ESPÍRITO SANTO FINANCIAL GROUP S.A. - Emitentesweb3.cmvm.pt/sdi2004/emitentes/docs/PC33304.pdf · Espírito Santo Financial Group S.A. is a public company, with its shares listed

ESPÍRITO SANTO FINANCIAL GROUP S.A.

Société Anonyme

Sede: 21/25 Allée Scheffer, L2520 Luxembourg

Capital Social : Eur 778.549.160

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

Espírito Santo Financial Group S.A. informa sobre Relatório Anual Individual e

Contas Consolidadas referentes ao exercício d 2010

Annual Report & Consolidated Financial Statements 2010

EspÍrIto santo FInancIal Group s.a.

c Espírito Santo Financial Group S.A.Annual Report & Consolidated Financial Statements 2010

Overview02 Group overview04 Financial highlights05 Economic report08 Risks to ESFG and its Subsidiaries10 Chairman’s report

Business Review13 Commercial banking16 Investment banking19 Asset management and Private banking22 Insurance and Healthcare

Governance25 Corporate Governance30 Declaration by the Board of Directors

on Responsibility for Information31 Directors and Officers

Other Information32 Annex34 Principal addresses36 Contacts

Financial Statements37 Consolidated Financial Statements 2010

ESPÍRITO SANTO FINANCIAL GROUP S.A.Société AnonymeRCS Luxembourg B-22.232Issued Capital: EUR 778,549,16021/25 Allée SchefferL-2500 – Luxembourg

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Financial Statements

01Espírito Santo Financial Group S.A.Annual Report & Consolidated Financial Statements 2010

Espírito Santo Financial Group S.A. is a public company, with its shares listed on the Luxembourg, Lisbon and London stock exchanges. ESFG, through its subsidiaries, provides a wide range of banking services, centred on Banco Espírito Santo, Tranquilidade insurance services and Espírito Santo Saúde healthcare operations.

www.esfg.com

Espírito Santo Financial Group S.A.

02 Espírito Santo Financial Group S.A.Annual Report & Consolidated Financial Statements 2010

Group overview

PortugalBanco Espírito Santo S.A.

Banco Espírito Santo dos Açores

AngolaBanco Espírito Santo Angola S.A.R.L.

Cape Verde IslandsBanco Espírito Santo S.A.

SpainBanco Espírito Santo S.A.

USAEspírito Santo Bank S.A.

FranceBanque Espírito Santo de la Vénétie S.A.

LibyaAman Bank

MacaoBanco Espírito Santo do Oriente S.A.

MozambiqueMoza Bank S.A.

PanamaES Bank (Panama) S.A.

VenezuelaBanco Espírito Santo S.A.

Commercial banking Investment banking

PortugalBanco Espírito Santo de Investimento S.A.

BrazilBES Investimento do Brasil S.A.

DubaiES Bankers (Dubai) Limited

SpainEspírito Santo Investimento S.A.U. S.V.

USABanco Espírito Santo de Investimento S.A.

FranceFinancière Mandel S.A.

Hong KongBanco Espírito Santo de Investimento S.A.

IndiaBanco Espírito Santo de Investimento S.A.

MexicoBanco Espírito Santo de Investimento S.A.

PolandBanco Espírito Santo de Investimento S.A.

United KingdomBanco Espírito Santo de Investimento S.A.

America Europe

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Asset Management and Private banking

Portugal Banque Privée Espírito Santo S.A.

BEST – Banco Electrónico de Serviço Total S.A.

ESAF – Espírito Santo Activos Financeiros, SGPS, S.A.

BrazilBES Securities do Brasil S.A. – CCVM

DubaiES Bankers (Dubai) Limited

SpainEspírito Santo Gestión

SwitzerlandBanque Privée Espírito Santo S.A.

PortugalAdvanceCare – Gestaõ e Serviços de Saúde S.A.

BES Seguros S.A.

BES Vida S.A.

Companhia de Seguros Tranquilidade S.A.

Espírito Santo Saúde SGPS S.A.

Europ Assistance – Companhia Portuguesa de Seguros de Assistência S.A.

Seguros Logo S.A.

T-Vida S.A.

AngolaCompanhia de Seguros Tranquilidade S.A.

Insurance and Healthcare

AsiaAfrica


Financial highlights

Espírito Santo Financial Group S.A. (‘ESFG’) is a Luxembourg based financial holding company with Banking, Insurance and Healthcare interests. ESFG’s primary investments are located in Portugal as well as investments in Spain, France, the United Kingdom, Switzerland, Poland, Angola, Brazil, the United States, and the United Arab Emirates, amongst others. At the end of December 2010 its total consolidated assets reached EUR 87.2 billion, a rise of 2.2% from year end 2009. ESFG’s consolidated profit for the full year 2010, attributable to equity holders of the company, reached EUR 122.2 million, a decrease year-on-year of 22.4%.

ESFG is a public company, with its shares listed on the Luxembourg, Lisbon and London stock exchanges. The shares are traded primarily on the NYSE Euronext Lisbon Exchange. ESFG, through its subsidiaries, provides a wide range of banking services, centred on Banco Espírito Santo (‘BES’), insurance services through Companhia de Seguros Tranquilidade (‘Tranquilidade’) and healthcare operations with Espírito Santo Saúde (‘ESS’).

Strategy and business modelESFG’s primary strategy is to further develop its ability to cross-sell the full range of banking, insurance and healthcare services, offered by its subsidiaries, while taking advantage of further cost reduction opportunities afforded by a more efficient integration of its inter-related businesses. ESFG follows a strategy of organic growth with localised acquisitions coupled with greater international revenue growth outside its traditional market of Portugal. ESFG remains open to pursuing means to ensure that it will play a major role in the Banking, Insurance and Healthcare sectors in the future.

Consolidated figures 2010 2009 2010

Deposits (EUR millions) 32,585.3 37,822.8

Net loans (EUR millions) 50,508.2 53,346.8

Total assets (EUR millions) 85,317.0 87,150.3

Shareholders’ equity (EUR millions) 1,551.3 1,541.4

Net income (EUR millions) 157.5 122.2

EPS (Comparable basis) 1.60 1.15

Dividend per share (EUR) 0.35 0.28

Average number of shares 77,854,916 77,854,916

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Economic environment

The sovereign debt crisis of 2010 primarily brought about by a marked imbalance in Greece’s public accounts and the noticeable difficulties faced by Ireland’s financial sector, severely affected Portugal’s public accounts, weighed heavily on the operating environment of ESFG and its operating subsidiaries. Greece and Ireland both required financial support from the EU and the IMF raising fears of contagion with other Euro Area peripheral economies, particularly Portugal and Spain. In Portugal spreads between yields on 10-year public debt securities and the German benchmark Bunds rose by 296 bps in the year, to 364 bps (with a high of 460 bps in mid-November).

Yield spreads on 10-year Government Bonds vs. selected economies (basis points)

– Portugal 364 – Greece 950 – Ireland 610

– Italy 185 – Spain 249

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Oct 2007 Apr 2008 Oct 2008 Apr 2009 Oct 2009 Apr 2010 Oct 2010

The resulting downgrades on peripheral Euro Area member states were triggered by fears over the deterioration of credit quality (both sovereign debt and mortgage credit) which also penalised the funding conditions of European banks. The iTraxx Financials index, which tracks the spreads on Credit Default Swaps, rose by 102 bps in 2010, to 177 bps; this move reflected the deterioration of investor confidence. The EUR dropped by 7.2% against the dollar, to EUR/USD 1.336 at year-end, while the CAC40, IBEX and PSI-20 indices fell by 3.3%, 17.4% and 10.3%, respectively. The DAX, representing core Europe, rose by 16.1%, underpinning investors’ confidence in the performance of the German economy. The ECB left the key benchmark rate unchanged at 1.0%, extended the unlimited provision of liquidity under concessional terms, and increased the acquisition of debt securities in the second half of the year. The 3-month EURIBOR rose from 0.7% to 1.006%.

Despite fears of financial instability, the year saw an improvement in activity in the main economic areas. After having fallen in 2009, GDP grew by 3.6% in Germany, 1.7% in the Euro Area and 2.9% in the US. The US, benefiting from the expansionary stance of the Federal Reserve’s monetary policy, gained from investor confidence with the Dow Jones, Nasdaq and S&P500 indices rising in the year by 11.0%, 16.9% and 12.8%, respectively. The main emerging economies remained strong, with GDP growing by 10.0% in China and 7.5% in Brazil.

The price of Brent crude rose from USD 77.2 to USD 94.3 per barrel during 2010. Expectations of mounting global demand and various restrictions on supply (in part related to adverse weather conditions) also contributed to a rise in the price of food, commodities and industrial metals. The Commodity Research Bureau’s Food and Metals price indices rose by 27.7% and 24.4%, respectively, in the year.

Oil price (USD per barrel)

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In China, growth was fuelled by the increasingly strong demand driven by expansionary monetary conditions, despite the restrictive measures implemented by the Central Bank of China through the increase of the reference interest rates and banks’ compulsory reserve rates, administrative restrictions on credit volume, and 3.5% rise of the Yuan versus the USD. The upward trend of inflation was the main concern for both the Chinese authorities and of the financial markets in general. Inflation concerns grew during the second part of the year.

International markets where ESFG operates:

The Euro Area’s core economies consolidated over the course of 2010 leading to a gradual recovery in activity that began in the second half of 2009 and ended the recessionary period which had begun in the second quarter of 2008. After contracting by 4.1% in 2009, GDP grew by 1.7% in 2010. The recovery was underpinned by the dynamic performance of exports, driven by the surge of international trade flows, and in particular by demand from the emerging economies, which drove up industrial production. Activity was especially strong in the second quarter of 2010 (1.0% quarter-on-quarter growth), benefiting from the stimulus provided by the expansionary public policies which had been implemented in 2010.

The foundation of the economic recovery has gradually widened with an improvement in private consumption and a deceleration in the falling trend of investment (investment in equipment increased year-on-year). Consumer confidence levels and the normalisation of financing conditions in the core economies have translated into an improved 2010 for core EU members.


Economic environment continued

exacerbating market fears. Despite solid solvency positions, the Portuguese banks were exposed to an adverse external environment forcing them to increase funding obtained from the ECB. The Spanish economy saw a small decrease in GDP in 2010 (-0.1%), a marked improvement against 2009 (-3.7%). The improved performance was underpinned by the recovery in household consumption which grew by 1.3% year-on-year. The labour market however deteriorated, with the unemployment rate climbing from 18.8% to 20.3% of the working population, the highest record in more than ten years.

In the United States, the economy in 2010 grew by 2.9%, in 2009 the US GDP fell by 2.6% year-on-year. The expansionary economic policy put in place by the Government and the Federal Reserve following the 2009 recession produced maximum effect at the end of 2009. The impact however wore off in the first half of 2010. In annualised terms, GDP growth decelerated from 5.0% in the fourth quarter of 2009 to 1.7% in the second quarter of 2010. The unemployment rate remained high at 9.5% of the working population at the end of the first half of 2010. Excess capacity contributed to a fall in inflation (both headline and core inflation) during the period.

The Federal Reserve, in 2010, continued its policy of debt acquisition and repurchase. In November the Fed announced a new programme to purchase long-term treasuries for an additional of USD 600 billion.

The Obama administration announced new stimuli for domestic demand, including the extension of a substantial part of the tax cuts from the Bush era, totalling more than USD 800 billion. The action taken by the authorities reversed the markets’ negative sentiment, and this was further consolidated as the main economic indicators suggested that the probability of a double dip and deflation scenario was receding. The United States’ GDP grew by 2.6% in the third quarter and by 3.2% in the fourth quarter of 2010. This was reinforced by improved private consumption figures of 4.4%. At the end of the year there was also a significant recovery in corporate credit, with banks’ increased availability to finance this sector as corporate earnings improved (both financial and non financial).

There has been a clear imbalance in the rate of recovery across the Euro Area, with clearly diverging performances among the various member states. The German economy was particularly strong, growing by 3.6% year-on-year. This increase, the highest since its reunification, was largely driven by exports and investment in equipment. This performance is in sharp contrast with the deceleration or even contraction registered by the peripheral economies of the Economic and Monetary Union. The Greek, Irish and Spanish economies all contracted, with the Greek economy contracting by more than 4.0%.

The average EU annual inflation rate reached 1.4%, up from 0.3% in 2009. This increase was largely driven by the rising price of energy, transport and food. However, the underlying inflation rate, which excludes these components, declined compared to the previous year, reflecting the lack of demand-driven inflationary pressures, resulting in excess capacity and the rise in the unemployment rate to 10.0% of the working population.

In this context the European Central Bank (‘ECB’) kept the key benchmark rate unchanged during 2010 (1.0% since May 2009). At the same time, the monetary authority provided liquidity to the banking system, not only through virtually unlimited 3-month liquidity provisioning but also, as from May 2010, through the purchases of public debt securities in the secondary market in an effort to limit the impact on peripheral sovereign debt markets. In order not to increase money supply, the amount of debt securities purchased under this programme, EUR 73.5 billion at year-end, was balanced against short-term deposits made by commercial banks with the ECB.

In Portugal, notwithstanding the deterioration of its financial position, GDP growth exceeded expectations, rising by 1.4% in 2010, only slightly below the European average of 1.7%. Portugal, when compared with other peripheral European countries of Spain, Greece and Ireland, was the only member state with positive growth. This resulted from a dynamic performance in exports, which are expected to have registered real growth of close to 9.0%.

The financial position of the Portuguese economy however deteriorated as a result of an increase in risk aversion to the peripheral Euro Area countries and continued downgrades of the Republic of Portugal by rating agencies further

GDP growth, selected countries (%) 2008 2009 2010Source: IMF, National statistics institutes

USA Euro Zone China Brazil Japan Portugal

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In Brazil 2010, the economy grew by 7.5%, supporting Brazil’s drive to become a dominant force both regionally and on the global economic stage. In the last two years Brazil has shown that it is able to weather global economic volatility. Industrial production in 2010 returned to pre-crisis levels, with excess capacity nearly exhausted, concerns over the risk of inflation returned. This is most evident in the performance of retail trade which, fuelled by the expansion of credit and the increasing purchasing power of the Brazilian population, saw practically uninterrupted growth in 2010. The rate of inflation in Brazil reached 5.9% at year-end.

Though commodity prices contributed to the rise in the rate of inflation, especially of agricultural commodities, service related costs have also risen significantly. In response the Central Bank of Brazil decided in April to adjust the benchmark rate, partly reversing the monetary stimulus introduced after the 2008 financial crisis. The SELIC rate increased to 10.75%, from 8.75% at the end of 2009.

The rise in the SELIC rate proved attractive to non-resident investors already attracted by Brazil’s strong economic fundamentals and favourable growth forecasts. This saw large capital inflows causing the current account deficit to almost double year-on-year. The move also led to an increase in the stock of international reserves, which closed the year at nearly USD 300 billion (which vastly exceeds the country’s total public and private debt), thus consolidating Brazil’s net creditor position. The Brazilian Real rose against the USD from USD/BRL 1.74 at the end of 2009 to USD/BRL 1.66 at the end of 2010. Brazil’s stock index, the Bovespa, during the period rose by 1.0% following a recovery from strong corrections seen in the first half of the year.

In Angola, after a sharp deceleration in GDP in 2009 the African economy saw a significant recovery in 2010 on the back of the improved commodities markets, and particularly of the energy market. The group of oil-exporting countries in Sub-Saharan Africa (including Angola, Cameroon, Chad, the Republic of the Congo, Equatorial Guinea, Gabon and Nigeria) grew by more than 6.0%, as the price of oil increased.

Angola’s economic activity in 2010 stemmed from an increase in oil revenues and the increase in non-oil sectors, such as construction, services, and agriculture, notwithstanding a more restrictive fiscal policy. Private investment was also strong, reaching USD 1.25 billion at the end of the first half of 2010, an increase of 177.0% year-on-year. The Angolan economy grew by over 2.0% in 2010.


Risks to ESFG and its Subsidiaries

The risks below are not the only ones that the ESFG and its subsidiaries (‘ESFG Group’) are subject to, some risks are not yet known to the ESFG Group and some that the ESFG Group does not currently believe to be material could later turn out to be material. All of these risks could materially affect the ESFG Group’s business, its revenues, operating income, net income, net assets and liquidity and capital resources.

(1) Deterioration of the financial markets and economic environment:

The performance of the ESFG Group is generally influenced by conditions in the global financial markets and the macroeconomic environment of the countries in which it operates. The downturn in the Portuguese economy in particular could have a material adverse effect on the ESFG Group’s business. The ESFG Group’s ability to grow may be restricted by slower growth in the banking, insurance and healthcare markets in which it operates.

(2) Changes in the regulatory environment, additional regulatory restrictions or requirements:

The ESFG Group is subject to banking, insurance and financial services’ laws and government regulations in each jurisdiction where it conducts its business. Regulatory agencies have broad administrative powers over many aspects of the financial services business, which may include liquidity, capital adequacy and permitted investments, ethical issues, money laundering, privacy, record keeping and marketing and selling practices. At 31 December 2010, the ESFG Group’s Core Tier I ratio, Tier I ratio and total solvency ratio were 6.9%, 8.2% and 10.6%, respectively, calculated under Basel II, IRB Foundation Method and reported to the Bank of Portugal.

(3) Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and effort:

The ESFG Group is subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and pose significant technical problems.

(4) Market risk The ESFG Group faces the risk of possible losses

resulting from an adverse change in the value of financial instruments due to fluctuations in interest rates, foreign exchange rates, share prices or commodities prices.

(5) Credit risk Risks arising from changes in credit quality and the

repayment of loans and amounts due from borrowers and counterparties are inherent in a wide range of the ESFG Group’s businesses. Adverse changes in the credit quality of the ESFG Group’s borrowers and counterparties, a general deterioration in Portuguese or global economic conditions, or increased systemic risks in financial systems, could affect the recovery and value of the ESFG Group’s assets and require an increase in the provision for bad and doubtful debts and other provisions.

(6) Insurance risks Part of the ESFG Group’s property and casualty

insurance business involves covering losses from unpredictable events such as floods, earthquakes, hurricanes, fires, industrial explosions, terrorist attacks and other man-made or natural disasters. The ESFG Group also maintains technical reserves to cover potential claims in its life insurance business and sets up provisions for claims in its property and casualty insurance businesses, based on actuarial valuations.

(7) Operational risks Operational risk represents the risk of losses or of

a negative impact on the relationship with clients or other stakeholders resulting from inadequate or negligent application of internal procedures, or from people’s behaviour, information systems, or external events. Operational risks also include business/strategic risk, which are the risk of losses through fluctuations in volume, business, earnings, prices or costs as well as legal risk.

(8) Liquidity Risk The liquidity risk arises from present or future inability

to pay liabilities as they mature without resulting in exaggerated losses. Banks, by virtue of their business of providing long-term loans and receiving short-term deposits, are subject to liquidity risk.

(9) Funding Risk The ESFG Group raises funds by issuing ordinary and

preferred shares and senior, subordinated and deeply subordinated notes in the international capital markets. It uses these funds to fund investments and to meet the capital requirements set and regulated by the Bank of Portugal. ESFG Group’s banking subsidiaries establishes a funding policy for all types of liabilities including customer deposits. Increased funding costs or a prolonged interruption in renewing funding would have a material adverse effect on the ESFG Group’s financial condition and results of operations.


Chairman’s report


Chairman’s report

The Euro Area sovereign debt crisis of 2010, primarily brought about by a marked imbalance in Greece’s public accounts and the noticeable difficulties faced by Ireland’s financial sector, severely affected Portugal’s public accounts, weighed heavily on the operating environment of ESFG and its operating subsidiaries. Despite this the Company reported strong results that support its policy of improved shareholder value. ESFG, through its subsidiaries, continues to make positive strides in its strategy of international expansion.

ESFG’s audited consolidated net profit for the full year 2010, attributable to equity holders of the Company, reached EUR 122.2 million. Overall recurrent income remained healthy despite the difficult operating environment. Increased interest costs relating to ESFG’s commitment to maintaining a strong capital position, as required under Basel III, contributed to a fall in overall results. Operating income rose 3.7% to EUR 3.06 billion. Total consolidated assets also rose year-on-year to EUR 87.2 billion. The consolidated result represents a year-on-year fall in net income of 22.4% compared to 2009.

Consolidated Net Interest Income fell by 3.2% year-on-year to EUR 1.19 billion; solvency concerns of the European banking sector and more recently concerns over peripheral European sovereign debt has led to the drying up of the interbank market and resulted in significant increases in financing costs. Consolidated Fees and Commissions (Net of Expenses) saw an increase of 13.5% year-on-year to EUR 818.3 million. 2010 saw a dynamic growth in documentary credit and strong increases in guarantees and commissions on loans. Consolidated Capital Markets’ Results totalled EUR 216.9 million by year-end 2010. This demonstrates the capacity of ESFG’s banking subsidiary BES to return resilient and consistent results despite very difficult circumstances, with all capital markets’ business lines reporting profits.

Consolidated Staff Costs and General Administrative Expenses increased by 8.2 % to EUR 1.28 billion from EUR 1.18 billion in 2009. The increase in staff costs resulted from ESFG’s subsidiaries continued international expansion. Staff costs in Portugal remain under control. Costs relating to pension liabilities for the amortisation of actuarial differences are included within staff costs. Overall operating expenses however fell 0.6% in the period reflecting a reduction in loan impairments, net of reversals and recoveries, to EUR 338.8 million. Operating expenses during the period fell by 0.6% year-on-year despite a marked increase in interest costs at ESFG namely due to the Lower Tier II (EUR 400 million) issued in late 2009, with its first coupon paid in late 2010.

Consolidated Banking Income, including market results, rose 3.3% to EUR 2.22 billion (EUR 2.15 billion in 2009) at ESFG during 2010. BES remains the single most important contributor to ESFG’s net income, with all other banking interests contributing positively, though to a lesser degree.

Despite the financial challenges experienced by southern European banks, ESFG’s primary banking investment BES, reported an individual net income of EUR 510.5 million. This represents a fall of only 2.2%, as the Bank continues to pursue its strategic geographical diversification central to long-term profitability. BES’ non-Portuguese commercial banking income represented 48.0% of total income on a recurrent basis. The very positive performance from Angolan (‘BES Angola’) and Brazilian (‘BES Investimento do Brasil’) operations validates the strategic decision by the Group, made ten years ago, to increase its international presence. Spain, the third area within the bank’s strategic triangle also reported positive results in 2010. In 2010, the strategic triangle of South America, Africa and Iberia, made up 67.7% of the international contribution at BES and 27.0% of BES’ overall results.

In November 2010, the investment banking business at Banco Espírito Santo de Investimento S.A. (‘BESI’) announced the completion of its acquisition of a 50.1% stake in Execution Noble. The acquisition reinforces the investment bank’s presence in London as well broadening its reach with offices in Hong Kong and India, gaining greater exposure to rapidly expanding markets.

ESFG’s other banking interests all contributed positively to net income. The French banking operations, Banque Espírito Santo et de la Vénétie (‘BESV’) was able to buffer the negative impacts of low interest rates and high refinancing costs. Banking income grew by 21.8%. In Switzerland, Banque Privée Espírito Santo (‘BPES’), which focuses on private banking, reported a 21.0% growth in brokerage fees, net individual income remained unchanged when compare to a year earlier. ESFG’s Dubai operations, ES Bankers (Dubai) Limited (‘ESBD’), which focuses on both the traditional geographical client distribution of ESFG and also the Indian subcontinent, South Asia and the Gulf Co-operation Countries, reported positive results during the period. At ES Bank (Panama) (‘ESBP’) individual net income rose by 19.0%.

Assets under Management (‘AUM’) at ESFG’s asset management and private banking subsidiaries reached EUR 17.9 million at year-end 2010. Assets under management are predominantly held at ESAF, a subsidiary of BES, with further AUM held at ESFG’s private banking operations at BPES and ESBD.

Insurance operations contributed positively to ESFG’s net income despite the effects of heightened competition and a stagnant market. Floods in Madeira and other storms, which occurred at the beginning of 2010, affected multi-perils’ claims and contributed to an increase in the claims ratio. The expense ratio improved from 31.7% to 30.3% reflecting the ongoing cost reduction programme.

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ESFG’s combined Life and Non-Life participations make up a 12.1% market share in Portugal. ESFG is the largest private insurance group in operation in Portugal. On the 23 December, Companhia de Seguros Tranquilidade S.A. announced that it had signed an acquisition agreement with Banco Pastor for the purchase of a 50.0% stake in Pastor Vida. The assurance programme which generates cross-selling opportunities between ESFG’s insurance and banking business remains strong.

Consolidated Insurance Earned Premiums Net of Reinsurance increased by 5.1% to EUR 325.2 million in 2010, despite continuing competitive market pressures. Consolidated Claims Incurred Net of Reinsurance rose 8.1% year-on-year to EUR 238.4 million. ESFG’s combined insurance operations saw a fall in consolidated contribution to net results.

ESFG’s healthcare operator Espírito Santo Saúde (‘ESS’) operating revenues continue to rise, year-on-year revenues rose by 14.9% to EUR 249.8 million. Individual net income remains positive with an EBITDA of 15.6%, up from 15.5% in 2009. Individual net income rose to EUR 1.5 million despite economic pressures in Portugal and the increased cost of funding. Hospital da Luz, the largest private hospital in Portugal and key investment at ESS, saw revenue growth up by 14.0% year-on-year. ESS owns and operates a total of 18 hospitals, out-patient clinics, residential hospitals and senior care residencies. The healthcare operator’s public-private partnership at Hospital Beatriz Ângelo in Loures is expected to enter into service in January 2012.

As of 31 December 2010 ESFG’s capital ratios, reported to the Bank of Portugal under IRB foundation, stood at: Core Tier I of 6.9% (6.9%), and a Tier I of 8.2% (7.7%). ESFG’s total capital ratio remained stable at 10.6% (10.7%). The reference indicators are aligned with the minimum capital requirements under the Bank of Portugal instruction Aviso 06/10. On the 23 July 2010, the committee of European Banking Supervisors (‘CEBS’), in cooperation with the European Central Bank and the Bank of Portugal, announced that ESFG successfully completed the EU-wide Stress Test Exercise. As a result of the assumed shock under the adverse scenario, which included sovereign scenarios, the estimated consolidated Tier I capital ratio at ESFG met the requirements set by the committee.

Ricardo Espírito Santo Silva SalgadoChairman

Appendix to Chairman’s reportDevelopments during 2010:

On 23 December, Companhia de Seguros Tranquilidade S.A. announced it had completed the acquisition from Banco Pastor of a 50.0% stake in Pastor Vida. It was also announced on this dated that BES, through its subsidiary Espírito Santo Gestión, SGIIC, SA (‘ES Gestión’), fully acquired Gespastor SGIIC, S.A. (‘Gespastor’) from Banco Pastor.

On 10 October, BES announced the purchase by its subsidiary BES Africa S.G.P.S. of 25.1% of the share capital of Moza Banco, S.A., a Mozambican bank, founded in June 2008.

On 5 August, Companhia de Seguros Tranquilidade S.A. announced that it had entered into an agreement with Banco Pastor for the purchase of a 50.0% stake in Pastor Vida.

On 5 August, ES Gestión announced the agreement to fully acquire Banco Pastor’s fund manager Gespastor for the sum of EUR 25.75 million. The purchase will include an exclusive commercial agreement for the period of seven years. ES Gestión is a fully owned subsidiary of BES.

On 23 July, the CEBS, in cooperation with the European Central Bank, and the Bank of Portugal, announced that ESFG had successfully completed the EU-wide stress testing exercise.

On 21 July, Fitch Ratings announced the downgrade of ESFG’s long-term debt by one notch to BBB+ (negative outlook) from A-. On the 8 November Fitch Ratings announced a two notch downgrade of ESFG’s senior rating to BBB- (negative outlook) and a one notch downgrade to its short-term rating from F2 to F3. This followed a two notch downgrade of BES which subsequently announced that it would terminate its contract with Fitch as the rating of BBB+ did not reflect the financial soundness of the Bank.

On 14 July, Moody’s Investor Services announced the downgrade of ESFG’s long-term debt rating to Baa1 (negative Outlook) from A3, following the two notch downgrade of Portugal’s rating and subsequent one notch rating downgrade at BES. ESFG’s short-term debt rating was affirmed at P-2.

On 15 April, BES announced the conclusion of the acquisition of 40.0% of Aman Bank in Libya for a total investment of EUR 40.3 million, including management control.


Commercial banking

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Banco Espírito Santo S.A.

Capital: EUR 3.499 billionEconomic participation: 30.1%Location: Portugal

Banque Espírito Santo et de la Vénétie S.A.

Capital: EUR 75.117 millionEconomic participation: 57.7%Location: France

ES Bank (Panama) S.A.

Capital: USD 30.0 millionEconomic participation: 100.0%Location: Panama

Net individual income at ESFG’s principal banking subsidiary, Banco Espírito Santo (‘BES’), remained robust. Despite the difficult operating environment BES’ net income for 2010 reached EUR 510.5 million, down by 2.2% from 2009, which corresponds to an annualised ROE of 8.6% (ROE of EUR 0.41 versus EUR 0.42 in 2009).

BES is the most international of the Portuguese banks with a presence in four continents and activity in 23 countries. BES is currently the largest publically quoted Portuguese bank by market capitalisation and the second largest ranked by total assets. The Bank’s overall Portuguese market share reached 20.3% in 2010 and 24.2% in corporate banking. BES offers a full range of banking products and financial services, including saving products, deposits, asset management, credit, investment banking and brokerage to approximately 2.1 million clients worldwide.

The Bank’s operations are bases on a number of key segments: (i) Domestic commercial banking; including retail, corporate, institutional and private banking; (ii) International commercial banking; including retail, corporate, institutional and private banking; (iii) Investment banking; including M&A, project finance, acquisition finance, equity and debt capital markets, brokerage and private equity; (iv) Asset management and private banking. (v) Market and strategic Investments; (vi) Corporate business.

Excluding non-recurrent items at BES, net income at the Bank reached EUR 421.4 million, down from EUR 462.1 million in 2009, on a comparable basis, which translates into a reduction in net income of 8.8% year-on-year. The results were achieved amid an unprecedented environment of sovereign risk deterioration in the peripheral Euro Zone countries which impacted directly on debt and capital markets. BES identified four key factors that supported their results: (i) Prudent financial management based on diversification of its funding sources; (ii) The maintenance of strong solvency levels; (iii) Integrated and prudent risk control measures; and (iv) an ongoing programme of internationalisation.

BES maintains its strategy of supporting its domestic and international client base: companies, institutions and individuals. BES’s centre of operations remains in Portugal which makes up 52.0% of its recurrent business. BES operations follow key historical links with Africa and South America, notably Angola and Brazil. The results reflect a sound strategy of internationalisation in the support of Portuguese companies abroad and that has permitted the diversification of the Bank’s revenue sources. Non Portuguese commercial banking income, in 2010, grew by 53.2% year-on-year. BES has set in place an international structure also aimed at providing services to the large communities of Portuguese nationals abroad.

The Bank’s retail business is based on a broad diversification of banking products that target clients’ individual needs. BES has developed innovative value proposals for each retail segment, namely affluent clients (BES 360), small businesses and independent professionals (Small Businesses) and individual retail clients (Mass Market). In order to maintain its high level of client acquisition the Bank remains focused on the ever changing demand for innovative commercial solutions. As a result of this policy, the number of loyal clients at BES has been steadily increased, reaching 619,000 in 2010. A total of 119,000 new clients were acquired in 2010. Clear coordination between the branch network and client acquisition channels, mainly the assurfinance and cross-segment programmes, has led to this impressive achievement.

In the second half of 2010 BES implemented a strict programme of deleveraging its balance sheet and reducing the loan deposit ratio to 120.0% by year end 2012. By year end 2010 BES had lowered its LTD from 198.0% to 165.0%. The deleveraging process is focused on the reduction of international loan portfolios which are, by nature, wholesale funded such as project finance; and increased focus on core deposits growth. The measures taken reflect the focus on conservatively managing liquidity in the event of limited availability of wholesale market funds, whilst containing the use of ECB facilities. BES was able to reduce net ECB facilities by more than EUR 2.0 billion in the second half of 2010, from a net amount of EUR 6.0 billion in June 2010, to EUR 3.9 billion at year end.

Despite the market’s instability and the increased difficulty in access international markets which have generally affected all the Portuguese issuers, BES managed to make the most of the reduced available opportunities that occurred over the first months of the year. BES issued, up until April, a five year Senior Debt issue, to the value of EUR 750 million, a Senior Debt Issue with a maturity of five years, issued by BESI Brazil, to the value of USD 500 million and two exchangeable issues indexed to Banco Bradesco and EDP ordinary shares to the value of USD 950 million and EUR 500 million, respectively. At the end of the year BES Group also issued perpetual bonds to the amount of EUR 320 million that allowed the Bank to bolster its Tier I ratio to 8.8% and a Core Tier I of 7.9%.

Commercial banking


The growth in BES’ international operations made strong contributions to ESFG’s net income in 2010, particularly towards net interest income (‘NII’). Non- Portuguese NII rose from 29.0% to 47.0%, a rise of 63.1% year-on-year to EUR 552.8 million compared to a fall in the bank’s domestic NII of 29.1%. In total net interest income at BES reached EUR 1.16 billion from EUR 1.20 billion a year earlier despite a 16 basis point drop to 1.61% in Net Interest Margin. Banking income at BES rose by 2.7%, although Portuguese operations fell by 10.1% year-on-year.

Fees and commissions at BES in 2010 reached EUR 806.9 million, a rise of 12.4% year-on-year. The key drivers were commissions on documentary credit, which increased by 78.9%, foreign trade transactions especially in the emerging markets supported the internationalisation strategy. Commissions on guarantees also rose as did commissions on loans, rising 26.1% and 21.7% respectively. Asset management fees saw a small increase despite an environment that has raised fears in some investors. Capital markets and other results at BES totalled EUR 432.9 million. Equity and FX trading were too key areas which contributed to the strong results. In the fourth quarter of 2010 BES gained from an extraordinary dividend paid by Portugal Telecom.

The 2010 costs relating to the strategy of continued internationalisation saw a 10.8% rise with staff costs rising by 11.0%, general administrative costs also rose but to a lesser degree. BES maintained a prudent provisioning policy throughout the year allocating 43.0% of the gross income to reinforce its provisions.

In January 2011, BES announced the conclusion of its purchase of a 25.1% stake in Moza Bank S.A., initially announced in October 2010. Moza Bank S.A. is a Mozambican bank founded in June 2008. This and other acquisitions by BES África SGPS reinforce the Group’s strategy of supporting its corporate client base, both nationally and internationally. In July 2010, BES inaugurated its fully owned bank in Cabo Verde, BES Cabo Verde. BES Angola has been operating in the Angolan market for almost

10 years and continues to make substantial contributions to BES’ international growth (through its fully owned subsidiary BES África). Net income at BES África grew to EUR 92.6 million (EUR 92.4 million). BES has continued to expand its presence in other regions, such as Libya where in the course of the year, the Bank purchased a 40% participation (and management control) of Aman Bank. The presence in this country is an important connecting platform for the North African countries which represent an increased destination of our exports.

At ESFG’s French banking operations, Banque Espírito Santo et de la Vénétie (‘BESV’) was able to buffer the negative impacts of low interest rates and high refinancing costs through: a positive commercial performance, notably in real estate credit; an increase in credit spreads; and, the commission income which was, in part, generated by new business lines. Banking income grew by 21.8% year-on-year to EUR 42.4 million. Operating costs increased by 16.9% however, the cost to income fell from 56.9% in 2009 to 55.0%. The gross operating income totalled EUR 19.2 million, representing a year-on-year increase of 28.3%. Net individual income reached EUR 8.5 million at year end 2010.

Business activity at the fully owned subsidiary of ESFG, ES Bank (Panama) S.A. (‘ESBP’), remained strong. Individual net income rose by 19.0% to EUR 4.8 million in 2010. ESBP focuses on the provision of financial services with its primary source of activity centred on short term loan operations to non domestic non financial clients.

BES: Activity* (EUR billion) Customer funds Customer loans* Includes asset and liability off balance sheet items

2006 2007 2008 2009 2010

100

80

60

40

20

0

BES: Equity and quasi equity (EUR billion) Sub debt Equity

2006 2007 2008 2009 2010

10

8

6

4

2

0

BES: Total assets (EUR billion) Off balance sheet items* Net assets* Assets and liabilities

2006 2007 2008 2009 2010

110

88

66

44

22

0

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Investment banking


Banco Espírito Santo de Investimento S.A.

Capital: EUR 180.0 millionEconomic participation: 30.1%Location: Portugal, United Kingdom, Spain, Brazil, Poland, United States of America, Hong Kong, India, Mexico

Due to its broad geographical positioning Banco Espírito Santo de Investimento, S.A. (‘BESI’), the fully owned subsidiary of BES, benefited from its presence in Brazil, Angola, Poland and the United States, which helped mitigate the impact of difficulties in Portugal and Spain. In response to market concerns regarding EU peripheral risk BESI focused on: (i) reinforcing its international expansion; (ii) focusing on less capital and liquidity intensive activities namely advisory and intermediation activities; and (iii) increasing its credit portfolio rotation. This approach proved to be successful as Banking Income at the Bank in 2010 reached EUR 258.9 million, an increase of 13.2% when compared to 2009. Commercial Banking Income grew by 30.9% year-on-year, to EUR 230.8 million. Operations outside Portugal accounted for 65.0% of consolidated banking income, a 30.9% increase year-on-year, highlighting the success of the internationalisation strategy. The investment bank’s individual profit rose to EUR 60.0 million in 2010.

The most important milestone of BESI’s international expansion strategy was the acquisition of a 50.1% stake in Execution Noble, a deal announced at the beginning of 2010 which was concluded in November. This acquisition will reinforce the Bank’s presence in London and expand its activity to Hong Kong and India, widening its international distribution capabilities further and increasing its exposure to new faster-growing markets. The Bank also opened in November 2010 a joint representative office with BES in Mexico.

Mergers and Acquisitions – there was an increase in the number and value of completed transactions, underpinned by greater cross-border operations, which accounted for 38.0% of the global market. BESI advised on 42 transactions for an aggregate value of close to EUR 12.5 billion.

Advisory services included (i) Portugal and Brazil: Portugal Telecom Group, on the sale of its 50.0% stake in Brasilcel (EUR 7.5 billion) and on the establishment of a strategic joint venture (still pending conclusion) with the shareholders of the Oi Group (BRL 9.0 billion); (ii) Spain, to Goldman Sachs International Infrastructure Partners, on the acquisition of an 80% stake in Endesa Gas (EV of EUR 800 million), and to the ALPIC Group, on the acquisition of a 400 MW combined cycle power plant from the Gas Natural Group (EV of EUR 200 million); (iii) in Poland, to the Tiltra Group, on the acquisition of a 70.0% stake in Poldim; (iv) in the United States, to the Electricidade Industrial Portuguesa Group (‘E.I.P.’), on the acquisition of J.F. Edwards Construction Company (USD 15 million); and (v) in Portugal and Angola, Mota – Engil Group, on the sale of a 49.0% stake of its subsidiary Mota – Engil Angola (USD 159 million).

Project Finance – BESI acted as Mandated Lead Arranger (‘MLA’) in more than 35 transactions, in 13 countries, and in a wide range of industry sectors, namely transport infrastructure (road, airport and high-speed rail). The Bank advised in public-private partnership projects in the health and education, renewable energies, and oil and gas sectors. In 2010, BESI participated in: (i) Joint Bookrunner on the USD 460.1 million financing for the Nuevo Pemex co-generation station promoted by Pemex (Mexico); (ii) Joint Lead Arranger and Bookrunner on the USD 120 million financing for the construction and operation of two hydro power plants (40 MW) in the Tinguiririca Valley (Chile); (iii) MLA on the EUR 3.87 billion financing to develop the Nordstream project (construction of a pipeline across the Baltic to link Russian gas production to Germany); (iv) MLA and financial advisor on the EUR 1.2 billion financing for the Pinhal Interior road concession, in Portugal; (v) MLA and financial advisor on the EUR 268.8 million financing for the development of the Eje Diagonal road concession, in Spain; (vi) MLA on the PLN 535 million financing to develop the 120 MW Margonin wind farm, in Poland; and (vii) Financial adviser to the consortium of Furnas Centrais Elétricas, Eletrosul, NeoEnergia and Odebrecht, the winner of the auction sale of electricity and construction and operation rights for the Telles Pires dam, in Brazil (1.850 MW generating capacity), representing a total investment of BRL 3.4 billion.

Investment banking

BESI: Banking income by area (%) Portugal International

2008 2009 2010

100

80

60

40

20

0

2008 2009 2010

100

80

60

40

20

0

BESI: Banking income by business (%) Fees and commissions Nll Capital markets

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Acquisition Finance – The Bank acted as MLA on the: (i) EUR 480 million financing for Morgan Stanley Infrastructure’s acquisition of Gás Natural’s gas distribution assets in the Madrid region; (ii) EUR 168.5 million financing to Sport TV Portugal; (iii) EUR 1.83 billion Forward Start Facility granted to Abengoa; (iv) BRL 141 million bridging loan for the acquisition of O Dia, a publishing firm, by Empresa Jornalística Econômico (Ongoing Group); (v) EUR 42 million financing for the Multiasistencia Group’s acquisition by Ibersuizas; (vi) PLN 210 million financing for the acquisition of Wydawnictwa Szkolne i Pedagogiczne, a Polish publishing firm, by Advent International; and (vii) USD 15 million of financing for the acquisition of John Edwards Construction Company (United States) by the EIP Group.

Equity Capital Markets – BESI acted, (i) Portugal: as Joint Bookrunner of BES Finance Ltd’s two exchangeable bond issues linked to the value of the common shares of Banco Bradesco (USD 950 million), and EDP (EUR 500 million), two of the largest equity-linked issues of the year; and as Global Coordinator of Reditus’ EUR 10.4 million capital increase; (ii) in Spain: as Sub-underwriter of BBVA’s EUR 5.02 billion capital increase; (iii) and in Brazil: as Co-Manager of Petrobrás’ BRL 120.2 billion capital increase of Banco do Brasil’s BRL 9.8 billion capital increase and Júlio Simões Logística’s BRL 495 million IPO. The Bank acted in its inaugural Polish primary capital market action as Sole Bookrunner of Kredyt Inkaso’s PLN 37.5 million secondary offering and as Co-Manager of the Warsaw Stock Exchange’s PLN 1.2 billion IPO.

Debt Capital Markets –BESI acted as Joint Lead Manager on Banco Espírito Santo’s EUR 750 million deal and as Co-Manager on EDP Finance B.V.’s EUR 1.0 billion issue; the Bank also led the organisation and structuring of a EUR 30 million bond issue by Sonaecom. BESI was joint leader manager on the Public Offer for Subscription of the ‘Benfica SAD 2013 bonds (EUR 40 million), and acted as leader and agent on 16 new Commercial Paper Programmes, for an overall amount of EUR 545 million. In Brazil, the Bank acted as Joint-Lead Manager on six issues for a total amount of EUR 2.2 billion (six times the amount of issues led by the Bank in 2009), and ranked 13th in Brazilian private issues lead managers; the Bank also led the first issue (EUR 750 million) by Telemar, as well as the issues by Bradesco (USD 250 million), Banco Pine (USD 125 million), Banco Fibra (USD 200 million), Banco Bonsucesso (USD 125 million) and BESI Brasil (USD 500 million). BESI also acted as Co-manager on nine other international debt issues, for a total amount of USD 4.95 billion. In the Brazilian domestic market, it acted as Joint-Lead Manager on eight debt issues (totalling BRL 3.85 billion), including debentures by Cemig (BRL 2.7 billion), and was Co-manager of another two issues (total amount of BRL 2.1 billion). The Bank acted as Arranger on a EUR 128 million limited recourse loan to the Odebrecht Group.

Brokerage – BESI maintained its leading position in equity trading on the NYSE Euronext Lisbon, with a market share of 12.4%, and ranked third on the Madrid Stock Exchange, with a market share of 7.9% (7.6% in 2009). In Poland, the bank continued to increase its client base, reinforcing its position having taken a market share close to 2.0% at year-end. In Brazil, the consolidation of new business areas, created in the last two years (DMA and Investment Clubs), allowed BESI to be ranked 30th on the Bovespa with a market share of 0.9%.

Private Equity – The Bank’s activities included: (i) marketing initiatives to launch the 2bCapital fund in the Brazilian market; (ii) divestment from two companies, One Direct (France) and Neumáticos Andrés (Spain); and (iii) expansion of funds under management, through a EUR 10 million capital increase of the FCR PME BES fund. At the end of 2010 Espírito Santo Capital held assets under management totaling EUR 220 million.

Asset management and Private banking


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Banque Privée Espírito Santo S.A.

Capital: CHF 30.0 millionEconomic participation: 100.0%Location: Switzerland

ES Bankers (Dubai) Limited

Capital: USD 30.0 million Economic participation: 95.0%Location: Dubai

ESAF – Espírito Santo Activos Financeiros SGPS S.A.

Capital: EUR 11.75 millionEconomic participation: 30.1%Location: Portugal

Best – Banco Electrónico de Serviço Total S.A.


Managed assets are predominantly held at Espírito Santo Activos Financeiros (‘ESAF’) with further managed assets and deposits held at ESFG’s private banking operations at Banque Privée Espírito Santo (‘BPES’) and ES Bankers (Dubai) Limited (‘ESBD’).

ESAF operates within Portugal, Spain, Brazil, Angola, Luxembourg and the United Kingdom. ESAF’s product range covers mutual funds, real estate funds and pension funds, as well as providing discretionary and portfolio management services. Assets under management reached EUR 17.9 billion at year-end 2010, which represents a fall year-on-year of 9.7%. The reduction of managed assets reflects the marked decrease in money market funds in Portugal and Spain which was not compensated by the growth of special investment funds launched in Portugal and the trust fund in Spain.

As part of ESFG’s continued strategy of internationalisation and investments in the asset management business in Spain, BES fully acquired Gespastor SGIIC, a Spanish asset

management company, from Banco Pastor. This acquisition brought an additional EUR 3 billion in managed assets (mutual funds, pension funds and SICAVs) and allowed ESFG’s banking business to gain access to the branch network of Banco Pastor.

In Luxembourg, assets under management remained unchanged. In 2010 BES launched the first Exchange Traded Fund (‘ETF’) on an Iberian index: ESAF NYSE Euronext Iberian ETF. This product provides its private and institutional investors with exposure to the principal Iberian businesses through a single security. In Brazil, as in the previous year, there was a significant growth in assets under management (+43.0%). ESFG’s banking investment BESI has agreements with eleven regulated fund distribution firms. Finally, in Angola, the BES Group launched a pension fund called FP BESA Opções Reforma.

Through 16 Private Banking centres in Portugal, the BES Private Banking business, through BES, serves high net worth clients with a total of EUR 7.9 billion in assets under management in 2010. The Espírito Santo brand, allied with a multi-specialist business model has facilitated the provision of tailor-made solutions in areas such as investment banking, financial advisory services, private equity investment (provided by ES Ventures), discretionary management, and a range of internationally recognised investment funds (ES Rockefeller Global Energy Fund).

In Switzerland, Banque Privée Espírito Santo (‘BPES’), which focuses on private banking, continues to make positive contributions to ESFG’s consolidated results. Overall, individual results were influenced by the devaluation of the EUR and USD versus the CHF and by the weak economic picture in Europe. Despite a seasonal slowdown in 2010 the individual net income reached CHF 6.4 million. Individual banking income for the same period reached CHF 51.5 million. Brokerage fees grew by 21.0% year-on-year, whilst historically low interest rates led to a 35.0% fall in NIM. Net new entries at BPES grew by CHF 106 million in 2010. BPES’s fees related results from securities trading and investments improved thanks to a steady income from commission and service fee activities and the Bank’s efforts to promote resilient sources of revenue.

Asset management and Private banking

ESAF: AuM breakdown per product (%)

2010* Includes discretionary management of institutional, individual and other clients

(B) FIM 24%

(C) FII 7%

(F) Bancassurance 29%

(E) Portfolio management 10%

(D) Pension funds 14%

(A) Discretionary management* 16%

A

ESFG: management asset by subsidiary (%)

2010

(B) ES (Bankers) Dubai 4.5%

(C) BPES 16.0%

(A) BES Group 79.5%


Managed assets at the Swiss bank increased by 6.0% to EUR 3.8 billion, on the back of positive net inflows, but this positive result was entirely offset by a very significant negative currency impact. When accounted in Swiss Francs, managed assets decreased to CHF 4.7 billion despite a positive net new money inflow; this drop was a consequence of a significant Swiss Franc appreciation of 16.4% against the EUR and 9.8% against the USD.

BPES continued to invest in 2010, on a strategy that deems that general conditions governing the wealth management industry are set to change significantly. As a result, operating expenses increased 3.0% year-on-year due to investments in new markets and the launch of ‘blue water’ initiatives. In 2010 BPES strengthened its investment in its branch in Portugal with the opening of a bureau in Porto. In April 2010 the Bank was granted authorisation by the Polish authorities to open a representative office in Warsaw, which is now operational. BPES is present in Geneva where clients may benefit from banking and advisory services provided by a new team of bankers.

ES Bankers (Dubai) Limited (‘ESBD’) reported that in 2010 its individual Net Income had reached USD 2.1 million (USD 2.8 million in 2009). The Dubai operation provides a diversified range of financial services to its clients in the Middle East, including the Gulf co-operation countries, Africa and the Indian subcontinent, capitalising on opportunities in private banking and wealth management. ESBD reported, however, a decrease in 2010 of its assets under management to USD 1.3 billion from USD 2.6 billion a year earlier.

In 2010, ESBD acquired a total of 145 new accounts, having closed only 19 accounts despite extraordinary market conditions. The diversified client base continues to reinforce the Bank’s position, in the second half of 2010 the bank saw significant withdrawals however these funds were reallocated within the Group.

At Banco Best (‘BEST’), ESFG’s internet banking and on-line trading unit reported an individual net income of EUR 5.8 million, a year-on-year rise of 26.1% on the back of increased fees and commissions on banking and wealth management services as market activity improved. The Portuguese based internet bank, focusing on the provision of services to the affluent market, has seen a 24.0% growth in client business activity in 2010, customer deposits grew by 12.3%. Assets under custody increased to EUR 1.67 billion.

One of BEST’s achievement in 2010 was the launch, in early January, of the Bank’s new website enabling the development of a concept that connects online functionalities with its banking and financial products. On-line securities trading at BEST has significantly improved through the updating of its e-trading platform, which included an innovative Quick Trade tool, together with the offer of the Morningstar ETFs trading platform. BEST continues to increase its cross-selling activities through its broad range of banking products and services together with the development of the partnership with Saxo Bank, to further boost its international business.

Asset management and Private bankingcontinued




Companhia de Seguros Tranquilidade S.A.


Seguros Logo, S.A.


T-Vida S.A.


AdvanceCare – Gestão e Serviços de Saúde S.A.


Espírito Santo Saúde SGPS S.A.

Capital: EUR 88.5 millionEconomic participation: 30.9% Location: Portugal

ESFG’s Insurance business continues to contribute positively to consolidated results. Tranquilidade reported strong premium growth in all areas with an average growth rate of 6.2% versus a market average of just 0.9%. Most notably was the increase in health premiums which grew by 11.5% year-on-year. With the support of premium increases in motor and workers’ compensation, which rose by 7.0% and 5.0% respectively. Tranquilidade ranked fourth in Non-Life insurance at year-end 2010 with an average market share of 7.8%. Activity at BES Seguros combined with Tranquilidade places ESFG’s insurance interest in second place with a Non-Life market share of 10.1%. The combined market share in the Life business of T-Vida and BES Vida reached 12.8% (T-Vida 1.4% and BES Vida 11.4%). ESFG’s Life and Non-Life business collectively ranks as the

second largest insurance group in Portugal by premiums and the largest private insurance group. The combined market share reached 12.1% in 2010.

Tranquilidade’s net individual income reached EUR 11.6 million, a 26.2% year-on-year increase. However, technical results fell during the period by 23.3% to EUR 51.4 million. Major storms which occurred in early 2010 had a negative impact of EUR 4.9 million on the bottom line. Financial results rose 37.1% year-on-year to EUR 27.9 million and operational costs decreased 5.0% to EUR 69.9 million. Tranquilidade’s market share rose from 7.5% in 2009 to 7.8% at year-end 2010.

In August 2010 Tranquilidade entered into an agreement with Banco Pastor to purchase of a 50.0% stake in Pastor Vida including management control, with the remaining 50.0% stake being held by Banco Pastor. The agreement went into effect in December 2010.

The assurance programme of cross-selling banking products through its agents accounted for 19.0% of new clients at BES and 8.0% of all mortgages. Tranquilidade’s distribution chain is made up of 1,700 points of sale, of which 38 are own branches and 74 franchise shops. The combined ratio at Tranquilidade stood at 104.9%, up from 102.2% a year earlier, due to the increase in its loss ratio. Tranquilidade’s individual solvency ratio reached 573% following a EUR 75.0 million capital increase in 2010 of which EUR 25 million has been paid, as a result of its purchase of a 50.0% stake in Pastor Vida. The expense ratio improved from 31.7% to 30.3%, reflecting the ongoing cost reduction programme which included a 5.0% fall in expenses and 1.6% decrease in personnel costs.

On the 20 September 2010, Fitch affirmed Tranquilidade’s stand alone rating as A- and moved ESFG’s insurance operation from negative outlook to stable. Fitch qualified its decision by stating that it recognised the insurance group’s capital strength which reflected its strong franchise and market position as well as the financial flexibility offered by being part of ESFG. Fitch further acknowledged Tranquilidade’s strategy of organic domestic growth and its moves toward international expansion.


Portuguese Insurance Sector 2010 (Premiums in EUR million) Premiums Premiums Total Market Ranking Group Life Non-Life Premiums share (%)1 CDG 4502 1129 5631 34.52 ESFG 1557 423 1980 12.13 BCP Fortis 1724 222 1946 11.94 Santander 1195 2 1197 7.35 BPI 1175 – 1175 7.26 AXA 218 370 588 3.67 BANIF 242 307 549 3.48 Allianz 182 325 507 3.19 Zurich 79 292 371 2.310 Lusitania 104 244 348 2.1

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Tranquilidade’s fully owned direct insurance business, Seguros LOGO (‘LOGO’), reported that its client acquisition had reached 115,000 clients and gross written premiums of EUR 20.0 million, a year-on-year increase of 74.8%. LOGO is now the second largest direct channel insurer in Portugal with a market share of 21.9%. Established in 2008, Logo reported a net individual loss of EUR 8.0 million, reflecting an increase in the loss ratio and its impact on the unexpired risk reserve. LOGO is expected to break even by 2013.

T-Vida reported an individual net profit of EUR 5.1 million. Technical results improved 16.7% during the period, reaching EUR 7.3 million and reflecting an increase in the sales of risk products. Gross written premiums grew 49.0% to EUR 56.6 million, with priority given to risk and pension products. Despite difficult trading conditions market results rose 16.6% to EUR 17.6 million from EUR 16.0 million a year earlier.

ESFG’s healthcare operations are conducted through Espírito Santo Saúde (‘ESS’). ESS is a leading private healthcare provider in Portugal. ESS, which celebrated its tenth year of operations in 2010, owns and operates a total of 18 hospitals, out-patient clinics, residential hospitals, senior care residencies as well as participating in the Public-Private Partnerships (‘PPP’) programme.

Year-on-year operating revenues at ESS rose by 14.9% to EUR 249.8 million (from EUR 217.5 million in 2009). Individual net income remains positive with EBITDA at 15.6%, up from 15.5% in 2009. Individual net income rose to EUR 1.5 million despite economic pressures in Portugal and the increased cost of funding. Hospital da Luz, the largest private hospital in Portugal and key investment at ESS, saw revenue growth up by 14.0% year-on-year. Between 2000 and 2010 ESS reported a yearly compounded annual growth rate (‘CAGR’) of 40.0% placing it in the forefront of private medical healthcare provision.

ESS reported that in 2010 there was 20.0% rise in operating revenue at Hospital da Arrábida and Clíria. Capacity doubled at the two sites with Clíria having integrated the Oiã clinic in July 2009. Clínica Parque dos Poetas saw strong year-on-year revenue growth of 43.0%. The ambulatory clinic covers the affluent Lisbon suburbs of Oeiras and Cascais.

ESS: Total revenues evolution 2006 to 2010 (EUR million)

2006 2007 2008 2009 2010

250

200

150

100

50

0

At Hospital Residencial do Mar, the introduction of measures that included significant changes to the pricing mix have led to a 9.0% growth in revenues with the residential hospital reporting positive results in 2010. ESS’ partnership with the Portuguese government at the hospital in Loures is on track. The hospital, currently under construction, is expected to open in January 2012, as planned. ESS expects continued organic expansion of its units and will support ESFG’s strategy for continued international growth and will draw on synergies and cross-selling with other subsidiaries within the Group.

In 2010, ESS took one step closer to achieve its aim of medical excellence and a benchmark in innovation and full participation in the Portuguese healthcare system as highlighted by ESS’s inaugural Public-Private Partnership programme at Loures. The hospital will be the largest medical unit with 424 beds, 1,200 personnel and covers over 63,000m2. ESS continues to develop market leading progress highlighted by the introduction of robotic surgery at its principal private hospital, Hospital da Luz in Lisbon.

AdvanceCare (in partnership with United Health Care), ESFG’s managed care platform for healthcare insurers provides the link between the Company’s insurance and healthcare operation. Advancecare continues to provide positive results. Like for like individual net income however decreased by 35.7% year-on-year from EUR 2.8 million to EUR 1.8 million.

Tranquilidade: ratios (%) 2008 2009 2010* Net of Reinsurance

Solvency margin Expense ratio Claims ratio* Combined ratio

600

500

400

300

200

100

0


Corporate structure and Governance

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The Luxembourg Stock Exchange, in its Ten Principles of Corporate Governance, recommends that listed companies should publish a Corporate Governance Chapter in its annual report, describing all the relevant events connected with Corporate Governance which took place in the preceding financial year.

Composition of the Board of Directors The current Board of Directors is composed by twenty five directors. 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 30 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.

Board of DirectorsRicardo Espírito Santo Silva Salgado, Chairman José Manuel Pinheiro Espírito Santo Silva, Vice ChairmanAntónio Luís Roquette RicciardiMário Mosqueira do AmaralManuel Fernando Moniz Galvão Espírito Santo SilvaJackson Behr GilbertPatrick Monteiro de BarrosRobert StuderPhilippe GuiralManuel António Ribeiro Serzedelo de AlmeidaJosé Maria Espírito Santo Silva RicciardiPedro Guilherme Beauvillain de Brito e CunhaCarlos Augusto Machado de Almeida FreitasAníbal da Costa Reis OliveiraJuan Villalonga NavarroOthman BenjellounJosé Pedro Torres Garcia Caldeira da Silva Yves Alain Marie MorvanFernando Pedro Braga Pereira CoutinhoAlexandre da Paixão CoelhoJosé Carlos Cardoso CastellaHorácio Lisboa AfonsoBernard BasecqzGherardo Laffineur Petracchini Manuel Guerrero Péman

During 2010, the Board of Directors met five times with a majority of directors present at each of these meetings.

Information on the Directors

Ricardo Espírito Santo Silva SalgadoDate of birth: 25/06/1944; Nationality: Portuguese; First appointed: 28/11/1984; Independent: No.Academic qualifications: Degree in Economics from Instituto Superior de Ciências Económicas e Financeiras of the Universidade Técnica de Lisboa.

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

Posts in other listed companiesChairman – Banco Espírito Santo de Investimento S.A.Vice Chairman – Board of Directors of Banco Espírito Santo and Chairman of its Executive Committee.Director – Banco Bradesco S.A.

José Manuel Pinheiro Espírito Santo SilvaDate of Birth: 02/05/1945; Nationality: Portuguese; First appointed: 27/03/1987; Independent: No.Academic qualifications: Degree in Economics, specialising in Company Administration and Management, Évora University.

Mr. José Manuel Pinheiro Espírito Santo Silva is Vice Chairman of ESFG.

Posts in other listed companiesDirector – Banco Espírito Santo S.A., Banco Espírito Santo de Investimento S.A.

António Luís Roquette Ricciardi Date of Birth: 06/04/1919; Nationality: Portuguese; First Appointed: 28/11/1984; Independent: No.Academic Qualifications: Degree from Faculdade de Ciências, Lisbon; Degree from Academia Naval, Lisbon, Degree from Escola de Aviação Naval, Lisbon.

Mário Mosqueira do Amaral Date of Birth: 14/11/1932; Nationality: Portuguese; First appointed: 28/11/1984; Independent: No.Academic Qualifications: Degree in Economics from Instituto Superior de Ciências Económicas e Financeiras, Lisbon.

Director – Banque Marocaine du Commerce Exterieur.

Manuel Fernando de Moniz Galvão Espírito Santo Silva Date of Birth: 20/07/1958; Nationality: Portuguese; First Appointed: 08/11/1995; 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 companiesDirector – Banco Espírito 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 Portuguese; 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: 12/11/1938; Nationality: Swiss; First Appointed: 22/10/1999; Independent: Yes.Academic Qualifications: Degree in Business Administration from the Zurich Management Institut.

Corporate Governance


Philippe Guiral Date of Birth: 18/11/1948; Nationality: French; First appointed: 10/11/2000; Independent: No.Academic Qualifications: Master in Economics, University of Montpellier, I.A.E. (business administration) – MontpellierAdvanced Executive Program, Anderson School at UCLA, Los Angeles

Posts in other listed companiesDirector (non executive) – Banco Espírito Santo de Investimento S.A. Manuel António Ribeiro Serzedelo de Almeida Date of Birth: 05/08/1943; Nationality: Portuguese; First Appointed: 25/05/2001; Independent: No.Academic Qualifications: Degree in mechanical engineering, Instituto Superior Técnico Lisboa; MBA Insead – Fontainebleau.

José Maria Espírito Santo Silva RicciardiDate of Birth: 27/10/1954; Nationality: Portuguese; First appointed: 25/05/2001; Independent: No.Academic Qualifications: Degree in Sciences Economiques Appliquées, Université Catholique de Louvain, Faculté des Sciences Économiques, Sociales et Politiques, Institut d’Administration et de Gestion, Belgium.

Posts in other listed companiesDirector – Banco Espírito Santo de Investimento S.A.Director – Banco Espírito 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: 25/05/2001; Independent: No.Academic Qualifications: Secondary Education.

Aníbal da Costa Reis OliveiraDate 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, Germany.

Juan Villalonga Navarro Date of Birth: 04/08/1953; Nationality: Spanish; First appointed: 25/05/2001; Independent: Yes.

Othman Benjelloun Date of Birth: 01/11/1932; Nationality: Moroccan; First appointed: 31/05/2002; Independent: Yes. Academic Qualifications: Engineer, École Polytechnique de Lausanne, Switzerland.

Posts in other listed companies:Chairman – BMCE Bank.

José Pedro Torres Garcia Caldeira da Silva Date of Birth: 22/02/1959; Nationality: Portuguese; First appointed: 31/05/2002; Independent: No. Academic Qualifications: BA in Economics, Universidade Católica Portuguesa MA Operational Research and Systems Engineering- Universidade Técnica de Lisboa; MBA Insead, Fontainebleau

Member of ESFG’s Executive Committee.

Fernando Pedro Braga Pereira Coutinho Date of Birth: 26/12/1946; Nationality: Portuguese; First appointed: 08/07/2005; Independent: Yes.Academic Qualifications: Degree in Economics, Instituto Superior de Ciências Económicas e Financeiras, Lisbon.

Chairman of ESFG’s Audit Committee.

Yves Alain Marie MorvanDate of Birth: 11/04/1939; 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 Paixão Coelho 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 Administração de Lisboa.

Member of ESFG’s Audit Committee.

José Carlos Cardoso Castella Date of Birth: 13/09/1949; Nationality: Portuguese; First appointed: 25/05/2007; Independent: No.Academic Qualifications: MA Business Administration, MA in Finance, ISCEF, Universidade Técnica de Lisboa.

Member of ESFG’s Executive Committee.

Horácio Lisboa Afonso Date of Birth: 05/02/1949; Nationality: Portuguese; First appointed: 21/09/2007; Independent: Yes.Academic Qualifications: Degree in Finance, Instituto Superior de Economia, Universidade Técnica, Lisbon.

Member of ESFG’s Audit Committee.

Bernard Basecqz Date of Birth: 15/10/1945; Nationality: Belgian; First appointed: 30/05/2008; Independent: Yes.Academic Qualifications: Doctor in Law, Université Catholique de Louvain, Belgium; MBA – Finance, Michigan State University, USA.

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Gherardo Laffineur PetracchiniDate 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 Supérieure des Industries Agricoles et Alimentaires, Paris; MBA from ESSEC- International Business School, Paris.

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

Manuel Guerrero PémanDate of Birth: 27/11/1949; Nationality: Spanish; First appointed: 30/05/2008; Independent: Yes.Academic Qualifications: Degree in Law, Universidad Complutense de Madrid.

Executive CommitteeGherardo Laffineur Petracchini, ChairmanJosé Carlos Cardoso CastellaJosé 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 Crédit Lyonnais in Paris in 1988; He worked for the Société Générale 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 of International Development in Fiditalia SpA (Consumer Finance) in 2005 and Managing Director of Locat Rent SpA (Long Term Car Rental), a 50/50 joint venture between SG and Unicredit Groups, until 2008.

He is Conseiller du Commerce Extérieur de la France (French Foreign Trade Advisor) and Academician of the Accademia Angelica Costantiniana of Rome in Italy.

Mr. José 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 Privée Espírito Santo since 1998. He is a director of 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 of BASF AG in Germany and abroad from 1985 to 1989.

Mr. José Carlos Cardoso Castella has worked for the Espírito Santo group of companies since 1986. He worked at BES from 1976 to 1978.Between 1986 and 2002 he was assistant controller of the group. He is Chairman of: Escopar SGPS S.A., Espírito Santo Industrial (Portugal) SGPS S.A., Gestres- Gestao Estrategica Espírito Santo S.A.,and Suliglor- Imobiliaria do Sul, Lda; director of Control Developments Limited, ES International Overseas, S.A., ES Private Equity Limited, ES Resources Overseas Limited, Enterprises Management Services Limited, ESAT, SA,ESFG International Limited, Espírito Santo Agriculture and Development Limited, Espírito Santo Health & Spa, S.A., Espírito Santo Industrial (BVI) S.A., Espírito Santo Industrial, S.A., Espírito Santo International (BVI), S.A., Espírito Santo Property (BVI), S.A., Espírito Santo Resources (Portugal) S.A., Espírito Santo Services, S.A., Espírito Santo Tourism Limited, GES Finance Limited, S.D. Imoveis, S.A., USHUAIA- Gestao e Trading Internacional Limitada. 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.

Audit CommitteeFernando Pedro Braga Pereira Coutinho, ChairmanAlexandre da Paixão Coelho Horácio Lisboa Afonso

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

The Audit Committee met 5 times in 2010. All three members were present at the meetings.

Stock Option CommitteeThe 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 twice in 2010. A total of 260,000 were exercised during the year.

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


Remuneration CommitteeThe Board of Directors recognizes that nearly all of its members are active directors in ESFG’s subsidiaries or in other Espírito Santo group companies. The Board of Directors further recognizes that these board members are remunerated at these operating levels and it therefore determined that the establishment of a remuneration committee at ESFG level was not necessary. In 2010 ESFG attributed EUR 2,325,166 to remuneration. The remuneration of the Directors is approved by the general meeting of shareholders.

Internal ControlDuring 2010, the three functions Compliance, Risk and Internal Audit which integrate the Internal Control System have continued to monitor these functions at the level of the ESFG group of companies:

Compliance Supervision of the legal obligations and regulatory duties continued during the year under review and work continued on the writing of manuals covering 24 ESFG group of companies. Risk ESFG has continued to ensure that the risk management system is efficiently and consistently implemented at the level of ESFG and its subsidiaries. During 2010 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. During the year under review ESFG completed Stress Tests as at 30/06/10 and ICAAP (Capital Assessment Adequacy Process), Market Discipline and Annual Internal Control reports as at 31/12/09.

Internal AuditIt has continued to supervise the adequacy of the internal control system.

Corporate Governance continued

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ESFG price evolution January to December 2010 SX7P index -13.44% ESF PL equity -7.28% PS120 index -11.79%

Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10

S&P downgrades

Portugal from A+ to A- along

with five Portuguese

banks

Moody’sdowngrades

Portugal fromAa2 to A1

Fitchdowngrades

four Portuguesebonds

Fitchdowngrades

Portugal fromAA to AA-

FY09 results AGM: 2009 Dividend EUR 0.35

H110 results

9M10 resultsQ110 results

Moody’s downgrades eight Portuguese banks

Fitchdowngrades

Portugal fromAA- to A+

EUR 14.00EUR 15.10

Shares, Capital and Shareholder StructureESFG’s authorised capital is EUR 2 billion, represented by 200,000,000 shares with the nominal value of EUR 10 each. 77,854,916 shares have been issued, subscribed and fully paid, representing an issued capital of EUR 778,549,160.

As at 31 December 2010 the main shareholders of ESFG were:

Number of shares %Espírito Santo International S.A. 24,812,293 31.87 Espírito Santo Irmãos SGPS S.A. 7,493,911 9.63Total 32,306,204 41.50

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

Performance of ESFG SharesThe sovereign debt crisis in 2010 primarily brought about by a marked imbalance in Greece’s public accounts and the noticeable difficulties faced by Ireland’s financial sector, severely affected Portugal’s public accounts, and impacted negatively on the respective countries’ equity indices. The shock to the Portuguese financial system following downgrades by rating agencies, notably a two notch downgrade on the Republic of Portugal in April 2010 by Standard & Poor’s, lead to an increase in risk aversion by investors. The resulting move caused a clear divergence between core Europe and its peripheral members.

The DAX rose by 16.1%, whilst the IBEX, PSI20 and PSI Financials fell by 17.4%, 10.3% and 29.9% respectively. The Stoxx 600 Banks index, the index that tracks the 53 leading European banks, dropped by 11.6%. ESFG’s share price decreased by 5.7% by year-end 2010 to EUR 14.00 (ESFG’s shares are predominantly traded on the Lisbon NYSE Euronext exchange) with a market capitalisation of EUR 1.1 billion. In May 2010 ESFG paid EUR 0.35 per share in dividend to shareholders.


The Board of Directors of Espírito Santo Financial Group S.A. (‘ESFG’) is responsible for preparing the consolidated financial statements as at and for the year ended 31 December 2010 in accordance with International Financial Reporting Standards as adopted by the European Union as well as with the European Transparency Directive (2004/109/EC).

The Board of Directors reviewed the consolidated financial statements on 22 March 2011 and authorized their issue.

The Board of Directors of ESFG declares that:

I. the consolidated financial statements of Espírito Santo Financial Group S.A. (‘ESFG Group’), for the years ended 31 December 2009 and 31 December 2010, were prepared under the International Financial Reporting Standards (‘IFRS’), as adopted by the European Union;

II. to the best of their knowledge, the financial statements referred to in point (I) reflect a true and appropriate situation of the assets, liabilities, capital and results of ESFG, in accordance with IFRS as adopted by the European Union;

III. the management report reflects adequately the business development, performance and financial position of ESFG Group during 2010 and contains a description of the main risks and uncertainties that the Group faces.

Luxembourg, 22 March 2011

Board of Directors

Ricardo Espírito Santo Silva SalgadoChairman

José Manuel Pinheiro Espírito Santo SilvaVice-Chairman

Declaration by the Board of Directors on Responsibility for the Information

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Ricardo Espírito Santo Silva Salgado Chairman

José Manuel Pinheiro Espírito Santo SilvaVice-Chairman

António Luís Roquette RicciardiMário Mosqueira do AmaralManuel Fernando Moniz Galvão Espírito Santo SilvaJackson Behr GilbertPatrick Monteiro de BarrosRobert StuderPhilippe GuiralManuel António Ribeiro Serzedelo de AlmeidaJosé Maria Espírito Santo Silva RicciardiPedro Guilherme Beauvillain de Brito e CunhaCarlos Augusto Machado de Almeida FreitasAníbal da Costa Reis OliveiraJuan Villalonga NavarroOthman BenjellounJosé Pedro Torres Garcia Caldeira da SilvaFernando Pedro Braga Pereira CoutinhoYves Alain Marie MorvanAlexandre da Paixão CoelhoHorácio Lisboa AfonsoJosé Carlos Cardoso CastellaBernard BasecqzManuel Guerrero Péman

Gherardo Laffineur PetracchiniChief Executive Officer

Erich DählerSenior Vice-President

Jorge Manuel Amaral PenedoSenior Vice-PresidentChief Prudential Reporting Officer

Jean-Luc SchneiderSenior Vice-PresidentChief Accounting Officer

Teresa de SouzaSenior Vice-PresidentCompany Secretary

Filipe WorsdellSenior Vice-PresidentChief Financial Officer

Directors and Officers


Annex – Adoption of the Financial Stability Forum (‘FSF’) and Committee of European Banking Supervisors (‘CEBS’) Recommendations concerning the Transparency of Information and the Valuation of Assets

(Banco of Portugal’s Circular Letter no. 97/2008/DSB, of 3 December.)

I. Business Model1. Description of the Business ModelA description of the ESFG Group’s Business Model is provided on page 4 of the 2010 Annual Report.

2. Strategies and ObjectivesA description of the ESFG Group’s strategy and objectives is provided in the page 4 of the 2010 Annual Report.

3., 4. and 5. Activities developed and contribution to the businessPages 17 to 27 of the 2010 Report and Accounts and Note no. 4 (1) contain detailed information about the activity and contribution to the business.

II. Risk and risk management6. and 7. Description and Nature of the Risks IncurredNote 51 contains diverse information that in total allows the market to gain knowledge about the risks incurred by the ESFG Group and the 2010 management mechanisms for their monitoring and control.

III. Impact of the period of financial turmoil on the results8.,9. 10 and 11. Qualitative and quantitative description of the results and comparison of impacts between periods.During 2009 there were no turbulent facts that could be considered to have a relevant material impact on the result of the period. In 2010 there was an increase in sovereign risk that led to a substantial rise in risk premia, which had the following impacts: determination of EUR 117 million losses on credit instrument; recognition of EUR 79 million negative fair value for debt instruments (EUR 24 million net of non-controlling interest) and an increase in the cost of funding, where a 16 bp differential between the interest rate on customer funds ant the interest rate on customer loans had a negative impact of ca. EUR 110 million on net interest income. Despite these impacts, the Group maintained its capacity to generate profits through an active management of the financial instruments in trading, fair value and available for sale portfolios.

12. Decomposition of realised and non realised write-downs The profit and loss on assets and liabilities held for trading and of assets at fair value and assets available for sale are detailed by financial instruments in Notes 7 and 8. Non- realized gains and losses on assets available for sale are detailed in Note 23 and 24, while the most significant positions are broken down in Note 23.

13. Financial turmoil and the price of the ESFG shareThe Corporate Governance section of the 2010 Annual Report presents the ESFG share price performance.

14. Maximum loss riskNote 51 contains the relevant information about potential losses in market stress situations.

15. Debt issued by the Group and resultsNote 50 contains information on the impact of debt revaluation and the methods used to calculate their impact on the results.

IV. Level and type of exposures affected by the period of turmoil16. Nominal and fair value of exposures

17. Credit risk mitigators

18. Information about the Group’s exposuresDuring 2009 there were no turbulent facts that could be considered to have a relevant material impact on the result of the period. In 2010 the turmoil was essentially due to the deterioration of sovereign risk of peripheral Euro Area countries. At the end of 2010 ESFG Group’s total exposure to these countries’ public debt was EUR 2,287 million, of which EUR 1,957 million to Portugal, EUR 309 million to Greece (repaid on 14 January 2011), EUR 21 million to Spain and EUR 0 to Ireland. The associated negative fair value reserve amounted to EUR 27 million.

19. Movement in exposures between periodsNote 51 contains diverse information comparing the exposures and results in 2009 and 2010. The disclosed information is considered sufficient, given the detail and quantitative information presented.

20. Non-consolidated exposuresAll the operations related securitisation structures originated by the Group are presented in Note 49. None of the Special Purpose Entities ( ‘SPEs’ ) were consolidated due to the market turbulence. None of the SPEs were consolidated due to the market turbulence.

21. Exposure to monolines insurers and quality of the assets insuredThe Group does not have exposures to monoline insurers.

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V. Accounting policies and valuation methods22. Structured ProductsThese situations are described in Note 2 – Main accounting policies.

23. Special Purpose Entities (‘SPEs’) and consolidationDisclosure available in Notes 2 and 49.

24. and 25. Fair value of financial instrumentsNotes 2 and 50 contains the conditions for utilisation of the fair value option as well as the methodology used to value the financial instruments.

VI. Other relevant aspects of disclosure26. Description of the disclosure policies and principlesThe ESFG Group, within the context of accounting and financial information disclosure, aims to satisfy all the regulatory requirements, defined by the accounting standards or by the supervisory and regulatory entities.

At the same time, the Group aims to meet the best market practice in information disclosure, balancing the cost of preparing the relevant information with the benefit that it may provide to the users.

From the information made available to the ESFG’s shareholders, clients, employees, supervisory entities and the public in general, ESFG highlights the 2009 Annual Report, the Financial Statements and the respective Notes.

The financial statements are prepared under IFRS that comply with the highest degree of disclosure and transparency and facilitate comparison to other domestic and international banks.

In addition, ESFG establishes regular contacts with the shareholders, mainly when releasing quarterly results and during the roadshows. Whenever necessary, ESFG promptly releases relevant facts, in addition to the news flow through the media.


ESAF – Espírito Santo ActivosFinanceiros, SGPS, S.A.Av. Álvares Cabral, 41 1250-142 LisboaT: +351 21 381 0800F: +351 21 381 0838

ES Capital – Sociedade de Capitalde Risco, S.A.Edifício QuartzoRua Alexandre Herculano, 38 1269-161 LisboaT: +351 21 351 5840F: +351 21 351 5846

Espírito Santo Saúde – SGPS, S.A.R. Carlos Alberto da Mota Pinto, 17 – 9º1070-313 LisboaT: +351 21 313 8260F: +351 21 353 0292

Europ Assistance Portugal Av. Columbano Bordalo Pinheiro, 75 – 10º1070-061 LisboaT: +351 21 386 0003F: +351 21 386 0308

Seguros Logo S.A.R. D. Manuel II, 2904001-809 LisboaT: +351 21 330 6605F: +351 21 358 4214

Angola

Banco Espírito Santo Angola S.A.R.L.Rua do Primeiro Congresso do MPLA, 27/31CP 6459LuandaT: +244 222 693 650F: +244 222 693 698

Brazil

BES Investimento do Brasil S.A. Av. Brigadeiro Faria Lima 3729 – 6ºCep 04538-905 – Itaim Bibi São Paulo – SPT: +55 11 3074 7444F: +55 11 3074 7469

BES Securities do Brasil S.A. – CCVMAv. Brigadeiro Faria Lima 3729 – 6ºCep 04538-905 São Paulo -SPT: +55 11 3074 7444F: +55 11 3074 7524

Cape Verde Islands

Banco Espírito Santo S.A.Av. Cidade de Lisboa, CP 35PraiaIlha de SantiagoCabo VerdeT: +238 260 1290F: +238 260 1291

China

Banco Espírito Santo S.A.25th Floor, Suite 2509161 China Merchants Tower Lujiazui Dong (East) RoadPudongShanghai 200120P.R. ChinaT: +8621 5887 0016F: +8621 5876 8213

United Arab Emirates

ES Bankers (Dubai) LimitedGate Village Building 1, 1st. Floor, Unit 7Dubai International Financial CentreP.O. Box 506627DubaiUAET: +971 4 709 0000F: +971 4 323 0200

Spain

Banco Espírito Santo S.A. – Sucursal en EspañaCalle Serrano 88, 7ª Planta28006 MadridT: +34 91 400 5006F: +34 91 400 5072

Banco Espírito Santo de Investimento – Sucursal en EspañaCalle Serrano 88, 4ª Planta28006 MadridT: +34 91 400 5400F: +34 91 431 9387

Espírito Santo GestiónCalle Serrano 88, 5ª Planta28006 MadridT: +34 91 400 5000F: +34 91 400 5483

Espírito Santo PensionesCalle Serrano 88, 5ª Planta28006 MadridT: +34 91 400 5000F: +34 91 400 5483

Luxembourg

Espírito Santo Financial Group S.A.21-25 Allée SchefferL-2520 Luxembourg

ESFIL-Espírito Santo Financière S.A.21-25 Allée SchefferL-2520 LuxembourgT: +352 434 94521F: +352 434 94531

Portugal

AdvanceeCare-Gestão de Serviço de Saúde S.A.Praça José Queirós, 1 – 4º1800-237 LisboaT: +351 21 322 8000F: +351 21 322 8008

Banco Espírito Santo S.A.Av. da Liberdade, 1951250-142 LisboaT: +351 21 350 1000F: +351 21 855 7491

Banco Espírito Santo deInvestimento S.A.Edifício QuartzoRua Alexandre Herculano, 381269-161 LisboaT: +351 21 319 6900F: +351 21 330 9500

Banco Espírito Santo dos Açores S.A.Rua Hintze Ribeiro, 2-89500-049 Ponta DelgadaSão MiguelAçoresT: +351 296 628 345F: +351 296 307 054

BES, Companhia de Seguros S.A.Av. Columbano Bordalo Pinheiro, 75 – 9º1070-061 LisboaT: +351 21 319 9306F: +351 21 315 3194

BES Vida, Companhia de Seguros S.A.Av. Columbano Bordalo Pinheiro, 75 – 11º1070-061 LisboaT: +351 21 316 7577F: +351 21 315 3194

Companhia de SegurosTranquilidade S.A.Av. da Liberdade, 2421250-149 LisboaT: +351 21 350 3500F: +351 21 358 4232

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USA

Banco Espírito Santo S.A.320 Park Avenue, 29th FloorNew YorkN.Y. 10022T: +1 212 270 3400F: +1 212 980 1777

Espírito Santo Bank1395 Brickell AvenueMiamiFlorida 33131T: +1 305 358 7700F: +1 305 371 4410

Espírito Santo Financial Services Inc.New York Branch340 Madison Avenue, 12th FloorNew York, NY 10173T: +1 212 351 6000F: +1 212 351 6099

France

Banque Espírito Santo et de la Vénétie S.A.45 Avenue Georges Mandel75116 ParisT: +33 1 443 44800F: +33 1 443 44880

United Kingdom

Banco Espírito Santo S.A.10 Paternoster SquareLondon EC4M 7ALT: +44 20 7332 4300F: +44 20 7332 4340

Banco Espírito Santo deInvestimento S.A.10 Paternoster SquareLondon EC4M 7ALT: +44 20 7456 9191F: +44 20 7246 9189

Espírito Santo Financial Group S.A.10 Paternoster SquareLondon EC4M 7ALT: +44 20 3429 2100F: +44 20 3429 2103

Cayman Islands

Bank Espírito Santo(International) LimitedGrand Pavilion Commercial Centre802, West Bay RoadP.O. Box 10507 Grand Cayman KY1-1005Cayman IslandsB.W.I.T: +345 949 3128F: +345 949 6911

Ireland

Espírito Santo Investment Plc.Spencer House, 4th Floor 71/73 Talbot StreetDublin 1IrelandT: +353 1 856 0699F: +353 1 813 4366

Espírito Santo Plc Office127, 77 Sir John Roggerson’s Quay,Dublin 2IrelandT: +353 1 640 1991F: +353 1 640 1992

Libya

Aman Bank for Commerce and Investment PO Box 91271TripoliLibyaT: +218 021 335 0216F: +218 021 335 0386

Macao

Banco Espírito Santo do Oriente S.A.Av. Dr. Mário Soares 323Edifício Banco da China, 28th Floor Unit E and FMacauT: +853 28 785222F: +853 28 785228

Mozambique

Moza Banco, S.A.Av. Kwame NkrumahC. Postal 1012MaputoMoçambique

Panama

ES Bank (Panama) S.A.Edificio World Trade Center Piso 19, Oficina 1902Calle 53, MarbellaApartado No. 0834-0847 PanamáRepública de PanamáT: +507 265 3174F: +507 265 8142

Poland

Banco Espírito Santo de Investimento, S.A.Spólka Akcyjna, Oddzial w Polsce59th Zlota StreetFloor V00-120 WarsawPolandT: +48 22 347 40 00F: +48 22 347 40 99

Switzerland

Banque Privée Espírito Santo S.A.70A Avenue Général GuisanCase Postale 107CH-1009 PullyT: +41 21 619 5555F: +41 21 619 5557


Espírito Santo Financial Group S.A.21/25 Allée SchefferL-2500 – Luxembourg

Investor RelationsFilipe WorsdellEspírito Santo Financial Group S.A.10 Paternoster SquareLondon EC4M 7ALT: +44 203 429 2100F: +44 203 429 2103email: [email protected] Faisal KanthTaylor Rafferty Associates1 Ropemaker Street34th FloorLondon EC2Y 9HTT: +44 20 7614 2900F: +44 20 7614 2901email: [email protected]: [email protected]

Company SecretaryTeresa de SouzaEspírito Santo Financial Group S.A.10 Paternoster SquareLondon EC4M 7ALT: +44 203 429 2100F: +44 203 429 2103email: [email protected]

Para mais informação sobre ESFG, consultewww.esfg.com

For further information about the Companyvisit www.esfg.com

Sítios de outras companhias do Grupo na internet:Websites of other Group companies:www.bancobest.ptwww.bes.eswww.bes.ptwww.besa.aowww.bescv.cvwww.besdosacores.ptwww.besinvestimento.com.brwww.bessecurities.com.brwww.besv.frwww.esaf.ptwww.esbankersdubai.comwww.esbf.comwww.escapital.ptwww.esinvestment.comwww.espensiones.comwww.espiritosanto.comwww.essaude.ptwww.es-ventures.comwww.europassistance.ptwww.logo.ptwww.naucapital.comwww.tranquilidade.pt

Contacts

Overview

Business Review


Governance


Other Inform

ation

Espírito Santo Financial Group S.A.

Consolidated Financial Statements 2010

ESPÍRITO SANTO FINANCIAL GROUP SA

CONSOLIDATED FINANCIAL STATEMENTSAS AT 31 DECEMBER 2010

21/25 Allée SchefferRCS: Luxembourg B22.232

L-2520 Luxembourg

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Report of the Réviseur d’Entreprises agréé . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

Consolidated Income Statement for the years ended 31 December 2010 and 2009 . . . . . . . . . . . . . . . . . . F-2

Consolidated Statement of Comprehensive Income for the years ended 31 December 2010 and 2009 . . . . F-3

Consolidated Balance Sheet as at 31 December 2010 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4

Statement of changes in Consolidated Equity for the years ended 31 December 2010 and 2009 . . . . . . . . F-5

Consolidated Cash Flow Statement for the years ended 31 December 2010 and 2009. . . . . . . . . . . . . . . . F-6

Notes to the Consolidated Financial Statements as at 31 December 2010 and 2009 . . . . . . . . . . . . . . . . . F-7



REPORT OF THE REVISEUR D’ENTREPRISES AGREE

To the Shareholdersof Espírito Santo Financial Group S.A.21/25 Allée SchefferL-2520 Luxembourg

Report on the consolidated financial statementsWe have audited the accompanying consolidated financial statements of Espírito Santo Financial Group S.A.,which comprise the consolidated statement of financial position as at December 31, 2010 and the consolidatedstatement of comprehensive income, consolidated statement of changes in equity and consolidated cash flowstatement for the year then ended, and a summary of significant accounting policies and other explanatoryinformation.

Board of Director’s responsibility for the consolidated financial statementsThe Board of Directors is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with International Financial Reporting Standards as adopted by the European Union, andfor such internal control as the Board of Directors determines is necessary to enable the preparation of consolidatedfinancial statements that are free from material misstatement, whether due to fraud or error.

Responsibility of the Réviseur d’Entreprises agrééOur responsibility is to express an opinion on these consolidated financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by theCommission de Surveillance du Secteur Financier. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in theconsolidated financial statements. The procedures selected depend on the judgement of the Réviseur d’Entreprisesagréé, including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the Réviseur d’Entreprises agréé considers internalcontrol relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well asevaluating the overall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.

OpinionIn our opinion, the consolidated financial statements give a true and fair view of the consolidated financial positionof Espírito Santo Financial Group S.A. as of December 31, 2010, and of its consolidated financial performance andits consolidated cash flows for the year then ended in accordance with International Financial Reporting Standardsas adopted by the European Union.

Report on other legal and regulatory requirementsThe consolidated management report, which is the responsibility of the Board of Directors, is consistent with theconsolidated financial statements.

Luxembourg, April 7, 2011 KPMG Audit S.à r.l.

Cabinet de révision agréé

S. Chambourdon

F-1

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CONSOLIDATED INCOME STATEMENTFOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009

Notes 31.12.2010 31.12.2009

(in thousands of euro)

Interest and similar income . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3 838 928 3 949 582Interest expense and similar charges . . . . . . . . . . . . . . . . . . . . 5 2 649 887 2 720 997

Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 189 041 1 228 585Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 738 89 885Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . 6 940 092 830 289Fee and commission expenses . . . . . . . . . . . . . . . . . . . . . . . . . 6 (121 782) (109 567)Net (losses) from financial assets and financial liabilities at fair

value through profit or loss . . . . . . . . . . . . . . . . . . . . . . . . . 7 (197 574) (44 761)Net gains from available-for-sale financial assets . . . . . . . . . . . 8 374 318 193 539Net gains from foreign exchange differences . . . . . . . . . . . . . . 9 55 334 82 137Net (losses) from the sale of other assets . . . . . . . . . . . . . . . . . (12 773) (27 468)Insurance earned premiums net of reinsurance . . . . . . . . . . . . . 10 325 168 309 289Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 354 080 400 214

Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 100 642 2 952 142

Staff costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 782 889 722 658General and administrative expenses . . . . . . . . . . . . . . . . . . . . 14 495 425 459 113Claims incurred net of reinsurance . . . . . . . . . . . . . . . . . . . . . . 15 238 404 220 643Change in the technical reserves net of reinsurance . . . . . . . . . 16 2 477 (7 682)Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 34 736 33 391Depreciation and amortisation . . . . . . . . . . . . . . . . . . . . . . . . . 29 and 31 139 512 123 842Provisions net of reversals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 55 099 53 005Loans impairment net of reversals and recoveries . . . . . . . . . . . 25 338 459 531 642Impairment on other financial assets net of reversals . . . . . . . . 23, 24 and 26 79 390 72 138Impairment on other assets net of reversals . . . . . . . . . . . . . . . 28, 29, 31 and 34 60 839 49 512Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 278 802 225 168

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 506 032 2 483 430

Gains on disposal of investments in subsidiaries andassociates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 46 401 199 578

Share of profit of associates. . . . . . . . . . . . . . . . . . . . . . . . . . . 32 37 592 33 460

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 678 603 701 750

Income taxCurrent tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 68 558 186 306Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 (17 064) (65 229)

51 494 121 077

Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 109 580 673

Attributable to equity holders of the Company . . . . . . . . . . . 122 165 157 477Attributable to non-controlling interest . . . . . . . . . . . . . . . . . 45 504 944 423 196

627 109 580 673

Earnings per share of profit attributable to the equity holders ofthe Company:

Basic (in Euro) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.15 1.60Diluted (in Euro) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 1.04 1.60

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

F-2



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009

31.12.2010 31.12.2009


Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 109 580 673Other comprehensive income, net of income taxExchange differences on translating foreign operations . . . . . . . . . . . . . . . . . . . . . . . . 32 125 (32 564)Deferred taxes on exchange differences on translating foreign operations . . . . . . . . . . (3 017) 13 767

29 108 (18 797)Fair value reserve (available-for-sale financial assets):

Net change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47 228) 843 476Net amount transferred to the income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . (341 458) (162 061)Deferred taxes on gains/losses of available-for-sale financial assets . . . . . . . . . . . . . 67 773 (102 227)

(320 913) 579 188

Other comprehensive income/(loss) for the year, net of income tax . . . . . . . . . . . . (291 805) 560 391Total comprehensive income/(loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 304 1 141 064

Attributable to equity holders of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 109 328 892Attributable to non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 195 812 172

335 304 1 141 064


F-3



CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2010 AND 2009

Notes 31.12.2010 31.12.2009


AssetsCash and deposits at central banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 976 515 2 224 331Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 879 561 793 844Financial assets held for trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3 951 786 4 490 699Other financial assets at fair value through profit or loss . . . . . . . . . . . . . 22 1 325 449 1 273 417Available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 12 474 836 9 079 449Loans and advances to banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 3 071 674 7 648 348Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 53 346 807 50 508 217Held-to-maturity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2 453 465 2 535 309Derivatives for risk management purposes . . . . . . . . . . . . . . . . . . . . . . . . 27 447 304 455 115Non-current assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 574 550 407 585Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1 165 040 1 014 776Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 341 410 89 817Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 557 837 373 851Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 585 240 418 162Technical reserves of reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . 33 65 098 59 396Current income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 074 28 631Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 327 788 217 932Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4 502 837 3 698 108Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 150 271 85 316 987

LiabilitiesDeposits from central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7 964 837 3 817 643Financial liabilities held for trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2 121 305 1 568 896Deposits from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6 617 077 6 890 825Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 31 205 688 25 694 477Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 24 904 746 34 039 730Derivatives for risk management purposes . . . . . . . . . . . . . . . . . . . . . . . . 27 228 944 253 148Investment contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 324 934 395 158Non-current liabilities held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5 411 21 609Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 233 614 193 174Technical reserves of direct insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1 157 019 994 752Current income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 765 162 508Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 131 289 83 193Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2 689 697 3 048 825Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 2 206 082 1 412 361Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 848 408 78 576 299

EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 778 549 778 549Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 253 656 253 656Preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 394 514 395 514Other equity components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 115 109 114 368Fair value reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 (39 766) 60 507Other reserves and retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 (82 818) (208 773)Profit for the year attributable to equity holders of the Company . . . . . . . 122 165 157 477Total equity attributable to equity holders of the Company . . . . . . . . . 1 541 409 1 551 298Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 5 760 454 5 189 390Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 301 863 6 740 688Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 150 271 85 316 987


F-4


ESPÍRITO SANTO FINANCIAL GROUP

STATEMENT OF CHANGES IN CONSOLIDATED EQUITYFOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009

Sharecapital

Sharepremium

Preferenceshares

Other equityinstruments

Fair valuereserve

Other reservesand retained

earnings

Profit for the yearattributable to

equity holders ofthe Company

Total equityattributable to

equity holders ofthe Company

Non-controllinginterest

Totalequity


Balance as at 31 December2008 . . . . . . . . . . . . . . . . . 778 549 253 656 395 514 115 171 (115 485) (221 776) 77 061 1 282 690 3 547 165 4 829 855

Comprehensive incomeProfit for the year . . . . . . . . . . — — — — — — 157 477 157 477 423 196 580 673Other comprehensive income for

the year, net of taxesChanges in fair value, net of

taxes . . . . . . . . . . . . . . . — — — — 175 992 — — 175 992 403 196 579 188Exchange differences . . . . . . . — — — — — (4 577) — (4 577) (14 220) (18 797)

Total comprehensive income forthe year . . . . . . . . . . . . . . — — — — 175 992 (4 577) 157 477 328 892 812 172 1 141 064

Transactions with owners,recorded directly in equity

Costs with capital increase ofsubsidiaries . . . . . . . . . . . . . — — — — — (3 585) — (3 585) (8 560) (12 145)

Transfer to reserves . . . . . . . . . — — — — — 77 061 (77 061) — — —Dividends on ordinary shares(a) . . — — — — — (23 357) — (23 357) — (23 357)Dividends on preference

shares (b) . . . . . . . . . . . . . . — — — — — (32 718) — (32 718) (23 774) (56 492)Share based payment scheme, net

of taxes . . . . . . . . . . . . . . . — — — — — 179 — 179 531 710Acquisition of own other equity

instruments . . . . . . . . . . . . . — — — (803) — — — (803) — (803)Other changes in non-controlling

interest (see Note 45) . . . . . . . — — — — — — — — 861 856 861 856

Balance as at 31 December2009 . . . . . . . . . . . . . . . . . 778 549 253 656 395 514 114 368 60 507 (208 773) 157 477 1 551 298 5 189 390 6 740 688

Comprehensive incomeProfit for the year . . . . . . . . . . — — — — — — 122 165 122 165 504 944 627 109Other comprehensive income for

the year, net of taxesChanges in fair value, net of

taxes . . . . . . . . . . . . . . . — — — — (100 273) — — (100 273) (220 640) (320 913)Exchange differences . . . . . . . — — — — 17 217 — 17 217 11 891 29 108

Total comprehensive income forthe year . . . . . . . . . . . . . . — — — — (100 273) 17 217 122 165 39 109 296 195 335 304

Transactions with owners,recorded directly in equity

Transfer to reserves . . . . . . . . . — — — — — 157 477 (157 477) — — —Dividends on ordinary shares(a) . . — — — — — (27 249) — (27 249) — (27 249)Dividends on preference

shares (b) . . . . . . . . . . . . . . — — — — — (32 956) — (32 956) (23 536) (56 492)Share based payment scheme, net

of taxes . . . . . . . . . . . . . . . — — — — — 157 — 157 2 422 2 579Acquisition of own preference

shares . . . . . . . . . . . . . . . . — — (1 000) — — — — (1 000) — (1 000)Transactions with non-controlling

interest (see Note 52) . . . . . . . — — — — — 12 309 — 12 309 58 926 71 235Sale of own other equity

instruments . . . . . . . . . . . . . — — — 741 — — — 741 — 741Other . . . . . . . . . . . . . . . . . . — — — — — (1 000) — (1 000) — (1 000)Other changes in non-controlling

interest (see Note 45) . . . . . . . — — — — — — — — 237 057 237 057

Balance as at 31 December2010 . . . . . . . . . . . . . . . . . 778 549 253 656 394 514 115 109 (39 766) (82 818) 122 165 1 541 409 5 760 454 7 301 863

(a) Corresponds to a dividend per share of euro 0.30 and euro 0.35 as at 31 December 2009 and 31 December 2010 respectively, distributed to the ordinaryshares outstanding.

(b) Corresponds to a preferred dividend paid by BES Finance calculated based on an annual rate of 5.58% on the nominal amount of the preference sharesoutstanding and to the preferred dividend paid by ESFG International calculated based on an annual rate of 5.753% on the nominal amount of the preferenceshares outstanding (see Note 44).


F-5



CONSOLIDATED CASH FLOW STATEMENTFOR THE YEARS ENDED 31 DECEMBER 2010 AND 2009

Notes 31.12.2010 31.12.2009

(in thousand of euro)

Cash flows from operating activitiesInterest and similar income received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 633 606 3 966 279Interest expense and similar charges paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 518 609) (2 728 741)Fees and commission received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 946 792 843 286Fees and commission paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (174 323) (152 292)Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 652 263 242Claims paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254 787) (270 389)Medical services income received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 470 243 293Medical services expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (151 522) (161 492)Recoveries on loans previously written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 582 18 590Contributions to pension fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59 740) (36 609)Cash payments to employees and suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 080 251) (1 283 165)

Net cash from operating profits before changes in operating assets and liabilities . . . . . . . . 962 870 702 002

Deposits with central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 641 690 (1 029 455)Financial assets at fair value through profit and loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 041 (87 150)Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 584 654 (4 110 536)Deposits from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (302 098) (1 160 208)Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 102 713) (2 249 697)Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 362 765 (629 176)Hedging derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105 315) (100 526)Other operational assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (957 761) 483 625

Net cash from operating activities before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 714 133 (8 181 121)Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (247 834) (112 247)

Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 466 299 (8 293 368)Cash flows from investing activitiesPurchase of subsidiaries and associated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (286 535) (127 835)Sale of subsidiaries and associated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 021 291 774Dividends received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 313 89 885Purchase of financial assets available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42 186 780) (34 376 776)Sale of financial assets available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 542 376 33 530 220Held to maturity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 331 (378 349)Insurance investment contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (69 835) (8 545)Purchase of tangible and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (352 372) (204 648)Sale of tangible and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 400 5 482

Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 042 081) (1 178 792)Cash flows from financing activitiesDebt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 978 023 17 719 514Debt securities paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20 648 102) (8 987 471)Subordinated debt issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 279 653 620Subordinated debt paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (448 971) (401 919)Minority on capital decrease of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2 449)Minority on capital increase of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 982 910Dividend paid on ordinary shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (113 963) (216 054)Dividend paid on prefered shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56 492) (56 492)

Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9 205 226) 9 691 659Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 47 020 (5 215)

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (733 988) 214 284

Cash and cash equivalents at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 370 102 2 155 818Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 702 427 2 370 102Cash acquired on change in scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 313 —

(733 988) 214 284

Cash and cash equivalents includes:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 308 868 220 001Deposits with Central Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 667 647 2 004 330Mandatory Deposits with Central Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (153 649) (648 073)Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 879 561 793 844

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 702 427 2 370 102


F-6



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS AT 31 DECEMBER 2010 AND 2009

(Amounts expressed in thousands of euro, except when indicated)

NOTE 1 — ACTIVITY AND GROUP STRUCTURE

Espírito Santo Financial Group S.A. (ESFG or Group) is a limited liability company headquartered inLuxembourg, incorporated under Luxembourg law on 28 November 1984, and is the holding company of thebanking and financial activities of the Espírito Santo Group located in Portugal, Europe and around the world. Themain shareholder of ESFG, Espírito Santo International S.A. (ESI), is a limited liability company headquartered inLuxembourg, and is the holding company of the Espírito Santo Group interests. Most of the non financial activitiesof ESI, including real estate, hotels and other activities are managed by Rio Forte Investments SA, a companyheadquartered in Luxembourg.

Through its subsidiaries, the Group (ESFG and its subsidiaries) engages in a broad range of financial activitiesprimarily 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 at31 December 2010 and 31 December 2009.

Subsidiaries

Activity LocationVotinginterest

Economicinterest

Votinginterest

Economicinterest

31.12.2010 31.12.2009

Advancecare — Gestao de Serviços de Saúde, S.A. . . . Managed care Portugal 51.0% 51.0% 51.0% 51.0%Aman Bank for Commerce and Investment Stock

Company (a) . . . . . . . . . . . . . . . . . . . . . . . . . Commercial banking Libya 40.0% 12.1% — —Atlantic Ventures Corporation . . . . . . . . . . . . . . . . Holding company USA 100.0% 17.7% 100.0% 17.2%Avistar, SGPS, S.A. . . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%Banco Espírito Santo Angola, SARL . . . . . . . . . . . . Commercial banking Angola 51.9% 15.6% 51.9% 15.2%Banco Espírito Santo de Investimento, S.A. . . . . . . . . Investment banking Portugal 100.0% 30.1% 100.0% 29.3%Banco Espírito Santo do Oriente, S.A. . . . . . . . . . . . Commercial banking Macao 99.8% 30.1% 99.8% 29.3%Banco Espírito Santo dos Açores, S.A. . . . . . . . . . . . Commercial banking Portugal 57.5% 17.3% 57.5% 16.9%Banco Espírito Santo North America Capital Limited

Liability Co. . . . . . . . . . . . . . . . . . . . . . . . . . Financing vehicle USA 100.0% 30.1% 100.0% 29.3%Banco Espírito Santo, S.A. (a) . . . . . . . . . . . . . . . . Commercial banking Portugal 43.2% 30.1% 42.4% 29.3%Banco Espírito Santo Cabo Verde . . . . . . . . . . . . . . Commercial banking Cap Vert 100.0% 30.1% — —Bank Espírito Santo International, Ltd. . . . . . . . . . . . Commercial banking Cayman Islands 100.0% 30.1% 100.0% 29.3%Banque Espírito Santo et de la Vénétie, S.A. . . . . . . . Commercial banking France 87.5% 57.7% 87.5% 57.3%Banque Privée Espírito Santo, S.A. . . . . . . . . . . . . . Asset management Switzerland 100.0% 100.0% 100.0% 100.0%BES Activos Financeiros, Ltda . . . . . . . . . . . . . . . . Asset management Brazil 100.0% 27.4% 100.0% 26.7%BES Africa, SGPS, S.A. . . . . . . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%BES Beteiligungs, GmbH . . . . . . . . . . . . . . . . . . . Holding company Germany 100.0% 30.1% 100.0% 29.3%BES Finance, Ltd. . . . . . . . . . . . . . . . . . . . . . . . Financing vehicle Cayman Islands 100.0% 30.1% 100.0% 29.3%BES Investimento do Brasil, S.A. . . . . . . . . . . . . . . Investment banking Brazil 80.0% 24.1% 80.0% 23.5%BES REFRAN Investimentos . . . . . . . . . . . . . . . . . Services provider Brazil 70.0% 16.9% 70.0% 16.4%BES REFRAN Consultoria Financeira . . . . . . . . . . . Services provider Brazil 70.0% 16.9% 70.0% 16.4%BES Securities do Brasil, S.A. . . . . . . . . . . . . . . . . Brokerage house Brazil 100.0% 24.1% 100.0% 23.5%BESAACTIF — Sociedade Gestora de Fundos de

Investimento S.A. . . . . . . . . . . . . . . . . . . . . . . Asset management — Mutualfunds

Angola 97.0% 20.4% 97.0% 19.9%

BESAACTIF Pensoes — Sociedade Gestora de fundosde Pensoes, S.A. . . . . . . . . . . . . . . . . . . . . . . Asset management — Pensions

fundsAngola 97.0% 20.4% 97.0% 19.9%

BESPAR, SGPS, S.A. . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 67.4% 67.4% 67.4% 67.4%BEST — Banco Electrónico de Serviço Total, S.A. . . . Internet banking Portugal 75.0% 28.9% 75.0% 28.4%BIC International Bank Ltd. . . . . . . . . . . . . . . . . . Commercial banking Cayman Islands 100.0% 30.1% 100.0% 29.3%Capital Mais — Assessoria Financeira, S.A. . . . . . . . . Advisory services Portugal 100.0% 30.6% 100.0% 29.9%Casa da Cidade — Residências Sénior, S.A. . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%CÊNTIMO, SGPS, S.A. . . . . . . . . . . . . . . . . . . . Holding company Portugal — — 100.0% 29.3%Clínica Parque dos Poetas, S.A. . . . . . . . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Cliria — Hospital Privado de Aveiro, S.A. . . . . . . . . . Medical services Portugal 90.6% 28.0% 90.6% 27.9%COMINVEST — Sociedade de Gestao e Investimento

Imobiliário S.A. (a) . . . . . . . . . . . . . . . . . . . . . Real-estate Portugal 49.0% 14.8% 49.0% 14.4%Espirito Santo Investment . . . . . . . . . . . . . . . . . . . Services provider Poland 100.0% 30.1% 100.0% 29.3%CRB — Clube Residential da Boavista, S.A. . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%ES Bankers (Dubai) Limited . . . . . . . . . . . . . . . . . Commercial banking Dubai 95.0% 95.0% 95.0% 95.0%

F-7



Economicinterest

Votinginterest

Economicinterest

31.12.2010 31.12.2009

ES Financial Services, Inc. . . . . . . . . . . . . . . . . . . Brokerage house USA 100.0% 40.0% 100.0% 39.3%ES Recuperaçao de Crédito, ACE . . . . . . . . . . . . . . Debt collection Portugal 100.0% 30.1% 100.0% 29.3%ES Saúde — Residência com Serviços Sénior, S.A. . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%ES Tech Ventures, S.G.P.S., S.A. . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%ES Ventures — Sociedade de Capital de Risco, S.A. . . Venture capital Portugal 100.0% 30.1% 100.0% 29.3%ESAF — Alternative Assets Management Ltd . . . . . . . Asset management — Mutual

fundsUnited Kingdom 100.0% 30.6% 100.0% 29.9%

ESAF — Espírito Santo Activos Financeiros,S.G.P.S., S.A. . . . . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 90.0% 30.6% 90.0% 29.9%

ESAF — Espírito Santo ParticipaçoesInternacionais SGPS, S.A. . . . . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.6% 100.0% 29.9%

ESAF — International Distributors Associates, Ltd. . . . Distribution company British Virgin Islands 100.0% 30.6% 100.0% 29.9%ESFG International Ltd . . . . . . . . . . . . . . . . . . . . Financing vehicle Cayman Islands 100.0% 100.0% 100.0% 100.0%ESGEST — Esp. Santo Gestao Instalaçoes,

Aprov. e Com., S.A. . . . . . . . . . . . . . . . . . . . . Shared services Portugal 100.0% 30.1% 100.0% 29.3%Espírito Santo — Unidades de Saúde e de Apoio à

Terceira Idade, S.A. . . . . . . . . . . . . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Espírito Santo Activos Financieros, S.A. . . . . . . . . . . Asset management Spain 100.0% 30.4% 100.0% 29.6%Espírito Santo Bank (Panama), S.A. . . . . . . . . . . . . Commercial banking Panama 100.0% 100.0% 100.0% 100.0%Espírito Santo Bank, Inc. . . . . . . . . . . . . . . . . . . . Commercial banking USA 98.5% 29.7% 98.5% 28.9%Espírito Santo Capital — Sociedade de Capital

de Risco, S.A. . . . . . . . . . . . . . . . . . . . . . . . . Venture capital Portugal 100.0% 30.1% 100.0% 29.3%2BCapital, S.A. (a) . . . . . . . . . . . . . . . . . . . . . . . Venture capital Brazil 50.0% 13.6% 100.0% 26.4%Espírito Santo Concessoes, SGPS, S.A. (a) . . . . . . . . . Holding company Portugal 41.0% 12.3% 41.0% 12.0%ES Concessions International Holding, BV. . . . . . . . . Holding company Holland 100.0% 12.3% — —Espírito Santo Contact Center,

Gestao de Call Centers, S.A. . . . . . . . . . . . . . . . Call center services Portugal 97.1% 68.0% 97.1% 67.6%Espírito Santo do Oriente — Estudos Fin. e Mercado

Capitais S.A. . . . . . . . . . . . . . . . . . . . . . . . . . Consulting Macao 90.0% 27.1% 90.0% 26.4%Espírito Santo e Comercial de Lisboa Inc. . . . . . . . . . Representation office USA 100.0% 30.1% 100.0% 29.3%Espírito Santo Financial (Portugal), SGPS, S.A. . . . . . Holding company Portugal 100.0% 100.0% 100.0% 100.0%Espírito Santo Financière, S.A. . . . . . . . . . . . . . . . Holding company Luxembourg 100.0% 100.0% 100.0% 100.0%Espírito Santo Fundo de Pensoes, S.A. . . . . . . . . . . . Asset management — Pensions

fundsPortugal 100.0% 30.6% 100.0% 29.9%

Espírito Santo Fundos de InvestimentosImobiliários, S.A. . . . . . . . . . . . . . . . . . . . . . . Asset management — Real

Estate fundsPortugal 100.0% 30.6% 100.0% 29.9%

Espírito Santo Fundos de InvestimentosMobiliários, S.A. . . . . . . . . . . . . . . . . . . . . . . Asset management — Mutual

fundsPortugal 100.0% 30.6% 100.0% 29.9%

Espírito Santo Gestao de Patrimónios, S.A. . . . . . . . . Asset management Portugal 100.0% 30.6% 100.0% 29.9%Espírito Santo Gestión, S.A. S.G.I.I.C. . . . . . . . . . . . Asset management Spain 100.0% 30.4% 100.0% 29.6%Espírito Santo Informatica, ACE . . . . . . . . . . . . . . . Shared services Portugal 84.9% 25.6% 84.9% 24.9%Espírito Santo International Management, S.A. . . . . . . Asset management — Mutual

fundsLuxembourg 99.8% 30.5% 99.8% 29.9%

Espírito Santo Investment Holding Limited . . . . . . . . Holding company United Kingdom 100.0% 30.1% — —Espírito Santo Investimentos, S.A. . . . . . . . . . . . . . Holding company Brazil 100.0% 30.1% 100.0% 29.3%Espírito Santo Investments PLC . . . . . . . . . . . . . . . Brokerage house Ireland 100.0% 30.1% 100.0% 29.3%Espírito Santo Pensiones, S.G.F.P., S.A. . . . . . . . . . . Assets management — Pensions

fundsSpain 100.0% 30.4% 100.0% 29.6%

Espírito Santo Prestaçao de Serviços, ACE 2 . . . . . . . Shared services Portugal 100.0% 30.1% 100.0% 29.3%Espírito Santo Representaciones, S.A. . . . . . . . . . . . Representation office Uruguay 100.0% 29.7% 100.0% 28.9%Espírito Santo Representaçoes, Ltda . . . . . . . . . . . . . Representation office Brazil 100.0% 30.1% 100.0% 29.3%Espírito Santo Saúde SGPS, S.A. (a) . . . . . . . . . . . . Holding company Portugal 37.9% 30.9% 37.9% 30.8%Espírito Santo Servicios, S.A. . . . . . . . . . . . . . . . . Insurance Spain 100.0% 30.1% 100.0% 29.3%Espírito Santo Serviços Financeiros Distribuiçao de

Titulos e V.M., S.A. . . . . . . . . . . . . . . . . . . . . Brrokarage House Brazil 100.0% 24.1% 100.0% 23.5%Espírito Santo, PLC . . . . . . . . . . . . . . . . . . . . . . Non-bank finance company Ireland 100.0% 30.1% 100.0% 29.3%ESSI Comunicaçoes, SGPS, S.A. . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%ESSI Fin. SGPS. SA . . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 60.0% 18.1% 60.0% 17.6%ESSI Investimentos, SGPS, S.A. . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%ESSI, SGPS, S.A. . . . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%Esumédica — Prestaçao de Cuidados Médicos, S.A. . . . Health care Portugal 100.0% 82.6% 100.0% 82.4%Execution Holdings Limited . . . . . . . . . . . . . . . . . Holding company United Kingdom 50.1% 15.1% — —FI Multimercado Treasury . . . . . . . . . . . . . . . . . . Investment funds Brazil 100.0% 24.1% 100.0% 23.5%Fiduprivate — Sociedade de Serviços, Cons.e Adm.

Empresas, S.A. . . . . . . . . . . . . . . . . . . . . . . . Consulting Portugal 99.8% 82.5% 99.8% 82.3%Fundo BES Absolute Return . . . . . . . . . . . . . . . . . Investment Fund Brazil 48.2% 14.5% 52.2% 15.3%

F-8


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAS AT 31 DECEMBER 2010 AND 2009 — (Continued)




Economicinterest

Votinginterest

Economicinterest

31.12.2010 31.12.2009

Fundo BES Multimercado. . . . . . . . . . . . . . . . . . . Investment Fund Brazil 57.8% 17.4% 52.9% 15.5%Fundo de Capital de Risco — BES PME Capital

Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . Venture capital fund Portugal 100.0% 30.1% 100.0% 29.3%Fundo de Capital de Risco — ES Ventures II . . . . . . . Venture capital fund Portugal 58.8% 17.7% 58.8% 17.2%Fundo de Capital de Risco — ES Ventures III . . . . . . . Venture capital fund Portugal 57.8% 17.4% 64.9% 19.0%Fundo FCR PME / BES . . . . . . . . . . . . . . . . . . . . Venture capital fund Portugal 55.1% 16.6% 57.1% 16.8%Gespar Participaçoes, Ltda . . . . . . . . . . . . . . . . . . Holding company Brazil 100.0% 24.1% 100.0% 23.5%Gespastor, S.A., S.G.I.I.C. . . . . . . . . . . . . . . . . . . Asset management Spain 100.0% 30.4% — —HME Gestao Hospitalar, S.A. (a) . . . . . . . . . . . . . . Medical services Portugal 50.0% 15.5% 50.0% 15.4%Hospital da Arrabida — Gaia, S.A. . . . . . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Hospital da Luz — Centro Clinico da Amadora, S.A. . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Hospital da Luz, S.A. . . . . . . . . . . . . . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Hospital Residência do Mar, S.A. . . . . . . . . . . . . . . Medical services Portugal 100.0% 23.2% 100.0% 23.1%HOSPOR — Hospitais Portugueses, S.A. . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Instituto de Radiologia Dr. Idálio de Oliveira — Centro

de Radiologia Médica, S.A. . . . . . . . . . . . . . . . . Medical services Portugal 100.0% 30.9% 100.0% 30.8%Jampur — Trading International, Lda . . . . . . . . . . . . Support services Portugal — — 100.0% 29.3%KeySpace Hungary Kft . . . . . . . . . . . . . . . . . . . . Real-estate Hungary 51.0% 51.0% 51.0% 51.0%Kutaya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Support services Portugal — — 100.0% 29.3%Marignan Courtage S.A. . . . . . . . . . . . . . . . . . . . Brokerage house France — — 100.0% 57.3%Marignan Gestion S.A. . . . . . . . . . . . . . . . . . . . . Asset Management France 95.0% 54.8% 95.0% 54.5%OBLOG Consulting S.A. . . . . . . . . . . . . . . . . . . . Software development Portugal 66.6% 20.1% 66.6% 19.5%Omnium Lyonnais de Participations Industrielles, S.A. . . Investment company France 99.9% 57.6% 99.9% 57.3%Parsuni — Sociedade Unipessoal, SGPS . . . . . . . . . . Holding company Portugal 100.0% 30.1% 100.0% 29.3%PARTRAN SGPS, S.A. . . . . . . . . . . . . . . . . . . . . Holding company Portugal 100.0% 100.0% 100.0% 100.0%Praça do Marquês — Serviços Auxiliares, S.A. . . . . . . Real-estate Portugal 100.0% 30.1% 100.0% 29.3%Pastor Vida, S.A. de Sehuros y Reaseguros . . . . . . . . Insurance Portugal 50.0% 50.0% — —Quinta dos Cónegos- Sociedade Imobiliária, S.A. . . . . Real-estate Portugal 100.0% 43.4% 100.0% 42.8%RML — Residência Medicalizada de Loures, SGPS,

S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medical services Portugal 75.0% 23.2% 75.0% 23.1%SEGUROS LOGO S.A. . . . . . . . . . . . . . . . . . . . . Insurance Portugal 100.0% 100.0% 100.0% 100.0%SES Iberia, S.A. . . . . . . . . . . . . . . . . . . . . . . . . Asset management Spain 50.0% 15.1% 50.0% 14.7%SLMB — Société Lyonnaise de Marchands de Biens . . . Real-estate France 99.8% 57.5% 99.8% 57.2%Sociedade Gestora do Hospital de Loures, S.A. . . . . . Medical services Portugal 100.0% 30.9% 99.9% 30.8%Société Civile Immobilière

du 45 Avenue Georges Mandel . . . . . . . . . . . . . . Real-estate France 100.0% 51.5% 100.0% 51.0%Surgicare — Unidades de Saúde, S.A. . . . . . . . . . . . Medical services Portugal 97.5% 30.1% 97.5% 30.1%Tagide Properties, Inc. . . . . . . . . . . . . . . . . . . . . Real-estate USA 100.0% 29.7% 100.0% 28.9%TRANQUILIDADE — Companhia de Seguros

Tranquilidade, S.A. . . . . . . . . . . . . . . . . . . . . . Insurance Portugal 100.0% 100.0% 100.0% 100.0%T-VIDA, Companhia de Seguros, S.A. . . . . . . . . . . . Insurance Portugal 100.0% 100.0% 100.0% 100.0%Vila Lusitano — Unidades de Saúde, S.A. . . . . . . . . . Medical services Portugal 100.0% 23.2% 100.0% 23.1%

F-9





Associates


Economicinterest

Votinginterest

Economicinterest

31.12.2010 31.12.2009

Advance Ciclone Systems, S.A. . . . . . . . . . . . . . . . Treatment, elimination of inertresidues

Portugal 32.0% 5.6% 32.0% 6.1%

Ascendi Douro — Estradas do Douro Interior, S.A. . . . Motorway concession Portugal 22.0% 5.8% — —Apolo Films, S.L. . . . . . . . . . . . . . . . . . . . . . . . Entertainment Spain 25.1% 7.6% 25.1% 7.4%Aquaspy Group Pty Limited . . . . . . . . . . . . . . . . . Services provider Australia — — 26.3% 4.5%Ascendi Group, S.G.P.S, S.A. . . . . . . . . . . . . . . . . Motorway concession Portugal 40.0% 4.9% — —Ascendi — Concessoes de Transportes SGPS . . . . . . . Motorway concession Portugal — — 40.0% 4.8%Ascendi Pinhal Interior — Estradas do Douro

Interior S.A. . . . . . . . . . . . . . . . . . . . . . . . . . Motorway concession Portugal 22.0% 5.8% — —Consecionaria Autopista Perote-Xalapa, S.A.CV . . . . . Motorway concession Mexico 20.0% 2.5% 20.0% 2.4%Auvisa — Autovia de los Viñedos S.A. . . . . . . . . . . Motorway concession Spain 50.0% 6.2% — —Banco Delle Tre Venezie, Spa . . . . . . . . . . . . . . . . Commercial banking Italy 20.0% 6.0% 20.0% 5.9%BES, Companhia de Seguros, S.A. . . . . . . . . . . . . . Insurance Portugal 50.0% 32.5% 50.0% 32.3%BES-Vida, Companhia de Seguros, S.A. . . . . . . . . . . Insurance Portugal 50.0% 15.1% 50.0% 14.7%BIO-GENESIS . . . . . . . . . . . . . . . . . . . . . . . . . Holding company Brazil 29.9% 5.3% 29.9% 5.2%BRB Internacional, S.A. . . . . . . . . . . . . . . . . . . . Entertainment Spain 24.9% 7.5% 24.9% 7.3%Coporgest, S.A. . . . . . . . . . . . . . . . . . . . . . . . . Holding company Portugal 25.0% 7.5% 25.0% 7.3%Coreworks-Proj. Circuito Sist. Elect., S.A. . . . . . . . . It Services Portugal 40.0% 7.1% 40.0% 6.9%Empark — Aparcamientos y Servicios, S.A. . . . . . . . Management of parking slots Spain 22.4% 2.8% 25.0% 3.5%ENKROTT S.A. . . . . . . . . . . . . . . . . . . . . . . . . Water management and treatment Portugal 30.0% 5.0% 30.0% 5.0%ESEGUR — Empresa de Segurança, S.A. . . . . . . . . . Security Portugal 44.0% 13.3% 44.0% 12.9%Espírito Santo International Asset Management Ltd. . . . Holding company British Virgin Islands 49.0% 15.0% 49.0% 14.7%Europ Assistance — Comp. Portuguesa Seguros

Assistência, S.A. . . . . . . . . . . . . . . . . . . . . . . Insurance Portugal 47.0% 30.9% 47.0% 30.7%Fin Solutia — Consultoria de Gestao

de créditos, S.A. . . . . . . . . . . . . . . . . . . . . . . Credit recovery Portugal 49.5% 8.9% 49.5% 8.7%SCA Mandel Partners . . . . . . . . . . . . . . . . . . . . . Project finance France 49.0% 27.9% 45.0% 23.7%Fundo Espírito Santo IBERIA I . . . . . . . . . . . . . . . Venture capital fund Portugal 38.7% 11.7% 38.7% 11.4%Genomed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Medical services Portugal 35.0% 10.7% 35.0% 10.6%Global Active — Gestao Part. Soc., SGPS, S.A. . . . . . Holding company Portugal 44.7% 7.9% 44.7% 7.7%HCI — Health Care International Inc. . . . . . . . . . . . Medical services Portugal 50.0% 15.5% 50.0% 15.4%HL — Sociedade Gestora do Edificio, S.A. . . . . . . . . Real-estate Portugal 25.0% 7.6% 25.0% 3.1%HLC — Centrais de Cogeraçao, S.A. . . . . . . . . . . . . Services provider Portugal 24.5% 7.4% 24.5% 7.2%LOCARENT — Companhia Portuguesa de Aluguer de

Viaturas, S.A. . . . . . . . . . . . . . . . . . . . . . . . . Renting Portugal 50.0% 15.1% 50.0% 14.7%Lusoscut — Auto-Estradas da Costa de Prata S.A. . . . . Motorway concession Portugal — — 22.4% 2.7%Lusoscut — Auto-Estradas das Beiras Litoral

e Alta S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . Motorway concession Portugal — — 22.4% 2.7%Lusoscut — Auto-Estradas do Grande Porto S.A. . . . . Motorway concession Portugal — — 22.4% 2.7%MMCI — Multimédia, S.A. . . . . . . . . . . . . . . . . . Holding company Portugal 49.0% 8.1% 49.0% 8.2%MRN — Manutençao de Rodovias Nacionais, S.A. . . . Motorway concession Portugal 22.2% 2.7% — —Mobile World — Communicaçoes, S.A. . . . . . . . . . . Telecomunication Portugal 49.0% 8.1% 49.0% 8.2%Multiwave Photonics, S.A. . . . . . . . . . . . . . . . . . . IT Services Portugal 20.8% 3.7% 20.8% 3.6%Nanium, S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . Production of Semiconductors Portugal 41.1% 12.4% — —Neumáticos Andrés Investments, S.A. (c) . . . . . . . . . Services provider Spain — — 17.7% 5.2%Nova Figfort Têxteis, Lda . . . . . . . . . . . . . . . . . . . Clothing manufacture Portugal 33.3% 5.5% 33.3% 5.6%Nutrigreen, S.A. . . . . . . . . . . . . . . . . . . . . . . . . Services provider Portugal 20.0% 3.5% 20.0% 3.8%Outsystems, S.A. . . . . . . . . . . . . . . . . . . . . . . . . IT Services Portugal 29.3% 5.2% 29.3% 5.1%Palexpo — Imagem Empresarial, S.A. (formerly

Cortinovador). . . . . . . . . . . . . . . . . . . . . . . . . Furniture manufacture Portugal 49.5% 8.2% 49.5% 8.3%Polish Hotel Capital SP . . . . . . . . . . . . . . . . . . . . Services provider Poland 33.0% 9.9% 33.0% 9.7%Polish Hotel Company, SP . . . . . . . . . . . . . . . . . . Services provider Poland 33.0% 9.9% 33.0% 9.7%Polish Hotel Management Company, SP . . . . . . . . . . Services provider Poland 25.0% 7.5% 25.0% 7.3%Portvias — Portagem de Vias, S.A. . . . . . . . . . . . . . Motorway concession Portugal 22.2% 2.7% — —Prosport — Com. Desportivas, S.A. . . . . . . . . . . . . . Sporting goods trading Spain 25.0% 7.5% 25.0% 7.3%PT Prime Tradecom — Soluçoes Empresariais de

Comércio Externo, S.A. . . . . . . . . . . . . . . . . . . Management of internet portals Portugal 33.3% 10.0% — —RODI SINKS & IDEAS, S.A. . . . . . . . . . . . . . . . . Metal Industry Portugal 35.4% 7.5% 35.4% 7.4%Rua Bonita SP, Zoo (c) . . . . . . . . . . . . . . . . . . . . Services provider Poland 12.5% 3.8% — —SAGEFI — Société Antillaise de

Gestion Financière, S.A. . . . . . . . . . . . . . . . . . . Consumer credit France 38.8% 22.4% 38.8% 22.2%Salgar Investments S.L . . . . . . . . . . . . . . . . . . . . Services provider Spain 47.3% 14.3% 23.6% 6.9%Scutvias — Auto — estradas da Beira interior, S.A. . . . Motorway concession Portugal 22.2% 2.7% — —SGPICE Soc. de Serviços de Gestao . . . . . . . . . . . . Management of internet portals Portugal — — 33.3% 9.8%Só Peso Restauraçao e Hotelaria, S.A. (c) . . . . . . . . . Restaurants Portugal 9.8% 3.0% 9.8% 2.9%

F-10






Economicinterest

Votinginterest

Economicinterest

31.12.2010 31.12.2009

SOPRATTUTTO CAFÉ, S.A. . . . . . . . . . . . . . . . . Distribution company Portugal 42.5% 7.0% 44.8% 7.5%Sousacamp, SGPS, S.A. . . . . . . . . . . . . . . . . . . . Holding company Portugal 39.1% 6.9% 39.1% 6.7%Synergy industry and technology S.A. . . . . . . . . . . . Holding company Spain 26.0% 7.8% 26.0% 7.6%TLCI 2 — Soluçoes Integrades de

Telecomunicaçoes, S.A. . . . . . . . . . . . . . . . . . . Telecomunication Portugal 49.0% 8.1% — —UNICRE — Instituiçao Financeira de Crédito, SA (c) . . Financial credit institution Portugal 17.5% 5.3% — —Ydreams — Informatica, S.A. . . . . . . . . . . . . . . . . IT Services Portugal 26.1% 4.6% 26.1% 4.5%

(a) Although the Group’s voting interest is less than 50%, these companies are fully consolidated, as the Group controls its activities.

(b) Although the Group’s voting interest is more than 50%, these companies’ activities are not controlled by the Group, but the Group exercises asignificant influence over them.

(c) Although the Group’s voting interest is less than 20%, the Group exercises a significant influence over these companies.

Applying SIC 12 as described in Note 2.2, the Group consolidation scope includes, as at 31 December 2010and 2009, the following special purposes entities:

Established Headquartered Activity% Economic

interestConsolidation

method

ATAR Investments, Ltd . . . . . . . . . . . 2001 Jersey Special Purpose Entity 50.20% Full consolidationELAN, Ltd . . . . . . . . . . . . . . . . . . . 2003 Jersey Special Purpose Entity 100% Full consolidationSB Finance, Ltd . . . . . . . . . . . . . . . . 2001 Cayman Islands Special Purpose Entity 100% Full consolidationSIGNUM, Ltd 05/14/12 . . . . . . . . . . . 2001 Cayman Islands Special Purpose Entity 54.80% Full consolidationSIGNUM, Ltd 05/21/12 . . . . . . . . . . . 2001 Cayman Islands Special Purpose Entity 63.96% Full consolidationARLO II, Ltd . . . . . . . . . . . . . . . . . 2003 Cayman Islands Special Purpose Entity 100% Full consolidationNAVIO 0 05/10/11 HERZOG . . . . . . . 2001 Jersey Special Purpose Entity 100% Full consolidationNAVIO 0 05/10/11 KHAN . . . . . . . . . 2001 Jersey Special Purpose Entity 100% Full consolidationNAVIO 0 05/10/11 ITAMI . . . . . . . . . 2001 Jersey Special Purpose Entity 99.93% Full consolidationLusitano SME No. 1 plc(*) . . . . . . . . . 2006 Ireland Special Purpose Entity 100% Full consolidationLusitano Mortgages No. 6 plc(*) . . . . . 2007 Ireland Special Purpose Entity 100% Full consolidationLusitano Project Finance No. 1 plc(*) . . 2007 Ireland Special Purpose Entity 100% Full consolidationLusitano Mortgages No. 7 plc(*) . . . . . 2008 Ireland Special Purpose Entity 100% Full consolidationFimoges — Sociedade Gestora de

Fundos de InvestimentoImobiliário S.A. . . . . . . . . . . . . . . 2008 Portugal Special Purpose Entity 99.10% Full consolidation

Lusitano Leverage Finance No. 1 BV(*) . . 2010 Portugal Special Purpose Entity 100% Full consolidationLusitano SME No. 2(*) . . . . . . . . . . . 2010 Netherland Special Purpose Entity 100% Full consolidation

(*) Entities set-up in the scope of securitisation transactions (See Note 42).

F-11





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 totalinvestment of euro 40.3 million. This entity is fully consolidated, as the Group has management control ofAman Bank (see Note 52);

• In June 2010, Banco Espírito Santo Cabo Verde was incorporated with a share capital of euro 13 million, ofwhich 99.99% is held by BES África;

• In November 2010, BESI acquired a 50.1% indirect participation in Execution Holdings Limited for euro58.2 million. The Group has effective management control over this entity and therefore fully consolidatesit the date of acquisition (see Note 52);

• In November the Group sold the participation it had in Kutaya and generated a realised loss of euro0.1 million;

• In December 2010, the spanish subsidiary of BES, ESAF-Espírito Santo Activos Financieros, finalized theacquisition of the total share capital of Gespastor SGIIC, an asset management company from BancoPastor (Spain), through Espírito Santo Gestion, SGIIC. This entity is fully consolidated since the date ofacquisition (see Note 52);

• In December 2010 Tranquilidade finalized the acquisition from Banco Pastor (Spain) of 50% of PastorVida S.A, de Seguros y Reaseguros in Spain. The Group has effective management control of Pastor Vidaand therefore fully consolidated it from the date of acquisition (see Note 52);

• During 2010, the Group acquired an additional 0.82% of the share capital of BES. The impact of thisacquisition are analysed in Note 52.

— Associates (see Note 31)

• In March 2010, following the bankruptcy process of Qimonda, the Group acquired 41.06% of Nanium, SA;

• In March 2010 ES Concessoes acquired 50% of Auvisa — Autovia de los Viñedos share capital;

• In June 2010, with the acquisition of an additional 8.41% of UNICRE — Instituiçao Financeira de Crédito,S.A., the Group increased its shareholding to 17.50%. Due to the significant influence that the Group nowholds in relation to its management, this entity has been classified as an associate. At the date of the firstapplication of the equity method, a gain of euro 7 437 thousand has been recognised, related to therevaluation of the participation previously held, in accordance with the accounting policy described inNote 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, theGroup ceased to have a significant influence in the management of this entity, and consequently excludedthis entity from the scope of consolidation;

• In July 2010, ES Concessoes acquired 22.38% of Scutvias — Autoestradas de Beira Interior, SA and ofPortvias — Portagem de Vias, SA, for respectively, euro 50.7 million and euro 11 million. Those entitiesare included in the scope of consolidation of the Group;

• In July 2010, the Group sold the participation held in Neumáticos Andrés Investments, SA, generating arealized 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 Concessoes acquired 40% of Ascendi Group SGPS, SA, through the contribution inkind of shares of Ascendi Beira Litoral e Alta, Ascendi Grande Porto, Ascendi Costa de Prata and Aenor

F-12





for a total of euro 163.3 million and recognized a goodwill of euro 42 964 thousand. Within this operation,the ES Concessoes sold the participation it had in Ascendi SGPS, SA.

The main changes in the Group structure that occurred during 2009 are highlighted as follows:

— Subsidiary companies

• In January 2009, the company BESAACTIF Pensoes — Sociedade Gestora de Fundos de Pensoes, S.A.,was incorporated and is held jointly by ESAF (35%) and BES Angola (62%);

• In January 2009, ESFG sold 5% of its holding in ES Bankers (Dubai) Ltd.;

• In February 2009, the companies BES REFRAN Investimentos and BES REFRAN Consultoria wereacquired by BES Investimento Brasil;

• In March 2009, the Group liquidated Morumbi Capital Fund;

• In April and June 2009, the funds FCR — ES Ventures III and FCR — BES PME Capital Growth wereincorporated and were included in the scope of consolidation of the Group;

• In April 2009, BES increased its share capital by euro 1 200 million through the issuance of 666 666 666new shares with a nominal value of euro 1 each, and a subscription price of euro 1.80. As a result of thiscapital increase BES share capital is currently represented by 1 166 666 666 ordinary shares with a facevalue of euro 3 each. ESFG subscribed the share capital increase in order to maintain the same level ofcontrol as prior to the capital increase;

• In June 2009 ESFG Overseas was liquidated;

• In July 2009, BES Vénétie acquired 95 % of Marignan Gestion SA and 100% of Marignan Courtage SA;

• In July 2009 Cliria acquired 100% of Oia, which was subsequently merged;

• In August 2009, the company Avistar SGPS; SA was incorporated and 100% of its share capital is held byBES;

• In September 2009, Espírito Santo Data, SGPS, SA was liquidated;

• In November 2009, Espírito Santo Financial Consultants, SA was liquidated;

• In November 2009, BES África, SGPS, SA, was incorporated and is fully owned by BES;

• In December 2009, ESFG sold 25% of BEST to Saxo Bank SA. After this operation the Group holds 75%of the voting interest in BEST;

• In December 2009, BES sold 24% of BES Angola to Portmill — Investimentos e Telecomuinicaçoes, aninstutitional Angolan investor, for USD 375 millions. After this transaction the Group holds 51.94% of thevoting interest in BES Angola.

— Associates (see Note 32)

• In January 2009, BES acquired 7.33% of the share capital of Synergy Industry and Technology, S.A, thusincreasing its participation to 26%;

• In February 2009, ES Tech Ventures. SGPS, S.A. acquired 20% of Nutrigreen SA, participation which wassold in July 2009 to the Fund FCR-ES Venture III;

• In May 2009, the Fund FCR Ventures II acquired 10.58% of the share capital of YDreams — Informática,SA, thus increasing its participation to 26.08%;

• In May 2009, the Fund FCR Ventures II acquired 10.45% of the share capital of Aquaspy Group PtyLimited, thus increasing its participation to 26.25%;

F-13





• In May 2009, the Fund FCR PME BES acquired 49.05% of the share capital of Mobile World —Comunicaçoes, SA;

• In July 2009, the Fund FCR-ES Venture III acquired 32% of the share capital of Advance Ciclone Systems,SA;

• In August 2009, ES Concessoes and BESI acquired, respectively, 22.38% and 2.6% of the share capital ofEmpark — Aparcamientos y Servicios, SA;

• In September 2009, Fund FCR — ES Venture II subscribed to the capital increase of Outsystems, SA, andconsequently increased their percentage into the share capital of Outsystems SA to 17.6%;

• In October 2009, Fundo FCR PME/BES acquired 49% of MMCI — Multimédia, SA;

• In October 2009, Decomed, SGPS, SA was liquidated;

• In November 2009, BES acquired an additional 5% of the share capital of Locarent. After this transactionBES now holds 50% of Locarent;

• In November 2009, the Fund FCR PME BES acquired 49.5% of the share capital of Cortinovador, SA;

• In December 2009, the Fund FCR PME BES acquired 33.30% of the share capital of Nova Figfort —Têxteis, Lda, for an amount of euro 1;

• In December 2009, Banco Delle Tre Venezie, Spa, held for 20% by BES, is included in the scope ofconsolidation of the Group under the equity method.

F-14





During the years 2010 and 2009, the movements on acquisitions, disposals and other investments insubsidiaries and associated companies are as follows:

Acquisitionprice

Otherinvestments

(a) Total Sale priceOther

reimbursements Total

Gain/(loss) ondisposal/

liquidationNet of minority

interest

Acquisitions Disposals / Liquidations

31.12.2010


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 030Ascendi Grande Porto . . . . . . . — — — (54 391) (369) (54 760) 18 073 5 445Ascendi Costa de Prata . . . . . . — — — (22 637) — (22 637) 6 196 1 867Empark . . . . . . . . . . . . . . . . . — — — (7 136) — (7 136) — —Neumáticos Andrés

Investments, S.A. . . . . . . . . — — — (5 660) — (5 660) 3 559 1 072Agrilink (Aquaspy) . . . . . . . . . — — — — (3 573) (3 573) — —Ascendi — Concessoes de

Transportes . . . . . . . . . . . . . — — — (2 400) — (2 400) 2 000 603Other . . . . . . . . . . . . . . . . . . . 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 interests.

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Acquisitionprice

Otherinvestments

(a) Total Sale priceOther

reimbursements Total

Gain/(loss) ondisposal/

liquidationNet of minority

interest

Acquisitions Disposals / Liquidations

31.12.2009


SubsidiariesBES . . . . . . . . . . . . . . . . . . . . . 19 956 — 19 956 — — — — —Morumbi Capital Fund (b) . . . . . — — — — — — 832 244ES Data (c) . . . . . . . . . . . . . . . . — — — — — — (6 434) (1 888)ES Financial Consultants (d) . . . . — — — — — — 713 209BES Angola (e) . . . . . . . . . . . . . — — — 260 308 — 260 308 190 879 56 004ES Bankers (Dubai) (f) . . . . . . . . — — — 1 125 — 1 125 272 272BEST (g) . . . . . . . . . . . . . . . . . — — — 25 192 — 25 192 13 066 13 066BES Refran Investimento . . . . . . 54 — 54 — — — — —BES Refran Consultoria . . . . . . . 848 — 848 — — — — —Marignan Gestion . . . . . . . . . . . 4 853 — 4 853 — — — — —Oia . . . . . . . . . . . . . . . . . . . . . 3 825 — 3 825 — — — — —

29 536 — 29 536 286 625 — 286 625 199 328 67 907Associated companies

Ascendi . . . . . . . . . . . . . . . . . . — 800 800 — 400 400 — —Coreworks . . . . . . . . . . . . . . . . — 11 11 — — — — —Sousacamp . . . . . . . . . . . . . . . . — 3 000 3 000 — — — — —Outsystems . . . . . . . . . . . . . . . . 2 400 — 2 400 — — — — —BIO-Genesis . . . . . . . . . . . . . . . — 927 927 — — — — —Nutrigreen . . . . . . . . . . . . . . . . 1 521 1 000 2 521 — — — — —Synergy . . . . . . . . . . . . . . . . . . 8 000 — 8 000 — — — — —Ydreams . . . . . . . . . . . . . . . . . . 7 576 — 7 576 — — — — —Aquaspy . . . . . . . . . . . . . . . . . . 3 390 — 3 390 — — — — —Mobile World . . . . . . . . . . . . . . 123 — 123 — — — — —Advance Ciclone Systems . . . . . . 1 200 — 1 200 — — — — —Empark . . . . . . . . . . . . . . . . . . 61 413 — 61 413 — — — — —Decomed . . . . . . . . . . . . . . . . . — — — 1 000 — 1 000 250 73Locarent . . . . . . . . . . . . . . . . . . 450 — 450 — — — — —Banco Delle Tre Venezie . . . . . . 5 275 — 5 275 — — — — —Cortinovador . . . . . . . . . . . . . . . 247 — 247 — — — — —Global Active . . . . . . . . . . . . . . — 90 90 — — — — —Lusoscut Costa de Prata . . . . . . . — 753 753 — 283 283 — —Lusoscut Grande Porto . . . . . . . . — — — — 2 783 2 783 — —Lusoscut Beira Litoral e Alta . . . — — — — 683 683 — —MMCI — Multimédia . . . . . . . . 123 — 123 — — — — —

91 718 6 581 98 299 1 000 4 149 5 149 250 73

121 254 6 581 127 835 287 625 4 149 291 774 199 578 67 980

(a) capital increase(b) fund liquidated in March 2009(c) Liquidated in September 2009(d) Liquidated in November 2009(e) Sale of 24% in December 2009(f) Sale of 5% in January 2009(e) Sale of 25% in December 2009

F-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 andParliament, Espírito Santo Financial Group S.A. (“ESFG” or “the Company”) is required to prepare its consolidatedfinancial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by theEuropean Union (“EU”).

IFRS comprise accounting standards issued by the International Accounting Standards Board (“IASB”) and itspredecessor body as well as interpretations issued by the International Financial Reporting InterpretationsCommittee (“IFRIC”) and its predecessor body.

These consolidated financial statements as at and for the year ended 31 December 2010 were prepared inaccordance with the IFRS effective and adopted by the EU until 31 December 2010. The accounting policiesapplied by the Group in the preparation of its consolidated financial statements as at 31 December 2010 areconsistent with the ones used in the preparation of the consolidated financial statements as at and for the year ended31 December 2009.

However, as described in Note 53, in the preparation of the consolidated financial statements as at 31 December2010, the Group adopted the accounting standards issued by the IASB and the interpretations issued by the IFRICeffective since 1 January 2010. The accounting principles used by the Group in the preparation of these consolidatedfinancial statements, described in this Note, were modified accordingly. The adoption of these new standards andinterpretations 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 notyet adopted in the preparation of its financial statements can be analysed in Note 53.

These consolidated financial statements are expressed in thousands of euro, except when indicated, and havebeen 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 theuse of estimates and assumptions by management that affects the process of applying the Group’s accountingpolicies and the reported amounts of income, expenses, assets and liabilities. Actual results in the future may differfrom those reported. The areas involving a higher degree of judgement or complexity, or areas where assumptionsand 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 22 March2011. These financial statements are subject to the shareholders approval on the General Assembly, to be held on29 April 2011.

2.2. Basis of consolidation

These consolidated financial statements comprise the financial statements of Espírito Santo Financial GroupS.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 periodscovered by the consolidated financial statements.

Subsidiaries

Subsidiaries are entities over which the Group exercises control. Control is presumed to exist when the Groupowns 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 itsactivities, even if its shareholding is less than 50%. Subsidiaries are fully consolidated from the date on whichcontrol is transferred to the Group until the date that control ceases.

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Until 31 December 2009, when accumulated losses of a subsidiary attributable to non-controlling interestsexceeded the equity of the subsidiary attributable to the non-controlling interests, the excess was attributed to theGroup and was taken to the income statement when incurred. The profits obtained subsequently were recognised bythe Group until the losses attributed to the non-controlling interest, previously recognised, were recovered. From1 January 2010, accumulated losses of a subsidiary are attributed proportionally to the owners of the parent and tothe non-controlling interest even if this results in non-controlling interest having a deficit balance.

After 1 January 2010, in a business combination achieved in stages (step acquisition) where control isobtained, the Group remeasures its previously held non-controlling interest in the acquire at its acquisition date fairvalue 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-controllinginterest retained is remeasured to fair value at the date the control is lost and the resulting gain or loss is recognisedagainst the income statement.

Associates

Associates are entities over which the Group has significant influence over the company’s financial andoperating policies but not its control. Generally when the Group owns more than 20% of the voting rights it ispresumed that it has significant influence. However, even if the Group owns less than 20% of the voting rights, it canhave significant influence through the participation in the policy-making processes of the associated entity or therepresentation in its executive board of directors. Investments in associates are accounted for by the equity methodof accounting from the date on which significant influence is transferred to the Group until the date that significantinfluence ceases. The book value of the investments in associates includes the value of the respective goodwilldetermined on acquisition and is presented net of impairment losses.

After 1 January 2010, in a step acquisition that results in the Group obtaining significant influence over anentity, any previously held stake in that entity is remeasured to fair value through the income statement when theequity 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 constructiveobligation 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 thatsale 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 narrowand well defined objective, when the substance of the relationship with those entities indicates that they arecontrolled 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 theGroup’s business, so that the Group obtains the benefits from these activities;

• In substance the Group has the decision-making powers to obtain the majority of the benefits from theactivities of the SPE;

• In substance, the Group has rights to obtain the majority of the benefits of the SPE, and therefore may beexposed 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 obtainthe benefits from its activities.

F-18





Investment funds managed by the Group

As part of the asset management activity, the Group manages investment funds on behalf of the holders of theparticipation units. The financial statements of these funds are not consolidated by the Group except in the caseswhere 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 2009was accounted under the purchase method. The cost of acquisition was measured as the fair value, determined at theacquisition date, of the assets and equity instruments given and liabilities incurred or assumed plus any costsdirectly attributable to the acquisition. Goodwill represented the difference between the cost of acquisition and thefair 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 considerationtransferred including the fair value of any previously held non-controlling interests in the acquire, less the netrecognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured asof 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 valueof 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 portionattributable 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 notamortised. Goodwill relating to the acquisition of associates is included in the book value of the investment in thoseassociates determined using the equity method. Negative goodwill is recognised directly in the income statement inthe period the business combination occurs.

The recoverable amount of the goodwill recognised as an asset is reviewed annually, regardless of whetherthere is any indication of impairment. Impairment losses are recognised directly in the income statement.

Transactions with non-controlling interests

Until 31 December 2009, the goodwill resulting from the acquisition of non-controlling interests in asubsidiary represented the difference between the acquisition cost of the additional investment in the subsidiaryand the book value, at acquisition date, of the net assets acquired, as recognised in the consolidated financialstatements. Gains or losses on a dilution or on a sale of a portion of an interest in a subsidiary without a change incontrol, corresponding to an increase in non-controlling interests, were accounted for by the Group in the incomestatement.

From 1 January 2010, acquisitions of non-controlling interest are accounted for as transactions with equityholders 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 foras a movement in equity.

Similarly, sales of non-controlling interest and dilutions from which does not result a loss of control, areaccounted for as transactions with equity holders in their capacity as equity holders and therefore no gain or loss isrecognised 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.

Gains or losses on a dilution or on a sale of a portion of an interest in a subsidiary, from which results a loss ofcontrol, are accounted for by the Group in the income statement.

F-19





Foreign currency translation

The financial statements of each of the Group entities are prepared using their functional currency which isdefined as the currency of the primary economic environment in which that entity operates. The consolidatedfinancial 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 euroare translated into euro as follows:

• Assets and liabilities are translated into the functional currency using the exchange rate prevailing at thebalance sheet date;

• Income and expenses are translated into the functional currency at rates approximating the rates ruling atthe dates of the transactions;

• The exchange differences resulting from the translation of the equity at the beginning of the year using theexchange rates at the beginning of the year and at the balance sheet date are accounted for against reservesnet of deferred taxes. The exchange differences arising from the translation of income and expenses at therates 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 thegain or loss on sale.

Balances and transactions eliminated in consolidation

Inter-company balances and transactions, including any unrealised gains and losses on transactions betweenGroup companies, are eliminated in preparing the consolidated financial statements, unless unrealised lossesprovide 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 theGroup’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence ofan impairment loss.

2.3. Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing atthe dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to euroat the foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on translation arerecognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated inforeign currencies that are stated at fair value are translated to euro at the foreign exchange rates ruling at the datesthe fair value was determined. The resulting exchange differences are accounted for in the income statement, exceptif related to equity instruments classified as available-for-sale, which are accounted for in equity, within the fairvalue reserve.

2.4. Derivative financial instruments and hedge accounting

Classification

Derivatives for risk management purposes include (i) hedging derivatives and (ii) derivatives used to managethe risk of certain financial assets and financial liabilities designated at fair value through profit or loss that were notclassified as being hedging derivatives.

All other derivatives are classified as trading derivatives.

F-20





Recognition and measurement

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into (tradedate). Subsequent to initial recognition, the fair value of derivative financial instruments is re-measured on a regularbasis and the resulting gains or losses on re-measurement are recognised directly in the income statement, except forderivatives designated as hedging instruments. The recognition of the resulting gains or losses of the derivativesdesignated 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 usingvaluation 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 thefollowing criteria are met:

(i) At the inception of the hedge, the hedge relationship is identified and documented, including theidentification of the hedged item and of the hedging instrument and the evaluation of the effectiveness ofthe 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 anongoing 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 therespective accounting policy, is adjusted to reflect the changes in its fair value that are attributable to the risks beinghedged. Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in theincome statement, together with any changes in the fair value of the hedged asset or liability that are attributable tothe risk being hedged.

If the hedge no longer meets the criteria for hedge accounting, the derivative financial instrument is transferredto the trading portfolio and the hedge accounting is discontinued prospectively. The cumulative adjustment to thecarrying amount of a hedged item for which the effective interest rate method is used is amortised to the incomestatement 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 cashflows, the effective portion of changes in the fair value of the hedging derivatives is recognised in equity. Amountsaccumulated in equity are recycled to the income statement in the periods in which the hedged item will affect theincome statement. The gain or loss relating to the ineffective portion is recognised immediately in the incomestatement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedgeaccounting, any cumulative gain or loss recognised in equity at that time is recognised in the income statement whenthe 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 hedginginstrument is reclassified for the trading portfolio.

During the periods covered by these financial statements, the Group did not have any transactions classified ascash flow hedge.

F-21





Embedded derivatives

Derivatives that are embedded in other financial instruments are treated as separate derivatives when theireconomic characteristics and risks are not closely related to those of the host contract and the host contract is notcarried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes infair 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 intendedto 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 toreceive their cash flows have expired, (ii) the Group has transferred substantially all risks and rewards of ownershipor (iii) although retaining some but not substantially all of the risks and rewards of ownership, the Group hastransferred the control over the assets.

Loans and advances to customers are initially recorded at fair value plus transaction costs and are subsequentlymeasured 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 financialinstruments to manage certain risks of a portion of the loan portfolio, without applying, however, the provisions ofhedge accounting as mentioned in Note 2.4. These loans are measured at fair value through profit or loss, in order toeliminate a measurement inconsistency resulting from measuring loans and derivatives for risk managementpurposes on different basis (accounting mismatch). This procedure is in accordance with the accounting policy forclassification, recognition and measurement of financial assets at fair value through profit or loss, as described inNote 2.6.

Impairment

The Group assesses, at each balance sheet date, whether there is objective evidence of impairment within itsloan portfolio. Impairment losses identified are recognised in the income statement and are subsequently reversedthrough 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 initialrecognition and (ii) that event (or events) has an impact on the estimated future cash flows of the loan or of the loanportfolio, that can be reliably estimated.

The Group first assesses whether objective evidence of impairment exists individually for each loan. In thisassessment the Group uses the information that feeds the credit risk models implemented and takes intoconsideration 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 generatesufficient 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 aregrouped together on the basis of similar credit risk characteristics for the purpose of evaluating the impairment on aportfolio basis (collective assessment). Loans that are assessed individually and found to be impaired are notincluded in a collective assessment for impairment.

F-22





If an impairment loss is identified on an individual basis, the amount of the impairment loss to be recognised iscalculated as the difference between the book value of the loan and the present value of the expected future cashflows (considering the recovery period), discounted at the original effective interest rate. The carrying amount ofimpaired loans is reduced through the use of an allowance account. If a loan has a variable interest rate, the discountrate 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 asinterest and similar income.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cashflows 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 riskcharacteristics, taking in consideration the Group’s credit risk management process. Future cash flows in a group ofloans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of theloans in the Group and historical loss experience. The methodology and assumptions used for estimating future cashflows are reviewed regularly by the Group with the purpose of reducing any differences between loss estimates andactual loss experience.

When a loan is considered by the Group as uncollectible and an impairment loss of 100% was recognised, it iswritten off against the related allowance for loan impairment. Subsequent recoveries of amounts previously writtenoff 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 thepurpose of selling in the short term or that are owned as part of a portfolio of identified financial instruments that aremanaged 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 accountingmismatch; or

• Such financial assets contain an embedded derivative.

The structured products acquired by the Group corresponding to financial instruments containing one or moreembedded derivatives meet the above mentioned conditions, and, in accordance, are classified under the fair valuethrough profit or loss category.

• Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments andfixed maturities that the Group’s management has the positive intention and ability to hold until its maturity and thatare not classified, at inception, as at fair value through profit or loss or as available-for-sale.

• Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets (i) intended to be held for an indefiniteperiod of time, (ii) designated as available-for-sale at initial recognition or (iii) that are not classified in the othercategories referred to above.

F-23





Initial recognition, initial measurement and derecognition

Purchases and sales of: (i) financial assets at fair value through profit or loss, (ii) held-to-maturity investmentsand (iii) available-for-sale financial assets are recognised on trade date — the date on which the Group commits topurchase or sell the asset.

Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fairvalue 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 avaluation technique, may differ from the transaction price, namely due to the existence of a built-in fee, originatinga 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 fairvalue of these instruments at inception and on subsequent measurements is determined only based on observablemarket 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 notsubstantially 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 lossesarising 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 arisingfrom changes in their fair value are recognised directly in equity, until the financial assets are derecognised orimpaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the incomestatement. Foreign exchange differences arising from equity investments classified as available-for-sale are alsorecognised in equity, while foreign exchange differences arising from debt investments are recognised in the incomestatement. Interest, calculated using the effective interest rate method and dividends are recognised in the incomestatement.

Held-to-maturity investments are carried at amortised cost using the effective interest rate method, net of anyimpairment losses recognised.

The fair values of quoted investments in active markets are based on current bid prices. For unlisted securitiesthe Group establishes fair value by using (i) valuation techniques, including the use of recent arm’s lengthtransactions, discounted cash flow analysis and option pricing models and (ii) valuation assumptions based onmarket information.

Reclassifications between categories

The Group only reclassifies non-derivative financial assets with fixed or determinable payments and fixedmaturities, from the available-for-sale financial assets category to the held-to-maturity investments category, if ithas 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 thereclassification. The difference between this fair value and the respective nominal value is recognised in the incomestatement until maturity, based on the effective interest rate method. The fair value reserve at the date of thereclassification is also recognised in the income statement, based on the effective interest rate method.

During the years 2010 and 2009, there were no reclassifications between categories.

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Impairment

The Group assesses periodically whether there is objective evidence that a financial asset or group of financialassets is impaired. If there is objective evidence of impairment, the recoverable amount of the asset is determinedand 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 aresult of one or more events that occurred after their initial recognition, such as: (i) for equity securities, a significantor prolonged decline in the fair value of the security below its cost, and (ii) for debt securities, when that event (orevents) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can bereliably estimated.

For held-to-maturity investments, the amount of the impairment loss is measured as the difference between theasset’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 isreduced through the use of an allowance account. If a held-to-maturity investment has a variable interest rate, thediscount 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 thedecrease can be related objectively to an event occurring after the impairment loss was recognised, the previouslyrecognised 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 currentfair value, less any impairment loss on that financial asset previously recognised in the income statement — is takento the income statement. If, in a subsequent period, the amount of the impairment loss decreases, the previouslyrecognised impairment loss is reversed through the income statement up to the acquisition cost if the increase isobjectively related to an event occurring after the impairment loss was recognised, except in relation to equityinstruments, 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’sreturn are not derecognised. The corresponding liability is included in amounts due to banks or to customers, asappropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of theagreements using the effective interest rate method.

Securities purchased under agreements to resell (‘reverse repos’) at a fixed price or at the purchase price plus alender’s return are not recognised, being the purchase price paid recorded as loans and advances to banks orcustomers, as appropriate. The difference between purchase and resale price is treated as interest and accrued overthe life of the agreements using the effective interest rate method.

Securities lent under lending agreements are not derecognised being classified and measured in accordancewith the accounting policy described in Note 2.6. Securities borrowed under borrowing agreements are notrecognised 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 oranother 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 Groupassumes 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 atamortised cost, using the effective interest rate method, except for short sales and financial liabilities designated atfair 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 accountingmismatch; or

• Such financial liabilities contain embedded derivatives.

The structured products issued by the Group meet the above mentioned conditions and, in accordance, areclassified 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, theGroup establishes the fair value by using valuation techniques based on market information, including the owncredit risk of the issuer.

If the Group repurchases debt issued, it is derecognised from the balance sheet and the difference between thecarrying amount of the liability and its acquisition cost is recognised in the income statement.

2.9. Equity instruments

An instrument is classified as an equity instrument when it does not contain a contractual obligation to delivercash or another financial asset, independently from its legal form, being a contract that evidences a residual interestin 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 adeduction from the proceeds. Amounts paid or received related to acquisitions or sales of equity instruments arerecognised 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 toredeem and if dividends, non cumulative, are paid only if and when declared by the Group.

2.10. Compound financial instruments

Non-derivative financial instruments that contain both a liability and an equity component (e.g. convertiblebonds and bonds issued with warrants) are classified as compound financial instruments. For these instruments to beconsidered as compound financial instruments, the number of shares to be issued upon conversion is determined atthe date of issue and does not vary with changes in their fair value. The liability component corresponds to thepresent value of the future interest and principal payments, discounted at the market rate of interest applicable tosimilar liabilities that do not have a conversion option. The equity component corresponds to the difference betweenthe proceeds of the issue and the amount attributed to the liability. The interest expense recognised in the incomestatement is calculated using the effective interest method.

2.11. Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is alegally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realisethe asset and settle the liability simultaneously.

2.12. Non-current assets held for sale

Non-current assets or disposal groups (groups of assets to be disposed of together and related liabilities thatinclude at least a non-current asset) are classified as held for sale when their carrying amounts will be recoveredprincipally through sale (including those acquired exclusively with a view to its subsequent disposal), the assets ordisposal 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 andliabilities in a disposal group, is brought up to date in accordance with the applicable IFRS. Subsequently, these

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assets or disposal group are measured at the lower of their carrying amount or fair value less costs to sell, determinedannually 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 amountsdue. In case of loans and advances with mortgage collateral, the Group acquires the asset held as collateral inexchange for loans. In accordance with the requirements of Regime Geral das Instituiçoes de Crédito e SociedadesFinanceiras (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 writtenauthorization 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 isclassified as non-current assets held-for-sale and is initially recognised at the lower of its fair value less costs to selland the carrying amount of the loans. Subsequently, this property is measured at the lower of its carrying amountand the corresponding fair value less costs to sell and is not depreciated. Any subsequent write-down of the acquiredproperty 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 valuationsperformed by experts.

2.13. Property and equipment

Property and equipment are measured at cost less accumulated depreciation and impairment losses. At thetransition date to IFRS, 1 January 2004, the Group elected to consider as deemed cost, the revalue amount ofproperty and equipment as determined in accordance with previous accounting policies of the Group, which wasbroadly similar to depreciated cost measured under IFRS, adjusted to reflect changes in a specific price index. Thevalue includes expenditure that is directly attributable to the acquisition of the items. In relation to the insuranceactivity, 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, asappropriate, 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.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method over theirestimated useful lives, as follows:

Number of years

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 to 50Improvements in leasehold property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 5Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 10Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 12Security equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 10Office equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 to 10Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

When there is an indication that an asset may be impaired, IAS 36 requires that its recoverable amount isestimated 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 onthe net present value of future cash flows arising from the continuing use and ultimate disposal of the asset.

2.14. 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

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expenditures, and subsequently at their fair value. Changes in the fair value determined at each balance sheet dateare 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 benefitsin excess of the originally assessed standard of performance of the asset.

2.15. Intangible assets

The costs incurred with the acquisition, production and development of software are capitalised, as well as thecosts incurred to acquire and bring to use the specific software. These costs are amortised on the basis of theirexpected useful lives, which is usually between three to six years.

Costs that are directly associated with the development of identifiable specific software applications, and thatwill probably generate economic benefits beyond one year, are recognised as intangible assets. These costs includeemployee costs from the Group companies specialised in IT directly associated with the development of the referredsoftware.

All remaining costs associated with IT services are recognised as an expense as incurred.

2.16. Leases

The Group classifies its lease agreements as finance leases or operating leases taking into consideration thesubstance of the transaction rather than its legal form, in accordance with IAS 17 — Leases. A lease is classified as afinance lease if it transfers substantially all the risks and rewards incidental to ownership. All other leases areclassified 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

Finance lease contracts are recorded at inception date, both under assets and liabilities, at the cost of the assetleased, which is equal to the present value of outstanding lease instalments. Instalments comprise (i) an interestcharge, which is recognised in the income statement and (ii) the repayment of principal, which is deducted fromliabilities. Financial charges are recognised as costs over the lease period, in order to produce a constant periodicrate 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 investmentmade in the leased assets. Interest included in instalments charged to customers is recorded as interest income, whilerepayments of principal, also included in the instalments, is deducted from the amount of the loans granted. Therecognition of the interest reflects a constant periodic rate of return on the lessor’s net outstanding investment.

2.17. Employee benefits

Pensions

To cover the liabilities assumed by the Group within the framework stipulated by the ACT “Acordo Colectivode Trabalho” for the banking sector in Portugal and by the CCT “Contrato Colectivo de Trabalho” for the insurancesector in Portugal, pension funds were set up to cover retirement benefits, including widows and orphans benefitsand disability for the entire work force and also health-care benefits for employees hired until 31 March 2008.Employees hired after 31 March 2008 are covered by the Social Security general scheme.

The pension liabilities and health care benefits are covered by funds that are managed by ESAF — EspíritoSanto Fundos de Pensoes, S.A., a Group’s subsidiary.

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The pension plans of the Group are classified as defined benefit plans, since the criteria to determine thepension 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 retrospectivelyand has recalculated the pension and other post-retirement benefits obligations and the corresponding actuarialgains and losses to be deferred in accordance with the corridor method allowed by this accounting standard.

The pension liability is calculated semi-annually by the Group, as at 31 December and 30 June for each planindividually, using the projected unit credit method, and reviewed annually by qualified independent actuaries. Thediscount rate used in this calculation was determined with reference to market rates associated with high-qualitycorporate bonds issues, denominated in the currency in which benefits will be paid and with a maturity similar to theexpiry date of the plan obligations.

Actuarial gains and losses determined semi-annually and resulting from (i) the differences between financialand actuarial assumptions used and real values obtained (experience adjustments) and (ii) changes in the actuarialassumptions are recognised as an asset or liability and are recognised in the income statement using the corridormethod defined by IAS 19.

This method establishes that the actuarial gains and losses accumulated at the beginning of the semester thatexceed the greater of 10% of the pension liabilities or the fair value of the plan assets, as at the beginning of thesemester, are charged to the income statement over a period not to exceed the average of the remaining workinglives of the employees participating in the plan. The Group has determined on the basis of the above criteria toamortise the actuarial gains and losses that fall outside the corridor over a 15 year period. The actuarial gains andlosses accumulated at the beginning of the period that are within the corridor are not recognised in the incomestatement.

At each period, the Group recognises as a cost in the income statement a net total amount that comprises (i) theservice cost, (ii) the interest cost, (iii) the expected return on plan assets, (iv) a portion of the net cumulative actuarialgains and losses determined using the corridor method, and (v) the effect of curtailment losses related with earlyretirements, 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 beforethe normal age of retirement, which is 65 years.

ESFG and its subsidiaries make payments to the fund in order to maintain its solvency and to comply with thefollowing minimum levels: (i) the liability with pensioners shall be totally funded at the end of each year, and (ii) theliability 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 recognisedasset in relation to the defined benefit pension plans, based on the expectation of reductions in future contributionsto the funds.

Health care benefits

The Group provides to its banking employees health care benefits through a specific Social-MedicalAssistance Service. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managedby 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 internalregulations.

The annual contribution of the Group to SAMS amounts to 6.5% of the total annual remuneration ofemployees, including, among others, the holiday and Christmas subsidy.

The measurement and recognition of the Group’s liability with post-retirement healthcare benefits is similar tothe measurement and recognition of the pension liability described above.

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These benefits are covered by the Pension Fund which at present covers all responsibilities with pensions andhealth care benefits.

Long term service benefits

In accordance with the ACT “Acordo Colectivo de Trabalho” for the banking sector, BES Group has assumedthe commitment to pay to current employees that achieve 15, 25 and 30 years of service within the Group, long-termservice premiums corresponding, respectively, to 1, 2 and 3 months of their effective monthly remuneration earnedat the date the premiums are paid.

At the date of early retirement or disability, employees have the right to a premium proportional to what theywould 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-termemployee benefits.

The liability with long term service benefits is calculated semi-annually, at the balance sheet date, by theGroup using the projected unit credit method. The actuarial assumptions used are based on the expectations aboutfuture salary increases and mortality tables. The discount rate used in this calculation is determined based on thesame methodology described above for pensions.

In each period, the increase in the liability for long term service premiums, including actuarial gains and lossesand 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 hadto hold the shares for a minimum of two to four years after which they could sell the shares in the market and repaythe debt. However, the employees had, after the referred period, the option to sell the shares back to BES atacquisition cost.

The shares held by BES employees under SIBAwere accounted for as treasury shares of BES being, therefore,applicable the accounting policy described in Note 2.9 to any transactions made with these shares. This scheme wasclassified as an equity settlement share based payment in accordance with IFRS 2 — Share based payments.

Each option under the scheme was fair valued on grant date and was recognised as an expense, with acorresponding increase in equity, over the vesting period. Annually the amount recognised as an expense wasadjusted 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, oralternatively to require a cash payment equivalent to the appreciation of ESFG share market price above thestrike 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 acash settlement share based payment.

The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statementas staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheetdate, being the fair value changes recognised in the income statement under the caption staff costs.

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Variable remuneration payment plan

During the first semester of 2008, following the BES’ General Shareholders Meeting held on 31 March 2008,BES and its subsidiaries established a benefits payment scheme — Variable remuneration payment plan (PPRV —2008/2010).

Under this incentive scheme, employees of BES and its subsidiaries have 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 thispayment, the employees have to remain in BES for a minimum period of three years.

This variable remuneration payment plan is within the scope of IFRS 2 — Share based payments andcorresponds to a cash settlement share based payment. The fair value of this benefit plan at inception, determined atits grant date, will be taken to the income statement as staff costs over a period of three years. The recognisedliability under the plan is re-measured at each balance sheet date, being the fair value changes recognised in theincome statement.

Bonus to employee and to the Board of Directors

In accordance with IAS 19 — Employee benefits, the bonus payment to employees and to the Board ofDirectors are recognised in the income statement in the year to which they relate.

2.18. Income tax

Income tax for the period comprises current tax and deferred tax. Income tax is recognised in the incomestatement except to the extent that it relates to items recognised directly in equity, in which case it is recognised inequity. Income tax recognised directly in equity relating to fair value re-measurement of available-for-sale financialassets and cash flow hedges is subsequently recognised in the income statement when gains or losses giving rise tothe 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 orsubstantively enacted at the balance sheet date at each jurisdiction.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences betweenthe carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis, and iscalculated using the tax rates enacted or substantively enacted at the balance sheet date in any jurisdiction and thatare expected to apply when the related deferred income tax asset is realised or the deferred income tax liability issettled.

Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill, not deductiblefor tax purposes, differences arising on initial recognition of assets and liabilities that affect neither accounting nortaxable profit and differences relating to investments in subsidiaries to the extent that probably they will not reversein the foreseeable future. Deferred tax assets are recognised to the extent it is probable that future taxable profits willbe 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 alegally enforceable right to set off current tax assets against current tax liabilities, and (ii) they relate to income taxeslevied by the same taxation authority. This offset is therefore performed at each subsidiary level, being the deferredtax asset presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferredtax assets and the deferred tax liability presented in the consolidated balance sheet the sum of the subsidiaries’amounts which present deferred tax liabilities.

2.19. Provisions

Provisions are recognised when: (i) the Group has present legal or constructive obligation, (ii) it is probablethat settlement will be required in the future and (iii) a reliable estimate of the obligation can be made.

Restructuring provisions are recognised when the Group has approved a detailed and formal restructuring planand such restructuring either has commenced or has been announced publicly.

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A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from acontract are lower than the unavoidable costs of meeting its obligation under the contract. The provision is measuredat the present value of the lower of the expected cost of terminating the contract and the expected net costs ofcontinuing with the contract.

2.20. Interest income and expense

Interest income and expense are recognised in the income statement under interest and similar income andinterest expense and similar charges for all non-derivative financial instruments measured at amortised cost and forthe 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 similarincome or interest expense and similar charges, respectively.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughthe expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of thefinancial asset or financial liability. The effective interest rate is calculated at inception and it is not subsequentlyrevised.

When calculating the effective interest rate, the Group estimates cash flows considering all contractual termsof the financial instrument (for example, prepayment options) but does not consider future credit losses. Thecalculation 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), theinterest 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 thechanges in the fair value of derivatives for risk management purposes is recognised under interest and similarincome or interest expense and similar charges.

2.21. 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, arerecognised as income when the significant act has been completed;

• Fees and commissions earned over the period in which the services are provided are recognised asincome in the period the services are provided;

• Fees and commissions that are an integral part of the effective interest rate of a financial instrument arerecognised as income using the effective interest rate method.

2.22. Dividend income

Dividend income is recognised when the right to receive payment is established.

2.23. Fiduciary activities

Assets held in the scope of the fiduciary activity are not recognised in the consolidated financial statements ofthe Group. Fee and commissions arising from this activity are recognised in the income statement in the period towhich they relate.

2.24. Insurance contracts

The Group issues contracts that contain insurance risk, financial risk or a combination of both insurance andfinancial risk. A contract, under which the Group accepts significant insurance risk from another party, by agreeing

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to compensate that party on the occurrence of a specified uncertain future event, is classified as an insurancecontract.

A contract issued by the Group without significant insurance risk, but on which financial risk is transferredwith discretionary participating features is classified as investment contract recognised and measured in accordancewith the accounting policies applicable to insurance contracts. A contract issued by the Group that transfers onlyfinancial risk, without discretionary participating features, is classified as an investment contract and accounted foras a financial instrument.

The financial assets held by the Group to cover the liabilities arising under insurance and investment contractsare classified and accounted for in the same way as other Group financial assets.

Insurance contracts and investment contracts with discretionary participating features are recognised andmeasured as follows:

Premiums

Gross written premiums are recognised for as income in the period to which they respect, in accordance withthe accrual accounting principle.

Reinsurance premiums ceded are accounted for as expense in the period to which they respect in the same wayas gross written premiums.

Unearned premium reserve

The reserve for unearned gross written premiums and reinsurance ceded premiums reflects the part of thewritten premiums before the end of the period for which the risk period continues after the end of the period. Thisreserve 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 withdiscretionary participating features are capitalized and deferred through the life of the contracts. Deferredacquisition costs are subject to recoverability testing at the time of the insurance policy or investment contractis 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 notreported claims (IBNR). Reserves for both reported and not reported claims are estimated by management based onexperience and available data using statistical methods. Additionally, claims reserve also includes an estimationrelated with future costs with claims settlement (“expense reserve”).

The mathematical reserves relating to obligations to pay life pensions resulting from workmen’s compensationclaims is calculated by using actuarial assumptions, with reference to recognised actuarial methods and currentlabour 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 expenseslikely to arise after the end of the period, from contracts concluded before that date, exceeds the unearned premiumsreserve, any expected future premiums expected to be written under those contracts and from premiums renewed onJanuary next year.

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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 inaccordance 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 ofinsurance or investment contracts, in the form of profit participation, which have not yet been specifically allocatedand 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 contractswith discretionary participating features liabilities. The assessment of the liabilities is performed using the bestestimate of future cash flows under each contract, discounted at a risk free rate. The liability adequacy test isperformed product by product or aggregate basis when contracts are subject to broadly similar risks and managed asa single portfolio. Any deficiency determined, if exists, is recognised directly through income.

Shadow accounting

In accordance with IFRS 4, the unrealised gains and losses on the assets covering liabilities arising out frominsurance and investment contracts with discretionary participating features are attributable to policyholders, to theextent that it is expected that policyholders will participate on those unrealised gains and losses when they becamerealised in accordance with the terms of the contracts and applicable legislation, by recording those amounts underliabilities.

2.25. Segment reporting

The Group adopts IFRS 8 — Segmental reporting, for the disclosure of the financial information by operatingsegments (see Note 4).

An operating segment is a group of assets and operations engaged in providing products or services that aresubject 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 takingpurposes. The Group prepares on a regular basis, financial information regarding the operating segments, which isreported to the Management.

A geographical segment is engaged in providing products or services within a particular economicenvironment that are subject to risks and return that are different from those of segments operating in othereconomic environments.

2.26. Earnings per share

Basic earnings per share is calculated by dividing net income available to ordinary shareholders by theweighted average number of ordinary shares outstanding during the period, excluding the average number ofordinary 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 toassume conversion of all dilutive potential ordinary shares, such as convertible debt and share options granted toemployees. Potential or contingent share issuances are treated as dilutive when their conversion to shares woulddecrease net earnings per share.

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2.27. Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than threemonths’ 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 APPLYINGACCOUNTING POLICIES

IFRS set forth a range of accounting treatments and require management to apply judgment and makeestimates in deciding which treatment is most appropriate. The most significant of these accounting policies arediscussed in this section in order to improve understanding of how their application affects the Group’s reportedresults and related disclosure. A broader description of the accounting policies applied by the Group is shown inNote 2 to the Consolidated Financial Statements.

Because in many cases there are other alternatives to the accounting treatment chosen by management, theGroup’s reported results would differ if a different treatment were chosen. Management believes that the choicesmade by it are appropriate and that the consolidated financial statements present the Group’s consolidated financialposition and results fairly in all material respects.

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 orprolonged decline in the fair value below its cost or when it has identified an event with impact on the estimatedfuture 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 whenassessing the existence of impairment losses:

(i) Equity securities: declines in market value above 30% in relation to the acquisition cost or market valuebelow 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 ofthese assets.

In addition, valuations are generally obtained through market quotation or valuation models that may requireassumptions or judgment in making estimates of fair value.

Alternative methodologies and the use of different assumptions and estimates could result in a higher level ofimpairment 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 dealerprice quotations (both for that transaction or for similar instruments traded) or by pricing models, based on netpresent value of estimated future cash flows which take into account market conditions for the underlyinginstruments, time value, yield curve and volatility factors. These pricing models may require assumptions orjudgments in estimating fair values.

Consequently, the use of a different model or of different assumptions or judgments in applying a particularmodel 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 statementis subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates and the

F-35





estimation of both the amount and timing of future cash flows, among other factors, are considered in making thisevaluation.

Alternative methodologies and the use of different assumptions and estimates could result in a different level ofimpairment losses with a consequent impact in the consolidated income statement of the Group.

3.4. Securitisations and special purpose entities (SPE)

The Group sponsors the formation of special purpose entities (SPEs) primarily for asset securitisationtransactions and for liquidity purposes.

The Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determinewhether the Group does control an SPE, it makes judgements about its exposure to the risks and rewards, as well asabout 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 andassumptions in determining the respective expected residual gains and losses and which party retains the majority ofsuch residual gains and losses. Different estimates and assumptions could lead the Group to a different scope ofconsolidation with a direct impact in net income.

3.5. Held-to-maturity investments

The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed ordeterminable 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. Ifthe 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 asavailable-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 differentassumptions and estimates could have an impact on the income statement of the Group.

3.6. Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant interpretations and estimates arerequired in determining the worldwide amount for income taxes. There are many transactions and calculations forwhich 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 taxableearnings, for a period of four years or six years in case there are tax losses brought forward. The determination ofannual tax earnings by other Group entities (located outside Portugal) can also be subject to similar reviews by theirrespective tax authorities. Hence, it is possible that some additional taxes may be assessed, mainly as a result ofdifferences in interpretation of the tax law. However, the Board of Directors of the Company and those of itssubsidiaries, are confident that there will be no material differences arising from tax assessments within the contextof 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% (2009: 28.59%).

3.7. Pension and other employees’ benefits

Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarialprojections, estimated returns on investment, and other factors that could impact the cost and liability of the pensionplan.

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Changes in these assumptions could materially affect these values.

3.8. 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 beencalculated 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 futureexperience will differ substantially from that previously assumed. Insurance and investment contracts liabilitiesinclude: (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 estimatedprovisions 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 arerecorded as losses. The Group establishes reserves for payment of losses for claims that arise from its insurance andinvestment contracts.

In determining their insurance reserves and investment contracts liabilities, the Group’s insurance companiesperform 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 forlosses 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, generallyusing actuarial valuations/techniques. These reserve estimates are expectations of what the ultimate settlement ofclaims is likely to cost based on an assessment of facts and circumstances then known, a review of historicalsettlement 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 inclaims handling procedures, economic inflation, legal trends and legislative changes. Many of these items are notdirectly quantifiable, particularly on a prospective basis. Additionally, there may be significant reporting lagsbetween the occurrence of the insured event and the time it is actually reported to the insurer. Reserve estimates arecontinually reviewed in a regular ongoing process as historical loss experience develops and additional claims arereported and settled.

NOTE 4 — OPERATING SEGMENTS

The 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, whichmakes it its privileged market. The historical link with Brazil and Africa, the globalization of the Portuguesecompanies and the Portuguese emigration to several countries, led to an internationalisation of the Group, whichalready has an international structure contributing significantly to the Group’s activities and results. The Group isalso active in Portugal in the health-care management business.

The Group’s products and services include deposits, loans to retail and corporate customers, fundmanagement, broker and custodian services, investment banking services, as well as the issuance andcommercialisation of life and non-life insurance products. Additionally, the Group makes short, medium andlong term investments in the financial and currency exchange markets with the objective of taking advantages fromthe prices changes or to have a return from its available resources.

The Group has BES as its main banking operating unit- with 683 branches in Portugal and with branches inLondon, New York, Spain (25 branches), Nassau, Cayman Islands, Cape Verde and Madeira Free Zone and 10representation offices — with BES Investmento (investment banking), BES Angola (36 branches), BES Açores (18branches), Banco BEST (13 branches), Espírito Santo Bank, BES Oriente, BES Vénétie, Espírito Santo ActivosFinanceiros (ESAF), ES Bank Panama, ES Bank Dubai and Banque Privée Espírito Santo. Tranquilidade, Logo andBES Seguros are the Group’s non-life operating unit while T-Vida and BES-Vida are active in life-insurance.

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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) AssetManagement; (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-caremanagement and (9) Corporative Centre. Each segment includes the Group structures that directly or indirectlyrelate to it, and also the other units of the Group whose activities are most related to one of these segments. Theperformance 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 geographiccriteria, 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 developedin 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 financialinformation 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 otherinsurance products to private customers, commissions over account management and electronic payments, theinvestment funds cross-selling and brokerage and custodian services.

b) Corporate and Institutional: includes BES activities in Portugal with small, medium and large companies,through its commercial structure dedicated to this segment, which includes 24 corporate centres. Also includesactivities with institutional and municipal customers. The main products considered on this segment are: discountedbills, leasing, factoring and short and long term loans; includes deposits and guarantees, custodian services, lettersof credit, electronic payments management and other services.

c) Private Banking: includes private banking activity in Portugal, all profit, loss and assets and liabilitiesassociated to customers classified as private by the Group in Portugal. The main products considered on thissegment are: deposits; discretionary management, selling of investment funds, custodian services, brokerageservices 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 portfoliomanagement.

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 inthe corresponding segments.

Among the units comprising this segment are BES Angola and Spain, London and New York Branches of BES,ES Bankers Dubai, ES Bank Panama and Banque Privée. The main products included in this segment are deposits,credit, asset management fees, leveraged finance, structured trade finance and project finance operations.

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Investment Banking

This segment includes assets, liabilities, profits and losses of the operating units that consolidate in BESInvestimento, 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 andacquisitions, restructuring and debt consolidation, initial public offerings (shares and bonds), brokerage and otherinvestment banking services.

Capital Markets and Strategic Investments

This segment includes the financial management of the Group, namely the investments in capital marketsinstruments (equity and debt), whether they are integrated in trading, fair value, available for sale or held to maturityfinancial assets portfolios. Also included in this segment is the Group’s investment in minority strategic positions, aswell as all the activity inherent to interest rate and exchange rate risk management, long and short positions onfinancial instruments management, which allow the Group to take advantage of the price changes in those marketswhere 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 theGroup’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 theactivities of its associated company, BES-Vida.

Health-care management

This segment includes the Group’s activities in the management of hospitals, outpatient clinics, residentialhospitals 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 structuresacting 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 andQuality, 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 followedfor 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 operatingsegments are consistent with the ones used in the preparation of these consolidated financial statements, which aredescribed 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 eachoperating segment.

Autonomous Operating Segments

As mentioned above, each operating unit (subsidiaries and associated entities) is evaluated separately, as theseunits are considered investment centres. Additionally, considering the characteristics of the business developed bythese units, they are fully included in one of the operating segments, assets, liabilities, equity, income and expenses.

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ESFG structures dedicated to segments

The activity of BES, ESFG’s main subsidiary, comprises most of its operating segments and therefore itsactivity is disaggregated.

For the purpose of allocating the financial information, the following principles are used: (i) the origin of theoperation, (ii) the type of product or service rendered; (iii) the segment to which the commercial and centralstructures are dedicated to; (iv) the Cost Based Approach (CBA) model and other specific drivers in the allocation ofindirect cost (central support and IT services); (vi) the impairment model in the allocation of credit risk; (vii) totalequity 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; theprice of the services between the structures of each unit, namely the price established for funding between units, isdetermined by a margin process (which vary in accordance with the strategic relevance of the product and thebalance between funding and lending); the remaining internal transactions are allocated to the segments inaccordance 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 theFinancial Department, whose mission is to make the Group’s financial management. The related activity and resultsare 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 revenuesare from interest, the Group relies primarily on net interest revenue to assess the performance of the segment and tomake 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 operatingsegment they relate to. Associates not directly related to a specific operating segment are included in the CapitalMarkets and Strategic Investments segment.

Non current assets

Non current assets, according to IFRS 8, include Other Tangible Assets and Intangible Assets. BES includesthese assets on the Capital Markets and Strategic Investments segment; the non current assets held by thesubsidiaries 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 OperatingSegments. 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 areincluded in the Capital Markets and Strategic Investments segment. The factors that influence the amount ofresponsibilities and the amount of the funds’ assets correspond, mainly, to external elements; it is Group’s policy notto include these factors on the performance evaluation of the operating segments, which activities relate tocustomers.

F-40





Domestic and International Areas

In the disclosure of financial information by geographical areas, the operating units that comprise theInternational Area are: BES Angola and its branches, BES Oriente, Espírito Santo Bank, ES Bankers Dubai, ESBank Panama, Banque Privée Espirito Santo, Espírito Santo Vénétie, Banco Delle Tre Venezie, ESFIL, London,Spain, New York and Cape Verde branches of BES, and the operating units located abroad from BES Investimentoand ESAF.

The financial elements related to the International Area are presented in the financial statements of those unitswith the respective consolidation and elimination adjustments.

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The primary segments reporting are presented as follows:

Retail

Corporateand

institutionalPrivatebanking

Internationalcomercialbanking

Investmentbanking

Assetmanagement

Capitalmarkets

and stategicinvestments

Lifeinsurance

Non-lifeinsurance

Healthcare

managementCorporative

centre Total

31.12.2010


Net interest . . . . . . . . . . . . . . . . . . . . . . . . . 365 405 217 358 15 523 527 598 83 804 646 (3 225) 15 069 11 620 (6 138) (38 619) 1 189 041Other operating income . . . . . . . . . . . . . . . . . . . 312 763 266 979 68 231 98 715 167 168 59 102 336 905 37 260 297 927 266 018 533 1 911 601

Total operating income . . . . . . . . . . . . . . . . . . 678 168 484 337 83 754 626 313 250 972 59 748 333 680 52 329 309 547 259 880 (38 086) 3 100 642Operating expense . . . . . . . . . . . . . . . . . . . . . . 541 409 251 341 60 456 291 679 177 250 25 943 279 294 43 144 324 003 254 893 256 620 2 506 032

Includes:Provision/impairment . . . . . . . . . . . . . . . . . 47 481 148 685 1 514 79 148 39 069 (338) 209 479 (371) 4 541 3 384 1 195 533 787

Gains from sale of investments in subsidiaries andassociates . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 3 437 — 42 964 — — — — 46 401

Share of profit of associates . . . . . . . . . . . . . . . . . — — — (400) 5 316 — 11 626 18 664 2 366 20 — 37 592

Profit before income tax . . . . . . . . . . . . . . . . . . 136 759 232 996 23 298 334 234 82 475 33 805 108 976 27 849 (12 090) 5 007 (294 706) 678 603

Intersegment operating income . . . . . . . . . . . . . . . 2 574 34 689 2 606 (33 308) (2 464) (22 942) 95 697 2 394 8 065 1 464 1 047 89 822Total Net Assets . . . . . . . . . . . . . . . . . . . . . . 17 970 199 20 561 371 1 931 892 19 624 737 7 049 962 170 716 16 576 032 1 088 273 705 419 556 739 881 671 87 117 011Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 17 897 943 20 561 371 1 782 452 18 642 554 6 384 009 42 468 11 332 988 874 391 809 318 313 277 1 207 637 79 848 408Investments in Associates . . . . . . . . . . . . . . . . . . — — — — 53 750 — 443 848 71 258 16 274 110 — 585 240

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Retail

Corporateand

institutionalPrivatebanking

Internationalcomercialbanking

Investmentbanking

Assetmanagement

Capital marketsand stategicinvestments

Lifeinsurance

Non-lifeinsurance

Health caremanagement

Corporativecentre Total

31.12.2009


Net interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 920 326 909 16 889 348 347 44 346 1 214 171 955 11 341 13 404 (4 448) (50 292) 1 228 585

Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 906 189 901 56 377 175 033 168 078 54 347 185 517 35 976 286 839 232 455 24 128 1 723 557

Total operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663 826 516 810 73 266 523 380 212 424 55 561 357 472 47 317 300 243 228 007 (26 164) 2 952 142

Operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 505 240 276 400 56 935 305 589 158 349 25 190 335 589 40 103 298 807 226 090 255 138 2 483 430Includes:

Provision/impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 483 216 443 235 128 647 52 510 (30) 273 782 (654) 1 922 4 531 3 428 706 297Gains from sale of investments in subsidiaries and associates . . . . . . . . . . — — — — 832 — 185 408 — — — 13 338 199 578

Share of profit of associates . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 1 952 — 7 085 20 756 3 697 (30) — 33 460

Profit before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 586 240 410 16 331 217 791 56 859 30 371 214 376 27 970 5 133 1 887 (267 964) 701 750

Intersegment operating income . . . . . . . . . . . . . . . . . . . . . . . . . 8 465 35 824 3 953 (16 985) (6 357) (23 307) 59 036 2 550 3 128 (1 613) 20 084 84 778Total Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 106 586 19 858 224 1 358 028 25 090 190 5 905 797 141 209 12 650 745 857 226 714 805 536 534 97 643 85 316 987

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 041 236 19 858 224 1 236 636 23 544 811 5 352 617 34 303 7 466 569 740 431 738 532 270 170 1 292 770 78 576 299Investments in Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 48 067 — 250 341 101 190 18 488 76 — 418 162

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The secondary segment information is prepared in accordance with the geographical distribution of the Group’s business units, asfollows:

Portugal Spain France UK Switzerland Luxembourg Hungary USA Panama Dubai Brazil Angola Cape Verde Macao Other Total

31.12.2010


Profit for the year after tax and before minorityinterest . . . . . . . . . . . . . . . . . . . . . . 452 785 12 776 16 262 47 207 16 458 (57 077) (965) 14 729 4 780 1 821 32 133 90 012 2 140 1 815 (7 767) 627 109

Attributable to non-controlling interest . . . . . . . . 504 944Profit for the year . . . . . . . . . . . . . . . . . . 122 165Total Assets . . . . . . . . . . . . . . . . . . . . . 61 435 452 5 721 385 1 280 938 5 601 399 1 218 511 89 755 146 1 562 993 651 626 109 166 2 672 191 5 921 190 111 437 252 857 487 965 87 117 011Capital expenditure (property and equipment) . . . . . 65 413 1 325 344 3 118 710 850 — 14 60 104 — 148 435 1 281 36 435 222 125Capital expenditure (intangible assets) . . . . . . . . 166 425 22 632 106 6 733 512 — — — 4 — — 695 85 — 116 197 308

Portugal Spain France UK Switzerland Luxembourg Hungary USA Panama Dubai Brazil Angola Cape Verde Macao Other Total

31.12.2009


Profit for the year after tax and before minority

interest . . . . . . . . . . . . . . . . . . . . . 391 642 (14 000) 10 579 68 352 11 251 (13 260) (101) 1 158 4 016 2 261 27 135 89 932 2 487 3 682 (4 461) 580 673Attributable to non-controlling interest . . . . . . . . 423 196Profit for the year . . . . . . . . . . . . . . . . . 157 477Total Assets . . . . . . . . . . . . . . . . . . . . 56 557 445 6 718 909 1 242 751 10 962 612 352 900 97 510 1 763 2 345 792 478 571 124 493 1 638 913 4 462 498 125 575 201 980 5 275 85 316 987Capital expenditure (property and equipment) . . . . 90 361 1 892 1 010 142 1 732 — — 13 2 25 — 57 692 214 8 — 153 091Capital expenditure (intangible assets) . . . . . . . . 59 208 5 490 231 4 394 463 — — — — — — 3 303 43 1 — 73 133

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NOTE 5 — NET INTEREST INCOME

This balance is analysed as follows:

Assets /Liabilities at

amortised cost andavailable-for-salefinancial assets

Assets/Liabilities at fair

value throughprofit or loss Total

Assets /Liabilities at

amortised cost andavailable-for-salefinancial assets

Assets /Liabilities at fair

value throughprofit or loss Total

31.12.2010 31.12.2009


Interest and similar incomeInterest from loans and advances . . . 2 068 764 43 230 2 111 994 2 208 804 54 942 2 263 746Interest from deposits with banks . . . 51 538 16 163 67 701 84 591 17 837 102 428Interest from financial assets at fair

value through profit or loss . . . . . — 270 458 270 458 — 324 063 324 063Interest from available-for-sale

financial assets . . . . . . . . . . . . . 326 877 — 326 877 200 528 — 200 528Interest from held to maturity . . . . . 115 614 — 115 614 92 525 — 92 525Interest from derivatives for risk

management purposes . . . . . . . . . — 918 685 918 685 — 931 950 931 950Other interest and similar income . . . 27 599 — 27 599 34 342 — 34 342

2 590 392 1 248 536 3 838 928 2 620 790 1 328 792 3 949 582

Interest expense and similarcharges

Interest from debt securities . . . . . . (776 517) (204 020) (980 537) (586 971) (319 845) (906 816)Interest from amounts due to

customers. . . . . . . . . . . . . . . . . (446 026) (61 098) (507 124) (441 895) (23 816) (465 711)Interest from deposits from central

banks and other banks . . . . . . . . (193 095) (8 403) (201 498) (234 846) (48 297) (283 143)Interest from subordinated debt . . . . (143 524) — (143 524) (137 226) (6 484) (143 710)Interest from derivatives for risk

management purposes . . . . . . . . . — (804 898) (804 898) — (901 284) (901 284)Other interest expenses and similar

charges . . . . . . . . . . . . . . . . . . (12 306) — (12 306) (20 333) — (20 333)

(1 571 468) (1 078 419) (2 649 887) (1 421 271) (1 299 726) (2 720 997)

1 018 924 170 117 1 189 041 1 199 519 29 066 1 228 585

Interest from loans and advances includes an amount of euro 24 363 thousand (31 December 2009: euro 18 626thousand) related to the unwind of discounts regarding the impairment losses of loans and advances to customersthat are overdue (see Note 25).

Interest from derivatives for risk management purposes includes, in accordance with the accounting policydescribed in Notes 2.4 and 2.20, interest from hedging derivatives and from derivatives used to manage the risk ofcertain financial assets and financial liabilities designated at fair value through profit or loss in accordance with theaccounting policies described in Notes 2.5, 2.6 and 2.8.

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NOTE 6 — NET FEE AND COMMISSION INCOME


31.12.2010 31.12.2009


Fee and commission incomeFrom banking services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 787 526 884From guarantees granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 703 128 642From transactions with securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 015 38 915From commitments assumed to third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 641 34 905Other fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 946 100 943

940 092 830 289

Fee and commission expensesFrom banking services rendered by third parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . (73 767) (71 341)From transactions with securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25 164) (21 256)From guarantees received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 699) (1 434)Other fee and commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21 152) (15 536)

(121 782) (109 567)

818 310 720 722

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NOTE 7 — NET (LOSSES) FROM FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIRVALUE THROUGH PROFIT OR LOSS


Gains (Losses) Total Gains (Losses) Total

31.12.2010 31.12.2009


Trading assets and liabilitesSecurities

Bonds and other fixed income securitiesIssued by government and public entities . . . 123 509 (163 317) (39 808) 83 458 (74 965) 8 493Issued by other entities . . . . . . . . . . . . . . . 26 117 (19 207) 6 910 28 283 (70 617) (42 334)

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 449 (76 166) 283 162 826 (88 283) 74 543Other variable income securities . . . . . . . . . . . 4 814 (9 194) (4 380) 11 790 (2 300) 9 490

230 889 (267 884) (36 995) 286 357 (236 165) 50 192Derivative financial instruments

Exchange rate contracts . . . . . . . . . . . . . . . . 2 231 385 (2 442 297) (210 912) 3 132 497 (3 494 967) (362 470)Interest rate contracts . . . . . . . . . . . . . . . . . . 6 834 127 (6 807 677) 26 450 6 868 722 (6 623 738) 244 984Equity/Index contracts . . . . . . . . . . . . . . . . . 1 450 159 (1 486 306) (36 147) 1 965 168 (1 888 526) 76 642Credit default contracts . . . . . . . . . . . . . . . . . 545 887 (539 458) 6 429 378 833 (391 465) (12 632)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 279 (395 731) 2 548 543 931 (454 038) 89 893

— —

11 459 837 (11 671 469) (211 632) 12 889 151 (12 852 734) 36 417

11 690 726 (11 939 353) (248 627) 13 175 508 (13 088 899) 86 609

Financial assets and liabilities at fair valuethrough profit or lossSecurities

Bonds and other fixed income securitiesIssued by government and public entities . . . 217 (87) 130 — — —Issued by other entities . . . . . . . . . . . . . . . 145 439 (120 333) 25 106 263 502 (165 688) 97 814

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 335 (188) 1 147 4 482 (6) 4 476Other variable income securities . . . . . . . . . . . 152 518 (192 942) (40 424) 85 889 (194 614) (108 725)

299 509 (313 550) (14 041) 353 873 (360 308) (6 435)Financial assets(1)

Loans and advances to banks . . . . . . . . . . . . . 479 (715) (236) 1 155 (965) 190Loans and advances to customers . . . . . . . . . . 141 964 (146 271) (4 307) 22 488 (21 064) 1 424

142 443 (146 986) (4 543) 23 643 (22 029) 1 614Financial liabilities(1)

Deposits from banks . . . . . . . . . . . . . . . . . . 30 104 (36 488) (6 384) 60 704 (89 213) (28 509)Due to customers . . . . . . . . . . . . . . . . . . . . 84 778 (112 693) (27 915) 21 831 (38 785) (16 954)Debt securities issued . . . . . . . . . . . . . . . . . . 285 941 (179 099) 106 842 245 617 (312 149) (66 532)Subordinated debt . . . . . . . . . . . . . . . . . . . . 11 877 (14 783) (2 906) 15 159 (29 713) (14 554)

412 700 (343 063) 69 637 343 311 (469 860) (126 549)

854 652 (803 599) 51 053 720 827 (852 197) (131 370)

12 545 378 (12 742 952) (197 574) 13 896 335 (13 941 096) (44 761)

(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 2010, this balance includes a positive effect of euro 82.7 million related to the change in fairvalue of financial liabilities designated at fair value through profit or loss, attributable to the Group’s credit riskcomponent (31 December 2009: negative effect of euro 41.0 million).

In accordance with the accounting policies followed by the Group, financial instruments are initiallyrecognised at fair value. The best evidence of the fair value of the instrument at inception is deemed to be thetransaction 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 abuilt-in fee, originating a day one profit.

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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 theseinstruments at inception and on subsequent measurements is determined only based on observable market data andreflects the Group access to the wholesale market.

In 2010, the gains recognised in the income statement arising from the built-in fee amounted to approximatelyeuro 10 446 thousand (2009: euro 9 006 thousand) and is substantially related to foreign exchange transactions.

NOTE 8 — NET GAINS FROM AVAILABLE-FOR-SALE FINANCIAL ASSETS



31.12.2010 31.12.2009


Bonds and other fixed income securitiesIssued by government and public entities . . 22 639 (20 607) 2 032 5 637 (2 554) 3 083Issued by other entities . . . . . . . . . . . . . . . 26 164 (24 369) 1 795 40 325 (20 434) 19 891

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458 940 (92 047) 366 893 301 688 (142 025) 159 663Other variable income securities . . . . . . . . . . 12 075 (8 477) 3 598 12 852 (1 950) 10 902

519 818 (145 500) 374 318 360 502 (166 963) 193 539

During the year ended 31 December 2010, the Group sold at market prices through the stock exchange,(i) 43.2 million ordinary shares of EDP; (ii) 11.7 million ordinary shares of Portugal Telecom and (iii) 52.5 millionordinary shares of Bradesco. These transactions generated a realised net gain of euro 287.6 million (euro86.7 million net of non-controlling interest).

During the year ended 31 December 2009, the Group sold at market prices through the stock exchange,(i) 111.6 million ordinary shares of EDP; (ii) 69.4 million ordinary shares of Portugal Telecom and (iii) 23.0 millionordinary shares of Bradesco. These transactions generated a realised net gain of euro 52.1 million (euro 15.3 millionnet of non-controlling interest).

NOTE 9 — NET GAINS FROM FOREIGN EXCHANGE DIFFERENCES



31.12.2010 31.12.2009


Foreign exchange translation . . . . 1 556 442 (1 501 108) 55 334 1 292 372 (1 210 235) 82 137

1 556 442 (1 501 108) 55 334 1 292 372 (1 210 235) 82 137

This balance includes the exchange differences arising on translating monetary assets and liabilities at theexchange rates ruling at the balance sheet date in accordance with the accounting policy described in Note 2.3.

NOTE 10 — INSURANCE EARNED PREMIUMS, NET OF REINSURANCE

The insurance earned premiums, net of reinsurance, can be analysed as follows:

31.12.2010 31.12.2009(in thousands of euro)

Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 140 355 663Reinsurance premiums ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71 300) (50 934)

Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330 840 304 729Change in the provision for unearned premiums, net of reinsurance . . . . . . . . . . . . . . . (5 672) 4 560

Earned premiums, net of reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 168 309 289

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The direct insurance written and earned premiums are analysed as follows:

Writtenpremiums

Earnedpremiums

Writtenpremiums

Earnedpremiums

31.12.2010 31.12.2009

(In thousands of euro)

Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 623 58 375 39 307 39 145

Non -life:

Direct Business

Accident and health . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 119 100 240 94 477 94 195

Fire and hazards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 486 59 442 58 660 58 959

Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 421 146 513 135 309 138 909

Maritime, airline and transportation . . . . . . . . . . . . . . . . 6 841 6 774 7 058 7 474

Third party liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 780 10 519 9 799 9 795

Credit and surety ship . . . . . . . . . . . . . . . . . . . . . . . . . . 89 100 106 115

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 694 11 972 10 799 10 770

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 053 393 935 355 515 359 362

Reinsurance accepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 120 148 141

402 140 394 055 355 663 359 503

The reinsurance ceded premiums are analysed as follows:

Writtenpremiums

Earnedpremiums

Writtenpremiums

Earnedpremiums

31.12.2010 31.12.2009


Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 727 21 727 6 621 6 621

Non -life:

Direct Business

Accident and Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 306 3 631 3 020 2 993

Fire and hazards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 033 23 353 22 417 22 037

Motor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 877 1 960 1 867 2 034

Maritime, airline and transportation . . . . . . . . . . . . . . . . . . 3 651 3 645 3 692 4 054

Third party liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 895 1 829 1 709 1 723

Credit and surety ship . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 59 68 73

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 674 12 575 11 406 10 712

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 215 68 779 50 800 50 247

Reinsurance accepted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 108 134 130

71 300 68 887 50 934 50 377

Gross written premiums from life insurance business are analysed as follows:


Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 534 3 242Risk contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 884 15 963Saving contracts with profit sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 205 20 102

58 623 39 307

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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 financialliabilities.

NOTE 11 — OTHER OPERATING INCOME AND EXPENSES

These balances are analysed as follows:


Other operating income arising from:Medical services business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 987 231 537Insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 575 10 584IT related business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 700 6 104Call center business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 812 13 933Fair value adjustment on investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 572 170Gains on repurchase of Group debt securities (see Notes 38 and 42) . . . . . . . . . . . . . 32 291 110 470Non recurring gains on advisory services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 619 6 893Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 524 20 523

354 080 400 214

Other operating expenses arising from:Direct and indirect taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 809 15 905Contributions to the depositors guarantee fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 644 4 751Membership and donations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 186 7 651Medical services business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 805 135 771Insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 677 5 981Indemnities under contractual agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 368 15 281Compensations paid to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 24 978Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 313 14 850

278 802 225 168

Medical services business operating income and expenses relate mainly to the health care business provided byEspírito Santo Saúde SGPS, S.A. and its subsidiaries (see Note 1).

NOTE 12 — STAFF COSTS



Wages and salariesRemuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571 688 510 675Long term service benefits (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 946 3 014

Pension costs (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 947 87 634Other mandatory social charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 556 77 679Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 752 43 656

782 889 722 658

Included in other costs is the amount of euro 515 thousand (31 December 2009: euro 362 thousand) relatedwith the “Stock Based Incentive Scheme” (SIBA) and euro 394 thousand of profit (31 December 2009: euro 418thousand of profit) related with the variable remuneration payment plan of BES (PPRV), in accordance with theaccounting policy described in Note 2.17. The details of these schemes implemented by BES Group are analysed inNote 13.

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Also included in other costs, is an amount of euro 7 663 thousand negative (31 December 2009: euro 12 233thousand positive) related to the stock options plan set-up by ESFG, in accordance with accounting policy describedin Note 2.17 (see Note 13).

The salaries and other benefits attributed to the key management personnel of Group are analysed as follows:

Board ofDirectors

AuditCommittee

Other keymanagement Total

31 December 2010Salaries and other short terms benefits . . . . . . . . . . . . . . . . . 5 700 739 25 420 31 859Bonus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 346 — 10 955 13 301Stock-option plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 928) — (2 526) (4 454)

Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 118 739 33 849 40 706

Pension costs and social charges . . . . . . . . . . . . . . . . . . . . . 736 — 7 136 7 872Long term service benefits . . . . . . . . . . . . . . . . . . . . . . . . . 36 — 687 723

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 890 739 41 672 49 302

31 December 2009Salaries and other short terms benefits . . . . . . . . . . . . . . . . . 2 447 672 22 851 25 970Bonus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 349 — 12 201 13 550Stock-option plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 908 — 6 325 12 233

Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 704 672 41 377 51 753

Pension costs and social charges . . . . . . . . . . . . . . . . . . . . . 44 — 5 869 5 913Long term service benefits . . . . . . . . . . . . . . . . . . . . . . . . . 739 — 9 748

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 487 672 47 255 58 414

Other key management personnel include board members of ESFG subsidiaries and ESFG seniormanagement.

As at 31 December 2010 and 2009, the loans granted by the Group to key management personnel amounted toeuro 39 million and euro 36.9 million, respectively.

As at 31 December 2010 and 2009, the number of employees of the Group is analysed as follows:

31.12.2010 31.12.2009

Banking sector employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 750 6 837

Financial sector subsidiary employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 459 2 832

Insurance sector employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748 747

Employed by other companies essencially providing services to customers outside theGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 856 3 342

14 813 13 758

By Professional category, the number of employees of the Group is analysed as follows:

31.12.2010 31.12.2009

Senior management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 270 1 107

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 400 1 396

Specific functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 283 4 982

Administrative functions and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 860 6 273

14 813 13 758

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NOTE 13 — EMPLOYEE BENEFITS

Pension and health-care benefits

As described in Note 2.17, the Group’s companies operate defined pension and health-care plans for theiremployees and their dependants under which the benefits vest on the earlier of retirement, death or incapacity.

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 2010. On annual basis, the actuarial valuation is reviewedby an independent actuary.

In the scope of the agreement between the Portuguese Government, the Banking sector and the Unions inPortugal, starting 1 January 2011, the BES Group employees will be integrated into the General Social SecurityRegime, which will ensure the protection of employees in the contingencies of maternity, paternity and adoptionand old age, remaining under the responsibility of Banks to protect sickness, disability, death and survival (Decree-Law no. 1-A/2011, 3 January). The contribution rate will be 26.6%, being 23.6% responsibility of the employer and3% responsibility of the employees, in lieu of “Caixa de Abono de Família dos Empregados Bancários” (CAFEB)that is abolished by the same law.

The agreement states that no bank employee integrated within the Social Security Scheme will see the value ofthe respective pension decreased compared to the current provisions of the collective agreements. The retirementpensions of the bank employees to be integrated within the Social Security Scheme continue to be calculated asprovided in the ACT and other conventions, but the bank employee are entitled to receive a pension under thegeneral scheme, which amount takes into consideration the years of contributions to this scheme. Banks areresponsible for the difference between the pension determined in accordance with the provisions of the ACT and thepension that the employee is entitled to receive from the Social Security Scheme. On this basis, the banks retainedthe exposure to actuarial and financial risks associated with the pension’s liabilities.

The integration leads to a decrease in the actual present value of total benefits reported to the normal retirementage (VABT) to be borne by the pension fund, after considering the future contributions to be made by the banks andthe employees to the social security regime. Since there was no reduction in benefits on a beneficiary’s perspectiveand the liabilities for past services remained unchanged, the Group has not recorded in its financial statements anyimpact in terms of the actuarial calculations as at 31 December 2010, arising from the integration of its workers inthe Social Security Scheme.

As at 31 December 2010 and 2009, the main assumptions considered in the actuarial valuation, to determinethe defined benefit obligation of pension and health-care benefits for the Group employees are as follows:

31.12.2010 31.12.2009 31.12.2010 31.12.2009

Insurance sector Banking sector

Financial assumptionsSalaries increase rate . . . . . . . . . . . . . . 3.25% - 3.75%(*) 3.25% - 3.75%(*) 3.25% 3.25%Pensions increase rate . . . . . . . . . . . . . . 0.75 % - 3.75%(*) 0.75 % - 3.75%(*) 1.75% 1.75%Early retirements pensions increase

rate . . . . . . . . . . . . . . . . . . . . . . . . . . 2.25% - 3.75%(*) 2.25% - 3.75%(*) — —Expected return of plan assets . . . . . . . . 5.15% - 4.73%(*) 5.19% - 4.74%(*) 5.50% 6.00%Discount rate . . . . . . . . . . . . . . . . . . . . 5.50% 5.50% 5.50% 5.50%Demographic assumptionsMortality tableMen . . . . . . . . . . . . . . . . . . . . . . . . . . . GKF 95 TV 73/77 (adjusted)Women . . . . . . . . . . . . . . . . . . . . . . . . GKF 95 TV 88/90Actuarial method . . . . . . . . . . . . . . . . . Project Unit Credit Method

(*) Pension fund of Board of Directors

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In accordance with the accounting policy described in Note 2.17, the discount rate used to calculate theactuarial present value of the pensions and health care defined benefits, is determined at the balance sheet date byreference to interest rates of high-quality corporate bonds.

The contributions to SAMS as at 31 December 2010 and 2009 corresponded to 6.5% of total wages. Thepercentage of contribution is established by SAMS, and no changes are expected for 2011.

The number of persons covered by the plan is as follows:

31.12.2010 31.12.2009

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 640 6 653

Pensioners and widows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 934 5 987

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 574 12 640

As at 31 December 2010 and 2009, the amounts recognised in the balance sheet are determined as follows:


Assets / (liabilities) recognised in the balance sheetDefined benefit obligation

Pensioners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 292 087) (1 278 006)

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (843 509) (785 095)

(2 135 596) (2 063 101)Health-care benefit obligation

Pensioners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (70 371) (68 869)

Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44 229) (40 323)

(114 600) (109 192)

Total obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 250 196) (2 172 293)

CoverageFair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 250 218 2 244 926

Overfunding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 72 633Unrecognised net actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899 462 852 952

Assets recognised in the balance sheet (see Note 34). . . . . . . . . . . . . . . . . . . . . . 899 484 925 585

Additionally, for the insurance entities of the Group, Tranquilidade and Esumédica have transferred part oftheir liabilities to BES Vida, through the acquisition of the life insurance policies. The number of pensionerscovered by these policies is 424 (31 December 2009: 450), and the total liability amounts to euro 14.9 million(31 December 2009: euro 15.5 million).

In accordance with accounting policy described in Note 2.17 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 expectationof reductions in future contributions to the funds.

F-53





The changes in the defined benefit obligation can be analysed as follows:

Pensionplans

Health-careplans Total

Pensionplans

Health-careplans Total

31.12.2010 31.12.2009


Defined benefit obligation as at1 January . . . . . . . . . . . . . . . . . . . . 2 063 101 109 192 2 172 293 2 002 932 107 468 2 110 400

Service cost . . . . . . . . . . . . . . . . . . . . . 37 428 2 183 39 611 39 755 2 200 41 955Interest cost . . . . . . . . . . . . . . . . . . . . . 111 810 5 944 117 754 111 340 5 985 117 325Plan participants’ contribution . . . . . . . 3 243 1 3 244 3 198 1 3 199Actuarial (gains) / losses

— changes in actuarialassumptions . . . . . . . . . . . . . . . . . — — — (39 461) (2 280) (41 741)

— experience adjustments . . . . . . . . . 21 264 3 375 24 639 50 276 1 682 51 958Benefits paid by the fund . . . . . . . . . . . (110 233) (5 945) (116 178) (108 323) (5 831) (114 154)Benefits paid by the Group. . . . . . . . . . — (132) (132) (40) (169) (209)Curtailment losses related to early

retirements . . . . . . . . . . . . . . . . . . . . — — — 474 33 507Exchange differences and other . . . . . . 8 983 (18) 8 965 2 950 103 3 053

Defined benefit obligation as at31 December . . . . . . . . . . . . . . . . . . 2 135 596 114 600 2 250 196 2 063 101 109 192 2 172 293

As at 31 December 2010, the increase of 1% in the contributions to SAMS would imply an increase inliabilities of euro 17.5 million (31 December 2009: euro 16.4 million) and an increase in costs (service cost andinterest cost) of euro 1.3 million (31 December 2009: euro 1.2 million).

The change in the fair value of the plan assets in 2010 and 2009 is analysed as follows:

31.12.2010 31.12.2009


Fair value of plan assets as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 244 926 2 101 305Actual return on plan assets

Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 468 122 406Actuarial gains/ (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68 387) 92 351

Group contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 740 36 609Plan participants’ contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 244 3 199Pensions paid by the fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116 178) (114 154)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 405 3 210

Fair value of plan assets as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 250 218 2 244 926

Pension fund assets are analysed as follows:

31.12.2010 31.12.2009

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34% 29%Other variable income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9% 9%Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20% 28%Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22% 20%Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% 14%

100% 100%

F-54





The real estate assets rented to the Group and securities issued by Group companies which are part of thepension fund assets are analysed as follows:

31.12.2010 31.12.2009


Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 895 46 859Other variable income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 532 —Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 972 6 947Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 350 170 331

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 749 224 137

The shares held by the pension fund, as at 31 December 2010 are 13.2 million shares of BES (31 December2009: 10.3 million shares of BES).

The changes in the unrecognised net actuarial losses in 2010 and 2009 are analysed as follows:

31.12.2010 31.12.2009


Unrecognised net actuarial losses as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . 852 952 985 247Actuarial (gains) / losses

— changes in actuarial assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (41 741)— experience adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 026 (40 393)

Amortisation of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47 050) (50 253)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534 92

Unrecognised net actuarial losses as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . 899 462 852 952

Of which:Within the corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 162 223 526Outside the corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 676 300 629 426

The changes in (un)/over funded liabilities during 2010 and 2009 are analysed as follows:

31.12.2010 31.12.2009


(Un)/overfunded liabilities as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 633 (9 095)Actuarial (gains) / losses on defined benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . (24 639) (10 217)Actuarial (gains) / losses of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68 387) 92 351Charges for the year:

— Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39 611) (41 955)— Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (117 754) (117 325)— Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 468 122 406— Curtailment losses related to early retirements . . . . . . . . . . . . . . . . . . . . . . . . . . . — (507)— Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 440 157

Contributions of the year and pensions paid by the Group . . . . . . . . . . . . . . . . . . . . . . 59 872 36 818

(Un)/over funded liabilities as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 72 633

F-55





The net benefit cost can be analysed as follows:

31.12.2010 31.12.2009


Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 611 41 955Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 754 117 325Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114 468) (122 406)Amortisation of the unrecognised net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 050 50 253Curtailment losses related to early retirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 507

Net benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 947 87 634

The changes in the assets recognised in the balance sheet can be analysed as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925 585 976 152Net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89 947) (87 634)Contributions of the year and pensions paid by the Group . . . . . . . . . . . . . . . . . . . . . . 59 872 36 818Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 974 249

balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899 484 925 585

Historical information regarding pension plan is as follows:

31.12.2010 31.12.2009 31.12.2008 31.12.2007 31.12.2006


Defined benefit obligationPension plans . . . . . . . . . . . . . . . . . (2 135 596) (2 063 101) (2 002 932) (2 022 358) (1 944 699)Health-care benefits . . . . . . . . . . . . . (114 600) (109 192) (107 468) (111 220) (110 397)

(2 250 196) (2 172 293) (2 110 400) (2 133 578) (2 055 096)Fair value of plan asssets . . . . . . . . . . . 2 250 218 2 244 926 2 101 305 2 282 901 2 076 710

(Un)/over funded liabilities . . . . . . . . 22 72 633 (9 095) 149 323 21 614

(Gains)/losses from experienceadjustments arising on definedbenefit obligationPension plans . . . . . . . . . . . . . . . . . 21 264 50 276 23 578 42 875 3 728Health-care benefits . . . . . . . . . . . . . 3 375 1 682 277 (1 863) (11 693)

(Gains)/losses from experienceadjustments arising on plan assets . . 68 387 (92 351) 733 639 (156 785) (142 955)

SIBA

During 2000, BES Group established a “Stock Based Incentive Scheme” (SIBA). This incentive schemeconsisted on the sale to BES Group employees of one or more blocks of BES ordinary shares with deferredsettlement for a period that varied between two to four years. During this period the employees were required tohold the shares, after which (I) they were allowed to sell the shares in the market, (II) they retained the shares andthen paid to the Bank the initial amount or, (III) had the option to sell them back to BES at acquisition cost. The lastblock of the plan matured on 29 December 2010.

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The changes in the number of underlying shares to the outstanding plans during the years ended 31 December2010 and 2009 were as follows:

Number ofshares

Amount (inthousands of

euro)Number of

shares

Amount (inthousands of

euro)

31.12.2010 31.12.2009

Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . 1 276 261 25 083 2 479 081 29 838Shares sold(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 276 261) (2 952) (1 202 820) (4 755)Net residual premium on SIBA shares

transactions(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (22 131) — —

Balance as at 31 December . . . . . . . . . . . . . . . . . . . — — 1 276 261 25 083

(1) Includes shares sold in the market, after the exercise by the employees of the option of sell back to BES at acquisition cost and those that werepaid by the employees at the maturity of the plans.

(2) Amount transferred to Other Reserves in 2010

The total costs recognised related to the plan are as follows:

31.12.2010 31.12.2009


Total costs of the plans (see Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 362

Stock options plan

On 1 October 2008, the Company established a stock-option plan that entitles key management personnel topurchase ESFG shares. Alternatively, the Company may settle these options in cash by an amount equivalent to theappreciation of ESFG share market price above the exercise price. Under the program, the Company may grantoptions to its employees up to 3 000 000 ordinary shares. The exercise price of each option equals the market priceof ESFG share on the date of grant and an option’s maximum term is of 10 years. Options are granted at thediscretion of the Board of Directors and have a vesting period of 1 year.

As at 31 December 2010, all option under the plan have vested.

Considering the terms and conditions of the plan and ESFG’s informal practices of settling the options grantedto employees in cash, it is accounted for as cash-settled share-based payment arrangement, in accordance with theaccounting policy described in Note 2.17.

The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statementas staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheetdate, 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:

Weighted averageexercise price

(in Euro)Number of

options

Weighted averageexercise price

(in Euro)Number of

options

31.12.2010 31.12.2009

Outstanding as at 1 January . . . . . . . . . . . . . 13.20 2 940 000 13.20 2 940 000Exercised during the year . . . . . . . . . . . . . . . . (260 000) —

Outstanding as at 31 December . . . . . . . . . . . 13.20 2 680 000 13.20 2 940 000

Exercisable as at 31 December . . . . . . . . . . . 13.20 2 680 000 13.20 2 940 000

The options outstanding at 31 December 2010 have a remaining contractual life of approximately 8 years(31 December 2009: 9 years).

F-57





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 000Exercise 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 2010 and 2009 were thefollowing:

31.12.2010 31.12.2009

Initial reference date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01.10.2008 01.10.2008Final reference date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01.10.2018 01.10.2018Number of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 680 000 2 940 000Exercise price (in EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20 13.20Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10% 3.50%Spot price (in EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 14.78Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.02% 25.37%

In accordance with the accounting policy described in Note 2.17, the initial fair value of the new plan,amounting to euro 4 783 thousand, was recognised during the 12 month-period comprised the grant date and its firstanniversary. As such, the Group recognised in 2009 euro 3 587 thousand and in 2008 euro 1 196 thousand as staffcosts. In 2010 change in the plans’ fair value of the benefit granted to employees has been recognised in the incomestatement, as a decrease in staff costs, for an amount of euro 7 663 thousand (31 December 2009: euro 8 646thousand increase in staff costs).

The fair value of the liability recognised is remeasured at the balance sheet date, amounting as at 31 December2010 to euro 5 557 thousand (2009: euro 13 540 thousand) (see Notes 12 and 43).

Variable remuneration payment plan (PPRV)

During the first semester of 2008, following the General Shareholders Meeting held on 31 March 2008, BESand 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 theappreciation of BES shares between the initial reference date and the final reference date. Under this plan no rightsare 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 thebeginning of PPRV

After the capitalincrease in 2009(a)

Initial reference date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02.06.2008Final reference date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02.06.2011Rights granted to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 000 000 8 285 626Reference price (in EUR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.00 6.64Interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.22%Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.5%Inicial fair value of the plan (in thousands of euro) . . . . . . . . . . . . . . . . . 12 902

(a) Includes the adjustment of the dilutive effect arising from the capital increase

F-58





In accordance with the accounting policy described in Note 2.17, the initial fair value of the PPRV, in theamount of euro 12 902 thousand, will be recognised during the three year-period comprised between the initial andthe final reference dates. As such, the Group recognised during the year, as staff costs, the amount of euro 4 301thousand (31 December 2009: euro 4 301 thousand). The change in the fair value of the benefit granted toemployees during the life of the program will also be recognised as staff costs.

The fair value of the liability recognised is remeasured at the balance sheet date being as at 31 December 2010nil (31 December 2009: euro 394 thousand).

Long term service benefits

As referred in Note 2.17, for employees that achieve certain years of service, the Group pays long term servicepremiums, calculated based on the effective monthly remuneration earned at the date the premiums are due. At thedate of early retirement or disability, employees have the right to a premium proportional to that they would earn ifthey remained in service until the next payment date.

As at 31 December 2010 and 2009, the Group’s liabilities regarding these benefits amount to euro 29 655thousand and euro 28 602 thousand, respectively (see Note 43). The costs incurred in the year with long term servicebenefits amounted to euro 3 946 thousand (31 December 2009: euro 3 014 thousand) (see Note 12).

The actuarial assumptions used in the calculation of the liabilities are those presented for the calculation ofpensions (when applicable).

NOTE 14 — GENERAL AND ADMINISTRATIVE EXPENSES


31.12.2010 31.12.2009


Rental costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 210 72 221Communication costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 951 40 963Traveling and representation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 609 31 229Advertising costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 642 51 773Maintenance and related services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 902 21 244Insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 894 7 117Specialised services

IT services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 237 58 332Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 183 9 234Temporary work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 229 7 392Electronic payment system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 901 12 707Legal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 367 18 537Consultants and external auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 079 26 208Other specialised services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 449 6 799

Water, energy & fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 642 10 209Current consumption material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 147 5 996Transports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 085 10 203Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 898 68 949

495 425 459 113

The balance “Other specialised services” includes, among others, costs with security, information services anddatabases. The balance “Other costs” includes costs with training and external suppliers.

F-59





The fees billed to the Company by KPMG Audit S.à r.l. Luxembourg and other member firms of the KPMGnetwork (“KPMG”) during the year are analysed as follows (excluding VAT):

31.12.2010 31.12.2009


Audit fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 485 3 129Audit related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 662 1 462

5 147 4 591Tax consultancy services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748 606Other services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 535 4 326

7 430 9 523

The outstanding lease instalments related to the non-cancellable operational lease contracts are analysed asfollows:

31.12.2010 31.12.2009


Up to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 882 6191 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 089 3 373

3 971 3 992

NOTE 15 — CLAIMS INCURRED, NET OF REINSURANCE

Claims incurred, net of reinsurance are analysed as follows:

31.12.2010 31.12.2009


Claims incurred for the life business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 343 42 838Claims incurred for the non-life business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 061 177 805

238 404 220 643

Concerning the life business, the claims incurred, net of reinsurance are analysed as follows:

31.12.2010 31.12.2009


Claims paidGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 625 47 051Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 695) (812)

43 930 46 239

Change in claims outstanding reserveGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (448) (3 430)Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (139) 29

(587) (3 401)

43 343 42 838

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Concerning the non-life business, the claims incurred, net of reinsurance are analysed as follows:

31.12.2010 31.12.2009


Claims paidGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 165 200 832Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12 999) (14 358)

214 166 186 474

Change in claims outstanding reserveGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15 097) (7 779)Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4 008) (890)

(19 105) (8 669)

195 061 177 805

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 paidChange in

claims reserve Total

31.12.2010 31.12.2009


Direct businessAccident and health . . . . . . 65 190 8 882 74 072 63 479 (6 312) 57 167Fire and other hazards . . . . 38 505 971 39 476 30 089 776 30 865Motor . . . . . . . . . . . . . . . . 115 765 (24 932) 90 833 97 338 (4 678) 92 660Maritime, airline and

transportation . . . . . . . . 3 307 (921) 2 386 7 313 (229) 7 084Third party liability . . . . . . 2 705 1 561 4 266 2 142 2 130 4 272Credit and suretyship . . . . . 507 (527) (20) 135 84 219Other . . . . . . . . . . . . . . . . 1 170 (34) 1 136 337 (125) 212

Reinsurance accepted . . . . . . 16 (97) (81) (1) 575 574

Total . . . . . . . . . . . . . . . . . . 227 165 (15 097) 212 068 200 832 (7 779) 193 053

NOTE 16 — CHANGE IN THE TECHNICAL RESERVES, NET OF REINSURANCE

The change in the technical reserves, net of reinsurance is analysed as follows:

31.12.2010 31.12.2009


Life business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6 354) (9 602)Non-life business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 831 1 920

2 477 (7 682)

F-61





Concerning the life business, the changes in the technical reserves are analysed as follows:

31.12.2010 31.12.2009


Change in life assurance reserveGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 633 (5 790)Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17 322) (5 039)

(7 689) (10 829)

Reserve for bonus and rebatesGross amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 790 1 663Reinsurance share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (455) (436)

1 335 1 227

(6 354) (9 602)

Concerning the non-life business, the changes on the technical reserves are analysed as follows:

31.12.2010 31.12.2009


Change in non-life insurance reserveChange in unexpired risk reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 867 1 650Others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36) 270

8 831 1 920

NOTE 17 — INSURANCE COMMISSIONS

The insurance commissions are analysed as follows:

31.12.2010 31.12.2009


Direct insurance commissionsAcquisition commissions and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 006 39 358Change in deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 808) 861Collection commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 893 1 820

Reinsurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10 355) (8 648)

34 736 33 391

NOTE 18 — EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share, is calculated by dividing the net profit attributable to equity holders of the Companyby the weighted average number of ordinary shares outstanding during the year.

31.12.2010 31.12.2009


Profit attributable to the equity holders of the Company(1) . . . . . . . . . . . . . . . . . . . . . . 89 209 124 759Weighted average number of ordinary shares outstanding (thousands) . . . . . . . . . . . . . . 77 855 77 855

Basic earnings per share attributable to the equity holders of the Company (in euro) . . . 1.15 1.60

(1) Net profit for the year adjusted by the dividends on preference shares.

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Diluted earnings per share

The diluted earnings per share is calculated considering the profit attributable to the equity holders of theCompany and the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutivepotential ordinary shares.

31.12.2010 31.12.2009


Profit attributable to the equity holders of the Company(1) . . . . . . . . . . . . . . . . . . . . . . 81 226 124 759Weighted average number of ordinary and potential shares outstanding (thousands). . . . 78 071 77 855

Diluted earnings per share attributable to the equity holders of the Company (ineuro). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.04 1.60

(1) Net profit for the year adjusted by the dividends on preference shares and, in relation to 2010, by the remeasurement of the ESFG liabilityrelated with the 2008 stock option plan. In 2009 no adjustment for the remeasurement of the liability associated with this stock option plan isincluded as its effect is anti-dilutive.

The weighted average number of ordinary and potential shares outstanding used to calculate the dilutiveearnings per share considers the existence of the stock-option plans (see Note 13) and of the warrants issued (seeNote 44) if their effect is dilutive.

NOTE 19 — CASH AND DEPOSITS AT CENTRAL BANKS

As at 31 December 2010 and 2009, this balance is analysed as follows:

31.12.2010 31.12.2009


Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 868 220 001

Deposits at central banksBank of Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 828 932 197Other central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546 819 1 072 133

667 647 2 004 330

976 515 2 224 331

The deposits at Central Banks include mandatory deposits intended to satisfy legal minimum cashrequirements, for an amount of euro 153 649 thousand (31 December 2009: euro 648 073 thousand). Accordingto the European Central Bank Regulation (CE) no. 2818/98, of 1 December 1998, minimum cash requirements keptas deposits with the Bank of Portugal earn interest, and correspond to 2% of deposits and debt certificates maturingin less than 2 years, excluding deposits and debt certificates of institutions subject to the European System ofCentral Banks’ minimum reserves requirements. During 2010, these deposits have earned interest at an average rateof 1.00% (2009: 1.27%).

The fulfilment of the minimum cash requirements for a given period of observation is monitored taking intoaccount the value of bank deposits with the Bank of Portugal during the referred period. The balance of the bankaccount with the Bank of Portugal as at 31 December 2010, was included in the observation period from8 December 2010 to 18 January 2011, which corresponded to an average minimum cash requirements of euro577 million.

F-63





NOTE 20 — DEPOSITS WITH BANKS


31.12.2010 31.12.2009


Deposits with banks in PortugalUncollected cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 723 213 172Repayable on demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 680 185 604Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 500 —

388 903 398 776

Deposits with banks abroadRepayable on demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 874 217 612Uncollected cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 260 825Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 524 176 631

490 658 395 068

879 561 793 844

Uncollected cheques in Portugal and abroad were sent for collection during the first working days followingthe reference dates.

Other deposits with banks, in Portugal and abroad, mature within 3 months.

Deposits with banks include the amount of euro 468 085 thousand (31 December 2009: euro 235 561 thousand)related to deposits held by securitisation vehicles consolidated by the Group and that collateralise the debt issued inthe scope of the respective securitisation transactions (see Note 49).

NOTE 21 — FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING


31.12.2010 31.12.2009


Financial assets held for tradingSecurities

Bonds and other fixed income securitiesIssued by government and public entities . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 524 069 2 383 864Issued by other entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 063 82 128

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 586 70 590Other variable income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 041 365

2 005 759 2 536 947Derivatives

Derivative financial instruments with positive fair value . . . . . . . . . . . . . . . . . . 1 946 027 1 953 752

3 951 786 4 490 699

Financial liabilities held for tradingDerivatives

Derivative financial instruments with negative fair value . . . . . . . . . . . . . . . . . . 1 991 267 1 568 896Short selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 038 —

2 121 305 1 568 896

During the year 2008, the Group has reclassified from financial assets held for trading an amount ofeuro 244 530 thousand to held-to-maturity investments (see Note 26), following an amendment to IAS 39 FinancialInstruments: Recognition and Measurement issued in October 2008 and adopted by the European Union in thatyear.

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As at 31 December 2010 and 2009, the amounts that would have been recognised in the year if thereclassifications were not made are presented as follows:

31.12.2010 31.12.2009


Net gains from financial assets and financial liabilities at fair value through profit orloss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4 838) 3 128

Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524 (829)

(4 314) 2 299

As at 31 December 2010 and 2009 the analysis of the securities held for trading by the period to maturity, ispresented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 610 726 6643 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 614 916 5421 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 089 300 623More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568 854 522 208Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 592 70 910

2 005 759 2 536 947

In accordance with the accounting policy described in Note 2.6, securities held for trading are those which arebought 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

31.12.2010 31.12.2009


Bonds and other fixed incomesecurities

Issued by government andpublic entities . . . . . . . . . . . 1 524 069 — 1 524 069 2 375 855 8 009 2 383 864Issued by other entities . . . . 36 813 259 250 296 063 5 212 76 916 82 128

Shares . . . . . . . . . . . . . . . . . . 181 586 — 181 586 68 248 2 342 70 590Other variable incomesecurities . . . . . . . . . . . . . . . . 738 3 303 4 041 196 169 365

1 743 206 262 553 2 005 759 2 449 511 87 436 2 536 947

Valuation techniques are described in Note 50.

F-65





As at 31 December 2010 and 2009, derivative financial instruments can be analysed as follows:

Notional Assets Liabilities Notional Assets Liabilities

Fair value Fair value

31.12.2010 31.12.2009


Exchange rate contractsForward

— buy . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 806 703 40 718 71 811 731 277 17 164 6 539— sell . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 524 472 946 493

Currency Swaps— buy . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 674 887 10 412 10 194 1 540 688 3 431 548— sell . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 632 969 1 374 241

Currency Futures . . . . . . . . . . . . . . . . . . . . . . 319 608 — — 52 604 — —Currency Interest Rate Swaps

— buy . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 664 746 318 313 154 614 1 348 300 196 682 186 836— sell . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 646 180 1 336 190

Currency Options . . . . . . . . . . . . . . . . . . . . . . 5 921 549 130 067 154 837 5 139 526 131 696 120 910

24 191 114 499 510 391 456 12 469 319 348 973 314 833

Interest rate contractsForward Rate Agreements . . . . . . . . . . . . . . . . 1 124 000 408 197 215 189 16 58Interest Rate Swaps . . . . . . . . . . . . . . . . . . . . 42 528 188 1 176 232 1 221 619 40 013 006 1 345 072 996 108Swaption — Interest Rate Options . . . . . . . . . . . 2 747 426 4 893 3 502 7 623 745 12 835 11 678Interest Rate Caps & Floors . . . . . . . . . . . . . . . 8 523 046 63 400 52 830 9 389 755 75 835 45 483Interest Rate Futures . . . . . . . . . . . . . . . . . . . . 17 207 167 — — 5 000 — —Interest Rate Options. . . . . . . . . . . . . . . . . . . . 32 310 536 194 28 261 4 426 549 816 358Future Options . . . . . . . . . . . . . . . . . . . . . . . . 29 458 165 — — 63 730 — —

133 898 528 1 245 127 1 306 409 61 736 974 1 434 574 1 053 685

Equity/index contractsEquity/Index Swaps . . . . . . . . . . . . . . . . . . . . 678 278 20 069 31 099 963 363 34 219 41 627Equity/Index Options . . . . . . . . . . . . . . . . . . . 3 408 551 121 426 212 068 2 276 747 98 331 124 241Equity/Index Futures . . . . . . . . . . . . . . . . . . . . 361 985 — — 362 071 — —Future Options . . . . . . . . . . . . . . . . . . . . . . . . 5 242 778 — — 153 984 — —

9 691 592 141 495 243 167 3 756 165 132 550 165 868

Credit default contractsCredit Default Swaps . . . . . . . . . . . . . . . . . . . 3 544 556 59 895 50 235 2 971 503 37 655 34 510

171 325 790 1 946 027 1 991 267 80 933 961 1 953 752 1 568 896

As at 31 December 2010 the fair value of derivative financial instruments included the amount of euro73.1 million (liability) (31 December 2009: liability in the amount of euro 28.1 million) related to the negative fairvalue of the embedded derivatives, as described in Note 2.4.

As at 31 December 2010 and 2009, the analysis of trading derivatives by the period to maturity is presented asfollows:

Notional Fair value Notional Fair value

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 533 379 (962) 9 640 219 21 266From 3 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . 62 145 341 18 071 12 735 156 203 055From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 396 896 (229 413) 23 969 230 11 454More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 250 174 167 064 34 589 356 149 081

171 325 790 (45 240) 80 933 961 384 856

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NOTE 22 — OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS


31.12.2010 31.12.2009


Bonds and other fixed income securitiesIssued by other entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 478 793 899

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 145 12 821Other variable income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967 826 466 697

Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 325 449 1 273 417

In light of IAS 39 and in accordance with the accounting policy described in Note 2.6, the Group designatedthese financial assets as at fair value through profit or loss, in accordance with the documented risk management andinvestment 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 2010 and 2009, the analysis of the financial assets at fair value through profit or loss by theperiod to maturity is presented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 401 30 5373 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 592 36 3111 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 681 598 171More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545 852 211 648Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 923 396 750

1 325 449 1 273 417

Regarding quoted or unquoted securities, the balance financial assets at fair value through profit or loss, ispresented as follows:


31.12.2010 31.12.2009


Bonds and other fixed income securitiesIssued by other entities . . . . . . . . . . . . . . . 54 149 288 329 342 478 162 271 631 628 793 899

Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 145 — 15 145 12 821 — 12 821Other variable income securities . . . . . . . . . . 7 923 959 903 967 826 301 528 165 169 466 697

77 217 1 248 232 1 325 449 476 620 796 797 1 273 417

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NOTE 23 — AVAILABLE-FOR-SALE FINANCIAL ASSETS


Cost(1) Positive Negative Impairment Book value

Fair value reserve


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 551Other 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

Bonds and other fixed income securitiesIssue by government and public entities . . 2 134 411 1 304 (545) (34) 2 135 136Issue by others entities . . . . . . . . . . . . . . 3 715 242 17 620 (46 627) (60 423) 3 625 812

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 338 333 452 747 (61 135) (94 733) 2 635 212Other securities . . . . . . . . . . . . . . . . . . . . . 709 915 10 359 (8 947) (28 038) 683 289

Balance as at 31 December 2009. . . . . . . . 8 897 901 482 030 (117 254) (183 228) 9 079 449

(1) Acquisition cost relating to shares and other variable income securities and amortised cost relating to debt securities.

During the year 2008, the Group has reclassified from available-for-sale financial assets an amount ofeuro 522 715 thousand to held-to-maturity investments (see Note 26), following an amendment to IAS 39 FinancialInstruments: Recognition and Measurement issued in October 2008 and adopted by the European Union in thatyear.

As at 31 December 2010 and 2009, the amounts that would have been recognised in the year if thereclassifications were not made are presented as follows:

31.12.2010 31.12.2009


Net change in fair value reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 269 24 249Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 031) (6 426)

6 238 17 823

The balance Available-for-sale financial assets includes securities pledged as collateral by the Group asdescribed in Note 46.

In December 2010, the Group realized a securitisation transaction of commercial paper in the amount of euro603 million with the Lusitano SME No. 2 issue (see Notes 1 and 49).

In accordance with the accounting policy described in Note 2.6, the Group assesses periodically whether thereis objective evidence of impairment on the available-for-sale financial assets, following the judgment criteria’sdescribed in Note 3.1.

F-68





The changes occurred in impairment losses of available-for-sale financial assets are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 228 165 086Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 797 33 499Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44 385) (43 559)Write back for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7 937) (4 367)Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (6)Exchange differences and other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 029 32 575

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 732 183 228

a) As at 31 December 2009 includes euro 21 214 thousand related with securities received in exchange for loans.

As at 31 December 2010 and 2009, the analysis of available-for-sale assets by the period to maturity ispresented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 607 465 1 430 724From 3 to 12 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 191 532 1 132 387From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 430 612 1 391 266More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 110 458 1 798 133Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 134 769 3 326 939

12 474 836 9 079 449

The main equity exposures that contribute to the fair value reserve, as at 31 December 2010 and 2009, can beanalysed as follows:

Amortisedcost Positive Negative Impairment Market value

Fair value reserve

31.12.2010


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

Amortisedcost Positive Negative Impairment Market value

Fair value reserve

31.12.2009


Banco Bradesco . . . . . . . . . . . . . . . . . . . . . . . 696 267 316 762 — — 1 013 029Portugal Telecom . . . . . . . . . . . . . . . . . . . . . . 493 639 67 361 — — 561 000EDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 589 — (601) — 344 988Banque Marocaine du Commerce Extérieur . . . 2 480 7 309 — (682) 9 107

1 537 975 391 432 (601) (682) 1 928 124

As at 31 December 2010 and 2009, the unrealised losses related with the main equity exposures under theavailable-for-sale financial assets category were recognised in the fair value reserve, as they did not meet the Groupcriteria applied for impairment recognition, namely (i) the decline in market value above 30% in relation to theacquisition cost or (ii) market value below the acquisition cost for a period longer than twelve-months.

F-69





The balance Dividend Income from the income statement, in the amount of euro 194 738 thousand, includesdividends received from PT, Bradesco and EDP in the amount of euro 129.1 million, euro 32.4 million and euro17.2 million, respectively (net of non-controlling interest, euro 38.9 million, euro 9.8 million and 5.2 millionrespectively). As at 31 December 2009, this balance included dividends received from PT, Bradesco and EDP in theamount of euro 34.3 million, euro 27.7 million and euro 15.6 million, respectively (net of non-controlling interest,euro 10.3 million, euro 3 million and 4.7 million respectively).

During 2009, the Group set up AVISTAR, SGPS, S.A., with the purpose of holding the Group strategicparticipations. Further to the acquisition, at market prices, in the stock-exchange of EDP, Portugal Telecom sharesand part of the position of the Group in Banco Bradesco, the Group holds, as at 31 December 2010, respectively,94.4 million shares, 89.1 million shares and 80.2 million shares of these entities.

The analysis of the available-for-sale financial assets by quoted and unquoted securities, is presented asfollows:


31.12.2010 31.12.2009


SecuritiesBonds and other fixed income

securitiesIssue by government and public

entities . . . . . . . . . . . . . . . . . 1 914 346 1 990 324 3 904 670 189 119 1 946 017 2 135 136Issue by other entities . . . . . . . . 2 072 142 3 362 246 5 434 388 896 142 2 729 670 3 625 812

Shares . . . . . . . . . . . . . . . . . . . . . 2 050 296 308 255 2 358 551 2 324 956 310 256 2 635 212Other variable income securities . . 146 990 630 237 777 227 190 379 492 910 683 289

6 183 774 6 291 062 12 474 836 3 600 596 5 478 853 9 079 449

Valuation techniques have been disclosed in Note 50.

NOTE 24 — LOANS AND ADVANCES TO BANKS


31.12.2010 31.12.2009


Loans and advances to banks in PortugalInter-bank money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 20 826Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 321 454 4 081 424Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 241 114 621Very short term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 105 26 504Other loans and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 483 67 405

1 455 299 4 310 780

Loans and advances to banks abroadDeposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 489 1 252 025Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942 410 1 393 040Very short term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 269 652 000Other loans and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 451 40 247

1 616 619 3 337 312

Overdue loans and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 1 070

3 072 316 7 649 162Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (642) (814)

3 071 674 7 648 348

F-70





The main loans and advances to banks in Portugal, as at 31 December 2010, bear interest at an average annualinterest rate of 1.53% (31 December 2009: 1.44%). Loans and advances to banks abroad bear interest atinternational market rates where the Group operates.

As at 31 December 2010, the balance loans and advances to banks in Portugal includes deposits in theEuropean Central Banks System (Bank of Portugal) for an amount of euro 1 200 millions (31 December 2009: euro3 750 millions).

As at 31 December 2009, this balance includes euro 776 786 thousand of loans and advances to banks at fairvalue through profit or loss (see Note 27).

As at 31 December 2010 and 2009, the analysis of loans and advances to banks by the period to maturity ispresented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 420 470 6 733 2403 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 512 677 9581 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 481 210 929More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 172 25 965Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681 1 070

3 072 316 7 649 162

The changes occurred during the year in impairment losses of loans and advances to banks are presented asfollows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 814 1 420Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 410Write back for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (378) (1 511)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 495

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 642 814

F-71





NOTE 25 — LOANS AND ADVANCES TO CUSTOMERS


31.12.2010 31.12.2009


Domestic loansCorporate

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 064 375 13 007 362Commercial lines of credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 767 663 5 004 089Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 171 971 3 208 183Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 527 684 152Factoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 565 034 1 551 064Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 593 23 924Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 902 174 171

RetailMortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 716 984 10 726 226Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 309 535 2 460 115

37 402 584 36 839 286

Foreign loansCorporate

Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 684 807 8 590 183Commercial lines of credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 127 981 2 041 724Discounted bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 543 218 076Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 281 250 012Overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 367 268 621Other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 471 496 1 940 793

RetailMortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 884 958 505 036Consumer and other loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586 075 434 427

16 562 508 14 248 872

Overdue loans and interestUp to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 862 138 639From 3 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 598 313 487From 1 to 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 398 380 045More than 3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 569 193 349

1 206 427 1 025 520

55 171 519 52 113 678

Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 824 712) (1 605 461)

53 346 807 50 508 217

As at 31 December 2010, the balance loans and advances to customers includes an amount ofeuro 5 715.3 million (31 December 2009: euro 4 346.4 million) related to securitised loans following theconsolidation of the securitisation entities (see Note 49), according to the accounting policy described in Note 2.2.The liabilities related to these securitisations are booked under Debt securities issued (see Notes 38 and 49).

As at 31 December 2010, loans and advances include euro 4 963 051 thousand of mortgage loans thatcollateralise the issue of covered bonds (31 December 2009: euro 4 053 833 thousand) (see Note 38).

The fair value of loans and advances to customers is presented in Note 50.

F-72





As at 31 December 2010 and 2009, the analysis of loans and advances to customers by the period to maturity ispresented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 652 954 7 406 8793 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 408 366 5 874 7471 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 980 539 12 720 125More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 923 233 25 086 407Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 206 427 1 025 520

55 171 519 52 113 678

The changes occurred in impairment losses of loans and advances to customers are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 605 461 1 198 166Charge of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 838 620 141Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120 405) (92 386)Amounts recovered during the year previously charged-off . . . . . . . . . . . . . . . . . . . . 19 582 18 590Write back of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (237 379) (88 499)Unwind of discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24 363) (18 626)Exchange differences and others(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 978 (31 925)

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 824 712 1 605 461

a) As at 31 December 2009 includes euro 21 214 thousand related with securities received in exchange for loans.

The unwind of discount represents the interest on overdue loans, recognised as interest and similar income, asimpairment losses are calculated using the discounted cash flows method.

As at 31 December 2010 and 2009, loans and advances to customers and impairment losses can be analysed asfollows:

Gross amount Impairment Gross amount Impairment Gross amount Impairment Net amount

Loans with impairment lossescalculated on an individual basis

Loans with impairment lossescalculated on a portfolio basis Total

31.12.2010


Corporate loans . . . . . . . . . . . . . . . . . . . . 8 412 987 1 096 209 32 046 665 333 231 40 459 652 1 429 440 39 030 212Mortgage loans . . . . . . . . . . . . . . . . . . . . 1 206 383 193 056 10 494 630 26 285 11 701 013 219 341 11 481 672Consumer 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

Gross amount Impairment Gross amount Impairment Gross amount Impairment Net amount

Loans with impairment lossescalculated on an individual basis

Loans with impairment lossescalculated on a portfolio basis Total

31.12.2009


Corporate loans . . . . . . . . . . . . . . . . . 7 501 417 910 954 30 265 020 321 601 37 766 437 1 232 555 36 533 882Mortgage loans . . . . . . . . . . . . . . . . . . 1 209 501 187 197 10 143 077 25 336 11 352 578 212 533 11 140 045Consumer and other loans . . . . . . . . . . . 675 849 123 151 2 318 814 37 222 2 994 663 160 373 2 834 290

Total . . . . . . . . . . . . . . . . . . . . . . . . 9 386 767 1 221 302 42 726 911 384 159 52 113 678 1 605 461 50 508 217

Loans with impairment losses calculated on an individual basis include loans with objective evidence ofimpairment, overdue loans for over 90 days and restructured loans.

F-73





As at 31 December 2010, loans and advances include euro 90 098 thousand of restructured loans (31 December2009: euro 103 197 thousand). These loans correspond, in accordance with the definition of the Bank of Portugal, toloans previously overdue, which through a restructuring process are considered as performing loans.

The interest recognised in 2010 as interest and similar income in relation to impaired loans amounts to euro382.4 million (2009: euro 395.6 million) which includes the effect of the unwind of discount related to overdueloans.

Loans and advances to customers by interest rate type are analysed as follows:

31.12.2010 31.12.2009


Variable interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 887 538 46 377 599Fixed interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 283 981 5 736 079

55 171 519 52 113 678

An analysis of finance leases by the period to maturity is presented as follows:

31.12.2010 31.12.2009


Gross investment in finance leases, receivableUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 418 544 942From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 457 119 1 406 386More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 850 942 1 967 780

3 857 479 3 919 107

Unearned future finance income on finance leasesUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 102 46 651From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 904 154 485More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 221 259 777

503 227 460 912

Net investment in finance leasesUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 316 498 291From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 234 215 1 251 901More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 650 721 1 708 003

3 354 252 3 458 195

NOTE 26 — HELD-TO-MATURITY INVESTMENTS

The held-to-maturity investments, can be analysed as follows:

31.12.2010 31.12.2009


Bonds and other fixed income securitiesIssued by government and public entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 829 341 583 608Issued by other entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 674 218 1 986 266

2 503 559 2 569 874

Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50 094) (34 565)

2 453 465 2 535 309

F-74





As at 31 December 2010 and 2009, the analysis of held-to-maturity investments by the period to maturity ispresented as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 750 128 4753 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 228 374 8431 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 213 723 1 123 850More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948 858 942 706

2 503 559 2 569 874

The analysis of the held-to-maturity investments by quoted and unquoted securities is presented as follows:


31.12.2010 31.12.2009


Bonds and other fixed income securitiesIssued by government and public

entities . . . . . . . . . . . . . . . . . . . . . . . 827 063 2 278 829 341 583 608 — 583 608Issued by other entities . . . . . . . . . . . . . 937 776 736 442 1 674 218 1 132 075 854 191 1 986 266

1 764 839 738 720 2 503 559 1 715 683 854 191 2 569 874

The changes occurred in impairment losses of held to maturity investments are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 565 —Charge of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 744 44 107Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30 702) (8 140)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (513) (1 402)


During the year ended 31 December 2008, the Group has reclassified non-derivative financial assets to theheld-to-maturity investments category in the amount of euro 767.2 million, as follows:

Acquisitioncost Book value Positive Negative

Futurecash-flows(a)

Effectiveinterest rate(b)

Market value asat 31 December

2008

Amortisationof fair valuereserve until31.12.2010(c)

Fair value reserve

Reclassification date


Available-for-sale financial assets . . . . . . 551 897 522 715 424 (29 607) 701 070 5.75% 485 831 15 489Financial assets held-for-trading . . . . . . 243 114 244 530 — — 408 976 11.50% 237 295 —

Bonds and other fixed incomesecurities . . . . . . . . . . . . . . . . . . . 795 011 767 245 424 (29 607) (1 110 046) 723 126 15 489

a) Undiscounted capital and interest cash flows; future interest is calculated based on the forward interest rates at the date of reclassification.

b) Effective interest rate was calculated based on the forward interest rates at the date of reclassification; the maturity considered was theminimum between the call date, if applicable and the maturity date of the financial asset.

c) Amortisation in year ended 31 December 2010 amounts to euro 5 866 thousand (31 December 2009: euro 8 698 thousand).

The reclassification of financial assets held-for-trading as held-to-maturity investments was performedfollowing the amendment to IAS 39 Financial instruments: recognition and measurement and IFRS 7 Financialinstruments: disclosures, adopted by the Regulation (EU) no 1004/2008 issued in 15 October 2008, as mentioned inthe accounting policy described in Note 2.6.

F-75





This reclassification was made due to the market conditions following the international financial crises thatcharacterised the year 2008, which was considered to be one of the rare circumstances justifying the application ofthe amendment to IAS 39.

The effect in the 2010 financial statements that would have been recognised if the reclassifications were notmade in 2008 is presented in Note 21 and 23.

During the years 2010 and 2009, no transfers were made to this category of financial assets.

NOTE 27 — DERIVATIVES FOR RISK MANAGEMENT PURPOSES

As at 31 December 2010 and 2009, the fair value of the derivatives for risk management purposes can beanalysed as follows:

Hedgingderivatives

Other derivativesfor risk management

purposes TotalHedging

derivatives

Other derivativesfor risk management

purposes Total

31.12.2010 31.12.2009


Derivatives for riskmanagement purposesDerivatives for risk

management purposes —assets . . . . . . . . . . . . . . . 255 908 191 396 447 304 291 678 163 437 455 115

Derivatives for riskmanagement purposes —liabilities . . . . . . . . . . . . . (88 057) (140 887) (228 944) (92 843) (160 305) (253 148)

167 851 50 509 218 360 198 835 3 132 201 967

Accumulated change in the fairvalue component of assetsand liabilities being hedgedFinancial assets

Deposits at banks . . . . . . . — — — — 225 225Loans and advances to

customers . . . . . . . . . . . 21 140 — 21 140 2 227 27 050 29 277

21 140 — 21 140 2 227 27 275 29 502Financial liabilities

Deposits from banks . . . . . (29 639) (538) (30 177) (23 805) (7 720) (31 525)Due to customers . . . . . . . (3 323) (14 760) (18 083) (5 549) 15 468 9 919Debt securities issued. . . . . (42 004) 119 308 77 304 (72 255) (45 858) (118 113)Subordinated debt . . . . . . . (863) — (863) 2 566 — 2 566

(75 829) 104 010 28 181 (99 043) (38 110) (137 153)

(54 689) 104 010 49 321 (96 816) (10 835) (107 651)

As mentioned in the accounting policy described in Note 2.4, derivatives for risk management purposesincludes hedging derivatives and derivatives contracted to manage the risk of certain financial assets and financialliabilities designated at fair value through profit or loss (and that were not classified as hedging derivatives).

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Hedging derivatives

As at 31 December 2010 and 2009, the fair value hedge relationships present the following features:

Derivative Hedged item Hedged risk NotionalFair value ofderivative(2)

Changes in thefair value of thederivative in the

year(2)

Accumulatedchanges in fair

value of thehedged item(1)

Changes in the fairvalue of the hedgeditem in the year(1)

31.12.2010


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 227Currency interest Rate Swap. . Debt securities issued Interest rate 4 540 844 137 033 (27 403) (41 828) 28 734Currency interest Rate Swap. . Debt securities issued Interest rate and FX 18 807 585 (443) (176) 425Currency 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

Derivative Hedged item Hedged risk NotionalFair value ofderivative(2)

Changes in thefair value of thederivative in the

year(2)

Accumulatedchanges in fair

value of thehedged item(1)

Changes in the fairvalue of the hedgeditem in the year(1)

31.12.2009


Interest Rate Swap . . . . . . . Loans and advances to customers Interest rate 2 026 046 (33 094) 2 206 29 277 1 424Interest Rate Swap . . . . . . . Due to customers Interest rate 125 417 9 988 1 758 (5 549) (1 461)Interest Rate Swap . . . . . . . Deposits from banks Interest rate 141 044 19 524 (9 545) (18 641) 9 743Currency interest Rate Swap. . Deposits from banks Interest rate and FX 413 748 9 306 1 484 (5 164) (2 821)Interest Rate Swap . . . . . . . Debt securities issued Interest rate 5 113 442 164 513 (77 202) (71 677) 67 936Currency interest Rate Swap. . Debt securities issued Interest rate and FX 18 887 968 914 (578) (891)Currency interest Rate Swap. . Subordinated loans Interest rate and FX 225 293 (2 650) 30 439 2 566 (14 554)

8 063 877 168 555 (49 946) (69 766) 59 376

(1) Attributable to the hedged risk(2) Includes accrued interest

Changes in the fair value of the hedged items mentioned above and of the respective hedging derivatives arerecognised in the income statement under net gains / (losses) from financial assets and financial liabilities at fairvalue through profit or loss.

As at 31 December 2010, the ineffectiveness of the fair value hedge operations amounted to euro 8.8 million(31 December 2009: euro 5.8 million) and was recognised in the income statement. ESFG Group evaluates on anongoing 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 andfinancial liabilities at fair value through profit and loss in accordance with the accounting policies described inNotes 2.5, 2.6 and 2.8 and that the Group did not classify as hedging derivatives.

F-77





The book value of financial assets and financial liabilities at fair value through profit and loss can be analysedas follows:

DerivativeFinancial assets / liabilities

economically hedged NotionalFair

Value

Changes in thefair value

during the yearFair

Value


during the yearCarryingamount

Redemptionamount atmaturity(1)

Derivative Assets / Liabilities associated

31.12.2010


AssetsFX swap . . . . . . . . . . . . . . . . . . . . . . . . . . Loans ans advances to banks — — 13 — (236) — —

LiabilitiesInterest Rate Swap . . . . . . . . . . . . . . . . . . . . Deposits from banks 262 007 41 353 (40 532) 117 (671) 163 914 289 617FX swap . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits from banks 391 395 667 128 (669) (128) 392 064 391 395Credit Default Swap . . . . . . . . . . . . . . . . . . . Deposits from banks 5 500 (124) (142) 14 11 2 485 2 500Interest Rate Swap . . . . . . . . . . . . . . . . . . . . Due to customers 3 373 000 48 087 19 089 (14 760) (30 142) 3 995 152 4 013 920Interest Rate Swap/Fx forwards . . . . . . . . . . . . Debt securities issued 1 422 772 (13 897) 14 563 117 996 54 527 424 205 545 001Credit Default Swap . . . . . . . . . . . . . . . . . . . Debt securities issued 95 330 (10 389) (9 621) 7 732 10 212 141 652 147 637Equity Swap . . . . . . . . . . . . . . . . . . . . . . . Debt securities issued 295 382 (15 518) (22 396) (6 418) 12 650 237 948 226 512Equity Option . . . . . . . . . . . . . . . . . . . . . . . Debt securities issued 16 027 322 783 19 39 10 391 10 387Fx Option . . . . . . . . . . . . . . . . . . . . . . . . . Debt securities 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

DerivativeFinancial assets / liabilities

economically hedged NotionalFair

Value


during the yearFair

Value


during the yearCarryingamount

Redemptionamount atmaturity(1)

Derivative Assets / Liabilities associated

31.12.2009


AssetsFX swap . . . . . . . . . . . . . . . . . . . . . Loans ans advances to banks 805 061 343 (498) 225 190 776 786 776 561

LiabilitiesInterest Rate Swap . . . . . . . . . . . . . . . Deposits from banks 27 839 14 075 (3 208) (7 703) (35 417) 66 874 75 402FX swap . . . . . . . . . . . . . . . . . . . . . Deposits from banks 74 426 35 174 (17) (14) 34 724 34 708Interest Rate Swap . . . . . . . . . . . . . . . Due to customers 573 000 15 163 12 089 15 468 (15 493) 1 437 369 1 414 952Interest Rate Swap . . . . . . . . . . . . . . . Debt securities issued 412 715 4 977 35 269 (12 907) (37 376) 460 286 500 026Currency Interest Rate Swap . . . . . . . . . Debt securities issued 68 399 (336) 497 515 (954) 67 949 68 399FX Forward . . . . . . . . . . . . . . . . . . . Debt securities issued 6 799 523 822 (2 621) (1 267) 867 7 357 541 7 358 474Credit Default Swap . . . . . . . . . . . . . . Debt securities issued 63 254 (287) 6 218 (2 757) (5 734) 106 181 102 896Equity Swap . . . . . . . . . . . . . . . . . . Debt securities issued 334 215 (1 827) 93 094 (29 167) (90 361) 261 801 228 585Equity Option . . . . . . . . . . . . . . . . . . Debt securities issued 4 615 447 447 (275) (19) 447 407

9 163 047 33 412 141 461 (37 885) (184 311) 10 569 958 10 560 410

(1) Corresponds to the minimum guaranted amount to be reimbursed at maturity

As at 31 December 2010, the fair value of the financial liabilities at fair value through profit or loss, includes apositive cumulative effect of euro 151 411 thousand (31 December 2009: positive cumulative effect of euro 68 755thousand) attributable to the Group’s own credit risk. The change in fair value attributable to the Group’s own creditrisk resulted in the recognition, in 2010, of a profit amounting to euro 82 656 thousand (31 December 2009: loss ofeuro 40 970 thousand).

As at 31 December 2010 and 2009, the analysis of derivatives for risk management purposes by the period tomaturity is as follows:

Notional Fair value Notional Fair value

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 944 529 37 054 6 924 107 (7 651)3 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 832 3 068 2 677 758 65 7871 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 144 996 95 559 5 361 209 126 035More than 5 years. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 128 977 82 679 2 263 850 17 796

13 064 334 218 360 17 226 924 201 967

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NOTE 28 — NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE

This balance as at 31 December 2010 and 2009 is analysed as follows:

Assets Liabilities Assets Liabilities

31.12.2010 31.12.2009


Assets and liabilities of subsidiaries acquired exclusively forresale purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 423 5 411 36 484 21 609

Property held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 112 — 421 704 —Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 840 — 2 063 —

642 952 — 423 767 —Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89 825) — (52 666) —

553 127 — 371 101 —

574 550 5 411 407 585 21 609

The amounts presented refer to (i) investments in entities controlled by the Group, which have been acquiredexclusively with the purpose of being sold in the short term, and (ii) assets acquired in exchange for loans anddiscontinued branches available for immediate sale.

As at 31 December 2010, the amount of property held for sale includes euro 12 848 thousand (31 December2009: euro 16 224 thousand) related to discontinued branches, in relation to which the Group recognised animpairment loss amounting to euro 3 924 thousand (31 December 2009: euro 8 764 thousand).

The changes occurred in non-current assets held for sale during 2010 and 2009, are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 767 284 170Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 923 381 572Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (244 942) (242 540)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (796) 565


Following the sales occurred in 2010, the Group realised a loss amounting to euro 12 727 thousands(31 December 2009: loss of euro 14 012 thousands).

The changes occurred in impairment losses are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 666 30 324Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 489 36 960Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20 291) (14 573)Write back for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (965) (38)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74) (7)


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NOTE 29 — PROPERTY AND EQUIPMENT

As at 31 December 2010 and 2009 this balance is analysed as follows:

31.12.2010 31.12.2009


PropertyLand and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 777 699 744 004Improvements in leasehold property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 385 231 120Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 237 570

1 019 321 975 694

EquipmentComputer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 468 309 867Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 253 133 189Fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 127 130 381Security equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 170 34 469Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 212 41 057Medical equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 592 87 036Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 545 8 031Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 302 24 230

822 669 768 260

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 416 20 656

Work in progressLand and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 574 126 965Improvement in leasehold property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 577 2 160Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 597 4 802Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 762 6 474

269 510 140 401

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (966 520) (884 956)Impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 356) (5 279)

(968 876) (890 235)

1 165 040 1 014 776

In accordance with the accounting policy described in Note 2.13, the Group concluded that there was anindication of impairment in relation to certain property and equipment. Therefore it has performed impairment testsfor these assets and concluded that an accumulated impairment loss of euro 2 356 thousand should be recognised(31 December 2009: euro 5 279 thousand).

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The movement in this balance was as follows:

Property Equipment Other Work in progress Total


Acquisition costsBalance as at 31 December 2008 . . . . . . . . . . . . 888 991 727 449 18 374 152 675 1 787 489

Change in the scope of consolidation(a) . . . . . . . 9 230 2 342 182 — 11 754Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 590 36 529 2 802 92 170 153 091Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4 813) (12 104) (1 026) (685) (18 628)Transfers(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 772 16 280 383 (89 733) (6 298)Exchange differences and other . . . . . . . . . . . . . (6 076) (2 236) (59) (14 026) (22 397)

Balance as at 31 December 2009 . . . . . . . . . . . . 975 694 768 260 20 656 140 401 1 905 011Change in the scope of consolidation(c) . . . . . . . 7 391 16 290 — — 23 681Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 501 35 181 823 157 620 222 125Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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

DepreciationBalance as at 31 December 2008 . . . . . . . . . . . . 275 364 537 294 9 091 — 821 749

Change in the scope of consolidation(a) . . . . . . . 909 1 835 159 — 2 903Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 375 51 568 1 852 — 80 795Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4 628) (11 880) (982) — (17 490)Transfers(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 628) (98) — — (1 726)Exchange differences and other . . . . . . . . . . . . . (587) (510) (178) — (1 275)

Balance as at 31 December 2009 . . . . . . . . . . . . 296 805 578 209 9 942 — 884 956Change in the scope of consolidation(c) . . . . . . . 777 7 102 — — 7 879Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 350 59 659 1 786 — 94 795Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (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

ImpairmentBalance as at 31 December 2008 . . . . . . . . . . . . 2 326 — 517 — 2 843

Impairment losses . . . . . . . . . . . . . . . . . . . . . . . 2 970 — — — 2 970Write-back for the year . . . . . . . . . . . . . . . . . . . (534) — — — (534)

Balance as at 31 December 2009 . . . . . . . . . . . . 4 762 — 517 — 5 279Impairment losses . . . . . . . . . . . . . . . . . . . . . . . — — 180 — 180Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 103) — — — (3 103)

Balance as at 31 December 2010 . . . . . . . . . . . . 1 659 — 697 — 2 356

Net balance as at 31 December 2010 . . . . . . . . . 694 049 191 775 9 706 269 510 1 165 040

Net balance as at 31 December 2009 . . . . . . . . . 674 127 190 051 10 197 140 401 1 014 776

(a) Relates to the constitution of Clube Residencial da Boavista and acquisition of Clinica Central de Oia and Marignan Gestion

(b) Relates to discontinued branches, transferred to the balance Non-current assets held for sale

(c) Relates to the acquisition of Aman bank, Execution Noble and Pastorvida

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The balance Equipment — Motor vehicles includes equipment acquired under finance lease agreements,whose payment schedule is as follows:

31.12.2010 31.12.2009


Gross investment in finance leases, payableUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 25From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 259

411 284

InterestUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 16

34 21

PrincipalUp to 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 20From 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 243

377 263

NOTE 30 — INVESTMENT PROPERTIES

Investment properties are analysed as follows:

31.12.2010 31.12.2009


Insurance activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 765 88 092Real estate activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 645 1 725

341 410 89 817

The movement in investment properties for the years ended 31 December 2010 and 2009 can be analysed asfollows:

Insurance activity Real estate activity Total


Net balance as at 1 January 2009 . . . . . . . . . . . . . . . . . . . . 86 942 2 875 89 817Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 164 1 164Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 — 169Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1 456) (1 456)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (47) (47)Unrealised gains / (losses) . . . . . . . . . . . . . . . . . . . . . . . . . 981 (811) 170

Net balance as at 31 December 2009 . . . . . . . . . . . . . . . . . . 88 092 1 725 89 817Change in the scope of consolidation(a) . . . . . . . . . . . . . . . 272 951 — 272 951Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 — 128Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24 242) (1 725) (25 967)Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2 645 2 645Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 — 264Unrealised gains / (losses) . . . . . . . . . . . . . . . . . . . . . . . . . 1 572 — 1 572

Net balance as at 31 December 2010 . . . . . . . . . . . . . . . . . . 338 765 2 645 341 410

(a) Relates to Fimoges — Sociedade Gestora de Fundos de Investimento Imobiliário S.A.

F-82





NOTE 31 — INTANGIBLE ASSETS

As at 31 December 2010 and 2009 this balance is analysed as follows:

31.12.2010 31.12.2009


Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 424 235 024

Internally developedSoftware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 079 30 524

Acquired from third partiesSoftware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599 703 582 029Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 140 1 893

667 843 583 922

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 955 30 832

1 123 301 880 302Accumulated amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (563 664) (504 708)Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 800) (1 743)

557 837 373 851

Goodwill, recognised in accordance with the accounting policy described in Note 2.2, is analysed as follows:

31.12.2010 31.12.2009


HOSPOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 943 89 943PARTRAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 123 61 123BES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 336 58 336BESPAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 960 5 960Marignan Gestion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 613 3 613Clínica Oia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 395 3 395BEST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 349 2 349Concordia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 800 1 743Execution Noble(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 046 —GESPASTOR(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 000 —AMAN BANK(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 533 —PASTOR VIDA(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 110 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 216 8 562

335 424 235 024Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 800) (1 743)

333 624 233 281

(a) See note 52

In accordance with the accounting policy described in Note 2.2, goodwill is subject to impairment testsannually or whenever there is an indication of impairment. These tests were performed for the preparation of theconsolidated financial statements as at 31 December 2010 and 2009 and no impairment losses were identified,except for the goodwill related to the investment in Concordia, for an amount of euro 1 800 thousand (31 December2009: euro 1 743 thousand).

The balance of internally developed software includes the costs incurred by the Group in the development andimplementation of software applications that will generate economic benefits in the future (see Note 2.15).

F-83





The movement in this balance was as follows:

Goodwill Software Other Work in progress Total


Acquisition costsBalance as at 31 December 2008 . . . . . . . . . 229 065 563 539 1 531 23 225 817 360

Acquisitions:Internally developed . . . . . . . . . . . . . . . . — 12 — 8 621 8 633Acquired from third parties . . . . . . . . . . 14 276 14 710 115 35 399 64 500

Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . (8 262) (212) (153) — (8 627)Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . — 36 210 175 (36 004) 381Exchange differences and other . . . . . . . . . (55) (1 706) 225 (409) (1 945)

Balance as at 31 December 2009 . . . . . . . . . 235 024 612 553 1 893 30 832 880 302Change in the scope of consolidation(b) . . . — 9 195 66 520 — 75 715Acquisitions:

Internally developed . . . . . . . . . . . . . . . . — 324 — 8 899 9 223Acquired 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

AmortisationBalance as at 31 December 2008 . . . . . . . . . — 461 143 1 209 — 462 352

Amortisation . . . . . . . . . . . . . . . . . . . . . . . — 42 892 155 — 43 047Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . — (211) (5) — (216)Exchange differences and other . . . . . . . . . — (654) 179 — (475)

Balance as at 31 December 2009 . . . . . . . . . — 503 170 1 538 — 504 708Change in the scope of consolidation(a) . . . — 7 675 — — 7 675Amortisation . . . . . . . . . . . . . . . . . . . . . . . — 44 586 131 — 44 717Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . — (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

ImpairmentBalance as at 31 December 2008 . . . . . . . . . — — — — —

Impairment losses . . . . . . . . . . . . . . . . . . . 956 — — — 956Exchange differences and other . . . . . . . . . 787 — — — 787

Balance as at 31 December 2009 . . . . . . . . . 1 743 — — — 1 743Exchange differences and other . . . . . . . . . 57 — — — 57

Balance as at 31 December 2010 . . . . . . . . . 1 800 — — — 1 800

Net balance as at 31 December 2010 . . . . . . 333 624 116 476 66 782 40 955 557 837

Net balance as at 31 December 2009 . . . . . . 233 281 109 383 355 30 832 373 851

(a) Relates to the acquisition of Execution Noble and PastorVida

(b) The amount of euro 66 520 thousand relates to the value in force of Pastor Vida, as described in Note 52

During 2009, the Group sold 25% of Banco BEST and recognised a decrease in the respective goodwill in theamount of euro 6 525 thousand against the income statement. In the scope of ES Data liquidation in 2009, the Grouprecognised a decrease in the related goodwill in the amount of euro 1 737 thousand against the income statement.

F-84





NOTE 32 — INVESTMENTS IN ASSOCIATES

The financial information concerning associates is presented in the following table:

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Assets Liabilities Equity Income Profit/(Loss) of the year Acquisition cost


BES VIDA . . . . . . . . . . . . . . . . . . . 8 013 503 8 066 515 7 860 505 7 853 653 152 998 212 862 1 157 310 661 237 37 329 41 511 124 476 124 476

BES SEGUROS . . . . . . . . . . . . . . . . . 120 028 127 345 95 738 99 903 24 290 27 442 66 183 63 782 4 015 5 540 7 501 7 501

EUROP ASSISTANCE . . . . . . . . . . . . . 39 883 41 694 31 098 31 549 8 785 10 145 40 369 32 252 1 475 1 881 2 344 2 344

LOCARENT. . . . . . . . . . . . . . . . . . . 344 148 323 156 339 177 316 734 4 971 6 422 95 107 100 896 1 570 1 200 2 967 2 967

ESEGUR . . . . . . . . . . . . . . . . . . . . 48 794 50 321 38 554 39 758 10 240 10 563 48 264 60 888 1 000 1 800 9 634 9 634

FUNDO ES IBERIA . . . . . . . . . . . . . . 18 824 24 109 15 2 235 18 809 21 874 2 626 422 1 947 (1 959) 8 708 10 496

BRB INTERNACIONAL . . . . . . . . . . . . 11 788 11 081 10 240 10 418 1 548 663 4 612 2 058 (120) (422) 10 659 10 034

AUTOPISTA PEROTE-XALAPA . . . . . . . . 417 532 311 049 274 137 171 882 143 395 139 167 — — (514) — 35 056 35 056

LUSOSCUT COSTA DE PRATA . . . . . . . . 504 386 565 404 450 672 519 510 53 714 45 894 19 254 57 968 7 922 18 220 — 10 442

LUSOSCUT BEIRA LITORAL E ALTA . . . . 958 226 991 576 800 794 891 095 157 432 100 481 26 068 116 623 14 509 22 565 — 23 093

LUSOSCUT GRANDE PORTO . . . . . . . . 738 043 703 216 652 655 659 879 85 388 43 337 16 251 65 453 7 899 5 619 — 25 165

ASCENDI GROUP . . . . . . . . . . . . . . . 3 640 996 — 3 389 487 — 251 509 — 269 305 — 140 166 — 163 341 —

ASCENDI . . . . . . . . . . . . . . . . . . . . 45 394 33 553 46 915 32 053 (1 521) 1 500 — — (1 312) (1 128) — 2 400

EMPARK . . . . . . . . . . . . . . . . . . . . 730 904 666 468 594 657 533 831 136 247 132 637 16 703 15 828 7 315 (824) 55 013 61 413

AUVISA – AUTOVIA DE LOS VIÑEDOS . . . 242 013 — 212 200 — 29 813 — 14 083 — 1 668 — 41 056 —

UNICRE . . . . . . . . . . . . . . . . . . . . . 310 155 — 195 880 — 114 275 — 255 568 — 6 469 — 11 497 —

RODI SINKS & IDEAS . . . . . . . . . . . . . 45 211 43 682 24 196 26 015 21 015 17 667 22 401 16 719 3 665 902 1 240 1 240

SCUTVIAS . . . . . . . . . . . . . . . . . . . 802 170 — 729 831 — 72 339 — 96 488 — 10 907 — 50 669 —

Others . . . . . . . . . . . . . . . . . . . . . . — — — — — — — — — — 112 567 96 261

636 728 422 522

Note: information adjusted for consolidation purposes

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Voting interest Book valueShare of profit of

associates


BES VIDA . . . . . . . . . . . . . . . . . . . . . . . . 50.00% 50.00% 71 258 101 190 18 664 20 756BES SEGUROS. . . . . . . . . . . . . . . . . . . . . 50.00% 50.00% 12 145 13 721 2 008 2 770EUROP ASSISTANCE. . . . . . . . . . . . . . . . 47.00% 47.00% 4 129 4 767 358 927LOCARENT . . . . . . . . . . . . . . . . . . . . . . . 50.00% 50.00% 2 796 3 521 785 544ESEGUR. . . . . . . . . . . . . . . . . . . . . . . . . . 44.00% 44.00% 11 350 11 491 440 792FUNDO ES IBERIA . . . . . . . . . . . . . . . . . 38.69% 38.69% 7 287 8 799 310 (366)BRB INTERNACIONAL . . . . . . . . . . . . . . 24.93% 24.93% 243 157 86 (505)AUTOPISTA PEROTE-XALAPA . . . . . . . . 20.00% 20.00% 28 679 27 834 (103) —LUSOSCUT COSTA DE PRATA . . . . . . . . — 22.38% — 22 210 1 271 3 513LUSOSCUT BEIRA LITORAL E ALTA . . — 22.38% — 45 497 2 267 3 658LUSOSCUT GRANDE PORTO . . . . . . . . . — 22.38% — 21 062 958 21ASCENDI GROUP . . . . . . . . . . . . . . . . . . 40.00% — 170 259 — 6 918 —ASCENDI . . . . . . . . . . . . . . . . . . . . . . . . . — 40.00% — 1 000 (525) (1 371)EMPARK . . . . . . . . . . . . . . . . . . . . . . . . . 22.40% 25.00% 54 003 61 424 772 —AUVISA – AUTOVIA DE LOS VIÑEDOS. . 50.00% — 37 081 — 31 —UNICRE . . . . . . . . . . . . . . . . . . . . . . . . . . 17.50% — 19 998 — 8 479 —RODI SINKS & IDEAS. . . . . . . . . . . . . . . 35.42% 35.42% 7 528 6 096 1 432 323SCUTVIAS . . . . . . . . . . . . . . . . . . . . . . . . 22.20% — 50 669 — — —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 107 815 89 393 (6 559) 2 398

585 240 418 162 37 592 33 460

F-85





The movement occurred in this balance is presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418 162 264 156Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99 682) (4 899)Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 823 98 299Share of profit of associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 592 33 460Fair value reserve from investments in associates(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . (48 990) 38 187Dividends received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16 734) (3 132)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 069 (7 909)


(a) Mainly attributable to the changes in BES Vida fair value reserves.

NOTE 33 — TECHNICAL RESERVES

The direct insurance and reinsurance ceded technical reserves are analysed as follows:

Directinsurance

Reinsuranceceded Total

Directinsurance


31.12.2010 31.12.2009


Unearned premiums reserve . . . . 119 902 (20 061) 99 841 104 393 (15 675) 88 718Life mathematical reserve . . . . . 480 096 (414) 479 682 333 445 (5 977) 327 468Claims outstanding reserve . . . . . 519 172 (42 357) 476 815 530 367 (37 425) 492 942Unexpired risks reserve . . . . . . . 32 610 — 32 610 23 743 — 23 743Reserve for bonus and rebates . . 5 239 (2 266) 2 973 2 804 (319) 2 485

1 157 019 (65 098) 1 091 921 994 752 (59 396) 935 356

The life mathematical reserve is analysed as follows:

Directinsurance


Directinsurance


31.12.2010 31.12.2009


Annuities . . . . . . . . . . . . . . . . . . . . . 87 514 (414) 87 100 91 256 (394) 90 862Saving Contracts with Profit

Sharing . . . . . . . . . . . . . . . . . . . . 256 579 — 256 579 242 189 (5 583) 236 606Saving Contracts without Profit

Sharing . . . . . . . . . . . . . . . . . . . . 131 675 — 131 675 — — —Life insurances policies where

investment risk is borne bypolicyholders . . . . . . . . . . . . . . . . 4 328 — 4 328 — — —

480 096 (414) 479 682 333 445 (5 977) 327 468

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.

F-86





The claims outstanding reserve by line of business is analysed as follows:

Directinsurance


Directinsurance


31.12.2010 31.12.2009


Life . . . . . . . . . . . . . . . . . . . . . . . . . 10 061 (1 058) 9 003 6 159 (134) 6 025Workers compensation

(mathematical reserve) . . . . . . . . . 122 049 (298) 121 751 124 009 (27) 123 982Workers compensation (not related

to life pensions) . . . . . . . . . . . . . . 53 654 — 53 654 44 970 — 44 970Accidents and health . . . . . . . . . . . . 16 262 (217) 16 045 14 104 (188) 13 916Fire and other hazards . . . . . . . . . . . 34 664 (13 675) 20 989 33 790 (12 081) 21 709Motor . . . . . . . . . . . . . . . . . . . . . . . 254 101 (15 028) 239 073 279 033 (12 525) 266 508Maritime, airline and

transportation . . . . . . . . . . . . . . . . 6 484 (3 039) 3 445 7 405 (3 603) 3 802Third parties liabilities . . . . . . . . . . . 20 858 (8 753) 12 105 19 297 (8 518) 10 779Credit and suretyship . . . . . . . . . . . . 550 (7) 543 1 077 (19) 1 058Other. . . . . . . . . . . . . . . . . . . . . . . . 489 (282) 207 523 (330) 193

519 172 (42 357) 476 815 530 367 (37 425) 492 942

The claims outstanding reserve represents unsettled claims occurred before the balance sheet date and includesan estimated provision in the amount of euro 28 137 thousand (31 December 2009: euro 30 680 thousand), forclaims incurred before 31 December 2010, but not reported (IBNR).

Included in the amount of claims outstanding for workers’ compensation is euro 122 049 thousand(31 December 2009: euro 124 009 thousand), relating to the mathematical reserve for workers’ compensation.

The mathematical reserve for workers’ compensation includes an amount of euro 0 (31 December 2009: euro 0thousand) as a result of the liability adequacy test (see Note 51).

Additionally, mathematical reserve for workers’ compensation also includes an accrual related to the presentvalue of the future contributions to Workers Compensation Fund (FAT) for an amount of euro 5 891 thousand(31 December 2009: euro 6 887 thousand).

The claims outstanding reserve also includes an estimation of future costs related to the settlement of pendingclaims (expense reserve), both-declared and non-declared, for an amount of euro 13 243 thousand (31 December2009: euro 9 081 thousand).

The movements on the claims outstanding reserve of direct insurance business are analysed as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 367 541 576Change in the scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 350 —Plus incurred claims

Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 866 292 298Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (48 779) (34 707)

Less paid claims related toCurrent year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169 610) (150 881)Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (116 022) (117 919)


The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries ofinsurance and investment contracts with profit sharing, in the form of profit participation, which have not yet beenspecifically allocated and included in the life mathematical reserve.

F-87





The movement in the reserve for bonus and rebates for the years ended 31 December 2010 and 2009 is asfollows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 804 2 460Change in the scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 304 —Amounts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 624) (1 589)Estimated attributable amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 755 1 933


As at 31 December 2010, life mathematical reserve includes an amount of euro 0 (31 December 2009: euro 756thousand) as a result of the liability adequacy test. This test was performed based on the best estimate assumptions(see Note 51).

F-88





NOTE 34 — OTHER ASSETS

As at 31 December 2010 and 2009, the balance other assets is analysed as follows:

31.12.2010 31.12.2009


Deposits placed with futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 958 68 087Recoverable government subsidies on mortgage loans . . . . . . . . . . . . . . . . . . . . . . . 42 264 34 328Collateral deposits placed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 960 404 737 185Loans to companies in which the Group has a minority interest . . . . . . . . . . . . . . . . 127 844 129 090Public sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 190 86 738Debtors from the banking business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 239 238 142Debtors from the insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 524 14 657Debtors from medical services business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 161 72 644Sundry debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 678 51 041

1 936 262 1 431 912Impairment losses on debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26 750) (26 792)

1 909 512 1 405 120Debtors arising out of direct insurance operations . . . . . . . . . . . . . . . . . . . . . . . . . . 60 915 58 137Debtors arising out of reinsurance operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 777 108 039

132 692 166 176Impairment losses on debtors arising out of direct insurance and of reinsurance

operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8 233) (7 292)

124 459 158 884

Other assetsGold, other precious metals, numismatics and other liquid assets . . . . . . . . . . . . . . . 12 282 13 197Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 218 99 581

121 500 112 778

Accrued income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 292 88 590Prepayments and deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 822 110 957Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 484 20 552Other sundry assetsForeign exchange transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 149 648 161 309Stock exchange transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666 924 291 991Other transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387 712 422 342

1 204 284 875 642

Assets recognised on pensions (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899 484 925 585

4 502 837 3 698 108

Loans to companies in which the Group has a non-controlling interest include the amount of euro 110 000thousand related with loans to Locarent — Companhia Portuguesa de Aluguer de Viaturas, S.A. (31 December2009: euro 111 500 thousand).

As at 31 December 2010, the balance prepayments and deferred costs includes the amount of euro 62 719thousand (31 December 2009: euro 65 613 thousand) related to the difference between the nominal amount of loansgranted to Group’s employees under the collective labour agreement for the banking sector (ACT) and theirrespective fair value at grant date, calculated in accordance with IAS 39. This amount is charged to the incomestatement over the lower period between the remaining maturity of the loan granted, and the estimated remainingservice life of the employee.

F-89





The stock exchange transactions pending settlement refer to transactions with securities on behalf of thirdparties, recorded on trade date and pending settlement, in accordance with the accounting policy described inNote 2.6.

Deferred acquisition costs relate to the insurance business and can be analysed as follows:

31.12.2010 31.12.2009


Non-life insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 484 20 552

22 484 20 552

The movements on the deferred acquisition costs for the non-life business are analysed as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 552 21 376Acquisition costs of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 608 20 552Acquisition costs amortisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20 676) (21 376)


The balance of impairment losses is presented as follows:

31.12.2010 31.12.2009


Debtors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 750 26 792Debtors arising out of direct insurance and reinsurance operations . . . . . . . . . . . . . . . . 8 233 7 292

34 983 34 084

The movements occurred in impairment losses are presented as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 084 30 961Change in the scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 —Charge of the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 840 17 886Write back of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7 705) (8 688)Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5 944) (4 525)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 640 (1 550)


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NOTE 35 — DEPOSITS FROM CENTRAL BANKS

The balance deposits from central banks in analysed as follows:


From the European System of Central BanksInter-bank Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 500 —Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 806 5 438Other funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 800 000 2 000 000

5 218 306 2 005 438

From other Central BanksDeposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 438 264 1 373 076Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 267 439 129

2 746 531 1 812 205

7 964 837 3 817 643

As at 31 December 2010 and 2009, “Other funds from the European System of Central Banks” includeseuro 5 065 million and euro 2 000 million, respectively, covered by securities from the available-for-sale portfoliopledged as collaterals in the amount of euro 7 419 million and euro 3 008 million, respectively (see Note 46).

As at 31 December 2010, the balance Deposits from other Central Banks — Deposits includes the amount ofeuro 1 356 million related to deposits with Angola Central Bank and the amount of euro 941 million related todeposits with Saudi Arabia Central Bank (31 December 2009: euro 1 083 million related to deposits with CentralBank of Angola).

As at 31 December 2010 and 2009, the analysis of deposits from Central Banks by the period to maturity ispresented as follows:


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 816 012 1 812 3653 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 148 825 2 005 278

7 964 837 3 817 643

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NOTE 36 — DEPOSITS FROM BANKS

The balance deposits from banks is analysed as follows:


DomesticLoans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 737 233 335Inter-bank money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 650 20 640Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 527 209 223Very short terms funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 148 103 987Other funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 275 2 474

609 337 569 659

InternationalDeposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 468 084 3 766 791Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 290 217 1 583 962Very short terms funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 275 427 850Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 874 668 333 489Other funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 496 209 074

6 007 740 6 321 166

6 617 077 6 890 825

As at 31 December 2010, the balance deposits from banks includes the amount of euro 558 463 thousand(31 December 2009: 101 598 thousand) related to deposits recognised on the balance sheet at fair value throughprofit or loss (see Note 27).

As at 31 December 2010 and 2009 the analysis of deposits from banks by the period to maturity is presented asfollows:


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 367 516 4 466 5523 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 587 277 493 8811 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 386 899 1 184 369More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 275 385 746 023

6 617 077 6 890 825

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NOTE 37 — DUE TO CUSTOMERS

The balance due to customers is analysed as follows:


Repayable on demandDemand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 064 126 7 381 155

Time depositsTime deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 408 262 14 953 450Notice deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 14 752Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 098 118 701

19 555 769 15 086 903Savings accounts

Pensioners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 751 57 381Emigrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 707 1 861Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 758 470 1 826 196

1 790 928 1 885 438Other funds

Repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436 619 785 275Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358 246 555 706

794 865 1 340 981

31 205 688 25 694 477

This balance includes the amount of euro 4 026 565 thousand (31 December 2009: euro 1 437 369 thousand) ofdeposits recognised in the balance sheet at fair value through profit or loss (see Note 27).

The analysis of the amounts due to customers by the period to maturity is as follows:


Repayable on demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 064 126 7 381 155With agreed maturity:

Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 984 050 12 363 1793 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 366 617 3 999 5041 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 661 121 1 825 878More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 774 124 761

31 205 688 25 694 477

NOTE 38 — DEBT SECURITIES ISSUED

The balance of debt securities issued is analysed as follows:

31.12.2010 31.12.2009


Debt securitiesEuro Medium Term Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 575 244 11 875 102Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 751 683 9 463 637Covered bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 333 906 3 649 359Debt bonds issued a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 422 830 6 916 228Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 821 083 2 135 404

24 904 746 34 039 730

a) As at 31 December 2010, the caption debt bonds issued includes the amount of euro 1 584 million of debt securities issued with a guaranteefrom the Portuguese Republic (31 December 2009: euro 1 567 million).

F-93





On 15 November 2005, ESFG issued the euro 500 000 000 Fixed Rate Step-Up Notes due 2025 with 10 000warrants. Each of these Notes, will bear interest at the rate of 3.55% until 15 November 2010 and 5.05% from thenon. Each warrant entitles the holder to subscribe euro 50 000 to acquire fully paid up shares of Euro 10.0 each ofESFG at an initial exercise price of euro 24.50 per share. The rights under the warrants are exercisable from andincluding 26 December 2005 up to the close of business on 8 November 2025. With effect from 15 November 2006,the notes and warrants may be detached or be traded separately. Unless previous redeemed or repurchased andcancelled, the Notes will be redeemed at their principal amount on 15 November 2025. As of 31 December 2008,none of the warrants has been exercised.

In the light of IAS 32, the warrants issued correspond to an equity instrument and therefore are recognised inequity 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, thefair value of the Notes from the par value of the instrument as a whole, the fair value attributable to the Notes beingcalculated as the present value of the contractual future cash flows discounted at a rate of interest, determined atinception, based on comparable Notes providing substantially the same cash flows, on the same terms, but withoutthe detachable warrants. On this basis, the Group recognised in equity the amount of euro 118 570 thousand relatedto the warrants and an amount of euro 381 430 thousand as a liability, corresponding to the respective fair value atthe date of issue.

After its initial recognition, the liability will accrue interest at an effective interest rate of 6.7%, which was therate used to fair value the liability at the inception.

Under the covered bonds programme, which has a maximum amount of euro 10 000 million, BES Groupissued covered bonds for a total amount of euro 5 540 million, of which euro 3 206 million were subscribed by theGroup.

The covered bonds are guaranteed by a cover assets pool, comprised of mortgage credit assets and limitedclasses of other assets, that the issuer of mortgage covered bonds shall maintain segregated and over which theholders of the relevant covered bonds have a statutory special creditor privilege. These conditions are set up inDecree-Law no. 59/2006, Regulations 5/2006, 6/2006, 7/2006 and 8/2006 of the Bank of Portugal andInstruction 13/2006 of the Bank of Portugal.

The main characteristics of these issues are as follows:

DescriptionNominal value


Book value(in thousands of

euro) Issue date Maturity date Interest payment Interest rate Rating

BES Covered Bonds25/01/2011 . . . . . 1 250 000 1 303 743 25.01.08 25.01.11 Annual 4.375% AAA

BES Covered Bonds21/07/2010 . . . . . 1 250 000 — 21.07.08 21.07.10 Annual 1 Month Euribor + 0.45% AAA

BES Covered Bonds3,375% . . . . . . . 1 000 000 991 969 17.11.09 17.02.15 Annual 3.375% AAA

BES Covered BondsDUE JUL 17 . . . 750 000 — 07.07.10 09.07.17 Annual 6 Months Euribor + 0.60% AAA

BES Covered Bonds21/07/2017 . . . . . 1 250 000 — 21.07.10 21.07.17 Annual 6 Months Euribor + 0.60% AAA

BES Covered BondsDUE 4,6% . . . . . 40 000 38 194 15.12.10 26.01.17 Annual 4.600% Aa2

As at 31 December 2010, the mortgage loans that collateralise these covered bonds amounted to euro 4 963 051thousand (31 December 2009: euro 4 053 833 thousand) (see Note 25).

As at 31 December 2010, this balance includes euro 823 416 thousand (31 December 2009: euro 8 254 205thousand) of debt securities issued at fair value through profit or loss (see Note 27).

F-94





The changes occurred in debt securities issued during the year ended 31 December 2010 are analysed asfollows:

31.12.2009 Issues Repayments Net repurchase Other movementsa) 31.12.2010(in thousands of euro)

Euro Medium Term Notes . . . 11 875 102 3 670 161 (3 486 472) (441 790) (41 757) 11 575 244

Certificates of deposit . . . . . . 9 463 637 340 871b) (8 013 264) — (39 561) 1 751 683

Covered bonds . . . . . . . . . . . 3 649 359 40 000 (1 250 000) (32 938) (72 515) 2 333 906

Debt bonds issued . . . . . . . . . 6 916 228 483 421 (1 546 206) (800 286) (256 173) 4 796 984

Other. . . . . . . . . . . . . . . . . . 2 135 404 7 443 570 (4 827 422) (249 724) (54 899) 4 446 929

34 039 730 11 978 023 (19 123 364) (1 524 738) (464 905) 24 904 746

a) Other movements include accrued interest, fair value adjustments and foreign exchange differences

b) Certificates of deposit are presented at the net value, considering their short term maturity

In accordance with the accounting policy described in Note 2.8, debt issued repurchased by the Group isderecognised from the balance sheet and the difference between the carrying amount of the liability and itsacquisition cost is recognised in the income statement. Following the repurchases performed in 2010, the Group hasrecognised a gain of euro 29.1 million (see Note 11).

The analysis of debt securities issued by the period to maturity is as follows:

31.12.2010 31.12.2009


Up to 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 069 747 10 344 7821 to 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 731 530 5 370 8801 to 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 315 961 13 356 276More than 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 787 508 4 967 792

24 904 746 34 039 730

F-95





The main characteristics of debt securities issued are presented as follows:

Issuer Description Currency Issue date Book Value Maturity Interest rate31.12.2010


BES . . . . . . . . . . . . BIC E.RENDA 4% a) EUR 2005 2 628 2013 Fixed rate 4.15% on 1st, 2nd and 8th years +swap rate from 3rd to 7th years

BES . . . . . . . . . . . . BES-E.RENDA 4% a) EUR 2005 7 378 2013 Fixed rate 4.15% on 1st, 2nd and 8th years +swap rate from 3rd to 7th years

BES . . . . . . . . . . . . BES ER 4% ABR05 a) EUR 2005 2 561 2013 Fixed rate 4.08% on 1st, 2nd and 8th years +swap rate from 3rd to 7th years

BES . . . . . . . . . . . . BES ER3,75%0805 a) EUR 2005 2 613 2013 Fixed rate 3.85% on 1st, 2nd and 8th years +swap rate from 3rd to 7th years

BES . . . . . . . . . . . . BES COMMODIT7% a)

EUR 2005 1 249 2014 Fixed rate - 7.00%

BES . . . . . . . . . . . . BES DUE 2012 EUR 2007 1 000 555 2012 3 Months Euribor + 0.10%

BES . . . . . . . . . . . . BES DUE 2013 EUR 2007 496 602 2013 3 Months Euribor + 0.125%

BES . . . . . . . . . . . . BES DUE JUN 14 EUR 2007 483 618 2014 3 Months Euribor + 0.15%

BES . . . . . . . . . . . . BES 25/01/2011(covered bonds)

EUR 2008 1 303 742 2011 Fixed rate - 4.38%

BES . . . . . . . . . . . . BES DUE 2034 0 EUR 2008 6 2034 Zero Coupon


BES . . . . . . . . . . . . BES DUE 2036 0 EUR 2008 24 107 2036 Zero Coupon



BES . . . . . . . . . . . . BES 3,75% EUR 2009 1 584 008 2012 Fixed rate - 3.75%

BES . . . . . . . . . . . . BES DUE 2011 EUR 2009 173 472 2011 3 Months Euribor + 2%

BES . . . . . . . . . . . . BES DUE 2012 EUR 2009 311 142 2012 Fixed rate - 4.43%

BES . . . . . . . . . . . . BES RENDIM.CR. EUR 2009 926 2012 Fixed rate - 3.35%

BES . . . . . . . . . . . . BES REND.CR. EUR 2009 20 916 2012 Fixed rate - 3.85%

BES . . . . . . . . . . . . BES 5,625% 2014 EUR 2009 1 775 107 2014 Fixed rate - 5.63%

BES . . . . . . . . . . . . BES CR.OUT.09 EUR 2009 1 300 2012 j)

BES . . . . . . . . . . . . BES 3,375% (coveredbonds)

EUR 2009 981 350 2015 Fixed rate - 3.375%

BES . . . . . . . . . . . . BES DUE 02/2013 EUR 2009 958 915 2013 3 Months Euribor + 1%

BES . . . . . . . . . . . . BES R.FIXO 1 EUR 2009 10 058 2012 Fixed rate 4.05%










BES . . . . . . . . . . . . BES DUE 3,875% EUR 2010 748 719 2015 Fixed rate 3.875%

BES . . . . . . . . . . . . BES DUE MAR.12 EUR 2010 150 106 2012 3 Months Euribor + 0.94%

BES . . . . . . . . . . . . BES DUE JUL 17 EUR 2010 1 2017 6 Months Euribor + 0.60%

BES . . . . . . . . . . . . BES DUE 4,6% EUR 2010 38 194 2017 Fixed rate 4.6%

BES (Caymanbranch) . . . . . . . . .

BIC CAYMAN 152001

EUR 2001 52 436 2011 Fixed rate - 5.79%


BIC CAYMAN 162001

EUR 2001 86 2011 Fixed rate - 5.90%


BIC CAYMAN 292001

EUR 2001 51 516 2011 Fixed rate - 5.28%


BIC CAYMAN 302001

EUR 2001 50 514 2011 Fixed rate - 5.42%


BIC CAYMAN 172001

EUR 2001 7 2012 Fixed rate - 5.89%


BIC CAYMAN 182001

EUR 2001 51 846 2012 Fixed rate - 5.83%

F-96








BIC CAYMAN 202001

EUR 2001 51 815 2012 Fixed rate - 5.94%


BIC CAYMAN 222001

EUR 2001 77 643 2013 Fixed rate - 6.08%


BIC CAYMAN 232001

EUR 2001 80 872 2013 Fixed rate - 6.03%


BIC CAYMAN 252001

EUR 2001 81 165 2014 Fixed rate - 6.02%


BIC CAYMAN 262001

EUR 2001 56 465 2015 Fixed rate - 6.16%


BIC CAYMAN 272001

EUR 2001 50 056 2015 Fixed rate - 6.09%


BIC CAYMAN 1 2002 EUR 2002 55 695 2012 Fixed rate - 5.92%


BIC CAYMAN 2 2002 EUR 2002 6 311 2012 Fixed rate - 4.65%


BES CAYMAN -Cupao Zero

EUR 2002 19 660 2027 Zero Coupon - Effective rate 5.74%


BES CAYMAN StepUp 07/25/13

USD 2003 57 802 2013 StepUp (1st coupon 1.50)%



EUR 2003 81 334 2013 StepUp (1st coupon 3.00)%








BES CAYMAN 5,06%02/11/15

USD 2003 17 2015 Fixed rate - 5.06%


BES CAYMAN 5,01%02/18/15

USD 2003 8 2015 Fixed rate - 5.01%


BES CAYMAN ZC02/18/2028



BES CAYMAN -Cupao Zero









BES CAYMAN ZC28/03/2033


BES (Londonbranch) . . . . . . . . .

Certificate deposit a) EUR 2008 405 441 2011 4.13% - 4.87%


Certificate deposit a) GBP 2008 29 625 2011 5.51% - 6.72%


Certificate deposit a) USD 2008 1 194 545 2011 4.79% - 5.47%

BES (New Yorkbranch) . . . . . . . . .

Certificate deposit USD 2007 116 093 2011 4.41% - 5.53%

BES (Spain branch). . . Covered Bonds EUR 2008 153 769 2014 Fixed rate - 4.5%

BES (Spain branch). . . Covered Bonds EUR 2008 80 368 2014 Fixed rate - 4%

BES (Spain branch). . . Covered Bonds a) EUR 2008 84 698 2016 Fixed rate - 4.25%

BES Açores . . . . . . . BES AÇOR.DEZ.08 EUR 2008 6 2011 3 Months Euribor + 1.25%

BES Açores . . . . . . . BES AÇOR.SET.09 EUR 2009 4 2012 3 Months Euribor + 1.5%

BES Finance . . . . . . . EMTN 30 EUR 2004 290 665 2011 3 Months Euribor + 0.20%

BES Finance . . . . . . . EMTN 37 EUR 2004 27 290 2029 Zero Coupon - Effective rate 5.30%


BES Finance . . . . . . . EMTN 40 a) EUR 2005 130 032 2035 aw)


BES Finance . . . . . . . EMTN 49 a) GBP 2006 70 943 2011 3 Months Libor + 0.072%

BES Finance . . . . . . . EMTN 51 CZK 2006 20 554 2011 Fixed rate - 3.65%


F-97







BES Finance . . . . . . . Exchangeable Bonds USD 2008 513 920 2011 ax)

BES Finance . . . . . . . EMTN 56 EUR 2009 31 966 2043 Zero Coupon







BES Finance . . . . . . . EMTN 63 EUR 2009 144 817 2039 Fixed rate - 3%


BES Finance . . . . . . . Exchangeable Bonds(Bradesco) a)

USD 2010 674 274 2013 Fixed rate - 1.625%

BES Finance . . . . . . . Exchangeable Bonds(EDP) a)

EUR 2010 450 632 2019 Fixed rate - 3%




BES Finance . . . . . . . EMTN 68 EUR 2010 20 433 2015 Fixed rate - 4.25%













BES Finance . . . . . . . EMTN 81 a) EUR 2010 6 741 2015 Fixed rate - 3.19%










BESI . . . . . . . . . . . BESI CX RANGEACCR AND FXNOV11

EUR 2005 3 136 2011 f)

BESI . . . . . . . . . . . BESI CAIXA 6.15%NIKKEI JAN2011 a)

EUR 2006 1 724 2011 Indexed to Nikkei 225

BESI . . . . . . . . . . . BESI OB CX RENDIMSTEP UP APR14

EUR 2006 3 871 2014 Growing fixed rate

BESI . . . . . . . . . . . Certificate deposit(BESI CERTDUALREND+EUSTO-XX AUG14) a)

EUR 2006 2 979 2014 Fixed rate 6.6743% + Indexed to DJ Eurostoxx50

BESI . . . . . . . . . . . BESI OBCXR.ACCRUAL TARNMAR2016

EUR 2006 374 2016 Fixed rate 6% + Range Accrual

BESI . . . . . . . . . . . BES INVEST BRASIL5.75% MAY2012

USD 2009 104 176 2012 Fixed rate - 5.75%

BESI . . . . . . . . . . . BES INVEST BRASIL5.625% MAR2015 a)

USD 2010 363 856 2015 Fixed rate - 5.625%

F-98







BESI . . . . . . . . . . . BES INVESTBRASIL a)

USD 2010 490 2013 Fixed rate - 11.53%

BESI . . . . . . . . . . . BESI SEP2014 EQLLINKED a)

EUR 2010 3 638 2014 aj)

BESI . . . . . . . . . . . BESI SEP2014ORIENTE IV EQL a)

EUR 2010 12 645 2014 ao)

BESI . . . . . . . . . . . BES INV BRAS 9.84%SEP2011 a)

USD 2010 395 2011 Fixed rate - 9.84%

BESI . . . . . . . . . . . BES INVESTBRASIL a)

BRL 2010 774 2011 Fixed rate - 9%

BESI . . . . . . . . . . . 49-LCA - Letra a) BRL 2010 57 965 2011 From 90% to 95% of CDI

BESI . . . . . . . . . . . 53-LF LETRA FIN a) BRL 2010 18 475 2011 From 100% to 112% of CDI

ES Investment Plc . . . ESIP JAN01/JAN11CRDLKD US 11.85 a)

USD 2001 1 399 2011 Fixed rate 5% + Indexed to credit event

ES Investment Plc . . . ESIP JUL03/JUL11LINKED CMS a)

EUR 2003 7 772 2011 Fixed rate + Indexed to CMS+CLN

ES Investment Plc . . . ESIP NOV2011 CMSLINKED EUR 5M

EUR 2003 3 648 2011 Fixed rate + Indexed to CMS

ES Investment Plc . . . ESIP DEC2011 CMSLINKED EUR 6.5M


ES Investment Plc . . . ESIP JUL2012 CMSLINKED EUR 5.5M


ES Investment Plc . . . ESIP CMS LINKEDNOV2014

EUR 2004 2 938 2014 Fixed rate 6% + Indexed to CMS

ES Investment Plc . . . ESIP OUT24 ESFPLINKED CMS NOTE


ES Investment Plc . . . ESIP RANGEACCRUAL AND FXNOV11

EUR 2005 447 2011 f)

ES Investment Plc . . . ESIP RANGEACCRUAL AUG2013

EUR 2005 4 882 2013 Fixed rate 4.75% + Range accrual

ES Investment Plc . . . ESIP CALL RANGEACCRUAL MAY2015

EUR 2005 1 470 2015 Range accrual

ES Investment Plc . . . ESIPBESLEAS&INFLATLINK MAY15 a)

EUR 2005 8 587 2015 Indexed to HIPC Ex-Tobacco + g)

ES Investment Plc . . . ESIP RANGEACCRUAL JUN15

EUR 2005 220 2015 Range accrual

ES Investment Plc . . . ESIP EURLEVERAGESNOWBALL JUL15

EUR 2005 1 194 2015 Fixed rate + Snowball h)

ES Investment Plc . . . ESIP LEVERAGESNOWBALL SEP2015

EUR 2005 3 873 2015 Fixed rate + Snowball h)

ES Investment Plc . . . ESIP CALL RANGEACCRUAL NOV2017


ES Investment Plc . . . ESIP AGO05 SEP35CALLABLE INV FL

EUR 2005 9 189 2035 12 Months Euribor + i)

ES Investment Plc . . . ESIP 30CMS-2CMSLKD NOTE NOV2036

EUR 2005 12 189 2036 Fixed rate 7.44% + Indexed to CMS

ES Investment Plc . . . ESIP PORTUGALTELECOM FINLINKED a)

EUR 2006 8 492 2012 g)

ES Investment Plc . . . ESIP EUR12M+16 BPAPR2016

EUR 2006 4 032 2016 12 Months Euribor

ES Investment Plc . . . ESIP CIMPOR FINCRD LKD MAY2011 a)

EUR 2007 9 217 2011 g)

ES Investment Plc . . . ESIP JUN2011 INDEXBASKET LKD a)

EUR 2007 251 2011 l)

ES Investment Plc . . . ESIP JUN2011 INDEXBASKET LINKED a)

EUR 2007 121 2011 m)

ES Investment Plc . . . ESIP DEC2011 BBVAPOP LINKED a)

EUR 2007 1 063 2011 Indexed to BBVA and Banco Popular

F-99







ES Investment Plc . . . ESIP FEB2012DEUTSCHE BANKLKD a)

EUR 2007 3 176 2012 Indexed to Deutsche Telecom

ES Investment Plc . . . ESIP JUN2012BASKET LINKED a)

EUR 2007 439 2012 n)

ES Investment Plc . . . ESIP JUL2012LUSITANO BSKLINKED a)

EUR 2007 3 901 2012 am)

ES Investment Plc . . . ESIP METALINVESTMENTOCT2012 a)

EUR 2007 355 2012 Commodity Linked

ES Investment Plc . . . ESIP MAY14 EQUITYBASKT LINKED a)

USD 2007 1 276 2014 p)

ES Investment Plc . . . ESIP BCP FIN CRDLKD DEC2015 a)

EUR 2007 3 321 2015 g)

ES Investment Plc . . . ESIP JAN2017 INDEXBASKET LKD a)

EUR 2007 6 009 2017 j)

ES Investment Plc . . . ESIP CMS LINKEDJUN2019 a)


ES Investment Plc . . . ESIP JAN2011LUXURY GOODS a)

EUR 2008 3 973 2011 s)

ES Investment Plc . . . ESIP JAN2011BRASIL+INDIA IIBSK a)

EUR 2008 3 062 2011 Indexed to MSCI Brazil and India

ES Investment Plc . . . ESIP JAN2011BASKET LINKED a)

EUR 2008 5 974 2011 j)

ES Investment Plc . . . ESIP JAN2011BRASIL+INDIABASKET a)

EUR 2008 3 238 2011 Indexed to MSCI Brazil and India

ES Investment Plc . . . ESIP JAN2011CLIQUET MSCIBRAZIL a)

EUR 2008 2 482 2011 Indexed to MSCI Brazil

ES Investment Plc . . . ESIP MAR2011EURUSD FXLINKED a)

EUR 2008 1 330 2011 Indexed to FX

ES Investment Plc . . . ESIP MAR2011BASKET LINKED a)

EUR 2008 6 118 2011 j)

ES Investment Plc . . . ESIP MAY2011AGRICULTURELINKED a)

EUR 2008 282 2011 Indexed to DBLCI-OY Agriculture

ES Investment Plc . . . ESIP MAY2011INDEX BASKETLINKED a)

EUR 2008 3 024 2011 t)

ES Investment Plc . . . ESIP JUN2011 SANTEF LINKED a)

EUR 2008 1 263 2011 Indexed to Telefonica and BSCH

ES Investment Plc . . . ESIP FTD CRDLINKED JUN2011 a)

EUR 2008 9 182 2011 u)

ES Investment Plc . . . ESIP AUG2011 INDEXBSKT LINK a)

EUR 2008 3 073 2011 j)

ES Investment Plc . . . ESIP AUG2011 EQLBSKT LINK a)

USD 2008 742 2011 Indexed to BBVA, Iberdrola and Telefonica

ES Investment Plc . . . ESIP AUG2011 INDEXBSKT LINKED a)

EUR 2008 3 467 2011 Indexed to French inflation and to DJEurostoxx 50

ES Investment Plc . . . ESIP SEP2011 INDEXBASKET LKD a)

EUR 2008 2 802 2011 v)

ES Investment Plc . . . ESIP NOV2011 SX5ELINKED a)

EUR 2008 1 047 2011 Indexed to DJ Eurostoxx 50

ES Investment Plc . . . ESIP JAN2012BASKET LINKED a)

EUR 2008 3 900 2012 x)

ES Investment Plc . . . ESIP JAN2012EQUITY BASKETLINKED a)

EUR 2008 947 2012 y)

ES Investment Plc . . . ESIP APR2013EURTRY LKD a)


F-100







ES Investment Plc . . . ESIP APR2013AEGON SHARELKD a)

EUR 2008 2 471 2013 Indexed to AEGON

ES Investment Plc . . . ESIP JUN2013CARBON NOTES a)

EUR 2008 4 397 2013 an)

ES Investment Plc . . . ESIP OCT13 EURBRLLINKED BRL a)


ES Investment Plc . . . ESIP BARCLAYSLKD ZC MAR2016 a)

EUR 2008 2 046 2016 ZC + g)

ES Investment Plc . . . ESIP BARCLAYSLKD 6.30%MAR2016 a)

EUR 2008 4 814 2016 Fixed rate 6.30% + g)

ES Investment Plc . . . ESIP BARCLAYSLKD EUR3MMAR2016 a)

EUR 2008 1 225 2016 3 Months Euribor + 2.20% + g)

ES Investment Plc . . . ESIP MAY2021 BBVALINKED a)

EUR 2008 4 092 2021 Indexed to BBVA

ES Investment Plc . . . ESIP AUG2012 EQLLINKED a)


ES Investment Plc . . . ESIP DEC12 ENILINKED a)

EUR 2008 929 2012 Indexed to ENI

ES Investment Plc . . . ESIP DEC12 ENILINKED 2 a)

EUR 2008 3 766 2012 Indexed to ENI

ES Investment Plc . . . ESIP MAY2012 EQLLINKED a)

EUR 2008 5 914 2012 Indexed to BSCH

ES Investment Plc . . . ESIP JAN2012EURBRL LINKED a)


ES Investment Plc . . . ESIP SX5E LINKEDMARCH2011 a)

EUR 2009 872 2011 Indexed to DJ Eurostoxx 50

ES Investment Plc . . . ESIP FIXEDAMOUNT + AMORTNOV22 a)

EUR 2009 2 765 2022 Fixed Amounts

ES Investment Plc . . . ESIP EDP CLNEUR3M+2%MAR2011 a)

EUR 2009 1 483 2011 3 Months Euribor + 2% + g)

ES Investment Plc . . . ESIP EDP 2 CLNEUR3M+2%MAR2011 a)


ES Investment Plc . . . ESIP LACAIXAEUR3M+2%MAR2011 a)


ES Investment Plc . . . ESIP FIXED COUPONAPRIL2011 a)

EUR 2009 108 096 2011 Fixed rate 4.384%

ES Investment Plc . . . ESIP MAY20145%+INDEX BASKETLKD a)

EUR 2009 2 652 2014 Fixed rate 5% + z)

ES Investment Plc . . . ESIP MAY2012 SX5ELINKED a)


ES Investment Plc . . . ESIP JUN2013 EQLLINKED a)

EUR 2009 202 2013 aa)

ES Investment Plc . . . ESIP JAN2011 SP500LINKED a)

EUR 2009 800 2011 Indexed to SP500

ES Investment Plc . . . ESIP JUN2011 CLNLINKED a)

EUR 2009 2 923 2011 g)

ES Investment Plc . . . ESIP JUL2014INFLATIONLINKED a)

EUR 2009 1 304 2014 Indexed to inflaction

ES Investment Plc . . . ESIP JUL2013 EQLLINKED a)

EUR 2009 1 492 2013 ab)

ES Investment Plc . . . ESIP SEP2011BERKSHIREHATHAWAY a)


ES Investment Plc . . . ESIP AUG2012 BESIBRASIL LINKED a)

EUR 2009 4 642 2012 ak)

F-101







ES Investment Plc . . . ESIP FEB2020 EQLLINKED a)

EUR 2009 148 2020 ad)

ES Investment Plc . . . ESIP SEP2014OCIDENTE II EQL a)

EUR 2009 9 058 2014 ae)

ES Investment Plc . . . ESIP CLN 5.45%OCT2014 a)

EUR 2009 7 290 2014 g)

ES Investment Plc . . . ESIP OCT2014 EQL a) EUR 2009 1 425 2014 Indexed to Gazprom, Nokia and DU PONT

ES Investment Plc . . . ESIP OCT2012 EQLLINKED a)

EUR 2009 1 918 2012 Indexed to Brisa, EDP, Galp, BSCH and BCP

ES Investment Plc . . . ESIP DEC2011 FTDLINKED a)

EUR 2009 4 753 2011 g)

ES Investment Plc . . . ESIP 5.25% RANGEACCRUAL OCT2016 a)


ES Investment Plc . . . ESIP CIMPOR CLNEUR3M DEC2014 a)

EUR 2009 4 211 2014 g)

ES Investment Plc . . . ESIP FTD IBERIA5.95% DEC2014 a)

EUR 2009 12 372 2014 g)

ES Investment Plc . . . ESIP FTD IBERIA II5.5% DEC2014 a)

EUR 2009 4 029 2014 g)

ES Investment Plc . . . ESIP USD FTDIBERIA 5.5%DEC2014 a)

USD 2009 3 048 2014 g)

ES Investment Plc . . . ESIP NOV2012 CLNBESIBRASIL a)

EUR 2009 9 810 2012 g)

ES Investment Plc . . . ESIP DEC2012USDBRL LINKED a)

USD 2009 1 959 2012 Indexed to FX

ES Investment Plc . . . ESIP DEC2014 SX5ELINKED a)


ES Investment Plc . . . ESIP BRAZIL EQLLINKED a)

EUR 2009 4 010 2014 al)

ES Investment Plc . . . ESIP DEC2012EWZ+HSCEILINKED a)

EUR 2009 3 269 2012 Indexed to EWZ and HSCEI

ES Investment Plc . . . ESIP BRAZIL EQLJAN2015 a)

EUR 2010 1 532 2015 b)

ES Investment Plc . . . ESIP JAN2011BASKET BRAZILLKD a)

EUR 2010 60 2011 c)

ES Investment Plc . . . ESIP BSKT MERCEMERG EQLFEB2014 a)

EUR 2010 5 118 2014 d)

ES Investment Plc . . . ESIP SX5E LINKEDFEB2013 a)

EUR 2010 2 457 2013 Indexed to Eurostoxx

ES Investment Plc . . . ESIP FEB2011 SANBNP BARC LINKED a)

EUR 2010 315 2011 e)

ES Investment Plc . . . ESIP WORST SOFTCMDT MAR2013 a)

EUR 2010 1 396 2013 k)

ES Investment Plc . . . ESIP DJ US REALEST LKD MAR2015 a)

EUR 2010 2 582 2015 Indexed to Ishares DJ US Real State Indexfund

ES Investment Plc . . . ESIP SOFTCOMMODIT LKDAPR2013 a)

EUR 2010 3 221 2013 o)

ES Investment Plc . . . ESIP AUTOCALMETAL CMDTMAR2015 a)

EUR 2010 3 214 2015 q)

ES Investment Plc . . . ESIP USDEUR FXLKD MAY2015 a)

EUR 2010 353 2015 Indexed to EUR/USD

ES Investment Plc . . . ESIP EUR3M+25BPMAR11 a)

EUR 2010 53 2011 3 Months Euribor + 25Bps

ES Investment Plc . . . ESIP CRDAGRI CLEUR6M+1.15 JUN15 a)

EUR 2010 2 843 2015 6 Months Euribor ACT/360

ES Investment Plc . . . ESIP BASKET LKDMAY2015 a)

EUR 2010 6 791 2015 r)

F-102







ES Investment Plc . . . ESIP EDP BCP PTLKD JUN2013 a)

EUR 2010 1 459 2013 w)

ES Investment Plc . . . ESIP FTD CRDLINKED JUN2015 a)

EUR 2010 5 338 2015 x)

ES Investment Plc . . . ESIP BRAZIL EQLMAY2016 a)

EUR 2010 3 078 2016 ac)

ES Investment Plc . . . ESIP SX5E MAY14EQL a)

EUR 2010 1 578 2014 Indexed to Eurostoxx

ES Investment Plc . . . ESIP JUN2013BASKET LINKED a)

EUR 2010 3 402 2013 5.70% + af)

ES Investment Plc . . . ESIP BASKETBRAZIL LKDMAY2011 a)

EUR 2010 877 2011 5% + c)

ES Investment Plc . . . ESIP BES RENDIMCRD LKD JUN2013 a)

EUR 2010 18 421 2013 ag)

ES Investment Plc . . . ESIP TELECOM LKDJUL2013 a)

EUR 2010 8 676 2013 ah)

ES Investment Plc . . . ESIP BASKET LKDJUL2013 a)

EUR 2010 4 090 2013 ai)

ES Investment Plc . . . ESIP BASKET LKDJUL2014 a)

EUR 2010 2 917 2014 ai)

ES Investment Plc . . . ESIP JUL20125%+BRAZIL INDEXLKD a)

EUR 2010 2 332 2012 5%+ Indexed to EWZ

ES Investment Plc . . . ESIP GOLD LKDFEB2012 a)

EUR 2010 982 2012 Indexed to Gold

ES Investment Plc . . . ESIP EUR12MDIGITAL AUG2011 a)

EUR 2010 1 488 2011 12 Months Digital Euribor

ES Investment Plc . . . ESIP AUG13 RANGEACCRUAL a)


ES Investment Plc . . . ESIP AUG2013EURUSD FXLINKED a)


ES Investment Plc . . . ESIP SEP11DIGITAL a)

EUR 2010 2 229 2011 3 Months Digital Euribor

ES Investment Plc . . . ESIP SEP2013CURRENCIESLINKED a)

EUR 2010 831 2013 ap)

ES Investment Plc . . . ESIP SEP15DIGITAL a)

USD 2010 1 064 2015 3 Months Digital US Libor

ES Investment Plc . . . ESIP JAN2011 BBVALKD a)


ES Investment Plc . . . ESIP JAN2011 DOWJONES INDUS LKD a)

EUR 2010 1 007 2013 Indexed to INDU

ES Investment Plc . . . ESIP MAR2012TELECOM LKD a)

EUR 2010 1 027 2012 Indexed to EWZ

ES Investment Plc . . . ESIP SEP2011TELECOM LKD a)

EUR 2010 982 2011 aq)

ES Investment Plc . . . ESIP ASIA INDEXLKD SEP2014 a)

EUR 2010 2 085 2014 ar)

ES Investment Plc . . . ESIP SEP2011BRAZIL BASKETLKD a)

EUR 2010 1 005 2011 c)

ES Investment Plc . . . ESIP EDP PT CGDCRDLKD DEC2013 a)

EUR 2010 6 042 2013 as)

ES Investment Plc . . . ESIP GOLD LKDOCT2013 a)

EUR 2010 857 2013 Indexed to Gold

ES Investment Plc . . . ESIP OCT2011BASKET LINKED a)

USD 2010 1 542 2011 at)

ES Investment Plc . . . ESIP EDP CRDLKDDEC2013 a)

EUR 2010 4 330 2013 Indexed to EDP

ES Investment Plc . . . ESIP NOV2013 SANBBVA EQL LINKED a)

EUR 2010 1 818 2013 Indexed to BSCH and BBVA

F-103







ES Investment Plc . . . ESIP NOV2013SANTANDER LKD a)

EUR 2010 943 2013 Indexed to BSCH

ES Investment Plc . . . ESIP SAN BBVALINKED NOV2013 a)

EUR 2010 2 452 2013 Indexed to BSCH and BBVA

ES Investment Plc . . . ESIP DEC2013 SANBBVA EQL LINKED a)

EUR 2010 923 2013 Indexed to BSCH and BBVA

ES Investment Plc . . . ESIP MAY12 EURPLNLINKED a)

EUR 2010 985 2012 Indexed to FX

ES Investment Plc . . . ESIP NOV2013 ASIAPACIF BSKT LKD a)

EUR 2010 1 915 2013 au)

ES Investment Plc . . . ESIPNOV2013AMERLATINBSKT LKD a)

EUR 2010 1 735 2013 av)

ES Investment Plc . . . ESIP MAY2012 EWZLINKED a)

EUR 2010 1 772 2012 Indexed to EWZ

ES Investment Plc . . . ESIP DEC2011SANTANDERLINKED a)

EUR 2010 953 2011 Indexed to BSCH

ES Investment Plc . . . ESIP JUN2011 BMELINKED a)

EUR 2010 1 096 2011 Indexed to BME

BESIL . . . . . . . . . . BESIL STEP UP09/02/13

EUR 2003 1 990 2013 Fixed rate - 6.44%


EUR 2003 6 328 2013 Fixed rate - 6%


EUR 2003 1 876 2013 Fixed rate - 6.44%


USD 2004 19 417 2014 Fixed rate - 6.06%


USD 2004 19 882 2019 Fixed rate - 6.92%

Lusitano SME no 1 . . . Class A Asset BackedFloating Rate Notes

EUR 2006 456 758 2028 Euribor + 0.15%

Lusitano SME no 1 . . . Class B Asset BackedGuaranteed FloatingRate Notes

EUR 2006 41 024 2028 Euribor + 0.05%

Lusitano SME no 1 . . . Class C Asset BackedFloating Rate Notes

EUR 2006 34 196 2028 Euribor + 2.20%

Lusitano Mortgage no

6 . . . . . . . . . . . .Class A MortgageBacked Floating RateNotes

EUR 2007 608 931 2060 Euribor + 0.20%


6 . . . . . . . . . . . .Class B MortgageBacked Floating RateNotes

EUR 2007 6 504 2060 Euribor + 0.30%


6 . . . . . . . . . . . .Class C MortgageBacked Floating RateNotes

EUR 2007 10 007 2060 Euribor + 0.45%

BESNAC . . . . . . . . . BOA SECURITIESLLC 252

USD 2010 37 416 2011 Fixed rate - 1.15%


USD 2010 37 416 2011 Fixed rate - 1.15%


USD 2010 37 414 2011 Fixed rate - 1.15%


USD 2010 37 414 2011 Fixed rate - 1.15%


USD 2010 37 414 2011 Fixed rate - 1.15%


USD 2010 37 414 2011 Fixed rate - 1.15%


USD 2010 37 414 2011 Fixed rate - 1.15%


USD 2010 37 415 2011 Fixed rate - 1.18%


USD 2010 37 409 2011 Fixed rate - 1.18%

F-104








USD 2010 37 409 2011 Fixed rate - 1.18%


USD 2010 37 369 2011 Fixed rate - 1.29%


USD 2010 37 368 2011 Fixed rate - 1.29%


USD 2010 37 368 2011 Fixed rate - 1.29%


USD 2010 37 363 2011 Fixed rate - 1.35%


USD 2010 37 363 2011 Fixed rate - 1.35%


USD 2010 37 340 2011 Fixed rate - 1.48%


USD 2010 37 340 2011 Fixed rate - 1.48%

ESPLC . . . . . . . . . . BES1011_12EBESESPLC26/10/2011

EUR 2010 29 477 2011 Fixed rate - 2.16%


EUR 2010 460 450 2011 Fixed rate - 1.602%


EUR 2010 225 210 2011 Fixed rate - 1.529%


EUR 2010 325 317 2011 Fixed rate - 1.529%


EUR 2010 300 293 2011 Fixed rate - 1.529%


EUR 2010 26 015 2011 Fixed rate - 1.933%


EUR 2010 250 142 2011 Fixed rate - 2.275%

CLNs . . . . . . . . . . . NAVIO 0 05/10/11 EUR 2001 10 2011 Fixed rate - 3.706%

CLNs . . . . . . . . . . . ATARI 0 02/14/11 EUR 2010 25 126 2011 Fixed rate - 1.158%

CLNs . . . . . . . . . . . ELAN 0 02/12/15 USD 2010 17 2015 Fixed rate - 0.416%

CLNs . . . . . . . . . . . SBFLTD 0 02/18/15 USD 2010 34 2015 Fixed rate - 0.614%

CLNs . . . . . . . . . . . SIGNUM 0 05/14/12 EUR 2010 22 684 2012 Fixed rate - 1.375%

CLNs . . . . . . . . . . . SIGNUM 0 05/21/12 EUR 2010 18 084 2012 Fixed rate - 1.319%

CLNs . . . . . . . . . . . ARLO 0 07/15/13 USD 2010 137 2013 Fixed rate - 1.032%

BESV . . . . . . . . . . . Certificate deposit EUR 2010 3 000 2011 —

ESFG . . . . . . . . . . . Fixed Rate Step-upNotes due 2025 withwarrants

EUR 2005 414 131 2025 3.55% - 5.05%

ESFIL . . . . . . . . . . . Guaranteed Notes EUR 2009 143 497 2011 Fixed rate - 4.50%

ESFIL . . . . . . . . . . . Fixed Rate Notes EUR 2010 30 024 2012 Fixed rate - 4.50%

ESFIL . . . . . . . . . . . Zero Coupon - ECP EUR 2010 49 958 2011 —

ESFIL . . . . . . . . . . . Fixed Rate Notes USD 2010 150 675 2011 Fixed rate - 1.10%

ES SAUDE. . . . . . . . Commercial Paper EUR 2010 44 392 2011 Fixed rate - 2.185%

24 904 746

a) Designated liabilities at fair value through profit or loss.b) Indexed to a basket composed by Petrobras, Companhia Siderurgia Nacional, Vale SA, Itau Unibanco and Banco Bradesco shares.c) Indexed to a basket composed by Petroleo Brasileiro, Itau Unibanco, Companhia Vale Rio Doce shares.d) Indexed to a basket composed by Ericsson, Komatsu, Santander, Sanofi-Aventis and ABB LTD shares.e) Indexed to a basket composed by Banco Santander, BNP Paribas, Barclays Bank PLC shares.f) Indexed to exchange and interest rate.g) Indexed to credit risk.h) Indexed to previous coupon + spread — Euribor.i) Indexed to reverse floater.j) Indexed to a basket composed by Dow Jones Eurostoxx 50, S&P 500 and Nikkei 225 Index.k) Indexed to a basked of commodities composed by Corn, Wheat and Soybean.l) Indexed to a basket composed by EDP, Iberdrola, FPL Group, Gamesa, Vestas Wind Systems and Solarworld shares.m) Indexed to a basket composed by DJ Eurostoxx 50, SP500, BOVESPA, iShares MSCI Pacific ex-Japan Index.n) Indexed to a basket composed by DJ Eurostoxx 50, SP500 and Topix index.o) Indexed to a basked of commodities composed by Corn, Wheat and Sugar.

F-105





p) Indexed to a basket composed by BBVA and BSCH shares.q) Indexed to a basked of commodities composed by Copper, Nickel, Zinc and Platinum.r) Indexed to a basket composed by Amazon, Apple, FedEx, UPS Inc shares.s) Indexed to a basket composed by LVMH, Christian Dior, Philips, Pinault Pritemps, Nokia, Bulgari, Porsche, Swatch, Burberry, Daimler.t) Indexed to a basket composed by DBIX India, Russian Depositary, Hang Seng and MSCI Brasil index.u) Indexed to credit risk (First to default) on Brisa, Bancaja, Portugal Telecom, Cimpor and Repsol.v) Indexed to IBOXX Eurozone, SP GSCI Excess Return, EUR/USD and DJ Eurostoxx 50.w) Indexed to a basket composed by EDP, BCP and PT shares.x) Indexed to credit risk (First to default) on Santander, PT INT FIN, EDP and Brisa.y) Indexed to a basket composed by BBVA, Repsol and Telefonica shares.z) Indexed to a basket composed by ROCHE HOLDING, SANOFI, NOVARTIS, PFIZER, ASTRAZENECA, TELEFONICA, FRANCE

TELECOM and DEUTSCHE TELEKOM shares.aa) Indexed to a basket composed by BBVA, REPSOL and ENEL shares.ab) Indexed to a basket composed by MSCI India, MSCI Brasil and iShares FTSE/Xinua China shares.ac) Indexed to a basket composed by Petrobras, Gerdau, Vale, Itau Unibanco and Banco Bradesco shares.ad) Indexed to a basket composed by France Telecom and Deutsche Telekom.ae) Indexed to a basket composed by Eurostoxx, SP500, Nasdaq100 and iShare MSCI Brazil Fund index.af) Indexed to Brisa, EDP, PT and Credit Agricole loans.ag) Indexed to PT, EDP and Brisa loans.ah) Indexed to a basket composed by Telefonica, Deutsche Telecom and Vodafone shares.ai) Indexed to a basket composed by Louis Vuitton, Nokia, Bayer and EON shares.aj) Indexed to a basket composed by Eurostoxx50, SP500, Nasdaq100 and EWZ index.ak) 1st year: Fixed rate, from 2nd year: 6 Months Euribor + 150Bps indexed to BESI Brazil.al) Indexed to a basket composed by Petrobras, Companhia Siderurgia Nacional, Itau Unibanco and Banco Bradesco shares.am) Indexed to a basket composed by Brisa, EDP, Galp, BSCH and BCP shares.an) Indexed to a basket composed by Petroleo Brasileiro, Banco Bradesco, Companhia Vale Rio Doce shares.ao) Indexed to a basket composed by TOPIX, HANG SENG, HSCEI, NIFTY, KOSPI2 and MSCI Singapore index.ap) Indexed to a currency basket composed by EUR/AUD, EUR/CAD, EUR/NZD, EUR/INR.aq) Indexed to a basket composed by Telefonica, Deutsche Telekom and Vodafone shares.ar) Indexed to a basket composed by HSCEI, MSCI India, MSCI Taiwan and SP ASX200 index.as) Indexed to EDP, PT and CGD loans.at) Indexed to a basket composed by Dow Chemical, Monsanto, Whirlpool Corp sharesau) Indexed to a basket composed by HSCEI, MSCI India, KOSPI200 and SP ASX500 index.av) Indexed to a basket composed by MSCI Brasil, Chile and Mexico index.aw) Indexed from 1st to 4th year to Fixed rate 6.00% and indexed to swap rate after 4th year.ax) Fixed rate of 1.25% with option, at maturity, of the holders to obtain Bradesco shares instead of the principal remuneration.

F-106








NOTE 39 — INVESTMENT CONTRACTS

As at 31 December 2010 and 2009, the liabilities arising from investment contracts are analysed as follows:

31.12.2010 31.12.2009


Fixed rate investment contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 542 55 109Investment contracts in which the financial risk is borne by the policyholder . . . . . . . . 256 392 340 049

324 934 395 158

In accordance with IFRS 4, the insurance contracts issued by the Group for which there is only a transfer offinancial 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:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 109 23 376Net deposits received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 732 41 188Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13 043) (10 643)Technical interest charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 744 1 188


The movement in the liabilities arising out from the investment contracts in which the financial risk is borne bythe policyholder is analysed as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340 049 377 221Net deposits received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 942 21 577Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (162 466) (60 667)Changes in financial liabilities at fair value through profit or loss . . . . . . . . . . . . . . . (1 518) 1 999Technical result . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (615) (81)


NOTE 40 — PROVISIONS

As at 31 December 2010 and 2009, the balance of provisions presents the following movements:

Restructuringprovisions

Otherprovisions Total


Balance as at 31 December 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 840 137 292 145 132Charge of the year / write back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 53 005 53 005Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6 311) (135) (6 446)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 483 1 483

Balance as at 31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 529 191 645 193 174Charge of the year / write back . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 55 099 55 099Charge off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (151) (17 966) (18 117)Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3 458 3 458

Balance as at 31 December 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 378 232 236 233 614

F-107


Other provisions for an amount of euro 232 236 thousand as at 31 December 2010 (31 December 2009: euro191 645 thousand) are intended to cover litigations and other contingencies related to the Group’s activities, themore relevant being as follows:

• Contingencies in connection with the exchange, during 2000, of Banco Boavista Interatlântico shares forBradesco shares. The Group has provisions for an amount of approximately euro 62.0 million(31 December 2009: euro 56.4 million) to cover these contingencies;

• Contingencies in connection with legal processes established following the bankruptcy of clients whichmight imply losses for the Group. Provisions for an amount of euro 26.5 million as at 31 December 2010(31 December 2009: euro 24.0 million) were established to cover these losses;

• Contingencies for ongoing tax processes. To cover these contingencies, the Group maintains provisions ofapproximately euro 39.8 million (31 December 2009: euro 60.8 million);

• Contingencies for ongoing processes regarding commercial operations performed abroad for the amount ofeuro 37.4 million;

• The remaining balance of approximately euro 66.5 million (31 December 2009: euro 50.4 million), ismaintained to cover potential losses in connection with the normal activities of the Group, such as frauds,robbery and on-going judicial cases.

NOTE 41 — INCOME TAXES

The Group determined its current and deferred income tax for the year ended 31 December 2009 on the basis ofa nominal rate of 26.5%, applicable to the activities undertaken in Portugal that represent a significant portion of itsconsolidated activities. The current and deferred tax for the year ended 31 December 2010 was determined based ona tax rate of 26.5% plus an additional tax of 2.5% added following Decree-law nr 12-A of 30 June. This tax rate wasenacted, or substantially enacted, at the balance sheet date.

The Portuguese Tax Authorities are entitled to review the annual tax return of the Group subsidiaries domiciledin Portugal for a period of four years. Hence, it is possible that some additional taxes may be assessed, mainly as aresult of differences in interpretation of the tax law. However, the Board of Directors of the Group subsidiariesdomiciled in Portugal are confident that there will be no material differences arising from tax assessments within thecontext of the financial statements.

F-108





The deferred tax assets and liabilities recognised in the balance sheet as at 31 December 2010 and 2009 can beanalysed as follows:

31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009

Assets Liabilities Net


Derivative financial instruments . . . . 36 3 264 (13) (80 499) 23 (77 235)Available-for-sale financial assets . . . 68 515 47 206 (111 715) (85 826) (43 200) (38 620)Loans and advances to customers . . . 260 187 220 645 (150) (45) 260 037 220 600Property and equipment . . . . . . . . . . 2 597 2 724 (19 062) (21 211) (16 465) (18 487)Intangible assets. . . . . . . . . . . . . . . . 17 469 12 268 (2 735) — 14 734 12 268Investments in subsidiaries and

associates . . . . . . . . . . . . . . . . . . . 4 230 31 583 (73 204) (31 587) (68 974) (4)Provisions . . . . . . . . . . . . . . . . . . . . 35 509 32 022 (5 358) (4 601) 30 151 27 421Technical reserves . . . . . . . . . . . . . . — 19 (590) — (590) 19Pensions . . . . . . . . . . . . . . . . . . . . . 26 985 23 257 (47 127) (46 794) (20 142) (23 537)Health care — SAMS . . . . . . . . . . . 202 30 282 — — 202 30 282Long term service benefits . . . . . . . . 8 152 7 267 — — 8 152 7 267Debt securities issued. . . . . . . . . . . . — — (27 814) (24 226) (27 814) (24 226)Other . . . . . . . . . . . . . . . . . . . . . . . . 7 035 9 540 (7 178) (5 981) (143) 3 559Tax losses brought forward. . . . . . . . 60 528 15 432 — — 60 528 15 432

Deferred tax asset / (liability) . . . . . 491 445 435 509 (294 946) (300 770) 196 499 134 739Deferred tax assets/liabilities offset . . (163 657) (217 577) 163 657 217 577 — —

Deferred tax asset / (liability),net(1) . . . . . . . . . . . . . . . . . . . . . . 327 788 217 932 (131 289) (83 193) 196 499 134 739

(1) Netted by Group entity

The Group does not recognise the deferred tax liabilities on temporary differences of subsidiaries andassociates for which it controls the reversion period and that are realised through the distribution of tax-exemptdividends.

Additionally, the Group does not recognise deferred tax assets on tax losses brought forward by certainsubsidiaries, because it is not expectable that they will be recovered in a foreseeable future. A detail of the tax lossesbrought forward for which no deferred tax assets were recognised, is presented as follows:

Deadlineto deduction

Tax losses broughtforward

31.12.2010 31.12.2009


2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 10 3362010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 711 13 7112011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 431 10 4312012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 225 4 2252013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 390 4 4832014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 617 36 0822015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 162 2 4502016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 831 —Undetermined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 498 359 200

328 865 440 918

F-109





The changes in net deferred taxes were recognised as follows:


Balance at 1 January (Assets / (Liabilities)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 739 140 254Change in scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (336) —Recognised in the income statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 064 65 229Recognised in fair value reserve (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 871 (89 682)Recognised in other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2 723) 18 970Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 117) (32)

Balance at 31 December (Assets / (Liabilities)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 499 134 739

(1) The amount recognised in the consolidated statement of comprehensive income includes, additionally, the deferred tax expense recognisedon the fair value reserves of associates in the amount of euro 16 902 thousand (31 December 2009: euro 12 545 thousand, income).

The current and deferred taxes recognised in the income statement and reserves, during 2010 and 2009 isanalysed in the following table. The amounts presented do not consider the effect of non-controlling interest.

Recognised in theincome statement(income) /expense

Recognised inreserves

Recognised in theincome statement(income) /expense

Recognised inreserves

31.12.2010 31.12.2009


Financial instruments . . . . . . . . . . . . . . . . . (25 381) (47 633) 284 89 682Loans and advances to customers . . . . . . . . (39 437) — (62 864) —Property and equipment . . . . . . . . . . . . . . . (2 263) — (58) —Intangible assets . . . . . . . . . . . . . . . . . . . . . (2 466) — 1 352 —Investments in subsidiaries and associates . . 65 953 3 017 (8 112) (13 767)Provisions . . . . . . . . . . . . . . . . . . . . . . . . . (3 606) — (12 260) —Technical reserves. . . . . . . . . . . . . . . . . . . . 609 — 539 —Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . (1 566) (1 829) (4 001) (1 671)Health care — SAMS . . . . . . . . . . . . . . . . . 30 080 — (3 106) —Long term service benefits . . . . . . . . . . . . . (885) — (302) —Debt securities issued . . . . . . . . . . . . . . . . . 3 588 — 16 822 —Exchange differences and other . . . . . . . . . . 158 1 535 2 831 (3 532)Tax losses brought forward . . . . . . . . . . . . . (41 848) (3 238) 3 646 —

Deferred taxes . . . . . . . . . . . . . . . . . . . . . . (17 064) (48 148) (65 229) 70 712

Current taxes . . . . . . . . . . . . . . . . . . . . . . . 68 558 46 186 306 944

51 494 (48 102) 121 077 71 656

The current tax recognised in reserves includes a tax gain of euro 1 933 thousand related to costs incurred in thecapital increase (31 December 2009: euro 823 thousand), a cost of euro 1 829 thousand related to retirementpensions (31 December 2009: euro 1 671 thousand) and a cost of euro 150 thousand related to the share basedpayments scheme (31 December 2009: euro 96 thousand).

F-110





The reconciliation of the income tax rate can be analysed as follows:

% Amount % Amount

31.12.2010 31.12.2009


Profit before non-controlling interest and taxes . . . . . . . . . . . . . . . 678 603 701 750Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.0% 26.5%Income tax calculated based on the statutory tax rate . . . . . . . . . . . . . 196 795 185 964Tax-exempt dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . �6.3% (42 832) �2.1% (14 757)Tax-exempt profits (off shore) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . �10.2% (69 350) �9.1% (63 555)Tax-exempt gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . �11.9% (80 422) �3.7% (26 593)Non-taxable share of (profit)/losses in associates . . . . . . . . . . . . . . . . �1.5% (10 417) �1.2% (8 094)Unrecognised deferred tax assets related to

tax losses generated in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5% 23 939 2.4% 16 536Tax losses used for which no deferred tax assets

were recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% — �0.5% (3 442)Changes in tax-rate related to deferred taxes . . . . . . . . . . . . . . . . . . . �2.5% (16 940) 0.0% —Non-recoverable taxes paid abroad. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3% 8 739 0.0% —Effect of deferred tax asset calculated on losses

brought forward considering a 25% rate . . . . . . . . . . . . . . . . . . . . . 1.0% 6 759 0.2% 1 382Non deductible costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2% 35 155 4.8% 33 551Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% 68 0.0% 85

7.6% 51 494 17.3% 121 077

NOTE 42 — SUBORDINATED DEBT

The balance subordinated debt is analysed as follows:

31.12.2010 31.12.2009


Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 634 023 1 988 958Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 101 232 772Perpetual bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768 573 827 095

2 689 697 3 048 825

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The main features of the subordinated debt are presented as follows:

Issuer Designation CurrencyIssuedate

Amountissued

Carryingamount

Interestrate Maturity

31.12.2010


BES (Caymanbranch) . . . . Subordinated Loans JPY 2005 213 068 276 936 3.95% 2015

BES Finance . . Bonds EUR 2001 400 000 397 950 6.25% 2011BES Finance . . Subordinated perpetual bonds EUR 2002 500 000 489 768 6.63% 2012 a)

BES Finance . . Subordinated perpetual bonds EUR 2004 500 000 278 805 4.50% 2015 a)

BES Finance . . Bonds EUR 2008 20 000 20 041 Euribor 3M + 1% 2018BESI . . . . . . . Bonds BRL 2008 1 683 2 323 1.30% 2013BESI . . . . . . . Bonds BRL 2007 21 134 24 834 1.30% 2014BESI . . . . . . . Bonds BRL 2008 10 099 14 055 1.30% 2015BESI . . . . . . . Bonds EUR 2005 60 000 44 129 5.33% 2015BESI . . . . . . . Bonds EUR 2003 10 000 9 990 5.50% 2033BES . . . . . . . . Bonds EUR 2001 7 000 1 Euribor 6M + 1.25% 2011BES . . . . . . . . Bonds EUR 2004 25 000 22 108 Euribor 6M + 1.25% 2014BES . . . . . . . . Subordinated perpetual bonds EUR 2005 15 000 — Euribor 3M + 2.25% 2015a)

BES . . . . . . . . Bonds EUR 2008 41 550 16 776 Euribor 3M + 1% 2018BES . . . . . . . . Bonds EUR 2008 638 450 638 611 Euribor 3M + 1% 2019BES . . . . . . . . Bonds EUR 2008 50 000 50 071 Euribor 3M + 1.05% 2018BESV . . . . . . . Subordinated loans EUR 2003 9 669 10 165 5.49% —b)

ESFG . . . . . . . Bonds EUR 2009 400 000 393 134 6.88% 2019

2 922 653 2 689 697

a) Call option date

b) Undetermined

The changes occurred in subordinated debt during the year ended 31 December 2010 are analysed as follows:

31.12.2009 Issues RepaymentsNet

RepurchasesOther movements

(a) 31.12.2010


Bonds . . . . . . . . . . . . . . . . 1 988 958 — (300 000) (11 814) (43 121) 1 634 023Loans . . . . . . . . . . . . . . . . 232 772 80 000 (80 000) — 54 329 287 101Perpetual Bonds(b) . . . . . . . 827 095 4 279 — (57 157) (5 644) 768 573

3 048 825 84 279 (380 000) (68 971) 5 564 2 689 697

a) Other movements include accrued interest, fair value adjustments and foreign exchange differences

b) 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 isderecognised from the balance sheet and the difference between the carrying amount of the liability and itsacquisition cost is recognised in the income statement. Following the repurchases performed in 2010 and 2009, theGroup has recognised a gain of euro 3.2 million and of euro 110.5 million, respectively (see Note 11).

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NOTE 43 — OTHER LIABILITIES

As at 31 December 2010 and 2009, the balance other liabilities is analysed as follows:


CreditorsPublic sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 260 52 840Creditors arising out from future contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 743 28 197Collateral deposit on negative exposures on derivative contracts . . . . . . . . . . . . . . . . 107 625 120 886Sundry debtors

Stock-option plan (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 557 13 540Creditors from transactions with securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 486 119 978Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 008 87 850Creditors from factoring operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 304 3 670Other sundry creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 835 216 729Creditors from the medical business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 795 45 512Creditors from the insurance business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 719 6 438

Creditors arising out of direct insurance operations . . . . . . . . . . . . . . . . . . . . . . . . . 22 236 21 357Creditors arising out of reinsurance operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 074 12 644

815 642 729 641

Accrued expensesLong term service benefits (see Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 655 28 602Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 976 201 872

269 631 230 474

Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 956 43 406

Other sundry liabilitiesStock exchange transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 013 226 014Foreign exchange transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 2 095 73 806Other transactions pending settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 745 109 020

1 084 853 408 840

2 206 082 1 412 361

The stock exchange transactions pending settlement refer to transactions with securities on behalf of thirdparties, recorded on trade date and pending settlement, in accordance with the accounting policy described inNote 2.6.

NOTE 44 — SHARE CAPITAL, SHARE PREMIUM, OTHER EQUITY INSTRUMENTS, FAIRVALUE RESERVES AND OTHER RESERVES AND RETAINED EARNINGS

Share capital and share premium

As at 31 December 2010, the authorised share capital of Espírito Santo Financial Group, S.A., was representedby 100 million shares with a face value of euro 10 each, from which 77 854 916 shares (31 December 2009:77 854 916) held by different shareholders were subscribed and fully paid as described below:

31.12.2010 31.12.2009

% Share capital

Espírito Santo International S.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.87% 30.46%Espírito Santo Irmaos, Sociedade Gestora de Participaçoes Sociais, S.A. . . . . . . . . . . . 9.63% 9.63%Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.50% 59.91%

100.00% 100.00%

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Preference shares

In June 2007, ESFG International Limited (“issuer”), a fully owned subsidiary of ESFG, issued euro400 million series A non-cumulative guaranteed step-up preferred securities. These securities, with a face valueof euro 50 thousand per security, are listed on the Luxembourg stock exchange.

These preferred securities pay non-cumulative preferred dividends, when, as and if declared by the Board ofDirectors of ESFG International Limited, annually in arrears on 6 June in each year commencing on 6 June 2008 upto and including 6 June 2017 at an annual rate of 5.753% p.a. of the respective face value. Thereafter, the preferreddividends 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 2017at a rate of 2.130% above the 3 months Euribor.

The preferred securities are perpetual securities and have no fixed redemption date. However, these securitiesmay be redeemed, at the option of ESFG International Limited, in whole but not in part, on 6 June 2017 or on anypreferred distribution payment date falling thereafter. Such redemption is subject to the authorization of ESFG andthe Supervisor Authority.

ESFG unconditionally guarantees, on a subordinated basis, the payment of distributions on the preferredsecurities when, as and if declared by the Board of Directors of the issuer, and payments on liquidation of the issueror on redemption. By virtue of the scope of the guarantee the rights of the holders of these preference securitiesagainst ESFG are equivalent to those which such holders would have had if they had instead held preference sharesissued directly by ESFG whose terms are identical to the terms of the preferred securities and the guarantee takentogether.

Considering the features of these preferred securities, they were considered, following IAS 32, as equityinstruments of the Group. On that basis, the total proceeds from the issue, net of expenses incurred, totallingapproximately euro 395.5 million, was taken to equity. Additionally, and in accordance with the accounting policydescribed in Note 2.9, preferred dividends will be recorded as a deduction to equity when declared.

Other equity instruments

As at 31 December 2010, other equity instruments relate to the equity component of the warrants issued byESFG as described in Note 38, for an amount of euro 118 508 thousand (31 December 2009 : euro 117 767thousand), net of issue costs amounting of euro 3 399 thousand.

Legal reserve

Under the Luxembourg law, a minimum of 5% of the profit for the year must be transferred to the legal reserveuntil 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 classifiedas available for sale, net of impairment losses recognised in the income statement in the year/previous years. Theamount of this reserve is shown net of deferred taxes and non-controlling interest.

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During the years ended 31 December 2010 and 2009, the changes in these balances, net of non-controllinginterest, were as follows:

Available-for-saleDeferred tax

reservesTotal fair

value reserveLegal

reserveExchange

differences

Other reservesand retained

earnings

Total otherreserves and

retainedearnings

Fair value reserve Other reserves and retained earnings


Balance as at 31 December 2008 . . . . . . . . . (127 013) 11 528 (115 485) 30 104 772 (252 652) (221 776)Transfer to reserves . . . . . . . . . . . . . . . . . . . — — — 1 261 — 75 800 77 061Dividends on ordinary shares . . . . . . . . . . . . . — — — — — (23 357) (23 357)Dividends from preference shares . . . . . . . . . . — — — — — (32 718) (32 718)Costs on share capital incrases . . . . . . . . . . . . — — — — — (3 585) (3 585)Changes in fair value . . . . . . . . . . . . . . . . . . 210 075 (34 083) 175 992 — — — —Exchange differences . . . . . . . . . . . . . . . . . . — — — — (4 577) — (4 577)Share-based incentive plan (SIBA) . . . . . . . . . — — — — — 179 179

Balance as at 31 December 2009 . . . . . . . . . 83 062 (22 555) 60 507 31 365 (3 805) (236 333) (208 773)Transfer to reserves . . . . . . . . . . . . . . . . . . . — — — 709 — 156 768 157 477Dividends on ordinary shares . . . . . . . . . . . . . — — — — — (27 249) (27 249)Dividends from preference shares . . . . . . . . . . — — — — — (32 956) (32 956)Changes in fair value . . . . . . . . . . . . . . . . . . (123 969) 23 696 (100 273) — — — —Exchange differences . . . . . . . . . . . . . . . . . . — — — — 17 217 — 17 217Share-based incentive plan (SIBA) . . . . . . . . . — — — — — 157 157Transactions with non-controlling interest . . . . . — — — — — 12 309 12 309Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — (1 000) (1 000)

Balance as at 31 December 2010 . . . . . . . . . (40 907) 1 141 (39 766) 32 074 13 412 (128 304) (82 818)

The fair value reserve is analysed as follows:

31.12.2010 31.12.2009


Amortised cost of available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . . . . . 12 621 018 8 897 901Accumulated impairment losses recognised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (177 732) (183 228)

Amortised cost of available-for-sale financial assets, net of impairment . . . . . . . . . . 12 443 286 8 714 673Fair value of available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 474 836 9 079 449

Net unrealised gains (losses) recognised in the fair value reserve . . . . . . . . . . . . . . 31 550 364 776Fair value reserves related to securities reclassified as held-to-maturity investments

(Note 26) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13 694) (19 560)Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10 189) (60 462)Fair value reserve of associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (52 357) (2 959)

Net fair value reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44 690) 281 795Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 924 (221 288)

Fair value reserve attributable to equity holders of the Company . . . . . . . . . . . (39 766) 60 507

The movement in the fair value reserve, net of deferred taxes, impairment losses and non-controlling interest,is analysed as follows:

31.12.2010 31.12.2009


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 507 (115 485)Changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23 796) 258 228Disposals during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109 152) (57 433)Impairment recognised during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 979 9 280Deferred taxes recognised in reserves during the year . . . . . . . . . . . . . . . . . . . . . . . . . 23 696 (34 083)

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39 766) 60 507

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NOTE 45 — NON-CONTROLLING INTEREST

As at 31 December 2010 and 31 December 2009, non-controlling interest can be analysed as follows:

Balance sheetIncome

statement Balance sheetIncome

statement

31.12.2010 31.12.2009


BES Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 092 789 499 340 3 923 725 421 303Preference shares issued by BES Finance . . . . . . . . . . . . . 600 000 — 600 000 —Other equity instruments issued by BES Group. . . . . . . . . 319 953 — — —Bespar. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557 790 (328) 536 874 (975)ES Saúde . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 771 (70) 75 033 32Pastor Vida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 536 — — —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 615 6 002 53 758 2 836

5 760 454 504 944 5 189 390 423 196

Preference shares issued by BES Finance

Preference shares issued by BES Finance correspond to 450 thousand non-voting preference shares, whichwere issued and listed in the Luxembourg stock exchange in July 2003. In March 2004, 150 thousand preferenceshares were additionally issued forming a single series with the existing preference shares. The face value of theseshares is euro 1 000 and are fully booked under non-controlling interest. The total issue (euro 600 000 thousand) iswholly, but not partially, redeemable at its face value at the option of the issuer, as at 2 July 2014, subject to priorapprovals of BES and the Bank of Portugal.

These preference shares pay an annual non-cumulative preferred dividend, if and when declared by the Boardof Directors of BES Finance, corresponding to an annual rate of 5.58% p.a. on the nominal value. This dividend ispaid on 2 July of each year, beginning 2 July 2004 and ending 2 July 2014. If BES Finance does not redeem thesepreference shares on 2 July 2014, the applicable rate will be 3 months Euribor plus 2.65% p.a., with payments on2 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 thatmay come to be issued by the Bank. BES unconditionally guarantees dividends if previously declared by the Boardof Directors of BES Finance and principal repayments related to either of the above mentioned issues.

Considering the features of these preference shares, they were considered, in accordance with IAS 32, as equityinstruments of BES Group being classified as non-controlling interest at ESGF level. On that basis, and inaccordance with the accounting policy described in Note 2.9, the dividends related with these preference shares arerecorded 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 thetotal amount of euro 320 million.

These bonds pay a non-cumulative interest, only if and when declared by the Board of Directors, at an annualrate of 8.5%. This discretionary interest is payable semi-annually. These securities are redeemable at the option ofBES 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 BESGroup in accordance with IAS 32 being classified as non-controlling interest at ESFG level. On that basis and inaccordance with the accounting policy described in Note 2.9, the dividends related with these bonds will berecorded as a deduction to equity when declared.

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The movement in non-controlling interest in the years ended 31 December 2010 and 2009 can be analysed asfollows:

31.12.2010 31.12.2009


Non-controlling interest as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 189 390 3 547 165Changes in the scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 494 34 982Other transactions with non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45 568) —Increase in share capital of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 325 1 026 339Issuance of other equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 953 —Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100 220) (199 465)Dividends paid on preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23 536) (23 774)Effect of SIBA scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 422 531Capital increase costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (8 560)Changes in fair value reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (220 640) 403 196Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —Exchange differences and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 891 (14 220)Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 944 423 196

Non-controlling interest as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 760 454 5 189 390

NOTE 46 — OFF-BALANCE SHEET ITEMS

As at 31 December 2010 and 2009 off-balance sheet items, excluding the derivative financial instruments, canbe analysed as follows:

31.12.2010 31.12.2009


Contingent liabilitiesGuarantees and stand by letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 694 869 7 325 867Assets pledged as collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 320 999 3 789 253Open documentary credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 243 642 3 021 154Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581 997 158 353

20 841 507 14 294 627

CommitmentsRevocable commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 883 602 8 612 423Irrevocable commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 583 656 5 552 785

12 467 258 14 165 208

Guarantees and standby letters of credit are banking operations that do not imply any out-flow by the Group.

As at 31 December 2010, 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 Transacçoes) for an amount of euro 155.3 million (31 December 2009:euro 151.8 million ) and (ii) in the scope of a liquidity facility collateralised by securities for an amount ofeuro 7 419 million (as at 31 December 2010, securities eligible for rediscount at the Bank of Portugalamounted to euro 10 823 million);

• Securities pledged as collateral to the Portuguese Securities and Exchange Commission (CMVM) in thescope of the Investors Indemnity System (Sistema de Indemnizaçao aos Investidores) for an amount of euro24 241 thousand (31 December 2009: euro 19 368 thousand);

• Securities pledged as collateral to the Deposits Guarantee Fund (Fundo de Garantia de Depósitos) for anamount of euro 63 173 thousand (31 December 2009: euro 61 847 thousand);

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• Securities pledged as collateral to the European Investment Bank for an amount of euro 594 500 thousand(31 December 2009: euro 522 500 thousand).

The above mentioned securities pledged as collateral can be executed in case the Group does not fulfil itsobligations under the terms of the contracts.

Documentary credits are irrevocable commitments, by the Group, in the name of its clients, to pay or order topay a certain amount to a supplier of goods or services, within a determined term, against the exhibition of theexpedition documentation of the goods or service provided. The condition of irrevocable consists of the fact that theterms 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’scustomers (eg. unused credit lines). These agreements are, generally, contracted for fixed periods of time or withother expiration requisites, and usually require the payment of a commission. Substantially, all credit commitmentsrequire that clients maintain certain conditions verified at the time when the credit was granted.

Despite the characteristics of these contingent liabilities and commitments, these operations require a previousrigorous risk assessment of the client and its business, like any other commercial operation. When necessary, theGroup require that these operations are collateralised. As it is expected that the majority of these operations willmature 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:

31.12.2010 31.12.2009


Securities and other items held for safekeeping on behalf of customers . . . . . . . . . 69 177 215 72 080 912Assets for collection on behalf of clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 553 286 509Securitised loans under management (servicing) . . . . . . . . . . . . . . . . . . . . . . . . . . 3 107 186 3 426 539Discretionary portfolio management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 757 863 7 974 169

82 316 817 83 768 129

NOTE 47 — ASSETS UNDER MANAGEMENT

As at 31 December 2010 and 2009, the amount of the assets under management of the Group is analysed asfollows:

31.12.2010 31.12.2009


Securities investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 588 638 5 675 825Real estate investment funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 374 539 1 263 209Pension funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 655 602 2 721 960Bancassurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 373 789 5 511 442Portfolio management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 924 492 2 628 555Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 012 706 2 081 743

17 929 766 19 882 734

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 arejointly liable before the participants of the funds for the non fulfilment of the obligations assumed under the terms ofthe Law and the management regulations of the funds.

NOTE 48 — 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.

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The entities considered to be related parties to ESFG, as defined by IAS 24, are as follows:

Company Company

2BCapital S.A.Acro, Sociedade Gestora de Participaçoes Sociais, S.A.Advance Ciclone System, S.A.Aenor Douro Estradas do Douro Interior, S.A.Agência de Viagens Tagus, S.A.Agência Receptivo Praia do Forte, LtdaAgribahia, S.A.Agriways, S.A.Aldeia do Meco — Sociedade para o Desenvolvimento Turístico, S.A.Aleluia — Cerâmicas, S.A.Alvalade Participaçoes, LtdaAMAL, S.G.P.S., S.A.Angra Moura-Sociedade de Administraçao de Bens,S.A.Apolo Films SLAQUASPY Group Pty LimitedAscendi Douro, Estradas do Douro Interior, S.A.Ascendi Grande Lisboa, Auto Estradas da Grande Lisboa, S.A.Ascendi Group, SGPS, S.A.Ascendi Pinhal Interior Estradas do Pinhal Interior, S.A.Atr — Actividades Turisticas e Representaçoes, LdaAutovia De Los Vinedos, S.A.Aveiro IncorporatedBANCO DELLE TRE VENEZIE SPABeach Heath Investments LtdBEMS, SGPS, S.A.BES, Companhia de Seguros, S.A.BES — Vida, Companhia de Seguros, S.A.BIO-GENESISBrb Internacional, S.A.Campeque-Compra e Venda de Propriedades, LdaCasas da Cidade — Residências Sénior, S.A.Casas da Sauudade, Administraçao de Bens Móveis Imóveis, S.A.Cerca da Aldeia — Sociedade Imobiliária, S.A.Cidadeplatine — Construçao, S.A.Cimenta — Empreendimentos Imobiliários, S.A.Cimentos Europa, S.A.Clarendon Properties Inc.Club Campo Villar Olalla, S.A.Clup Vip — Marketing de Acontecimentos, S.A.Clube de Campo da Comporta — Actividades Desportivas e Lazer, LdaClube Residencial da Boavista, S.A.Cobrape-Companhia Brasileira de Agropecuaria CobrapeCoimbra Jardim Hotel — Sociedade de Gestao Hoteleira, S.A.Companhia Agricola Botucatu, S.A.Companhia Brasileira de Agropecuária CobrapeConsecionaria Autopista Perote-Xalapa, S.A. CVConstrucciones Sarrion, SLConstrutora do Tâmega (Madeira), S.A.Construtora do Tâmega (Madeira), SGPS, S.A.Coporgeste — Companhia Portuguesa de Gestao e Desenvolvimento

Imobiliário, S.A.Coreworks — Proj. Circuito Sist. Elect., S.A.Corina-Ganadera Corina Campos y Haciendas, S.A.Diliva, Sociedade de Investimentos Imobiliários, S.A.DMC Madeira, S.A.Ecoram — Tratamento de Resíduos, LdaE.S.B. Finance LtdEastelco — Consultoria e Comunicaçao, S.A.Empark Aparcamientos y Servicios S.A.Enkrott, S.A.E.S. Asset Administration LtdEspírito Santo Cachoeira Desenvolvimento Imobiliário LtdaES Comercial Agrícola, LtdaEspírito Santo Guarujá Desenvolvimento Imobiliário Ltda

HCI — Health Care International, IncHDC — Serviços de Turismo e Imobiliário, S.A.Herdade da Boina — Sociedade Agrícola, S.A.Herdade da Comporta — Actividades Agro Silvícolas e Turísticas, S.A.HL — SGE — Sociedade Gestora do Edifício, S.A.HLC — Centrais de Cogeraçao, S.A.HME Gestao HospitalarHotéis Tivoli, S.A.Hotelagos, S.A.I.A.C. Uk LimitedInter-Atlântico, S.A.Iber Foods -Produtos Alimentares e Biológicos, S.A.Imopca, S.A.Inertogrande, Central de Betao LdaLocarent — Companhia Portuguesa de Aluguer de Viaturas, S.A.Lote Dois — Empreendimentos Turisticos S.A.Luzboa, S.A.Luzboa Dois, S.A.Luzboa Quatro, S.A.Luzboa Três, S.A.Luzboa Um, S.A.Mandel Partners SCAMargrimar — Mármores e Granitos, S.A.Marinoteis — Sociedade de Promoçao e Construçao de Hoteis, S.A.Marmetal — Mármores e Materiais de Construçao, S.A.MCO2 — Sociedade Gestora de Fundos de Investimento Mobiliário, S.A.Metal — Lobos Serralharia e Carpintaria, LdaMMCI — Multimédia, S.A.Moldebetao — Socidedade de Betoes, S.A.Mobile World — Comunicaçoes, S.A.MRN — Manutençao de Rodovias Nacionais, S.A.MTA — Transportes Alternativos da Madeira, S.A.Multiger — Sociedade de Compra Venda e Administraçao de

Propriedades, S.A.Multipessoal -Sociedade de Prestaçao de Serviços, S.A.Multiwave Photonics S.A.Mundo Vip — Operadores Turísticos, S.A.NANIUM , S.A.Net Viagens — Agência de Viagens e Turismo, S.A.Nova Figfort — Têxteis, LdaNovagest Assets Management, LtdNutrigreen, S.A.Opca Angola, S.A.Opca Moçambique, LdaOpcatelecom . Infraestruturas de Comunicaçao, S.A.Opway Imobiliária, S.A.Opway — Engenharia, S.A.Opway — SGPS, S.A.Outsystems, S.A.Palexpo — Imagem Empresarial, S.A.Parque e Campinas Incorporaçoes, LdaPavi do Brasil — Pré-Fabricaçao,Tecnologia e Serviços, LdaPavicentro — Pré Fabricaçao, S.A.Pavilis — Pré -Fabricaçao, S.A.Paviseu — Materiais Pré-Fabricados, S.A.Pavitel, SARLPersonda — Sociedade de Perfuraçoes e Sondagens, S.A.Placon — Estudos e Projectos de Construçao, LdaPojuca, S.A.Polish Hotel Capital SPPolish Hotel Company SPPolish Hotel Management Company, SPPontave -Construçoes, S.A.Portvias — Portagem de Vias, S.A.

F-119





Company (cont.) Company (cont.)

ES Holding Administraçao e Participaçoes, S.A.Espírito Santo Hotéis, SGPS, S.A.Espírito Santo Indaiatuba Desenvolvimento Imobiliário LtdaEspírito Santo Industrial S.A.Espírito Santo Industrial (BVI ) S.A.Espírito Santo Industrial (Portugal ) — SGPS, S.A.Espírito Santo Irmaos — Sociedade Gestora de Participaçoes Sociais, S.A.Espírito Santo Itatiba Desenvolvimento Imobiliário LtdaEspírito Santo Primavera Desenvolvimento Imobiliário LtdaES Private Equity LtdEspírito Santo Property S.A.Espírito Santo Property (Brasil) S.A.Espírito Santo Property Holding (BVI ) S.A.Espírito Santo Property España, S.L.Espírito Santo Services S.A.Espírito Santo Tourism LtdEspírito Santo Tourism (Europe ) S.A.Espírito Santo — Unidades de Saúde e de Apoio à Terceira Idade, S.A.Espírito Santo Venture LtdEspírito Santo Viagens — Sociedade Gestora de Participaçoes Sociais, S.A.ES Viagens e Turismo, LdaEspírito Santo Viagens — Consultoria e Serviços, S.A.Espírito Santo Control S.A.Escae Consultoria, Administraçao e Empreendimento, LtdaEscopar — Sociedade Gestora de Participaçoes Sociais, S.A.ESDI Administraçao e Participaçoes LtdaEsegur — Empresa de Segurança, S.A.Esger — Empresa de Serviços e Consultoria, S.A.Espírito Santo International S.A.Espírito Santo International (BVI) S.A.Espírito Santo International BVI Paticipation S.A.E.S. International Overseas LtdEspírito Santo International Panama S.A.Esiam — Espirito Santo International Asset Management LtdEsim — Espirito Santo Imobiliário, S.A.E.S. — Espírito Santo, Mediaçao Imobiliária, S.A.Espart Madeira SGPS, Unipessoal, LdaEspart — Espirito Santo Participaçoes Financeiras, SGPS, S.A.Espírito Santo Resources LtdE.S. Resources Overseas LtdEspírito Santo Resources S.A.Espírito Santo Resources (Portugal ), S.A.Estoril IncorporatedEuroamerican Finance Corporation Inc.Euroamerican Finance S.A.Euroatlantic Realty Inc.Europe Assistance — Companhia Portuguesa de Seguros de Assistência, S.A.Fafer — Empreendimentos Turísticos e de Construçao, S.A.Fin Solutia — Consultoria de Gestao de Créditos, S.A.Fundo Espírito Santo IBERIA IGanadera Corina Campos y Haciendas, S/AGenomed, Diagnóstico de Medicina Molecular, S.A.GES Finance LtdGesfimo — Espírito Santo, Irmaos, Soc. Gestora de Fundos de

Investimento Imobiliários,S.A.Gestres — Gestao Estratégica Espírito Santo, S.A.Global Active — Gestao Part. Soc., SGPS, S.A.Goggles Marine, LtdGolondrina — Sociedad Agricola Golondrina, S/AGPCA — Grupo Português de Construçao Algerie, SPAGreenWoods Ecoresort — Empreendimentos Imobiliários, LdaGroup Credit AgricoleGrupo Proyectos y Servicios Sarrion, S.A.

Praia do Forte Operadora de Turismo, LtdaPROIM -Empreendimentos Turísticos S.A.Property SP IncProsport, S.A.PT Prime Tradecom — Soluçoes Empresariais de Comércio Externo, S.A.Quinray Technologies Corp.Quinta D. Manuel I S.A. — Sociedade AgrícolaQuinta da Areia — Sociedade Agricola Quinta da Areia, S.A.Quinta da Foz -Empreendimentos Imobiliários S.A.Recigreen — Reciclagem e Gestao Ambiental, S.A.Recigroup — Industrias de Reciclagem, SGPS, S.A.Recipav — Engenharia e Pavimentos, Unipessoal, LdaRecipneu — Empresa Nacional de Reciclagem de Peneus, LdaRibeira do Marchante, Administraçao de Bens e Imóveis, S.A.Rio Forte, S.A.Rioforte (Portugal), S.A.Rodi — Sinks & Ideas, S.A.Rodovias do Tietê — Concessionária Rodovias do Tietê, S.A.Rua Bonita Sp. Z.o.o.Salgar Investments, SLSanta Mónica — Empreendimentos Turísticos, S.A.Saramagos S.A. Empreendimentos e ParticipaçoesSaxo Bank A/SScutvias — Autoestradas da Beira Interior , S.A.SES IberiaSeries -Serviços Imobiliários Espirito Santo, S.A.Sinergy Industry and Tecnology S.A.Sintra Empreendimentos Imobiliários, LtdaSisges, S.A. Desenvolvimento de Projectos de EnergiaSociedade de Administraçao de Bens — Casa de Bons Ares, S.A.Sociedade de Administraçao de Bens-Pedra da Nau, S.A.Sociedade de Silvicultura Monte do Arneirinho, LdaSociété Antillaise de Gestion Financiére, S.A. — SAGEFISociété Congolaise de Construction et Travaux Publiques, SARLSoguest — Sociedade Imobiliária, S.A.Soliférias — Operadores Turísticos, LdaSó Peso Restauraçao e Hotelaria, S.A.Sopol — Concessoes, SGPS, S.A.SOPRATTUTTO CAFÉ, S.A.Sotal — Sociedade de Gestao Hoteleira, S.A.Sousacamp, SGPS, S.A.Space — Sociedad Peninsular de Aviación, Comércio e Excursiones, S.A.Suliglor — Imobiliária do Sul, S.A.TA DMC, Brasil — Viagens e Turismo, S.A.Terras de Bragança Participaçoes, LtdaThe Atlantic Company (Portugal ) — Turismo e Urbanizaçao, S.A.Timeantube Comércio e Serviços de Confecçoes, LtdaTivoli Gare do Oriente — Sociedade de Gestao Hoteleira, S.A.TLCI 2 — Soluçoes Integradas de Telecomunicaçoes, S.A.Toco — Investimentos Imobiliários e Turisticos, S.A.TOP A DMC Viajes, S.A.Top Atlântico B2B — Soluçoes Empresariais de Negócios, S.A.Top Atlântico — Viagens e Turismo, S.A.Top Atlântico DMC, S.A.Transcontinental -Empreendimentos Hoteleiros, S.A.Turifonte — Empreendimentos Hoteleiros, S.A.Turistrader — Sociedade de Desenvolvimento Turístico, S.A.Unicre — Cartao Internacional de Crédito, S.A.Ushuaia -Gestao e Trading Internacional LimitedVárzea Lagoa — Sociedade Agricola Turística e ImobiliáriaViaexpresso — Concessionária de Estradas ViaExpresso da Madeira, S.A.Viameidera — Concessao Viária da Madeira, S.A.Viveiros da Herdade da Comporta — Produçao de Plantas Ornamentais, LdaYDreams — Informática, S.A.

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As at 31 December 2010 and 2009, the total amount of the assets and liabilities of the Group with associates orrelated companies, is as follows:

Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses

31.12.2010 31.12.2009


BES VIDA — Companhia deSeguros, S.A. . . . . . . . . . . . . 988 997 429 953 — 49 187 1 094 267 857 214 178 — 65 471 16 179

ESI S.A. . . . . . . . . . . . . . . . . 951 466 109 — 29 583 30 14 820 61 427 — 18 871 123ESR LTD . . . . . . . . . . . . . . . . 446 279 1 704 — 16 100 6 365 009 417 890 — 13 775 168ASCENDI. . . . . . . . . . . . . . . . 198 004 23 117 — 10 138 2 561 29 203 146 — — —LOCARENT . . . . . . . . . . . . . . 139 970 714 — 3 303 10 281 141 500 341 — 5 584 9 363AENOR Douro . . . . . . . . . . . . 122 304 592 — 5 013 — — — — — —ES IRMAOS . . . . . . . . . . . . . . 87 948 6 — 2 470 — 81 422 5 — 2 033 —NANIUM . . . . . . . . . . . . . . . . 45 403 704 — 610 — — — — — —EMPARK . . . . . . . . . . . . . . . . 41 537 — — 3 286 — 48 267 — — 1 064 —ESPH. . . . . . . . . . . . . . . . . . . 39 187 10 — 2 879 — 106 878 131 — 7 729 —OPWAY . . . . . . . . . . . . . . . . . 31 606 8 998 35 665 713 — 42 927 51 37 662 647 —DIRECTORS. . . . . . . . . . . . . . 5 924 52 — — 1 5 698 1 724 — — —BES SEGUROS . . . . . . . . . . . . 4 711 13 802 — 4 793 4 888 13 418 — 3 170 19ES TOURISM . . . . . . . . . . . . . 4 099 874 — 2 — 3 337 6 511 — 24 —ESEGUR . . . . . . . . . . . . . . . . 2 737 138 2 261 1 094 361 1 842 316 2 303 300 389EUROP ASSISTANCE . . . . . . . 2 144 1 670 7 43 1 465 2 209 1 289 7 51 18MARINOTEIS . . . . . . . . . . . . . 689 477 11 9 — 172 377 36 44 —ES INDUSTRIAL . . . . . . . . . . — 9 — 1 — — 3 — 693 —ES HEALTH . . . . . . . . . . . . . . — — — — — — — — — —ESCOM . . . . . . . . . . . . . . . . . — 6 — 6 649 — 336 323 147 639 5 737 —EUROAMERICAN . . . . . . . . . . — 45 — 8 — — 79 — 197 —HERDADE . . . . . . . . . . . . . . . — — — 32 — — — — 21 —GES FINANCE LTD. . . . . . . . . — 194 — 3 379 — 134 17 197 — 1 324 —ESR (P) . . . . . . . . . . . . . . . . . — 79 — — 414 — 399 — 7 758MULTIPESSOAL . . . . . . . . . . . — 18 — 363 384 26 2 — 280 316OBLOG Consulting, S.A. . . . . . — — — — 9 — — — — —TOP ATLANTICO . . . . . . . . . . — 20 — — 696 — 9 — — 402CONSTRUCCIONES

SARRION . . . . . . . . . . . . . . 26 934 — — — — 24 203 — — — —PALEXPO . . . . . . . . . . . . . . . 6 800 189 — 353 1 — — — — —SAXO BANK . . . . . . . . . . . . . 23 766 233 — 4 309 3 — — — — —SCUTVIAS. . . . . . . . . . . . . . . 9 140 — — 227 — — — — — —SOUSACAMP . . . . . . . . . . . . . 15 064 7 3 013 835 — 20 000 109 — 116 —Others . . . . . . . . . . . . . . . . . . 97 102 49 525 12 359 2 714 4 290 66 202 128 698 7 139 2 743 620

3 291 811 533 245 53 316 148 093 21 600 1 558 917 864 447 47 786 129 881 28 355

Balances and transactions with the above referred entities relate mainly to loans and advances and deposits inthe scope of the banking activity of the Group.

In the scope of the distribution and operating management agreement between BES, BES Vida and CréditAgricole, BES granted BES Vida a guarantee on the return over a group of assets associated to insurance andinvestment contracts. BES recognises this guarantee on its balance sheet as a liability at fair value against theincome statement, when the expected return of assets is lower than the minimum guaranteed return to the policyholders. Based on the valuation performed as at 31 December 2010, the Group recognised a liability in the amountof euro 6.8 million (31 December 2009: nil).

During the years ended 31 December 2010 and 2009, and excluding the payment of dividends, no additionaltransactions with related parties were undertaken between the Group and its shareholders.

The costs with salaries and other benefits attributed to ESFG key management personnel, as well as thetransactions performed with ESFG key management personnel are presented in Note 12.

During the years ended 31 December 2010 and 2009, there were no transactions made with the Group pensionfunds.

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NOTE 49 — SECURITISATION TRANSACTIONS

As at 31 December 2010, the outstanding securitisation transactions performed by the Group were as follows:

DesignationInitialdate

Originalamount

Currentamount

Assetsecuritised


Lusitano Mortgages No. 1 plc. . . . . . . . December 2002 1 000 000 431 681 Mortgage loans (subsidised regime)Lusitano Mortgages No. 2 plc. . . . . . . . November 2003 1 000 000 430 415 Mortgage loans (subsidised and general regime)Lusitano Mortgages No. 3 plc. . . . . . . . November 2004 1 200 000 610 478 Mortgage loans (general regime)Lusitano Mortgages No. 4 plc. . . . . . . . September 2005 1 200 000 689 254 Mortgage loans (general regime)Lusitano Mortgages No. 5 plc. . . . . . . . September 2006 1 400 000 945 359 Mortgage loans (general regime)Lusitano SME No. 1 plc . . . . . . . . . . . October 2006 862 607 573 348 Loans to small and medium entitiesLusitano Mortgages No. 6 plc. . . . . . . . July 2007 1 100 000 838 428 Mortgage loans (general regime)Lusitano Project Finance No. 1 plc . . . . December 2007 1 079 100 780 100 Project Finance LoansLusitano Mortgages No. 7 plc. . . . . . . . September 2008 1 900 000 1 890 428 Mortgage loans (general regime)Lusitano Leverage finance No. 1 BV . . . February 2010 516 534 418 031 Leverage Finance LoansLusitano SME No. 2 . . . . . . . . . . . . . . December 2010 1 951 908 1 727 710 Loans to small and medium entities

The main characteristics of these transactions, as at 31 December 2010, can be analysed as follows:

Designation Notes issuedIssued amount

(par value)Current amount

(par value)

Securitiesheld byESFG

(par value) Maturity date Fitch Moody’s S&P DBRS Fitch Moody’s S&P DBRSInitial Ratings Actual Ratings

(in thousands of euro)Lusitano Mortgages No. 1 plc . . . . . Class A 915 000 332 905 109 December 2035 AAA Aaa AAA — AAA Aaa AAA —

Class B 32 500 32 500 — December 2035 AA Aa3 AA — AAA Aa3 AA —Class C 25 000 25 000 3 000 December 2035 A A2 A — AA- A2 A —Class D 22 500 22 500 — December 2035 BBB Baa2 BBB — BBB+ Baa2 BBB+ —Class E 5 000 5 000 — December 2035 BB Ba1 BB — BB+ Ba1 BB+ —Class F 10 000 10 000 — December 2035 — — — — — — — —

Lusitano Mortgages No. 2 plc . . . . . Class A 920 000 351 047 5 380 December 2036 AAA Aaa AAA — AAA Aaa AAA —Class B 30 000 30 000 10 000 December 2046 AA Aa3 AA — AAA Aa3 AA —Class C 28 000 28 000 5 000 December 2046 A A3 A — A+ A3 A —Class D 16 000 16 000 — December 2046 BBB Baa3 BBB — BBB+ Baa3 BBB —Class E 6 000 6 000 — December 2046 BBB- Ba1 BB — BBB- Ba1 BB —Class F 9 000 9 000 — December 2046 — — — — — — — —

Lusitano Mortgages No. 3 plc . . . . . Class A 1 140 000 552 490 4 556 December 2047 AAA Aaa AAA — AAA Aaa AAA —Class B 27 000 20 725 — December 2047 AA Aa2 AA — AA Aa2 AA —Class C 18 600 14 277 — December 2047 A A2 A — A Baa1 A —Class D 14 400 11 053 — December 2047 BBB Baa2 BBB — BBB- Ba3 BBB —Class E 10 800 10 800 — December 2047 — — — — — — — —

Lusitano Mortgages No. 4 plc . . . . . Class A 1 134 000 616 259 8 957 December 2048 AAA Aaa AAA — AAA Aaa AAA —Class B 22 800 21 553 — December 2048 AA Aa2 AA — AA Aa2 AA —Class C 19 200 18 150 — December 2048 A+ A1 A+ — A A3 A+ —Class D 24 000 22 687 — December 2048 BBB+ Baa1 BBB+ — BB B2 BBB+ —Class E 10 200 10 200 — December 2048 — — — — — — — —

Lusitano Mortgages No. 5 plc . . . . . Class A 1 323 000 878 694 664 December 2059 AAA Aaa AAA — AAA Aaa AAA —Class B 26 600 25 494 — December 2059 AA Aa2 AA — AA A2 AA —Class C 22 400 21 469 — December 2059 A A1 A — A Baa2 A —Class D 28 000 26 836 5 271 December 2059 BBB+ Baa2 BBB — BB B3 BBB —Class E 11 900 11 900 — December 2059 — — — — — — — —

Lusitano SME No. 1 plc . . . . . . . . Class A 759 525 473 181 17 026 December 2028 AAA — AAA — BBB — AAA —Class B 40 974 40 974 — December 2028 AAA — AAA — AAA — AAA —Class C 34 073 34 073 — December 2028 BB — BB — B — BB- —Class D 28 035 28 035 28 035 December 2028 — — — — — — — —Class E 8 626 8 626 8 626 December 2028 — — — — — — — —

Lusitano Mortgages No. 6 plc . . . . . Class A 943 250 664 181 55 592 March 2060 AAA Aaa AAA — AAA Aaa AAA —Class B 65 450 65 450 58 950 March 2060 AA Aa3 AA — AA Aa3 AA —Class C 41 800 41 800 31 800 March 2060 A A3 A — A A3 A —Class D 17 600 17 600 17 600 March 2060 BBB Baa3 BBB — BBB- Baa3 BBB —Class E 31 900 31 900 31 900 March 2060 BB — BB — B — BB —Class F 22 000 22 000 22 000 March 2060 — — — — — — — —

F-122





Designation Notes issuedIssued amount

(par value)Current amount

(par value)

Securitiesheld byESFG

(par value) Maturity date Fitch Moody’s S&P DBRS Fitch Moody’s S&P DBRSInitial Ratings Actual Ratings

(in thousands of euro)Lusitano Project Finance No. 1 plc . . . Class A 890 256 712 450 703 081 December 2037 — — AAA — — AAA —

Class B 35 610 35 610 35 610 December 2037 — — AA — — AA —Class C 39 926 39 926 39 926 December 2037 — — A — — A —Class D 23 741 23 741 23 741 December 2037 — — BBB — — BBB —Class E 11 871 11 871 11 871 December 2037 — — BB — — BB —Class F 77 696 76 473 77 696 December 2037 — — — — — — —

Lusitano Mortgages No. 7 plc . . . . . Class A 1 425 000 1 425 000 1 425 000 October 2064 — — AAA — — — AAA —Class B 294 500 294 500 294 500 October 2064 — — BBB- — — — BBB- —Class C 180 500 180 500 180 500 October 2064 — — — — — — — —Class D 57 000 57 000 57 000 October 2064 — — — — — — — —

Lusitano Leverage finance No. 1 BV. . Class A 352 000 297 669 247 305 January 2020 — — AAA — — AAA —Class C 206 800 206 800 175 956 January 2020 — — — — — — —Class X 21 850 21 850 20 633 January 2020 — — — — — — —

Lusitano SME No. 2 . . . . . . . . . . Class A 1 107 300 1 107 300 1 107 300 August 2033 — Aaa — AAA — Aaa — AAAClass B 369 100 369 100 369 100 August 2033 — A2 — A (low) — A2 — A (low)Class C 466 300 466 300 466 300 August 2033 — — — — — — — —Class D 38 900 38 900 38 900 August 2033 — — — — — — — —

As permitted by IFRS 1, the Group has applied the derecognition requirements of IAS 39 for the transactionsentered into after 1 January 2004. Therefore, the assets derecognised until that date, in accordance with the previousaccounting 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 andLusitano Mortgages No. 5, performed after 1 January 2004, were derecognised considering that the Group hastransferred 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 andLusitano 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 othersecuritization vehicles are not included in the consolidated financial statements of the Group as it has not retainedthe majority of the risks and rewards of ownership.

As at 31 December 2010 and 2009 the consolidation of these entities had the following main impacts on theconsolidated balance sheet:

31.12.2010 31.12.2009


Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468 085 235 561Financial assets held for trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 734 —Loans to customers (net of impairment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 715 334 4 346 416Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 208 319 1 527 467Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 687 (11 659)Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 346 10 540

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NOTE 50 — FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The fair value of financial assets and liabilities, for the Group, is analysed as follows:

AmortisedCost

Level 1Quoted Market

Prices

Level 2Valuation models

based on observablemarket information(1)

Level 3Valuation models

based onnon-observable

market information Book Value Fair Value

Fair Value


Balance as at 31 December 2010Cash and deposits at central banks . . . . . . . . . . . . . . . . 976 515 — — — 976 515 976 515Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . 879 561 — — — 879 561 879 561Financial assets held for trading . . . . . . . . . . . . . . . . . . — 1 743 206 2 208 580 — 3 951 786 3 951 786Other financial assets at fair value through profit or loss . . . . . — 77 217 1 237 835 10 397 1 325 449 1 325 449Available-for-sale financial assets . . . . . . . . . . . . . . . . . 23 926(2) 6 183 774 6 062 281 204 855 12 474 836 12 474 836Loans and advances to banks . . . . . . . . . . . . . . . . . . . 3 071 674 — — — 3 071 674 3 071 674Loans and advances to customers . . . . . . . . . . . . . . . . . 51 944 352 — 1 402 455 — 53 346 807 51 450 204Held-to-maturity investments . . . . . . . . . . . . . . . . . . . 2 453 465 — — — 2 453 465 2 386 893Derivatives 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 837Financial liabilities held for trading . . . . . . . . . . . . . . . . — — 2 121 305 — 2 121 305 2 121 305Deposits from banks . . . . . . . . . . . . . . . . . . . . . . . . 5 929 166 — 687 911 — 6 617 077 6 079 338Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . 27 006 401 — 4 199 287 — 31 205 688 31 205 688Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . 19 855 506 — 5 049 240 — 24 904 746 22 255 518Derivatives for risk management purposes . . . . . . . . . . . . — — 228 944 — 228 944 228 944Subordinated 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

Balance as at 31 December 2009Cash and deposits at central banks . . . . . . . . . . . . . . . . 2 224 331 — — — 2 224 331 2 224 331Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . 793 844 — — — 793 844 793 844Financial assets held for trading . . . . . . . . . . . . . . . . . . — 2 449 511 2 041 188 — 4 490 699 4 490 699Other financial assets at fair value through profit or loss . . . . . — 476 620 785 822 10 975 1 273 417 1 273 417Available-for-sale financial assets . . . . . . . . . . . . . . . . . 27 584(2) 3 600 596 5 304 896 146 373 9 079 449 9 079 449Loans and advances to banks . . . . . . . . . . . . . . . . . . . 6 871 562 — 776 786 — 7 648 348 7 648 348Loans and advances to customers . . . . . . . . . . . . . . . . . 49 828 822 — 679 395 — 50 508 217 49 698 918Held-to-maturity investments . . . . . . . . . . . . . . . . . . . 2 535 309 — — — 2 535 309 2 448 830Derivatives for risk management purposes . . . . . . . . . . . . — — 455 115 — 455 115 455 115

Financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . 62 281 452 6 526 727 10 043 202 157 348 79 008 729 78 112 951

Deposits from central banks . . . . . . . . . . . . . . . . . . . . 3 817 643 — — — 3 817 643 3 817 643Financial liabilities held for trading . . . . . . . . . . . . . . . . — — 1 568 896 — 1 568 896 1 568 896Deposits from banks . . . . . . . . . . . . . . . . . . . . . . . . 6 344 039 — 546 786 — 6 890 825 6 912 970Due to customers . . . . . . . . . . . . . . . . . . . . . . . . . . 24 122 166 — 1 572 311 — 25 694 477 25 694 477Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . 20 825 093 — 13 214 637 — 34 039 730 33 982 914Derivatives for risk management purposes . . . . . . . . . . . . — — 253 148 — 253 148 253 148Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . 2 826 098 — 222 727 — 3 048 825 2 909 183

Financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . 57 935 039 — 17 378 505 — 75 313 544 75 139 231

(1) Includes assets and liabilities measured at fair value through profit or loss and assets and liabilities hedged under a fair value hedgerelationship.

(2) Assets at acquisition cost net of impairment losses. These assets refer to equity instruments issued by non-quoted entities in relation to whichno recent transactions were identified or is not possible to estimate reliably its fair value.

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 inofficial markets and with dealer prices quotations provided by entities that usually provide transaction prices forthese assets/liabilities traded in active markets.

Valuation models based on observable market information (level 2) — consists on the use of internal valuationtechniques, namely discounted cash flow models and option pricing models which imply the use of estimates andrequire judgments that vary in accordance with the complexity of the financial instrument. Notwithstanding, theGroup 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.

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Valuation models based on non-observable market information (level 3) — consists on the use of internalvaluation techniques, mainly discounted cash flow models, or quotations provided by third parties but which implythe use of non-observable market information.

During 2010, there were no transfer between the different sources/ valuation models used by the Group for thevaluation of assets and liabilities.

The movements of the financial assets valued based on non-observable market information, during 2010, canbe analysed as follows:


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 348Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 683Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49 123)Changes in value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 656)

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 252

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 longterm the presented values represent the swap interest rate for the respective years:

EUR USD GBP EUR USD GBP

31.12.2010 31.12.2009

(%)

Overnight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4500 0.3000 0.5800 0.2500 0.0750 0.3700

1 month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7820 0.2606 0.6800 0.4000 0.4200 0.5800

3 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0060 0.3028 0.8200 0.5000 0.4700 0.6600

6 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2270 0.4559 1.2600 0.9300 0.6800 0.9300

9 months. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3720 0.6200 1.4150 1.0900 0.9000 1.0300

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3320 0.4590 0.8910 1.3155 0.6480 0.9960

3 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9450 1.3030 1.9480 2.2700 2.0120 2.65605 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4810 2.1980 2.6180 2.8050 2.9300 3.3900

7 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8930 2.8390 3.1868 3.2130 3.4680 3.7650

10 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3050 3.4010 3.5350 3.5980 3.9220 4.0880

15 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6380 3.8580 3.8780 3.9700 4.3130 4.3670

20 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6970 4.0030 3.9530 4.0700 4.4270 4.3600

25 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6660 4.0760 3.9530 4.0210 4.4630 4.2925

30 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4960 4.1240 3.9230 3.9520 4.4790 4.2170

Credit spreads

The credit spreads used by the Group on the valuation of the credit derivatives are disclosed on a daily basis byMarkit representing observations constituted for around 85 renowned international financial entities. The evolution

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of the main indexes, understood as being representative of the credit spreads behaviour in the market throughout theyear, is presented as follows:

Index Series 1 year 3 years 5 years 7 years 10 years(basis points)

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

Year 2009CDX USD Main . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 61.06 81.07 84.29 92.00 106.75

iTraxx Eur Main . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 — 45.61 73.52 82.85 92.43

iTraxx Eur Senior Financial . . . . . . . . . . . . . . . . . . . 12 — — 72.97 — 86.24

Interest rates volatility

The values presented below, refer to the implied volatilities (at the money) used for the valuation of the interestrate options:

EUR USD GBP EUR USD GBP

(%)

31.12.2010 31.12.2009

1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.00 104.76 56.90 54.70 95.83 68.303 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.80 67.49 52.00 40.50 57.99 48.405 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.20 47.52 39.60 32.00 42.78 36.207 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.30 37.90 32.00 26.40 36.00 29.5010 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.80 31.35 25.50 21.70 30.52 24.0015 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.19 27.04 20.50 18.29 26.16 19.50

Exchange rates and volatility

Presented below are the exchange rates (European Central bank) at the balance sheet date and the impliedvolatilities (at the money) for the main currencies used on the derivatives valuation:

Exchange Rates 31.12.2010 31.12.2009 1 month 3 months 6 months 9 months 12 months

Volatility (%)

EUR/USD . . . . . . . . . . . . . . . 1.3362 1.4406 13.53 14.38 14.55 14.58 14.60

EUR/GBP . . . . . . . . . . . . . . . 0.8608 0.8881 9.45 10.15 10.78 11.02 11.25

EUR/CHF . . . . . . . . . . . . . . . 1.2504 1.4836 9.75 9.20 8.85 11.70 8.58

EUR/NOK . . . . . . . . . . . . . . 7.8000 8.3000 7.45 8.00 8.25 8.32 8.40

USD/BRL a) . . . . . . . . . . . . . 1.6597 1.7432 9.95 12.25 13.45 14.41 15.35

USD/TRY b) . . . . . . . . . . . . . 1.5487 1.4957 11.45 12.40 13.00 13.25 13.61

(a) Calculation based in EUR/USD and EUR/BRL exchange rates(b) Calculation based 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 atthe time of the valuation.

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Equity indexes

In the table below, is presented the evolution of the main market equity indexes and the respective volatilitiesused for the valuation of equity derivatives:

31.12.2010 31.12.2009 % change 1 month 3 monthsImpliedvolatility

Quote Historical volatility

DJ Euro Stoxx 50 . . . . . . . . . . . . . . . . . . 2 793 2 965 (5.8) 18.42 17.32 22.99

PSI 20 . . . . . . . . . . . . . . . . . . . . . . . . . . 7 588 8 464 (10.3) 18.08 14.12 —

IBEX 35 . . . . . . . . . . . . . . . . . . . . . . . . . 9 859 11 940 (17.4) 26.28 21.10 —

FTSE 100 . . . . . . . . . . . . . . . . . . . . . . . . 5 900 5 413 9.0 15.37 13.98 16.55

DAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 914 5 957 16.1 15.60 14.18 18.64

S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . 1 258 1 115 12.8 10.84 13.46 15.17

BOVESPA . . . . . . . . . . . . . . . . . . . . . . . 69 305 68 588 1.0 19.07 18.12 24.54

The methods and assumptions used in estimating the fair values of financial assets and liabilities measured atamortised 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 itsfair value.

Loans and advances to customers

The fair value of loans and advances to customers is estimated based on the discount of the expected futurecash flows of capital and interest, assuming that the installments are paid on the dates that have been contractuallydefined. 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 unquotedsecurities 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 itsfair value.

Due to customers

The fair value of these financial instruments is estimated based on the discount of the expected future cashflows of capital and interest, assuming that the instalments are paid on the dates that have been contractuallydefined. The discount rates used by the Group are the current interest rates used in instruments with similarcharacteristics. Considering that the applicable interest rates to these instruments are floating interest rates and thatthe period to maturity is substantially less than one year, the difference between fair value and book value is notsignificant.

Debt securities issued and Subordinated debt

The fair value of these instruments is based on market prices, when available. When not available, the Groupestimates its fair value by discounting the expected future cash-flows.

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NOTE 51 — RISK MANAGEMENT

A qualitative outlook of the risk management at the Group is presented below:

• Credit risk;

• Market risk;

• Liquidity risk;

• Operational risk.

Credit risk

Credit risk represents the potential financial loss arising from the failure of a borrower or counterparty tohonour 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 inrelation to each reference entity, is also considered as credit risk to the Group. The credit default swaps areaccounted 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 teamsresponsible for the risk management during the consecutive stages of the credit process. This approach iscomplemented by the continuous introduction of improvements in the methodologies, in the risk assessmentand 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 thesubsidiary level. In these meetings the Committees monitor and analyses the risk profile of the Group entities underfour major perspectives: evolution of credit exposures, monitoring of credit losses, capital allocation andconsumption and control of risk adjusted return.

ESFG Group credit risk exposure is analysed as follows:

31.12.2010 31.12.2009


Deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 618 882 10 446 522

Financial assets held for trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 766 159 4 419 744

Financial assets at fair value through profit or loss . . . . . . . . . . . . . . . . . . . . . . . . 342 478 793 899

Available-for-sale financial assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 339 058 5 760 948

Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 346 807 50 508 217

Held-to-maturity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 453 465 2 535 309

Derivatives for risk management purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 304 455 115

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976 211 760 584

Guarantees granted and stand by letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . 8 694 869 7 325 867

Open documentary credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 243 642 3 021 154

Irrevocable commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 583 656 5 552 785

Credit risk linked to the reference entities of credit derivatives . . . . . . . . . . . . . . . 404 756 393 163

93 217 287 91 973 307

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The analysis of the risk exposure by sector of activity, as at 31 December 2010 and 2009, can be analysed asfollows:

Grossamount

Impairmentlosses

Financial assetsheld for trading

Other financialassets at fair

value throughprofit or loss

Grossamount

Impairmentlosses

Grossamount

Impairmentlosses

Financialguarantees

issued

Loans and advancesto customers

Available-for-salefinancial assets

Held to maturityinvestments

31.12.2010


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 andelectric 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

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Grossamount

Impairmentlosses

Financial assetsheld for trading

Other financialassets at fair

value throughprofit or loss

Grossamount

Impairmentlosses

Grossamount

Impairmentlosses

Financialguarantees

issued

Loans and advancesto customers

Available-for-salefinancial assets

Held to maturityinvestments

31.12.2009


Agriculture . . . . . . . . . . . . . . . . . . . . 582 861 (20 320) 3 182 — 16 638 (3 562) — — 30 277

Mining . . . . . . . . . . . . . . . . . . . . . . 515 579 (6 068) 7 311 — 6 006 — — — 24 469

Food, beverage and tobacco . . . . . . . . . . . 915 374 (21 095) 17 371 — 40 331 (64) 4 302 — 107 492

Textiles . . . . . . . . . . . . . . . . . . . . . . 381 953 (59 072) 3 994 — 21 450 (2 453) — — 24 473

Shoes . . . . . . . . . . . . . . . . . . . . . . . 100 154 (4 247) 738 — 500 (616) — — 3 312

Wood and cork . . . . . . . . . . . . . . . . . 178 899 (20 771) 1 586 — — — — — 5 354

Printing and publishing . . . . . . . . . . . . . 286 052 (6 469) 6 428 — 125 731 — — — 39 842

Refining and oil . . . . . . . . . . . . . . . . . 40 677 (267) 1 090 — 12 484 (9 637) — — 5 749

Chemicals and rubber . . . . . . . . . . . . . . 584 284 (19 597) 14 948 — 56 555 (10 366) 13 118 — 67 091

Non-metalic minerals . . . . . . . . . . . . . . 519 879 (17 103) 1 247 — 5 014 — — — 51 438

Metalic products . . . . . . . . . . . . . . . . . 673 108 (27 616) 5 451 — 10 345 — — — 94 975

Production of machinery, equipment andelectric devices . . . . . . . . . . . . . . . . 337 813 (33 996) 2 454 1 994 7 936 (875) 17 936 — 210 006

Production of transport material . . . . . . . . 140 082 (4 410) 1 627 — 2 373 (38) 24 180 — 80 658

Other transforming industries . . . . . . . . . . 524 781 (20 836) 973 — 35 804 (12 087) — — 18 241

Electricity, gas and water . . . . . . . . . . . . 1 449 538 (11 469) 30 861 3 714 412 262 (166) 17 443 — 500 849

Construction . . . . . . . . . . . . . . . . . . . 5 780 153 (183 939) 119 430 — 102 618 (2 253) — — 1 962 452

Wholesale and retail . . . . . . . . . . . . . . . 3 316 768 (171 830) 20 300 — 148 337 (13 474) 5 333 — 585 331

Tourism . . . . . . . . . . . . . . . . . . . . . 1 323 591 (27 893) 13 516 — 8 312 (463) — — 88 284

Transports and communications . . . . . . . . 2 359 472 (61 438) 200 742 420 1 300 354 (397) 143 083 — 640 682

Financial activities . . . . . . . . . . . . . . . . 2 122 974 (99 868) 1 391 670 1 145 988 2 848 269 (80 390) 1 290 213 (20 584) 258 923

Real estate activities . . . . . . . . . . . . . . . 5 201 380 (176 493) 36 698 — 309 760 (1 672) — — 589 303

Services provided to companies . . . . . . . . 4 569 294 (101 076) 52 482 — 1 054 887 (31 771) — — 1 168 919

Public services . . . . . . . . . . . . . . . . . . 960 993 (11 041) 2 402 121 9 2 116 282 (2 007) 583 608 — 97 342

Non-profit organisations . . . . . . . . . . . . . 4 035 966 (113 932) 150 413 111 358 458 810 (9 986) 448 725 (13 981) 522 702

Mortgage loans . . . . . . . . . . . . . . . . . 11 231 262 (212 533) — — 11 363 — — — 39

Consumer loans . . . . . . . . . . . . . . . . . 2 991 862 (160 372) — — — — — — 127 619

Other . . . . . . . . . . . . . . . . . . . . . . . 988 929 (11 710) 4 066 9 934 150 256 (951) 21 933 — 20 045

TOTAL . . . . . . . . . . . . . . . . . . . . . 52 113 678 (1 605 461) 4 490 699 1 273 417 9 262 677 (183 228) 2 569 874 (34 565) 7 325 867

F-130





As at 31 December 2010, the analysis of the loan portfolio by rating is as follows:

Rating/Scoring models Internal scale(1) Credit amount (%) Credit amount (%)31.12.2010 31.12.2009

(in million of euro) (in million of euro)

Large companies . . . . . . . . . . . . . . [aaa;a-] 549 1.00% 1 424 2.73%[bbb+;-bbb-] 3 019 5.47% 1 710 3.28%[bb+;bb-] 5 766 10.45% 5 705 10.95%[b+;b-] 9 077 16.45% 8 573 16.45%ccc+ 1 472 2.67% 859 1.65%

Medium enterprises . . . . . . . . . . . . 7-9 361 0.65% 233 0.45%10-11 491 0.89% 410 0.79%12-13 745 1.35% 751 1.44%14-15 710 1.29% 823 1.58%16-17 944 1.71% 938 1.80%18-19 527 0.96% 628 1.21%20-21 706 1.28% 730 1.40%22-23 378 0.69% 351 0.67%24-25 1 036 1.88% 765 1.47%

Small enterprises . . . . . . . . . . . . . . A 91 0.16% 180 0.35%B 446 0.81% 503 0.97%C 1 021 1.85% 930 1.78%D 578 1.05% 499 0.96%E 326 0.59% 318 0.61%F 475 0.86% 427 0.82%

Mortgage loans . . . . . . . . . . . . . . . 01 1 250 2.27% 1 161 2.23%02 3 126 5.67% 2 762 5.30%03 2 324 4.21% 2 110 4.05%04 1 253 2.27% 1 271 2.44%05 691 1.25% 807 1.55%06 553 1.00% 626 1.20%07 1 318 2.39% 1 452 2.79%08 132 0.24% 180 0.35%

Private individuals . . . . . . . . . . . . . 01 128 0.23% 95 0.18%02 90 0.16% 114 0.22%03 181 0.33% 184 0.35%04 341 0.62% 332 0.64%05 275 0.50% 310 0.59%06 211 0.38% 199 0.38%07 207 0.38% 158 0.30%08 135 0.24% 196 0.38%09 231 0.42% 310 0.59%10 5 0.01% 18 0.03%

No internal rating / scoring loans . . 14 003 25.37% 13 072 25.07%

TOTAL ESFG . . . . . . . . . . . . . . . 55 172 100.00% 52 114 100.00%

(1) Internal scale established by the Group. The lower the number / letter the better is the rating

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Market Risk

Market risk is the possible loss resulting from an adverse change in the value of a financial instrument due tofluctuations in interest rates, foreign exchange rates or share prices.

The market risk management is integrated with the balance sheet management through the Asset and LiabilityCommittee (ALCO) at the Group entities level. These committees are responsible for defining policies for thestructuring and composition of the balance sheet, and for the control of exposures to interest rate, foreign exchangeand liquidity risk.

The main measure of market risk is the assessment of potential losses under adverse market conditions, forwhich the Value at Risk (VaR) valuation criteria is used. Group’s VaR model uses the Monte Carlo simulation, basedon a confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, basedon an observation period of one year. As a complement to VaR, stress testing has been developed, allowing toevaluate the impact of potential losses higher than the ones considered by VaR.

DecemberAnnualaverage Maximum Minimum December

Annualaverage Maximum Minimum

31.12.2010 31.12.2009

(in million of euro)

Exchange risk . . . . . . . . 14 175 20 823 25 604 14 175 24 192 28 728 33 491 21 798

Interest rate risk. . . . . . . 16 246 10 023 11 117 16 246 12 689 19 963 15 148 21 182

Shares & Commodity . . 19 069 27 430 38 517 19 069 16 647 21 800 33 087 10 317

Diversification effect . . . ( 27 077) (22 443) ( 19 972) ( 27 077) ( 20 959) (25 475) ( 25 619) ( 21 964)

22 413 35 833 55 266 22 413 32 569 45 016 56 107 31 333

Group has a VaR of euro 22 413 million (31 December 2009: euro 32 569 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, ESFGGroup 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.

Elegibleamounts

Nonsensitive

Up to 3months

3 to 6months

6 to 12months

1 to 5years

More than 5years

Elegibleamounts

Nonsensitive

Up to 3months

3 to 6months

6 to 12months

1 to 5years

More than 5years

31.12.2010 31.12.2009

(in thousands of euro) (in thousands of euro)

Cash and deposits . . . . . . 308 868 308 868 — — — — — 220 002 220 002 — — — — —

Loans and advances tobanks . . . . . . . . . . . 4 431 868 — 4 076 590 8 910 152 138 187 791 6 439 10 227 505 — 9 782 798 119 183 131 784 193 740 —

Loans and advances tocustomers . . . . . . . . . 53 569 158 — 36 083 784 11 175 122 2 223 847 2 393 616 1 692 789 50 874 769 — 34 353 594 11 413 086 2 288 567 2 255 192 564 330

Securities . . . . . . . . . . 18 165 448 4 485 979 7 490 187 2 465 753 1 758 316 1 447 308 517 905 15 487 201 3 911 219 7 739 255 2 661 153 611 382 428 368 135 824

Off balance sheet . . . . . . 519 395 (90 383) 7 325 (295 043) 6 809 592 134 (36 325) (53 159) (420 500) (75 251)

Total . . . . . . . . . . . . 48 169 956 13 559 402 4 141 626 3 733 672 2 223 942 52 467 781 14 157 097 2 978 574 2 456 800 624 903

Deposits from banks . . . . 14 631 990 — 12 308 325 628 842 540 253 783 421 371 149 10 985 613 — 7 166 719 1 832 583 1 324 381 420 970 240 960

Due to customers . . . . . . 30 180 902 — 21 995 810 2 126 859 2 080 051 3 906 423 71 759 24 262 283 — 19 849 560 1 603 493 1 682 586 1 060 618 66 026

Repo’s with clients . . . . . 436 528 — 436 528 — — — — 783 354 — 782 959 — — — 395

Debt securities issued andsubordinated debt . . . . . 28 747 635 — 12 590 431 806 880 226 896 9 639 342 5 484 086 36 656 669 — 20 077 439 1 861 699 1 489 320 9 065 965 4 162 246

Preference shares . . . . . . 1 320 033 — — — — 920 033 400 000 1 000 000 — — — — 600 000 400 000

Off balance sheet . . . . . . 5 702 263 1 370 396 (184 240) (6 403 786) (411 259) 5 504 837 1 194 946 (1 506 486) (3 925 909) (695 201)

Total . . . . . . . . . . . . 53 033 357 4 932 977 2 662 960 8 845 433 5 915 735 53 381 514 6 492 721 2 989 801 7 221 644 4 174 426

GAP . . . . . . . . . . . . (4 863 401) 8 626 425 1 478 666 (5 111 761) (3 691 793) (913 733) 7 664 376 (11 227) (4 764 844) (3 549 523)

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The sensitivity of ESFG Group to interest rate risk, measured in accordance with Instruction no. 19/2005 of theBank of Portugal, which requires the calculation of the impact of a parallel shift of 200 basis points in the interestrate curve, can be analysed as follows:

31.12.2010 31.12.2009(in million of euro)

Accumulated impact in equity:

Increase of 200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761 720

Decrease of 200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (761) (720)

In addition, the model used to monitor the sensitivity of BES Group to interest rate risk is based on the durationmodel, and consider parallel and non parallel scenarios.

Parallelincrease

of 100 bp

Paralleldecrease of

100 bp

Increase of50 bp

after 1 year

Decrease of50 bp after 1

year

Parallelincrease of

100 bp

Paralleldecrease of

100 bp

Increase of50 bp after 1

year

Decrease of50 bp after 1

year

31.12.2010 31.12.2009


At 31 December . . . . . . . . . . . 298 (298) 169 (169) 304 (304) 165 (165)

Average for the year . . . . . . . . 320 (320) 178 (178) 175 (175) 103 (103)

Maximum for the year. . . . . . . 333 (333) 189 (189) 304 (304) 165 (165)

Minimum for the year . . . . . . . 298 (298) 169 (169) 31 (31) 25 (25)

The following table presents the average balances, interest and interest rates in relation to the Group’s majorassets and liabilities categories, for the years ended 31 December 2010 and 2009.

Average balanceof the year

Interest of theyear

Averageinterest rate

Average balanceof the year

Interest ofthe year

Averageinterest rate

31.12.2010 31.12.2009


Monetary assets . . . . . . . . . . . . 6 153 802 196 781 3.20% 8 944 821 102 838 1.15%

Loans and advances tocustomers . . . . . . . . . . . . . . . 53 760 843 2 111 994 3.93% 50 163 237 2 263 746 4.51%

Securities . . . . . . . . . . . . . . . . . 14 579 321 712 949 4.89% 11 606 445 661 381 5.70%

Other . . . . . . . . . . . . . . . . . . . . 343 086 — — 135 885 — —

Financial assets . . . . . . . . . . . . 74 837 052 3 021 724 4.04% 70 850 388 3 027 965 4.27%

Monetary liabilities . . . . . . . . . . 13 972 614 201 498 1.44% 12 632 334 283 143 2.24%

Due to costumers . . . . . . . . . . . 27 553 259 507 124 1.84% 24 918 958 465 711 1.87%

Other financial liabilities . . . . . . 33 071 305 1 124 061 3.40% 32 806 575 1 050 526 3.20%

Other . . . . . . . . . . . . . . . . . . . . — — — — — —

Financial liabilities . . . . . . . . . 74 597 178 1 832 683 2.46% 70 357 867 1 799 380 2.56%

Net interest income . . . . . . . . . 1 189 041 1.58% 1 228 585 1.71%

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Foreign Exchange risk

In relation to foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December2010 and 2009, is analysed as follows:

Spot ForwardOther

elementsNet

exposure Spot ForwardOther

elementsNet

exposure

31.12.2010 31.12.2009


USD United States Dollars . . . . (3 395 137) 3 984 409 (199 627) 389 645 (2 156 709) 2 488 467 (12 655) 319 103

GBP Great Britain Pounds . . . . . 247 338 (183 592) 14 300 78 046 (861 573) 882 900 (10 212) 11 115

BRL Brazilian real . . . . . . . . . . 1 143 453 (3 731) (2 375) 1 137 347 1 009 280 — 19 957 1 029 237

DKK Danish krone . . . . . . . . . . 52 071 (3 873) — 48 198 348 280 (247 350) — 100 930

JPY Japanese yene . . . . . . . . . (330 428) 375 300 (111 436) (66 564) (191 673) 241 279 (146 870) (97 264)

CHF Swiss franc . . . . . . . . . . . 149 475 (86 452) (1 968) 61 055 (123 798) 167 135 (6 832) 36 505

SEK Swedish krona . . . . . . . . . 15 232 (17 061) — (1 829) 85 773 (88 666) 15 909 13 016

NOK Norwegian krone . . . . . . . 1 910 (2 995) 7 689 6 604 (916) (1 385) 74 699 72 398

CAD Canadian Dollar . . . . . . . . 31 403 (20 886) 2 880 13 397 2 151 369 2 399 4 919

ZAR Rand . . . . . . . . . . . . . . . 2 897 (6 844) (38 589) (42 536) (2 342) — 10 (2 332)

AUD Australian Dollar . . . . . . . 165 596 (158 495) 10 848 17 949 180 233 (175 561) 40 816 45 488

AOA Kwanza . . . . . . . . . . . . . (414 047) — — (414 047) (37 771) — — (37 771)

CZK Czech koruna. . . . . . . . . . (20 712) 20 842 — 130 (14 719) 18 585 (1 878) 1 988

Other (10 681) 7 710 451 247 448 276 160 794 (128 664) 138 865 170 995

(2 361 630) 3 904 332 132 969 1 675 671 (1 602 990) 3 157 109 114 208 1 668 327

Note: asset / (liability)

Liquidity risk

Liquidity risk derives from the potential inability to fund assets while satisfying commitments on due dates andfrom 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 longterm funding needs.

The Group prepares regulatory specific reports that allow the identification of negative mismatch and permitstheir dynamic coverage.


Cash and deposits with banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 667 10 458

Short term deposits from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12 276) (8 832)

Treasury Gap I (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7 609) 1 626Eligible securities to be used as collateral as at 31 December . . . . . . . . . . . . 16 515 9 264

Eligible securities used as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . (7 419) (2 000)

Treasury Gap II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 487 8 890

(1) Treasury Gap — immediate liquidity and short term interbank loans less interbank debt up to one year. A positive Treasury Gap indicatesavailable liquidity levels in excess of Group needs.

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The table below includes the amounts of assets, liabilities and off-balance sheet items with defined ordeterminate 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 onhistorical 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.

Eligibleamounts

Up to7 days

From7 days to1 month

From 1to

3 months

From 3to

6 months

From6 monthsto 1 year

Morethan

1 yearEligibleamounts

Up to7 days

From7 days to1 month

From 1 to3 months

From 3 to6 months

From6 monthsto 1 year

Morethan

1 year

31.12.200931.12.2010

(in million of euro) (in million of euro)

ASSETS

Cash and deposits with banks . . . . . . . . 490 490 — — — — — 433 433 — — — — —

Loans and advances to banks and centralbanks . . . . . . . . . . . . . . . . . . . . . 4 247 3 553 244 36 13 170 231 10 033 8 451 1 052 99 115 111 205

Loans and advances to customers . . . . . 53 188 761 2 343 2 044 2 013 2 967 43 060 51 066 649 1 224 2 156 1 895 3 123 42 019

Securities* . . . . . . . . . . . . . . . . . . . 20 192 372 1 447 995 1 398 1 455 14 525 15 272 328 760 593 896 1 227 11 468

Other assets, net . . . . . . . . . . . . . . . . 3 184 3 158 — 11 — — 15 2 109 2 059 — 15 3 — 32

Off-balance sheet items (Commitmentsand Derivatives) . . . . . . . . . . . . . . 4 577 69 232 534 558 883 2 301 3 340 69 183 339 256 816 1 677

Total . . . . . . . . . . . . . . . . . . . . . . 8 403 4 266 3 620 3 982 5 475 60 132 11 989 3 220 3 203 3 164 5 277 55 401

LIABILITIES

Deposits from banks, central banks andother loans. . . . . . . . . . . . . . . . . . 14 888 6 193 1 487 3 906 479 686 2 137 12 098 3 743 2 807 827 565 2 472 1 684

Due to customers . . . . . . . . . . . . . . . 30 303 35 2 076 320 429 997 26 446 23 790 262 375 1 254 176 (549) 22 273

Debt securities issued. . . . . . . . . . . . . 27 556 339 1 905 4 353 1 430 743 18 786 36 786 1 656 1 995 5 989 3 981 1 822 21 342

Other short-term liabilites . . . . . . . . . . 2 399 2 356 — 20 14 — 9 1 200 1 136 — 26 14 — 24

Off-balance sheet items (Commitmentsand Derivatives) . . . . . . . . . . . . . . 26 926 219 259 714 690 1 161 23 883 25 515 202 235 440 397 796 23 446

Total . . . . . . . . . . . . . . . . . . . . . . 9 142 5 727 9 313 3 042 3 587 71 261 6 999 5 413 8 535 5 133 4 541 68 769

GAP (Assets — Liabilities) . . . . . . . . (739) (1 461) (5 693) 940 1 888 (11 129) 4 990 (2 193) (5 332) (1 969) 736 (13 368)

Accumulated GAP . . . . . . . . . . . . . . (739) (2 200) (7 893) (6 953) (5 065) (16 194) 4 990 2 797 (2 535) (4 504) (3 768) (17 136)

Buffer H 12 months. . . . . . . . . . . . . 5 502 3 890

* This caption includes securities held by the Group which can be rediscounted with the ECB for liquidity purposes

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 andregulates 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, exclusivelydedicated 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 ofenough capital to support the increase of assets, (ii) fulfilment of the minimum requirements defined by thesupervisory authorities in terms of capital adequacy and (iii) to ensure the fulfilment of the Groups strategic goals inrespect to capital adequacy matters.

The definition of the strategy to monitor and manage capital adequacy is made by the Executive Committeeand is integrated in the strategic goals of the Group.

The capital metrics are incorporated in the main management control instruments, and its monitoring is madein a permanent way, which allows a quick response in order to fulfil the defined goals.

F-135





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 aminimum 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 November2008 the formal application for the usage of internal models for credit risks (Foundation Internal Rating BasedApproach — IRBF) and the Standardized Approach (TSA) for operational risk. The certification process by theBank of Portugal for the use of these methodologies is at the final phase.

Currently for the purpose of the reporting to the Bank of Portugal, the Group presents the solvency ratios inaccordance 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 andDeductions, as follows:

• Basic Own Funds (BOF): This category includes the realized capital, the eligible reserves (excluding the fairvalue reserves), the retained earnings of the year, non-controlling interest and preference shares. Theunrealised losses recognised under the fair value reserve and associated with equity securities, book value ofgoodwill, intangible assets and negative actuarial deviations from employees’ benefits up to 31 December2007 are deducted in full. From 2007, 50% of the book value of investments in banking and insuranceassociates over 10% also has to be deducted.

• Complementary Own Funds (COF): Essentially incorporates the subordinated eligible debt and 45% of thepositive fair value reserve associated with equity securities. The book value of investments in banking andinsurance 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 prudentialrules determine that the COF cannot exceed the BOF. Also, some components of the COF (Lower Tier II) cannotexceed 50% of the BOF.

In April 2007, Bank of Portugal issued Regulation 4/2007, which changed the rules to determine capitalrequirements. This notice changed the treatment of the investments in banking and insurance entities that began tobe deducted in 50% to the BOF and 50% to the COF. Previously, these investments were included in the deductionsmade to the total capital requirements.

In December 2008, the Bank of Portugal issued the Notice 11/2008, establishing a transitory period of fouryears, 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.

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As at 2010 and 2009, the main movements occurred in Basic Own Funds (Tier I) are as follows:


Balance as at 1 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 198 4 010Capital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —

Increase in non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 1 247

Retained profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 130

Changes on actuarial losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (196) (3)

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (81) (89)

Recognition of the impact of adopting IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12) (12)Variation of preference shares recognised as Tier I . . . . . . . . . . . . . . . . . . . . . . . . — 176

Issurance of perpetual subordinated bonds with conditional interest . . . . . . . . . . . . 319 —

Unrecognised losses on financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) 136

Investments in banking and insurance entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 (377)

Other effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (20)

Balance as at 31 December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 836 5 198

The capital adequacy of ESFG Group as at 31 December 2010 and 31 December 2009 is presented as follows:

31.12.2010 31.12.2009


A — Capital RequirementsShare Capital, Issue Premium and Treasury Stock . . . . . . 1 032 1 032Net Income, Legal and Statutory Reserves, and Retained

Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 (79)Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . 4 709 4 247Intangible assets, actuarial losses, goodwill and other . . . . (872) (529)

A1 —Basic own funds excluding preference shares (CoreTier I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A1) 4 887 4 671

Preference Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 314 996Deductions of investments in Financial Institutions,insurance companies and others . . . . . . . . . . . . . . . . . . . . (365) (469)

A2 — Basic own funds (Tier I) . . . . . . . . . . . . . . . . . . . . . . . . . . (A2) 5 836 5 198Positive Fair Value Reserves and Others (45%) . . . . . . . . 174 195Eligible Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . 2 334 2 505Deductions of investments in Financial Institutions,insurance companies and others . . . . . . . . . . . . . . . . . . . . (365) (469)

Complementary own funds (Tier II) . . . . . . . . . . . . . . . . . 2 143 2 231Deductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (422) (136)Elegible own funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A3) 7 557 7 293

B Risk Asset Equivalents (Basel II — Standard)Calculated according Notice 05/2007 (Credit Portfolio) . . 62 821 60 206Calculated according Notice 8/2007 (Trading Portfolio) . . 4 199 3 904Calculated according Notice 9/2007 (Operational Risk) . . 4 121 3 788

Total Risk Asset Equivalent . . . . . . . . . . . . . . . . . . . . . . . 71 141 67 898C Prudential Ratios Basel II

Ratio Core Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A1 / B2) 6.9% 6.9%Ratio Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A2 / B2) 8.2% 7.7%Solvency Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (A3 / B2) 10.6% 10.7%

Insurance risk

Insurance risk — inherent risk related to the selling of insurance contracts, underwriting policy, pricing,reserving, claims management and reinsurance arrangements.

F-137





Pricing is based on actuarial methodologies, revised on a regular basis in order to ensure a rigorous policyunderwriting and risk acceptance.

Risks underwritten that require selective acceptance are analysed centrally. Evidence of the underwritingconditions and identification of the decision maker are required.

The technical reserves, specifically the claims reserves, are analysed on a monthly basis. The adequacy of theinsurance liabilities is reviewed on a regular basis. Regarding the evaluation of reserves, new models are beingdeveloped internally by the Group’s Insurance companies based on stochastic methodologies.

The table below reflects the claims reserves development, excluding pensioners arising out from workerscompensation claims:

The development of the claims outstanding reserve, net of reinsurance

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Initial estimate of claims liabilities . . . 299 101 302 579 305 512 328 733 363 800 375 014 394 397 397 996 395 038 380 242Cumulative payments

One year later . . . . . . . . . . . . . . . 105 824 108 328 106 724 91 174 105 504 100 096 98 779 95 712 98 241Two years later . . . . . . . . . . . . . . 157 869 162 811 149 681 141 526 157 627 145 308 135 925 129 339Three year later . . . . . . . . . . . . . . 197 820 194 772 185 956 176 790 191 998 171 505 160 955Four years later . . . . . . . . . . . . . . 222 164 223 751 213 367 213 580 213 580 192 108Five year later . . . . . . . . . . . . . . . 246 876 245 653 235 135 220 093 230 853Six years later . . . . . . . . . . . . . . . 264 938 250 333 250 333 233 869Seven years later . . . . . . . . . . . . . 280 214 275 464 262 243Eight years later . . . . . . . . . . . . . 289 301 284 198Nine years later . . . . . . . . . . . . . . 296 163

Re-estimated claims liabilitiesOne year later . . . . . . . . . . . . . . . 303 180 313 397 327 363 338 836 354 407 366 449 352 929 371 200 352 088Two years later . . . . . . . . . . . . . . 306 243 325 422 334 297 334 918 356 147 345 157 349 376 331 492Three year later . . . . . . . . . . . . . . 314 450 331 367 332 408 333 196 352 713 338 431 316 055Four years later . . . . . . . . . . . . . . 317 872 331 221 331 075 338 491 352 070 311 532Five year later . . . . . . . . . . . . . . . 318 261 329 943 342 831 336 647 331 796Six years later . . . . . . . . . . . . . . . 318 259 347 022 340 872 323 690Seven years later . . . . . . . . . . . . . 338 585 345 961 335 816Eight years later . . . . . . . . . . . . . 338 097 344 154Nine years later . . . . . . . . . . . . . . 336 497

Cumulative surplus/(deficit) . . . . . . . . (37 396) (41 575) (30 304) 5 043 32 004 63 482 78 342 66 504 42 950

Longevity risk covers the uncertainty in the ultimate loss due to policyholders living longer than expected andcan arise for example, in annuity portfolios within the life Insurance and workmen’s compensation portfolios withinnon-life insurance.

Longevity risk is managed through pricing, underwriting policy and by regularly reviewing the mortality tablesused for pricing and establishing reserves. Where longevity is found to be improving faster than assumed in themortality 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 assurancethat ultimate losses will not exceed existing claims reserves, and this risk is covered by the additional solvencycapital.

F-138





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 December 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 4%From January 1998 until June 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 3.25%From 1 July 1999 until February 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 3% and 2.5%From 1 March 2003 until December 2003. . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 2.75%After 1 January 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 Established on

years basis *Life insuranceAnnuitiesUntil June 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TV 73/77 4%From 1 July 2002 until December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . TV 73/77 3%From 1 January 2004 until September 2006 . . . . . . . . . . . . . . . . . . . . . . . . GKF 95 3%After 1 October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKF - 3 years 3%

Death insuranceUntil December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 4%After 1 January 2005 until December 2007 . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 0% to 2%After 1 January 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 95 0%

Mixed insuranceUntil September 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 4%After 1 October 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GKM 80 3%

* in 2010, the technical rate was 2% / 2.5%

For liability adequacy test purposes of the life business the mortality assumptions are based on best estimatesderived from portfolio experience investigations. Future cash flows are evaluated and discounted at governmentbonds rate.

The main mortality assumptions are as follows:

Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GRM 95Savings and other contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% GKM 80

For liability adequacy test purposes, the calculation of the present value of Workmen’s Compensationmathematical reserves was performed with the mortality table TV 73/77 (2009: TV 73/77) and risk free rate.

F-139





The maximum risk exposure per event after reinsurance and after deductibles per segment and product line issummarised below:

Line of business Type of reinsurance Net retentionMaximum treaty

liability


Personal Accident (Credit protection) . . . . . . . Quota Share — 100%Personal Accident . . . . . . . . . . . . . . . . . . . . . Excess Of Loss 300 14 700Workmen Compensation . . . . . . . . . . . . . . . . Excess Of Loss 500 39 500Motor — Third Party Legal Liability . . . . . . . Excess Of Loss 1 000 49 000Motor — Own Damage . . . . . . . . . . . . . . . . . Excess Of Loss 1 000 8 500Bonds — Bonds . . . . . . . . . . . . . . . . . . . . . . Quota Share 20% 400Bonds — Fidelity . . . . . . . . . . . . . . . . . . . . . Quota Share 20% 200Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . Proportional 1 250 13 750Fire/M. Risk/LOP (Simple Risks) . . . . . . . . . . Proportional 1 000 20 000Fire/M. Risk/LOP (Condominium) . . . . . . . . . Proportional 1 000 25 000Fire/M. Risk/LOP (Comm&Indust Risks) . . . . Proportional 1 000 30 000Fire/M. Risk/LOP — CAT Cover . . . . . . . . . . Excess Of Loss 10 000 140 000Fire/M. Risk/LOP — XOL Cover. . . . . . . . . . Excess Of Loss 2 000 8 000Property Stop Loss . . . . . . . . . . . . . . . . . . . . Excess Of Loss 100% of ENPI 3 000General Third Party Liability . . . . . . . . . . . . . Excess Of Loss 150 4 850Marine Hull. . . . . . . . . . . . . . . . . . . . . . . . . . Proportional 250 5 000Marine Hull — Fleets . . . . . . . . . . . . . . . . . . Proportional 325 6 500Marine Cargo . . . . . . . . . . . . . . . . . . . . . . . . Proportional 200 4 600Marine Cargo & Hull — XOL Cover . . . . . . . Excess Of Loss 400 3 500Health — Serious illness . . . . . . . . . . . . . . . . Quota Share 20% 80%Assistence . . . . . . . . . . . . . . . . . . . . . . . . . . . Quota Share — 100%Life — mortgage . . . . . . . . . . . . . . . . . . . . . . Proportional 100 1 000Life — mortgage . . . . . . . . . . . . . . . . . . . . . . Quota Share 20% 1 000Life — group . . . . . . . . . . . . . . . . . . . . . . . . Proportional 100 1 000Life — individual credit . . . . . . . . . . . . . . . . Proportional 100 1 000

10 000 per disasterLife — natural disasters . . . . . . . . . . . . . . . . . Excess Of Loss 1 000 15 000 per event

NOTE 52 — BUSINESS COMBINATIONS OCCURRED IN THE PERIOD AND TRANSACTIONSWITH NON-CONTROLLING INTERESTS

Business combinations occurred in the period

Aman Bank

In April 2010, BES acquired 40% of the share capital of Aman Bank for Commerce and Investment StockCompany (Aman Bank), a privately owned Bank in Libya with registered office in Tripoli, representing a totalinvestment of euro 40.3 million. This entity is fully consolidated as BES Group took management control of AmanBank, nominating the majority of the members of the Board of Directors, the Chief Executive Officer and mainsenior management.

Founded in July 2003 and headquartered in Tripoli, Aman Bank is one of the most prestigious banks within theLibyan financial system. This acquisition is aimed at fostering access to markets in Northern Africa and in Libya inparticular.

The total investment of euro 40.3 million corresponds to an initial investment of euro 24.3 million in cash forthe acquisition of 40% of Aman Bank share capital (see Note 1) and to an additional amount of euro 16.0 millionrelated with the subscription of new shares in Aman Bank share capital increase proportional to the acquired stake(40%).

F-140





This transaction was accounted for in accordance with IFRS 3. However, and in accordance with paragraph 45of IFRS 3, this acquisition was registered on a provisional basis, due to the lack of a final valuation of the head-quarter building of the bank included in Property and equipment. The Group has until 30 April 2011 to conclude thisprocess.

The balance sheet of Aman Bank as at 30 April 2010 is as follows:


Balance sheetAssets

Cash and deposits at banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 076Available-for-sale financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 224Loans and advances to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 298Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 339Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 239Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 692

456 732

LiabilitiesDue to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368 848Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 044

394 892

EquityShare capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 967Other reserves and retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 873

61 840

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456 732

The income and profit of Aman Bank since the date of acquisition to 31 December 2010, included in theconsolidated 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 beenconsolidated since 1 January 2010, the Group estimates that total income would have increased by euro 5 014thousand. Profit for the year attributable to the equity holders of the Company would have increased by euro 249thousand.

The goodwill recognised as a result of this acquisition amounts to euro 15 533 thousand (see Note 30), asfollows:

%(in thousands

of euro)

Consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 269

Net equity at acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 840

Net equity acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% 24 736

Goodwill determined on a provisional basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 533

The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to themarkets in which Aman Bank is active.

The Group incurred acquisition-related cost of euro 1.6 million. These costs relate mainly to external legal feesand due diligence costs and were recognised against the income statement.

F-141





Execution Noble

In November 2010 the Group acquired 50.1% of the share capital of Execution Noble a stock-brockeragegroup 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 of50.1% of Execution Holding Limited.

This transaction was accounted for in accordance with IFRS 3. However, and in accordance with paragraph 45of IFRS 3, this acquisition was registered on a provisional basis, due to fact that the transaction took place recentlyand that the Group is in the process of quantifying the fair value of the assets and liabilities acquired. The Group hasuntil 30 November 2011 to conclude this process.

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 2011 included in the profit for the yearattributable to the equity holders of the Company, amount to euro 2 thousand. Should Execution Noble have beenconsolidated since 1 January 2010, the Group estimates that total income would have increased by euro 27 693thousand. Profit for the year attributable to the equity holders of the Company would have decreased by euro 1 349thousand.


%(in thousands of

euro)

Consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 165

Net equity at acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 188

Net equity acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.1% 12 119

Goodwill determined on a provisional basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 046

The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to themarkets in which Execution Nobel is active.

F-142





The Group incurred acquisition-related cost of euro 1 584 million. These costs relate mainly to external legalfees and due diligence costs, and were recognised against the income statement.

GesPastor

In December 2010 the Group acquired 100% of the share capital of GesPastor S.G.I.I.C, S.A.U., an assetmanagement company incorporated in April 1974 with headquarter in Madrid, Spain. The total investment of euro25.3 million was paid in cash.

This transaction was accounted for in accordance with IFRS 3. However, and in accordance with paragraph 45of IFRS 3, this acquisition was registered on a provisional basis, due to fact that the transaction took place recentlyand that the Group is in the process of quantifying the fair value of the assets and liabilities acquired. The Group hasuntil 31 December 2011 to conclude this process. The balance sheet of GesPastor S.G.I.I.C, S.A.U. as at31 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 theconsolidated income statement and in the profit for the year attributable to the equity holders of the Company,amount to euro 243 thousand and euro 4 thousand, respectively. Should have Gespastor been consolidated since1 January 2010, the Group estimates that total income would have increased by euro 10 027 thousand. Profit for theyear attributable to the equity holders of the Company would have increased by euro 74 thousand.


%(in thousands of

euro)

Consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 354

Net equity at acquisition date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 354

Net equity acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 6 354

Goodwill determined on a provisional basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 000

F-143





The goodwill is attributable mainly to the existing client basis and to the fostering access by the Group to themarkets in which Gespastor is active.

The Group incurred acquisition-related cost of euro 309 million. These costs relate mainly to external legalfees and due diligence costs, and were recognised against the income statement.

Pastor Vida

In December 2010, Companhia de Seguros Tranquilidade acquired 50% of the share capital of Pastor VidaS.A. de Seguros y Reaseguros (“Pastor Vida”), a life insurance company, with the purpose of fostering access tomarkets 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 toan additional amount of euro 63.6 million related to deferred and contingent considerations, in the amount of euro42.7 million and euro 20.9 million, respectively.

The acquisition of Pastor Vida was accounted for in accordance with IFRS 3. However, and in accordance withparagraph 45 of IFRS 3, this acquisition was registered on a provisional basis, due to fact that the transaction tookplace recently and that the Group is in the process of quantifying the fair value of the assets and liabilities acquired.The Group has until 31 December 2011 to conclude this process.

As at 31 December 2010, the balance sheet of Pastor Vida to be included in the ESFG Group consolidatedfinancial statements can be analysed as follows:

(in thousands ofeuro)

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

Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 531

The revenue and profit of Pastor Vida was not included in the consolidated revenue and consolidated profit, asthe acquisition date refers to 31 December 2010. Should have Pastor Vida been consolidated since 1 January 2010,the Group estimates that total income would have increased by euro 32 787 thousand. Profit for the year attributableto the equity holders of the Company would have increased by euro 3 113 thousand.

F-144





The goodwill recognised as a result of this acquisition amounts to euro 23 110 thousand, as follows:

%(in thousands of

euro)

Consideration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 000Deferred consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 700Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 946

Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 646

Fair value of recognised identifiable assets acquired and liabilities assumed . . . . . . . . . . 113 071Net equity acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50% 56 536

Goodwill determined on a provisional basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 ofeuro 66 520 euro related to the present value of the business in force acquired related to life insurance contracts. Thisasset will be amortised over the remaining lifetime of the contracts.

The deferred consideration corresponds to the net present value of an undiscounted amount of euro 50 829thousand payable on 31 December of 2014.

The contingent consideration arrangement requires the Group to pay the former owners up to a maximumundiscounted amount of euro 38 million depending on the accomplishment of the business plan. The fair value ofthe contingent consideration arrangement of euro 20.9 million was estimated based on a probability scenario of91% to the accomplishment of the business plan. The contingent consideration will be paid on 2014 and 2019.

Transactions with non-controlling interest

During the year ended 31 December 2010 (i) following the acquisition by ESFG of an additional 0.82% of theshare capital of BES for euro 33 259 thousand in cash and (ii) the dilution resulting from the sale by BES of theSIBA shares for euro 2 952 thousand, ESFG increased its economic interest in BES to 30.13%. These transactionswere accounted for in accordance with the accounting policy described in Note 2.2 as a transaction with equityholders 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 foreignexchange 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

46 600

Increase in equity resulting from the acquisition of 0.82% of BES shares . . . . . . . . . . . . . (13 341)Decrease in equity resulting from the dilution associated with the sale of SIBA shares . . . 1 032

Movement in equity (increase) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12 309)

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NOTE 53 — RECENTLY ISSUED PRONOUNCEMENTS

Note 53.1 — Recently issued pronouncements already adopted by the Group

In the preparation of the consolidated financial statements for the year ended 31 December 2010, the Groupadopted the following standards and interpretations that are effective since 1 January 2010:

IFRS 1 (amendment) — First time adoption of IFRS and IAS 27 — Consolidated and Separate FinancialStatements

The amendments of IFRS 1 First time adoption of IFRS and IAS 27, Consolidated and Separate FinancialStatements are effective for periods beginning on or after 1 July 2009.

These amendments allow first-time adopters to use a deemed cost of either fair value or the carrying amountunder previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlledentities and associates in the separate financial statements.

The Group does not expect any impact on its financial statements from the adoption of these amendments.

IFRS 3 (revised) — Business Combination and IAS 27 (amendment) — Consolidated and SeparateFinancial Statements

The International Accounting Standards Board (IASB) issued in January 2008, IFRS 3 (revised) BusinessCombination and an amendment to IAS 27 Consolidated and Separate Financial Statements.

The main changes the revised IFRS 3 and amended IAS 27 will make to existing requirements or practicerelate to (i) partial acquisitions, whereby non-controlling interests (previously named minority interest) can bemeasured either at fair value (implying full goodwill recognition against non-controlling interests) or at theirproportionate interest in the fair value of the net identifiable assets acquired (which is the original IFRS 3requirement); (ii) step acquisitions whereby, upon acquisition of a subsidiary and in determining the resultinggoodwill, any investment in the business held before the acquisition is measured at fair value against the incomestatement; (iii) acquisition-related costs, which must generally, be recognised as expenses (rather than included ingoodwill); (iv) contingent consideration which must be recognised and measured at fair value at the acquisitiondate, subsequent changes in fair value being recognised in the income statement (rather than by adjusting goodwill);and (v) changes in a parent’s ownership interest in a subsidiary that do not result in the loss of control which arerequired to be accounted for as equity transactions.

Additionally, IAS 27 was amended to require that an entity attributes a share of the accumulated loss of asubsidiary to the non-controlling interests, even if this results in the non-controlling interests having a deficitbalance, and to specify that, upon losing control of a subsidiary, an entity measures any non-controlling interestsretained in the former subsidiary at its fair value, determined at the date the control is lost.

The adoption of these amendments is mandatory since 1 January 2010. The business combinations and thetransactions with non-controlling interests that took place in 2010 were accounted for already following therequirements of IFRS 3 (2008) and IAS 27 (2008).

IFRS 5 (amended) — Non-current Assets Held for Sale and Discontinued Operations

This amendment clarifies the disclosure requirements of the standard regarding non-current assets (or groups)held for sale or discontinued operations.

The adoption of this amendment had no significant impact in the Group financial statements.

IAS 39 (Amendment) — Financial Instruments: recognition and measurement — Eligible hedged items

The International Accounting Standards Board (IASB) issued an amendment to IAS 39 Financial Instruments:recognition and measurement — Eligible hedged items, which is mandatory for periods beginning on or after 1 July2009.

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This amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows iseligible for designation should be applied in particular situations.

The adoption of this amendment by the Group had no impact on its financial statements.

IFRIC 12 — Service concession arrangements

The International Financial Reporting Interpretations Committee (IFRIC) issued in July 2007 the IFRIC 12 —Service concession arrangements, effective 1 January 2008. Earlier application is permitted. The endorsement ofthis interpretation by the European Union occurred only in 2009 and therefore it is only applicable to the Groupfrom 1 January 2010.

IFRIC 12 applies to service concession arrangements in which the public sector (i) controls or regulates theservices provided by the operator and (ii) controls any significant residual interest in the infrastructure.

The adoption of this interpretation by the Group had no significant impact on its financial statements.

IFRIC 17 — Distributions of non-cash assets to owners

The IFRIC 17 Distributions of non-cash assets to owners is effective on for periods beginning on or after 1 July2009.

This interpretation clarifies the accounting treatment of distributions of non-cash assets to owners. Thisinterpretation clarifies that an entity should measure the distribution of non-cash assets at the fair value of the assetsto be distributed and that the difference between the fair value of the net assets distributed and the respectivecarrying amount is recognised in the income statement.

The adoption of this interpretation by the Group had no impact on its financial statements.

IFRIC 18 — Transfers of assets from customers

The IFRIC 18 Transfers of assets from customers is effective for periods beginning on or after 1 July 2009.

This interpretation clarifies the requirements for agreements in which an entity receives from a customer anitem of property, plant and equipment that the entity must then use either to connect the customer to a network or toprovide the customer with ongoing access to a supply of goods or services.

The interpretation clarifies:

• the circumstances in which the definition of an asset is met;

• the recognition of the asset and the measurement of its cost on initial recognition;

• the identification of the separately identifiable services (one or more services in exchange for thetransferred asset);

• the recognition of revenue; and

• the accounting for transfers of cash from customers.

The adoption of this interpretation by the Group had no impact on its financial statements.

Annual Improvement Project

In May 2008, IASB published the Annual Improvement Project making certain amendments to existingstandards, missing to be adopted by the Group the following amendment. The amendments with effects to the Groupin 2010 are as follows:

-Amendment to IFRS 5 Non-current assets held for sale and discontinued operations, effective for periodsbeginning on or after 1 July 2009. This amendment clarifies that all of a subsidiary’s assets and liabilities areclassified as held for sale if a partial disposal sale plan results in loss of control.

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The adoption of this amendment by the Group had no impact on its financial statements.

Note 53.2 — 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 Grouphas 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 — FinancialInstruments part 1: Classification and measurement which contains requirements for financial assets. Requirementsfor financial liabilities were added to IFRS 9 in October 2010. IFRS 9 is mandatory from 1 January 2013, being anearlier 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 andmeasurement of financial assets and financial liabilities, being the main aspects:

• Financial assets are required to be classified into two measurement categories: those to be measuredsubsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to bemade at initial recognition. The classification depends on the entity’s business model for managing itsfinancial 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 theobjective of the entity’s business model is to hold the asset to collect the contractual cash flows, and theasset’s contractual cash flows represent only payments of principal and interest (that is, it has only ‘basicloan 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 orloss. However, the entity can irrevocably elect equity instruments to recognize unrealised and realised fairvalue gains and losses through other comprehensive income rather than profit or loss. There is to be norecycling of fair value gains and losses to profit or loss. This election may be made on aninstrument-by-instrument basis. Dividends are to be presented in profit or loss;

• Own credit amount for financial liabilities an entity chooses to measure at fair value must be recognised inother comprehensive income.

The Group is evaluating the impact of adopting this interpretation on its financial statements.

IFRS 7 — Financial Instruments: Disclosures — Transfers of Financial Assets

On October 2010 the International Accounting Standards Board (IASB) published Disclosures — Transfers ofFinancial Assets (Amendments to IFRS 7). The amendment is applicable for annual periods beginning on or after1 July 2011. Earlier application is permitted. This amendment has not yet been adopted by the European Union.

The amendments required to disclosures about transactions that involve transfer of financial assets, namelysecuritizations of financial assets, intend to help users of financial statements to evaluate the risks and the impactsassociated to those transactions in the financial statements.

The Group is currently evaluating the impact of the adoption of this amendment.

IAS 24 (revised) — Related party disclosures

On November 2009 the International Accounting Standards Board (IASB) published Related PartyDisclosures (IAS 24 revised). The amendment is applicable for annual periods beginning on or after 1 January2011. Earlier application is permitted. This amendment has not yet been adopted by the European Union.

The revised standard clarifies and simplifies the definition of related party and the requirement for State relatedentities to disclose in detail all transactions with the State and other similar entities.


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IAS 32 (amendment) — Classification of Rights Issues

On 8 October 2009 the International Accounting Standards Board (IASB or the Board) publishedClassification of Rights Issues (Amendment to IAS 32). The amendment is applicable for annual periods beginningon or after 1 February 2010. Earlier application is permitted.

This amendment addresses the accounting for rights issues (rights, options or warrants) that are denominatedin a currency other than the functional currency of the issuer and requires that rights, options or warrants to acquire afixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments if theentity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments.

The Group does not expect any impact in its consolidated financial statements from the adoption of thisamendment.

IFRIC 14 (Amended) — Prepayments of a minimum funding requirement

This amendment intends to remove an unintended consequence of IFRIC 14 — “IAS 19 —The Limit on aDefined Benefit Asset, Minimum Funding Requirements and their Interaction”. The amendments apply in limitedcircumstances: when an entity is subject to minimum funding requirements and makes an early payment ofcontributions to cover those requirements. The amendments permit such an entity to treat the benefit of such anearly payment as an asset.

The amendment is applicable for annual periods beginning on or after 1 January 2011. Earlier application ispermitted. An entity shall apply the amendments from the beginning of the earliest comparative period presented inthe first financial statements in which the entity applies this Interpretation.


IFRIC 19 — Extinguishing Financial Liabilities with Equity Instruments

On 26 November 2009 the International Accounting Standards Board (IASB) published IFRIC Interpretation19 Extinguishing Financial Liabilities with Equity Instruments. The interpretation is applicable for annual periodsbeginning on or after 1 July 2010. Early application is permitted.

The IFRIC noted that there was diversity in practice in how entities measured an equity instruments issued in adebt for equity swap. A ‘debt for equity swap’ transaction normally refers to a transaction in which a debtor and acreditor renegotiate the terms of a financial liability, such that the debtor extinguishes the liability fully or partiallyby issuing equity instruments to the creditor.

The interpretation clarifies (i) when an entity’s equity instruments issued to extinguish all or part of a financialliability corresponds to ‘consideration paid’ in accordance with IAS 39 paragraph 41, (ii) how should an entityinitially measure the equity instruments issued to extinguish the financial liability and (iii) how should an entityaccount for any difference between the carrying amount of the financial liability extinguished and the initialmeasurement amount of the equity instruments issued.

The Group is currently evaluating the impact of the adoption of this interpretation.

NOTE 54 — SUBSEQUENT EVENTS

At the end of October, Banco Espirito Santo has obtained a formal approval from the Venezuelan authorities toopen a branch in the country where it has been 17 years through a Representative Office. This initiative is part of thestrategy and business model that BES Group has pursued in the international dimension, by expanding its activitiesfor markets with cultural and economic affinities with Portugal. In this context, the Venezuelan market having asignificant Portuguese community, assumes a particular relevance. With the establishment of the Branch and thedevelopment of banking in the form of universal banking, the Group intends to focus its activity on the naturalmarket of the Portuguese community resident in this country and in big companies and institutions. In mid January

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2011 the administrative process was completed and the Branch will start operating, predictably, during the thirdquarter of 2011.

In 26 October 2010, Banco Espírito Santo announced an agreement to acquire, through BES Africa SGPS, SA,a stake of 25.1% in Moza Banco SA, for the amount of euro 7.1 million, with the simultaneous share capitalincrease, that BES will subscribe at the equivalent percentage of the share capital acquired (25.1%), representing atotal investment of euro 8.1 million. The operation took place on 20 January 2011, and from that date Moza Bancobecame an associate of BES Group.

During February 2011 there was a climate of political and social instability throughout North Africa and Libya,where is located Aman Bank, entity on which the Group holds a 40% stake. The value of the investment amounts toeuro 40.3 million as disclosed in Note 52. BES Group is closely monitoring the evolution of the situation in Libya.

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ESPÍRITO SANTO FINANCIAL GROUP S.A. - Emitentesweb3.cmvm.pt/sdi2004/emitentes/docs/PC33304.pdf · Espírito Santo Financial Group S.A. is a public company, with its shares listed

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