ( 341 458)Income taxes on gains / losses of available-for-sale financial assets 77 847 67 773

( 456 871) ( 320 913)

Other comprehensive (loss) for the year, net of income tax ( 417 176) ( 372 006)

Total comprehensive income / (loss) for the year ( 156 763) 302 153

Attributable to equity holders of the Company 8 983 23 972Attributable to non-controlling interest ( 165 746) 278 181

( 156 763) 302 153

* for further details, see Note 54

ESPÍRITO SANTO FINANCIAL GROUP SA

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED 31 DECEMBER 2011 AND 2010

(in thousands of euro)



EspiRITO SANTO FINANCIAL GROUP SA

CONSOLIDATID BALL,"CE SHEET AS AT 31 DECEM B[ R 2011 AND 20Hl

Asset. Cash and deposits at central bank,

Deposit, wilh bank,

Financial asset, held fo.- trading

Oth..- financial asset, at fair value through pmfu or loss

Available-for -s.ale financial asset,

Loans and advance, to bank,

Loans and advance, to customer,

Hd d-t<>-marurity investments

D. rimu, ... ' for risk managrmmt purpos. , NOII-currenl asset, held for s.ale

Propmy and equipment Investment pr~.,

intangible asset,

Investment, in associate,

Teclmical r . sm-. , of reinsuranc e ceded

Current income tax asset,

Def...,-ed income tax assets

Oth..- assets

Total asset.

Liabilities Deposits from central bank,

Finaocialliabiliti. , held foc trading

Deposits from bank,

Due to custom..-,

Debt securities issued

Drrimt;. ... ' for risk managrmml purpose,

Investment contracts

NOII-currmtliabiliti. , held foc sal.

Provisions Teclmical resm-. , of direct insurance

Currml income tax liabilities

Defrrred income tax liabilities

Subordinated debt Oth..-liabiliti. ,

Totallia.bilitie.

Equi~'

Share capilal

Share prrmium Pref..-mce share,

Oth..- equity instrument'

Fair valu. res •• ',. Capilal resm-es non distributabl e

Other resm-e, and retained earnings

Profu for the year attributable to equity holder, of the Company

Total equity attributable to e<:lui~- bolder. of tbe Company

NOII-cOIItrol!ing interest

Total equi~-

Totalliabilitie. and equi~-

• for further details. , ee Note 54

.'\ote.

" " " n ,. " " n

'" " " " " " "

" " " '" " '" '" " 41

"

31.11.2011

I 130515

998 345

, .. "'" 1714092

12024435

2020113

51881875

I 751 193

510 090

I 646 683

I 175 546

318038

549 196

578 327

65520

"000 769672

3 384 904

84 019 504

10013 719

2176258

6216006

34 951 984

19509 623

2386H

148 764

140 950

112 796

1089915

80761

120891

I 322 579

I 556802

77 779 681

105035

492912

72 428

58 574

( 165 624)

700 970

( 118847)

I2l 352

1 266 800

4973 023

6 239 823

84 019 504

31.11.2010 Re.tated ~

( in tbousand. of euro)

976515

879561

3951786

I 325449

12474 836

3071674

53 346 807

2453465

447 304

574 550

I 165040

341410

557 837

585240

65098

!O3074

585 !O7

3603 375

86 508 118

7964 837

2 12l 305

6617077

31205688

24904 746

228944

324934

5411

233 614

I 157019

57765

13l 289

2689697

2206 082

79 848 408

778 549

253656

394 514

115109

(39766)

(300 507)

136739

1338 294

5321426

6659720

86 508 118

01.01.2010 Re.tated ~

2224 HI

793 844

4490699

1273 417

9079449

7648 348

5050821 7

2 535 309

455 115

407 585

I 014 776

8981 7

373851

418162

59396

28631

461 892

2845156

84 707 995

3817643

I 568 896

6890 825

25694 477

34039730

253 148

395158

'"'''' 193174

994 752

162 508

83 193

3048 825

1412361

78 576 299

778 549

253656

395514

114368

60 507

(239274)

1363320

4768 376

6131 696

84 707 995


CONSOLIDATED BALA.I\"CE SHEET AS AT 31 DECEMBER 20ll A."''1) 2010

Asset .

Cash and d~sit, al crntral bank. Deposit' wilh bank,

Financial ""et, hdd for trading

Oth..- financial ""et, al fair \'~ through profit Of 10" A vailahle-for-s.ale financial assets Loans and am-aoce, 10 bank,

Loans and am"aoc e, to customer,

Hdd-t<>-marurity ;"ve,unenl' De&,am"e, for risk managrmml purpose,

Non-<:urreru asset, hd d for >ale

PropMy and equipmrnt Investment pr~,

intangible assets

Investment, in .. ssociates

Teclmical r. ,.",-. , of remsuranc e ceded

Currrnt incomet"" asset, D.f.,.,-ed income tax asSffs

Oth..- .. ssets

Total uset.

Liabilities Deposits from central bank,

Finaociallia~s held foc trading Deposits from bank,

~ to enstom..-,

D ebt =uriti., jssMd

Dem-am-., fOf risk managrment purposes

Inve'tment eMlrac!,

NOII-<:urrent liabilities hdd for sak Provisions Techn:ical r.s.r',., of di,-re! insurance

Current incomet"" liabilities Def...,-ed income tax liabilities

Subordinated debt Oth..-liabiliti.,

Total Li.a.bilities

Equi~'

Share capital Share prrmium Prd..-mce share,

0tMr equity instrument'

Fair value r.s..,,"e

Capital r. s..,,". , non dismbmabl e

OIher re,en·e, and retained earnings

Profu for the y~'" ann billable to equity holder, of the Company

Tota l equity attributable to e<Jui~· bolder. of tbe Company

NOII·corurolling intere't

Tota l equi~·

Tot :o.lli:o.bilities and l'quity

• for further det~ , ee Note 54

:-<otes

" " n

" " " " " '" " " " " " "

" n

" '" " '" " " 41

"

31.12.21111

1 1111 515

998 345

, .. "'" 1 714 1192

12024435

2020113

51881875

1 751 193

510090

1 646 683

1 175546

318038

549 196

578 327

65520

" """ 769612

3 384 9Q.t

84 OB) 504

10013 719

2 176258

6216006

34951984

19509 623

238633

148 764

140 950

212 796 1089915

80761

120891

1 322 579

I 556802

77 7i9 681

105035

492912

72 428

58 574 ( 165 (24)

700 970

( 118847)

III 352

1 266 8 00

4973 021

6239823

84 1119 504

31.12.211111 Restated *

( in tboUS:lod. of euro)

976515

879561

3951786

1 325449

12474836

3071674

53 346 807

2453465

447 304

574550

1 165040

341410

557 837

585240

65098

103074

585107

3603375

86508 128

7964 837

212 1 305

6617077

31205688

24904 746

n8941

324934

5411

233614

I 157019

57 765

131289

2689697

2206 082

79 848 40 8

778 549

253656

394 514

115109

(39766)

(300 507)

136739

1 338 294

5321426

6659 n il

86508128

111.111.211111 Restated *

221411 1

793 844

4 490 699

1273417

9079449

7648 348

50508217

2 535 309

455 115

407585

I 014 776

89817

373851

418162

59396

28631

461 892

2845 156

84 707 995

38176-t3

I 568 896

6890 825

25694 477

34 039 730

253 148

395158

'''''' 193 174

994 752

162 508

83 193

3048 825

1412361

78 576 299

778 549

253656

395514

114 368

60 507

(239274)

13633211

4768]76

6 131 696

84 707 995


CONSOLIDATED BALA.I\"CE SHEET AS AT 31 DECEMBER 20ll AND 2010

Assel.

Cash and d~sit, al cmtral bank. Deposit' wilh bank,

Financial a"et, held for trading

Oth..- financial asset, al fair v~ through profit Of 10" Available-for- s.ale financial assels

Lo"", and ad-.. """r, 10 banks Loans and am"aoc e, to customer,

H dd-t<>-marurity ;"ve,unent'

De,.;.,,,m"e, for risk managrmmt purposes

NOlI-curren! asset, hdd for >ale

PropMy and equipmrnt

Investment pr~,

intangible assets

Investment, in ",«>ciale. Technical resr.v., of remsuranc. ceded

Currrnt income tax assets D.f.,.,-ed income tax asset,

Oth..- asSffs

Total uset.

Liabilities

Deposits from central banI:.

Finaociallia~s hdd for trading Deposits from ban>:' ~ to enstom..-,

D ebt =uriti .. jssued

n .&.-ativ., for risk managrment purpose.

investment cOIItracts

NOII-<:urrent liabilities hdd for sak

Provisions Technical res..,,"., of di,-re! insurance

Current income tax liabilities

D. f=ed income tax liabilities

Subordinated debt

Other liabilities

Total Liabilities

Equity

Share capital

Share prrmium Pref..-mce share,

0tMr equity instrumeru,

Fair value res.."..,

Capital res..,,-., non dismbmable

OIher re,en.." and retained earnings

Profu for the y~"- ann billable to equity holder, of the Company

Total equity attributable to e<lui~' bolders of tbe Company

NOII-comrolling interest

Total equi~'

Total liabilities and pquity

• for further det~ ,ee Kote 54

:-<otes

" " n

" " " " " '" " " " " " "

31.12.21111

I 110515

998 345

, .. "'" ] 714092

11 024 435

2010113

51881875 ] 75 1 193

510090 ] 646 683

I 175546

318038

549 196

578 317

65520

" "'" 769672

3 384 904

84 Ill !) 504

10013 719

2 176258

6116006

34951984

19509 623

218633

148 764

140950

212 796 1089915

80761

120891

1 322 579

I 556802

77 7i!) 681

105035

492912

72 428

58 574

( 165 624)

700 970

(118847)

121 352

1 266 8 1lO

4973 023

6239823

84 1119 504

31.12.211111 Restated ~

( in t bousand. of euro)

976515

879561

3951786

I 325449

12474836

3071 674 53 14<; 807

2453465

447 104

574550

1 165040

341410

557837

585240

65098

!O3074

585 107

3603 375

86508 128

7964 837

212 1 305

6617 077

11205688

24904 746

n89+l

324934

5411

2B614

I 157019

57 765

131289

2689697

2206 082

7984840 11

n8 549

253656

394 514

115109

(39766)

(300 507)

136739

1 338 2!)4

5321426

6 65!) 72 11

86508128

111.111.211 111 Resta ted ~

2214111

793 844

4 490 699

1271417

9079449

7648 348

50508217

2 535 309

455 11 5

407585

I 014 776

89817

373851

418 161

59396 2863]

4<:i1 892

2845 156

84 707 995

38176-t3

I 568 896

6890 825

25694 477

34039730

253 148

395158

'''''' 193 174 994 752

162 508

83 193

3048 825

1411361

78576299

778549

253656

395514

114 368

60 507

(239274)

1363 32 11

4768]76

6 131 696

84 70 7 !)95



COXSOLIDATED BALA.I\"CE SHEET AS AT 31 DECEMBER 20ll AND 2010

Assel .

Cash and d~sit, at cmtral bank. Deposits wilh bank,

Financial a"et, hdd foc trading

Oth..- financial assets at fair value through profit ."-10,, Availahle-for- s.ale financial assets

Loans and ad-,ane r , 10 banks

Loans and advanc e, to custome ...

H dd-t<>-marurity im.." ttnent,

D e";',am"c, for risk managrmmt purposes

NOII-cll!TenI asset, hdd for >ale

PropMy and equipmrnt

Inve'tment pr~,

intangible assns Investment, in a,<OCiales

Teclmical rese.ve, of remsurance ceded

Currrnt income tax assets D ef.,.,-ed iocome tax assets

Oth..- assets

Total uset.

Liabilities Drposits from central bank,

Finaociallia~s hdd for trading Drposits from banks ~ to enstom..-,

D ebt =uriti .. jssued n .&.-aUve, for risk managrment purpose.

investment cOIItracts

NOII-<:urrent liabilities hdd for sak

Provisions Teclmical res..,,-. , of di,-re! insurance

Current income tax liabilities

Def=ed income tax liabilit:ies

Subordinated debt

OIh..-Iiabilit:ies

Total Liabilities

Equi~'

Share capital

Share prrmium Pref..-mce share, 0tMr equity instrument,

Fair value res.."..,

Capital re,..,,". , non dismbmabl e

OIher re,en.." and retained earnings

Profu f"" the y~"- ann billable to equity holder, of the Company

Total equity attributable to e<lui~' bolders oftbe Company

NOII-comrolling interest

Total equi~'

Total liabilities and l'quity

• r"" further det~ , ee Note 54

:-<otes

" " n

" " " " n

'" " " " " " "

31.12.21111

1 nil 515

998 345

, .. "'" I 714 1192

111124435

211111113

51881875

I 751 193

510090

I 646 683

1 175546

318038

549 196

578 317

65520

" "'" 769672

3 384 904

84 011' 504

100117 19

2 176258

6216006

34951984

19 5119 623

238633

148 764

140950

212 796 1089915

80761

120891

1 322 579

I 556802

77 7i9 681

105035

492912

72 428

58 574

( 165 624)

700 970

( 118847)

l2l 352

1266800

4973 023

6239823

84 1119 504

31.12.211111 Restated ~

( ID tbousaods of euro)

976515

879561

3951786

1 325449

12474836

31171 674

53 346 807

2453465

447 104

574550

I 165040

341410

557837

585240

65098

103074

585 107

3603 375

86508 128

7 964 837

212 1 305

6617077

11205688

24904 746

2289+l

324934

5411

233 614

I 157019

57 765

131289

2689697

2206 082

7984840 11

778 549

253656

394 514

115109

(39766)

(300 507)

136739

1338 21'4

5321426

66597211

86508128

111.111.211111 Restated ~

2214131

793 844

4 490 699

I 27H17

91179449

7648 348

50508217

2 535 3119

455 115

407585

I 014 776

8981 7

373851

418 162

59396

28631

461 892

2845 156

84 707 995

3817643

I 568 896

6890 825

25694 477

14039730

253 148

395158

'''''' 193 174

994 752

162 508

83 193

3048 825

1412361

78576299

778549

253656

395514

114368

60 507

(239274)

1363 32 11

4768376

6 131 696

84 70 7 1'95

Pa

ge 7

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ESPIRITO SANTO FINANCIAL GROUP SA

CONSOLIDATID CASH FLOW STATIME,...,. FOR THE YEARS [ ND[ D 31 D[CEMB[R 2011 AND 20Hl

Cash jlows from op"rating aCln"W"S Im..-est and similar income rece; ... ed Int..-est expense and similar cha:-ge, paid Fee, and commission recm"ed

Fees and commission paid Insurance premium, Claim, paid Medical ,enxe, income recm"ed Medical senxe, expenses paid

Recov..-ies on loan> previously writlen off Contributions to pension fund Cash pa}ment' to employee, and 'UPP~"-'

.'let cub from operltin2 profits before cbau2es in operltin2 I .. ets Iud liabilities

Deposit, wtth central bank,

Financial assets at fair value through profu and loss

Loans and advances to banks Deposit, from banks Loans and advance, to custom..-, Due to customer, D..-imu,,"e, for risk management purposes

Other op..-ational assets and liabilities

.'let casb from operltin2 Icth'ities before income tn

Income taxe, paid

.'let casb from operltin2 Icth'ities

Cash jlows from im""sring acri~"iIi"s Purcha,e of ,ubsidiarie, and a,sociate, Sale ofsubsidiarie, and a,sociate,

Dividends recm"ed Purchase of financial assets available for sale Sale offinancial asset, available for sale

Held to maturity investments Issued insurance investment contracts Purchase oftanglble and intangible assets and investment propertie, Sale oftanglble and intangible a,set, and investment propertie,

.'let cub (used in) I from im'estin2 Icth'ities

Cash jlows from financing aCIi>'iri"s Repurcha,e of preference shares Debt ,ecurities issued Debt ,ecurities paid Subordinated debt is,ued

Subordinated debt paid Treasury,tock

Int..-est on other equity instruments Dividend paid on ordinary share, Dividend paid on preferred share,

.'let cub from financin2 Icth'ities

Effect of exchange rate changes on cash and cash equivalent'

.'let incruse in casb and casb equh'alents

Cub aud cub equh'aleots I t be2inoin2 of tbe year Casb and casb equh'alents at end of tbe yur Cub Icquired on chn2e in scope of consolidation

Cub aud cub equh'aleot includes: C,~

Deposit, wtth Central Bank, Mandatory deposit, wtth Central Banks Deposit, wtth bank,

Total

Xotes

" " " "

31.12.2011 31.12.2010


4040097 3 6H 606 (3006907) (2518609)

950017 946 792 ( 186229) (174323)

358 844 358652 (304 685) (254 787)

302664 243470 (178394) (151522)

26553 19582 (94 379) (59740)

(1247215) (1080251)

660 3 66 1'62 870

3 HI 071 4641690 (42216) 630041

(201 975) 4 5&4 654 (431 (63) (302 (98)

14448 (3102713) 3672 675 5 362 765

(142821) (105315) (l 374 160) (957 761)

5 486 325 11 714 133

30624 (247 834)

5 516 1'49 11 4(\.(\ 21'1'

(185671) (286535) 2 805 17021

173 HO 204 313 (48220730) (42186780)

48532 710 39542 376 342223 62 HI

(178295) (69835) (168155) (352 372)

39319 ""'" 337 536 (3 042 ( 81)

(50443) II 587411 11978023

(15977 516) (20648 102) 19746 &4279

(980506) (448971)

( ,," (21 801 )

( 126 (98) (113963) (48671) (56492)

(5 598 875) (9 205 226)

32 891 47020

288 501 (733 988)

I 702427 2 370 102 I 990 928 I 702427

66 313

288 501 (733 988)

281080 308 868 849435 667647

( 137 932) (153649) 998 345 879561

1 !)9{) 928 1 702 427


CONSOLIDATED CASH FLOW STATIl\rr",'T

FOR THE \TARS EI'o'1)[D 31 DECEMBER 20ll A."''1) 2010

Cash flows from oJX!ra/tng acm"iEi",

Inl..-~st and similar income reee;',ed

Inl..-e'l expm'" and similar cha.-ges paid h e, and commission ree';""e<!

Fee, and commission paid Insurance premium, Claim, paid MMical .. rv;c e, income recm""d l"lrdical ,mice, expense, paid Reeo,""';., on loans pre\iously wrinen off C()IItnbutions to pn15ion fund Cash pa}ment' to rmployee, and 'uppti..-,

Xet cub from ol'erltio2 profit s before cho2e. in ol'erltio2 ... et. IDd liabilities

Drposi\, wilh "mlraJ bank, Financial asset, at fair \"~ thnmgh profit and 10" LOan5 and ad,,;mce, \0 banks Drposits from bank, Loans and am"ane e, 10 custom..-, ~ to custom..-, Drrivaw •• , foc risk managrmem pmpose, 0Ih..- op..-ational asset, and tiabiliti.,

.'\et cub from operatiD2 .cth-itie. before income In

:-;et cub from operltiD2 .cth-ities

Cash flows from in ... "ring acri~·iti"s Purchase ofsub~, and associale, Sak of subsidiaries and associale , o;..idmds recm"e<! Purchase of financial asset, available for sale

Sale offinancial assets available fOf s.ale Hdd to maturity investmetliS Issued insurance mvestmeru contracts Purchase oftanglbk and intangible asset. and mve.tmetlt propenie. Sale oftanglbk and intangible as=s and investmetlt prop..-ties

Set cub (u.ed in) I from inn.tin2 Icth'itie.

Cash flows from financing acIh-W"s R'l'urchas. ofpr.£..-""". shares Debt =uriIi.s issued Debt .~uriries paid Subordinated debt issued Subordinated debt paid Treasury .I<><:k Int..-est on oth..- "'Icity instrument. nr.idend paid on Ofdinary shares Oi\idend paid on preferred share .

.... -el c:asb rrom rlD~acin 2 acthities

Eff~t of exchange rate changes on cash and cash "'Iur.·aletlts

..... et increase in clSb and cub equivIleat.

Cub Ind cub l'<juh'llents I t be2iaain2 oftbe year Casb lad cub equivIlent. II end of tbe year Casb Icquired on cban2e in .cope of con.olid~tioa

Cub Ind cub equi\'l.lenl includes: C,~

Deposirs wilh Cetlrral Bam., ll,landatory deposirs wilh Cetlrral Banks Deposits with bank,

Total

~otes

" " " "

31.12.2011 31.12.2010

(ia tbou.and. of euro)

4040097 3633 606 (3006907) (25 18609)

950017 946 792 ( 18(229) ( 174323)

358 844 358652 (304 (85) (254 787)

]01664 243470 ( 178394) ( 151521)

2655] 19582 ( 94 379) ( 59740)

(1247215) (l080151)

660366 962 870

313 1 071 -1641690 ( 42216) 63004 1

(101 975) 4 584 654 (43 1 (63) ( 301 (98)

14448 (3101713) 3671 675 5 362 765

( 142821) (105315) (l 374 1(0) ( 957 7(1)

5486 325 11 714 133

30614 (247 834)

5516949 11466299

(185 (71) ( 286535) 1 805 !7 on

173 HO 104 313 (48220730) (41186780)

48 531 710 39542 ]76

342123 61 H I ( 178 295) (69835) ( 168155) ( 352 372)

393 19 " .. 337 536 (J 042 081)

( 50443) 11587 411 11 978 023

(I5 977 516) (20648 102) 19746 84179

( 980506) (448971)

( ,," (21 WI )

( 126 (98) ( 113 %3) ( 48 (71) ( 56492)

(5598 875) (9 205 226)

32 891 47020

288501 (733 988)

1 702427 2 370 102 1 990 928 1 702427

66 313

288 501 (733988)

28 1 080 308 868 8494]5 667647

( 137932) ( 1536-<9) 998 345 879561

1 1I9{l 928 1 702427


CONSOLIDATED CASH FLOW STATIl\rr,...'T

FOR THE \'EARS E!'o"DED 31 DECEMBER 20ll AND 2010

Cash flows from oJX!raIing aem"iIi", Inl"-~Sl and similar incom~ rece;',ed

InI..-eSI expm'" and si!rular charge, paid h~, and commission recm"ed F ~~, and commission paid Insurance premium, Claim, paid Medical ,mice, income recm"ed

l"ledical smice, expens~s paid Recoveri~, on loans prniously wrinen off

Contributions 10 pmsion fund Cash pa}menl' 10 rmployee, and 'UPP~"-'

:Set cub from operltin2 profits before chn2es in operltin2 ISsets and li.1.bilities

Drposi\, wilh central bank, Financial asset, al fair v~ through profit and loss

LOan5 and adv;mce, \0 banks Drposi\, from banks Loans and am"ance, 10 custom..-, ~ 10 cuslom..-, D.rn"am"e, for risk managrmenl purpo,e, 0Ih..- op..-ational asset, and liabilitie,

:Set cub from operatin2 Icth"ities before income tu:

Iocome taxe, paid

:Set cub from operltin2 acth"ities

Cash flows from im"",ring aeIi~"iIi"s Purc""'" of subsidiw, and associate, Sdk of ,ubsidiaries and associate , Di ... ;dends recm"ed Purchase of financial asset, available for sale Sale .,ffinancial assets av~ble for sale

Hdd to maturity investmenl5 Issued insurance inv~stmem contracl5 Purcha", oftanglbk and intanglbk asset, and inve'tmenl propenie, Sale oftanglbk and inlanglble a,set, and in\"~'tmenl propeni~,

:Set cub (used In) I from innstin2 Icthities

Cash f1(Jlf,", [rom financing aeIi~"iIi", Repurcha,~ ofpr.r..-encc shar~s

Debt =uriti .. is,ued Debt ,ec~, paid Subordinated debt is,ued

Subordinated debt paid Trea,ury stock

Inl"-~Sl on oth..- equity instruments or.idend paid on ordinary share, Di ... ;dend paid on pref..-.-ed share ,

Effect or exchange rale change, on cash and cash equi\"alents

:Set increase in casb and casb equiy llents

Casb Ind casb l'<juh'llents It be2innin2 oftbe year Cub and casb equivIlents It ead of tbe year ClSb Icquired oa cban2e in scope of coasolid.tion

Cub and casb equh""len! includes: C,~

Drposi\s wilh Cmtral B;mh

Mandatory deposils wilh Cmtral Banks Drposits with banks

Total

" " " "

Jl.12.2 1111 31.12.2010

(in tbousand. of euro)

"040 097 3 633 606

(3006907) (25 18 609) 950017 946 792

( 186 219) ( 174 323)

358 844 358652 (304 685) (254 787)

]02664 243470 ( 178394) (151522)

26553 19582 (94 379) ( 59740)

(I247 2l5) (\080251)

660366 962 S70

3 11[ 071 -1641690 ( 42216) 630041

(2UI 975) 4 584 65~ (431 (63) (]02098)

14448 (3102 Ill) 3671 675 5 362 765

( 142821) (105315) (l 374 1(0) (957761)

5486325 11 714 133

30624 (247834)

5 5U5 949 11466299

([8S 671} ( 286535) 2 805 !7 011

173330 2(» 313

(48220730) (42186780) 48 511 710 39542376

342223 6233 1 ( 178 295) (69835) ( 168155) (352372)

393 19 " ."

337 536 (3 1142 0111)

( 50+B) 11587411 11978023

(I5 977 516) (20648 102) 19746 84179

(980506) (448971)

( ,," (21 WI )

( 126098) ( 113 963) ( 48671 ) (56492)

(S 598 875) (9 2115 226)

32 891 47020

2885111 (7JJ 988)

1 702427 2 370 102 1 990 928 1 702427

66 313

288 5111 (7JJ 988)

281080 308 868 M94J5 667647

( 137932) (1536-<9) 998 345 879561

1 99{l928 1 7112427


ESPiRrrO SANTO FINANCIAL GROUP SA

CONSOLIDATED CASH FLOW STATIl\[[,...'T

FOR THE \'EARS EI'o"D£ D 31 DECEMBER 20ll AND 2010

Cash flows from oJX!raIing acm"iIi", Inl"-~Sl and similar income reee;. .. ..! InI..-eSI expel!'" and si!rular cha.-ge, paid he, and commission ree.;..·..! F e~, and commission paid In,urance premium, Claim, paid Medical ,mice, income ree';""ed

l"ledical smice, expenses paid Reeoveries on loans prniously wrinen off Contributions 10 pension fund Cash pa}m enl' 10 rmployee, and 'UPP~"-'

Nel cub from operatinli: profits before chnli:es in operatinli: assets and li.1.bilities

Drposir, wilh central bank,

Financial asset, al fair v~ through profit and 10" LOan5;m11 adv;JJJc es \0 banks Drposir, from banks Loans and ad',anc e, 10 en,lom..-, ~ 10 enslom..-, Drrivam'e, for risk managrment purpo,e, 0Ih..- op..-ational asset, and liabilitie,

.... el cub from operatin li: aeth"ities before income tu:

Iocome taxe, paid

.... el cub from operatin2 acth"ities

Cash flow, from im"",ring acIi~"iIi", Purchase of subsidiarie, and associale, Sdk of ,ubsidiaries and associale , Div;dends ree.;..·..! Purchase of financial asset, available for sale

Sale offinancial assets avaa.ble for sale H eld 10 maturity investmenl5 Issu..! insurance inv.,tmem contracl5 Purcha", oftanglbk and intanglbk asset, and inve'tmenl propenie, Sale oftanglbk and inlanglble a,set, and im .. ,tmenl propenies

.... el cub (used In) I from innstln li: acthities

Cash flow, [rom financing aCI/>"W", Repurchase ofpr.r..-enc~ shares Debl =uriti., is,u..! Debl ,eeuritie, paid Subordinal..! debt is,u..!

Subordinal..! debl paid Treasury stock Inl..-.,I on oth..- equity instruments Dio.idend paid on o.-dinary share, Oi\idend paid on pref...,-ed share ,

Effeel of exchange rale change, on cash and cash equr."alents

.... el increase in clSb and clSb equiy llents

Cub and clSb l'<juh'alents at beli:inninli: oftbe year Cub and casb equivalent. at ead of tbe year Casb acquired oa cbange in scope of coasolid.tion

Cub and casb equh""len! includes: C,~

Drposils wilh Central Bank. Mandatory drposils wilh Crmral Banks Depoo;its with banks

To tal

" " " "

Jl.12 .21111 31.12.2010


"04{) 097 3 633 606

(3006907) (25 18609) 950017 946 792

( 186229) ( 174323) 358 844 358652

(304 685) (254 787) ]02664 243470

( 178394) ( 151522) 26553 19582

(94 379) ( 59740) (I 247215) (\080251)

660366 962 S70

3]][ 071 4641690 ( 42216) 630041

(201 975) 4 584 65~ (431 (63) ( ]02098)

14448 (3102713) 3671 675 5 362 765

( 142821) ( 105315) (l 374 1(0) ( 957761)

5486325 11 714 133

30624 (247 834)

5 5U5 949 11466299

([8S (71) (286535) 2805 17011

173 330 2(» 313

(48220730) (42186780) 48 511 710 39542 376

342223 6233 1 ( 178 295) (69835) ( 168155) ( 352 372)

393 19 """ 337 536 (3 1142 0111)

( 50443) 11587411 11 978 023

(I5 977 516) (20648 102) 19746 84179

( 980506) (448971)

( ,," (21 WI )

( 126098) ( 113 %3) ( 48671 ) ( 56492)

(S 598 875) (9 2115 226)

32 891 47020

2885111 (733 988)

1 702427 2 370 102 1 990 928 1 702427

66 313

2885111 (733988)

281080 308 868 M94J5 667647

( 137932) ( 1536-t9) 998 345 879561

1990928 1 7112427

ESPÍRITO SANTO FINANCIAL GROUP S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS AT 31 DECEMBER 2011 AND 2010 – (Continued) (Amounts expressed in thousands of euro, except when indicated)

Page 9

NOTE 1 - ACTIVITY AND GROUP STRUCTURE

Espírito Santo Financial Group S.A. (ESFG or Group) is a limited liability company headquartered in Luxembourg, incorporated under Luxembourg law on 28 November 1984, and is the holding company of the banking and financial activities of the Espírito Santo Group located in Portugal, Europe and around the world. The main shareholder of ESFG, Espírito Santo International S.A. (ESI), is a limited liability company headquartered in Luxembourg, and is the holding company of the Espírito Santo Group’s interests. Most of the non financial activities of ESI, including real estate, hotels and other activities are managed by Rio Forte Investments S.A., a company headquartered in Luxembourg. Through its subsidiaries, the Group (ESFG and its subsidiaries) engages in a broad range of financial activities primarily through Banco Espírito Santo S.A. and its insurance companies: Companhia de Seguros Tranquilidade S.A. and T-Vida, Companhia de Seguros S.A.. Its operations abroad complement its Portuguese activities. ESFG is listed on the Luxembourg, London and Lisbon Stock Exchanges. The following table describes the main activity of each of the Group’s subsidiaries and associates as at 31 December 2011 and 31 December 2010.


Page 10

Subsidiaries

Esp;rito S=to Cone","", SGPS, S.A ES Cone.,,;om In"'national Holding, BV

ESCone.,,'''''' hum Holding BV ES Co",ultzncy (SingapOf' ) ltd

Esp;rito S=to ConuctC ' '''''-, G.".o d. CallC " "'''', S.A Esp;rito S=to . Com""w d. lj,ooaInc Esp;rito S=to financW (portugal). SGPS, S.A

Esp;rito S=to fundo d. P ' '''" '', S.A Esp;rito S=to fundo, d. Iny.,,;"''''to, imobilWio" S.A Esp;rito S=to fundo, d. Iny"tim"'to, M obilWio" S.A Esp;rito S=to G.".o d. PatrimOnio" S.A Esp;rito S=to G.",On. SA S.G.llC Esp;rito S=to Inf=tica, ACE Esp;rito S=to In"'nationall<.iznag"""'t. S.A Esp;rito S=to InY."m.'" Holding limit. d Esp;rito S=to Iny"timmto" S.A Esp;rito S=to InY."m"," PlC Esp;rito S=to P.m;on", S.GF'? . S.A Esp;rito S=to i'I"u~'o d. S",,;,;o' ,ACU

Esp;rito S=to R'Pf""'ucion", S.A Esp;rito S=to R'Pf"",u~"",ltdo. Esp;rito S=to Saud. _ S"'';';o' ,A.CE Esp;rito S=to Saud. SGPS, SA (a) Esp;rito S=to S",>cio" S.A

Esp;rito S=to,PlC Esp;rito S=to V=guar~ Sl ESSIComunica~ii ", SGPS, S.A ESSIFin. SGPS. SA ESSlIny"timmto" SGPS, S.A ESSt SGPS, S.A

bKUtion Holding, limit. d

bKUtion Nobl. & Company limit.d bKUtion NoN. (Hong Kong) limit.d bKUtionNoN. Holding, llC

bKUtion NoN. limit.d bKUtion Nobl. Print< limit.d bKUtionNoN. R".a:cl>limit<d fll<.lultim""ado I"am<y

fundo BESAb,orut< R"urn. B" fundo d. Iny"tim"'to l<.lultim""ado M od",ado (fOftll<1y fundo BES l<.lultim""ado) fundo d. Capiu.! d. Ri,co BESI'),IE Capiu.!o.owth fundo d. Capiu.! d. Ri,co _ES V",,,,,,, II fundo d. Capiu.! d. Ri,co _ES V",,,,,,, ill fundo fCR I'),IE I BES

G. 'p.,.Participa~" . "ltdo.

G"pa"Of, SA. S.G.llC ffilE G"tio Ho,piu.l.ar, S.A Ho,piu.! do.A:Iabido._Gaia, S.A Ho,piu.! do.lUI_C",trO Clinico do.AmadOfa, S.A

HO'piu.!do.l""S.A HO'piu.!R,,'dincia do M ... , S.A HOSPOR _ Ho,piui' Portug""", S.A

Holdingcompany Holdingcompany Holdingcompany Con,ultzncy

Callc"'t..-,,,,"''' R'p",,,,utionoffic. Holdingcompany Holdingcompany A"" manag"""'t _ P"";o,,, fund, A"" manag"""'t _ R .. l Esu t< fund, A"" manag""mt _ l<.lutual fund, A,,"m=g,,"ffit

A""!lWU.g""ffit

Shat. d '''''''''

Holdingcompany Holdingcompany ikok..-ag. hous . A"", manag""mt _ Pffi"on, fund,

Shat. d ''''''' '' R'Pf"",ution offic .

R'Pf""'ution offic .

Suport ''''''' . company

Non-bank finane . company

S"'''' ' ' Pfoy,d", Holdingcompany Holdingcompany Holdingcompany Holdingcompany H .. lthcar. Holdingcompany

Ady"",,! on iny"tmm" ikok",D .. I", Holding Company ikok..- D .. l ..-No actiy;<y No actiy;<y

Iny"tmffitfund Con,ulting

Iny"tmmtfund

Iny"tm"'tfund

V",,,,,. capiu.! fund V",,,,,. capiu.! fund V",,,,,. capiu.! fund V",,,,,. capiu.! fund

Holdingcompany

A""manag",,mt l<.1.<lical,,,,,,,,, l<.1.<lical,,,,,,,,, l<.1.<lical,,,,,,,,,

l<.1.<lical,ffI"'" l<.1.<lical,,,,,,,,, l<.1.<lical,,,,,,,,,

In,tituto d. R. .. liologi.l. Df. Id.:ilio d. O!iy';'a _C",tro d. Rodiologi.l.l<.Ii<lica, S.Al<.I.<lical ''''''''' K.ySpac. Hung.,.". Kft R .. l _"ut<

l<.lzrignanG"tion S.A A""l<.iznag"""'t No actiy;<y

Location

Portugal Holland Holland Singap"" Portugal

U" Portugal

lux<moo"'g Portugal Portugal Portugal Portugal Spain Portugal

lux""oo"'g U":t< dKingdom &w hdand Spain Portugal Uruguay &w Portugal Portugal Spain &w hdand Spain Portugal Portugal Portugal Portugal Portugal

Unit. dKingdom Unit. dKingdom ~

Unit. dKingdom

Singap'" U":t< dKingdom &w Portugal &w

&w

Portugal Portugal Portugal Portugal &w Spain Portugal Portugal Portugal Portugal Portugal Portugal Portugal Hung.,.". f,ane .

U":t< dKingdom Nobl. A~,;,,,,,!IndiaPrint< ltd

Nobl. A""l<.iznag'''' limit.d

i'Ioy;d" anal}-tic, ,upponto o.oup ""a:cl> India

NoN. A""l<.iznag"" o.ouplimit. d Nobl. CorpOfat< A~",,,,,!Inc Nobl. COfj>Ofat< finane . limit.d Nobl. financWHolding, limit.d NoN. fund Ad, .. ,,,,, limit<d

Nobl. fund l<.iznag.", Nomin .. limit<d (Non-trading) Nobl. o.oupHolding, limit. d Nobl. o.ouplimit. d NoN. Iny"tm"'tl<.iznag"" limit. d Nobl. Print< Equi<ylimit< dGBR Nobl. SKUriti" limit. d (Non I,ading) Nobl. V",,,,,. finane . Gm",11 p"""", limit.d

NoN. V",,,,,. l<.iznag"" limit. d OBlOGCon,ulting S.A Cifad . fundl<. iznag.", limit. d

BESV COUfU.g. SA (fOftll<1y OlPI) Pam",; _ Soci. do.d. U";p,, ,o~ SGPS

PARIRA." SGPS, S.A i'Ia~a do Muqui , _ S"'';';o, Auxiliu", S.A Pa"Of Vj~ SA d. S<1n"o, yR.a"gufo, Quinu do, C""'go,_ Soci.do.d. imobili.ari.a. S.A R\1l _ R",dincia l<.1.<licakudo. d. lo",,,, SGPS, S.A

SEGUROSlOGOS.A SESIb<ria. S.A snlB _ Socii t i 1 y onnai" d. l<.lzfclwld, d. B'ffi' Soci.do.d. G."Ofa do Ho,piu.! d. lo",,,, S.A

Socii t i C"il. Immobi!i"'. <lu ~1 AYffi'" G' '''g'' l<.lzrid<1

Iagid. i'Iopffii", Inc IRA."QUilIDADE_ Companhi.a d. S' gufo, I'anquilido.d. , S.A I_'v1D~ Companhi.a d. S' gufo" S.A Vilalusiuno _ U":dad" d. Saud. , S.A

No actiy;<y Unit. dKingdom No ac,;,ity No ac,;,ity No ac,;,ity

Holding Company fund m=g,,"ffit ac,;,iti" No ac,;,ity

Holding Company Holding Company No ac,;,ity No ac,;,ity No ac,;,ity

G",,,,11 P"""" fOf fund No ac,;,ity

SoIN'ar. d.nlopmmt No ac,;,ity

Iny"tmmt company Holdingcompany Holdingcompany R .. l _"ut< In,,,,,,,,,,,

R .. l-"ut<

A""manag",,mt R .. l-"ut< l<.1.<lical,,,,,,,,,

R .. l-"ut<

R .. l-"ut< In,,,,,,,,,,, In,,,,,,,,,,,

l<.1.<lical,ffI"'"

U":t< dKingdom

U" Unit. dKingdom Unit. dKingdom U":t< dKingdom U":t< dKingdom Iilil" d.l<.lzri Unit. dKingdom U":t< dKingdom U":t< dKingdom Unit. dKingdom

U":t< dKingdom Portugal Unit. dKingdom f,ane .

Portugal Portugal Portugal Portugal Portugal Portugal Portugal Spain f,ane .

Portugal f,ane .

Portugal

U" Portugal Portugal Portugal

3 1.11..10 11

JU% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% w~

614% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

3J .9% 100.0% 99.1%

100.0% 100.0% 100.0% ~m

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

10.1%

~~

100.0% 1U% 16l% 1l.1%

100.0%

10.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

11.0% 100.0% 100.0% wm

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 66.6%

100.0% wm

100.0% 100.0% 100.0% 10.0%

100.0% 1l .0%

100.0% 10.0% w~

100.0% 100.0% 9J.m

100.0% 100.0% 100.0% 100.0%

I eonomi<

io"~,,

U .9% U .9% 1&.9%

100.0% 6J.1% 26.~%

100.0% 100.0% 1H% 1H% 1H% 1H% 1l.1% lU% 1J.J% Ill% 26.4% 26.~%

1l.1% lH% ~~

26.~%

lO.l % lO.m 26.4% 11.0% 26.~%

26.4% 26.4% 11 .9% 26.4%

26.4% 100.0%

IJ.1% IJl% Ill% IJ.1% IJ.1% IJ.1% Ill% 211%

IU%

11 .1%

26.4%

11 .m 14.9% 14.6%

111%

Ill% lO.m lO.m lO.m n m lO.m lO.m 11.0% 16.1% IJ.1% IJ.1% IJ.1% Ill% IJ.1% IJ.1% IJ.1% Ill% IJ.1% IJ.1% IJ.1% Ill% IJ.1% IJ.1% IJ.1% Ill% \J.6% IJ.1% 16.0% 26.4%

100.0% 26.4%

10.0% -«1.4% n m

100.0% 1l.1% 16.0% lO.m ~9.4%

29.&% ~~

100.0% 100.0% n m

3 1.11..10 10

~1.0%

100.0%

9J.\% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% um w~

10.1% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

3J .9% 100.0% 100.0% 100.0%

100.0% ~m

100.0% 100.0% 100.0% 10.1%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% wm ~g.l%

1H%

100.0% 1U% 1H% 1l.1%

100.0% 100.0% 10.0%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

11.0% 91 .0%

100.0% wm

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 66.6%

100.0% wm

100.0% 100.0% 100.0% 10.0%

100.0% 1l .0%

100.0% 10.0% w~

100.0% 100.0% 9J.m

100.0% 100.0% 100.0% 100.0%

I eonomi<

io"~,,

1l.1% Ill%

6&.0% lO.1%

100.0% 100.0%

lO.6% lO.6% lO.6% lO.6% lO.4% 11.6% lO.m 1l.1% lO.1% lO.1% lO.4% lO.1% 29.1% lO.1%

lO.9% lO.1% 24.1% lO.1%

lO.1% 1&1% lO.1% lO.1% &26% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 24.1%

&2.m 14.m

114%

lO.1% IJ.1% 114% 16.6% 24.1% lO.4% 11 .m lO.9% lO.9% lO.9% 2J.l% lO.9% lO.9% 11.0% 14.&% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1% 1l.1%

20.1%

1l.1% 1J .6% lO.1%

100.0% lO.1% 10.0% H4% 2J.l%

100.0% 1l.1% 1J .m lO.9% 11l% lO.1% 29.1%

100.0% 100.0% 2J.l%

Subsidia ries

E,pirito Sm.'oConc",ii", OOPS, S.A IS CO<>C " ';o", International Hol<ltng, BV [SCon<.,,;om h um Hol<ltng BV

IS Comultancy (Singopo<.) l,d Espirito Sm.'o Conuc,C""tf, G"tio d. CalIC"'te", SA Espirito Sm.'o • Com. m.! d, li,lxla Inc ['pirito Sm.'o financizl (portugal). SOPS, SA

E,pirito Sm.,ofundo d, P,m"'<' SA E,pirito Sm.'ofundo, d, In\-" tim,,,,o, 1m0bilWio" SA Espirito Son'o fundo, d. In"" timon'o , M obili.irio' ,SA Espirito Sm.'o G" tio d. PatrimOni. <. SA Esp;ri'o Sm.'o G, ,,,on, SA. S.Gl .lC Espirito Sm.'o Infoonatica, ACI Espirito Sm.'o In'tmational :\iznag, m.n" SA ['pirito Sm.'o In,-"tm,,,, Holding l;m;ted

['pirito Sm.'o In,-"timon'o" S.A E,pirito Sm.'o In,."tm"''' PlC Espirito Son'o P,,,,;on,,, S.GF'p, S.A

Espirito Sm.'o PI"u,io d, Stn->;o"ACEl Esp;ri'o Sm.'o Rtpf"",u ciom <. SA Espirito Sm.'o Rtpf"",u,ii" , l,da Espirito Sm.'o Saude_ S<!'I->;o .,A.c[ ['pirito Sm.'o Saud. SOPS, SA (a)

EspiritoSon'o, PlC Espmto Sm.'o Vonguarda, Sl ISSI Comunica,"", SOPS, SA [SSl fin. SOPS . SA

ISSI In""tim.n'o" SOps. SA ISS!, SOPS, SA

ExKUtion Holding , lmted

Execution Nobl. &: Company tinit. d Execution Nobl. (Hong Kong) lmte d Extcution Nobl. Holding. llC Execution Nobl.lmu..d Ex=tion Noble Pri"a" lmu.. d Execution Nobl. R".=:h lmu.. d fl:\ lultim"""do r"a",,,!

fundo BISAb,olu" R.turn. B" fundo d. In"" timrn'o Multim"" ado :\Iod .... do (fom\tly fundo BEll Multim..-cado) fundo d. Capital de Ri,co _ BEll P:\IE Cap;tal <lfowth fundo d, Capital d, Ri>co _ES \ '"ltUft, n fundo d. Capital d. Ri,co _ES Yffirur" ill fundofCRP:\IE / B[S

G' Sp lf Panicipa,ii . " l,da

G"p' ''Of,SA, S.G11.C ID.tE G. ".o Ho,pitzlat, S.A Hospital daArrabida_Gaia, SA

Hospital daluz _C"'tro Clinico daAmadofa, SA Hospitaldal~SA

HospitalR,,;d<ncia do :\1..-, SA

HOSPOR_Ho,pitai' Ponugu"", SA

Holding company Holding company Holding company Comuluncy

Calle"" ", " "ie" Rtpf,,"'tation office Hol<ltngc0"'Pany Holding company A"" m"""-g"""" _ P.m;"", fund, A"" m"""-g"""" _ Ru l [,tate fund, A"" m=g tm"" _ Mutual fund,

A"""""'"-g.mm' A""m=gtmffi' Shar. d '<!'lie "

Hol<ltngc0"'Pany Holding company Ikoh <>-g . hou"

Shar. d ,mie" Rtpf"ffitation offie . Rtpf,,"'tation offie. Sup<l" , mieecomp""y Hol<ltngc0"'Pany In,>=nC ' Ikoh <>-g . hou" Non-b=lo: finane . company S",ie" Pfoyid", Holding company Holding company Hol<ltngcompany Hol<ltngc0"'Pany H .. lthcat. Holding company

A<h-i'Of)' onin\-"tm.n" IkohfD .. I",

Holding Company Ikok .. D.al",

No acti"lty No actil-ity

In,."""ro, fund Con,ulting

In"" tmtn'fund

In" "tmtn'fund

Vtnrur. capital fund Vtnrur. capital fund Ytn"". capital fund V.ntuf. capital fund Holding company

A""m=g tmtn' M. <hcal,,,,,ie ,, :\I.<hcal , ,,,,ie,,

:\i .<hcal .""ie" M. <hcal , ,,,,ie,, M. <hcal ,,,,,ie ,, M. dical,,,,,ie ,,

Location

Portugal Holland Holland

SingapOf' Portugal

U" Portugal

lu"'mlxlurg Portugal Portugal Portug.il Portugal

"m Portugal luxtmlxlurg Uni"dKingdom ,~

ifeland Sp";"

Portugal Uruguay ,~

Portugal Portugal Sp";" ,~

if. land Spain Portugal Portugal Portugal Portugal ,~.,

Unit<dKingdom Unit. dKingdom ~

Unit.dKingdom Singapur Uni"dKingdom ,~

Portugal &~

~

Portugal Portugal Portugal ,~.,

,~

Sp";"

In,tinno d. Ro<liolo gia Dr.ldZlio d. OIi,.M _C",trO d. Ro<liologia :\Ii <hca, S.AM. <hcal , ,,,ie,,

Portugal Portugal Portugal Portugal Portugal ,~.,

Portugal Hung .",. ,~.

Unit. dKingdom

K"ISpa" Hungary Kft R.al-" tate M.vignan G" tion SA Nomo S""ie" lmu.. d Nobl. A<h-;,o"!In<SaPri,,a" l,d Nobl. A,,":\iznag"" lmu..d

Noble A"" :\iznag= Group l;m;"d Nobl. CO'l'Ofate A<h-i,"'YInc_ Nobl. CO'l'Ofa" finane . lmu..d l'obl. f~Holding' lmu.. d Nobl. fundA<h""" lmu.. d Nobl. fund :\ianag= Nomin .. Im"d (Non-trading) Nobl. <lfoupHolding. hni" d Nobl. <lfouplmu..d

Noble In" "tmtn':\ianag= l;m;"d Nobl. Pri"ate EquityLm" dGBR Nobl. Securiti" lmu..d (Non l a ding) l'obl. Vrnrur. finane. Gtn. r.d P""" .. lmu..d Nobl. Von"". M=agff51;,ru,. d OB1OOCon,ulting SA

o...cl. fund:\1am.g"" Lmte d BESV Couru.ge SA (fomt.ly OlPI) Par,uni _ Soci.dade Unip. "oa1.. SOPS PARlRA" SOPS, SA PIa, a do !o.IMqui, _ S""->;O, AwiIW.<. SA P."Of Yida, S.A . d. S. huro, y R.a"guro, Quinu do, COn'go,_ Soci. dad. 1m0bilWia, SA

R.,\tl_R"id. ocia:\I.<hcaliuda d. 10Uf", SOPS, SA SEGUROS1OGOS.A SES Ibtria, SA snlB _ SOO«. 1 yonnai, e de Muchand, de Bi""

Soo.dad. G. """, do Ho,pital d, lour", SA Socii , . C;'11. Immobili". <lu 41 Av tflU. G,ofg,,:\bndel

Surgicu. _ Unidad" d. Saud., SA Tagid. Propmi", Inc IRA.,\QUUIDAD[ _ Companhia d. S' gur<l ' T=>quilidad. , SA r_\lD~Companhia d. S' gur<l', SA Yila luortano _ Unidad" d, Saud., SA

A"" M. nag. mffi' Noactiyity

Pro,'d" an.alytic " "PPort'o<lfOUP"S"'fch Indio No acti"lty Unit. dKingdom No actil-ity No actility No actility Holding Company fund manag.mtn' actil-iti" Noactiyity

Holding Comp""Y

Hol<ltng ComP""y No actil-ity No actility No actility Genrnll P"""tf fOf fund l'o actil-ity Software denlopmro, No acti,ity

In'-"tm.n' company Hol<ltngc0"'Pany Holding company R. al-" tat< In,-=",,,

R.al-"ut< :\I.<hcal , ,,,,ie,, In,urnnc.

A"" manogom,,,' R .. l _"tat< M. dical,,,,,ie ,,

R. al-" tat<

R.al-"ut< In5Ufane . In,urnnc. M. <hcal , ,,,,ie,,

Uni"dKingdom

U" Unit<dKingdom Unit. dKingdom Unit.dKingdom Unit. dKingdom Iih1" d. :\lan Unit. dKingdom Uni"dKingdom Unit<dKingdom Unit<dKingdom IhleJ..-..y Unit.dKingdom Portugal Unit.dKingdom ,~.

Portugal ,~.,

Portugal Portug.il Portugal Portugal Portugal

"m ,~.

,~.,

,~.

Portug.il


J I .I1..13ll

7LJ%

100.0%

100.0%

100.0%

l00.O!'.

100.0%

lOO.oW. 100.0%

100.0% 100.0%

100.0%

1000%

100.0%

l00.O!'.

99.W. 61.4%

100.0%

100.0%

100.0%

1000%

100.0%

l00.O!'.

100.0%

37.W . 100.0%

992% 100.0%

1000%

100.0%

6O.0!'.

100.0%

lOO.oW. 100.0%

100.0%

100.0%

1000%

100.0%

l00.O!'.

100.0%

lOO.oW. 100.0%

10.1%

69.0%

l00.O!'.

1U % 16.W.

llJ% 100.0%

10.0%

100.0%

l00.O!'.

100.0%

lOO.oW. 100.0%

100.0%

11.0%

1000%

100.0%

w~

100.0%

lOO.oW. 100.0%

100.0%

100.0%

1000%

100.0%

l00.O!'.

100.0%

lOO.oW. 100.0%

100.0%

100.0%

1000%

66.6%

l00.O!'.

99.9% lOO.oW. 100.0%

100.0%

10.0%

1000%

n .O% l00.O!'.

10.0%

99.~~

100.0%

100.0%

9J.m

1000%

100.0%

l00.O!'.

100.0%

1&.9%

U.9%

U .9% 100.0%

6730/.

26.4!'. lOO.oW. 100.0%

n~

n~

13&%

23&%

2lJ% 3&3%

2J J %

lJ 3 % 26.4%

26-' %

I lJ% 33&%

26.0%

26.4! ' 301% 30.W.

26.4%

21.0%

26.~%

2H % 26.4%

11.9%

26.4!'. 26.4%

100.0%

1l3 % 1J.3%

IJ.J% 1J.l% \73 % \73 % lJ 3 % I U %

IIl%

111%

26.4! ' Il.l% l~ .W.

14.6%

2U%

Il.J% 3O.m 30.1%

30.1%

n .w. 30.m

30.1%

11.0%

16.1%

1J.l% \73 % \73 % lJ 3 % 1l3 % 1l3 % 1J.3% 1l_J%

1J.l% \73 % \73 % lJ 3 % 1l3 % 1l3 % 1J.3% 1l_J%

\J.6%

\73 % 16.0%

26.4%

100.0%

26-' %

10.0%

-«1.4%

21.9%

l00.O!'.

Il l % 16.oW. 30.m 49.~%

29.&% 26.0%

100.0%

l00.O!'.

21.9%

31.11.2013

lLO%

100.0%

9JJ!' 100.0%

100.0%

100.0%

100.0% 100.0%

100.0%

100.0%

100.0%

&t ~.

99.&% 10.1%

100.0%

100.0%

100.0%

100.0%

100.0%

lOO.O!'

37.9%

100.0%

100.0%

100.0%

100.0%

6O.0!' 100.0%

100.0%

100.0%

10.1%

100.0%

100.0%

100.0%

lOO.O!' 100.0%

100.0%

100.0%

99.&% 4&.2%

lH%

lOO.O!' 11.&%

l H % l lJ%

100.0%

100.0%

10.0%

100.0%

lOO.O!' 100.0%

100.0%

100.0%

100.0%

11.0%

91.0%

100.0%

99.~'

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

lOO.O!' 100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

66.6%

lOO.O!' W.~

100.0%

100.0%

100.0%

"~ 100.0%

1l .0%

lOO.O!' 10.0%

w m 100.0%

100.0%

97.l%

100.0%

100.0%

lOO.O!' 100.0%

[ <onomic

ill",..,,, U 3%

U l %

6&.0!' 30.1%

100.0%

100.0%

30.6% 30.6%

30.6%

30.6%

30.4!'

21.M' 30.m llJ% 30.1%

30.1% 30.J%

30.1%

29.1%

30.1!'

30.9%

30.1%

2H %

30.1%

30.1%

1&1!' 30.1%

30.1%

&2.6%

llJ% llJ% llJ% llJ%

IlJ!' llJ% llJ% 2H % &2 .m ll.1%

Ill%

30.1!' 17.1%

11.4% 16.6% 2H % 30.J%

1l.l% 30.9%

30.~'

30.9%

HI% 30.9%

30.9%

11.0%

l·U % llJ%

IlJ!' llJ% llJ% IlJ% llJ% llJ% llJ% llJ%

IlJ!' llJ% llJ% IlJ% llJ% llJ% llJ% 20.1%

IlJ!' 17.6! '

30.1%

100.0%

30.1%

"~ J H %

lll%

lOO.O!' llJ% 17.m

30.9%

l ll% 30.1%

29.1% 100.0%

lOO.O!' 23.2%

Subsidiaries

['p;rito 5=,oConc."o", SGPS, S.A ES CO<>C"';o", In,,,,,,,tiona! Ho1<ltng, BV [SCon.;: .,,;om h um Ho1<ltng BV

[S Consultancy (Singop<lf') l,d Esp;rito 5='0 Contac,C""<f,G."io d. CalIC.""", SA Esp;rito 5='0 • Com=izl d. li,lxla Inc ['p;rito 5='0 fin.ancW (portugal), SOPS, SA

['p;rito 5=,ofundo d. P.m"' <' S.A ['p;rito 5='ofundo, d. [m·" tim.",o, lmobi\Wio',SA Ispirito Son'o fundo, d. In",";mm'o, Mobi\Wio',SA ['pinto 5=to G" tOo d.PatrimOnio <. SA Esp;ri'o 5='0 G.,,'6n, SA. S.Gl.lC Esp;rito 5='0 Infoonatica, ACI Esp;rito 5='0 In,,,,,,,tiona! :\ianag.mmt, SA ['p;rito 5='0 In,·"tm.", Ho1<ltng lO:ni"d ['p;rito 5='0 In,·"tim",'o, . S.A

['p;rito 5='0 In,."fIll"," PlC Ispirito Son'o P.-m;on", S.GF'p, SA ['pinto 5=to i'I"ta,io d. S'fyio;o<.ACU

Esp;ri'o 5='0 Rtpf"mtaciom <. SA Esp;rito 5='0 Rtpf""''',o'',l,da Esp;rito 5='0 s..iide _ S"'-;';o .,A.C.E ['p;rito 5='0 s..iid. SOPS, S.A. (a) ['p;rito 5='0 S",-;ao" SA

Ispirito Son'o, PlC ['pinto 5=to v ."guarda, Sl ESSIComurril''''', SOPS, SA ESSlfin. SOPS . SA ESSlIn,.."imm'o , . SOps, SA ESSI, OOPS, SA

L",,,,,tion Ho1<ltng. l imited

[".;:uti"" Nob1. & Company Lmit.d L",mtion Nobl. (Hong Kong) limi"d I.xKUlion Nobl. Ho1<ltng' llC I.xKUtion:-<obl. Lmit.d ExKUtion Noble P!iyate limit.d

ExKUtion Nobl. R"."",hlimit. d fl:\lultim"""do r"am,,!

fundo BESAb,oru" R.rum B" fundo d. In,." tim.",o Multim",:ado :\Iod .... do (fomt.ly fundo BES Multim..-cado) fundo d. Capital de Ri,co _ BES P:\IE Cap;,al Growth

fundo d. Capital d. Ri<e. _ES V."tuf" D fundo d. Capital d. Ri,co _ES Yffituf" ill

fundofCRP:\IE / BES G. ,p ..- Panicipa,o . " l,da

G"p"'Of.SA, S.Gll.C IDlE G"tOo Ho,pital"', S.A Ho'p;tal daAmobida_Gaia, SA HO'pital daLuz_ Cmtto Clinico daAmadofa, SA Ho,pital daluz,SA

HO'pitalR,,;dincia do "'fa:-, SA HOSPOR _Ho,pitai' Ponugu"", SA

Ho1<ltng company Ho1<ltng company Ho1<ltngcompany Con,ultancy

Callc"" ... ,."-ic,, Rtpf"",ution office Ho1<ltngcootpa>lY Ho1<ltng company A"" monag"""" _ P.m;"", fund, A"" monag"""" _ Ru1 [, .. " fund, A"" monag tm.n, _ Mutual fund,

A""=g.m.n, A"" manag.m,,,' Shar. d ,,,,-ic,,

A"" !lWU.g"""" _ Mutual fund, Ho1<ltngcootpa>lY Ho1<ltng company BfOhag. hom .

Rtpfe5", .. tionollk.

Rtpf"",,,tion ollk. Sup<l" ,,,,-ic. comp""y Ho1<ltngcootpa>lY In,>=nC '

Non-b=!.: finane . company S",-ic" proyid!'f Ho1<ltng company Ho1<ltng company Ho1<ltng COOlpany Ho1<ltngcootpa>lY H.alth=. Ho1<ltng company Ach-i,Of)" onin,·"tm.n" lliohfD",l"

llio~ ... D<al ... No activity No a<rn·Ity In,." fIllrn. fund Con,ulting

V."tuf. capital fund Vtntuf. capital fund Ytntufecapitolfund V.mur. capital fund Ho1<ltng company A""monagtm.n, M. <hcal,,,,-ic ,,

M.dical.",-ic" :\i.<hcal,,,,,-ic .. M. <hcal,,,,-ic ,, M. <hcal ,,,,-ic .. M. dical, ,,,-ic ..

Location

Portugal Holland Holland SingaponPortugal

U'" Portugal

lu"'mlxlurg Portugal Portugal Portugol Portugal

"m Portugal

U":tedKingdom ,~

ueland Spw Portugal Uruguay &~

Portugal Portugal Spw ,~

ueland Spain Portugal Portugal Portugal Portugal ,~.,

Unit. dKingdom Unit. dKingdom ~

Unit.dKingdom Singapur U":tedKingdom ,~

Portugal &~

~

[mtiruto d. Ro<lio10gia ilf.ldZlio d. OIi,.M _C<nttO d. Ro<lio10gia:\Ii<hca, S.AM.<hcal ,,,,-ic ..

Portugal Portugal Portugal ,~.,

,~

Spw Portugal Portugal Portugal Portugal Portugal ,~.,

Portugal Hung",,! K.ySpa" Hung",,! Kft R",l-t, .. "

Mangrum G" ti"" SA N""o S""-ic ,, Limit.d NobleAdI-i,o,,!In<SaPm'a" l,d Nob1eA,,":\ianag"" limit.d

Noble A"" :\ianag..--. Group lO:ni"d Nobl. CO'l'Ofate Ad,.;,oryInc_

Nob1. CotpOfa" financ e limit.d l'ob1. financWHol<ltng, limit.d Nobl. fundAch-i,m limit.d

Nobl. fund :\lanag"" l'omin .. limited (Non-tta<ltng) Noble GroupHol<ltng.limi"d Nob1e Grouplimit. d Noble Inn'fIlltn':\ianag..--. lO:ni"d Nobl. Private Equity l imi" d GBR Nob1. Se<:Uriti" limit.d(Non T ... <ltng) l'ob1. Vtntuf. finane. G<mrnl Partntf limit.d Nobl. Vmtuf. Mam.gff51imit. d OBIOGConsulting SA ORcl. fund:\1anagm limi"d BESV C~uru.g. SA. (fomt.ly OLPI)

Par,urn _ Soci.dad. Unip. "ool. SOPS PARnu..,,, SOPS, SA

Pn,a do :>.Luqui. _ S"'-;';o, AuxilW. <. S.A P."Of\,id:a, S.A . d. S. huro, yR.a"gufo, Quinta do, COn'go,_ Soci.dad. Imobiliaria, SA

R,\tl_R"idincio.M.dicaliuda d. 10Uf", SOPS, SA SEGUROSIOGOS.A SES Ibtria, SA snlB _ SOO ... L yonnai, e de :\lHchand, de Bi.", Soo.dad. G. "o<>. do Ho,pital d. lour .. , SA Socii , . Cri-i!. Immobili". <lu~ l Avrnu. G,ofg«Mandel

Tagid. Proptrti«, Inc TRA.,\QUUIDAD[ _ Companhia d. S'gur<l' Tranquilidad. , S.A T_VIDA, Companhio. d. S'guro', SA \'ilalmitzno _ U":dad" d. s..iid., SA

A""l'Iianag. mm' f=>c . Noactiyity Unit. dKingdom

Pro"d" anzlytic. "'pport ' o GrOUPf"Ufch Indio. No activity No a<rn-ily Noactility No acrnity Ho1<ltng Company

Noactiyity

Ho1<ltng Company Ho1<ltng Comp""y No a<rn-ily Noactility No acrnity

G.nrnll P"""" fOf fund

Soft.,-..-e den1opmrn, No acti,ity

In,·"tm.n'c","pany Ho1<ltngcootpa>lY Ho1<ltng company

Rul-" .. " In",rnne.

R.al-" ta"

In,urnnc.

A""!lWU.g"""" R. al-" .. " M. dical, ,,,-ic ..

R.al-" .. " M.<hclll""", .. R.al-" ta" In"'fane . In,urnnc. M. <hcal,,,,-ic ,,

Unit. dKingdom U":tedKingdom rnA Unit. dKingdom Unit. dKingdom Unit. dKingdom Unit. dKingdom lihl .. d.:\lan Unit. dKingdom U":tedKingdom United Kingdom Unit. dKingdom Ihl. Jm. y Unit. dKingdom Portugal Unit.dKingdom ,~.

Portugal ,~.,

Portugal Portugol Portugal Portugal Portugal

"m ,~.

,~.,

,~.

Portugol

U'" Portugal Portugal Portugal

JI.I1..1Gll

71J% 100.W. lOO .~~

100.0% lOO.W. lOO.W. 100.W. 100.0% 100.0% 100.0% 100.W. lOO .~~

100.0% lOO.W. 99.W . 61.40/.

100.0% 100.0% 100.W. lOO .~~

100.0% lOO.W. lOO.W. 37 .90/.

100.0% 992%

100.W. lOO .~~

100.0% 6O.W .

lOO.W. 100.W. 100.0% 100.0% 100.W. lOO .~~

100.0% lOO.W. lOO.W. 100.W. 100.0%

10.1%

69.~~

lOO.W. l&.W. 16.lY. llJ%

100.0%

10 .~~

100.0% lOO.W. lOO.W. 100.W. 100.0% 100.0% 11.W. lOO .~~

100.0% 99.9''0

lOO.W. 100.W. 100.0% 100.0% 100.W. lOO .~~

100.0% lOO.W. lOO.W. 100.W. 100.0% 100.0% 100.W. lOO .~~

66.6% lOO.W. 99.9" .

100.W. 100.0% 100.0% 10.W. lOO .~~

n .O% lOO.W. l O.W. 99. ~'.

100.0% 100.0% 91.m lOO .~~

100.0% lOO.W. lOO.W.

1&.9% U.9" . U;/%

100.0% 673Y. 26.4!'.

100.W. 100.0% n~

n~

IH% 2U % 2lJ% 3U Y. 2J.1Y. 113 Y. 16.4% 26,1 %

2lJY. 3U% 26.0%

301Y. 30.W. 16.4% 21.0%

16.W. l ld% 26.4%

11 .9''0 26.4!'. 26,1%

100.0% 113 % il lY. 11_3%

lJ.l% 113Y. 113Y. 113 Y. lU%

111%

111%

16.4! ' 11 .W. 14.90/. 14.6%

2U%

11.3% lO.m

30.1% 30JY. 22.90/. 30. m 30.1% 11.W. 16.1% lJ.l% 113Y. 113Y. 113 Y. I1J% I1J % il lY. 11_3%

lJ.l% 113Y. 113Y. 113 Y. I1J% I1J % il lY. 11_3%

1J.6%

113Y. l 6.W. 26,1%

100.0% 26,1 %

10.W. -'0.4%

22.90/0 lOO.W. 11lY. 16.W. 30. m 49.4 %

19.5% 16.~~

100.0% lOO.W. 22.9" .

J I.I1.!OHI

~Lo%

100.0%

91. m 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% lOO .~~

g.t .~~

99.&%

10.1% 100.0% 100.0% 100.0% 100.0% lOO .~~

100.~~

37.90/0 100.0% 100.0% 100.0%

lOO .~~

60.~~

100.0% 100.0% 100.0% 10.1%

100.0% 100.0% lOO .~~

100.~~

100.0% 100.0% 100.0% 99.&% 4&.2%

lH%

100.~~

1U% lH% llJ%

100.0% 100.0% 10.0% lOO .~~

100.~~

100.0% 100.0% 100.0% 100.0% R O% 91.0% lOO .~~

99.~~

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% lOO .~~

100.~~

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 66.~~

100.~~

W.ffi 100.0% 100.0% 100.0%

"~ 100.0% n.~~

100.~~

10.0% w.m

100.0% 100.0% 91.l%

100.0% lOO .~~

100.~~

100.0%

[ conomi<

iour~"

123% 123%

6S.~~

30.1% 100.0% 100.0% 30.6% 30.6% 30.6% 30.6% 30.~!~

21 .M~

30.m IlJ% 30.1% 30.1% 30.-'% 30.1% 19.1!~

30.m

30.90/0 30.1% lU% 30.1%

30.1!~

I&.m 30.1% 30.1% &2.6%

IlJ% IlJ% IlJ% IlJ!~

Il .m IlJ% IlJ% 14J% SU% IU%

1U%

30.m 17.1% IH% 16.6% lU% 30.-'% Il.l% 30.~~

30.~~

30.90/0 Hl% 30.90/0 30.9% R O% lU% IlJ!~

Il .m IlJ% IlJ% llJ% IlJ% IlJ% IlJ% IlJ!~

Il .m IlJ% IlJ% llJ% IlJ% IlJ% IlJ% 20.1!~

Il .m 17.6% 30.1%

100.0% 30.1%

"~ 4H%

111!~

100.~~

IlJ% 17.m 30.90/0 lU% 30.1% 29.1%

lOO .~~

100.~~

2l1%


Subsidiaries

[,p;rtto 5='oConc."ii",SGPS, S.A ES CO<>C"';o", In,,,,,,,tiona! Hol<ltng, BV [SCon.;: .,,;om hum Hol<ltng BV

[S Consultancy (Smgzp<lf') l,d [,p;rtto 5='0 Contac,C""<f, G.".o d. CalIC"""', SA hp;rtto 5='0 • Com=izl d. li,lxla Inc [,p;rtto 5='0 financW(portugal). SOPS, SA

[,p;rtto 5=,ofundo d. Pm",." SA [,p;rtto 5='ofundo, d. In,·"tin"n'o, lmobili:irio',SA Ispirito Son'o Fundo, d. In"'>tim",'o, Mobili:irio',SA ['p;"'o 5=to G"tOo d.PatrimOni." SA ['piri'o 5='0 G"tiOn, SA. S.Gl.lC [,p;rtto 5='0 InfOfTllatica, ACI hp;rtto 5='0 In'tmationa! :\ianag.mmt, SA [,p;rtto 5=,0 In,·"tm"" Hol<ltng limit. d [,p;rtto 5='0 In,·"tim",'o, . S.A [,p;rtto 5='0 In,."Im",,, PlC Ispirito Son'o P.",;on", S.GF'p, SA ['p;"'o 5='0 i'I"ta,io d. S.f">;o,,ACU

['piri'o 5='0 Rtpf"",uciom" SA [,p;rtto 5='0 Rtpf"",,",",,.l,da hp;rtto 5=,. s..ud._Sm-;';.',A.cE [,p;rtto 5='0 s..ud. SOPS, S.A. (a) [,p;rtto 5='0 Smicio" SA

Ispirito Son'o, PlC ['p;"'o 5='0 V."guarda, Sl [SSIComurri,"", SOPS, SA ESSlfm. SOPS. SA ESSI In,."timm'o, . SOps, SA ESSI, SOPS, SA

["mtion Nobl. &: Comp""y Unit.d EJ;«ution Nobl. (Hong Kong) limittd EJ;.cutionNobl. Hol<ltng, llC

E:l:t<Ution :-'obl. 10nit.d EJ;KUtion Nobl. Pri"ate 10nit.d E:l:t<UtionNobl. R".=ltlimit.d fl:\Iul!im"""do r"am,,!

fundo BESAb,olutt R.rum

Bn fundo d. In"" tim""o Multimmado :\Iod .... do (fomt.ly fundo BES Mul!im=ado) Fundo d. Cap;ul de Ri,co _ BES P:\IE Cap;tal <kowth

Fundo d. Capital d. Risco _ES \ '""u"" D fundo d. Capital d. Ri,co _ES \'ffituf" ill

fundofCRP:\IE / BES G"p..-Participa,ii", l,da G"p,,'of.SA, S.Gll.C ID.IE G"tOo Ho,pital"', S.A Ho,p;ul daA=bida _Gaia, SA

HO'pital daLuz_C",tto Clinico daAmadofa, SA Ho,pitaldaluz,SA

HO'pitalR,,;dincia do "'fa.-, SA HOSPOR _Ho,pitai' Ponugu"", SA

Hol<ltng company Hol<ltngcompany Hol<ltngcompany

Callctn'..-,,,,ic,,

Rtpf"",ution offie< Hol<ltngcootpany Hol<ltngcompany A"" m=g""tn' _ P.m;"", fund, A"" m=g""tn' _ Rul [''"'' fund, A"" monagtm.n, _ Mutual fund,

A""=g.m.n, A" .. manag.m"" Shar.d ,,,,ic,,

A"" !lWU.g"""" _ Mutual fund, Hol<ltngcootpany Hol<ltngcompany BfOhag. houst A"", =nag.men, _ P.m;om fund,

Shar.d ,mic"

R'l'""n,"tiono/lk. Rtpf"tnution o/lk. Sup<l",,,,ic.comp""y Hol<ltngcootpany In,>=nC '

Non-b=!.: finane . company

Sm.ic" pro"id!'f Hol<ltng company Hol<ltng company Hol<ltngcompany Hol<ltngcootpany H.alth=. Hol<ltng company A<h-i,Of)' onm\·"tm.n" lliohfD",I" Hol<ltng Company llio~!'fD.al ... Noactiviry Noa<tiI-i'y In,."tmrn, fund Con,ulting

In""tmen,Fund

V"'tuf. capital fund Vtntuf. capital fund \'tntufecapitolfund V.mur. capital fund Hol<ltng company A""monagtm.n, M.<hcal,,,,icn

M.dical.enic" :\i.<hcal • .,.,ic" M.<lical,.,.,.ic .. M. <hcal ,,,,ic,,

M.<lical,.,-,ic" [mtiruto d. Ro<liologiailf.ldZlio d. OIrI',n _C",tto d. Ro<liologia:\!i<hca, SAM.<hcal ,,,,ic,,

K.ySpa" Hung",,! Kft R",l-t,,",, lIfarignan G" tion SA

Noactiyity

LGCa,ioD

Portugal Holland

Hon""d SmgaponPortugal

U" Portugal luItmlxl"'ll Portugal Portugal Portugal Portugal

"m Portugal luxtmlxl"'ll Unit. dKingdom ~

ueland Spoin Portugal Uruguay &~

Portugal Portugal Spoin ,~

ueland Spain Portugal Portugal Portugal Portugal Portugal Unit.dKingdom Unit.dKingdom ~

Unit. dKingdom Smgapur Unite d Kingdom ~

Portugal &~

~

Portugal Portugal Portugal Portugal ,~

Spoin Portugal Portugal Portugal Portugal Portugal Portugal Portugal Hung",,! ,~.

Unit. dKingdom N""o S.,.,ic"LOnit.d NobleA<h-;, oryIn<Sa!'m'att l,d

NobleA,,":\ianag..--.limit. d Pro,-id" anzlytic. 'upport'o <kOUPf" Ufch India

Noble A"" :\fanag..--. Group limit. d Nobl. CO'l'Ofate Ad,-;,o,,!Inc.

Nobl. C"'I'Ofatt finan< e limit.d l\obl. f~Hol<ltng' 10nit.d Nobl. fundA<h-;,,,, 10nit.d

Nobl. fund :\lanagm l\omin .. limited (Non-tta<ltng)

Noble<kouplimit. d Noble Inv"tmtfl':\ianag..--. limit. d Nobl. Private Equity limitt d GRR Nobl. Se=riti" 10nit.d(Non Ta<ltng) l\obl. Vtntufe finane. G.mm! Partntf 10nit.d

Nobl. V<ntuf. lIfanagff51imit. d OBIOGCo",ulting SA

o...cl. fund:\1anagm hni"d BESV Couru.g. SA. (fomt.ly OLPI)

Par,urn _ Soci.dad. Unip." ool. SOPS PARlRA." SOPS, SA i'Ia,a do :\IMqui. _ S"'-;';o, Auxiliar." SA P.>to<\,id:a, S.A. d. S.huro, yR.astgufo, Quinta do, COn'go,_ Soci.dad. Imobiliaria, SA

R,\fl. _ R"idincio. M.dicaliuda d. 10Uf". SOPS. SA SEGUROSIOGOS.A SESIbtria,SA S1:\$ _ Soci ... L y"""-'li,e de :\fHchand, de Bi.", Soci.dad. G."o<>. do Ho,pital d. lour", SA Socii , . C"-iI. Immobili". <Iu~l Av..-ru. G,ofg«Mandel Surg;cu. _ Unidad" d. Saud., SA Tagid. Proptrti.,,1nc IRA.,\QUUIDAD[ _ Companhia d. S'gur<l' T=>quilidad. , S.A T_VID" Companhio. d. S'guro', SA Vila lU5rtono _ Unidad" d. s..ud., SA

Noactivity Noa<tiI-i'y No actility No octility Hol<ltng Company fund mam.g.mffi' actil-iti" Noactiyity

Hol<ltng Company Hol<ltng Comp""y Noa<tiI-i'y No actility No octility G.nrnll panntf fOf fund

Software denlopmrn' No ac,;,ity

In,·"tm.n' company Hol<ltngcootpany Hol<ltngcompany

Rul-","" In,=e.

R",l-"tat<

In,urnnc.

A""!lWU.g"""" R.al·","" M.<lical,.,-,ic"

Rul-",""

R",l-"tat< In,Ufanc . In,urnnc. M.<lical,.,.,.ic ..

Unit. dKingdom Unit. dKingdom mA Unit.dKingdom Unit.dKingdom Unit. dKingdom Unit. dKingdom Iili1" d. :\lan Unit. dKingdom Unit. dKingdom United Kingdom Unit.dKingdom Ihl.Jm.y Unit. dKingdom Portugal Unit.dKingdom ,~.

Portugal Portugal Portugal Portugal Portugal Portugal Portugal

"rn ,~.

Portugal ,~.

Portugal


JI.I1..1Gll

71J% 100.0%

loom~

100.0%

lOO.W .

lOO.W .

lOO.W .

100.0%

100.0% 100.0%

100.0%

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Page 11




Page 12

Applying SIC 12 as described in Note 2.2, the Group consolidation scope includes, as at 31 December 2011 and 2010, the following special purposes entities:

31.12.2011

SIGNUM, Ltd 05/14/12 2001 Cayman Islands Special Purpose Entity 54.80% Full consolidation


Lusitano SME No.1 plc (*) 2006 Ireland Special Purpose Entity 100% Full consolidation

Lusitano Mortgages No.6 plc (*) 2007 Ireland Special Purpose Entity 100% Full consolidation

Lusitano Project Finance No.1 plc (*) 2007 Ireland Special Purpose Entity 100% Full consolidation


FIMOGES - Sociedade Gestora de Fundos de Investimento Imõbiliario, S.A.

2008 Ireland Special Purpose Entity 99.10% Full consolidation

Lusitano Leverage finance No. 1 BV (*) 2010 Portugal Special Purpose Entity 100% Full consolidation

Lusitano SME No.2 (*) 2010 Netherland Special Purpose Entity 100% Full consolidation

Lusitano Finance No.3 (*) 2011 Portugal Special Purpose Entity 100% Full consolidation

IM BES Empresas 1 (*) 2011 Spain Special Purpose Entity 100% Full consolidation

31.12.2010

ATAR Investments, Ltd 2001 Jersey Special Purpose Entity 50.20% Full consolidation

ELAN, Ltd 2003 Jersey Special Purpose Entity 100% Full consolidation

SB Finance, Ltd 2001 Cayman Islands Special Purpose Entity 100% Full consolidation



ARLO II, Ltd 2003 Cayman Islands Special Purpose Entity 100% Full consolidation

NAVIO 0 05/10/11 HERZOG 2001 Jersey Special Purpose Entity 100% Full consolidation

NAVIO 0 05/10/11 KHAN 2001 Jersey Special Purpose Entity 100% Full consolidation

NAVIO 0 05/10/11 ITAMI 2001 Jersey Special Purpose Entity 99.93% Full consolidation

Lusitano SME No.1 plc (*) 2006 Ireland Special Purpose Entity 100% Full consolidation


Lusitano Project Finance No.1 plc (*) 2007 Ireland Special Purpose Entity 100% Full consolidation


Fundo Especial de Investimento Imobiliário Fechado (Fundes)

2008 Portugal Special Purpose Entity 99.10% Full consolidation

Lusitano Leverage Finance No. 1 BV (*) 2010 Portugal Special Purpose Entity 100% Full consolidation

Lusitano SME No.2 (*) 2010 Netherland Special Purpose Entity 100% Full consolidation

(*) Entities set-up in the scope of securitisation transactions (See Note 50).

Consolidation methodActivity

% economic interestEstablished Headquartered

Established Headquartered Activity% economic

interestConsolidation

method




Page 13

The main changes in the Group structure that occurred during 2011 are highlighted as follows: — Subsidiaries

• In May 2011, occurred the merger of Gespastor, SA in Espirito Santo Gestión, SA. • In December 2011, BES acquired an additional 30.70% of the capital of ES Concessões, by an amount of euro

25 500 thousand, increasing its shareholding to 71.66%; • In December 2011, ESAF sold the entire share capital position it had in ESAF Alternative Asset Management,

Ltd; • In December 2011, ES Bank acquired 14.9% of ES Financial Services to Banque Privée Espirito Santo,

becoming to hold the entire share capital of that entity; • In December 2011, BES acquired 5% of ESAF – Espírito Santo Activos Financeiros, S.G.P.S. to Companhia de

Seguros Tranquilidade, becoming to hold 90% of its share capital; • In December 2011, BESI increased its participation in ES Investment Holding Limited, becoming to hold

65.40% of its share capital; • During the year ended 31 December 2011 the following movements occurred in the shareholding position of

the Group in BES: (i) acquisition during the first semester of an additional interest of 0.14% through the acquisition, in the market, of 1 683 451 BES shares; (ii) dilution of approximately 6.11% due to the capital increase resulting from BES exchange offer, which took place from 14 to 30 November; (iii) acquisition of an additional interest of 2.25% through the acquisition in the market, in December, of 47 480 259 BES shares. The impact of these transactions in consolidated financial statements of the Group can be analysed in Note 55.

— Associates (see Note 33)

• In January 2011, BES ÁFRICA acquired 25.1% of Moza Banco, SA, a mozambican bank; • In February 2011, following the capital increase of Watson Brown HSM, Ltd, FCR Ventures III Fund became

to hold 27.57% of its share capital, and started to consolidate this entity under the equity method;

• In July and September 2011, ES Tech Ventures invested in the Funds FCR Espírito Santo Ventures Inovação e Internacionalização and Fundo Bem Comum, FCR, respectively, holding 50% and 20% of their capital, which started to be included in the Group’s Consolidation perimeter;

• In December 2011, it was set up the leasing company Ijar Leasing Algérie, under a partnership with Banque

Extérieure d’ Algérie, being this entity held by Banque Extérieure d’Algérie for 65% and BES Group for 35%.

The main changes in the Group structure that occurred during 2010 are highlighted as follows: — Subsidiaries

• In April 2010, the Group acquired 40% of Aman Bank for Commerce and Investment Stock Company (Aman Bank), a privately owned Bank in Libya with its registered office in Tripoli, representing a total investment of euro 40.3 million. This entity is fully consolidated, as the Group has management control of Aman Bank (see Note 55);

• In June 2010, Banco Espírito Santo Cabo Verde was incorporated with a share capital of euro 13 million, of

which 99.99% is held by BES África;

• In November 2010, BESI acquired a 50.1% indirect participation in Execution Holdings Limited for euro 58.2 million. The Group has effective management control over this entity and therefore fully consolidates it the date of acquisition (see Note 55);

• In November the Group sold the participation it had in Kutaya and generated a realised loss of euro 0.1 million;




Page 14

• In December 2010, the spanish subsidiary of BES, ESAF-Espírito Santo Activos Financieros, finalized the acquisition of the total share capital of Gespastor SGIIC, an asset management company from Banco Pastor (Spain), through Espírito Santo Gestion, SGIIC. This entity is fully consolidated since the date of acquisition (see Note 55);

• In December 2010 Tranquilidade finalized the acquisition from Banco Pastor (Spain) of 50% of Pastor Vida

S.A, de Seguros y Reaseguros in Spain. The Group has effective management control of Pastor Vida and therefore fully consolidated it from the date of acquisition (see Note 55);

• During 2010, the Group acquired an additional 0.82% of the share capital of BES. The impact of this

acquisition are analysed in Note 55. — Associates (see Note 33)

• In March 2010, following the bankruptcy process of Qimonda, the Group acquired 41.06% of Nanium, SA;

• In March 2010 ES Concessões acquired 50% of Auvisa — Autovia de los Viñedos share capital;

• In June 2010, with the acquisition of an additional 8.41% of UNICRE — Instituição Financeira de Crédito, S.A., the Group increased its shareholding to 17.50%. Due to the significant influence that the Group now holds in relation to its management, this entity has been classified as an associate. At the date of the first application of the equity method, a gain of euro 7 437 thousand has been recognised, related to the revaluation of the participation previously held, in accordance with the accounting policy described in Note 2.2 (euro 2 213 thousand net of non-controlling interest);

• In June 2010, further to a change in the shareholder’s structure of AQUASPY Group Pty Limited, the Group

ceased to have a significant influence in the management of this entity, and consequently excluded this entity from the scope of consolidation;

• In July 2010, ES Concessões acquired 22.38% of Scutvias — Autoestradas de Beira Interior, SA and of

Portvias — Portagem de Vias, SA, for respectively, euro 50.7 million and euro 11 million. Those entities are included in the scope of consolidation of the Group;

• In July 2010, the Group sold the participation held in Neumáticos Andrés Investments, SA, generating a

realized gain of euro 3 559 thousand (euro 1 072 thousand net of non-controlling interest);

• In December 2010, BESI acquired 23.7% of the share capital of Salgar Invesments for euro 5.3 million, thus increasing its participation to 47.28%;

• In December 2010, ES Concessões acquired 40% of Ascendi Group SGPS, SA, through the contribution in kind of shares of Ascendi Beira Litoral e Alta, Ascendi Grande Porto, Ascendi Costa de Prata and Aenor for a total of euro 163.3 million and recognized a goodwill of euro 42 964 thousand. Within this operation, the ES Concessões sold the participation it had in Ascendi SGPS, SA.




Page 15

During the years 2011 and 2010, the movements on acquisitions, disposals and other investments in subsidiaries and associated companies are as follows:

31.12.2011Acquisitions Disposals / Liquidations

Acquisition priceOther

investments (a) Total Sale priceOther

reimbursementsTotal

Gain/(loss) on disposal/

liquidation

Net of non-controlling

interest


SubsidiariesESAF - Espírito Santo Activos Financeiros, S.G.P.S. 13 189 - 13 189 - - - - - ESAF - Alternative Asset Management, Ltd - - - ( 1 305) - ( 1 305) 1 305 345 Execution Noble 23 943 - 23 943 - - - - - ES Concessões 808 24 692 25 500 - - - - - BES, S.A. 59 934 - 59 934 - - - - -

97 874 24 692 122 566 ( 1 305) - ( 1 305) 1 305 345 Associates

BES Vida - 62 500 62 500 - - - - - Banca Tre Venitia 1 250 - 1 250 - - - - - DASSA (b) - 6 348 6 348 - - - - - CFCA - 1 300 1 300 - - - - - HL - SGE - 796 796 - - - - - Moza Banco 8 018 1 782 9 800 - - - - - Watson Brown (b) 68 2 938 3 006 - - - - - Ijar Leasing Algérie 12 361 - 12 361 - - - - - Ascendi Group - 4 969 4 969 - - - - - Rua Bonita - - - - ( 818) ( 818) - - Global Active - 87 87 - - - - - FCR ES Ventures Inovação e Internacionalização 5 000 - 5 000 - - - - - Fundo Bem Comum, FCR 500 - 500 - - - - - Autopista Perote-Xalapa - 1 622 1 622 - - - - - Ydreams - 352 352 - - - - - Nutrigreen - - - - - - - - Domática 1 000 - 1 000 - ( 1 500) ( 1 500) - -

28 197 82 694 110 891 - ( 2 318) ( 2 318) - -

126 071 107 386 233 457 ( 1 305) ( 2 318) ( 3 623) 1 305 345

(a) Cap ital increase and loans to companies in which th e group has an interest.

(b) Included previous ly in Avai lable-for-sale financial assets

31.12.2010Acquisitions Disposals / Liquidations

Acquisition priceOther

investments (a) Total Sale priceOther

reimbursementsTotal

Gain/(loss) on disposal/

liquidation

Net of non-controlling

interest


SubsidiariesAMAN Bank 24 275 15 994 40 269 - - - - - BES ÁFRICA - 14 100 14 100 - - - - - BES Cape Verde 12 995 - 12 995 - - - - - Gespastor 25 354 - 25 354 - - - - - Espírito Santo Activos Financieros - 15 000 15 000 - - - - - Kutaya - - - - - - ( 122) ( 37)Pastor Vida 79 646 - 79 646 - - - - - Execution Holdings 58 165 - 58 165 - - - - - AOC Participations 44 - 44 - - - - - BES, S.A. 33 259 - 33 259 - - - - -

233 738 45 094 278 832 - - - ( 122) ( 37)Associates

Ascendi Group, SGPS 163 341 - 163 341 - - - - - SCUTVIAS 50 669 - 50 669 - - - - - Auvisa 41 056 - 41 056 - - - - - Unicre 10 929 568 11 497 - - - - - Nanium 1 481 6 159 7 640 - - - - - Salgar Investments 5 268 - 5 268 - - - - - Banco Delle Tre Venezie - 3 651 3 651 - - - - - PT Prime Tradecom - 2 015 2 015 - - - - - TLCI 2 - 1 835 1 835 - - - - - Ydreams - 1 270 1 270 - - - - - Ascendi Beira Litoral e Alta - - - ( 77 030) ( 761) ( 77 791) 16 695 5 030 Ascendi Grande Porto - - - ( 54 391) ( 369) ( 54 760) 18 073 5 445 Ascendi Costa de Prata - - - ( 22 637) - ( 22 637) 6 196 1 867 Empark - - - ( 7 136) - ( 7 136) - - Neumáticos Andrés Investments, S.A. - - - ( 5 660) - ( 5 660) 3 559 1 072 Agrilink (Aquaspy) - - - - ( 3 573) ( 3 573) - - Ascendi - Concessões de Transportes - - - ( 2 400) - ( 2 400) 2 000 603 Other 1 592 2 989 4 581 - ( 652) ( 652) - -

274 336 18 487 292 823 ( 169 254) ( 5 355) ( 174 609) 46 523 14 017

508 074 63 581 571 655 ( 169 254) ( 5 355) ( 174 609) 46 401 13 980

(a) Capital increase and loans to companies in which the group has non-controlling interest.




Page 16

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

2.1. Basis of preparation and statement of compliance In accordance with Regulation (EC) no. 1606/2002 of 19 July 2002 from the European Council and Parliament, Espírito Santo Financial Group S.A. (“ESFG” or “the Company”) is required to prepare its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). IFRS comprise accounting standards issued by the International Accounting Standards Board (“IASB”) and its predecessor body as well as interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and its predecessor body. These consolidated financial statements as at and for the year ended 31 December 2011 were prepared in accordance with the IFRS effective and adopted by the EU until 31 December 2011. The accounting policies applied by the Group in the preparation of its consolidated financial statements as at 31 December 2011 are consistent with the ones used in the preparation of the consolidated financial statements as at and for the year ended 31 December 2010, except for the application of the corridor method, as explained in the following paragraph. However, as allowed under paragraph 93A of IAS 19 “Employee Benefits”, in 2011 the Group changed its accounting policy related to actuarial gains and losses arising from its post employment benefits. Up to 2010, the group applied the corridor method which established that the actuarial gains and losses accumulated at the beginning of the year exceeding the greater of 10% of the pension liabilities or the fair value of plan assets, were charged to the income statement over a period not exceeding the remaining working lives of the employees. From 2011 actuarial gains and losses are charged to equity in the year they arise, under other comprehensive income. The effect from the change in the accounting policy is analysed in Note 54. In addition and as described in Note 56, in the preparation of the consolidated financial statements as at 31 December 2011, the Group adopted the accounting standards issued by the IASB and the interpretations issued by the IFRIC effective since 1 January 2011. The accounting principles used by the Group in the preparation of these consolidated financial statements, described in this Note, were modified accordingly. The adoption of these new standards and interpretations by the Group had no material impact in the Group consolidated financial statements. The accounting standards and interpretations recently issued but not yet effective and that the Group has not yet adopted in the preparation of its financial statements are disclosed in Note 56. These consolidated financial statements are expressed in thousands of euro, except when indicated, and have been prepared under the historical cost convention, except for the assets and liabilities accounted at fair value, namely, derivative contracts, financial assets and financial liabilities at fair value through profit or loss, available-for-sale financial assets, investment properties and recognised assets and liabilities that are hedged, in a fair value hedge, in respect of the risk that is being hedged. The preparation of financial statements in conformity with IFRS requires the application of judgment and the use of estimates and assumptions by management that affects the process of applying the Group’s accounting policies and the reported amounts of income, expenses, assets and liabilities. Actual results in the future may differ from those reported. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. These consolidated financial statements were approved in the Board of Directors meeting held on 15 March 2012. These financial statements are subject to the shareholders approval on the General Assembly, to be held on 27 April 2012.




Page 17

2.2. Basis of consolidation These consolidated financial statements comprise the financial statements of Espírito Santo Financial Group S.A. and its subsidiaries (“the Group”), and the results attributable to the Group from its associates. These accounting policies have been consistently applied by the Group companies, during all the periods covered by the consolidated financial statements. Subsidiaries Subsidiaries are entities over which the Group exercises control. Control is presumed to exist when the Group owns more than one half of the voting rights. Additionally, control also exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of the entity, so as to obtain benefits from its activities, even if its shareholding is less than 50%. Subsidiaries are fully consolidated from the date on which control is transferred to the Group until the date that control ceases. Accumulated losses of a subsidiary are attributed proportionally to the owners of the parent and to the non-controlling interest even if this results in non-controlling interest having a deficit balance. In a business combination achieved in stages (step acquisition) where control is obtained, the Group remeasures its previously held non-controlling interest in the acquire at its acquisition date fair value and recognises the resulting gain or loss in the income statement when determining the respective goodwill. At the time of a partial sale, from which arises a loss of control of a subsidiary, any remaining non-controlling interest retained is remeasured to fair value at the date the control is lost and the resulting gain or loss is recognised against the income statement. Associates Associates are entities over which the Group has significant influence over the company’s financial and operating policies but not its control. Generally when the Group owns more than 20% of the voting rights it is presumed that it has significant influence. However, even if the Group owns less than 20% of the voting rights, it can have significant influence through the participation in the policy-making processes of the associated entity or the representation in its executive board of directors. Investments in associates are accounted for under the equity method of accounting from the date on which significant influence is transferred to the Group until the date that significant influence ceases. The book value of the investments in associates includes the value of the respective goodwill determined on acquisition and is presented net of impairment losses. In a step acquisition that results in the Group obtaining significant influence over an entity, any previously held stake in that entity is remeasured to fair value through the income statement when the equity method is first applied. If the Group’s share of losses of an associate equals or exceeds its interest in the associate, including any long-term interest, the Group discontinues the application of the equity method, except when it has a legal or constructive obligation of covering those losses or has made payments on behalf of the associate. Gains or losses on sales of shares in associate companies are recognised in the income statement even if that sale does not result in the loss of significant influence. Special purpose entities (“SPE”) The Group consolidates certain special purpose entities (“SPE”), specifically created to accomplish a narrow and well defined objective, when the substance of the relationship with those entities indicates that they are controlled by the Group, independently of the percentage of the equity held. The evaluation of the existence of control is made based on the criteria established by SIC 12 — Consolidation — Special Purpose Entities, which can be summarised as follows:

• In substance, the activities of the SPE are being conducted in accordance with the specific needs of the Group’s business, so that the Group obtains the benefits from these activities;




Page 18

• In substance the Group has the decision-making powers to obtain the majority of the benefits from the activities

of the SPE;

• In substance, the Group has rights to obtain the majority of the benefits of the SPE, and therefore may be exposed to the inherent risks of its activities;

• In substance, the Group retains the majority of residual or ownership risks related to the SPE so as to obtain the

benefits from its activities. Investment funds managed by the Group As part of the asset management activity, the Group manages investment funds on behalf of the holders of the participation units. The financial statements of these funds are not consolidated by the Group except in the cases where control is exercised over its activity based on the criteria established by SIC — 12. Goodwill Goodwill resulting from business combinations that occurred until 1 January 2004 was offset against reserves, according to the option granted by IFRS 1, adopted by the Group on the date of transition to the IFRS. Goodwill resulting from business combinations that occurred from 1 January 2004 until 31 December 2009 was accounted under the purchase method. The cost of acquisition was measured as the fair value, determined at the acquisition date, of the assets and equity instruments given and liabilities incurred or assumed plus any costs directly attributable to the acquisition. Goodwill represented the difference between the cost of acquisition and the fair value of the Group’s share of identifiable net assets, liabilities and contingent liabilities acquired. For acquisitions on or after 1 January 2010, the Group measures goodwill as the fair value of the consideration transferred including the fair value of any previously held non-controlling interests in the acquire, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Transaction costs are expensed as incurred. At the acquisition date, the non-controlling interest are measured at their proportionate interest in the fair value of the net identifiable assets acquired and of the liabilities assumed, without the correspondent portion of goodwill. As a result, the goodwill recognised in these consolidated financial statements corresponds only to the portion attributable to the equity holders of the Company. In accordance with IFRS 3 — Business Combinations, goodwill is recognised as an asset at its cost and is not amortised. Goodwill relating to the acquisition of associates is included in the book value of the investment in those associates determined using the equity method. Negative goodwill is recognised directly in the income statement in the period the business combination occurs. The recoverable amount of the goodwill recognised as an asset is reviewed annually, regardless of whether there is any indication of impairment. The recoverable amount corresponds to the higher of the fair value less costs to sell and the respective value in use. In determining value in use, estimated futures cash flows are discounted using a rate that reflects market conditions, time value of money and business risks. Impairment losses are recognised directly in the income statement. Transactions with non-controlling interest Acquisitions of non-controlling interest are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such a transaction. Any difference between the consideration paid and the amount of non-controlling interest acquired is accounted for as a movement in equity. Similarly, sales of non-controlling interest and dilutions from which does not result a loss of control, are accounted for as transactions with equity holders in their capacity as equity holders and therefore no gain or loss is recognised in the income statement. Any difference between the sale proceeds and the recognised amount of non-controlling interest in the consolidated financial statements is accounted for as a movement in equity.




Page 19

Gains or losses on a dilution or on a sale of a portion of an interest in a subsidiary, from which results a loss of control, are accounted for by the Group in the income statement. Foreign currency translation The financial statements of each of the Group entities are prepared using their functional currency which is defined as the currency of the primary economic environment in which that entity operates. The consolidated financial statements are prepared in euro, which is ESFG’s functional and presentation currency. The financial statements of each of the Group entities that have a functional currency different from the euro are translated into euro as follows:

• Assets and liabilities are translated into the functional currency using the exchange rate prevailing at the balance sheet date;

• Income and expenses are translated into the functional currency at rates approximating the rates ruling at the

dates of the transactions;

• The exchange differences resulting from the translation of the equity at the beginning of the year using the exchange rates at the beginning of the year and at the balance sheet date are accounted for against reserves net of deferred taxes. The exchange differences arising from the translation of income and expenses at the rates ruling at the dates of the transactions and at the balance sheet date are accounted for against reserves. When the entity is sold such exchange differences are recognised in the income statement as a part of the gain or loss on sale.

Balances and transactions eliminated in consolidation Inter-company balances and transactions, including any unrealised gains and losses on transactions between Group companies, are eliminated in preparing the consolidated financial statements, unless unrealised losses provide evidence of an impairment loss that should be recognised in the consolidated financial statements. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment loss. 2.3. Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to euro at the foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to euro at the foreign exchange rates ruling at the dates the fair value was determined. The resulting exchange differences are accounted for in the income statement, except if related to equity instruments classified as available-for-sale, which are accounted for in equity, within the fair value reserve. 2.4. Derivative financial instruments and hedge accounting

Classification

Derivatives for risk management purposes include (i) hedging derivatives and (ii) derivatives used to manage the risk of certain financial assets and financial liabilities designated at fair value through profit or loss that were not classified as being hedging derivatives.

All other derivatives are classified as trading derivatives. Derivatives traded in organized markets, namely futures and some options, are recognised as trading derivatives, being




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marked to market on a daily basis and the resulting gains or losses recognised directly in the income statement. Once the fair value changes on these derivatives are settled daily through the margin accounts held by the Group, these derivatives do not present any fair value on the balance sheet. The margin accounts are included under the caption Other assets and comprise the minimum collateral mandatory for the open positions.

Recognition and measurement

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into (trade date). Subsequent to initial recognition, the fair value of derivative financial instruments is re-measured on a regular basis and the resulting gains or losses on re-measurement are recognised directly in the income statement, except for derivatives designated as hedging instruments. The recognition of the resulting gains or losses of the derivatives designated as hedging instruments depends on the nature of the risk being hedged and of the hedge model used. Fair values are obtained from quoted market prices, in active markets, if available or are determined using valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Hedge accounting

• Classification criteria Hedge accounting is used for derivative financial instruments designated as hedging instruments, provided the following criteria are met:

(i) At the inception of the hedge, the hedge relationship is identified and documented, including the identification of the hedged item and of the hedging instrument and the evaluation of the effectiveness of the hedge;

(ii) The hedge is expected to be highly effective, both at the inception of the hedge and on an ongoing basis;

(iii) The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing

basis;

(iv) For cash flows hedges, the cash flows are highly probable of occurring.

• Fair value hedge In a fair value hedge, the book value of the hedged asset or liability, determined in accordance with the respective accounting policy, is adjusted to reflect the changes in its fair value that are attributable to the risks being hedged. Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk being hedged. If the hedge no longer meets the criteria for hedge accounting, the derivative financial instrument is transferred to the trading portfolio and the hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortised to the income statement over the period to maturity.

• Cash flow hedge When a derivative financial instrument is designated as a hedge of the variability in highly probable future cash flows, the effective portion of changes in the fair value of the hedging derivatives is recognised in equity. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect the income statement. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognised in equity at that time is recognised in the income statement when the hedged transaction also affects the income statement. When a hedged transaction is no longer expected to occur, the cumulative gain or loss reported in equity is recognised immediately in the income statement and the hedging instrument is reclassified for the trading portfolio.




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During the periods covered by these financial statements, the Group did not have any transactions classified as cash flow hedge. Embedded derivatives Derivatives that are embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. 2.5. Loans and advances to customers Loans and advances to customers include loans and advances originated by the Group, which are not intended to be sold in the short term. Loans and advances to customers are recognised when cash is advanced to borrowers. Loans and advances to customers are derecognised from the balance sheet when (i) the contractual rights to receive their cash flows have expired, (ii) the Group has transferred substantially all risks and rewards of ownership or (iii) although retaining some but not substantially all of the risks and rewards of ownership, the Group has transferred the control over the assets. Loans and advances to customers are initially recorded at fair value plus transaction costs and are subsequently measured at amortised cost, using the effective interest rate method, less impairment losses. In accordance with the documented strategy for risk management, the Group contracts derivative financial instruments to manage certain risks of a portion of the loan portfolio, without applying, however, the provisions of hedge accounting as mentioned in Note 2.4. These loans are measured at fair value through profit or loss, in order to eliminate a measurement inconsistency resulting from measuring loans and derivatives for risk management purposes on different basis (accounting mismatch). This procedure is in accordance with the accounting policy for classification, recognition and measurement of financial assets at fair value through profit or loss, as described in Note 2.6. Impairment The Group assesses, at each balance sheet date, whether there is objective evidence of impairment within its loan portfolio. Impairment losses identified are recognised in the income statement and are subsequently reversed through the income statement if, in a subsequent period, the amount of the impairment losses decreases. A loan or a loan portfolio, defined as a group of loans with similar credit risk characteristics, is impaired when: (i) there is objective evidence of impairment as a result of one or more events that occurred after its initial recognition and (ii) that event (or events) has an impact on the estimated future cash flows of the loan or of the loan portfolio, that can be reliably estimated. The Group first assesses whether objective evidence of impairment exists individually for each loan. In this assessment the Group uses the information that feeds the credit risk models implemented and takes into consideration the following factors:

• the aggregate exposure to the customer and the existence of non-performing loans;

• the viability of the customer’s business model and its capability to trade successfully and to generate sufficient cash flow to service their debt obligations;

• the extent of other creditors’ commitments ranking ahead of the Group;

• the existence, nature and estimated realisable value of collaterals;

• the exposure of the customer within the financial sector;

• the amount and timing of expected recoveries.

When loans have been individually assessed and no evidence of loss has been identified, these loans are grouped together on the basis of similar credit risk characteristics for the purpose of evaluating the impairment on a portfolio




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basis (collective assessment). Loans that are assessed individually and found to be impaired are not included in a collective assessment for impairment. If an impairment loss is identified on an individual basis, the amount of the impairment loss to be recognised is calculated as the difference between the book value of the loan and the present value of the expected future cash flows (considering the recovery period), discounted at the original effective interest rate. The carrying amount of impaired loans is reduced through the use of an allowance account. If a loan has a variable interest rate, the discount rate for measuring the impairment loss is the current effective interest rate determined under the contract rules. The changes in the recognised impairment losses attributable to the unwinding of discount are recognised as interest and similar income. The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral. For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics, taking in consideration the Group’s credit risk management process. Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Group and historical loss experience. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group with the purpose of reducing any differences between loss estimates and actual loss experience. When a loan is considered by the Group as uncollectible and an impairment loss of 100% was recognised, it is written off against the related allowance for loan impairment. Subsequent recoveries of amounts previously written off decrease the amount of the loan impairment loss recognised in the income statement. 2.6. Other financial assets Classification The Group classifies its other financial assets at initial recognition in the following categories:

• Financial assets at fair value through profit or loss This category includes: (i) financial assets held for trading, which are those acquired principally for the purpose of selling in the short term or that are owned as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking and (ii) financial assets that are designated at fair value through profit or loss at inception. The Group classifies, at inception, certain financial assets at fair value through profit or loss when:

• Such financial assets are managed, measured and their performance evaluated on a fair value basis;

• Such financial assets are being hedged (on an economical basis), in order to eliminate an accounting mismatch; or

• Such financial assets contain an embedded derivative.

The structured products acquired by the Group corresponding to financial instruments containing one or more embedded derivatives meet the above mentioned conditions, and, in accordance, are classified under the fair value through profit or loss category.

• Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold until its maturity and that are not classified, at inception, as at fair value through profit or loss or as available-for-sale.




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• Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets (i) intended to be held for an indefinite period of time, (ii) designated as available-for-sale at initial recognition or (iii) that are not classified in the other categories referred to above. Initial recognition, initial measurement and derecognition Purchases and sales of: (i) financial assets at fair value through profit or loss, (ii) held-to-maturity investments and (iii) available-for-sale financial assets are recognised on trade date — the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, in which case these transaction costs are directly recognised in the income statement. The best evidence of the fair value of the instrument at inception is deemed to be the transaction price. However, in particular circumstances, the fair value of a financial instrument at inception, determined based on a valuation technique, may differ from the transaction price, namely due to the existence of a built-in fee, originating a day one profit. The Group recognises in the income statement the gains arising from the built-in fee (day one profit), generated, namely, on the trading of derivative and foreign exchange financial products, considering that the fair value of these instruments at inception and on subsequent measurements is determined only based on observable market data and reflects the Group access to the wholesale market. Financial assets are derecognised when (i) the contractual rights to receive their cash flows have expired, (ii) the Group has transferred substantially all risks and rewards of ownership or (iii) although retaining some but not substantially all of the risks and rewards of ownership, the Group has transferred the control over the assets. Subsequent measurement Financial assets at fair value through profit or loss are subsequently carried at fair value and gains and losses arising from changes in their fair value are included in the income statement in the period in which they arise. Available-for-sale financial assets are also subsequently carried at fair value. However, gains and losses arising from changes in their fair value are recognised directly in equity, until the financial assets are derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Foreign exchange differences arising from equity investments classified as available-for-sale are also recognised in equity, while foreign exchange differences arising from debt investments are recognised in the income statement. Interest, calculated using the effective interest rate method and dividends are recognised in the income statement. Held-to-maturity investments are carried at amortised cost using the effective interest rate method, net of any impairment losses recognised. The fair values of quoted investments in active markets are based on current bid prices. For unlisted securities the Group establishes fair value by using (i) valuation techniques, including the use of recent arm’s length transactions, discounted cash flow analysis and option pricing models and (ii) valuation assumptions based on market information. Reclassifications between categories The Group only reclassifies non-derivative financial assets with fixed or determinable payments and fixed maturities, from the available-for-sale financial assets category to the held-to-maturity investments category, if it has the intention and ability to hold those financial assets until maturity. Reclassifications between these categories are made at the fair value of the assets reclassified on the date of the reclassification. The difference between this fair value and the respective nominal value is recognised in the income statement until maturity, based on the effective interest rate method. The fair value reserve at the date of the reclassification is also recognised in the income statement, based on the effective interest rate method.




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Impairment The Group assesses periodically whether there is objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence of impairment, the recoverable amount of the asset is determined and impairment losses are recognised through the income statement. A financial asset or a group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after their initial recognition, such as: (i) for equity securities, a significant or prolonged decline in the fair value of the security below its cost, and (ii) for debt securities, when that event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. For held-to-maturity investments, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (considering the recovery period) discounted at the financial asset’s original effective interest rate. The carrying amount of the impaired assets is reduced through the use of an allowance account. If a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. For held-to-maturity investments if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through the income statement. If there is objective evidence that an impairment loss on available-for-sale financial assets has been incurred, the cumulative loss recognised in equity — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement — is taken to the income statement. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognised impairment loss is reversed through the income statement up to the acquisition cost if the increase is objectively related to an event occurring after the impairment loss was recognised, except in relation to equity instruments, in which case the reversal is recognised in equity. 2.7. Sale and repurchase agreements Securities sold subject to repurchase agreements (‘repos’) at a fixed price or at the sales price plus a lender’s return are not derecognised. The corresponding liability is included in amounts due to banks or to customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest rate method. Securities purchased under agreements to resell (‘reverse repos’) at a fixed price or at the purchase price plus a lender’s return are not recognised, being the purchase price paid recorded as loans and advances to banks or customers, as appropriate. The difference between purchase and resale price is treated as interest and accrued over the life of the agreements using the effective interest rate method. Securities lent under lending agreements are not derecognised being classified and measured in accordance with the accounting policy described in Note 2.6. Securities borrowed under borrowing agreements are not recognised in the balance sheet. 2.8. Financial liabilities An instrument is classified as a financial liability when it contains a contractual obligation to transfer cash or another financial asset, independently from its legal form. Non-derivatives financial liabilities include deposits from banks and due to customers, loans, debt securities, subordinated debt and short sales. Preference shares issued are considered to be financial liabilities when the Group assumes the obligation of reimbursement and/or to pay dividends. The financial liabilities are recognised (i) initially at fair value less transaction costs and (ii) subsequently at amortised cost, using the effective interest rate method, except for short sales and financial liabilities designated at fair value through profit or loss, which are measured at fair value.




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The Group designates, at inception, certain financial liabilities as at fair value through profit or loss when:

• Such financial liabilities are being hedged (on an economical basis), in order to eliminate an accounting mismatch; or

• Such financial liabilities contain embedded derivatives.

The structured products issued by the Group meet the above mentioned conditions and, in accordance, are classified under the fair value through profit or loss category. The fair value of quoted financial liabilities is based on the current price. In the absence of a quoted price, the Group establishes the fair value by using valuation techniques based on market information, including the own credit risk of the issuer. If the Group repurchases debt issued, it is derecognised from the balance sheet and the difference between the carrying amount of the liability and its acquisition cost is recognised in the income statement. 2.9. Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument, namely the payment of principal and/or interests. Financial guarantees are initially recognised in the financial statements at fair value on the date that the guarantee is issued. Subsequently financial guarantees are measured at the higher of (i) the fair value recognised on initial recognition or (ii) any financial obligation arising as a result of the guarantees at the balance sheet date. Any increase in the liability relating to guarantees is taken to the income statement. The financial guarantee contracts issued by the Group normally have a stated maturity date and a periodic fee, usually paid in advance on a quarterly basis. This fee varies depending on the counterparty risk, the amount and the time period of the contract. Therefore, the fair value of the financial guarantee contracts issued by the Group, at the inception date, equal the initial fee received, which is recognised in the income statement over the period to which it relates. The subsequent periodic fees are recognised in the income statement in period to which they relate. 2.10. Equity instruments An instrument is classified as an equity instrument when it does not contain a contractual obligation to deliver cash or another financial asset, independently from its legal form, being a contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Transaction costs directly attributable to the issue of equity instruments are recognised under equity as a deduction from the proceeds. Amounts paid or received related to acquisitions or sales of equity instruments are recognised in equity, net of transaction costs. Distributions to holders of an equity instrument are debited directly to equity as dividends, when declared. Preference shares issued are considered as equity instruments if the Group has no contractual obligation to redeem and if dividends, non cumulative, are paid only if and when declared by the Group. 2.11. Compound financial instruments Non-derivative financial instruments that contain both a liability and an equity component (e.g. convertible bonds and bonds issued with warrants) are classified as compound financial instruments. For these instruments to be considered as compound financial instruments, the number of shares to be issued upon conversion is determined at the date of issue and does not vary with changes in their fair value. The liability component corresponds to the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option. The equity component corresponds to the difference between the proceeds of the issue and the amount attributed to the liability. The interest expense recognised in the income statement is calculated using the effective interest method.




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2.12. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 2.13. Non-current assets held for sale Non-current assets or disposal groups (groups of assets to be disposed of together and related liabilities that include at least a non-current asset) are classified as held for sale when their carrying amounts will be recovered principally through sale (including those acquired exclusively with a view to its subsequent disposal), the assets or disposal groups are available for immediate sale and is highly probable. Immediately before classification as held for sale, the measurement of the non-current assets or all assets and liabilities in a disposal group, is brought up to date in accordance with the applicable IFRS. Subsequently, these assets or disposal group are measured at the lower of their carrying amount or fair value less costs to sell, determined annually in accordance with the applicable IFRS. In the scope of its activity, the Group incurs in the risk from failure of the borrower to repay all the amounts due. In case of loans and advances with mortgage collateral, the Group acquires the asset held as collateral in exchange for loans. In accordance with the requirements of Regime Geral das Instituições de Crédito e Sociedades Financeiras (RGICSF), banks are prevented from acquiring property that is not essential to their daily operations (article 112.o of the DL 298/92 of 31st December and subsequent amendments) being able to acquire, however, property in exchange for loans. This property must be sold within 2 years, period that may be extended by written authorization from the Bank of Portugal and in conditions to be determined by this authority (art.114o). It is Group’s objective to immediately dispose all property acquired in exchange for loans. This property is classified as non-current assets held-for-sale and is initially recognised at the lower of its fair value less costs to sell and the carrying amount of the loans. Subsequently, this property is measured at the lower of its carrying amount and the corresponding fair value less costs to sell and is not depreciated. Any subsequent write-down of the acquired property to fair value is recorded in the income statement. The value of non-current assets held for sale is periodically reviewed by the Group based on valuations performed by experts. 2.14. Property and equipment Property and equipment are measured at cost less accumulated depreciation and impairment losses. At the transition date to IFRS, 1 January 2004, the Group elected to consider as deemed cost, the revalue amount of property and equipment as determined in accordance with previous accounting policies of the Group, which was broadly similar to depreciated cost measured under IFRS, adjusted to reflect changes in a specific price index. The value includes expenditure that is directly attributable to the acquisition of the items. In relation to the insurance activity, the Group decided to consider as deemed cost of its buildings for own use the fair value at transition date. Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group. All other repairs and maintenance are charged to the income statement during the year in which they are incurred.




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Land is not depreciated. Depreciation of other assets is calculated using the straight-line method over their estimated useful lives, as follows:

Number of years

Buildings 35 to 50

Improvements in leasehold property 10

Computer equipment 4 to 5

Furniture 4 to 10

Fixtures 5 to 12

Security equipment 4 to 10

Office equipment 4 to 10

Motor vehicles 4

Other equipment 5

When there is an indication that an asset may be impaired, IAS 36 requires that its recoverable amount is estimated and an impairment loss recognised when the net book value of the asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. The recoverable amount is determined as the greater of its net selling price and value in use which is based on the net present value of future cash flows arising from the continuing use and ultimate disposal of the asset. 2.15. Investment properties The Group classifies as investment property the property held to earn rentals or for capital appreciation or both. Investment property is recognised initially at cost, including transaction costs that are directly attributable expenditures, and subsequently at their fair value. Changes in the fair value determined at each balance sheet date are recognised in the income statement. Investment property is not amortised. Subsequent expenditure is capitalised only when it is probable that it will give rise to future economic benefits in excess of the originally assessed standard of performance of the asset. 2.16. Intangible assets The costs incurred with the acquisition, production and development of software are capitalised, as well as the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of their expected useful lives, which is usually between three to six years. Costs that are directly associated with the development of identifiable specific software applications, and that will probably generate economic benefits beyond one year, are recognised as intangible assets. These costs include employee costs from the Group companies specialised in IT directly associated with the development of the referred software. All remaining costs associated with IT services are recognised as an expense as incurred. 2.17. Leases The Group classifies its lease agreements as finance leases or operating leases taking into consideration the substance of the transaction rather than its legal form, in accordance with IAS 17 — Leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. All other leases are classified as operating leases. Operating leases Payments made under operating leases are charged to the income statement in the period to which they relate. Finance leases • As lessee




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Finance lease contracts are recorded at inception date, both under assets and liabilities, at the cost of the asset leased, which is equal to the present value of outstanding lease instalments. Instalments comprise (i) an interest charge, which is recognised in the income statement and (ii) the repayment of principal, which is deducted from liabilities. Financial charges are recognised as costs over the lease period, in order to produce a constant periodic rate of interest on the remaining balance of liability for each period. • As lessor Assets leased out are recorded in the balance sheet as loans granted, for the amount equal to the net investment made in the leased assets. Interest included in instalments charged to customers is recorded as interest income, while repayments of principal, also included in the instalments, is deducted from the amount of the loans granted. The recognition of the interest reflects a constant periodic rate of return on the lessor’s net outstanding investment. 2.18. Employee benefits Pensions To cover the liabilities assumed by the Group within the framework stipulated by the ACT “Acordo Colectivo de Trabalho” and subsequent amendments resulting from the 3 tripartite agreements as described in Note 14 for the banking sector in Portugal and by the CCT “Contrato Colectivo de Trabalho” for the insurance sector in Portugal, pension funds were set up to cover retirement benefits, including widows and orphans benefits and disability for the entire work force and also health-care benefits for employees. The pension liabilities and health care benefits are covered by funds that are managed by ESAF — Espírito Santo Fundos de Pensões, S.A., a Group’s subsidiary. The pension plans of the Group are classified as defined benefit plans, since the criteria to determine the pension benefit to be received by employees on retirement are predefined and usually depend on factors such as age, years of service and level of salary. In the light of IFRS 1, the Group decided to adopt, at transition date (1 January 2004), IAS 19 retrospectively and has recalculated the pension and other post-retirement benefits obligations and the corresponding actuarial gains and losses to be deferred in accordance with the corridor method allowed by this accounting standard and used by the Group until 2010. In 2011, as described in Note 54, the Group changed retrospectively the accounting policy related to actuarial gains and losses recognition, adjusting the opening balance sheet and comparative figures, starting to recognise, as allowed under paragraph 93A of IAS 19 “Employee Benefits”, the actuarial deviations under other comprehensive income. The pension liability is calculated semi-annually by the Group, as at 31 December and 30 June for each plan individually, using the projected unit credit method, and reviewed annually by qualified independent actuaries. The discount rate used in this calculation was determined with reference to market rates associated with high-quality corporate bonds issues, denominated in the currency in which benefits will be paid and with a maturity similar to the expiry date of the plan obligations. The expected return on plan assets is based on the long term expected return for each asset class within the portfolio of the pension funds and takes in consideration the investment strategy determined for the funds. Actuarial gains and losses determined semi-annually and resulting from (i) the differences between financial and actuarial assumptions used and real values obtained (experience adjustments) and (ii) changes in the actuarial assumptions are recognised in Other comprehensive income. At each period, the Group recognises as a cost in the income statement a net total amount that comprises (i) the service cost, (ii) the interest cost, (iii) the expected return on plan assets and (iv) the effect of curtailment losses related with early retirements, which includes the early amortisation of the respective actuarial gains and losses. The effect of the early retirements corresponds to the increase in pension liabilities due to retirements before the normal age of retirement, which is 65 years.




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ESFG and its subsidiaries make payments to the fund in order to maintain its solvency and to comply with the following minimum levels: (i) the liability with pensioners shall be totally funded at the end of each year, and (ii) the liability related to past services cost with employees in service shall be funded at a minimum level of 95%. The Group assesses at each reporting date and for each plan separately, the recoverability of any recognised asset in relation to the defined benefit pension plans, based on the expectation of reductions in future contributions to the funds. Health care benefits The Group provides to its banking employees health care benefits through a specific Social-Medical Assistance Service. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managed by the respective Union. SAMS provides to its beneficiaries services and/or contributions on medical assistance expenses, diagnostics, medicines, hospital confinement and surgical operations, in accordance with its financing availability and internal regulations. The annual contribution of the Group to SAMS amounts to 6.5% of the total annual remuneration of employees, including, among others, the holiday and Christmas subsidy. The measurement and recognition of the Group’s liability with post-retirement healthcare benefits is similar to the measurement and recognition of the pension liability described above. These benefits are covered by the Pension Fund which at present covers all responsibilities with pensions and health care benefits. Long term service benefits In accordance with the ACT “Acordo Colectivo de Trabalho” for the banking sector, BES Group has assumed the commitment to pay to current employees that achieve 15, 25 and 30 years of service within the Group, long-term service premiums corresponding, respectively, to 1, 2 and 3 months of their effective monthly remuneration earned at the date the premiums are paid. At the date of early retirement or disability, employees have the right to a premium proportional to what they would earn if they remained in service until the next payment date. These long term service benefits are accounted for by the Group in accordance with IAS 19 as other long-term employee benefits. The liability with long term service benefits is calculated semi-annually, at the balance sheet date, by the Group using the projected unit credit method. The actuarial assumptions used are based on the expectations about future salary increases and mortality tables. The discount rate used in this calculation is determined based on the same methodology described above for pensions. In each period, the increase in the liability for long term service premiums, including actuarial gains and losses and past service costs is charged to the income statement. Share based payments — Share based incentive scheme (SIBA) BES and its subsidiaries established a share based payment scheme (SIBA), which ended in December 2010. This plan allowed its employees to acquire BES shares with deferred settlement financed by it. The employees had to hold the shares for a minimum of two to four years after which they could sell the shares in the market and repay the debt. However, the employees had, after the referred period, the option to sell the shares back to BES at acquisition cost. The shares held by BES employees under SIBA were accounted for as treasury shares of BES being, therefore, applicable the accounting policy described in Note 2.10 to any transactions made with these shares. This scheme was classified as an equity settlement share based payment in accordance with IFRS 2 — Share based payments.




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Each option under the scheme was fair valued on grant date and was recognised as an expense, with a corresponding increase in equity, over the vesting period. Annually the amount recognised as an expense was adjusted to reflect the actual number of options that vest. The equity instruments granted are not remeasured for subsequent changes in their fair value. Share based payments — Stock option plan In 2008, ESFG set-up a stock option plan that allows certain employees to acquire ESFG shares, or alternatively to require a cash payment equivalent to the appreciation of ESFG share market price above the strike price. The options granted to employees may be exercised after their first anniversary and during a ten year period. This share based payment plan is within the scope of IFRS 2 — Share based payments and corresponds to a cash settlement share based payment. The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statement as staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheet date, being the fair value changes recognised in the income statement under the caption staff costs.

Variable remuneration payment plan (PPRV)

BES and its subsidiaries established a benefits payment scheme — Variable remuneration payment plan (PPRV — 2008/2010) which expired in June 2011.

Under this incentive scheme, employees of BES and its subsidiaries had the right to a future cash payment, corresponding to the appreciation of BES shares above a pre-established price (strike price). In order to receive this payment, the employees had to remain in BES for a minimum period of three years. This variable remuneration payment plan was within the scope of IFRS 2 — Share based payments and corresponds to a cash settlement share based payment. The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statement as staff costs over a period of three years. The recognised liability under the plan was re-measured at each balance sheet date, being the fair value changes recognised in the income statement. Variable remuneration payment plan on financial instruments (PRVIF) Following the recommendations of the Supervising and Regulatory authorities, on the BES shareholder’s General Meeting, held in 6 April 2010 it was approved a new remuneration policy for BES Executive Committee members. This new remuneration policy is described in Note 14. The component of the variable remuneration paid in cash is accounted for following IAS 19 – Employee benefits, in the period to which it relates. The component of the variable remuneration paid with equity instruments is accounted for in accordance with IFRS 2 — Share based payments. The fair value of this benefit plan at inception, determined at its grant date, is taken to the income statement as staff costs over the vesting period. The recognised liability under the plan is re-measured at each balance sheet date, being the fair value changes recognised in the income statement. Bonus to employee In accordance with IAS 19 — Employee benefits, the bonus payment to employees are recognised in the income statement in the year to which they relate.




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2.19. Income tax Income tax for the period comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Income tax recognised directly in equity relating to fair value re-measurement of available-for-sale financial assets and cash flow hedges is subsequently recognised in the income statement when gains or losses giving rise to the income tax are also recognised in the income statement. Current tax is the tax expected to be paid on the taxable profit for the year, calculated using tax rates enacted or substantively enacted at the balance sheet date at each jurisdiction. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis, and is calculated using the tax rates enacted or substantively enacted at the balance sheet date in any jurisdiction and that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill, not deductible for tax purposes, differences arising on initial recognition of assets and liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that probably they will not reverse in the foreseeable future. Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be deducted. The Group offsets deferred taxes assets and liabilities for each subsidiary, whenever (i) the subsidiary has a legally enforceable right to set off current tax assets against current tax liabilities, and (ii) they relate to income taxes levied by the same taxation authority. This offset is therefore performed at each subsidiary level, being the deferred tax asset presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferred tax assets and the deferred tax liability presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferred tax liabilities. 2.20. Provisions Provisions are recognised when: (i) the Group has present legal or constructive obligation, (ii) it is probable that settlement will be required in the future and (iii) a reliable estimate of the obligation can be made. When the effect of the passage of time (discount) is material, the provision corresponds to the net present value of the expected future payments, discounted at an appropriate rate considering the risk associated to the obligation. Restructuring provisions are recognised when the Group has approved a detailed and formal restructuring plan and such restructuring either has commenced or has been announced publicly. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable costs of meeting its obligation under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net costs of continuing with the contract. 2.21. Interest income and expense Interest income and expense are recognised in the income statement under interest and similar income and interest expense and similar charges for all non-derivative financial instruments measured at amortised cost and for the available-for-sale financial assets, using the effective interest rate method. Interest income arising from non-derivative financial assets and liabilities at fair value through profit or loss is also included under interest and similar income or interest expense and similar charges, respectively. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. The effective interest rate is calculated at inception and it is not subsequently revised.




Page 32

When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and commissions paid or received that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. In the case of financial assets or groups of similar financial assets for which an impairment loss was recognised, interest income is calculated using the interest rate used to measure the impairment loss. For derivative financial instruments, except for derivatives for risk management purposes (see Note 2.4), the interest component of the changes in their fair value is not separated out and is classified under net gains/(losses) from financial assets and financial liabilities at fair value through profit or loss. The interest component of the changes in the fair value of derivatives for risk management purposes is recognised under interest and similar income or interest expense and similar charges. 2.22. Fee and commission income Fees and commissions are recognised as follows:

• Fees and commissions that are earned on the execution of a significant act, as loan syndication fees, are recognised as income when the significant act has been completed;

• Fees and commissions earned over the period in which the services are provided are recognised as income in

the period the services are provided;

• Fees and commissions that are an integral part of the effective interest rate of a financial instrument are recognised as income using the effective interest rate method.

2.23. Dividend income Dividend income is recognised when the right to receive payment is established. 2.24. Fiduciary activities Assets held in the scope of the fiduciary activity are not recognised in the consolidated financial statements of the Group. Fee and commissions arising from this activity are recognised in the income statement in the period to which they relate. 2.25. Insurance contracts The Group issues contracts that contain insurance risk, financial risk or a combination of both insurance and financial risk. A contract, under which the Group accepts significant insurance risk from another party, by agreeing to compensate that party on the occurrence of a specified uncertain future event, is classified as an insurance contract. A contract issued by the Group without significant insurance risk, but on which financial risk is transferred with discretionary participating features is classified as investment contract recognised and measured in accordance with the accounting policies applicable to insurance contracts. A contract issued by the Group that transfers only financial risk, without discretionary participating features, is classified as an investment contract and accounted for as a financial instrument. The financial assets held by the Group to cover the liabilities arising under insurance and investment contracts are classified and accounted for in the same way as other Group financial assets. Insurance contracts and investment contracts with discretionary participating features are recognised and measured as follows: Premiums Gross written premiums are recognised for as income in the period to which they respect, in accordance with the accrual accounting principle.




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Reinsurance premiums ceded are accounted for as expense in the period to which they respect in the same way as gross written premiums. Unearned premium reserve The reserve for unearned gross written premiums and reinsurance ceded premiums reflects the part of the written premiums before the end of the period for which the risk period continues after the end of the period. This reserve is calculated using the pro-rata temporis method applied to each contract in force. Acquisition costs Acquisition costs that are directly or indirectly related to the selling of insurance and investment contracts with discretionary participating features are capitalized and deferred through the life of the contracts. Deferred acquisition costs are subject to recoverability testing at the time of the insurance policy or investment contract is issued and subject to impairment test (liability adequacy test) at each reporting date. Claims reserves Claims outstanding reflects the estimated total outstanding liability for reported claims and for incurred but not reported claims (IBNR). Reserves for both reported and not reported claims are estimated by management based on experience and available data using statistical methods. Additionally, claims reserve also includes an estimation related with future costs with claims settlement (“expense reserve”). The mathematical reserves relating to obligations to pay life pensions resulting from workmen’s compensation claims is calculated by using actuarial assumptions, with reference to recognised actuarial methods and current labour legislation. Claims reserves are not discounted, except life pensions arising from workmen’s compensation claims. Unexpired risk reserve The reserve for unexpired risks represents the amount by which expected claims and administrative expenses likely to arise after the end of the period, from contracts concluded before that date, exceeds the unearned premiums reserve, any expected future premiums expected to be written under those contracts and from premiums renewed on January next year. Life assurance reserve The life assurance reserve reflects the present value of the Group’s future obligations arising from life policies (insurance contracts and investment contracts with discretionary participating features) written and is calculated in accordance with recognised actuarial methods within the scope of applicable legislation. Reserve for bonus and rebates The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries of insurance or investment contracts, in the form of profit participation, which have not yet been specifically allocated and included in the life assurance reserve. Liability adequacy test At each reporting date, the Group performs a liability adequacy test to the insurance and investment contracts with discretionary participating features liabilities. The assessment of the liabilities is performed using the best estimate of future cash flows under each contract, discounted at a risk free rate. The liability adequacy test is performed product by product or aggregate basis when contracts are subject to broadly similar risks and managed as a single portfolio. Any deficiency determined, if exists, is recognised directly through income.




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Shadow accounting In accordance with IFRS 4, the unrealised gains and losses on the assets covering liabilities arising out from insurance and investment contracts with discretionary participating features are attributable to policyholders, to the extent that it is expected that policyholders will participate on those unrealised gains and losses when they became realised in accordance with the terms of the contracts and applicable legislation, by recording those amounts under liabilities. 2.26. Segment reporting The Group adopts IFRS 8 — Segmental reporting, for the disclosure of the financial information by operating segments (see Note 4). An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The results of the operating segments are periodically reviewed by the Management for decisions taking purposes. The Group prepares on a regular basis, financial information regarding the operating segments, which is reported to the Management. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments. 2.27. Earnings per share Basic earnings per share is calculated by dividing net income available to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding the average number of ordinary shares purchased by the Group and held as treasury stock. For the diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to assume conversion of all dilutive potential ordinary shares, such as convertible debt and share options granted to employees. Potential or contingent share issuances are treated as dilutive when their conversion to shares would decrease net earnings per share. 2.28. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’ maturity from the inception date, including cash and deposits with banks. Cash and cash equivalents exclude restricted balances with central banks. NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING

ACCOUNTING POLICIES

IFRS set forth a range of accounting treatments and require management to apply judgment and make estimates in deciding which treatment is most appropriate. The most significant of these accounting policies are discussed in this section in order to improve understanding of how their application affects the Group’s reported results and related disclosure. A broader description of the accounting policies applied by the Group is shown in Note 2 to the Consolidated Financial Statements.

Because in many cases there are other alternatives to the accounting treatment chosen by management, the Group’s reported results would differ if a different treatment were chosen. Management believes that the choices made by it are appropriate and that the consolidated financial statements present the Group’s consolidated financial position and results fairly, in all material respects.




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3.1. Impairment of available-for-sale financial assets

The Group determines that available-for-sale financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost or when it has identified an event with impact on the estimated future cash flows of the assets. This determination requires judgement, based on all available relevant information, including the normal volatility of the financial instruments prices.

Considering the high volatility of the markets, the Group has considered the following parameters when assessing the existence of impairment losses:

(i) Equity securities: declines in market value above 30% in relation to the acquisition cost or market value below the acquisition cost for a period longer than twelve-months;

(ii) Debt securities: objective evidence of events that have an impact on the estimated future cash flows of these assets.

In addition, valuations are generally obtained through market quotation or valuation models that may require assumptions or judgment in making estimates of fair value.

Alternative methodologies and the use of different assumptions and estimates could result in a higher level of impairment losses recognised with a consequent impact in the income statement of the Group.

3.2. Fair value of derivatives

Fair values are based on listed market prices if available; otherwise fair value is determined either by dealer price quotations (both for that transaction or for similar instruments traded) or by pricing models, based on net present value of estimated future cash flows which take into account market conditions for the underlying instruments, time value, yield curve and volatility factors. These pricing models may require assumptions or judgments in estimating fair values.

Consequently, the use of a different model or of different assumptions or judgments in applying a particular model may have produced different financial results from the ones reported. 3.3. Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment on a regular basis, as described in Note 2.5. The evaluation process in determining whether an impairment loss should be recorded in the income statement is subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates and the estimation of both the amount and timing of future cash flows, among other factors, are considered in making this evaluation. Alternative methodologies and the use of different assumptions and estimates could result in a different level of impairment losses with a consequent impact in the consolidated income statement of the Group. 3.4. Goodwill impairment Goodwill recoverable amount recognised as an asset of the Group is revised annually regardless the existence of impairment losses. For this purpose, the carrying amount of the business units of the Group for which goodwill has been recognised is compared with the respective recoverable amount. A goodwill impairment loss is recognised when the carrying amount of the business unit exceeds the respective recoverable amount. In the absence of an available market value, the recoverable amount is determined using cash flows/ dividends predictions, applying a discount rate that includes a risk premium appropriated to the business unit being tested. Changes in the expected cash flows and in the discount rate may lead to different conclusions from those that led to the preparation of these financial statements.




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3.5. Securitisations and special purpose entities (SPE) The Group sponsors the formation of special purpose entities (SPEs) primarily for asset securitisation transactions and for liquidity purposes. The Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the Group does control an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question (see Note 2.2). The determination of the SPEs that needs to be consolidated by the Group requires the use of estimates and assumptions in determining the respective expected residual gains and losses and which party retains the majority of such residual gains and losses. Different estimates and assumptions could lead the Group to a different scope of consolidation with a direct impact in net income. 3.6. Held-to-maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group fails to keep these investments to maturity other than for the specific circumstances — for example, selling an insignificant amount close to maturity — it will be required to reclassify the entire class as available-for-sale. The investments would therefore be measured at fair value instead of amortised cost. Held-to-maturity investments are subject to impairment tests made by the Group. The use of different assumptions and estimates could have an impact on the income statement of the Group. 3.7. Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant interpretations and estimates are required in determining the worldwide amount for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Different interpretations and estimates would result in a different level of income taxes, current and deferred, recognised in the period. The Tax Authorities are entitled to review the Portuguese Group entities’ determination of annual taxable earnings, for a period of four years or six years in case there are tax losses brought forward. The determination of annual tax earnings by other Group entities (located outside Portugal) can also be subject to similar reviews by their respective tax authorities. Hence, it is possible that some additional taxes may be assessed, mainly as a result of differences in interpretation of the tax law. However, the Board of Directors of the Company and those of its subsidiaries, are confident that there will be no material differences arising from tax assessments within the context of the financial statements. The Company itself is subject to the general tax regulations applicable to Luxembourg commercial companies. The applicable tax rate is 28.8% (2010: 28.8%). 3.8. Pension and other employees’ benefits Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarial projections, estimated returns on investment, and other factors that could impact the cost and liability of the pension plan. Changes in these assumptions could materially affect these values.




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3.9. Insurance and investment contracts liabilities Insurance and investment contracts liabilities represent liabilities for future insurance policy benefits. Insurance reserves for traditional life insurance, annuities, and workmen’s compensation policies have been calculated based upon mortality, morbidity, persistency and interest rate assumptions applicable to those coverage. The assumptions used reflect the Groups’ and market experience and may be revised if it is determined that future experience will differ substantially from that previously assumed. Insurance and investment contracts liabilities include: (i) unearned premiums reserve, (ii) life mathematical reserve, (iii) reserve for bonus and rebates, (iv) unexpired risk reserve, (v) liability adequacy test and (vi) claims reserves. Claims reserves include estimated provisions for both reported and unreported claims incurred and related expenses. When claims are made by or against policyholders, any amounts that the Group pays or expects to pay are recorded as losses. The Group establishes reserves for payment of losses for claims that arise from its insurance and investment contracts. In determining their insurance reserves and investment contracts liabilities, the Group’s insurance companies perform a continuing review of their overall positions, their reserving techniques and their reinsurance coverage. The reserves are also reviewed periodically by qualified actuaries. The Group maintains property and casualty loss reserves to cover the estimated ultimate unpaid liability for losses with respect to both reported and not reported claims incurred as of the end of each accounting year. Claims reserves do not represent an exact calculation of liability, but instead represent estimates, generally using actuarial valuations/techniques. These reserve estimates are expectations of what the ultimate settlement of claims is likely to cost based on an assessment of facts and circumstances then known, a review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and other factors. Variables in the reserve estimation process can be affected by both internal and external events, such as changes in claims handling procedures, economic inflation, legal trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be significant reporting lags between the occurrence of the insured event and the time it is actually reported to the insurer. Reserve estimates are continually reviewed in a regular ongoing process as historical loss experience develops and additional claims are reported and settled.

NOTE 4 - SEGMENTAL REPORTING

Group activities are focused primarily on the banking and insurance sectors and are directed to companies, institutional and private customers. The Group’s principal operating subsidiaries are located in Portugal, which makes it its privileged market. The historical link with Brazil and Africa, the globalization of the Portuguese companies and the Portuguese emigration to several countries, led to an internationalisation of the Group, which already has an international structure contributing significantly to the Group’s activities and results. The Group is also active in Portugal in the health-care management business. The Group’s products and services include deposits, loans to retail and corporate customers, fund management, broker and custodian services, investment banking services, as well as the issuance and commercialisation of life and non-life insurance products. Additionally, the Group makes short, medium and long term investments in the financial and currency exchange markets with the objective of taking advantages from the prices changes or to have a return from its available resources. The Group has BES as its main banking operating unit- with 673 branches in Portugal and with branches in London, New York, Spain (25 branches), Nassau, Cayman Islands, Cape Verde, Venezuela and Madeira Free Zone and 11 representation offices — with BES Investmento (investment banking), BES Angola (39 branches), BES Açores (18 branches), Banco BEST (11 branches), Espírito Santo Bank, BES Oriente, Aman Bank, BES Cabo Verde, BES Vénétie, Espírito Santo Activos Financeiros (ESAF), ES Bank Panama, ES Bank Dubai and Banque Privée Espírito Santo. Tranquilidade, Logo and BES Seguros are the Group’s non-life operating unit while T-Vida and BES-Vida are active in life-insurance. When evaluating the performance by business area, the Group considers the following Operating Segments: (1) Domestic Commercial Banking, including Retail, Corporate, Institutional and Private Banking; (2) Asset Management; (3) International Commercial Banking including Private banking; (4) Investment Banking; (5) Capital Markets and Strategic Investments; (6) Non-Life Insurance; (7) Life Insurance; (8) Health-care management and




Page 38

(9) Corporative Centre. Each segment includes the Group structures that directly or indirectly relate to it, and also the other units of the Group whose activities are most related to one of these segments. The performance of each operating unit of the Group (considered as an investment centre) is evaluated individually. Complementary, the Group, uses a second segmentation of its activities and results according to geographic criteria, segregating the activity and the results generated from the units located in Portugal (domestic activities) from the units located abroad (international activities). 4.1. Operating Segments Description Each of the operating segments includes the following activities, products, customers and Group structures: Domestic Commercial Banking This operating segment includes all the banking activity with corporate and institutional customers developed in Portugal, based in the branch offices network, corporate centres and other channels and includes the following:

a) Retail: corresponds to all activity developed by BES in Portugal with private customers and small business, fundamentally originated by the branches network, agent network and electronic channels. The financial information of the segment relates to, among other products and services, mortgage loans, consumer credit, financing the clients’ activity, deposits repayable on demand and term deposits, retirement plans and other insurance products to private customers, commissions over account management and electronic payments, the investment funds cross-selling and brokerage and custodian services.

b) Corporate and Institutional: includes BES activities in Portugal with medium and large companies, through its commercial structure dedicated to this segment, which includes 24 corporate centres. Also includes activities with institutional and municipal customers. The Group has an important presence in this segment, as a result of its role in the support of national entrepreneurs, mainly focused in high quality corporate with innovative characteristics.

c) Private Banking: includes private banking activity in Portugal, all profit, loss and assets and liabilities associated to customers classified as private by the Group in Portugal. The main products considered on this segment are: deposits; discretionary management, selling of investment funds, custodian services, brokerage services and insurance products. Asset Management This segment includes the asset management activities developed by ESAF in Portugal and abroad (Spain, Brazil, Angola, Luxembourg and United Kingdom). ESAF’s products include all types of funds - investment funds, real estate funds and pension funds, and also includes discretionary management services and portfolio management. International Commercial Banking This operating segment includes the units located abroad, which banking activities are focused on corporate, retail customers and private banking, excluding investment banking and asset management, which are integrated in the corresponding segments. Among the units comprising this segment are BES Angola, BES Cabo Verde and Spain, London, New York and Venezuela Branches of BES, ES Bankers Dubai, ES Bank Panama and Banque Privée Espírito Santo. The main products included in this segment are deposits, credit, asset management fees, leveraged finance, structured trade finance and project finance operations.

Investment Banking

This segment includes assets, liabilities, profits and losses of the operating units that consolidate in BES Investimento, which comprises all the investment banking activities of the Group originated in Portugal and abroad. In addition to the lending activity, deposits and other forms of funding, it includes advisory services, mergers and acquisitions, restructuring and debt consolidation, initial public offerings (shares and bonds), brokerage and other investment banking services.




Page 39

Capital Markets and Strategic Investments This segment includes the financial management of the Group, namely the investments in capital markets instruments (equity and debt), whether they are integrated in trading, fair value, available for sale or held to maturity financial assets portfolios. Also included in this segment is the Group’s investment in minority strategic positions, as well as all the activity inherent to interest rate and exchange rate risk management, long and short positions on financial instruments management, which allow the Group to take advantage of the price changes in those markets where these instruments are exchanged. Non-Life Insurance This segment includes the activities of Tranquilidade and Logo in the non-life insurance sector as well as the Group’s participation in the activities of its associated companies, BES-Seguros and Europ-Assistance. Life Insurance This segment includes the activities of T-Vida in the life insurance sector and the Group’s participation in the activities of its associated company, BES-Vida. Health-care management This segment includes the Group’s activities in the management of hospitals, outpatient clinics, residential hospitals and senior citizen residences through ES Saúde. Corporative Centre This area does not correspond to an operating segment. It refers to an aggregation of corporative structures acting throughout the entire Group, such as Representative Office in London, areas related to the Board of Directors, Compliance, Financial and Accounting, Risk management, Investor Relations, Internal Audit, Organization and Quality, among others. It also includes the corporate borrowings of the Group. 4.2. Allocation criteria of the activity and results to the operating segments The financial information presented for each segment was prepared in accordance with the criteria followed for the preparation of internal information analysed by the decision makers of the Group, as required by IFRS. The accounting policies applied in the preparation of the financial information related with the operating segments are consistent with the ones used in the preparation of these consolidated financial statements, which are described in Note 2, having been adopted the following principles. Measurement of profit or loss from operating segments The Group uses net income before taxes as the measure of profit or loss for evaluating the performance of each operating segment. Autonomous Operating Segments As mentioned above, each operating unit (subsidiaries and associated entities) is evaluated separately, as these units are considered investment centres. Additionally, considering the characteristics of the business developed by these units, they are fully included in one of the operating segments, assets, liabilities, equity, income and expenses. ESFG structures dedicated to segments The activity of BES, ESFG’s main subsidiary, comprises most of its operating segments and therefore its activity is disaggregated. For the purpose of allocating the financial information, the following principles are used: (i) the origin of the operation, (ii) the type of product or service rendered; (iii) the segment to which the commercial and central structures are dedicated to; (iv) the Cost Based Approach (CBA) model and other specific drivers in the allocation of indirect




Page 40

cost (central support and IT services); (vi) the impairment model in the allocation of credit risk; (vii) total equity is allocated to the capital markets and strategic investments segment. The transactions between the independent and autonomous units of the Group are made at market prices; the price of the services between the structures of each unit, namely the price established for funding between units, is determined by a margin process (which vary in accordance with the strategic relevance of the product and the balance between funding and lending); the remaining internal transactions are allocated to the segments in accordance with CBA without any margin from the supplier. The interest rate risk, exchange risk, liquidity risk and others, except for credit risk, are included in the Financial Department, whose mission is to make the Group’s financial management. The related activity and results are included in Capital Markets and Strategic Investments segment. Interest and similar income/expense Since the Group’s activities are mainly related to the financial sector and the majority of the segments revenues are from interest, the Group relies primarily on net interest revenue to assess the performance of the segment and to make decisions about resources to be allocated to the segment. As such and as permitted by IFRS 8 paragraph 23, the Group reports segments interest revenue net of its interest expense. Consolidated Investments under the Equity Method Investments in associated companies consolidated under the equity method are included in the operating segment they relate to. Associates not directly related to a specific operating segment are included in the Capital Markets and Strategic Investments segment. Non current assets Non current assets, according to IFRS 8, include Other Tangible Assets and Intangible Assets. BES includes these assets on the Capital Markets and Strategic Investments segment; the non current assets held by the subsidiaries are allocated to the segment in which these subsidiaries develop their business. Income taxes Income tax is a part of the Group net income but does not affect the evaluation of most of the Operating Segments. Deferred tax assets and liabilities are included in the Capital Markets and Strategic Investments segment. Post Employment Benefits Assets under post employment benefits are managed in a similar way to deferred income taxes assets, and are included in the Capital Markets and Strategic Investments segment. The factors that influence the amount of responsibilities and the amount of the funds’ assets correspond, mainly, to external elements; it is Group’s policy not to include these factors on the performance evaluation of the operating segments, which activities relate to customers. Domestic and International Areas In the disclosure of financial information by geographical areas, the operating units that comprise the International Area are: BES Angola and its branches, BES Oriente, Espírito Santo Bank, BES Cabo Verde, ES Bankers Dubai, ES Bank Panama, Banque Privée Espirito Santo, Espírito Santo Vénétie, Banco Delle Tre Venezie, Moza Banco, Ijar Leasing Argélie, ESFIL, London, Spain, New York and Cape Verde branches of BES, and the operating units located abroad from BES Investimento and ESAF. The financial elements related to the International Area are presented in the financial statements of those units with the respective consolidation and elimination adjustments.


The primary segments reporting are presented as follows:

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Page 42

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Page 43

The secondary segment information is prepared in accordance with the geographical distribution of the Group’s business units, as follows:


NOTE 5 - NET INTEREST INCOME

This balance is analysed as follows:

Interest and similar incomeInterest from loans and advances 2 773 618 17 379 2 790 997 2 068 764 43 230 2 111 994 Interest from deposits with banks 68 899 2 572 71 471 51 538 16 163 67 701 Interest from financial assets at fair value through profit or loss - 190 434 190 434 - 270 458 270 458 Interest from available-for-sale financial assets 471 397 - 471 397 326 877 - 326 877 Interest from held to maturity 100 948 - 100 948 115 614 - 115 614 Interest from derivatives for risk management purposes - 582 501 582 501 - 918 685 918 685 Other interest and similar income 39 327 - 39 327 27 599 - 27 599

3 454 189 792 886 4 247 075 2 590 392 1 248 536 3 838 928

Interest expense and similar charges Interest from debt securities ( 727 651) ( 162 916) ( 890 567) ( 776 517) ( 204 020) ( 980 537)Interest from amounts due to customers (1 000 142) ( 35 956) (1 036 098) ( 446 026) ( 61 098) ( 507 124)Interest from deposits from central banks and other banks ( 446 222) ( 15 432) ( 461 654) ( 193 095) ( 8 403) ( 201 498)Interest from subordinated debt ( 103 686) - ( 103 686) ( 143 524) - ( 143 524)Interest from derivatives for risk management purposes - ( 498 057) ( 498 057) - ( 804 898) ( 804 898)Other interest expenses and similar charges ( 12 727) - ( 12 727) ( 12 306) - ( 12 306)

(2 290 428) ( 712 361) (3 002 789) (1 571 468) (1 078 419) (2 649 887)

1 163 761 80 525 1 244 286 1 018 924 170 117 1 189 041

Assets / Liabilities at

amortised cost and available-

for-sale financial assets


amortised cost and available-

for-sale financial assets


fair value through profit

or loss


fair value through profit

or loss


31.12.2011 31.12.2010

Total Total

Interest from loans and advances includes an amount of euro 51 487 thousand (31 December 2010: euro 24 363 thousand) related to the unwind of discounts regarding the impairment losses of loans and advances to customers that are overdue (see Note 26). Interest from derivatives for risk management purposes includes, in accordance with the accounting policy described in Notes 2.4 and 2.21, interest from hedging derivatives and from derivatives used to manage the risk of certain financial assets and financial liabilities designated at fair value through profit or loss in accordance with the accounting policies described in Notes 2.5, 2.6 and 2.8.




Page 45

NOTE 6 - NET FEE AND COMMISSION INCOME


31.12.2011 31.12.2010

Fee and commission incomeFrom banking services 516 850 555 787From guarantees granted 221 259 188 703From transactions with securities 70 197 49 015From commitments assumed to third parties 46 666 46 641Other fee and commission income 88 932 99 946

943 904 940 092

Fee and commission expensesFrom banking services rendered by third parties (81 130) (73 767)From transactions with securities (25 289) (25 164)From guarantees received (9 212) (1 699)Other fee and commission expense (18 526) (21 152)

(134 157) (121 782)

809 747 818 310





Page 46

NOTE 7 - NET (LOSSES) FROM FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR

VALUE THROUGH PROFIT OR LOSS


31.12.2011 31.12.2010

Gains Losses Total Gains Losses Total

Trading assets and liabilitesSecurities

Bonds and other fixed income securitiesIssued by government and public entities 70 069 ( 51 928) 18 141 123 509 ( 163 317) ( 39 808)Issued by other entities 30 252 ( 23 635) 6 617 26 117 ( 19 207) 6 910

Shares 88 535 ( 61 975) 26 560 76 449 ( 76 166) 283

Other variable income securities 869 ( 1 055) ( 186) 4 814 ( 9 194) ( 4 380)

189 725 ( 138 593) 51 132 230 889 ( 267 884) ( 36 995)Derivative financial instruments

Exchange rate contracts 1 870 712 (1 904 374) ( 33 662) 2 231 385 (2 442 297) ( 210 912)Interest rate contracts 6 245 529 (6 178 103) 67 426 6 834 127 (6 807 677) 26 450 Equity/Index contracts 2 058 038 (2 114 234) ( 56 196) 1 450 159 (1 486 306) ( 36 147)Credit default contracts 845 621 ( 865 810) ( 20 189) 545 887 ( 539 458) 6 429 Other 215 795 ( 188 003) 27 792 398 279 ( 395 731) 2 548

11 235 695 (11 250 524) ( 14 829) 11 459 837 (11 671 469) ( 211 632)

11 425 420 (11 389 117) 36 303 11 690 726 (11 939 353) ( 248 627)

Financial assets and liabilities at fair valuethrough profit or loss

SecuritiesBonds and other fixed income securities

Issued by government and public entities 39 ( 45) ( 6) 217 ( 87) 130 Issued by other entities 114 887 ( 133 008) ( 18 121) 145 439 ( 120 333) 25 106

Shares 5 027 ( 358) 4 669 1 335 ( 188) 1 147

Other variable income securities 80 469 ( 335 973) ( 255 504) 152 518 ( 192 942) ( 40 424)

200 422 ( 469 384) ( 268 962) 299 509 ( 313 550) ( 14 041)

Financial assets (1)

Loans and advances to banks - - - 479 ( 715) ( 236)Loans and advances to customers 25 921 ( 33 538) ( 7 617) 141 964 ( 146 271) ( 4 307)

25 921 ( 33 538) ( 7 617) 142 443 ( 146 986) ( 4 543)

Financial liabilities (1)

Deposits from banks 21 702 ( 48 665) ( 26 963) 30 104 ( 36 488) ( 6 384)Due to customers 314 522 ( 272 512) 42 010 84 778 ( 112 693) ( 27 915)Debt securities issued 95 669 ( 63 762) 31 907 285 941 ( 179 099) 106 842 Subordinated debt - - - 11 877 ( 14 783) ( 2 906)

431 893 ( 384 939) 46 954 412 700 ( 343 063) 69 637

658 236 ( 887 861) ( 229 625) 854 652 ( 803 599) 51 053

12 083 656 (12 276 978) ( 193 322) 12 545 378 (12 742 952) ( 197 574)

(1) includes the fair value change of hedged assets and liabilities and of assets and liabilities at fair value through profit or loss


As at 31 December 2011, this balance includes a positive effect of euro 50.9 million related to the change in fair value of financial liabilities designated at fair value through profit or loss, attributable to the Group’s credit risk component (31 December 2010: positive effect of euro 82.7 million). In accordance with the accounting policies followed by the Group, financial instruments are initially recognised at fair value. The best evidence of the fair value of the instrument at inception is deemed to be the transaction price. However, in particular circumstances, the fair value of a financial instrument at inception, determined based on a valuation techniques, may differ from the transaction price, namely due to the existence of a built-in fee, originating a day one profit.




Page 47

The Group recognises in the income statement the gains arising from the built-in fee (day one profit), generated, namely, on the trading of foreign exchange financial products, considering that the fair value of these instruments at inception and on subsequent measurements is determined only based on observable market data and reflects the Group access to the wholesale market. In 2011, the gains recognised in the income statement arising from the built-in fee amounted to approximately euro 14 161 thousand (2010: euro 10 446 thousand) and is substantially related to foreign exchange transactions.

NOTE 8 - NET (LOSSES)/GAINS FROM AVAILABLE-FOR-SALE FINANCIAL ASSETS


31.12.2011Gains Losses Total Gains Losses Total

Bonds and other fixed income securitiesIssued by government and public entities 13 730 ( 10 698) 3 032 22 639 ( 20 607) 2 032 Issued by other entities 13 389 ( 46 623) ( 33 234) 26 164 ( 24 369) 1 795

Shares 249 504 ( 290 581) ( 41 077) 458 940 ( 92 047) 366 893

Other variable income securities 10 191 ( 3 388) 6 803 12 075 ( 8 477) 3 598

286 814 ( 351 290) ( 64 476) 519 818 ( 145 500) 374 318

31.12.2010


During the year ended 31 December 2011, the Group sold at market prices through the stock exchange, 81.6 million ordinary shares of Bradesco, 165.4 million ordinary shares of EDP and 113.8 million ordinary shares of Portugal Telecom. These transactions generated a realised net gain of euro 40.0 million (euro 12.1 million net of non-controlling interest) (see Note 24). During the year ended 31 December 2010, the Group sold at market prices through the stock exchange, 52.5 million ordinary shares of Bradesco, 11.7 million ordinary shares of Portugal Telecom and 43.2 million ordinary shares of EDP. These transactions generated a realised net gain of euro 287.6 million (euro 86.7 million net of non-controlling interest) (see Note 24). NOTE 9 - NET (LOSSES)/GAINS FROM FOREIGN EXCHANGE DIFFERENCES


Gains Losses Total Gains Losses Total(in thousands of euro)

Foreign exchange translation 1 432 974 (1 460 688) ( 27 714) 1 556 442 (1 501 108) 55 334

1 432 974 (1 460 688) ( 27 714) 1 556 442 (1 501 108) 55 334

31.12.2011 31.12.2010

This balance includes the exchange differences arising on translating monetary assets and liabilities at the exchange rates ruling at the balance sheet date in accordance with the accounting policy described in Note 2.3.




Page 48

NOTE 10 - NET (LOSSES) FROM THE SALE OF OTHER ASSETS

31.12.2011 31.12.2010

Loans and advances to customers ( 89 774) ( 9 160)Non-current assets held for sale ( 4 828) ( 12 727)Other 2 706 9 114

( 91 896) ( 12 773)


As at 31 December 2011, Loans and advances to customers include a loss of euro 77.5 million related to the sale of euro 2.0 billion of credits realised within the deleverage program initiated by the Group in 2011.

NOTE 11 - INSURANCE EARNED PREMIUMS, NET OF REINSURANCE

The insurance earned premiums, net of reinsurance, can be analysed as follows:

31.12.2011 31.12.2010

Gross premiums written 414 347 402 140Reinsurance premiums ceded ( 60 022) ( 71 300)

Net premiums written 354 325 330 840

Change in the provision for unearned premiums, net of reinsurance ( 2 213) ( 5 672)

Earned premiums, net of reinsurance 352 112 325 168


The direct insurance written and earned premiums are analysed as follows:

Written Earned Written Earned premiums premiums premiums premiums

Life 56 751 56 195 58 623 58 375 Non -life:

Direct BusinessAccident and health 105 396 106 072 101 119 100 240 Fire and hazards 61 132 60 582 60 486 59 442 Motor 158 351 156 954 151 421 146 513 Maritime, airline and transportation 6 898 6 997 6 841 6 774 Third party liability 10 301 10 501 10 780 10 519 Credit and surety ship 53 63 89 100 Other 15 305 14 255 12 694 11 972

Total 414 187 411 619 402 053 393 935

Reinsurance accepted 160 104 87 120

414 347 411 723 402 140 394 055


31.12.2011 31.12.2010




Page 49

The reinsurance ceded premiums are analysed as follows:

Written Earned Written Earned premiums premiums premiums premiums

Life 7 378 7 863 21 727 21 727 Non -life:

Direct BusinessAccident and Health 3 591 3 665 4 306 3 631 Fire and hazards 26 058 25 886 24 033 23 353 Motor 1 896 1 918 1 877 1 960 Maritime, airline and transportation 3 740 3 637 3 651 3 645 Third party liability 1 720 1 825 1 895 1 829 Credit and surety ship 23 32 52 59 Other 15 488 14 685 13 674 12 575

Total 59 894 59 511 71 215 68 779

Reinsurance accepted 128 100 85 108

60 022 59 611 71 300 68 887


31.12.2011 31.12.2010

Gross written premiums from life insurance business are analysed as follows:

31.12.2011 31.12.2010

Annuities 6 668 3 534 Risk contracts 36 666 16 884 Saving contracts with profit sharing 13 417 38 205

56 751 58 623


In accordance with IFRS 4, the contracts issued by the Group for which there is only a transfer of financial risk, with no discretionary participating features, are classified as investment contracts and accounted for as financial liabilities.




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NOTE 12 - OTHER OPERATING INCOME AND EXPENSES

These balances are analysed as follows:

31.12.2011 31.12.2010

Other operating income arising from:

Medical services business 286 642 262 987Insurance business 33 525 6 575IT related business 6 028 6 700Call center business 13 719 17 812Fair value adjustment on investment properties 481 1 572Gains on repurchase of Group debt securities (see Notes 39 and 43) 574 248 32 291Non recurring gains on advisory services 2 586 5 619Other 23 644 20 524

940 873 354 080

Other operating expenses arising from:

Direct and indirect taxes ( 52 720) ( 18 809)Contributions to the depositors guarantee fund ( 6 463) ( 5 644)Membership and donations ( 8 345) ( 8 186)Medical services business ( 169 084) ( 156 805)Insurance business ( 16 037) ( 5 677)Fair value adjustment on investment properties ( 2 177) - Indemnities under contractual agreements ( 3 557) ( 38 368)Losses arising from the transfer, to the social security, of the pensioners' defined benefit obligation (see Note 14) ( 107 173) - Other ( 14 605) ( 45 313)

( 380 161) ( 278 802)

560 712 75 278


Direct and indirect taxes include an amount of euro 30.5 million relating to the cost associated with the introduction of a special tax applicable to the banking sector, created by Law No. 55-A/2010 of 31 December. Medical services business operating income and expenses relate mainly to the health care business provided by Espírito Santo Saúde SGPS, S.A. and its subsidiaries (see Note 1).




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NOTE 13 - STAFF COSTS


31.12.2011 31.12.2010

Wages and salaries Remuneration 578 165 571 688 Long term service benefits (see Note 14) 558 3 946Pension costs (see Note 14) 22 128 42 897Other mandatory social charges 116 993 90 556Other costs 35 566 26 752

753 410 735 839


As at 31 December 2011, other costs include the amount of euro 2 631 thousand related to the variable remuneration plan on financial instruments (PRVIF) of BES in accordance with the accounting policy described in Note 2.18. As at 31 December 2010, this caption includes a cost for an amount of euro 515 thousand related to the “Stock Based Incentive Scheme” (SIBA) and a profit of euro 394 thousand related to the variable remuneration payment plan (PPRV) which expired in 2011. The details of these schemes implemented by BES Group are analysed in Note 14. An amount of euro 5 446 thousand negative (31 December 2010: euro 7 663 thousand negative) is included in other costs related to the stock options plan set-up by ESFG, in accordance with the accounting policy described in Note 2.18 (see Note 14).

The salaries and other benefits attributed to the key management personnel of Group are analysed as follows:

Board of Directors

Audit CommitteeOther key

managementTotal

31 December 2011Salaries and other short terms benefits 4 069 739 26 104 30 911 Bonus 1 066 - 9 217 10 283 Stock-option plan ( 2 308) - ( 3 138) ( 5 446)

Sub total 2 827 739 32 183 35 749

Pension costs and social charges 998 - 8 494 9 492 Long term service benefits 30 - 366 396

Total 3 855 739 41 043 45 636

31 December 2010Salaries and other short terms benefits 5 700 739 25 420 31 859 Bonus 2 346 - 10 955 13 301 Stock-option plan ( 3 317) - ( 4 346) ( 7 663)

Sub total 4 729 739 32 029 37 497

Pension costs and social charges 736 - 7 136 7 872 Long term service benefits 36 - 687 723

Total 5 501 739 39 852 46 093

Other key management personnel include board members of ESFG subsidiaries and ESFG senior management. As at 31 December 2011 and 2010, the loans granted by the Group to key management personnel amounted to euro 40.4 million and euro 39 million, respectively.




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As at 31 December 2011 and 2010, the number of employees of the Group is analysed as follows:

31.12.2011 31.12.2010

Banking sector employees 10 228 10 209Health sector employees 3 233 2 968Insurance sector employees 738 748Employed by other companies essencially providing services to customers outside the Group 690 888

14 889 14 813

By professional category, the number of employees of the Group is analysed as follows:

31.12.2011 31.12.2010

Senior management 1 221 1 270Management 1 419 1 400Specific functions 5 410 5 283Administrative functions and others 6 839 6 860

14 889 14 813

NOTE 14 - EMPLOYEE BENEFITS

Pension and health-care benefits As described in Note 2.18, the Group’s companies operate defined pension and health-care plans for their employees and their dependants under which the benefits vest on the earlier of retirement, death or incapacity. However, it should be noted that in what concerns the banking subsidiaries, the employees hired after 31 March 2008 are covered by the Portuguese Social Security scheme. Additionally, with the publication of Decree-Law n.1-A / 2011 of January 3, all banking sector employees beneficiaries of “CAFEB – Caixa de Abono de Família dos Empregados Bancários” were integrated into the General Social Security Scheme from 1 January 2011, which assumed the protection of banking sector employees in the contingencies of maternity, paternity and adoption and even old age, remaining under the responsibility of the banks the protection in sickness, disability, survivor and death. Retirement pensions of banking employees integrated into the General Social Security Regime continue to be calculated according to the provisions of ACT and other conventions. Banking employees, however, are entitled to receive a pension under the general regime, which amount takes into account the number of years of discounts for that scheme. Banks are responsible for the difference between the pension determined in accordance with the provisions of ACT and that the one that the banking employees are entitled to receive from the General Social Security Regime. The contribution rate to the Social Security Regime is 26.6%, 23.6% paid by the employer and 3% paid by the employees, instead of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by the same law. In consequence of this change, the pension rights of active employers is to be covered under the terms defined by the General Social Security Regime, taking into account the length of service from 1 January 2011 until retirement. The differential required to support the guaranteed pension in terms of the ACT is paid by the Banks.




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Notwithstanding, the integration leads to a decrease in the actual present value of total benefits reported to the normal retirement age (VABT) to be borne by the pension fund, after considering the future contributions to be made by the banks and the employees to the social security regime. Since there was no reduction in benefits on a beneficiary’s perspective and the liabilities for past services remained unchanged, the Group has not recorded in its financial statements any impact in terms of the actuarial calculations as at 31 December 2010, arising from the integration of its workers in the Social Security Scheme. The resulting gain will be deferred over the average working life until the employees reach the normal retirement age. At the end of 2011 following the third tripartite agreement established between the Portuguese Government, the Portuguese Banking Association and the banking sector employees unions, it was decided to transfer to the Social Security Regime the banks liabilities with pension in payment as at 31 December 2011. The tripartite agreement established, provides for the transfer to the Social Security sphere of the liabilities with pensions in payment as of 31 December 2011 at constant values (0% discount rate). The responsibilities relating to updates of pensions value, other pension benefits in addition to those to be borne by the Social Security, health-care benefits, death allowance and deferred survivor pensions, will remain in the sphere of responsibility of the banks with the correspondent funding being provided through the respective pension funds. The banks pension funds assets, specifically allocated to the cover of the transferred liabilities, were also be transferred to the Social Security. Being thus a definitive and irreversible transfer of the liabilities with pensions in payment (even if only on a portion of the benefit), the conditions set out in IAS 19 ‘Employee benefits’ underlying the concept of settlement are met, as the obligation with pension in payment as at 31 December 2011 extinguished at the date of transfer. On this basis, the impacts derived from this transfer were recognized in the income statement. The actuarial valuation of pension and health-care benefits for the Group companies is performed every half-year, with latest valuation performed as at 31 December 2011. On annual basis, the actuarial valuation is reviewed by an independent actuary. As at 31 December 2011 and 2010, the main assumptions considered in the actuarial valuation, to determine the defined benefit obligation of pension and health-care benefits for the Group employees are as follows:

31.12.2011 31.12.2010 31.12.2011 31.12.2010Financial assumptionsSalaries increase rate 3.25% - 3.75%(*) 3.25% - 3.75%(*) 2.25% 3.25%Pensions increase rate 0.75 % - 3.75% (*) 0.75 % - 3.75% (*) 1.00% 1.75%Early retirements pensions increase rate 2.25% - 3.75% (*) 2.25% - 3.75% (*) - - Expected return of plan assets 4.94% (*) - 5.40% 4.73% (*) - 5.15% 5.50% 5.50%Discount rate 5.50% 5.50% 5.50% 5.50%

Demographic assumptionsMortality tableMen GKF 95 TV 73/77 (adjusted)Women GKF 95 TV 88/90

Actuarial method Project Unit Credit Method

(*) Pension fund of Board of Directors

Insurance sector Banking sector

In accordance with the accounting policy described in Note 2.18, the discount rate used to calculate the actuarial present value of the pensions and health care defined benefits, is determined at the balance sheet date by reference to interest rates of high-quality corporate bonds. The expected return on plan assets is based on the long term expected return for each asset class within the portfolio of the pension funds and takes in consideration the investment strategy determined for the funds.




Page 54

The contributions to SAMS as at 31 December 2011 and 2010 corresponded to 6.5% of total wages. The percentage of contribution is established by SAMS, and no changes are expected for 2012. The number of persons covered by the plan is as follows:

31.12.2011 31.12.2010

Employees 6 338 6 640Pensioners and widows 5 934 5 934

Total 12 272 12 574

Considering the change in the accounting policy made during the year ended 31 December 2011, as described in Note 54, the amounts recognised in the balance sheet following the application of IAS 19 as at 31 December 2011 and 2010 are presented as follows:

31.12.2011 31.12.2010


Assets / (liabilities) recognised in the balance sheet

Defined benefit obligation Pensioners ( 349 316) (1 292 087) Employees ( 668 005) ( 843 509)

(1 017 321) (2 135 596)

Health-care benefit obligation Pensioners ( 48 541) ( 70 371) Employees ( 51 232) ( 44 229)

( 99 773) ( 114 600)

Total obligations (1 117 094) (2 250 196)

CoverageFair value of plan assets 1 226 393 2 250 218

Net assets in balance sheet (see Note 35) 109 299 22

Accumulated actuarial (gains) and losses recognised in other comprehensive income 899 844 946 512

Additionally, for the insurance entities of the Group, Tranquilidade and Esumédica have transferred part of their liabilities to BES Vida, through the acquisition of the life insurance policies. The number of pensioners covered by these policies is 411 (31 December 2010: 424), and the total liability amounts to euro 12.6 million (31 December 2010: euro 14.9 million). In accordance with accounting policy described in Note 2.18 and following the requirements of IAS 19 — Employees benefits, the Group assesses, when applicable, at each balance sheet date and for each plan separately, the recoverability of the recognised assets in relation to the defined benefit pension plans based on the expectation of reductions in future contributions to the funds.




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The changes in the defined benefit obligation can be analysed as follows:

Pension Health-care Total Pension Health-care Totalplans plans plans plans

Defined benefit obligation as at 1 January 2 135 596 114 600 2 250 196 2 063 101 109 192 2 172 293

Service cost 16 546 1 593 18 139 37 428 2 183 39 611 Interest cost 113 115 6 299 119 414 111 810 5 944 117 754 Plan participants' contribution 3 267 - 3 267 3 243 1 3 244 Actuarial (gains) / losses: - changes in actuarial assumptions ( 189 993) ( 11 799) ( 201 792) - - - - experience adjustments ( 110 150) ( 4 872) ( 115 022) 21 264 3 375 24 639 Pensions paid by the fund ( 110 588) ( 5 930) ( 116 518) ( 110 233) ( 5 945) ( 116 178)Benefits paid by the Group - ( 118) ( 118) - ( 132) ( 132)

Transfer to the Social Security regime of the liabilities with pensions in payment ( 853 839) - ( 853 839) - - - Exchange differences and other 13 367 - 13 367 8 983 ( 18) 8 965

Defined benefit obligation as at 31 December 1 017 321 99 773 1 117 094 2 135 596 114 600 2 250 196

31.12.2011 31.12.2010


Under the third tripartite agreement mentioned above and the subsequent transfer to the Social Security Regime of the banks liabilities with pensions in payment as at 31 December 2011, there was a reduction of liabilities, measured based on the actuarial assumptions used in preparing the financial statements and consistent with IAS 19, for an amount of euro 853.8 million. However, under the agreement, the value of assets to be transferred to the Social Security in return for the transfer of the liabilities with pensions in payment was determined on a settlement perspective, as it is a definitive and irreversible transfer of these responsibilities and corresponded to the value thereof, and it was estimated based on a discount rate of 4% (instead of the 5.5% rate used for the purpose of preparing the financial statements). Thus, the amount payable by the Group to the State amounted to euro 961 million, which led to the recognition in 2011 in the income statement of a cost in the amount of euro 107.2 million, corresponding to the differential of the discount rates mentioned above. Of the total payable amount (euro 961 million), about euro 853.8 million were borne by the Pension Fund and euro 107.2 million directly by the Group. At the end of December 2011, 55% of the amount outstanding was paid, and the remaining should be paid in the first half of 2012. As at 31 December 2011, the increase of 1% in the contributions to SAMS, would imply an increase in liabilities of euro 15.3 million (31 December 2010: euro 17.5 million) and an increase in costs (service cost and interest cost) of euro 1.1 million (31 December 2010: euro 1.3 million). The change in the fair value of the plan assets in 2011 and 2010 is analysed as follows:


Fair value of plan assets as at 1 January 2 250 218 2 244 926

Actual return on plan assetsExpected return on plan assets 115 425 114 468 Actuarial gains/ (losses) ( 270 146) ( 68 387)

Group contributions 94 379 59 740 Plan participants' contributions 3 267 3 244 Pensions paid by the fund ( 116 518) ( 116 178)

Transfer to the Social Security regime of the liabilities with pensions in payment ( 853 839) ( 1) - Exchange differences and other 3 607 12 405

Fair value of plan assets as at 31 December 1 226 393 2 250 218

(1) 55% of this amount was paid in 2011, being the remaining value recognised as a liability in the fund, to be paid in 2012.

31.12.2011 31.12.2010




Page 56

Pension fund assets are analysed as follows:

31.12.2011 31.12.2010

Shares and other variable income securities 31% 43%Fixed income securities 14% 20%Real estate 54% 22%Other 32% 15%Amounts payable to the Social Security -31% 0%

100% 100%

The real estate assets rented to the Group and securities issued by Group companies which are part of the pension fund assets are analysed as follows:

31.12.2011 31.12.2010

Shares and other variable income securities 1 288 47 427Fixed income securities 1 357 3 972Real estate 217 802 169 350

Total 220 447 220 749


As at 31 December 2010, the shares held by the pension fund correspond to 13.2 million shares of BES. As at 31 December 2011, the pension fund holds participation units of ES Ventures III Fund, which is fully consolidated in the Group. During the year ended 31 December 2011 the Group sold 18 520 and 4 830 units of Fungepi Fund and Fungere Fund to the Group pensions funds, for a global amount of euro 80.0 million, not incurring any material loss or gain. During the year ended 31 December 2010 there was no transactions with the pension fund (see Note 49). The changes in the accumulated actuarial gains and losses recognised in other comprehensive income in 2011 and 2010 are analysed as follows:

31.12.2011 31.12.2010


Accumulated actuarial (gains) and losses recognised in other comprehensive income as at 1 January 946 512 852 952

Actuarial (gains) / losses - changes in actuarial assumptions ( 201 792) - - experience adjustments 155 124 93 026 Other - 534

Accumulated actuarial (gains) and losses recognised in other comprehensive income as at 31 December 899 844 946 512




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The net benefit cost can be analysed as follows:


Service cost 18 139 39 611 Interest cost 119 414 117 754 Expected return on plan assets ( 115 425) ( 114 468)

Net benefit cost 22 128 42 897

31.12.2011 31.12.2010

The changes in the assets recognised in the balance sheet can be analysed as follows:


Balance as at 1 January 22 72 633

Net periodic benefit cost ( 22 128) ( 42 897)Actuarial (gains)/losses recognised on other comprehensive income 46 668 ( 93 026)Contributions of the year and pensions paid by the Group 94 497 59 872 Other ( 9 760) 3 440

Balance as at 31 December 109 299 22

31.12.2011 31.12.2010

Historical information regarding pension plan is as follows:


Defined benefit obligation

Pension plans (1 017 321) (2 135 596) (2 063 101) (2 002 932) (2 022 358)

Health-care benefits ( 99 773) ( 114 600) ( 109 192) ( 107 468) ( 111 220)

(1 117 094) (2 250 196) (2 172 293) (2 110 400) (2 133 578)

Fair value of plan asssets 1 226 393 2 250 218 2 244 926 2 101 305 2 282 901

(Un)/over funded liabilities 109 299 22 72 633 ( 9 095) 149 323

(Gains)/losses from experience adjustments arising on defined benefit obligationPension plans ( 110 150) 21 264 50 276 23 578 42 875 Health-care benefits ( 4 872) 3 375 1 682 277 ( 1 863)

(Gains)/losses from experience adjustments arising on plan assets 270 146 68 387 ( 92 351) 733 639 ( 156 785)

31.12.2008 31.12.200731.12.2011 31.12.2010 31.12.2009

Stock options plan

On 1 October 2008, the Company established a stock-option plan that entitles key management personnel to purchase ESFG shares. Alternatively, the Company may settle these options in cash by an amount equivalent to the appreciation of ESFG share market price above the exercise price. Under the program, the Company may grant options to its employees up to 3 000 000 ordinary shares. The exercise price of each option equals the market price of ESFG share on the date of grant and an option’s maximum term is of 10 years. Options are granted at the discretion of the Board of Directors and have a vesting period of 1 year. As at 31 December 2011, all option under the plan have vested.




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Considering the terms and conditions of the plan and ESFG’s informal practices of settling the options granted to employees in cash, it is accounted for as cash-settled share-based payment arrangement, in accordance with the accounting policy described in Note 2.18. The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statement as staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheet date, being the fair value changes recognised in the income statement under staff costs. The number and weighted average exercise prices of share options are as follows:

Outstanding as at 1 January 13.20 2 680 000 13.20 2 940 000

Exercised during the year (30 000) (260 000)

Outstanding as at 31 December 13.20 2 650 000 13.20 2 680 000

Exercisable as at 31 December 13.20 2 650 000 13.20 2 680 000

31.12.2011 31.12.2010

Weighted average exercise price

(in Euro)

Number ofoptions

Weighted average exercise price

(in Euro)

Number ofoptions

The options outstanding at 31 December 2011 have a remaining contractual life of approximately 7 years (31 December 2010: 8 years). The plans’ initial fair value was calculated using an option valuation model with the following assumptions:

Initial reference date 01.10.2008Final reference date 01.10.2018Number of options 2 940 000 Exercise price (in EUR) 13.20Interest rate 4.27%Initial spot price (in EUR) 10.33Volatility 26.47%Initial fair value of the plan (in thousands) 4 783

The assumptions used in the valuation of the outstanding options as at 31 December 2011 and 2010 were the following:

31.12.2011 31.12.2010

Initial reference date 01.10.2008 01.10.2008Final reference date 01.10.2018 01.10.2018Number of options 2 650 000 2 680 000 Exercise price (in EUR) 13.20 13.20Interest rate 2.07% 3.10%Spot price (in EUR) 5.15 13.93Volatility 20.35% 14.02%

In accordance with the accounting policy described in Note 2.18, the initial fair value of the new plan, amounting to euro 4 783 thousand, was recognised during the 12 month-period comprised between the grant date and its first anniversary. As such, the Group recognised in 2009 euro 3 587 thousand and in 2008 euro 1 196 thousand as staff costs. In 2011 change in the plans’ fair value of the benefit granted to employees has been recognised in the income




Page 59

statement, as a decrease in staff costs, for an amount of euro 5 470 thousand (31 December 2010: euro 7 663 thousand decrease in staff costs). The fair value of the liability recognised is remeasured at the balance sheet date, amounting as at 31 December 2011 to euro 87 thousand (2010: euro 5 557 thousand) (see Note 44).

Variable remuneration payment plan (PPRV)

During the first semester of 2008, following the General Shareholders Meeting held on 31 March 2008, BES and its subsidiaries established a benefits payment scheme, named Variable remuneration payment plan (PPRV – 2008/2010). Under this incentive scheme, BES Group employees have the right to a future cash payment equivalent to the appreciation of BES shares between the initial reference date and the final reference date. Under this plan no rights are granted to employees equivalent to a shareholding position in BES share capital. The plans’ initial fair value was calculated using an option valuation model with the following assumptions:

Assumptions at the beginning of PPRV

After the capital

increase in 2009 (a)

Initial reference date 02.06.2008

Final reference date 02.06.2011

Rights granted to employees 5 000 000 8 285 626

Reference price (in EUR) 11.00 6.64

Interest rate 5.22%

Volatility 33.5%

Inicial fair value of the plan (in thousands of euro) 12 902

(a ) Includes the adju stment of the d ilutive effect arising from the capital increase

In accordance with the accounting policy described in Note 2.18, the initial fair value of the PPRV, for an amount of euro 12 902 thousand, was recognised during the three year-period comprised between the initial and the final reference dates. As such, the Group recognised during the year, as staff costs, the amount of euro 1 792 thousand (31 December 2010: euro 4 301 thousand). The change in the fair value of the benefit granted to employees during the life of the program was also recognised as staff costs. In 2011 the change in fair value amounted to euro 1 792 thousand profit (31 December 2010: euro 4 695 thousand profit). The fair value of the liability recognised is remeasured at the balance sheet date being as at 31 December 2010 nil. As at 31 December 2011 this plan is expired.

Variable remuneration payment plan on financial instruments (PRVIF)

Following the recommendations of the Supervising and Regulatory authorities, on the BES shareholders General Meeting, held in 6 April 2010 it was approved a new remuneration policy for the Executive Committee members. This policy consists in giving to the Executive Committee members a fixed remuneration, which should represent approximately 45% of the total remuneration, and a variable component representing around 55% of the total remuneration. The variable remuneration shall have two components: one associated with short-term performance and another with medium-term performance. Half of the short-term component must be paid in cash and the remaining 50% should be paid over a three years period, with half of these payments to be made in cash and the remaining through the attribution of shares. The medium-term component has associated a share options program with the exercise of the options set at 3 years from the date of its attribution. Regarding the attribution of options to the beneficiaries is also performed by the Remuneration Committee, and the exercise price is equal to the single average of the closing prices of BES shares on NYSE Euronext Lisbon during the




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20 days preceding the day of attribution of the options, plus 10%. The option can only be exercised at maturity and the beneficiary may choose between the physical settlement or the financial settlement of the options.

The plans’ initial fair value was calculated using an option valuation model with the following assumptions:

Assumptions at the beginning of PRVIF

Initial reference date 12-04-2011

Final reference date 31-03-2014

Rights granted to employees 2 250 000

Reference price (in EUR) 3.47

Interest rate 2.31%

Volatility 40.0%

Initial fair value of the plan (in thousands of euro) 1 130

PRVIF is accounted for under IFRS rules (IFRS 2 and IAS 19). During the six month period ended 30 June 2011, the Group accounted for a cost of euro 2 631 thousand related to variable remuneration (of which the amount of euro 286 thousands relates to the recognition, during the vesting period, of initial fair value of options granted).

Long term service benefits

As referred in Note 2.18, for employees that achieve certain years of service, the Group pays long term service premiums, calculated based on the effective monthly remuneration earned at the date the premiums are due. At the date of early retirement or disability, employees have the right to a premium proportional to that they would earn if they remained in service until the next payment date. As at 31 December 2011 and 2010, the Group’s liabilities regarding these benefits amount to euro 27 477 thousand and euro 29 655 thousand, respectively (see Note 44). The costs incurred in the year with long term service benefits amounted to euro 558 thousand (31 December 2010: euro 3 946 thousand) (see Note 13). The actuarial assumptions used in the calculation of the liabilities are those presented for the calculation of pensions (when applicable).




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NOTE 15 - GENERAL AND ADMINISTRATIVE EXPENSES


31.12.2011 31.12.2010

Rental costs 77 140 76 210Communication costs 50 923 42 951Traveling and representation costs 37 715 41 609Advertising costs 43 268 52 642Maintenance and related services 24 105 23 902Insurance costs 7 390 7 894Specialised services

IT services 69 069 67 237Professional services 14 821 15 183Temporary work 6 726 8 229Electronic payment system 13 369 12 901Legal costs 21 081 21 367Consultants and external auditors 30 234 27 079Other specialised services 4 088 3 449

Water, energy & fuel 11 844 11 642Current consumption material 5 690 6 147Transports 8 711 9 085Other costs 64 468 67 898

490 642 495 425


The balance “Other specialised services” includes, among others, costs with security, information services and databases. The balance “Other costs” includes costs with training and external suppliers. The fees billed to the Company by KPMG Luxembourg S.à r.l. and other member firms of the KPMG network (“KPMG”) during the year are analysed as follows (excluding VAT):

31.12.2011 31.12.2010

Audit fees 3 694 3 485 Audit related fees 2 250 1 662

5 944 5 147

Tax consultancy services 771 748 Other services 1 020 1 535

7 735 7 430





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The outstanding lease instalments related to the non-cancellable operational lease contracts are analysed as follows:

31.12.2011 31.12.2010

Up to 1 year 9 133 8 1151 to 5 years 13 575 9 633

22 708 17 748

(in thousands of euros)

NOTE 16 - CLAIMS INCURRED, NET OF REINSURANCE Claims incurred, net of reinsurance are analysed as follows:

31.12.2011 31.12.2010

Claims incurred for the life business 77 200 43 343 Claims incurred for the non-life business 212 073 195 061

289 273 238 404


Concerning the life business, the claims incurred, net of reinsurance are analysed as follows: 31.12.2011 31.12.2010

Claims paid Gross amount 80 129 46 625 Reinsurance share ( 3 573) ( 2 695)

76 556 43 930

Change in claims outstanding reserve Gross amount 368 ( 448) Reinsurance share 276 ( 139)

644 ( 587)

77 200 43 343





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Concerning the non-life business, the claims incurred, net of reinsurance are analysed as follows:

31.12.2011 31.12.2010

Claims paid Gross amount 246 510 227 165 Reinsurance share ( 14 837) ( 12 999)

231 673 214 166

Change in claims outstanding reserve Gross amount ( 20 078) ( 15 097) Reinsurance share 478 ( 4 008)

( 19 600) ( 19 105)

212 073 195 061


The gross amount of claims paid and change in claims reserve for the non-life business are as follows:

Claims paidChange in

claims reserve Total Claims paid

Change in claims reserve Total

Direct businessAccident and health 78 799 ( 430) 78 369 65 190 8 882 74 072 Fire and other hazards 37 737 ( 3 746) 33 991 38 505 971 39 476 Motor 122 789 ( 14 664) 108 125 115 765 ( 24 932) 90 833 Maritime, airline and transportation 3 110 294 3 404 3 307 ( 921) 2 386 Third party liability 3 403 ( 1 519) 1 884 2 705 1 561 4 266 Credit and suretyship 86 ( 514) ( 428) 507 ( 527) ( 20)Other 482 1 041 1 523 1 170 ( 34) 1 136

Reinsurance accepted 104 ( 540) ( 436) 16 ( 97) ( 81)

Total 246 510 ( 20 078) 226 432 227 165 ( 15 097) 212 068

31.12.2011 31.12.2010


NOTE 17 - CHANGE IN THE TECHNICAL RESERVES, NET OF REINSURANCE The change in the technical reserves, net of reinsurance is analysed as follows:

31.12.2011 31.12.2010

Life business ( 43 421) ( 6 354)Non-life business ( 10 110) 8 831

( 53 531) 2 477





Page 64

Concerning the life business, the changes in the technical reserves are analysed as follows:

31.12.2011 31.12.2010

Change in life assurance reserve Gross amount ( 44 775) 9 633 Reinsurance share ( 172) ( 17 322)

( 44 947) ( 7 689)

Reserve for bonus and rebates Gross amount 4 351 1 790 Reinsurance share ( 2 825) ( 455)

1 526 1 335

( 43 421) ( 6 354)


Concerning the non-life business, the changes on the technical reserves are analysed as follows:

31.12.2011 31.12.2010

Change in non life insurance reserve Change in unexpired risk reserve ( 10 110) 8 867 Others - ( 36)

( 10 110) 8 831


NOTE 18 - INSURANCE COMMISSIONS The insurance commissions are analysed as follows:

31.12.2011 31.12.2010

Direct insurance commissions Acquisition commissions and other costs 44 568 45 006 Change in deferred acquisition costs ( 33) (1 808) Collection commissions 1 915 1 893Reinsurance commissions (7 343) (10 355)

39 107 34 736





Page 65

NOTE 19 - EARNINGS PER SHARE Basic earnings per share

Basic earnings per share, is calculated by dividing the net profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.

31.12.2011 31.12.2010(in thousands of euro)

Profit attributable to the equity holders of the Company (1) 197 619 103 783

Weighted average number of ordinary shares outstanding (thousands) 78 761 77 855

Basic earnings per share attributable to the equity holders of the Company (in euro) 2,51 1,33

(1) Net profit for the year adjusted by the dividends on preference shares, perpetual bonds and results on repurchase of preference shares and, inrelation to 2010, by the remeasurement of the ESFG liability related with the 2008 stock option plan. In 2011 no adjustment for the remeasurement ofthe liability associated with this stock option plan is included as its effect is anti-dilutive.

The weighted average number of shares outstanding was calculated taking in consideration the capital increase occurred in the year as described in Note 45. Diluted earnings per share

The diluted earnings per share is calculated considering the profit attributable to the equity holders of the Company and the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutive potential ordinary shares. x

31.12.2011 31.12.2010(in thousands of euro)

Profit attributable to the equity holders of the Company (1) 197 619 95 800

Weighted average number of ordinary and potential shares outstanding (thousands) 78 761 78 071

Diluted earnings per share attributable to the equity holders of the Company (in euro) 2,51 1,23

(1) Net profit for the year adjusted by the dividends on preference shares, perpetual bonds and results on repurchase of preference shares and, inrelation to 2010, by the remeasurement of the ESFG liability related with the 2008 stock option plan. In 2011 no adjustment for the remeasurement ofthe liability associated with this stock option plan is included as its effect is anti-dilutive.

The weighted average number of ordinary and potential shares outstanding used to calculate the dilutive earnings per share considers the existence of the stock-option plans (see Note 14) and of the warrants issued (see Note 45) if their effect is dilutive.




Page 66

NOTE 20 - CASH AND DEPOSITS AT CENTRAL BANKS As at 31 December 2011 and 2010, this balance is analysed as follows:

31.12.2011 31.12.2010

Cash 281 080 308 868

Deposits at central banksBank of Portugal 111 222 120 828Other central banks 738 213 546 819

849 435 667 647

1 130 515 976 515


The deposits at Central Banks include mandatory deposits intended to satisfy legal minimum cash requirements, for an amount of euro 137 932 thousand (31 December 2010: euro 153 649 thousand). According to the European Central Bank Regulation (CE) no. 2818/98, of 1 December 1998, minimum cash requirements kept as deposits with the Bank of Portugal earn interest, and correspond to 2% of deposits and debt certificates maturing in less than 2 years, excluding deposits and debt certificates of institutions subject to the European System of Central Banks’ minimum reserves requirements. During 2011, these deposits have earned interest at an average rate of 1.25% (2010: 1.00%). The fulfilment of the minimum cash requirements for a given period of observation is monitored taking into account the value of bank deposits with the Bank of Portugal during the referred period. The balance of the bank account with the Bank of Portugal as at 31 December 2011, was included in the observation period from 14 December 2011 to 17 January 2012, which corresponded to an average minimum cash requirements of euro 582.6 million. In accordance with Regulation ECB/2011/26, made public by ECB press release of 8 December 2011, the minimum reserves ratio is now 1% for periods beginning on 18 January 2012. NOTE 21 - DEPOSITS WITH BANKS As at 31 December 2011 and 2010, this balance is analysed as follows:

31.12.2011 31.12.2010

Deposits with banks in PortugalRepayable on demand 295 532 181 680Uncollected cheques 153 662 197 723Other 12 500 9 500

461 694 388 903

Deposits with banks abroadRepayable on demand 366 635 326 874Uncollected cheques 4 466 1 260Other 165 550 162 524

536 651 490 658

998 345 879 561





Page 67

Uncollected cheques in Portugal and abroad were sent for collection during the first working days following the reference dates. Other deposits with banks, in Portugal and abroad, mature within 3 months. Deposits with banks include the amount of euro 572 182 thousand (31 December 2010: euro 468 085 thousand) related to deposits held by securitisation vehicles consolidated by the Group and that collateralise the debt issued in the scope of the respective securitisation transactions (see Note 50). NOTE 22 - FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING As at 31 December 2011 and 2010, this balance is analysed as follows:

31.12.2011 31.12.2010

Financial assets held for tradingSecurities

Bonds and other fixed income securitiesIssued by government and public entities 933 720 1 524 069Issued by other entities 253 215 296 063

Shares 41 307 181 586Other variable income securities 2 269 4 041

1 230 511 2 005 759

DerivativesDerivative financial instruments with positive fair value 2 236 389 1 946 027

3 466 900 3 951 786

Financial liabilities held for tradingDerivatives

Derivative financial instruments with negative fair value 2 175 393 1 991 267Short selling 865 130 038

2 176 258 2 121 305


During the year 2008, the Group has reclassified from financial assets held for trading an amount of euro 244 530 thousand to held-to-maturity investments (see Note 27), following an amendment to IAS 39 Financial Instruments: Recognition and Measurement issued in October 2008 and adopted by the European Union in that year. As at 31 December 2011 and 2010, the amounts that would have been recognised in the year if the reclassifications were not made are presented as follows:

31.12.2011 31.12.2010


Net (losses) from financial assets and financial liabilities at fair value through profit or loss ( 1 347) ( 4 838)Tax effect 183 524

( 1 164) ( 4 314)




Page 68

As at 31 December 2011 and 2010 the analysis of the securities held for trading by the period to maturity, is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 94 814 741 6103 to 12 months 204 014 59 6141 to 5 years 234 088 446 089More than 5 years 654 019 568 854Undetermined 43 576 189 592

1 230 511 2 005 759


In accordance with the accounting policy described in Note 2.6, securities held for trading are those which are bought to be traded in the short-term, regardless of their maturity. Regarding quoted and unquoted securities, the balance financial assets held for trading is as follows:

Quoted Unquoted Total Quoted Unquoted Total

Bonds and other fixed income securitiesIssued by government and public entities 897 685 36 035 933 720 1 524 069 - 1 524 069Issued by other entities 110 990 142 225 253 215 36 813 259 250 296 063

Shares 40 230 1 077 41 307 181 586 - 181 586Other variable income securities 2 264 5 2 269 738 3 303 4 041

1 051 169 179 342 1 230 511 1 743 206 262 553 2 005 759

31-12-2011 31-12-2010


Valuation techniques are described in Note 51.




Page 69

As at 31 December 2011 and 2010, derivative financial instruments can be analysed as follows:

Assets Liabilities Assets Liabilities

Exchange rate contractsForward - buy 1 703 052 1 806 703 - sell 1 458 214 1 524 472Currency Swaps - buy 2 406 592 3 674 887 - sell 2 441 106 3 632 969Currency Futures 58 097 - - 319 608 - - Currency Interest Rate Swaps - buy 168 995 3 664 746 - sell 162 074 3 646 180Currency Options 3 578 304 91 232 91 572 5 921 549 130 067 154 837

11 976 434 163 914 147 664 24 191 114 499 510 391 456

Interest rate contractsForward Rate Agreements 380 000 1 047 1 982 1 124 000 408 197Interest Rate Swaps 35 423 470 1 726 833 1 702 292 42 528 188 1 176 232 1 221 619Swaption - Interest Rate Options 2 747 936 5 003 5 157 2 747 426 4 893 3 502Interest Rate Caps & Floors 7 690 395 51 553 47 305 8 523 046 63 400 52 830Interest Rate Futures 3 573 796 - - 17 207 167 - - Interest Rate Options 1 893 560 25 473 31 714 32 310 536 194 28 261Future Options - - - 29 458 165 - -

51 709 157 1 809 909 1 788 450 133 898 528 1 245 127 1 306 409

Equity/index contractsEquity / Index Swaps 843 911 50 453 51 122 678 278 20 069 31 099Equity / Index Options 2 098 659 60 924 102 179 3 408 551 121 426 212 068Equity / Index Futures 152 706 - - 361 985 - - Future Options 32 089 - - 5 242 778 - -

3 127 365 111 377 153 301 9 691 592 141 495 243 167

Credit default contractsCredit Default Swaps 3 559 587 151 189 85 978 3 544 556 59 895 50 235

70 372 543 2 236 389 2 175 393 171 325 790 1 946 027 1 991 267

10 412 10 194

31.12.2011

NotionalFair value


31.12.2010

154 614 28 497 26 259 318 313

NotionalFair value

32 110 17 820 40 718 71 811

12 075 12 013

As at 31 December 2011 the fair value of derivative financial instruments included the amount of euro 43.5 million (asset) (31 December 2010: liability for an amount of euro 73.1 million) related to the positive fair value of the embedded derivatives, as described in Note 2.4.




Page 70

As at 31 December 2011 and 2010, the analysis of trading derivatives by the period to maturity is presented as follows:

Notional Fair value Notional Fair value

Up to 3 months 11 638 984 ( 43 127) 50 533 379 ( 962)

From 3 to 12 months 12 165 625 ( 1 184) 62 145 341 18 071

From 1 to 5 years 27 762 549 22 893 28 396 896 ( 229 413)

More than 5 years 18 805 385 82 414 30 250 174 167 064

70 372 543 60 996 171 325 790 ( 45 240)

31.12.2011 31.12.2010


NOTE 23 - OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS As at 31 December 2011 and 2010, this balance is analysed as follows:

31.12.2011 31.12.2010

Bonds and other fixed income securitiesIssued by government and public entities 1 334 - Issued by other entities 136 746 342 478

Shares - 15 145

Other variable income securities 1 576 012 967 826

Book value 1 714 092 1 325 449


In light of IAS 39 and in accordance with the accounting policy described in Note 2.6, the Group designated these financial assets as at fair value through profit or loss, in accordance with the documented risk management and investment strategy, considering that these financial assets (i) are managed and evaluated on a fair value basis and/or (ii) have embedded derivatives. As at 31 December 2011 and 2010, the analysis of the financial assets at fair value through profit or loss by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 390 273 77 4013 to 12 months 400 73 5921 to 5 years 1 003 964 609 681More than 5 years 77 317 545 852Undetermined 242 138 18 923

1 714 092 1 325 449





Page 71

Regarding quoted or unquoted securities, the balance financial assets at fair value through profit or loss, is presented as follows:


Bonds and other fixed income securitiesIssued by government and public entities 1 334 - 1 334 - - - Issued by other entities 17 393 119 353 136 746 54 149 288 329 342 478

Shares - - - 15 145 - 15 145Other variable income securities 29 251 1 546 761 1 576 012 7 923 959 903 967 826

47 978 1 666 114 1 714 092 77 217 1 248 232 1 325 449

31.12.2011 31.12.2010


NOTE 24 - AVAILABLE-FOR-SALE FINANCIAL ASSETS As at 31 December 2011 and 2010, this balance is analysed as follows:

Positive Negative Impairment

Bonds and other fixed income securitiesIssue by government and public entities 5 006 029 824 ( 126 654) ( 5 074) 4 875 125Issue by others entities 5 962 394 34 570 ( 192 429) ( 12 131) 5 792 404

Shares 1 195 835 41 291 ( 199 496) ( 147 246) 890 384 Other securities 495 206 5 672 ( 6 734) ( 27 622) 466 522

Balance as at 31 December 2011 12 659 464 82 357 ( 525 313) ( 192 073) 12 024 435

Bonds and other fixed income securitiesIssue by government and public entities 3 941 747 368 ( 37 414) ( 31) 3 904 670Issue by others entities 5 554 197 16 126 ( 100 551) ( 35 384) 5 434 388

Shares 2 328 503 220 266 ( 85 264) ( 104 954) 2 358 551 Other securities 796 571 24 079 ( 6 060) ( 37 363) 777 227

Balance as at 31 December 2010 12 621 018 260 839 ( 229 289) ( 177 732) 12 474 836

(1) Acquisition cost relating to shares and other variable income securities and amortised cost relating to debt securities.

Fair value reserve


Cost (1) Book value

During the year 2008, the Group has reclassified from available-for-sale financial assets an amount of euro 522 715 thousand to held-to-maturity investments (see Note 27), following an amendment to IAS 39 Financial Instruments: Recognition and Measurement issued in October 2008 and adopted by the European Union in that year. As at 31 December 2011 and 2010, the amounts that would have been recognised in the year if the reclassifications were not made are presented as follows:

31.12.2011 31.12.2010


Net change in fair value reserve ( 16 329) 8 269Tax effect 4 308 ( 2 031)

( 12 021) 6 238

During the second quarter of 2011, taking in consideration the new solvency rules applicable to the insurance industry in Portugal, in-force from 1 January 2011, the insurance entities of the Group have reclassified from available-for-sale financial assets an amount of euro 150 253 thousand to held-to-maturity investments (see Note 27), in accordance with IAS 39 Financial Instruments: Recognition and Measurement.




Page 72

As at 31 December 2011, the amounts that would have been recognised in the year if the reclassifications were not made are presented as follows:

31.12.2011


Net change in fair value reserve ( 26 220)Tax effect 7 596

( 18 624)

The balance Available-for-sale financial assets includes securities pledged as collateral by the Group as described in Note 47. In December 2011, the Available-for-sale financial assets portfolio includes an amount of euro 306.4 million related with securities held by securitisation vehicles consolidated by the Group and that collateralise the respective debt issued (31 December 2010: euro 406.7 million) (see Notes 1 and 50). In accordance with the accounting policy described in Note 2.6, the Group assesses periodically whether there is objective evidence of impairment on the available-for-sale financial assets, following the judgment criteria’s described in Note 3.1. The changes occurred in impairment losses of available-for-sale financial assets are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 177 732 183 228 Charge for the year 74 790 40 797 Charge off ( 55 167) ( 44 385) Write back for the year ( 6 789) ( 7 937) Transfer ( 1 100) - Exchange differences and other 2 607 6 029

Balance as at 31 December 192 073 177 732


As at 31 December 2011 and 2010, the analysis of available-for-sale assets by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 4 949 255 2 607 465 From 3 to 12 months 1 429 986 3 191 532 From 1 to 5 years 2 152 130 1 430 612 More than 5 years 2 111 799 2 110 458 Undetermined 1 381 265 3 134 769

12 024 435 12 474 836





Page 73

The main equity exposures that contribute to the fair value reserve, as at 31 December 2011 and 2010, can be analysed as follows:

Positive Negative

Portugal Telecom 603 298 - (151 041) - 452 257EDP 200 664 - ( 24 077) - 176 587Banque Marocaine du Commerce Extérieur 2 376 5 454 - ( 348) 7 482

806 338 5 454 ( 175 118) ( 348) 636 326

Positive Negative

Banco Bradesco 759 002 170 217 - - 929 219Portugal Telecom 754 062 - (7 280) - 746 782EDP 284 953 - (49 897) - 235 056Banque Marocaine du Commerce Extérieur 2 290 7 293 - ( 344) 9 239

1 800 307 177 510 (57 177) ( 344) 1 920 296


31.12.2010

Amortised cost

Fair value reserveImpairment Market value

31.12.2011

Fair value reserve


Impairment Amortised

cost Market value

During the year ended 31 December 2011, the Group sold at market prices through the stock exchange, 81.6 million ordinary shares of Bradesco, 165.4 million ordinary shares of EDP and 113.8 million ordinary shares of Portugal Telecom. These transactions generated a realised net gain of euro 40.0 million (euro 12.1 million net of non-controlling interest) (see note 8). During the year ended 31 December 2010, the Group sold at market prices through the stock exchange, 52.5 million ordinary shares of Bradesco, 11.7 million ordinary shares of Portugal Telecom and 43.2 million ordinary shares of EDP. These transactions generated a realised net gain of euro 287.6 million (euro 86.7 million net of non-controlling interest). During the year ended 31 December 2011, the Group received dividends from PT for an amount of euro 138.7 million, from EDP for an amount of euro 11.8 million and from Bradesco for an amount of euro 5.3 million (31 December 2010: euro 129.1 million, euro 17.2 million and euro 32.4 million, respectively). The analysis of the available-for-sale financial assets by quoted and unquoted securities, is presented as follows:


SecuritiesBonds and other fixed income securities

Issue by government and public entities 3 025 348 1 849 777 4 875 125 1 914 346 1 990 324 3 904 670 Issue by other entities 996 708 4 795 696 5 792 404 2 072 142 3 362 246 5 434 388

Shares 688 288 202 096 890 384 2 050 296 308 255 2 358 551

Other variable income securities 219 266 247 256 466 522 146 990 630 237 777 227

4 929 610 7 094 825 12 024 435 6 183 774 6 291 062 12 474 836

31.12.2011 31.12.2010


Valuation techniques have been disclosed in Note 51.




Page 74

NOTE 25 - LOANS AND ADVANCES TO BANKS As at 31 December 2011 and 2010 this balance is analysed as follows:

31.12.2011 31.12.2010

Loans and advances to banks in PortugalInter-bank money market - 16Deposits 94 925 1 321 454Loans 711 963 42 241Very short term deposits 18 105 27 105Other loans and advances 1 247 64 483

826 240 1 455 299

Loans and advances to banks abroadDeposits 213 985 290 489Loans 537 027 942 410Very short term deposits 29 343 6 269Other loans and advances 413 737 377 451

1 194 092 1 616 619

Overdue loans and interest 398 398

2 020 730 3 072 316

Impairment losses ( 617) ( 642)

2 020 113 3 071 674


The main loans and advances to banks in Portugal, as at 31 December 2011 bear interest at an average annual interest rate of 2.22% (31 December 2010: 1.53%). Loans and advances to banks abroad bear interest at international market rates where the Group operates. As at 31 December 2010, the balance loans and advances to banks in Portugal includes deposits in the European Central Banks System (Bank of Portugal) for an amount of euro 1 200 million. As at 31 December 2011, there were no deposits in the European Central Banks System (Bank of Portugal). As at 31 December 2011 and 2010, the analysis of loans and advances to banks by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 1 584 745 2 420 4703 to 12 months 52 640 368 5121 to 5 years 109 916 234 481More than 5 years 272 842 48 172Undetermined 587 681

2 020 730 3 072 316





Page 75

The changes occurred during the year in impairment losses of loans and advances to banks are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 642 814

Charge for the year 406 164 Write back for the year ( 446) ( 378) Exchange differences and other 15 42

Balance as at 31 December 617 642





Page 76

NOTE 26 - LOANS AND ADVANCES TO CUSTOMERS As at 31 December 2011 and 2010, this balance is analysed as follows:

31.12.2011 31.12.2010

Domestic loansCorporate

Loans 13 720 270 14 064 375Commercial lines of credits 5 305 293 4 767 663Finance leases 2 937 632 3 171 971Discounted bills 512 259 554 527Factoring 1 450 035 1 565 034Overdrafts 30 613 26 593Other loans 119 457 225 902

RetailMortgage loans 10 556 061 10 716 984Consumer and other loans 1 972 111 2 309 535

36 603 731 37 402 584

Foreign loansCorporate

Loans 10 408 352 10 684 807Commercial lines of credits 2 105 017 2 127 981Discounted bills 113 044 174 543Finance leases 67 019 182 281Overdrafts 609 652 450 367Other loans 777 123 1 471 496

RetailMortgage loans 956 733 884 958Consumer and other loans 819 020 586 075

15 855 960 16 562 508

Overdue loans and interestUp to 3 months 207 524 137 862From 3 months to 12 months 365 470 264 598From 1 to 3 years 686 957 558 398More than 3 years 374 377 245 569

1 634 328 1 206 427

54 094 019 55 171 519

Impairment losses (2 212 144) (1 824 712)

51 881 875 53 346 807


As at 31 December 2011, the balance loans and advances to customers includes an amount of euro 5 828.7 million (31 December 2010: euro 5 715.3 million) related to securitised loans following the consolidation of the securitisation entities (see Note 50), according to the accounting policy described in Note 2.2. The liabilities related to these securitisations are booked under Debt securities issued (see Notes 39 and 50). As at 31 December 2011, loans and advances include euro 5 305.9 million of mortgage loans that collateralise the issue of covered bonds (31 December 2010: euro 4 963.0 million) (see Note 39).




Page 77

The fair value of loans and advances to customers is presented in Note 51. As at 31 December 2011 and 2010, the analysis of loans and advances to customers by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 9 712 735 5 652 954 3 to 12 months 6 420 958 7 408 366 1 to 5 years 11 968 422 11 980 539 More than 5 years 24 357 576 28 923 233 Undetermined 1 634 328 1 206 427

54 094 019 55 171 519


The changes occurred in impairment losses of loans and advances to customers are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 1 824 712 1 605 461

Charge of the year 908 872 575 838 Charge off ( 166 138) ( 120 405) Amounts recovered during the year previously charged-off 26 553 19 582 Write back of the year ( 330 489) ( 237 379) Unwind of discount ( 51 487) ( 24 363) Exchange differences and others 121 5 978

Balance as at 31 December 2 212 144 1 824 712


The unwind of discount represents the interest on overdue loans, recognised as interest and similar income, as impairment losses are calculated using the discounted cash flows method.




Page 78

As at 31 December 2011 and 2010, loans and advances to customers and impairment losses can be analysed as follows:

Gross amount

ImpairmentGross

amountImpairment

Gross amount

Impairment Net amount

Corporate loans 13 641 183 1 803 509 25 921 245 86 011 39 562 428 1 889 520 37 672 908

Mortgage loans 2 181 624 146 301 9 423 673 12 718 11 605 297 159 019 11 446 278

Consumer and other loans 542 883 150 657 2 383 411 12 948 2 926 294 163 605 2 762 689

Total 16 365 690 2 100 467 37 728 329 111 677 54 094 019 2 212 144 51 881 875

Gross amount

ImpairmentGross

amountImpairment

Gross amount

Impairment Net amount

Corporate loans 8 412 987 1 096 209 32 046 665 333 231 40 459 652 1 429 440 39 030 212

Mortgage loans 1 206 383 193 056 10 494 630 26 285 11 701 013 219 341 11 481 672

Consumer and other loans 462 470 138 036 2 548 384 37 895 3 010 854 175 931 2 834 923

Total 10 081 840 1 427 301 45 089 679 397 411 55 171 519 1 824 712 53 346 807

31.12.2011

Loans with impairment losses calculated on an individual basis

Loans with impairment losses calculated on a portfolio basis

Total



31.12.2010

Loans with impairment losses calculated on an individual basis

Loans with impairment losses calculated on a portfolio basis

Total

Loans with impairment losses calculated on an individual basis include loans with objective evidence of impairment, overdue loans for over 30 days and restructured loans. As at 31 December 2011, loans and advances include euro 178 017 thousand of restructured loans (31 December 2010: euro 90 098 thousand). These loans correspond, in accordance with the definition of the Bank of Portugal, to loans previously overdue, which through a restructuring process are considered as performing loans. The interest recognised in 2011 as interest and similar income in relation to impaired loans amounts to euro 759.0 million (2010: euro 382.4 million) which includes the effect of the unwind of discount related to overdue loans. The Group requires that some credit operations be collateralised, in order to mitigate credit risk. The more common types of collateral held are mortgages and securities. The fair value of these collaterals is determined at the date the loan is advanced to customers, being periodically updated when the credit is classified as having an impairment trigger. The periodicity of the update considers the risk and size of each loan.




Page 79

The collateral received regarding credit operations can be analysed as follows:

Loan Collateral fair value


Mortgage loans

Mortgages 11 325 239 11 306 989 Pledges 6 543 6 360 Non-collateralized 273 515 -

11 605 297 11 313 349

Retail loans

Mortgages 299 256 289 356 Pledges 679 981 487 877 Non-collateralized 1 738 037 -

2 717 274 777 233

Corporate loansMortgages 11 112 064 9 904 884 Pledges 8 539 994 6 402 670 Non-collateralized 20 119 390 43 191

39 771 448 16 350 745

Loans and advances to customersMortgages 22 736 559 21 501 229 Pledges 9 226 518 6 896 907 Non-collateralized 22 130 942 43 191

54 094 019 28 441 327

31.12.2011

Under the contracts relating to collateral held, the Group cannot sell the underlying assets until these are acquired in exchange for loans. The terms and conditions of these contracts are in line with the market practice relating to credit granting. Loans and advances to customers by interest rate type are analysed as follows:

31.12.2011 31.12.2010

Variable interest rate 45 260 078 47 887 538 Fixed interest rate 8 833 941 7 283 981

54 094 019 55 171 519





Page 80

An analysis of finance leases by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Gross investment in finance leases, receivableUp to 1 year 491 511 549 418 From 1 to 5 years 1 410 375 1 457 119 More than 5 years 1 535 201 1 850 942

3 437 087 3 857 479

Unearned finance income on finance leasesUp to 1 year 110 457 80 102 From 1 to 5 years 294 738 222 904 More than 5 years 27 241 200 221

432 436 503 227

Present value of minimum lease payments, receivableUp to 1 year 381 054 469 316 From 1 to 5 years 1 115 637 1 234 215 More than 5 years 1 507 960 1 650 721

3 004 651 3 354 252

Impairment ( 97 190) ( 89 663)

2 907 461 3 264 589


As at 31 December 2011 and 2010 there are no finance leases which represent individually more than 5% of the total minimum lease payments. There are no finance leases with contingent rents. NOTE 27 - HELD-TO-MATURITY INVESTMENTS The held-to-maturity investments, can be analysed as follows:

31.12.2011 31.12.2010

Bonds and other fixed income securitiesIssued by government and public entities 959 489 829 341Issued by other entities 825 982 1 674 218

1 785 471 2 503 559

Impairment losses ( 34 278) ( 50 094)

1 751 193 2 453 465





Page 81

As at 31 December 2011 and 2010, the analysis of held-to-maturity investments by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 741 598 160 750 3 to 12 months 291 138 180 228 1 to 5 years 713 381 1 213 723 More than 5 years 39 354 948 858

1 785 471 2 503 559


The analysis of the held-to-maturity investments by quoted and unquoted securities is presented as follows:


Bonds and other fixed income securitiesIssued by government and public entities 955 678 1 848 957 526 827 063 2 278 829 341 Issued by other entities 270 406 523 261 793 667 928 651 695 473 1 624 124

1 226 084 525 109 1 751 193 1 755 714 697 751 2 453 465

31.12.2011 31.12.2010


The changes occurred in impairment losses of held to maturity investments are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 50 094 34 565Charge of the year 17 462 46 744Charge off ( 33 131) ( 30 702)Exchange differences and other ( 147) ( 513)



During the year ended 31 December 2008, the Group has reclassified non-derivative financial assets to the held-to-maturity investments category for an amount of euro 767.2 million, as follows:

Positive Negative


Available-for-sale financial assets 551 897 522 715 424 ( 29 607) 701 070 5.75% 485 831 18 957

Financial assets held-for-trading 243 114 244 530 - - 408 976 11.50% 237 295 -

Bonds and other fixed income securities 795 011 767 245 424 ( 29 607) 1 110 046 723 126 18 957

a)

b)

c)

Acquisition cost

Market value as at 31 December

2008Fair value reserve

Reclassification date

Future

cash-flows (a)

Amortisation of fair value reserve until 31.12.2011

c)

Effective interest rate

(b)

Book value

Undiscounted capital and interest cash flows; fu ture interest is calculated based on the forward interest rates at the date of reclassification.

Effective interest rate was calculated based on the forward interest rates at the date of reclassification; the maturity considered was the minimum between the cal l date, i f applicable and the maturity date of th e financial asset.

Amort isation in the year end ed 31 December 2011 amount to euro 3 468 thousand (31 December 2010: euro 5 866 thousand). In addition, during 2011 an amount of euro 6 138 thousand was re-alocated to the available-for-sale portfol io fol lowing the reclassificat ion of part of the held to maturity portfolio as explained below in this Note.




Page 82

The reclassification of financial assets held-for-trading as held-to-maturity investments was performed following the amendment to IAS 39 Financial instruments: recognition and measurement and IFRS 7 Financial instruments: disclosures, adopted by the Regulation (EU) nº 1004/2008 issued in 15 October 2008. This reclassification was made due to the market conditions following the international financial crises that characterised the year 2008, which was considered to be one of the rare circumstances justifying the application of the amendment to IAS 39. The effect in the 2010 financial statements that would have been recognised if the reclassifications were not made in 2008 is presented in Notes 22 and 24. Following the publication by the Bank of Portugal, in May 2011 of Notice no. 3/2011, which has established new minimum levels for the Core Tier 1 ratio (9% at 31 December 2011 and 10% in 31 December 2012) and bearing in mind the need to achieve, from 2014 onwards, a stable funding ratio of 100%, according to the Memorandum of Economic and Financial Policies established between the Portuguese Government, the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), the Group has decided during the second half of 2011 to sell a significant portion of the held-to-maturity investments portfolio. Under this decision, the securities to be sold were transferred to the available-for-sale financial assets portfolio and valued at market value. Taking into account that the reclassification and subsequent sale of those securities is attributable to the significant increase in the industry regulatory capital requirements, it qualifies as an exception to the tainting rules as established under paragraph AG 22 of IAS 39 'Financial Instruments: Recognition and Measurement'. On these basis and once the Group has the intention and ability to hold the remaining securities until their maturity, they remained classified on the held-to-maturity investments portfolio. The effects of the securities reclassification in the Group consolidated financial statements, at the transfer date, can be analysed as follows:

584 923 ( 6 138) ( 50) 578 735 584 923 ( 13 590) ( 50) 571 283

(a) Remaining value of the fair value reserves at the transfer date for the held-to-maturity investments portfolio occured with reference to 1 June 2008.

Impairment Impairment Balance

From held to maturity investments To available-for-sale financial assets

BalanceAcquisition

costFair value

reserveAcquisition

costFair value reserve (a)

During the second quarter of 2011, taking in consideration the new solvency rules applicable to the insurance industry in Portugal, in-force from 1 January 2011, the insurance entities of the Group have reclassified from available-for-sale financial assets an amount of euro 150 253 thousand to held-to-maturity investments (see Note 24), in accordance with IAS 39 Financial Instruments: Recognition and Measurement, as follows.

Positive Negative


Available-for-sale financial assets 172 337 150 253 - ( 22 083) 210 964 9.09% 129 724 4 087

Bonds and other fixed income securities 172 337 150 253 - ( 22 083) 210 964 129 724 4 087

a)b)

Amortisation of fair value reserve until 31.12.2011

Reclassification dateMarket value as at 31 December

2011Future

cash-flows (a)

Effective interest rate

(b)Book value

Fair value reserve

Undiscounted capital and interest cash flows ; fu ture interest is calculated based on the forward interest rates at the date of reclassification.

Effective interest rate was calculated based on the forward interest rates at the date of reclassification; the maturity considered was the minimum between the cal l date, i f applicable and the maturity date of the financial asset.

Acquisition cost

It should be noted that this reclassification was made exclusively taking in consideration the solvency rules applicable to the insurance industry and has no impact in terms of ESFG regulatory capital. In accordance with the Bank of Portugal rules, the investments held by ESFG in insurance subsidiaries, are measured for the purposes of the regulatory capital, in accordance with the equity method and are deducted from consolidated own funds as explained in Note 52.




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NOTE 28 - DERIVATIVES FOR RISK MANAGEMENT PURPOSES As at 31 December 2011 and 2010, the fair value of the derivatives for risk management purposes can be analysed as follows:

Hedgingderivatives

Other derivatives for

risk management

purposes

TotalHedging

derivatives

Other derivatives for

risk management

purposes

Total

Derivatives for risk management purposes

Derivatives for risk management purposes - assets 210 027 300 063 510 090 255 908 191 396 447 304 Derivatives for risk management purposes - liabilities ( 82 208) ( 156 425) ( 238 633) ( 88 057) ( 140 887) ( 228 944)

127 819 143 638 271 457 167 851 50 509 218 360

Accumulated change in the fair value component of assets and liabilities being hedged

Financial assetsLoans and advances to customers 23 839 - 23 839 21 140 - 21 140

23 839 - 23 839 21 140 - 21 140

Financial liabilitiesDeposits from banks ( 56 254) - ( 56 254) ( 29 639) ( 538) ( 30 177)Due to customers ( 838) 22 751 21 913 ( 3 323) ( 14 760) ( 18 083)Debt securities issued ( 38 497) 154 872 116 375 ( 42 004) 119 308 77 304 Subordinated debt - - - ( 863) - ( 863)

( 95 589) 177 623 82 034 ( 75 829) 104 010 28 181

( 71 750) 177 623 105 873 ( 54 689) 104 010 49 321

31.12.2011 31.12.2010


As mentioned in the accounting policy described in Note 2.4, derivatives for risk management purposes includes hedging derivatives and derivatives contracted to manage the risk of certain financial assets and financial liabilities designated at fair value through profit or loss (and that were not classified as hedging derivatives). Hedging derivatives As at 31 December 2011 and 2010, the fair value hedge relationships present the following features:

Derivative Hedged item Hedged risk Notional

Interest Rate Swap/ Currency Loans and advances to customers Interest rate and FX 740 420 ( 20 614) ( 36 705) 23 839 ( 7 617)Interest Rate Swap Due to customers Interest rate 4 417 1 978 ( 1 060) ( 838) 918 Interest Rate Swap Deposits from banks Interest rate 186 300 53 435 28 658 ( 56 254) ( 26 963)Interest Rate Swap Debt security issued Interest rate 3 924 826 93 020 45 639 ( 38 497) ( 13 344)

4 855 963 127 819 36 532 ( 71 750) ( 47 006)

(1) Attributable to the hedged risk(2) Includes accrued interest

Changes in the fair value of the derivative in the

year (2)

Accumulated changes in fair

value of the hedged item (1)

Changes in the fair value of the hedged item in the year(1)

31.12.2011


Fair value of derivative (2)




Page 84

Derivative Hedged item Hedged risk Notional

Interest Rate Swap Loans and advances to customers Interest rate 2 048 700 ( 10 064) 2 759 21 140 ( 4 307)Interest Rate Swap/ Currency Deposits from banks Interest rate 192 444 31 622 5 260 ( 29 639) ( 5 596)Interest Rate Swap Due to customers Interest rate 125 417 7 932 ( 2 206) ( 3 323) 2 227 Currency interest Rate Swap Debt security issued Interest rate 4 540 844 137 033 ( 27 403) ( 41 828) 28 734 Currency interest Rate Swap Debt security issued Interest rate and FX 18 807 585 ( 443) ( 176) 425 Currency interest Rate Swap Subordinated loans Interest rate and FX 276 104 743 ( 5 382) ( 863) ( 2 906)

7 202 316 167 851 ( 27 415) ( 54 689) 18 577

(1) Attributable to the hedged risk(2) Includes accrued interest


31.12.2010

Changes in the fair value of the derivative in the

year (2)

Accumulated changes in fair

value of the hedged item (1)

Changes in the fair value of the hedged

item in the year(1)

Fair value of derivative (2)

Changes in the fair value of the hedged items mentioned above and of the respective hedging derivatives are recognised in the income statement under net gains / (losses) from financial assets and financial liabilities at fair value through profit or loss. As at 31 December 2011, the ineffectiveness of the fair value hedge operations amounted to euro 10.5 million (31 December 2010: euro 8.8 million) and was recognised in the income statement. ESFG Group evaluates on an ongoing basis the effectiveness of the hedges. Other derivatives for risk management purposes Other derivatives for risk management purposes includes derivatives held to hedge financial assets and financial liabilities at fair value through profit and loss in accordance with the accounting policies described in Notes 2.5, 2.6 and 2.8 and that the Group did not classify as hedging derivatives.




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The book value of financial assets and financial liabilities at fair value through profit and loss can be analysed as follows:

Liabilities

Interest Rate Swap Due to customers 5 858 000 130 251 46 477 18 824 41 092 7 296 870 7 315 694 Interest Rate Swap/FX Forward Debt security issued 1 822 391 77 431 34 408 120 593 6 971 278 702 395 878 Credit Default Swap Debt security issued 205 778 ( 33 905) ( 37 349) 22 287 14 560 219 839 238 524 Equity Swap Debt security issued 947 585 ( 33 873) ( 25 271) 15 371 23 203 334 881 349 886 Equity Option Debt security issued 78 719 3 734 3 285 548 517 107 521 110 039

8 912 473 143 638 21 550 177 623 86 343 8 237 813 8 410 021

(1) Corresponds to the minimum guaranted amount to be reimbursed at maturity

Changes in the fair value

during the yearFair Value

Carrying amount

Redemption amount at

maturity (1)


31.12.2011

DerivativeFinancial assets / liabilities

economically hedged

Derivative Assets / Liabilities associated

Notional Fair ValueChanges in the

fair value during the year

Assets

FX swap Loans ans advances to banks - - 13 - ( 236) - -

Liabilities

Interest Rate Swap Deposits from banks 262 007 41 353 ( 40 532) 117 ( 671) 163 914 289 617 FX swap Deposits from banks 391 395 667 128 ( 669) ( 128) 392 064 391 395 Credit Default Swap Deposits from banks 5 500 ( 124) ( 142) 14 11 2 485 2 500 Interest Rate Swap Due to customers 3 373 000 48 087 19 089 ( 14 760) ( 30 142) 3 995 152 4 013 920 Interest Rate Swap/Fx forwards Debt security issued 1 422 772 ( 13 897) 14 563 117 996 54 527 424 205 545 001 Credit Default Swap Debt security issued 95 330 ( 10 389) ( 9 621) 7 732 10 212 141 652 147 637 Equity Swap Debt security issued 295 382 ( 15 518) ( 22 396) ( 6 418) 12 650 237 948 226 512 Equity Option Debt security issued 16 027 322 783 19 39 10 391 10 387 Fx Option Debt security issued 605 8 ( 192) ( 21) 255 15 475 15 453

5 862 018 50 509 ( 38 307) 104 010 46 517 5 383 286 5 642 422

(1) Corresponds to the minimum guaranted amount to be reimbursed at maturity

Financial assets / liabilities economically hedged

Derivative

31.12.2010


Assets / Liabilities associatedDerivative


during the year

Carrying amount

Redemption amount at

maturity (1)Notional Fair Value


during the yearFair Value

As at 31 December 2011, the fair value of the financial liabilities at fair value through profit or loss, includes a positive cumulative effect of euro 202.3 million (31 December 2010: positive cumulative effect of euro 151.4 million) attributable to the Group’s own credit risk. The change in fair value attributable to the Group’s own credit risk resulted in the recognition, in 2011, of a profit amounting to euro 50.9 million (31 December 2010: profit of euro 82.7 million).




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As at 31 December 2011 and 2010, the analysis of derivatives for risk management purposes by the period to maturity is as follows:

Notional Fair value Notional Fair value

Up to 3 months 3 014 403 24 059 2 944 529 37 054 3 to 12 months 2 688 223 38 159 845 832 3 068 1 to 5 years 7 024 951 82 709 7 144 996 95 559 More than 5 years 1 040 859 126 530 2 128 977 82 679

13 768 436 271 457 13 064 334 218 360


31.12.2011 31.12.2010

NOTE 29 - NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE This balance as at 31 December 2011 and 2010 is analysed as follows:

Assets Liabilities Assets Liabilies

Assets and liabilities of subsidiaries 291 248 140 950 21 423 5 411 acquired exclusively for resale purposes

Property held for sale 1 531 180 - 641 112 - Equipment 2 203 - 1 840 - Other tangible assets 3 501 - - -

1 536 884 - 642 952 - Impairment losses ( 181 449) - ( 89 825) -

1 355 435 - 553 127 -

1 646 683 140 950 574 550 5 411


31.12.2011 31.12.2010

The amounts presented refer to (i) investments in entities controlled by the Group, which have been acquired exclusively with the purpose of being sold in the short term, and (ii) assets acquired in exchange for loans and discontinued branches available for immediate sale. As at 31 December 2011, the amount of property held for sale includes euro 16 392 thousand (31 December 2010: euro 12 848 thousand) related to discontinued branches, in relation to which the Group recognised an impairment loss amounting to euro 7 699 thousand (31 December 2010: euro 3 924 thousand).




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The changes occurred in non-current assets held for sale during 2011 and 2010, are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 642 952 423 767

Additions 1 077 644 464 923Sales ( 190 452) ( 244 942)Other 6 740 ( 796)

Balance as at 31 December 1 536 884 642 952


Following the sales occurred in 2011, the Group realised a loss amounting to euro 12 207 thousands (31 December 2010: loss of euro 12 727 thousands). The changes occurred in impairment losses are presented as follows:

31.12.2011 31.12.2010


Charge for the year 127 178 58 489Charge off ( 31 057) ( 20 291)Write back for the year ( 4 116) ( 965)Exchange differences and other ( 381) (74)






Page 88

NOTE 30 - PROPERTY AND EQUIPMENT As at 31 December 2011 and 2010 this balance is analysed as follows:

31.12.2011 31.12.2010

PropertyLand and buildings 763 783 777 699 Improvements in leasehold property 242 464 240 385 Other 842 1 237

1 007 089 1 019 321

EquipmentComputer equipment 340 234 338 468 Furniture 147 607 138 253 Fixtures 145 885 139 127 Security equipment 38 535 36 170 Office equipment 41 129 41 212 Medical equipment 91 636 87 592 Motor vehicles 13 527 10 545 Other 29 348 31 302

847 901 822 669

Other 25 262 22 416

Work in progressLand and buildings 322 743 254 574 Improvement in leasehold property 1 422 1 577 Equipment 6 643 9 597 Other 3 027 3 762

333 835 269 510

Accumulated depreciation (1 037 235) ( 966 520)Impairment losses ( 1 306) ( 2 356)

(1 038 541) ( 968 876)

1 175 546 1 165 040


In accordance with the accounting policy described in Note 2.14, the Group concluded that there was an indication of impairment in relation to certain property and equipment. Therefore it has performed impairment tests for these assets and concluded that an accumulated impairment loss of euro 1 306 thousand should be recognised (31 December 2010: euro 2 356 thousand).




Page 89

The movement in this balance was as follows: Work in

Property Equipment Other progress Total

Acquisition costsBalance as at 31 December 2009 975 694 768 260 20 656 140 401 1 905 011

Change in the scope of consolidation (a) 7 391 16 290 - - 23 681 Acquisitions 28 501 35 181 823 157 620 222 125 Disposals ( 8 640) ( 9 591) - ( 31) ( 18 262)Transfers (b) 11 304 9 702 ( 200) ( 25 327) ( 4 521)Exchange differences and other 5 071 2 827 1 137 ( 3 153) 5 882

Balance as at 31 December 2010 1 019 321 822 669 22 416 269 510 2 133 916

Acquisitions 7 527 30 012 867 79 855 118 261 Disposals ( 20 848) ( 13 530) ( 290) ( 238) ( 34 906)Transfers (b) ( 872) 4 318 5 494 ( 14 612) ( 5 672)Exchange differences and other 1 961 4 432 ( 3 225) ( 680) 2 488

Balance as at 31 December 2011 1 007 089 847 901 25 262 333 835 2 214 087

DepreciationBalance as at 31 December 2009 296 805 578 209 9 942 - 884 956

Change in the scope of consolidation (a) 777 7 102 - - 7 879 Depreciation 33 350 59 659 1 786 - 94 795 Disposals ( 5 544) ( 9 414) - - ( 14 958)Transfers (b) ( 1 495) 366 - - ( 1 129)Exchange differences and other ( 280) ( 5 028) 285 - ( 5 023)

Balance as at 31 December 2010 323 613 630 894 12 013 - 966 520

Depreciation 33 293 57 674 1 956 - 92 923 Disposals ( 6 884) ( 13 319) ( 183) - ( 20 386)Transfers (b) ( 1 548) 4 141 - ( 1 403)Exchange differences and other ( 1 046) 540 87 - ( 419)

Balance as at 31 December 2011 347 428 675 793 14 014 - 1 037 235

ImpairmentBalance as at 31 December 2009 4 762 - 517 - 5 279

Impairment losses - - 180 - 180 Write-off for the year ( 3 103) - - - ( 3 103)

Balance as at 31 December 2010 1 659 - 697 - 2 356

Impairment losses - - 220 - 220 Write-off for the year ( 1 270) - - - ( 1 270)

Balance as at 31 December 2011 389 - 917 - 1 306

Net balance as at 31 December 2011 659 272 172 108 10 331 333 835 1 175 546

Net balance as at 31 December 2010 694 049 191 775 9 706 269 510 1 165 040


(b) Relating to discontinued branches, transferred to the balance Non-current assets held for sale(a) Relating to the acquisition of Aman bank, Execution Noble and Pastorvida




Page 90

The balance Equipment – Motor vehicles includes equipment acquired under finance lease agreements, whose payment schedule is as follows:

31.12.2011 31.12.2010

Gross investment in finance leases, payableUp to 1 year 589 125From 1 to 5 years 971 286

1 560 411

InterestUp to 1 year 55 14From 1 to 5 years 42 20

97 34

PrincipalUp to 1 year 534 111From 1 to 5 years 929 266

1 463 377


NOTE 31 - INVESTMENT PROPERTIES

Investment properties are analysed as follows:

31.12.2011 31.12.2010

Insurance activity 315 393 338 765Real estate activity 2 645 2 645

318 038 341 410





Page 91

The movement in investment properties for the years ended 31 December 2011 and 2010 can be analysed as follows:

Total

Net balance as at 31 December 2009 88 092 1 725 89 817 Change in the scope of consolidation (a) 272 951 - 272 951 Improvements 128 - 128 Disposals ( 24 242) ( 1 725) ( 25 967)Transfer - 2 645 2 645 Other 264 - 264 Unrealised gains / (losses) 1 572 - 1 572

Net balance as at 31 December 2010 338 765 2 645 341 410 Improvements 3 616 - 3 616 Disposals ( 25 552) - ( 25 552)Other 260 - 260 Unrealised gains / (losses) ( 1 696) - ( 1 696)

Net balance as at 31 December 2011 315 393 2 645 318 038

(a) relates to FUNDES - Fundo Especial de Investimento Imobiliário Fechado


Insurance activity

Real estate activity

The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties in the same location as the Group’s investment property when available. Investment property includes a number of commercial properties that are leased to third parties. Most lease contracts do not have a specified term being possible for the lessee to cancel at any time. However, for a small part of commercial properties leased to third parties on average the leases contain an initial non-cancellable period of 10 years. Subsequent renewals are negotiated with the lessee. The increase (or decrease) in fair value of investment property of euro 1.7 million (31 December 2010: increase of euro 1.5 million) is recognised in Other operating income and expenses. Rental income from investment property of euro 10.3 million (31 December 2010: euro 2.7 million) is recognised in Other operating income. The direct operating expenses including repairs and maintenance arising from investment property that generated rental income during the year reached 4 million euro. The direct operating expenses including repairs and maintenance arising from investment property that did not generate rental income during the year reached euro 0.4 million.




Page 92

NOTE 32 - INTANGIBLE ASSETS

As at 31 December 2011 and 2010 this balance is analysed as follows:

31.12.2011 31.12.2010

Goodwill 337 547 335 424

Internally developed Software 91 865 79 079

Acquired from third parties Software 650 505 599 703 Other 67 756 68 140

718 261 667 843

Work in progress 32 798 40 955

1 180 471 1 123 301 Accumulated amortisation ( 621 647) ( 563 664)Impairment ( 9 628) ( 1 800)

549 196 557 837


Goodwill, recognised in accordance with the accounting policy described in Note 2.2, is analysed as follows:

31.12.2011 31.12.2010

HOSPOR 89 943 89 943PARTRAN 61 123 61 123BES 58 336 58 336BESPAR 5 960 5 960MARIGNAN GESTION 3 613 3 613Clínica Oiã 2 810 3 395BEST 2 349 2 349CONCORDIA 1 605 1 800ES Investment Holding (a) 47 449 46 046ES Gestion (b) 22 142 22 142AMAN BANK 16 046 15 533PASTOR VIDA 23 110 23 110Other 3 061 2 074

337 547 335 424Impairment ( 9 628) ( 1 800)

327 919 333 624

(a) Holding company of Execution/Noble(b) Includes euro 2 459 thousand and euro 19 683 thousand in relation to Banco Inversión and Gespastor, respectively, entities that were merged into ES Gestion after acquisition.





Page 93

In accordance with the accounting policy described in Note 2.2, goodwill is subject to impairment tests annually or whenever there is an indication of impairment. These tests were performed for the preparation of the consolidated financial statements as at 31 December 2011 and 2010. Hospor The recoverable amount of Hospor has been determined using cash flow predictions based on (i) the financial budget approved by management covering a five-year period, (ii) a terminal growth rate in line with estimated inflation and (iii) a discount rate including a risk premium appropriated to the estimated future cash-flows. The five-year period is justified as Hospor management expects the Company to achieve the cruise year in 2016 and therefore expects the activity to grow from that date in line with inflation. Based on the above assumptions, the recoverable amount exceeded the carrying amount including goodwill. Partran Partran is the holding company for Tranquilidade Sub-Group. The recoverable amount of Partran was determined based on (i) the value of Tranquilidade business stand-alone and (ii) the value of each of its subsidiaries. The valuations performed used a Dividend Discounted Methodology and were back tested based on market multiples considering a control premium. Based on the above assumptions, the recoverable amount exceeded the carrying amount including goodwill. BES The recoverable amount of BES was determined based on appropriate market multiples taking in consideration (i) the earnings estimates for a four-year period, discounted using an adequate discount rate which includes a risk premium appropriated to the estimated future cash-flows and (ii) adequate control premiums. Based on the above analysis, the recoverable amount exceeded the carrying amount including goodwill. ES Investment Holding Limited The recoverable amount of ES Investment Holding Limited has been determined using cash flow/dividends predictions based on (i) the financial budget approved by management covering a nine-year period, (ii) a terminal growth rate in line with the estimated nominal growth for the country where the company is located and (iii) a discount rate including a risk premium appropriated to the estimated future cash-flows. The nine-year period for estimating the future cash-flows reflect the fact that the company was acquired in late 2010 and its business strategy is being redefined. It is expected that the company achieves a maturity stage only at the end of that time period. Based on the above assumptions, the recoverable amount exceeded the carrying amount including goodwill. ES Gestion and Pastor Vida On 7 October 2011, Banco Popular and Banco Pastor announced their intention to begin a merger process which will imply a change of control of Banco Pastor. The merger of Banco Popular with Banco Pastor, with the subsequent change of control of Banco Pastor, will have significant impacts on the implementation of the exclusive marketing agreement between ESAF - Espirito Santo




Page 94

Financial Assets SGPS, SA (through Gespastor) and Banco Pastor and, consequently, on the strategy outlined for the asset management activity of BES Group in the Spanish market. The situation is being monitored by the Group. According to the referred agreement, compensation payments for any losses that the Group may incur with this business unit are guaranteed, reason why no impairment has been recognized on the carrying amount of this unit including its goodwill. In what concerns Pastor Vida, and in accordance with the shareholder’s agreements between the Group and Banco Pastor, the change of control of Banco Pastor may trigger, at the decision of the Group, the exercise of certain options to put Pastor Vida shares back to Banco Pastor. It is management expectation, based on the contractual provisions, that the consideration to be received following the exercise of these options, will allow a full recovery of the investment in Pastor Vida. Aman Bank On 31 December 2011, the Group recognised an impairment of euro 8 023 thousand in goodwill recorded on the date of acquisition of Aman Bank. The impairment reflects the changes of the estimated future cash flows expected by the Group in this entity as a result of the political situation lived in Libya during 2011. The balance of internally developed software includes the costs incurred by the Group in the development and implementation of software applications that will generate economic benefits in the future (see Note 2.15).




Page 95

The movement in this balance was as follows:

Goodwill Software Other Total

Acquisition costsBalance as at 31 December 2009 235 024 612 553 1 893 30 832 880 302

Change in the scope of consolidation (a) - 9 195 66 520 - 75 715 Acquisitions:

Internally developed - 324 - 8 899 9 223 Acquired from third parties 103 689 9 477 18 41 641 154 825

Disposals - ( 474) ( 338) ( 43) ( 855)Transfers - 38 804 - ( 40 338) ( 1 534)Exchange differences and other ( 3 289) 8 903 47 ( 36) 5 625

Balance as at 31 December 2010 335 424 678 782 68 140 40 955 1 123 301

Acquisitions:Internally developed - 756 - 9 178 9 934 Acquired from third parties - 13 291 6 32 981 46 278

Disposals - ( 1 396) ( 409) - ( 1 805)Transfers - 49 805 3 ( 49 824) ( 16)Exchange differences and other 2 123 1 132 16 ( 492) 2 779

Balance as at 31 December 2011 337 547 742 370 67 756 32 798 1 180 471

AmortisationBalance as at 31 December 2009 - 503 170 1 538 - 504 708

Change in the scope of consolidation (a) - 7 675 - - 7 675 Amortisation - 44 586 131 - 44 717 Disposals - ( 402) ( 355) - ( 757)Transfers - ( 450) - - ( 450)Exchange differences and other - 7 727 44 - 7 771

Balance as at 31 December 2010 - 562 306 1 358 - 563 664

Amortisation - 52 710 5 907 - 58 617 Disposals - ( 657) ( 409) - ( 1 066)Exchange differences and other - 418 14 - 432

Balance as at 31 December 2011 - 614 777 6 870 - 621 647

ImpairmentBalance as at 31 December 2009 1 743 - - - 1 743

Exchange differences and other 57 - - - 57

Balance as at 31 December 2010 1 800 - - - 1 800

Impairment losses (b) 8 023 - - - 8 023 Exchange differences and other ( 195) - - - ( 195)

Balance as at 31 December 2011 9 628 - - - 9 628

Net balance as at 31 December 2011 327 919 127 593 60 886 32 798 549 196

Net balance as at 31 December 2010 333 624 116 476 66 782 40 955 557 837

(a) relating to the acquisition of Execution Noble and Pastorvida(b) relating to the impairment on goodwill of Aman Bank


Work in progress




Page 96

NOTE 33 - INVESTMENTS IN ASSOCIATES

The financial information concerning associates is presented in the following table:

31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010

BES VIDA 5 658 690 8 013 503 5 601 926 7 860 505 56 764 152 998 390 722 1 157 310 ( 107 968) 37 329 186 976 124 476

BES SEGUROS 131 184 120 028 111 531 95 738 19 653 24 290 66 344 66 183 3 3 24 4 015 7 501 7 501

EUROP ASSISTANCE - 39 883 - 31 098 - 8 785 - 40 369 1 4 56 1 475 2 344 2 344

LOCARENT 321 581 344 148 314 938 339 177 6 643 4 971 97 798 95 107 3 0 17 1 570 2 967 2 967

ESEGUR 41 679 48 794 31 524 38 554 10 155 10 240 54 478 48 264 6 00 1 000 9 634 9 634

FUNDO ES IBERIA 14 252 18 824 266 15 13 986 18 809 298 2 626 ( 1 198) 1 947 8 708 8 708

BRB INTERNACIONAL 14 899 11 788 12 596 10 240 2 303 1 548 3 525 4 612 84 ( 120) 10 659 10 659

AUTOPISTA PEROTE-XALAPA 441 723 417 532 308 586 274 137 133 137 143 395 - - ( 223) ( 514) 36 678 35 056

LUSOSCUT COSTA DE PRATA - 504 386 - 450 672 - 53 714 - 19 254 - 7 922 - -

LUSOSCUT BEIRA LITORAL E ALTA - 958 226 - 800 794 - 157 432 - 26 068 - 14 509 - -

LUSOSCUT GRANDE PORTO - 738 043 - 652 655 - 85 388 - 16 251 - 7 899 - -

ASCENDI GROUP 3 945 239 3 640 996 3 561 239 3 389 487 384 000 251 509 99 266 269 305 127 2 57 140 166 168 310 163 341

ASCENDI - 45 394 - 46 915 - ( 1 521) - - - ( 1 312) - -

EMPARK 773 857 730 904 626 861 594 657 146 996 136 247 182 274 16 703 3 57 7 315 55 013 55 013

AUVISA - AUTOVIA DE LOS VIÑEDOS 248 201 242 013 214 586 212 200 33 615 29 813 12 791 14 083 1 4 94 1 668 41 056 41 056

UNICRE 307 856 310 155 194 012 195 880 113 844 114 275 241 045 255 568 8 7 45 6 469 11 497 11 497

MOZA BANCO 92 737 45 211 64 908 24 196 27 829 21 015 11 720 22 401 5 95 3 665 9 800 -

SCUTVIAS 718 866 802 170 647 086 729 831 71 780 72 339 116 590 96 488 12 6 63 10 907 50 669 50 669

Others - - - - - - - - - - 143 489 113 807

745 301 636 728

Note: information adjusted for consol idation purposes

Profit/(Loss) of the year Acquisition cost


Assets Liabi lities Equity Income

Share of profit of associates

31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010

BES VIDA 50.00% 50.00% 23 148 71 258 ( 53 977) 18 664

BES SEGUROS 50.00% 50.00% 10 894 12 145 2 365 2 008

EUROP ASSISTANCE 47.00% 47.00% 4 278 4 129 750 358

LOCARENT 50.00% 50.00% 3 632 2 796 1 509 785

ESEGUR 44.00% 44.00% 11 312 11 350 264 440

FUNDO ES IBERIA 38.69% 38.69% 5 262 7 287 ( 292) 310

BRB INTERNACIONAL 24.93% 24.93% 335 243 92 86

AUTOPISTA PEROTE-XALAPA 20.00% 20.00% 26 628 28 679 209 ( 103)

LUSOSCUT COSTA DE PRATA - - - - - 1 271

LUSOSCUT BEIRA LITORAL E ALTA - - - - - 2 267

LUSOSCUT GRANDE PORTO - - - - - 958

ASCENDI GROUP 40.00% 40.00% 169 900 170 259 7 130 6 918

ASCENDI - - - - - ( 525)

EMPARK 22.40% 22.40% 54 661 54 003 ( 698) 772

AUVISA - AUTOVIA DE LOS VIÑEDOS 50.00% 50.00% 38 304 37 081 ( 5) 31

UNICRE 17.50% 17.50% 19 923 19 998 1 530 8 479

MOZA BANCO 25.10% - 11 178 - 148 -

SCUTVIAS 22.20% 22.20% 50 669 50 669 - -

Others - - 148 203 115 343 2 336 ( 5 127)

578 327 585 240 ( 38 639) 37 592

Book va lueVoting interest





Page 97

The movement occurred in this balance is presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 585 240 418 162 Disposals - ( 99 682)

Acquisitions and capital increases 107 885 292 823 Share of profit of associates ( 38 639) 37 592

Fair value reserve from investments in associates (a) ( 58 676) ( 48 990) Dividends received ( 4 122) ( 16 734) Exchange differences and other ( 13 361) 2 069



(a) Mainly attributable to the changes in BES Vida fair value reserves.

NOTE 34 - TECHNICAL RESERVES

The direct insurance and reinsurance ceded technical reserves are analysed as follows:

Direct Reinsurance Direct Reinsurance insurance ceded Total insurance ceded Total

Unearned premiums reserve 122 420 ( 20 581) 101 839 119 902 ( 20 061) 99 841Life mathematical reserve 439 600 ( 586) 439 014 480 096 ( 414) 479 682Claims outstanding reserve 499 462 ( 41 603) 457 859 519 172 ( 42 357) 476 815Unexpired risks reserve 22 500 - 22 500 32 610 - 32 610Reserve for bonus and rebates 5 933 ( 2 750) 3 183 5 239 ( 2 266) 2 973

1 089 915 ( 65 520) 1 024 395 1 157 019 ( 65 098) 1 091 921

31.12.2011 31.12.2010

( in thousands of euro)

The life mathematical reserve is analysed as follows:


Annuities 85 996 ( 586) 85 410 87 514 ( 414) 87 100Saving Contracts with Profit Sharing 228 779 - 228 779 256 579 - 256 579Saving Contracts without Profit Sharing 121 240 - 121 240 131 675 - 131 675Life insurances policies where investment riskis borne by policyholders 3 585 - 3 585 4 328 - 4 328

439 600 ( 586) 439 014 480 096 ( 414) 479 682

31.12.2011 31.12.2010





Page 98

In accordance with IFRS 4, the contracts issued by the Group for which there is only a transfer of financial risk, with no discretionary profit sharing, are classified as investment contracts and accounted for as financial liabilities. The claims outstanding reserve by line of business is analysed as follows:


Life 10 429 ( 782) 9 647 10 061 ( 1 058) 9 003 Workers compensation (mathematical reserve) 121 187 ( 1 182) 120 005 122 049 ( 298) 121 751 Workers compensation (not related to life pensions) 56 034 - 56 034 53 654 - 53 654 Accidents and health 14 314 ( 235) 14 079 16 262 ( 217) 16 045 Fire and other hazards 30 918 ( 14 082) 16 836 34 664 ( 13 675) 20 989 Motor 238 897 ( 13 230) 225 667 254 101 ( 15 028) 239 073 Maritime, airline and transportation 6 778 ( 3 183) 3 595 6 484 ( 3 039) 3 445 Third parties liabilities 19 339 ( 7 724) 11 615 20 858 ( 8 753) 12 105 Credit and suretyship 36 ( 2) 34 550 ( 7) 543 Other 1 530 ( 1 183) 347 489 ( 282) 207

499 462 ( 41 603) 457 859 519 172 ( 42 357) 476 815

31.12.2011 31.12.2010


The claims outstanding reserve represents unsettled claims occurred before the balance sheet date and includes an estimated provision in the amount of euro 23 091 thousand (31 December 2010: euro 28 137 thousand), for claims incurred before 31 December 2011, but not reported (IBNR). Included in the amount of claims outstanding for workers’ compensation is euro 121 187 thousand (31 December 2010: euro 122 049 thousand), relating to the mathematical reserve for workers’ compensation. The mathematical reserve for workers’ compensation includes an amount of euro 0 (31 December 2010: euro 0 thousand) as a result of the liability adequacy test (see Note 52). Additionally, mathematical reserve for workers’ compensation also includes an accrual related to the present value of the future contributions to Workers Compensation Fund (FAT) for an amount of euro 7 244 thousand (31 December 2010: euro 5 891 thousand). The claims outstanding reserve also includes an estimation of future costs related to the settlement of pending claims (expense reserve), both-declared and non-declared, for an amount of euro 19 092 thousand (31 December 2010: euro 13 243 thousand).




Page 99

The movements on the claims outstanding reserve of direct insurance business are analysed as follows:

31.12.2011 31.12.2010

Balance as at 1 January 519 172 530 367 Change in the scope of consolidation - 4 350 Plus incurred claims

Current year 337 911 318 866 Prior years ( 30 023) ( 48 779)

Less paid claims related toCurrent year ( 206 034) ( 169 610)Prior years ( 121 564) ( 116 022)



The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries of insurance and investment contracts with profit sharing, in the form of profit participation, which have not yet been specifically allocated and included in the life mathematical reserve. The movement in the reserve for bonus and rebates for the years ended 31 December 2011 and 2010 is as follows:

31.12.2011 31.12.2010

Balance as at 1 January 5 239 2 804 Change in the scope of consolidation - 2 304 Amounts paid ( 3 656) ( 1 624) Estimated attributable amounts 4 350 1 755



As at 31 December 2011, life mathematical reserve includes an amount of euro 0 (31 December 2010: euro 0 thousand) as a result of the liability adequacy test. This test was performed based on the best estimate assumptions (see Note 52).




Page 100

NOTE 35 - OTHER ASSETS As at 31 December 2011 and 2010, the balance other assets is analysed as follows:

31.12.2011 31.12.2010


Deposits placed with futures contracts 48 051 48 958 Recoverable government subsidies on mortgage loans 48 892 42 264

Collateral deposits placed 1 556 982 960 404 Loans to companies in which the Group has a minority interest 215 628 127 844

Public sector 146 733 152 190 Debtors from the banking business 409 736 428 239 Debtors from the insurance business 26 021 27 524

Debtors from medical services business 76 139 92 161 Sundry debtors 62 205 56 678

2 590 387 1 936 262

Impairment losses on debtors ( 60 515) ( 26 750)

2 529 872 1 909 512

Debtors arising out of direct insurance operations 64 926 60 915

Debtors arising out of reinsurance operations 61 034 71 777

125 960 132 692 Impairment losses on debtors arising out of direct

insurance and of reinsurance operations ( 7 082) ( 8 233)

118 878 124 459

Other assetsGold, other precious metals, numismatics and other liquid assets 11 411 12 282

Other assets 106 907 109 218

118 318 121 500

Accrued income 78 770 107 292

Prepayments and deferred costs 132 357 113 822

Deferred acquisition costs 22 517 22 484

Other sundry assetsForeign exchange transactions pending settlement 2 489 149 648 Stock exchange transactions pending settlement 172 111 666 924

Other transactions pending settlement 100 293 387 712

274 893 1 204 284

Assets recognised on pensions (see Note 14) 109 299 22

3 384 904 3 603 375




Page 101

Loans to companies in which the Group has a non-controlling interest include the amount of euro 100 000 thousand related with loans to Locarent – Companhia Portuguesa de Aluguer de Viaturas, S.A. (31 December 2010: euro 110 000 thousand) and to entities within the scope of the venture capital activity of the Group in the amount of euro 95 800 thousand. As at 31 December 2011, the balance prepayments and deferred costs includes the amount of euro 66 199 thousand (31 December 2010: euro 62 719 thousand) related to the difference between the nominal amount of loans granted to Group’s employees under the collective labour agreement for the banking sector (ACT) and their respective fair value at grant date, calculated in accordance with IAS 39. This amount is charged to the income statement over the lower period between the remaining maturity of the loan granted, and the estimated remaining service life of the employee. The stock exchange transactions pending settlement refer to transactions with securities on behalf of third parties, recorded on trade date and pending settlement, in accordance with the accounting policy described in Note 2.6. Deferred acquisition costs relate to the insurance business and can be analysed as follows:

31.12.2011 31.12.2010

Non-life insurance business 22 517 22 484

22 517 22 484


The movements on the deferred acquisition costs for the non-life business are analysed as follows:

31.12.2011 31.12.2010

Balance at the beginning of the year 22 484 20 552 Acquisition costs of the year 22 517 22 608 Acquisition costs amortisation ( 22 484) ( 20 676)

Balance at the end of the year 22 517 22 484





Page 102

The balance of impairment losses is presented as follows: 31.12.2011 31.12.2010

Debtors 60 515 26 750 Debtors arising out of direct insurance and reinsurance operations 7 082 8 233

67 597 34 983


The movements occurred in impairment losses are presented as follows:

31.12.2011 31.12.2010

Balance as at 1 January 34 983 34 084 Change in the scope of consolidation - 68 Charge of the year 39 736 10 840 Write back of the year ( 3 437) ( 7 705) Charge off ( 2 925) ( 5 944) Other ( 760) 3 640



NOTE 36 - DEPOSITS FROM CENTRAL BANKS The balance deposits from central banks in analysed as follows:

31-12-2011 31-12-2010

From the European System of Central Banks

Inter-bank Money Market - 264 500 Deposits 22 204 153 806 Other funds 8 764 000 4 800 000

8 786 204 5 218 306

From other Central BanksInter-bank Money Market 21 650 - Deposits 1 205 865 2 438 264 Repurchase agreements - 308 267

1 227 515 2 746 531

10 013 719 7 964 837


As at 31 December 2011 and 2010, “Other funds from the European System of Central Banks” includes euro 8 764 million and euro 5 065 million, respectively, covered by securities from the available-for-sale portfolio pledged as collaterals in the amount of euro 11 123 million and euro 7 419 million, respectively (see Note 47).




Page 103

As at 31 December 2011, the balance Deposits from other Central Banks – Deposits includes the amount of euro 1 098 million related to deposits with Angola Central Bank (31 December 2010: euro 1 356 million). As at 31 December 2011 and 2010, the analysis of deposits from Central Banks by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 4 610 833 3 816 012 3 to 12 months 401 497 4 148 825 1 to 5 years 5 001 389 -

10 013 719 7 964 837


NOTE 37 - DEPOSITS FROM BANKS The balance deposits from banks is analysed as follows:

31.12.2011 31.12.2010

DomesticLoans 49 978 128 737Inter-bank money market 15 001 18 650Deposits 463 875 412 527Very short terms funds 251 045 44 148Repurchase agreements 170 850 - Other funds 5 279 5 275

956 028 609 337

InternationalDeposits 719 206 1 468 084Loans 2 270 846 2 290 217Very short terms funds 121 259 68 275Repurchase agreements 1 847 600 1 874 668Other funds 301 067 306 496

5 259 978 6 007 740

6 216 006 6 617 077


As at 31 December 2011, the balance deposits from banks includes the amount of euro 218 524 thousand (31 December 2010: 558 463 thousand) related to deposits recognised on the balance sheet at fair value through profit or loss (see Note 28).




Page 104

As at 31 December 2011 and 2010 the analysis of deposits from banks by the period to maturity is presented as follows:

31.12.2011 31.12.2010

Up to 3 months 3 369 029 1 367 5163 to 12 months 209 620 2 587 2771 to 5 years 1 804 720 1 386 899More than 5 years 832 637 1 275 385

6 216 006 6 617 077


NOTE 38 - DUE TO CUSTOMERS The balance due to customers is analysed as follows:

31.12.2011 31.12.2010

Repayable on demandDemand deposits 9 067 225 9 064 126

Time depositsTime deposits 23 682 667 19 408 262Notice deposits 6 595 409Other 123 918 147 098

23 813 180 19 555 769Savings accounts

Pensioners 15 049 29 751Emigrants 5 278 2 707Other 1 470 261 1 758 470

1 490 588 1 790 928Other funds

Repurchase agreement 208 480 436 619Other 372 511 358 246

580 991 794 865

34 951 984 31 205 688


This balance includes the amount of euro 7 297 million (31 December 2010: euro 4 027 million) of deposits recognised in the balance sheet at fair value through profit or loss (see Note 28).




Page 105

The analysis of the amounts due to customers by the period to maturity is as follows:

31.12.2011 31.12.2010

Repayable on demand 9 067 225 9 064 126

With agreed maturity:Up to 3 months 375 577 8 984 0503 to 12 months 14 200 949 8 366 6171 to 5 years 6 578 688 4 661 121More than 5 years 4 729 545 129 774

34 951 984 31 205 688


NOTE 39 - DEBT SECURITIES ISSUED The balance of debt securities issued is analysed as follows:

31.12.2011 31.12.2010

Debt securitiesEuro Medium Term Notes 9 828 682 11 575 244Certificates of deposit 701 769 1 751 683Covered bonds 933 732 2 333 906Debt bonds issued 3 449 570 4 422 830Other 4 595 870 4 821 083

19 509 623 24 904 746


As at 31 December 2011, the caption debt bonds issued includes the amount of euro 1 572 millions of debt securities issued with a guarantee from the Portuguese Republic (31 December 2010: euro 1 584 millions). On 15 November 2005, ESFG issued the euro 500 000 000 Fixed Rate Step-Up Notes due 2025 with 10 000 warrants. Each of these Notes, will bear interest at the rate of 3.55% until 15 November 2010 and 5.05% from then on. Each warrant entitles the holder to subscribe euro 50 000 to acquire fully paid up shares of ESFG at an initial exercise price of euro 24.50 per share. This exercise price has been adjusted following the terms the contractual conditions to Euro 21.24 in 2011. The rights under the warrants are exercisable from and including 26 December 2005 up to the close of business on 8 November 2025. In the light of IAS 32, the warrants issued correspond to an equity instrument and therefore are recognised in equity and the Notes correspond to a debt instrument and are recognised as a liability. The value attributable to the warrants upon the initial recognition was calculated by deducting, at inception, the fair value of the Notes from the par value of the instrument as a whole, the fair value attributable to the Notes being calculated as the present value of the contractual future cash flows discounted at a rate of interest, determined at inception, based on comparable Notes providing substantially the same cash flows, on the same terms, but without the detachable warrants. On this basis, the Group recognised in equity the amount of euro 118 570 thousand related to the warrants and an amount of euro 381 430 thousand as a liability, corresponding to the respective fair value at the date of issue. After its initial recognition, the liability accrues interest at an effective interest rate of 6.7%, which was the rate used to fair value the liability at the inception.




Page 106

The following operations relating to these Notes and the Warrants took place during 2011:

- conversion of 14 warrants to 32 956 shares, resulting in the cancellation of euro 700 thousands of the Notes. This conversion resulted in a capital increase of euro 309 thousands with a share premium of euro 391 thousand and a decrease in other equity components of euro 150 thousand (see Note 45);

- tender offer on euro 146.4 million of the Notes for euro 73.2 million in cash. This tender offer resulted in a reduction of other equity instruments in the amount of euro 33.7 million and in a gain recognised in income statement of euro 49.3 million;

- exchange offer of euro 171.6 million of the Notes for euro 130.416 thousand 9.75% Convertible Bonds due in 2025. This exchange offer resulted in a decrease in other equity instruments by the amount of euro 22.7 million and in a gain recognised in income statement of euro 45.0 million;

- Unless previously redeemed, or repurchased and cancelled, the Notes will be redeemed at their principal amount on 15 November 2025. Following the cancellation of the Notes and Warrants exchanged or purchased by ESFG pursuant to the Exchange Tender and the Tender Offer (i) the principal amount outstanding is euro 181.4 million in terms of nominal value and euro 151.8 million euro in terms of book value as at 31 December 2011, and (ii) the number of Warrants outstanding is 3 627 with a book value of euro 41.6 million. On 19 December 2011, ESFG issued euro 130 416 000 Convertible Bonds due 2025, as a result of the Exchange Offer of the Euro 500 000 000 Fixed Rate Step-Up Notes described above. Each bond bears interest at the rate of 9.75 and entitles the holder to convert such Bond into new and/or existing fully paid ordinary shares in the capital of ESFG. The initial Conversion Price is Euro 17 per Ordinary share. Unless previously redeemed, or repurchased and cancelled, the Notes will be redeemed at their principal amount on 19 December 2025. In the light of IAS 32, the conversion option issued corresponds to an equity instrument and therefore is recognised in equity and the Notes correspond to a debt instrument and are recognised as a liability. The value attributable to the conversion option upon the initial recognition was calculated by deducting, at inception, the fair value of the Notes from the fair value of the instrument as a whole, the fair value attributable to the Notes being calculated as the present value of the contractual future cash flows discounted at a rate of interest, determined at inception, based on comparable Notes providing substantially the same cash flows, on the same terms, but without the conversion option. On this basis, the Group recognised in equity the amount of euro 17.0 million related to the conversion option. Under the covered bonds programme, which has a maximum amount of euro 10 000 million, BES Group issued covered bonds for a total amount of euro 4 290 million, of which euro 3 356 million were subscribed by the Group. The covered bonds are guaranteed by a cover assets pool, comprised of mortgage credit assets and limited classes of other assets, that the issuer of mortgage covered bonds shall maintain segregated and over which the holders of the relevant covered bonds have a statutory special creditor privilege. These conditions are set up in Decree-Law no. 59/2006, Regulations 5/2006, 6/2006, 7/2006 and 8/2006 of the Bank of Portugal and Instruction 13/2006 of the Bank of Portugal. The main characteristics of these issues are as follows:

DescriptionNominal value (In thousand of

euro)

Book value (In thousand of

euro)Issue date Maturity date Interest payment Interest rate Rating

BES Covered Bonds 3.375% 1 000 000 893 155 17-11-09 17-02-15 Anual 3.375% Baa3BES Covered Bonds DUE JUL 17 750 000 132 07-07-10 09-07-17 Anual Euribor 6M + 0.60% Baa3BES Covered Bonds 21/07/2017 1 250 000 - 21-07-10 21-07-17 Anual Euribor 6M + 0.60% Baa3BES Covered Bonds DUE 4.6% 40 000 40 445 15-12-10 26-01-17 Anual 4.600% Baa3BES Covered Bonds HIPOT 2018 1 250 000 - 25-01-11 25-01-18 Anual Euribor 6M + 0.60% Baa3

As at 31 December 2011, the mortgage loans that collateralise these covered bonds amounted to euro 5 305.9 million (31 December 2010: euro 4 963.0 million) (see Note 26).




Page 107

As at 31 December 2011, this balance includes euro 1 233 962 thousand (31 December 2010: euro 823 416 thousand) of debt securities issued at fair value through profit or loss (see Note 28). The changes occurred in debt securities issued during the year ended 31 December 2011 are analysed as follows:

31.12.2010 Issues Repayments Net repurchaseOther

movements a) 31.12.2011

Euro Medium Term Notes 11 575 244 1 523 282 (2 412 751) ( 629 713) ( 227 380) 9 828 682 Certificates of deposit 1 751 683 91 806 (1 143 480) - 1 760 701 769 Covered bonds 2 333 906 - (1 250 000) ( 123 987) ( 26 187) 933 732 Debt bonds issued 4 422 830 182 903 ( 993 850) ( 36 530) ( 125 783) 3 449 570 Other 4 821 083 9 919 836 (9 760 384) ( 27 596) ( 357 069) 4 595 870

24 904 746 11 717 827 (15 560 465) ( 817 826) ( 734 659) 19 509 623

a) Other movements in clude accrued interest , fair valu e adjustments and foreign exchange differencesb)

Certi ficates of deposit are presented at the net value, considering their short term maturity


b)

In accordance with the accounting policy described in Note 2.8, debt issued repurchased by the Group is derecognised from the balance sheet and the difference between the carrying amount of the liability and its acquisition cost is recognised in the income statement. Following the repurchases performed at 31 December 2011 and at 31 December 2010, the Group has recognised a gain (already including the gains relating to the tender and exchange offer for the Fixed Rate Step-Up Notes described above) of euro 249.7 million and of euro 29.1 million, respectively (see Note 12). The analysis of debt securities issued by the period to maturity is as follows:

31.12.2011 31.12.2010

Up to 3 months 6 222 612 7 069 7471 to 12 months 1 078 886 1 731 5301 to 5 years 8 014 275 11 315 961More than 5 years 4 193 850 4 787 508

19 509 623 24 904 746



Page 108

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Page 112

NOTE 40 - INVESTMENT CONTRACTS As at 31 December 2011 and 2010, the liabilities arising from investment contracts are analysed as follows:

31.12.2011 31.12.2010

Fixed rate investment contracts 63 973 68 542Investment contracts in which the financial risk is borne by the policyholder 84 791 256 392

148 764 324 934


In accordance with IFRS 4, the insurance contracts issued by the Group for which there is only a transfer of financial risk, with no discretionary participating features, are classified as investment contracts. The movement in the liabilities arising out from the investment contracts with fixed rate is analysed as follows:

31.12.2011 31.12.2010

Balance as at 1 January 68 542 55 109 Net deposits received 9 603 24 732 Benefits paid ( 16 209) ( 13 043) Technical interest charged 2 037 1 744



The movement in the liabilities arising out from the investment contracts in which the financial risk is borne by the policyholder is analysed as follows:

31.12.2011 31.12.2010

Balance as at 1 January 256 392 340 049 Net deposits received 3 177 80 942 Benefits paid ( 173 706) ( 162 466) Changes in financial liabilities at fair value through profit or loss ( 477) ( 1 518) Technical result ( 595) ( 615)






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NOTE 41 - PROVISIONS As at 31 December 2011 and 2010, the balance of provisions presents the following movements:

31.12.2011 31.12.2010



Charge of the year / write back 10 668 55 099 Charge off ( 36 057) ( 18 117) Exchange differences and other 4 571 3 458


Provisions for an amount of euro 212 796 thousand as at 31 December 2011 (31 December 2010: euro 233 614 thousand) are intended to cover litigations and other contingencies related to the Group’s activities, the more relevant being as follows:

• Contingencies in connection with the exchange, during 2000, of Banco Boavista Interatlântico shares for Bradesco shares. The Group has provisions for an amount of approximately euro 61.4 million (31 December 2010: euro 62.0 million) to cover these contingencies; • Contingencies in connection with legal processes established following the bankruptcy of clients which might imply losses for the Group. Provisions for an amount of euro 22.5 million as at 31 December 2011 (31 December 2010: euro 26.5 million) were established to cover these losses; • Contingencies for ongoing tax processes. To cover these contingencies, the Group maintains provisions of approximately euro 36.0 million (31 December 2010: euro 39.8 million); • Contingencies for ongoing processes regarding commercial operations performed abroad for the amount of euro 11.8 million (31 December 2010: euro 37.4 million); • The remaining balance of euro 81.1 million (31 December 2010: euro 66.5 million), is maintained to cover potential losses in connection with the normal activities of the Group, such as frauds, robbery and on-going judicial cases.




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NOTE 42 - INCOME TAXES The Group determined its current and deferred income tax for the year ended 31 December 2011 and 2010 on the basis of a nominal rate of 26.5% plus an additional tax of 2.5% added following Decree-law nr 12-A of 30 June, applicable to the activities undertaken in Portugal that represent a significant portion of its consolidated activities. This tax rate was enacted, or substantially enacted, at the balance sheet date. The Portuguese Tax Authorities are entitled to review the annual tax return of the Group subsidiaries domiciled in Portugal for a period of four years. Hence, it is possible that some additional taxes may be assessed, mainly as a result of differences in interpretation of the tax law. However, the Board of Directors of the Group subsidiaries domiciled in Portugal are confident that there will be no material differences arising from tax assessments within the context of the financial statements. The deferred tax assets and liabilities recognised in the balance sheet as at 31 December 2011 and 2010 can be analysed as follows:

Assets Liabilities Net

31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011 31.12.2010

Derivative financial instruments 93 36 ( 2) ( 13) 91 23 Available-for-sale financial assets 125 026 68 515 ( 91 737) ( 111 715) 33 289 ( 43 200)

Loans and advances to customers 342 950 260 187 - ( 150) 342 950 260 037

Property and equipment 2 727 2 597 ( 19 168) ( 19 062) ( 16 441) ( 16 465)Intangible assets 10 665 17 469 - ( 2 735) 10 665 14 734

Investments in subsidiaries and associates 773 4 230 ( 54 572) ( 73 204) ( 53 799) ( 68 974)Provisions 35 279 35 509 ( 5 481) ( 5 358) 29 798 30 151

Technical reserves - - ( 1 228) ( 590) ( 1 228) ( 590)Pensions 290 150 284 304 ( 39 825) ( 47 127) 250 325 237 177

Health care - SAMS - 202 - - - 202

Long term service benefits 8 185 8 152 - - 8 185 8 152 Debt securities issued 204 - - ( 27 814) 204 ( 27 814)

Other 8 812 7 035 ( 2 052) ( 7 177) 6 760 ( 142)Tax losses brought forward 37 982 60 528 - - 37 982 60 528

Deferred tax asset / (liability) 862 846 748 764 ( 214 065) ( 294 946) 648 781 453 818

Deferred tax assets/liabilities offset ( 93 174) ( 163 657) 93 174 163 657 - -

Deferred tax asset / (liability), net (1) 769 672 585 107 ( 120 891) ( 131 289) 648 781 453 818

(1) netted by Group entity


The Group does not recognise the deferred tax liabilities on temporary differences of subsidiaries and associates for which it controls the reversion period and that are realised through the distribution of tax-exempt dividends.




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Additionally, the Group does not recognise deferred tax assets on tax losses brought forward by certain subsidiaries, because it is not expectable that they will be recovered in a foreseeable future. A detail of the tax losses brought forward for which no deferred tax assets were recognised, is presented as follows:

Deadline 31.12.2011 31.12.2010

to deduction

2010 - 13 711 2011 8 765 10 431 2012 5 397 4 225 2013 5 833 4 390 2014 116 730 20 617 2015 35 555 10 162 2016 2 914 10 831

Undetermined 289 891 254 498

465 085 328 865

Tax losses brought forward


The changes in net deferred taxes were recognised as follows:

31.12.2011 31.12.2010

Balance at 1 January (assets / (liabili ties)) 453 818 378 699

Change in scope of consolidation - ( 336) Recognised in the income statement 142 509 17 064

Recognised in fair value reserve (1) 83 359 50 871

Recognised in equity - other comprehensive income ( 15 551) 12 171 Recognised in other reserves ( 28 395) ( 2 723) Exchange differences and other 13 041 ( 1 928)

Balance at 31 December (assets / (liabilities)) 648 781 453 818


(1) The amount recognised in the consolidated statement of comprehensive income includes,additionally, the deferred tax expense recognised on the fair value reserves of associates in the amountof euro 5 512 thousand (31 December 2010: euro 16 902 thousands, expense).

The current and deferred taxes recognised in the income statement and reserves, during 2011 and 2010 is analysed in the following table. The amounts presented do not consider the effect of non-controlling interest.




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31.12.2011 31.12.2010

Recognised in the income statement (income) /expense

Recognised in reserves

Recognised in the income statement (income) /expense

Recognised in reserves


Financial instruments 6 802 ( 83 359) ( 25 381) ( 47 633)Loans and advances to customers ( 82 550) - ( 39 437) - Property and equipment ( 24) - ( 2 263) - Intangible assets 4 069 - ( 2 466) - Investments in subsidiaries and associates ( 17 887) 2 712 65 953 3 017 Provisions 230 - ( 3 606) - Technical reserves 638 - 609 - Pensions ( 25 987) 12 839 ( 1 566) ( 15 188)Health care - SAMS 202 - 30 080 - Long term service benefits ( 33) - ( 885) - Debt securities issued ( 28 018) - 3 588 - Exchange differences and other 4 598 1 083 158 1 535 Tax losses brought forward ( 4 549) 26 961 ( 41 848) ( 3 238)

Deferred taxes ( 142 509) ( 39 764) ( 17 064) ( 61 507)

Current taxes 90 900 4 497 68 558 46

( 51 609) ( 35 267) 51 494 ( 61 461)

The current tax recognised in reserves includes a tax cost of euro 4 570 thousand related with local tax on realised gains recognised in equity and a tax gain of euro 327 thousand related to costs incurred in the capital increase (31 December 2010: tax gain of euro 1 933 thousand), a cost of euro 254 thousand related to retirement pensions (31 December 2010: euro 1 829 thousand). In 2010 current tax also included a cost of euro 150 thousand related to the share based payments scheme. The reconciliation of the income tax rate can be analysed as follows:

31.12.2011 31.12.2010

% Amount % Amount

Profit before non-controlling interest and taxes 208 804 678 603 Extraordinary tax for banks (see Note 12) 30 489 -

Profit before non-controlling interest and taxesfor tax reconsiliation purposes 239 293 678 603

Statutory tax rate 29.0% 29.0%Income tax calculated based on the statutory tax rate 69 395 196 795 Tax-exempt dividends -16.9% ( 35 339) -6.3% ( 42 832)Tax-exempt profits (off shore) -46.5% ( 97 104) -10.2% ( 69 350)Tax-exempt/non-deductible realised gains/losses 20.9% 43 714 -11.8% ( 80 422)Deductible tax losses -23.4% ( 48 938) 0.0% - Non-taxable share of (profit)/losses in associates 5.4% 11 205 -1.5% ( 10 417)Unrecognised deferred tax assets related to

tax losses generated in the year 2.9% 6 119 3.5% 23 939 Tax losses used for which no deferred tax assets were recognised -17.7% ( 36 931) 0.0% - Change in tax-rate related to deferred taxes 0.0% - -2.5% ( 16 940)Non-recoverable taxes paid abroad 0.0% - 1.3% 8 739 Effect of deferred tax assets calculated on losses brought forward considering a 25% rate 0.0% - 1.0% 6 759 Non deductible costs 20.4% 42 624 5.2% 35 155 Other -3.0% ( 6 355) 0.0% 68

-28.9% ( 51 609) 7.7% 51 494





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NOTE 43 - SUBORDINATED DEBT The balance subordinated debt is analysed as follows:

31.12.2011 31.12.2010

Bonds 1 166 178 1 634 023 Loans 10 185 287 101 Perpetual bonds 146 216 768 573

1 322 579 2 689 697


The main features of the subordinated debt are presented as follows:

Issuer Designation Currency Issue date Amount issuedCarrying amount

Interest rate Maturity

BES Finance Subordinated Loans EUR 2002 30 843 32 148 6.63% 2012 a)

BES Finance Subordinated Loans EUR 2004 95 767 102 764 4.50% 2015 a)

BES Finance Bonds EUR 2008 20 000 20 089 Euribor 3M + 1% 2018

BESI Bonds BRL 2008 1 683 2 137 1.30% 2013

BESI Bonds BRL 2007 21 134 22 791 1.30% 2014

BESI Bonds BRL 2008 10 099 12 928 1.30% 2015

BESI Bonds EUR 2005 60 000 28 926 5.33% 2015

BESI Bonds EUR 2003 10 000 9 954 5.50% 2033

BES Bonds EUR 2004 25 000 24 622 Euribor 6M + 1.25% 2014

BES Subordinated perpetual bonds EUR 2005 15 000 11 304 Euribor 3M + 2.25% 2015 a)

BES Bonds EUR 2008 41 550 12 787 Euribor 3M + 1% 2018

BES Bonds EUR 2008 638 450 620 370 Euribor 3M + 3% 2019

BES Bonds EUR 2008 50 000 50 099 Euribor 3M + 1.05% 2018

BES Bonds EUR 2011 8 174 8 234 Fixed rate 10% 2021

BESV Subordinated loans EUR 2003 9 669 10 185 5.33% - b)

ESFG Bonds EUR 2009 400 000 353 241 6.88% 2019

1 437 369 1 322 579

a) Call option dateb) Undetermined


31.12.2011

The changes occurred in subordinated debt during the year ended 31 December 2011 are analysed as follows:

Net Other movements31.12.2010 Issues Repayments Repurchases (a) 31.12.2011

Bonds 1 634 023 19 746 ( 385 397) ( 37 352) ( 64 842) 1 166 178 Loans 287 101 - ( 289 045) - 12 129 10 185

Perpetual Bonds (b) 768 573 - ( 599 112) 15 000 ( 38 245) 146 216

2 689 697 19 746 (1 273 554) ( 22 352) ( 90 958) 1 322 579

a) Other movements include accrued interest, fair value adjustments and foreign exchange differencesb) Issues include the amounts corresponding to debt replacements previously repurchased by the Group


In accordance with the accounting policy described in Note 2.8, debt issued repurchased by the Group is derecognised from the balance sheet and the difference between the carrying amount of the liability and its acquisition cost is recognised in the income statement. Following the repurchases performed in 2011 and 2010, the Group has recognised a gain of euro 324.5 million and of euro 3.2 million, respectively (see Note 12).




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NOTE 44 - OTHER LIABILITIES As at 31 December 2011 and 2010, the balance other liabilities is analysed as follows:

31.12.2011 31.12.2010

CreditorsPublic sector 181 577 137 260Creditors arising out from future contracts - 24 743

Collateral deposit on negative exposures on derivative contracts 112 543 107 625Sundry debtors

Stock-option plan (see Note 14) 87 5 557Creditors from transactions with securities 87 439 107 486Suppliers 55 782 65 008Creditors from factoring operations 2 770 4 304Other sundry creditors 210 682 266 835Creditors from the medical business 41 485 50 795Creditors from the insurance business 7 963 8 719

Creditors arising out of direct insurance operations 24 827 22 236Creditors arising out of reinsurance operations 16 027 15 074

741 182 815 642

Accrued expensesLong term service benefits (see Note 14) 27 477 29 655Other accrued expenses 235 954 239 976

263 431 269 631

Deferred income 47 078 35 956

Other sundry liabilitiesStock exchange transactions pending settlement 315 181 714 013Foreign exchange transactions pending settlement 24 203 2 095Other transactions pending settlement 165 727 368 745

505 111 1 084 853

1 556 802 2 206 082


The stock exchange transactions pending settlement refer to transactions with securities on behalf of third parties, recorded on trade date and pending settlement, in accordance with the accounting policy described in Note 2.6.




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NOTE 45 - SHARE CAPITAL, SHARE PREMIUM, OTHER EQUITY INSTRUMENTS, FAIR VALUE RESERVES AND OTHER RESERVES AND RETAINED EARNINGS

Share capital and share premium As at 31 December 2011, the authorised share capital of Espírito Santo Financial Group, S.A., was represented by 200 million shares without nominal value, from which 105 034 522 shares (31 December 2010: 77 854 916) held by different shareholders were subscribed and fully paid as described below:

31.12.2011 31.12.2010

Espírito Santo International S.A. 34.82% 31.87%Espírito Santo Irmãos, Sociedade Gestora de Participações Sociais, S.A. 10.01% 9.63%Other 55.17% 58.50%

100.00% 100.00%

% Share capital

During 2011, the following transactions took place:

- Until 30 September 2011, 13 warrants of the euro 500 000 000 Fixed Rate Step-up Notes were converted into 30 602 new issued shares. The share capital was increased by euro 306 thousand from euro 778 549 thousand to euro 778 855 thousand and the share premium was increased by euro 342 thousand;

- On 28 October 2011, ESFG decided to cancel the nominal value of its authorised and issued share capital. The accounting value of the authorised and issued share capital has been reduced from euro 10 per share to euro 1 per share without cancellation of any shares in issue nor repayment on any share, but with the attribution of an amount of euro 700 970 thousand to a special non-distributable reserve account. The share capital was then reduced from euro 778 855 thousand to euro 77 886 thousand;

- At the end of October 2011, 1 warrant of the euro 500 000 000 Fixed Rate Step-up Notes was converted into 2 354 new issued shares. The share capital was increased by euro 3 thousand from euro 77 885 thousand to euro 77 888 thousand and the share premium was increased by euro 49 thousand;

- On 15 November 2011, following the exchange offer on the euro 400 000 000 Series A Non-cumulative Guaranteed Step-up Preferred Securities issued by ESFG International Limited and having the benefit of a subordinated guarantee of ESFG, 23 168 050 new shares have been issued by the Company in exchange of euro 325 750 thousand preferred shares of ESFG International Limited. The share capital was increased by euro 23 168 thousand from euro 77 888 thousand to euro 101 056 thousand and the share premium was increased by euro 208 513 thousand;

- On 15 November 2011, following the exchange offer on euro 400 000 000 6.875% Subordinated Notes Due 2019 issued by ESFG, euro 48 900 thousand have been cancelled and exchanged for euro 39 786 thousand represented by 3 978 600 new issued shares. The share capital was increased by euro 3 979 thousand from euro 101 056 thousand to euro 105 035 thousand and the share premium was increased by euro 35 807 thousand.

Preference shares In June 2007, ESFG International Limited (“issuer”), a fully owned subsidiary of ESFG, issued euro 400 million series A non-cumulative guaranteed step-up preferred securities. These securities, with a face value of euro 50 thousand per security, are listed on the Luxembourg stock exchange. During the year ended 31 December 2011, the Group acquired euro 325 750 thousand preference shares in scope of the exchange offer over ordinary shares referred to above. The




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Group recorded a capital gain, net of taxes in the amount of euro 81.8 million recognised in other reserves. As at 31 December 2011, there were euro 74 250 thousand outstanding preference shares for a total nominal amount of euro 74 250 thousand. These preferred securities pay non-cumulative preferred dividends, when, as and if declared by the Board of Directors of ESFG International Limited, annually in arrears on 6 June in each year commencing on 6 June 2008 up to and including 6 June 2017 at an annual rate of 5.753% p.a. of the respective face value. Thereafter, the preferred dividends will be payable, when, as and if declared by the Board of Directors of ESFG International Limited, quarterly in arrears on 6 March, 6 June, 6 September and 6 December each year, commencing on 6 September 2017 at a rate of 2.130% above the 3 months Euribor. The preferred securities are perpetual securities and have no fixed redemption date. However, these securities may be redeemed, at the option of ESFG International Limited, in whole but not in part, on 6 June 2017 or on any preferred distribution payment date falling thereafter. Such redemption is subject to the authorization of ESFG and the Supervisor Authority. ESFG unconditionally guarantees, on a subordinated basis, the payment of distributions on the preferred securities when, as and if declared by the Board of Directors of the issuer, and payments on liquidation of the issuer or on redemption. By virtue of the scope of the guarantee the rights of the holders of these preference securities against ESFG are equivalent to those which such holders would have had if they had instead held preference shares issued directly by ESFG whose terms are identical to the terms of the preferred securities and the guarantee taken together. Considering the features of these preferred securities, they were considered, following IAS 32, as equity instruments of the Group. On that basis, the total proceeds from the issue, net of expenses incurred, totalling approximately euro 395.5 million, was taken to equity. The outstanding amount as at 31 December 2011, net of expenses, is euro 72 428 thousand. In accordance with the accounting policy described in Note 2.9, preferred dividends will be recorded as a deduction to equity when declared. Other equity instruments As described in Note 39, during the year ended 31 December 2011, the Group acquired 6 359 thousand of the euro 500 000 000 Fixed Rate Step-Up Notes due 2025 with 10 000 warrants, of which 2 927 thousand were acquired in scope of the exchange offer over securities and 3 432 thousand is scope of the tender offer. As a result of this transaction and the warrants converted as referred above, as at 31 December 2011, there were 3 627 outstanding warrants in the amount of euro 42 983 thousand (31 December 2010:10 000 warrants in the amount of euro 118 508 thousand) which are recognised in equity net of expenses by an amount of euro 41 624 thousand. In addition, as described in Note 39, during 2011 ESFG issued euro 130 416 000 Convertible Bonds. Following this issue, the Group recognised in equity the amount of euro 16 950 thousand related to the conversion option which corresponds to an equity instrument in light of IAS 32. Legal reserve Under the Luxembourg law, a minimum of 5% of the profit for the year must be transferred to the legal reserve until this reserve equals 10% of the issued share capital. This reserve is not available for distribution. Fair value reserve The fair value reserve represents the amount of the unrealised gains and losses arising from securities classified as available for sale, net of impairment losses recognised in the income statement in the year/previous years. The amount of this reserve is shown net of deferred taxes and non-controlling interest.




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Capital reserves non distributable The capital reserves non distributable in the amount of euro 700 970 thousand relates to a special non-distributable reserve account resulting from the cancelation, in 2011, of the nominal value of the shares and the subsequent reduction of the accounting value of the authorised and issued share capital from euro 10 per share to euro 1. During the years ended 31 December 2011 and 2010, the changes in these balances, net of non-controlling interest, were as follows:

The fair value reserve is analysed as follows:

31.12.2011 31.12.2010

Amortised cost of available-for-sale financial assets 12 659 464 12 621 018 Accumulated impairment losses recognised ( 192 073) ( 177 732)

Amortised cost of available-for-sale financial assets, net of impairment 12 467 391 12 443 286

Fair value of available-for-sale financial assets 12 024 435 12 474 836

Net unrealised gains (losses) recognised in the fair value reserve ( 442 956) 31 550

Fair value reserves related to securities reclassified as held-to-maturity investments (Note 27) ( 22 257) ( 13 694)Deferred taxes 78 036 ( 10 189)Fair value reserve of associates ( 114 926) ( 52 357)

Net fair value reserve ( 502 103) ( 44 690)Non-controlling interest 336 479 4 924

Fair value reserve attributable to equity holders of the Company ( 165 624) ( 39 766)





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The movement in the fair value reserve, net of deferred taxes, impairment losses and non-controlling interest, is analysed as follows:

31.12.2011 31.12.2010

Balance as at 1 January ( 39 766) 60 507 Changes in fair value ( 217 399) ( 26 163)Disposals during the year 18 392 ( 109 152)Impairment recognised during the year 27 466 8 979 Deferred taxes recognised in reserves during the year 27 868 23 696 Transactions with non controlling interest 17 815 2 367

Balance as at 31 December ( 165 624) ( 39 766)


NOTE 46 - NON-CONTROLLING INTEREST As at 31 December 2011 and 31 December 2010, non-controlling interest can be analysed as follows:

31.12.2011 31.12.2010

Balance sheetIncome

statement Balance sheetIncome

statement

BES Group 3 977 463 127 420 3 653 813 531 816 Preference shares issued by BES Finance 211 913 - 600 000 - Perpetualsobordinated bonds issued by BES 29 505 - 319 953 - Bespar 557 791 ( 169) 557 790 ( 328)ES Saúde 79 635 3 182 75 771 ( 70)Pastor Vida 55 405 2 164 56 536 - Other 61 311 6 464 57 563 6 002

4 973 023 139 061 5 321 426 537 420


Preference shares issued by BES Finance Preference shares issued by BES Finance correspond to 450 thousand non-voting preference shares, which were issued and listed in the Luxembourg stock exchange in July 2003. In March 2004, 150 thousand preference shares were additionally issued forming a single series with the existing preference shares. The face value of these shares is euro 1 000 and are fully booked under non-controlling interest. The total issue (euro 600 000 thousand) is wholly, but not partially, redeemable at its face value at the option of the issuer, as at 2 July 2014, subject to prior approvals of BES and the Bank of Portugal. During the year ended 31 December 2011, the Group acquired 338 thousand preference shares, issued by BES Finance, of which 197 thousand were acquired in scope of an exchange offer for BES shares. The Group recorded a capital gain, net of taxes and non controlling interest in the amount of euro 30.1 million recognised in other reserves. As at 31 December 2011, there were 211 913 outstanding preference shares in the amount of euro 211 913 thousand. These preference shares pay an annual non-cumulative preferred dividend, if and when declared by the Board of Directors of BES Finance, corresponding to an annual rate of 5.58% p.a. on the nominal value. This dividend is paid on 2 July of each year, beginning 2 July 2004 and ending 2 July 2014. If BES Finance does not redeem these preference shares on 2 July 2014, the applicable rate will be 3 months Euribor plus 2.65% p.a., with payments on 2 January, 2 April, 2 July and 2 October of each year, if declared by the Board of Directors of BES Finance. These shares are subordinated to any BES liability, and are “pari passu” in relation to any preference shares that may come to be issued by the Bank. BES unconditionally guarantees dividends if previously declared by the Board of Directors of BES Finance and principal repayments related to either of the above mentioned issues.




Page 123

Considering the features of these preference shares, they were considered, in accordance with IAS 32, as equity instruments of BES Group being classified as non-controlling interest at ESGF level. On that basis, and in accordance with the accounting policy described in Note 2.9, the dividends related with these preference shares are recorded as a deduction to equity when declared. Other equity instruments issued by BES Group The BES Group issued in 2010, perpetual subordinated bonds with non-cumulative discretionary interest in the total amount of euro 320 million. These bonds pay a non-cumulative interest, only if and when declared by the Board of Directors, at an annual rate of 8.5%. This discretionary interest is payable semi-annually. These securities are redeemable at the option of BES Group in full, but not in part, after 15 September 2015, subject to the prior approval of Bank of Portugal. Considering the features of these perpetual subordinated bonds, they qualify as equity instruments of BES Group in accordance with IAS 32 being classified as non-controlling interest at ESFG level. On that basis and in accordance with the accounting policy described in Note 2.9, the dividends related with these bonds will be recorded as a deduction to equity when declared. During the year ended 31 December 2011, the Group paid interest in the amount of euro 21 801 thousand resulting in a reduction in equity amounting to euro 4 849 thousands net on tax and non-controlling interest. As a result of an exchange offer for BES shares, Other equity instruments issued by BES Group reduced by an amount of euro 286 717 thousand. The movement in non-controlling interest in the years ended 31 December 2011 and 2010 can be analysed as follows:

31.12.2011 31.12.2010Restated

Non-controlling interest as at 1 January 5 321 426 4 768 376

Changes in the scope of consolidation - 104 494

Transactions with non-controlling interest ( 145 677) ( 49 143)

Increase in share capital of subsidiaries 700 653 17 325

Issuance/(repurchase) of perpetual preference shares ( 599 357) 319 953

Dividends paid on perpetual bonds ( 10 629) - Actuarial gains/(losses) from defined benefit obligation, net of taxes 23 108 ( 50 490)

Dividends paid ( 106 164) ( 100 220)

Dividends paid on preference shares ( 17 930) ( 23 536)

Effect of SIBA scheme - 2 426

Capital increase costs ( 2 747) ( 1)

Changes in fair value reserve ( 331 013) ( 220 640)

Others ( 6 731) 1 255

Exchange differences 9 023 14 207

Profit for the year 139 061 537 420

Non-controlling interest as at 31 December 4 973 023 5 321 426





Page 124

NOTE 47 - OFF-BALANCE SHEET ITEMS As at 31 December 2011 and 2010 off-balance sheet items, excluding the derivative financial instruments, can be analysed as follows:

31.12.2011 31.12.2010

Contingent liabilitiesGuarantees and stand by letters of credit 8 902 028 8 694 869Assets pledged as collateral 12 874 708 8 320 999Open documentary credits 2 947 223 3 243 642Other 482 466 581 997

25 206 425 20 841 507

CommitmentsRevocable commitments 5 843 661 6 883 602Irrevocable commitments 4 331 934 5 583 656

10 175 595 12 467 258


Guarantees and standby letters of credit are banking operations that do not imply any out-flow by the Group. As at 31 December 2011, the balance assets pledged as collateral include:

Securities pledged as collateral to the Bank of Portugal (i) for the use of the money transfer system (Sistema de Pagamento de Grandes Transacções) for an amount of euro 156.1 million (31 December 2010: euro 155.3 million ) and (ii) in the scope of a liquidity facility collateralised by securities for an amount of euro 11 123 million ;

Securities pledged as collateral to the Portuguese Securities and Exchange Commission (CMVM) in the scope

of the Investors Indemnity System (Sistema de Indemnização aos Investidores) for an amount of euro 19 388 thousand (31 December 2010: euro 24 241 thousand);

Securities pledged as collateral to the Deposits Guarantee Fund (Fundo de Garantia de Depósitos) for an

amount of euro 65 075 thousand (31 December 2010: euro 63 173 thousand);

Securities pledged as collateral to the European Investment Bank for an amount of euro 1 213 509 thousand (31 December 2010: euro 594 500 thousand).

The above mentioned securities pledged as collateral can be executed in case the Group does not fulfil its obligations under the terms of the contracts. Documentary credits are irrevocable commitments, by the Group, in the name of its clients, to pay or order to pay a certain amount to a supplier of goods or services, within a determined term, against the exhibition of the expedition documentation of the goods or service provided. The condition of irrevocable consists of the fact that the terms initially agreed can only be changed or cancelled with the agreement of all parties. Revocable and irrevocable commitments represent contractual agreements to extend credit to Group’s customers (eg. unused credit lines). These agreements are, generally, contracted for fixed periods of time or with other expiration requisites, and usually require the payment of a commission. Substantially, all credit commitments require that clients maintain certain conditions verified at the time when the credit was granted.




Page 125

Despite the characteristics of these contingent liabilities and commitments, these operations require a previous rigorous risk assessment of the client and its business, like any other commercial operation. When necessary, the Group require that these operations are collateralised. As it is expected that the majority of these operations will mature without any use of funds, these amounts do not represent necessarily future out-flows. Additionally, the off-balance sheet items related to banking services provided are as follows:

31.12.2011 31.12.2010

Securities and other items held for safekeeping on behalf of customers 57 749 398 69 177 215 Assets for collection on behalf of clients 270 997 274 553 Securitised loans under management (servicing) 2 875 874 3 107 186 Discretionary portfolio management 7 619 322 9 757 863

68 515 591 82 316 817


NOTE 48 - ASSETS UNDER MANAGEMENT As at 31 December 2011 and 2010, the amount of the assets under management of the Group is analysed as follows:

31.12.2011 31.12.2010

Securities investment funds 4 706 526 4 588 638Real estate investment funds 1 202 987 1 374 539Pension funds 2 154 923 2 655 602Bancassurance 3 478 338 5 373 789Portfolio management 1 094 578 1 924 492Others 1 875 786 2 012 706

14 513 138 17 929 766


The amounts recognised in these accounts are measured at fair value determined at the balance sheet date. In accordance with the legislation in force, the fund management companies and the depositary bank are jointly liable before the participants of the funds for the non fulfilment of the obligations assumed under the terms of the Law and the management regulations of the funds.




Page 126

NOTE 49 - RELATED PARTIES TRANSACTIONS Following the definition of related party established by IAS 24, related parties to ESFG include associates, pension funds, Board members and entities controlled or significantly influenced by any of these individuals. The entities considered to be related parties to ESFG, as defined by IAS 24, are as follows:


Page 127

Compo)' (<one)

E.S. R"ou«" On f"a" ltd E.S.B. hune . ltd [a",kQ _ C"",ultoo.. • C""n",;ea~io , SA

Imp.n:Ap=amiffito, y S' fyri<l , SA InhonSA ES C<>m<fcizl AgricQ~ ltda ES Hol<hng A<lmristta~io • Participa~"" , s/A ESPrin" Equrty, ltd ES V;"gm, . Turi,mo , lda

heu C"",ult~A<lmristta~io . Imp<. ffi<hmffito , ltda he<>p"" _ Soci. dad. G. "Ofa d. Participa~"" Sociai' , SA ESDI A<lmristta~io • Participa~ o" ltda

h . lI'" - Imp<"a d. S' lI"'ano;a. SA h g« _Imp<" a d. S""';';Q" C"",ult~ SA hi=. _ hp;rito Santo Int<mational A"" l>lznag<mffit.ltd h im _ hp;rito Santo 1m0biUOO , SA

hp"'" _ hp;rito Santo Participa~ o" finane';'a" SOPS, SA hp"'" Mad';'a SOPS, Unip. "oal, lda ESPB A<lmristta~io • Participa~"" ltda hp;rito Santo Co.cho';'a D"",Yolyim"'to 1m0bilWiQ ltda hp;rito Santo C<>1""ol SA hp;rito Santo Guaruj" D"",Yohim"'to 1m0bilWio ltda hp;rito Santo Hot .. " SOPS, SA L'pirito ~to IDI.RIAI hp;rito Santo Indaiarub>. D"",Yohim"'to 1m0bilWiQ ltda hp;rito Santo Indu,trizl ( B'vl ). SA hp;rito Santo Indu,trizl ( Portugal ) _ SOPS, SA

hp;rito Santo Indu,trial. SA hp;rito Santo In"'national (BVI). SA hp;rito Santo In" mational SA hp;rito Santo Innio, _ Soci. dad. G. "Ofa d. Participa~ o" Sociai' , SA hp;rito Santo lutib>. D"",yohimffitO 1m0biUOO ltda hp;rito Santo PrimaY«a D"",yohim",to 1m0biUOO ltda hp;rito Santo Pr<>p<tty (lkad) s/A hp;rito Santo Prop<tty hpIDa. S.l hp;rito Santo Prop<tty Hol<hng (BVI) SA hp;rito Santo Prop<tty Hol<hng. SA hp;rito Santo Prop<tty SA hp;rito Santo R"ou«" ( Portugal ). SA hp;rito Santo R"ou«" SA hp;rito Santo R"ou«" , ltd hp;rito Santo S"">C" , SA hp;rito Santo T ouri,m ( EUfop, ). SA hp;rito Santo T ouri,m, ltd hp;rito Santo V",tUf. ltd

hp;rito Santo V;"gm, _ C"",ultoo.. • S"",;,;o' , SA hp;rito Santo V;"g"" _ Soci. dad. G. "Ofa d. Participa~ o" Sociai' , SA htorilInc EUfO"""<ric"" finane . C<>fJ><>fati<>n, Inc EUfo"",,<ricanfinane . SA

EUfoatlantic, Inc

Compo)' (<one)

Plae"" _ hrudo, • Proj«to, d. C"",truo;io , lda Pojuca. SA Pok,h Hotd Co.piu.l SP

Pok,h Hotd C""'pany, SP Pok,h Hotdl>lznag<mmt C""'pany, SP PonUY. _ C""'trUO;O " , SA Porn;'", _Poru.g<m d. V;"" SA Praia do f on. Op«adOfa d. Turi,mo , ltda

Pro'Port. SA QuWay T «:hnologi" C<>fJ> Quinu da Arm _ Soci. dad. AgricQl.a QuinU da Ar<ia. SA

Quinu da BatonWI Imp<. ",<hm"'to, • Participa~"" , ltda Quinu dafoL_Imp<. m<hmmto, 1m0bilWio, SA

R<cigu", _ R<cicl.ag<m • G"tio Ambi",u.l. SA R<cigroup _ Indu"ri", d. R<cicl.ag<m, SOPS, SA R<cipay _ Ingffihario. • Pa,imffito" Unip. "oal, lda R<cip1UU _ Imp<"a l'>acional d. R<cicl.ag<m d. P1UU5, lda Rib';'a do M.:clwlt< , A<lmristta~io d. B"" l>lilY .. , • Im"y"" S.A

RW f on. InY"Im"''' SA RWfon. (portugal). SA Riofon. InY"lmmt Hol<hng ika,~ s/A RWfon. Ol. Q, G .. , . Min«a~io , SA

Ro<li Sinh &Id. a" SA RUA DcnitA 51'. Zoo

Szlgu InY" Im"''' Sanu MOnica _ Imp<" n <hmmto, T uri,ticQ' , SA

Saramago, s/A Imp<. ",<hmffitO' • Participa~ o" ~~

SCA l>lzndd PatIn«, S<:\m,,,, _ Auto"ttada, da B';'a Int<riOf , SA

S<ri" _ S""';';Q' 1m0bilWio, hp;rito Santo , SA Sintta Imp<. ",<hm"'to, 1m0biUOO" ltda Si'g" , SA D"",yohim",to d. Proj«to, d. In«g;" SO PESO R"uUfa~io • Ho"laria. SA Soci. dad AgricQl.a Golon<lrina. s/A Soci. dad. AgricQl.a Quinu D. l>lznml I SA Soci. dad. AgricQl.a Turi, tica . 1m0bili.W Vmnhgoa. SA

Soci. dad. d. A<lmristta~io d. B"" _ Co., a d. Bon, Ar" , S.A Soci. dad. d. A<lmristta~io d. B",,_p. <ira da l'>au. S.A

Soci. dad. d. SiJ,>cultUfa M on" do Anu irinho , lda Socii t i An,;n.; .. d. G. ,,;on finznciif., SA _ SAGUl

Socii t i C""gow .. d. C"",truction " Tfan"" Publiqm' , SARi S<lgu"t _ Soci. dad. Imobili.iria. SA S<llf<ri", _ Op«adOf" Turi, ticQ ' , lda

S<>pol_ C<><>C" '"" , SOPS, SA S<>p<aruno c..f. , SA S<lu.!_ Soci. dad. d. G"tio Hotd . ifa. S.A SOUSACA.\IP, SOPS, SA Spa« _ Soci. dad P<nin,ul.:u d. Ay;"ciOn. C"",ifcio • E.xcU<,;on" , SA Sulig!<>< _ 1m0bili.W do Sui. SA

Sy"«gy Indu, try and T «:hnology, S.A EUfop' A,,;,u.nc . _ C<>!IIP"",,", Portugu"a d. S' lI"'o, d. A";,,,ncia, SA TA Dl>IC ika,il_ V;"g"" • T uri,mo , SA f af ... _ Imp<. ",<hm"'to, T uri,ticQ' • d. C"",truo;i o, SA T<rra, d. ikagano;a Participa~"" , ltda fim" II _ fundo d. Iny"timmto 1m0bilWio f «:hado Th. Atlantic C""'P""Y ( Portugal ) _ Turi,mo • Ufb=Wt~io, SA fin S<llutio. _ C"",ultoo.. • G"tio d. C •• <lito" SA Tim. anrub< C<>mifcio • S""';';Q' d. C<>nf«~ O" , ltda fundo B<m C"",um fCR T;yok Ec""";dme,, Praia do f on. ltda fundo d. Co.piu.l d. Ri,eQ hp;rito Santo V",tUf" Inon~io • Int<macionz!i; T;yok G"". do Ori",,, _ Soci. dad. d. G"tio Ho" l';'a. S.A G=d",a C<>rina Camp<>' Y lillci",da" s/A no 2_ Soru.;o" In" grada, d. Td«omunica~ o" , SA G"""". <1. Di.o.gn",ticQ d. l>1. <licino. M ol«ul.;u, SA TOP A Dl>IC Vi.aj" , SA GES finane . limi" d Top AtlanticQ _ Vi.ag"" • T uri,mo , SA G,,/imo _ hp;rito Santo , Innio" S<>c. G. "Ofa d. fundo, d. Iny"tim"'to 1m Top AtlanticQ Dl>IC, SA G"tt" _ G"tio h ttat igica hp;rito Santo, SA T<>p PatIn..- _ V;"gm, & S<lru.;o" Imp<"arizj" SA GLOBAl ACTIVE _ GESTAO P.S.SOPS, SA Tfameontin",u.! _ Imp<. ",<hmffitO' Hotd . ifo" SA

Goggl. , l>lzrim , ltd T urifon", Imp<. ",<hm"'to, Hotd ';'o" SA Gr. ",WoQd, Ec"""on Imp<. ",<hm"'to, 1m0biUOO" lda Turisttad ... _ Soci. dad. d. D"",yohimffitO Turi, ticQ , SA Group C,, <lit Agric ol. U";eu _ c..rtio In" macional d. C •• <lito, SA Group. CFCA SAS U, huzia _ G"tio • Tfa<hng IntfflUlcionallimit. d

Grup<> Proy«to, y S""""'" S=i<m. SA HO _ H. alth c.... Int<mational Inc HDC _ S""';';o, d. Turi,mo • Imobili.ario, SA

V;y';'o, da H ... dad. da C<>!IIp<lftl! Pro<h>;io d. Planu, Ornzmmui" lda

W ATSO:' BROWN HSl>1.1td YDf.""" _ InfOfllllitica. SA YW>TI _ S""';';Q' , SA

Compo)' (COllL)

[ .S. R"ourc" O"..,.., . a" ltd r.5.B.f;".."c . ltd

Eo."'k~ _ C~n",ltorio. e C~mlrical'lo, SA Imparl< Apore"";."to, y S",icio, SA

&Won SA ES Com"cial Agncola, ltda [S Holding A<lmini,tta,lo • Pmi<ipa,"", Sf A ES Pm'ate [quay, ltd ES V;'gen, • T uri,mo, lda [sea< Comultoria, Admini,tta,io • Impf<ffidim<nto, ltda

[,cop"" _ Soci. dad. G."ofa de pa<ticipa,o .. Sociai', SA ESDI A<lmini5tta,io • p.mc;pa,o" ltda [s ' g'" _ Imp' .. a d. S' gufan<;a, SA [sg" _ Imp'"a de S",,->;o , • C~multon., SA Es"", _ [spirito S=to Int«national A"" :\ianag""<n" ltd [sim _ Esp;rito S=to 1m0biUrio, SA [sp'" _ [,pirito S=to p.mc;pa,o .. f;".."c.;r"" SGPS, SA Espan Mad.;r" SGPS, Unip . ,,~al, lda

ESPB Admini,tta,io • p.mc;pa,"" ltda ['pirito S=to Cacho. ;... o.,<nyoh-im<nto lm<>bdWio ltda

[spirito S""to Conttol SA [spirito S=to <luzru}O. o."",'oh-im<nto lmobdWio ltda Espirito S=to Hot .. " SGpS, s.. ... L'pUito &onto mIJUA I Esp;rito S=to Indaiatuba D"",v<>h-imrnto lmobdWio ltda [spirito S=to In<lu,trizl ( BVI). SA Espirito S=to In<lu,trizl ( Ponugal ) _ SGPS, SA [,pirito S=to In<lu,trial, SA

['pirito S=to Intomati<>nal (BVI). SA [spirito S""to In""",tional SA [spirito S=to Imtio, _ Soci. dad. G. "ofa d. p.mc;pa,o .. Sociaj', SA

Espirito S=to ltatiba D"rnYoh-im"'to lmobilWio ltda Esp;rito S=to Prim.v",,- D" ",,'oh-im<nto Imobili.ario ltda [spirito S=to Ptopmy (B""i!) SIA Espirito S=to Ptopmy ['pan.., SL [,pirito S=to Ptopmy Holding (BVI) SA ['pirito S=to Ptopmy Holding, SA [spirito S""to Ptopmy SA [spirito S=to R"o"",,, ( Ponugal ). SA Espirito S=to R"ourc " SA Esp;rito S=to R .. ourc " , ltd [spirito S=to SM'lic", SA Espirito S=to Touri,m ( [urnI" ). SA [,pirito S=to T ouri,m, ltd

['pirito S=to Vonnn ltd [spirito S""to Y;'g. m _ Con,ultoria • S",->;o' , SA

[spirito S=to \';'gon, _ Soo.dad. G. "",a d. Pa<ticipa, " " Socioi" SA

r"OOl Inc [uroom.ncon f;".."c . C<><porntion,lnc

[uroam.nc""f;".."c . SA [u",atlantic. Inc [Ufope A"j,tanc . _ Componhia Ponugu"a d. S'gufo , d. A,,;,,<nci.I, SA hf" _ Imp'. ondimonto, Turi,tico, • d. C~mtn>;io, SA fim., II _ fundo d. In". ,timroto lmoWWio f «:hodo

fin Solutio _ Comultoria • G. ".o d. Cf.dito " SA fundo B"" Comum fCR fundo d. Capital d. Ri,eo [sp;rito S=to \'rn""" Ino,'a, i o . lnt=ciona!i; G"",d . ... Corina Compo, Y Haci..,da" SIA Gm"",. d, Diogrui,ticG d. M. di<ina MolKU!u, SA GESf;".."c e limit. d

G,,/imo _ [,pirito Santo, ""'io., Soc. G. "",,- d. fundo, d. In" " tim"'to 1m G"tt .. _ G. ".o [sttat' gica [spirito S""to, SA GlOBAl ACTIV[ _ GESTAO p.s.SGPS, SA

Gow" :\larin., ltd G.-...,Wood, [cor" on _ Imp'. rndimrnto, 1m0biUrio" lda

0.-0"1' ({. dit Agricol. 0.-0"1" erCA SAS Grupo Ptoyocto , y S..,icio, S=ion, SA HU _ H • .w:. Cafe Int=tional1nc. HDC _ S"'->;<>, d. Turi,mo • Imobiliario, SA

Compo)' (COllL)

P1a<on _ [studo, • Ptoj«to , de Comtn>;i o, lda

Pojuca, SA Po~,h Ho"l Capital SP Po~,h Ho"l Company, SP Po~,h Ho"nianag""<nt Comp""),, SP Pontay. - Comtn>;~", SA Pom'" _ Portag.", d. \ 'jo" SA Ptaia do f on. Op .... do ... d. T uri,mo, ltda Pto,p<>rt. SA

Quinfay T «hnologi" C<><p. Quinta da Afm _ Soo. dad. Agricola Quinta da Af .... SA

Quinta da Buott<LI. Imp' • ..,dim<nto •• p.mc;pa,"", ltda Quint. da f 0'_ Imp'.",dim"'to, lmobdWio, SA R<cign<n _ R.cidag .m • G.".o Amboimtal, SA R<ciyoup _In<lu"ri., d. R. ciclag<m. SGPS, SA R<cip.v _ Eng<nharia • Pa,-im"'to ., Unip" ,oal, lda R<cipnru _ Imp'"a l->acional d. R<ciclog<m de Pnrus, lda Rib<ifa do !\luchm", Admini,tta,io d. B"" Mi,,',;, • Imo".;" S.A .

Rio f on. In""tm<n" SA Ri<lfone (portugal), SA Riofon •. In""tm<nt Holding &.,~ Sf A Riofon. 01'0, Gj". :\Iin..-a,io, SA Ro<li Sinh &Id.a" SA Ru.ou.. ..... 51',Zoo Solg'" [m,,,tm"''' S=ta :\\On;ca _ Imp' .. ndim<nto , Turi,tico" SA

S=ago, Sf A Imp'. ",dim",to, • Pa<ticipa,"" ~M

SCA :\fmd<l Part".,.,

&Un", _ Auto"ttada, da B<ifa Intme.- , SA St-ri" _ Sm->;o, lmobdWio, [spirito S=to, SA

Sintta Imp'. rndim"'to, lmobilWio " ltda 5;'g" , SA D" ",,'oh-im<n'o de i'Ioj«to , d. En«gia SO PESO R. ".",a, i o • Ho" laria, SA Soci. dad Agricola G01on<lrirl.a, Sf A Soo. dad. Agricola Quinta D, M""",l l SA Soci<dad. Agncola T uri,tica • Imobililiria Vm.a hgoa, SA Soci<dad. d. A<lmini,tta,io d. Bom _ Ca,. d. Bon, Af. s, SA. Soci. dad. d. Admini,tt.,io d. B.m_p. dfa da l->au, SA.

Soci. dad. d. Sihiculru... :\\on" do Am<irinho, lda Socii t ' Antillai" d. G"tionf~., SA _ SAGm Socii t ' Congolai" d. Con,truction "T ... n u:< Publiqu .. , SARi Sogu." _ Soo. dad. lmobilWia, SA SolfOria, _ Op.ndof" Turi,tico " lda Sopol_ C~nc . "Ii", SOPS, SA Sopratuno Cafi , SA Sotal _ Soci. dad. d. G.".o Hotd<ifa, SA. SOUSAC.>,.,\!P, SOPS, SA Sp .c< _ Soci.dad Pfflin,uW d. A,,,e;on, Comi<ciG e UCUfS;O"" , SA Suliglof _ 1m0bilWia do Sui. SA

Syn"-g}' In<lu'ttyand T«:hnowgy. SA IA D:\\C Ba ,il_ Viag"" • T uri,mo , SA

Tma, de ilRgan<;a P.mc;p",ii . s,ltda Th. Atlantic Company ( Ponugal ) _ Turi,mo • Urtwliu,io, SA

Tim",,,tub. ComMcio e S""->;O , d. Conf«, "", ltda Ti"o~ [co",jdrnc . , pm. do f on. ltda Ti"o~ Ga" do on",,, _ Soci. dad. d. G. ".o Ho"l..,a, SA n Ol _ So)u.;o" In"gr>.da, d. T<l«omumca,o .. , SA TOP A D:\!c Vjoi", SA Top Atlantico _ Viag"" • T uri,mo , SA

T 01' At1mtic~ D:\\C, SA TopP.",,« _ \ 'iagrn, &: So)u.;o" Imp'''.ru;" SA T...",eontinmtal _ Imp'. ondimffitO' Ho" l<ifo., SA Turifom., Imp"..,dim""o, Ho,d<ifo" SA T uri,ttad« _ Soci. dad. d. o."",'oh-im"'to T uri,tico, SA Unicr. _ Canio Int~ d. ({. dito, SA U,huoio _ G. ".o e Tading Int<m>.cionallimit. d V;y.iro, da H«dad. da Comporta i'Io<lu<;lo de Planta, Omamrntai" lda

WATSOl->BROWNHS:\l,ltd YD","", _ Info<m.itica, SA YU~TI _ S",,->;o', SA

[ .S. R"ou"", O\-m. a,. ltd E.S.B.f~ . ltd

E.o."'k~ _ Conml,on.. • CQmlrical'iiQ, SA tlnp"", Ap..-comirnto, y S",ici<>, SA

Enlcron SA ES Com"cial AgncQIa, Itda [S Holding A<lmifli,ttal'lQ • P.nicipa," ,,> Sf A ES Pm-ate [quay, ltd ES V;'g'''' • T uri,mo, lda ['Cat Con,ultoria, Admini,ttal'io • tlnPf<",dim"'to, Itda [,eopar _ Soci. dad. G."o,. d. P.nicip"I'0" Sociai,. SA ESDI Admini,tta~ilo • Particip. ,o" Itda Es . gut _ tlnpr"a d. S' gUfan,,,, SA ['g" _ tlnpr"a d. S"";';o, • C"'l5ul,on., SA

Esiam _ Espirito Santo In'«national A"" :\ianag"""'" ltd ["'" _ Espirito Santo 1m0biUtio, SA

Espan _ [,pirito San,o Participa,l5" f~m', SGPS, SA [ ' part Madoia SGPS, Unip. "Qal, lda ESPB Admini,tta,io • Participa,"" Itda E,pirito San,o Cacho.in D"rn,-oh-imffito Im<>bilWio Itda Espirito S"",o Conttol SA ['pirito San,o <Juzru}O. o."",-ol>-im"'to 1m0bilWio Itda Espiri'o San.o HQt<i" SGPS, SA L'pinto &onto mffiIA I

Espirito San'o Indaiotub>. D"",,vQI>-imrnto 1m0bilWio Itda Espiri10 Santo Indu,trizl ( BVI ). SA [ , pirito Santo Indu,trizl ( Pottugol ) _ SGPS, S.A

['piritQ Santo Indu,triol, SA E,pirito San'o Inttmational (BVI). SA Espirito S"",o In",national SA ['p;mo San,o Imtio, _ Soci. dad. G. "o,a d. Particip.""" Sociaj', SA Espiri'o San.o ltatib>. D"rn,-oh-imm'o lmobilWW Itda

Espiri10 San'o Prim.v .... D'''''''-OI>-imffi'O 1m0bilWio Itda Espiri10 Santo PIopotty (B"ui!) SIA [ , pirito Santo PIopotty Espan.., SL ['piritQ Santo PIop'tty Holding (B\1) SA E,pirito San,o PIop otty Holding, SA Espirito S"",o PIopotty SA ['p;mo San,o R"out<" (Pottugol). SA

Espiri'o San.o R"ourc" SA Espirito San'o R"ourc". ltd Espiri10 Santo Stf'I-;c", SA [ , pirito Santo TQuri,m ( [urop . ). SA

['piritQ Santo r ouri,m, ltd E,pirito San'o Vontuf. ltd Espirito S",,'o Vag. m _ C"'l5ult<>ria • S",-;';o, . SA ['pirito San,o Vag"" _ Soo.dad. Go"Ofa d. Participa,"" Socioi" SA Estotil Inc [uroom<tic= finane . CotpOf>l.ll"", Inc [uro=<tic""f~ . SA ["'<>atlantic. Inc [urop' A .. j,unc. _ Componhia Pottugu"a d. S.guro, d. A55j,,<ncia, SA faf..- _ tlnpr. ondimon,o, Turi,ticQ' • d. Comtn>;io> SA hll., IT _ fundo d. Inn,timrnto 1m0bilWio f «:hado

fm S<llutia _ C"",ul,on.. • Go,tio d. C,i<li'o" SA fundo B.."CQmumfCR

fundo d. Capitol d. Ri'CQ Espirito San,o V"'tuf" Ino,-a,io . In,omacioo.o!i; Ganad.", Corina =1'0' Y Haci",da" SIA G",,,,,,. <I, Diagrui,ti.;:Q d. M. dicino M olKUlu, SA

GESf~. lWIit. d

G"fimo _ [,pirito Santo, Irmio" S<>e. G. "",," d. fundo, d. In,-"tim"'to 1m G"tt" _ G"tio Esttatigica Espirito S",,'o> SA GlOBAl ACTIV[ _ GESTAO PS.SGPS, SA

GoW" :\larin., l.d G.-.",Wood, [e",,,ott _ tlnpr. rndimrnto, 1m0biUtio" Ida

Group Ct. dit Agncol. Group. erCA SAS Grupo PIoy«to, y S",icio, S=ion, SA HU _ H.olth Care Intomational1nc. lIDC_Stn-;';o, d. Tuti,mo. Imoww;., SA

Compon)·(COlIt.)

PlaCQn _ Estudo, • PIoj«to, d. Comtn>;io, lda

Pojuc", SA Po~,h Hottl ~tol SP Po~,h Hottl Company. SP Po~,h Hottnianagomrnt C"",pany, SP

Ponta,-. - Comtn>;~", SA Pom'" _ Portog""- d, Va" SA PIaio do f on. Op .... do ... d. T uri,mQ, Itda

PIO'l"'tt, SA Quin.-ay T «ffiologi" C<><p. Quinta da Arm _ soo. dad. Agri<Qla Quinta da Arm. SA Quinta da &romu tlnpr. mdimffito, • Particip.,,,,,, ltda

Quinto da f Ol_ tlnpr'ffidimffitO' 1m0bilWio, SA R«igf<tn _ Rtciclag.m • Gutio Ambi.ntal, SA R«iyoup _Industri., d. R. ciclagom. SGPS , SA

R«ip.v _ Engtnhario • Pa,-im"'to" Unip" ,oal, lda R«ipnru _ tlnpr"a l->acionol d. Rtciclagom d. Pnrus, lda Riboita do "!Mehantt, Admini,tta~io d. B"" Mil" .. , • 1m';",;., S.A. Rio f on. In,-"tm.n" SA Riofon. (portugal). SA Riofon. In'-"tmrnt HQI<ling m'~ Sf A Riofott. 01'0, Gi,. :\IinOfa~io, SA Ro<li 5mb &Id.a" SA Ru.Jk""tA gl', Ic.

Salg'" Inn'tm""" Santa :\-1On;ca _ tlnpr • ..,<lim..,to , Turl,tico •• SA

S=agQ' SfAImpr. ",dim"'M" P.nicipa,""

~'w SCA :\!ondd Pann.,., &Un,", _ Auto"ttada, da Btifa IntroOf > SA S"iu _ Sm-;';o, 1m0bilWio, Espirito San.o, SA

Smtta tlnpr. rndimffito. lmobilWW" Itda S;'gu, SA D"""-ol>-im",,o d. PI<>jocto, d. En«glo SO PESO R. " . ut>.,io • HottlMio. SA Soci,dad Agri<Qla G01on~ Sf A Soci. dad. Agricola Quinta D_ MID",11 SA Sociodad. AgricQla Turi,tica • Imobililirio Vm.a hgoa, SA Soo. dad. d. Admini,tta,io d. B.", _Ca .. d. Bo", Ar. "SA. Soci. dad. d. Administt.~io d. B.n5_p. dra da l->au, SA.

Soo. dad. d. Sil,,;culrun :\Ion" do Amtirinho, Ida Socii ti Antillai" d. G"tion f~,. SA _ SAGEn Socii t i Congolai" d. C"",truction «T,anu:< Pubhqu .. , SARI S<lgu." _ Soo. dad. lmobilWio, SA Solfm .. _ Op,ndot" Turl,ti.;:Q', lda S<>pQl_ Conc . "/i,,, SGPS, SA

SQpratutto Cafi • SA S<ltal _ Soci. dad. d. Gutio Hotd. ir", SA_

SOUSAL-\.,\IP. SGPS, SA Sp.« _ Soci.dad P""",ulat d. A,,"eiOn, Comifcio • bcut,;om,. SA Suligl<>, _ 1m0bilWio do Sui, SA

Syn ... gy Industry and Toclln<lwgy, SA TA D:\IC Bra,il_ Vagrn' • T uti,mo , SA

Tma, d. mg""l"'Particip" " ." ltda Th. Atlantic Company ( Pottugal ) _ Turi,mo • Utb=iu,io> SA Tim.""tub. COOltmO' S"'-;';o, d. Confoc,"", Itda Ti"o~ [eo",jdrnc . , Pnia do f ott. Itda T;"o~ Ga" do Ori"'tt _ Soci. dad. d. G"tio Hottl..,,,, SA TIC! 2 _ So)u.;"" In"gnda, d. T<l«<>mlrica,"", SA TOP A D:\IC Vaj", SA T<>p AtlanticQ _ Vagrn' • T uti,mo , SA

TopAilinticQ D:\IC. SA Top Pottn" _ Vagrn' & So)u.;o" tlnpr"oriai, . SA T"""eontimntal _ tlnpr. ",dim",'o, Hotd. iro., SA

Tutifom. , tlnp""'<limm'o, Hottltifo. , SA T uri,ttad« _ Soci. dad. d. o. ,,,,,-ol>-im"'to T uri,tico, SA Unict. _ Cattio Inttmaeicnal d. Cti dito, SA

U.huoia _ G"tio • Trading In'omo.cionllllWIit,d v;".iro. da H"dad. da Compott.a PIo<lu<;lo d. Planta, Omamrn";" lda WATSOl->BROWNHS:\l,ltd I'D",,,,,, _ Infotmitica, SA

YU~TI _ S"'-;,;o', SA


Compm)' (COlI!')

[ .S. R" ou<c " O\'m. a,. ltd I .S.B.f~. ltd

Ea"'k~ _ Consultom , Comlrical'io, SA tlnparkAparcomirnto, y S",icio, SA

EnhonSA IS C~m • .-cial Agncol&, Itda [S Holding A<lmi<li,tta~lo • Pmicipa," " , SlA ES I'tivate [quay, ltd ES V;'g'''' • r uri,mo, lda [,ea. Comultoria, Admini,tta~io • EmPf<ffidimffitO, Itda [,cop"" _ Soci. dad. G."OfO de Pmicip.~ii" Sociai'. SA ESDI Admini,tta~ilo . Particip.~ii" Itda I "gUf _Empf<5a d. S' guf=,,,- SA Esg ,,_tlnpn,a de Sm-;';o, . Comulton., SA

Esiam _ Espirito Santo Int"""tional A"" :\lanagtmffit, ltd Esim _ Espirito Santo Imobi\i.ario, SA

Espan _ I,pirito Santo Puticipa~o" f~m., SGPS, SA [ ' part Madeia SGPS, Unip. "o,,", lda ESPB Admini,ttap.o • Participa,"" Itda I,pirito Santo c..cho. n D"rnvol\-imrnto ImobilWio Itdo I,pirito S""to Conttol SA Espirito Santo Gu.ru}O. De"m'oh-imrnto 1m0bilWio ltda Espirito Santo Hot ... , SGPS, SA L.pinto &onto mffiIA I

Espirito Santo Indaiatub>. D"",voh-imrnto 1m0bilWio ltdo Espirito S""to Indu,triol ( BVI ). SA [ ' pirito Santo Indu,triol ( Portugo! ) _ SGPS, SA [,pirito Santo Indu,trial, SA

E,pirito Santo Inttmational (BVI). SA I,pirito S""to In"'national SA Esp;mo Santo Imtio, _ Soci. dad. G. "o,a d. Particip.,,,,, Sociaj' , s. .... Espirito Santo ltatib>. D".m'oh-imffito 1m0bilWio Itda Espirito Santo Prim.v .... D".m'oh-immto Imobiliario Itda Espirito S""to PIoprny (B"u i!) SIA [ ' pirito Santo PIoprny Espan.., SL [,pirito Santo PIop."" Holding (B\1) SA E,pirito Santo PIop rny Holding, SA I,pirito S""to PIoprny SA Esp;mo Santo R .. o"", .. ( P"rtugo! ). SA Espirito Santo R"o""",, SA Espirito Santo R"o"",,,, ltd Espirito S""to Stf'I-K", SA [ , pirito Santo Touri,m ( [urnI" ). SA [,pirito Santo T ouri,m, ltd E,pirito Santo Vontufe ltd

I,pirito S""to Viag. ", _ Comultoria • Sm.-;'; o" SA Espirito Santo Viag.", _ Soo.dod. Ge"o<o d. Participa~ii" Socioi" SA Estoril Inc

[uro om«ican f~. C"'P""'''''''' Inc Iuro=«ic=f~. SA [u",atlantic. Inc

IUfOp' A"j,tanc . _ Companhia Portugu"a d. S'gufo, de A55j"i-oci.I, SA f at..- _ tlnp<. ondimonto, ruri,tico, • d. Comtn>;io, SA fim., IT _ fundo d. Inn,timrnto 1m0bilWio f «:hado fm Solutio. _ Co",ultom • Ge,tio d. C,.dito. , s. .... fundo B. rn Comum fCR fundo d. c..pital d. Ri,co Espirito Santo \'ffituf" Ino,'a~io . Intemaciona!i; Gam.d. ", Corina Caml"" Y Hacimda" SIA Gmom. d, Diagrui'tico d. M . dicino M olKUlu, SA GESf~e lWlit. d

G"fimo _ E,pirito Santo, irmio" Soc. G. "Of>. d. fundo, d. In""timmto 1m G"tt" _ G"tio Esttati gica I,pirito S""t., SA GlOBAl ACTIV[ _ GESTAO PS.SGPS, SA

Goggl" :\larin., ltd O' • ..,W ood, Ec""" ort _ Emp<. rndimrnto. Imobi\i.ario. , Ida Group « . <Iit Agricol. o.oup. erCA SAS Grupo PIoy«to, y S",icio, S=ion, SA HU _ H.olth c..t, Intemational1nc. lID( _ S"'-;';o, d. Tun, mo • Imobitiano, SA

Compm)'(COlI!')

Placon _ Estudo, • PIoj<cto, de Comtn>;i o, l da

Pojuca. SA Po~,h Hottl ~tal SP Po~,h Hottl Company, SP Po~,h Hottl :\lanagement Company, SP Pontav. _ Comtn>;ii .. , s. .... Pom-i .. _ Portog"" d. Via" SA PI ... do f Oft. Op .... do'" d. r uri,mo ,ltdo

PIo'l"'rt, SA Quin.-ay r «mologi" Corp. Qu;nta do Arm _ Soo. dod. Agricola Qu;nta do Arm. SA

Quionta da &romLl. tlnp<<t"dmtrnto , • Puticipo,ii". ltda Quionto da f 0'_ tlnp< •• ndim.nto, 1m0bilWio, SA

R«ignrn _ Rtciclag.m • G"tio Ambi."ta!. SA R«iyoup _Indu,trio, d. R. ciclogtm, SGPS , SA

Recip.v _ Engrnharia • Pa,-imffito .. Unip" ,ool, ldo R<cipnru _ tlnp<"a1'>acionol d. Rtciclag. m d. Pnru .. lda Ribeira do !\!Mchan", Admini,tta~io d. Brn, !\Iiiv';, • Imo",;" S.A. Rio f Oft. Inv"tm.n" SA IUofOft. (portugal). SA RiofOfte In""tment Holding &a,~ SlA Riofort. 01.0. m.'. :\Iin<fa,i., SA Ro<li Sm;;, &Id.a., SA Ru.oll ....... 51', Z ...

Salg'" Inn'tm"''' Santa :\!On;ca _ Emp<.m<limmto, Turi,tico •• SA

5=>.go, SfAImp<. ",dmt",to • • Pmicipa~ii"

~'w SCA :\!ondd Pan",,, &Un,", _ Auto " ttado, da Btifa IntroOf , SA S.ri., _ Sm-;';o. 1m0bilWio, Espirito Santo, SA

Smtta tlnp<. rndimento, 1m0bilWio" Itda 5;'g" , SA D".m'oh-immto de PIoj<eto , d. En"'gla SO PESO R"taUf>.~io • Hott1Mia, SA Soci.dad Agricola G01on<lrina. Sf A Soo. dad. Agricola Qu;nta D, :\1=utll SA Sociedod. Agricola r uri,tica. Imobililirio Vm .. hgoa. SA Sociedad. d. Admini,tta,iio d. Bm, _Ca .. d. Bom Ar. "SA. Soci. dad. d. A<lmi<listta,io d. B.n5_P. d<a da 1'>.", SA_

Soo. dad. d. Sihiculrun :\!on" do Amtirinho , ldo Soci' t' Antillai .. d. G"tionf~., SA _ SAGEn Socii t i Congoloi .. d. Con,truction .. T ... ",u:< Pubhqut., SARi

Sogu." _ Soo. dad. 1m0bilWia, SA Solfm., _ Op.ndo,,, r un,tico" ldo

Sopol_ Cone . "",,, SGPS, SA S<>p<atutto Cafi • SA Sotal _ Soci. dad. d. G.,tio Hotd. ira. SA_

SOUSAC\MP. SGPS, SA Sp.« _ Soci.dad P""",uIar d. Av'a<ii>n, Comifcio e [",u"ion" . SA Suliglo, _ 1m0bilWia do Sui. SA

Syn..-gy Indu,try and T«:hnol<>gy, SA rAD:\!CB""il_ V" grn, . Tun,mo , SA r ma, d. &ag""l'" Particip.~ii . "ltdo

Th. Atlantic Company ( Portugal ) _ Turi,mo • Urtwliu~io, SA rimunrub. C<>mimo e Sm-;';o, d. Conf<e~ii" , ltda

rivo~ Eco" ,jdrnc . , Pnia do fort . ltda r;yo~ G .... do on",,, _ Soci. dad. d. Gu tio Hottl..,., SA

nCl2 _ Soru.;o" In"gnda, d. T<l«omlrica~o .. , SA rop A D:\!c V"j. " SA r op Atlantico _ V" grn, • Tun,mo , SA

r 01' Ailintic~ D:\!C, SA r 01' Ponn" _ Viagm' & Soru.;ii" tlnp<t5..w" SA r"""eontinmtal _ Emp<. ",dmtrnto. Hotd. iro . , SA

r urifont. , tlnp ... ..,<limffitO ' Hottl,""" , SA r uri,ttad", _ Soci. dod. d. De, tn"Oh-imffitO r uri,tico, SA Unicr. _ Cartio Inttmacional d. « . <Iito, SA U,huoia _ G"tio e T",ding Int<macionlllIWlit.d

V;..'. iro, do Herdad. da Compo.... PIodu<;io de Planta, Omamrntai" ldo WArso:. BROWN HS:\I, ltd I'D",,,,,, _ Info<m.itica. SA YU~TI _ Sm-;';o., SA



Page 128

As at 31 December 2011 and 2010, the total amount of the assets and liabilities of the Group with associates or related companies, is as follows:

31.12.2011 31.12.2010Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses

BES VIDA - Companhia de Seguros, S.A. 1 407 386 293 741 - 26 520 2 170 988 997 429 953 - 49 187 1 094 ESI S.A. 895 881 5 570 - 57 988 - 951 466 109 - 29 583 30 ESR LTD 722 378 4 089 - 39 238 224 446 279 1 704 - 16 100 6 AENOR DURO 247 956 1 898 12 000 11 202 18 122 304 592 - 5 013 - ASCENDI GROUP SGPS 188 129 8 337 29 358 16 025 7 188 684 5 348 - 9 882 2 542 LOCARENT 142 280 312 - 4 708 10 470 139 970 714 - 3 303 10 281 ES IRMAOS 99 341 5 - 5 244 - 87 948 6 - 2 470 - ESPH 78 632 94 - 2 842 - 39 187 10 - 2 879 - NANIUM 42 044 2 752 18 387 971 - 45 403 704 - 610 - EMPARK 40 080 - - 2 675 - 41 537 - - 3 286 - ASCENDI PINHAL INTERIOR 33 732 10 686 15 374 1 505 103 9 320 17 769 - 256 19 SAXO BANK 26 558 637 - 3 920 - 23 766 233 - 4 309 3 CONSTRUCCIONES SARRION 25 800 - 10 765 - - 26 934 - - - - OPWAY 15 412 13 073 47 642 287 - 31 606 8 998 35 665 713 - SCUTVIAS 8 840 - 6 868 2 967 - 9 140 - - 227 - PALEXPO 6 800 75 - 495 - 6 800 189 - 353 1 DIRECTORS 5 315 137 - 4 - 5 924 52 - - 1 ESEGUR 2 749 231 2 197 1 214 421 2 737 138 2 261 1 094 361 EUROP ASSISTANCE 1 445 1 835 8 75 2 266 2 144 1 670 7 43 1 465 MARINOTEIS 1 224 189 743 7 - 689 477 11 9 - BES SEGUROS 378 12 578 - 3 381 11 4 711 13 802 - 4 793 4 SOUSACAMP 64 5 3 013 131 - 15 064 7 3 013 835 - MULTIPESSOAL 63 68 - 198 424 - 18 - 363 384 ESCOM 30 - - 3 - - 6 - 6 649 - ES INDUSTRIAL - 17 - 1 - - 9 - 1 -

EUROAMERICAN - 92 - 5 - - 45 - 8 - ES TOURISM - 6 280 - 2 - 4 099 874 - 2 - HERDADE - - - 6 - - - - 32 - GES FINANCE LTD - 151 - 387 - - 194 - 3 379 - ESR (P) - 71 - - 777 - 79 - - 414 OBLOG Consulting, S.A. - - - - - - - - - 9 TOP ATLANTICO - 69 - - 1 106 - 20 - - 696 Others 91 947 43 117 25 722 6 503 5 871 97 102 49 525 12 359 2 714 4 290

4 084 464 406 109 172 077 188 504 23 868 3 291 811 533 245 53 316 148 093 21 600


Balances and transactions with the above referred entities relate mainly to loans and advances and deposits in the scope of the banking activity of the Group. In the scope of the distribution and operating management agreement between BES, BES Vida and Crédit Agricole, BES granted BES Vida a guarantee on the return over a group of assets associated to insurance and investment contracts. BES recognises this guarantee on its balance sheet as a liability at fair value against the income statement, when the expected return of assets is lower than the minimum guaranteed return to the policy holders. Based on the valuation performed as at 31 December 2011 the Group recognised a liability for an amount of euro 6.8 million (31 December 2010: euro 6.8 million). The costs with salaries and other benefits attributed to ESFG key management personnel, as well as the transactions performed with ESFG key management personnel are presented in Note 13. During the year ended 31 December 2011 the Group sold 18 520 and 4 830 unit of the Fungepi Fund and Fungere Fund to the Group pensions fund, for a global amount of euro 80.0 million, not incurring in a material loss or gain. During the year ended 31 December 2010, there were no transactions made with the Group pension funds. As at 31 December 2011 and 2010, the total amount of the assets of the Group with associates or related companies, by residual term is as follows:

3- 6 months 12 months 1-5 yearsMore than 5

years Total


2011 32 722 2 117 310 1 603 825 330 607 4 084 464

2010 33 530 1 898 205 1 141 691 218 385 3 291 811 The interest rate applied to loans and advances to associates and related parties range from 2.81% to 9.63% in 2011 and from 2.25% to 6.75% in 2010. The collateral the Group received on some loans and advances to related parties consists mainly of unquoted securities.




Page 129

NOTE 50 - SECURITISATION TRANSACTIONS As at 31 December 2011, the outstanding securitisation transactions performed by the Group were as follows:

Designation Initial date Original amount Current amount

Lusitano Mortgages No.1 plc December 2002 1 000 000 395 551 Mortgage loans (subsidised regime)

Lusitano Mortgages No.2 plc November 2003 1 000 000 394 088 Mortgage loans (subsidised and general regime)

Lusitano Mortgages No.3 plc November 2004 1 200 000 561 572 Mortgage loans (general regime)

Lusitano Mortgages No.4 plc September 2005 1 200 000 639 469 Mortgage loans (general regime)

Lusitano Mortgages No.5 plc September 2006 1 400 000 885 194 Mortgage loans (general regime)

Lusitano SME No.1 plc October 2006 862 607 388 870 Loans to small and medium entities

Lusitano Mortgages No.6 plc July 2007 1 100 000 798 263 Mortgage loans (general regime)

Lusitano Project Finance No.1 plc December 2007 1 079 100 145 462 (1) Project Finance Loans

Lusitano Mortgages No.7 plc September 2008 1 900 000 1 878 634 Mortgage loans (general regime)

Lusitano Leverage Finance No. 1 BV February 2010 516 534 (2) 249 208 Leverage Finance Loans

Lusitano SME No. 2 December 2010 1 951 908 (3) 1 662 696 Loans to small and medium entities

Lusitano Finance N.º 3 November 2011 657 981 631 766 Retail loans

IM BES Empresas 1 November 2011 485 000 471 575 Loans to small and medium entities

Asset securitised

(1) In March 2011, the credit portfolio associated to this securitization was partially sold, with the remaining (domestic credit) been to "Lusitano Project Finance No.1 FTC".

(2) This securitisation includes the amount of euro 382 062 thousands of mortgage loans from BES and an amount of euro 134 472 thousand of mortgage loans from BESI and ES Vénétie.(3) This securitisation includes an amount of euro 1 348 825 thousands of companies loans and an amount of euro 603 083 thousand of commercial paper from BES.





Page 130

The main characteristics of these transactions, as at 31 December 2011, can be analysed as follows:

As permitted by IFRS 1, the Group has applied the derecognition requirements of IAS 39 for the transactions entered into after 1 January 2004. Therefore, the assets derecognised until that date, in accordance with the previous accounting policies of the Group, were not restated in the balance sheet. The assets sold in the securitization transactions Lusitano Mortgages No.3, Lusitano Mortgages No. 4 and Lusitano Mortgages No. 5, performed after 1 January 2004, were derecognised considering that the Group has transferred substantially all the risks and rewards of ownership. In accordance with SIC 12, the Group fully consolidates Lusitano SME No. 1 plc, Lusitano Mortgages No. 6, plc, Lusitano Project Finance No. 1 plc, Lusitano Mortgages No. 7 plc, Lusitano Leverage Finance No. 1 BV and Lusitano SME No. 2, as it retains the majority of the risks and rewards associated with the activity of these SPE. Therefore, the respective assets and liabilities are included in the consolidated balance sheet of the Group. The other securitization vehicles are not included in the consolidated financial statements of the Group as it has not retained the majority of the risks and rewards of ownership.




Page 131

As at 31 December 2011 and 2010 the consolidation of these entities had the following main impacts on the consolidated balance sheet:

31.12.2011 31.12.2010

Deposits with banks 572 182 468 085 Available-for-sale financial assets 306 380 406 734 Loans to customers (net of impairment) 5 828 664 5 715 334 Debt securities issued 911 225 1 208 319


NOTE 51 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES The fair value of financial assets and liabilities, for the Group, is analysed as follows:

Balance as at 31 December 2011

Cash and deposits at central banks 1 130 515 - - - 1 130 515 1 130 515 Deposits with banks 998 345 - - - 998 345 998 345 Financial assets held for trading - 1 051 169 2 415 731 - 3 466 900 3 466 900 Other financial assets at fair value through profit or loss - 47 978 1 651 782 14 332 1 714 092 1 714 092 Available-for-sale financial assets 14 260 4 929 610 6 827 058 253 507 12 024 435 12 024 435 Loans and advances to banks 2 020 113 - - - 2 020 113 2 020 113 Loans and advances to customers 51 292 678 - 589 197 - 51 881 875 48 702 701 Held-to-maturity investments 1 751 193 - - - 1 751 193 1 543 911 Derivatives for risk management purposes - - 510 090 - 510 090 510 090

Financial assets 57 207 104 6 028 757 11 993 858 267 839 75 497 558 72 111 102

Deposits from central banks 10 013 719 - - - 10 013 719 10 013 719 Financial liabilities held for trading - - 2 176 258 - 2 176 258 2 176 258 Deposits from banks 5 458 242 - 757 764 - 6 216 006 5 350 497 Due to customers 27 649 859 - 7 302 125 - 34 951 984 34 951 984 Debt securities issued 15 450 270 - 4 059 353 - 19 509 623 16 752 456 Derivatives for risk management purposes - - 238 633 - 238 633 238 633 Subordinated debt 1 322 579 - - - 1 322 579 1 101 776

Financial liabilities 59 894 669 - 14 534 133 - 74 428 802 70 585 323

Balance as at 31 December 2010

Cash and deposits at central banks 976 515 - - - 976 515 976 515 Deposits with banks 879 561 - - - 879 561 879 561 Financial assets held for trading - 1 743 206 2 208 580 - 3 951 786 3 951 786 Other financial assets at fair value through profit or loss - 77 217 1 237 835 10 397 1 325 449 1 325 449 Available-for-sale financial assets 23 926 6 183 774 6 062 281 204 855 12 474 836 12 474 836 Loans and advances to banks 3 071 674 - - - 3 071 674 3 071 674 Loans and advances to customers 51 944 352 - 1 402 455 - 53 346 807 51 450 204 Held-to-maturity investments 2 453 465 - - - 2 453 465 2 386 893 Derivatives for risk management purposes - - 447 304 - 447 304 447 304

Financial assets 59 349 493 8 004 197 11 358 455 215 252 78 927 397 76 964 222

Deposits from central banks 7 964 837 - - - 7 964 837 7 964 837 Financial liabilities held for trading - - 2 121 305 - 2 121 305 2 121 305 Deposits from banks 5 929 166 - 687 911 - 6 617 077 6 079 338 Due to customers 27 006 401 - 4 199 287 - 31 205 688 31 205 688 Debt securities issued 19 855 506 - 5 049 240 - 24 904 746 22 255 518 Derivatives for risk management purposes - - 228 944 - 228 944 228 944 Subordinated debt 2 011 415 - 678 282 - 2 689 697 1 763 729

Financial liabilities 62 767 325 - 12 964 969 - 75 732 294 71 619 359

(1) Includes assets and liabilities measured at fair value through profit or loss and assets and liabilities hedged under a fair value hedge relationship.(2) Assets at acquisition cost net of impairment losses. These assets refer to equity instruments issued by non-quoted entities in relation to which no recent transactions were identified or is not possible to estimate reliably its fair value.

Amortised Cost


Fair Value

Fair Value

Book ValueQuoted Market Prices

Valuation models based on

observable market

information (1)

Valuation models based on non-observable

market information

(2)

(2)(2)




Page 132

The Group determines the fair value of its financial assets and liabilities in accordance with the following hierarchy: Quoted market prices (level 1) – this category includes financial assets with available quoted market prices in official markets and with dealer prices quotations provided by entities that usually provide transaction prices for these assets/liabilities traded in active markets. Valuation models based on observable market information (level 2) – consists on the use of internal valuation techniques, namely discounted cash flow models and option pricing models which imply the use of estimates and require judgments that vary in accordance with the complexity of the financial instrument. Notwithstanding, the Group uses observable market data such as interest rate curves, credit spreads, volatility and market indexes. Includes also instruments with dealer price quotations but which are not traded in active markets. Valuation models based on non-observable market information (level 3) – consists on the use of internal valuation techniques, mainly discounted cash flow models, or quotations provided by third parties but which imply the use of non-observable market information. During 2011 and 2010, there were no transfer between the different sources/ valuation models used by the Group for the valuation of assets and liabilities. The movements of the financial assets valued based on non-observable market information, during 2011 and 2010, can be analysed as follows:

31.12.2011 31.12.2010


Acquisitions 98 499 110 683

Disposals (8 782) (49 123)

Transfert 10 956 -

Changes in value (48 086) (3 656)






Page 133

The main assumptions and inputs used in the valuation models are presented as follows: Interest rates curves The short term rates presented reflect benchmark interest rates for the money market, being that for the long term the presented values represent the swap interest rate for the respective years:

(%)

EUR USD GBP EUR USD GBP

Overnight 0.3250 0.1100 0.4300 0.4500 0.3000 0.58001 month 1.0240 0.2953 0.7604 0.7820 0.2606 0.68003 months 1.3560 0.5810 1.0900 1.0060 0.3028 0.82006 months 1.6170 0.8085 1.3400 1.2270 0.4559 1.26009 months 1.7910 0.9659 1.5900 1.3720 0.6200 1.4150

1 year 1.4175 0.6770 1.0850 1.3320 0.4590 0.89103 years 1.3750 0.8225 1.3601 1.9450 1.3030 1.94805 years 1.7240 1.2260 1.5624 2.4810 2.1980 2.61807 years 2.0690 1.6335 1.8619 2.8930 2.8390 3.1868

10 years 2.3870 2.0160 2.2940 3.3050 3.4010 3.535015 years 2.6750 2.3715 2.6525 3.6380 3.8580 3.878020 years 2.6920 2.4960 2.8322 3.6970 4.0030 3.953025 years 2.6250 2.5460 2.9426 3.6660 4.0760 3.953030 years 2.5610 2.5870 2.9920 3.4960 4.1240 3.9230

31.12.2011 31.12.2010

Credit spreads The credit spreads used by the Group on the valuation of the credit derivatives are disclosed on a daily basis by Markit representing observations constituted for around 85 renowned international financial entities. The evolution of the main indexes, understood as being representative of the credit spreads behaviour in the market throughout the year, is presented as follows:

(basis points)

Index Series 1 year 3 years 5 years 7 years 10 years

Year 2011CDX USD Main 17 60.25 93.98 120.03 128.87 137.62

iTraxx Eur Main 16 - 153.99 173.38 177.50 179.25iTraxx Eur Senior Financial 16 - - 275.25 - 275.25

Year 2010CDX USD Main 15 55.50 49.81 85.07 95.85 104.23

iTraxx Eur Main 14 - 79.49 105.35 113.24 120.17

iTraxx Eur Senior Financial 14 - - 177.71 - 182.17




Page 134

Interest rates volatility The values presented below, refer to the implied volatilities (at the money) used for the valuation of the interest rate options:

(%)

EUR USD GBP EUR USD GBP

1 year 51.08 76.51 53.15 42.00 104.76 56.903 years 52.92 77.70 67.00 42.80 67.49 52.005 years 50.31 67.85 62.90 36.20 47.52 39.607 years 44.19 56.34 52.30 31.30 37.90 32.00

10 years 38.00 47.78 39.70 26.80 31.35 25.5015 years 32.42 42.36 29.70 23.19 27.04 20.50

31.12.2011 31.12.2010

Exchange rates and volatility Presented below are the exchange rates (European Central bank) at the balance sheet date and the implied volatilities (at the money) for the main currencies used on the derivatives valuation:

Exchange Rates 31.12.2011 31.12.2010 1 month 3 months 6 months 9 months 12 months

EUR/USD 1.3362 1.3362 13.23 14.68 15.15 15.25 15.35

EUR/GBP 0.8608 0.8608 8.28 9.55 10.48 10.85 11.23

EUR/CHF 1.2504 1.2504 9.75 9.20 8.85 8.85 8.58

EUR/NOK 7.8000 7.8000 7.10 8.05 8.60 8.81 9.03

EUR/PLN 4.4580 3.9750 10.95 12.30 13.10 13.43 13.60

EUR/RUB 41.7650 40.8200 11.75 12.60 13.50 14.05 14.50

USD/BRL a) 1.6597 1.6597 17.15 18.45 18.90 19.23 19.55

USD/TRY b)1.5487 1.5487 14.20 15.75 16.50 16.85 17.00

Volatility (%)

(a ) Calculation based in EUR/USD and EUR/BRL exchange rates

(b) Calculation b ased in EUR/USD and EUR/TRY exchange rates

Concerning the exchange rates, the Group uses in the valuation models the spot rate observed in the market at the time of the valuation.




Page 135

Equity indexes In the table below, is presented the evolution of the main market equity indexes and the respective volatilities used for the valuation of equity derivatives:

31.12.2011 31.12.2010 % change 1 month 3 months

DJ Euro Stoxx 50 2 317 2 793 (17.1) 32.14 38.50 29.23PSI 20 5 494 7 588 (27.6) 23.53 27.79 -IBEX 35 8 566 9 859 (13.1) 30.60 35.06 -FTSE 100 5 572 5 900 (5.6) 20.99 26.58 19.26DAX 5 898 6 914 (14.7) 31.54 38.80 27.85S&P 500 1 258 1 258 (0.0) 24.04 27.70 20.27BOVESPA 56 754 69 305 (18.1) 23.60 28.47 24.57

Implied volatility

Historical volatilityQuote

The methods and assumptions used in estimating the fair values of financial assets and liabilities measured at amortised cost in the balance sheet are analysed as follows: Cash and deposits at central banks, Deposits with banks and Loans and advances to banks Considering the short term nature of these financial instruments, carrying value is a reasonable estimate of its fair value. Loans and advances to customers The fair value of loans and advances to customers is estimated based on the discount of the expected future cash flows of capital and interest, assuming that the installments are paid on the dates that have been contractually defined. The expected future cash flows of loans with similar credit risk characteristics are estimated collectively. The discount rates used by the Group are current interest rates used in loans with similar characteristics. Held-to-maturity investments The fair values of these financial instruments are based on quoted market prices, when available. For unquoted securities the fair value is estimated by discounting the expected future cash-flows. Deposits from central banks and Deposits from banks Considering the short term nature of these financial instruments, carrying value is a reasonable estimate of its fair value. Due to customers The fair value of these financial instruments is estimated based on the discount of the expected future cash flows of capital and interest, assuming that the instalments are paid on the dates that have been contractually defined. The discount rates used by the Group are the current interest rates used in instruments with similar characteristics. Considering that the applicable interest rates to these instruments are floating interest rates and that the period to maturity is substantially less than one year, the difference between fair value and book value is not significant. Debt securities issued and Subordinated debt The fair value of these instruments is based on market prices, when available. When not available, the Group estimates its fair value by discounting the expected future cash-flows.




Page 136

NOTE 52 - RISK MANAGEMENT A qualitative outlook of the risk management at the Group is presented below: Credit risk Credit risk represents the potential financial loss arising from the failure of a borrower or counterparty to honour its contractual obligation. Credit risk is essentially present in traditional banking products – loans, guarantees granted and contingent liabilities – and in trading products – swaps, forwards and options (counterparty risk). Regarding credit default swaps, the net exposure between selling and buying positions in relation to each reference entity, is also considered as credit risk to the Group. The credit default swaps are accounted for at fair value in accordance with the accounting policy described in Note 2.4. Credit portfolio management is an ongoing process that requires the interaction between the various teams responsible for the risk management during the consecutive stages of the credit process. This approach is complemented by the continuous introduction of improvements in the methodologies, in the risk assessment and control tools, as well as in procedures and decision processes. The risk profile of ESFG Group’s credit portfolios is analysed on a regular basis by the risk committees at the subsidiary level. In these meetings the Committees monitor and analyses the risk profile of the Group entities under four major perspectives: evolution of credit exposures, monitoring of credit losses, capital allocation and consumption and control of risk adjusted return. ESFG Group credit risk exposure is analysed as follows:

31.12.2011 31.12.2010

Deposits with banks 3 867 893 4 618 882Financial assets held for trading 3 423 324 3 766 159Financial assets at fair value through profit or loss 138 080 342 478Available-for-sale financial assets 10 667 529 9 339 058Loans and advances to customers 51 881 875 53 346 807Held-to-maturity investments 1 751 193 2 453 465Derivatives for risk management purposes 510 090 447 304Other assets 975 754 976 211Guarantees granted 8 902 028 8 694 869Stand by letters of credit 2 947 223 3 243 642Irrevocable commitments 4 331 934 5 583 656Credit risk linked to the reference entities of credit derivatives 165 573 404 756

89 562 496 93 217 287





Page 137

The analysis of the risk exposure by sector of activity, as at 31 December 2011 and 2010, can be analysed as follows:

Grossamount

ImpairmentGross

amountImpairment

lossesGross

amountImpairment

losses

Agriculture 435 935 ( 17 077) 11 803 - 11 315 ( 3 087) - - 45 525 Mining 215 006 ( 9 788) 3 869 - 1 027 ( 546) - - 19 408 Food, beverage and tobacco 978 115 ( 44 215) 11 537 - 22 451 ( 52) - - 94 761 Textiles 330 451 ( 29 670) 1 906 - 20 103 ( 2 238) - - 19 685 Shoes 71 989 ( 5 842) 459 - 515 ( 499) - - 2 040 Wood and cork 159 555 ( 24 975) 812 - 1 372 - - - 6 879 Printing and publishing 340 289 ( 6 638) 5 272 - 123 364 ( 1 989) - - 89 423 Refining and oil 29 233 ( 191) 3 204 101 16 476 ( 12 322) - - 6 997 Chemicals and rubber 631 525 ( 11 442) 11 156 - 58 787 ( 13 389) - - 95 474 Non-metalic minerals 435 583 ( 18 446) 475 - 37 764 ( 7 548) - - 26 912 Metalic products 891 011 ( 36 760) 1 324 - 500 - - - 123 684 Production of machinery,

equipment and electric devices 279 820 ( 7 037) 2 381 - 62 704 ( 7 205) - - 162 205 Production of transport material 332 333 ( 14 200) 504 - 585 ( 108) - - 29 444 Other transforming industries 379 173 ( 23 987) 2 350 205 47 962 ( 8 413) - - 44 328 Electricity, gas and water 1 633 759 ( 9 556) 92 584 90 564 732 ( 1 855) 1 269 - 679 649 Construction 5 507 752 ( 249 549) 344 345 56 000 153 446 ( 1 687) - - 2 825 756 Wholesale and retail 3 348 301 ( 257 739) 19 263 - 315 889 ( 15 203) - - 553 756 Tourism 1 574 747 ( 60 923) 17 522 - 3 045 ( 484) - - 113 693 Transports and communications 1 910 440 ( 88 797) 305 527 86 561 215 ( 9 376) 20 218 - 1 004 287 Financial activities 3 460 478 ( 141 803) 1 038 976 1 428 298 2 121 151 ( 27 920) 665 275 ( 21 393) 286 879 Real estate activities 6 943 613 ( 304 001) 65 606 70 000 285 634 ( 1 776) - - 465 535 Services provided to companies 4 599 765 ( 223 200) 213 640 104 436 2 016 163 ( 29 923) - - 1 714 047 Public services 1 062 578 ( 22 593) 934 694 1 334 4 879 672 ( 6 520) 958 248 ( 722) 244 897 Non-profit organisations 3 771 965 ( 274 908) 369 312 53 542 799 621 ( 35 965) 139 221 ( 10 923) 153 001 Mortgage loans 11 512 794 ( 160 473) - - 4 712 - - - 39 Consumer loans 2 923 492 ( 161 508) - - - - - - 91 311 Other 334 317 ( 6 827) 8 379 - 106 303 ( 3 968) - - 2 413

TOTAL 54 094 019 (2 212 145) 3 466 900 1 714 092 12 216 508 ( 192 073) 1 784 231 ( 33 038) 8 902 028


Financial assets held for trading

Other financial assets as at fair value through profit or loss

31.12.2011

Held to maturity investmentsLoans and advances to customersFinancial

guarantees issued

Available-for-sale financial assets

Grossamount

Impairment lossesGross

amountImpairment losses

Grossamount

Impairment losses

Agriculture 560 703 ( 25 844) 7 111 - 20 314 ( 3 087) - - 42 191 Mining 507 759 ( 7 243) 4 833 - 3 222 - - - 22 068 Food, beverage and tobacco 998 787 ( 19 706) 14 893 - 24 501 ( 52) 4 308 - 99 195 Textiles 381 840 ( 64 516) 1 925 - 23 640 ( 2 238) - - 21 585 Shoes 135 256 ( 4 725) 629 - 1 434 ( 499) - - 2 269 Wood and cork 178 826 ( 24 093) 823 - 5 389 ( 1 500) - - 4 203 Printing and publishing 333 563 ( 6 121) 38 828 - 145 083 - - - 87 321 Refining and oil 17 670 ( 112) 877 - 23 589 ( 9 637) - - 55 457 Chemicals and rubber 524 851 ( 15 602) 13 633 - 30 865 ( 10 630) 13 163 - 83 872 Non-metalic minerals 439 876 ( 15 368) 800 - 3 905 - - - 64 396 Metalic products 694 453 ( 33 863) 1 529 - 3 836 - - - 114 750 Production of machinery,

equipment and electric devices 444 419 ( 14 094) 3 463 - 34 365 ( 688) 14 412 - 173 643 Production of transport material 107 391 ( 10 255) 4 154 - 2 407 ( 31) - - 81 655 Other transforming industries 467 774 ( 24 251) 780 572 56 511 ( 15 508) - - 52 171 Electricity, gas and water 1 648 711 ( 16 604) 64 660 4 675 347 736 - 17 531 - 704 685 Construction 5 844 109 ( 230 412) 166 283 56 140 423 484 ( 6 625) 7 099 - 2 454 414 Wholesale and retail 3 711 374 ( 192 494) 16 482 - 192 551 ( 1 331) - - 537 029 Tourism 1 553 695 ( 42 284) 11 310 - 4 529 ( 464) - - 90 657 Transports and communications 2 577 116 ( 82 831) 232 631 480 384 653 ( 9 342) 214 665 - 990 067 Financial activities 2 864 615 ( 106 862) 1 390 211 1 125 402 3 675 400 ( 55 334) 1 073 901 ( 32 853) 252 965 Real estate activities 6 146 422 ( 187 461) 27 289 - 227 738 ( 1 724) - - 440 446 Services provided to companies 4 794 126 ( 138 066) 170 246 5 1 865 200 ( 38 968) - - 1 650 561 Public services 1 123 298 ( 17 297) 1 552 392 - 3 904 700 ( 2 003) 829 341 - 250 717 Non-profit organisations 3 459 987 ( 131 193) 221 000 130 252 1 152 872 ( 13 374) 307 884 ( 17 241) 293 488 Mortgage loans 11 601 942 ( 220 277) - - 6 680 - - - 39 Consumer loans 3 008 052 ( 176 810) - - - - - - 108 700 Other 1 044 904 ( 16 328) 5 004 7 923 87 964 ( 4 697) 21 255 - 16 325

TOTAL 55 171 519 (1 824 712) 3 951 786 1 325 449 12 652 568 ( 177 732) 2 503 559 ( 50 094) 8 694 869

31.12.2010

Loans and advances to customers Available-for-sale financial assets Held to maturity investmentsFinancial

guarantees issued



Other financial assets as at fair value through profit or loss


Page 138

As at 31 December 2011, the analysis of the loan portfolio by rating is as follows:

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Page 139

Market Risk Market risk is the possible loss resulting from an adverse change in the value of a financial instrument due to fluctuations in interest rates, foreign exchange rates or share prices. The market risk management is integrated with the balance sheet management through the Asset and Liability Committee (ALCO) at the Group entities level. These committees are responsible for defining policies for the structuring and composition of the balance sheet, and for the control of exposures to interest rate, foreign exchange and liquidity risk. The main measure of market risk is the assessment of potential losses under adverse market conditions, for which the Value at Risk (VaR) valuation criteria is used. Group's VaR model uses the Monte Carlo simulation, based on a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an observation period of one year. As a complement to VaR, stress testing has been developed, allowing to evaluate the impact of potential losses higher than the ones considered by VaR.

December Annual average Maximum Minimum December Annual average Maximum Minimum

(in million of euro)

Exchange risk 4 872 9 254 11 634 4 872 14 175 20 823 25 604 14 175 Interest rate risk 10 764 11 404 14 863 10 764 16 246 10 023 11 117 16 246 Shares & Commodity 13 554 19 209 12 042 13 554 19 069 27 430 38 517 19 069 Volatility 14 291 30 073 57 979 14 291 - - - - Credit Spread 15 170 10 434 11 170 15 170 - - - - Diversification effect ( 11 132) ( 15 638) ( 19 020) ( 11 132) ( 27 077) ( 22 443) ( 19 972) ( 27 077)

47 519 64 736 88 668 47 519 22 413 35 833 55 266 22 413

31.12.2011 31.12.2010

Group has a VaR of euro 47 519 million (31 December 2010: euro 22 413 million), for its trading positions. Interest rate risk Following the recommendations of Basel II (Pilar 2) and Instructions n.19/2005, of the Bank of Portugal, ESFG Group calculates its exposure to interest rate risk based on the methodology of the Bank of International Settlement (BIS), which requires the classification of non-trading balances and off-balance positions by repricing intervals.

The sensitivity of ESFG Group to interest rate risk, measured in accordance with Instruction no. 19/2005 of the Bank of Portugal, which requires the calculation of the impact of a parallel shift of 200 basis points in the interest rate curve, can be analysed as follows:

31.12.2011 31.12.2010

Accumulated impact in equity:Increase of 200 basis points 459 761 Decrease of 200 basis points (459) (761)





Page 140

In addition, the model used to monitor the sensitivity of BES Group to interest rate risk is based on the duration model, and consider parallel and non parallel scenarios.

Parallel increase of 100

bp

Parallel decrease of

100bp

Increase of 50 bp after 1 year

Decrease of 50 bp after 1 year

Parallel increase of 100

bp

Parallel decrease of

100bp

Increase of 50 bp after 1 year

Decrease of 50 bp after 1 year

At 31 December 175 ( 175) 102 ( 102) 298 ( 298) 169 ( 169)Average for the year 239 ( 239) 133 ( 133) 320 ( 320) 178 ( 178)Maximum for the year 336 ( 336) 179 ( 179) 333 ( 333) 189 ( 189)Minimum for the year 175 ( 175) 102 ( 102) 298 ( 298) 169 ( 169)

31.12.2011 31.12.2010


The following table presents the average balances, interest and interest rates in relation to the Group’s major assets and liabilities categories, for the years ended 31 December 2011 and 2010.

Average balance of the year

Interest of the year

Average interest rate

Average balance of the year

Interest of the year

Average interest rate

Monetary assets 5 509 223 182 515 3.31% 6 153 802 196 781 3.20%Loans and advances to customers 70 433 510 2 790 997 3.96% 53 760 843 2 111 994 3.93%Securities 15 309 361 762 779 4.99% 14 579 321 712 949 4.89%Other 11 481 - - 343 086 - -

Financial assets 91 263 575 3 736 291 4.09% 74 837 052 3 021 724 4.04%

Monetary liabilities 32 332 031 461 654 1.43% 13 972 614 201 498 1.44%Due to costumers 55 771 559 1 036 098 1.86% 27 553 259 507 124 1.84%Other financial liabilities 28 530 159 994 253 3.48% 33 071 305 1 124 061 3.40%Other - - - - - -

Financial liabilities 116 633 749 2 492 005 2.14% 74 597 178 1 832 683 2.46%

Net interest income 1 244 286 1.95% 1 189 041 1.58%


31.12.2011 31.12.2010




Page 141

Foreign Exchange risk In relation to foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2011 and 2010, is analysed as follows:

Spot ForwardOther

elementsNet exposure Spot Forward

Other elements

Net exposure

USD United States Dollars ( 621 256) 1 085 309 54 439 518 492 (3 395 137) 3 984 409 ( 199 627) 389 645

GBP Great Britain Pounds 483 987 ( 467 813) ( 48) 16 126 247 338 ( 183 592) 14 300 78 046

BRL Brazilian real 210 597 ( 200 379) 16 357 26 575 1 143 453 ( 3 731) ( 2 375) 1 137 347

DKK Danish krone 216 ( 3 720) - ( 3 504) 52 071 ( 3 873) - 48 198

JPY Japanese yene ( 8 529) 19 552 ( 10 270) 753 ( 330 428) 375 300 ( 111 436) ( 66 564)

CHF Swiss franc 117 529 ( 41 694) ( 30 819) 45 016 149 475 ( 86 452) ( 1 968) 61 055

SEK Swedish krona ( 2 138) 1 305 182 ( 651) 15 232 ( 17 061) - ( 1 829)

NOK Norwegian krone ( 3 251) 1 030 ( 54) ( 2 275) 1 910 ( 2 995) 7 689 6 604

CAD Canadian Dollar 40 169 ( 62 399) 456 ( 21 774) 31 403 ( 20 886) 2 880 13 397

ZAR Rand ( 602) ( 715) 2 637 1 320 2 897 ( 6 844) ( 38 589) ( 42 536)

AUD Australian Dollar 98 577 ( 101 357) 3 106 326 165 596 ( 158 495) 10 848 17 949

AOA Kwanza ( 228 429) - - ( 228 429) ( 414 047) - - ( 414 047)

CZK Czech koruna 3 804 302 ( 2 247) 1 859 ( 20 712) 20 842 - 130

Other 6 466 ( 65 329) 69 160 10 297 ( 10 681) 7 710 451 247 448 276

97 140 164 092 102 899 364 131 (2 361 630) 3 904 332 132 969 1 675 671

Note: asset / (liability)

31.12.201031.12.2011


Exposure to peripheral Eurozone countries public debt As at 31 December 2011 the exposure to public debt from peripheral Eurozone countries which are monitored by the Group is analysed as follows:

Loans and advances to customers


at fair value

Derivative

instruments (1)

Available-for-sale financial

assets

Held-to-maturity

investmentsTotal


Portugal 876 702 125 186 69 714 2 849 451 134 049 4 055 102

Spain 109 000 563 1 989 43 201 - 154 753

Greece - - ( 265) 2 599 - 2 334

Ireland - - ( 1 069) - 2 466 1 397

Italy - - ( 2 865) 18 066 - 15 201

985 702 125 749 67 504 2 913 317 136 515 4 228 787

(1) Net amounts: receivable/(payable)

31.12.2011

All the exposures presented above, except loans and advances to customers, are recorded in the Group’s balance sheet at fair value, which is based on market quotations or, in relation to derivatives, based on valuation techniques with observable market data. Loans and advances to customers are recorded at amortized cost net of impairment losses.




Page 142

A detailed exposure regarding securities recorded in financial assets held for trading, available-for-sale financial assets and held-to-maturity investments can be analysed as follows:


Nominal Amount

Market value Accrued interest Book value ImpairmentFair value

reserve

Available-for-sale financial assets

Portugal 3 216 960 2 808 996 40 225 2 849 451 - ( 124 934)

Maturity up to 1 year 2 095 441 2 065 817 14 991 2 081 021 - ( 16 596)

Maturity exceeding 1 year 1 121 519 743 179 25 234 768 430 - ( 108 338)

Spain 44 421 42 551 650 43 201 - 91

Maturity up to 1 year 30 014 29 975 289 30 264 - 112

Maturity exceeding 1 year 14 407 12 576 361 12 937 - ( 21)

Greece 9 700 2 328 271 2 599 ( 7 010) -

Maturity up to 1 year 1 200 570 40 610 ( 635) -

Maturity exceeding 1 year 8 500 1 758 231 1 989 ( 6 375) -

Italy 19 925 17 877 189 18 066 - 6

Maturity up to 1 year 8 350 8 343 - 8 343 - 6

Maturity exceeding 1 year 11 575 9 534 189 9 723 - -

3 291 006 2 871 752 41 335 2 913 317 ( 7 010) ( 124 837)

Held-to-maturity investments

Portugal 148 140 111 485 1 644 134 049 - -

Maturity up to 1 year 47 500 47 088 54 47 060 - -

Maturity exceeding 1 year 100 640 64 397 1 590 86 989 - -

Ireland 3 000 2 678 97 2 466 - -

Maturity up to 1 year - - - - - -

Maturity exceeding 1 year 3 000 2 678 97 2 466 - -

151 140 114 163 1 741 136 515 - -

Financial assets held for tradingPortugal 127 608 121 778 3 408 125 186 - - Spain 568 563 - 563 - -

128 176 122 341 3 408 125 749 - -

Liquidity risk Liquidity risk derives from the potential inability to fund assets while satisfying commitments on due dates and from potential difficulties in liquidating positions in portfolio without incurring in excessive losses. The purpose of liquidity management is to maintain adequate liquidity levels to meet short, medium and long term funding needs.




Page 143

The following tables present details of the mismatch in the residual terms for each of the main categories of assets and liabilities:

Eligible amounts

Up to 7 daysFrom 7 days to 1 month

From 1 to 3 months

From 3 to 6 months

From 6 months to 1

year

More than 1 year

ASSETSCash and deposits with banks 437 437 - - - - - Loans and advances to banks and central banks 3 435 2 350 175 672 31 1 206Loans and advances to customers 51 504 853 2 571 2 281 1 957 2 805 41 037Securities* 19 575 536 1 730 2 199 738 495 13 877Other assets, net 3 804 3 785 - 2 1 - 16Off-balance sheet items (Commitments and Derivatives) 6 155 217 175 538 857 476 3 892

Total 8 178 4 651 5 692 3 584 3 777 59 028

LIABILITIESDeposits from banks, central banks and other loans 16 477 3 666 2 206 2 480 583 462 7 080Due to customers 34 265 86 1 068 1 996 544 1 092 29 479Debt securities issued 20 465 91 2 973 2 960 584 466 13 391Other short-term liabilites 1 734 1 697 - 16 9 - 12Off-balance sheet items (Commitments and Derivatives) 12 236 281 293 757 940 539 9 426

Total 5 821 6 540 8 209 2 660 2 559 59 388

GAP (Assets - Liabilities) 2 357 ( 1 889) ( 2 517) 924 1 218 ( 360)

Accumulated GAP 2 357 468 ( 2 049) ( 1 125) 93 ( 267)

Buffer > 12 months 2 794

* This caption includes securities held by the Group which can be rediscounted with the ECB for liquidity purposes

31.12.2011

(In million of euro)

Eligible amounts

Up to 7 daysFrom 7 days to 1 month

From 1 to 3 months

From 3 to 6 months

From 6 months to 1

year

More than 1 year

ASSETSCash and deposits with banks 490 490 - - - - - Loans and advances to banks and central banks 4 247 3 553 244 36 13 170 231Loans and advances to customers 53 188 761 2 343 2 044 2 013 2 967 43 060Securities* 20 192 372 1 447 995 1 398 1 455 14 525Other assets, net 3 184 3 158 - 11 - - 15Off-balance sheet items (Commitments and Derivatives) 4 577 69 232 534 558 883 2 301

Total 8 403 4 266 3 620 3 982 5 475 60 132

LIABILITIESDeposits from banks, central banks and other loans 14 888 6 193 1 487 3 906 479 686 2 137Due to customers 30 303 35 2 076 320 429 997 26 446Debt securities issued 27 556 339 1 905 4 353 1 430 743 18 786Other short-term liabilites 2 399 2 356 - 20 14 - 9Off-balance sheet items (Commitments and Derivatives) 26 926 219 259 714 690 1 161 23 883

Total 9 142 5 727 9 313 3 042 3 587 71 261

GAP (Assets - Liabilities) ( 739) ( 1 461) ( 5 693) 940 1 888 ( 11 129)

Accumulated GAP ( 739) ( 2 200) ( 7 893) ( 6 953) ( 5 065) ( 16 194)

Buffer > 12 months 5 502

* This caption includes securities held by the Group which can be rediscounted with the ECB for liquidity purposes

31.12.2010

(In million of euro)

The table reflects the amounts of assets, liabilities and off-balance sheet items with defined or determinate cash-flows classified by the period to maturity. In case no maturity is defined (as is for deposits, overdrafts, current accounts and commitments with third parties), the Group used behaviour model based on historical information, which reflect the expected maturity of the cash-flows. For the deposits with stated maturity, the Group also used also a behaviour model to estimate the expected maturity.




Page 144

Additionally, it is also performed an on-going monitoring of the liquidity position, calculated in accordance with the Bank of Portugal rules (Instruction nr.13/2009):

31.12.2011 31.12.2010

Accumulated mismatch (1) 93 ( 5 065)Liquidity buffer (2) 2 794 5 502

Liquidity position 2 887 437

Other assets acceptable as collateral 253 1 512

Global Liquidity 3 140 1 949


(1) Accumulated mismatch corresponds to the difference between assets and liabilities with residual maturitiesof up to one year.

(2) The liquidity buffer reflects unencumbered assets with a maturity of more than one year which, less therespective haircuts, represent eligible collateral for borrowing operations with central bank and therefore can beused to obtain immediate liquidity.

As at 31 December 2011, the treasury Gap was positive in the amount of euro 3 140 million (31 December 2010: euro 1 949 million). On 31 December 2011, the pool of eligible securities for the repos market stood at euro 18.9 billion. From this amount, euro 15.1 billion were eligible for operations with the ECB, of which euro 11.1 billion were used. Operational risk Operational risk represents the risk of losses resulting from failures in internal procedures, people behaviours, information systems and external events. To manage operational risk, it was developed and implemented a system that standardises, systematises and regulates the frequency of actions with an objective of identification, monitoring, controlling and mitigation of risk. The system is supported at organizational level by a unit within the Global Risk Department of BES, exclusively dedicated to this task, and by representatives designated by each of the relevant departments and subsidiaries. Capital Management and Solvency Ratio Capital management’s main goals are (i) to allow adequate growth of activities through the generation of enough capital to support the increase of assets, (ii) fulfilment of the minimum requirements defined by the supervisory authorities in terms of capital adequacy and (iii) to ensure the fulfilment of the Groups strategic goals in respect to capital adequacy matters. The definition of the strategy to monitor and manage capital adequacy is made by the Executive Committee and is integrated in the strategic goals of the Group. The capital metrics are incorporated in the main management control instruments, and its monitoring is made in a permanent way, which allows a quick response in order to fulfil the defined goals. The Group is subject to Bank of Portugal supervision that, under the capital adequacy Directive from CE, establishes the prudential rules to be maintained by the institutions under its supervision. These rules determine a minimum solvability ratio in relation to the requirements of the assumed risks that institutions have to fulfil. In the scope of the implementation of the new capital accord, Basel II, the Group concluded on 28 November 2008 the formal application for the usage of internal models for credit risks (Foundation Internal Rating Based Approach – IRBF) and the Standardized Approach (TSA) for operational risk. The certification process by the Bank of Portugal for the use of these methodologies is at the final phase.




Page 145

Currently for the purpose of the reporting to the Bank of Portugal, the Group presents the solvency ratios in accordance with standard method for credit risk and the basic indicator method for operational risk. The capital elements of ESFG Group are divided into: Basic Own Funds, Complementary Own Funds and Deductions, as follows: Basic Own Funds (BOF): This category includes the realized capital, the eligible reserves (excluding the fair value reserves), the retained earnings of the year, non-controlling interest and preference shares. The unrealised losses recognised under the fair value reserve and associated with equity securities, book value of goodwill, intangible assets and negative actuarial deviations from employees’ benefits up to 31 December 2007 are deducted in full. From 2007, 50% of the book value of investments in banking and insurance associates over 10% also has to be deducted. Complementary Own Funds (COF): Essentially incorporates the subordinated eligible debt and 45% of the positive fair value reserve associated with equity securities. The book value of investments in banking and insurance associates is deducted by 50% of its value. Deductions (D): Essentially incorporates the prudential amortisation of assets received as a recovery of non-performing loans. Additionally, there are several rules that limit the composition of the capital basis of the Bank. The prudential rules determine that the COF cannot exceed the BOF. Also, some components of the COF (Lower Tier II) cannot exceed 50% of the BOF. In April 2007, Bank of Portugal issued Regulation 4/2007, which changed the rules to determine capital requirements. This notice changed the treatment of the investments in banking and insurance entities that began to be deducted in 50% to the BOF and 50% to the COF. Previously, these investments were included in the deductions made to the total capital requirements. In December 2008, the Bank of Portugal issued the Notice 11/2008, establishing a transitory period of four years, from December 2008 to December 2012, for the recognition of the actuarial gains/losses determined in 2008, deducted from the expected return of the fund plan assets for the same year. In May 2011 and in the context of the negotiation of the Financial Assistance Programme to Portugal – with the European Commission, the European Central Bank and the International Monetary Fund – the Bank of Portugal issued the Notice 3/2011, establishing new minimum levels of solvency to be followed by the financial groups subject to its supervision. Therefore, Portuguese credit institutions must reach a Core Tier I ratio of no less than 9% by 31 December 2011 and 10% by 31 December 2012.




Page 146

As at 2011 and 2010, the main movements occurred in Basic Own Funds (Tier I) are as follows:

31.12.2011 31.12.2010


Capital increase 272 - Increase in non-controlling interest 648 462 Retained profit for the year 83 100 Changes on actuarial losses 144 ( 196)Goodwill 6 ( 81)Recognition of the impact of adopting IFRS ( 12) ( 12)Issuance of perpetual subordinated bonds with conditional interest - 319 Variation of preference shares recognised as Tier I ( 191) - Exchange of hybrid instrumets ( 805) - Unrecognised losses on financial instruments ( 119) ( 44)Investments in banking and insurance entities 216 104 Risks deducted from basic own funds ( 365) - Other effects 19 ( 14)






Page 147

The capital adequacy of ESFG Group as at 31 December 2011 and 31 December 2010 is presented as follows:

31.12.2011 31.12.2010


A - Capital Requirements

Share Capital, Issue Premium and Treasury Stock 1 304 1 032 Net Income, Legal and Statutory Reserves, and Retained Earnings 126 18 Non-controlling interest 5 357 4 709 Intangible Assets, actuarial losses, goodwill and other ( 859) ( 872)Risks deducted from basic own funds ( 365) -

A1 - Basic own funds excluding preference shares (Core Tier I) (A1) 5 563 4 887

Preference Shares 319 1 314 Deductions of investments in Financial institutions, insurance companies and others ( 150) ( 365)

A2 - Basic own funds (Tier I) (A2) 5 732 5 836

Positive Fair Value Reserves and Others (45%) 32 174 Eligible Subordinated Debt 1 281 2 334 Deductions of investments in Financial institutions, insurance companies and others ( 149) ( 365)

Complementary own funds (Tier II) 1 164 2 143

Deductions ( 625) ( 422)

Elegible own funds (A3) 6 271 7 557

B Risk Asset Equivalents (Basel II - Standard)

Calculated according Notice 05/2007 (Credit Portfolio) 61 075 62 821 Calculated according Notice 8/2007 (Trading Portfolio) 1 784 4 199 Calculated according Notice 9/2007 (Operational Risk) 4 107 4 121

Total Risk Asset Equivalent 66 966 71 141

C Prudential Ratios Basel II

Ratio Core Tier 1 (A1 / B2) 8,3% 6,9%Ratio Tier 1 (A2 / B2) 8,6% 8,2%Solvency Ratio (A3 / B2) 9,4% 10,6%




Page 148

Plans Financing and capitalization (2011 - 2015) According to the Memorandum of Economic and Financial Policies signed between the Portuguese Government and the European Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF), Portuguese banks, and financial holding companies that consolidate Portuguese banking subsidiaries, have had to develop financing and capitalization plans for the period from 2011 to 2015, in order to achieve the following objectives:

The loans to deposits ratio should reach a maximum value of 120% from December 2014, inclusive; The stable funding ratio should be 100% from December 2014, inclusive; The Core Tier I ratio should be 9% as at 31 December 2011 and 10% as at 31 December 2012 as established in

Notice 3/2011 of Bank of Portugal. Additionally, the financing plans should consider that the dependence of its branches and subsidiaries abroad of domestic funds should be minimized; must reduce its dependence on funding from the ECB; consider a moderate access to short-term market and a gradual opening of the medium and long term market from the fourth quarter of 2013; and should be supported by policies to support the commercial sectors of the Portuguese economy, namely the small and medium enterprises. In order to prepare the initial plan and the quarterly reviews, projections on the relevant domestic macroeconomic variables, of GDP growth in the geographic areas of greatest relevance to the activities of the banks and further projections of interest rates and other reference parameters necessary for drawing up the plans are provided by the Bank of Portugal in conjunction with the EC/ECB/IMF. In the context of the plan for the period in reference, it is also noted the fact that the same is being object of a stress test exercise where the banks should, in a extreme scenario, present a Core Tier I ratio higher than 6% during the period (2011-2015). As at 31 December 2011 ESFG Group continued to review the implementation of September 2011 plan, checking the compliance with the targets set for both the loans to deposits ratio (actual 141%), the stable funding ratio (actual: 85%) and the Core Tier I ratio (actual 8.3%). In the context of the stress-test exercise conducted by the European Banking Authority (EBA), the compliance with a minimum Core Tier I ratio of 9% by 30 June 2012 is required. It was identified at ESFG, after a prudent evaluation of the exposure to sovereign debt as at 30 September 2011, the need for additional capital for an amount of euro 1 597 million (BES: euro 810 million), from which the amount of euro 121 million (BES: euro 121 million) corresponds to the mark to market of the sovereign debt exposures. In order to comply with the required capitalization levels, including EBA requirements, the Group expects to meet the capital needs through market operations and without recourse to public funds. Insurance risk Insurance risk – inherent risk related to the selling of insurance contracts, underwriting policy, pricing, reserving, claims management and reinsurance arrangements. Pricing is based on actuarial methodologies, revised on a regular basis in order to ensure a rigorous policy underwriting and risk acceptance. Risks underwritten that require selective acceptance are analysed centrally. Evidence of the underwriting conditions and identification of the decision maker are required. The technical reserves, specifically the claims reserves, are analysed on a monthly basis. The adequacy of the insurance liabilities is reviewed on a regular basis. Regarding the evaluation of reserves, new models are being developed internally by the Group’s Insurance companies based on stochastic methodologies.




Page 149

The table below reflects the claims reserves development, excluding pensioners arising out from workers compensation claims:

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Initial estimate of claims liabilities 302 579 305 512 328 733 363 800 375 014 394 397 397 996 395 038 380 242 360 863

Cumulative paymentsOne year later 108 328 106 724 91 174 105 504 100 096 98 779 95 712 98 241 100 637Two years later 162 811 149 681 141 526 157 627 145 308 135 925 129 339 130 042Three year later 194 772 185 956 176 790 191 998 171 505 160 955 151 151Four years later 223 751 213 367 201 716 213 580 192 108 177 757Five year later 245 653 235 135 220 093 230 853 206 571Six years later 263 670 250 333 233 869 244 762Seven years later 275 464 262 243 243 757Eight years later 284 198 269 575Nine years later 289 737

Re-estimated claims liabilitiesOne year later 313 397 327 363 338 836 354 407 366 449 366 560 371 201 352 690 351 804Two years later 325 422 334 297 334 918 356 147 348 138 349 376 331 653 327 754Three year later 331 367 332 408 333 196 354 218 338 431 316 055 316 347Four years later 331 221 331 075 339 341 352 070 311 532 311 642Five year later 329 943 343 336 336 647 331 796 313 127Six years later 347 740 340 872 323 690 334 384Seven years later 345 961 335 816 327 291Eight years later 344 154 341 335Nine years later 350 775

Cumulative surplus/(deficit) ( 48 196) ( 35 823) 1 442 29 416 61 887 82 755 81 649 67 284 28 438

Longevity risk covers the uncertainty in the ultimate loss due to policyholders living longer than expected and can arise for example, in annuity portfolios within the life Insurance and workmen’s compensation portfolios within non-life insurance. Longevity risk is managed through pricing, underwriting policy and by regularly reviewing the mortality tables used for pricing and establishing reserves. Where longevity is found to be improving faster than assumed in the mortality tables additional reserves are established and mortality tables are updated. Any adjustments resulting from changes in reserves estimates are reflected in current results of operations. However, because the establishment of claims reserves is an inherently uncertain process, there can be no assurance that ultimate losses will not exceed existing claims reserves, and this risk is covered by the additional solvency capital.




Page 150

Regarding life line of business, the main actuarial assumptions defined in each contract, are as follows:

Mortality table Technical rate

Retirement saving plan and SavingsUntil 31 December 1997 GKM 80 4%From 1 January 1998 until 30 June 1999 GKM 80 3.25%From 1 July 1999 until 28 February 2003 GKM 80 3% and 2.5%From 1 March 2003 until 31 December 2003 GKM 80 2.75%

Life insurance Annuities

Until June 2002 TV 73/77 4%From 1 July 2002 until 31 December 2003 TV 73/77 3%From 1 January 2004 until 30 September 2006 GKF 95 3%After 1 October 2006 GKF - 3 years 3%

Death insuranceUntil 31 December 2004 GKM 80 4%From 1 January 2005 until 31 December 2007 GKM 80 0% to 2%After 1 January 2008 GKM 95 0%

Mixed insuranceUntil 30 September 1998 GKM 80 4%After 1 October 1998 GKM 80 3%

* in 20 10, the technical rate was 2% / 2.75%

After 1 January 2004 GKM 80 Established on years basis *

For liability adequacy test purposes of the life business the mortality assumptions are based on best estimates derived from portfolio experience investigations. Future cash flows are evaluated and discounted at government bonds rate. The main mortality assumptions are as follows: Annuities GKM 95Savings and other contracts 40% GKM 80 For liability adequacy test purposes, the calculation of the present value of Workmen’s Compensation mathematical reserves was performed with the mortality table TV 73/77 (2010: TV 73/77) and risk free rate.




Page 151

The maximum risk exposure per event after reinsurance and after deductibles per segment and product line is summarised below:

Line of business Type of reinsurance Net retention Maximum treaty liability

Personal Accident (Credit protection) Quota Share - 100%Personal Accident Excess Of Loss 300 14 700 Workmen Compensation Excess Of Loss 500 39 500 Motor - Third Party Legal Liability Excess Of Loss 1 000 49 000 Motor - Own Damage Excess Of Loss 1 000 11 500 Bonds - Bonds Quota Share 20% 400 Bonds - Fidelity Quota Share 20% 200 Engineering Proportional 1 250 13 750 Fire/M. Risk/LOP (Simple Risks) Proportional 1 000 20 000 Fire/M. Risk/LOP (Condominium) Proportional 1 000 35 000 Fire/M. Risk/LOP (Comm&Indust Risks) Proportional 1 000 40 000 Fire/M. Risk/LOP - CAT Cover Excess Of Loss 10 000 160 000 Fire/M. Risk/LOP - XOL Cover Excess Of Loss 2 000 8 000 Property Stop Loss Excess Of Loss 105% of ENPI 7 000 General Third Party Liability Excess Of Loss 150 4 850 Marine Hull Proportional 250 5 000 Marine Hull - Fleets Proportional 325 6 500 Marine Cargo Proportional 200 4 600 Marine Cargo & Hull - XOL Cover Excess Of Loss 400 3 500 Health - Serious illness Quota Share 20% 80%Assistence Quota Share - 100%Life - mortgage Proportional 100 1 000 Life - mortgage Quota Share 20% 1 000 Life - group Proportional 100 1 000 Life - individual credit Proportional 100 1 000

Life - natural disasters Excess Of Loss 1 000 10 000 per disaster

15 000 per event





Page 152

NOTE 53 - CONTRACTUAL COMMITMENTS Securitization transactions During the year 2011, the securitization transactions originated by BES suffered successive rating downgrades, following the downgrades attributed by various rating agencies to the Portuguese Republic and Portuguese banks. Traditionally, these operations include in their structures different risk protection mechanisms, namely the substitution of counterparties when credit ratings fall below minimum levels required by rating agencies or by triggering corrective actions enabling the mitigation of the exposure risk to those counterparties. BES acts as manager of the securitized loans in all transactions originated by the Bank or by other Group entities. In general, on the most recent operations, the credit manager downgrade for levels below investment grade implies some kind of corrective action to avoid the downgrade of the securities issued. In this sense, the securitization of credit to small and medium sized companies conducted by BES in December 2010 – Lusitano SME No.2, following the downgrade of BES by Moody’s in July 2011, forced the Bank to set up a liquidity reserve amounting to approximately euro 110 million form a third bank and to hire a back-up servicer. In addition, BES acted as swap counterparty in two of its operations (Lusitano Mortgage No.6 and Lusitano Mortgage No.7). The performance of these functions in securitization transactions is restricted to entities that meet the minimum rating levels established by the rating agencies. Therefore, following the downgrades, BES position in the operation Lusitano Mortgage No.6 was transferred to a financial institution that meets the eligibility criteria of the agencies and in the operation Lusitano Motgage No.7, the Group preceded to the restructuring of the operation. Covered Bonds The issues of covered bonds also suffered a strong impact caused by the downgrade of the Portuguese Republic and the Portuguese banks. As a result, BES could no longer be the counterparty in interest rate swaps transactions and proceeded to its transfer and, in some cases, to its cancelation. Contract Support Annex (CSA) BES has a set of contracts negotiated with counterparties with who trades derivative in the OTC market. CSA takes the form of collateral agreement established between two parties dealing with each other derivatives Over-the-Counter, with the main objective to provide protection against credit risk, establishing for the purpose a set of rules regarding the collateral. Derivatives transactions are regulated by the International Swaps and Derivatives Association (ISDA) and have a minimum margin of risk that may change according to the parties rating. NOTE 54 - CHANGES IN ACCOUNTING POLICIES At the end of the year 2011, the Group decided to change the accounting policy related to the recognition of actuarial deviations, no longer using the corridor method and starting to account actuarial gains and losses in other comprehensive income (Other comprehensive income – OCI), as allowed by paragraph 93A of IAS 19. The decision to change the accounting policy was based on the understanding that the recognition of actuarial gains and losses in equity under other comprehensive income provides more relevant information about the Group's position in relation to its liabilities with post employment benefits. This approach is supported by the IASB paragraph BC48B IAS 19, which state that the recognition of actuarial gains and losses directly in equity provides more reliable information about the operations rather than the corridor method. In accordance with paragraph 29 of IAS 8, the change in accounting policy makes it necessary the restatement of the Group financial statements as if the Group had always adopted the recognition directly in share capital of actuarial gains and losses.


Page 153

Therefore, we present below the adjustments made to the Group’s financial statements as at 1 January 2010 and 31 December 2010:

1 Janua!)- 2010 31 December 2010 Ba.lance sbeet

Reported Adjustments Restated Reported Adjustments Restated


Assets

Cash and deposits at central ba.1ks 2224 HI 2224 HI 976515 976515

Deposits wilh banks 793844 793844 879561 879561

Financial assets held for tradin~ 4490 699 4490699 3951786 3951786

Oth..- finaocial assets at fair value through profu or loss 1273417 I 273417 1 325449 I 325449 Available-for-sale finaocial assm 9079449 9079449 12474836 12 474 836

Loans and advances to banks 7648348 7648 348 3071674 3071674

Loans and advances to custom..-s 50508217 50508217 53346 807 53346 807 Held-to-maturity investments 2535309 2535309 2453465 2453465 D..-imu.,-es for risk management purposes 455115 455115 447304 447304 Non-current assets held for sal. 407585 407585 574550 574550

Propmy and equipment I 014 776 I 014 776 I 165 ()4{) I 165 ()4{)

Investment prop..-ties 89817 89817 3414!O 3414!O

intangible assets 373 851 373851 557837 557837

Investments in associates 418162 418162 585240 585240 Teclmical res.,.,,-es of reinsurance ceded 59396 59396 65098 65098

Current income tax assets 28631 28631 !O3074 !O3074

Def..-red income tax assets 217932 243960 461892 327 788 257319 585 !O7

Oth..- assets 3698 !O8 (852952) 2845156 4502837 (899 462) 3603375

Tot. t .ue! . 85316 987 ( 6089112) 8~ 707 995 87 150 271 (6~1 143) 86 508 118

Liabilities

Deposits from central banks 3817643 3817643 7964837 7964 837

Financial liabilities held for tradilg 1568896 1568896 2 III 305 2 I2l 305

Deposits from banks 6890 825 6890 825 6617 077 6617077

Due to custom..-s 25694 477 25694 477 31205688 31205688

Debt securities issued 34039730 34039730 24904746 24904746 D..-imu.,-es for risk management purposes 253148 253148 2289+1 2289+1

Investment contracts 395158 395158 324934 324934 Non-current liabilities held for sale '"'''' '"'''' 5 411 5 411

Provisions 191174 191174 2H 614 2H 614 Teclmical res.,.,,-es of direct insurance 994 752 994 752 I 157019 I 157019

Current income tax liabilities 162508 162508 57765 57765

Def..-red income tax liabilities 81191 81193 I1l 289 111289

Subordinated debt 1048825 3048825 2689697 2689697

Oth..-liabilities 1412361 1412361 2206 082 2206 082

Total liabilities 78 S76 299 78 S76 299 79 848 408 79 848 408

EquiQ-

Share capilal 778549 778549 778549 778549

Share premium 251656 251656 251656 251656

Pref..-mce shares 395514 395514 394 514 394 514

Oth..- equity components 114368 114368 115109 115109 Fair value res.,.,,-e 60 507 60 507 (39766) (19766) Oth..- res.,.,,-es and retained earnings (51296) ( 187978) (219274) (82818) (217689) (100 507)

Profu for the p..-iod atlflblIlable to equity hold..-s of the Company 122 165 14574 116739

Total equiQ- attributable to .qui~- bolders of tbe Company 1 SSI 298 ( 187 978) 1363320 1 541 409 ( 203 115) 1338 294

Non-controning int..-est 5189390 (421014) 4768176 5760454 ( 439028) 5321426

Total equiQ- 6 740 688 ( 608 992) 6131 696 7 3 01 863 ( 642 143) 6 659 710

Total equiQ- and liabilities 85316987 ( 608 992) 84 707 995 87 ISO 271 ( 642 143) 86 508 128

1 January 20111 31 December 2010 Babnce sbeet

Reported Adjustment. Re.tated Reported .... dju.tment. Restated


M .et.

Cash and d'1"'sit, at c=al bau, 2224331 2224311 976515 976515 D'1"'sit, wilh bank, 793 &+l 793 &44 879561 879561

Financial assets held for tradinjl 4490 699 4490 699 3951786 3951786 Oth..- financial as,et, at fair \'aIu~ through profit or loss 1273417 1273417 1325449 1 325449

Available-for -sale financial "ssm 9079449 9079449 12474 836 12474 8]6

Loan, and a,j.,anc~, to bank, 7648 348 7648 348 3071674 3071674

Loans and ad"anc~s to en,tom..-, 50508217 50508217 53346807 53]46 807

Held-to-maturity inv~'tment' 2535309 25]5309 2453465 2453465 D..-;',am·~, for risk management purpos~, 455115 4551 15 -H7 ]04 447 ]04

Non-current assets held for sal. 407585 -107585 574 550 574 550

Propeny and equipment I 014 776 1 014 776 I 165 0-10 1 165 0-10 In\'~stment prop..-tie, 89817 89817 34 1 410 341410

intangible assets ])] 851 373 851 557837 557837 In\'~stment, in a,sociates 418162 418162 585240 5852-10 T~al r~s..,,~, of reinsurance ceded 59396 59396 65 098 65 098

Current incom~ tax "ssets 28631 28631 103074 103074

Deferred income tax "sset, 217932 243960 461 892 327 788 257 ]19 585107 Oth..- asset, ] 698108 ~ 852 9522 2845156 4 502 837 ( 899 4(2) 3603375

Total ... e t. 85 316 987 ( 608 992) 8~ 707 995 87 150 271 (6~2 l43) 86 508 128

Li.a.bilities D'1"'sit, from central bank, ] 817643 3 817 643 7 964 837 7 964 837 Financialliabilitie, kid for tradi!g 1568896 1568896 2 l2! ]05 2 l2l 305 D'1"'sit, from bank, 6 890 825 6 890 825 6 617 077 6 617 077 Due to custom..-, 25694 477 25694 477 ]1105688 31205688 D~bt ,ccuriIi~, is,ued 34 039 730 34 039 730 24904 746 24904746

Dcm'am'~' for risk management purpo'~' 25] 148 25] 148 228944 228944 In\'~stment contract, 395158 395158 324934 324934 Non-current liabiliti~, held for sale " "" " "" 5 411 5 411

Provi<ions 193174 193174 233614 233 614

Technical r~'.,.,,·~' of direct insurance 994 752 994 752 1 157019 1 157019 Current income tax tiabilitie, 162508 162508 57765 57765 D~ferred income tax lia~, 83 !93 83193 13l 289 131289

Subordinated debt 3048825 3048825 2689697 2689697 OIkrlia~, 1412361 1412 361 2206 082 2206 082

Total Ii.a.bilities 78 576 299 78 576 299 79 848 4118 79 848 408

Equity

Share capital 778549 778549 778549 778549

Share premium 25] 656 253656 253656 253656 Prcf..-coce shar~, 395514 395514 394 514 194 514

Oth..- equity component' 114368 114368 1!5109 115109

Fair value r~>n'.'e 60 507 60 507 (39766) (39766) Oth..- rc,.,.,,'c, and retained carning' ( 51 296) ( 187978) (239274) (82818) (217 689) (300 507) Profu for the p..-iod attribUlablc to equity hold..-, oftk Company 122 165 14574 136739

Total equity attributable to . quity bolders of tbe Company 1 551 298 ( 187 978) 1363320 1 541 4119 ( 203115) 1 338 294

Non-<:ontrolling int..-~'t 5189390 (4210142 4768 376 5760454 ( 439028) 5 ]21 426

Total equity 67411 688 (6118992) 6131 696 7 3 01 86 3 ( 1542143) 6659710

Total equity and liabilities 8531 6 987 (6Og 992) 84 707 995 871511 271 ( 154! l43) 865118 128


Reported Adjustment. Restated Reported Adjustments Restated


Mset. Cash and deposit, al cerural ha;k, 2224 HI 2224311 976515 976515 Deposit, with bank, 793 &44 793 &44 879561 879561

Financial assets held for tradinjl .. 490 699 4490 699 3951786 3951786

Oth..- financial ""et, al fair \'aIu~ through profit or loss 1271417 1 273417 1 325449 1 325449 Available-for-,ale financial assm 91179449 91179449 12 414 836 124748]6

Loan, and a,j.,anc~, 10 banks 7648348 7648 348 3117 1 674 31171 674

Loans and ad"anc~s 10 cuslom.,..; 511 5118 217 5115118217 53346 8117 53]46 8117

Held-Io-marurity inv~stmenl' 25353119 25353119 2453465 2453465

Dcrn4m'~' for risk managemenl purpo'~' 455115 455115 .;47 ]04 447 ]04

NOII-eurrem asset, held for sale 407585 -107585 5745511 574 5511

Propeny and equipmenl 11114776 11114776 1 165040 I 165 ()-IO

In"~'tmem propcnie, 89817 89817 341 4111 3414111 inlanglble asset, 37] 851 373 851 557837 557837

In"~'tmem, in a,sociale, 418162 418162 585240 5852-10

T~hnical r~'..,,~' of reinsuranc e ceded 59396 59396 651198 65 1198 Currenl incom~ tax asset, 28631 28631 11131174 11131174 Deferred income lax asset, 217932 243960 461 892 327 788 257319 5851117

Oth..- asset. 3698 illS (8529522 2 &45 156 .. 5112 837 {899 462) 3 6Il3 375

To tal ... et , 85316987 ( 608 991) o.t 707 995 87 150171 (6~1 143) 86 508 128

Liabilities Deposit, from central banks 3817643 ] 817 643 7964837 7964837 Financialliabilitie, kid for tradi!g 1568896 1568896 2 12l 305 2 12l ]05

Deposit, from bank, 6890 825 6890 825 6617 077 6617 077 Due 10 cu, lom..-, 25694 477 25694 477 11205688 31205688 D~bt ,ccuriti~s is,ued 34 039 730 34 039 730 24904 746 24904746

Dcrn4m'~' for risk managemenl purpo'~' 253148 253148 228944 228944 In,,~stmem contracl, 395158 395158 324934 324934 NOII-currenl tiabiliti~, kid for sale " "" '''''' 5 411 5 41 1

Pro\,i<ions 193174 193174 233614 233614 T~lmical r~,en'~' of dir~1 insurance 994752 994 752 1 157019 1 157019 Currenl income lax liabilitie, 162508 162508 57765 57765 D~ferred income lax liabilit:i~, 83193 83193 13l 289 13 1 289

Subordinaled debl 3048825 3048825 2689697 2689697 Otkrliabilit:i~, 1412161 1412361 2206 082 2206 082

Totl.! liabilities 78 576 299 78 576 299 79848408 79848 408

£qui~"

Share capital 778549 778549 778549 778549

Share premium 253656 253656 253656 253656 Pref..-coce share, 395514 3955 14 394 514 394 514

Oth..- equity componenl' 114368 114368 1151119 1151119

Fair\"alue r~~'e 6Il 507 6Il 507 (39766) (39766)

Oth..- rc,en"c, and retained carning' ( 51 296) ( 187978) (239274) (828 18) ( 217689) (300 507) Profit for the period altriblIlablc 10 equity hold..-, ohhe Company 122 165 14574 136739

Totlll'<Jui~' attributable to . quity bolders of tbe Company 1 551 298 ( 187 978) 1363320 1541 4119 ( 203 115) 1338294

NOII-<:ontrolling inl"-~S1 5 189390 (4210142 4768 376 57611454 ( 439028) 5 321 426

Total equi~" 6 740 688 ( 608992) 6 131 696 7 301 863 ( 642 143) 6659 720

Totlll'<Jui~' and liabilities 85316987 (60g 992) 84 707 995 87 1511 271 ( 641143) 86508 128



Reported Adjustment. Restated Reported Adju.tment. Re.tated


Mset. Cash and dcposir, al cenrral b;k, 2224 HI 2224311 976515 976515 Dcposir, with bank, 793 &+1 793 &+1 879 561 879561

Financial assets held for tradinB 4490 699 4490 699 3951786 3951786

Oth..- financial ""et, al fair \'aIu~ through profit or loss 1271417 1273417 1 315 +19 1 325 +19

Available-for -sale financial "ssm 91179 +19 91179 +19 12 474 836 124748]6

Loan, and a,j.,anc~s 10 banks 7648348 7648 348 31171674 31171674

Loans and ad"anc~s 10 cuslom.,..; 511 5118 217 5115118217 53346 8117 53]46 8117

Held-Io-marurity inv~stmenl' 25353119 25353119 2453465 2453465

Dcrn4m'~' for risk managemenl purpo,e, 455115 4551 15 -H7 ]().l +17 ]().l

NOII-eurrenl asset, held for sale 407585 -107585 5745511 5745511

Propeny and equipmenl 11114776 11114776 I 1651l-1O I 1651l-1O In\,~,tmeru propcnie, 89817 898 17 341 4111 3414111 Intangible asset, 373 851 373 851 557837 557837 In\,~,tmeru, in a,sociale'S 418162 418162 585240 5852-10

T~hnical r~'..,,~' of reinsurance ceded 59 ]96 59396 651198 65 1198 Currenl income tax asset, 28631 28631 11131174 11131174 Deferred income lax asset, 217932 243960 461 892 327 788 257319 5851117

Oth..- asset. 3698 illS (8529522 2 &45 156 4 5112837 {899 462) 3 6Il3 375

To tal ... et , 85316 987 ( 6118 992) 8.t 707 11115 87 150 271 ( 6~2 Ie) 86 508 128

Liabilities Dcposir, from central banks 3817643 3 817 643 7964837 7964837 Financialliabilitie, held for tradi!g 1568896 1568896 2 III 305 2 121 ]05

Dcposir, from bank, 6890 825 6890 825 6617 077 6617 077 Due 10 cuslom..-, 25694 477 25694 477 ]1205688 31205688 D~bt ,ecuriti~s is,ued 34 039 730 34039730 24904 746 24904746

Dcrn4m'~' for risk managemenl purpo,e, 253148 253148 218944 1289+1 In\'~stmeru contracl, 395158 395158 324934 324934 NOII-currenl tiabiliti~, Mid for sale " "" '''''' 5 411 5 41 1

Provisions 193174 193174 233 614 233 614

T~lmical r~,en'~' of dir~1 insurance 994752 994 752 1 157019 1 157019 Currenl income lax liabilitie, 162508 162508 57765 57765 D~ferred income lax liabilit:i~, 83193 83193 131 289 131289

Subordinaled debl 3 ().l8 825 3 ().l8 825 2689697 2689697 Other liabilit:i~, 1412161 1412361 2206 082 2206 082

Total liabilities 78 576 2119 78 576 2119 711 848 408 79848 408

Equity

Share capital 778549 778549 778549 778549

Share premium 25] 656 253656 253656 253656 Pref..-coce share, 395514 3955 14 394 514 394 514

Other equity componenl' 114 ]68 114 ]68 115 1119 1151119

Fair value r~snve 6Il 507 6Il 507 (39766) (39766)

Other re, en"e, and retained earning' ( 51 296) ( 187978) (239274) (828 18) ( 217689) (300 507) Profit for the p..-iod altriblIlablc 10 equity hold..-, ohM Company 122 165 14574 136739

Total equity attributable to . quity bolders of tbe Company 1 551 298 ( 187 1178) 1363320 1541 4119 ( 203 115) 1338294

NOII-<:ontrolling inl"-~S1 5 189390 (4210142 4768 376 57611454 ( 439028) 5311426

Total equity 6 74 11 688 ( 611811112) 6 131 6116 7 3111 863 ( 642 143) 6659 720

Total equity and liabilities 85316987 ( 60811112) 84 7117 995 871511271 ( 642 143) 865118 128



Page 154

Reported Adjustments Restated


Interest and similar income 3 838 928 - 3 838 928Interest expense and similar charges 2 649 887 - 2 649 887

Net interest income 1 189 041 - 1 189 041

Dividend income 194 738 - 194 738

Fee and commission income 940 092 - 940 092Fee and commission expenses ( 121 782) - ( 121 782)Net (losses) from financial assets and financial liabilities at fair value through profit or loss ( 197 574) - ( 197 574)Net gains from available-for-sale financial assets 374 318 - 374 318Net gains from foreign exchange differences 55 334 - 55 334

Net (losses) from the sale of other assets ( 12 773) - ( 12 773)Insurance earned premiums net of reinsurance 325 168 - 325 168Other operating income 354 080 - 354 080Operating income 3 100 642 - 3 100 642

Staff costs 782 889 ( 47 050) 735 839General and administrative expenses 495 425 - 495 425Claims incurred net of reinsurance 238 404 - 238 404Change in the technical reserves net of reinsurance 2 477 - 2 477Insurance commissions 34 736 - 34 736

Depreciation and amortisation 139 512 - 139 512Provisions net of reversals 55 099 - 55 099Loans impairment net of reversals and recoveries 338 459 - 338 459Impairment on other financial assets net of reversals 79 390 - 79 390

Impairment on other assets net of reversals 60 839 - 60 839Other operating expenses 278 802 - 278 802

Operating expenses 2 506 032 ( 47 050) 2 458 982

Gains on disposal of investments in subsidiaries and associates 46 401 - 46 401Share of profit of associates 37 592 - 37 592Profit before income tax 678 603 47 050 725 653Income tax

Current tax 68 558 - 68 558

Deferred tax ( 17 064) - ( 17 064)

Profit for the year 627 109 47 050 674 159

Attributable to equity holders of the Company 122 165 14 574 136 739

Attributable to non-controlling interest 504 944 32 476 537 420

627 109 47 050 674 159

31 December 2010Income statement

The adjustments made to other comprehensive income for the year ended 31 December 2010 can be analysed as follows:

Statement of comprehensive income

Reported Adjustments Restated(in thousands of euro)

Profit for the yearAttributable to equity holders of the Company 122 165 14 574 136 739 Attributable to non-controlling interest 504 944 32 476 537 420

627 109 47 050 674 159

Other comprehensive income, net of income tax

Long term benefits - ( 80 201) ( 80 201)Exchange differences on translating foreign operations 32 125 - 32 125Deferred taxes on exchange differences on translating foreign operations ( 3 017) - ( 3 017)

29 108 ( 80 201) ( 51 093)

Fair value reserve (available-for-sale financial assets):Net change in fair value ( 47 228) - ( 47 228)Net amount transferred to the income statement ( 341 458) - ( 341 458)Deferred taxes on gains / losses of available-for-sale financial assets 67 773 - 67 773

( 320 913) - ( 320 913)

Total comprehensive income / (loss) for the year 335 304 ( 33 151) 302 153

Attributable to equity holders of the Company 39 109 ( 15 137) 23 972

Attributable to non-controlling interest 296 195 ( 18 014) 278 181

335 304 ( 33 151) 302 153

31 December 2010




Page 155

The detail of the adjustments made to amend the accounting policy is analysed as follows:

Impact of the change in the accounting policy:

On assetsOn comprehensive

incomeOn income statement


Gross amount

1 January 2010 852 952 ( 852 952) ( 852 952) -

Actuarial losses in the year 93 026 ( 93 026) ( 93 026) -

Amortiztion of the year ( 47 050) 47 050 - 47 050

Other 534 ( 534) ( 534) -

31 December 2010 899 462 ( 899 462) ( 946 512) 47 050

Tax

1 January 2010 243 960 243 960 -

Tax charge for the year 13 359 13 359 -

31 December 2010 257 319 257 319 -

Net amount

1 January 2010 ( 608 992) ( 608 992) -

31 December 2010 ( 642 143) ( 689 193) 47 050

Movement in the year ( 80 201)

Net amount attributable to equity holders of the Company

1 January 2010 ( 608 992) ( 187 978)

31 December 2010 ( 642 143) ( 217 689) 14 574

Movement in the year ( 29 711)

Actuarial losses recognised in the balance sheet in

accordance with the previous accounting policy

NOTE 55 - TRANSACTIONS WITH NON-CONTROLLING INTEREST AND BUSINESS COMBINATIONS Transactions with non-controlling interest As explained in Note 1, in 2011 the Group entered into several transactions with non-controlling interest, the most significant being the transactions with non-controlling interest of BES, namely the (i) acquisition during the first semester of an additional interest of 0.14% through the acquisition, in the market, of 1 683 451 BES shares; (ii) dilution of approximately 6.11% due to the capital increase resulting from BES exchange offer, which took place from 14 to 30 November; and (iii) acquisition of an additional interest of 2.25% through the acquisition in the market, in December, of 47 480 259 BES shares. These transactions were accounted for in accordance with the accounting policy described in Note 2.2 as a transaction with equity holders in their capacity as equity holders. Therefore, the difference between the net consideration paid and the non-controlling interest acquired, in the amount of euro 93 901 thousand as detailed below, was recognised in equity. The balance of the components of other comprehensive income, namely the fair value reserve and foreign exchange differences were reallocated in order to reflect the new percentage held.




Page 156

The impact of this transaction with the non-controlling interest is as follows:

31.12.2011

(in thousands of euro)Consideration receivedBES share capital increase appropriated by ESFG 128 186

Net consideration paid for the acquisition of BES shares attributable to ESFG (1) (41 900)

86 286

Non-controling interest acquired /(sold) (168 673)Reallocation of components of other compreehensive incomeFair value reserve (17 816)Exchange diferences (1 040)

( 187 529)

Decrease in equity resulting from the transactions with BES shares 101 243Other transactions with non-controllling interest ( 7 342)

Losses/(gains) resulting from transactions with non-controlling interest 93 901

(1) corresponds to a total net consideration paid of euro 59 934 mil lion thousand of which euro 18 034 thousand are at tributable to non-controll inginterest

During the year ended 31 December 2010 (i) following the acquisition by ESFG of an additional 0.82% of the share capital of BES for euro 33 259 thousand in cash and (ii) the dilution resulting from the sale by BES of the SIBA shares for euro 2 952 thousand, ESFG increased its economic interest in BES to 30.13%. These transactions were accounted for in accordance with the accounting policy described in Note 2.2 as a transaction with equity holders in their capacity as equity holders. Therefore, the difference between the net consideration paid and the non-controlling interests acquired, in the amount of euro 12 309 thousand as detailed below, was recognised in equity. The balance of the components of other comprehensive income, namely the fair value reserve and foreign exchange differences were reallocated in order to reflect the new percentage held. The impact of this transaction with the non-controlling interest is as follows:

31.12.2010


Net consideration paid 33 259

Non-controling interest acquired 48 840Reallocation of components of other compreehensive income

Fair value reserve ( 2 367)Exchange diferences 127

( 1 032)

45 568

Movement in equity (increase) ( 12 309)




Page 157

Business combinations occurred in the prior period Aman Bank In April 2010, BES acquired 40% of the share capital of Aman Bank for Commerce and Investment Stock Company (Aman Bank), a privately owned Bank in Libya with registered office in Tripoli, representing a total investment of euro 40.3 million. This entity is fully consolidated as BES Group took management control of Aman Bank, nominating the majority of the members of the Board of Directors, the Chief Executive Officer and main senior management. Founded in July 2003 and headquartered in Tripoli, Aman Bank is one of the most prestigious banks within the Libyan financial system. This acquisition aimed at fostering access to markets in Northern Africa and in Libya in particular. The total investment of euro 40.3 million correspond to an initial investment of euro 24.3 million in cash for the acquisition of 40% of Aman Bank share capital (see Note 1) and to an additional amount of euro 16.0 million related with the subscription of new shares in Aman Bank share capital increase proportional to the acquired stake (40%). This transaction was accounted for in accordance with IFRS 3. The balance sheet of Aman Bank as at 30 April 2010 is as follows:

AssetsCash and deposits at banks 302 076 Available-for-sale financial assets 100 224 Loans and advances to banks 14 298 Loans and advances to customers 9 339 Tangible assets 15 239 Intangible assets 864 Other assets 14 692

456 732

LiabilitiesDue to customers 368 848 Other liabilities 26 044

394 892

EquityShare capital 58 967 Other reserves and retained earnings 2 873

61 840

Total equity and liabilities 456 732


Balance sheet

The income and profit of Aman Bank since the date of acquisition to 31 December 2010, included in the consolidated income statement and in the profit for the year attributable to the equity holders of the Company, amount to euro 8 630 thousand and euro 168 thousand (loss), respectively. Should have Aman Bank been consolidated since 1 January 2010, the Group estimates that 2010 total income would have increased by euro 5 014 thousand. Profit for the year 2010 attributable to the equity holders of the Company would have increased by euro 249 thousand.




Page 158

The goodwill recognised as a result of this acquisition amounts to euro 15 533 thousand (corresponding to euro 16 046 thousand considering the exchange rate ruling at 31 December 2011 (see Note 32)), as follows:

%


Consideration paid 40 269

Net equity at acquisition date 61 840

Net equity acquired 40% 24 736

Goodwill 15 533

The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to the markets in which Aman Bank is active. The Group incurred acquisition-related cost of euro 1.6 million. These costs relate mainly to external legal fees and due diligence costs and were recognised against the 2010 income statement. Execution Noble In November 2010 the Group acquired 50.1% of the share capital of Execution Noble a stock-brockerage group incorporated in September 2003 with headquarter in London, United Kingdom. The total investment of euro 58.0 million corresponds to an initial investment in cash for the acquisition of 50.1% of Execution Holding Limited. This transaction was accounted for in accordance with IFRS 3.




Page 159

The balance sheet of Execution Holding Limited as at 30 November 2010 is as follows:


AssetsCash and deposits with banks 17 468Available-for-sale financial assets 1 067Loans and advances to customers 5 496Property and equipment 1 870Intangible assets 8 200Other assets 11 140

45 241

LiabilitiesDue to customers 5 851Other liabilities 15 202

21 053

EquityShare capital 58 164Other reserves and retained earnings ( 33 976)

24 188


The profit of Execution Noble from the acquisition date to 31 December 2010 included in the profit for the year attributable to the equity holders of the Company, amount to euro 2 thousand. Should Execution Noble have been consolidated since 1 January 2010, the Group estimates that 2010 total income would have increased by euro 27 693 thousand. Profit for the year 2010 attributable to the equity holders of the Company would have decreased by euro 1 349 thousand. The goodwill recognised as a result of this acquisition amounts to euro 46 046 thousand (corresponding to euro 47 449 thousand considering the exchange rates ruling at 31 December 2011 (see Note 32)), as follows:

%




Net equity acquired 50.1% 12 118

Goodwill 46 046

The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to the markets in which Execution Nobel is active. The Group incurred acquisition-related cost of euro 1 584 million. These costs relate mainly to external legal fees and due diligence costs, and were recognised against the 2010 income statement.




Page 160

GesPastor In December 2010 the Group acquired 100% of the share capital of GesPastor S.G.I.I.C, S.A.U., an asset management company incorporated in April 1974 with headquarter in Madrid, Spain. The total investment of euro 25.3 million was paid in cash. This transaction was accounted for in accordance with IFRS 3. The balance sheet of GesPastor S.G.I.I.C, S.A.U. as at 31 December 2010 is as follows:


AssetsCash and deposits with banks 470Deposits with banks 6 050Financial assets held for trading 677Available-for-sale financial assets 51Property and equipment 162Intangible assets 309Other assets 1 333

9 052

LiabilitiesOther liabilities 2 698

2 698

EquityShare capital 3 005Other reserves and retained earnings 3 349

6 354


The income and net profit of Gespastor since the date of acquisition to 31 December 2010, included in the consolidated income statement and in the profit for the year 2010 attributable to the equity holders of the Company, amount to euro 243 thousand and euro 4 thousand, respectively. Should have Gespastor been consolidated since 1 January 2010, the Group estimates that 2010 total income would have increased by euro 10 027 thousand. Profit for the year 2010 attributable to the equity holders of the Company would have increased by euro 74 thousand.




Page 161

The goodwill recognised as a result of this acquisition amounts to euro 19 000 thousand (see Note 32), as follows:

%




Net equity acquired 100.0% 6 354

Goodwill 19 683

The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to the markets in which Gespastor is active. The Group incurred acquisition-related cost of euro 309 million. These costs relate mainly to external legal fees and due diligence costs, and were recognised against the 2010 income statement. Pastor Vida In December 2010, Companhia de Seguros Tranquilidade acquired 50% of the share capital of Pastor Vida S.A. de Seguros y Reaseguros (“Pastor Vida”), a life insurance company, with the purpose of fostering access to markets in Spain. This entity is fully consolidated as ESFG Group took management control of Pastor Vida. The total investment of euro 79.6 million corresponds to an initial investment of euro 16 million in cash and to an additional amount of euro 63.6 million related to deferred and contingent considerations in the amount of euro 42.7 million and euro 20.9 million, respectively. The acquisition of Pastor Vida was accounted for in accordance with IFRS 3.




Page 162

As at 31 December 2010, the balance sheet of Pastor Vida included in the ESFG Group consolidated financial statements can be analysed as follows:


AssetsCash and deposits 55 392Financial assets at fair value through profit or loss 4 328Financial assets available for sale 151 237Property and equipment 14Intangible assets 66 796Technical reserves net of reinsurance ceded 4 288Income tax assets 1 728Other assets 5 748

289 531

LiabilitiesDerivative financial instruments with negative fair value 20 925Technical reserves of direct insurance 162 639Income tax liabilities 3 176Other liabilities ( 10 280)

176 460

EquityShare caital 9 100Other reserves and retained earnings 103 971

113 071


The revenue and profit of Pastor Vida was not included in the consolidated revenue and consolidated profit, as the acquisition date refers to 31 December 2010. Should have Pastor Vida been consolidated since 1 January 2010, the Group estimates that 2010 total income would have increased by euro 32 787 thousand. Profit for the year 2010 attributable to the equity holders of the Company would have increased by euro 3 113 thousand.




Page 163

The goodwill recognised as a result of this acquisition amounts to euro 23 110 thousand, as follows:

%



Fair value of recognised indentifiable assets acquired and liabilities assumed 113 071

Net equity acquired 50% 56 536

Goodwill 23 110

The goodwill is attributable mainly to the growth potential of the market where Pastor Vida operates. The fair value of recognised identifiable assets acquired and liabilities assumed includes the amount of euro 66 520 euro related to the present value of the business in force acquired related to life insurance contracts. This asset will be amortised over the remaining lifetime of the contracts.




Page 164

NOTE 56 - RECENTLY ISSUED PRONOUNCEMENTS Note 56.1 – Recently issued pronouncements already adopted by the Group In the preparation of the consolidated financial statements for the year ended 31 December 2011, the Group adopted the following standards and interpretations that are effective since 1 January 2011: IFRS 7 – Financial Instruments: Disclosures – Transfers of Financial Assets On October 2010 the International Accounting Standards Board (IASB) published Disclosures – Transfers of Financial Assets (Amendments to IFRS 7). The amendment is applicable for annual periods beginning on or after 1 July. Earlier application is permitted. The amendments required to disclosures about transactions that involve transfer of financial assets, namely securitisations of financial assets, intend to help users of financial statements to evaluate the risks and the impacts associated to those transactions in the financial statements. The adoption of this amendment by the Group had no impact on its financial statements. Annual Improvement Project In May 2010, IASB published the Annual Improvement Project making 11 amendments to 7 existing standards. The effective date of the amendments, possibility of early adoption and application requirements in the transition are defined in each standard. Most changes are effective since 1 January 2011. The adoption of these amendments by the Group had no impact on its financial statements. Note 56.2 – Recently issued pronouncements yet to be adopted by the Group The new standards and interpretations that have been issued, but that are not yet effective and that the Group has not yet applied, are analysed below. The Group will apply these standards when they are effective. IFRS 9 – Financial instruments The International Accounting Standards Board (IASB) has issued in November, 2009 IFRS 9 - Financial instruments part 1: Classification and measurement, which is mandatory from 1 January 2013, being an earlier adoption permitted. This IFRS has not yet been adopted by the European Union. This IFRS is included in the IASB global project to replace IAS 39 and addresses the classification and measurement of financial assets, being the main aspects:

Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument;

An instrument is subsequently measured at amortised cost only if it is a debt instrument and both the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and the asset’s contractual cash flows represent only payments of principal and interest (that is, it has only ‘basic loan features’). All other debt instruments are to be measured at fair value through profit or loss;

All equity instruments issued by third parties are to be measured subsequently at fair value through profit or loss. However, the entity can irrevocably elect equity instruments to recognize unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss;

The Group is evaluating the impact of adopting this interpretation on its financial statements. IFRS 10 – Consolidated Financial Statements On May 2011 the International Accounting Standards Board (IASB) published IFRS 10 – Consolidated Financial Statements. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation — Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements.




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The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (facto control). The main objectives included in this standard are:

Introduction of a single consolidation model for all types of entities, ensuring that an entity consolidates all entities it controls;

Introduction of more extensive disclosure requirements, particularly on investments which the entity does not consolidate.

The Group is evaluating the impact of adopting this interpretation on its financial statements. IFRS 11 – Joint Arrangements On May 2011 the International Accounting Standards Board (IASB) published IFRS 11 – Joint Arrangements. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. IFRS 11 supersedes IAS 31, maintaining the same definition of joint arrangement. Nothwithstanding, two new joint arrangements categories were introduced: 1) Joint operations and 2) Joint ventures. The main exchanges introduced by this standard were:

The structure of joint arrangements is no longer a critical factor for the accounting model. The classification of a joint arrangement requires entities to consider the structure of the arrangement, the legal form of the separate vehicle in which the arrangement might have been structured, the terms of the contractual arrangements and other facts and circumstances;

Introduction of mandatory application of full consolidation method, eliminating proportionate consolidation as a method to account for joint arrangements.

The Group is evaluating the impact of adopting this interpretation on its financial statements. IFRS 12 – Disclosure of Interests in Other Entities On May 2011 the International Accounting Standards Board (IASB) published IFRS 12 – Disclosure of Interests in Other Entities. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. More detailed disclosures about the involvement with entities that consolidate (subsidiaries) and those that do not consolidate, namely:

The nature of, and risks associated with, its interests in other entities; and The effects of those interests on its financial position, financial performance and cash flows.

The Group is evaluating the impact of adopting this interpretation on its financial statements. IFRS 13 – Fair Value Measurement On May 2011 the International Accounting Standards Board (IASB) published IFRS 13 – Fair Value Measurement. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. This standard presents a revised concept of fair value as well as new reporting requirements. The Group expects no impact from the adoption of this amendment on its financial statements. IAS 27 – Consolidated and Separate Financial Statements




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On May 2011 the International Accounting Standards Board (IASB) published IAS 27 – Consolidated and Separate Financial Statements. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. IAS 27 (2011) introduces no amendments on the application requirements of IAS 27 as part of the financial statements, only clarifies: 1) an entity prepares separate financial statements that comply with International Financial Reporting Standards, and 2) need of disclosure requirements. The Group expects no impact from the adoption of this amendment on its financial statements. IAS 28 – Investments in Associates and Joint ventures On May 2011 the International Accounting Standards Board (IASB) published IAS 28 – Investments in Associates and Joint Ventures. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. IAS 28 supersedes IAS 28 (2003) and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IFRS 11 determines the type of joint agreement envolving an entity, and once determined the interest in a joint venture, an entity applies the equity method in consolidated accounts according to IAS 28 (revised), excluding the exceptions provided by this standard. IFRS 12 describes the disclosure requirements of information. The Group expects no impact from the adoption of this amendment on its financial statements. IFRS 7 (Amendment) - Disclosures - Offsetting Financial Assets and Financial Liabilities On May 2011 the International Accounting Standards Board (IASB) published IFRS 7 – Disclosures – Offsetting Financial Assets and Financial Liabilities. The amendment is applicable for annual periods beginning on or after 1 January 2013. Earlier application is permitted. IFRS 7 amended the required disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position. The Group expects no impact from the adoption of this amendment on its financial statements. IAS 32 (Amendment) - Offsetting Financial Assets and Financial Liabilities On May 2011 the International Accounting Standards Board (IASB) published IAS 32 – Offsetting Financial Assets and Financial Liabilities. The amendment is applicable for annual periods beginning on or after 1 January 2014. Earlier application is permitted. This amendment deleted paragraph AG38 and added paragraphs AG38A-AG38F, regarding the conditions required to the presentation of financial assets and liabilities by its net amount, in the financial statements of an entity:

To meet the criterion that an entity must currently have a legally enforceable right of set-off, and To meet the criterion that an entity intends either to settle on a net basis, or to realise the asset and settle the

liability simultaneously. The Group is currently evaluating the impact of the adoption of this amendment.




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NOTE 57 - SUBSEQUENT EVENTS In 6 January and 17 February 2012, Banco Espírito Santo issued debt securities guaranteed by the Portuguese Republic in the amount of euro 1 000 million and euro 1 500 million, respectively, with a term of three years and a variable interest rate. In 1 March 2012 the NYSE Euronext announced that ESFG (91,111,645 of its Shares) would be included in Portugal’s PSI–20 Index from 19 March 2012.


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