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Sede: 21/25 Allée Scheffer, L2520 Luxembourg Capital Social: EUR 105.034.522

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



Luxembourg/Portugal – 16 March 2012 - Espírito Santo Financial Group S.A. (‘ESFG’ or the ‘Company’) (NYSE Euronext Lisbon: ESF; Bloomberg: ESF PL; Reuters: ESF LS) today announces its unaudited consolidated results for the full year 2011. The report is compiled under IFRS as implemented by the EU.


ESFG posted resilient results for the full year 2011; this reflects the Company’s prudent decision to reduce the Group’s indebtedness by tender, and converting debt to equity, which enabled ESFG to report capital gains, as well as a positive performance from its broad asset base. Key highlights are:

Consolidated Net Income for FY11 reached EUR 121.4 million (EUR 136.72 million);

Consolidated Operating Profit for FY11 rose by 1.2% to EUR 3.14 billion (EUR 3.10 billion);

Consolidated Commercial Banking Income at ESFG rose by 2.3% to EUR 2.05 billion (EUR 2.01 billion);

Consolidated Net Interest Income increased by 4.6% YoY to EUR 1.24 million (EUR 1.19 billion);

Consolidated Net Fees and Commissions fell 1.0% YoY to EUR 809.7 million (EUR 818.3 million). ESFG remains committed to supporting Portuguese enterprises outside of Portugal;

Consolidated Market Results3 and Other Results fell by 1.7% to EUR 563.5 million (EUR 573.4 million);

Consolidated Insurance Earned Premiums Net of Reinsurance rose 8.3% YoY to EUR 352.1 million (EUR 325.2 million);

1A year-on-year comparison of the key indicators is provided. Figures in parentheses following the operational and financial

results for 2011 refer to the same item in 2010.

2 Change in accounting policy for recognition of actuarial differences: The new accounting policy impacted on accounts as of

the beginning January 2011, the amortisation of actuarial differences accounted for as Staff Costs in 2011 was reversed therefore the 2010 accounts were adjusted for comparison purposes.

3 Aggregate of Net Gains/Losses from Financial Assets at Fair Value through Profit and Loss, Net Gains on Available for Sale Financial Assets, Net Gains from Foreign Exchange Differences and Net Gains/Losses from the Sale of Other Assets.



Consolidated Claims Incurred Net of Reinsurance rose 21.3% YoY to EUR 289.3 million (EUR 238.4 million);

Consolidated Operating Expenses rose by 17.6% to EUR 2.89 billion (EUR 2.46 billion), on the back of increased provisioning charges and new accounting policy on the amortisation of actuarial differences on pension liabilities at BES; and

Consolidated Staff Costs and General Administrative Expenses rose by 1.0% to EUR 1.24 billion (EUR 1.23 billion).

Change in accounting policy for recognition of actuarial differences:

As permitted under IAS 19 (§93A) and in line with expected changes in the near future, ESFG now classifies Actuarial Differences under Other Comprehensive Income (OCI). This change resulted in a EUR 642.1 million reduction in ESFG’s assets (net of taxes) and a decrease of total equity by the same amount, with EUR 203.1 million attributable to equity holders of the Company. The new accounting policy impacted on accounts as of the beginning January 2010, and consequently the amortisation of Actuarial Differences accounted for as Staff Costs in 2010 was reversed, therefore the 2010 accounts were adjusted for comparison purposes. The previously disclosed FY10 consolidated figure of EUR 122.2 million was adjusted to EUR 136.7 million.

1A year-on-year comparison of the key indicators is provided. Figures in parentheses following the operational and financial

results for 2011 refer to the same item in 2010

2 Change in accounting policy for recognition of actuarial differences: The new accounting policy impacted on accounts as of

the beginning January 2011, the amortisation of actuarial differences accounted for as Staff Costs in 2011 was reversed therefore the 2010 accounts were adjusted for comparison purposes.

3 Aggregate of Net Gains/Losses from Financial Assets at Fair Value through Profit and Loss, Net Gains on Available for Sale Financial Assets, Net Gains from Foreign Exchange Differences and Net Gains/Losses from the Sale of Other Assets



A conference call for investors and analysts will be held today at 3:00 PM (UK & Portugal) / 4:00PM (CET) / 11:00AM (Eastern). An instant replay of the call will be available for two weeks. For details, please contact Miles Chapman at King Worldwide on telephone number +44 (0) 207 614 2900.



The Euro Zone debt crisis dominated the European economic picture in 2011. Fears over Greece’s possible default led not only to peripheral economies such as Spain and Italy coming under increasing pressure, but also to strain being placed on some of the core economies, namely France, the Netherlands and Austria. The loss of confidence and growing aversion to risk related to the financial instability in the Euro Zone resulted in reduced liquidity in the money and credit markets – this was particularly noticeable between August and September.

After raising the key benchmark rate from 1.0% to 1.5%, the European Central Bank (‘ECB’), reversed its monetary policy, lowering the benchmark rate to 1.0% with two 25bp cuts in Q411. Simultaneously, the ECB reinforced its policy of injecting liquidity into the financial system, as well as loosening collateral rules and reducing the reserve requirement ratio for European banks. In December, the monetary authority conducted the first of two unlimited three-year refinancing operations; demand reached EUR 489 billion.

Fears over debt crisis contagion, especially within the financial sector, spilled over into the equity markets, with the main European indices suffering considerable retracement: the DAX, CAC40 and IBEX fell in the year by 14.69%, 16.95% and 13.11%, respectively. In the US, the Fed’s more aggressive monetary policy and the relatively bright outlook for economic activity helped cushion downside performance in the equity markets: the Dow Jones gained 5.53%, the S&P 500 remained flat and the NASDAQ slid by 1.8%.

In Portugal, the public deficit narrowed from 9.8% to close to 4.0% of GDP as fiscal consolidation continued. Although this was achieved partially through extraordinary measures, (namely the partial transfer of banks’ pension funds to the general public pension system), it also reflects the important effort undertaken to reduce public expenditure, which grew below budget, and strong budget implementation, which was in line with estimates. A primary surplus of 0.3% of GDP and a structural deficit of 2.6% of GDP are expected for 2012.


In an environment of political and social instability, significant headway has been made on structural reforms. Main measures included:

(i) increasing the flexibility of the labour market;

(ii) reform of the rental market, promoting mobility, the reduction of indebtedness and the absorption of housing supply;

(iii) improving the competitive environment, namely through a programme of privatisations, the end of golden shares, a new competition law aligned to the European practice, the reform of the transport sector, the introduction of rules enhancing competition in telecommunications and the reform of the judicial system, namely introducing greater flexibility in insolvency and corporate recovery processes.

Exports of goods and services continued to grow at a brisk pace, with Africa, Latin America and Asia becoming increasingly important. The performance of exports cushioned the annual contraction of GDP (estimated at ca. 1.6%), and alongside the ongoing deleveraging process contributed in the various sectors of the economy, leading to a significant decrease in the external deficit - from 8.8% to ca. 6.5% of GDP – with an additional reduction to around 2.0% of GDP being expected for 2012. Portugal’s net stock of external liabilities has also fallen, down close to 103% of GDP, which compares to a peak of 110% in 2009.



ESFG’s un-audited consolidated net profit for the full year 2011, attributable to equity holders of the Company reached EUR 121.4 million. The results are robust, despite the challenging sovereign debt environment and resulting financial constraints, which weighed down on activities. ESFG’s results reflect the Company’s prudent decisions to reduce its overall indebtedness by tender and converting debt to equity, which allowed ESFG to report extraordinary capital gains as well as the positive performance from its broad asset base. Capital gains from the Liability Management Exercises (‘LME’), undertaken in the fourth quarter of 2011, reached EUR 100 million.

As part of the ongoing deleveraging programme, total consolidated assets declined by 2.9% during the year. The deleveraging programme is focused at ESFG’s principal banking subsidiary Banco Espírito Santo (‘BES’). Total consolidated assets fell from EUR 86.5 billion at the end of 2010 to EUR 84.0 billion at the end of 2011.

The Memorandum of Economic and Financial Policies (MEFP) has led to the requirement to provide a Medium Term Plan (2011 to 2015) to the Bank of Portugal that lays out explicit strategies for the deleveraging of the balance sheet, the strengthening of capital ratios and the improvement of liquidity. The broad ranging deleveraging programme by ESFG’s banking subsidiary, BES, aims to reach a Loans to Deposit Ratio (LDR) of 120% and a stable Funding Ratio (SDR) of 100%. By year-end 2011, BES announced that it had decreased its LDR to 141% from 165% at year-end 2010.

BES further strengthened provisions for impairments on the Bank’s activities with special focus on the coverage of risk relating to the loans book. Total provisions by the end of 2011 at the Bank reached EUR 848.3 million. The credit provisions charge reached EUR 600.6 million from EUR 351.8 million a year earlier. The balance of provisions reserve rose to EUR 2.2 billionby year-end, a year-on-year increase of 22.0%. The credit provisions charge of 1.17% helped bolster the credit provisions/gross customer loans ratio to 4.23% from 3.38% a year earlier. BES reported extraordinary charges (-EUR 271 million), which included the devaluation of goodwill in BES Vida, the transfer of pension discount rate liabilities to the State Social Security System (-EUR 76 million, net of taxes) and the sale of international loans (-EUR 78 million).

Although overall asset quality remained resilient, the worsening economic situation has had its effect on the levels of overdue loans both in Portugal and internationally. Non-Performing Loans (‘NPL’) of over 30 days rose from 2.1% at year-end 2010 to 3.0% by the end of 2011.


The marked improvement in the Loans to Deposit Ratio was supported by the increase in customer deposits at the banking unit. Deposits reached EUR 34.2 billion, an annual increase of EUR 3.4 billion or 11.0%. BES sold EUR 2.0 billion of international loans leading to a decrease in overall loans of 2.7%, further improving the LDR.

ESFG posted increases in consolidated Net Interest Income (‘NII’) of 4.6%, Net Fees and Commissions fell by 1.0%. Commercial Banking Income rose by 2.3%. NII increased to EUR 1.24 billion in the period with the accumulated Net Interest Margin (‘NIM’) rising by 7 basis points from 1.61% at year-end 2010 to 1.68%. The rate on interest earned assets grew by 105 basis points as interest rate bearing liabilities rose by 98 basis points broadly matching the evolution of the market. Net fees and commissions reached EUR 809.7 million reflecting the Group’s banking subsidiaries efforts to counter the ongoing recessionary pressures and restrictions on loans.

Operating expenses during the reporting period grew by 17.6% year-on-year as provisioning charges increased at the banking level. Consolidated staff costs at ESFG rose by 2.4% reflecting the change in the accounting policy on the amortisation of Actuarial Differences on pensions at BES. At BES, EUR 961 million of pension liabilities were allocated for transfer to the Social Security following the integration of the banking sector employees into the General Social Security Scheme, (of which EUR 529 million has been transferred). ESFG continues to focus on streamlining its business costs whilst maintaining its drive for business outside of its traditional markets.

Retail banking at BES, supported by a domestic branch network of 701 branches, a net reduction of 30 branches over the year, includes 48 on-site branches and benefits from the bank’s partnership with insurance agents of Companhia de Seguros Tranquilidade (‘Tranquilidade’) under the assurfinance programme. Cross-selling activities, including the drive to attract customer funds and retain client deposits, have helped mitigate the impact of non-performing loans.

International operations at BES contributed positively to consolidated net income; international NII reached EUR 160.8 million, a reduction of 21.1% year-on-year. International Fees and Commissions fell by 3.3% year-on-year to EUR 190.4 million. Domestic commercial banking income at BES increased by 2.0% year-on-year whilst commercial banking income outside Portugal decreased by 3.3% during the same period. Overall, consolidated banking income at BES fell year-on-year to EUR 1.95 billion from EUR 2.40 billion, impacted by Capital Markets and Other Results at the banking unit. The reported charges and increase in provisions led to a loss of EUR 108.8 million. Excluding these one off items, BES would have posted a net profit of EUR 166.6 million.


International operations continue to play a key role in ESFG’s strategy of diversification. In Angola, Banco Espírito Santo Angola (‘BESA’) continues to make substantial contributions to BES’s international growth and is now the second largest bank in the country. Banking income reached EUR 357 million by year-end 2011, customer funds rose by 3.0% year-on-year to EUR 2.23 billion whilst customer loans rose by close to 40.0% to EUR 3.95 billion. Both Spain and Brazil also contributed positively to consolidated results. The three regions make up the Bank’s strategic triangle. Net income from the strategic triangle contributed EUR 121.3 million, or 75.0% of the Bank’s international business.

At Banque Espírito Santo et de la Vénétie (‘BESV’) (France) net income reached EUR 9.3 million in the period, a rise of 8.9% year-on-year. The negative impact of low interest rates combined with increasingly high refinancing costs was countered by the improved performance in commercial banking and by the increase in credit spreads, coupled with increased fee revenues. Individual banking income increased by 9.9 % year-on-year to EUR 46.5 million. However, Operating Costs rose by 10.0% year-on-year.

Banque Privée Espírito Santo (‘BPES’) in Switzerland, which focuses primarily on private banking business, continues to make positive contributions to ESFG’s consolidated results for year-end 2011, with individual income reaching CHF 4.6 million, net of increased provisioning, from CHF 6.4 million a year earlier. Operating expenses remained unchanged at CHF 47 million. Assets under Management (AuM) also remained stable at CHF 4.6 billion with positive net new money of CHF 190 million, but suffered from the impact of a strong Swiss franc and negative market evolution. Interest Income reached CHF 5.6 million, up 68.0% from the previous year (CHF 3.3 million). Banking Income was up by 0.6 % to CHF 51.8 million.

ES Bankers (Dubai) (‘ESBD’) reported a significant rise in results with net individual income reaching USD 7.3 million from USD 2.1 million a year earlier (+343.3%) on the back of a marked increase in fee related business. ROE at the Bank, which focuses on private banking, reached 21.3% by year-end from 8.0% a year earlier. Assets under management reached USD 1.1 billion down from USD 1.3 billion. Total equity reached USD 36.9 million. The seed capital of USD 30 million, raised by the shareholders for the Bank to initiate its operation in November 2007, has been fully recovered in less than four years of activity. ES Bank (Panama) (‘ESBP’) also reported positive results at USD 19.3 million in the period up from USD 6.3 million in FY10.

In the last quarter of 2011, ESFG announced that it had sold its 5.0% stake in Saxobank to US investment group TPG Capital. The Return on Capital (‘ROC’), which began in 2008 and includes net dividends received, was reported at 24.0% or EUR 14.0 million.


Investment banking activities at ESFG, through Espírito Santo Investment Bank (‘BESI’), include advisory services in project finance, mergers and acquisitions, placements of shares and bonds, stock broking and other investment banking services. Banking Income at BESI fell by 7.7% year-on-year to EUR 239.8 million with the non-Portuguese business rising to 72.0% of total business. However, individual pre-tax profits for the period fell by 79.4% to EUR 17.0 million as operating performance decreased, coupled with an increase in credit impairments. The investment bank continues with its strategy of international expansion, with a focus on advisory and intermediation services and loan portfolio turnover. In subsequent events, in early 2012, BESI announced that it had advised on both the China Three Gorges (CTG) acquisition of a 21.35% stake in Energias de Portugal (‘EDP’) and on State Grid Corporation of China’s (‘State Grid‘) acquisition of a 25.0% stake in Redes Energéticas Nacionias, SGPS (‘REN’).

ESFG’s insurance operations contributed positively to overall net profit. When combining both Life and non-Life business ESFG ranks as the fourth largest insurance group in Portugal, with a combined market share of 6.7%. The year-on-year decrease reflects the reduced market share of the Life operations, which were impacted by the liquidity shortage as banks compete for deposits. The combined market share in the Life business of T-Vida and BES Vida reached 4.6%. ESFG's market share in the non-Life sector, through Tranquilidade, BES Seguros and Seguros LOGO ('LOGO'), grew strongly during the period to 10.5%, and is now the second largest non-Life group in Portugal.

Tranquilidade's recurrent net individual income reached EUR 33.9 million. Technical results increased during the period from EUR 51.4 million to EUR 60.3 million, a rise of 17.3%. Financial results stood at EUR 42.0 million, up from EUR 27.9 million, operating costs down by 3.5% year-on-year to EUR 67.4 million. Tranquilidade’s market share rose to 8.2% from 7.8% a year earlier. Tranquilidade's market share in the compensation of health, motor and workers increased from 6.7%, 8.2% and 9.1% in 2010 to 7.1%, 8.5% and 9.9% in 2011, respectively.


Year-on-year operating revenues at ESFG’s healthcare operator Espírito Santo Saúde (‘ESS’) rose by 10.0% to EUR 273.6 million. Individual Net income for the full year rose sharply year-on-year to EUR 4.9 million (EUR 1.5 million). EBITDA rose 17.0% to EUR 46.5 million. The private healthcare sector proved resilient in 2011, in contrast to the public healthcare sector, which continues to suffer from ongoing budgetary constraints. The private healthcare sector, in which ESS is a market leader, saw a slight increase in growth due to a shift in demand towards private healthcare services. ESS broadened its offer in FY11 by the development of current, and the expansion of new units, as well as an improvement in service quality, innovation and efficiency.

Costs rose by 7.8% year-on-year to EUR 227.2 million, with significant savings generated through the negotiations with suppliers, the adherence to a centralised buyers’ catalogue as well as improved human resource management. The construction of the new PPP project Hospital Beatriz Ângelo is complete and the hospital is now open. However, the opening costs of Hospital Beatriz Ângelo weighed down on operator Saúde’s profitability in the period. Despite this, EBITDA rose to 17.0% from 15.9% a year earlier. Hospital da Luz, the largest private hospital in Portugal and key investment at ESS, saw revenue growth increase by 8.1% to EUR 118.4 million. The healthcare operator’s positive performance is one of the key growth drivers reported in consolidated Other Operating Income.




(EUR Thousands) FY10 FY11 YoY

+ Net Interest Income 1 189 041 1 224 286 4.6%

+ Net Fees and Commissions 818 310 809 747 (1.0%)

= Commercial Banking Income 2 007 351 2 054 033 2.3% + Capital Markets Results and Other Income 573 385 563 465 (1.7%) + Insurance Earned Premiums Net of Reinsurance 325 168 352 112 8.3%

+ Dividend Income 194 738 169 208 (13.1%)

= Operating Income 3 100 642 3 138 818 1.2%

- Operating Expenses 2 458 982 2 892 680 17.6%

= Profit before Tax (inc. Gains from Financial

Investments & Share of profit of Associates) 725 653 208 804 (71.2%)

- Taxes 51 494 (51 609) -

= Profit for the year 674 159 260 413 (61.4%)

- Non Controlling Interest 537 420 139 061 (74.1%)

= To equity holders of the Company 136 739 121 352 (11.3%)


Consolidated Net Interest Income (‘NII’) increased by 4.6% year-on-year to EUR 1.24 billion (EUR 1.19 billion). Increases in the cost of funding and the adjustment of credit spreads to reflect perceived risk, coupled with the reduction in volume resulting from the deleveraging process at BES, and interest earned assets at BES in 2011 fell by EUR 1.9 billion, all impacted on results. Despite this, the Net Interest Margin (‘NIM’) rose by 7 basis points.

ESFG noted that domestic NII business at BES improved, rising 5.7% to EUR 645.7 million whilst NII outside of Portugal saw a decrease of 3.1% on the back of more restrictive lending policies and adverse market environment. The average rate on interest earning assets at BES increased by 105 basis points to 5.10% (though the interest rate on loans rose by 128%) whilst the average rate on interest bearing liabilities increased by 98 basis points to 3.42%. The increase in the NII at the Bank was driven by the price and volume/price effects, an increase of EUR 48 million versus the negative impact of the volume effect of EUR 30.4 million.


Consolidated Fees and Commissions (Net of Expenses) fell by 1.0% year-on-year to EUR 809.7 million from EUR 818.3 million in FY10. The year-on-year saw strong growth in fees on guarantees, driven by corporate banking and commercial paper issues, and securities. Fees on securities activities at BES grew by 76.5%, benefiting from the consolidation of Execution Noble. Guarantees at BES grew by 36.6% whilst credit card commissions grew 2.3%. Other areas, including collections, documentary credit, bancassurance commission on loans and asset management contributed positively, but their contributions fell when compared to a year earlier.

Consolidated Capital Markets and Other Results in 2011 totalled EUR 563.5 million from EUR 573.4 million reported at the end of 2010. Financial market pressures and heightened concerns over the public accounts of a number of EU member states, including those of Portugal, have led to a widening of credit spread. Despite this, BES reported positive results from dividends, credit and interest rate trading, although costs relating to the sale of part of the Bank’s loan portfolio impacted negatively on Other Results as did goodwill impairments and equity devaluations on BES VIDA and pension funds respectively. The rise in Other Operating Income came from the successful liability management exercises both at BES and at ESFG.

Consolidated Dividend Income at ESFG decreased by 13.1% year-on-year to EUR 169.2 million from EUR 194.7 million a year. Dividends from investments at BES, primarily in Portugal Telecom were the main contributor.

Consolidated Insurance Earned Premiums Net of Reinsurance increased by 8.3% to EUR 352.1 million (EUR 325.2 million) by the end of 2011, in contrast to the downside performance witnessed by the insurance sector in Portugal.

Consolidated Claims Incurred Net of Reinsurance rose, however, to EUR 289.3 million in FY11, compared to EUR 238.4 million on the back of a reduction in mathematical reserves due to the marked decrease in life products. Overall, consolidated contribution of all insurance activities rose strongly at ESFG.

The assurfinance programme of cross-selling banking products through its agents accounted for 19.0% of new clients at BES and represents 8.6% of total assets under management. Tranquilidade’s distribution chain is made up of more than 1,700 points of sale, of which 38 are own branches and 79 franchise shops. The combined ratio at Tranquilidade improved 101.8% from 104.8% a year earlier. The expense ratio improved from 30.3% to 29.0%, reflecting the ongoing cost reduction programme, which included a 3.5% fall in expenses.

Tranquilidade's direct insurance business, LOGO, reported that its customer base had reached 120,183 clients and gross written premiums of EUR 23.4 million. LOGO is now the second largest direct insurer in Portugal. Net Interest Income rose in FY11 to EUR -4.3 mn EUR -8.0mn.


T-Vida reported an individual net income of EUR 3.0 million from EUR 5.1 million a year earlier. Premiums decreased by 49.8% following an increased focus on deposits by banks in Portugal. Risk products continue to be the main focus for ESFG’s insurance operations. The technical margin decreased to EUR 7.5 million from EUR 8.4 million in FY10, reflecting the reduction in sales of risk products, namely group risk and mortgage loans. Operating costs increased 2.9% reflecting higher IT, consulting and advertising costs, but remain below budget.

Pastor Vida posted individual net profits of EUR 10.1 million, a rise of 61.9% year-on-year. This performance is mainly related to an improvement in technical results and to the development of risk products.

AdvanceCare, ESFG’s managed care platform for healthcare insurers provides the link between the Company’s insurance and healthcare operations. AdvanceCare continues to provide positive results, and in the period net individual income rose by 5.5% to EUR 1.9 million from EUR 1.8 million a year earlier.

Espírito Santo Saúde (‘ESS’), which contributes to Other Operating Income, reported a net individual income of EUR 5.0 million for the period. EBITDA at ESFG’s healthcare subsidiary rose from 15.9% in 2010 to 17.0% in 2011, despite the start up of ESS PPP management project at Hospital Beatriz Ângelo. Positive operating results were negatively affected by worsening financial results, in turn a result of the deteriorating economic conditions in Portugal. ESS owns and operates 17 hospitals, out-patient clinics, residential hospitals, senior care residencies in Portugal. In addition, ESS operates one further hospital in its PPP with the Portuguese health service. Individual operating revenues rose by 10.0% year-on-year to EUR 273.6 million from EUR 249.6 million a year-on-year earlier.

Consolidated Staff Costs and General Administrative Expenses increased by 1.0% year-on-year to EUR 1.24 billion from EUR 1.23 billion a year earlier. The 2.4% rise in staff costs resulted from adjustments to charges on Actuarial Differences on pension liabilities. Portuguese staff costs at BES were affected by the integration of the Bank’s employees into the General Social Security Scheme, which led to a EUR 10.4 million rise in social welfare contributions and amortization of IT related activities, principally due to international equipment and premises. Other Expenses rose year-on-year by 36.4% to EUR 380.2 million (EUR 278.8 million), costs include, but are not limited to, the business and running costs at ESS which, on an individual basis rose by 7.8% to EUR 227.2 million.



ESFG is approved by the Bank of Portugal to use the Internal Ratings Based (‘IRB’) method for calculating the minimum core capital requirements to cover credit risk. The authorisation covers ESFG and its subsidiaries BES and BESI and their respective subsidiaries. ESFG is included in the table below (Fig II.) provides the relevant information on risk weighted assets, regulatory capital and capital ratios under the BIS IRB II, as of 31 December 2010 and 31 December 2011. Fig.II.

ESFG is recognised by the European Banking Authority (‘EBA’) as one of the 91 leading banking groups that makes up 65% of the EU banking system’s total assets. On 15 July 2011, ESFG announced that it had successfully completed the EU wide stress test. On 27 October 2011, the EBA announced that in light of the substantial increase in systemic risk triggered by the sovereign debt crisis in the Euro area, it was decided that the banking groups subject to the EBA stress tests should strengthen their levels of capital in order to reach Core Tier I capital of 9 percent by 30 June 2012. (In May 2011, the Bank of Portugal published Notice 3/2011 under which new minimum levels of Core Tier I capital was set at 10 percent by 31 December 2012).

BES, which reported its FY11 results on 3 February 2012, announced that the Core Tier 1 and Tier 1 position for the operating company had reached 9.2% and 9.4% by year-end 2011, respectively.

On 31 October 2011, ESFG announced a EUR 400 million exchange offer on preferred securities and on its subordinated bond. ESFG offered for exchange into new ESFG bearer shares priced at EUR 10.00 per share. The results of the Liability Management Exercise (LME) were announced on the 15 November 2011. ESFG reported that as at the Exchange Offer Expiration Deadline, EUR 325.75 million of the Preferred Securities and EUR 48.9 million in principal amount of the Subordinated Notes were exchanged. The take up rate reached 93.7%.

Solvency FY10 FY11

Bank of Portugal (under Basel II, IRB Foundation)

Core Tier I 7.0% 8.3%

Tier I 8.0% 8.6%


On 9 December 2011, ESFG announced the results of its tender offer on its outstanding convertible. ESFG announced that EUR 146.35 million in principal amount of the notes (fixed rate step-up notes due 2025) together with related Warrants had been offered for tender. On 15 December, ESFG announced that a further EUR 146.35 million were exchanged into EUR 171.6 million of a new convertible. Capital gains from the Liability Management Exercises (‘LME’), undertaken in the fourth quarter of 2011 by ESFG, reached EUR 99.1 million on a consolidated basis.

The LME activities undertaken by ESFG between October and December resulted in EUR 509.0 million of new core capital. External debt fell by EUR 562.2 million to EUR 737.8 million (Fig III.). On the back of the debt reduction programme interest liabilities are expected to decline.


(EUR million) Conclusion of Special Inspections Programme (‘SIP’):

On 1 March 2012, the Bank of Portugal announced the completion of the third and final stage of the SIP undertaken on the eight largest banking groups in Portugal. The evaluation confirmed that ESFG’s methodologies were clearly adequate; the highest classification attributable. ESFG, and also Banco Santander SA (Portugal), were the only two banking groups to attain this level.

The first two stages and respective results were published on 16 December 2011. The objective of the third stage of the SIP, which is now concluded, was to evaluate the adequacy of the parameters and methodologies used in the banking groups’ respective financial projections that supported future solvency forecasts, which were undertaken within the framework of the ‘Stress Test’ exercises.

The review undertaken by the specialist international consultant Oliver Wyman affirmed the robustness of the processes and competences of the ESFG Group in forecasting the impacts of adverse macroeconomic scenarios in its balance sheet

1,300 738 0 500 1,000 1,500 Year-End 2010 Year-End 2011


Credit Rating: On 11 April 2011, DBRS Inc. announced that it had initiated rating coverage of ESFG, assigning a Senior Long-Term Debt rating of BBB (high), and a Short-Term Instruments rating of R-2 (high). On the 21 October 2011, DBRS announced it had lowered ESFG’s senior Long-Term Debt rating to BBB; the Short-Term Instruments rating remaining unchanged. DBRS went on to clarify that the move was on the back of its one notch downgrade on Portugal and that all ratings are with a negative outlook. On 31January 2012, DBRS went on to lower ESFG’s senior debt rating to BBB (low), once again on the back of its downgrade on the Bank of Portugal. ESFG’s short term rating stands at Prime R-2 (mid). ESFG is also rated by Moody’s at B1 (negative outlook).


DEVELOPMENTS DURING 2011 (and Subsequent Events).

 On 1 March 2012, the BoP announced the completion of the third and final stage of the Special Inspections Programme (SIP). ESFG’s evaluation was confirmed as ‘clearly adequate’; the highest classification in the scale.  On 1March 2012, the NYSE Euronext Lisbon announced that ESFG would

enter the Portuguese PSI20 index on 19 March 2012.

 On 1 February 2012, ESFG announced that on 31 January 2012, DBRS had in the wake of its downgrade on Portugal, downgraded ESFG to BBB (low); ESFG’s short term credit rating was moved to R-2 (middle).

 On 16 December 2011, the Bank of Portugal announced the first global results of the Special Inspections Programme (SIP), undertaken as part of the measures and actions agreed by the Portuguese authorities with the IMF, EU and ECB. The SIP noted, as of September 2011, the ESFG Group constituted additional impairments for the sum of EUR 21.0 million.

 On 15 December (and 9 December) 2011, ESFG announced the results of the tender and exchange offer on the outstanding fixed rate step-up notes due 2025, which resulted in EUR 146.35 million being tendered and a further EUR 171.6 million exchanged. The aggregate amount of EUR 317.95 of the existing note was therefore extinguished.

 On 15 November 2011, ESFG announced that it had exchanged EUR 325.75 million in liquidation preference of the Preferred Securities and EUR 48.9 million in principal amount of the Subordinated Notes.

 On 31October 2011, ESFG announced a EUR 400 million exchange offer on two of its bonds; EUR 400 million Series A non-cumulative guaranteed step-up preferred securities and EUR 400 million subordinated notes due in 2019. ESFG offered for exchange into new ESFG bearer shares priced at EUR 10.00 per share.

 An Extraordinary General Meeting was held on 28 October 2011 in Luxembourg. At the meeting, a decision was made to reduce the accounting value of the authorised and issued share capital from EUR 10.00 per share to EUR 1.00 per share without cancellation of shares in issue nor repayment on any share, but with the attribution of an amount of EUR 700,969,622 to a special non-distributable reserve account.


 On 27 October 2011, the Bank of Portugal, through a statement made by ESFG, informed that the total amount of capital identified for the ESFG Group, which includes the full consolidation of BES, is EUR 1.487 billion, with EUR 44.0 million resulting from the evaluation at market value, of the sovereign debt as at 30 September 2011.

 On 25 August 2011, ESFG announced the sale of its 5.0% stake in Saxobank to TPG Capital. ESFG’s shareholding in Saxobank was acquired in 2008. The sale, which was subject to the DFSA approval, was completed in Q411.

 On 15 July 2011, ESFG announced the successful conclusion of the EU-wide stress test conducted by the European Banking Authority (EBA), in cooperation with the Banco de Portugal, the European Central Bank (ECB), the European Commission (EC) and the European Systemic Risk Board (ESRB).

 On 9 May, ESFG, in conjunction with ESFIL, announced the establishment of a EUR 2 billion Euro Medium Term Note (‘EMTN’) programme. On this date DBRS confirmed ESFG’s dated subordinated debt at BBB (negative).  On 3 May 2011, ESFG announced the adjusted conversion price of ESF

5.05% November 2025, EUR 500 million convertible (XS0234103546) as EUR 21.24. The adjustment will be in effect as of 3 June 2011.

 A dividend per share of EUR 0.28 was approved at ESFG’s AGM held on 29 April 2011 in Luxembourg. The figure represents a dividend yield of 2.0% relative to the share price at year-end 2010 and was paid on 3 June 2011.



Espírito Santo Financial Group King Worldwide

Filipe Worsdell Faisal Kanth

+44 (0) 203 4292 100 +44 (0) 207 614 2900

The Espírito Santo Financial Group provides, through its subsidiaries, a global and diversified range of financial services to its clients including Commercial banking, Insurance, Investment banking, Stock-brokerage, Healthcare services and Asset management in Portugal and internationally. For additional information on Espírito Santo Financial Group, its subsidiaries, operations and results, please visit the Company’s website on


31/12/2011 31/12/2010


Cash and deposits at central banks 1 130 515 976 515

Deposits with banks 998 345 879 561

Financial assets held for trading 3 466 900 3 951 786

Other financial assets at fair value through profit or loss 1 714 092 1 325 449

Available-for-sale financial assets 12 024 435 12 474 836

Loans and advances to banks 2 020 113 3 071 674

Loans and advances to customers 51 881 875 53 346 807

Held-to-maturity investments 1 751 193 2 453 465

Derivatives for risk management purposes 510 090 447 304

Non-current assets held for sale 1 646 683 574 550

Property and equipment 1 175 546 1 165 040

Investment properties 318 038 341 410

Intangible assets 549 196 557 837

Investments in associates 578 327 585 240

Technical reserves of reinsurance ceded 65 520 65 098

Current income tax assets 34 060 103 074

Deferred income tax assets 769 672 585 107

Other assets 3 384 899 3 603 077

Total assets 84 019 499 86 507 830


Deposits from central banks 10 013 719 7 964 837

Financial liabilities held for trading 2 176 258 2 121 305

Deposits from banks 6 216 006 6 617 077

Due to customers 34 951 984 31 205 688

Debt securities issued 19 509 623 24 904 746

Derivatives for risk management purposes 238 633 228 944

Investment contracts 148 764 324 934

Non-current liabilities held for sale 140 950 5 411

Provisions 212 796 233 614

Technical reserves of direct insurance 1 089 915 1 157 019

Current income tax liabilities 80 761 57 765

Deferred income tax liabilities 120 891 131 289

Subordinated debt 1 322 579 2 689 697 Other liabilities 1 556 797 2 206 082 Total liabilities 77 779 676 79 848 408 Equity Share capital 105 035 778 549 Share premium 1 193 882 253 656 Preference shares 72 428 394 514

Other equity components 58 724 115 109

Fair value reserve ( 165 624) ( 257 722)

Other reserves and retained earnings ( 118 997) ( 82 818)

Profit for the year attributable to equity holders of the Company 121 352 136 739

Total equity attributable to equity holders of the Company 1 266 800 1 338 027

Non-controlling interest 4 973 023 5 321 395

Total equity 6 239 823 6 659 422

Total equity and liabilities 84 019 499 86 507 830




31/12/2011 31/12/2010

Interest and similar income 4 247 075 3 838 928

Interest expense and similar charges 3 002 789 2 649 887

Net interest income 1 244 286 1 189 041

Dividend income 169 208 194 738

Fee and commission income 943 904 940 092

Fee and commission expenses ( 134 157) ( 121 782)

Net gains / (losses) from financial assets and financial liabilities at fair value through profit or loss ( 193 322) ( 197 574)

Net gains from available-for-sale financial assets ( 64 476) 374 318

Net gains from foreign exchange differences ( 27 714) 55 334

Net gains / (losses) from the sale of other assets ( 91 896) ( 12 773)

Insurance earned premiums net of reinsurance 352 112 325 168

Other operating income 940 873 354 080

Operating income 3 138 818 3 100 642

Staff costs 753 410 735 839

General and administrative expenses 490 642 495 425

Claims incurred net of reinsurance 289 273 238 404

Change on the technical reserves net of reinsurance ( 53 531) 2 477

Insurance commissions 39 107 34 736

Depreciation and amortisation 151 540 139 512

Provisions net of reversals 10 668 55 099

Loans impairment net of reversals and recoveries 578 383 338 459

Impairment on other financial assets net of reversals 85 423 79 390

Impairment on other assets net of reversals 167 604 60 839

Other operating expenses 380 161 278 802

Operating expenses 2 892 680 2 458 982

Gains on disposal of investments in subsidiaries and associates 1 305 46 401

Share of profit of associates ( 38 639) 37 592

Profit before income tax 208 804 725 653

Income tax

Current tax 90 900 68 558

Deferred tax ( 142 509) ( 17 064)

( 51 609) 51 494

Profit for the year 260 413 674 159

Attributable to equity holders of the company 121 352 136 739

Attributable to non-controlling interest 139 061 537 420

260 413 674 159

(in thousands of euro)






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