Transactions relating to derivatives | | 1% | | 1% on the notional value of the adjusted purchase sale or maturity of financial derivative contract in the country that individually result in an increased foreign exchange exposure on a short position 0% on derivative contracts to hedge risks inherent to the price fluctuation of foreign exchange resulting from export contracts signed by an individual or legal entity resident or domiciled in the country 0% other transactions with financial derivative contracts not expressly mentioned by the tax law | | | | | Insurance transactions entered into by insurance companies | | 25.0% | | 2.38% for health insurance and life insurance 7.38% for other types of insurance |
| | | | | Foreign exchange transactions(2) | | 25.0% | | 0.38% (general rule) 2.38%
6.38% on credit card transactions as from April 27, 2011 |
| | | | 0% for inflow and outflow of funds related to loans obtained from abroad (irrespective of the term) and for inflow of funds related to loans obtained from abroad for a period greater than 1,800 days. 5.38%
6.0% for remittances from abroad related to loans that will remain in Brazil for a period lower than or equal to ninety days1,800 days. 0% for interbank transactions 2.0%
0% for Resolution No. 2,689exchange transactions in connection with the outflow of proceeds from Brazil for the remittance of interest on net equity and dividends to be received by foreign investors 6.0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors in the Brazilian financial and capital markets. Themarkets, except that variable income investments in stock exchanges and share acquisitions as part of an initial public offering, as well as investments in certain private equity funds, are not subject to an IOF rate 6.0% for exchange transactions, including by means of simultaneous foreign exchange transactions, for the inflow of funds by foreign investors for purposes of initial or additional margin requirements in connection with transactions in stock exchanges 0% for exchange transactions for the outflow of funds relatedinvested by foreign investors in the Brazilian financial and capital markets 0% for exchange transactions for the inflow and outflow of funds invested by foreign investors, including by means of simultaneous foreign exchange transactions, in certificates of deposit of securities, known as Brazilian Depositary Receipts, or BDRs. |
| | | | 0% for exchange transactions by means of simultaneous foreign exchange transactions effected on or after December 1, 2011, for the inflow of funds by foreign investors derived from the conversion of direct investments in Brazil made pursuant to Resolution No. 2,689Law 4,131/62 into investments from Brazil is subject to a 0.0% rate.in stock tradable in stock exchanges0% for revenues related to the export of goods and services transactions |
________________
Note: (1) | The transactions mentioned in the table are for illustration purposes and do not reflect an exhaustive list of transactions subject to the IOF. |
(2) | There are some exemptions or specific cases in which the applicable rate is zero. |
Foreign Investment and the Brazilian Constitution The Brazilian constitution prohibits foreign financial institutions from establishing new branches or subsidiaries in Brazil except when duly authorized by the President of Brazil and by the Brazilian Central Bank. A foreign financial institution duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any Brazilian financial institution. Foreign Investment in Brazilian Financial Institutions The Brazilian constitution permits foreign individuals or companies to invest in the voting shares of Brazilian financial institutions only if they have specific authorization by the President of Brazil based on national interest or reciprocity. A decree on November 13, 1997, issued in respect of Banco Meridional do Brasil S.A. (our legal predecessor) allows 100% foreign participation in our capital stock. Foreign investors may acquire the shares issued by this offering as a result of this decree. In addition, foreign investors may acquire publicly traded non-voting shares of Brazilian financial institutions negotiated on a stock exchange or depositary receipts offered abroad representing shares without specific authorization. Regulation of Branches TheAuthorization by the Brazilian Central Bank requires authorization by the Central Bankis required for operations of branches or subsidiaries of Brazilian financial institutions, including compliance with the requirement that (1) the institution shall have been in operation for at least six years, (2) the institution’s paid-up capital and net worth shall meet the minimum levels established in Exhibit II to CMN Resolution No. 2,099 of August 17, 1994, plus an amount corresponding to 300.0% of the minimum paid-up capital and net worth required by Brazilian Central Bank regulations for commercial banks, and (3) the Brazilian financial institution shall present to the Central Bank a study on the economic and financial viability of the subsidiary, branch or investment.
In addition, the Central Banksuch authorization will only grant such authorizationbe granted if the Central Bank has access to information, data and documents relating to the operations and accounting records of the financial institution in which it has a direct or indirect holding abroad. Delay in providing the Central Bank with the required information and documents subjects the relevant financial institution to fines. Furthermore, the failure by a Brazilian bank to comply with the requirements ofCMN Resolution No. 2,723 would result in the deduction of a designated percentage of the assets of such branch or subsidiary from the net worth of such bank for the purpose of calculating such bank’s compliance with the capital adequacy requirements of the Brazilian Central Bank, regardless of other penalties applied pursuant to the applicable regulation, including the cancellation of the authorization by the Brazilian Central Bank.
The Brazilian Central Bank’s prior authorization is also required in order to: (1) allocate new funds to branches or subsidiaries abroad; (2) subscribe capital increases, directly or indirectly, to subsidiaries abroad; (3) increase equity participation, directly or indirectly, in subsidiaries abroad; and/or (4) merge or spin off, directly or indirectly, subsidiaries abroad. The requirements set out in items (1) to (4) are applicable only if such subsidiary is a financial institution or similar entity. Leasing Regulations The CMN, in its capacity as regulator and supervisor of the financial system, provides the details set forth in Law No. 6,099, and CMN Resolution No. 2,309 of August 28, 1996, and supervises and controls the transactions entered into by leasing companies. Furthermore, to the extent applicable, the laws and regulations issued by the Brazilian Central Bank with respect to financial institutions in general, such as reporting requirements, capital adequacy and leverage, asset composition limits and treatment of doubtful loans, are also applicable to leasing companies. Private Pension Plans Open-fund private pension plans are subject, for purposes of inspection and control, to the authority of the CNSP and the SUSEP, which are under the regulatory authority ofregulated by the Ministry of Finance. The CMN, CVM and Brazilian Central Bank may also issue regulations pertinent to private pension plans, particularly with respect to the composition of technical reserves. Open-fund private pension entities must set aside reserves and provisions as collateral for their liabilities. Regulations applicable to pension funds generally do not allow such funds to invest resources abroad. Banking Consumer Defense Code Resolutions CMN Resolutions No. 3,694 and 3,695, both dated March 26, 2009, established procedures with respect to prevention of risks of financial transactions and services provided by financial institutions to customers and the public in general, aiming at improving the relationship between market participants by fostering additional transparency, discipline, competition and reliability on the part of financial institutions. This regulation consolidates all the previous related rules. The principal aspects of the above-mentioned rules are described below: | · | financial institutions must ensure that customers are fully aware of all contractual clauses, including responsibilities and penalties applicable to both parties, providing timely copies of contracts, receipts, extracts and other documents related to transactions and services rendered in order to enable customers to freely take their decisions; |
| · | financial institutions must adopt in all contracts and related documents clear wording, which is not misleading, adequate to the complexity and nature of the transaction or service rendered, in order to enable the understanding of the content and identification of terms, amounts, charges, penalties, dates, places and other conditions; |
| · | financial institutions are prohibited from refusing or hindering customers and users of their products and services access to conventional channels of assistance, including cashier services (personal counter assistance), even in cases of alternative electronic assistance; |
| · | financial institutions are prohibited from postponing withdrawals up to R$5,000.5 thousand. For higher amounts, financial institutions may postpone the transaction to the next business day; and |
| · | financial institutions are prohibited from making loans from deposit accounts without prior authorization from the customer. |
In addition to the procedures described above, the Federal Supreme Court decided on June 7, 2006 that relationships between consumers and financial institutions must be regulatedare governed by Law No. 8,078, dated September 11, 1990 (the Brazilian“Brazilian Consumer Code)Protection Code”), which grants consumers certain rights that facilitate their defense in court, such as the possibility of the reverse burden of proof, and defines limits for bankauthorizes Courts to review interest rates deemed abusive.abusive, in a case-by-case basis. Financial institutions must fully comply with the measures set forth in the Brazilian Consumer Protection Code. Cayman Islands Banking Regulation Banks and trust companies wishing to conduct business from within the Cayman Islands must be licensed by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law (2009 Revision) (the “Banks and Trust Companies Law”), whether or not such business is actually to be conducted in the Cayman Islands. Under the Banks and Trust Companies Law, there are two main categories of banking license: a category “A” license, which permits unrestricted domestic and off-shore banking business, and a category “B” license, which permits principally off-shore banking business. As of December 31, 2009,2011, there were approximately 1715 banks holding category “A” licenses and approximately 249219 banks holding category “B” licenses. The holder of a category “B” license may have an office in the Cayman Islands and conduct business with other licensees and offshore companies but, except in limited circumstances, may not do banking business locally with the public or residents in the Cayman Islands. We have an unrestricted category “B” license. There are no specific ratio or liquidity requirements under the Banks and Trust Companies Law, but the Cayman Islands Monetary Authority will expect observance of prudent banking practices, and the Banks and Trust Companies Law imposes a minimum net worth requirement of an amount equal to CI$400,000400 thousand (or, in the case of licensees holding a restricted category “B” or a restricted trust license, CI$20,000)20 thousand). Foreign Subsidiary We are establishing an independent subsidiary in Spain, Santander Brasil Establecimiento Financiero de Credito, S.A. (“Santander EFC”), in order to complement our foreign trade strategy for corporate clients – large Brazilian companies and their operations abroad – allowing us to provide financial products and services by means of an offshore entity which is not established in a jurisdiction with favorable taxation, such as our Cayman Islands branch, in accordance with law 12,249/2010. The remittance of the funds that will become the share capital of the subsidiary, when established, was carried out in March 5, 2012. The Santander EFC is being set up and its operational start is planned for May 2012. Insurance Regulation The Brazilian private insurance system is governed by three regulatory agencies: the Brazilian Private Insurance Council (Conselho Nacional de Seguros Privados), or “CNSP”,CNSP, the SUSEP and the Supplementary Health Insurance Agency (Agência Nacional de Saúde Suplementar), or “ANS”. With governmental approval, an insurance company may offer all types of insurance with the exception of workers’ compensation insurance, which is provided exclusively by the National Institute of Medical Assistance and Social Welfare (Instituto Nacional de Seguridade Social), or “INSS”. Insurance companies sell policies through qualifiedaccredited brokers. In accordance with Brazilian insurance legislation, health insurance must be sold separately from other types of insurance by a specialized insurance company that is subject to the rules of the ANS, the agency responsible for private health insurance. Insurance companies must set aside reserves to be invested in specific types of securities. As a result, insurance companies are amongsecurities pursuant to the main investors in the Brazilian financial market and are subject to thestringent rules of the CMN regarding the investmentcomposition of its own technical reserves. Insurance companies are exempt from ordinary bankruptcy procedures and instead are subject to a special procedure administeredprocedures conducted by the SUSEP, or by the ANS, depending on the type of insurance sector regulators, except when the assets ofproducts the insurance company are not sufficient to guarantee at least half of the unsecured credits or procedures relating to acts that may be considered bankruptcy-related crimes.sells. Dissolutions may be either voluntary or compulsory. The Minister of Finance is responsible for issuing the institutiondecree ordering a given insurance company to cease its activities, in case of a compulsory dissolutions of insurance companies under the SUSEP’s regulation anddissolution (which thereafter is conducted by SUSEP), while ANS is responsible for thecommencing dissolution proceedings of health insurance companies. There is currently no restriction on foreign investments in insurance companies.companies per se. However there are certain restrictions when health insurance companies own hospitals (since this kind of asset or facility must be exclusively held or controlled by Brazilian-based companies). According to Brazilian law, insurance companies must buy reinsurance to the extent their liabilities exceed their technical limits under the SUSEP rules. For several years, reinsurance activities in Brazil were carried out on a monopoly basis by IRB — IRB—Brasil Resseguros S.A., or IRB.“IRB”. On January 16, 2007, Complementary Law No. 126/07 came into force,was enacted, providing for the opening of the Brazilian reinsurance market to other reinsurance companies.local and foreign competitors. This law specifically establishesestablished new policies related to reinsurance, retrocession and its intermediation, as well as coinsurance operations, hiring ofinstances in which insurance products may be directly contracted abroad and insurance sectorand/or in foreign currency operations. The main changes introduced by Complementary Law No. 126/07 are summarized below. Three types of reinsurers are establishedwere created by such law:law, in particular: | · | Local reinsurer. Reinsurer with head office in Brazil, incorporated as a corporation (sociedade por ações) and having as exclusive purpose the performance of reinsurance and retrocession transactions; |
| · | Admitted reinsurer. Nonresident reinsurer, registered with the SUSEP to carry out reinsurance and retrocession transactions, with a representative office in Brazil, which complies with the requirements of Complementary Law No. 126/07 and the applicable rules regarding reinsurance and reassignment of reinsuranceretrocession activities; and |
| · | Eventual reinsurer. Nonresident reinsurer, registered with the SUSEP to carry out reinsurance and retrocession transactions, without a representative office in Brazil, which complies with the requirements of Complementary Law No. 126/07 and the applicable rules regarding reinsurance and retrocession activities. |
An eventual reinsurer must not be a resident in a country considered as a tax-haven jurisdiction, which does not tax income or tax it at a rate 20.0% below or which does not disclose information about shareholding structure. Admitted or eventual reinsurers must comply with the following minimum requirements: | · | to be duly incorporated, according to the laws of their countries of origin, in order to underwrite local and international reinsurance in the fields that they intend to operate in Brazil and present evidence that they have carried out their operations in their respective countries of origin for at least five years; |
| · | to have economic and financial capacity not inferior to the minimum to be established by CNSP; |
| · | to have a rating issueissued by rating agencies recognized by the SUSEP equal to or higher than the minimum to be established by CNSP; |
| · | to have a duly appointed resident attorney-in-fact in Brazil with full administrative and judicial powers; |
| · | to comply with current and future additional requirements to be established by CNSP and the SUSEP. |
In addition to the requirements mentioned above, admitted reinsurerreinsurers must open and keep during the entire period in which they are operating a foreign currency escrow account with(conta vinculada) to which the SUSEP may have access and periodically submit to such regulatory agency their respective consolidated financial statements, pursuant to the rules to be enacted by CNSP. The contracting of reinsurance and retrocession in Brazil or abroad shall occurbe either through direct negotiation between the involved parties or an authorizedaccredited reinsurance broker. Foreign reinsurance brokers may be authorized to operate in Brazil, according to the law and additional requirements to be established by the SUSEP and CNSP. Reinsurance operations relating to annuities and survival life insurance (vida por sobrevivência) and private pension plans are exclusive of local reinsurers. With due observance of the rules to be enacted by CNSP, insurance companies when transferring their risks in reinsurance will have to offer to local reinsurersmust comply with the following percentage of said risks (right of first refusal):rules: · | 60.0% until January 16, 2010;· | at least 40.0% of the risk being ceded by insurance companies must be placed with local reinsurers (the same undertaking applies to local reinsurers); and |
· | 40.0% in· | not more than 20.0% of the subsequent years.total premium of each product coverage it offers may be ceded to local or foreign reinsurers belonging to its own economic group (that is, companies directly or indirectly related, |
either by having an equity ownership above 10.0% or sharing the same effective control (such as having the same management members or similar corporate names or brands)). This restriction does not apply to credit insurance (seguro garantia), export and internal credit (crédito à exportação/crédito interno), rural insurance (seguro rural) and nuclear-risk insurance products. The technical reserves funds of local reinsurers and the funds deposited in Brazil for purposes of guaranteeing admitted reinsurers’ local activities will be managed according to the rules of the CMN. IRB continues to be authorized to carry out reinsurance and retrocession activities in Brazil as a local reinsurer. On November 30, 2011, the new Brazilian Antitrust Law (“Law No. 12,529”) was enacted. Law No. 12,529 introduced several changes to the organizational structure of the Administrative Council for Economic Defense (“CADE”). In addition, according to Law No. 12,529, transactions resulting in an increase in market share must be previously submitted to CADE for approval if the following criteria are met: (1) any of the parties had, according to its last balance sheet, gross revenue or total domestic business volume for the year preceding the transaction of R$400 million or more; and (2) at least one of the parties involved, according to its last balance sheet, had gross revenue or total domestic business volume for the year preceding the transaction of R$30 million or more. The previously applied criterion pursuant to which a 20% market share required submission of a transaction to CADE was eliminated by Law No. 12,529. The closing of a transaction before its approval by CADE will subject the parties to fines ranging from R$60 thousand to R$60 million. Law No. 12,529 will take effect by May 29, 2012. Santander Group controls Santander Brasil directly and indirectly through Sterrebeeck B.V. (“Sterrebeeck”), Grupo Empresarial Santander, S.L., (“Grupo Empresarial Santander”) and Santander Insurance Holding, S.L. and Sterrebeeck B.V., which are controlled subsidiaries. This givesAs of March 23, 2012, Santander Spain control over 83.5%held, directly and indirectly, 76.4% of our shares.voting stock. The Santander Group isSpain closed 2011 as the fourth largest banking groupbank in the euro zone and the fifteenth largest bank in the world by profits and eighth by stockin terms of market capitalization.capitalization, at €50,290 million. In 2009, its net ordinary profits were over EUR 8.9 billion, 1% more2011, the attributable profit totaled €5,351 million, 34.6% less than the previous year, and it distributed more than EUR 4.9 billion inmaintained shareholders dividends to shareholders.at €0.60 per share. Banco Santander, S.A. is the parent company of the Santander Group which was comprised at December 31, 20092011 of 848739 companies that consolidate byare consolidated through the global integration method. In addition, there are 142156 companies that are accounted for by the equity method.
The Santander Group’s geographical diversification is evenly balanced between developed and emerging markets. Its presence is concentratedGroup operates principally in 9 major markets: Spain, Portugal, Germany, the United Kingdom, other European countries, Brazil Mexico, Chile, Argentinaand other Latin American countries and the United States, offering a wide range of financial products. In Latin America, the Santander Group has majority shareholdings in banks in Argentina, Brazil, Chile, Mexico, Peru, Puerto Rico and in mostUruguay. In 2011, Santander Brazil contributed 28% of these markets it has attained high market shares in retail banking. In 2009, we contributedthe profit attributable to the Santander Group 20% of attributable profit, 8% of gross customer loansGroup’s operating areas and 13%10% of customer funds under management.loans. The following table sets forthpresents the name, country of incorporation or residence and proportion of ownership interest of our main subsidiaries: Direct and Indirect subsidiaries by Banco Santander (Brasil) S.A. | | | Participation % | | Activity | Country of Residence | Direct | Indirect | Santander Seguros S.A. | Insurance and Pension Plans | Brazil | 100.00% | 100.00% | Santander S.A. Corretora de Câmbio e Títulos | Broker | Brazil | 99.99% | 100.00% | Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. | Asset manager | Brazil | 100.00% | 100.00% | Banco BANDEPE S.A. | Bank | Brazil | 100.00% | 100.00% | Santander Leasing S.A. Arrendamento Mercantil | Leasing | Brazil | 78,57% | 99,99% | Aymoré Crédito, Financiamento e Investimento S.A. | Financial | Brazil | 100.00% | 100.00% | Santander Administradora de Consórcios Ltda. | Buying club | Brazil | 100.00% | 100.00% | Santander Brasil Administradora de Consórcio Ltda. | Buying club | Brazil | 100.00% | 100.00% | Real Microcrédito Assessoria Financeira S.A. | Microcredit | Brazil | 100.00% | 100.00% | Santander Advisory Services S.A. | Other Activities | Brazil | 100.00% | 100.00% | Companhia Real Distribuidora de Títulos e Valores Mobiliários | Dealer | Brazil | 100.00% | 100.00% | Santander Corretora de Câmbio e Valores Mobiliários S.A. | Broker | Brazil | 99,99% | 100.00% | Real Argentina S.A. | Other Activities | Argentina | 98.99% | 98.99% | Webmotors S.A. | Other Activities | Brazil | 100.00% | 100.00% | Agropecuária Tapirapé S.A. | Other Activities | Brazil | 99.07% | 99.07% | Real CHP S.A. | Holding | Brazil | 92.78% | 92.78% | Controlled by Santander Seguros S.A. | | | | | Santander Brasil Seguros S.A. | Insurance | Brazil | - | 100,00% | Santander Capitalização S.A. | Savings and annuities | Brazil | - | 100,00% | Controlled by Companhia Real Distribuidora de Títulos e Valores Mobiliários | | | | | Santander Securities (Brasil) Corretora de Valores Mobiliários S.A. | Broker | Brazil | - | 100,00% | Controlled by Santander Advisory Services S.A. | | | | | Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros | Insurance Broker | Brazil | - | 100,00% | Real Corretora de Seguros S.A. | Insurance Broker | Brazil | - | 100,00% | Brazil Foreign Diversified Payment Rights Finance Company | Securitisation | Cayman Islands | - | (1) |
(1) Company over which effective control is exercised
The following table sets forth selected information for our principal properties.
| | | | | | | | Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A. | | | | | | | | | | | Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. | | Asset manager | | Brazil | | | 99.99 | % | | | 100.00 | % | Banco BANDEPE S.A. | | Bank | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Leasing S.A. Arrendamento Mercantil | | Leasing | | Brazil | | | 78.57 | % | | | 99.99 | % | Aymoré Crédito, Financiamento e Investimento S.A. | | Financial | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Administradora de Consórcios Ltda. | | Buying club | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Brasil Administradora de Consórcio Ltda. | | Buying club | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Microcrédito Assessoria Financeira S.A. | | Microcredit | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Brasil Advisory Services S.A(1). | | Other Activities | | Brazil | | | 96.56 | % | | | 96.56 | % |
| | | | | | | | Direct and Indirect subsidiaries of Banco Santander (Brasil) S.A. | | | | | | | | | | | CRV Distribuidora de Títulos e Valores Mobiliários S.A.(3) | | Dealer | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Corretora de Câmbio e Valores Mobiliários S.A. | | Broker | | Brazil | | | 99.99 | % | | | 100.00 | % | Webmotors S.A. | | Other Activities | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Participações S.A.(1)(3) | | Holding | | Brazil | | | 100.00 | % | | | 100.00 | % | Santander Getnet Serviços para Meios de Pagamento S.A. | | Other Activities | | Brazil | | | 50.00 | % | | | 50.00 | % | Sancap Investimentos e Participações S.A. (“Sancap”) | | Holding | | Brazil | | | 100.00 | % | | | 100.00 | % | Mantiq Investimentos Ltda.(5) | | Other Activities | | Brazil | | | 100.00 | % | | | 100.00 | % | Santos Energia Participações S.A.(5) | | Holding | | Brazil | | | 100.00 | % | | | 100.00 | % | MS Participações Societárias S.A(5) | | Holding | | Brazil | | | 78.35 | % | | | 78.35 | % | Controlled by Sancap | | | | | | | | | | | | | Santander Capitalização S.A.(2) | | Savings and annuities | | Brazil | | | - | | | | 100.00 | % | Controlled by Santander Participações S.A. | | | | | | | | | | | | | Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros(4) | | Insurance | | Brazil | | | - | | | | 100.00 | % | Brazil Foreign Diversified Payment Rights Finance Company | | Securitization | | Cayman Islands | | | - | | | (a) | |
(a) | Company over which effective control is exercised and there is no interest. |
(1) | On August 26, 2011 the following was approved (1) name change of Santander Advisory Services S.A. to Santander Participações S.A.; (2) name change of Santander CHPS S.A. to Santander Brasil Advisory Services S.A.; and (3) amendment of their by-laws in order to change their legal purposes. |
(2) | Participation transferred to Sancap through the partial spin-off of Santander Seguros. |
(3) | On August 31, 2011 the following was approved: (1) partial spin-off of CRV DTVM by Santander Participações, and the version of the separated part refers exclusively to the entire stake held by CRV DTVM in the capital of Santander Securities (Brasil) Corretora de Valores Mobiliários S.A. (Santander Securities) to Santander Participações and; (2) merger of Santander Securities into Santander Participações. |
(4) | On October 29, 2010, shareholders of Real Corretora de Seguros S.A. (“Real Corretora”) and Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros (“Santander Corretora”) approved the merger of Real Corretora into Santander Corretora, based on their net book values at the base date of September 30, 2010 |
(5) | Investment acquired in 2011. |
| Property, Plant and Equipment |
The following table presents selected information for our principal properties. | | | | | | | | Branches (1) | | | 2,0942,355 | | 1,5721,835 leased / 522520 owned | Commercial sites (consumer finance) | | | 7284 | | 7284 leased | Administrative buildings | | | 1513 | | 74 leased/ 89 owned |
Our new headquarters are located in Torre São Paulo, located at Av. Presidente Juscelino Kubitschek, 2041 and 2235 – Bloco A, Vila Olimpia, São Paulo. We acquired this new building in August 2008 for R$1.1 billion. It encompasses a total area of 55,613.43 square feet. In 2009, we budgeted R$540.0 million in capital expenditures for our properties, principally related to our move to our new headquarters.In March 2010, we sold the building of the former headquarters of Banco Real, located at Avenida Paulista 1374, São Paulo, for a total amount of R$270.0 million. This transaction was consummated through a purchase agreement dated on March 4, 2010 with Fundo de Investimento Imobiliário Prime Portfólio corresponding to the sale of 60% of the building and a purchase agreement dated on March 5, 2010 with Top Center Empreendimentos e Participações Ltda. corresponding to the sale of 40% of the building. We have financed 40% of the purchase price of the building.(1) | For information about the location of our branches, see – “Item 4. Information on the Company - B. Business Overview - Distribution Network”. Our headquarters are located in Torre São Paulo, located at Av. Presidente Juscelino Kubitschek, 2,041 and 2,235 – Bloco A, Vila Olímpia, São Paulo, SP, Brazil. |
Not applicable. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements as of and for the years ended December 31, 2009, 20082011, 2010 and 20072009 and the related notes there to, and with the financial information presented under the section entitled “Item 3. Key Information—A. Selected Financial Data” included elsewhere in this annual report. The preparation of the consolidated financial statements referred to in this section required the adoption of assumptions and estimates that affect the amounts recorded as assets, liabilities, revenue and expenses in the years and periods addressed and are subject to certain risks and uncertainties. Our future results may vary substantially from those indicated as a result of various factors that affect our business, including, among others, those mentioned in the sections “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors”, and other factors discussed elsewhere in this annual report. Our consolidated financial statements as of and for the years ended December 31, 2011, 2010 and 2009, 2008prepared in accordance with IFRS and 2007, together with the report of our independent registered public accounting firm have been preparedare included in accordance with IFRS, see “Item 1818. Financial Statements”. Our results of operations for periods ended December 31, 2008 and thereafter are not comparable to the respective periods prior to that date because of the consolidation of Banco Real as from August 30, 2008. See “Unaudited Pro Forma Consolidated Financial Information—Notes to the unaudited pro forma consolidated financial information—2. The Acquisition of Banco Real”. Overview We are a leading full-service bank in Brazil, which we believe to be one of the most attractive markets in the world given its growth potential and low penetration rate of banking products and services. We are the third largest private bank in Brazil, according to the Central Bank, with a 9.3% market share in terms of assets, with an 8.4% market share, as of December 31, 2009September 30, 2011, and the largest bank in Brazil controlled by a major global financial group.group according to the Brazilian Central Bank. Our operations are located across the country andpresent in all Brazilian regions, strategically concentratedpositioned in the South and Southeast, an area that accounted for approximately 73.0%72.0% of Brazil’s GDP, in 2007, and where we have one of the largest branch networks of any Brazilian bank. For the year ended December 31, 2009,2011, we generated net profit of R$5.57.8 billion, and at that date we had total assets of R$315.9399.9 billion and total equity of R$69.378.0 billion. Our Basel capital adequacy ratio (excluding goodwill) was 25.6%19.9%. We operate our business along three segments: Commercial Banking, Global Wholesale Banking and Asset Management and Insurance. Through our Commercial Banking segment, we offer traditional banking services, including checking and savingsavings accounts, home and automobile financing, unsecured consumer financing, checking account overdraft loans, credit cards and payroll loans to mid- and high-income individuals and corporations (other than to our GB&M clients). Our Global Wholesale Banking segment provides sophisticated and structured financial services and solutions to a group of approximately 700 large local and multinational conglomerates, offering such products as global transaction banking, syndicated lending, corporate finance, equity and treasury. Through our Asset Management and Insurance segment, we manage fixed income, money market, equity and multi-market funds and offer insurance products complementary to our core banking business to our retail and small- and medium-sized corporate customers. Effects of the Global Financial Markets Crisis on our Financial Condition and Results of Operations The global financial markets crisis has significantly affected the world economy since the second half of 2008. It has led to recessions and increasing unemployment in the world’s leading economies, a reduction in investments on a global scale, a decrease in raw material prices and a sharp decline in credit availability and liquidity, as well as a general closure of the capital markets worldwide. In Brazil, however, the effects of the global financial markets crisis have been relatively moderate compared to those in the United States and Europe, and the Brazilian economy has experienced a rapid and strong recovery. After experiencing a 3.5% decreasecontracting 0.3% in GDP in the last quarter of 2008 and a 0.9% decrease in GDP in the first quarter of 2009, GDP increased 7.5% in 2010 when compared to the previous year. In 2011, the economy slowed down to a growth resumed inof an estimated 2.7%, reflecting the second quarterlagged effects of 2009, driven mostlya more restrictive monetary policy by the strong domestic demand. The second, thirdBrazilian Central Bank and fourth quartersthe spillover of 2009 had GDP increases of 1.4%, 1.7% and 2.0%, respectively. Whilethe international financial crisis (primarily in Europe). Although some export-oriented companies in the raw material and certain other industries have suffered revenue decreases, due to decreased demand in the international markets in 2009, relatively strong domestic demand helpedhas sustained economic growth in Brazil, particularly due to reduce the impact of the global crisis on the Brazilian economy. Positive developments in thehigh consumer confidence, strong labor marketmarkets and associated increases in the minimum wage were the main drivers for the strong internal demand. readjustments. Brazilian banks are funded almost entirely by domestic deposits, which have increased during the financial crisis as funds were moved from asset management vehicles into bank deposits, which are perceived to be safer. Also, the Brazilian Central Bank diminished reserve requirements and, in response, public banks increased their supply of credit. As a result, the global liquidity crisis had relatively little impact in Brazil. In addition, the credit default swap market in Brazil is still in its incipient stages and Brazilian banks may only acquire overseas credit default swaps through their non Brazilian branches. To date, the principal effects of the crisis on our business have been the following:
· | Increased provisioning for loan losses due to expectations of increased rates of default, particularly from our small- and medium-sized corporate borrowers since the fourth quarter of 2008 through the third quarter of 2009; |
· | An increase in the cost of domestic funding resulting mainly from the unavailability of external funding; and |
· | A decrease in the rate of growth of credit volumes, particularly among individual borrowers in 2008 and corporate clients in 2009. |
The global financial markets crisis has not had a material impact on our liquidity and capital resources due to the relatively stable economic environment in Brazil, our relatively low dependence on funding from the international markets, a proactive approach from the compulsory deposit requirements of theBrazilian Central Bank (detailed below) and athe liquidity cushion we built up in response to the global financial markets crisis. We gauge liquidity needs on a recurring basis based on our business plans and we pursue funding actions based on anticipated funding needs. At December 31, 2008 and December 31, 2009, our Basel capital adequacy ratio as measured by During the Central Bank criteria was 14.7% and 25.6%, respectively. Our securities portfolio consists mainly of Brazilian government fixed income securities, and therefore we did not have a high level of exposure to the downturn in the worldwide equity marketsfinancial crisis in 2008 and 2009, the first quarterBrazilian Central Bank took steps to minimize the impact of 2009. Acquisitionthe crisis, reducing reserve requirements, creating a time deposit with higher insured value and guaranteed by the FGC, to be used as a funding alternative for small and midsize banks and providing that these banks could be financed by or sell loan portfolios to large banks or could sell their loans. In 2010, upon the easing of Banco Real
On August 29, 2008,the financial crisis, there was a reversal of some of these measures, such as further described in notes 3a replenishment of the reserve requirements and 26 to our audited consolidated financial statements, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. became our wholly-owned
, or “DPGE”). subsidiaries pursuantIn the first half of 2011, the Brazilian Central Bank began focusing on measures to a share exchange transaction (incorporação de ações) approved bycontrol economic growth and inflation in Brazil. By mid-year, when the shareholdersglobal economy began showing signs of Santander Brasil, Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A., roughly doubling our size in terms of total assets. Principally as a result of this transaction,uncertainty, the number of our active current account holders increased from approximately 3.5 million to approximately 7.7 million from June 30, 2008 to December 31, 2008, and in the same period, our distribution network increased from 1,546 branches and service site units to 3,603 branches and service site units. As of December 31, 2007, Banco Real had total assets of R$112.8 billion and total equity of R$13.2 billion. With the integration of Banco Real and organic growth, we increased our loans and receivables from R$55.0 billion as of December 31, 2007 to R$162.7 billion as of December 31, 2008, and our total deposits increased from R$74.1 billion as of December 31, 2007 to R$182.3 billion as of December 31, 2008. For further details see “Item 4. Information on the Company—A History and development of the company—Important Events” and notes 3 and 26 to our consolidated financial statements as of December 31, 2009.
As a consequence of this acquisition, one of the key factors to be considered when analyzing our financial condition and results of operations as of and for the years ended December 31, 2008 and 2007 and the year ended December 31, 2009 and 2008 is the consolidation of the entities of Banco Real in our financial statements since August 30, 2008. As a result, our results of operations for 2008 are not comparable to those of 2007 and our results of operations for 2009 are not comparable to 2008. In order to analyze the organic developments in our business obscured by the effect of the Banco Real acquisition, management uses and we present in this annual report pro forma information for the year ended December 31, 2008 as if we had consolidated Banco Real as from January 1, 2008. For a complete presentation of this pro forma information, see “Unaudited Pro Forma Consolidated Financial Information”.
In addition, to provide meaningful disclosure with respect to our results of operations for the year ended December 31, 2008, management uses and we present, in addition to our audited results of operations for that period, certain full year 2008 financial information excluding the results of Banco Real. Banco Real was our wholly-owned subsidiary during the last four months of 2008 and this presentation is intended only to subtract from our reported results for 2008 the amounts contributed by Banco Real. This information does not purport to represent what our results of operations would have been had we not acquired Banco Real. We have not adjusted our reported results for any expenses incurred in 2008 in connection with the acquisition of Banco Real or for any revenue synergies. Management believes that any such additional expense or revenue was not material. The following table shows our results of operations for the year ended December 31, 2008, the amounts contributed by Banco Real in that period, and our reported results less amounts contributed by Banco Real.
| | For the year ended December 31, 2008 | | | | As reported less Banco Real | | | | | | | | | | (in millions of R$) | | Interest and similar income | | | 14,694 | | | | 9,074 | | | | 23,768 | | Interest expense and similar charges | | | (8.023 | ) | | | (4,307 | ) | | | (12,330 | ) | Net interest income | | | 6,671 | | | | 4,767 | | | | 11,438 | | Income from equity instruments | | | 35 | | | | 2 | | | | 37 | | Share of results of entities accounted for using the equity method | | | 6 | | | | 106 | | | | 112 | | Fee and commission income | | | 3,801 | | | | 1,008 | | | | 4,809 | | Fee and commission expense | | | (334 | ) | | | (221 | ) | | | (555 | ) | Gains/losses on financial assets and liabilities (net) | | | 333 | | | | (1,620 | ) | | | (1,286 | ) | Exchange differences (net) | | | 300 | | | | 1,176 | | | | 1,476 | | Other operating income (expenses) | | | (92 | ) | | | 32 | | | | (60 | ) | Total income | | | 10,720 | | | | 5,251 | | | | 15,971 | | Administrative expenses | | | (4,656 | ) | | | (2,529 | ) | | | (7,185 | ) | Depreciation and amortization | | | (656 | ) | | | (190 | ) | | | (846 | ) | Provisions (net) | | | (1,113 | ) | | | (117 | ) | | | (1,230 | ) | Impairment losses on financial assets (net) | | | (2,864 | ) | | | (1,236 | ) | | | (4,100 | ) | Impairment losses on other assets (net) | | | (4 | ) | | | (73 | ) | | | (77 | ) | Gains/losses on disposal of assets not classified as non-current assets held for sale | | | 6 | | | | 1 | | | | 7 | | | | | | | | | | | | | | |
Gains/losses on disposal of non-current assets held for sale | | | 25 | | | | (16 | ) | | | 9 | | Profit before tax | | | 1,458 | | | | 1,091 | | | | 2,549 | | Income tax | | | (217 | ) | | | 47 | | | | (170 | ) | Net income | | | 1,241 | | | | 1,138 | | | | 2,379 | |
We are seeking to generate cumulative cost synergies from the acquisition and integration of Banco Real of approximately R$2.4 billion by December 31, 2011 as a result of applying best practices across the two banks, integrating the information technology platforms, streamlining banking operations and workforce, integrating outsourcing operations and centralizing management functions. In addition, we are targeting cumulative revenue synergies of approximately R$300 million by December 31, 2011 as a result of cross-selling opportunities arising from the integration of Banco Real and Santander Brasil and the implementation of best practices in customer care for each bank’s historical customer base. Our ability to achieve these synergy targets is subject to a number of risks and we may not realize these synergies in the time frames or to the extent expected, if at all. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Santander Brasilgovernment and the Brazilian Central Bank reversed this course and started implementing measures to stimulate the economy, including reducing interest rates. Moreover, in November, the Brazilian Central Bank adjusted capital requirements for consumer loans to provide incentives for banks to lend. Capital requirements for short-term consumer loans were reduced, while capital requirements for longer term consumer loans were increased. In December 2011, in further efforts to increase liquidity in the banking system, the Brazilian Central Bank announced changes to decrease the return on a portion of required reserves when these resources are not used by banks to either buy loan portfolios from smaller banks, or Financial Services Industry—We may fail to recognize the contemplated benefits of the acquisition of Banco Real” and “—Other Factors Affecting Financial Condition and Results of Operations—Goodwill of Banco Real”.Bills (Letras Financeiras), or used as interbank loans.
Other Factors Affecting Our Financial Condition and Results of Operations As a Brazilian bank, we are stronglysignificantly affected by the general economic environment in Brazil. The following table presents key data of the Brazilian economy for the periods indicated.indicated: | | | | | | | | | | | | | | GDP growth(1) | | | (0.20 | )% | | | 5.1 | % | | | 5.4 | % | CDI rate(2) | | | 9.88 | % | | | 12.28 | % | | | 11.91 | % | TJLP(3) | | | 6.00 | % | | | 6.25 | % | | | 6.37 | % | SELIC rate(4) | | | 8.75 | % | | | 13.75 | % | | | 11.25 | % | Increase (decrease) in real value against the U.S. dollar | | | 34.20 | % | | | (24.2 | %) | | | 17.2 | % | Selling exchange rate (at period end) R$per U.S.$1.00 | | $R | 1.741 | | | $R | 2.337 | | | $R | 1.771 | | Average exchange rate R$per U.S.$1.00(5) | | $R | 2.00 | | | $R | 1.838 | | | $R | 1.786 | | Inflation (IGP-M)(6) | | | (1.70 | )% | | | 9.8 | % | | | 7.7 | % | Inflation (IPCA)(7) | | | 4.30 | % | | | 5.9 | % | | | 4.5 | % |
| | For the Year ended December 31, | | | | 2011 | | | 2010 | | | 2009 | | GDP growth(1) | | | 2.7 | % | | | 7.5 | % | | | (0.3 | %) | CDI rate(2) | | | 11.6 | % | | | 9.7 | % | | | 9.9 | % | TJLP(3) | | | 6.0 | % | | | 6.0 | % | | | 6.1 | % | SELIC rate(4) | | | 11.00 | % | | | 10.75 | % | | | 8.75 | % | Increase (decrease) in Real value against the U.S. dollar | | | (12.6 | %) | | | 4.3 | % | | | 25.5 | % | Selling exchange rate (at period end) R$ per U.S.$1.00 | | | R$1.88 | | | | R$1.67 | | | | R$1.74 | | Average exchange rate R$ per U.S.$1.00(5) | | | R$1.67 | | | | R$1.76 | | | | R$1.99 | | Inflation (IGP-M)(6) | | | 5.1 | % | | | 11.3 | % | | | (1.7 | %) | Inflation (IPCA)(7) | | | 6.5 | % | | | 5.9 | % | | | 4.3 | % |
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Sources: BNDES, Brazilian Central Bank, FGV, IBGE and LCA Consultores. (1) | Revised series. Source: IBGE. |
(2) | The Interbank Deposit Certificate (Certificado de Depósito Interbancário, or “CDI” rate)CDI rate is the average daily interbank deposit rate in Brazil (at the end of each month and annually). |
(3) | Represents the interest rate applied by the BNDES for long-term financing (at the end of the period). |
(4) | The benchmark interest rate payable to holders of some securities issued by the Brazilian government and traded on the Special System for Settlement and Custody (Sistema Especial de Liquidação e Custódia). SELIC. |
(5) | Average of the selling exchange rate for the last day of each month during the period. |
(6) | The inflation rate is the general index of market prices (Índice Geral de Preços-Mercado, or “IGP-M”), as calculated by FGV. |
(7) | The inflation rate is the consumer price index (Índice de Preços ao Consumidor – Amplo, or “IPCA”), as calculated by the IBGE. |
Interest Rates Since the implementation of an inflation target framework in 1999, the Central Bank has broadly reduced price volatility and inflation.local interest rates have been on a downward trend. The SELIC was lowered from 45.00% per annum in 1999 to 13.75% in September 2008, shortly before the recent worldwide financial crisis began. The worldwide financial crisis led to further reductions of the SELIC, which was set atreached 8.75% in July 2009 (its lowest historical level ).level). The reduction in the SELIC contributed significantly to the economic recovery. The normalization of local liquidity conditions and inflationary pressure in 2010 has led the monetary authority to raise rates by 375 basis points between April 2010 and July 2011, when the SELIC reached 12.50%. The deepening of the international crisis, combined with the first signs of slowdown in domestic activity, however, led the Brazilian Central Bank to resume monetary easing in August 2011. As of March 8, 2012, the SELIC was at 9.75%. The following table presents the low, high, average and period-end SELIC since 2005,2007, as reported by the Brazilian Central Bank. Bank: | | | | | | | | | | | | | Year | | | | | | | | | | | | | 2007 | | | 11.25 | | | | 13.00 | | | | 11.98 | | | | 11.25 | | 2008 | | | 11.25 | | | | 13.75 | | | | 12.54 | | | | 13.75 | | 2009 | | | 8.75 | | | | 12.75 | | | | 9.92 | | | | 8.75 | | 2010 | | | 8.75 | | | | 10.75 | | | | 10.00 | | | | 10.75 | | 2011 | | | 11.00 | | | | 12.50 | | | | 11.71 | | | | 11.00 | |
(1) | Average of month-end rates during the period. |
Our assets are predominantly fixed rate and our liabilities predominantly floating. The resulting exposure to increases in market rates of interest is modified by our use of cash flow hedges to convert floating rates to fixed, but we maintain an exposure to interest rate movements. AtAs of December 31, 2009,2011, a sustained 100 basis point increase in market rates of interest along the length of the yield curve would have resulted in a R$200263 million decline in the net interest income over a one-year period. | | | | | | | | | | | | | Year | | | | | | | | | | | | | 2005 | | | 17.75 | | | | 19.75 | | | | 19.15 | | | | 18.00 | | 2006 | | | 13.25 | | | | 18.00 | | | | 15.10 | | | | 13.25 | | 2007 | | | 11.25 | | | | 13.25 | | | | 11.25 | | | | 11.25 | | 2008 | | | 11.25 | | | | 13.75 | | | | 12.54 | | | | 13.75 | | 2009 | | | 8.75 | | | | 13.75 | | | | 9.92 | | | | 8.75 | |
(1) | Average of month-end rates during the period. |
Credit Volume Credit volume in Brazil has strongly increased significantly since 2004, mainly driven by lower inflation, decreasing interest rates and consistent economic growth. The worldwide financial crisis has temporarily affected the credit growth rates in late 2008 and early 2009. The monetary stimulus implemented by the Brazilian Central Bank as well as the aggressive stance of consumerpublic owned banks on credit mainly in 2008 (consumer credit volumes experiencedsupply have led to a recovery in 2009) and corporate credit mainlyalready in 2009, (corporate credit volumes experienced strong growthintensified in 2008). The table below presents the year-on-year nominal growth of credit, according to Central Bank figures.2010. | | | | | | | | | | | | | | | | Total volume of credit | | | 13.39 | % | | | 20.7 | % | | | 27.8 | % | | | 31.1 | % | | | 15.2 | % | To consumers | | | 14.21 | % | | | 24.5 | % | | | 32.6 | % | | | 25.7 | % | | | 22.7 | % | To corporates | | | 13.38 | % | | | 18.5 | % | | | 24.9 | % | | | 24.9 | % | | | 10.8 | % |
Credit growth was lower in 2009 than in 2007 and 2008, although still robust, and the credit/The credit to GDP ratio reached 45%has increased from 35.2% in 2009, comparedDecember 2007 to 34.2%48.8% of the GDP in 2007 and 41.3% in 2008. ThisJanuary 2012. Although this is one of the highest ratiolevels ever inachieved by Brazil, butit is still a relatively low ratio compared to other countries such as, for example, Chile, where total bank credit to the private sector was equivalent to 100% of GDP in 2009, according to Chilean Central Bank statistics from September 2009.economies.
| | | | | | | | | | | | (in Billions of Reais) | | Total Credit Outstanding | | | 2,030 | | | | 1,706 | | | | 1,414 | | Earmarked credit | | | 727 | | | | 590 | | | | 460 | | Market based credit | | | 1,303 | | | | 1,116 | | | | 955 | | of which: | | | | | | | | | | | | | corporate | | | 651 | | | | 556 | | | | 485 | | individuals (retail) | | | 652 | | | | 560 | | | | 470 | |
Some figures may be subject to revision by the Brazilian Central Bank Source: Brazilian Central Bank Foreign Exchange Rates At December 31, 2009,2011, we had U.S. $12.3$15.9 billion in foreign currency-denominated funding and U.S. $12.1$15.8 billion in foreign currency denominated assets. Our policy is to maintain limited foreign exchange rate exposure by seeking to match foreign currency denominated assets and liabilities as closely as possible, including through the use of derivative instruments. In 2009,2011, we recorded foreign exchange losses of R$51.2121 million. In 2010, we recorded foreign exchange gains of R$416 million due toas a result of the effect of the depreciation of the U.S. dollar against the real on our longassets and liabilities position in U.S. dollar-denominated assetsdollar denominated instruments during the year. These foreign exchange gains and the 25.5% appreciation of the real against the U.S. dollar. These losses were offset in large part in each year by a corresponding loss or gain on derivatives entered into to hedge this exposure. Such losses and gains are recorded under “Gains/losses on financial assets and liabilities”“Exchange differences (net)”. In 2008, we recorded foreign exchange gains of R$1.5 billion due to our long position in U.S. dollar-denominated assets and the depreciation of the real against the U.S. dollar. This gain was offset in large part by corresponding losses on derivatives entered into to hedge this exposure. Such losses are recorded under “Gains/losses on financial assets and liabilities”. The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.currencies during the last decades. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching a selling exchange rate of R$3.53 per U.S.$1.00 at the end of 2002. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.5591.56 per US$U.S.$1.00 in August 2008. In the context of the crisis in the global financial markets, from mid-2008, the real depreciated 31.9% against thesince mid 2008 reaching R$2.34 per U.S. dollar over the year 2008 and reached R$2.3370 per US$$1.00 on December 31, 2008. With global economic recovery, the Brazilian currency appreciated to R$1.74 per U.S.$1.00 at December 31, 2009 and R$1.66 per U.S.$1.00 at December 31, 2010. The recent volatility in international markets contributed to the depreciation of the real recovered in the second half of 2009,2011, reaching R$1.7411.88 per US$U.S.$1.00 atby December 31, 2009, mainly due2011, an improvement in international liquidity and increased risk appetite in international financial markets contributed to the recovery of consumer confidence, exports and foreign investment in the second halfappreciation of the year.real during the first couple of months of 2012, closing February at R$1.71 per U.S.$1.00. Inflation The introduction of the inflation targeting regime in 1999 resulted in important inflation reduction (measured by the official rate, in Brazilthe IPCA, Consumer Price Index estimated by the IBGE). In recent years inflation has been volatile in the past and at times high, but the implementation of inflation targeting policies has led to lower and more stable inflation rates. The center ofoscillating around the target, inflation rangewhich is defined by the National Monetary Council. The target has been set at 4.5% since 2005 has been 4.5%, with a cushiontolerance interval of two2 percentage points in each direction,above and the Central Bank has been successful in staying within its inflation targets.below this target. In 2009 the global financial crisis ledcontributed to a significant reductioncontain inflation. The IPCA increased 4.3% from 5.9% in commodities prices2008. In 2010 domestic demand recovery and therefore, reduced inflation. IPCA, the officialcommodity price increases contributed to inflation of 5.9%. In 2011, consumer price index, reached 4.3% at year end 2009 (5.9% in 2008)inflation advanced to 6.5%, and food prices rose 3.2% (11.1% in 2008). Also, tax incentives to purchase cars and durable goods reduced the prices of these products (a 1.9% decrease in 2009, compared todriven primarily by a 1.0%9% increase in 2008) and, therefore, contributed to lower inflation, despite the monetary stimulus for domestic demand.services prices. Reserve and Lending Requirements The Brazilian Central Bank’s reserve and lending requirements have a significant effect on the results of operations of banks in Brazil. The raising or lowering of these requirements impacts our results of operations by limiting or increasing the amount of funds available for commercial lending operations. BeginningDuring 2011, the Brazilian Central Bank maintained the rules on reserve requirements for the liquidity in the last quarter of 2008, the Central Bank has amended the reserve requirement rules in order to improve liquidity in Brazil’sBrazilian financial system. Largely due to these amendments, ourThe increase in the level of required reserves and lending declinedin 2011 is justified by the increase in the volume of our funding from a high of R$40.041.2 billion (or 33%35% of total deposits) at September 30, 2008December 31, 2010 to R$24.844.8 billion (or 22%29.6% of total deposits) onat December 31, 2009 (as calculated under2011 (in accordance with Brazilian GAAP). The principalmain changes to the required reserves were:in reserve requirements were as follows:
| 1. | increasing the amount deductible from the Central Bank’s additional reserve requirement for savings deposits, demand deposits and time deposits from R$100 million to R$1 billion; | On December 22, 2011, the Brazilian Central Bank issued Circular No. 3,569/11, amended on February 10, 2012 by Circular No. 3,576/12, consolidating and redefining term deposit reserve requirements applicable to commercial banks, multiservice banks, development banks, investment banks, foreign exchange banks, savings banks and credit, financing and investment companies. According to such rule, the percentage of term deposit reserves eligible to earn interest will be limited to 80% in February 2012, 75% beginning April 2012, 70% beginning June 2012 and 64% beginning August 2012. | 2. | decreasing the rate applied to calculate the Central Bank’s additional reserve requirement for demand and time deposits from 8% to 4%; |
| 3. | decreasing the rate of the Central Bank’s reserve requirement for demand deposits from 45% to 42%; |
| 4. | increasing the amount deductible from legal reserve requirements for time deposits from R$300 million to R$2 billion; |
| 5. | changing the form of compulsory deposits for time deposits from 100% in government securities to 30% in government securities (40.0% as from January 5, 2009 and 45% from September 21, 2009) and 70% in cash (60% as from January 5, 2009 and 55% from September 21, 2009). The cash reserve requirement may be satisfied with interbank deposits or asset acquisitions from financial institutions having regulatory capital of less than R$2.5 billion; and |
| 6. | decreasing the rate applied to calculate the Central Bank’s reserve requirement for time deposits from 15% to 13.5% as from September 21, 2009; |
The Brazilian Central Bank also (1) redefined the limitation on deductibility from time deposit reserve requirements for transactions where the counterparty is a smaller financial institution and (2) reduced the Tier 1 Regulatory Capital criterion (Patrimônio de Referência, Nível I) applicable to smaller financial institutions from R$2.5 billion to R$2.2 billion for purposes of deductibility from time deposit reserve requirements. Interbank deposit transactions with a smaller financial institution for purposes of such deduction must be concluded before June 29, 2012. In addition, the reduction of term deposit reserve requirements of R$1 billion now applies to financial institutions with Tier I Regulatory Capital ranging from R$5 billion to R$15 billion, instead of from R$5 billion to R$7 billion as previously set forth by Circular No. 3,569/11. At the end of February 2010, the Central Bank amended the reserve requirement rule.
The following table sets forthpresents the reserve and lending requirements to which we are subject for each category of funding.funding: | | | | | | | | | | | | | | | | | | | Demand deposits | | | | | | | | | | | | | | | | | | | Rural credit loans(1) | | 30% | | 30% | | Loans and Cash | | 6.75% p.a. and Zero for Cash | | | 29 | % | | | 28 | % | | Loans and Cash | | 6.75% p.a. and Zero for Cash | Microcredit loans(2) | | 2% | | 2% | | Loans and Cash | | Cap rate: 2% p.m. and Zero for Cash | | | 2 | % | | | 2 | % | | Loans and Cash | | Cap rate: 2% p.m. and Zero for Cash | Reserve requirements | | 42% | | 42% | | Cash | | Zero | | | 43 | % | | | 43 | % | | Cash | | Zero | Additional reserve requirements | | 5% | | 0% | | Government Bonds | | Overnight Rate | | | 12 | % | | | 12 | % | | Cash | | SELIC | Additional reserve requirements | | 0% | | 8% | | Cash | | Selic | | Free funding(3) | | 21% | | 18% | | | | | | | 14 | % | | | 15 | % | | | | | Savings accounts | | | | | | | | | | | | | | | | | | | | | Mortgage loans | | 65% | | 65% | | Loans and Cash | | Cap of TR + 12% p.a. and TR + 6.17% for Cash | | | 65 | % | | | 65 | % | | Loans and Cash | | Cap of TR + 12% p.a. and TR + 6.17% for Cash | Reserve requirements | | 20% | | 20% | | Cash | | TR + 6.17% p.a. | | | 20 | % | | | 20 | % | | Cash | | TR + 6.17% p.a. | Additional reserve requirements | | 10% | | 0% | | Government Bonds | | Overnight Rate | | | 10 | % | | | 10 | % | | Cash | | SELIC | Additional reserve requirements | | 0% | | 10% | | Cash | | Selic | | Free funding(3) | | 5% | | 5% | | | | | | | 5 | % | | | 5 | % | | | | | Time deposits | | | | | | | | | | | | | | | | | | | | | Reserve requirements | | 13.5% | | 15.0% | | | | | | | 20.0 | % | | | 20.0 | % | | | | | In cash or credit(4) | | 7.4% | | 0.0% | | Cash or Credit | | Zero for Cash | | | 7.2 | % | | | 7.2 | % | | Cash or Credit | | SELIC for Cash | In government bonds | | 6.1% | | 0.0% | | Government Bonds | | Overnight Rate | | In cash or credit(4) | | 0.0% | | 6.8% | | Cash or Credit | | Selic for Cash | | In cash | | 0.0% | | 8.3% | | Cash | | Selic | | | 12.8 | % | | | 12.8 | % | | Cash | | SELIC | Additional reserve requirements | | 4.0% | | 0% | | Government Bonds | | Overnight Rate | | | 12 | % | | | 12 | % | | Cash | | SELIC | Additional reserve requirements | | 0% | | 8% | | Cash | | Selic | | Free funding(3) | | 82.5% | | 77.0% | | | | | | | 68.0 | % | | | 68.0 | % | | | | |
(1) | Rural credit loans are loans to agricultural customers, of which R$5.64.3 billion and R$5.14.9 billion were outstanding as of December 31, 20082011 and December 31, 2009,2010, respectively. On July 01, 2011, there was a reduction in the rate of 29% to 28%, which had been expected pursuant to CMN Resolution No. 3,746 dated as of June 30, 2009. This rate will continue to decrease in coming years to 27% on July 07, 2012 and 26% on July 07, 2013. |
(2) | Microcredit loans are loans to very small businesses, of which R$158.5209.8 million and R$181.5216.1 million were outstanding as of December 31, 20082011 and December 31, 2009,2010, respectively. |
(3) | Free funding is the amount of each category of funding we are free to use for any purpose. |
(4) | Includes only credit acquired up to December 31, 20092011 from financial institutions having net capital of less than R$72.5 billion. |
Taxes Our tax expense mainly consists of two components: (1) a federal income tax and (2) a social contribution tax. The federal income tax is calculated at a rate of 15%, plus a 10% surtax assessed on taxable profits in excess of R$240 thousand per annum. The social contribution tax is calculated at a rate of 15% (for financial institutions) of certain net revenues (9% through April 30, 2008, 15% and from May 1, 2008). Deferred tax assets and liabilities are computed based on temporary differences between the book basis and tax basis of assets and liabilities, tax losses, and adjustments to fair value of securities and derivatives. In addition, we are assessed PIS and COFINS taxes at a rate of 4.65% on certain revenues, net of certain expenses. Under IFRS, since PIS/COFINS taxes are assessed on the basis of certain revenues net of certain expenses, the Bank classifies these taxes as income taxes. The “IOF” - Tax on financial transactions, the “IOF”,Financial Transactions, is currently paid by the customer (contributor) on loans at a daily rate of 0.0041% per dayfor legal entities and 0.0068% for individuals up to a cap of 1.5% plus an additional rate of 0.38% per financial transaction. Generally, loans for legal entities with maturity of greater than 365 days are currently subject to an IOF/credit tax at a rate of 1.88% (maximum rate). We areBesides the fact that the Bank is responsible for withholding the IOF, but the tax does not affect our reported results. As a general rule,results since the Provisional Contribution on Financial Transactions (Contribuição Provisória sobre Movimentações Financeiras, or “CPMF”), has been charged atcustomer is the rate of 0.38% on certain financial transactions
since June 1999. On December 31, 2007,one that is considered the CPMF was terminated, and since January 1, 2008, financial transactions have not been subject to the payment of CPMF. When the CPMF was effective, we were responsible for withholding the tax, but it did not affect our reported results except to a non-material extent in connection with our payment of CPMF on certain of our administrative expense payments. Such CPMF amounts are reflected under “Administrative expenses”.contributor.
See “Item 4. Information on the Company—B. Business Overview—Regulatory Overview—PIS and COFINS tax rates” and “—“Item 4. Information on the Company—B. Business Overview—Regulatory Overview—Tax on Financial Transactions (IOF)”. Gains on Sales of Investment Securities
Our operational results between 2007 and 2009 were affected by certain gains on sales of investment securities and participations. In 2009, we had pre-tax gains of R$3.3 billion in connection with sales of our participations and investment securities on Visanet, Companhia Brasileira de Soluções e Serviços (CBSS), TecBan, Serasa S.A. and BM&FBovespa; these gains were offset by the increase in our provisions for contingencies. In 2008 and 2007, we had pre-tax gains of R$88 million and R$693 million, respectively, excluding Banco Real, in connection with sales of investment securities, including shares in BM&F, BOVESPA and Serasa S.A.
Cayman Offshore Hedging We operate a branch in Grandthe Cayman Islands which is used primarily for sourcing funds in the international banking and capital markets to provide credit lines for us that are extended to our customers for working capital and trade-related financings. Our investment in the Grandour Cayman Islands branch is denominated in U.S. dollars in the amount of U.S.$2.68.9 billion as of December 31, 20082010 and U.S.$3.09.6 billion as of December 31, 2009.2011. We hedge the resulting U.S. dollar-denominated exposure through transactions in U.S. dollar futures in Brazil, which isare not recorded as hedge accounting. OurFor this purpose, our position in U.S. dollar futures as of December 31, 20082010 was U.S.$1.46.1 billion and as of December 31, 20092011 it was U.S.$1.98.6 billion. Changes in the fair value of these futures are reflected under gains and losses on financial assets. Under Brazilian income tax rules, the gain resulting from the impact of a devaluation of the real on our U.S. dollar denominated investment in the Cayman IslandIslands branch is nontaxable and the loss resulting from the impact of an appreciation of the real is not deductible. This tax treatment results in volatility in the income tax items in our income statement. This asymmetry is offset by ourthe hedging results because our derivative positions generate losses (tax deductible)deductible since the transactions are carried out in Brazil) in the case of devaluation of the real and gains (taxable) in the case of appreciation. As a result, theour Cayman Islands investments and its related hedge will continue to result in variations in our effective tax rate. The hedge effect on income taxes on December 31, 2011 caused gains of R$1,646 million on taxes expenses. The after-tax effect of these derivative positions provides a hedge against the tax foreign currency exposure resulting from our Cayman Island investment (that is, the R$721 million after-tax effect of the hedge at December 31, 2009 offsets the R$721 million tax effect of our Cayman exposure at that date). This investment and our related hedging transactions will continue to result in variations in our effective tax rate.Islands investment. Goodwill of Banco Real The potential impairment of goodwill relating to Banco Real may be an important factor affecting our results of operations in future periods. We generated goodwill of R$27.527 billion as a result of the acquisition of Banco Real.Real in 2008. Under IFRS, we are required to analyze goodwill for impairment at least annually or whenever there are indications of impairment. In 2011, 2010 and 2009, we assessed goodwill impairment based on net present value techniques. The future cash flow was based on management estimates and assumptions that are subject to several factors, including: (i)(1) macro-economic projections of interest rates, inflation, exchange rate and other, (ii)(2) the conduct and growth estimates (iii)(3) increased costs, returns, synergies and investment plan, (iv)(4) the behavior of customers, and (v)(5) growth rates and adjustments applied to future cash flows. We did not identify any impairment to the goodwill relating to Banco Real in 2009. In 2008, due to the recent incorporation of Banco Real into the group2011, 2010 and the results of the related market value calculation and purchase price allocation valuation recently performed, we did not detect, and therefore, did not recognize any impairment losses. We may be required to record an impairment charge in the future if management determines that there is objective evidence of impairment. Any impairment in goodwill relating to the Banco Real acquisition will be reflected in our income statement under impairment losses on other assets (net). See “—Critical Accounting Policies—Impairment”.2009. For tax purposes, goodwill is amortized over a seven-year period. The difference between the tax basis and accounting basis of goodwill on the acquisition of Banco Real is considered permanent, since the possibility of future use of resources to settle a tax liability is considered remote by management. The goodwill realization at the Santander Brasil entity level is also considered remote because the possibility of loss on impairment or disposal only applies to the entity as a whole and according to the characteristics of the business combination performed it is not possible to segregate and identify the business originally acquired. Therefore, amortization of goodwill related tax generates a permanent difference and there is no record of the deferred tax liability.
Main Assumptions | | | | | | | | | | Basis of valuation | | | | | | | Period of the projections of cash flows(1) | | 10 years | | | 10 years | | | 10 years | | Growth rate | | | 5.0 | % | | | 5.0 | % | | | 4.5 | % | Discount rate(2) | | | 15.2 | % | | | 15.5 | % | | | 15.2 | % |
(1) | The projections of cash flow are prepared using internal budget and growth plans of management, based on historical data, market expectations and conditions such as industry growth, interest rates and inflation. |
(2) | The discount rate is calculated based on the capital asset pricing model. |
We performed a sensitivity test in the goodwill impairment analysis considering main premises that could reasonably possibly change, as required by the IFRS. Accordingly, we applied such a test considering the discount rate as the main premise subject to reasonable possible change and we did not identify any impairment to goodwill. Critical Accounting Policies TheOur consolidated financial statements have been prepared in accordance with IFRS as issued by IASB, and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).IFRIC.
TheOur consolidated financial statements for the year ended December 31, 2008 and 2007 were the first to be prepared in accordance with IFRS, with a transition date to IFRS asof first implementation of January 1, 2007 (opening balance sheet). The statutory financial statements have been prepared locally in Brazil in accordance with Brazilian GAAP as established by Brazilian Corporate Law and standards established by the National Monetary Council (CMN), the Brazilian Central Bank (BACEN) and the Brazilian Securities Commission (CVM), the National Council of Private Insurance (CNSP) and the Superintendency of Private Insurance (SUSEP). Hereafter it shall be referred to as “Brazilian GAAP”.
General Our principal accounting policies are described in note 2 to our audited consolidated financial statements included elsewhere in this annual report.statements. The following discussion describes those areas that require the most judgment or involve a higher degree of complexity in the application of the accounting policies that currently affect our financial condition and results of operations. The accounting estimates made in these contexts require management to make assumptions about matters that are highly uncertain. In each case, if management had made other estimates, or if changes in these estimates occur from period to period, these accounting estimates could have a material impact on our financial condition and results of operations. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under current circumstances. Actual results may differ from these estimates if assumptions and conditions change. Judgments or changes in assumptions are submitted to the audit and compliance committee of the board of directors and/orand to our regulatory authorities and are disclosed in the notes to our consolidated financial statements. Fair value of financial instrumentsFinancial Instruments We record financial assets and liabilities as financial instruments that are classified at fair value through profit or loss, available for sale securities, and all derivatives at fair value on the balance sheet. The fair value of a financial instrument is the value at which it could be bought or sold in a current transaction between knowledgeable, willing parties on an arm’s lengtharm’s-length basis. If a quoted price in an active market is available for an instrument, the fair value is calculated based on that price. If there is no market price available for a financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving the same or similar instruments and, in the absence thereof, on the basis of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it.markets. We use derivative financial instruments for both trading and non-trading activities. The principal types of derivatives used are interest rate swaps, future rate agreements, interest rate options and futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, foreign exchange swaps, cross currency swaps, equity index futures, equity options, and equity swaps. The fair value of standard derivatives is calculated based on published price quotations. The fair value of over-the-counter derivatives is calculated as the sum of the expected future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets as follows: | · | The present value method for valuing financial instruments permitting static hedging (principally, forwards and swaps) and loans and advances. Expected future cash flows are discounted using the interest rate curves of the applicable currencies. The interest rate curves are generally observable market data. |
· | · | The Black-Scholes model for valuing financial instruments requiring dynamic hedging (principally structured options and other structured instruments). Certain observable market inputs are used in the Black-Scholes model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate. |
| · | Each of the present value methods and the Black-Scholes models are used for valuing financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors. For more structured instruments that require dynamic hedging, the Heath-Jarrow-Morton model is used. The main inputs used in these models are principally observable market data, including appropriate interest rate curves, volatilities, correlations and exchange rates. |
| · | We use dynamic models similar to those used in the measurement of interest rate risk for measuring credit risk of linear instruments (such as bonds and fixed-income derivatives). In the case of non-linear instruments, if they arethe portfolio exposed to portfolio credit risk (such as credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used in the Standard Gaussian Copula model are generally data relating to individual issuers in the portfolio and correlations thereto. The main inputs used in determiningdetermine the underlying cost of credit for credit risk derivatives are quoted credit risk spreads, and the correlation between individual issuers’ quoted credit derivatives.derivatives of various issuers. |
| · | The determination of fair value requires us to make certain estimates and assumptions. If quoted market prices are not available, fair value is calculated using widely accepted pricing models that consider contractual prices of the underlying financial instruments, yield curves, contract terms, observable market data, and other relevant factors. The use of different estimates or assumptions in these pricing models could lead to a different valuation being recorded in our consolidated financial statements. |
See note 2d (iii) to our consolidated financial statements for additional information on valuation techniques used by us and details of the principal assumptions and estimates used in these models and the sensitivity of the valuation of financial instruments to changes in the principal assumptions used. Allowance for credit lossesImpairment Losses on Financial Assets
We assess financial assets accounted for at amortized cost for objective evidence of impairment. Any resulting allowances for credit losses are recognized and measured in accordance with IAS 39. Credit losses exist if the carrying amount of an asset or a portfolio of assets exceeds the present value of the estimated future cash flows. We cover losses inherent in debt instruments not measured at fair value through profit or loss and in contingent liabilities taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods that have not yet been allocated to specific transactions. We use the concept of incurred loss to quantify the cost of credit risk and include it in the credit.calculation of risk-adjusted return of its transaction. Incurred loss is the expected cost on average in a complete business cycle, of the credit risk of a transaction that will manifest itself within a one year (business cycle) lead time from the balance sheet date considering the characteristics of the counterparty and the guarantees and collateral associated with the transaction. The credit portfolio is broken down, identifying clusters that show, within each cluster, homogeneous levels in the estimated parameters of probability of default, or “PD”, and loss given default, or “LGD”, and stability on those parameters for a period of historical data of five years for PD and seven years for the LGD. Each of these clusters demonstrates distinct levels of these parameters. For each business segment, incurred loss is calculated by using statistical models that consider the following three factors: “exposure at default”, “probability of default” and “loss given default”.
Exposure at default or “EAD” is the amount of risk exposure at the date of default by the counterparty. In accordance with IFRS, the exposure at default used for this calculation is the current exposure, as reported in the balance sheet. Probability of default, or “PD”, is the probability of the counterparty failing to meet its principal and/or interest payment obligations. PD is measured using a time horizon of one year; i.e.,that is, it quantifies the probability of the counterparty defaulting in the coming year. The definition of default includes amounts past due by ninety days or more and cases in which there are no arrears but there are doubts as to the solvency of the counterparty (subjective doubtful assets). Loss given default, or “LGD”, is the loss arising in the event of default. LGD calculation is based on the observation of the recoveries of defaulted loans, taking into account the guarantees/collateral associated with the transaction, the income and expenses associated with the recovery process, and also the timing thereof and the indirect costs arising from the recovery process. Our methodology used for determining the allowance in respect offor incurred losses that have not been specifically identified seeks to identify the amount of incurred losses as of the balance sheet date of loans that have not yet been identified as impaired, but that we estimate,it is estimated, based on our past experience and specific factors, will manifest within one year from the balance sheet date. We refer to such impairment as inherent losses in the context of our internal credit loss allowance models. The approach described above is used as a general rule and covers almost the entire portfolio. However, for low default portfolios (sovereign risk, credit institutions or large corporations) the number of defaults observed is very small or zero. In these cases, we use data contained in the credit derivative spreads to estimate the expected loss discounted by the market and break it down into PD and LGD. Impairment Certain assets, including goodwill, other intangible assets, equity method investments, financial assets not carried at fair value through profit or loss and other assets are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable. Assessment of what constitutes impairment is a matter of significant judgment. We test goodwill and other intangible assets for impairment on an annual basis, or more frequently if events or changes in circumstances, such as an adverse change in business climate or observable market data, indicate that these assets may be impaired. An impairment loss recognized for goodwill may not be reversed in a subsequent period. The fair value determination used in the impairment assessment requires estimates based on quoted market prices, prices of comparable businesses, present value or other valuation techniques, or a combination thereof, requiring management to make subjective judgments and assumptions. Events and factors that may significantly affect the estimates include, among other things, competitive forces, customer behaviors and attrition, changes in revenue growth trends, cost structures and technology, and changes in discount rates and specific industry or market sector conditions. All debt and equity securities (other than those carried at fair value through profit or loss) are subject to impairment testing every reporting period. The carrying value is reviewed in order to determine whether an impairment loss has been incurred. Evaluation for impairment includes both quantitative and qualitative considerations. For debt securities, such considerations include actual and estimated incurred credit losses indicated by payment default, market data on (estimated) incurred losses and other current evidence that the issuer may not pay amounts when due. Equity securities are impaired when management believes that, based on (the combination of) a significant or prolonged decline of fair value below the acquisition price, there is sufficient reason to believe that the acquisition cost may not be recovered. “Significant” and “prolonged” are interpreted on a case-by-case basis for specific equity securities. Upon impairment, the full difference between amortized cost and fair value is removed from equity and recognized in net profit or loss. Impairments on debt securities may be reversed if there is a decrease in the amount of the impairment which can be objectively related to an observable event. Impairments on equity securities may not be reversed. We did not identify any impairment of goodwill or tangible assets in 20092011 and 2010 (see notes 13 and 12, respectively, to our audited consolidated financial statements). WeIn 2009, we recorded R$819 millionsmillion of provision for impairment losses on contracts for providing banking services. See note 14 to our audited consolidated financial statements. Post-employment Benefits We have undertaken to supplement the public social security system benefits accruing to certain employees, and to their beneficiary right holders, for retirement, permanent disability or death. Retirement Benefit ObligationsOur post-employment obligations to our employees are deemed to be “defined contribution plans” when we make pre-determined contributions to a separate entity and will have no legal or effective obligation to make further contributions if the separate entity cannot pay the employee benefits relating to the service rendered in the current and prior periods. Post-employment obligations that do not meet the aforementioned conditions are classified as “defined benefit plans”.
We provide pension plans in the form of both definedDefined contribution plans and defined benefit plans,
The contributions made in accordance with IAS 19. For defined contribution plans, the pension costthis connection in each year are recognized under “Personnel expenses” in the consolidated income statement representsstatement. The amounts not yet contributed at each year-end are recognized, at their present value, under “Provisions – Provisions for pensions and similar obligations” on the contribution payable toliability side of the scheme. Forconsolidated balance sheet. Defined benefit plans The Bank recognizes under “Provisions – Provisions for pensions and similar obligations” on the liability side of the consolidated balance sheet (or under “Other assets” on the asset side, as appropriate) the present value of its defined benefit plans,post-employment obligations, net of the pensionfair value of the plan assets and of the net unrecognized cumulative actuarial gains and/or losses disclosed in the valuation of these obligations, which are deferred using a corridor approach, and net of the past service cost, which is assessed in accordance with the advice of a qualified external actuary using the projected unit credit method. This cost is charged annually to the consolidated income statement.deferred over time. The actuarial valuation is dependent upon a series of assumptions; the principal ones are set forth below: | · | annual social security pension revision rate; |
| · | annual salary growth rate, and |
| · | the method used to calculate vested commitments to current employees |
The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date, adjusted for any historic unrecognized actuarial gains or losses and past service cost, is recognized as a liability in the balance sheet. Further information on retirement benefit obligations is set out in notes 2 and 2122 to our consolidated financial statements. Results of Operations We are a financial group whose main business focus is commercial banking, complemented by global wholesale banking, asset management and insurance brokerage businesses. Our main source of income is the interest that we earn from our lending activities, by borrowing funds from customers at certain rates and lending them to other customers at different rates. We also derive income from the interest and dividends that we receive from our investments in fixed/variable income and equity securities, from our trading activities in such securities and derivatives, by buying and selling these instruments to take advantage of current and/or expected differences between purchase and sale prices, and from entering into derivative transactions with customers on which we hedge our market risk exposure and earn a spread. Another source of income is the fees and commissions that we earn from the different banking and other financial services that we provide, including credit and debit cards, insurance sales, account management, bill discounting, guarantees, and other contingent liabilities, advisory and custody services, and from our mutual and pension fundsfund management services. In addition, from time to time, we derive income from the capital gains we make from the sale of our holdings in group companies. Results of Operations for the Year Endedyear ended December 31, 20092011 Compared to the Year Endedyear ended December 31, 20082010 As | | For the Year ended December 31 | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Net interest income | | | 27,902 | | | | 24,095 | | | | 15.8 | % | | | 3,807 | | Income from equity instruments | | | 94 | | | | 52 | | | | 81.2 | % | | | 42 | | Income from companies accounted for by the equity method | | | 54 | | | | 44 | | | | 23.4 | % | | | 10 | | Net fee and commissions | | | 7,339 | | | | 6,836 | | | | 7.4 | % | | | 503 | | Gains/losses on financial assets and liabilities (net) and exchange differences (net) | | | (235 | ) | | | 1,875 | | | | (112.5 | )% | | | (2,110 | ) | Other operating income (expenses) | | | (379 | ) | | | (348 | ) | | | 9.2 | % | | | (31 | ) | Total income | | | 34,775 | | | | 32,553 | | | | 6.8 | % | | | 2,222 | | Administrative expenses | | | (12,373 | ) | | | (11,231 | ) | | | 10.2 | % | | | (1,142 | ) | Depreciation and amortization | | | (1,462 | ) | | | (1,237 | ) | | | 18.2 | % | | | (225 | ) | Provisions (net) | | | (3,061 | ) | | | (1,974 | ) | | | 55.1 | % | | | (1,087 | ) | Impairment losses on financial assets (net): | | | (9,382 | ) | | | (8,234 | ) | | | 14.0 | % | | | (1,148 | ) | Impairment losses on other assets (net) | | | (39 | ) | | | (21 | ) | | | 85.7 | % | | | (18 | ) | Other non-financial gains/losses | | | 452 | | | | 140 | | | n.a. | | | | 312 | | Profit before tax | | | 8,911 | | | | 9,997 | | | | (10.9 | )% | | | (1,086 | ) | Income taxes | | | (1,155 | ) | | | (2,614 | ) | | | (55.8 | )% | | | 1,459 | | Net income | | | 7,756 | | | | 7,383 | | | | 5.1 | % | | | 373 | |
Summary For the year ended December 31, 2011, we reported net profit of R$7.8 billion, a consequence5.1% increase as compared to 2010. Total revenues in 2011 were R$34.8 billion, a 6.8% increase from R$32.6 billion in 2010, mainly driven by an increase in net interest income. Administrative expenses increased by 10.2% year over year. Our total loan portfolio increased by 20.9% from R$161.0 billion on December 31, 2010 to R$194.2 billion on December 31, 2011, with the largest increases in loans to individuals and SMEs. Total deposits increased by 7.4% from R$210.3 billion on December 31, 2010 to R$226.0 billion on December 31, 2011. Our delinquency ratio in December 2011 was 6.7%, as compared to 5.8% in December 2010. Our BIS ratio at December 31, 2011 was 19.9% (disregarding the effect of our acquisition of Banco Real in August 2008, our results of operationsgoodwill). Net income for the year ended December 31, 2008 and 2009 are not comparable. In order to analyze the organic developments in our business we discuss pro forma information2011 was R$7.8 billion, a 5.1%, or R$373 million, increase from R$7.4 billion for the year 2008 as if we had consolidated Banco Realended December 31, 2010. This increase was mainly due to: | · | A 15.8 %, or R$3.8 billion, increase in net interest income for the year ended December 31, 2011 compared to the year ended December 31, 2010, mainly due to an increase of R$3.4 billion in revenues from lending activities, driven by loans to individuals and SME customers. |
| · | An increase of 7.4%, or R$503 million, in net fee and commissions income for the year ended December 31, 2011 as compared to the year ended December 31 2010. This increase was primarily driven by a growth in commissions from sales of insurance and capitalization products and commissions from credit and debit cards in the same period. |
| · | Income tax expenses declined by R$1,459 million in the year ended December 31, 2011, compared to the year ended December 31, 2010. In the year ended December 31, 2011, the effect of the appreciation of the dollar against the real on the net equity of our Cayman Islands Branch, and the negative hedge results, caused lower tax expenses of R$1,646 million, compared to higher tax expenses of R$272 million in 2010. See “—Other Factors Affecting Our Financial Condition and Results of Operations—Cayman Offshore Hedging”. Disregarding these effect, tax expenses were R$2,801 million and R$2,342 million, respectively, for 2011 and 2010 due to lower goodwill tax amortizations (other than Banco Real), and to lower interest on capital. |
These increases were partially offset by: | · | A R$2.1 billion decrease in gains (losses) on financial assets and liabilities (net) plus exchange differences to a loss of R$235 million in the year ended December 31, 2011 compared to gains of R$1.9 billion in the year ended December 31, 2010. The decrease was mainly due to the effect of the appreciation of the U.S. dollar against the real on the net equity of our Cayman Islands Branch. For the year ended December 31, 2011, the hedging result totaled net losses of R$1,646 million, offset by net gains in the same amount in tax expenses, compared to gains of R$272 million in 2010, offset by losses in the same amount in tax expenses. This hedge position, composed of derivatives, was established to mitigate the exchange rate variation and the effects of offshore investments on our net profit. Excluding the effects of the hedging results of our Cayman Islands branch, gains (losses) on financial assets and liabilities (net) and exchange differences (net) for the year ended December 31, 2011 totaled net gains of R$1,412 million, a R$192 million decrease from gains of R$1,603 million for the year ended December 31, 2010. This variation is partially explained by the early redemption of certain debt at a discount, which resulted in a gain of R$64 million in January 2010 and which did not recur in 2011, lower results of R$17 million from hedge operations and lower results of R$111 million from derivatives transactions with customers and others. |
| · | An increase of 10.2% or R$1.1 billion in administrative expenses for the year ended December 31, 2011 compared to the year ended December 31, 2010, mainly due to labor cost increases tied to inflation and the expansion of our branch network, with the addition of 154 new branches in 2011. |
| · | An increase in impairment losses on financial assets (net) of R$1,148 million for the year ended December 31, 2011 compared to the year ended December 31, 2010, principally due to an increase in the delinquency ratio. |
| · | An increase in provisions expenses of R$1,087 million for the year ended December 31, 2011 compared to the year ended December 31, 2010, mainly due to an increase in provisions for labor claims and tax litigations, partially offset by a decrease in civil claims. Provisions for labor claims increased R$648.7 million in 2011, primarily due to our efforts during the fourth quarter to accelerate the settlement of outstanding labor claims to reduce the volume of open claims. Concurrently, we have been implementing measures to reduce the level of new labor disputes with new controls on labor outsourcing, among other measures. |
Net Interest Income Net interest income for the year ended December 31, 2011 was R$27,902 million, a 15.8%, or R$3,807 million, increase from January 1, 2008.R$24,095 million for the year ended December 31, 2010. Revenues from lending activities increased R$3,365 million or 19.1% during the year due to a 19.6% or R$28,118 million, increase in the average credit portfolio volume, driven by increased lending to individuals and SME customers. For further information on loan portfolio, see item “3. Key Information—Selected Statistical Information—Loan Portfolio”. Average total earning assets in 2011 were R$323.7 billion, a 18% or R$48.4 billion increase from R$275.2 billion in 2010. The principal drivers of this increase were (1) an increase of R$26.0 billion in average of loans and advances to customers, (2) an increase of R$17.7 billion in average of cash and balances with the Brazilian Central Bank and (3) an increase of R$10.9 billion in average of debt instruments. Net yield (the quotient of net interest income divided by average earning assets) was 8.62% in 2011, a decrease of 0.13 percentage points compared to 8.75% in 2010. | | For the year ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | (in million of reais) | | Net interest income | | | 22,167 | | | | 19,231 | | | | 15 | % | | | 2,936 | | | | 11,438 | | | | 94 | % | | | 10,729 | | Income from equity instruments | | | 30 | | | | 39 | | | | (23 | %) | | | (9 | ) | | | 37 | | | | (19 | %) | | | (7 | ) | Net fees and commissions | | | 6,238 | | | | 5,866 | | | | 6 | % | | | 372 | | | | 4,254 | | | | 47 | % | | | 1,984 | | Share of results of entities accounted for using the equity method | | | 295 | | | | 305 | | | | (3 | %) | | | (10 | ) | | | 112 | | | | 163 | % | | | 183 | | Gains/losses on financial assets and liabilities (net) | | | 2,716 | | | | (484 | ) | | n.a | | | | 3,200 | | | | (1,286 | ) | | n.a | | | | 4,002 | | Exchange differences (net) | | | (51 | ) | | | 1,261 | | | n.a | | | | (1,312 | ) | | | 1,476 | | | n.a | | | | (1,527 | ) | Other operating income (expenses | | | (116 | ) | | | (75 | ) | | | 55 | % | | | -41 | | | | (60 | ) | | | 94 | % | | | (56 | ) | Gross income | | | 31,280 | | | | 26,143 | | | | 20 | % | | | 5,136 | | | | 15,971 | | | | 96 | % | | | 15,308 | | Administrative expenses | | | (10,947 | ) | | | (11,532 | ) | | | (5 | %) | | | 585 | | | | (7,185 | ) | | | 52 | % | | | (3,762 | ) | Depreciation and amortization | | | (1,249 | ) | | | (1,236 | ) | | | 1 | % | | | (13 | ) | | | (846 | ) | | | 48 | % | | | (403 | ) | Provisions (net | | | (3,481 | ) | | | (1,702 | ) | | | 105 | % | | | (1,779 | ) | | | (1,230 | ) | | | 183 | % | | | (2,251 | ) | Impairment losses on financial assets (net: | | | (9,966 | ) | | | (6,570 | ) | | | 52 | % | | | (3.397 | ) | | | (4,100 | ) | | | 143 | % | | | (5,868 | ) | Impairment losses on other assets (net) | | | (901 | ) | | | (85 | ) | | n.a | | | | (816 | ) | | | (77 | ) | | n.a | | | | (824 | ) | Gains/losses on disposal of assets not classified as noncurrent assets held for sale | | | 3,369 | | | | 32 | | | n.a | | | | 3,337 | | | | 7 | | | n.a | | | | (3,362 | ) | Gains/losses on disposal of noncurrent assets held for sale | | | 32 | | | | 22 | | | | 55 | % | | | 12 | | | | 9 | | | | 269 | % | | | 25 | | Profit before tax | | | 8,137 | | | | 5,072 | | | | 60 | % | | | 3,065 | | | | 2,549 | | | | 219 | % | | | 5,588 | | Taxes | | | (2,629 | ) | | | (1,159 | ) | | | 127 | % | | | (1,470 | ) | | | (170 | ) | | n.a | | | | (2,459 | ) | Net income | | | 5,508 | | | | 3,913 | | | | 41 | % | | | 1,595 | | | | 2,379 | | | | 132 | % | | | 3,129 | |
Average total interest bearing liabilities in 2011 were R$244.4 billion, a 23% or R$46.0 billion increase from R$198.5 billion in 2010. The main drivers of this growth was 1.1 percentage point increase in customer deposits, a 1.3 percentage point increase in marketable debt securities and a 1.8 percentage point increase in a subordinated debt.
SummaryFinally, the yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities) in 2010 was 6.4%, 0.1 percentage point higher than in 2011, which was 6.3%, or practically stable compared to 2010.
Income from Equity Instruments Income from Equity Instruments for the year ended December 31, 2011 reached R$94.0 million, a 81.2% or R$42.0 million increase from R$52.0 million for the same period in 2010. This increase was mainly due to higher results from available-for-sale financial assets during the year. Income from companies accounted for by the equity method Income from companies accounted for by the equity method for the year ended December 31, 2011 was R$54 million, a R$10 million increase from R$44 million for the year ended December 31, 2010. This increase principally reflects a growth in the results of Companhia de Arrendamento Mercantil RCI Brasil and of Companhia de Crédito, Financiamento e Investimento RCI Brasil. Net Fee and Commission Income Net fee and commission income for the year ended December 31, 2009 was2011 reached R$5.5 billion,7,339 million, a 132%7.4%, or R$3.1 billion503 million, increase from R$2.4 billion6,836 million for the year ended December 31, 2008. The2010. This increase was mainly due to the consolidationan increase in commissions from sales of Banco Real in our financial statements. On a pro forma basis as if the acquisitioninsurance and capitalization products and commissions from credit and debit cards. Commissions from sales of Banco Real had occurred as of January 1, 2008, net incomeinsurance and capitalization products amounted to R$1,560 million for the year ended December 31, 2009 increased by 41.0%2011, a 26.8% increase compared to the year ended December 31, 2010, representing 21.3% of total commissions during the period. This variation is explained by the growth of life insurance products linked to credit, and the change in the effective term of life and personal accident premiums, which in 2011 ceased to be renewed on a monthly basis and began to be renewed on an annual basis. Revenues from credit and debit cards totaled R$3.9 billion1,298 million for the year ended December 31, 2008.2011, an increase of 33.9% compared to the year ended December 31, 2010. This increase was mainly due to: · | Capital gains of R$3.4 billion realized upon the sale of part of the equity participations in our portfolio, principally the sale of our interests in Visanet (currently renamed Cielo S.A.), partially offset by an increase in provisions for contingencies; |
· | An increase of 12.4% in average credit volumes and a resulting increase in revenues from lending operations. The credit market in Brazil continued to grow in 2009, although at a slower pace than in previous years. Credit balances at December 31, 2009 were 15.0% higher than at December 31, 2008; |
· | A R$3.4 billion increase in credit impairment losses driven by deteriorating economic conditions; and |
· | Increased gains on financial assets in 2009. |
Net Interest Income
Santander Brasil’s net interest income in 2009 was R$22.2 billion, a 94% or R$10.7 billion increase from R$11.4 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008,
net interest income in 2009 increased by 15% compared to R$19.2 billion in 2008. This increase was mainlyprimarily due to growth in our lending activities, in addition to anthe increase in the average spread of our credit assets over interbank rates.
Average total earning assets in 2009 were R$229.5 billion, a 72% or R$95.8 billion increase from R$133.7 billion in 2008. The principal drivers of this increase were (i) the acquisition of Banco Real and (ii) an increase in average loans and advances to customers. The increase in loans and advances was driven by an increase in corporate lending, principally trade finance in our Global Wholesale Banking segment, as well as an increase in retail lending mainly driven by an increase in mortgage lending and a increase in unsecured personal credit. The growth in mortgage lending was in line with the growth of this product in the Brazilian market as the housing credit market is still very incipient in Brazil in comparison with more mature economies. The increase in personal credit was also in line with market trends in Brazil.
Average total interest bearing liabilities in 2009 were R$184.3 billion, a 68% or R$74.9 billion increase from R$109.4 billion in 2008. The principal driver of this increase was the acquisition of Banco Real. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, the main driver of this increase was an increase in time deposits. This growth resulted from a movement of customer funds out a mutual funds and other similar vehicles into lower risk bank deposits as well as a “flight to quality” as Brazilian customers moved their savings to larger financial institutions.
The above average earning assets and bearing liabilities include only the information of Banco Real since September 2008. Net interest income also benefited from a 20 basis point increase in the spread of the average yield earned on our interest earning credit assets over the average CDI rate, which is a proxy for the cost of interbank funding. This spread is the way we evaluate the yield earned on our assets. The increase in this spread reflects increase in credit market risk that we bearfees as a result of economic and credit conditions arising from the recent economic crisis, offset in part by a relative decrease in the percentagegrowth of our total portfolio comprisedmerchant acquisition business and the adoption of higher-risk retail lending.
Net Feesa strategy based on innovation and Commission Income
Net feesa focus on customer needs, resulting in an increase in our credit card base and commission income in 2009 was R$6.2 billion, a 47% or R$2.0 billion increase from R$4.3 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net fees and commission income in 2009product penetration. In 2011, credit card transaction volume increased by 6%11.2% compared to R$5.9 billion2010, and total financial transaction volume increased 11.3% compared to 2010. Our credit card base increased 8.2% in 2008. This increase was mainly due to2011 and our debit card base increased 13.4% in 2011 reaching a R$198.0total amount of 29.3 million growth in the sale of insurance and capitalization products (savings account products that generally require that a customer deposit a fixed sum with us) and a R$166 million increase in commissions on credit and debitissued cards.
The following table reflects the breakdown of net fee and commission income for the year ended December 31, 20092011 and 2008 (on a pro forma basis).2010: | | | | | | | | | | December 2008 (pro forma) | | | | | | For the year ended December 31 | | | | (in million of R$) | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Banking fees | | | 2,458 | | | | 2,376 | | | | 3 | % | | | 2,465 | | | | 2,369 | | | | 4.0 | % | | | 96 | | Receiving Services | | | 502 | | | | 442 | | | | 14 | % | | | 515 | | | | 506 | | | | 1.8 | % | | | 9 | | Sale of insurance | | | 1,042 | | | | 844 | | | | 23 | % | | Investment funds | | | 737 | | | | 830 | | | | (11 | )% | | Insurance and Capitalization | | | | 1,560 | | | | 1,230 | | | | 26.8 | % | | | 330 | | Asset Management and Pension Funds | | | | 1,204 | | | | 1,132 | | | | 6.4 | % | | | 72 | | Credit and debit cards | | | 782 | | | | 616 | | | | 27 | % | | | 1,298 | | | | 969 | | | | 33.9 | % | | | 329 | | Capital markets | | | 539 | | | | 413 | | | | 31 | % | | | 419 | | | | 502 | | | | (16.6 | )% | | | (83 | ) | Trade finance | | | 384 | | | | 397 | | | | (3 | )% | | | 400 | | | | 456 | | | | (12.3 | )% | | | (56 | ) | Tax on services | | | (350 | ) | | | (351 | ) | | | (0 | )% | | | (364 | ) | | | (357 | ) | | | 2.1 | % | | | (7 | ) | Others | | | 143 | | | | 298 | | | | (52 | )% | | | (158 | ) | | | 27 | | | | — | | | | (185 | ) | Total | | | 6,238 | | | | 5,866 | | | | 6 | % | | | 7,339 | | | | 6,836 | | | | 7.4 | % | | | 503 | |
Share of Results of Entities Accounted for using the Equity Method
Share of results of entities accounted for using the equity method in 2009 was R$295 million, a R$183 million increase from R$112 million in 2008. This increase was mainly due to gains of R$126 million from ABN Dois Participações, R$110 million of which was due to the sale of Real Capitalização business, to our affiliate Santander Seguros. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, share of results of entities accounted for using the equity method in the year ended December 31, 2009 decreased 3% compared to R$305 million in 2008.
Gains (Losses)Gains/Losses on Financial Assets and Liabilities (Net) plus Exchange Differences
Gains (losses)Gains/losses on financial assets and liabilities (net) in 2009plus exchange differences for the year ended December 31, 2011 were losses of R$235 million, a R$2,110 million decrease from gains of R$2.7 billion, a R$4.0 billion increase from1,875 million for the year ended December 31, 2010. The decrease was mainly due to the effect of the appreciation of the U.S. dollar against the real on the net equity of our Cayman Islands Branch. In the year ended December 31, 2011, the hedging result totaled losses of R$1.3 billion1,646 million offset by gains in 2008. On a pro forma basis as if the acquisitionsame amount in tax expenses, compared to gains of Banco Real had occurred asR$272 million in 2010, offset by losses in the same amount in tax expenses. A hedge position, composed of January 1, 2008, gains (losses)derivatives, was established to mitigate the exchange rate variation and the effects of offshore investments on our net profit. Excluding the effects of the hedging results of our Cayman Islands Branch, gains/losses on financial assets and liabilities (net) in 2009 increased R$3.2 billion compared to losses of R$484.0 million in 2008. The R$3.2 billion increase in 2009 compared to 2008 (on a pro forma basis) is due to (i) R$1.3 billion of gains related to foreign currency derivatives entered into to hedge our exposure and were partially offset by foreignplus exchange losses recorded under exchange differences (ii) a R$1.7 billion increase in gains on our Cayman Islands investment hedge and (iii) a R$126.0 million increase in proceeds from the sale of long-term investments upon the sale of part of our interests in BM&FBOVESPA, which was partly offset by a R$76.0 million decrease in results from our proprietary trading activities. As noted above under “—Other Factors Affecting Financial Condition and Results of Operations—Cayman Offshore Hedging”, changes in our Cayman Islands investment hedge are offset by corresponding change in our income tax rate. See “—Income Tax” below.
Exchange Differences (Net)
Exchange differences (net) in 2009 were a loss of R$51 million, a R$1.5 billion decrease from gains of R$1.5 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, exchange differences (net) in 2009 decreased R$1.3 billion compared to a gain of R$1.3 billion in 2008 due primarily to the average appreciation of the real against the U.S. dollar for the year ended December 31, 2009 compared to2011 totaled gains of R$1,412 million, a R$192 million decrease from gains of R$1,603 million for the year ended December 31, 2008. These losses were largely offset2010. This variation is explained by gains on derivativethe early redemption of certain debt at a discount, which resulted in a gain of R$64 million in January 2010 and which did not recur in 2011, lower results of R$17 million from hedge operations and lower results of R$111 million from derivatives transactions settled to hedge our foreign currency exposure. See “— Gains (Losses) on Financial Assetswith customers and Liabilities (Net)” above.others.
Other Operating Income (Expenses)Income/Expenses Other operating income (expenses) in 2009income/expenses for the year ended December 31, 2011 was an expense of R$116379 million, an increase of R$31 million compared to an expense of R$60348 million in 2008. On a pro forma basis as iffor the acquisition of Banco Real had occurred as of January 1, 2008, other operating expenses in 2009 increased by R$41 million to expenses of R$75 million in 2008.year ended December 31, 2010. Administrative Expenses Administrative expenses changed from R$7.2 billion in 2008, or R$11.5 billion on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, to R$10.9 billion in 2009. The decrease on a pro forma basis was primarily due to the cost synergies which were created as a result of the merger between Santander Brasil and Banco Real, particularly from personnel reductions, offset in part by salary increases tied to inflation. As a result, our efficiency ratio, which we calculate as administrative expenses divided by total income, decreased from 44.0%Expenses for the year ended December 31, 2008 on2011 were R$12,373 million, a pro forma basisR$1,142 million increase compared to 34.7%expenses of R$11,231 million for the year ended December 31, 2009.2010, mainly due to labor cost increases tied to inflation, and the expansion of our branch network, with the addition of 154 new branches in 2011. PersonnelSalaries, benefits and social security expenses increased R$632 million in 2011 due principally to the recruitment of employees and to the impact of salary increases tied to inflation under our collective bargaining agreement. This agreement requires certain adjustments in fixed and variable income, linked to the official consumer price inflation index (IPCA).
The following table sets forth personnel expenses for each of the periods indicated,indicated: | | For the year ended December 31 | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Salaries | | | 4,192 | | | | 3,731 | | | | 12.3 | % | | | 461 | | Social security | | | 1,092 | | | | 994 | | | | 9.9 | % | | | 98 | | Benefits | | | 866 | | | | 792 | | | | 9.3 | % | | | 74 | | Training | | | 116 | | | | 93 | | | | 24.7 | % | | | 23 | | Others | | | 378 | | | | 316 | | | | 20.1 | % | | | 62 | | Total | | | 6,644 | | | | 5,926 | | | | 12.1 | % | | | 718 | |
Other administrative expenses increased R$425 million from R$5,304 million for the year ended December 31, 2010 to R$5,729 million for the year ended December 31, 2011. The increase was primarily due to contractual readjustments (contracts linked to inflation), new points of sale, a growth in our customer base, which generally leads to increased spending on infrastructure and services, and an increase in costs for advertising and marketing campaigns. | | | | | | | | | | | | | | | | (in million of R$) | | Salaries | | | 3,364 | | | | 3,571 | | | | 2,253 | | Social Security | | | 971 | | | | 944 | | | | 569 | | Benefits | | | 749 | | | | 678 | | | | 423 | | Training | | | 88 | | | | 85 | | | | 78 | | Others (1) | | | 339 | | | | 396 | | | | 225 | | Total | | | 5,511 | | | | 5,674 | | | | 3,548 | |
The efficiency ratio, which we calculate as total administrative expenses divided by total income, reached 35.6% in the year ended December 31, 2011, as compared to 34.5% for the year ended December 31, 2010. (1) Includes
The following table sets forth other administrative expenses for each of the Share-based payments cost. See “Item 6. Directors, Senior Managementperiods indicated: | | For the year ended December 31, | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Specialized and technical services | | | 1,564 | | | | 1,504 | | | | 4.0 | % | | | 60 | | Property, fixtures and supplies | | | 1,087 | | | | 966 | | | | 12.6 | % | | | 121 | | Technology and systems | | | 1,006 | | | | 889 | | | | 13.2 | % | | | 117 | | Advertising | | | 493 | | | | 422 | | | | 16.9 | % | | | 71 | | Communications | | | 566 | | | | 555 | | | | 2.0 | % | | | 11 | | Per diems and travel expenses | | | 174 | | | | 151 | | | | 15.4 | % | | | 23 | | Surveillance and cash courier services | | | 521 | | | | 513 | | | | 1.6 | % | | | 8 | | Other administrative expenses | | | 316 | | | | 304 | | | | 3.9 | % | | | 12 | | Total | | | 5,729 | | | | 5,304 | | | | 8.0 | % | | | 425 | |
Depreciation and Employees—B.Compensation—Share Compensation Plans”amortization Depreciation and note 37amortization for the year ended December 31, 2011 were expenses of R$1,462 million, a R$225 million increase from R$1,237 million for the year ended December 31, 2010, principally due to the initial amortization of our audited consolidated financial statements.technological systems related to the integration process and branch network expansion.
Provisions (Net) Provisions principally include provisions for labortax, civil, and tax contingencies and civilespecially labor claims. Provisions (net) weretotaled R$3.5 billion3,061 million for the year ended December 31, 2009,2011, an increase of R$1,087 million compared to R$1.2 billion1,974 million for the year ended December 31, 2008, or R$1.7 billion on a pro forma basis.2010. This increase reflected increasedwas mainly due to an increase in provisions for labor and tax litigation partially offset by a decrease in civil claims. Provisions for labor claims and provisions forincreased R$648.7 million in 2011, primarily due to our efforts during the operating and commercial integrationfourth quarter to accelerate the settlement of Banco Real.outstanding labor claims in an effort to reduce the volume of open claims. Concurrently, we have been implementing measures to reduce the level of new labor disputes with new controls on labor outsourcing among other measures. Impairment Losses on Financial Assets (Net) Impairment losses on financial assets (net) in 2009 wereOur computable credit risk portfolio increased by R$10.0 billion, a 143.3% or R$5.9 billion increase from R$4.1 billion33,635 million in the year 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, impairment losses on financial assets (net) in 2009 increased 51.9%ended December 31, 2011, or 18.4%, compared to the year ended December 31, 2010, while non-performing assets increased 39.8%, or R$6.6 billion3,724 million. The default rate increased 91 basis points in 2008, driven by deteriorating economic conditions, including2011. Net expenses from allowances for credit losses related to leasing transactions was adjusted for R$550 million due to a 0.2% decrease in GDP in 2009 as comparedreclassification related to 2008, and higher unemployment rates.the unification of the accounting procedures of leasing transactions made during the integration representing an increase of 6.8%, or R$598 million, from R$8,783 million on December 31, 2010 to R$9,382 million on December 31, 2011.
Although the international financial crisis commenced in the second half of 2008, its major effects in terms of increasing default rates and deterioration of our credit portfolio occurred through the third quarter of 2009, when default rates reached their peak, especially from individuals and small and medium companies. In the fourth quarter of 2009, default rates started to decrease, reaching levels closer to those observed before the crisis. The following table shows the ratio of our impaired assets to total computable credit risk and our coverage ratio at December 31, 20092011 and at December 31, 2008.2010.
| | | | | | | | | | | | | | | | | | | | | | (in millions of R$, except for percentages) | | | (in millions of R$, except percentages) | | Computable credit risk(1) | | | 159,362 | | | | 164,695 | | | Computable credit risk(1) | | | | 216,756 | | | | 183,121 | | Nonperforming assets | | | 9,899 | | | | 7,730 | | | | 13,073 | | | | 9,348 | | Allowances for nonperforming assets | | | 10,070 | | | | 8,181 | | | | 11,180 | | | | 9,192 | | Ratios | | | | | | | | | | | | | | | | | Nonperforming assets to computable credit risk | | | 6.2 | % | | | 4.7 | % | | | 6.0 | % | | | 5.1 | % | Coverage ratio(2) | | | 101.7 | % | | | 105.8 | % | | Coverage ratio(2) | | | | 85.5 | % | | | 98.3 | % |
(1) | Computable credit risk is the sum of the face amounts of loans and leases (including nonperforming assets but excluding country risk loans), guarantees and documentary credits. |
(2) | Allowances for credit losses as a percentage of nonperforming assets. |
The following chart shows the ratio of our impairednon-performing assets byto credit risk (not including guarantees and documentary credits) from the fourth quarter in 2009:of 2008 through the fourth quarter of 2011(1): _____________(1) Managerial nonperforming assets to computable credit risk
The following table shows our nonperforming assets by type of loan at December 31, 20092011 and December 31, 2008.2010. | | | | | | | | | | | | | (in millions of R$) | | Impaired Assets by type of customer | | | | | | | Commercial, financial and industrial | | | 3,618 | | | | 2,730 | | Real estate – mortgage | | | 109 | | | | 74 | | Installment loans to individuals | | | 5,335 | | | | 4,528 | | Lease financing | | | 837 | | | | 398 | | Total | | | 9,899 | | | | 7,730 | |
Impaired Assets by Type of Customer | | | | | | | | | | | | | (in millions of R$) | | | | | | | | | Commercial, financial and industrial | | | 4,775 | | | | 3,563 | | Real estate – mortgage | | | 172 | | | | 150 | | Installment loans to individuals | | | 7,720 | | | | 4,863 | | Lease financing | | | 406 | | | | 772 | | Total | | | 13,073 | | | | 9,348 | |
Non-performing assets as a percentage of shareholders’ equity increased from 13.0% as of December 31, 2010 to 17.0% as of December 31, 2011. Non-performing assets as a percentage of shareholders’ equity excluding goodwill increased from 21.1% as of December 31, 2010 to 26.2% as of December 31, 2011. This figure was adversely influenced by an increase in Brazilian interest rates, inflation and macroprudential economic policies, which directly affected the individuals segment of the banking system, mainly the consumption portfolio. Commercial, financial and industrial NonperformingNon-performing assets in commercial, financial and industrial loans increased by R$888 million fromon December 31, 20082011 increased R$1,212 million, or 34.0%, compared to December 31, 2009, primarily as a result of2010. Commercial, financial and industrial credit portfolio increased by 21%, therefore, the effects of the financial crisis, principallyincrease on small- and medium-sized corporate and export-oriented borrowers.non-performing assets was expected. Further, this increase was in line with market trends.
Real estate – mortgage NonperformingNon-performing assets in real estate – mortgage loans remained stable, with an increase ofincreased R$3522 million, fromor 14.5%, at December 31, 20082011, compared to December 31, 2009.2010. In light of the increase in this credit portfolio, an increase in non-performing assets was expected. The percentage of non-performing assets over our total portfolio improved in 2007, from 2.2% in 2010 to 1.7% in 2011.
Installment loans to individuals NonperformingNon-performing assets in installment loans to individuals increased by R$8072,856 million, fromor 58.7%, at December 31, 20082011 compared to December 31, 2009, mainly as a result2010. This figure was adversely influenced by an increase in Brazilian interest rates, inflation, and certain measures implemented by the Brazilian Central Bank to control consumer credit, which directly affected the individuals segment of the decrease in consumption and increase inbanking system, mainly the unemployment rate.consumer lending portfolio.
Lease financing NonperformingNon-performing loans in lease financing decreased by R$439366 million, fromor 47.4%, in the year ended December 31, 20082011 compared to year ended December 31, 2009,2010, mainly asdue to a result of the decrease in consumption and anlending in this category, in line with market trends.
Impairment Losses on Other Assets (Net) Impairment losses on other assets (net) for the year ended December 31, 2011 were losses of R$39 million, a R$18 million increase from losses of R$21 million for year ended December 31, 2010, mainly due to lower provisions related to noncurrent assets. Other nonfinancial gains/losses Other nonfinancial gains/losses were gains of R$452 million during the year ended December 31, 2011, a R$312 million increase from gains of R$140 million during the year ended December 31, 2010. This increase was mainly due to R$424 million in gains related to the unemployment rate.sale of Santander Seguros to ZS Insurance. This increase was partially offset by a R$107 million non-operating gain in March 2010 resulting from the sale of a former headquarters building. Income Taxes Income tax expenses reached R$1,155 million in the year ended December 31, 2011, a R$1,459 million decrease from R$2,614 million in the year ended December 31, 2010. The appreciation of the U.S. dollar against the real on the net equity of our Cayman Islands Branch, and the negative hedge results, caused lower tax expenses of R$1,646 million in the year ended December 31, 2011, compared to higher tax expenses of R$272 million in 2010. See “—Other Factors Affecting Our Financial Condition and Results of Operations—Cayman Offshore Hedging”. Disregarding these effects, tax expenses were R$2,801 million and R$2,342 million for 2011 and 2010, respectively, which increase is due to lower goodwill tax amortizations (other than Banco Real), and to lower interest on capital. Results of Operations by Segment for the Year ended December 31, 2011 Compared to the Year ended December 31, 2010 The following table presents an overview of certain income statement data for each of our operating segments for the year ended December 31, 2011. Condensed Income Statement | | For the year ended December 31, 2011 | | | | Commercial Banking | | | % of Total | | | Global Wholesale Banking | | | % of Total | | | Asset Management and Insurance | | | % of Total | | | Total | | | | (millions of R$, except percentages) | | Net interest income | | | 24,971 | | | | 89.5 | % | | | 2,589 | | | | 9.3 | % | | | 342 | | | | 1.2 | % | | | 27,902 | | Income from equity instruments | | | 94 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 94 | | Income from companies accounted for by the equity method | | | 54 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 54 | | Net fee and commission income | | | 6,192 | | | | 84.4 | % | | | 796 | | | | 10.8 | % | | | 351 | | | | 4.8 | % | | | 7,339 | | Gains/losses on financial assets and liabilities and exchange differences (net) | | | (753 | ) | | n.a. | | | | 513 | | | | (217.6 | )% | | | 5 | | | | (2.2 | )% | | | (235 | ) | Other operating income/expenses | | | (695 | ) | | n.a. | | | | (29 | ) | | | 7.7 | % | | | 345 | | | n.a. | | | | (379 | ) | Personnel expenses | | | (6,031 | ) | | | 90.8 | % | | | (526 | ) | | | 7.9 | % | | | (87 | ) | | | 1.3 | % | | | (6,644 | ) | Other administrative expenses | | | (5,431 | ) | | | 94.8 | % | | | (242 | ) | | | 4.2 | % | | | (56 | ) | | | 1.0 | % | | | (5,729 | ) | Depreciation and amortization | | | (1,331 | ) | | | 91.1 | % | | | (106 | ) | | | 7.2 | % | | | (25 | ) | | | 1.7 | % | | | (1,462 | ) | Provisions (net) | | | (3,024 | ) | | | 98.8 | % | | | 3 | | | | (0.1 | )% | | | (40 | ) | | | 1.3 | % | | | (3,061 | ) | Impairment losses on financial assets (net) | | | (9,334 | ) | | | 99.5 | % | | | (47 | ) | | | (0.5 | )% | | | 0 | | | | 0.0 | % | | | (9,382 | ) | Impairment losses on other assets (net) | | | (34 | ) | | | 87.8 | % | | | (5 | ) | | | 12.2 | % | | | 0 | | | | 0.0 | % | | | (39 | ) | Other nonfinancial gain (losses) | | | 452 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 452 | | Profit before tax | | | 5,128 | | | | 57.5 | % | | | 2,947 | | | | 33.0 | % | | | 835 | | | | 9.4 | % | | | 8,911 | |
The following tables show our results of operations for the years ended December 31, 2011 and 2010, for each of our operating segments. Commercial Banking | | For the year ended December 31 | | | | 2011 | | | 2010 | | | % Change | | | Change | | | | (in millions of R$, except percentages) | | Net interest income | | | 24,971 | | | | 21,301 | | | | 17.2 | % | | | 3,670 | | Income from equity instruments | | | 94 | | | | 52 | | | | 81.2 | % | | | 42 | | Income from companies accounted for by the equity method | | | 54 | | | | 44 | | | | 23.4 | % | | | 10 | |
| | For the year ended December 31 | | | | 2011 | | | 2010 | | | % Change | | | Change | | | | (in millions of R$, except percentages) | | Net fee and commission income | | | 6,192 | | | | 5,530 | | | | 12.0 | % | | | 662 | | Gains/losses on financial assets and liabilities (net) and exchange differences (net) | | | (753 | ) | | | 1,550 | | | | (148.6 | )% | | | (2,303 | ) | Other operating income/expenses | | | (695 | ) | | | (596 | ) | | | 16.6 | % | | | (99 | ) | Total income | | | 29,863 | | | | 27,881 | | | | 7.1 | % | | | 1,982 | | Personnel expenses | | | (6,031 | ) | | | (5,354 | ) | | | 12.7 | % | | | (677 | ) | Other administrative expenses | | | (5,431 | ) | | | (5,003 | ) | | | 8.6 | % | | | (428 | ) | Depreciation and amortization | | | (1,331 | ) | | | (1,130 | ) | | | 17.8 | % | | | (201 | ) | Provisions (net) | | | (3,024 | ) | | | (1,941 | ) | | | 55.8 | % | | | (1,083 | ) | Impairment losses on financial assets (net) | | | (9,334 | ) | | | (8,225 | ) | | | 13.5 | % | | | (1,109 | ) | Impairment losses on other assets (net) | | | (34 | ) | | | (21 | ) | | | 63.8 | % | | | (13 | ) | Other nonfinancial gain (losses) | | | 452 | | | | 140 | | | n.a. | | | | 312 | | Profit before tax | | | 5,128 | | | | 6,347 | | | | (19.2 | )% | | | (1,219 | ) |
Global Wholesale Banking | | For the year ended December 31 | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Net interest income | | | 2,589 | | | | 2,501 | | | | 3.5 | % | | | 88 | | Net fee and commission income | | | 796 | | | | 892 | | | | (10.8 | )% | | | (96 | ) | Gains/losses on financial assets and liabilities (net) and exchange differences (net) | | | 513 | | | | 244 | | | | 109.9 | % | | | 269 | | Other operating income/expenses | | | (29 | ) | | | (30 | ) | | | (2.3 | )% | | | 1 | | Total income | | | 3,869 | | | | 3,607 | | | | 7.2 | % | | | 262 | | Personnel expenses | | | (526 | ) | | | (512 | ) | | | 2.6 | % | | | (14 | ) | Other administrative expenses | | | (242 | ) | | | (215 | ) | | | 12.3 | % | | | (27 | ) | Depreciation and amortization | | | (106 | ) | | | (58 | ) | | | 83.3 | % | | | (48 | ) | Provisions (net) | | | 3 | | | | 4 | | | | (25.0 | )% | | | (1 | ) | Impairment losses on financial assets (net) | | | (47 | ) | | | (8 | ) | | n.a. | | | | (39 | ) | Impairment losses on other assets (net) | | | (5 | ) | | | 0 | | | | | | | (5 | ) | Profit before tax | | | 2,947 | | | | 2,818 | | | | 4.6 | % | | | 129 | |
Asset Management and Insurance | | For the year ended December 31 | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Net interest income | | | 342 | | | | 292 | | | | 16.7 | % | | | 50 | | Net fee and commission income | | | 351 | | | | 414 | | | | (15.2 | )% | | | (63 | ) | Gains/losses on financial assets and liabilities (net) and exchange differences (net) | | | 5 | | | | 80 | | | | (93.6 | )% | | | (75 | ) | Other operating income/expenses | | | 345 | | | | 278 | | | | 24.1 | % | | | 67 | | Total income | | | 1,043 | | | | 1,065 | | | | (2.1 | )% | | | (22 | ) | Personnel expenses | | | (87 | ) | | | (60 | ) | | | 44.7 | % | | | (27 | ) | Other administrative expenses | | | (56 | ) | | | (86 | ) | | | (35.1 | )% | | | 30 | | Depreciation and amortization | | | (25 | ) | | | (50 | ) | | | (49.8 | )% | | | 25 | | Provisions (net) | | | (40 | ) | | | (38 | ) | | | 6.8 | % | | | (2 | ) | Profit before tax | | | 835 | | | | 832 | | | | 0.4 | % | | | 3 | |
Commercial Banking Segment Consolidated Results of Operations for the Year ended December 31, 2011 Compared to the Year ended December 31, 2010 Summary Profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2011 was R$5,128 million, a R$1,219 million decrease from R$6,347 million for the year ended December 31, 2010. Excluding the effects of the hedging results of our Cayman Islands branch, our profit before tax attributed to the Commercial Banking segment for the year ended December 31, 2011 totaled R$6.8 billion, a R$700 million increase from R$6.1 billion for the year ended December 31, 2010. This variation was mainly due to: | · | An increase of 17.2%, or R$3,670 million, in net interest income for the year ended December 31, 2011 compared to the year ended December 31, 2010, mainly due to growth of R$3.4 billion in revenues from lending activities, driven by lending to individuals and SME customers. |
| · | An increase of 12.0%, or R$662 million, in net fee and commission income for the year ended December 31, 2011 compared to the year ended December 31, 2010, principally due to (1) an increase in revenues from credit and debit cards which mainly reflects the increase in fees from our merchant acquisition business, and also the adoption of a strategy based on innovation and a focus on customer needs, resulting in an increase in the card base and in product penetration, (2) an increase in the commissions from sales of insurance and capitalization products paid by our insurance business to the Commercial Banking segment and (3) the change of the effective term of life and personal accident premiums, which in 2011 ceased to be renewed on a monthly basis and began to be renewed on an annual basis. |
These increases were partially offset by: | · | A R$2,303 million decrease in gains (losses) on financial assets and liabilities (net) plus exchange differences to a loss of R$753 million in the year ended December 31, 2011 compared to gains of R$1,550 million in the year ended December 31, 2010. The decrease was mainly due to the effect of the appreciation of the U.S. dollar against the real on the net equity of our Cayman Islands Branch. In the year ended December 31, 2011, the hedging result totaled losses of R$1,646 million, which were offset by net gains in the same amount in tax expenses, compared to gains of R$272 million in 2010. A hedge position, composed of derivatives, was established to mitigate the exchange rate variation and the effects of offshore investments on our net profit. Excluding the effects of the hedging results of our Cayman Islands Branch, gains (losses) on financial assets and liabilities (net) plus exchange differences for the Commercial Banking segment for the year ended December 31, 2011 totaled gains of R$893 million, a R$385 million decrease from gains of R$1,278 million for the year ended December 31, 2010. This variation is partially explained by the liquidation of a R$64 million subordinated liability in January 2010, which did not occur in 2011, lower results of R$17 million from hedge operations and lower results of R$305 million from derivatives transactions with customers and others. |
| · | A 12.7%, or R$677 million, increase in personnel expenses in the year ended December 31, 2011 as compared to the year ended December 31, 2010, mainly due to the recruitment of employees for our new branches and the impact of our collective bargaining agreement. This agreement requires certain adjustments in fixed and variable income, linked to the official consumer price inflation index (IPCA). |
Net Interest Income Net interest income for the Commercial Banking segment for the year ended December 31, 2011 reached R$24,971 million, a 17.2%, or R$3,670 million, increase from R$21,301 million for the year ended December 31, 2010. Revenues from lending activities increased R$3,365 million due to a 19.6%, or R$28,118 million, growth in the average credit portfolio volume in 2011, driven by lending to individuals and SME customers. Income from Equity Instruments Income from Equity Instruments for the year ended December 31, 2011 reached R$94.0 million, a 81.2% or R$42.0 million increase from R$52.0 million for the same period in 2010. This increase was mainly due to higher results from available-for-sale financial assets over the year. Income from Companies Accounted for by the Equity Method Income from companies accounted for by the equity method for the Commercial Banking segment for the year ended December 31, 2011 was R$54 million, a R$10 million increase from R$44 million for the year ended December 31, 2010. This increase principally reflects a growth in the results of Companhia de Arrendamento Mercantil RCI Brasil and of Companhia de Crédito, Financiamento e Investimento RCI Brasil. Net Fee and Commission Income Net fee and commission income for the Commercial Banking segment for the year ended December 31, 2011 reached R$6,192 million, a 12.0%, or R$662 million, increase from R$5,530 million for the year ended December 31, 2010. Revenues from credit and debit cards totaled R$1,298 million in the year ended December 31, 2011, an increase of 34.0% compared to the year ended December 31, 2010. This performance reflects the increase in fees from the merchant acquisition business and the adoption of a strategy based on innovation and a focus on customer needs, resulting in an increase in our credit card base and in product penetration. In 2011, credit card transaction volume increased 11.2% compared to 2010, and total financial transaction volume increased 11.3% compared to 2010. Our credit card base increased 8.2% in 2011 and our debit card base increased 13.4% in 2011 reaching a total amount of 29.3 million issued cards. The increase was also due to: | · | An increase in the commissions from insurance and capitalization products paid by our insurance business to the Commercial Banking segment; and |
| · | The change of the effective term of life and personal accident premiums, which in 2011 ceased to be renewed on a monthly basis and began to be renewed on an annual basis. |
Gains/Losses on Financial Assets and Liabilities plus Exchange Differences Gains on financial assets and liabilities (net) plus exchange differences for the Commercial Banking segment for the year ended December 31, 2011 were losses of R$753 million, a R$2,303 million decrease from gains of R$1,550 million for the year ended December 31, 2010. The decrease was mainly due to the effect of the appreciation of the U.S. dollar against the real on the net equity of our Cayman Islands Branch. In the year ended December 31, 2011, the hedging result totaled losses of R$1,646 million, offset by gains in the same amount in tax expenses, compared to gains of R$272 million in 2010, offset by losses in the same amount in tax expenses. This hedge position, composed of derivatives, was set up to mitigate the exchange rate variation and the effects of offshore investments on our net profit. Excluding the effects of the hedging results of our Cayman Islands Branch, gains/losses on financial assets and liabilities (net) plus exchange differences for the Commercial Banking segment for the year ended December 31, 2011 totaled gains of R$893 million, a R$385 million decrease from gains of R$1,278 million for the year ended December 31, 2010. This decrease was due to the liquidation of a R$64 million subordinated liability in January 2010, which did not occur in 2011, lower results of R$17 million from hedge operations and lower results of R$305 million from derivatives transactions with customers and others. Other Operating Expenses Other operating expenses for the Commercial Banking segment for the year ended December 31, 2011 totaled expenses of R$695 million, a 16.6% increase when compared to expenses of R$596 million for the year ended December 31, 2010. Personnel Expenses Personnel expenses for the Commercial Banking segment increased from R$5,354 million for the year ended December 31, 2010 to R$6,031 million for the year ended December 31, 2011, a 12.7%, or R$677 million, increase, mainly due to the recruitment of employees primarily for the expanded branch network and the impact of our collective bargaining agreement. This agreement requires certain adjustments in fixed and variable compensation, linked to the official consumer price inflation index (IPCA). Other Administrative Expenses Other administrative expenses for the Commercial Banking segment increased from R$5,003 million for the year ended December 31, 2010 to R$5,431 million for the year ended December 31, 2011, an 8.6%, or R$428 million, increase, primarily due to contractual readjustments for contracts tied to inflation, opening new points of sale and growth in our customer base, which generally leads to increased spending on infrastructure and services and an increase in costs for advertising and marketing campaigns. Depreciation and amortization Depreciation and amortization for the Commercial Banking segment for the year ended December 31, 2011 was R$1,331 million, a R$201 million increase from R$1,130 million for the year ended December 31, 2010, principally due to the initial amortization of our technological systems related to the integration process and branch network expansion. Provisions (Net) Provisions (net) for the Commercial Banking segment were expenses of R$3,024 million for the year ended December 31, 2011, an increase of R$1,083 million compared to expenses of R$1,941 million for the year ended December 31, 2010. During the year ended December 31, 2011, this increase was mainly due to an increase in provisions for labor and tax litigation partially offset by a decrease in civil claims. Provisions for labor claims increased R$648.7 million in 2011, primarily due to our efforts during the fourth quarter to accelerate the rate of settlement of outstanding labor claims in an effort to reduce the volume of open claims. In concert with our increased settlement rate, we have been implementing measures to reduce the level of new labor disputes with new controls over labor outsourcing among other measures. Impairment Losses on Financial Assets (Net) Impairment losses on financial assets (net) for the Commercial Banking segment for the year ended December 31, 2011 reached R$9,334 million, a 13.5%, or R$1,109 million, increase from expenses of R$8,225 million for the year ended December 31, 2010, principally due to an increase in the delinquency ratio. Impairment Losses on Other Assets (Net) Impairment losses on other assets (net) for the Commercial Banking segment for the year ended December 31, 2011 were losses of R$34 million, a R$13 million increase from losses of R$21 million for the year ended December 31, 2010, mainly due to higher provisions related to noncurrent assets. Other non-financial gains/losses Other non-financial gains/losses were gains of R$452 million during the year ended December 31, 2011, a R$312 million increase from gains of R$140 million during the year ended December 31, 2010. The increase is mainly due to R$424 million in gains related to the sale of Santander Seguros to ZS Insurance. This increase was partially offset by a R$107 million non-operating gain in March 2010 resulting from the sale of a former headquarters building. Global Wholesale Banking Consolidated Results of Operations for the Year ended December 31, 2011 Compared to the Year ended December 31, 2010 Summary Profit before tax attributed to the Global Wholesale Banking segment for the year ended December 31, 2011 was R$2.9 billion, a 4.6%, or R$129 million, increase from R$2.8 billion for the year ended December 31, 2010. The increase was principally due to: | · | A 3.5%, or R$88 million, increase in net interest income in the year ended December 31, 2011 as compared to the year ended December 31, 2010, due to an increase in revenues from loans and public bonds; and |
| · | A R$269 million increase in gains on financial assets and liabilities (net) and Exchange Differences in the year ended December 31, 2011 compared to the year ended December 31, 2010, mainly due to higher gains in market making and trading, which were partially offset by a decrease in the amount of derivatives transactions with customers. |
The increase was partially offset by: | · | A R$96 million decrease in net fee and commission income in the year ended December 31, 2011 as compared to the year ended December 31, 2010, mainly due to a decrease in commissions from capital markets and trade finance operations driven by lower activity in these segments in 2011 compared to 2010. |
| · | A R$39 million increase in impairment losses on financial assets (net) in the year ended December 31, 2011, mainly due to higher provisions in 2011. |
| · | A 12.3%, or R$27 million, increase in other administrative expenses in the year ended December 31, 2011 as compared to 2010, mainly due to an increase in technology costs. |
| · | A R$48 million increase in depreciation and amortization in the year ended December 31, 2011 compared to the year ended December 2010, principally due to the amortization of technological systems and other non-technological assets that were classified as tangible assets. |
Net Interest Income Net interest income for the Global Wholesale Banking segment for the year ended December 31, 2011 reached R$2,589 million, a 3.5%, or R$88 million, increase from R$2,501 million for the year ended December 31, 2010, as a result of a growth in revenues from loans and public bonds. Net Fee and Commission Income Net fee and commission income for the Global Wholesale Banking segment for the year ended December 31, 2011 was R$796 million, a 10.8%, or R$96 million, decrease from R$892 million for the year ended December 31, 2010. This variation was mainly due to a decrease in commissions from capital markets and trade finance operations. Gains/Losses on Financial Assets and Liabilities and Exchange Differences Gains/losses on financial assets and liabilities (net) plus exchange differences for the Global Wholesale Banking segment for the year ended December 31, 2011 were gains of R$513 million, a R$269 million increase from gains of R$244 million for the year ended December 31, 2010. This increase was mainly due to higher gains in market making and trading, which were partially offset by a decrease in the amount of derivatives transactions with customers. Other Operating Income/Expenses Other operating income/expenses for the Global Wholesale Banking segment for the year ended December 31, 2011 were expenses of R$29 million, a decrease in expenses of R$1 million when compared to the year ended December 31, 2010. Personnel Expenses Personnel expenses for the Global Wholesale Banking segment increased from R$512 million for the year ended December 31, 2010 to R$526 million for the year ended December 31, 2011, a 2.6% or R$14 million increase, mainly due to the recruitment of employees and the impact of salary increases under our collective bargaining agreement. This agreement requires certain adjustments in fixed and variable compensation, linked to the official consumer price inflation index (IPCA). Other Administrative Expenses Other administrative expenses for the Global Wholesale Banking segment increased from R$215 million for the year ended December 31, 2010 to R$242 million for the year ended December 31, 2011, a 12.3%, or R$27 million, increase, mainly due to increased technology costs. Depreciation and Amortization Depreciation and amortization for the Global Wholesale Banking segment for the year ended December 31, 2011 was R$106 million, a R$48 million increase from R$58 million for the year ended December 31, 2010, principally due to the amortization of technological systems and other non-technological fixed assets. Provisions (Net) Provisions (net) for the Global Wholesale Banking segment were income of R$3 million for the year ended December 31, 2011, which decreased R$1 million as compared to the year ended December 31, 2010. Impairment Losses on Financial Assets (Net) Impairment losses on financial assets (net) for the Global Wholesale Banking segment for the year ended December 31, 2011 were losses of R$47 million, a R$39 million increase from losses of R$8 million for the year ended December 31, 2010, mainly due to higher provisions in 2011. Asset Management and Insurance Segment Consolidated Results of Operations for the Year ended December 31, 2011 Compared to the Year ended December 31, 2010 Summary Profit before income tax attributed to the Asset Management and Insurance segment for the year ended December 31, 2011 reached R$835 million, a 0.4%, or R$3 million, increase from R$832 million for the year ended December 31, 2010. The result was affected by a decline in results during the fourth quarter of 2011 as a consequence of the sale of Santander Seguros to ZS Insurance. The main variations included: | · | An increase of R$50 million in net interest income in the year ended December 31, 2011. This increase was mainly due to the impact of our line-by-line consolidation of the investment funds from capitalization resources that after January 2011 began to be allocated in the net interest income. Prior to January 2011, the results of the capitalization products were allocated in gains/losses on financial assets instead of net interest income and one of the pension funds was allocated in other operating income/expenses. The result was affected by a decline in results during the fourth quarter of 2011 as a consequence of the sale of Santander Seguros to ZS Insurance; and |
| · | An increase of R$67 million in other operating income/expenses for the Asset Management and Insurance segment for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This |
| | increase was mainly due to an increase in revenues from insurance activities, partially offset by the impact of our line-by-line consolidation of investment funds from capitalization resources that after January 2011 began to be allocated in net interest income, in order to better demonstrate the economic characteristics of these assets. |
This increase was partially offset by: | · | A R$75 million decrease in gains/losses on financial assets and liabilities (net) plus exchange differences in the year ended December 31, 2011 as compared to 2010. This decrease is mainly due to the line-by-line consolidation of the investment fund from capitalization resources are invested beginning in January 2011, in order to better demonstrate the economic characteristics of these assets. After January 2011, the results of the investment fund, mainly composed of publicly-traded securities, are allocated in net interest income instead of in gains/losses on financial assets. |
Net Interest Income Net interest income for the Asset Management and Insurance segment for the year ended December 31, 2011 was R$342 million, a R$50 million increase from R$292 million for the year ended December 31, 2010. This increase was mainly due to the impact of our line-by-line consolidation of the investment funds where the capitalization and pension funds resources that after January 2011 began to be allocated in the net interest income. Prior to January 2011, the results of the capitalization products were allocated in gains/losses on financial assets instead of net interest income. The result was affected by lower interest income during the fourth quarter of 2011 as a consequence of the sale of Santander Seguros to ZS Insurance. Net Fee and Commission Income Net fee and commission income for the Asset Management and Insurance segment for the year ended December 31, 2011 reached R$351 million, a 15.2%, or R$63 million decrease from R$414 million for the year ended December 31, 2010. This decrease was due to higher commissions for insurance and capitalization products paid to the Commercial Banking segment. Gains/Losses on Financial Assets and Liabilities and Exchange Differences Gains/losses on financial assets and liabilities (net) and exchange differences for the Asset Management and Insurance segment for the year ended December 31, 2011 were R$5 million, a R$75 million decrease from gains of R$80 million for the year ended December 31, 2010. This variation was mainly due to the line-by-line consolidation of the investment funds from capitalization resources that began to be allocated in net interest income in January 2011, in order to better demonstrate the economic characteristics of these assets. After January 2011, the results of the investment fund, mainly composed of publicly-traded securities, are allocated in net interest income instead of in gains/losses on financial assets. This decrease is also due to the sale of the Insurance segment which stopped being accounted in the fourth quarter of 2011. Other Operating Income/Expenses Other operating income/expenses for the Asset Management and Insurance segment for the year ended December 31, 2011 was income of R$345 million, a R$67 million increase, compared to income of R$278 million for the year ended December 31, 2010. This increase was mainly due to an increase in revenues from insurance activities. Personnel Expenses Personnel expenses for the Asset Management and Insurance segment increased from R$60 million for the year ended December 31, 2010 to R$87 million for the year ended December 31, 2011, a R$27 million increase. This increase was mainly due to the impact of salary increases under our collective bargaining agreement. This agreement requires certain adjustments in fixed and variable compensation, linked to the official consumer price inflation index (IPCA). Other Administrative Expenses Other administrative expenses for the Asset Management and Insurance segment decreased from R$86 million for the year ended December 31, 2010 to R$56 million for the year ended December 31, 2011, a 35.1%, or R$30 million decrease. Provisions (Net) Provisions (net) for the Asset Management and Insurance segment were R$40 million for the year ended December 31, 2011, compared to R$38 million for the year ended December 31, 2010. This increase was mainly due to additional labor provisions. Loan Portfolio Our credit portfolio totaled R$194,184 million as of December 31, 2011, a 20.9% increase from December 31, 2010. Individuals and SMEs were the highlights, with increases of 24.4% and 25.6%, respectively. In the individual segment, the growth of R$12,432 million from December 31, 2010 to December 31, 2011 was driven mainly by credit cards, mortgage loans and personal loans. The highlights in the corporate and SMEs segment were working capital and real estate related products, despite a reduction in trade finance. | | | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Individuals | | | 63,413 | | | | 50,981 | | | | 24.4 | % | | | 12,432 | | Consumer Finance | | | 30,459 | | | | 26,969 | | | | 12.9 | % | | | 3,490 | | SMEs | | | 47,940 | | | | 38,178 | | | | 25.6 | % | | | 9,762 | | Corporate | | | 52,373 | | | | 44,431 | | | | 17.9 | % | | | 7,942 | | Total | | | 194,184 | | | | 160,559 | | | | 20.9 | % | | | 33,625 | |
Results of Operations for the Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 | | | | | | | | | | | | | | | | | | | (in millions of R$) | | Net interest income | | | 24,095 | | | | 22,167 | | | | 8.7 | % | | | 1,928 | | Income from equity instruments | | | 52 | | | | 30 | | | | 73.0 | % | | | 22 | | Net fee and commissions | | | 6,836 | | | | 6,238 | | | | 9.6 | % | | | 598 | | Income from companies accounted by the equity method | | | 44 | | | | 295 | | | | (85.1 | %) | | | (251 | ) | Gains/(losses) on financial assets and liabilities (net) plus Exchange differences (net) | | | 1,875 | | | | 2,665 | | | | (29.6 | %) | | | (790 | ) | Other operating income (expenses) | | | (348 | ) | | | (116 | ) | | | 200.0 | % | | | (232 | ) | Gross income | | | 32,553 | | | | 31,280 | | | | 4.1 | % | | | 1,273 | | Administrative expenses | | | (11,231 | ) | | | (10,947 | ) | | | 2.6 | % | | | (284 | ) | Depreciation and amortization | | | (1,237 | ) | | | (1,249 | ) | | | (0.9 | %) | | | (12 | ) | Provisions (net) | | | (1,974 | ) | | | (3,481 | ) | | | (43.3 | %) | | | 1,507 | | Impairment losses on financial assets (net) | | | (8,234 | ) | | | (9,966 | ) | | | (17.4 | %) | | | 1,732 | | Impairment losses on other assets (net) | | | (21 | ) | | | (901 | ) | | | (97.7 | %) | | | 880 | | Gains/(losses) on disposal of assets not classified as noncurrent assets held for sale plus Gains/(losses) on disposal of noncurrent assets held for sale | | | 140 | | | | 3,401 | | | | (95.9 | %) | | | (3,261 | ) | Profit before tax | | | 9,997 | | | | 8,137 | | | | 22.9 | % | | | 1,860 | |
Taxes | | | (2,614 | ) | | | (2,629 | ) | | | (0.6 | %) | | | 15 | | Net income | | | 7,383 | | | | 5,508 | | | | 34.0 | % | | | 1,875 | |
Summary Net income for the year ended December 31, 2010 was R$7.4 billion, a 34%, or R$1.9 billion increase from R$5.5 billion for the year ended December, 2009. This increase was mainly due to: | · | An 8.7% increase in net interest income or R$1.9 billion in the year ended December 31, 2010. This increase was mainly due to growth in our lending activities and the revenues from the utilization of the proceeds of our IPO in late 2009. |
| · | A 9.6% increase in net fee and commission income or R$598 million in 2010. This increase was mainly due to a growth in the commissions on sale of insurance and capitalization products and pension funds, credit and debit cards and in the investment funds segment. |
| · | A decrease in provisions for litigations of R$1.5 billion, reflecting, mainly, provisions for restructuring costs related to Banco Real acquisition that did occur in 2009 but not in 2010. |
Net Interest Income Santander Brasil’s net interest income for the year ended December 31, 2010 was R$24.1 billion, a 8.7% or R$1.9 billion increase from R$22.2 billion for the year ended December 31, 2009. This increase was mainly due to growth in our lending activities, especially in the second semester of 2010, incorporation of the insurance business and the revenues from utilization of the proceeds of our IPO in late 2009. Average total earning assets in 2010 were R$275.2 billion, a 20% or R$45.7 billion increase from R$229.5 billion in 2009. The principal drivers of this increase were due to (1) an increase of R$19.5 billion in average of cash and balances with the Brazilian Central Bank, (2) an increase of R$12.3 billion in debt instruments and (3) an increase of R$11.9 billion in average of equity instruments. Net yield (the quotient of net interest income divided by average earning assets) was 8.8% in 2010, a decrease of 0.9 p.p. compared to 9.7% in 2009. Average total interest bearing liabilities in 2010 were R$198.5 billion, an 8% or R$14.1 billion increase from R$184.3 billion in 2009. The principal driver of this growth was an increase in deposits from credit institutions. The yield spread (the difference between gross yield on earning assets and the average cost of interest-bearing liabilities), in the year ended in 2010 was 6.4%, a 1.4 p.p. decrease from 2009. The decline in yield spread reflects a reduction in the average interest rate we charge on loans because the credit risk of our portfolio declined as a result of improved economic conditions in 2010. In addition, we substantially increased the average balances of relatively low-yielding deposits with the Brazilian Central Bank in 2010. Net Fee and Commission Income Net fee and commission income for the year ended December 31, 2010 were R$6.8 billion, a 9.6% or R$598 million increase from R$6.2 billion for the year ended December 31, 2009. This increase was mainly due to a R$455 million growth in commissions from the sale of insurance and capitalization products (savings account products that generally require that a customer deposit a fixed sum with us) and pension funds, a R$187 million increase in commissions on credit and debit cards and a R$128 million increase in commissions from services related to investment funds, and the incorporation of the insurance business, partially offset by a decrease of R$205 million in commissions of banking fees and others. Commissions from the sale of insurance, pension fund and capitalization products increased 43.7% from R$1.0 billion in the year ended December 31, 2009 to R$1.5 billion for the same period in 2010, and represented 22% share of total commissions, which represents a 5 p.p. increase over the year. This substantial increase is largely due to the launch of new insurance products related to loans and sales growth in properties and personal accident insurance in the Banco Real branch network. Revenues from credit and debit cards totaled R$969 million for the year ended December 31, 2010, which represents an increase of 24.0% compared to 2009, mainly due to the expansion of our card base and the increased penetration of these products. A notable event in 2010 was the migration of Banco Real’s entire card base to the Santander Brasil’s system, which created opportunities for higher penetration of products and services and the implementation of best practices. Income from services related to investment funds totaled R$865 million for the year ended December 31, 2010, an increase of 17.4% compared to the same period in 2009 as a result of the increase in the balance of assets under management in the period. The following table reflects the breakdown of net fee and commission income for the year ended December 31, 2010 and 2009. | | | | | | | | | | | | | | | | | | | (in million of R$) | | | | | Banking fees | | | 2,369 | | | | 2,458 | | | | (3.6 | %) | | | (89 | ) | Receiving Services | | | 506 | | | | 502 | | | | 0.8 | % | | | 4 | | Sale of insurance plus Capitalization plus Pension Funds | | | 1,497 | | | | 1,042 | | | | 43.7 | % | | | 455 | | Investment funds | | | 865 | | | | 737 | | | | 17.4 | % | | | 128 | | Credit and debit cards | | | 969 | | | | 782 | | | | 24.0 | % | | | 187 | | Capital markets | | | 502 | | | | 539 | | | | (6.8 | %) | | | (37 | ) | Trade finance | | | 456 | | | | 384 | | | | 18.8 | % | | | 72 | | Tax on services | | | (357 | ) | | | (350 | ) | | | 1.9 | % | | | (7 | ) | Others | | | 27 | | | | 143 | | | | (81.3 | )% | | | (116 | ) | Total | | | 6,836 | | | | 6,238 | | | | 9.6 | % | | | 598 | |
Income from Companies Accounted by the Equity Method Share of results of entities accounted by the equity method for the year ended December 31, 2010 was R$44 million, a R$251 million decrease from R$295 million for the year ended December 31, 2009. This decrease reflects the impact of the sale of Cielo S.A. (formerly Companhia Brasileira de Meios de Pagamento—VISANET) and the restructuring process of ABN AMRO, Brasil Dois Participações S.A., which resulted in profit from the participation in such entities of R$116 million and R$126 million, respectively, in 2009 that did not occur in 2010. Gains (Losses) on Financial Assets and Liabilities (Net) plus Exchange Differences Gains (losses) on financial assets and liabilities (net) plus Exchange Differences for the year ended December 31, 2010 were gains of R$1.9 billion, a R$790 million decrease from gains of R$2.7 billion for the year ended December 31, 2009. The decrease was driven by the effect of the hedge of our investment at our Cayman Islands branch (a strategy to mitigate the exchange rate variation and the fiscal effects of offshore investments on net profit). In the year ended December 31, 2010, the effect of the devaluation of the U.S. dollar against the real on the net equity of our Cayman Islands branch, and the positive hedge results, caused gains of R$272 million, compared to gains of R$1.1 billion in the same period of 2009, offset by losses in the same amounts in taxes expenses. Excluding the effect of the hedge of the investment in the Cayman Islands branch, gains (losses) on financial assets and liabilities (net) were R$1.6 billion for the twelve-month period ended December 31, 2010, an increase of 5.5% compared to R$1.5 billion for the same period of 2009. For further information, see “—Other Factors Affecting Our Financial Condition and Results of Operations—Cayman Offshore Hedging”. Other Operating Income (Expenses) Other operating income (expenses) for the year ended December 31, 2010 was an expense of R$348 million, compared to an expense of R$116 million for the year ended December 31, 2009, mainly due to the reduction of certain operation expenses recovery charged to clients until August, 2009. The impact of this charge reduction was R$117 million, approximately. Administrative Expenses Administrative expenses for the year ended December 31, 2010 was R$11.2 billion, a R$284 million increase compared to expenses of R$11.0 billion for the year ended December 31, 2009. Salaries and benefits expenses increased R$410 million, mainly as a consequence of the terms of the applicable labor union agreement, which require certain adjustments linked to the official inflation index (IPCA). The following table sets forth personnel expenses for each of the periods indicated. | | | | | | | | | | | | | | | | | | | (in millions of R$) | | Salaries | | | 3,731 | | | | 3,364 | | | | 10.9 | % | | | 367 | | Social Security | | | 994 | | | | 971 | | | | 2.4 | % | | | 23 | | Benefits | | | 792 | | | | 749 | | | | 5.7 | % | | | 43 | | Training | | | 93 | | | | 88 | | | | 5.7 | % | | | 5 | | Others(1) | | | 316 | | | | 339 | | | | (6.8 | %) | | | (23 | ) | Total | | | 5,926 | | | | 5,511 | | | | 7.5 | % | | | 415 | |
(1) | Includes the Share-based payments cost. See note 38 to our audited consolidated financial statements. Other administrative expenses decreased from R$5.4 billion for the year ended December 31, 2009 to R$5.3 billion for the year ended December 31, 2010. The decrease was primarily due to the cost of synergies obtained from the merger between Santander Brasil and Banco Real, particularly from maintenance of properties and marketing, partially offset by technical services that were outsourced. As a result, our efficiency ratio, which we calculate as total administrative expenses divided by total income, improved from 35.0% for the year ended December 31, 2009 to 34.5% for the year ended December 31, 2010. |
Provisions (Net) Provisions principally include provisions for civil claims, tax litigations, and especially for labor claims. Provisions (net) were R$2.0 billion in the year ended December 31, 2010, and when compared to R$3.5 billion in the year ended December 31, 2009 reflecting, mainly, provisions for restructuring costs related to Banco Real acquisition that occurred in 2009 but not in 2010. Impairment Losses on Financial Assets (Net) Our computable credit risk portfolio increased by R$23,655 million at December 31, 2010, or 15% compared to the year-end 2009, while non-performing assets decreased 6%, or R$551 million. As a result, there was a reduction of 110 basis points on the default rate. The net expenses from the allowances for credit losses in 2010 decreased 17.5% compared to 2009 (R$1,750 million), accounting for R$8,233 million at December 31, 2010. The following table shows the ratio of our impaired assets to total computable credit risk and our coverage ratio at December 31, 2010 and December 31, 2009. | | | | | | | | | | | | | (in millions of R$, except for percentages) | | Computable credit risk(1) | | | 183,121 | | | | 159,362 | | Non-performing assets | | | 9,348 | | | | 9,899 | | Allowances for non-performing assets | | | 9,192 | | | | 10,070 | | Ratios | | | | | | | | | Non-performing assets to computable credit risk | | | 5.1 | % | | | 6.2 | % | Coverage ratio(2) | | | 98.3 | % | | | 101.7 | % |
(1) | Computable credit risk is the sum of the face amounts of loans and leases (including non-performing assets but excluding country risk loans), guarantees and documentary credits. |
(2) | Allowances for credit losses as a percentage of non-performing assets. |
The following chart shows our impaired assets from the fourth quarter of 2008 to the fourth quarter of 2010(1): | | | 4Q08 | | | | 1Q09 | | | | 2Q09 | | | | 3Q09 | | | | 4Q09 | | | | 1Q10 | | | | 2Q10 | | Individual | | | 8.30 | % | | | 8.60 | % | | | 8.80 | % | | | 9.70 | % | | | 9.30 | % | | | 8.80 | % | | | 8.20 | % | Total | | | 5.70 | % | | | 6.00 | % | | | 7.00 | % | | | 7.70 | % | | | 7.20 | % | | | 7.00 | % | | | 6.60 | % | Corporate | | | 3.90 | % | | | 4.20 | % | | | 5.70 | % | | | 6.10 | % | | | 5.30 | % | | | 5.30 | % | | | 5.10 | % |
(1) | Managerial non-performing assets to computable credit risk. |
The following table shows our non-performing assets by type of loan at December 31, 2010 and December 31, 2009. Impaired Assets by Type of Customer | | | | | | | | | | | | | (in millions of R$) | | | | | | | | | Commercial, financial and industrial | | | 3,563 | | | | 3,618 | | Real estate – mortgage | | | 150 | | | | 109 | | Installment loans to individuals | | | 4,863 | | | | 5,335 | | Lease financing | | | 772 | | | | 837 | | Total | | | 9,348 | | | | 9,899 | |
Commercial, financial and industrial Non-performing assets in commercial, financial and industrial loans in December 2010 showed a reduction of R$56 million compared to December 31, 2009, resulting in an improvement on the respective default rate. Real estate – mortgage Non-performing assets in real estate – mortgage loans increased by R$41 million at December 31, 2010, compared to December 31, 2009, due to default of remaining loans granted during the financial crisis. Installment loans to individuals Non-performing assets in installment loans to individuals showed a decrease of 9% (R$472 million), which represents a considerable reduction compared to the year ended December 31, 2009, observing the increase of 22.7% (R$11,147 million) on this portfolio. The decrease occurred mostly in refinancing products which benefited from the measures adopted in response to the international financial crisis, such as improving the decision-making process on lending and strengthening the credit recovery business. Lease financing Non-performing loans in lease financing in the year ended December 31, 2010 decreased R$64 million compared to the same period of last year (-8%). Impairment Losses on Other Assets (Net) Other impairment losses on other assets (net) in 2009for the year ended December 31, 2010 were losses of R$901.021 million, a R$824.0880 million increasedecrease from losses of R$77.0901 million in 2008. On a pro forma basis as iffor the acquisition of Banco Real had occurred as of January 1, 2008,year ended December 31, 2009. This variance is principally explained by impairment losses on other assets (net) in 2009 increased R$816 million compared to R$85 million in 2008. This increase was mainly due to theof R$818 million of impairment losses on contracts for providing banking services.services that were registered in 2009 and did not occur again in 2010. Gains/losses on disposal of assets not classified as non-current assets held for sale plus Gains/losses on disposal of non-current assets held for sale Gains/losses on disposal of assets not classified as non-current assets held for sale plus Gains/losses on disposal of non-current assets held for sale were gains of R$140 million during the year ended December 31, 2010, a R$3.2 billion decrease from gains of R$3.4 billion during the same period ended in 2009, mainly due to the gain in 2009 from the sale of our interest in Cielo S.A. (formerly Companhia Brasileira de Meios de Pagamento—VISANET). Income Tax
Income tax was R$2.6 billion in 2009, a 1.445% or R$2.5 billion increase from R$170 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, income tax in 2009 increased 127% compared to R$1.2 billion in 2008. Our effective tax rates, in 2009 and 2008 (on a pro forma basis), were 32% and 23%, respectively. In 2009, the 25% valuation of the real against the dollar generated positive results on the hedge of our net equity of our Cayman Islands branch, and the positive hedge results caused an increase of R$1.2 billion in tax expenses, compared to a reduction of R$732.0 million in 2008. See “—Other Factors Affecting Financial Condition and Results of Operations—Cayman Offshore Hedging”. On the other hand, the tax expenses were reduced by R$1.3 billion due to an increase in deductible goodwill amortization, compared to R$418 million in 2008.
Results of Operations by Segment for the Year ended December 31, 2009 Compared to the Year ended December 31, 2008
The following tables present an overview of certain income statement data for each of our operating segments for the year ended December 31, 2009 and 2008.
| | For the year ended December 31, 2009 | | | | | | | | | | | | | | | | Asset Management and Insurance | | | | | | | | | | (millions of R$, except percentages) | | | | (condensed income statement) | | Net interest income | | | 20,260 | | | | 91.4 | % | | | 1,767 | | | | 8.0 | % | | | 140 | | | | 0.6 | % | | | 22,167 | | Income from equity instruments | | | 30 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 30 | | Share of results of entities accounted for using the equity method | | | 295 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 295 | | Net fee and commission income | | | 4,970 | | | | 79.7 | % | | | 863 | | | | 13.8 | % | | | 405 | | | | 6.5 | % | | | 6,238 | | Gains/losses on financial assets and liabilities | | | 1,751 | | | | 65.7 | % | | | 859 | | | | 32.2 | % | | | 54 | | | | 2.0 | % | | | 2,665 | | Other operating income/(expenses) | | | (281 | ) | | | 242.4 | % | | | (23 | ) | | | 19.4 | % | | | 188 | | | | -161.9 | % | | | (116 | ) | Personnel expenses | | | (4,972 | ) | | | 90.2 | % | | | (474 | ) | | | 8.6 | % | | | (65 | ) | | | 1.2 | % | | | (5,511 | ) | Other administrative expenses | | | (5,213 | ) | | | 95.9 | % | | | (175 | ) | | | 3.2 | % | | | (48 | ) | | | 0.9 | % | | | (5,436 | ) | Depreciation and amortization of tangible and intangible assets | | | (1,176 | ) | | | 94.2 | % | | | (39 | ) | | | 3.1 | % | | | (34 | ) | | | 2.7 | % | | | (1,249 | ) | Impairment losses on financial assets (net) | | | (9,884 | ) | | | 99.2 | % | | | (83 | ) | | | 0.8 | % | | | 0 | | | | 0.0 | % | | | (9,967 | ) | Provisions (net) | | | (3,390 | ) | | | 97.4 | % | | | (45 | ) | | | 1.3 | % | | | (46 | ) | | | 1.3 | % | | | (3,481 | ) | Impairment losses on nonfinancial assets (net) | | | (900 | ) | | | 99.8 | % | | | 0 | | | | 0.0 | % | | | (1 | ) | | | 0.2 | % | | | (901 | ) | Other nonfinancial gains/(losses) | | | 3,403 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 3,403 | | Profit (loss) before tax | | | 4,894 | | | | 60.1 | % | | | 2,651 | | | | 32.6 | % | | | 592 | | | | 7.3 | % | | | 8,137 | |
| | For the year ended December 31, 2008 (Pro Forma) | | | | | | | | | | | | | | | | Asset Management and Insurance | | | | | | | | | | (thousands of R$, except percentages) | | | | (condensed income statement) | | Pro Forma | | | | | | | | | | | | | | | | | | | | | | Net interest income | | | 17,719 | | | | 92.1 | % | | | 1,440 | | | | 7.5 | % | | | 72 | | | | 0.4 | % | | | 19,231 | | Income from equity instruments | | | 39 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 39 | | Share of results of entities accounted for using the equity method | | | 305 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 305 | | Net fee and commission income | | | 4,866 | | | | 83.0 | % | | | 641 | | | | 10.9 | % | | | 358 | | | | 6.1 | % | | | 5,866 | | Gains/losses on financial assets and liabilities | | | (27 | ) | | | -3.4 | % | | | 797 | | | | 102.5 | % | | | 7 | | | | 0.9 | % | | | 777 | | Other operating income/(expenses) | | | (8 | ) | | | 11.2 | % | | | (66 | ) | | | 88.3 | % | | | (0 | ) | | | 0.5 | % | | | (75 | ) | Personnel expenses | | | (4,998 | ) | | | 88.1 | % | | | (623 | ) | | | 11.0 | % | | | (53 | ) | | | 0.9 | % | | | (5,674 | ) | Other administrative expenses | | | (5,621 | ) | | | 96.0 | % | | | (207 | ) | | | 3.5 | % | | | (30 | ) | | | 0.5 | % | | | (5,858 | ) | Depreciation and amortization of tangible and intangible assets | | | (1,160 | ) | | | 93.8 | % | | | (72 | ) | | | 5.8 | % | | | (4 | ) | | | 0.4 | % | | | (1,236 | ) | Impairment losses on financial assets (net) | | | (6,533 | ) | | | 99.4 | % | | | (37 | ) | | | 0.6 | % | | | 0 | | | | 0.0 | % | | | (6,570 | ) | Provisions (net) | | | (1,631 | ) | | | 95.9 | % | | | (38 | ) | | | 2.3 | % | | | (32 | ) | | | 1.9 | % | | | (1,702 | ) | Impairment losses on nonfinancial assets (net) | | | (85 | ) | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | (0 | ) | | | 0.0 | % | | | (85 | ) | Other nonfinancial gains/(losses) | | | 54 | | | | 100.0 | % | | | 0 | | | | 0.0 | % | | | 0 | | | | 0.0 | % | | | 54 | | Profit (loss) before tax | | | 2,919 | | | | 57.6 | % | | | 1,835 | | | | 36.2 | % | | | 317 | | | | 6.3 | % | | | 5,072 | |
| | For the year ended December 31, 2008 | | | | Commercial Banking | | | % of Total | | | Global Wholesale Banking | | | % of Total | | | Asset Management and Insurance | | | % of Total | | | Total | | Net interest income | | | 10,192 | | | | 89.1 | % | | | 1,214 | | | | 10.6 | % | | | 33 | | | | 0.3 | % | | | 11,439 | | Income from equity instruments | | | 37 | | | | 100.0 | % | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 37 | | Share of results of entities accounted for using the equity method | | | 112 | | | | 100.0 | % | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 112 | | Net fee and commission income | | | 3,602 | | | | 84.7 | % | | | 449 | | | | 10.6 | % | | | 202 | | | | 4.7 | % | | | 4,253 | | Gains/losses on financial assets and liabilities (net) | | | (358 | ) | | | -188.4 | % | | | 541 | | | | 284.7 | % | | | 7 | | | | 3.7 | % | | | 190 | | Other operating income (expenses) | | | (22 | ) | | | 36.7 | % | | | (38 | ) | | | 63.3 | % | | | - | | | | 0.0 | % | | | (60 | ) | Gross income | | | 13,564 | | | | 84.9 | % | | | 2,166 | | | | 13.6 | % | | | 242 | | | | 1.5 | % | | | 15,972 | | Personnel expenses | | | (3,105 | ) | | | 87.5 | % | | | (404 | ) | | | 11.4 | % | | | (40 | ) | | | 1.1 | % | | | (3,549 | ) | Other administrative expenses | | | (3,485 | ) | | | 95.8 | % | | | (130 | ) | | | 3.6 | % | | | (22 | ) | | | 0.6 | % | | | (3,637 | ) | Depreciation and amortization of tangible and intangible assets | | | (798 | ) | | | 94.3 | % | | | (44 | ) | | | 5.2 | % | | | (4 | ) | | | 0.5 | % | | | (846 | ) | Provisions (net) | | | (1,161 | ) | | | 94.3 | % | | | (39 | ) | | | 3.2 | % | | | (31 | ) | | | 2.5 | % | | | (1,231 | ) | Impairment losses on financial assets (net) | | | (4,076 | ) | | | 99.4 | % | | | (23 | ) | | | 0.6 | % | | | - | | | | 0.0 | % | | | (4,099 | ) | Impairment losses on other assets (net) | | | (77 | ) | | | 100.0 | % | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | (77 | ) | Other nonfinancial gains (losses) | | | 16 | | | | 100.0 | % | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | 16 | | Profit (loss) before tax | | | 878 | | | | 34.4 | % | | | 1,526 | | | | 59.9 | % | | | 145 | | | | 5.7 | % | | | 2,549 | |
The following tables show our results of operations for the year ended December 31, 2009 and 2008 (actual results and on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008), for each of our operating segments.
| | For the year ended December 31, | | | | | | | | | | | | | | (pro forma) | | | | (in thousands of R$) | | Commercial Banking | | | | | | | | | | Net interest income | | | 20,260 | | | | 17,719 | | | | 10,192 | | Income from equity instruments | | | 30 | | | | 39 | | | | 37 | | Share of results of entities accounted for using the equity method | | | 295 | | | | 305 | | | | 112 | | Net fee and commission income | | | 4,970 | | | | 4,866 | | | | 3,602 | | Gains/losses on financial assets and liabilities (net) | | | 1,751 | | | | (27 | ) | | | (358 | ) | Other operating income (expenses) | | | (281 | ) | | | (8 | ) | | | (22 | ) | Gross income | | | 27,026 | | | | 22,894 | | | | 13,564 | | Personnel expenses | | | (4,972 | ) | | | (4,998 | ) | | | (3,105 | ) | Other administrative expenses | | | (5,213 | ) | | | (5,621 | ) | | | (3,485 | ) | Depreciation and amortization of tangible and intangible assets | | | (1,176 | ) | | | (1,160 | ) | | | (798 | ) | Provisions (net) | | | (3,390 | ) | | | (1,631 | ) | | | (1,161 | ) | Impairment losses on financial assets (net) | | | (9,884 | ) | | | (6,533 | ) | | | (4,076 | ) | Impairment losses on other assets (net) | | | (900 | ) | | | (85 | ) | | | (77 | ) | Other nonfinancial gains (losses) | | | 3,403 | | | | 54 | | | | 16 | | Profit (loss) before tax | | | 4,894 | | | | 2,919 | | | | 878 | |
| | For the year ended December 31, | | | | | | | | | | | | | | (pro forma) | | | | (in thousands of R$) | | Global Wholesale | | | | | | | | | | Net interest income | | | 1,767 | | | | 1,440 | | | | 1,214 | | Income from equity instruments | | | 0 | | | | 0 | | | | 0 | | Share of results of entities accounted for using the equity method | | | 0 | | | | 0 | | | | 0 | | Net fee and commission income | | | 863 | | | | 641 | | | | 449 | | Gains/losses on financial assets and liabilities (net) | | | 859 | | | | 797 | | | | 541 | | Other operating income (expenses) | | | (23 | ) | | | (66 | ) | | | (38 | ) | Gross income | | | 3,467 | | | | 2,811 | | | | 2,166 | | Personnel expenses | | | (474 | ) | | | (623 | ) | | | (404 | ) | Other administrative expenses | | | (175 | ) | | | (207 | ) | | | (130 | ) | Depreciation and amortization of tangible and intangible assets | | | (39 | ) | | | (72 | ) | | | (44 | ) | Provisions (net) | | | (45 | ) | | | (38 | ) | | | (39 | ) | Impairment losses on financial assets (net) | | | (83 | ) | | | (37 | ) | | | (23 | ) | Impairment losses on other assets (net) | | | 0 | | | | 0 | | | | 0 | | Other nonfinancial gains (losses) | | | 0 | | | | 0 | | | | 0 | | Profit (loss) before tax | | | 2,651 | | | | 1,835 | | | | 1,526 | |
| | For the year ended December 31, | | | | | | | | | | | | | | (pro forma) | | | | (in thousands of R$) | | Asset Management and Insurance | | | | | | | | | | Net interest income | | | 140 | | | | 72 | | | | 33 | | Income from equity instruments | | | 0 | | | | 0 | | | | 0 | | Share of results of entities accounted for using the equity method | | | 0 | | | | 0 | | | | 0 | | Net fee and commission income | | | 405 | | | | 358 | | | | 202 | | Gains/losses on financial assets and liabilities (net) | | | 54 | | | | 7 | | | | 7 | | Other operating income (expenses) | | | 188 | | | | (0 | ) | | | (0 | ) | Gross income | | | 787 | | | | 437 | | | | 242 | |
| | For the year ended December 31, | | | | | | | | | | | | | | (pro forma) | | | | (in thousands of R$) | | Personnel expenses | | | (65 | ) | | | (53 | ) | | | (40 | ) | Other administrative expenses | | | (48 | ) | | | (30 | ) | | | (22 | ) | Depreciation and amortization of tangible and intangible assets | | | (34 | ) | | | (4 | ) | | | (4 | ) | Provisions (net) | | | (46 | ) | | | (32 | ) | | | (31 | ) | Impairment losses on financial assets (net) | | | 0 | | | | 0 | | | | 0 | | Impairment losses on other assets (net) | | | (1 | ) | | | (0 | ) | | | (0 | ) | Other nonfinancial gains (losses) | | | 0 | | | | 0 | | | | 0 | | Profit (loss) before tax | | | 592 | | | | 317 | | | | 145 | |
Commercial Banking Segment Consolidated Results of Operations for the Year ended December 31, 2009 Compared to the Year ended December 31, 2008
Summary
Profit before income tax attributed to the Commercial Banking segment in 2009 was R$4.9 billion, a R$4.1 billion increase from R$878 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, profit before income tax attributed to the Commercial Banking segment in 2009 increased R$2 billion compared to R$2.9 billion in 2008.
Net Interest Income
Net interest income for the Commercial Banking segment in 2009 was R$20.3 billion, a 99% or R$10.1 billion increase from R$10.2 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net interest income for the Commercial Banking segment in 2009 increased 14% compared to R$17.7 billion in 2008. This increase was mainly due to increased average balances of loans and an increase in the average spread of our credit assets over interbank rates.
Share of Results of Entities Accounted for using the Equity Method
Share of results of entities accounted for using the equity method for the Commercial Banking segment in 2009 was R$295 million, a R$183 million increase from R$112 million in 2008. This increase was mainly due to results of R$126.0 million from ABN Dois Participações related to the sale of Real Capitalização to Santander Seguros. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, share of results of entities accounted for using the equity method for the Commercial Banking segment in 2009 decreased 3% compared to R$305 million in 2008.
Net Fee and Commission Income
Net fees and commission income for the Commercial Banking segment in 2009 were R$5.0 billion, a 38% or R$1.4 billion increase from R$3.6 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net fees and commission income for the Commercial Banking segment in 2009 increased 2% compared to R$4.9 billion in 2008. This limited growth was mainly due to restrictions on banking fees imposed by our regulators starting in April 2008, which had a negative effect on our banking fees.
Gains/(Losses) on Financial Assets and Liabilities
Gains (losses) on financial assets and liabilities (net) for the Commercial Banking segment in 2009 were gains of R$1.8 billion, a R$2.1 billion increase from losses of R$358 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, gains (losses) on financial assets and liabilities (net) for the Commercial Banking segment in 2009 increased R$1.8 billion compared to losses of R$27.0 million in 2008. These gains were partially offset by losses recorded under exchange differences and resulting from our foreign currency exposure. The increase in gains principally reflected a R$1.8 billion increase in gains on our Cayman
Islands investment hedge, which was offset by an increase in income tax expenses, and a R$126 million increase in proceeds from the sale of long-term investments upon the sale of part of our interests in BOVESPA and BM&F in 2008 and 2009.
Other Operating Income/(Expenses)
Other operating income (expenses) for the Commercial Banking segment in 2009 were expenses of R$281 million, compared to expense of R$22 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, other operating income (expenses) for the Commercial Banking segment in 2008 was an expense of R$8 million.
Personnel Expenses
Personnel expenses for the Commercial Banking segment increased from R$3.1 billion for the year ended December 31, 2008 to R$5.0 billion in 2009, a 60% or R$1.9 billion increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, personnel expenses for the Commercial Banking segment in 2008 decreased from R$4,998 million to R$4,972 million in 2009, a 1.0% or R$26 million decrease, reflecting the cost synergies resulting from the merger of Santander Brasil and Banco Real partially offset by higher personnel expenses in line with historical trends of salary increases tied to inflation.
Other General Administrative Expenses
Other general administrative expenses for the Commercial Banking segment increased from R$3.5 billion in 2008 to 5.2 billion in 2009, a 49% or R$1.7 billion increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, other general administrative expenses for the Commercial Banking segment in 2008 decreased from R$5.6 billion to R$5.2 billion in 2009, a 7% or R$408.0 million decrease, primarily due to cost synergies resulting from the merger of Santander Brasil and Banco Real.
Impairment Losses on Financial Assets (Net)
Impairment losses on financial assets (net) for the Commercial Banking segment in 2009 were R$9.9 billion, a 142% or R$5.8 billion increase from R$4.1 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, impairment losses on financial assets (net) for the Commercial Banking segment in 2009 increased 51% compared to R$6.6 billion in 2008. This increase was mainly due to the deteriorating credit quality caused by worsening economic conditions in Brazil in the second half of 2008 and the first three quarters of 2009.
Provisions (Net)
Provisions principally include provisions for labor, civil and tax contingences. Provisions (net) for the Commercial Banking segment were R$3.4 billion in 2009, compared to R$1.2 billion in 2008 or R$1.6 billion on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008. This increase reflected increased provisions for labor and civil claims and provisions for restructuring costs associated with the Banco Real acquisition.
Impairment Losses on Nonfinancial Assets (Net)
Other impairment losses on other assets (net) for the Commercial Banking segment in 2009 were R$900.0 million, a R$822 million increase from R$77 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, impairment losses on other assets (net) for the Commercial Banking segment in 2009 increased 959% compared to R$85 million in 2008. This increase was mainly due to the R$818 million of impairment losses relating to the purchase of contracts for providing banking services.
Global Wholesale Banking Consolidated Results of Operations for the Year ended December 31, 2009 Compared to the Year ended December 31, 2008
Summary
Profit before income tax attributed to the Global Wholesale Banking segment in 2009 was R$2.6 billion, a 73% or R$1.1 billion increase from R$1.5 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, profit before income tax attributed to the Global Wholesale Banking segment in 2009 increased 44% compared to R$1.8 billion in 2008.
Net Interest Income
Net interest income for the Global Wholesale Banking segment in 2009 was R$1.8 billion, a 45% or R$553 million increase from R$1.2 billion in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net interest income for the Global Wholesale Banking segment in 2009 increased 23% compared to R$1.4 billion in 2008, reflecting growth in the credit portfolio of our GB&M customers, principally in the area of trade finance.
Net Fee and Commission Income
Net fees and commission income for the Global Wholesale Banking segment in 2009 was R$863 million, a 92% or R$414 million increase from R$449.0 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net fees and commission income for the Global Wholesale Banking segment in 2009 increased 35.0% compared to R$641 million in 2008. This increase was mainly due to an increase in trade finance business commissions resulting from a higher volume of transactions in 2009.
Gains/(Losses) on Financial Assets and Liabilities
Gains (losses) on financial assets and liabilities (net) for the Global Wholesale Banking segment in 2009 were gains of R$859 million, a 59% or R$319 million increase from gains of R$541 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, gains (losses) on financial assets and liabilities (net) for the Global Wholesale Banking segment in 2009 increased 8% compared to gains of R$797 million in 2008. This increase was mainly due to a R$138 million increase in earnings from our proprietary treasury business, partially offset by losses of R$76 million in derivatives transactions for our customers.
Other Operating Income/(Expenses)
Other operating income (expenses) for the Global Wholesale Banking segment in 2009 was expense of R$23 million, compared to expense of R$38 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, other operating income (expenses) for the Global Wholesale Banking segment in 2009 decreased 66% compared to expense of R$66 million in 2008.
Personnel Expenses
Personnel expenses for the Global Wholesale Banking segment increased from R$404 million in 2008 to R$474 million in 2009, a 17% or R$71 million increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, personnel expenses for the Global Wholesale Banking segment in 2009 decreased 24% compared to R$623.0 million in 2008, mainly due to cost synergies resulting from the merger of Santander Brasil and Banco Real.
Other General Administrative Expenses
Other general administrative expenses for the Global Wholesale Banking segment increased from R$130 million in 2008 to R$175 million in 2009, a 35% or R$45 million increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, other general administrative expenses for the Global Wholesale Banking segment in 2009 decreased 15% compared to R$207 million in 2008, mainly due to cost synergies resulting from the merger of Santander Brasil and Banco Real.
Impairment Losses on Financial Assets (Net)
Impairment losses on financial assets (net) for the Global Wholesale Banking segment in 2009 with losses of R$83 million, a R$60 million increase in losses from R$23 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, impairment losses on financial assets (net) for the Global Wholesale Banking segment in 2008 were losses of R$37 million.
Provisions (Net)
Provisions (net) for the Global Wholesale Banking segment were losses of R$45.0 million in 2009, compared to losses of R$39.0 million in 2008 and on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008. Provisions principally include provisions for labor, civil and tax contingencies.
Asset Management and Insurance Segment Consolidated Results of Operations for the Year ended December 31, 2009 Compared to the Year ended December 31, 2008
Summary
Profit before income tax attributed to the Asset Management and Insurance segment in 2009 was R$592 million, a 308% or R$447.0 million increase from R$145 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, profit before income tax attributed to the Asset Management and Insurance segment in 2009 increased 86% compared to R$317 million in 2008. On August 14, 2009, our shareholders transferred certain Brazilian asset management and insurance companies that were previously owned by Santander Spain to Santander Brasil, through a series of share exchange transactions (incorporações de ações) in order to consolidate all of the Santander Group’s Brazilian insurance and asset management operations into Santander Brasil. See “Item 4. Information on the Company—A. History and development of the company—Important Events ” and “Item 4. Information on the Company—B. Business Overview—Asset Management and Insurance”. The results of operations for our Asset Management and Insurance segment include the results of operations of these companies as from June 30, 2009.
We accounted for the mergers were accounted using the historical IFRS balance sheets of the merged companies as of June 30, 2009, since such mergers were treated as a business combination under common control.
Net Interest Income
Net interest income for the Asset Management and Insurance segment in 2009 was R$140 million, a 326% or R$107 million increase from R$33 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net interest income for the Asset Management and Insurance segment in 2009 increased 93% compared to R$72.0 million in 2008. This increase was mainly due to the integration of the asset management and insurance operations transferred to us in August 2009.
Net Fee and Commission Income
Net fees and commission income for the Asset Management and Insurance segment in 2009 were R$405 million, a 100% or R$202 million increase from R$202 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, net fees and commission income for the Asset Management and Insurance segment in 2009 increased 13% compared to R$358.0 million in 2008. In addition, the level of net fees and commission income increased mainly due to an increase in net commissions on the sale of insurance. This increase is mainly due to the integration of the asset management and insurance transferred to us in August 2009.
Gains/(Losses) on Financial Assets and Liabilities
Gains (losses) on financial assets and liabilities (net) for the Asset Management and Insurance segment in 2009 were gains of R$54 million, a 672% or R$47 million increase from R$7 million in 2008. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, gains/(losses) on financial assets and liabilities (net) for the Asset Management and Insurance segment in 2009 increased R$47 million compared to R$7 million in 2008. This increase is mainly due to the integration of the asset management and insurance operations transferred to us in August 2009.
Other Operating Income/(Expenses)
Other operating income (expenses) for the Asset Management and Insurance segment in 2009 presented an income of R$188 million, a R$188 million increase compared to an expense of R$0 in 2008. This increase was due to the integration of the asset management and insurance operations transferred to us in August 2009. The change in other operating income (expenses) on a pro forma basis was the same, as this income (expenses) relates to the operations transferred to us in August 2009.
Personnel Expenses
Personnel expenses for the Asset Management and Insurance segment increased from R$40 million in 2008 to R$65 million in 2009, a 64% or R$25 million increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008, personnel expenses for the Asset Management and Insurance segment in 2009 increased 22% compared to R$53 million in 2008, mainly due to cost synergies from the acquisition of Banco Real. This increase is mainly due to the incorporation of Asset and Insurance operations at August 2009, partially offset by the cost synergies resulting from the merger of Santander Brazil and Banco Real.
Other General Administrative Expenses
Other general administrative expenses for the Asset Management and Insurance segment increased from R$22 million in 2008 to R$48 million in 2009, a 119% or R$26 million increase. On a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008 other general administrative expenses increased 60% compared to R$30 million in 2008, mainly due to cost synergies from the acquisition of Banco Real. This increase is mainly due to the integration of the asset management and insurance operations transferred to us in August 2009, offset by the gains from the acquisition of Banco Real.
Provisions (Net)
Provisions (net) for the Asset Management and Insurance segment were R$46 million in 2009, compared to R$31 million in 2008 or R$32 million on a pro forma basis as if the acquisition of Banco Real had occurred as of January 1, 2008. Provisions principally include provisions for labor and tax contingencies. This increase was mainly due to the incorporation of the Asset and Insurance operations in August 2009.
Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
As a consequence of our acquisition of Banco Real in August 2008, our results of operations for the years ended December 31, 2007 and 2008 are not comparable. In order to analyze the organic developments in our business, we discuss certain full-year 2008 financial information excluding the results of Banco Real as from January 1, 2008. For a complete presentation of this information, see “ — Acquisition of Banco Real.”
| | For the year ended December 31, | | | | 2008 (excluding Banco Real) | | | | | | | | | | | | % Change (excluding Banco Real) | | | | (in millions of R$) | | Net interest income | | | 6,671 | | | | 11,438 | | | | 6,195 | | | | 84.6 | | | | 7.7 | | Income from equity instruments | | | 35 | | | | 37 | | | | 36 | | | | 2.8 | | | | (2.8 | ) | Net fees and commissions | | | 3,467 | | | | 4,254 | | | | 3,098 | | | | 37.3 | | | | 11.9 | | Share of results of entities accounted for using the equity method | | | 6 | | | | 112 | | | | 6 | | | n.m. | | | | — | | Gains/losses on financial assets and liabilities (net) | | | 333 | | | | (1,287 | ) | | | 1,517 | | | n.m. | | | | (78.0 | ) | Exchange differences (net) | | | 300 | | | | 1,476 | | | | 382 | | | | 286.4 | | | | (21.5 | ) | Other operating income (expenses) | | | (92 | ) | | | (59 | ) | | | 133 | | | n.m. | | | | (169.2 | ) |
| | For the year ended December 31, | | | | 2008 (excluding Banco Real) | | | | | | | | | | | | % Change (excluding Banco Real) | | | | (in millions of R$) | | Administrative expenses | | | (4,656 | ) | | | (7,185 | ) | | | (4,460 | ) | | | 61.1 | | | | 4.4 | | Depreciation and amortization | | | (656 | ) | | | (846 | ) | | | (580 | ) | | | 31.4 | | | | 13.1 | | Provisions (net) | | | (1,113 | ) | | | (1,230 | ) | | | (1,196 | ) | | | 2.8 | | | | (6.9 | ) | Impairment losses on financial assets (net): | | | (2,864 | ) | | | (4,100 | ) | | | (2,160 | ) | | | 89.9 | | | | 32.6 | | Impairment losses on other assets (net) | | | (4 | ) | | | (77 | ) | | | (299 | ) | | | (74.2 | ) | | | (98.7 | ) | Gains/losses on disposal of assets not classified as noncurrent assets held for sale | | | 6 | | | | 7 | | | | 1 | | | n.m. | | | | 500 | | Gains/losses on disposal of noncurrent assets held for sale | | | 25 | | | | 9 | | | | 14 | | | | (36 | ) | | | 78.6 | | Profit before tax | | | 1,458 | | | | 2,549 | | | | 2,687 | | | | (5.1 | ) | | | (45.7 | ) | Income tax | | | (217 | ) | | | (170 | ) | | | (784 | ) | | | (78.3 | ) | | | (72.3 | ) | Net income | | | 1,241 | | | | 2,379 | | | | 1,903 | | | | 25.0 | | | | (34.8 | ) |
Summary
Net income for the year ended December 31, 2008 was R$2.4 billion, a 25% or R$476 million increase from R$1.9 billion in 2007. The 2008 increase was mainly due to the consolidation of the entities of Banco Real in our financial statements. Excluding the effect of the acquisition of Banco Real, net income for the year ended December 31, 2008 was R$1.2 billion, a 35% or R$662 million decrease from R$1.9 billion in 2007, mainly due to:
· | growth in credit volumes and a resulting increase in revenues from lending operations, driven by macro economic growth in Brazil, although that growth has slowed beginning in the fourth quarter of 2008; |
· | an increase in income from fees for services, partially offset by limits on banking fees for checking accounts and lending/leasing commissions imposed by the Central Bank starting in 2008; |
· | a decline in earnings from trading and proprietary investment activities due to adverse market conditions; |
· | an increase in credit impairment losses, particularly since the fourth quarter of 2008, driven by deteriorating economic conditions; and |
· | revenues of R$693 million from the sale of investment securities in 2007, compared to R$88 million in 2008. |
Net Interest Income
Santander Brasil’s net interest income was R$11.4 billion in 2008, an 85% or R$5.2 billion increase from R$6.2 billion in 2007. Excluding the effect of the acquisition of Banco Real, Santander Brasil’s net interest income was R$6.7 billion in 2008, an 8% or R$476 million increase from R$6.2 billion in 2007, mainly due to growth in our lending activities, offset in part by a decrease in the average spreads of our credit assets.
Average total earning assets were R$133.7 billion for the year ended December 31, 2008, a 54% or R$46.9 billion increase from $86.8 billion in 2007. Excluding the effect of the acquisition of Banco Real, average total earning assets were R$97.5 billion for the year ended December 31, 2008, a 12% or R$10.7 billion increase from R$86.8 billion in 2007. The principal drivers of this increase were loans and advances to credit institutions, the increase of which was funded with growth of time deposits in excess of commercial lending opportunities. In addition, retail and corporate lending increased, offset in part by a decline in consumer finance lending volumes. The increase in corporate lending was driven principally by increased trade finance and was concentrated in the Global Wholesale Banking segment. The increase in retail lending was driven principally by credit cards and
overdrafts. The decline in consumer finance lending was principally due to declining volumes of auto financing, reflecting declining consumer confidence in the face of economic conditions, particularly in the fourth quarter of 2008.
The effect of this substantial growth in interest earning assets was offset in part by a 30 basis point decline in the spread of the average yield earned on our interest earning credit assets over the average cost of interbank funding. This spread is the way we evaluate the yield earned on our assets. The decline in this spread reflects the change in mix resulting from the movements described above, which led to a greater proportion of interest earning assets being comprised of relatively lower yielding corporate loans. The effect of this decline in spread was exacerbated by increased cost of funds, driven by the rapid growth in time deposits, which increased as a proportion of total funding.
Average total interest bearing liabilities were R$109.4 billion for the year ended December 31, 2008, a 58% or R$40.2 billion increase from R$69.2 billion in 2007. Excluding the effect of the acquisition of Banco Real, average total interest bearing liabilities were R$80.4 billion for the year ended December 31, 2008, a 16.0% or R$11.2 billion increase from R$69.2 billion in 2007. The principal driver of this increase was time deposits, the average balance of which (excluding Banco Real) grew by 44% to R$35.1 billion. This growth resulted from a movement of customer funds out of mutual funds and other similar vehicles into lower risk bank deposits as well as a “flight to quality” as Brazilian customers moved their savings to larger financial institutions.
Net Fees and Commission Income
Net fees and commission income was R$4.3 billion in 2008, a 37% or R$1.2 billion increase from R$3.1 billion in 2007. Excluding the effect of the acquisition of Banco Real, net fees and commission income was R$3.5 billion in 2008, a 12% or approximately R$369 million increase from R$3.1 billion in 2007, mainly due to a R$205 million increase in net commissions on the sale of insurance and a R$70 million increase in our trade finance business. The growth in insurance sales commissions reflects increased focus on this line of business by management. The decline in banking fees other than overdraft fees reflects restrictions on these fees imposed by our regulators during 2008.
The following table reflects the breakdown of net fee and commission income in 2008 and 2007, excluding Banco Real.
| | For the Year Ended December 31, | | | | | | | | | | | | | | (In millions of R$) | | Banking fees | | | 1,485 | | | | 1,478 | | | | 0.5 | | Sale of insurance | | | 652 | | | | 447 | | | | 45.9 | | Investment funds | | | 523 | | | | 515 | | | | 1.6 | | Credit and debit cards | | | 338 | | | | 297 | | | | 13.8 | | Capital markets | | | 243 | | | | 257 | | | | (5.4 | ) | Trade finance | | | 176 | | | | 106 | | | | 66.0 | | Tax on services | | | (173 | ) | | | (154 | ) | | | 12.3 | | Others | | | 223 | | | | 152 | | | | 46.7 | | Total | | | 3,467 | | | | 3,098 | | | | 11.9 | |
Share of Results of Entities Accounted for Using the Equity Method
Share of results of entities accounted for using the equity method was R$112 million in 2008, a R$106 million increase from R$6 million in 2007. Excluding the effect of the acquisition of Banco Real, share of results of entities accounted for using the equity method was R$6 million in 2008, unchanged from 2007.
Gains (Losses) on Financial Assets and Liabilities (Net)
Gains/losses on financial assets and liabilities (net) changed to a loss of R$1.3 billion in 2008 from a gain of R$1.5 billion in 2007. Excluding the effect of the acquisition of Banco Real, gains/losses on financial assets and liabilities (net) was a gain of R$334 million in 2008, a 78% decrease from a gain of R$1.5 billion in 2007. This
decline was largely driven by adverse market conditions and principally reflected the following results: a R$854 million decline in treasury results (market making, trading and short term proprietary investing), a R$441 million decline in proceeds from the sale of long term investments due to the non-recurrence in 2008 of gains realized upon the sale of part of our interests in BOVESPA and BM&F in 2007 and a R$650 million decline in other long term positions associated with our balance sheet management. These declines were offset in part by a R$383 million increase in earnings on the provision of derivatives to customers, due to increased volumes in this line of business as demand grew for hedging products that allow customers to control their exposure to volatile markets.
Exchange Differences (Net)
Exchange differences (net) was R$1.5 billion in 2008, a 286% increase from R$382 million in 2007. Excluding the effect of the acquisition of Banco Real, exchange differences (net) was R$300 million in 2008, a 22% decrease from R$382 million in 2007. These gains were largely offset by losses on derivative transactions entered into to hedge our foreign currency exposure. Such losses are recorded under “Gains/losses on financial assets and liabilities.”
Other Operating Income (Expenses)
Other operating income (expenses) declined from income of R$133 million in 2007 to expense of R$60.0 million in 2008, or expense of R$92 million excluding Banco Real, principally reflecting the elimination in May 2008 of fees related to certain loans due to new regulations by the Central Bank.
Administrative Expenses
Administrative expenses increased from R$4.5 billion in 2007 to R$7.2 billion in 2008, or expense of R$4.7 billion excluding Banco Real, reflecting higher personnel expenses in line with historical trends of salary increases tied to inflation and increases in other general expenses.
Personnel expenses
The following table sets forth personnel expenses for each of the periods indicated.
| | | | | | | | | | | | | (in millions of R$) | | Wages and salaries | | | 2,253 | | | | 1,483 | | Social security costs | | | 569 | | | | 354 | | Additions to provisions for defined benefit pension plans | | | 45 | | | | 38 | | Contributions to defined contribution pension funds | | | 33 | | | | 4 | | Share-based payment costs(1) | | | 89 | | | | 31 | | Benefits | | | 423 | | | | 294 | | Other personnel expenses | | | 134 | | | | 179 | | Total | | | 3,546 | | | | 2,384 | |
(1) | Granted typically to members of our board of directors and to our executive directors and officers. See more details in “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Compensation Plans” and note 37 of our audited consolidated financial statements. |
Other general expenses
Other general expenses increased from R$2.1 billion in 2007 to R$3.6 billion in 2008, or expense of R$2.3 billion excluding Banco Real, mainly due to expenses relating to expanding our credit card business and improving our information systems platform and the effects of inflation on our contracts with providers, many of which are indexed to inflation.
Provisions (Net)
Provisions (net) was R$1.2 billion in 2008, unchanged from R$1.2 billion in 2007. Excluding the effect of the acquisition of Banco Real, provisions (net) was R$1.1 billion in 2008. Provisions principally include provisions for labor and tax contingencies.
Impairment Losses on Financial Assets (Net)
Impairment losses on financial assets (net) was R$4.1 billion in 2008, a 86% or R$1.9 billion increase from R$2.2 billion in 2007. Excluding the effect of the acquisition of Banco Real, impairment losses (net) was R$2.9 billion in 2008, a 33% or R$705 million increase from 2007, reflecting deteriorating credit quality in nearly all our businesses (though primarily in small companies, individual lending and consumer finance products) as a result of worsening economic conditions in Brazil.
Nonperforming assets were R$7.7 billion at December 31, 2008, a 267% increase from R$2.1 billion at December 31, 2007. Excluding the effect of the acquisition of Banco Real, nonperforming assets were R$3.0 billion at December 31, 2008, a 43% increase from R$2.1 billion at December 31, 2007. Nonperforming assets increased across all our businesses, although principally in retail banking and consumer finance. Deteriorating economic conditions resulted in an accelerated increase in nonperforming assets in the third and fourth quarters of 2008. Nonperforming assets grew by R$4.4 billion, or 204%, and R$1.1 billion, or 17%, in the third and fourth quarter, respectively. Excluding Banco Real, nonperforming assets increased by R$424 million (20%) and R$438.0 million (17%) in those periods.
The following table shows the ratio of our impaired assets to total computable credit risk and our coverage ratio at December 31, 2008 and 2007.
| | | | | | | | | | | | | (in millions of R$, except percentages) | | Computable credit risk(1) | | | 164,695 | | | | 64,558 | | Nonperforming assets | | | 7,730 | | | | 2,093 | | Allowances for credit losses | | | 8,181 | | | | 2,249 | | Ratios | | | | | | | | | Nonperforming assets to computable credit risk | | | 4.7 | % | | | 3.2 | % | Coverage ratio(2) | | | 105.8 | % | | | 107.5 | % |
(1) | Computable credit risk is the sum of the face amounts of loans and leases (including nonperforming assets but excluding country risk loans), guarantees and documentary credits. |
(2) | Allowances for credit losses as a percentage of nonperforming assets. |
Our coverage ratio at December 31, 2008 was 105.8% (after giving effect to the acquisition of Banco Real) and 102.8% (without giving effect to the acquisition of Banco Real) compared to 107.5% at December 31, 2007.
The following table shows our nonperforming assets by type of loan at December 31, 2008 and 2007.
| | | | | | 2008 (Excluding Banco Real) | | | | | | | | | | (In millions of R$) | | Impaired assets | | | | | | | | | | Commercial, financial and industrial | | | 770 | | | | 2,730 | | | | 502 | | Real estate — mortgage | | | 20 | | | | 74 | | | | 23 | | Installment loans to individuals | | | 2,221 | | | | 4,528 | | | | 1,558 | | Lease financing | | | 12 | | | | 398 | | | | 10 | | Total | | | 3,023 | | | | 7,730 | | | | 2,093 | |
Commercial, financial and industrial
Nonperforming assets in commercial, financial and industrial loans increased by R$2.2 billion from December 31, 2007 to December 31, 2008. Excluding the effect of the acquisition of Banco Real, nonperforming assets in commercial, financial and industrial loans increased R$268 million in 2008, due primarily to higher rates of default by certain of our customers, primarily customers affected by the global financial market crisis, including real estate developers and certain export companies that were highly leveraged in foreign currency.
Real estate — mortgage
Nonperforming assets in real estate — mortgage loans increased by R$41 million from December 31, 2007 to December 31, 2008. Excluding the effect of the acquisition of Banco Real, real estate — mortgage loans remained stable, with a slight decrease of R$3 million from December 31, 2007 to December 31, 2008.
Installment loans to individuals
Nonperforming assets in installment loans to individuals increased by R$3.0 billion from December 31, 2007 to December 31, 2008. Excluding the effect of the acquisition of Banco Real, nonperforming assets in installment loans to individuals increased by R$663 million. This increase was due primarily to the increase in unemployment during the last quarter of 2008 and in the first few months of 2009, which led to higher rates of default by individual borrowers.
Lease financing
Nonperforming loans in lease financing increased by R$388.0 million from December 31, 2007 to December 31, 2008. Excluding the effect of the acquisition of Banco Real, nonperforming loans in lease financing increased by R$2 million, due primarily to reclassification of certain amounts that were classified under a different line item in 2007 as “lease financing” in 2008. Management has sought to control losses related to nonperforming loans in lease financing by implementing stricter credit approval policies, including lending only for newer vehicles and requiring higher collateral levels for new loan originations.
Impairment Losses on Other Assets (Net)
Other impairment losses on other assets (net) was R$77 million in 2008, a 74% or R$221 million decrease from R$298 million in 2007. Excluding the effect of the acquisition of Banco Real, impairment losses (net) was R$4 million in 2008, a R$294 million decrease from 2007, mainly reflecting reduced impairment charges relating to goodwill and other intangible assets due to impairment charges taken in 2007 related to software for the Banespa information technology platform the use of which was discontinued when the platform was converted to the Santander platform.
Income Tax Income tax was R$170 million2.6 billion in 2008,2010, a 78% or R$61415 million decrease from R$784 million in 2007. Excluding the effect of the acquisition of Banco Real, we had an income tax credit of R$217 million in 2008.2009. Our effective tax rates, excluding Banco Real, in 2007rate was 26.1% and 2008 were 29%32.3%, respectively for 2010 and 15%, respectively. The decrease in effective tax rate reflected2009. In 2010, the impactdevaluation of devaluation ofthe dollar against the real on the net equity of our Cayman Island branch. The real declined in value against the dollar by 43% in the last four months of 2008, following our acquisition of this branch in connection with the Banco Real acquisition. The impact of this devaluation was a reduction of R$681 million of income tax expense. See “—Other Factors Affecting Financial Condition and Results of Operations—Cayman Offshore Hedging”. In addition, the effective tax rate was reduced by the use of available tax credits of R$125 million compared to R$27 million in 2007. At December 31, 2008, we had R$130 million of such tax credits remaining which have no expiration date. of our Cayman Islands branch, and the positive hedge results, caused losses of R$180 million in the tax expenses, compared to losses of R$1.1 billion in 2009. See “—Other Factors Affecting Our Financial Condition and Results of Operations—Cayman Offshore Hedging”. In addition, tax expense was affected in 2010, compared to 2009 by the following: (1) an increase of R$103 million in tax expenses due to lower deductible goodwill amortizations, R$1.4 billion in 2010 compared to R$1.5 billion in 2009, and (2) a R$374 million increase in deductions to R$704 million in 2010 related to interest on capital, as compared to R$330 million in 2009. Results of Operations by Segment for the Year Endedended December 31, 20082010 Compared to the Year Endedended December 31, 20072009 The following tables present an overview of certain income statement data for each of our operating segments for the yearsyear ended December 31, 2008 and 2007. | | For the year ended December 31, 2008 | | | | | | | | | | | | | | | | Asset Management and Insurance | | | | | | | | | | (thousands of R$, except percentages) | | | | (condensed income statement) | | Net interest income | | | 10,191,650 | | | | 89.1 | | | | 1,213,502 | | | | 10.6 | | | | 32,817 | | | | 0.3 | | | | 11,437,969 | | Share of results of entities accounted for using the equity method | | | 112,330 | | | | 100.0 | | | | — | | | | — | | | | — | | | | — | | | | 112,330 | | Net fee and commission income | | | 3,602,255 | | | | 84.7 | | | | 449,289 | | | | 10.6 | | | | 202,159 | | | | 4.8 | | | | 4,253,703 | | Gains/losses on financial assets and liabilities | | | (358,011 | ) | | | (188.8 | ) | | | 540,636 | | | | 285.0 | | | | 7,041 | | | | 3.7 | | | | 189,666 | | Other operating income/(expenses) | | | (21,570 | ) | | | 36.1 | | | | (37,782 | ) | | | 63.2 | | | | (465 | ) | | | 0.8 | | | | (59,817 | ) | Personnel expenses | | | (3,104,942 | ) | | | 87.5 | | | | (403,671 | ) | | | 11.4 | | | | (39,549 | ) | | | 1.1 | | | | (3,548,162 | ) | Other administrative expenses | | | (3,485,160 | ) | | | 95.8 | | | | (129,640 | ) | | | 3.6 | | | | (21,975 | ) | | | 0.6 | | | | (3,636,775 | ) | Impairment losses on financial assets (net) | | | (4,076,108 | ) | | | 99.4 | | | | (23,176 | ) | | | 0.6 | | | | — | | | | — | | | | (4,099,284 | ) | Provisions (net) | | | (1,160,918 | ) | | | 94.4 | | | | (38,638 | ) | | | 3.1 | | | | (30,761 | ) | | | 2.5 | | | | (1,230,317 | ) | Impairment losses on nonfinancial assets (net) | | | (77,267 | ) | | | 100.0 | | | | — | | | | — | | | | (10 | ) | | | — | | | | (77,277 | ) | Profit (loss) before tax | | | 877,525 | | | | 34.4 | | | | 1,526,455 | | | | 59.9 | | | | 144,853 | | | | 5.7 | | | | 2,548,833 | |
| | For the year ended December 31, 2007 | | (Condensed) Income Statement | | | | | | | | | | | | | | Asset Management and Insurance | | | | | | | | | | (thousands of R$, except percentages) | | | | (condensed income statement) | | Net interest income | | | 5,491,818 | | | | 88.6 | | | | 693,259 | | | | 11.2 | | | | 10,209 | | | | 0.2 | | | | 6,195,286 | | Share of results of entities accounted for using the equity method | | | 5,884 | | | | 100.0 | | | | — | | | | — | | | | — | | | | — | | | | 5,884 | | Net fee and commission income | | | 2,694,428 | | | | 87.0 | | | | 253,022 | | | | 8.2 | | | | 150,522 | | | | 4.9 | | | | 3,097,972 | | Gains/losses on financial assets and liabilities | | | 944,229 | | | | 49.7 | | | | 950,485 | | | | 50.1 | | | | 3,537 | | | | 0.2 | | | | 1,898,251 | | Other operating income/(expenses) | | | 143,362 | | | | 107.9 | | | | (10,412 | ) | | | (7.8 | ) | | | (26 | ) | | | — | | | | 132,924 | | Personnel expenses | | | (2,071,426 | ) | | | 86.9 | | | | (277,737 | ) | | | 11.6 | | | | (35,104 | ) | | | 1.5 | | | | (2,384,267 | ) | Other administrative expenses | | | (1,963,009 | ) | | | 94.6 | | | | (95,500 | ) | | | 4.6 | | | | (17,441 | ) | | | 0.8 | | | | (2,075,950 | ) | Impairment losses on financial assets (net) | | | (2,164,523 | ) | | | 100.2 | | | | 5,075 | | | | (0.2 | ) | | | 11 | | | | — | | | | (2,159,437 | ) | Provisions (net) | | | (1,192,553 | ) | | | 99.7 | | | | 7,654 | | | | (0.6 | ) | | | (11,513 | ) | | | 1.0 | | | | (1,196,412 | ) | Impairment losses on nonfinancial assets (net) | | | (298,085 | ) | | | 100.0 | | | | — | | | | — | | | | 3 | | | | — | | | | (298,082 | ) | Profit (loss) before tax | | | 1,111,883 | | | | 41.4 | | | | 1,482,819 | | | | 55.2 | | | | 92,439 | | | | 3.4 | | | | 2,687,141 | |
2010. Condensed Income Statement | | For the year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | Asset Management and Insurance | | | | | | | | | | (millions of R$, except percentages) | | Net interest income | | | 21,301 | | | | 88.4 | % | | | 2,501 | | | | 10.4 | % | | | 292 | | | | 1.2 | % | | | 24,095 | | Income from equity instruments | | | 52 | | | | 100.0 | % | | | – | | | | 0.0 | % | | | – | | | | 0.0 | % | | | 52 | | Income from companies accounted by the equity method | | | 44 | | | | 100.0 | % | | | – | | | | 0.0 | % | | | – | | | | 0.0 | % | | | 44 | | Net fee and commission income | | | 5,530 | | | | 80.9 | % | | | 892 | | | | 13.0 | % | | | 414 | | | | 6.1 | % | | | 6,836 | | Gains/losses on financial assets and liabilities plus Exchange Differences | | | 1,550 | | | | 82.7 | % | | | 244 | | | | 13.0 | % | | | 80 | | | | 4.3 | % | | | 1,875 | | Other operating income/(expenses) | | | (596 | ) | | | 171.3 | % | | | (30 | ) | | | 8.6 | % | | | 278 | | | | (80.0 | %) | | | (348 | ) | Personnel expenses | | | (5,354 | ) | | | 90.3 | % | | | (512 | ) | | | 8.6 | % | | | (60 | ) | | | 1.0 | % | | | (5,926 | ) | Other administrative expenses | | | (5,003 | ) | | | 94.3 | % | | | (215 | ) | | | 4.1 | % | | | (86 | ) | | | 1.6 | % | | | (5,304 | ) | Depreciation and amortization of tangible and intangible assets | | | (1,130 | ) | | | 91.3 | % | | | (58 | ) | | | 4.7 | % | | | (50 | ) | | | 4.0 | % | | | (1,237 | ) | Provisions (net) | | | (1,941 | ) | | | 98.3 | % | | | 4 | | | | (0.2 | %) | | | (38 | ) | | | 1.9 | % | | | (1,974 | ) | Impairment losses on financial assets (net) | | | (8,225 | ) | | | 99.9 | % | | | (8 | ) | | | 0.1 | % | | | – | | | | 0.0 | % | | | (8,234 | ) | Impairment losses on other assets (net) | | | (21 | ) | | | 100.0 | % | | | – | | | | 0.0 | % | | | – | | | | 0.0 | % | | | (21 | ) | Other nonfinancial gains/(losses) | | | 140 | | | | 100.0 | % | | | – | | | | 0.0 | % | | | – | | | | 0.0 | % | | | 140 | | Profit (loss) before tax | | | 6,347 | | | | 63.5 | % | | | 2,818 | | | | 28.2 | % | | | 832 | | | | 8.3 | % | | | 9,997 | |
The following tables show our results of operations for the year ended December 31, 20082010 and 2009, for each of our operating segments, the amount contributed by Banco Real to each segment during the period, and the reported results of each segment including amounts contributed by Banco Real.segments: | | For the Year Ended December 31, 2008 | | | | As Reported Less Banco Real | | | | | | | | | | (In thousands of R$) | | Net interest income | | | 5,602,063 | | | | 4,589,587 | | | | 10,191,650 | | Income from equity instruments | | | 35,281 | | | | 1,691 | | | | 36,972 | | Share of results of entities accounted for using the equity method | | | 6,062 | | | | 106,268 | | | | 112,330 | | Net fee and commission income | | | 2,948,287 | | | | 653,968 | | | | 3,602,255 | | Gains/losses on financial assets and liabilities (net) | | | 180,005 | | | | (538,016 | ) | | | (358,011 | ) | Other operating income (expenses) | | | (73,833 | ) | | | 52,264 | | | | (21,570 | ) | Total income | | | 8,697,865 | | | | 4,865,762 | | | | 13,563,627 | | Personnel expenses | | | (2,020,897 | ) | | | (1,084,046 | ) | | | (3,104,942 | ) | Other administrative expenses | | | (2,213,667 | ) | | | (1,271,494 | ) | | | (3,485,160 | ) | Depreciation and amortization of tangible and intangible assets | | | (622,602 | ) | | | (174,934 | ) | | | (797,536 | ) | Provisions (net) | | | (1,042,570 | ) | | | (118,347 | ) | | | (1,160,918 | ) | Impairment losses on financial assets (net) | | | (2,851,106 | ) | | | (1,225,002 | ) | | | (4,076,108 | ) | Impairment losses on other assets (net) | | | (4,384 | ) | | | (72,883 | ) | | | (77,267 | ) | Other nonfinancial gains (losses) | | | 31,323 | | | | (15,493 | ) | | | 15,830 | | Profit (loss) before tax | | | (26,037 | ) | | | 903,562 | | | | 877,525 | |
Commercial Banking | | For the year ended December 31, | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Net interest income | | | 21,301 | | | | 20,260 | | | | 5.1 | % | | | 1,041 | | Income from equity instruments | | | 52 | | | | 30 | | | | 73.0 | % | | | 22 | | Income from companies accounted by the equity method | | | 44 | | | | 295 | | | | (85.1 | %) | | | (251 | ) | Net fee and commission income | | | 5,530 | | | | 4,970 | | | | 11.3 | % | | | 560 | |
| | For the Year Ended December 31, 2008 | | | | As Reported Less Banco Real | | | | | | | | | | (In thousands of R$) | | Net interest income | | | 1,059,853 | | | | 153,649 | | | | 1,213,502 | | Income from equity instruments | | | — | | | | — | | | | — | | Share of results of entities accounted for using the equity method | | | — | | | | — | | | | — | | Net fee and commission income | | | 345,303 | | | | 103,986 | | | | 449,282 | | Gains/losses on financial assets and liabilities (net) | | | 445,100 | | | | 95,536 | | | | 540,636 | | Other operating income (expenses) | | | (16,864 | ) | | | (20,918 | ) | | | (37,782 | ) | Total income | | | 1,833,392 | | | | 332,253 | | | | 2,165,645 | | Personnel expenses | | | (285,376 | ) | | | (118,295 | ) | | | (403,671 | ) | Other administrative expenses | | | (88,351 | ) | | | (41,288 | ) | | | (129,640 | ) | Depreciation and amortization of tangible and intangible assets | | | (29,342 | ) | | | (14,723 | ) | | | (44,065 | ) | Provisions (net) | | | (40,634 | ) | | | 1,996 | | | | (38,638 | ) | Impairment losses on financial assets (net) | | | (13,034 | ) | | | (10,142 | ) | | | (23,176 | ) | Impairment losses on other assets (net) | | | — | | | | — | | | | — | | Other nonfinancial gains (losses) | | | — | | | | — | | | | — | | Profit (loss) before tax | | | 1,376,655 | | | | 149,800 | | | | 1,526,455 | |
| | For the Year Ended December 31, 2008 | | Asset Management and Insurance | | As Reported Less Banco Real | | | | | | | | | | (In thousands of R$) | | Net interest income | | | 9,193 | | | | 23,624 | | | | 32,817 | | Income from equity instruments | | | — | | | | — | | | | — | | Share of results of entities accounted for using the equity method | | | — | | | | — | | | | — | | Net fee and commission income | | | 173,014 | | | | 29,145 | | | | 202,159 | | Gains/losses on financial assets and liabilities (net) | | | 7,041 | | | | — | | | | 7,041 | | Other operating income (expenses) | | | (540 | ) | | | 74 | | | | (465 | ) | Total income | | | 188,708 | | | | 52,843 | | | | 241,551 | |
| | For the year ended December 31, | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Gains/losses on financial assets and liabilities (net plus Exchange Differences) | | | 1,550 | | | | 1,751 | | | | (11.5 | %) | | | (201 | ) | Other operating income (expenses) | | | (596 | ) | | | (281 | ) | | n.a. | | | | (315 | ) | Gross income | | | 27,881 | | | | 27,026 | | | | 3.2 | % | | | 855 | | Personnel expenses | | | (5,354 | ) | | | (4,972 | ) | | | 7.7 | % | | | (382 | ) | Other administrative expenses | | | (5,003 | ) | | | (5,213 | ) | | | (4.0 | %) | | | 210 | | Depreciation and amortization of tangible and intangible assets | | | (1,130 | ) | | | (1,176 | ) | | | (3.9 | %) | | | 46 | | Provisions (net) | | | (1,941 | ) | | | (3,390 | ) | | | (42.8 | %) | | | 1,449 | | Impairment losses on financial assets (net) | | | (8,225 | ) | | | (9,884 | ) | | | (16.8 | %) | | | 1,659 | | Impairment losses on other assets (net) | | | (21 | ) | | | (900 | ) | | n.a. | | | | 879 | | Other nonfinancial gains (losses) | | | 140 | | | | 3,403 | | | | (95.9 | %) | | | (3,263 | ) | Profit (loss) before tax | | | 6,347 | | | | 4,894 | | | | 29.7 | % | | | 1,453 | |
Global Wholesale | | For the year ended December 31, | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Net interest income | | | 2,501 | | | | 1,767 | | | | 41.6 | % | | | 734 | | Income from equity instruments | | | – | | | | – | | | | 0.0 | % | | | – | | Income from companies accounted by the equity method | | | – | | | | – | | | | 0.0 | % | | | – | | Net fee and commission income | | | 892 | | | | 863 | | | | 3.3 | % | | | 29 | | Gains/losses on financial assets and liabilities (net) plus Exchange Differences | | | 244 | | | | 859 | | | | (71.5 | %) | | | (615 | ) | Other operating income (expenses) | | | (30 | ) | | | (23 | ) | | | 30.4 | % | | | (7 | ) | Gross income | | | 3,608 | | | | 3,467 | | | | 4.1 | % | | | 141 | | Personnel expenses | | | (512 | ) | | | (474 | ) | | | 8.0 | % | | | (38 | ) | Other administrative expenses | | | (215 | ) | | | (175 | ) | | | 23.1 | % | | | (40 | ) | Depreciation and amortization of tangible and intangible assets | | | (58 | ) | | | (39 | ) | | | 48.0 | % | | | (19 | ) | Provisions (net) | | | 4 | | | | (45 | ) | | | (109.0 | %) | | | 49 | | Impairment losses on financial assets (net) | | | (8 | ) | | | (83 | ) | | | | | | 75 | | Profit (loss) before tax | | | 2,818 | | | | 2,651 | | | | 6.3 | % | | | 167 | |
Asset Management and Insurance | | For the year ended December 31, | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | | | | | (in millions of R$) | | Net interest income | | | 292 | | | | 140 | | | | 108.9 | % | | | 152 | | Income from equity instruments | | | – | | | | – | | | | 0.0 | % | | | – | | Income from companies accounted by the equity method | | | – | | | | – | | | | 0.0 | % | | | – | | Net fee and commission income | | | 414 | | | | 405 | | | | 2.2 | % | | | 9 | | Gains/losses on financial assets and liabilities (net) plus Exchange Differences | | | 80 | | | | 54 | | | | 48.7 | % | | | 26 | | Other operating income (expenses) | | | 278 | | | | 188 | | | | 48.0 | % | | | 90 | |
| | For the Year Ended December 31, 2008 | | | For the year ended December 31, | | Asset Management and Insurance | | As Reported Less Banco Real | | | | | | | | | | | (In thousands of R$) | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | | | | | (in millions of R$) | | Gross income | | | | 1,065 | | | | 787 | | | | 35.3 | % | | | 278 | | Personnel expenses | | | (32,667 | ) | | | (6,882 | ) | | | (39,549 | ) | | | (60 | ) | | | (65 | ) | | | (7.7 | %) | | | 5 | | Other administrative expenses | | | (14,682 | ) | | | (7,293 | ) | | | (21,975 | ) | | | (86 | ) | | | (48 | ) | | | 78.6 | % | | | (38 | ) | Depreciation and amortization of tangible and intangible assets | | | (4,404 | ) | | | — | | | | (4,404 | ) | | | (50 | ) | | | (34 | ) | | | 46.4 | % | | | (16 | ) | Provisions (net) | | | (30,046 | ) | | | (716 | ) | | | (30,761 | ) | | | (38 | ) | | | (46 | ) | | | (18.2 | %) | | | 8 | | Impairment losses on financial assets (net) | | | — | | | | — | | | | — | | | Impairment losses on other assets (net) | | | — | | | | (10 | ) | | | (10 | ) | | Other nonfinancial gains (losses) | | | — | | | | — | | | | — | | | Profit (loss) before tax | | | 106,910 | | | | 37,943 | | | | 144,853 | | | | 832 | | | | 592 | | | | 40.5 | % | | | 240 | |
Commercial Banking Segment Consolidated Results of Operations for the Year Endedended December 31, 20082010 Compared to the Year Endedended December 31, 20072009 Summary Profit before income tax attributed to the Commercial Banking segment for the year ended December 31, 20082010 was R$877 million,6.3 billion, a R$235 million decrease1.4 billion increase from R$1,112 million in 2007. Excluding the effect of the acquisition of Banco Real, profit before income tax attributed to the Commercial Banking segment4.9 billion for the year ended December 31, 20082009. This increase was a loss of R$26 million, a R$1,138 million decrease from R$1,112 million in 2007.mainly due to: | · | Net interest income increased 5.1% or R$1.0 billion in the year ended December 31, 2010. This increase was mainly due to growth in our lending activities and the revenues from the utilization of the proceeds of the IPO in late 2009. |
| · | Net fee and commission income had increased 11.3% or R$560 million in 2010. This growth is principally due to increased commissions from the sale of insurance and capitalization products, and credit and debit cards driven by strong penetration of products and the expansion on our card base. |
Net Interest Income Net interest income for the Commercial Banking segment for the year ended December 31, 2010 was R$10.221.3 billion, in 2008, a 86%5.1% or R$4.71.0 billion increase from R$5.520.3 billion in 2007. Excluding the effect of the acquisition of Banco Real, net interest income for the Commercial Banking segmentyear ended December 31, 2009. This increase was R$5.6 billion in 2008, a 2% or R$0.1 billion increase from R$5.5 billion in 2007, mainly due to growth in our lending activities offset in part by a decrease inand the average spreadrevenues from the utilization of our credit assets as the proportionproceeds of lending to individuals in the mix declined, and increasing market rates of interest, which were reflected in the new time deposits during the period.IPO. Share of Results of EntitiesIncome from Companies Accounted for usingby the Equity Method
Share of results of entitiesIncome from companies accounted for usingby the equity method for the Commercial Banking segment for the year ended December 31, 2010 was R$11244 million, a R$251 million decrease from R$295 million for the year ended December 31, 2009. This decrease reflects the impact on of the sale of Cielo S.A. (formerly Companhia Brasileira de Meios de Pagamento—VISANET) and the restructuring process of ABN AMRO Brasil Dois Participações S.A. which resulted in profit from the participation in such entities of respectively R$116 million and R$126 million in 2008, a R$106 million increase from R$6 millionthe twelve-month period ended December 31, 2009 that did not occur in 2007. Excluding the effectsame period of the acquisition of Banco Real, share of results of entities accounted for using the equity method for the Commercial Banking segment was R$6 million, unchanged from 2007.2010.
Net Fee and Commission Income Net fee and commission income for the Commercial Banking segment wasfor the year ended December 31, 2010 were R$3.65.5 billion, in 2008, a 34%11.3% or R$908.0560 million increase from R$2.74.9 billion in 2007. Excluding the effect of the acquisition of Banco Real, net fee and commission income for the Commercial Banking segment was R$2.9 billion in 2008, a 9% or R$250.0 million increase from R$2.7 billion in 2007, mainlyyear ended December 31, 2009. This growth is principally due to increased commissions onfrom the sale of insurance, capitalization, and credit and debit cards driven by strong penetration of products and the expansion on our retail banking branches, offsetcard base. A notable event in part by2010 was the effect of new restrictions on other banking fees. Gains/(Losses) on Financial Assets and Liabilities
Gains/(losses) on financial assets and liabilities for the Commercial Banking segment amounted to a loss of R$358 million in 2008, a R$1.3 billion decrease from a gain of R$944 million in 2007. Excluding the effect of the acquisitionmigration of Banco Real, gains/(losses) on financial assetsReal’s entire card base to the Santander system, which created opportunities for higher penetration of products and liabilities for the Commercial Banking segment were R$180 million in 2008, a R$764 million decrease from R$944 million in 2007, mainly due to higher revenues from non recurring items in 2007 compared to 2008, primarily our sale of investment securities in BM&F and BOVESPA. Losses in Banco Real were principally due to a hedgeservices related to our Cayman Island branch investment, cards and the resultsimplementation of which are largely offset by reduced income taxes. See “—Other Factors Affecting Financial Condition and Results of Operations—Cayman Offshore Hedging”.improved best practices.
Gains/(Losses) on Financial Assets and Liabilities plus Exchange Differences Gains (losses) on financial assets and liabilities (net) plus exchange differences for the Commercial Banking segment for the year ended December 31, 2010 were gains of R$1.5 billion, a R$201 million decrease from gains of R$1.7 billion for the year ended December 31, 2009. The decrease was driven by the effect of the tax hedge of the investment at the Cayman Islands branch (a strategy used to mitigate the exchange rate variation and fiscal effects of offshore investments on net profit). In the year ended December 31, 2010, the effect of the devaluation of the dollar against the real on the net equity of our Cayman Islands branch, and the positive hedge results, caused gains of R$272 million, compared to gains of R$1.1 billion in the same period of 2009, offset by losses of the same values in tax expenses. Excluding the effect of the tax hedge of the investment at the Cayman Islands branch, gains (losses) on financial assets and liabilities (net) were R$1.3 billion for the year ended December 31, 2010, an increase of R$0.7 million compared to R$0.6 billion for the same period of 2009. Other Operating Income/(Expenses) Other operating income/income (expenses) for the Commercial Banking segment amountedfor the year ended December 31, 2010 were expenses of R$596 million, compared to an expense of R$21281 million in 2008, a R$165 million decrease from a gain of R$143 million in 2007. Excluding the effect of the acquisition of Banco Real, other operating income/(expenses) for the Commercial Banking segment amounted to an expense of R$74 million 2008, a R$217 million decrease from a gain of R$143 million in 2007,year ended December 31, 2009, mainly reflecting the elimination in May 2008 of fees related to certain loans due to new regulations by the Central Bank.reduction of certain operation expenses recovery charged to our clients until August, 2009. The impact of this charge reduction was R$117 million. Personnel Expenses Personnel expenses for the Commercial Banking segment increased from R$2.14.9 billion in 2007 to R$3.1 billion in 2008, a 48.0% or R$1 billion increase. Excluding the effect of the acquisition of Banco Real, personnel expenses for the Commercial Banking segment wereyear ended December 31, 2009 to R$2.05.3 billion for the year ended December 31, 2010, a 2%7.7% or R$50.0382 million decrease from R$2.1 billion in 2007, mainly dueincrease, reflecting higher salaries according to the streamlining of our operations in anticipation of obtaining cost synergies from the acquisition of Banco Real.union agreement which is based on official inflation index (IPCA). Other General Administrative Expenses Other general administrative expenses for the Commercial Banking segment increaseddecreased from R$2.15.2 billion in 2007 to R$3.5 billion in 2008, a 78% or R$1.5 billion increase. Excluding the effect of the acquisition of Banco Real, other general administrative expenses for the Commercial Banking segment wereyear ended December 31, 2009 to R$2.25.0 billion for the year ended December 31, 2010, a 13%4% or R$250210 million increase from R$2 billion in 2007, mainlydecrease, primarily due to expenses relating to expanding our credit card businesscost synergies resulting from the merger of Santander Brasil and improving our information systems platform and the effects of inflation on our contracts with providers, many of which are indexed to inflation.Banco Real. Impairment Losses on Financial Assets (Net) Impairment losses on financial assets (net) for the Commercial Banking segment wasfor the year ended December 31, 2010 were R$4.18.2 billion, in 2008, a 90%16.8% or R$1.91.7 billion increasedecrease from R$2.29.8 billion in 2007. Excluding the effect of the acquisition of Banco Real, impairment losses (net) for the Commercial Banking segmentyear ended December 31, 2009. This decrease was R$2.9 billionmainly due an improvement in 2008, a 33% or R$705.0 million increase from 2007, reflecting deteriorating credit quality in nearly all areasour delinquency rates since the fourth quarter of our Commercial Banking segment (though primarily in small companies, individual lending and consumer finance products) as a result of worsening economic conditions in Brazil.2009. Provisions (Net) Provisions (net) for the Commercial Banking segment waswere R$1.21.9 billion in 2008, unchanged fromfor the year ended December 31, 2010, compared to R$1.23.4 billion in 2007. Excludingfor the effect of the acquisition ofyear ended December 31, 2009. This difference is mainly due to provisions for restructuring costs related to Banco Real provisions (net) for the Commercial Banking segment was R$1 billionacquisition that did not occur in 2008. Provisions principally include provisions for labor and tax contingencies.2010. Impairment Losses on NonfinancialOther Assets (Net) Other impairmentImpairment losses on other assets (net) for the Commercial Banking segment wasfor the year ended December 31, 2010 were losses of R$7721 million, in 2008, a 74% or R$221.0879 million decrease from losses of R$298900 million in 2007. Excludingfor the effect of the acquisition of Banco Real,year ended December 31, 2009. This variance is explained by impairment losses (net)of R$818 million on contracts for the Commercial Banking segment was R$4 millionproviding banking services that were registered in 2008, a R$294 million decrease from 2007, mainly reflecting reduced impairment charges relating to intangible assets due to impairment charges taken2009 and did not happen again in 2007 related to software for the Banespa information technology platform the use of which was discontinued when the information technology system was converted to the Santander platform.2010.
Global Wholesale Banking Consolidated Results of Operations for the Year Endedended December 31, 20082010 Compared to the Year Endedended December 31, 20072009 Summary Profit before income tax attributed to the Global Wholesale Banking segment for the year ended December 31, 20082010 was R$1,526 million,2.8 billion, a 6.3% or R$43167 million increase from R$1,483 million in 2007. Excluding the effect of the acquisition of Banco Real, profit before income tax attributed to the Global Wholesale Banking segment2.7 billion for the year ended December 31, 20082009. The increase was R$1,377 million,primarily due to a 7% or R$106.0 million decrease from R$1,483 million41.6% increase in 2007.net interest income for the year ended December 31, 2010, as compared to the same period in 2009, reflecting growth in our market making activities. Net Interest Income Net interest income for the Global Wholesale Banking segment for the year ended December 31, 2010 was R$1.22.5 billion, in 2008, a 75%41.6% or R$520.0734 million increase from R$693 million in 2007. Excluding the effect of the acquisition of Banco Real, net interest income1.7 billion for the Global Wholesale Banking segment was R$1,060 million in 2008, a 53% or R$367 million increase from R$693 million in 2007, reflectingyear ended December 31, 2009, mainly due to growth in the credit portfoliosloan portfolio, interest rate increase and Market Making activities (treasury activities in professional markets involving the assumption of our GB&M customers and increased in net interest incomepositions derived from ourclients offer or demand on treasury business.products). Net Fee and Commission Income Net fee and commission income for the Global Wholesale Banking segment for the year ended December 31, 2010 was R$449892 million, in 2008, a 78%3.3% or R$19629 million increase from R$253863 million in 2007. Excluding the effect of the acquisition of Banco Real, net fee and commission income for the Global Wholesale Banking segmentyear ended December 31, 2009. This growth was R$345 million in 2008, a 36% or R$92 million increase from R$253 million in 2007, mainly due to an increase in netcapital markets business—including M&A, underwriting, among others—and trade finance commissions for foreign trading operations resulting from a higher volume of transactions in 2008 compared to 2007 and higher fee commissions from guarantees and brokerage businesses.transactions. Gains/(Losses) on Financial Assets and Liabilities plus Exchange Differences Gains (losses) on financial assets and liabilities (net) plus exchange differences for the Global Wholesale Banking segment for the year ended December 31, 2010 were gains of R$541244 million, in 2008, a 43%71.5% or R$410.0615 million decrease from R$951 million in 2007. Excluding the effectgains of the acquisition of Banco Real, gains/(losses) on financial assets and liabilitiesR$859 million for the Global Wholesale Banking segment were R$445 million in 2008, a 53% or R$505 millionyear ended December 31, 2009. This decrease from R$951.0 million in 2007, mainlywas primarily due to decreaselower gains in gains on financial assetsMarket Making and liabilities in our treasury business.trading positions. Other Operating Income/(Expenses) Other operating expenses for the Global Wholesale Banking sector were expenses of R$38 million in 2008, a 263% or R$28 million increase from expenses of R$10 million in 2007. Excluding the effect of the acquisition of Banco Real, other operating income/income (expenses) for the Global Wholesale Banking segment amounted tofor the year ended December 31, 2010 were expenses of R$1730 million, in 2008, a 62% or R$7 million increase from expensescompared to expense of R$1023 million in 2007, mainly due to higher expenses for deposit insurance as a result of increases in time deposits.the year ended December 31, 2009. Personnel Expenses Personnel expenses for the Global Wholesale Banking segment increased from R$278474 million in 2007 to R$404 million in 2008, a 45% or R$126 million increase. Excluding the effect of the acquisition of Banco Real, personnel expenses for the Global Wholesale Banking segment wereyear ended December 31, 2009 to R$285512 million in 2008,for the year ended December 31, 2010, a 3%8.0% or R$738 million increase, from R$278 million in 2007, reflecting higher costs in line with annual salary increases tiedsalaries according to inflation.the union agreement which is based on official inflation index (IPCA). Other General Administrative Expenses Other general administrative expenses for the Global Wholesale Banking segment increased from R$96175 million in 2007for the year ended December 31, 2009 to R$130215 million in 2008,for the year ended December 31, 2010, a 36%23.1% or R$3440 million increase. Excluding the effect of the acquisition of Banco Real, other general administrative expensesincrease, mainly due to technical services that were outsourced. Provisions (Net) Provisions (net) for the Global Wholesale Banking segment were gains of R$884 million in 2008, a 7% orfor the year ended December 31, 2010, compared to losses of R$745 million decrease from R$96 million in 2007, reflecting our cost control targets.for the year ended December 31, 2009. Provisions principally include provisions for labor claims and civil litigation. Impairment Losses on Financial Assets (Net) Impairment losses on financial assets (net) for the Global Wholesale Banking segment were R$23 million in 2008, compared to a gain of R$5 million in 2007. Excluding the effect of the acquisition of Banco Real, impairment losses on financial assets (net) for the Global Wholesale Banking segment were R$13 million in 2008, compared to a gain of R$5 million in 2007, mainly due to increased delinquency by our wholesale customers as a result of the global financial crisis. Provisions (Net)
Provisions (net) for the Global Wholesale Banking segment were R$39 million in 2008, compared to a gainyear ended December 31, 2010 with losses of R$8 million, in 2007. Excluding the effecta R$75 million decrease from losses of the acquisition of Banco Real, provisions (net)R$83 million for the Global Wholesale Banking segment were R$41 million in 2008, compared to a gain R$8 million in 2007.year ended December 31, 2009.
Asset Management and Insurance Segment Consolidated Results of Operations for the Year Endedended December 31, 20082010 Compared to the Year Endedended December 31, 20072009 Summary Profit before income tax attributed to the Asset Management and Insurance segment for the year ended December 31, 20082010 was R$145832 million, a 40.5% or R$53240 million increase from R$92592 million for the year ended December 31, 2009. Results of operations in 2007. Excluding the effect of the acquisition of Banco Real, profit before income tax attributed to theour Asset Management and Insurance segment for the year ended December 31, 2008 was R$107 million, a 16% or R$15 million increase from R$92 million in 2007. Results of operations in our Asset Management and Insurance segment in 2008 and 20072009 do not include the results of operations of the asset management and insurance entities that were acquired onuntil August 14, 2009.2009, when we consolidated these entities”. See “Item 4. Information on the Company—B. Business Overview—Asset Management and Insurance”. Net Interest Income Net interest income for the Asset Management and Insurance segment for the year ended December 31, 2010 was R$33292 million, in 2008, a 221% or R$23152 million increase from R$10140 million in 2007. Excludingfor the effectyear ended December 31, 2009. This increase was mainly due to the consolidation of the acquisition of Banco Real, net interest income for the Asset Management and Insurance operations of the Santander Group into this segment was R$9 million in 2008, a 10% or R$1 million decrease from R$10 million in 2007. The decrease was due primarily to lower cash volumes in 2008 compared to 2007.August 2009. Net Fee and Commission Income Net fee and commission income for the Asset Management and Insurance segment wasfor the year ended December 31, 2010 were R$202414 million, in 2008, a 34%2.2% or R$529 million increase from R$151405 million in 2007. Excludingfor the effectyear ended December 31, 2009. The level of the acquisition of Banco Real, net fee and commission income for the Asset Management and Insurance segment was R$173 million in 2008,has had a 15% or R$23 million increase from R$151 million in 2007,growth mainly due to an increase in net commissions on the sale of insurance.pension and investment funds. Beyond this, the increase is mainly due to the consolidation of Asset and Insurance operations of the Santander Group into this segment in August 2009. Gains/(Losses) on Financial Assets and Liabilities plus Exchange Differences Gains (losses) on financial assets and liabilities (net) plus Exchange Differences for the Asset Management and Insurance segment for the year ended December 31, 2010 were gains of R$780 million, in 2008, a 100% or R$3.526 million increase from R$3.554 million in 2007,for the year ended December 31, 2009. This increase is mainly due to an increasethe consolidation of the Asset Management and Insurance operations of the Santander Group into this segment in revenues from the available for sale financial assets. The acquisition of Banco Real did not have any impact on this item in our financial statements.August 2009. Other Operating Income/(Expenses) Other operating expenses for the Asset Management and Insurance segment were R$465 thousand in 2008, a R$439 thousand increase from R$26 thousand in 2007. Excluding the effect of the acquisition of Banco Real, other operating income/income (expenses) for the Asset Management and Insurance segment for the year ended December 31, 2010 was income of R$540 thousand in 2008,278 million, a R$90 million increase compared to an expenseR$188 million for the year ended December 31, 2009. This increase was mainly due to the consolidation of R$26 thousandthe Asset Management and Insurance operations of the Santander Group into this segment in 2007. August 2009. Personnel Expenses Personnel expenses for the Asset Management and Insurance segment increaseddecreased from R$3565 million in 2007 to R$40 million in 2008, a 13% or R$4 million increase. Excluding the effect of the acquisition of Banco Real, personnel expenses for the Asset Management and Insurance segment wereyear ended December 31, 2009 to R$3360 million in 2008, an 7%for the year ended December 31, 2010, a 7.7% or R$25 million decrease, from R$35 million in 2007, mainly due to the streamlining of our employee operations in anticipation of producing cost synergies from the acquisition of Banco Real. Other General Administrative Expenses Other general administrative expenses for the Asset Management and Insurance segment increased from R$1748 million in 2007for the year ended December 31, 2009 to R$2286 million in 2008,for the year ended December 31, 2010, a 26%78.6% or R$5 38 million increase. ExcludingThis increase is mainly due to the effectconsolidation of the acquisition of Banco Real, other general administrative expenses for the Asset Management and Insurance operations into this segment were R$15 million in 2008, a 16% or R$3 million decrease from R$17 million in 2007, mainly due to operations streamlining carried out in anticipationthe third quarter of obtaining cost synergies from the acquisition of Banco Real.2009. Provisions (Net) We recorded provisions (net) in the Asset Management and Insurance segment in 2008 of R$30.8 million compared to provisions (net) of R$12 million in 2007. Excluding the effect of the acquisition of Banco Real, provisionsProvisions (net) for the Asset Management and Insurance segment were losses of R$3038 million in 2008, a 161% orfor the year ended December 31, 2010, compared to losses of R$1846 million increase from R$12 million.for the year ended December 31, 2009. Provisions principally include provisions for labor claims and tax litigations.
New Accounting Pronouncements Adoption of new standardsStandards and interpretations effective subsequent to December 31, 2011
All standards and interpretationsThe Bank has not yet adopted the following new or revised IFRS Interpretations, which came into force were adopted by us in 2009. The following arehave been issued but their effective date is subsequent to the standards and interpretations applicable to us and which affect ourdate of these consolidated financial statements:
RevisionThe amendments to IAS 1—clarifications of disclosures: comprehensive income (OCI)—and their classification within OCI. Because of anticipated changes in IFRS 9, IAS 19 among others, the IASB explains how to display the components that fit the requirements of this standard. The amendments are effective for reporting periods beginning on or after July 1, 2012.
Amendment to IFRS 7—clarifications of disclosures: encourages qualitative disclosures in the context of the quantitative disclosure required to help users in comparing the financial statements. Entities shall apply this Interpretation prospectively for annual periods beginning on or after January 1, 2013. IFRS 9—Financial Instruments: Recognition and Measurement—The main changes of IFRS 9 compared to IAS 39 are: (i) All recognized financial assets that are currently in the scope of IAS 1 Presentation39 will be measured at either amortized cost or fair value; (ii) IFRS 9 does not retain IAS 39’s concept of Financial Statements: introduces certain changesembedded derivatives for hybrid contracts if the host contract is a financial asset within the scope of IFRS 9; (iii) the guidance included in IFRS 9 retains the classification criteria for financial liabilities currently contained in IAS 39. However, there are two key differences, relating to presentation and measurement, compared to IAS 39: (a) the presentation of financial statements, including changes to the titles of individual financial statements, as described below. The statementeffects of changes in fair value attributable to a liability’s credit risk; and (b) the elimination of the cost exemption for derivative liabilities to be settled by delivery of unquoted equity instruments. This standard is effective for annual periods beginning on or after January 1, 2013. IFRS 10—Consolidated Financial Statements replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements (2008) and SIC-12 Consolidation—Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (so whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether an investor has (1) power over the investee; (2) exposure, or rights, to variable returns from its involvement with the investee; and (3) the ability to use its power over the investee to affect the amount of the returns. IFRS 11 – Joint Arrangements introduces new accounting requirements for joint arrangements, which replaces IAS 31 – Interests in Joint Ventures. According to IFRS 11, it will only include changesbe obligatory to use the equity method and choosing the method of accounting for jointly controlled entities will not be allowed. The fundamental principle of IFRS 11 is that parts of a joint venture agreement must determine the type of joint venture in equity arising from transactions with owners acting inquestion, based on the assessment of rights and obligations and according to the accounting for the type of joint venture. There are two types of joint ventures: (1) Joint Operations: Rights and obligations on the assets and liabilities related to the agreement. The parties acknowledge their capacity as owners. With respect to “non-owner” changes (e.g. transactions with third parties orassets, liabilities and related income and expenses recognized directly in equity), entities are no longer permitted to present items of other comprehensive income separately in the statements of changes in equity. Such non-owner movements must be presented in a statement of comprehensive income and the total carried to the statement of changes in equity. All items of income and expense (including those recognized outside of profit or loss) must be presented either in a single statement of comprehensive income with subtotals or in two separate statements (a separate income statement and a statement of comprehensive income). IAS 1 also introduces new reporting requirements when the entity applies a change in accounting policy retrospectively, makes a restatement or reclassifies items in previously issued statements.expenses. Paragraph 10 of the revised IAS 1 provides the possibility of changing the names of the financial statements. The new terminology which may be used(2) Joint Venture: Rights to refer to the financial statements is as follows:
· | The balance sheet becomes the statement of financial position. |
· | The statement of recognized income and expense becomes the statement of comprehensive income. |
· | The statement of cash flows remains the same. |
In preparing these financial statements, we have retained the names of the financial statements used in the consolidated financial statements for 2008.
Amendments to IAS 32 and IAS 1 – Puttable Financial Instruments and Obligations Arising on Liquidation: the amendments address the classification of puttable financial instruments and obligations arising only on liquidation. Following the amendments, these instruments are presented as equity provided that they meet certain criteria including that of being the most subordinated class, and provided that they evidence a residual interest in the net assets of the entity.agreement. The parties acknowledge their investments by the equity method.
AmendmentsIFRS 12—Disclosures of Involvement with Other Entities requires enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to IFRS 1require information so that consolidated financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders’ involvement in the activities of consolidated entities. IAS 27 - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate: this amendment refers27—Separate Financial Statements (2011) maintains the requirements relating to separate financial statements and, therefore, is not applicable to consolidated financial statements. The other portions of IAS 27 (2008) are replaced by IFRS 10. AmendmentIAS 28—Investments in Associates and Joint Ventures (2011) amended IAS 28 Investments in Associates (2008) to conform to changes based on the issuance of IFRS 7 Financial Instruments:10, IFRS 11 and IFRS 12.
The standards previously mentioned have an effective date for annual periods beginning on January 1, 2013, with earlier application permitted so long as each of the objectiveother standards mentioned are also applied early. The early adoption for financial institutions in Brazil is subject to the pronouncements issued by the IASB and translated into Portuguese by a Brazilian entity accredited by the International Accounting Standards Committee Foundation (IASC Foundation). However, entities are permitted to incorporate any of this amendment aims to increasethe disclosure requirements includingin IFRS 12 into their financial statements without technically early applying the requirements for disclosureprovisions of IFRS 12. On May 12, 2011, the IASB also issued IFRS 13—Fair Value Measurement, which replaces the guidance on fair value measurement in existing IFRS accounting literature with a single standard. IFRS 13 defines fair value, provides guidance on how to determine fair value and liquidity risk.requires disclosures about fair value measurements. However, IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 is effective for annual periods beginning on January 2013 with early application permitted. AmendmentOn June 16, 2011, the IASB issued amendments to IAS 3919—Employee Benefits (2011) (the “amendments”) that change the accounting for defined benefit plans and IFRIC 9 clarifyingtermination benefits. The amendments require the treatmentrecognition of embedded derivatives for companies which have made usechanges in the defined benefit obligation and in plan assets when those changes occur, eliminating the corridor approach and accelerating the recognition of past service costs. Changes in the defined benefit obligation and plan assets are disaggregated into three components: service costs, net interest on the net defined benefit liabilities (assets) and remeasurements of the Amendmentnet defined benefit (assets). Net interest is calculated using high quality corporate bond yields. This may be lower than the rate currently used to IAS 39calculate the expected return on reclassifications, issued by the IASB. These amendment clarifies thatplan assets, resulting in a reclassification of an assetdecrease in the “financial assets at fair value through profit or loss” category all the embedded derivatives must be measured and, where necessary, accounted for separately in the financial statements.
IFRIC 13 Customer Loyalty Programmes: this interpretation addresses the accounting by entities that provide their customers with incentives to buy goods or services by providing awards as part of a sales transaction, such as credit card reward schemes.
Amendments to IAS 39, Eligible Hedged Items: these amendments establish that inflation may only be designated as a hedged item if it is a contractually specified portion of the cash flows to be hedged. Only the intrinsic value and not the time value of a purchased option may be used as a hedge instrument.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation: this interpretation clarifies the following matters: (i) the exposure to foreign exchange differences between the functional currency of the foreign operation and the presentation currency of the parent cannot be designated as a hedged risk, and only the foreign currency exposure arising between the functional currency of the parent and that of its foreign operation qualifies for hedge accounting; (ii) the hedging instrument used to hedge the net investment may be held by any entity within the group, not necessarily by the parent of the foreign operation; and, (iii) it addresses how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item on disposal of the foreign operation.
IFRS 2, ‘Share-based payment’ – Vesting conditions and cancellationsincome. The IASB published an amendment to IFRS 2, ‘Share-based payment’, in January 2008. The changes pertain mainly to the definition of vesting conditions and the regulations for the cancellation of a plan by a party other than the company.
Improvements to IFRS were issued in May 2008. The improvements contain numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or afterJanuary 1, January 2009 ,2013, with earlier application permitted. The adoption of the above mentioned standards and interpretations did not have a material effect on the consolidated financial statements taken as a whole.Retrospective application is required with certain exceptions.
Standards and interpretations effective subsequent to December 31, 2009
We have not yet adoptedOn June 16, 2011, the following new or revised IFRS standards or interpretations, which have beenIASB also issued but have effective dates subsequent to December 31, 2009:
IFRS 9 – Financial Instruments: Recognition and Measurement – The main changes“Presentation of IFRS 9 comparedItems of Other Comprehensive Income” (amendments to IAS 39 are: (i) all financial assets1). The amendments to IAS 1 are initially measured at fair value plus, in the caseresult of a financial asset not at fair value through profit or loss, transactions costs. (ii) new requirements for classifyingjoint project with the U.S. Financial Accounting Standards Board and measuring financial assets - the standard divides all financial assets that are currently in the scope of IAS 39 in two classifications: amortized cost and fair value (iii) the IAS 39’s available for sale and held to maturity categories were eliminate. (iv) the embedded derivatives concept of IAS 39 is not included in IFRS 9.
Amendments to IFRS 2 – The amendments of IFRS 2 provide additional guidance on the accounting for share-based payment transactions among group entities (incorporating guidance previouslypresentation of items contained in IFRIC 11).
Revision of IFRS 3 Business Combinations and Amendment to IAS 27 Consolidated and Separate Financial Statements - introduce significant changes in several matters relating to accounting for business combinations, and only applied prospectively. These changes include the following: (i) acquisition costs must be expensed, rather than recognized as an increase in the cost of the business combination; (ii) in step acquisitions the acquirer must re-measure at fair value the investment held prior to the date that control is obtained; and (iii) there is an option to measure at fair value the minority interests of the acquiree, as opposed to the single current treatment of measuring them as the proportionate share of the fair value of the net assets acquired.
Revision to IAS 32: Classification of Rights Issues - Under the amendment to IAS 32 rights, options and warrants – otherwise meeting the definition of equity instruments in IAS 32.11 – issued to acquire a fixed number of an entity’s own non-derivative equity instruments for a fixed amount in any currency are classified as equity instruments, provided the offer is made pro-rata to all existing owners of the same class of the entity’s own non-derivative equity instruments.
IAS 38 Intangible Assets – Amendments to clarify the description of valuation techniques commonly used by entities when measuring the fair value of intangible assets acquired in a business combination that are not traded in active markets.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments.
IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirementscomprehensive income (OCI) and their Interaction- This IFRIC has been amended to remedy an unintended consequence of IFRIC 14 where entitiesclassification within OCI. The amendments are in some circumstances not permitted to recognize prepayments of minimum funding contributions, as an asset. Entities shall apply this Interpretation prospectivelyeffective for annualreporting periods beginning on or after JanuaryJuly 1, 2011. Our management estimates that the application of the amendments of IFRIC 14 will not have a material effect on the Company’s financial condition or results of operations.
IFRIC 17 Distributions of Non-Cash Assets to Owners – The interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.
IFRIC 18 Transfers if Assets from customers – The interpretation addresses the accounting by recipients for transfers of property, plant and equipment from “customers” and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognized the asset as its fair value on the date of the transfer, with the credit recognized as revenue in accordance with IAS 18 Revenue.
Improvements to IFRS were issued in April 2009. They contain numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after 1 January 2010,2012, with earlier application permitted. No material changes to accounting policies are expected as a result of these amendments.
Revision of IFRS 5 Non Current Assets Held for Sale and Discontinued Operation - Amendment to clarify that IFRS 5 specifies the disclosures required in respect of non current assets (or disposal groups) classified as held for sale or discontinued operations.
Revision of IFRS 8 Operating Segments - Amendment to clarify that an entity is required to disclose a measure of segment assets only if that measure is regularly reported to the chief operating decision maker.
Revision of IAS 1 Presentation of Financial Statements - Clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as noncurrent (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least twelve months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.
Revision of IAS 7 Statement of Cash Flows - Amendment to require that only expenditures that result in a recognized asset in the statement of financial position can be classified as investing activities.
Revision of IAS 17 Leases - Deletion of specific guidance regarding classification of leases of land, so as to eliminate inconsistency with the general guidance on lease classification. As a result, leases of land should be classified as either finance or operating using the general principles of IAS 17.
Revision of IAS 24 Related Party Disclosures – The revision of IAS 24 clarifies the definition of related parties.
Revision of IAS 36 Impairment of Assets - Amendment to clarify that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment as defined by paragraph 5 of IFRS 8 Operating Segments.
Revision of IAS 39 Financial Instruments: Recognition and Measurement – Amendments to clarify (i) that prepayment options, the exercise price of which compensates the lender for loss of interest by reducing the economic loss from reinvestment risk, should be considered closely related to the host debt contract; (ii) it only applies to binding (forward) contracts between an acquirer and a vendor in a business combination to buy an acquiree at a future date, the term of the forward contract should not exceed a reasonable period normally necessary to obtain any required approvals and to complete the transaction and the exemption should not be applied to option contracts (whether or not currently exercisable) that on exercise will result in control of an entity, nor by analogy to investments in associates and similar transactions; (iii) when to recognize gains or losses on hedging instruments as a reclassification adjustment in a cash flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment clarifies that gains or losses should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects profit or loss; (iv) changes in impairment of financial assets as mentioned in the Exposure Draft 2009/12; and (v) changes in the requirements of derecognition of financial assets as mentioned in the Exposure Draft 2009/3.
We do not expect the adoption of the above-mentioned standards and interpretations to have a material effect on the consolidated financial statements taken as a whole, , except for the adoption of IFRS 9, of which we are analyzing to determine the impacts.impacts from the adoption of this standard. In line with the Santander Group’s global funding policy,and capital policies, we primarily fund our operations independently of any of the other entities in the Santander Group. The main source In order to keep inflation under control, the Brazilian Central Bank released several macro prudential measures, especially those related to the market’s liquidity level and capital requirements. On December 3, 2010, the Brazilian Central Bank released the Circular 3,513, which increased the reserve requirements for time deposits from 15% to 20%. Our excess liquidity allowed us to comply with this measure without affecting the growth of our funding is customer depositsbusiness strategies. In the capital field, the Brazilian Central Bank released the Circular 3,515 which changed the risk weighted from 100% to 150% for certain long-term loans to individuals dealt as of December 6, 2010. This change had effect in particular, demand, savingsthe BIS ratio only as of July 2011 and time deposits,increased capital needs for Brazilian banks. However, on November 11, 2011, the Brazilian Central Bank released Circular 3,563, which annulled the effects of the Circular 3,515, but increased the risk weighted from 150% to 300% for new long-term loans to individuals originated as of November 2011. In addition, in line with Basel II, as of January 2012 banks must calculate the market risk based on stressed VaR methodology according to a schedule defined in Circular 3,568, which will increase banks’ capital requirements. Capital Our capital management is based on conservative principles with strong monitoring of the items that affect our level of othersolvency. In addition, we maintain minimum levels of capital, above those required by the Brazilian banks. These deposits, combined with capitalCentral Bank (required – 11%; desirable – 13%). The following table sets forth our capitalization as of December 31, 2011, 2010 and other similar instruments, enable us to cover most of our liquidity requirements. Our control2009. | | At December 31,(1) | | | | 2011 | | | 2010 | | | 2009 | | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | Tier 1 capital | | | 48,327 | | | | 17.5 | % | | | 44,884 | | | | 19.0 | % | | | 42,353 | | | | 20.7 | % | Tier 2 capital | | | 6,642 | | | | 2.4 | % | | | 7,433 | | | | 3.1 | % | | | 9,973 | | | | 4.9 | % | Tier 1 and 2 capital | | | 54,969 | | | | 19.9 | % | | | 52,317 | | | | 22.1 | % | | | 52,325 | | | | 25.6 | % | Required Regulatory Capital(2) | | | 30,431 | | | n.a. | | | | 26,020 | | | n.a. | | | | 22,483 | | | n.a. | |
(1) | Disregarding the effect of goodwill. |
(2) | Includes credit, market and operational risk capital required. |
Liquidity and management functions involve planning our funding requirements, structuring the sources of financing to achieve optimal diversification in terms of maturities, instruments and markets and setting forth contingency plans. For more information related to our structural and currency gap, see “Item 11. Quantitative and Qualitative Disclosures about Risk”.Funding Our asset and liability management is carried out within defined limits as determined by the Asset and Liability Management Committee, or “ALCO”, which operates under guidelines, procedures and procedureslimits established by the Santander Group, including limits for positioningGroup. Aligned with other Brazilian banks, most of our assets are funded in different areasthe local market. Our external foreign-currency bond issuances comprise a small, but increasing, portion of the Brazilian financial market. Seeour total liabilities. For additional information regarding ALCO see “Item 11. Quantitative and Qualitative Disclosure about Risk—Credit Risk—Asset and Liability Management Committee” for further information regarding. Deposits The following tables present the ALCO.composition of our consolidated funding at the dates indicated. Deposits | | | | | | | | | | | | | | | | (in millions of R$) | | Deposits from the Brazilian Central Bank and credit institutions | | | | | | | | | | Time deposits | | | 27,023 | | | | 28,867 | | | | 20,838 | | Other demand accounts | | | 134 | | | | 344 | | | | 195 | | Repurchase agreements | | | 24,371 | | | | 13,180 | | | | 164 | | Total | | | 51,527 | | | | 42,391 | | | | 21,197 | | Customer deposits | | | | | | | | | | | | | Current accounts | | | 13,561 | | | | 16,132 | | | | 15,140 | | Savings accounts | | | 23,293 | | | | 30,303 | | | | 25,216 | | Time deposits | | | 83,942 | | | | 68,916 | | | | 74,634 | | Repurchase agreements | | | 53,678 | | | | 52,598 | | | | 34,450 | | Total | | | 174,474 | | | | 167,949 | | | | 149,440 | | Total deposits | | | 226,001 | | | | 210,340 | | | | 170,637 | |
Short-Term Borrowings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Securities sold under agreements to repurchase | | | | | | | | | | | | | | | | | | | At December 31 | | | 78,048 | | | | 10.9 | % | | | 65,778 | | | | 9.8 | % | | | 34,614 | | | | 9.9 | % | Average during year | | | 64,510 | | | | 11.9 | % | | | 53,623 | | | | 10.3 | % | | | 32,493 | | | | 11.5 | % | Maximum month-end balance | | | 76,693 | | | | 0.0 | % | | | 68,734 | | | | 0.0 | % | | | 37,214 | | | | 0.0 | % | Total short-term borrowings at year-end(1) | | | 78,048 | | | | | | | | 65,778 | | | | | | | | 34,614 | | | | | |
(1) | Includes in Deposits from the Brazilian Central Bank and credit institutions and customer deposits. |
Deposits from the Brazilian Central Bank and Credit Institutions Our balance of deposits from the Brazilian Central Bank and credit institutions was R$51.5 billion on December 31, 2011, R$42.4 billion on December 31, 2010 and R$21.2 billion on December 31, 2009, representing 22.8%, 20.2% and 12.4% of total deposits, respectively. The main change in 2011 was observed in the repurchase agreements’ balance, which increased 84.9% from December 31, 2010 to December 31, 2011. Since April 2010, the reserve requirements must be fulfilled by deposits in cash at the Brazilian Central Bank instead of pledging treasury bonds. In order to raise the necessary funding to satisfy the new reserve requirements, unencumbered treasury bonds were used for repurchase agreement operations. It also includes mainly Borrowings and Domestic Onlendings: | · | Borrowings. We have relationships with banks all over the world, providing credit lines as foreign currency-linked (either to the U.S. dollar or to a basket of foreign currencies). We apply the proceeds from these transactions mainly to U.S. dollar-linked lending operations and in particular to trade finance operations. |
| · | Domestic Onlendings. We onlend from public institutions, mainly BNDES and FINAME, for which we act as a financial agent. Funding from these sources in Brazil represents a method of providing long-term loans with attractive average interest rates to certain sectors of the economy. Loans from these funds are allocated by BNDES through banks to specific sectors targeted for economic development. This type of lending is known as “repassing” or “onlending”. Under this arrangement, we borrow funds from BNDES |
The following table sets forth our capitalization as of December 31, 2009 and December 31, 2008,
| | | | | | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Tier 1 capital | | | 42,358 | | | | 20.7 | % | | | 23,033 | | | | 10.7 | % | Tier 2 capital | | | 9,973 | | | | 4.9 | % | | | 8,504 | | | | 4.0 | % | Tier 1 and 2 capital | | | 52,331 | | | | 25.6 | % | | | 31,537 | | | | 14.7 | % | Required Regulatory Capital(2) | | | 22,483 | | | N.A. | | | | 23,528 | | | N.A. | |
(1) | Based on Central Bank criteria, which disregards | or FINAME, the goodwill effect.equipment financing subsidiary of BNDES, and pass the funds to the targeted sector of the economy. These loans are generally granted at rates below the average market rates and have an average maturity of up to five years. Because the repassed funds are generally matched and/or funded by loans from a federal government agency, we take no interest rate or maturity mismatch risk nor charge interest at a fixed margin over its cost of funds. We, however, retain the commercial credit risk of the borrower and therefore have discretion in the lending decision and application of the credit criteria. This type of funding is not affected by compulsory deposit requirements. The onlending is generally secured or guaranteed, although this is not required by the terms of the onlending. |
(2) | Includes credit, market and operational risk capital required. |
Funding
We fund most of our assets with local deposits, in line with other Brazilian banks, In accordance with Brazilian regulations, we generally may not issue bonds in the local market, Our external foreign-currency bond issuances comprise a small portion of our total liabilities, We also sell government securities under agreements to repurchase for purposes of funding the overnight government bond market, In connection with the acquisition of Banco Real, Santander Spain provided funding to Santander Brasil of R$2.5 billion by means of the acquisition of certain GB&M loans that had been originated by ABN AMRO.
Customer Demand Deposits The following tables present the composition of Santander Brasil’s consolidated funding at the dates indicated.
| | | | | | | | | | | | | | | | (in millions of R$) | | Deposits from the Brazilian Central Bank and credit institutions | | | | | | | | | | Time deposits | | | 20,838 | | | | 26,721 | | | | 11,949 | | Other demand accounts | | | 195 | | | | 66 | | | | 61 | | Repurchase agreements | | | 164 | | | | 31 | | | | 6,834 | | Total | | | 21,197 | | | | 26,818 | | | | 18,844 | | Customer deposits | | | | | | | | | | | | | Current accounts | | | 15,140 | | | | 15,298 | | | | 6,588 | | Savings accounts | | | 25,216 | | | | 20,643 | | | | 6,288 | | Other demand deposits | | | — | | | | — | | | | 26 | | Time deposits | | | 74,634 | | | | 88,880 | | | | 26,028 | | Repurchase agreements | | | 34,450 | | | | 30,674 | | | | 16,281 | | Total | | | 149,440 | | | | 155,495 | | | | 55,211 | | Total deposits | | | 170,637 | | | | 182,313 | | | | 74,055 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$, except percentages) | | Securities sold under agreements to repurchase (principally Brazilian Government securities) | | | | | | | | | | | | | | | | | | | At December 31 | | | 34,614 | | | | 9.9 | % | | | 30,706 | | | | 13.6 | % | | | 23,115 | | | | 11.2 | % | Average during year | | | 32,493 | | | | 11.5 | % | | | 19,639 | | | | 12.0 | % | | | 21,567 | | | | 11.0 | % | Maximum month-end balance | | | 37,214 | | | | — | | | | 31,058 | | | | — | | | | 25,748 | | | | — | | Total short-term borrowings at year-end (1) | | | 34,614 | | | | | | | | 30,706 | | | | | | | | 23,115 | | | | | |
(1) | Includes in Deposits from the Central Bank and credit institutions and customer deposits. |
Deposits from the Central Bank and Credit Institutions. Our balance of deposits from the Central Bank and credit institutions increased from R$18.8 billion on December 31, 2007 to R$26.8 billion on December 31, 2008 and R$21.2 billion on December 31, 2009, representing 25%, 15% and 12% of total deposits, respectively, Excluding the effect of the acquisition of Banco Real, our deposits from the Central Bank and credit institutions were R$20.4 billion at December 31, 2008, representing 23% of total deposits at December 31, 2008. The variation from December 31, 2008 to December 31, 2009 was mainly generated by the depreciation of the real against the U.S. dollar of 25%.
Customer Demand Deposits. Our balance of demand deposits (current accounts and other demand deposits) was R$6.613.6 billion as of December 31, 2007, R$15.3 billion as of December 31, 2008 and R$15.1 billion as of December 31, 2009, and our percentage of demand deposits to total deposits was 9% on December 31, 2007, 8% as of December 31, 2008 and 9%2011, R$16.1 billion on December 31, 2009. Excluding the effect of the acquisition of Banco Real, our balance of demand deposits was R$5.3 million on December 31, 2008 and our percentage of demand deposits to total deposits was 6% on December 31, 2008. The 2008 variation excluding the effect of the acquisition of Banco Real was mainly a result of the global financial crisis which reduced the liquidity in the local market.
Customer Savings Deposits. After the Banco Real acquisition, our savings deposits increased from R$6.3 billion as of December 31, 2007 to R$20.6 billion as of December 31, 20082010 and R$25.2 billion as of December 31, 2009, and our percentage of savings deposits to total deposits was 8% as of December 31, 2007, 11% as of December 31, 2008 and 15% as of December 31, 2009. Excluding the effect of the acquisition of Banco Real, our savings deposits were R$8.3 billion as of December 31, 2008, representing 9% of total deposits as of December 31, 2008. The increases from December 31, 2007 through December 31, 2009 reflected migration from investment funds towards lower risk bank deposits initially driven by a “flight to quality” (or movement to institutions and investment products perceived as being lower-risk), which continued until the end of 2008, thereafter, increases were mainly due to the decline in the rates of return on fixed income investments due to the reduction of local interest rates, which caused regular saving accounts to be more attractive to investors.
Customer Time Deposits. Our balance of time deposits increased from R$26.0 billion as of December 31, 2007 to R$88.9 billion at December 31, 2008 and R$74.615.1 billion at December 31, 2009, representing 35%6.0%, 49%7.7% and 41%8.9% of total deposits, respectively, Excluding the effectrespectively. The decrease of the acquisition15.9% in 2011 is in line with market trends.
Customer Savings Deposits Our balance of Banco Real, our timecustomer savings deposits werewas R$40.923.3 billion as ofon December 31, 2008,2011, R$30.3 billion on December 31, 2010 and R$25.2 billion on December 31, 2009, representing 46%10.3%, 14.4% and 14.8% of total deposits, asrespectively. As part of our business strategy, the bank fostered the transfer of funds from savings accounts to time deposits, which did not impact the growth of total deposits, since such transfers only represent a movement between account lines. Excluding this effect, the growth of savings deposits would have been 6.9% in 2011. Customer Time Deposits Our balance of customer time deposits was R$83.9 billion on December 31, 2008. The 2008 variation excluding2011, R$68.9 billion on December 31, 2010 and R$74.6 billion on December 31, 2009, representing 37.1%, 32.8% and 43.7% of total deposits, respectively. As part of our business strategy, the bank forested the transfer of funds from savings accounts to time deposits, which did not impact the growth of total deposits, since such transfers only represent a movement between account lines. Excluding this effect, the growth of the acquisition of Banco Real was mainly due to migration from investment funds.time deposits would have been 8.6% in 2011. Customer Deposits - Deposits—Repurchase Agreements. We maintain a portfolio of Brazilian public and private sector liquid debt instruments used to obtain overnight funds from other financial institutions or investment funds by selling such securities and simultaneously agreeing to repurchase them. Due to the short-term (overnight) nature of this funding source, such transactions are volatile and are composed, generally, of Brazilian public securities. Securities sold under repurchase agreements increased fromslightly to R$16.353.7 billion as ofon December 31, 2007 to2011 from R$30.752.6 billion as ofon December 31, 20082010 and R$34.4 billion as ofon December 31, 2009, representing 22%23.8%, 17%25.0% and 20%20.2% of total funding,deposits, respectively. The variation from December 31, 2008 to December 31, 2009in 2011 was mainly movement of customer funds out of mutual funds and other similar vehicles into lower-risk bank deposits as well as a “flight to quality” as Brazilian customers moved their savings to larger financial institutions. Excluding the effectresult of the acquisition of Banco Real, securities sold underan increase in funding from repurchase agreements were R$14.4 billion as of December 31, 2008, representing 16% of total funding as of December 31, 2008.linked to debentures, which are similar to time deposits. Other Funding Marketable Debt Securities.Securities As of December 31, 2009,30, 2011, we had R$11.438.5 billion in funds from the issuance of marketable debt securities, representing 5.6% of our total funding. This amount includesincluding: (1) R$1.21.3 billion in Agribusiness Credit Notes (Letra de Crédito do Agronegócio), which are credit notes that are freely negotiable and represent an unconditional promise of payment in cash, issued exclusively by financial institutions and related to credit rights originated from transactions conducted between rural producers and their cooperatives and agents of the agribusiness production chain; (2) R$5.98.6 billion of Real Estate Credit Notes – Notes—LCI related to credit rights originatedoriginating from real estate transactions; (3) R$2.86.5 billion in bonds (under our Medium Term Notes Program—MTN) and other securities; and (4) R$1.419.9 billion in securitization notes. We have entered into securitization transactions involving the sale of our right, titleFinancial Bills (Letras Financeiras); and interest in (but none of our obligations under) certain of(5) R$2.2 billion (under our diversified payment rights, which consist of certain U.S. dollar- and euro-denominated payment orders received or to be received by us. Sales of such diversified payment rights are made to a special purpose company, which finances its purchases of such rights through the issue ofPayment Rights Program—DPR) in securitization notes. Subordinated Debt.In 2010, the Brazilian Central Bank created a new product called a Financial Bill (Letra Financeira At) which has been used as a mechanism to develop the long-term funding market and was implemented as an instrument to support the development of a secondary bond market (which currently does not exist locally in Brazil). Main features are a minimum tenor of two years, a minimum denomination of R$300 thousand and the issuer being allowed to redeem only 5% of the issued amount. The volume of Financial Bill (Letra Financeira) increased from R$6.6 billion at December 31, 2009,2010 to R$19.9 billion at December 31, 2011.
Subordinated Debt As of December 31, 2011, our subordinated debt included (1) U.S.$500 million in perpetual securities at a fixed rate of 8.7% per year with quarterly interest payments issued in September 2005, (2) R$10.410.9 billion of certificates of deposit issued by us in the local market in various issuances at average interest rates indexed to CDI or IPCA.IPCA, an increase of R$1.2 billion from the amount of subordinated debt provided at December 31, 2010, due to interest accrued in the period. Other than our program of technological innovation we do not have any significant policies or projects relating to research and development, and we own no patents or licenses. The following list sets forth, in our view, the most important trends, uncertainties and events that are reasonably likely to have a material effect on the company’sour net sales or revenues, income from continuing operations, profitability, liquidity and capital resources, or that would cause reported financial information to be not necessarily indicative of future operating results or financial condition: - | The financial· | Financial problems of somein certain countries in Europe could causelead to another international financial crisis. If it happens, the expectedthis occurs, Brazilian GDP growth for the coming years could not occurin future periods may be depressed and, as a result, theour credit portfolio couldmay not grow or could decrease and also theour provisions for loan losses would increase; |
- | · | Inflation increaseincreases that causes an increase in interest rates and lower loan growth;growth in lending; |
- | · | Continued market volatility and instability could affect our revenues; |
- | · | Restrictive regulations or government intervention in the bankbanking business would affect our margins and/or loanlending growth; |
- | · | Regulatory capital changes towards more restrictive rules as a response to thepotential financial crisis;crisis or general macroeconomic conditions; |
- | The risk of reduction· | Decreased liquidity in the liquidity of the domestic capital market; |
- | · | Tax policies that could decrease the bank’sour profitability; |
- | · | Currency fluctuation and exchange rate controls that could have an adverse impact on international investors. |
D. Risk Factors”, where we present the risks we face in our business that may affect our commercial activities, operating results or liquidity. We have entered, in the normal course of business, into several types of off-balance sheet arrangements, including lines and letters of credit and financial guarantees. Lending-Related Financial Instruments and Guarantees We utilize lines and letters of credit and financial guarantee instruments to meet the financing needs of our customers, Thethe contractual amount of these financial instruments represents the maximum possible credit risk should the counterparty draw down the commitment or we fulfill our obligation under the guarantee, and the counterparty subsequently fails to perform according to the terms of the contract. Most of these commitments and guarantees expire without the counterparty drawing on the credit line or a default occurring. As a result, the total contractual amount of these instruments does not represent our future credit exposure or funding requirements. Further, certain commitments, primarily related to consumer financing are cancelable, upon notice, at our option. The “maximum potential amount of future payments” represents the notional amount that could be lost if there were a total default by the guaranteed parties, without consideration of possible recoveries from collateral held or pledged, or recoveries under recourse provisions. There is no relationship between these amounts and probable losses on these guarantees. In fact, maximum potential amount of future payments significantly exceeds inherent losses. The following table sets forth the maximum potential amount of future payments under credit and financial guarantees. | | | | | | | | | | | | | | | | | | | | | | | | | | | | (millions of R$) | | | (millions of R$) | | Contingent liabilities | | | | | | | | | | | | | | | | | | | Financial guarantees and other securities | | | 20,506 | | | | 24,765 | | | | 14,835 | | | | 21,872 | | | | 22,122 | | | | 20,506 | | Documentary credits | | | 461 | | | | 640 | | | | 464 | | | | 700 | | | | 441 | | | | 461 | | Total contingent liabilities | | | 20,967 | | | | 25,405 | | | | 15,299 | | | | 22,572 | | | | 22,563 | | | | 20,967 | | Commitments | | | | | | | | | | | | | | | | | | | | | | | | | Loan commitments drawable by third parties | | | 77,789 | | | | 68,778 | | | | 18,090 | | | Securities placement commitments | | | 3,438 | | | | 9,615 | | | | 3,646 | | | Loan commitments drawable by third parties(1) | | | | 98,553 | | | | 93,472 | | | | 77,789 | | Total commitments | | | 81,227 | | | | 78,393 | | | | 21,736 | | | | 98,553 | | | | 93,472 | | | | 77,789 | | Total | | | 102,194 | | | | 103,798 | | | | 37,035 | | | | 121,125 | | | | 116,035 | | | | 98,757 | |
(1) | Includes the approved limits and unused overdraft, credit card and others. |
Our contractual obligations at December 31, 20092011 are summarized as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Contractual Obligations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits from central banks | | | 240 | | | | 240 | | | | – | | | | – | | | | – | | | Deposits from credit institutions | | | 20,956 | | | | 12,624 | | | | 7,486 | | | | 742 | | | | 105 | | | Deposits from the Brazilian Central Bank and credit institutions(1) | | | | 51,527 | | | | 43,590 | | | | 5,954 | | | | 1,028 | | | | 955 | | Customer deposits | | | 149,440 | | | | 104,632 | | | | 40,770 | | | | 4,032 | | | | 6 | | | | 174,474 | | | | 104,802 | | | | 56,086 | | | | 13,530 | | | | 56 | | Marketable debt securities | | | 11,439 | | | | 8,125 | | | | 937 | | | | 1,533 | | | | 844 | | | | 38,590 | | | | 17,289 | | | | 15,922 | | | | 4,263 | | | | 1,116 | | Subordinated liabilities | | | 11,305 | | | | 2 | | | | - | | | | 4,331 | | | | 6,971 | | | | 10,908 | | | | – | | | | 5,402 | | | | 5,269 | | | | 237 | | Total | | | 193,380 | | | | 125,623 | | | | 49,193 | | | | 10,638 | | | | 7,926 | | | | 275,499 | | | | 165,681 | | | | 83,364 | | | | 24,090 | | | | 2,364 | |
The above table does not reflect amounts that we may have to pay on derivative contracts. The amounts ultimately payable will depend upon movements in financial markets. The aggregate fair value of all our derivative contracts at December 31, 2009 was R$702 million.
In addition, we lease many properties under standard real estate lease contracts, which leases can be canceled at our option and include renewal options and escalation clauses. Total future minimum payments of non-cancelable operating leases as of December 31,2009 is R$ 1,078 million, of which R$314(1) | Includes R$23,925 million of repurchase agreements with maturity on January 2, 2012.The above table does not reflect amounts that we may have to pay on derivative contracts. The amounts ultimately payable will depend upon movements in the financial markets.�� The aggregate fair value of all our derivative contracts at December 31, 2011 was R$511 million, compared to R$378 million at December 31, 2010. In addition, we lease many properties under standard real estate lease contracts, which leases can be canceled at our option and include renewal options and escalation clauses. Total future minimum payments of non-cancelable operating leases as of December 31, 2011 was R$2,019 million, of which R$602.5 million matures in up to one year, R$1,361.3 million from one year to up to five years and R$55.2 million after five years. Additionally, we have contracts with indeterminate maturities totaling R$2.3 million per month. |
687 million from one year to up to five years and R$ 76 million after five years. In 2008, we paid R$249 million under such leases and in the year ended December 31, 2009, we paid R$304 million under such leases.
According to our by-laws, we are managed by a board of directors (conselho de administração) and a board of executive officers ((ddiretoriairetoria executiva). Only individuals may be elected as members of the board of directors and the board of executive officers. The members of the board of directors mustmay or may not be shareholders, whether or not residing in Brazil, and the members of the board of executive officers may or may not be shareholders, provided they reside in Brazil. In addition to those two administrative bodies, we also have another statutory body, the audit committee, which reports to the board of directors and was created and functioningfunctions in accordance with the standards of the Brazilian Central Bank (Resolution(CMN Resolution No. 3194/04 of the Brazilian National Monetary Council)3,198/04). Board of Directors The board of directors is the advisorysupervisory board of the bankBank as set out in our by-laws and in applicable legislation. The board of directors is responsible for guiding the business of the bankBank and its subsidiary and associated companies in Brazil. Since September 2, 2009, and as provided for in our by-laws, the board of directors is comprised of a minimum of five members and a maximum of twelve members, elected at the shareholders’ meeting for terms of two years. A minimum of 20% of the members of the board of directors must be independent directors, as defined by Regulation Level 2 of the BM&FBOVESPA. The board of directors has a Chairman and a Vice Chairman each elected at the general shareholders’ meeting by majority vote. The board of directors meets regularly four times a year and extraordinarily as often as required by the chairman of the board of directors.required. The current members of the board of directors were appointed at the ordinary and extraordinary shareholders’ meetingsmeeting held on September 2, 2009April 26, 2011, and February 3, 2010,the extraordinary shareholders’ meeting held on October 25, 2011, including three independent directors. The term of the members of the board of directors will expire at the general shareholders’ meeting to be held in the first four months of 2011.2013. Pursuant to Brazilian Law,law, the election of each member of the board of directors must be approved by the Brazilian Central Bank. As a result of our agreement with BM&FBOVESPA to join the Level 2 segment of BM&FBOVESPA and of our adherence to Regulation Level 2 of the BM&FBOVESPA, our directors have, prior to taking office, executed an instrument of adherence to this regulation and our agreement with BM&FBOVESPA. The following table sets forthpresents the names, positions and dates of birth of the current members of our board of directors: | | | | | Celso Clemente Giacometti | | Chairman (Independent member) | | October 13, 1943 | Marcial Angel Portela Alvarez | | Chairman | | March 23, 1945 | Fabio Colletti Barbosa
| | Vice Chairman | | October 3, 1954March 24, 1945 | José Antonio Alvarez Alvarez | | Member | | January 6, 1960 | José Manuel Tejón Borrajo | | Member | | July 11, 1951 | José de Menezes Berenguer Neto | | Member | | September 10, 1966 | José de Paiva Ferreira | | Member | | March 1, 1959 | Celso Clemente Giacometti
| | Independent Member | | October 13, 1943 | José Roberto Mendonça de Barros | | Independent Member | | February 7, 1944 | Viviane Senna Lalli | | Independent Member | | June 14, 1957 |
Below are biographies of the members of our board of directors. Fábio Colletti BarbosaCelso Clemente Giacometti. Mr. BarbosaGiacometti is Brazilian and was born on October 3, 1954.13, 1943. He holds a bachelor’s degree in business economics science from Fundação Getúlio Vargas in São Paulo and a MBAadministration from the Institute for ManagementFaculdade de Economia São Luís and Developmentgraduated with an accounting sciences degree from the Faculdade de Ciências Econômicas de Ribeirão Preto. He started his career in Lausanne. As1960 as an auditor at Citibank. From 1963 to 2001 he worked at Arthur Andersen, becoming a partner in 1974 and acting as CEO of Brazilian operations from 1985 to 2000. He served on the vice chairman of our board of directors and our presidentaudit committees of Lojas Marisa S.A., Tarpon Investments and chief executive officer, he is responsible for our company’s strategy in Brazil. Mr. Barbosa has been engaged in the financial market for 23 years.TIM Participações. He was also the chairmanCEO of the board of directors of Banco RealSouto Vidigal, a holding company and family office from 19962004 to 2009. Mr. Barbosa joined Banco Real in 19952006. On February 3, 2010 he was elected as head of corporate banking and finance and, during the period from 1996 to 1998, was in charge of Banco Real’s strategy in Brazil. Currently, he is also an executive officer of Companhia Real de Valores — Distribuidora de Títulos e Valores Mobiliários,independent member of the board of directors of Santander Leasing S.A. - Arrendamento Mercantil and Real Microcrédito Assessoria Financeira S.A.,Brasil. He is currently a statutory member of the boardfiscal council and audit committee of directors of Petróleo Brasileiro S.A. - - Petrobrás, presidentAMBEV and of the Brazilian Banking Federation — FEBRABANFiscal Council of CTEEP/ISA—Transmissão Paulista. He is the managing partner of Giacometti Serviços Profissionais Ltda. Mr. Giacometti is also one of the co-founders and former board member of the Social and Economic Development Council of the Presidency of Brazil.IBGC.
Marcial Angel Portela Alvarez. Mr. Portela is Spanish and was born on March 23,24, 1945. He holds a bachelor’s degree in political science from the Universidad de Madrid in Spain and a master’s degree in sociology from the University of Louvain in Belgium. HeIn September 2009, he was elected as chairman of the board of directors of Santander Brasil, a position that is currentlyin addition to his position as General Director of the Santander Group. In January 2011, Mr. Portela became vice-chairman of our board of directors, and in February 2011, he was elected as our president. Mr. Portela began at Santander Spain in 1999 as the executive vice president of Banco Santander, S.A., where he is responsible for all of the Latin American operations.technology, operations, human resources and efficiency programs. He iswas a member of the board of directors of Banco Santander Mexico S.A. and vice president of Banco Santander Chile S.A. Mr. Portela started at Banco Santander as the executive vice president responsible for technology, operations, human resources and efficiency programs. In 1998, he worked for Comunitel, S.A. in Spain. FromSpain, from 1996 to 1997 he served as president of TelefonicaTelefónica International and from 1992 to 1996, he served as a member of the board of directors of TelefonicaTelefónica S.A. (Spain). From 1991 to 1996, he served as administrator for Corporación Bancaria España, S.A. - —Argentaria and as the chairman of the board of directors of Banco Español de Crédito S.A. Banesto. From 1990 to 1991 he worked for Banco Exterior de España, S.A. in Spain. José Antonio Alvarez Alvarez. Mr. Alvarez is Spanish and was born on January 6, 1960. He holds a bachelor’s degree in business economics science from Universidad Santiago de Compostela in Spain and a MBA from the University of Chicago’s Graduate School of Business. He started at Banco Santander S.A. in Spain in 2002 as the head of finance management and in November 2004 was named chief financial officer. He served as financial director of BBVA (BancoBanco Bilbao Vizcaya Argentaria, S.A.) in Spain from 1999 to 2002 and as financial director of Corporación Bancaria de España, S.A. (Argentaria) from 1995 to 1999. He was also chief financial officer for Banco Hipotecario, S.A. in Spain from 1993 to 1995 and vice president of Finanpostal Gestión Fondos de Inversión y Pensiones from 1990 to 1993. He was a member of the board of directors of Banco de Crédito Local S.A. from 2000 to 2002 and is a member of the board of directors of Santander Consumer Finance, S.A., the chairman of Santander de Titulización, SGFT, S.A., a member of the board of directors of Bolsa de Mercados Españoles, S.A. (BME) and a member of the board of directors of Santander Global Property, S.L. José Manuel Tejón Borrajo. Mr. Tejón is Spanish and was born on July 11, 1951. He holds a bachelor’s degree in economics from the Universidad Complutense de Madrid in Spain. He started at Banco Santander S.A. in Spain in 1989 as head of general audit and since 2004 has been responsible for the general audit division and administration control. Within Grupothe Santander Group, he also serves as the president of the board of directors of Banco de Albacete, S.A., the president of the board of directors of Cantabro Catalana de Inversiones, S.A., a member of the board of directors of Santander Investments, S.A., the vice president of the board of directors of Santander Investments I, S.A., a director of Santander Holding Internacional, S.A., an officer of Santusa Holding, S.L., vice president of the board of directors of Santander Gestión, S.L., president of the board of directors of Administración de Bancos Latinoamericanos Santander, S.L. and president of the board of directors of Grupo Empresarial Santander, S.L. José de Menezes Berenguer Neto. Mr. Berenguer is Brazilian and was born on September 10, 1966. He graduated in 1989 with a law degree from the Pontifícia Universidade Católica in São Paulo. As a member of our board of directors and our senior vice-president executive officer, he is responsible for our global wholesale banking operations, including Global Bankingthe head of the retail marketing distribution channels and retail products area of Santander Brasil, Private & Markets and Treasury.Asset Management. Mr. Berenguer has been engaged in treasury and investment banking for 2425 years. He served as a member of the board of the Emerging Markets Traders Association in 1997 and 1998. Mr. Berenguer was a board member of the Stock Exchange of Rio de Janeiro (Bolsa(Bolsa de Valores do Rio de Janeiro)Janeiro) between 2000 and 2002. In 2002 he became a board member of BM&FBOVESPA. He is currently an executive officer of FEBRABAN, the Brazilian Banking Federation. He is a brother of André Fernandes Berenguer, one of our officers. He is alsocurrently an executive officer of Companhia Real de Valores - FEBRABAN. Until March 2012, he held the position of senior vice-president executive officer of the Bank, and was an executive officer of CRV—Distribuidora de Títulos e Valores Mobiliários S.A., Aymoré Crédito, Financiamento e Investimento S.A., Santander Leasing S.A. Arrendamento Mercantil and Santander CHP S.A. and chief executive officer of Banco Bandepe S.A. and Real CHP S.A.
José de Paiva Ferreira. Mr. Ferreira is Portuguese and was born on March 1, 1959. He holds a degree in business administration from the Fundação Getúlio Vargas, a post graduatepost-graduate degree in business from the Fundação Getúlio Vargas and aan MBA from the Wharton School of Business. As member of our board of directors and our senior vice-president executive officer, he is the head of the retail marketing distribution channels and retail products area of Banco Santander. Mr. Ferreira has been engaged in the financial markets for 3536 years. He started at Banco Bradesco in 1973 and joined Banco Geral do Comércio S.A. in 1985 as chief assistant of services and served as an executive vice-president/executive officer of Banco Geral do Comércio S.A., Banco Santander Noroeste S.A., Banco Meridional, and Banco do Estado de São Paulo S.A. - Banespa.—Banespa, and Santander Brasil. He iswas also an executive officer of Santander Administradora de Consórcios Ltda., Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A., superintendent officer of Santander Brasil Seguros S.A.,and Santander Capitalização, S.A.vice-president executive officer and Universia Brasil, S.A., chief executive officervice-chairman of the board of directors of Santander Seguros S.A. In addition, he is aand member of the board of directors of Universia Brasil S.A. and Real Microcrédito Assessoria Financeira S.A. Celso Clemente Giacometti. Mr. Giacometti is Brazilian and was born on October 13, 1943. He holds a degree in business administration from Faculdade de Economia São Luís and graduated with an accounting sciences degree from Faculdade de Ciências Econômicas de Ribeirão Preto. He started his career in 1960 as an auditor at Citibank. From 1960 to 2001 he worked with Arthur Andersen, becoming a partner in 1974 and CEO of the Brazilian operations from 1985 to 2000. He served on the board of directors and audit committees of Lojas Marisa S.A., Tarpon Investments and TIM Participações. He was also CEOsenior vice-president executive officer of Souto Vidigal, a holding companySantander Brasil and family office from 20042000 to 2006. On February 3, 2010 he was elected as an independent member2011 head of the boardretail marketing distribution channels and retail products area of directors of Banco Santander. He is currently a statutory member of the board of LLX Logística, of the Fiscal Council and Audit Committee of AMBEV and of the Fiscal Council of CTEEP/ISA – Transmissão Paulista. He is the managing partner of Giacometti Serviços Profissionais Ltda. Mr. Giacometti is also one of the co-founders and former board member of IBGC (Instituto Brasileiro de Governança Corporativa).Santander Brasil.
José Roberto Mendonça de Barros.Mr. Mendonça is Brazilian and was born on February 7, 1944. He holds a bachelor’s degree, postgraduatepost-graduate and doctorate degreesdegree in economics from the University of São Paulo and a post doctoratepost-doctorate degree in economics from Yale University. He is currently a member of the board of directors of BM&FBOVESPA and Tecnisa, and a member of the advisory board of Pão de Açúcar, of Grupo O Estado de São Paulo, of FEBRABAN, of Schneider Electric and of Link Partners. He is also a member of the consulting chamber of the Novo Mercado Project for BM&FBOVESPA. In September 2009, he was elected as an independent member of BM&FBOVESPA.the Board of Directors of Santander Brasil. He was a member of the boardsboard of directors of GP Investments, Fosfertil/Ultrafertil, Varig Participações em Transportes Aéreos, Frigorífico Minerva, Economia da FIESP, Companhia Energética de São Paulo, EletricidadeELETROPAULO—Electricidade de São Paulo, CPFL—Companhia Paulista de Força e Luz, COMGAS—Companhia de Gás de São Paulo, and of the strategic committee of Companhia Vale do Rio Doce. Viviane Senna Lalli.Lalli. Ms. Senna is Brazilian and was born on June 14, 1957. She holds a bachelor’s degree in psychology from the Pontifícia Universidade Católica in São Paulo. From 1981 to 1996, she worked as a psychotherapist of adults and children. In September 2009, she was elected as an independent member of our board of directors. She is also a member of the cabinet of President Luís Inácio Lula da SilvaBrazilian Presidency Board (CDES), of the advisory board of FebrabanFEBRABAN and Citibank Brasil, of the board of education of CNI and FIESP, of the boards of Instituto Coca-Cola,Institutos Coca Cola, Energias do Brasil, ADVB and Todos pela Educação and of the orientation and social investment committees of Banco Itaú and Unibanco.-Unibanco. Board of Executive Officers
Our board of executive officers isare responsible for the management of our bank. Since April 27, 2010, and as provided for in our by-laws, subject to the approval of the Brazilian Central Bank, our board of executive officers isare comprised of a minimum of two members and a maximum of seventy-five members, elected by our board of directors for terms of two years, one of them must be designated as our president, and chief financial officer. Thethe others aremay be appointed as senior vice-president executive officers, vice-president executive officers, investor relations officer, executive officers and officers without specific designation. Certain of our executive offersofficers are also members of the boards of executive officers and boards of directors of our subsidiaries. The board of executive officers meetsshall meet as often as required by the CEO or by the officer designated by him. The current members of the board of executive officers were elected for a new term of office at the board of directors meetingmeetings held on AprilMay 31, 2011, June 21, 2011, September 22, 2011, October 26, 2011, February 29, 2012 and March 28, 2010, subject to the approval of the Brazilian Central Bank. On the same date, fifteen new members were also approved as officers.2012. The term of the members of the board of executive officers will expire at the first board of directors meeting following the general shareholders’ meeting to be held in the first four months of 2011.2013. Pursuant to Brazilian Law,law, an acting officer retains his or her position until he or she is reelected or a successor is elected. As a result of our agreement with BM&FBOVESPA to join the Level 2 segment of BM&FBOVESPA and of our adherence to Regulation Level 2 of the BM&FBOVESPA, our officers have, prior to taking office executed an instrument of adherence to this regulation and our agreement with BM&FBOVESPA. The following table sets forthpresents the names, positions and dates of birth of our executive officers: | | | | | Fábio Colletti BarbosaMarcial Angel Portela Alvarez(1)
| | PresidentChief Executive Officer | | October 3, 1954March 24, 1945 | José de Menezes Berenguer NetoConrado Engel(1)
| | Senior Vice President Executive Officer | | September 10, 1966 | José de Paiva Ferreira(1)
| | Senior Vice President Executive Officer | | March 1, 1959May 30, 1957 | Angel Oscar Agallano(1) | | Vice President Executive Officer | | March 18, 1957 | Carlos Alberto López Galán(1) | | Vice President Executive Officer | | November 6, 1962 | Fernando Byington Egydio Martins(3)
| | Vice President Executive Officer | | January 7, 1957 | Gustavo José Costa Roxo da Fonseca(1)
| | Vice President Executive Officer | | February 4, 1967 | Ignacio Dominguez-Adame Bozzano(4)(1) | | Vice President Executive Officer | | August 20, 1968 | João Roberto Gonçalves TeixeiraGuilherme de Andrade So Consiglio(1) | | Vice President Executive Officer | | May 30, 1965December 7, 1968 | Juan Manuel Hoyos Martínez de Irujo(1)(2)(3) | | Vice President Executive Officer | | January 7, 1953 | Lilian Maria Ferezim Guimarães(3)(1) | | Vice President Executive Officer | | August 26, 1960 | Luís Felix Cardamone Neto(1) | | Vice President Executive Officer | | March 16, 1964 | Marco Antonio Martins de Araújo Filho(1) | | Vice President Executive Officer | | June 19, 1965 | Oscar Rodrigues Herrero(1) | | Vice President Executive Officer | | October 4, 1971 | Pedro Carlos Araújo Coutinho(1) | | Vice President Executive Officer | | April 2, 1966 | Pedro Paulo Longuini(1) | | Vice President Executive Officer | | June 7, 1957 | Arnaldo Penteado Laudisio
| | Executive Officer | | August 17, 1963 | Javier Fonseca Viader
| | Executive Officer | | January 17, 1972 | José Roberto Machado Filho | | Executive Officer | | August 25, 1968 | Luciane Ribeiro | | Executive Officer | | June 7, 1963 | Luís Felix Cardamone Neto
| | Executive Officer | | March 16, 1964 | Marco Antonio Martins de Araújo Filho | | Executive Officer | | June 19, 1965 | Marcos Matioli de Souza Vieira
| | Executive Officer | | January 4, 1961 | Maria Luiza de Oliveira Pinto e Paiva | | Executive Officer | | July 14, 1963 | Pedro Carlos Araújo CoutinhoJose Alberto Zamorano Hernandez
| | Executive Officer | | April 2, 1966 | Wagner Augusto Ferrari
| | Executive Officer | | August 7, 1958 | Alexandre Schwartsman
| | Officer | | February 7, 1963May 9, 1962 | Amancio Acúrcio Gouveia | | Officer | | March 31, 1963 | André Fernandes Berenguer | | Officer | | January 13, 1968 | Antonio Fernando Laurelli Ribeiro
| | Officer | | April 17, 1958 | Antonio Pardo de Santayana Montes(2) | | Officer | | November 5, 1971 | Carlos LeibowiczCassio Schmitt
| | Officer | | December 31, 1970April 23, 1971 | Cassius Schymura | | Officer | | February 19, 1965 | Claudio Almeida Prado(4)Clovis Hideaki Ikeda
| | Officer | | February 28, 1964September 23, 1963 | Ede Ilson Viani | | Officer | | September 5, 1967 | Eduardo Müller Borges | | Officer | | September 12, 1967 | Flávio Tavares Valadão | | Officer | | July 1, 1963 | Gilberto Duarte de Abreu Filho | | Officer | | August 7, 1973 | Gustavo Summers Albuquerque(4)Gilson Finkelsztain
| | Officer | | April 20, 1968December 22, 1972 | Jamil Habibe Hannouche……….Hannouche | | Officer | | June 23, 1960 | João Guilherme de Andrade So Consiglio | | Officer | | December 7, 1968 | Juan Colas de Casso(4)
| | Officer | | August 19, 1961 |
Luis Alberto Citon(4) | | Officer | | May 17, 1963 | Luis Carlos Guimarães de Carvalho Morais(3) | | Officer | | June 7, 1966 | Luiz Carlos da Silva Cantidio Jr. (4) | | Officer | | July 11, 1958 | Luiz Felipe Taunay Ferreira | | Officer | | March 18, 1967 | Luiz Fontoura de Oliveira Reis FilhoMara Regina Lima Alves Garcia | | Officer | | July 10, 1968December 28, 1966 | Marcelo Audi(2) | | Officer | | January 18, 1967 | Marcelo Malanga(4) | | Officer | | May 18, 1969 | Marcelo Zerbinatti(4) | | Officer | | February 5, 1974 | Marcio Aurelio de Nobrega | | Officer | | August 23, 1967 | Marco André Ferreira da Silva(4) | | Officer | | December 3, 1965 | Marcos Adriano Ferreira Zoni | | Officer | | December 10, 1964 | Maria Eugênia Andrade Lopez Santos | | Officer | | January 23, 1966 | Mauro Siequeroli | | Officer | | March 24, 1957 | Miguel Angel Albero Ocerin(4) | | Officer | | February 23, 1960 | Nilo Sérgio Silveira Carvalho | | Officer | | February 26, 1961 | Ramon Camino PuigcarbóPaulo de Tarso Marques Rosa(4)(2)
| | Officer | | February 18, 1962September 16, 1972 | Ramón Sanchez Díez | | Officer | | October 29, 1968 |
| | | | | Reginaldo Antonio Ribeiro | | Officer | | May 19, 1969 | Roberto Correa Barbuti | | Officer | | August 26, 1968 | Roberto de Oliveira Campos Neto(4)
| | Officer | | June 28, 1969 | Ronaldo Yassuyuki Morimoto(4) | | Officer | | May 5, 1977 | Sérgio Augusto Costantini | | Officer | | June 19, 1970 | Sergio Gonçalves | | Officer | | August 7, 1956 | Thomas Gregor Ilg | | Officer | | September 12, 1968 | Ulisses Gomes Guimarães(4) | | Officer | | March 14, 19701971 | Wilson Luiz Matar(4) | | Officer | | November 28, 1958 |
(1) | Member of the executive committee, which is a non-statutory committee involved in making policy decisions related to business management and operational support, human resources, allocation of capital and major technological, infrastructure and services projects. |
(2) | Members elected at the board of directors meeting held on February 29, 2012, whose appointment is subject to Brazilian Central Bank approval. |
(3) | Member whose appointment is subject to obtaining a Brazilian permanent visa, until which time such individual is not authorized to act as an officer of the Bank. |
(3) | Formerly Executive Officer. Elected as Vice President Executive Officer in the board of directors meeting held on April 28, 2010, pending approval by the Brazilian Central Bank. |
(4) | Elected in the board of directors meeting held on April 28, 2010, pending approval by the Brazilian Central Bank. Mr. Ignacio Dominguez-Adame Bozzano’s and Mr. Miguel Angel Alberto Ocerin’s appointments are also subject to obtaining a Brazilian permanent visa. |
Set forth below are biographies of the members of our board of executive officers.
Fabio Colletti Barbosa.Marcial Angel Portela Alvarez. See the board of directorsdirectors’ biographies.
José de Menezes Berenguer Neto.Conrado Engel See. Mr. Engel is Brazilian and was born on May 30, 1957. He holds a degree in aeronautical engineering from the boardInstituto Tecnológico da Aeronáutica – ITA. He started his career in 1981 as management trainee of directors biographies.Citibank S.A., where he worked for seven years. From 1992 to 1997, he was the cards officer of Banco Nacional-Unibanco. In 1998, he was elected chief executive officer of Financeira Losango. In October 2003, he became responsible for the retail sector of HSBC in Brazil and was a member of its executive committee until the end of 2006. From January 2007 to May 2009, he was responsible for the retail sector of HSBC in the Asian-Pacific region, in Hong Kong. In May 2008, he was appointed group general manager and took office as chief executive officer of HSBC Brasil in June 2009, where he remained until March 2012. At Santander Brasil he will be elected senior vice president executive officer and be responsible for the retail business of the bank.
José de Paiva Ferreira. See the board of directors biographies.
Angel Oscar Agallano. Mr. Agallano is Argentine and was born on March 18, 1957. He holds a degree in senior management from the Escuela de Dirección e Negócios (IAE) of Universidad Austral de Argentina. As one of our executive vice-presidents,vice-president, he has been the head ofis responsible for operations and technology for Banco Santander.information technology. Mr. Agallano has been engaged in the financial markets for 3536 years. He started at Santander in Buenos Aires, Argentina in 1986. From 1997 to 2000, Mr. Agallano was a member of the board of directors of Santander in Argentina and from 2002 to 2003 he actedserved as a member of the Santander Venezuela board. He is also an executive officer of Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A., Santander Administradora de Consórcios Ltda., Santander Brasil Seguros S.A., Santander Seguros S.A.,and Santander Capitalização S.A., and Agropecuária Tapirapé S.A. Tablea member of Contentsthe board of directors of Companhia de Arrendamento Mercantil RCI Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil. Carlos Alberto López Galán. Mr. Galán is Spanish and was born on November 6, 1962. He holds a bachelor’s degree in business economics science from Universidad Autónoma de Madrid in Spain and a master’s degree in financial markets from Universidad Pontifícia Comillas in Spain. As one of our executive vice-presidents, he has been responsible for the financial area. He is also the investor relations and chief financial officer. Mr. Galán has been engaged in the financial markets for 2223 years. He started at the Santander Group as an analyst in November 1986, and in 1995 he became the controller for Santander Financial Products. From July 1997 to January 1999, he served as vice-president of Santander Investment Mexico. Mr. Galán also served from July 1999 to August 2006 as chief financial officer and operating officer and a board member for the following companies: Santander Brasil, Afore S.S., Gestora S.S., Aseguradora S.A., Casa de Bolsa and Universia. He served as a board member for the Grupo Financeiro Santander Serfin and for the following companies: Altec (actually(currently Isban), Universia, Proaquanima, Banco Santander Serfin, Casa de Bolsa, Afore S.S., Gestora S.S. and Aseguradora S.A. He is also an executive officer of Aymoré Crédito, Financiamento e Investimento S.A., vice-president officer of Banco Bandepe S.A., chief executive officer of Santander Administradora de Consórcios Ltda., officer of Santander Leasing S.A. Arrendamento Mercantil, superintendent officer of Agropecuária Tapirapé S.A., and administrative officer of Norchem Participações e Consultoria S.A. He is also member of the board of directors of Santander Leasing S.A. Arrendamento Mercantil, Santander Seguros S.A., Companhia de Arrendamento Mercantil RCI Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil. Gustavo José Costa Roxo da Fonseca. Mr. Fonseca is Brazilian and was born on February 4, 1967. He holds a master’s degree in electrical engineering from Escola Politécnica da Universidade de São Paulo and a MBA from the MIT Sloan School of Management in Cambridge, Massachusetts. As our executive vice-president, he is responsible for operations and information technology. Mr. Fonseca has been engaged in the information technology area for 18 years. He was a software engineer at the Brazilian Navy in the advanced research center from 1991 through 1993 and a project manager of Sectrum Consultoria from 1993 through 1997 and worked in the information technology area of Banco Real. Currently, he is also an executive officer of Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A., Santander Brasil Administradora de Consórcio Ltda, administrator of Santander Administradora de Consórcios Ltda., officer of Santander Leasing S.A. Arrendamento Mercantil, Webmotors S.A. and Celta Holdings S.A. and executive officer of Santander Brasil Seguros S.A., Santander Seguros S.A. and Santander Capitalização S.A. He is also member of the board of directors of Real Microcrédito Assessoria Financeira S.A., Isban Brasil S.A., Companhia de Arrendamento Mercantil RCI Brasil, Companhia de Crédito, Financiamento e Investimento RCI Brasil and Tecnologia Bancária S.A.
Ignacio Domínguez-Adame Bozzano.Bozzano. Mr. Bozzano is a Spanish citizen and was born on August 20, 1968. He holds a degree in Economics and Business Sciences with specialization in Finance from Universidad Complutense de Madrid. He holds aan MBA from the University of Houston. He joined the Santander Group in 1994, initially developing activities in the area of Global Banking & Markets and with teams of M&A, Project Finance and Leverage Finance.Finance teams. From August 2006 to February 2007, he served as a Managing Officer at Banco Santander Central Hispano, SCH Investment (Spain), where he was responsible for the area of structured transactions. From February 2007 to April 2009 he served as a Managing Officer at Banco Santander Central Hispano. Currently he is responsible for the area of Credit Markets, responsible for all products related to the debt and capital markets (project financing, LBOs, acquisition financing, securities issues, etc.). From 1991 to 1992, he worked in the Departmentdepartment of investment analysis of Dragados y Construcciones S.A. (Spain). João Roberto Gonçalvez Teixeira. Mr. Teixeira is Brazilian and was born on May 30, 1965. He holds a MBA from the London Business School and a master’s degree in economics from Pontifícia Universidade Católica in Rio de Janeiro. As one of our executive vice-presidents, he is responsible for our global wholesale banking operations, including Global Banking & Markets. He is also an executive officer of REB Empreendimentos e Administradora de Bens S.A.
João Guilherme de Andrade So Consiglio. Mr. Consiglio is Brazilian and Italian and was born on December 7, 1968. He holds a degree in economics from Universidade de São Paulo and a Post Laurea from Universitá Degli Studi di Genova, Italy, Facoltá di Economia e Commercio. As one of our officers, he is currently responsible for our corporate and business banking.clients. Mr. TeixeiraConsiglio has been engaged in the financial markets for 1517 years. He was an economist at Bunge (Serfina S.A. Adm. e Participações) from 1990 to 1994, a manager of the economics department of Santista Corretora S.A. CVM from 1994 to 1995 and has been with Santander Brasil and/or Banco Real since 1995, where he started as a corporate banking manager, then assumed corporate development and private equity functions until 2005, when he became responsible for product management and development for all of Brazil. He became head of global transaction products in Brazil in 2008, and in 2010 assumed his current responsibilities. He served as a special advisormember of the Ministryboard of Treasury in 1993directors at CBSS (Visa Vale) until 2008, member of the board of directors of Câmara Interbancária de Pagamentos—CIP and member of the Conselho Superior of FUNCEX until 2010. Juan Manuel Hoyos Martínez de Irujo. Mr. Hoyos is Spanish and was headborn on January 7, 1953. He holds a degree in economics and management sciences from Universidad Complutense de Madrid, Spain, and an MBA in economics and accounting sciences from Columbia University, which granted him the Beta-Gamma-Sigma prize. In February 1978, Mr. Hoyos joined McKinsey and Company, where he became a partner in 1984, and executive officer in 1991. He was President of foreign affairsMcKinsey’s offices in Spain from 1997 to 2004, and member of the shareholders’ council for seven years. He was also member of the client committee. He retired after 30 years and since then he cooperates with many financial institutions for the Brazilian Secretarycreation of Political Economics.strategies, both in Spain and Latin America. Currently Mr. Teixeira was a managing officer of Dresdner Kleinwort Wasserstein from 1994 through 2002 and has been in the Santander Group ever since. Currently, heHoyos is member of the board of directors of Santander Leasing S.A. Arrendamento Mercantil.Chile, Santander Mexico and Deusto Business School. As an executive vice president at Santander Brasil he is responsible for branding, marketing strategies and interactive communication platforms. Lilian Maria Ferezim Guimarães. Ms. Guimarães is Brazilian and was born on August 26, 1960. She holds a degree in business administration from Fundação GetulioGetúlio Vargas, a specialization degree in human resources also from Fundação GetulioGetúlio Vargas and a specialization degree in business administration from Fundação Dom Cabral. She also has a graduate degree in Hotel Administration from Senac—SP. As one of our executive officers,vice-presidents, she is responsible for the development and implementation of human resources policies. Ms. Guimarães has been engaged in the human resources area for 2628 years. She was an analyst of employee compensation for Unibanco - Unibanco—União de Bancos Brasileiros S.A. from 1984 through 1986, a compensation manager for Citibank S.A. from 1986 through 1991, a financebank industry consultant of HayHays do Brasil Consultores Ltda. from 1991 through 1993, a senior manager of human resources development of Banco Nacional S.A. from 1993 through 1995, a human resources officer for Banco Inter-AtlâInter Atlântico from 1996 through 1997, a human resources officer of Origin Brasil from 1997 through 2000 and the human resources officer of Banco Real from 2000 to 2006. Luis Felix Cardamone Neto. Mr. Cardamone is Brazilian and was born on March 16, 1964. He studied business administration at Fundação Lusíadas—Faculdade de Administração de Empresas de Santos. As one of our executive vice-presidents, he is responsible for the consumer finance area. Mr. Cardamone has been engaged in the financial markets for 28 years. He was a sales assistant of Banco Antônio de Queiroz from 1982 through 1985, manager of Banco Comind in 1985, chief in administration services and manager of Banco Itaú S.A. from 1985 through 1987, and worked at Banco Real from 1988 to 2009. Currently, shehe is also a chief executive officer of Aymoré Crédito, Financiamento e Investimento S.A., and Webmotors S.A., officer of institutional relations and member of the board of directors of Companhia de Arrendamento Mercantil RCI Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil, officer and member of the board of directors of Santander Leasing S.A. Arrendamento Mercantil and executive officer of Santander Administradora de Consórcio Ltda., Santander Brasil Administradora de Consórcio Ltda. and Banco Bandepe S.A. Marco Antonio Martins de Araújo Filho. Mr. Araújo is Brazilian and was born on June 19, 1965. He holds a law degree from Universidade de Brasília and an LLM in international business and trade law from Fordham University in New York. He is admitted to practice law in Brazil (since 1988) and in the State of New York (since 1993). Mr. Araújo has more than 20 years of legal experience. As one of our executive vice-presidents, he is in charge of our corporate affairs department, which includes the legal, compliance, and sustainable development department. He was a partner of Araújo & Castro Advogados in 1988, a parliamentary advisor from 1989 to 1991 and a senior lawyer for Banco Itaú BBA S.A. from 1994 to 2003. He joined ABN AMRO in 2003, and was ABN AMRO’s Latin America General Counsel and an executive officer of Universia BrasilBanco Real, covering eight countries in Latin America, including Brazil. He is also member of the board of directors of Mantiq Investimentos Ltda., and executive officer of Banco Bandepe S.A. and Aymoré Crédito, Financiamento e Investimentos S.A. Oscar Rodriguez Herrero. Mr. Rodriguez is Spanish and was born on October 4, 1971. He holds a bachelor’s degree in business administration from the Colégio Universitário de Estúdios Financieros in Madrid, Spain and aan MBA from Northwestern University’s Kellogg School of Management in Chicago, Illinois. As one of our executive vice-presidents, he is the head of our risk management area. Mr. Rodriguez has been engaged in the financial markets for 1516 years. He served as an analyst of credit risk of Santander Investment in Spain from 1994 to 1998. He was a consultant at McKinsey & Co in the United States and Spain from 2000 to 2004. Mr. Rodriguez also served as credit risk officer of the wholesale banking and corporate areas of Banco Santander Brasil from 2004 to 2006. Currently, he is an executive officer of Aymoré Crédito, Financiamento e InvestimentoBanco Bandepe S.A. and Banco Bandepeofficer of Santander Participações S.A. and Santander Brasil Advisory Services S.A. He is also member of the board of directors of Companhia de Arrendamento Mercantil RCI Brasil, and Companhia de Crédito, Financiamento e Investimento RCI Brasil.Brasil, and Mantiq Investimentos Ltda. Pedro Carlos Araújo Coutinho. Mr. Coutinho is Brazilian and was born on April 2, 1966. He holds a degree in business administration from the Instituto Superior de Ciências, Letras e Artes de Três Corações—INCOR—MG, a postgraduate degree in financial administration from Fundação Dom Cabral and an MBA with a focus on marketing from Instituto de Ensino e Pesquisa—INSPER. As one of our executive vice-presidents, he is responsible for the points of sale of Santander Brasil. Mr. Coutinho has been engaged in the financial market for 26 years. He was responsible for the small and middle companies segment at Banco Nacional S.A. from 1983 to 1995, was a retail manager of Unibanco S.A. from 1995 to 1997 and has been an Executive Vice President of Banco Santander since 1997. Pedro Paulo Longuini. Mr. Longuini is Brazilian and was born on June 7, 1957. He holds a degree in mechanical engineering from the Instituto Tecnológico de Aeronáutica. As one of our executive vice-presidents, he is in charge of Corporate Affairs, including the legal department and compliance. Mr. Longuini has been engaged in the financial markets for 2426 years. He was a vice-president of Citibank S.A. from 1985 through 1996. Mr. Longuini joined Banco Real in 1996 as controller and in 1999 he became the executive officer of operations and financial control. Mr. Longuini was vice-president of Banco Real from 2003 to 2009. He is also anAs vice president executive officer of Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A., Santander Administradora de Consórcios Ltda., Santander Brasil Seguros S.A., Santander Seguros S.A., Santander Capitalização S.A., Agropecuária Tapirapé S.A., Isban Brasil S.A., Universia Brasil, S.A.,the company, he was responsible for corporate affairs, including the legal department and Norchem Participações e Consultoria S.A., officer of Companhia Real de Valores - Distribuidora de Títulos e Valores Mobiliários, chief executive officercompliance. In 2011 he became responsible for the corporate project for liquidity control of Santander Leasing S.A. Arrendamento MercantilSpain. He will be responsible for quality and efficiency in Santander Advisory Services S.A., and administrator of Santander Brasil Administradora de Consórcio Ltda. He is also member of the board of directors of Santander Leasing S.A. Arrendamento Mercantil, Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A., Companhia de Arrendamento Mercantil RCI Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil. Arnaldo Penteado Laudisio. Mr. Laudisio is Brazilian and was born on August 17, 1963. He received a law degree from the Universidade de São Paulo in 1985 and a master’s degree from Universidade de São Paulo in 1996. He received a post-graduate degree from Universidade de Paris II in 1991. Mr. Laudisio has been engaged in the legal area for 24 years. He was the attorney for the city of São Paulo from 1988 to 2000 and a partner of Lefosse Advogados (Linklaters Brasil) from 2000 to 2006. He started at Santander in 2006 as Legal Executive Superintendent. As executive officer he acts as legal officer of the Disputes area since November 2008. Currently, he is also an executive officer of Santander Administradora de Consórcios Ltda.
Javier Fonseca Viader. Mr. Viader is Spanish and was born on January 17, 1972. He holds a degree in business administration from Universidad Antonio de Nebrija in Madrid. As our executive officer, he has been responsible for internal audit for Banco Santander since 2005. He started his career at the Santander Group in 1996.
José Roberto Machado Filho.Filho. Mr. Machado is Brazilian and was born on August 25, 1968. He holds a degree in electrical engineering from the Faculdade de Engenharia Industrial (FEI) in São Paulo and has a master’s degree in business, economics and finance from the Universidade de São Paulo. As one of our executive officers, he is responsible for real estate finance and mortgage credit. Mr. Machado has been engaged in the treasury business for 1718 years. He was an engineer for Keumkang Limited from 1990 through 1991, a foreign exchange manager from 1992 through 1995 and a manager of emerging markets trading desk from 1992 through 1996 of Banco CCF Brasil S.A. He was also an executive officer of Banco Rabobank Internacional Brasil S.A. from 1998 through 2003 and was an executive officer of Banco Real from 2003 to 2009. Currently, he is an executive officer of Banco Bandepe S.A., Webmotors S.A. and Companhia Real de Valores - CRV—Distribuidora de Títulos e Valores Mobiliários. He is also the vice-president of the ABECIP and a member of the board of directors of Companhia Brasileira de Securitização - o—Cibrasec. Luciane Ribeiro.Ribeiro. Ms. Ribeiro is Brazilian and was born on June 7, 1963. She holds a degree in economics from Fundação Armando Alvares Penteado. As one of our executive officers, she is currently responsible for Santander Brasil asset managementBrasil’s Asset Management operations. Ms. Ribeiro has been engaged in the financial markets for 2429 years. She started at BankBoston in 1983,1983. In 1985, she moved to Banco Safra where she spent more than 20 years as wealth manager of shareholder assets and in 1985 she worked2002 was elected Executive Director for Banco Safra S.A. and served as an investment advisor from 1996 to 1999. She was an executive officer of Safrathe Asset Management since 2002. She started workingUnit. In 2006, Ms. Ribeiro became CEO for Banco Real in 2006 as a securities portfolio manager. Currently, she is also chief executive officerLatin America of ABN AMRO Asset Management. Ms. Ribeiro was chosen to assume the position of CEO of Santander Brasil Asset Management Distribuidora de Títulos e Valores MobiliáriosDTVM S.A. Shein 2008, where she was responsible for the integration of asset management units of Banco Real and Santander Brasil. Ms. Ribeiro also coordinates ANBIMA’s Data Base Commission and Investment Funds Commission and is also a member of the board of directors of Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. and president of the management council of Ethical Fund. She is also a coordinator of the Database subcommission and of the investment funds commission of ANBID and a member of the asset management committee of ANDIMA and of the communication committee of IBGC.Fund Board. Luis Felix Cardamone Neto. Mr. Cardamone is Brazilian and was born on March 16, 1964. He studied business administration at Fundação Lusíadas - Faculdade de Administração de Empresas de Santos. As one of our executive officers, he is responsible for the consumer financing area. Mr. Cardamone has been engaged in the financial markets for 27 years. He was a sales assistant of Banco Antônio de Queiroz from 1982 through 1985, manager of Banco Comind in 1985, chief in administration services and manager of Banco Itaú S.A. from 1985 through 1987, and worked at Banco Real from 1988 to 2009. Currently, he is also a chief executive officer of Aymoré Crédito, Financiamento e Investimento S.A., officer of institutional relations and member of the board of directors of Companhia de Arrendamento Mercantil RCI Brasil and Companhia de Crédito, Financiamento e Investimento RCI Brasil, executive officer of Santander Administradora de Consórcio Ltda., chief executive officer of Webmotors S.A. and executive officer of Banco Bandepe S.A.
Marco Antonio Martins de Araújo Filho. Mr. Araújo is Brazilian and was born on June 19, 1965. He holds a law degree from Universidade de Brasília and LLM in international business and trade law from Fordham University in New York. He is licensed to practice law in Brazil (since 1988) and in the State of New York (since 1993). Mr. Araújo has been engaged in the legal area for more than 20 years. As our executive officer, he is in charge of our legal department, which consists of the retail, wholesale, asset management and company affairs legal services area. He was a partner of Araújo & Castro Advogados in 1988, a parliamentary advisor from 1989 to 1991 and a senior lawyer for Banco Itaú BBA S.A. from 1994 to 2003. He joined ABN AMRO in 2003, and was ABN AMRO’s Latin America General Counsel and an executive officer of Banco Real, covering eight countries in Latin America, including Brazil. In 2007, the Brazilian Minister of Finance appointed Mr. Araújo as a council member to the Brazilian Financial System Administrative Court of Appeals, or “CRSFN”, where he currently holds the Vice President chair.
Marcos Matioli de Souza Vieira. Mr. Vieira is Brazilian and was born on January 4, 1961. He holds a degree in business administration from Fundação Getúlio Vargas. As one of our executive officers, he is responsible for corporate development and private equity. Mr. Vieira has been engaged in the financial markets for 26 years. He was an analyst for Banco Chase Manhattan from 1983 to 1986 and a finance manager of L.E. Ind. e Com Ltda. from 1986 to 1987. He started as a credit manager for Banco Real in 1988 and was an executive officer of Banco Real from 1998 to 2009. Currently, he is also an executive officer of Companhia Real de Valores Distribuidora de Títulos
e Valores Mobiliários and Santander Brasil Administradora de Consórcio Ltda. He is also member of the board of directors of Companhia de Arrendamento Mercantil RCI, Companhia de Crédito, Financiamento e Investimento RCI Brasil, Real Microcrédito Assessoria Financeira S.A., Celta Holdings S.A., Companhia Brasileira de Soluções e Serviços S.A. - Visa Vale, Fidelity Processamento e Serviços S.A. and Tecnologia Bancária S.A - TECBAN.
Maria Luiza de Oliveira Pinto e Paiva. Ms. Paiva is Brazilian and was born on July 14, 1963. She holds a degree in psychology from the Pontifícia Universidade Católica in São Paulo and a degree in human resources from the University of Michigan. As one of our executive officers, she is responsible for the creation of our sustainable development area and the implementation of the sustainability concept throughout the organization. Ms. Paiva has been engaged in the sustainability area for more than 8eight years. She is the vice-chairman of Integrare’s Advisory Council since November 2010 and a member of the Carbon Disclosure Project (CDP)—South America’s Technical Advisory Council since December 2010. She was the human resources manager for Banco Nacional S.A. from 1981 to 1994 and for Banco Real in the Regional Office for Latin America and the Caribbean and head of the Global Human Resources Department in the Commercial and Consumer clients business in ABN AMRO Bank, NV. Currently, she is also a member of the board of directors of Real Microcrédito Assessoria Financeira S.A. Pedro Carlos Araújo CoutinhoJosé Alberto Zamorano Hernandez. Mr. CoutinhoZamorano is BrazilianSpanish and was born on April 2, 1966.May 9, 1962. He holdsreceived a degree in business administrationstudies from Instituto Superiorthe Universidad Complutense de Ciências, Letras e Artes de Três Corações - INCOR - MG, a postgraduate degree in financial administration from Fundação Dom Cabral and a MBA with a focus on marketing from Instituto de Ensino e Pesquisa - INSPER. As one of our executive officers, he is responsible for the points of sale of Banco Santander.Madrid. Mr. CoutinhoZamorano has been engagedworked in the financial marketsaudit area for 2515 years. HeMr. Zamorano began his career at Santander Spain as manager of the internal audit area from 1995 to 2002, where he was responsible for the small-credit risk audit in regional units of Galícia, Alicante and medium-sized companies segment in Banco Nacional S.A. from 1983Castilla La Mancha. From 2002 to 1995,2005, Mr. Zamorano was a retail managersuperintendent of Unibanco S.A. from 1995 to 1997 and has been an executive officerinternal audit of Banco Santander since 1997.
Wagner Augusto Ferrari. Mr. Ferrari is Brazilian and was born on August 7, 1958. He holds a degree in business administration from Instituto Amador Aguiar - - Osasco and a MBA from Instituto de Ensino e Pesquisa - INSPER. As one of our executive officers, he is responsible for the retail area. Mr. Ferrari has been engaged in the financial markets for 25 years. He was the purchase manager for Construtora Gavião Monteiro from 1981 to 1982Brasil and executive officer of Banco Real from 1983 to 2009. Currently, he is also a member of the board of directors of Real Microcrédito Assessoria Financeira S.A.
Alexandre Schwartsman. Mr. Schwartsman is Brazilian and was born on February 7, 1963. He holds a degreeinternal audit in business administration from the Fundação Getúlio Vargas, a degree in economics from the Universidade de São Paulo, a master’s in economics from the Universidade de São Paulo and a Ph.D in economics from the University of California.Grupo Financeiro Santander México. As one of our officers, heMr. Zamorano is the head of economic research. Mr. Schwartsman has been engaged in the economics research arearesponsible for more than 20 years. He was a professor of economics at Pontifícia Universidade Católica de São Paulo from 1987 to 1991, a professor of economics at the Universidade de São Paulo from 1990 to 1991, a teaching assistant at the University of California in 1994, a professor of economics at Instituto de Ensino e Pesquisa - INSPER, an economist for Unibanco - União de Bancos Brasileiros S.A. from 1985 to 1986, an economist for Companhia Brasileira de Distribuição from 1986 to 1991, chief economist for Crédit Agricole Indosuez Emerging Markets from 1995 to 1998, chief economist and research officer for Indosuez W.I. Carr Securities from 1991 to 2001, chief economist and chief of research of BBA Corretora, chief economist and officer of Unibanco - União de Bancos Brasileiros S.A. in 2003, the Deputy Governor for International Affairs at Banco Central do Brasil from 2003 to 2006, chief economist in Latin America of Banco Real from 2006 to 2008 and chief economist in Brazil from 2008 to 2009.our internal audit area.
Amancio Acúrcio Gouveia. Mr. Gouveia is Brazilian and was born on March 31, 1963. He holds a degree in accounting from the Universidade Santa Úrsula. As one of our officers, he supervises accounting management.is responsible for financial transactions. Mr. Gouveia has been engaged in the area of accounting for financial institutions for 2324 years. He was an audit manager for KPMG until 1991, accounting manager of Unibanco - Unibanco—União de Bancos Brasileiros S.A. from 1991 to 1999, supervisory manager of BankBoston Banco Múltiplo S.A. from 1999 to 2001 and has been an accounting controlling manager of the Santander Group since 2001. Currently, he is also an officer of Santander Leasing S.A. Arrendamento Mercantil, an executive officer of Santander Administradora de Consórcios Ltda., Santander Brasil Seguros S.A., Santander Seguros S.A., Santander Capitalização S.A., Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A. and administrator of Santander Brasil Administradora de Consórcio Ltda. He is also member of the Fiscal Council of Companhia Energética de São Paulo. André Fernandes Berenguer. Mr. Berenguer is Brazilian and was born on January 13, 1968. He holds a degree in business administration from the Escola de Administração de Empresas de São Paulo of the Fundação Getúlio Vargas. As our officer, he is responsible for Global Transaction Banking.corporate and investment banking. Mr. Berenguer has been engaged in the financial markets for over 2021 years. He was the treasurer of Companhia Brasileira de Projetos e Obras CBPO - CBPO—Grupo Odebrecht from 1988 through 1992, financial manager of Tenenge S.A. - —Grupo Odebrecht from 1993 through 1996, relationship manager of Banco BBA Creditanstalt S.A. from 1996 through 2000, senior manager of BBA Securities Corp., NY from 2000 through 2001, Officer of ING Wholesale Bank and has been at Santander Brasil since 2007. He is athe brother of José de Menezes Berenguer Neto. Antonio Fernando Laurelli Ribeiro. Mr. Ribeiro is Brazilian and was born on April 17, 1958. He holds a degree in business administration and a master’s degree in finance from Fundação Getúlio Vargas. AsNeto, one of our officers, he is the executive supervisor of compliance in Latin America. Mr. Ribeiro has been engaged in the financial markets for 29 years. He was the planning manager of Credicard S.A. Adm. de Cartões de Crédito from 1980 through 1982, credit analyst of Bank of America N.T. & S.A. from 1982 through 1985, manager of the public sector companies area at Citibank N.A. from 1985 through 1986, manager at ABN AMRO Bank from 1991 through 1998 and started at Banco Real in 1998 as financial institutions manager. Currently, he is also an executive officer of Aymoré Crédito, Financiamento e Investimento S.A., Banco Bandepe S.A., Santander Administradora de Consórcios Ltda. and Santander Brasil Administradora de Consórcio Ltda.directors.
Antonio Pardo de Santayana Montes. Mr. MontesPardo de Santayana is Spanish and was born on November 5, 1971. He holds a degree in economics and a law degree from the Universidade Pontifícia Comillas in Icade. As one of our officers, he is responsible for the development of policies, systems, methodsrisk approval in GB&M and risk control.Corporate clients. Mr. MontesPardo de Santayana has been engaged in the accountingfinance area for 1416 years. He was an advisor ofa consultant at PricewaterhouseCoopers from 1995 to 1998, senior risk analyst for Santander Central Hispano/Santander Investment from 1998 to 2000, senior manager of Monitor Company from 2000 to 2005 and has been withreturned to the Santander Group since 2008.in 2005. Since then and until joining Santander Brasil in 2009, he worked in the Wholesale Risk Area as Deputy Head and was seconded to ABN AMRO in the de-merger process after its acquisition. Carlos LeibowiczCassio Schmitt. Mr. LeibowiczSchmitt is ArgentineBrazilian and was born on December 31, 1970.April 23, 1971. He holds a degree in economics from Universidad Nacional de Cuyo (Mendoza, Argentina)the Universidade Federal do Rio Grande do Sul, a master’s degree in corporate economics from the Fundação Getúlio Vargas in São Paulo and a master’s degree in business administration from the Sloan School of Business, Massachusetts Institute of Technology (MIT). As our officer, he is responsible for wholesale clients. Mr. LeibowiczHe has been engaged in the banking marketfinancial markets for 15over 17 years. He started his career at ABN AMRO Bank N.V., Argentina,was treasury economist for Banco de Crédito Nacional S.A. from 1995 to 1996, and senior economist for UNIBANCO – União de Bancos Brasileiros S.A. from 1996 to 1999. He was member of the leveraged finance team of UBS Warburg in 1994, where2000, project finance superintendent of UNIBANCO from 2001 to 2003 and corporate banking superintendent of UNIBANCO Representative Office in New York from 2003 to 2004. He served as a member of the M&A/Project Finance team of Banco Santander in 2004, and became responsible for project finance in Brazil in 2005. In 2010, he was responsible for the areas of acquisition finance and syndicated lending. He is also a corporate banking officer from 1996 through 1998 and headmember of the board of directors of EBP—Estruturadora Brasileira de Projetos S.A. Today he is responsible for the risk management from 1998 through 2002. In 2002,area for companies of Modelo de Relação Global. As one of our officers, he started at Banco Real as a senior manager, where he held several positions, including head of Latin Americais responsible for the GB&M risk management. In 2005, he returned to ABN AMRO Bank N.V. as global head of Country risk management. After that, Mr. Leibowicz was a vice-president at Banco Antonveneta S.p.A. from 2006 through 2008, a chief risk officer of Banco Real in 2008 and has been at Banco Santander since October 2008 as head of Corporate banking.area.
Cassius Schymura. Mr. Schymura is Brazilian and was born on February 19, 1965. He holds a degree in electrical engineering from the Pontifícia Universidade Católica in Rio de Janeiro and a master’s in business administrationan MBA from the Fundação Dom Cabral. As one of our officers, he is responsible for the products, paymentacquirer and credit cards areas.area. Mr. Schymura has been engaged in the financial products area for 2021 years. He was the investment products manager for Banco Nacional S.A. from 1989 to 1991, products and marketing manager of Cardway Processamento from 1991 to 1994, products manager of Cartão Nacional from 1994 to 1996, marketing and products supervisory manager of Unicard Banco Múltiplo S.A. from 1996 to 1999, a senior associate ofat Booz Allen & Hamilton in 1999, a board member and the president officer of Idéiasnet S.A. from 2000 to 2001, the general manager of SOFTCORP from 2001 to 2004 and has been with the Santander Group since 2004. Currently, he is also member of the board of directors of Companhia Brasileira de Soluções e Serviços and chairman of the board of directors of Santander Getnet Serviços para Meios de Pagamento Sociedade Anônima. Claudio Almeida Prado.Clovis Hideaki Ikeda. Mr. PradoIkeda is Brazilian and was born on February 28, 1964.September 23, 1963. He holds a bachelor’s degree in Electrical Engineeringbusiness administration from the Polytechnic School of Universidade de São Paulo and master’s degree in Computer Engineering from the same institution. He has been working in technology area for 21 years.Paulo. As one of our officers, heMr. Ikeda is responsible for Information Technology area at Santander Group.global transaction banking. Mr. Ikeda has been engaged in investment banking for 23 years. From 1999January 1989 to 2000October 1992, he worked at Banco Realserved as Superintendentthe corporate relationship manager of Electronic Commerce.Citibank S.A., and was in charge of the origination and structuring of commercial and investment banking operations. From 2002October 1992 to 2004April 1993, he worked at Plataforma Eletrônica S.A., serving as CEO and Technology Officer. In 2005 he joined the Santander Group, serving from 2005 to 2007 as Executive Superintendent of Support to Innovation area and Banking Correspondent, responsible for implementing and supporting the innovation process and developing the network of correspondents. He also served as Executive
SuperintendentBanco Norchem S.A. From April 1993 to February 1996, he served as corporate finance manager of the IT SolutionsBanco ING Barings and Technology Innovations area, where he was responsiblejoined Santander Brasil in March 1996, serving as manager for all software applications at Banco Real. In 2008 he held the officecorporate client relationships, executive manager for corporate client relationships, executive manager for Brazilian trade finance and managing director of Senior Executive Superintendent, responsible for the entire information technology area.Brazilian global transaction banking.
Ede Ilson Viani. Mr. Viani is Brazilian and has Italian citizenship. He was born on September 5, 1967. He1967, holds a degree in accounting from Faculdades Tibiriça and aan MBA from the Instituto de Ensino e Pesquisa - Pesquisa—INSPER. As one of our officers, he is responsible for the small and medium enterprises business area. Mr. Viani has been engaged in the financial markets for 2627 years. He was an auditor of Banco Itaú S.A. from 1986 to 1990. He1990, and he started as a senior auditor of BankBoston S.A., where he was a managing officer from 2005 to He worked for 17 years at Bank Boston acting subsequently as Credit Risk Officer for medium, corporate and large corporate companies, Managing Director for Lending Products and Managing Director for SME Business Banking. He joined Santander Brasil in 2007 as Director for Small Business Banking and has been our managing officer of businessresponsible for Retail Banking Risk Management since 2007.July 2010. Eduardo Müller Borges. Mr. Borges is Brazilian and was born on September 12, 1967. He holds a degree in business administration from the Pontifícia Universidade Católica. As one of our officers, he is responsible for the corporateCredit Markets area within the Global Banking and investment banking areas.Markets division of Santander Brasil. Mr. Borges has been engaged in the local and international financial markets for 1619 years. He was an international trade manager and then an international capital markets senior manager of the First National Bank of Boston, São Paulo from 1993 to 1996, vice-president in emerging markets syndicated loans of BancBoston Robertson Stephens Inc. in Boston, Massachusetts from 1996 to 1999, an officer of BankBoston Banco Múltiplo S.A. from 1999 to 2000, capital markets vice-president of Banco JP Morgan S.A. from 2000 to 2002, capital markets vice-president of Banco Santander Brasil from 2002 to 2004, an officer of ING Bank N.V. São Paulo from 2004 to 2005 and has been working at Banco Santander Brasil again since 2005. Currently he is also an executive officer of REB Empreendimentos e Administradora de Bens S.A. Flávio Tavares Valadão. Mr. Valadão is Brazilian and was born on July 1, 1963. He holds a degree in electrical engineering from the Escola de Engenharia Mauá, an accounting and finance degree from the Instituto Brasileiro de Mercado de Capitais and a master’s in electrical engineering from the University of Lille in France. As one of our officers, he is responsible for the mergers and acquisitionscorporate finance area. Mr. Valadão has been engaged in the banking business for 2021 years. He was a corporate finance officer for Banco Paribas from 1990 to 1998 and in 1998 joined Banco Real. Gilberto Duarte de Abreu Filho. Mr. Abreu is Brazilian and was born on August 7, 1973. He holds a degree in industrial engineering from the Universidade de São Paulo and aan MBA from the Massachusetts Institute of Technology in Cambridge, Massachusetts. As one of our officers, he is responsible for our insurance operations. Currently, he is also an executivea superintendent officer of Santander Brasil Seguros S.A., Santander Seguros S.A. and Santander Capitalização S.A.; and chief executive officer of Santander Seguros S.A. Before joining Santander Brasil, Mr. Abreu was a senior manager at McKinsey & Company, conducting projects in both the financial and retail areas. Gustavo Summers Albuquerque.Gilson Finkelsztain. Mr. AlbuquerqueFinkelsztain is Brazilian, and was born on April 20, 1968. He graduatedholds a bachelor’s degree in Computer Engineering at Instituto Militarcivil engineering from Catholic University of Rio de EngenhariaJaneiro and holds master’s and doctorate degrees in Economicsan Advanced Management Programme degree from PUC-Rio.INSEAD (Institut Européen d’Administration des Affaires). He has 17 years of experience in finance. Mr. Finkelsztain worked in the treasuryfor Bank of the bank since 2002,America Merrill Lynch from 2010 to 2011, as director of sales for investment banking. Between 2007 and 2010 he joined Banco Bozzano Simonsen in 1998. He has worked in the financial markets since 1994, having worked at Banco BBMJP Morgan Chase, where he was responsible for derivatives, and MCM consultoria. In 2009also held the positions of chief executive officer and statutory director. He also worked at Citigroup from 1995 to 2007, in São Paulo, Mexico and New York, where he served as an officer at ANDIMA. Currentlyheld several positions, including assistant vice president, deputy superintendent, chief executive and director covering the activities of a trader, structuring transactions, corporate sales and treasury. As one of our officers, he is a member of the operating and ethics committee of ANBIMA and of CETIP’s board of directors.responsible for rates.
Jamil Habibe Hannouche.Hannouche. Mr. Hannouche is Brazilian and was born on June 23, 1960. He holds a degree in mechanical engineering from the Universidade Mogi da Cruzes - Cruzes—UMC, a specialization degree in finance and a MBAmaster’s in business administration from Instituto de Ensino e Pesquisa - Pesquisa—INSPER. As one of our officers, he is responsible for the universities area and the retail segment.area. Mr. Hannouche has been engaged in the financial markets for 2526 years. He was a sales officer forat Banco Nacional S.A. from 1983 to 1995, retail officer of Unibanco - Unibanco—União de Bancos Brasileiros S.A. from 1997 to 2000 and has worked in the universities sector of Banco Santander Brasil since 2007. João Guilherme de Andrade Só Consiglio. Mr. Consiglio is Brazilian and Italian and was born on December 7, 1968. He holds a degree in economics from Universidade de São Paulo and a Post Laurea from Universitá Degli Studi di Genova, Italy, Facoltá di Economia e Commercio. As one of our officers, he is currently responsible for the Business segment. Mr. Consiglio has been engaged in the financial markets for 15 years. He was an economist at Bunge (Serfina S.A. Adm. e Participações) from 1990 to 1994, a manager of the economics department of Santista Corretora S.A. CVM from 1994 to 1995 and has been at Banco Santander/Banco Real since 1995, where he started as the corporate banking manager, then assumed corporate development and private equity functions until 2005,
when he became responsible for products. He served as a member of the board of directors at CBSS (Visa Vale) until 2008. Currently, he is also member of the board of directors of Câmara Interbancária de Pagamentos - CIP and member of the Conselho Superior of FUNCEX and President of REB Empreendimentos e Administradora de Bens S.A.
Juan Colas de Casso. Mr. Colas is Spanish and was born on August 19, 1961. He graduated in civil engineering at Escola Politécnica Madrid, Spain and holds a master’s degree in from University of San Diego. From 1987 to 1997, he worked at Citibank N.A., Madrid, Spain, where served as customer FX trader, derivatives trader and derivatives head. From 1997 to 1999, he worked at Citibank N.A., in Buenos Aires, Argentina, where he served as derivatives head, in charge of structuring and sales of derivative products to corporate clients and Argentine institutions. From 2000 to 2003, he worked at Citibank N.A., New York where he served as head for rate sales for Latin America and was responsible for the rate products distribution to corporate and Latin American clients. From 2003 to 2009, he worked at Banco Santander, S.A. in Madrid, Spain, where he served as global head for rate sales, being responsible for rate products distribution to institutional corporate in Europe and Latin America. Since January 2010, Mr. Colas has worked at Banco Santander as Senior Executive Superintendent responsible for rate products sales to corporate, institutional and retail clients.
Luis Alberto Citon.Citon. Mr. Citon is Argentine and was born on May 17, 1963. He graduated with a degree in Business Administration atbusiness administration from the Universidad de Buenos Aires, Argentina and holds a master’s degree in Finance from the Universidad del Centro de Estudios Macroeconómicos de Argentina. As a Senior Executive Superintendentone of our officers in the area of Control and Risk Methodology, he is responsible for control of market risks and structural risks (interest, liquidity, sovereign and cross border). He has been working in the financial markets for 2627 years, with experience in the Argentine and Brazilian markets. He joined Banco Rio (Argentina) in 1984, where he served as operator of the Bureau of Money Market Desk and area ofthe Financial Planning.Planning area. He created the area of Market Risks area and participated in the integration with Banco Santander Brasil in 1997. In 2002, he was transferred to Brazil to be in charge of the area of Market and Counterparty Risks. Subsequently, he incorporated the areas of Methodology (market and credit), Risk MethodologySystems and Economic Results. In 2008, he participated in the integration of the functions and systems with Banco Real. Luis Carlos Guimarães de Carvalho Morais. Mr. Morais is Portuguese and was born on June 7, 1966. As one of our officers, he is in charge of the supply area. Mr. Morais has been engaged in the patrimony and sourcing areas for 23 years. From July 1989 to April 1997 he was responsible for the patrimony division of Banco de Comércio e Indústria, S.A. Mr. Morais joined Santander Brasil in April 1997, and until October 1994 was in charge of the sourcing area of Santander Totta. He served as officer of the sourcing, transporting and communication areas until October 2008, when he became officer of the management expenditures area. Luiz Carlos da Silva Cantidio Jr.Jr. Mr. da Silva is Brazilian and was born on July 11, 1958. He holds a bachelor’s degree in Business Administration from CCNY - CCNY—City College of New York - York—Baruch College. He joined the Santander Group in 1997 as an Officerofficer of the Internationalinternational area. By mid-1999, he became Vice-president,vice-president, responsible for the commercial area of Wholesale Bank,wholesale banking, and in recent years, for Corporatecorporate & Investment Banking.investment banking. Since January 2009, he ishas been responsible for the area of Equity Investments.equity investments area. At Santander Brasil he has held statutory positions in the following companies: Banco Santander Brasil S.A., Banco Santander S.A., Banco Santander Noroeste S.A., Banco do Estado de São Paulo S.A. - —Banespa, Bozano, Simonsen S.A. Distribuidora de Títulos e Valores Mobiliários, Isban Brasil S.A., Agropecuária Tapirapé S.A., Norchem Leasing S.A. - —Arrendamento Mercantil, Produban Serviços de Informática S.A., Santander Administradora de Consórcios Ltda., Santander Asset Management Distribuidora de Títulos e Valores Mobiliários Ltda., Santander Banespa Companhia de Arrendamento Mercantil, Santander Banespa S.A. Arrendamento Mercantil, Santander Brasil Arrendamento Mercantil S.A., Santander S.A. Corretora de Câmbio e Valores Mobiliários, Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros, Santander Brasil Seguros S.A., Santander Capitalização S.A., Santander Investimentos em Participações S.A., Santander Seguros S.A., and Banco Santander Brasil as a member of the board of directors from August 31, 2006 to November 26, 2009. From 1995 to 1997 he served as an Officerofficer at Banco Chase Manhattan S.A. From 1993 to 1995, he held the position of Officerofficer at Banco Norchem S.A., responsible for Internationalthe international area. From 1988 to 1993 he served as a Chief Financial Officerchief financial officer at Confab Industrial S.A. From 1984 to 1988 he worked at Citibank, N.A., as a manager responsible for structured business. He also serves as a member of the board of directors at Corporación SidenorEnesa Participações S.A. (España), Madeira Energiaand Green Nirvana Comércio de Produtos Ecológicos e Sustentáveis S.A. - MESA, WTorre Empreendimentos Imobiliários S/A, Transmissora Aliança de Energia Elétrica S.A. - TAESA e Transmissora Alterosa de Energia S.A. Luiz Felipe Taunay Ferreira. Mr. Ferreira is Brazilian and was born on March 18, 1967. He holds a degree in business administration from the Fundação Getúlio Vargas, a degree in economics from the Universidade de São Paulo and a master’s degree in economics from the Universidade de São Paulo. Mr. Ferreira is also a CFA charter holder. As one of our officers, he works in the investorsinvestors’ relations department. Mr. Ferreira has been engaged in the financial markets for 1516 years. He was a trader for Banco ING Brasil from 1994 to 1996 and head of equity derivatives market risk management at ING Barings, London from 1996 to 1998. He joined Banco Real in 1998 and has been with the Santander Group ever since. Currently, he is an executive officer of Aymoré Crédito, Financiamento e Investimento S.A. and Banco Bandepe S.A.; and an officer of Santander Leasing S.A. Arrendamento Mercantil. Luiz FontouraMara Regina Lima Alves Garcia. Ms. Garcia is Brazilian and holds a bachelor’s degree in Law from the Faculdades Metropolitanas—FMU, a postgraduate degree in Financial Law from the IBMEC—Instituto Brasileiro de Oliveira Reis FilhoMercado de Capitais, and a master’s degree in International Economic Law from the Pontifícia Universidade Católica de São Paulo—PUC. She has been engaged in the legal financial area for over 21 years. She was legal manager of Banco Inter-Atlântico S.A. from 1996 to 2000 and a senior lawyer of Banco Itaú BBA S.A. from 2000 to 2006. She joined Banco Santander S.A. in 2006 as executive superintendent of the legal wholesale area. As one of our officers, she is responsible for the legal consulting area and serves the wholesale and retail areas; member of the legal committee of FEBRABAN and ABBI.
Marcelo Audi. Mr. OliveiraAudi is Brazilian and was born on July 10, 1968.January 18, 1967. He holds a degree in economicsbusiness administration from Universidade de Brasília and a MBA from Northwestern University’s Kellogg School of Management. As one of our officers,the Fundação Getúlio Vargas in São Paulo. From 1990 to 1997, he is responsible for Corporate Investment Banking. Mr. Oliveira has beenwas engaged in the financial marketsinvestment banking area of Banco Patrimônio (financial institution affiliated to North American investment bank, the former Salomon Brothers), apart from being responsible for 18 years.the creation of equity research area and becoming partner of the bank. He has been with Banco Real since 1991. Currently,served in the equity research area of Merrill Lynch Bank in Brazil between 1997 and 2002 and, from 2003 to 2006, he was a partner of Quadrante Investimentos, a local investment advisory service company. Mr. Audi joined Santander Brasil in 2007, and he is also an executive officer of Companhia Petrolífera Marlimcurrently responsible for the equity research area and Marlim Participações S.A.equity share strategy in Brazil. Marcelo Malanga.Malanga. Mr. Malanga is Brazilian and was born on May 18, 1969. He holds a bachelor’s degree in Business Administration from the Universidade Bandeirantes de São Paulo, and a master’s degree in Finance and Accounting from the Pontifícia Universidade Católica - - lica—PUC SP. As Officerone of Credit Recovery since 2009,our officers, he is currently responsible for strategy and management of the collection of all the assets of Santander Group in Brazil.corporate retail business. He has been working in the financial markets for 2324 years. He served as the Division Manager of the Banco do Brasil S.A. from 1987 to 2001. Mr. Malanga worked for the government of São Paulo from 1995 to 1998, and from 1998 to 2001 he was responsible for strategy in the business of Governments in Brasilia, acting as manager of PROEX. When he joined Banco Santander Brasil in 2001, he was responsible for creating the business relationship with the state and local government until 2004. From 2006 to 2009, he served as a Superintendentsuperintendent responsible for the management and administration of all the branches of Santander in the State of Rio de Janeiro.
Marcelo Zerbinatti. Zerbinatti. He is Brazilian, born on February 5, 1974. He holds a degree in Business Administration from FMU - FMU—SP, a post-graduate degree in Negotiation from FGV - SPFundação Getúlio Vargas and holds a master’s degree in Planning from PUC - PUC—SP. He worked at Banco Bradesco S.A. from 1988 to 1992 as Head of Service, at Bank of Boston from 1992 to 1994 as Coordinator of Foreign Exchange, at Banco Real from 1994 to 2006 as Project Superintendent and since 2006 has served as our Senior Organization Executive Superintendent responsible for Process and Management of Changes. As one of our officers, he is responsible for organization, technology and process. Marcio Aurelio de Nobrega. Mr. Nobrega is Brazilian and was born on August 23, 1967. He holds a degree in business administration and economics from the Faculdade Santana. As one of our officers, he is responsible for the IT operationaloperations and services area. Mr. Nobrega has been engaged in the bank business for 2526 years. He joined Banco Real in 1982 and has worked for Santander Brasil ever since. Marco André Ferreira da Silva.Silva. Mr. Ferreira is Brazilian and was born on December 3, 1965. He holds a bachelor’s degree in Psychology from the Organização Santamarense de Ensino de São Paulo, holds aan MBA degree from the School of Economics and Business Administration at Universidade de São Paulo—USP, a master’s degree in Business Administration from the Pontifícia Universidade Católica de São Paulo and is pursuing a doctorate degree in Business Administration from the Instituto Presbiteriano Mackenzie São Paulo. As an officer, he is responsible for managing the areas of Education and Organizational Development of Banco Santander Brasil. He has been working in the financial markets for 2021 years. He served as a Senior Superintendent of Human Resources of Banco Real, which he joined in 1991 as Senior Consultant of Human Resources with professional experience in São Paulo, Chicago and Amsterdam, serving the areas of Education and Leadership Development. Marcos Adriano Ferreira Zoni. Mr. Zoni is Brazilian and was born on December 10, 1964. He holds a degree in business and public administration from Unisul - the Unisul—Universidade do Sul de Santa Catarina.Catarina and business administration from the Universidade Federal Fluminense. He also holds an international MBA (AMP) from IESE (Navarra University). As one of our officers, he is responsible for the shareholdersclients and quality area. Mr. Zoni has been engaged in the financial markets for 2025 years. He was aan intern, analyst and financial manager at Banco Nacional S.A. from 19901987 to 1994, controlling manager1995, Chief Financial Officer of the technology area at Unibanco - Unibanco—União de Bancos Brasileiros S.A. from 1995 to 1997 and control manager of the technology directionCost and Financial Manager at Banco RealABN AMRO from 1997 to 2008. Maria Eugênia Andrade Lopez Santos. Ms. Santos is Brazilian and Spanish and was born on January 23, 1966. She holds a degree in economics from the Universidade da Bahia and a postgraduate degree from Fundação Getúlio Vargas. As one of our officers, she is responsible for relationships with multinational clients in Brazil.private banking. Ms. Santos has been engaged in the corporate area for 1819 years. She is also an executive officer of Santander Advisory Services S.A. Mauro Siequeroli.Siequeroli. Mr. Siequeroli is Brazilian and was born on March 24, 1957. He holds a degree in business administration from Fundação Getúlio Vargas and a postgraduate degree in industrial resources and general administration also from Fundação Getúlio Vargas. As one of our officers, he is responsible for services and operations.corporate resources area. Mr. Siequeroli has been engaged in the back-officeback office for 1920 years. He was an operations officer for Banco Crefisul S.A. from 1985 through 1994, a products officer for Banco BMC from 1995 to 1998, the operations officer for Banco Bandeirantes S.A. from 1999 to 2000 and joined Santander Brasil in 2001. Currently, he is also an executive officer of Santander S.A. - —Serviços Técnicos, Administrativos e de Corretagem de Seguros and Real Corretora de Seguros S.A. He is also a board member of Banesprev S.A.Seguros. Miguel Angel Albero Ocerin.Ocerin. Mr. Albero is Spanish and was born on February 23, 1960. He graduated in Economics Sciences and Business Administration and holds a master’s degree in Financial Markets from Centro Internacional Carlos V (UAM). During his career he has developed management activities in the management of financial resources and human capital in sectors of financial intermediation, asset management, product structuring, business development, development of financial markets and customer relationships. Most of his professional activity has been developed at Grupo CM Capítal Markets (ABN AMRO Group), where he held different executive positions in the companies of the group. He has been part of Santander Group since 2007, responsible for the area of Capital Structuring (GB&M), which includes the promotion of renewable energy projects, energy efficiency and carbon financing. As one of our officers he is currently responsible for equity treasury and equity derivatives area, as well as brokerage area. Nilo Sérgio Silveira Carvalho.Carvalho. Mr. Carvalho is Brazilian and was born on February 26, 1961. He holds a degree in business administration from UniSantos - the UniSantos—Universidade Católica de Santos and aan MBA from Fundação Getúlio Vargas and Moroco Associados. As one of our officers, he is responsible for the retail individual customer area. Mr. Carvalho has been engaged in the financial markets for 2526 years. He was a products officer for Unibanco - Unibanco—União de Bancos Brasileiros S.A. from 1994 to 1998, retail and technology officer for Santander Brasil from 1998 to 2004, executive officer of Medial Saúde S.A. from 2004 to 2008 and our retail officer since 2008. Currently, he is also an executive officer of Santander Administradora de Consórcios Ltda., Santander Brasil Seguros S.A., Santander Seguros S.A. and Santander Capitalização S.A., and officer of Santander Brasil Administradora de Consórcio S.A. Ramon Camino PuigcarbóPaulo de Tarso Marques Rosa. Mr. CaminoPaulo de Tarso is SpanishBrazilian and was born on February 18, 1962.September 16, 1972. He graduatedholds a degree in Business Administration atStatistics from the Universidade de São Paulo, a Master’s degree in Statistics from the Universidade de São Paulo, an MBA from Adolfo Ibañez School of Economics, at Complutense de Madrid.Management (EUA), and an from Deusto Business School (Spain). As anexecutive officer he is responsible for the business strategy of legal entities of Retail.credibility area. He has been workingengaged in the financial markets for 2214 years. He served as an expert consultant for the banking businesscredit risk manager of legal entityBanco Itaú from 20041997 to 2010, primarily working in the financial markets2000. From 2000 to 2005 he was retail credit risk superintendent of Brazil and Mexico. Previously he developed his professional career at Santander Group, which he joined in 1999, and in the Tokyo branch of Banesto, where he held various positions.Banco Real. He also served as an Executive Vice-president of Risks at Banco Santanderexecutive superintendent in 2003. At Banesto, a bank of Santander Group in Spain, he served as a Deputy General Officer, responsible for the business of legal entity of Retail from 1998 to 2000, Deputy General Officer of Retail Risks from 1996 to 1998 and Officer of Risksrelationship marketing of Banco Shaw (Banesto Group)Real from 2005 to 2008 and as individuals’ credibility executive superintendent in ArgentinaSantander Brasil from 19932008 to 1995.2011.
Ramón Sanchez Díez.ez. Mr. Díez is Spanish and was born on October 29, 1968. He holds a degree in economics from the Universidad AutonomaAutónoma de Madrid. As one of our officers, he is responsible for our retail banking operations.relationship channels. He served as a financial analyst for Banco Santander’s New York branch from 1992 to 1997 and as an officer for strategy and analysis for Latin American banks at Banco Santander S.A.Brasil from 1997 to 2003. He was an officer for strategy and investor relations for Banco Santander Brasil from 2004 to 2006. Reginaldo Antonio Ribeiro.Ribeiro. Mr. Ribeiro is Brazilian and was born on May 19, 1969. He holds a degree in economics from the Universidade Estadual de Campinas, an accounting degree from the Universidade Paulista and aan MBA from the FIPECAFI (Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras), Universidade de São Paulo. As one of our officers, he is responsible for tax issues, tax planning strategies and corporate restructuring processes. Mr. Ribeiro has been engaged in the tax area for 1822 years. He served as a manager for Arthur Andersen Consultoria Fiscal Financeira S/C Ltda. from 1990 to 2001. He was also a member of the fiscal counsel of Companhia Energética de São Paulo and AES TIETÊ from 2002 to 2006. He is an executive officersuperintendent of Santander S.A. - —Serviços Técnicos, Administrativos e de Corretagem de Seguros, Real Corretorachief executive officer of REB Empreendimentos e Administradora de SegurosBens S.A. and, executive officer of Aquanima Brasil Ltda. Roberto Correa Barbuti. Mr. Barbuti is Brazilian and was born on August 26, 1968. He holds a degree in business administration from Fundação Getulio Vargas, a law degree from Universidade de São Paulo and a MBA from Insead. As one of our officers, he is responsible for the equities division, which encompasses equity capital markets, cash equities, exchange traded derivatives, equity derivatives and custody. Mr. Barbuti has been working with Banco Santander since February 2007, initially as the Head of Corporate Finance. He worked for ten years in investment banking with the UBS Group (1997-2007), private equity with International Venture Partners (1995-97), M&A with Banco Patrimônio (1992-94) and strategic business consultancy with McKinsey (1990-92). Currently, he is also an executive officer of Banco Bandepe S.A.; and officer of Companhia Real de Valores, Distribuidora de TítulosSantander Participações S.A., Santander Brasil Advisory Services S.A., and Norchem Participações e Valores Mobiliários, and Real CHPConsultoria S.A.
Roberto de Oliveira Campos Neto.Neto. Mr. Neto is Brazilian and was born on June 28, 1969. He holds a bachelor’s degree in Economics and post graduate in Economics with specialization in Finance from the University of California, Los Angeles (UCLA) and holds a master’s degree in Applied Mathematics from Caltech. He worked at Banco Bozano Simonsen from 1996 to 1999, where he served as Operator of Derivatives of Interest and Foreign Exchange (1996), Operator of External Debt (1997), Operator of the area of Stock Exchange (1998) and Head of Area of International Fixed Income (1999). From 2000 to 2003, he worked as Head of International Area and Fixed Income at Banco Santander.Santander Brasil. In 2006 he served as Portfolio Manager of Claritas. He joined in 2004 to serve as Operator. Currently, he is responsible for the Treasury and areas of proprietary trading, local and international market making funding, correspondent banking, quantitative area and business development.area. Ronaldo Yassuyuki Morimoto.Morimoto. Mr. YassuyukiMorimoto is Brazilian and was born on May 5, 1977. He holds a bachelor degree in Economics from School of Economics, atfrom the Universidade de São Paulo. He has been responsible for the area of ALM (Assets and Liabilities Management) / Financial Management and member of the administration of asset and liability committee (ALCO Local and Global Brazil) since 2006. He has been working in the financial markets for 1213 years. He joined Banco Santander Brasil in 2001, working in different areas such as Governments & Institutions, Products, Finances,Finance & Accounting, Basel II Project II and Wholesale Comptroller.Financial Control. He began his career at Banco América do Sul in the area of credit risk in 1998, he worked at Citibank S.A. from 1998 to 2000 and AT&T Latin America from 2000 to 2001. He is currently a member of the Supervisory Committee of the Credit Guarantee Fund (FGC).FGC. Sérgio Augusto Costantini. Mr. Costantini is Brazilian, and holds a bachelor’s degree in electrical engineering from the School of Engineering at Maua, a master’s degree in business administration and an MBA E-Business from Fundação Getúlio Vargas. He has 20 years of experience in finance. Mr. Costantini worked from 1992 to 1995 at Banco Itamarati in the corporate banking area. He also worked at BBVA Banco Excel Economico y Brazil in the corporate banking area and in capital markets between 1995 and 1999. He began his career at Banco Real in March 2003 as products superintendent and later as executive director in information technology until January 2009, after which he became COO of global transactional banking Santander Global Group, where he was responsible for information technology, operations, organization and processes area. As one of our officers, he is currently responsible for information technology and global operations and business. Sérgio Gonçalves.alves. Mr. Gonçalves is Brazilian and was born on August 7, 1956. He holds a degree in economics from Fundação Armando Álvares Penteado and a master’s in executive business administration from the Universidade de São Paulo. As one of our officers, he is responsible for the government and institutions area. Mr. Gonçalves has been engaged in the Brazilian financial markets for 2930 years. He was an officer of Banco Crefisul from 1987 to 1994 and product officer of Nossa Caixa from 1995 to 2000. He was also an officer of Banco do Estado de São Paulo S.A. - —Banespa from 2001 to 2004. Thomas Gregor Ilg. Mr. Thomas Gregor Ilg is Brazilian, and was born on September 12, 1968. He holds a bachelor’s degree in agricultural engineering from the Universidade Estadual de Campinas—UNICAMP, and took a post-graduate course in business administration at the Fundação Getúlio Vargas (CEAG). He has been engaged in the financial markets for over 21 years, including 12 years with Banco Santander and 10 years with The First National Bank of Boston, where he first joined as trainee serving the Risks and Business areas. At Banco Santander he was responsible for the corporate business area, and then he assumed the area of treasury for corporate, business, and private customers. Currently he is responsible for the corporate risk area of Santander Brasil. Ulisses Gomes Guimaraes.Guimarães. Mr. GomesGuimarães is Brazilian and was born on March 14, 1970.1971. He holds a bachelor’s degree in Mechanical Engineering in Aeronautics from ITA - the ITA—Aeronautical Institute of Technology and holds a master’s degree (Executive MBA in Finance) from IBMEC - the IBMEC—Instituto Brasileiro de Mercado de Capitais - Capitais—São Paulo. As one of our officers, he is responsible for compensation, MIS and budget. He has been working in the financial markets for 1618 years. He worked at Citibank from 1994 to 1997 as risk managera Risk Manager for the areas of treasuryTreasury and trust.Trust. He joined Banco RealABN AMRO in 1997 and has been part of Santander Group since then. He has held the positions of Coordinatorcoordinator of Financial Control, Coordinatorfinancial control, coordinator of GAP & Liquidity, Financial Control Manager, Managerliquidity, financial control manager, manager of Support to Strategic Decisionsupport of the strategic decision Brazil area, Executive Superintendentexecutive superintendent of Retailretail area, Executive Superintendentexecutive superintendent of Supportthe support to Strategic Decisionstrategic decision Brazil area, Executive Superintendentexecutive superintendent of Supportsupport to Strategic Decisionstrategic decision in Latin America area, Executive Superintendentexecutive superintendent of Supportsupport to Managementmanagement and Project Developmentproject development of Finance areas, and since 2009 he serves as Senior Executive Superintendent of Human Resources area, responsible for the Compensation, MIS and Budget.finance areas. Wilson Luiz Matar.Matar. Mr. Matar is Brazilian and was born on November 28, 1958. He holds a degree in civil engineering from the Polytechnic School of USP and Business Administrator graduate and post-graduate degrees from FEA - the FEA—Faculdade de Economia e Administração—USP. He has 2930 years of banking experience serving in large Brazilian banks (Itaú and Unibanco) and for 1112 years at Grupo Santander.with the Santander Group. He worked at Santander Group for 7seven years in the Controller Area,controller area, responsible for management information and budget, and for fourfive years he has been responsible for Risksrisks of Solvencysolvency in the Executive Vice Presidencyexecutive vice presidency of Creditcredit and Market Risks,market risks, where he is charged with control and monitoring of the Group'sour credit portfolios. HeAs one of our officers, he is also President of the Audit Committee of Banesprev.currently responsible for risk solvency. Compensation of Directors, Executive Officers and Members of Audit Committee Our shareholders establish the maximum annual aggregate compensation of our directors and officers at the annual shareholders’ meeting. Compensation of the members of our audit committee is established by our board of directors. Under Brazilian law, we are required to disclose the highest/lowest/highest, lowest and average compensation of our directors, members of the audit committee and officers without indicating any individual name. However, members of the Brazilian Institute of Finance Executives (Instituto(Instituto Brasileiro de Executivos de Finanças – IBEF)IBEF), of which we are part, were granted an injunction on March 2, 2010 allowing us not to disclose this information. For eachShareholders at the general shareholders meeting held on April 26, 2011 set the 2011 total annual compensation for our directors and executive officers at a total up to R$284 million, which included the value of 2007stock and 2008,option compensation. The approved amount also includes amounts for pension reserves and pension plans. The meeting of the board of directors held on March 24, 2011 approved compensation for the audit committee in the amount of R$3.9 million for a twelve-month period beginning March 24, 2011. Due to the increasing number of executives,
according to market practices and individual performance in 2011, members of our board of directors and executive officers were paid in the aggregatereceived a total of approximately R$55.9238 million for their services. For each of 2007 and 2008, our audit committeeIn 2011, members received the maximum approved compensation of R$1.5 million. For 2009, the approved maximum aggregate compensation was R$1.7 million for all of our audit committee members andreceived a total of approximately R$223.8 million for all of our directors and executive officers. The value approved also includes amounts set aside for pension and retirement benefits. The increase in total compensation approved for our directors and statutory officers in 2009 to R$223.8 million from total amounts paid in 2008 of R$55.9 million was due primarily to the significant increase in number of statutory officers as a result of the integration and subsequent merger of Banco Real into Banco Santander. Actual compensation in 2009 was R$168.5 million, 25% below maximum approved compensation.2.6 million. For 2010, shareholders at the general shareholders meeting held on April 27, 2010 established the annual aggregate compensation for our directors and executive officers in the total amount of up to R$246.5 million. The board of directors at a meeting held on March 22, 2010 approved the compensation for the audit committee in the total amount of up to R$3.4 million for the period of twelve months beginning March 22, 2010, which includes the value of share and option compensation. The values approved also include amounts set aside for pension and retirement benefits. The compensation due to the members of our board of directors, board of executive officers and audit committee is paid monthly. In addition, the maximum aggregate compensation for the members of the board of directors and the board of executive officers includes amounts paid pursuant to our bonus program. The criteria for granting and paying bonus compensation vary according to the activities performed by the different areas and, therefore, payment of the bonus compensation may vary depending on the department and activities performed by each member. Our directors and officers may participate in the same pension plan that is available to all of our employees.
As approved by our board of directors at the meeting held on December 23, 2009, we indemnify our directors and executive officers and members of the Audit Committee from claims arising during the time they are our directors or officers, exclusively related to court or administrative costs and attorney’sattorneys’ fees, except in cases of bad faith, gross negligence, willful misconduct or mismanagement by our directors or executive officers. This indemnity was also granted to the members of the audit committee and the appointment and remuneration committee. Share Compensation PlansPlan Overview
SantanderThe Company has twothree programs for long-term compensation plans linkedcompensation: the Deferral Program, the Local Long-Term Incentive Program (SOP, PSP and SOP 2014) and the Global Long-Term Incentive Program (PI09, PI10/PI11/PI12 / PI13 and Pl14).
Executive officers and executives in key positions are eligible to participate in these plans. Plans last three years, promoting a commitment to the market pricelong-term results of the shares – the Global Program and the Local Program. Our officers and other executives are eligible for these plans.company. Members of the board of directors are eligible forcan participate in these plans only if they are alsoexecutive officers. In the Deferral Program we have two plans: one for each fiscal year 2010 and fiscal year 2011, in which statutory officers, officers in positions of management and other employees eligible for the program will receive part of the variable remuneration of the year in deferred time. In the Local Long-Term Incentive Program, we have two Plans for different beneficiaries, the Stock Option Plan (“SOP”) and the Performance Share Plan (“PSP”). The SOP is an option plan to purchase units of the Company for the top management, and the PSP is an incentive plan whose object is the payment of cash resources for executives from all areas of the Bank. In the Global Program, we have six plans, three of which have already been executed. For each cycle, a maximum number of shares of Santander is determined in Spain according to the achievement of performance indicators set out in the plan regulation. Deferral Program—Share-Based Compensation—2010 At the Santander Spain ordinary general shareholders meeting held on June 11, 2010, Santander Spain’s shareholders approved an executive compensation plan based on the share performance of the Santander Group companies, including Santander Brasil. This new policy, with the adjustments applicable to Santander Brasil was approved by our board of directors on February 2, 2011. The plan’s objectives are: (1) to align the compensation program with the principles of the Financial Stability Board (“FSB”) agreed upon at the G20; (2) to align Santander Brasil’s interests with those of the plan’s participants (to achieve the sustainable and recurring growth and profitability of Santander Brasil’s businesses and to recognize the participants’ contributions); (3) to allow the retention of participants; and (4) to improve Santander Brasil’s performance and protect the interests of shareholders via a long-term commitment. The plan is intended to pay cash bonuses as variable compensation based on certain performance targets. The total amount of shares to which the cash compensation will be linked will be settled in three separate parcels, allocated equally among the three years following the base year of the compensation plan. The plan will not lead to a dilution of Santander Brasil’s capital stock, as participants will not be shareholders of the Bank, nor will they be entitled to any other rights or privileges granted to such shareholders. Deferral Program—Share-Based Compensation—2011 On December 21, 2011, our board of directors approved a new executive and employee compensation plan based on the share performance of Santander Brazil. This new policy, was approved at the extraordinary shareholders’ meeting held on February 7, 2012. The plan’s objectives are: (i) to align the compensation program with the principles of the FSB agreed upon at the G20; (ii) to align Santander Brasil’s interests with those of the plan’s participants (to achieve the sustainable and recurring growth and profitability of Santander Brasil’s businesses and to recognize the participants’ contributions); (iii) to allow the retention of participants; and (iv) to improve Santander Brasil’s performance and protect the interests of shareholders via a long-term commitment. The plan is part of the current regulatory environment applicable to the company, especially in light of CMN Resolution No. 3,921 of November 25, 2010 (“CMN Resolution No. 3,921/10”), pursuant to which financial institutions must comply with certain requirements for deferred payment of variable compensation to executives, taking into account the financial basis for sustainable long-term adjustments in future payments due to the risks assumed and fluctuations in cost of capital. This plan is divided among three programs: | · | Supervised Collective. The program is for members of our executive committee and other executives who manage significant risks for the Bank and are responsible for internal control. Unlike the plans described above, for which compensation is paid in cash based on the market performance of our shares, compensation under this plan is paid 50% in cash, indexed to 100% of the CDI, and 50% in shares. |
| · | Collective Unsupervised – Statutory Directors. Eligible officers for this program include statutory officers that are not participants in the Supervised Collective program. Unlike the plans described above, for which compensation is paid in cash based on the market performance of our shares, compensation under this plan is paid 100% in units of the Company (trading symbol “SANB11”). |
| · | Collective Unsupervised – Employees. Individuals eligible for this program include manager employees and certain other employees of the organization that will be benefited by this compensation plan. Deferred compensation will be 100% in cash, indexed to 120% of the CDI. |
On December 31, 2011, there were “pro rata” expenses of R$56 million regarding the provision for bonuses under this plan. In 2011, we recorded a gain under personnel expenses due to the fluctuation of the market value of the share plan in the amount of R$14 million. Local Long-Term Incentive Program Plans approved in 2010 Shareholders at the extraordinary shareholders’ meeting held on February 3, 2010 approved the Share-Based Compensation Program - Program—Units of Banco Santander Brasil (Local Program), consisting of two independent plans: Stock Option Plan for Share Deposit Certificates - – Units (SOP): This is a three-year Stock Option Planstock option plan by which new shares are issued. The objective is to retain executive officers’ commitment to long-term results. The period for exercising the options is two years longer than the three-year vesting period. The volume equivalent to one third of the units resulting from the exercise of options cannot be sold by the participant during a period of one year from the exercise date. Pursuant to our Stock Option Plan for Share Deposit Certificates – Units (SOP), we issued options to certain directors and executive officers on February 3, 2010. The options that were issued have an option price of R$23.50 per unit, and may be exercised from June 30, 2012 to June 30, 2014. On December 31, 2011, there were outstanding options corresponding to a maximum of 12,663,338 units under this plan. Long-Term Incentive Plan - – Investment in Share Deposit Certificates - – Units (PSP): This is a compensation plan based on shares and settled in cash, launched in three-year cycles. Its objective is to retain the executives’ commitment to long-term results. A minimum amount, corresponding to 50% of the compensation settled in cash, must be used by the participant to acquire units,Units, which cannot be sold during a period of one year from the exercise date. There is no limit on the percentage of total compensation that may be included in this particular compensation plan. On December 31, 2011, there were 2,553,162 outstanding units under this plan. We did not chargePlan Approved in 2011 – Incentive Plan Long Term – SOP 2014
Shareholders, at the Extraordinary Shareholders’ Meeting held on October 25, 2011, approved the grant of the Incentive Plan – Long-Term Investment in Certificates of Deposit Shares SOP 2014 to income any expenses relatedcertain executive officers, managerial level employees and companies under its control. This is a three-year option plan, with an exercise period between June 30, 2014 and June 30, 2016. The number of units exercisable by the participants will be determined according to the Local Programresult of certain targets based on company performance, including Total Shareholder Return (“TSR”) and the amount of units that may be exercised may be reduced if the goals of reducing Return on Risk-Adjusted Capital (“RORAC”) are not achieved based on a comparison between realized and budgeted performance in each year, as determined by the board of directors. Plan participants must remain with the company during the term of the plan to be eligible to exercise their options on their corresponding units. The plan will be paid in units based on the difference between the closing price on the exercise date and the strike price established in the year endedplan. The options issued under the plan have an option price of R$14.31 per unit. On December 31, 2009.2011, there were outstanding options under the plan corresponded to a maximum of 14,450,000 units. Fair Value and Performance Parameters of Plans For the accounting of the local program’s plans, simulations were performed by an independent consultant, using the Monte Carlo methodology, using the performance parameters used to calculate the shares to be granted. These parameters are associated with their respective probabilities of occurrence, which are updated at the close of each period. TSR Ranking | | SOP Plan, PI12 – PSP Plan and PI13 – PSP(1) | | | | | | | (% of Shares exercisable) | | 1st | | | 50 | % | | | 100 | % | 2nd | | | 35 | % | | | 75 | % | 3rd | | | 25 | % | | | 50 | % | 4th | | | 0 | % | | | 25 | % |
(1) | Associated with the TSR, the remaining 50% of the shares subject to exercise relate to the achievement of net income versus budgeted profit. |
(2) | The percentage of shares determined at the position of TSR is subject to a penalty according to the implementation of the RORAC. |
For the measurement of fair value of options, we used the following assumptions: Method of Assessment | | | | | | | Volatility | | | 57.37 | % | | | 57.37 | % | Likelihood of Occurrence | | | 37.58 | % | | | 60.93 | % | Risk-Free Rate | | | 10.50 | % | | | 11.18 | % |
(1) | Associated with the TSR, the remaining 50% of the shares subject to exercise relate to the achievement of net income versus budgeted profit. |
Method of Assessment | | | | | | | Volatility | | | 40.00 | % | | | 57.37 | % | Dividend Rate | | | 3.00 | % | | | 5.43 | % | Period of “Vesting” | | 2 years | | | 2,72 years | | Moment “Medium” Exercise | | 5 years | | | 3,72 years | | Risk-Free Rate | | | 10.50 | % | | | 11.18 | % | Likelihood of Occurrence | | | 53.43 | % | | | 60.93 | % | Fair Value for Stock | | R$ | 5.81 | | | R$ | 7.19 | |
The average share price of our units at December 31, 2011 and 2010 was R$14.96 and R$21.90, respectively. As of December 31, 2011, there were pro rata daily expenses of R$13 million, with respect to the SOP plan and R$16 million with respect to the PSP plan. During the period, we recorded a gain under personnel expenses due to fluctuations in the market value of the PSP share plan in the amount of R$6 million on a consolidated basis. Global Long-Term Incentive Program (i) Plan I-06
In 2004, Santander Spain created a long-term incentive plan for its executives (I06), linked to the attainment of two goals related to the controlling stockholder’s shares: appreciation of share price and growth of earnings per share. The conditions to receive the income were met and the variable compensation was paid from January 15, 2008 to January 15, 2009, at the price of €9.09 per stock option.
(ii) Long-term incentive policy
The board of directors of Santander Spain, at a meeting held on March 26, 2008, approved the long-term incentive policy intended for the executives of Banco Santander Spain and the Santander Group (except Banesto). This policy provides for compensation tied to the performance of the stock of Santander Spain, as established inat the Annual Stockholders’ Meeting. The plans shaping the aforementioned incentive policy are as follows: (i) Performance Share Plan, and (ii) Selective Delivery Share Plan.
(i) Performance share planannual shareholders’ meeting.
This multiannual incentive plan is payable in shares of Santander Spain. The beneficiaries of the plan are the executive directorsofficers and other members of senior management, together with any other Bank executives determined by the board of directors or, when delegated by it, the executive committee. ThisThe plan involves three-yearthree years cycles for the delivery of shares to the beneficiaries. Accordingly,beneficiaries, so that each cycle begins in a year and, from 2009, ends the next year. The goal is to establish a proper sequence between the end of the incentive program, linked to the previous I-06, and successive cycles of the plan. Thus, the first two cycles began in July 2007 with a duration of two years for the first cycle lasts for two years (Plan I09)(PI09) and the other cycles last for approximatelyhaving average duration of three years each.(PI10/PI11/PI12 / Pl13 and PI14).
For each cycle, a maximum number of shares is established for each beneficiary who remains in the Bank’s employ for the duration of the plan. The targets, which, if met, will determine the number of shares to be delivered, are defined by comparing Santander Spain’s performance with that of a benchmark group of financial institutions and are linked to two parameters, namely Total Shareholder Return (TSR)TSR and growth in Earningsearnings per Share (EPS)share (“EPS”). The ultimate number of shares to be delivered will be determined in each of the cycles by the degree of achievement of the targets on the third anniversary of commencement of each cycle (with the exception of the first cycle, for which the second anniversary will be considered), and the shares will be delivered within a maximum period of seven months from the end of the cycle. At the end of each cycle, the TSR and the EPS growth will be calculated for Santander Spain and each of the benchmark entities and the results will be ranked from first to last. Each of the two criteria (TSR and EPS growth) will be weighted at 50% in the calculation of the percentage of shares to be delivered, based on the following scale and in accordance with Santander Spain relative position among the group of benchmark financial institutions:among. Santander Spain’s Place in the TSR Ranking | | Percentage of Maximum Shares to Be Delivered | | Santander Spain’s Place in the EPS Growth Ranking | | Percentage of Maximum Shares to Be Delivered | 1st to 5th | | 100% | | 1st to 5th | | 100% | 6th | | 82% | | 6th | | 82% | 7th | | 65.0% | | 7th | | 65.0% | 8th | | 47.5% | | 8th | | 47.5% | 9th | | 30.0% | | 9th | | 30.0% | 10th and below | | 0% | | 10th and below | | 0% |
Santander Spain makes certain adjustments to the ranking criteria and award criteria if any benchmark group entity is acquired by another company and its shares cease trading or it ceases to exist. Santander Spain’s Place in the TSR Ranking | | Percentage of Maximum Shares to Be Delivered | | Santander Spain’s Place in the EPS Growth Ranking | | Percentage of Maximum Shares to Be Delivered | 1º to 6º | | 50% | | 1º to 6º | | 50% | 7º | | 43% | | 7º | | 43% | 8º | | 36% | | 8º | | 36% | 9º | | 29% | | 9º | | 29% | 10º | | 22% | | 10º | | 22% | 11º | | 15% | | 11º | | 15% | 12th and below | | 0% | | 12th and below | | 0% |
Any benchmark group entity that is acquired by another company, whose shares cease trading or that ceases to exist will be excluded from the benchmark group. In an event of this or any similar nature, the comparison with the benchmark group will be performed in such a way that, for each of the measures considered (TSR and EPS growth) the maximum percentage of shares will be delivered if Santander Spain ranks within the first quartile (including the 25th percentile) of the benchmark group; no shares will be delivered if Santander Spain ranks below the median (50th percentile); 30% of the maximum amount of shares will be delivered if Santander Spain is placed at the median (50th percentile). The linear interpolation method will be used for calculating the corresponding percentage for positions between the median and the first quartile (25th percentile) (neither included). (ii) Selective delivery shareBeginning with plan
This plan envisions Pl12, the selective deliverynumber of actions to be awarded are related to only one performance parameter, TSR which is fully weighted in the percentage of shares in special circumstances relating to the hiring or retention of employees. All employees and executives, except for the Bank’s executive directors, are eligible for this plan, provided that they have completed a minimum of three to four years of service at the Bank. Each participant will be entitled to receive the shares upon completion of the minimum period of service. No shares were delivered pursuant to this plan in 2009.
Due to the share compensation plans, global program daily pro rata expenses were recorded in the amount of R$19.9 million in 2009 and R$19.6 million in 2008, referring to initial costs in respective granting dates for each cycle above mentioned.distributed.
Fair value The fair value of each option granted is calculated at the grant date. In order to value Plan I06, two valuation reports were performed by two multinational investment banks. These banks used the Black-Scholes equity option pricing model considering the following parameters: the expected life of the options, interest rates, volatility, exercise price, market price and dividends of Santander Spain shares and the shares of comparable banks. The fair value of the options granted was determined by management based on the average value resulting from the two valuations.
With the exception of the share option plans which include terms relating to market conditions, the transfer terms included in the vesting conditions are not taken into account to estimate fair value. The transfer terms that are not based on market conditions are taken into account by adjusting the number of shares or share options included in the measurement of the service cost of the employee so that, ultimately the amount recognized in the consolidated income statement is based on the number of shares or share options transferred. When the transfer terms are related to market conditions, the charge for the services received is recognized regardless of whether the market conditions for the transfer are met, although the non-market transfer terms must be satisfied. The share price volatility is based on the implicit volatility scale for Santander Spain shares at the exercise prices and the duration corresponding to most of the sensitivities.Value
The fair value of the Performance Share Plans was calculated as follows: - | · | It was assumed that the beneficiaries will not leaveterminate the Bank’s employemployment with the bank during the term of each plan. |
- | · | The fair value of the 50% linked to Santander Spain’s relative TSR position was calculated, on the grant date, on the basis of the report provided by external valuators whose assessment was carried out using a Monte Carlo valuation model, performing 10 thousand simulations to determine the TSR of each of the companies in the benchmark group, taking into account the variables set forth below. The results (each of which represents the delivery of a number of shares) are classified in decreasing order by calculating the weighted average and discounting the amount at the risk-free interest rate. |
| | | | | | | | | | | | | | | | Expected volatility(1) | | | 15.67 | % | | | 19.31 | % | | | 42.36 | % | | | 49.64 | % | | | 51.35 | % | Annual dividend yield based on last few years | | | 3.24 | % | | | 3.47 | % | | | 4.88 | % | | | 6.33 | % | | | 6.06 | % | Risk-free interest rate (Treasury Bond yield – zero coupon) over the period of the plan | | | 4.50 | % | | | 4.84 | % | | | 2.04 | % | | | 3.33 | % | | | 4.07 | % |
(1) | Calculated on the basis of historical volatility over the corresponding period (two or three years). |
using a Monte Carlo valuation model, performing 10,000 simulations to determine the TSR of each of the companies in the Benchmark Group, taking into account the variables set forth below. The results (each of which represents the delivery of a number of shares) are classified in decreasing order by calculating the weighted average and discounting the amount at the risk-free interest rate.
| | PI09 | | PI10 | | PI11 | | PI12 | | | | | | | | | | Expected volatility (1) | | 16.25% | | 15.67% | | 19.31% | | 42.36% | Annual dividend yield based on last few years | | 3.23% | | 3.24% | | 3.47% | | 4.88% | Risk-free interest rate (Treasury Bond yield –zero coupon) over the period of the plan | | 4.47% | | 4.50% | | 4.84% | | 2.04% |
______________
(1) Calculated on the basis of historical volatility over the corresponding period (two or three years)
The application of the simulation model results in percentage values of 42.7% for PI09, 42.3% for PI10, 44.9% for PI11 and 52.42%52.4% for PI12, which are applied to 50% of the value of the options granted, in order to determine the cost per books of the TSR-based portion of the incentive. Since this valuation refers to a market condition, it cannot be adjusted after the grant date. In view2011, there were pro rata daily expenses of R$10.2 million for costs on the respective dates of the high correlation between TSR and EPS, it was considered feasible to extrapolate that (in a high percentage of cases) the TSR value is also valid for EPS. Therefore, it was initially determined that the fair valuecycles of the portionglobal program. Expenses related to the plans are recognized against other liabilities – provision for share-based payments. Contract termination Employment contracts have an undefined period. The termination of the plans linkedemployment relationship for non-fulfillment of obligations or voluntarily does not entitle executives to Santander Spain’s relative EPS position, (i.e., of the remaining 50% of the options granted) was the same as that of the 50% corresponding to the TSR. Since this valuation refers to a non-market condition, it is reviewed and adjusted on a yearly basis.any financial compensation. Our shareholders elect members of our board of directors at the annual general shareholders meeting for two-year terms (members may be reelected). The board of directors appoints our officers for two-year terms, whowhich can also be reelected. The term of office of the current members of the board of directors and officers is described in Section A of this Item 6. Duties of the Board of Directors In line with the fiduciary duties of directors and officers provided in Articles 153, 154, 155 and 245 of the Corporate Law enacted in Brazil,Brazilian corporate law, the members of the board of directors shall serve us and the companies of the Group with loyalty, keep our business confidential along with any information that has not been disclosed to the market to which they are privy due to their position, ensure that any subordinates and third parties maintain any such information confidential and enforce the provisions of our code of ethics. In order to improve the performance of its duties, the board of directors may either create or elect working groups and/or committees with special purposes to act as advisory bodies without resolution powers. These working groups may be comprised of members appointed by theour board of directors and/or any other persons directly or indirectly linked to us. On March 22, 2010 our board of directors approved the creation of the appointment and compensation committee (comitê de nomeação e remuneração), an advisory body of our board of directors, without decision-making powers, whose purpose is to propose to our board of directors recommendations regarding appointment and compensation matters. The appointment and compensation committee (1) shall be comprised of no less than three and no more than five members, which includes a coordinator and an advisory secretary, (2) shall have internal regulations, which shall govern, among other matters, the responsibility of the committee, the operational rules and the holding of meetings, which shall be held semi-annually, and (3) shall have, among others, the following responsibilities: (a) identify, analyze, and propose candidates for the board of directors (whether or not independent) and for the position of our CEO; (b) discuss and issue recommendations about succession plans of our managers; (c) propose criteria for performance evaluation of the managers; and (d) review and discuss the policies and guidelines of manager compensation.
On March 19, 2010, our board of directors approved the election of Mr. Marcial Angel Portela Alvarez, Ms. Viviane Senna Lalli, and Mr. Fernando Carneiro as members of our appointment and compensation committee, for a term which will expire at our ordinary shareholders meeting to be held in 2011. Mr. Marcial Angel Portela Alvarez has been designated as the committee coordinator.
The primary responsibilities of our board of directors are: Definition of policies and strategies.strategies. The board of directors plays a vital role in the definition of the organization’s business strategies in Brazil. As set out in our by-laws and in applicable legislation, the main function of the board of directors is to provide guidance for our business and operations, which should be observed by the board of executive officers while conducting their activities. The board of directors is also responsible for the approval of policies for disclosing information to the market and trading with our securities. Approval of Financial Statementsfinancial statements and the Allocationallocation of Net Profit.net profit. As set out in our by-laws and in applicable legislation, the board of directors is responsible for the approval and review of the annual budget, the capital budget and the business plan; for issuing an opinion on the annual, six-monthly and quarterly financial statements, proposing the allocation of net profit from the financial year and determining the distribution of dividends and/or interest on equity. Approval of Corporate Actions.corporate actions. The board of directors should issue an opinion on any corporate actions involving us, and authorize the sale of personal and real property that is part of Property & Equipment, providing collateral to any third parties, the acquisition or sale of investments in equity interest with third parties for any amounts that exceed 5% of the net equity stated on the last balance sheet approved by the general shareholders’ meeting, as well as authorize any equity associations or strategic partnerships with third parties. Changes to the Capital Structurecapital structure and the By-laws.by-laws. The board of directors is responsible for proposing increases or reductions in our share capital, the issue of bonuses, subscription, grouping, share spin-off, the trading of shares to be removed or added to treasury and any changes to our by-laws. Appointment of Directorsdirectors and Compensation Policies.compensation policies. The board of directors is responsible for appointing and removing members of the board of executive officers and determining their compensation, benefits and other incentives, subject to the global limit of compensation approved by the general shareholders’ meeting, including the determination of profit sharing for ours and our subsidiary companies officers and employees. It is also the responsibility of the board of directors to approve the assignment for stock option to officers, employees or individuals that render services to us or to our subsidiaries, subject to the option plans approved in the general shareholders´shareholders’ meeting. Audit Committeescommittees and the Ombudsman.ombudsman. The board of directors is responsible for nominating the members of the company’s Audit Committeeaudit committee and Ombudsman. Evaluation of the Boardboard of Directors.directors. In accordance with the code of regulations, the board of directors, its chairman and the committees should be evaluated on an annual basis. The members of the board of directors should also undergo self-evaluation, using criteria established by the board of directors. The composition of the board is evaluated on an annual basis to ensure that the capabilities of its members are complementary. On December 23, 2009, our board of directors approved its code of regulations. Shareholders may access such code on the siteswebsites www.santander.com.br/ri and www.santander.com.br/acionistas, section “Corporate Governance –Governance—Regulations of the Board of Directors”. Statutory Bodies Fiscal Council According to Brazilian corporate law, the adoption of a fiscal council is voluntary. Although our by-laws contemplate the possibility of a fiscal council, we currently do not have a fiscal council in place. A fiscal council may be adopted on a permanent or temporary basis. The fiscal council is an independent body elected by shareholders annually to supervise the activities of management and independent auditors. The responsibilities of the fiscal council are established by Brazilian corporate law and include oversight of management’s compliance with laws and by-laws, the issuance of a report on the company’s annual and quarterly reports, certain matters submitted for shareholders’ approval, calling of shareholders’ meetings in some cases and reporting on specific adverse matters arising at those meetings. Audit Committee According to Brazilian Central Bank regulations (Resolution No. 3194/3198/2004 of the Brazilian National Monetary Council)CMN), an audit committee is a statutory board, separate from the board of directors, created by a shareholders’ resolution. Notwithstanding the requirement for separate bodies, the members of the audit committee may be members of the board of directors, provided that they meet certain independence requirements. All members of our audit committee meet such independence requirements. In addition, under Brazilian law, the function of hiring independent auditors is reserved for the board of directors. As a result, our board of directors functions as our audit committee for the purpose of approving, on a case-by-case basis, any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us. Except in these respects, our audit committee performs the functions of audit committees of U.S. companies. For more information see “Item 16D. Exemptions from the Listing Standards for Audit Committees”. Pursuant to Brazilian Central Bank regulations, our shareholders established on August 31, 2006 the audit committee in our by-laws, which acts as the audit committee for all our affiliates and subsidiaries. Such audit committee was installed by the board of directors meeting held on March 23, 2007. Our by-laws require that our audit committee be composed of three to six members, each of whom is elected by the board of directors, among persons, members of the board of directors or not, who meet all statutory and regulatory requirements for the exercise of their office, including any requirements to ensure their independent judgment, one of them with a demonstrable knowledge of the accounting and audit practice, which shall serve for a one year one-year term and may be reelected for up to four consecutive times, pursuant to applicable legislation, up to a maximum five-year term of office. One of the members of the audit committee shall be designated by our board of directors as the audit committee’s coordinator. At least one member of the audit committee must have proven knowledge in the areas of accounting and auditing (financial expert). The members of our audit committee may be replaced as follows: (1) in case of a temporary replacement, the coordinator of our audit committee willmay be replaced, by another member chosenin his occasional absences or impairments, by the coordinator and in the absence ofmember appointed thereby or, if no such a temporary placement chosenappointment is made, by the coordinator, the board of directors will appoint a substitute from among the other members of the Audit Committee, and (2) in the case of a vacancy, such position will be filled by an individualtemporary replacement appointed by our board of directors.directors from among the remaining members of the audit committee. A substitute member will serve on the audit committee until such time as our board of directors elects a replacement member. On November 12, 2007, our board of directors approved the audit committee’s code of regulation. On December 22, 2010, our board of directors approved an amendment of the audit committee’s code of regulation, in order to update some operational matters. Our audit committee has the following functions, in addition to other functions assigned to it by law or regulatory standard:functions: 1. | set1. | sets forth the operating rules for its operation; |
2. | advise2. | advises the board of directors on the engagement or replacement of the external audit or;auditor; |
3. | review, prior3. | assesses the quality of the accounting statements for the periods ended March 31, June 30, September 30, and December 31 each year, of the senior management reports, of the explanatory notes and of the independent auditor’s report, as well as of other material financial information disclosed and sent to the publication, the semi-annual account statements, including the accompanying notes, management reports and the external auditor’s opinion;regulatory bodies; |
4. | evaluate4. | evaluates the effectiveness of the normative provisions applicable to us, in addition to internal regulation and codes; |
5. | evaluate5. | evaluates the fulfillment by our management of the recommendations made by the external or internal auditors; |
6. | set6. | sets forth and disclose procedures to receive and treat information on the non-fulfillment of the legal and normative provisions applicable to us, in addition to internal codes and regulations, including provisions of specific procedures for the protection of the discloser and confidentiality of information; |
7. | advise7. | advises the executive committee to correct or improve policies, practices and procedures related to their own assignments; |
8. | assemble,8. | meets, at least on a quarterly basis, with the executive committee, the internal and external audits, in order to verify the implementation of the recommendations, including as to the planning of the respective audit works, and formalizing, by means of minutes, the contents of such meetings; |
9. | assemble9. | meets with the tax committee, if operating, and with the board of directors, upon their request, to address policies, practices and procedures identified in the scope of their work; and |
10. | prepare,10. | prepares, at the end of the six-month period ended on June 30 and December 31 every year, the report of the audit committee, meeting the applicable legal and regulatory provisions.provisions; and |
| 11. | receives and reviews the reports required by the regulatory bodies concerning the activities of the ombudsman office of Santander Brasil, on the base dates of June 30 and December 31 or when a material event is identified. |
The current members of the audit committee, duly approved by the Brazilian Central Bank, are Maria Elena Cardoso Figueira, who acts as Coordinator, Paulo Roberto Simões da Cunha, who is our audit committee financial expert, Sérgio Darcy da Silva Alves, and Celso Clemente Giacometti. The termGiacometti and René Luiz Grande, who acts as a coordinator. On March 16, 2012, our board of directors approved the election of Sérgio Darcy da Silva Alves, Celso Clemente Giacometti and René Luiz Grande, current members of the audit committee, will expire onfor a new term of office of one year as of March 22, 2011.16, 2012. Set forth below are biographies of the members of our audit committee. Celso Clemente Giacometti.See the board of directors biographies.directors’ biographies. Maria Elena Cardoso Figueira.René Luiz Grande Ms. Cardoso. Mr. Grande is a Brazilian citizen, born on November 29, 1965 andApril 19, 1953, a graduate in Economics at PontifíciaPontificia Universidade Católica do Rio de Janeiro (“PUC/RJ”). SheSão Paulo. He was an employee of the Brazilian Central Bank, approved in public examination since June, 1975, and worked on the Supervision and Inspection Department of the National Financial System. While with the Brazilian Central Bank he served in various functions, including as tax managerofficer responsible for Arthur Andersen Consultoria Fiscal Financeira S/C Ltda.standards and organization matters of the financial system from 19911975 to 1999. From1978; technical assistant from 1978 to 1989; supervisor from 1989 to 1995; inspection supervisor from 1995 to 1999; head of the standard department and technical from 1999 to 2000, she worked for2003, and deputy head of the Tax Planning division at Banco Santander Brasil andstandard department from 2001 to 2002 she worked for Banco Bilbao Vizcaya Argentina Brasil S.A. as an Accounting and Financial Control Officer. From 2003 to 2004 she acted as Tax Officer for financial institutions and international taxation for KPMG Corporate Finance Ltda.2011. Before working with the Brazilian Central Bank, he occupied the position of head of staff with the Companhia Brasileira de Embalagens Metálicas BRASILATA from 1973 to 1975.
Sérgio Darcy da Silva Alves.Alves. Mr. Alves is a Brazilian citizen, born on May 5, 1945, a graduate in Economics atof the Economics and Business Administration College of the Universidade Federal do Rio de Janeiro. He is an employee of the Brazilian Central Bank, of Brazil, approved in public examination. He took office in 1967, performing various functions, including:including Officer Responsible for Standards and Organization Matters of the Financial System from 1997 to 2006, Head of the Standard Department of the Financial System from 1991 to 1997, Deputy Head of the Standard Department of the Financial System, being responsible for organizing the Unitunit together with the Brazilian Central Bank’s former President Gustavo Loyola, at that time Head of Department, from 1985 to 1991;1991 and Coordinator inof the Department of Capital Markets, in the Division of Authorizations of Financial Institutions until 1985. Compensation and Appointment Committee According to CMN Resolution No. 3921/2010 of November 25, 2010, a compensation and appointment committee shall be created on the first general meeting to be held after January 1, 2012 and the Company’s by-laws shall provide for the number of members, criterion for their appointment, destitution and compensation, term, and attributions. In order to comply with the Brazilian Central Bank regulations, on February 7, 2012, our shareholders established the compensation and appointment committee in our by-laws, which also acts as the compensation and appointment committee for all our affiliates and subsidiaries. The members of the compensation and appointment committee may be elected by the board of directors, provided that they meet certain independence requirements. All members of our compensation and appointment committee meet such independence requirements. Our by-laws require that our compensation and appointment committee is composed of three to five members, appointed by the board of directors from among persons who meet all statutory and regulatory requirements for the exercise of their office, and at least one of the members may not be an executive officer and the others may or may not be members of our board of directors, and at least two members shall be independent, pursuant to paragraph 3 of article 14, of these by-laws. The compensation and appointment committee shall have in its composition qualified members with the experience required for the judgment exercise and including any requirements to ensure their independent judgment about our internal compensation policy, including the repercussion of this internal compensation policy on the risk management. Such persons shall serve for a term of two years and may be reelected for up to four consecutive times, pursuant to applicable legislation. On February 29, 2012, our board of directors approved the amendment of the rules of procedures of the compensation and appointment committee, in order to comply with the CMN Resolution No. 3,921. Our compensation and appointment committee carries out the following functions: | 1. | sets internal committee policy and governing rules; |
| 2. | develops internal compensation policies applicable to our directors and makes proposals to our board of directors regarding policies for variable and fixed compensation, benefits, and special programs for recruiting and terminations; |
| 3. | supervises the implementation and operation of our internal director compensation policy; |
| 4. | annually reviews our internal director compensation policy and recommends changes to our board of directors; |
| 5. | recommends to the board of executive officer directors revisions to our internal compensation policy and related practices and procedures; |
| 6. | proposes to the board of directors the aggregate compensation of the directors to be submitted to the general meeting, pursuant to article 152 of Law No. 6,404 of 1976; |
| 7. | analyzes possible internal and external factors that may impact our internal director compensation policy; |
| 8. | analyzes our internal officer compensation policy and procedures in comparison with market practice, and recommends changes to align our policies with market practice if significant differences from market practice are identified; |
| 9. | meets with our board of directors to discuss and identified responsibilities for our internal compensation policy, practices and procedures; |
| 10. | annually prepares, within ninety days as from December 31 of each year, the compensation and appointment committee report, in accordance with applicable statutory and regulatory provisions; and |
| 11. | ensures that the internal director compensation policy is compatible with our risk management rules, with performance targets and with our current and expected financial condition, and pursuant to the applicable regulatory provisions and regulations published by the Brazilian Central Bank. |
On April 26, 2011, our board of directors approved the election of Celso Clemente Giacometti, Fernando Carneiro and Viviane Senna Lalli, current members of the compensation and appointment committee, for a new term of office of two years as of April 26, 2013. Mr. Fernando Carneiro resigned for the position of member of the compensation and appointment committee on March 1, 2012. The current members of the compensation and appointment committee are Celso Clemente Giacometti, who acts as Coordinator, Eduardo Nunes Gianini and Viviane Senna Lalli. Set forth below are biographies of the members of our compensation and appointment committee. Paulo Roberto Simões da Cunha.Celso Clemente Giacometti. See the board of directors’ biographies.
Eduardo Nunes Gianini. Mr. CunhaGianini is Brazilian and holds a Brazilian citizen, born on May 27, 1950. He holds degreesbachelor’s degree in Accountingsociology and Business Administration at Faculdadepolitics from Fundação Escola de Ciências EconômicasSociologia e Política de São Paulo specialization(FESPSP). He has been engaged as executive and consultant in Finance at Fundação Getúlio Vargas, Audit at Universidade de São Paulo and Economics at the George Washington University.subjects related to human resources management for 32 years. He developedstarted his career at the Central Bank of BrazilSerprofit Ltda., a company which provided outsourcing services between 1970 and gained experience in banking supervision for 23 years.1979. From 1979 to 1990 he was human resources manager and total quality manager at Union Carbide do Brasil S.A. He was a partner officer at Hays do Brasil Consultores Ltda., where he worked from 1991 to 2009. Currently he is a former audit committee memberpartner officer of Conglomerado Bradesco, DEDIC (Portugal Telecom)Gobbet & Gianini Consultores Ltda., with expertise in executive compensation and Zamprogna S.A. He is also a former partnerorganizational development. Viviane Senna Lalli. See the board of KPMG for financial services. He is currently a statutory audit committee member of BM&FBOVESPA and a fiscal council member of Mahle Metal Leve S.A.directors’ biographies. On December 31, 2009,2011, we had 51,24154,602 full-time, permanent employees. The following table presents the breakdown of our full-time, permanent employees at the date indicated. | | | | Branch employees
| | | 32,938 | | Administration employees
| | | 18,303 | | Total
| | | 51,241 | |
| | | | | | | | | | | | | Branch employees | | | 36,382 | | | | 35,863 | | | | 32,938 | | | | 35,046 | | Administration employees | | | 18,220 | | | | 18,543 | | | | 18,303 | | | | 18,362 | | Total | | | 54,602 | | | | 54,406 | | | | 51,241 | | | | 53,408 | |
The Brazilian Banking Employees’ Union represents most of our employees. In the event of a potential conflict with our banking employees and/or the banking union, negotiations are conducted by the FENABAN. Each year, generally in September, all Brazilian banks have a collective negotiation period in which they revise salary structures. During this period, the Brazilian Banking Employees’ Union negotiates bank employees’ salaries within the scope of the Brazilian Banking Collective Agreement with the FENABAN. Since the acquisition of our predecessor banks by our indirect shareholder Santander Spain, we have not suffered significant losses through strikes and our management believes it has good relations with our employees. We have a profit sharing plan with our employees based on predetermined annual performance targetsgoals for our annual operating and financial results. As a result, if we meet or exceed certain goals, our employees are able tocan share in our financial performance. See “—B. Compensation”. We believe that our levels of remuneration,compensation, benefits (including our profit sharing program), working conditions and other allowancesprovisions are generally competitive with those offered by other banks in Brazil by otherand large banks and enterprises.companies. We have a policy of providing continuous training to our employees, in order to enableallowing them to improvehone their skills and create a more efficienteffective team, committed to the values of the group. In 2004, we established a business school to provide training in the following areas: professional development, employee integration inof the employee work environment and training and development of service management, business and leadership skills. We offer our employees certaina defined contribution pension plans into which ourplan where employees may electcan choose to contribute a portionpart of their salarywages and intoin which we maycan also make contributions on behalf of such employees. These plans provideThis plan provides retirement benefits, and disability and death benefits. HolandapreviSantanderPrevi is the only pension plan currently open for new enrollment.registrations. Most of our current employees are enrolledregistered with Holandaprevi. Onthe SantanderPrevi plan. At December 31, 2009, 39,6892011, 44,176 participants were enrolled in thisthat plan, for amaking the total amount under management of approximately R$1.2 billion. For more detailed information relating to our pension plans1.6 billion, see note 21 to22 of our audited consolidated financial statements. The following table provides the names of our directors and executive officers who owned shares of Santander Brasil as of December 31, 2009.2011. | | | | Percentage of Outstanding Common Shares | | | | Percentage of Outstanding Preferred Shares | | Percentage of Total Share Capital | | | | | Percentage of Outstanding Common Shares | | | | | | Percentage of Outstanding Preferred Shares | | | Percentage of Total Share Capital | | Marcial Angel Portela Alvarez | | 1 | | (1) | | | | (1) | | (1) | | Fábio Colletti Barbosa | | 702,292 | | (1) | | 638,438 | | (1) | | (1) | | André Fernandes Berenguer | | | | 702,075 | | | | (1 | ) | | | 638,250 | | | | (1 | ) | | | (1 | ) | Angel Oscar Agallano | | | | 941,985 | | | | (1 | ) | | | 856,350 | | | | (1 | ) | | | (1 | ) | Cassio Schmitt | | | | 297,165 | | | | (1 | ) | | | 270,150 | | | | (1 | ) | | | (1 | ) | Celso Clemente Giacometti | | | | 1 | | | | (1 | ) | | | | | | | (1 | ) | | | (1 | ) | Jamil Habibe Hannouche | | | | 187,220 | | | | (1 | ) | | | 170,200 | | | | (1 | ) | | | (1 | ) | João Guilherme de Andrade So Consiglio | | | | 234,025 | | | | (1 | ) | | | 212,750 | | | | (1 | ) | | | (1 | ) | José Antonio Alvarez Alvarez | | 1 | | (1) | | | | (1) | | (1) | | | 1 | | | | (1 | ) | | | | | | | (1 | ) | | | (1 | ) | José Manuel Tejón Borrajo | | 1 | | (1) | | | | (1) | | (1) | | José Roberto Mendonça de Barros | | 1 | | (1) | | | | (1) | | (1) | | Viviane Senna Lalli | | 1 | | (1) | | | | (1) | | (1) | | José de Menezes Berenguer Neto | | 351,011 | | (1) | | 319,100 | | (1) | | (1) | | | 351,011 | | | | (1 | ) | | | 319,100 | | | | (1 | ) | | | (1 | ) | José de Paiva Ferreira | | 468,051 | | (1) | | 425,500 | | (1) | | (1) | | | 468,051 | | | | (1 | ) | | | 425,500 | | | | (1 | ) | | | (1 | ) | Angel Oscar Agallano | | 116,985 | | (1) | | 106,350 | | (1) | | (1) | | Fernando Byington Egydio Martins | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | | Gustavo José Costa Roxo da Fonseca | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | | João Roberto Gonçalves Teixeira | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | | José Manuel Tejón Borrajo | | | | 1 | | | | (1 | ) | | | | | | | (1 | ) | | | (1 | ) | José Roberto Machado Filho | | | | 702,075 | | | | (1 | ) | | | 638,250 | | | | (1 | ) | | | (1 | ) | José Roberto Mendonça de Barros | | | | 1 | | | | (1 | ) | | | | | | | (1 | ) | | | (1 | ) | Lilian Maria Ferezim Guimarães | | 351,010 | | (1) | | 319,100 | | (1) | | (1) | | | 351,010 | | | | (1 | ) | | | 319,100 | | | | (1 | ) | | | (1 | ) | Oscar Rodriguez Herrero | | 11,660 | | (1) | | 10,600 | | (1) | | (1) | | Pedro Paulo Longuini | | 468,051 | | (1) | | 425,501 | | (1) | | (1) | | Arnaldo Penteado Laudisio | | 70,180 | | (1) | | 63,800 | | (1) | | (1) | | Luciane Ribeiro | | | | 702,076 | | | | (1 | ) | | | 638,251 | | | | (1 | ) | | | (1 | ) | Luis Alberto Citon | | | | 70,180 | | | | (1 | ) | | | 63,800 | | | | (1 | ) | | | (1 | ) | Luiz Carlos da Silva Cantidio Junior | | | | 7 | | | | (1 | ) | | | 8 | | | | (1 | ) | | | (1 | ) | Mara Regina Lima Alves Garcia | | | | 60,445 | | | | (1 | ) | | | 54,950 | | | | (1 | ) | | | (1 | ) | Marcelo Malanga | | | | 116,985 | | | | (1 | ) | | | 106,350 | | | | (1 | ) | | | (1 | ) | Marcelo Zerbinatti | | | | 244,420 | | | | (1 | ) | | | 222,200 | | | | (1 | ) | | | (1 | ) | Marcial Angel Portela Alvarez | | | | 1,556,501 | | | | (1 | ) | | | 1,415,000 | | | | (1 | ) | | | (1 | ) | Marcio Aurelio de Nobrega | | | | 46,805 | | | | (1 | ) | | | 42,550 | | | | (1 | ) | | | (1 | ) | Marco Antônio Martins de Araújo Filho | | | | 390,500 | | | | (1 | ) | | | 355,000 | | | | (1 | ) | | | (1 | ) | Marcos Adriano Ferreira Zoni | | | | 234,025 | | | | (1 | ) | | | 212,750 | | | | (1 | ) | | | (1 | ) | Marcos Matioli de Souza Vieira | | | | 207,434 | | | | (2 | ) | | | 181,157 | | | | (2 | ) | | | (2 | ) | Maria Luiza de Oliveira Pinto e Paiva | | | | 234,025 | | | | (1 | ) | | | 212,750 | | | | (1 | ) | | | (1 | ) | Mauro Siequeroli | | | | 23,375 | | | | (1 | ) | | | 21,250 | | | | (1 | ) | | | (1 | ) |
Javier Fonseca Viader | | 116,985 | | (1) | | 106,350 | | (1) | | (1) | José Roberto Machado Filho | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | Luciane Ribeiro | | 702,076 | | (1) | | 638,251 | | (1) | | (1) | Luis Felix Cardamone Neto | | 468,050 | | (1) | | 425,500 | | (1) | | (1) | Marcos Matioli de Souza Vieira | | 207,434 | | (1) | | 181,157 | | (1) | | (1) | Maria Luiza de Oliveira Pinto e Paiva | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Pedro Carlos Araújo Coutinho | | 46,805 | | (1) | | 42,550 | | (1) | | (1) | Wagner Augusto Ferrari | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Alexandre Schwartsman | | 351,010 | | (1) | | 319,100 | | (1) | | (1) | André Fernandes Berenguer | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | Antonio Fernando Laurelli Ribeiro | | 116,985 | | (1) | | 106,350 | | (1) | | (1) | Carlos Leibowicz | | 116,985 | | (1) | | 106,350 | | (1) | | (1) | Francisco Di Roberto Junior(2) | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Jamil Habibe Hannouche | | 187,220 | | (1) | | 170,200 | | (1) | | (1) | João Batista Videira Martins(2) | | 702,075 | | (1) | | 638,250 | | (1) | | (1) | João Guilherme de Andrade So Consiglio | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Marcio Aurélio de Nóbrega | | 46,805 | | (1) | | 42,550 | | (1) | | (1) | Marcos Adriano Ferreira Zoni | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Mauro Siequeroli | | 23,375 | | (1) | | 21,250 | | (1) | | (1) | Reginaldo Antonio Ribeiro | | 234,025 | | (1) | | 212,750 | | (1) | | (1) | Sergio Gonçalves | | 702,075 | | (1) | | 638,250 | | (1) | | (1) |
| | | | | Percentage of Outstanding Common Shares | | | | | | Percentage of Outstanding Preferred Shares | | | Percentage of Total Share Capital | | Miguel Angel Albero Ocerin | | | 275,000 | | | | (1 | ) | | | 250,000 | | | | (1 | ) | | | (1 | ) | Oscar Rodriguez Herrero | | | 600,160 | | | | (1 | ) | | | 545,600 | | | | (1 | ) | | | (1 | ) | Pedro Carlos Araújo Coutinho | | | 473,000 | | | | (1 | ) | | | 430,000 | | | | (1 | ) | | | (1 | ) | Reginaldo Antonio Ribeiro | | | 234,025 | | | | (1 | ) | | | 212,750 | | | | (1 | ) | | | (1 | ) | Sérgio Gonçalves | | | 702,075 | | | | (1 | ) | | | 638,250 | | | | (1 | ) | | | (1 | ) | Thomas Gregor Ilg | | | 471,625 | | | | (1 | ) | | | 428,750 | | | | (1 | ) | | | (1 | ) | Ulisses Gomes Guimarães | | | 52,690 | | | | (1 | ) | | | 47,900 | | | | (1 | ) | | | (1 | ) | Viviane Senna Lalli | | | 1 | | | | (1 | ) | | | | | | | (1 | ) | | | (1 | ) | Wilson Luiz Matar | | | 65,725 | | | | (1 | ) | | | 59,750 | | | | (1 | ) | | | (1 | ) | Other Employees | | | 200,431,370 | | | | (1 | ) | | | 183,469,564 | | | | (1 | ) | | | (1 | ) |
(2) | No longer officeran officer. |
Shares held by members of our board of directors and our board of executive officers do not have voting rights distinct fromas opposed to shares held by our other shareholders. The Santander Group is the largest private financial group in Spain. Through expansion and acquisitions in Chile, Mexico, Colombia, Venezuela, Argentina and Brazil, among other countries, the Santander Group has grown to become the largest bank in Latin America, measured by assets. As a result of its voting control over us, the Santander Group is in a position to cause the election of a majority of the members of our management and to determine substantially all matters to be decided by a vote of shareholders. As of December 31, 2009, BancoMarch 23, 2012, Santander S.A. (formerly BancoSpain directly and indirectly through its subsidiaries, Grupo Empresarial Santander, Central Hispano, S.A.) indirectly owns 83.5%S.L., Sterrebeeck B.V. and Santander Insurance Holding, S.L., owned approximately 75.6% of our total capital stock through its direct subsidiaries, Grupo Empresarial Santander, S.L. and Sterrebeeck B.V.stock. The Santander Group ultimately determineshas a strong influence on our strategystrategies and manages our operations. Our relationship with the Santander Group has provided us with access to the expertise of the Santander Group in areas such as technology, product innovation, human resources and internal audit control systems. In addition, the Santander Group requires us to follow the its banking policies, procedures and standards, especially with respect to credit approval and risk management. Such policies and expertise have been successfully used by the Santander Group in the Spanish and other banking markets, and we believe that such policies and expertise have had and will continue to have a beneficial effect upon our operations. The following table presents the beneficial ownership of our common and preferred shares as of December 31, 2009.2011. | | | | | Percentage of Outstanding Common Shares | | | | | | Percentage of Outstanding Preferred Shares | | | Percentage of Total Share Capital | | | | (in thousands, except percentages) | | Grupo Empresarial Santander S.L. | | | 72,876,994 | | | | 34.24 | % | | | 61,631,776 | | | | 33.10 | % | | | 33.71 | % | Sterrebeeck | | | 99,527,083 | | | | 46.76 | % | | | 86,492,330 | | | | 46.45 | % | | | 46.62 | % | Santander Insurance Holding S.L. | | | 206,664 | | | | 0.10 | % | | | – | | | | 0.00 | % | | | 0.05 | % | Banco Santander, S.A. | | | 2,090,231 | | | | 0.98 | % | | | 1,900,210 | | | | 1.02 | % | | | 1.00 | % | Treasury Shares | | | 391,254 | | | | 0.18 | % | | | 355,685 | | | | 0.19 | % | | | 0.19 | % | Employees(1) | | | 211,427 | | | | 0.10 | % | | | 193,458 | | | | 0.10 | % | | | 0.10 | % |
Minority Shareholders | | | 37,538,079 | | | | 17.64 | % | | | 35,628,926 | | | | 19.13 | % | | | 18.34 | % | Total | | | 212,841,732 | | | | 100.0 | % | | | 186,202,385 | | | | 100.0 | % | | | 100.0 | % |
| | Percentage of Outstanding Common Shares | | Percentage of Outstanding Preferred Shares | Percentage of Total Share Capital | | (in thousands, except percentages) | Grupo Empresarial Santander, S.L. | 74,967,226 | 35.2% | 63,531,986 | 34.1% | 34.7% | Sterrebeeck B.V. | 99,527,083 | 46.8% | 86,492,330 | 46.5% | 46.6% | Santander Seguros S.A. | 7,240 | 0.0% | 9,525 | 0.0% | 0.0% | Santander Insurance Holding, S.L. | 4,745,084 | 2.2% | 4,125,836 | 2.2% | 2.2% | Employees(1) | 311,840 | 0.1% | 284,366 | 0.2% | 0.0% | Other minority shareholders | 33,283,259 | 15.7%. | 31,758,342 | 17.1% | 16.5% | Total | 212,841,732 | 100% | 186,202,385 | 100% | 100% |
(1) (1) | Includes members of senior management. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership”. |
The total number of ADSs held by US investors is 193,864,453, not including individuals and legal entities with portfolios of less than US$U.S.$100 million, to which we do not have access. Significant Changes in Percentage Ownership of Principal Shareholders As of January 31, 2006, Grupo Empresarial Santander S.L. owned 100% of the ordinary shares and 94.86% of the preferred shares of our then-predecessor company, Banco Santander Meridional S.A. As a result of the reorganization of our operations in Brazil in 2006 (see “Item 4. Information on the Company—A. History and developmentDevelopment of the company—Company—History—Santander Group in Brazil”Banco Real Acquisition”), as of April 30, 2006, Grupo Empresarial Santander S.L. owned 99.25% of the common shares and 96.50% of the preferred shares (following adjustments for fractional shares resulting from the reorganization) of our then-predecessor company, Banco Santander Banespa S.A. As a result of the share exchange transaction (incorporaç(incorporação de ações)es) on August 29, 2008 (see “Item 4. Information on the Company—A. History and developmentDevelopment of the company—Company—History—Banco Real Acquisition”), Sterrebeeck B.V. owned 56.83% of our common shares and 56.83% of our preferred shares and Grupo Empresarial Santander S.L. owned 41.60% of our common shares and 40.53% of our preferred shares. Santander Insurance Holding became the beneficial owner of all of its shares in usour shareholder on August 14, 2009 in connection with the series of share exchange transactions pursuant to which certain asset management and insurance companies that had been owned by the Santander Group were transferred to us. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events”. As a result of the share exchange transactions (incorporaç(incorporações de ações)es) on August 14, 2009, Santander Insurance Holding owned 2.61% of our common shares and 2.61% of our preferred shares, Sterrebeeck B.V. owned 54.69 % of our common shares and 54.69% of our preferred shares and Grupo Empresarial Santander S.L. owned 41.19% of our common shares and 40.17% of our preferred shares. On August 16, 2010, we filed with the SEC and CVM a registration statement on Form F-1 with respect to the sale by our shareholder Santander Insurance Holding of its shares in the Bank, in the form of ADRs, in the United States market. A total of 4,538,420,040 common shares and 4,125,836,400 preferred shares held by Santander Insurance Holding were converted to compose 82,516,728 Units/ADRs (equivalent to ownership position of 2.17% in our capital stock). As of December 31, 2010, all of these Units were sold and Santander Insurance Holding retains an equity participation in our capital stock of less than 0.05%. On November 14 and 15, 2011 we filed an amendment to our automatic shelf registration statement and a related prospectus supplement with the SEC with the purpose of having available for sale on a registered basis approximately 8.0% of our capital stock. At such time, the Santander Group expected to use this registration statement to allow for greater flexibility of the group in fulfilling its commitment to deliver approximately a 5% stake in our capital stock under the outstanding exchangeable bonds and fulfill our commitment to reach a 25% free float prior to October 2012, or October 2014, subject to agreement with BM&FBOVESPA, when market conditions are appropriate. On January 9, 2012, Grupo Empresarial Santander, S.L. transferred to Santander Spain ADRs representing approximately 5.18% of our capital stock, as part of an internal reorganization in the Santander Group, to the transfer of approximately 4.41% of our capital stock to a third party, which shall deliver such interest to the investors of the exchangeable bonds issued by Santander Spain in October, 2010, on maturity and as provided in such bonds. The issuance of such exchangeable bonds by Santander Spain was object of a Material Fact dated October 29, 2010. Santander Spain subsequently transferred an additional approximately 0.6% and 0.8% of our total capital stock in separate transactions. As a result of such transfers, Santander Spain, directly or indirectly, held approximately 76.4% of our voting capital stock and approximately 75.6% of our total capital stock, and our free float was approximately 75.6% of the total stock as of March 23, 2012. Voting Rights of Principal Shareholders Our principal shareholders do not have voting rights distinct from those of our other shareholders. See “Item 10. Additional Information—B. Memorandum and articlesArticles of association—Association—Issued Share Capital”. We have a documented policy relating to related-party transactions approved by the board of directors, which is intended to ensure that all transactions covered by the policy are conducted based on our interest and our shareholders. The policy defines the power to approve certain transactions by the board of directors. The rules laid down are also applied to all our employees, executives and subsidiaries. We currently engage in, and expect from time to time in the future to engage in, financial and commercial transactions with our subsidiaries and affiliates and those of the Santander Group. Among other transactions, we have credit lines outstanding with the Santander Group and its affiliated financial institutions around the world. At December 31, 2009,2011, borrowings and deposits from the Santander Group represented approximately 2.2%0.5% of our total funding. In addition, from time to time, we enter into certain transactions with the Santander Group and other related parties for the provision of advisory and advertising services. Such transactions are conducted at arm’s length,arm’s-length, based on terms that correspond to the terms that would apply tohave been applied for transactions with third parties. In line with regulations applicable to us under Brazilian law, we are not permitted to, and do not, provide loans or advances to any of our subsidiaries (with the exception of loans to leasing subsidiaries), executive officers, members of our board of directors or their family members. Information Technology Platform We contract with certain affiliates of the Santander Group (Ingeniería de Software Bancário S.L. (Spain), ISBAN S.A. (Chile), Produban Servicios Informáticos Generales S.L. (Spain), ISBAN S.A. (Brasil) and Produban Serviços de Informática S.A. (Brasil)) for the outsourcing of certain products and services relating to our information technology platform, including software development, hosting and information processing. We believe the provision of these services is provided on an arm’s-lengtharm’s- length basis on terms substantially similar to those available from other providers in the market. In each of 20092011 and 2008, we paid to2010, affiliates of the Santander Group managed approximately R$644601 million and approximately R$291676 million, respectively, for the provision of such products and services. Additionally, these affiliates are responsible for managing all third party technology contracts. See “Item 4. Information on the Company—B. Business Overview—Technology”Technology and Infrastructure”. Procurement Services We have entered into agreements with Aquanima Brasil Ltda., an affiliate of the Santander Group, which offers procurement services (sourcing, e-procurement, outsourcing and consultancy) to Santander Brasil. Volume aggregation between Santander Brasil and other client companies allow for joint purchases for groups of different clients. We believe the agreements entered into with Aquanima Brasil Ltda. were on an arm’s-length basis. In each of 2008 and 2007, weWe paid Aquanima Brasil Ltda. approximately R$16.0 million for the provision of these services, and approximately R$20 million in each of 2011, 2010 and 2009. Other Related Party Transactions From time to time, we engage in lending and borrowing transactions to fund our operations and other miscellaneous transactions with various companies of the Santander Group, in compliance with restrictions on loans or advances imposed by Brazilian law. The following table shows the balances owed to us by such companies (assets) at each of December 31, 20092011 and December 31, 20082010 and the amounts owed by us to such companies (liabilities) at the same dates. The table also sets forth amounts received (income) or paid (expenses) to such companies for the year ended December 31, 20092011 and the year ended December 31, 2008.2010. All such transactions with Santander Group companies were conducted on an arm’s-length basis on terms substantially similar to those available from other providers in the market. | | At and for the year ended At December 31, | | | | | | | | | | | Joint-controlled companies | | | | | | Joint-controlled companies | | | | | | | (in thousands of R$) | | Assets | | | | | | | | | | | | | Cash and balances with the Brazilian Central Bank(1) | | | — | | | | 295,448 | | | | — | | | | 714,127 | | Banco Santander, S.A. – Spain | | | — | | | | 294,539 | | | | — | | | | 713,858 | | Other | | | — | | | | 909 | | | | — | | | | 269 | | Loans and advances to credit institutions(2) | | | 335,849 | | | | 994,019 | | | | 455,844 | | | | 10,605,899 | | Banco Santander, S.A. – Spain | | | — | | | | 994,019 | | | | — | | | | 3,605,118 | | Abbey National Treasury Services Plc | | | — | | | | — | | | | — | | | | 4,674,000 | | Santander Benelux, S.A., N.V. | | | — | | | | — | | | | — | | | | 2,326,781 | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | 298,095 | | | | — | | | | 380,808 | | | | — | | Companhia de Arrendamento Mercantil RCI Brasil | | | 37,754 | | | | — | | | | 75,036 | | | | — | |
| | At and for the year ended At December 31, | | | | | | | | | | | Joint-controlled companies | | | | | | Joint-controlled companies | | | | | | | (in thousands of R$) | | Trading derivatives | | | — | | | | 953,243 | | | | — | | | | 1,501,689 | | Banco Santander, S.A. – Spain | | | — | | | | — | | | | — | | | | — | | Santander Benelux, S.A., N.V. | | | — | | | | 891,133 | | | | — | | | | 1,472,414 | | Santander Overseas Bank, Inc – Puerto Rico | | | — | | | | — | | | | — | | | | 28,858 | | Other | | | — | | | | 62,110 | | | | — | | | | 417 | | Other Assets | | | 218 | | | | 142 | | | | 111 | | | | 125,237 | | Banco Santander, S.A. – Spain | | | — | | | | 115 | | | | — | | | | 1,924 | | Santander Seguros S.A. | | | — | | | | — | | | | — | | | | 115,720 | | Santander Brasil Seguros S.A. | | | — | | | | — | | | | — | | | | 4,539 | | Santander Capitalização S.A. | | | — | | | | — | | | | — | | | | 3,054 | | Other | | | 218 | | | | 27 | | | | 111 | | | | — | | Liabilities | | | | | | | | | | | | | | | | | Trading derivatives | | | — | | | | (1,037,799 | ) | | | — | | | | (1,667,390 | ) | Banco Santander, S.A. – Spain | | | — | | | | — | | | | — | | | | (160,648 | ) | Santander Benelux, S.A., N.V. | | | — | | | | (957,392 | ) | | | — | | | | (1,468,981 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | — | | | | — | | | | — | | | | (2,232 | ) | Abbey National Plc | | | — | | | | — | | | | — | | | | (35,529 | ) | Abbey National Treasury Plc | | | — | | | | (24,028 | ) | | | — | | | | — | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | — | | | | (55,891 | ) | | | — | | | | — | | Other | | | — | | | | (488 | ) | | | — | | | | — | | Deposits from credit institutions | | | (15,142 | ) | | | (3,551,162 | ) | | | (40,229 | ) | | | (5,471,056 | ) | Banco Santander, S.A. – Spain | | | — | | | | (2,705,728 | ) | | | — | | | | (4,071,725 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | — | | | | — | | | | — | | | | (1,153,129 | ) | Banco Español de Crédito, S.A. – Banesto | | | — | | | | — | | | | — | | | | (240,852 | ) | Grupo Banesto: Sociedades consolidables | | | — | | | | (157,283 | ) | | | — | | | | — | | Abbey National Treasury Services Plc | | | — | | | | (387,616 | ) | | | — | | | | — | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | — | | | | (192,139 | ) | | | — | | | | — | | Fundo de Investimento Multimercado Menorca Crédito Privado | | | — | | | | (106,490 | ) | | | — | | | | — | | Companhia de Arrendamento Mercantil RCI Brasil | | | (2,626 | ) | | | — | | | | (25,589 | ) | | | — | | Other | | | (12,516 | ) | | | (1,906 | ) | | | (14,640 | ) | | | (5,350 | ) | Customer deposits | | | — | | | | (1,832 | ) | | | (85,198 | ) | | | (120,400 | ) | Produban Serviços de Informática S.A. | | | — | | | | — | | | | — | | | | (35,438 | ) | Santander Seguros S.A. | | | — | | | | — | | | | — | | | | (8,094 | ) | ISBAN S.A. | | | — | | | | — | | | | — | | | | (73,153 | ) | Cia Brasileira de Soluções e Serviços – CBSS | | | — | | | | — | | | | (67,225 | ) | | | — | | Celta Holdings Ltda | | | — | | | | — | | | | (1,686 | ) | | | — | | Tecnoligia Bancária – TECBAN | | | — | | | | — | | | | (16,280 | ) | | | — | | Other | | | — | | | | (1,832 | ) | | | (7 | ) | | | (3,715 | ) | Subordinated liabilities(3) | | | — | | | | (1,667,219 | ) | | | — | | | | — | | Banco Santander, S.A. – Spain | | | — | | | | (1,667,219 | ) | | | — | | | | — | | Other financial liabilities – Dividends and Bonuses Payable | | | — | | | | (1,392,079 | ) | | | — | | | | (1,352,252 | ) | Grupo Empresarial Santander, S.L. | | | — | | | | (570,414 | ) | | | — | | | | (567,344 | ) | Santander Insurance Holding, S.L. | | | — | | | | (81,701 | ) | | | — | | | | — | |
| | At and for the year ended At December 31, | | | | | | | | | | | Joint-controlled companies | | | | | | Joint-controlled companies | | | | | | | (in thousands of R$) | | Sterrebeeck B.V. | | | — | | | | (739,683 | ) | | | — | | | | (784,892 | ) | Others | | | — | | | | (281 | ) | | | — | | | | (16 | ) | Other Payables | | | — | | | | (9,266 | ) | | | (7,925 | ) | | | (40,534 | ) | Banco Santander, S.A. – Spain | | | — | | | | (9,266 | ) | | | — | | | | (12,075 | ) | Ingeniería de Software Bancario, S.L | | | — | | | | — | | | | — | | | | (14,479 | ) | ISBAN S.A. | | | — | | | | — | | | | — | | | | (6,368 | ) | Altec, S.A. – Chile | | | — | | | | — | | | | — | | | | (4,395 | ) | Produban Serviços de Informática S.A. | | | — | | | | — | | | | — | | | | (3,084 | ) | Other | | | — | | | | — | | | | (7,925 | ) | | | (133 | ) |
| | December 31, 2011 | | | December 31, 2010 | | | | Parent(1) | | | Joint–controlled companies | | | Other Related–Party(2) | | | Parent(1) | | | Joint–controlled companies | | | Other Related–Party(2) | | | | (in thousands of R$) | | Assets | | | | | | | | | | | | | | | | | | | Trading derivatives, net | | | (25,639 | ) | | | – | | | | (442,496 | ) | | | 35,513 | | | | – | | | | (125,147 | ) | Banco Santander S.A. – Spain | | | (25,639 | ) | | | – | | | | – | | | | 35,513 | | | | – | | | | – | | Santander Benelux, S.A., N.V. | | | – | | | | – | | | | (308,821 | ) | | | – | | | | – | | | | (118,521 | ) | Abbey National Treasury Services Plc | | | – | | | | – | | | | (39,102 | ) | | | – | | | | – | | | | (33,076 | ) | Real Fundo de Investimento Multimercado Santillana Crédito Privado | | | – | | | | – | | | | (94,573 | ) | | | – | | | | – | | | | 26,450 | | Loans and amounts due from credit institutions – Cash and overnight operations in foreign currency | | | 227,724 | | | | – | | | | 1,097 | | | | 4,245,332 | | | | – | | | | 729 | | Banco Santander S.A. – Spain(3) | | | 227,724 | | | | – | | | | – | | | | 4,245,332 | | | | – | | | | – | | Banco Santander Totta, S.A. | | | – | | | | – | | | | 1,097 | | | | – | | | | – | | | | 729 | | Loans and amounts due from credit institutions – Others | | | 95,539 | | | | 822,928 | | | | 266,568 | | | | 16,922 | | | | 269,667 | | | | 279,535 | | Banco Santander S.A. – Spain | | | 95,539 | | | | – | | | | – | | | | 16,922 | | | | – | | | | – | | Santander Benelux, S.A., N.V. | | | – | | | | – | | | | 262,818 | | | | – | | | | – | | | | 258,261 | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | 822,606 | | | | – | | | | – | | | | 263,559 | | | | – | | Companhia de Arrendamento Mercantil RCI Brasil | | | – | | | | 322 | | | | – | | | | – | | | | 6,108 | | | | – | | Abbey National Treasury Services Plc | | | – | | | | – | | | | 1,369 | | | | – | | | | – | | | | 18,817 | | Santander Overseas Bank, Inc – Puerto Rico | | | – | | | | – | | | | 2,381 | | | | – | | | | – | | | | 2,457 | | Other Assets | | | 5,438 | | | | 615 | | | | 383,271 | | | | 27,090 | | | | 795 | | | | – | | Banco Santander S.A. – Spain | | | 5,438 | | | | – | | | | – | | | | 27,090 | | | | – | | | | – | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | 615 | | | | – | | | | – | | | | 529 | | | | – | | Companhia de Arrendamento Mercantil RCI Brasil | | | – | | | | – | | | | – | | | | – | | | | 266 | | | | – | | Santander Seguros | | | – | | | | – | | | | 326,637 | | | | – | | | | – | | | | – | | Others | | | – | | | | – | | | | 57,234 | | | | – | | | | – | | | | – | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | Deposits from credit institutions | | | (1,200,207 | ) | | | (15,213 | ) | | | (171,371 | ) | | | (2,167,452 | ) | | | (76,340 | ) | | | (1,940,158 | ) | Banco Santander S.A. – Spain(4) | | | (1,200,207 | ) | | | – | | | | – | | | | (2,167,452 | ) | | | – | | | | – | | Grupo Banesto: Sociedades consolidables | | | – | | | | – | | | | (167,081 | ) | | | – | | | | – | | | | (75,477 | ) | Banco Madesant – Sociedade Unipessoal, S.A.(5) | | | – | | | | – | | | | – | | | | – | | | | – | | | | (1,857,963 | ) |
___________
| | December 31, 2011 | | | December 31, 2010 | | | | Parent(1) | | | Joint–controlled companies | | | Other Related–Party(2) | | | Parent(1) | | | Joint–controlled companies | | | Other Related–Party(2) | | | | (in thousands of R$) | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | (10,348 | ) | | | – | | | | – | | | | (73,270 | ) | | | – | | Companhia de Arrendamento Mercantil RCI Brasil | | | – | | | | (4,865 | ) | | | – | | | | – | | | | (3,070 | ) | | | – | | Others | | | – | | | | – | | | | (4,290 | ) | | | – | | | | – | | | | (6,718 | ) | Customer Deposits | | | – | | | | – | | | | (422,753 | ) | | | – | | | | – | | | | (375,869 | ) | ISBAN Brasil S.A | | | – | | | | – | | | | (110,341 | ) | | | – | | | | – | | | | (129,500 | ) | Produban Serviços de Informática S.A. | | | – | | | | – | | | | (47,970 | ) | | | – | | | | – | | | | (43,439 | ) | Universia Brasil S.A. | | | – | | | | – | | | | (310 | ) | | | – | | | | – | | | | (3,218 | ) | Real Fundo de Investimento Multimercado Santillana Credito Privado | | | – | | | | – | | | | (223,367 | ) | | | – | | | | – | | | | (198,236 | ) | Fundo de Investimento Multimercado Menorca Crédito Privado | | | – | | | | – | | | | (31,062 | ) | | | – | | | | – | | | | – | | Others | | | – | | | | – | | | | (9,703 | ) | | | – | | | | – | | | | (1,476 | ) | Other liabilities – Dividends and Bonuses Payable | | | (908,004 | ) | | | – | | | | (3,615 | ) | | | (1,703,847 | ) | | | – | | | | (1,037 | ) | Banco Santander, S.A. – Spain(4) | | | (7,772 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | Grupo Empresarial Santander S.L.(1) | | | (379,617 | ) | | | – | | | | – | | | | (726,925 | ) | | | – | | | | – | | Santander Insurance Holding S.L. | | | – | | | | – | | | | (553 | ) | | | – | | | | – | | | | (1,037 | ) | Sterrebeeck B.V.(1) | | | (520,615 | ) | | | – | | | | – | | | | (976,922 | ) | | | – | | | | – | | Banco Madesant – Sociedade Unipessoal S.A. | | | – | | | | – | | | | (3,062 | ) | | | – | | | | – | | | | – | | Other payables | | | (3,972 | ) | | | – | | | | (85,979 | ) | | | (6,353 | ) | | | – | | | | (52,586 | ) | Banco Santander S.A. – Spain | | | (3,972 | ) | | | – | | | | – | | | | (6,353 | ) | | | – | | | | – | | Santander Insurance Holding S.L. | | | – | | | | – | | | | (9,257 | ) | | | – | | | | – | | | | (52,358 | ) | Santander Seguros | | | – | | | | – | | | | (74,772 | ) | | | – | | | | – | | | | – | | Others | | | – | | | | – | | | | (1,950 | ) | | | – | | | | – | | | | (228 | ) |
(1) | Comprised of cash balances that did not bear interest. |
(2)(*) | All loans and amounts to related parties were made in ourthe ordinary course of business and on substantially the same terms,a sustainable basis, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features. The largest loan amount to a related party in 2009 was extended to |
(1) | Santander Brasil is indirectly controlled by Santander Spain, in the aggregate amountthrough its subsidiaries Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. |
(2) | Refers to subsidiaries of R$2,858.5 billion in October 2009. The amount outstanding on December 31, 2009 was extended in connection with overnight lending transactions, and generally accruing interest at an average annual rate of 0.07%.Santander Spain. |
(3) | OnIn 2011, includes cash (which in 2010 was R$315 thousand). In 2010, refers to overnight operations in foreign currency, amounting R$3.9 billion with interest of 0.22% per year. |
(4) | In 2011, refers to fund raising operations through transfers abroad amounting R$1.2 billion with maturity date until January 22,2015 and interest between 0.39% and 5.82% per year. In 2010, we redeemed in advance the Subordinate CDB (bank certificate of deposit),includes raising funds through operations overseas transfers totaling R$2.0 billion with originalmaturity until January, 2015 and interest between 0.25% and 7.89% per year. |
(5) | In 2010, refers to raising funds through time deposit with maturity on March 25, 2019February 28, 2011 and amounting to R$1,507,000, pursuant to authorization granted by the Central Bankinterest of Brazil on January 8, 2010. The purpose of the anticipated redemption was to improve our funding structure, pursuant to the strategy disclosed in the use of proceeds of the “Final Global Offering Prospect for the Initial Public Offering of Certificates of Deposit Shares (Units) Issuance of Banco Santander (Brasil) S.A”.1.76% per year. |
| | For the year ended December 31, | | | | 2009 | | | 2008 | | | | Income (Expenses) | | | Income (Expenses) | | | | Joint-controlled companies | | | Related parties | | | Joint-controlled companies | | | Related parties | | | | (in thousands of R$) | | Interest and similar income – Loans and advances to credit institutions | | | 40,034 | | | | 4,950 | | | | 6,167 | | | | 33,348 | | Banco Santander, S.A. – Spain | | | — | | | | 2,463 | | | | — | | | | 23,911 | | Abbey National Treasury Services Plc | | | — | | | | 2,487 | | | | — | | | | 9,437 | | Companhia de Crédito Financiamento e Investimento RCI Brasil. | | | 33,674 | | | | — | | | | 3,947 | | | | — | | Companhia de Arrendamento Mercantil RCI Brasil. | | | 6,360 | | | | — | | | | 2,220 | | | | — | | Interest expenses and similar charges – Customer deposits | | | (7,233 | ) | | | (12,039 | ) | | | (8,153 | ) | | | (10,374 | ) | Produban Serviços de Informática S.A. | | | — | | | | — | | | | — | | | | (2,654 | ) | ISBAN S.A. | | | — | | | | — | | | | — | | | | (7,445 | ) | Fundo de Investimento Multimercado Menorca Crédito Privado | | | — | | | | (11,940 | ) | | | — | | | | — | | Companhia de Arrendamento Mercantil RCI Brasil. | | | (6,379 | ) | | | — | | | | (8,153 | ) | | | — | | Other | | | (854 | ) | | | (99 | ) | | | — | | | | (275 | ) |
| | For the year ended December 31, | | | | 2009 | | | 2008 | | | | Income (Expenses) | | | Income (Expenses) | | | | Joint-controlled companies | | | Related parties | | | Joint-controlled companies | | | Related parties | | | | (in thousands of R$) | | Interest expenses and similar charges – Deposits from credit institutions | | | (400 | ) | | | (125,466 | ) | | | — | | | | (552,897 | ) | Banco Santander, S.A. – Spain | | | — | | | | (100,574 | ) | | | — | | | | (439,379 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | — | | | | (9,062 | ) | | | — | | | | (50,406 | ) | Banco Español de Crédito, S.A. – Banesto | | | — | | | | — | | | | — | | | | (12,263 | ) | Banco Santander, S.A. – Chile | | | — | | | | — | | | | — | | | | (50,838 | ) | Grupo Banesto: Sociedades consolidables | | | — | | | | (1,131 | ) | | | — | | | | — | | Abbey National Treasury Services Plc | | | — | | | | (1,869 | ) | | | — | | | | — | | Cia Brasileira de Soluções e Serviços – CBSS. | | | — | | | | (4,821 | ) | | | — | | | | — | | Fundo de Investimento Multimercado Santillana Cred. Privado. | | | — | | | | (7,922 | ) | | | — | | | | — | | Companhia de Crédito Financiamento e Investimento RCI Brasil. | | | (400 | ) | | | — | | | | — | | | | — | | Other | | | — | | | | (87 | ) | | | — | | | | (11 | ) | Gains/losses on financial assets and liabilities | | | — | | | | (468,098 | ) | | | — | | | | (675,087 | ) | Banco Santander, S.A. – Spain | | | — | | | | — | | | | — | | | | (295,815 | ) | Santander Benelux, S.A., N.V. | | | — | | | | (320,972 | ) | | | — | | | | (349,805 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | — | | | | (6,001 | ) | | | — | | | | 24,145 | | Fundo de Investimento Multimercado Menorca Crédito Privado | | | — | | | | 46,023 | | | | — | | | | — | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | — | | | | (182,833 | ) | | | — | | | | — | | Other | | | — | | | | (4,315 | ) | | | — | | | | (53,612 | ) | Other income (expenses) | | | 6,861 | | | | (188,209 | ) | | | — | | | | (175,929 | ) | Banco Santander, S.A. – Spain | | | — | | | | (83,843 | ) | | | — | | | | 15,511 | | Santander Seguros S.A. | | | — | | | | (475 | ) | | | — | | | | 1,078 | | Santander Capitalização S.A. | | | — | | | | 13,351 | | | | — | | | | 35,054 | | ISBAN S.A. | | | — | | | | — | | | | — | | | | (95,552 | ) | Altec, S.A. – Chile | | | — | | | | (7,805 | ) | | | — | | | | (2,837 | ) | Aquanima Brasil Ltda. | | | — | | | | (22,239 | ) | | | — | | | | (16,095 | ) | Ingeniería de Software Bancario, S.L. | | | — | | | | (24,900 | ) | | | — | | | | (19,857 | ) | Santander Investment Securities Inc. | | | — | | | | (44,757 | ) | | | — | | | | — | | Companhia de Crédito Financiamento e Investimento RCI Brasil. | | | 6,134 | | | | — | | | | — | | | | — | | Other | | | 727 | | | | (17,541 | ) | | | — | | | | (93,231 | ) | Gains on disposal of assets not classified as noncurrent assets held for sale | | | — | | | | 2,376,460 | | | | — | | | | — | | Santusa Holding, S.L. | | | — | | | | 2,376,460 | | | | — | | | | — | |
The compensation of our key management personnel was approved at the shareholders meeting which set the maximum aggregate compensation for the Board of Directors and Executive Officers at R$226 million. For further details see note 43 B to our audited consolidated financial statements.
| | | | | | | | | | | | Joint-controlled companies | | | | | | | | | Joint-controlled companies | | | | | | | (in thousands of R$) | | Income | | | | | | | | | | | | | | | | | | | Interest and similar income – Loans and amounts due from credit institutions | | | 5,046 | | | | 50,771 | | | | 267 | | | | 2,384 | | | | 39,395 | | | | 1,029 | | Banco Santander, S.A. – Spain | | | 5,046 | | | | – | | | | – | | | | 2,384 | | | | – | | | | – | | Abbey National Treasury Services Plc | | | – | | | | – | | | | 14 | | | | – | | | | – | | | | 1,029 | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | 50,771 | | | | – | | | | – | | | | 38,545 | | | | – | | Companhia de Arrendamento Mercantil RCI Brasil | | | – | | | | – | | | | – | | | | – | | | | 850 | | | | – | | Santander Benelux, S.A., N.V. | | | – | | | | – | | | | 253 | | | | – | | | | – | | | | – | | Interest expense and similar charges – Customer deposits | | | – | | | | – | | | | (37,974 | ) | | | – | | | | – | | | | (28,827 | ) | ISBAN Brasil S.A. | | | – | | | | – | | | | (10,551 | ) | | | – | | | | – | | | | (9,359 | ) | Produban Serviços de Informática S.A. | | | – | | | | – | | | | (3,841 | ) | | | – | | | | – | | | | (2,736 | ) | Real Fundo de Investimento Multimercado Santillana Crédito Privado | | | – | | | | – | | | | (21,777 | ) | | | – | | | | – | | | | (16,166 | ) | Others | | | – | | | | – | | | | (1,805 | ) | | | – | | | | – | | | | (566 | ) | Interest expenses and similar charges – Deposits from credit institutions | | | (15,311 | ) | | | (620 | ) | | | (5,044 | ) | | | (47,134 | ) | | | (526 | ) | | | (32,676 | ) | Banco Santander S.A. – Spain | | | (15,311 | ) | | | – | | | | – | | | | (47,134 | ) | | | – | | | | – | | Abbey National Beta Investments Limited | | | – | | | | – | | | | – | | | | – | | | | – | | | | (7,415 | ) | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | (620 | ) | | | – | | | | – | | | | (526 | ) | | | – | | Banco Madesant – Sociedade Unipessoal,S.A | | | – | | | | – | | | | (5,013 | ) | | | – | | | | – | | | | (25,143 | ) | Others | | | – | | | | – | | | | (31 | ) | | | – | | | | – | | | | (118 | ) | Expense and similar charges – Marketable debt securities | | | (1,789 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | Banco Santander S.A. – Spain | | | (1,789 | ) | | | – | | | | – | | | | – | | | | – | | | | – | | Fee and commission income (expense) | | | (14,820 | ) | | | 13,262 | | | | 56,224 | | | | 73,975 | | | | 6,770 | | | | 9,449 | |
| | | | | | | | | | | | Joint-controlled companies | | | | | | | | | Joint-controlled companies | | | | | | | (in thousands of R$) | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | 10,118 | | | | – | | | | – | | | | 6,327 | | | | – | | Banco Santander S.A. – Spain | | | (14,820 | ) | | | – | | | | – | | | | 73,975 | | | | – | | | | – | | Aviación Antares, A.I.E | | | – | | | | – | | | | – | | | | – | | | | – | | | | 9,449 | | Aviación Centaurus, A.I.E | | | – | | | | – | | | | 11,928 | | | | – | | | | – | | | | – | | Santander Seguros | | | – | | | | – | | | | 35,785 | | | | – | | | | – | | | | – | | Others | | | – | | | | 3,144 | | | | 8,511 | | | | – | | | | 443 | | | | – | | Gains (losses) on financial assets and liabilities (net) and Exchange differences (net) | | | (245,096 | ) | | | 6,522 | | | | (505,726 | ) | | | (44,953 | ) | | | – | | | | (42,090 | ) | Banco Santander S.A. – Spain | | | (245,096 | ) | | | – | | | | – | | | | (44,953 | ) | | | – | | | | – | | Santander Benelux, S.A., N.V. | | | – | | | | – | | | | (38,238 | ) | | | – | | | | – | | | | 32,489 | | Santander Overseas Bank, Inc – Puerto Rico | | | – | | | | – | | | | 160 | | | | – | | | | – | | | | 188 | | Fundo de Investimento Multimercado Santillana Crédito Privado | | | – | | | | – | | | | (342,975 | ) | | | – | | | | – | | | | (86,572 | ) | Abbey National Beta Investments Limited | | | – | | | | – | | | | (91,726 | ) | | | – | | | | – | | | | 14,763 | | Santander Investment Securities Inc. | | | – | | | | – | | | | (11,714 | ) | | | – | | | | – | | | | – | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | – | | | | 6,522 | | | | – | | | | – | | | | – | | | | – | | Others | | | – | | | | – | | | | (21,233 | ) | | | – | | | | – | | | | (2,958 | ) | Administrative expenses and amortization | | | (152 | ) | | | – | | | | (256,681 | ) | | | – | | | | – | | | | (226,127 | ) | ISBAN Brasil S.A. | | | – | | | | – | | | | (54,104 | ) | | | – | | | | – | | | | (50,320 | ) | Produban Serviços de Informática S.A. | | | – | | | | – | | | | (103,991 | ) | | | – | | | | – | | | | (108,741 | ) | ISBAN Chile S.A. | | | – | | | | – | | | | (4,814 | ) | | | – | | | | – | | | | (5,491 | ) | Aquanima Brasil Ltda | | | – | | | | – | | | | (21,500 | ) | | | – | | | | – | | | | (21,256 | ) | Ingeniería de Software Bancario, S.L. | | | – | | | | – | | | | (32,209 | ) | | | – | | | | – | | | | (19,722 | ) | Produban Servicios Informáticos Generales, S.L | | | – | | | | – | | | | (23,629 | ) | | | – | | | | – | | | | (15,868 | ) | Santander Seguros | | | – | | | | – | | | | (89 | ) | | | – | | | | – | | | | – | | Zurich Santander Insurance America, S.L. | | | – | | | | – | | | | (12,151 | ) | | | – | | | | – | | | | – | | Others | | | (152 | ) | | | – | | | | (4,194 | ) | | | – | | | | – | | | | (4,729 | ) | Gain (losses) on non-current assets held for sale not classified as discontinued operations | | | – | | | | – | | | | 424,292 | | | | – | | | | – | | | | – | | Zurich Santander Insurance America, S.L(3). | | | – | | | | – | | | | 424,292 | | | | – | | | | – | | | | – | |
(1) | Santander Brasil is indirectly controlled by Santander Spain, through its subsidiaries Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. |
(2) | Refers to subsidiaries of Santander Spain. |
(3) | In 2011, we sold our wholly-owned subsidiary, Santander Seguros to a joint enterprise of Santander Spain and Zurich Financial, though we will continue to distribute the products offered by Santander Seguros. See “Item 4. Information on the Company—A. History and Development of the Company—Important Events—Sale of Santander Seguros”. |
Not applicable. Consolidated Financial Statements See “Item 18. Financial Statements”, which contains our audited consolidated financial statements prepared in accordance with IFRS. Legal Proceedings We are a party to lawsuits and administrative proceedings incidental to the normal course of our business. The main categories of lawsuits and administrative proceedings to which we are subject include: | · | administrative and judicial actions relating to taxes; |
| · | indemnification suits for damage related to consumer rights, in particular with respect to credit cards, checking accounts, collection and loan disputes; |
| · | suits involving dispute of contractual clauses of existing agreements; |
· | · | civil suits, including from depositors relating to the alleged effects of our implementation of various government economic plans (seeking differences for monetary adjustments on remuneration of several deposits, such as saving accounts and judicial deposits) and consumer law (i.e.,(that is, breach of contract and foreign currency indexation, including administrative proceedings) and to the privatization of Banespa; |
| · | class actions involving agreements and settlement of debts with the public sector; and |
| · | suits brought by employees, former employees and unions relating to alleged labor rights violations. |
TheIn accordance with IAS 37 - Provisions, Contingent Liabilities and Contingent Assets, we record provisions are recorded for administrative and judicial proceedings in which we assess the chances of loss to be probable. Overall,probable and we do not record provisions when the chances of loss are possible or remote, in accordance with IFRS.remote. In cases where we litigate a claim, we record a provision for our estimate of the probable loss based on historical data for similar claims. In addition, we record provisions (i)(1) on a case-by-case basis based on the analysis and legal opinion of internal and external counsel or (ii)(2) by considering the historical average amount of loss of such category of lawsuits. Due to the established provisions
and the legal opinions provided, we believe that any liabilities related to these lawsuits or proceedings will not have a material adverse effect on our financial condition or results of operations. As of December 31, 2009,2011, our judicial and administrative proceedings classified as probable and possible contingent legal liabilitiesloss risk (tax, labor and civil) amounted to approximately R$17.614.5 billion of whichand have been provisioned and our probable contingent legal liabilitiesjudicial and legal obligationsadministrative proceedings classified as possible loss risk (tax, labor and civil) amounted to approximately R$11.111.9 billion. Tax Litigation We are a party to several tax-related lawsuits and administrative actions. As of December 31, 2009,2011, our probable and possible tax liabilityloss risk litigation and legal obligations amounted to approximately R$11.19.7 billion of which approximately R$6.4 billion were probable amounts or legal obligations and have been provisioned in accordance withand our policies. It is our policy notpossible loss risk litigation amounted to provision actions with possible and remote loss assessment.approximately R$10.4. In November 2009, we and our controlled entities joined the program of installments and payment of tax and social security established by Law No. 11,941/2009. In general terms, this program allows taxpayers to pay all tax debts administered byThe accounting effects of the Brazilian Federal Revenue Office and the National Treasury Attorney’s Office and past-due taxes until November 30, 2008 (whether constituted or not, or entered in the federal over-due tax liability roster or not, as well as debts being demanded under tax enforcement claims already in progress),amounts paid in one lump sum or in severaland certain debts settled as installments were recognized at the time of up to 180 months. The principal actions included in this program are:
| (i) | deductibility of CSLL, in whichpayment and consolidation, respectively. We are still awaiting the entities were claiming the deduction of CSLL in the calculation of IRPJ; |
| (ii) | concurrency IRPJ, in which ABN Leasing intended to reconcile for income tax depreciation expense in the same period of recognition of revenue from leasing consideration; and |
| (iii) | lawsuit filed by several companies of the group challenging the application of an increased CSLL rate (18.0%-30.0%) for financial institutions as compared to the rate for non-financial companies (8.0%-10.0%). For the latter case, the adherence to procedures was partial, for reasons inherent in the processes.
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We and our subsidiaries also agreed to separate the tax and social security liabilities, which may be settled at a later date after the formal consolidation of all tax and social securitya portion of the debts, at which point their accounting effects will be recognized, which effects are not expected to be held by the Brazilian Federal Revenue Service, under the rules of the program. No accounting effect has been recognized in the case of such separation, as it was not possible to identify and quantify the processes to be included in the program and its accounting effects.significant when recognized.
The main judicial and administrative proceedings that remain in place after the application of Law No. 11,941/092009 are: PIS/COFINS. We filed lawsuits seeking to invalidate the provisions of Article 3, Paragraph 1 of Law No. 9,718/98, pursuant to which PIS and COFINS taxes must be levied on all revenues of legal entities. Prior to the enactment of such provisions, which have been overruled by recent Supreme Court decisions for nonfinancial institutions, PIS and COFINS were levied only on revenues from services and sale of goods. As of December 31, 2011 these claims amounted to R$6,833 million and are fully provisioned. Social contribution tax. | · | Equal tax treatment. We filed a lawsuit challenging the application of an increased CSLLSocial Contribution on Net Income (Contribuição Social sobre o Lucro Líquido) or “CSLL” rate of 18.0% for financial institutions, applicable until 1998, compared to the CSLL rate of 8.0% for non-financial institutions on the basis of the constitutional principle of equal tax treatment. As of December 31, 2011, the amount related to this claim totaled R$49 million and is fully provisioned. |
| · | Tax rate increase. We filed for an injunction to avoid the increase in the CSLL tax rate established by Executive Act No. 413/2008, subsequently codified into Law No. 11,727/2008. Financial institutions were formerly subject to a CSLL tax rate of 9.0%,; however, Law No. 11,727/2008 established a 15.0% CSLL tax rate as from April 2008. Judicial proceedings are pending judgment. As of December 31, 2011, the amount related to this injunction totaled R$980 million and is fully provisioned. |
| · | Federal Revenue Services allegationTax on services for financial institutions. WeCertain municipalities levy Service Tax (Imposto Sobre Serviços–ISS) taxes on certain revenues derived from transactions not usually classified as the rendering of services. In such cases, we have questionedargued in administrative and judicial proceedings against the Federal Revenue Services allegation of irregularities in certain CSLL tax payments, given that a final and non-appealable judgment was declared in our favor cancelling payment of such CSLL taxes pursuantISS. As of December 31, 2011, amounts related to Law No. 7.689/1988these proceedings totaled R$542 million and Law No. 7.787/1989. Two of our subsidiaries are involved in separate actions relating to this proceeding.fully provisioned.
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| · | Alleged non-compliance with amnesty lawSocial security contribution. The federal government has demanded payment of certain CSLL taxes from certain entities, including us, alleging that such entities did not fulfill all the requirements listed under the tax amnesty under Law No. 9779/1999. AdministrativeWe are involved in administrative and judicial proceedings regarding the collection of income tax on social security and education allowance contributions as we believe that these benefits do not constitute salary. As of December 31, 2011, amounts related to these proceedings totaled R$288 million and are pending judgment.fully provisioned.
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Contingent liabilities classified as possible risk of loss refer to judicial and administrative proceedings involving tax matters assessed by legal counsels as possible losses, which were not accounted for. The main lawsuits include: Taxes on banking transactions. In May 2003, the Federal Revenue Service issued a tax assessment against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (“Santander DTVM”) and another tax assessment against our predecessor, Banco Santander Brasil S.A. The tax assessments refer to the collection of a Provisional Contribution on Financial Transactions (“Contribuição Provisória sobre Movimentação Financeira”) or “CPMF” tax on transactions conducted by Santander DTVM in the management of its customers’ funds and clearance services provided by our predecessor to Santander DTVM in 2000, 2001 and the first two months of 2002. We believe that the tax treatment was adequate. Santander DTVM succeeded in the first instance in its proceeding before the tax appeals board, while Banco Santander Brasil S.A. was found liable for the tax assessment. Both decisions were appealed by the respective losing parties and the proceedings are pending final judgment of the respective appeals in a non-appealable proceeding before the Board of Tax Appeals (Conselho Administrativo de Recursos Fiscais) or “CARF”. As of December 31, 2011 amounts related to these claims are approximately R$564 million each. Taxes on reimbursements arising from contractual guarantees. The Federal Revenue Service issued infraction notices against Santander Brasil with respect to the collection of IRPJ and CSLL taxes for tax years 2002 to 2006 on amounts reimbursed by the previous controlling shareholder of Group Bozano Simonsen’s (one of our former bank entities) as reimbursement obligations for payments made by us and our controlled entities as a result of contingent liabilities arising from the activities of Group Bozano Simonsen carried out when the previous controlling shareholder still maintained control of such group. The Federal Revenue Service deemed the amounts to be “taxable income” rather than reimbursements. In November 2011, a public hearing was held before CARF and a unanimous decision was handed down to cancel the tax assessments corresponding to the 2002 tax year. In February 2012 this decision was declared non-appealable, so there is no potential tax liability related to this claim for the 2002 tax year. Proceedings related to tax years 2003 to 2006 are ongoing. As of December 31, 2011 amounts related to this infraction are approximately R$644 million. Losses on loans. We have challenged the tax assessments issued by the Federal Revenue Services claiming that our deduction of losses on loans from Income Tax of Legal Entities (Imposto de Renda das Pessoas Jurídicas – IRPJ) and CSLL bases have not met the relevant requirements under applicable law. As of December 31, 2011 the amount related to this challenge is approximately R$335 million. Federal Revenue Services allegation. We have challenged the Federal Revenue Services allegation of irregularities in certain CSLL tax payments, due to a final and non-appealable judgment cancelling the requirement of such CSLL taxes pursuant to Law No. 7,689/1988 and Law No. 7,787/1989. Two of our subsidiaries are involved in separate actions relating to this proceeding. As of December 31, 2011 amounts related to these actions are approximately R$170 million. Alleged non-compliance with amnesty law. The federal government has demanded payment of certain CSLL taxes from certain entities, including one of our former bank entities, alleging that such entities did not fulfill all the requirements listed under a tax amnesty issued under Law No. 9779/1999. Administrative and judicial proceedings are pending judgment. In 2011, the former shareholders of the entity from which the federal government has demanded payment agreed to assume the liability in connection with this claim and we do not expect to have any further liability with respect to this claim. Allowance for doubtful accounts. The tax authorities have requested payment of certain amounts relating to CSLL and IRPJ levied on amounts for doubtful accounts that were allegedly improperly deducted due to non-compliance with tax criteria in effect in 1995. In 2011, the former shareholders of the entity from which the tax authorities have demanded payment agreed to assume the liability in connection with this claim and we do not expect to have any further liability with respect to this claim. TaxesSocial Security Contribution – Profit Sharing Payments (Participação nos Lucros e Resultados or “PLR”). We are involved in administrative and judicial proceedings arising from infraction notices with respect to the collection of social security contributions on banking transactionsprofit sharing payments. The tax authorities claim that payments by us were not made in accordance with law. We have appealed against these charges, since we consider the tax treatment to be appropriate based on applicable law and the nature of the payments. As of December 31, 2011 amounts related to these proceedings totaled approximately R$273 million.
IRPJ and CSLL – Capital Gain. In May 2003, theThe Brazilian Federal Revenue Service issued a tax assessment against Santander Distribuidora de TítulosSeguros (legal successor of ABN AMRO Brasil Dois Participações S.A. (AAB Dois Par)) charging income tax and social contribution related to the 2005 tax year. The Brazilian Federal Revenue Services claims that the capital gain on the sale of Real Seguros S.A. and Real Vida e Valores Mobiliários Ltda.Previdência S.A. by AAB Dois Par should be paid at a 34% tax rate instead of 15%. The assessment was appealed at the administrative level based on our understanding that the tax treatment adopted in the transaction was in compliance with the current tax law and another tax assessment against our predecessor,the capital gain was properly taxed. The administrative process is set for trial. Banco Santander Brasil S.A. The tax assessments referis responsible for any adverse outcome in this process as a former controller of Santander Insurance. As of December 31, 2011 the amount related to the collection of a CPMF tax on transactions conducted by Santander DTVM in the management of its customers’ funds and clearance services provided by our predecessorthis proceeding is approximately R$212 million. to Santander DTVM in 2000, 2001 and the first two months of 2002. We believe that the tax treatment was adequate. The tax appeals board voided the service of process against Santander DTVM and confirmed the service of process notice of Banco Santander Brasil S.A. An administrative appeal can be filed with the Superior Chamber of Tax Appeals.
Taxes on reimbursement arising from contractual guarantees. In December 2007, the Federal Revenue Service issued an infraction notice against us. The notice refers to the collection of IRPJ and CSLL taxes for tax year 2002 on amounts reimbursed by our former controlling shareholder for payments made by us that were the responsibility of the controlling shareholder. The Federal Revenue Service deemed the amounts to be taxable income and not reimbursements. We filed an administrative defense which had an unfavorable outcome.
Tax on services for financial institutions. Certain municipalities levy ISS taxes on certain revenues derived from transactions not usually classified as the rendering of services. In such cases, we have argued in administrative and judicial proceedings against the payment of ISS.
Social security contribution. We are involved in administrative and judicial proceedings regarding the collection of income tax on social security and education allowance contributions as we believe that these benefits do not constitute salary.
Labor Litigation Similar to many other Brazilian banks, we are defending lawsuits brought by labor unions or individual employees seeking, in general, compensation for overtime work, lost wages and other labor rights, including lawsuits relating to retiree complaints about pension benefits. We believe we have either paid or adequately provisioned for all such potential liabilities. In addition, we are defendants in labor lawsuits filed by third-party employees that rendered or render services to us through service providers. Brazilian courts understand that if a third-party service provider fails to pay its employee, the employee has the right to demand payment directly from the company to which it rendered its services. As of December 31, 2009,2011, our probable and possibleloss risk labor-related litigation liabilities amounted to R$4.43.3 billion, which it have been provisioned and we have provisioned for R$3.1 billion in connection withour possible loss risk labor-related litigation for which the risk of loss is probable.amounted to R$1.3 billion. Civil Litigation We are a party to civil lawsuits claiming damages and other civil remedies. These disputes normally fall within one of the following categories typical for Brazilian banks: (1) actions requesting the review of contractual terms and conditions or seeking monetary adjustments, including the alleged effects of implementation of various economic government plans; (2) actions arising from loan agreements; (3) execution actions; and (4) actions seeking damages. As of December 31, 2009,2011, our possible and probable loss risk civil litigation liabilities amounted towere R$2.11.5 billion, of which we hadit have been provisioned R$1.6 billion for probable losses, including to cover theand our possible loss risk civil litigation described below.liabilities were R$0.3 billion. For civil lawsuits considered to be common and similar in nature, the provisions are recorded based on statistical average previous payments, and on the legal counsel’s evaluation of success. Provisions for other lawsuits are determined individually on a case-by-case basis. From September 2009 through January 2010, we have entered into some final and binding settlement agreements with respect to the lawsuits brought by minority shareholders of the former Banco Noroeste, arising from our acquisition of Banco Noroeste in 1998 and the subsequent merger of Banco Noroeste with us in 1999, pursuant to which we paid the plaintiffs R$93.8 million (plus R$11.0 million in attorneys’ fees), and one of our controlling shareholders purchased the remaining shares held by such plaintiffs, in exchange for the discharge of all such claims. These settlement agreements were homologated by the courts, and therefore the lawsuits were extinguished.
Other Litigation In addition to the matters described above, we are from time to time subject to certain claims and parties to certain legal proceedings incidental to the normal course of our business, including in connection with our lending activities, relationships with our employees and other commercial or tax matters. In view of the inherent difficulty of predicting the outcome of legal matters, particularly where the claimants seek very large or indeterminate damages, or where the cases present novel legal theories, involve a large number of parties or are in the early stages of discovery, we cannot state with confidence what the eventual outcome of these pending matters will be, what the timing of the ultimate resolution of these matters will be or what the eventual loss, fines or penalties related to each pending matter may be. We believe that we have made adequate reserves related to the costs anticipated to be incurred in connection with these various claims and legal proceedings and believe that liabilities related to such claims and proceedings should not have, in the aggregate, a material adverse effect on our business, financial condition, or results of operations. However, in light of the uncertainties involved in such claims and proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by us; as a result, the outcome of a particular matter may be material to our operating results for a particular period, depending upon, among other factors, the size of the loss or liability imposed and our level of income for that period. Contingent liabilities classified as possible risk of loss refer to judicial and administrative proceedings involving other matters assessed by legal counsels as possible losses, which were not accounted for. The main lawsuits include: In connectionAddition to the Price on the Purchase of Shares of Banespa – We are party to administrative and judicial proceedings with the above,National Treasury with respect to an adjustment to the purchase price at the time we acquired Banespa. Pursuant to the purchase and sale agreement for Banespa, we would have been required to pay an amount in addition to the agreed purchase price if we were released from the obligation to pay a certain tax contingency for which Banespa was liable at the time of acquisition. In 2002, this tax contingency was paid at a discount due to a tax law in effect at the time. As a result, the National Treasury claimed it was due the additional amount initially negotiated in the purchase and sale agreement for Banespa. We were subject to an unfavorable ruling at the lower court, but on April 23, 2008, the First Region Federal Court accepted the Bank’s argument on appeal and declared that the Bank would not be required to make this additional payment. As of the date of this annual report, we are awaiting the decision on the appeal by the National Treasury. As of December 31, 2011 the amount related to this proceeding is approximately R$422 million.
Semiannual Bonus or Profit Sharing. We are party to a labor lawsuit relating to the payment of a semiannual bonus or, successively, profit sharing, to retired employees from the former Banespa, that had been hired by May 22, 1975. This lawsuit was filed by Banespa’s Retirees Association and judgments were entered against us by the Superior Labor Court. We have filed an appeal, which has been admitted to the Supreme Court. The amount related to this claim is not disclosed due to the current stage of the lawsuit and the possible impact such disclosure may have on the progress of the claim. In addition to the above-mentioned proceedings, in December 2008, the Federal Revenue Service issued an infraction notice against us in the total amount of R$3.9 billion with respect to IRPJ and CSLL related to 2002 and 2004.to 2004, for which we believe the risk of loss to Santander Brasil to be remote. The tax authorities assert that Santander Brasil did not meet the legal requirements for deducting amortization of the goodwill arising from the acquisition of Banespa. We have filed an appeal toOn October 21, 2011 a public hearing was held at the Administrative Counsel of Tax Appeals (Conselho Administrativo de Recursos Fiscais)CARF and a ruling is expected within approximately one year. We believe,unanimous decision was handed down to cancel the tax assessments corresponding to those tax years. This resolution can be appealed by the Brazilian tax administration. In June 2010, the Federal Revenue Service issued other infraction notices in the total amount of R$1,420 million, based on the same concepts as the previous notice, with respect to IRPJ and CSSL related to 2005 to 2007. The administrative proceedings are pending judgment. In accordance with the advice of our external legal counsel, we find that the Federal Revenue Service’s position is incorrect, that the grounds to contest this claimthose claims are well founded, and that the risk of loss is remote. Accordingly, we have not recorded any provisions for this matter since this issue should not have an impact on our consolidated financial statements. Grand Cayman Islands Branch
We have a branch in Grand Cayman,the Cayman Islands with its own staff and representative officers. Banco Santander S.A. – Grand Cayman BranchIslands branch is licensed under The Banks and Trust Companies Law (2009 Revision) as a Category “B” Bank and it is duly registered as a Foreign Company with the Registrar of Companies in Grand Cayman, – Cayman Islands. The Branch,branch, therefore, is duly authorized to carry on banking business in the Cayman Islands. The branch was authorized by the local authorities to act as its own registered office and it is located at the Waterfront Centre Building, 28, North Church Street – 2nd floor, Grand Cayman, Cayman Islands, P.O. Box 10444 - KYI-1004, Phone: 1-345-769-4401 and Fax: 1-345-769-4601. Our Grand Cayman Islands branch is currently engaged in the business of sourcing funds in the international banking and capital markets to provide credit lines for us, which are then extended to our customers for working capital and trade-related financings. It also takes deposits in foreign currency from corporate and individual clients and extends credit to Brazilian and non-Brazilian clients, mainly to support trade transactions with Brazil. The results of the operations of the Grand Cayman Islands branch are consolidated in our consolidated financial statements. Dividend Policy We currently intend to recommend to our shareholders a policy to distribute 50% of our yearly adjusted net income (as defined below) as dividends and/or interest attributable to shareholders’ equity. Our future dividend policy and the amount of future dividends and/or interest attributable to shareholders’ equity we decide to recommend to our shareholders for approval will depend on a number of factors, including, but not limited to, our cash flow, financial condition (including capital position), investment plans, prospects, legal requirements, economic climate and such other factors as we may deem relevant at the time. The amount of future dividends or interest attributable to shareholders’ equity we may pay is subject to Brazilian corporate law and will be determined by our shareholders at general shareholders’ meetings as described below. Amounts Available for Distribution At each annual general shareholders’ meeting, our board of directors is required to advise on how to allocate our net income for the preceding year. The allocation is subject to approval by our shareholders. Brazilian corporate law defines “net income” for any fiscal year as the results in a given year after the deduction of accrued losses, the provisions for income and social contribution taxes for that year, accumulated losses from prior years, and any amounts allocated to profit-sharing payments to the employees and management. Our by-laws provide that an amount equal to at least 25% of our adjusted net income, after deducting allocations to the legal and contingency reserves, should be available for distribution as dividend or interest attributable to shareholders’ equity in any given year. This amount represents the mandatory dividend. Our calculation of net income and allocations to reserves for any year, as well as the amount available for distribution, are determined on the basis of our consolidated financial statements prepared in accordance with Brazilian GAAP. Our adjusted net income calculated in accordance with Brazilian GAAP may differ from the net income calculated in accordance with IFRS, principally as a result of the amortization of the goodwill derived from the acquisition of Banco Real in 2008. See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment”.note 45 to our consolidated financial statements. Brazilian corporate law allows, however, our shareholders to suspend dividends distribution if our board of directors reports to our annual shareholders’ meeting that the distribution would not be advisable given our financial condition. Our Fiscal Council, if in operation, should review any suspension of the mandatory dividend. In addition, our management should submit a report to the CVM setting out the reasons for the suspension. Net income not distributed by virtue of a suspension is allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as dividend as soon as our financial condition permits such payment. Reserve Accounts Companies incorporated under Brazilian law usually maintain two main reserve accounts: profit reserve accounts and capital reserve accounts. Profit reserves Reserve accounts are comprised of the legal reserve, by-laws reserve, unrealized profit reserve, retained profit reserve and contingency reserve. | · | Legal Reserve. We are required to maintain a legal reserve to which we must allocate 5% of our net profits for each fiscal year until the aggregate amount of the reserve equals 20% of our capital stock. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our capital stock. Any net loss may be offset with the amounts allocated to the legal reserve. The amounts allocated to such reserve must be approved by our shareholders in a shareholders’ meeting, and may be used only to increase our capital stock or to offset any net losses. Therefore, they are not available for the payment of dividends. |
| · | By-laws Reserve. Pursuant to Brazilian corporate law, we are permitted to provide for the allocation of part of our net income to discretionary reserve accounts that may be established in accordance with our by-laws, which must also indicate the purpose, allotment criteria and maximum amount of the reserve. An allocation of our net income to discretionary reserve accounts may not be made if it serves to prevent distribution of the mandatory distributable amount. Our by-laws currently establish that after the deduction of the amount allocated to the legal reserve and mandatory dividends, we may allocate the balance of our adjusted net income to a reserve for equalization of dividends, which is limited to 50% of our capital stock.stock, whose purpose is to secure funds for the payment of dividends or interest attributable to shareholder’s equity, or any advance payment thereof, so as to ensure a continuous flow of dividends. |
| · | Unrealized Profit Reserve. Pursuant to Brazilian corporate law, the amount by which the mandatory dividend exceeds the “realized” net profits in a given year may be allocated to an unrealized profit reserve account. Brazilian corporate law defines “realized” net profits as the amount by which our net profits exceeds the sum of (1) our net positive results, if any, from the equity method of accounting; and (2) the profits, gains or income that will be received by our company after the end of the next fiscal year. Profits recorded in the unrealized profit reserve, if realized and not absorbed by losses in subsequent years, must be added to the next mandatory dividend distributed after the recognition. Currently, we do not have an unrealized profit reserve. |
| · | Retained Profit Reserve. Pursuant to Brazilian corporate law, a portion of our net income may be reserved for investment projects in an amount based on a capital expenditure budget approved by our shareholders. If such budget covers more than one fiscal year, it must be reviewed annually at the shareholders’ general meeting. The allocation of this reserve cannot jeopardize the payment of the mandatory dividends. Currently, we do not have a retained profit reserve. |
| · | Contingency Reserve. Under Brazilian corporate law, a percentage of our net income may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Management must indicate the cause of the anticipated loss and justify an allocation to the contingency reserve. Any amount so allocated in a prior year either must be reversed in the year in which the loss had been anticipated, if the loss does not occur as projected, or charged off in the event that the anticipated loss occurs. Allocations to the contingency reserve are subject to the approval of our shareholders at a shareholders’ general meeting. Currently, we do not have a contingency reserve. |
Capital Reserves According to Article 182 of Brazilian corporate law, the capital reserve is comprised of: (1) interest paid in the subscription of shares; and (2) sale of participation certificates (not applicable to us) and subscription bonds. The capital reserve can be used to only: (1) amortize losses greater than accumulated income and revenue reserves; (2) call, reimburse or redeem our own shares; (3) redeem shares of beneficiaries (not applicable to us); (4) incorporation to capital stock; or (5) pay dividends to preferred shareholders under limited circumstances. Currently, we do not have a capital reserve. Payment of Dividends and Interest Attributable to Shareholders’ Equity Dividends We are required by Brazilian corporate law and our by-laws to hold an annual general shareholders’ meeting by no later than the fourth month after each fiscal year, at which time, among other things, the allocation of the results of operations in any year and the distribution of an annual dividend are reviewed. The payment of annual dividends is based on our consolidated audited financial statements prepared for the immediately preceding fiscal year. Any holder of record of shares at the time a dividend is declared is entitled to receive dividends. Under Brazilian corporate law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders’ resolution establishes another payment date, which, in any event, must occur prior to the end of the fiscal year in which such dividend was declared. Based on Brazilian corporate law, unclaimed dividends do not bear interest, are not monetarily adjusted and may revert to us three years after dividends were declared. In this regard, on April 26, 2011 our shareholders approved in an extraordinary shareholders meeting the amendment of the term of payment of dividends and interest attributable to shareholders’ equity related specifically for the year of 2011, to not more than 180 days counted from its declaration by our board of directors and in any circumstances within the year of 2011. Our board of directors may declare interim dividends or interest attributable to shareholders’ equity based on income verified in semi-annual consolidated financial statements. The board of directors may also declare dividends based on consolidated financial statements prepared for shorter periods, provided that the total dividends paid in each six-month period do not exceed the capital reserves amount required by Brazilian corporate law. The board of directors may also pay interim dividends or interest attributable to shareholders’ equity out of retained earnings or income reserves recorded in the last annual or semi-annual balance sheet. Any payment of interim dividends or interest on shareholders’ equity may be set off against the amount of mandatory dividends relating to the net income earned in the year in which the interim dividends were paid. In general, shareholders who areShareholders not residents of Brazil must register their equity investment with the Brazilian Central Bank to receivehave the dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside Brazil. The depositary is the registered owner of the units underlying the ADSs on the records of the registrar. Such units are held in Brazil by us, acting as the custodian asand agent for the depositary that is the registered owner on the records of the registrar for our units. We are also acting as the registrar.registrar of such units. The depositary registers the units underlying the ADSs with the Brazilian Central Bank and, therefore, is able to receive dividends, sales proceeds or other amounts with respect to the registered units and have them remitted outside Brazil.
Payments of cash dividends and distributions, if any, are made in reais to the custodian on behalf of the depositary, which then converts such proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. In the event that the custodian is unable to convert immediately the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by depreciation of the Brazilian currency. Under current Brazilian corporate law, dividends paid to shareholders who are not Brazilian residents, including holders of ADSs, willare not be subject to Brazilian withholding tax, except for dividends declared based on profits generated prior to December 31, 1995, which will be subject to Brazilian withholding income tax at varying tax rates. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations”. Holders of ADSs have the benefit of the electronic registration obtained from the Brazilian Central Bank, which permits the depositary and the custodian to convert dividends and other distributions or sales proceeds with respect to the units represented by ADSs into foreign currency and remit the proceeds outside Brazil. In the event the holder exchanges the ADSs for units, the holder will be entitled to sell the units in Brazil and continue to rely on the depositary’s electronic registration for five business days after the exchange. Thereafter, in order to convert foreign currency and remit outside Brazil the sales proceeds, dividends or other distributions with respect to the units, the holder must obtain a new electronic registration as a direct investment in its own name or qualify under the foreign investment in portfolio regulations that will also be reflected in a specific electronic registration. Each of such registrations will permit the conversion and remittance of sales proceeds, dividends or other distributions with respect to the units through the commercial rate exchange market. If the holder does not qualify under the foreign investment in portfolio regulations, the foreign direct investment will generally be subject to less favorable tax treatment from any sale or return of the investment under the units. If the ADSs holder attempts to obtain its new own registration of foreign direct investment may result expenses or suffer delays in the application process, which could delay the ability to receive dividends or distributions relating to the units or the return of the investment in a timely manner. Moreover, should the ADSs holder exchange the ADSs for units, applicable regulations require the execution of the corresponding foreign exchange transactions and payment of taxes on such foreign exchange transactions. Under current Brazilian legislation, the federal government may impose temporary restrictions of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. Interest Attributable to Shareholders’ Equity Under the Brazilian tax legislation effective January 1, 1996, Brazilian companies are permitted to pay “interest” to holders of equity securities and treat such payments as an expense for Brazilian income tax purposes and, from 1998, for social contribution purposes. The purpose of the tax law change is to encourage the use of equity investment, as opposed to debt, to finance corporate activities. Payment of such interest may be made at the discretion of our board of directors, subject to the approval of the shareholders at a shareholders’ general meeting. The amount of any such notional “interest” payment to holders of equity securities is generally limited in respect of any particular year to the greater of: | · | 50% of our net income (after the deduction of any allowances for social contribution taxes on net profits but before taking into account allowances for income tax and the interest attributable to shareholders’ equity) for the period in respect of which the payment is made; and |
| · | 50% of our accumulated profits. |
The rate applied in calculating interest attributable to shareholders’ equity cannot exceed the pro rata die variation of the Long Term Interest Rate (Taxa de Juros de Longo PrazoPrazo),), or TJLP. For accounting purposes, although the interest should be reflected in the statement of income for tax deduction, the charge is reversed before the calculation of the net income in the statutory financial statements and deducted from the shareholders’ equity in the same way as the dividend. Any payment of interest with respect of the common shares is subject to income tax at the rate of 15%, with the rate increasing to 25% for individuals or entities residing in a tax haven (i.e.,(that is, a country where there is no income tax or where income tax is below 20% or where local legislation imposes restrictions on disclosure regarding the shareholder composition or investment ownership). If these payments are recorded at their net value, as part of any mandatory dividend, we will pay the tax on behalf of our shareholders upon the payment of interest. If we pay interest attributable to shareholders’ equity in any year, and the payment is not recorded as part of the mandatory distribution, the payment of the income tax will be the responsibility of our shareholders. The amount distributed to shareholders as interest attributable to shareholders’ equity, net of any withholding tax, may be included as part of the minimum mandatory dividend. In accordance with applicable law, we are required to pay to shareholders an amount sufficient to ensure that the net amount they receive in respect of interest attributable to shareholders’ equity, after payment of the applicable withholding tax, plus the amount of declared dividends, is at least equivalent to the amount of the minimum mandatory dividend. A shareholder has a three-year period from the date of the interest payment to claim interest attributable to shareholders’ equity, after which the aggregate amount of any unclaimed interest reverts to us. According to Decree 7,412/10, the payment of interests attributable to shareholders’ equity is subject to the Tax on Exchange Transactions (IOF) at a zero rate. History of Payment of Dividends and Interest Attributable to Shareholders’ Equity In 2009,2011, we declared dividends and interest on shareholders’ equity of R$1,575 million. This amount3,175 million, R$2,000 million of which was paid on August 28, 2011 and R$1,175 million of which was paid on February 22, 2010.28, 2012. The table below shows the amounts paid to our shareholders in the periods indicated. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Dividends | | | 750 | | | | 973 | | | | 1,737 | | | | 823 | | | | 2,606 | | | | 1,625 | | | | 1,780 | | | | 750 | | | | 973 | | | | 1,737 | | Interest attributable to shareholders’ equity. | | | 825 | | | | 480 | | | | 528 | | | | 178 | | | | 358 | | | | 1,550 | | | | 1,760 | | | | 825 | | | | 480 | | | | 528 | | Total | | | 1,575 | | | | 1,453 | | | | 2,265 | | | | 1,001 | | | | 2,963 | | | | 3,175 | | | | 3,540 | | | | 1,575 | | | | 1,453 | | | | 2,265 | | Dividends and interest on capital per 1,000 shares (reais) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common shares | | | 3.77 | | | | 4.26 | | | | 16.30 | | | | | (1) | | | | (1) | | | 7.61 | | | | 7.84 | | | | 3.77 | | | | 4.26 | | | | 16.30 | | Preferred shares | | | 4.15 | | | | 4.69 | | | | 17.93 | | | | | (1) | | | | (1) | | | 8.37 | | | | 8.63 | | | | 4.15 | | | | 4.69 | | | | 17.93 | |
(1) | Prior to August 31, 2006, the Santander Group held interests, directly and indirectly, in four separate entities through which it conducted its banking operations in Brazil: Banco Santander Brasil, S.A., Banco Santander Meridional S.A., Banco Santander S.A. and Banco do Estado de São Paulo S.A. – Banespa. The dividends and interests attributable to shareholder’s equity paid in the period indicated from 2004 to 2006 referred to are the three different interests held directly by the Santander Group: Banco Santander Brasil S.A., Banco Santander Meridional S.A. and Banco Santander S.A. |
| Even if we generate income in future fiscal years, dividends and/or interest attributable to shareholders’ equity may not be paid if our board of directors recommends at a shareholders’ meeting that we not distribute dividends in view of our financial situation. |
| However, this does not imply that dividends cannot be paid to shareholders in the following fiscal year. |
ForNo significant changes with respect to our consolidated financial statements have occurred since December 31, 2011. For important events that have occurred since December 31, 2009,2011, see our Form 6-K relating to our first quarter“Item 4. Information on the Company—A. History and Development of 2010 results and our Form 6-K relating to our unaudited Interim Condensed Consolidated Financial Statements prepared in accordance with IFRS, both filed with the SEC on April 29, 2010.
Company—Important Events”. Market Price and Volume Information
The Board of Directors approved at a meeting held onOn September 18, 2009, our board of directors approved the implementation of the global public offering denominated Global Offering,(the “Global Offering”), which included the issue of 525,000,000 units (each representing one of 55 common shares and 50 preferred shares), all registered, without par value, free and clear of any liens or encumbrances, consisting of the simultaneous initial public offering of (i) units in Brazil on the over-the-counter market, in accordance with Brazilian Securities and Exchange Commission (CVM)CVM Instruction 400/2003, and (ii) units abroad, including in the form of ADRs representing ADSs registered with the SEC under the Securities Act.
On October 6, 2009, the Global Offering shares were priced at R$23.50 per unit and U.S.$13.40 per ADS. The units are traded on the BM&FBOVESPA and the NYSE as ofsince October 7, 2009. For further details on the Global Offering see “Item 4 Information on the Company—A. History and Development of the Company—Important Events—Major Events in 2009 and 2010” and notes 1 and 23note 27 to our audited consolidated financial statements. The following table shows our free floating breakdown:outstanding publicly traded ordinary shares and preferred shares: Free Float | | BM&FBOVESPA | | | NYSE | | ON | | | 14,907,218,952 | | | | 18,695,120,455 | | PN | | | 15,056,668,436 | | | | 16,995,564,050 | | Total | | | 29,963,887,388 | | | | 35,690,684,505 | |
| | | | | | | Ordinary shares | | | 15,651,827,552 | | | | 22,086,682,695 | | Preferred shares | | | 15,733,592,770 | | | | 20,078,802,450 | | Total | | | 31,385,420,322 | | | | 42,165,485,145 | |
Units, Common and Preferred Shares traded on BM&FBOVESPA The table below sets forth the high, low and last daily sales prices in reais for our shares on the continuous marketBM&FBOVESPA for the periods indicated. Reais per share - SANB3 (Common Shares) | | High | | Low | | Last | | N/A | | N/A | | N/A | 2005 ANNUAL | N/A | | N/A | | N/A | 2006 ANNUAL | N/A | | N/A | | N/A | 2007 ANNUAL | N/A | | N/A | | N/A | 2008 ANNUAL | N/A | | N/A | | N/A | 1º Quarter | N/A | | N/A | | N/A | 2º Quarter | N/A | | N/A | | N/A | 3º Quarter | N/A | | N/A | | N/A | 4º Quarter | N/A | | N/A | | N/A | 2009 ANNUAL | 0.25 | | 0.11 | | 0.24 | 1º Quarter | N/A | | N/A | | N/A | 2º Quarter | N/A | | N/A | | N/A | 3º Quarter | N/A | | N/A | | N/A | 4º Quarter | 0.25 | | 0.18 | | 0.22 | LAST 6 MONTHS | 0.25 | | 0.18 | | 0.21 | November 2009 | 0.23 | | 0.18 | | 0.23 | December 2009 | 0.25 | | 0.21 | | 0.24 | January 2010 | 0.24 | | 0.21 | | 0.22 | February 2010 | 0.23 | | 0.18 | | 0.21 | March 2010 | 0.21 | | 0.20 | | 0.21 | 2010 FIRST QUARTER | 0.24 | | 0.18 | | 0.21 | April 2010 | 0.20 | | 0.19 | | 0.19 |
Reais per share–SANB3 (Common Shares) | | | | | | | 2007 Annual | n.a. | | n.a. | | n.a. | 2008 Annual | n.a. | | n.a. | | n.a. | 2009 Annual | 0.25 | | 0.11 | | 0.24 | 2010 Annual | 0.30 | | 0.17 | | 0.28 | 1st Quarter | 0.24 | | 0.18 | | 0.21 | 2nd Quarter | 0.21 | | 0.18 | | 0.21 | 3rd Quarter | 0.25 | | 0.17 | | 0.25 | 4th Quarter | 0.30 | | 0.22 | | 0.28 | 2011 Annual | 0.25 | | 0.12 | | 0.16 | 1st Quarter | 0.25 | | 0.17 | | 0.20 | 2nd Quarter | 0.21 | | 0.16 | | 0.17 | 3rd Quarter | 0.18 | | 0.12 | | 0.13 | 4th Quarter | 0.16 | | 0.12 | | 0.16 | LAST 6 MONTHS | 0.19 | | 0.12 | | 0.16 | October 2011 | 0.15 | | 0.12 | | 0.14 | November 2011 | 0.15 | | 0.12 | | 0.13 | December 2011 | 0.16 | | 0.13 | | 0.16 | January 2012 | 0.17 | | 0.14 | | 0.15 | February 2012 | 0.18 | | 0.15 | | 0.17 | March 2012 (through March 28) | 0.19 | | 0.16 | | 0.16 |
Reais per share–SANB4 (Preferred Shares) | | | | | | | 2007 Annual | n.a. | | n.a. | | n.a. | 2008 Annual | n.a. | | n.a. | | n.a. | 2009 Annual | 0.26 | | 0.12 | | 0.22 | 2010 Annual | 0.22 | | 0.16 | | 0.21 | 1st Quarter | 0.22 | | 0.18 | | 0.20 | 2nd Quarter | 0.20 | | 0.16 | | 0.19 | 3rd Quarter | 0.21 | | 0.16 | | 0.20 | 4th Quarter | 0.21 | | 0.18 | | 0.21 | 2011 Annual | 0.19 | | 0.12 | | 0.14 | 1st Quarter | 0.19 | | 0.16 | | 0.18 | 2nd Quarter | 0.19 | | 0.16 | | 0.18 | 3rd Quarter | 0.18 | | 0.12 | | 0.14 | 4th Quarter | 0.16 | | 0.12 | | 0.14 | LAST 6 MONTHS | 0.18 | | 0.12 | | 0.16 | October 2011 | 0.16 | | 0.12 | | 0.14 | November 2011 | 0.15 | | 0.12 | | 0.13 | December 2011 | 0.15 | | 0.12 | | 0.14 |
Reais per share - SANB4 (Preferred Shares) | | High | | Low | | Last | | N/A | | N/A | | N/A | 2005 ANNUAL | N/A | | N/A | | N/A | 2006 ANNUAL | N/A | | N/A | | N/A | 2007 ANNUAL | N/A | | N/A | | N/A | 2008 ANNUAL | N/A | | N/A | | N/A | 1º Quarter | N/A | | N/A | | N/A | 2º Quarter | N/A | | N/A | | N/A | 3º Quarter | N/A | | N/A | | N/A | 4º Quarter | N/A | | N/A | | N/A | 2009 ANNUAL | 0.26 | | 0.12 | | 0.22 | 1º Quarter | N/A | | N/A | | N/A | 2º Quarter | N/A | | N/A | | N/A | 3º Quarter | N/A | | N/A | | N/A | 4º Quarter | 0.26 | | 0.19 | | 0.22 | LAST 6 MONTHS | 0.26 | | 0.18 | | 0.20 | November 2009 | 0.22 | | 0.19 | | 0.21 | December 2009 | 0.22 | | 0.2 | | 0.22 | January 2010 | 0.22 | | 0.2 | | 0.21 | February 2010 | 0.21 | | 0.18 | | 0.20 | March 2010 | 0.20 | | 0.20 | | 0.20 | 2010 FIRST QUARTER | 0.22 | | 0.18 | | 0.20 | April 2010 | 0.19 | | 0.20 | | 0.19 |
Reais per share–SANB4 (Preferred Shares) | | | | | | | January 2012 | 0.16 | | 0.13 | | 0.16 | February 2012 | 0.18 | | 0.15 | | 0.18 | March 2012 (through March 28) | 0.18 | | 0.16 | | 0.16 |
| BMF&BOVESPA | | Units – SANB11 | | High | | Low | | Last | | R$ per share | October 2009 | 23.70 | | 20.50 | | 21.00 | November 2009 | 23.41 | | 20.15 | | 23.25 | December 2009 | 23.94 | | 23.25 | | 23.74 | January 2010 | 24.05 | | 21.56 | | 22.64 | February 2010 | 22.09 | | 21.75 | | 21.41 | March 2010 | 22.08 | | 21.08 | | 21.85 | April 2010 | 22.25 | | 19.48 | | 20.06 |
| | BMF&BOVESPA Units – SANB11 | | | | | | | | | | | | | | R$ per share | | 2007 Annual | | n.a. | | | n.a. | | | n.a. | | 2008 Annual | | n.a. | | | n.a. | | | n.a. | | 2009 Annual | | n.a. | | | n.a. | | | n.a. | | 2010 Annual | | | 26.05 | | | | 17.93 | | | | 24.85 | | 1st Quarter | | | 24.05 | | | | 21.08 | | | | 21.97 | | 2nd Quarter | | | 22.25 | | | | 18.31 | | | | 20.49 | | 3rd Quarter | | | 23.61 | | | | 17.93 | | | | 23.08 | | 4th Quarter | | | 26.05 | | | | 22.88 | | | | 24.85 | | 2011 Annual | | | 22.95 | | | | 12.51 | | | | 14.96 | | 1st Quarter | | | 22.95 | | | | 18.05 | | | | 19.80 | | 2nd Quarter | | | 20.34 | | | | 16.90 | | | | 18.30 | | 3rd Quarter | | | 18.32 | | | | 12.95 | | | | 13.72 | | 4th Quarter | | | 16.15 | | | | 12.51 | | | | 14.96 | | LAST 6 MONTHS | | | 19.31 | | | | 12.51 | | | | 17.29 | | October 2011 | | | 16.15 | | | | 12.72 | | | | 16.00 | | November 2011 | | | 15.40 | | | | 12.51 | | | | 15.21 | | December 2011 | | | 15.51 | | | | 14.10 | | | | 15.36 | | January 2012 | | | 17.05 | | | | 14.96 | | | | 16.82 | | February 2012 | | | 18.74 | | | | 16.11 | | | | 18.61 | | March 2012 (through March 28) | | | 19.31 | | | | 17.23 | | | | 17.29 | |
ADSs traded on NYSE Our ADSs have been listed and traded on the NYSE since October 7, 2009. Our units abroad, including in the form of ADRs representing ADSs are registered with the SEC under the Securities Act. The deposit agreement, pursuant to which ADRs have been issued is between us and JPMorgan Chase Bank National Association, as depositary, and the holders from time to time of ADRs. Since certain of such of our shares and our ADSs are held by nominees, the number of record holders may not be representative of the number of beneficial owners. | | | | | | | | | | | | | | | | U.S.$ per share | | 2007 Annual | | n.a. | | | n.a. | | | n.a. | | 2008 Annual | | n.a. | | | n.a. | | | n.a. | | 2009 Annual | | | 14.28 | | | | 12.59 | | | | 13.05 | | 2010 Annual | | | 15.66 | | | | 9.82 | | | | 13.60 | | 1st Quarter | | | 12.67 | | | | 11.55 | | | | 12.43 | | 2nd Quarter | | | 12.82 | | | | 9.82 | | | | 10.33 | | 3rd Quarter | | | 13.78 | | | | 10.00 | | | | 13.77 | | 4th Quarter | | | 15.66 | | | | 12.72 | | | | 13.60 | |
| NYSE | | | ADS - BSBR | | | High | | Low | | Last | | | U.S.$ per share | | October 2009 | 13.40 | | 12.96 | | 13.00 | | November 2009 | 13.00 | | 12.59 | | 13.65 | | December 2009 | 14.28 | | 13.76 | | 13.94 | | January 2010 | 12.47 | | 11.95 | | 12.04 | | February 2010 | 11.81 | | 11.76 | | 11.96 | | March 2010 | 12.67 | | 11.55 | | 12.43 | | April 2010 | 12.82 | | 10.66 | | 11.63 | |
| | | | | | | | | | | | | | | | U.S.$ per share | | 2011 Annual | | | 13.98 | | | | 6.73 | | | | 8.14 | | 1st Quarter | | | 13.98 | | | | 10.86 | | | | 12.26 | | 2nd Quarter | | | 12.60 | | | | 10.54 | | | | 11.71 | | 3rd Quarter | | | 11.85 | | | | 7.23 | | | | 7.32 | | 4th Quarter | | | 9.59 | | | | 6.73 | | | | 8.14 | | LAST 6 MONTHS | | | 11.30 | | | | 6.73 | | | | 9.43 | | October 2011 | | | 9.59 | | | | 7.07 | | | | 9.10 | | November 2011 | | | 8.93 | | | | 6.73 | | | | 7.72 | | December 2011 | | | 8.46 | | | | 7.47 | | | | 8.14 | | January 2012 | | | 9.74 | | | | 8.05 | | | | 9.12 | | February 2012 | | | 10.93 | | | | 9.24 | | | | 10.85 | | March 2012 (through March 28) | | | 11.30 | | | | 9.31 | | | | 9.43 | |
Not applicable. Trading on the BM&FBOVESPA In 2000, Bolsa de Valores de São Paulo was reorganized through the execution of a memorandum of understanding by the Brazilian stock exchanges and assumed all equity securities traded in Brazil. In 2007, Bolsa de Valores de São Paulo was subject to a corporate reorganization, by which, among other things, the quotas issued by it were transferred to BOVESPA Holding S.A. and Bolsa de Valores de São Paulo S.AS.A.. – BVSP. The operations of BOVESPA Holding S.A. and Bolsa de Mercadorias e Futuros – BM&F S.A. were subsequently integrated, resulting in the creation of BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros, or BM&FBOVESPA. In late 2008, Bolsa de Valores de São Paulo – BVSP and Companhia Brasileira de Liquidação e Custódia were merged into BM&FBOVESPA, which currently concentrates all trading activities of shares and commodities in Brazil, including settlement, clearing and depositary services. Trading on the exchange is conducted by authorized members. Trading sessions take place every business day, from 10:00 a.m. to 5:00 p.m. or from 11:00 a.m. to 6:00 p.m. during daylight savings time in the U.S., on an electronic trading system called Megabolsa. Trading is also conducted between 5:45 p.m. and 7:00 p.m., or between 6:45 p.m. and 7:30 p.m. during daylight savings time in Brazil, in an after-market system connected to both traditional brokerage firms and brokerage firms operating on the Internet. This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet. In order to maintain control over the fluctuation of the BM&FBOVESPA index, the BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the BM&FBOVESPA index falls below 10% or 15%, respectively, in relation to the closing index levels of the previous trading session. When investors trade shares on the BM&FBOVESPA, the trade is settled in three business days after the trade date, without adjustments to the purchase price. The seller is ordinarily required to deliver the shares to the exchange on the third business day following the trade date. Delivery of and payment for shares are made through the facilities of an independent clearing house, the BM&FBOVESPA, which handles the multilateral settlement of both financial obligations and transactions involving securities. According to the regulations of the BM&FBOVESPA, financial settlement is carried out through the system of transfer of funds of the Brazilian Central Bank and the transactions involving the sale and purchase of shares are settled through the BM&FBOVESPA custody system. All deliveries against final payment are irrevocable. Regulation of Brazilian Securities Markets The Brazilian securities market is regulated by the CVM, as provided for by Law 6,385 of December 7, 1976 or the “Brazilian Securities Exchange Law” and Brazilian corporate law. The CMN isBrazilian Central Bank and the CVM are responsible for granting licenses to brokerage firms to govern their incorporation and operation, and regulatingoperation. The Brazilian Central Bank regulates foreign investment and exchange transactions, pursuant to the guidelines set forth by the CMN, as provided for by the Brazilian Securities Exchange ActLaw and Law No. 45954,595 of December 31, 1964. These laws and regulations provide for, among other things, disclosure requirements, criminal sanctions for insider trading and price manipulation, protection of minority shareholders, the procedures for licensing and supervising brokerage firms and the governance of Brazilian stock exchanges. Under Brazilian corporate law, a company is either publicly held and listed, a companhia aberta, or privately held and unlisted, a companhia fechada. All listed companies are registered with the CVM and are subject to reporting requirements to periodically disclose information and material facts. A company registered with the CVM may trade its securities either on the Brazilian exchange markets, including the BM&FBOVESPA, or in the Brazilian over-the-counter market. Shares of companies listed on BM&FBOVESPA may not simultaneously trade on the Brazilian over-the-counter market. The over-the-counter market consists of direct trades between persons in which a financial institution registered with the CVM serves as an intermediary. No special application, other than registration with the CVM (and, in case of organized over-the-counter markets, in the applicable one), is necessary for securities of a public company to be traded in this market. To be listed on the BM&FBOVESPA, a company must apply for registration with the BM&FBOVESPA and the CVM. The trading of securities on the BM&FBOVESPA may be suspended at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BM&FBOVESPA or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the BM&FBOVESPA. Investment in Our Units by Non-Residents of Brazil Investors residing outside Brazil are authorized to purchase equity instruments, including our units, or foreign portfolio investments on the BM&FBOVESPA, provided that they comply with the registration requirements set forth in Resolution No. 2,689 of the CMN (or CMN Resolution No. 2,689), and CVM Instruction No. 325. With certain limited exceptions, CMN Resolution No. 2,689 investors are permitted to carry out any type of transaction in the Brazilian financial capital market involving a security traded on a Brazilian stock, future or organized over-the-counter market. Investments and remittances outside Brazil of gains, dividends, profits or other payments under our units are made through the foreign exchange market. In order to become a CMN Resolution No. 2,689 investor, an investor residing outside Brazil must: | · | appoint a representative in Brazil with powers to take actions relating to the investment; |
| · | obtain a taxpayer identification number from the Brazilian tax authorities; |
| · | appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Brazilian Central Bank and CVM; and |
| · | through its representative, register itself as a foreign investor with the CVM and the investment with the Brazilian Central Bank. |
Securities and other financial assets held by foreign investors pursuant to CMN Resolution No. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM. Foreign direct investors under Law No. 4,131/62 may sell their shares in both private and open market transactions, but these investors are currently subject to less favorable tax treatment on gains. A foreign direct investor under Law No. 4,131/62 must: | · | register as a foreign direct investor with the Brazilian Central Bank; |
| · | obtain a taxpayer identification number from the Brazilian tax authorities; |
| · | appoint a tax representative in Brazil; and |
| · | appoint a representative in Brazil for service of process in respect of suits based on the Brazilian corporate law. |
Resolution No. 1,927 of the CMN, which restated and amended Annex V to Resolution No. 1,289 of the CMN, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. We filed an application to have the ADSs approved under CMN Resolution No. 1,927 by the Brazilian Central Bank and the CVM, and we received final approval on October 1, 2009. If a holder of ADSs decides to exchange ADSs for the underlying units, the holder will be entitled to (1) sell the units on the BM&FBOVESPA and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our units, (2) convert its investment into a foreign portfolio investment under CMN Resolution No. 2,689/00 or (3) convert its investment into a foreign direct investment under Law No. 4,131/62. See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations” for a description of the tax consequences to an investor residing outside Brazil of investing in our units in Brazil. If a holder of ADSs wishes to convert its investment into either a foreign portfolio investment under CMN Resolution No. 2,689/00 or a foreign direct investment under Law No. 4,131/62, it should begin the process of obtaining his own foreign investor registration with the Brazilian Central Bank or with the CVM, as the case may be, in advance of exchanging the ADSs for common shares. The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments under CMN Resolution No. 2,689/00. If a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law 4,131/62, the conversion will be effected by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also involve the need to change the units into shares. If a foreign direct investor under Law No. 4,131/62 wishes to deposit its units into the ADR program in exchange for ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effected by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction. This may also involve the need to change the units into shares. The Brazilian constitution permits foreign individuals or companies to invest in the voting shares of Brazilian financial institutions only if they have specific authorization by the President of Brazil based on national interest or reciprocity. A presidential decree issued on November 13, 1997, in respect of Banco Meridional do Brasil S.A. (a predecessor entity) allows up to one hundred percent foreign participation in our capital stock. Foreign investors may acquire our units or ADSs as a result of this decree. In addition, foreign investors may acquire publicly traded non-voting shares of Brazilian financial institutions negotiated on a stock exchange or depositary receipts offered abroad representing non-voting shares without specific authorization. See “Item 4. Information on the Company—B. Business Overview—Regulatory Overview—Foreign Investment in Brazil—Foreign Investment in Brazilian Financial Institutions”. Not applicable. Not applicable. Not applicable. Not applicable. The following is a summary of certain significant provisions of our bylaws,by-laws, the Brazilian corporate law and the rules and regulations of the CVM and the listing rules of the BM&FBOVESPA’s Level 2 segment that pertain to our capital, management, periodical and occasional disclosures, as well as other corporate issues applicable to us. This description does not purport to be complete and is qualified by reference to our bylaws,by-laws, the Brazilian corporate law, the rules and regulations of the CVM and the Listing Rules of the BM&FBOVESPA. In Brazil, by-laws (Estatuto SocialSocial)) are the principal governing document of a corporation (sociedade por açõeses)). See “Item 6. Directors, Senior Management and Employees—A. Management” and “Item 4. Information on the Company—B. Business Overview—Overview—Regulatory Overview”. General We are currently a publicly held company, incorporated under Brazilian law. Our headquarters are located in the city of São Paulo, state of São Paulo, at Avenida Presidente Juscelino Kubitschek, Avenue, 2041 and 2235, Bloco A, Vila Olímpia. Documentation of our incorporation is duly registered with the Junta Comercial do Estado de São Paulo (Board of Trade of the State of São Paulo), or JUCESP, under NIRE (Registry Number) No. 35300332067. On September 18, 2009, we entered into an agreement to join the Level 2 segment of the BM&FBOVESPA, pursuant to which we must comply with certain requirements relating to corporate governance practices and disclosure of information to the market. Issued Share Capital As of the date of this annual report, our capital stock is R$62,828,201,614.21, fully paid-in and divided into 399,044,116,905 shares, all nominative, in book-entry form and without par value, consisting of 212,841,731,754 common shares and 186,202,385,151 preferred shares. Under our by-laws, we may increase our capital stock up to our authorized limit, irrespective of any amendments to our by-laws, upon a resolution of our board of directors, and through the issue of up to 500 billion new shares, provided that the total number of preferred shares cannot exceed 50.0% of the total number of our outstanding shares. Our capital stock is recorded in the financial statements in the amount of R$62,634,585, net of IPO expenses incurred in 2009 in the amount of R$193,916 as required by IFRS, Any capital increase in excess of this limit requires approval by our shareholders. Pursuant to the rules of the Level 2 segment of BM&FBOVESPA, we may not issue certificates, and in accordance with Law No. 4,595, we may not issue debentures. Within the limit of our authorized capital and according to the plan approved by the shareholders’ meeting, we may grant stock options to our officers, employees and individuals who render services to us or to our controlled companies, with the exclusion of the preemptive right of our shareholders at the time of the grant or exercise of the stock options. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Compensation Plan Overview.” Treasury Stock As of the date of this annual report,March 23, 2012, we have nohad 499,053,500 common shares and 453,685,000 preferred shares in treasury. Shareholders’ Agreement As of the date of this annual report, there is no shareholders’ agreement in forceeffect related to us. Corporate Purposes Pursuant to article 4 of our by-laws, our corporate purpose is to (1) participate in active, passive and accessory transactions related to our authorized portfolios (commercial, investment, credit, financing and investment, real estate credit and leasing, as well as foreign exchange transactions; (2) manage investment portfolios and any other transaction that would be allowed by law and regulations in force; and (3) participate, as shareholder or quotaholder, in other companies. Description of the Units The units are depositary share certificates, each representing 55 common shares and 50 preferred shares, free and clear of liens or encumbrances. The shares underlying the units are registered in the name of the custodian and reflected in a deposit account maintained by the custodian for the benefit of each of the unit holders. Title of the units is transferable upon the execution of a transfer order from the holder of record to the Custodian.custodian. Income generated by the units and the proceeds of redemption or amortization of the units may only be paid to the holder of record in accordance with the books maintained by us, as custodian. The shares underlying the units, the income generated by such shares and the proceeds from share redemption or amortization may not be pledged, encumbered or given as collateral by unit holders, and may not be subject to attachment, seizure, impounding or any other form of lien or confiscation. The units are registered in book-entry form and are kept by us in the name of the holders thereof. Transfers of title take place by debiting the unit account of the seller and crediting the unit account of the buyer, pursuant to a written transfer order from the seller or a judicial authorization or order for the transfer, delivered to us, and we will hold on to the transfer order. Payment of dividends, interest attributable to shareholders’ equity and/or other cash distributions is made through us, and we deliver the funds to the unit holders. If the units are encumbered by pledge, trust, conditional sale or other liens, these will be annotated in the records kept by the custodian and included in the account statements issued for the units. As custodian, we may be required, at the request of unit holders, to provide statements of the unit accounts at the end of every month in which activity is recorded on the account or, in the absence of such activity, at least once a year. Unit account statements must expressly indicate that they are unit account statements, contain a warning that the deposited shares, their income or proceeds from redemption or amortization may only be delivered to the account holder or pursuant to a written order from the unit holder and set forth the place and date of issue, the name of the unit holder, the name and identity of the account holder, a description of the deposited shares underlying the units, the deposit fee charged by the Bank, if any, and the location of the unit holder service centers. Units may be traded pursuant to written orders issued by account holders to a stockbroker operating at the stock exchange where the units are listed for trading. Upon presentation of such order, the custodian will block the units from being traded and will transfer them to the buyer after receiving notice from the stock exchange that the units were sold. | · | At any time, unit holders may order us to cancel the units and transfer the underlying shares to the share deposit account kept by the custodian in the name of the holder. The unit holder shall bear any transfer and cancellation costs for cancelling the units. Units encumbered in any way, however, may not be cancelled. The right to cancel units may be suspended upon the announcement of the commencement of an offering of units, in Brazil or abroad, in which event the suspension period may not exceed 180 days. Cancellation cannot be requested for those units that are subject to any encumbrances or liens. |
The following rules apply to the exercise of the rights granted to the shares underlying units: | · | Dividends and other cash distributions, including the proceeds from redemption or amortization of shares issued by us, will be transferred to us and BM&FBOVESPA, in the capacity as depositaries of the shares, which will then deliver the funds to unit holders; |
| · | Only shareholders registered as such in our corporate books, and, in the case of the ADS holders, only the custodian, are entitled to attend shareholders’ meetings and exercise their voting rights; |
| · | In the event of a stock split, cancellation, reverse stock split or new issues of shares by us while the units are in existence, the following rules will be observed: |
| (1) | In the event there is a change in the number of shares represented by units as a result of a reverse stock split or cancellation of shares, we, as custodian, will debit from the unit accounts the number of cancelled shares of each unit holder, and proceed to cancel the relevant units. The custodian must maintain a ratio of 55 common shares to 50 preferred shares issued by us and represented by units and will deliver to holders those shares that are insufficient to constitute a unit at the BM&FBOVESPA in the form of shares, rather than units; and |
| (2) | In the event there is a change in the number of shares represented by the units as a result of a reverse stock split or cancellation of shares, the custodian will register the deposit of the new shares and issue new units, registering them in the accounts of their respective holders, so as to reflect the new number of shares held by unit holders. The custodian must maintain a ratio of 55 common shares to 50 preferred shares issued by us and represented by units and will deliver to holders those shares that are insufficient to constitute a unit at the BM&FBOVESPA in the form of shares, rather than units; |
| · | In the event there is an increase in our capital stock as a result of the issue of new shares, therefore permitting the creation of new units, unit holders will be entitled to exercise preemptive rights with respect to the shares underlying the units. In such circumstances, we will create new units in the book-entry registry of units and credit the units to their holders so as to reflect the new number of common and preferred shares issued by us. The custodian must maintain a ratio of 55 common shares to 50 preferred shares issued by us and represented by units and will deliver to holders those shares that are insufficient to constitute a unit at the BM&FBOVESPA in the form of shares, rather than units. There will be no automatic credit of units in the event of exercise of preemptive rights over the issuance of securities other than shares; and |
| · | Unit holders will be entitled to receive any shares issued as a result of our consolidation or merger. |
Policy for the Trading of Our Securities We have a policy outlining rules for trading of our securities, the objectives of which are (1) to prevent and punish insider trading of our securities, and (2) define rules relating to the trading of our securities, according to CVM Instruction No. 358 and our internal policies. This policy also is intended to prevent tipping (the passing of privileged information to the benefit of third parties) and to promote transparency in the trading of our securities. This policy describes periods in which there shall be no trading with our securities, in order to avoid any question of insider trading. The policy applies to us, our controlling shareholders (be they direct or indirect), board members, members of our fiscal council (when it is active) and other technical and advisory committees, employees and managers who, by virtue of their office or position have access to any privileged information and their respective direct dependents, among others. Among other matters, our policy establishes that the persons subject to it shall refrain from buying or selling, by themselves or via their direct dependents or by using directly or indirectly controlled companies, any securities issued by us, or backed by them, as well as their respective derivatives: | (1) | during the periods between the date in which such persons become aware of material information that could affect the value of our securities until the date that such information is disclosed to the public; during the period between the decision taken by the competent corporate body to increase the corporate |
| | capital, issue securities, distribute dividends, pay dividends, carry out share splits or reverse splits and the publication of the respective public notices or announcements made to the market; |
| (2) | when there is an intention to carry out a merger, total or partial spin-off, transformation or corporate restructuring; |
| (3) | during the 30-days elapsed from the date we release the half-yearly and yearly balance sheets until the date that we publish our consolidated financial statements and the release of our quarterly financial information, or “ITR”; and |
| (4) | during the time elapsed from the date we decide to increase our capital, to float new securities, to allot dividends, to grant bonuses, to split or group shares until we publish the respective public notices or announcements thereabout. |
Our policy also establishes that our controlling shareholders, executive officers, and members of our board of directors shall not be allowed to trade in securities issued by us or their respective derivatives, whenever we are in the process of acquiring or disposing of shares issued by the us (“Buyback Program”), by our controlled or associated companies or by any other company under their common control, or if there has been granted an option or power of attorney for the same purpose, provided, however, that such prohibition shall not apply in the event the Buyback Program has the specific purpose of making feasible the management of the risk brought about our activities as market making, and provided that on the days on which the persons described above are doing business, we will only trade in shares issued by us to attend to the purposes provided for in the Buyback Program. Rights of Common Shares and Preferred Shares Each common share entitles its owner to one vote in our general and special shareholders’ meetings. Common shares which are not owned by our controlling shareholder entitle tag-along rights to its owner, in the event of the disposition of our control in one or a series of successive transactions, under the same terms and conditions extended to our controlling shareholder. Our preferred shares do not have voting rights in our shareholders’ meetings, except as related to the following matters: | · | our transformation, incorporation, merger or a spin-off of our assets; |
| · | the approval of contracts which would have been subject to approval in general shareholders’ meeting entered into by and between us and our controlling shareholder, directly or indirectly;indirectly, and contracts of other companies in which our controlling shareholder may hold an interest, whenever, pursuant to a statutory or bylaw provision, action is required to be taken on such contracts at a shareholders’ meeting; |
| · | the appraisal of assets to be contributed to increase our capital stock; |
· | · | appointment of an appraisal company to appraise our economic value in case of cancellation of our registration as a publicly-held company or the cancellation of our Level 2 status (except in the case we adhere to the Novo Mercado listing segment rules of BM&FBOVESPA, which imply adoption of additional corporate governance practices); |
| · | amendment or revocation of applicable regulations that alter or modify any of the requirements of Section 4.1 of the Level 2 Regulation; provided that such right shall only be effective as long as the Level 2 Regulation Agreement remains in force. |
Apart from this, holders of preferred shares are entitled to the following rights according to our by-laws: | · | the right to participate with priority in the distribution of dividends and interest on shareholders own equity in an amount 10% higher than those attributed to common shares; |
| · | the right to participate, on the same terms and conditions attributed to holders of common shares, in capital increases as a result of capitalization of reserves and profits, and in the issuance of bonus shares resulting from the capitalization of retained profits, reserves or other funds; |
| · | the right to a priority reimbursement of capital stock; and |
| · | tag-along rights, in the event of the disposition of our control in one or a series of successive transactions, under the same terms and conditions extended to our controlling shareholder. |
The shareholders’ meeting may decide on conversion of the preferred shares into common shares. Brazilian corporate law sets forth that shares without voting rights or shares with restricted rights, including our preferred shares, shall be granted unrestricted voting rights if the company ceases to distribute, during three consecutive fiscal years, any fixed or minimum dividend granted to these shares, until the respective distributions are made. According to our by-laws, the dividends that are not claimed by shareholders within three years, from the beginning of their payment, shall prescribe to our benefit. Under Brazilian corporate law, any change in the preferences or that have an adverse financial effect on rights of the holders of our preferred shares, or any change that results in the creation of a more favored class of preferred shares, must be approved by a resolution at a general shareholders’ meeting, and will only become valid and effective after approval by a majority of our preferred shareholders in a special shareholders’ meeting. According to Brazilian corporate law, (1) holders of preferred shares without voting rights (or with restricted voting rights) collectively representing at least 10% of our total capital stock and (2) holders of common shares not in the control block, which individually or collectively represent 15% of our common capital stock may appoint one member of our board of directors and his or her alternate at any annual shareholders’ meeting. In addition, if either the common or preferred shares held by the non-controlling shareholders are insufficient to achieve these percentages, they may combine their shares to appoint one member of our board of directors and his or her alternate. However, these rights are exercisable only by holders of the shares that have held them for a minimum of three months before the date of the annual shareholders’ meeting. Our shareholders possess the following rights, which, under Brazilian corporate law, cannot be repealed by our by-laws or decisions made at shareholders’ meetings, including: | · | the right to vote during our shareholders’ meetings, for our common stock shareholders and for specific matters for our preferred stock shareholders; |
| · | the right to participate in the distribution of income and the right to participate equally and proportionally in any remaining assets upon our liquidation; |
| · | the preferential right to subscribe shares under certain circumstances; |
| · | the right to monitor the management of our business pursuant to the provisions of Brazilian corporate law; and |
| · | the right to withdraw from our company in those circumstances set forth under Brazilian corporate law, including (1) our merger or consolidation and (2) our spin-off, among other circumstances. |
For additional details on our dividend policy see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Payment of Dividends and Interest Attributable to Shareholders’ Equity”. For further information on Insolvency Proceedings see “Item 4. Information On the Company—B. Business Overview—Regulatory Overview—Brazilian Payment and Settlement System—Insolvency Laws Concerning Financial Institutions”. Shareholders’ General Meetings At shareholders’ meetings regularly called and convened, our shareholders are generally empowered to take any action relating to our corporate objective and to adopt such resolutions as they may deem necessary. Shareholders at the annual general shareholders’ meeting have the exclusive power to (1) approve our annual consolidated financial statements, (2) determine the allocation of our net income and the payment of dividends with respect to the year ended immediately prior to the shareholders’ meeting, and (3) determine the aggregate compensation of the members of the board of directors, our officers and the fiscal council, if installed. The election of our directors typically takes place at the annual shareholders’ meeting, although Brazilian corporate law provides that they may also be elected at a special shareholders’ meeting. According to Level 2 Regulation, we must elect independent directors in proportion of at least 20% of the total number of our board of directors. Members of our fiscal council, if the necessary number of shareholders requires its establishment, may be elected at any shareholders’ meeting. A special shareholders’ meeting may be held at any time, including concurrently with our annual general shareholders’ meeting. At shareholders’ meetings, among others according to our by-laws and without prejudice to other matters under their authority, our shareholders may make decisions concerning several matters, including: (1) amendment of our by-laws; (2) election and dismissal of the members of our board of directors; (3) election of the liquidator and election of the members of the fiscal council that should operate during the liquidation proceedings; (4) delisting from the Level 2 segment of the BM&FBOVESPA; (5) suspension of the rights of a shareholder who has violated Brazilian corporate law or our by-laws; (6) approval of our merger, consolidation or spin-off; (7) approval of our dissolution and liquidation, and approval of the reports prepared by the liquidators; and (8) election of an appraisal company to determine our economic value in the case of a cancellation of our registration as a public company or the cancellation of our Level 2 segment status. Quorum for our Shareholders’ General Meetings As a general rule, Brazilian corporate law sets forth that a quorum for purposes of a shareholders’ meeting consists of shareholders representing no less than 25% of a company’s issued and outstanding voting capital stock on the first meeting which is called and, if that quorum is not reached, any number of our voting capital stock on the second meeting called. A quorum for purposes of amending our by-laws consists of shareholders representing at least two-thirds of our issued and outstanding capital stock on the first call meeting and any percentage on the second call meeting. A quorum smaller than the quorum established by Brazilian corporate law may be authorized by the CVM for a public company with widely traded shares that has had less than half of the holders of its voting shares in attendance at its last three shareholders’ meetings. As a general rule, the affirmative vote of shareholders representing at least a majority of our issued and outstanding common shares present at a shareholders’ meeting in person, or represented by a proxy, is required to approve any proposed action, with abstentions not being taken into account. However, the affirmative vote of shareholders representing at least 50.0% of our issued and outstanding voting capital is required, for: (1) creating preferred shares or improving existing classes of preferred shares without proportion with the other existing classes of preferred shares, except if already provided for in or authorized by the by-laws; (2) changing the preferences, withdrawal requirements or amortization of one or more preferred shares classes, or the creation of a favored class of preferred shares; (3) reducing the mandatory dividend for distribution to our shareholders; (4) approving our consolidation or merger with another company; (5) approving our participation in a group of companies (as defined in the Brazilian corporate law); (6) changing our corporate objectives; (7) suspending our liquidation; (8) approving the spin-off of a portion of our assets or liabilities; and (9) approving our dissolution. Notice of our Shareholders’ General Meetings Brazilian corporate law requires that all shareholders’ meetings be called by means of at least three publications in the official newspaper of the State of São Paulo (the Diário Oficial do Estado do São Paulo), and in another widely circulated newspaper in São Paulo, where the BM&FBOVESPA is located. Our notices are currently published in the Diário Oficial do Estado do São Paulo, the official newspaper of the state of São Paulo, as well as in the newspaper Valor Econômico. The first notice must be published no later than 15 days before the date of the meeting, and the second, no later than eight days before the date of the meeting. However, in certain circumstances, at the request of any shareholder and after hearing us, the CVM may require that the shareholders’ meeting to be postponed to be realizedheld within 30 days of the first notice. In addition, upon request of any shareholder, the CVM may suspend for up to 15 days the required prior notice of the special shareholders’ meeting so that the requesting shareholder may become familiar with and analyze the proposals to be voted upon at the meeting. Such notice must expressly contain the agenda for the meeting (being forbidden the use of the term “general matters”). The proper support documents shall be made available to the public through CVM website until publication of the first notice. Location of our Shareholders’ General Meetings. Location of our Shareholders’ General Meetings Our shareholders’ meetings are held at our headquarters at Avenida Presidente Juscelino Kubitschek, 2041/2235, Bloco A, Vila Olímpia, in the city of São Paulo, state of São Paulo, Brazil. Brazilian corporate law allows our shareholders to hold meetings outside our headquarters in an event of force majeure, provided that the meetings are held in the city of São Paulo and the relevant notice contains a clear and accurate indication of the place where the shareholders’ meeting should take place. Who May Call our Shareholders’ General Meetings According to the Brazilian corporate law, our board of directors may call a shareholders’ general meeting. Shareholders’meeting.Shareholders’ general meetings may also be called by: | · | any shareholder, if our board of directors fail to call a shareholders’ general meeting within 60 days after the date they were required to do so under applicable laws and our by-laws; |
| · | shareholders holding at least 5% of our share capital if our board of directors fail to call a meeting within eight days after receipt of a request to call the meeting by those shareholders, and such request must indicate the proposed agenda; |
| · | shareholders holding at least 5% of our common shares or shareholders holding at least 5% of our preferred shares if our board of directors fail to call a meeting within eight days after receipt of a request to call the meeting to convene a fiscal council; and |
| · | our fiscal council, if one is in place, if our board of directors delays calling an annual shareholders’ meeting for more than one month. The fiscal council may also call a special general shareholders’ meeting any time if it believes that there are significant or urgent matters to be addressed. |
Conditions for Admission at our Shareholders’ General Meetings Shareholders present at shareholders’ meetings must provide evidence of their status as shareholders and their ownership of shares that have voting rights as established by Brazilian corporate law. Our shareholders may be represented at a shareholders’ meeting by a proxy (including public proxy requests, pursuant to CVM Instruction No. 481, dated December 17, 2009) appointed less than a year before the meeting, which proxy must be a shareholder, a corporate officer, a lawyer or, in the case of a publicly traded company, such as us, a financial institution. An investment fund shareholder must be represented by its investment fund officer. Board of Directors Our by-laws require that our board of directors consist of a minimum of five and a maximum of twelve directors, one of them denominated chairman, another vice-chairman and the other members denominated directors. The exact number of directors is set by the shareholders at the meeting which approves their election. According to Level 2 Regulation, at least 20% of the members of our board of directors should be independent. Brazilian corporate law permits cumulative voting upon the request of shareholders of at least 10% of our voting capital. Should this occur, each share will be granted as many votes as there are seats on the board, and each shareholder will have the option to cast his or her votes for one of more candidates. Under CVM Instruction No. 282, dated June 26, 1998, the minimum percentage required for a shareholder to request adoption of cumulative vote procedure in public companies may be reduced based on the amount of the outstanding capital stock reflected in its by-laws, varying from 5% to 10%. If there is no request for cumulative voting, under applicable law, the shareholders, individually or jointly, of at least 15% of our common shares, or the shareholders, individually or jointly, of at least 10% of our preferred shares or shares with restricted voting rights, or still the shareholders of common and preferred shares which jointly represent at least 10% of our total capital stock, have the right to indicate, in a separate election, one member of the board of directors and the respective substitute. In addition, under Brazilian corporate law, each member of our board of directors must hold at least one share issued by us.
Transactions of Interest to Our Directors Brazilian corporate law prohibits a director from: (1) performing any act consisting of a concession by using corporate assets to our detriment, as well as borrowing funds or obtaining any loan with, or borrowing any corporate assets from us, or using the benefits from our assets, services or credits, according to his own and personal interests, or benefit any company through which he or she has any interest, without prior written authorization of our shareholders or board of directors; (2) by virtue of his or her position, receiving any type of direct or indirect personal advantage from third parties without authorization in the by-laws or from a shareholders’ meeting; and (3) taking part in any corporate transaction in which he or she has an interest that conflicts with our interest or in the decisions made by other directors on the matter. Withdrawal Rights Shareholders who dissent or abstain from voting on certain actions taken during a shareholders’ general meeting have the right under Brazilian corporate law to withdraw from our company and to receive the value of their shares. According to Brazilian corporate law, shareholder withdrawal rights may be exercised in the following circumstances, among others: | · | a modification in preferences, privileges or a condition of redemption or amortization conferred upon our preferred shares or creation of a new, more favored class of preferred shares (in which case, only the shareholders adversely affected by such modification or creation will have withdrawal rights); |
| · | a spin-off (cisão) of our company (in the specific circumstances described below); |
| · | a reduction in the percentage of our mandatory dividends; |
| · | a change in our corporate purpose; |
| · | an acquisition of a controlling stake in our company if the acquisition price is outside of the limits established by the Brazilian corporate law; |
| · | a merger (fusão) of our company with another company if we are not the surviving entity or our consolidation (incorporação) with another company; or |
| · | an approval of our participation in a group of companies (as defined in the Brazilian corporate law). |
Brazilian corporate law further provides that any resolution regarding a spin-off that: | · | causes a change in our corporate purpose, except if the equity is spun-off to a company whose primary activities are consistent with our corporate purposes; |
| · | reduces our mandatory dividends; |
| · | causes us to join a group of companies (as defined in the Brazilian corporate law); or |
| · | will entitle shareholders to withdraw. |
In cases where (1) our company merges with another company in circumstances in which we are not the surviving company or (2) we are consolidated with another company or (3) we participate in a group of companies (as defined in the Brazilian corporate law), our shareholders will not be entitled to withdraw from our company if their respective shares are (i) liquid, defined as part of the BM&FBOVESPA index or some other traded stock exchange index (as defined by the CVM) and (ii) widely held, such that the controlling shareholder or companies it controls hold less than 50% of our shares.
The right to withdraw expires 30 days after publication | · | In cases where (1) our company merges with another company in circumstances in which we are not the surviving company or (2) we are consolidated with another company or (3) we participate in a group of companies (as defined in the Brazilian corporate law), our shareholders will not be entitled to withdraw from our company if their respective shares are (i) liquid, defined as part of the BM&FBOVESPA index or some other traded stock exchange index (as defined by the CVM) and (ii) widely held, such that the controlling shareholder or companies it controls hold less than 50% of our shares. |
| · | The right to withdraw expires 30 days after publication of the minutes of the relevant shareholders’ general meeting. We are entitled to reconsider any action giving rise to withdrawal rights for 10 days after the expiration of those rights if the redemption of shares of dissenting or non-voting shareholders would jeopardize our financial stability. |
| · | If shareholders exercise withdrawal rights, they are entitled to receive net book value for the shares, based on the last balance sheet approved by the shareholders. If the resolution giving rise to the rights is made later than 60 days after the date of the last approved balance sheet, the shareholder may demand that his or her shares be valued according to a new balance sheet dated no less than 60 days before the resolution date. In this case, we must immediately pay 80% of the equity value of the shares according to the most recent balance sheet approved by our shareholders, and the balance must be paid within 120 days after the date of the resolution of the shareholders’ general meeting. |
Redemption of Shares According to Brazilian corporate law, we may redeem our shares by a decision taken in a special shareholders’ general meeting by shareholders representing at least 50% of the affected shares by the redemption. The share redemption may be paid with our profit, profit reserves or capital reserves. If the share redemption is not applicable to all shares, the redemption will be made by lottery. If custody shares are picked in the lottery and there are no rules established in the custody agreement, the financial institution will specify on a pro rata basis, the shares to be redeemed. Registration of Shares With reference to the rights relating to our units as described above, ourOur shares are held in book-entry form by us and we act as the custodian agent for our shares. Transfer of our shares will be carried out by means of book entry by us, debiting the share account of the seller and crediting the share account of the buyer, with the presentation of a written order of the transferor or a judicial authorization or order to effect such transfers.
Preemptive Rights Except as provided below, our shareholders have a general preemptive right to participate in any issuance of new shares, in proportion to their respective shareholding in the company at such time, but the conversion of subscription receipts into shares, the granting of options to purchase shares and the issuance of shares as a result of its exercise, are not subject to preemptive rights. In addition, the Brazilian corporate law allows for companies’ by-laws to give the board of directors the power to exclude preemptive rights or reduce the exercise period of such rights with respect to the issuance of new shares, debentures convertible into shares (though technically not applicable to us, as we are not permitted to issue debentures under Brazilian banking regulations) and subscription receipts up to the limit of the authorized share capital if the distribution of those shares is effected through a stock exchange, through a public offering or through an exchange of shares in a tender offer the purpose of which is to acquire control of another company. Shareholders are allowed to exercise the preemptive rights for a period of at least 30 days following the publication of notice of the issuance of shares, and the right may be transferred or disposed of for consideration. Purchases of Our Own Shares by Us Our by-laws entitle our board of directors to approve the acquisition of our own shares. The decision to acquire our shares and maintain the acquired shares in treasury or to cancel them may not, among other things: (1) result in the reduction of our share capital; (2) require the use of resources greater than our retained earnings or reserves recorded in our most recent consolidated financial statements, except the legal reserve (as defined in the applicable regulation); (3) create, directly or indirectly, any artificial demand, supply or share price condition, or use any unfair practice, as a result of any action or omission; (4) be used for the acquisition of unpaid stock or shares held by our controlling shareholders; or (5) be conducted during the course of a public offering to purchase our shares. We may not keep in treasury more than 10% of our outstanding shares, excluding the shares held by our controlling shareholders, but including the shares held by subsidiaries. On August 24, 2011, our board of directors approved the buyback program for our units, to cover the acquisition of up to 57,006,302 units, representing 3,135,346,633 common shares and 2,850,315,121 preferred shares or ADRs by us or by our agency in Cayman which, on July 31, 2011, corresponded to approximately 1.5% of our outstanding shares. The term of the program expires on August 24, 2012. Any acquisition of our shares must be made on a stock exchange, except where the shares are registered for negotiation only in the over-the-counter market, and cannot be made in a private transaction or at a price higher than the market price unless prior approval is received from the CVM (and except to perform stock options previously granted to our officers by us). We may also purchase our shares for the purpose of going private. Additionally, we may acquire or issue put or call options related to our shares. Restriction on Certain Transactions by us, our Controlling Shareholders, Directors, Executive Officers and Members of our Fiscal Council Under the CVM rules and regulations, we, our direct and indirect controlling shareholders, directors, executive officers and members of our fiscal council, when it is active, and members of any other technical or advisory committees or bodies performing technical or advisory functions, created under by our by-laws, or anyone who, due to its position, function, or position with us, our controlling shareholders, controlled companies or companies under common control have access to any material act or fact with respect to our business (who are considered insiders under Brazilian securities regulations), must abstain from trading in our securities, including derivatives based on our securities, in the following circumstances: | · | before the public disclosure of any material act or fact with respect to our business; |
| · | persons that are no longer members of our management team are prohibited from trading in our securities before the disclosure of material information regarding us that occurred during their term of office. This prohibition is extended for (1) a period of six months as from the date on which such persons quit their positions or (2) up to the date of disclosure to the public of such material information unless the trading in our securities may interfere in the conditions of the business in detriment to us or our shareholders; |
| · | during the period preceding an established plan to merge with another company, consolidate, spin-off part or all of our assets or reorganize; |
· | · | during the 15-day period before the disclosure of our quarterly report, or “ITR” and annual consolidated financial statements, the “Formulá“Formulário de Referência”ncia” and “DPF”Consolidated Financial Statements (Demonstrações Financeiras Padronizadas–DFP); and |
| · | with respect to our directors and executive officers, in the event of acquisition or sale of our shares by us or the acquisition or sale of our shares by any of our controlled or affiliated companies or any other company under our common control. |
Restrictions on Certain Transactions Outside our Corporate Purposes Brazilian corporate law determines that we are expressly prohibited from carrying out any transactions that are not related to our corporate purposes including pledges, sureties, endorsement or any guarantee not related to our corporate purposes or not in compliance with our by-laws, except for those already in effect. by-laws. Going Private Process We may become a private company if we or our controlling shareholders conduct a public offering for the acquisition of all of our free float shares, pursuant to the provisions of Brazilian corporate law and the rules and regulations issued by the CVM. The minimum offering price must be the economic value of our shares, as appraised by a specialized company by adopting any recognized and accepted calculation method or another criterion defined by the CVM. The appraisal report should be prepared by a specialized and experienced appraiser that is independent from us, our management team and controlling shareholders. The appraiser will be chosen by the affirmative vote of the majority of members present at the meeting, in which each preferred or common share will be entitled to one vote. The offeror will bear costs relating to the preparation of the valuation report. The shareholders’ meeting for this purpose taking place upon first call will require presence of shareholders representing at least 20% of the total shares outstanding and, if this quorum is not met, the further shareholders’ meetings called may take place irrespective of a specific minimum quorum. Delisting from Level 2 Segment of Corporate Governance of the BM&FBOVESPA We may at any time request the delisting of our shares from the Level 2 segment of the BM&FBOVESPA, pursuant to a resolution obtained at a shareholders’ meeting by shareholders holding the majority of the capital stock and provided that the BM&FBOVESPA receives 30 days’ prior written notice. Delisting from the Level 2 segment of the BM&FBOVESPA does not imply the cancellation of trading of our shares on the BM&FBOVESPA. According to our by-laws, if our shareholders at a general shareholders’ meeting deliberate: (1) our delisting from the Level 2 segment of the BM&FBOVESPA in order for our shares to be traded outside the Level 2 segment of the BM&FBOVESPA; or (2) a corporate reorganization where the surviving company is not admitted to trade its shares on the Level 2 segment of the BM&FBOVESPA, our controlling shareholders will have to conduct a public tender offer for the shares of all our other shareholders at a minimum price that shall correspond to the economic value of the shares, as appraised by a valuation report prepared in accordance with the information in “—Going Private Process”. The BM&FBOVESPA has to be notified of the public tender offer, and the information has to be immediately disclosed to the market after approval by the shareholders at a general shareholders’ meeting of the delisting from the Level 2 segment of the BM&FBOVESPA or corporate reorganization. The controlling shareholders will not be required to conduct the public tender offer in case the differentiated corporate governance practices of the Level 2 segment of the BM&FBOVESPA are discontinued, but we enter into a participation agreement on the Novo Mercado, special listing segment of the BM&FBOVESPA, or in case the surviving company resulting from the corporate reorganization is already registered on this segment of the BM&FBOVESPA. Sale of a Controlling Stake in our Company According to our by-laws, in case of transfer of share control, either through a single or successive transactions, the same terms and conditions of purchase must be extended by the acquirer in an offer to purchase all of our shares, subject to the conditions and periods set forth under the applicable law, so as to assure equal treatment among all of our shareholders. For such purposes, a statement informing the price and further conditions of such sale must be submitted to the BM&FBOVESPA. The same offer will also be required (1) when there is a significant assignment of rights to purchase our shares, which may result in the change of our control, and (2) if our selling shareholders sell their control to third party, in which case, the selling shareholder must declare and provide evidence to the BM&FBOVESPA of the value received in return. Under our by-laws, the selling shareholders may not transfer ownership of their shares if the purchaser fails to execute the Statement of Consent of Controlling Shareholders, which must be immediately submitted to the BM&FBOVESPA. Disclosure Requirements As a publicly held company, we should beare subject to the reporting requirements established by Brazilian corporate law and the CVM. Furthermore, once we are listed on the Level 2 segment of the BM&FBOVESPA, we shouldare also followsubject to the disclosure requirements set forth in the Level 2 segment of the BM&FBOVESPA regulation. Periodical and Occasional Publication of Information Pursuant to the Brazilian securities regulation and CVM Instruction 358, we must provide certain information to the CVM and the BM&FBOVESPA on a periodic basis, including annual information, quarterly information and the quarterly management reports and reports of independent auditors. Brazilian securities regulations also require public companies to file with the CVM all shareholders’ agreements and notices and minutes of the shareholders’ meetings. Pursuant to CVM Ruling No. 480, of December 7, 2009 effective as of January 1, 2010, we must also file and constantly update a reference form (“Reference Form”) with the CVM (and available to the market), containing complete information with respect to us (similar to this annual report). The Reference Form has to be updated on an annual basis and delivered up to 5 months after the date on which the corporate year is closed, and whenever certain data contained therein is altered, within 7 business days as from the fact that originated the change. In addition to the disclosure requirements imposed by Brazilian corporate law and the CVM, we must also observe the following disclosure models: · | · | we must, no later than four months after the end of each fiscal year, (1)pursuant to CVM Instruction No. 457/07, as amended to CVM Instruction 485/10, release financial statements or consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, or International Financing Report Accounting Standards, or IFRS, in reais or U.S. dollars, which must be disclosed in their entirety in the English language, together with (a) the management report, (b) an explanatory note stating that the explanatory notes which shall include the net income and shareholders’ equity calculated at the end of such fiscal year, preparedconsolidated financial statements are in accordance with IFRS and Brazilian GAAP, as well as management’s proposal for allocation of net income, and (c) the independent auditors’ report; or (2) disclose, in the English language, the full financial statements, management report and explanatory notes, prepared in accordance with Brazilian corporate law, accompanied by (a) an additional explanatory note regarding the reconciliation of the year-end results and shareholders’ equity calculated in accordance with Brazilian corporate law and U.S. GAAP or IFRS, as the case may be, which shall include the main differences between the accounting principles used, and (b) the independent auditors’ report; and |
| · | after the disclosure of information as established above, by no later than 15 days following the term established by Brazilian law for disclosure of our quarterly information, we must: (1) disclose our full quarterly information translated into the English language;language, or (2) disclose our financial statements or consolidated financial statements in accordance with U.S. GAAP or IFRS, accompanied by the independent auditors’ review report. |
According to the rules of the Level 2 segment of the BM&FBOVESPA, we must observe the following disclosure requirements: | · | no later than six months following the listing of our shares on the Level 2 segment of the BM&FBOVESPA, we must disclose our financial statements and consolidated financial statements to be prepared at the end of each quarter (except for the last quarter of each year) and at the end of each year, including a statement of our cash flow, which must indicate, at least, the changes in our cash and cash equivalents, divided into operational, finance and investment cash flow for the relevant quarter or year; |
| · | we must send to the BM&FBOVESPA and disclose information regarding every agreement entered into between us and our controlled and associated companies, our controlling shareholders, directors and officers, and subsidiaries and affiliates of our controlling shareholder and directors and officers, as well as other companies in the same group as those persons or entities, in one instrument or successive documents that have the same or different purposes, which amounts to, or is greater than, R$200,000.00200 thousand or 1.0% of our net equity, whichever is greater, for any one-year period. |
Disclosure of Quarterly Information In addition to the information required pursuant to applicable legislation and regulation, a company with shares listed on the Level 2 segment of the BM&FBOVESPA, such as us, must disclose the following information: (1) a consolidated balance sheet, a consolidated statement of results and the accompanying letter to shareholders; (2) any direct or indirect ownership interest exceeding 5% of shares of each class, looking through to any ultimate individual beneficial owner; (3) the number and characteristics of the securities held directly or indirectly by the controlling shareholders and members of the board of directors, officers and fiscal council, if active; (4) changes in the number of securities held by the controlling shareholders and members of the board of directors, officers and fiscal council, if active, within the immediately preceding 12 months; (5) a cash flow statement in the explanatory notes; (6) the number of free float shares and their respective percentage in relation to the total number of shares issued; and (7) notification that a binding arbitral clause is in place. The information relating to the second, third, fourth, sixth and seventh items above must be included in the chart “Additional Information Deemed Relevant by the Company” of the ITR. Disclosure of Trading by Our Controlling Shareholder, Directors, Officers or Members of the Fiscal Council Our management, controlling shareholders and members of our fiscal council, if in operation, or of any technical or advisory committee are required to disclose to us, to the CVM and to the BM&FBOVESPA the number, type and manner of acquisition of securities issued by us, our subsidiaries and our controlling companies that are held by them or by persons closely related to them and any changes in their respective ownership positions. The information regarding the acquisition of such securities (such as name of person acquiring the shares, number and characteristics of the securities, form, price and date of acquisition) must be provided by us within ten days following the end of the month in which they were traded. According to CVM Instruction No. 358, if any direct or indirect controlling shareholders, or shareholders entitled to elect our directors and fiscal council members either individually or in a group of persons or entities sharing similar interests, should directly or indirectly increase or reduce their interest in our capital stock by more than 5%, such persons or entities must disclose to us, the CVM and the BM&FBOVESPA the following information: (1) name and qualification of the person acquiring the shares containing, if it were the case, a declaration by the acquiring party that they did not intend to alter the structure of the company’s administration or the composition of its control; (2) reason for the participation and aimed quantity of shares; (3) number of shares, subscription receipts, rights of subscription of shares and call options, by class and type, directly or indirectly held by the acquirer or any person related to him; and (4) information regarding any agreement providing for the exercise of voting rights or the purchase and sale of the securities. Our investor relations officer is responsible for sending this information to the CVM and to the BM&FBOVESPA within ten days as of the end of the month in which such transactions took place. Disclosure of Material Developments According to Law No. 6,385 of December 7, 1976, and subsequent amendments, and CVM Instruction No. 358 of January 3, 2002, and subsequent amendments, we must disclose any material development related to our business to the CVM and to the BM&FBOVESPA and must publish a notice of the material development. Disclosure requirements include provisions that: (1) establish the concept of a material fact, which includes decisions made by the controlling shareholders, resolutions of the general shareholders’ meeting or of the management team of publicly held companies, or any other facts of a political administrative, technical, business or financial and economic nature that are related to the company’s business and that may significantly influence (a) the price of its publicly traded securities; (b) the decision of investors to buy, sell or keep such securities; and (c) the decision of investors to exercise any of such securities’ underlying rights; (2) specify examples of facts that are considered to be material, which include, among others, the execution of shareholders’ agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies; (3) require the investor relations officer, the controlling shareholders, other officers, directors, members of the fiscal council and of any technical or advisory committees to disclose material facts to the CVM; (4) require simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading; (5) require the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not to de-list the corporation’s shares, within one year; (6) establish rules regarding disclosure requirements in the acquisition and disposal of a material stockholding stake; and (7) restrict the use of insider information. Under special circumstances, we may request confidential treatment of certain material developments from the CVM, when our management believes that public disclosure could result in adverse consequences to us. Trading on Stock Exchange Our shares are traded on the BM&FBOVESPA, a publicly held company. Trading on the BM&FBOVESPA is limited to member brokerage firms and a limited number of authorized nonmembers. The CVM and the BM&FBOVESPA have discretionary authority to suspend trading in shares of a particular issuer under certain circumstances. Trading in securities listed on the BM&FBOVESPA may be effected in transactions in the unorganized over-the-counter market in certain circumstances. Transactions carried out on the BM&FBOVESPA are settled in three business days after the trade date. The delivery of and payment for shares are made through the facilities of an independent clearing house of the BM&FBOVESPA, handling the multilateral settlement of both financial obligations and transactions involving securities. According to the Regulations of the BM&FBOVESPA, financial settlement is carried out through the System of Transfer of Funds of the Brazilian Central Bank and the transactions involving the sale and purchase of shares are settled through the BM&FBOVESPA custody system. All deliveries against final payment are irrevocable. Arbitration According to our by-laws, we, our shareholders, our directors and officers, and the members of our fiscal council commit to submit to arbitration any and all disputes or controversies which may arise amongst ourselves relating to, or originating from, the application, validity, effectiveness, interpretation, violations and effects of violations of the provisions of Brazilian corporate law, our by-laws, the rules and regulations of the CMN, the Brazilian Central Bank and the CVM, as well as other rules and regulations applicable to the Brazilian capital markets in addition to the listing regulations of the Level 2 segment of the BM&FBOVESPA, our listing agreement for adhesion to the Level 2 segment of the BM&FBOVESPA, and those of the Arbitration Regulation of the Market Arbitration Chamber. For the two years immediately preceding the publication of this annual report, we were not a party to any material contract outside the ordinary course of business that was material.business. Foreign Investment in Brazil Foreign Direct Investment Foreign Direct Investment in Brazil is regulated by Law No. 4,131 and Law No. 4,390 enacted on September 3, 1962 and August 29, 1964, respectively.respectively, as amended. According to Law No. 4,131, foreign capital is considered to be “any goods, machinery and equipment that enter Brazil, with no initial disbursement of foreign currency, for the production of goods and services, as well as any funds brought into the country for investment in economic activities, provided that in both cases they belong to individuals or legal entities resident, domiciled or headquartered abroad”. Foreign capital must be registered with the Brazilian Central Bank through the Electronic Registration System—Foreign Direct Investment (the Registro Declaratório Eletrônico—Investimento Externo Direto) within 30 days of the flow of funds into Brazil in accordance with Law No. 4,131. The registration of foreign capital is required for the remittance of profits abroad, the repatriation of capital and the registration of reinvestments. Investments will always be registered in the foreign currency in which they are actually made, or in Brazilian currency, if the funds are derived from a non-resident account properly kept in Brazil. On December 28, 2006, Law No. 11,371 amended Law No. 4,131, established that the foreign capital invested in Brazilian companies not yet duly registered with the Brazilian Central Bank within such 30 day period and not subject to other types of registration must be registered therewith. For the purposes of such registration the amount of foreign capital in reais to be registered must be evidenced in the accounting records of the relevant Brazilian company. Foreign capital invested and not already registered must be registered prior to the last business day of the subsequent calendar year during which the company becomes obligated to register the capital. Other than such registration, foreign investment is not subject to government approvals or authorizations, and there are no requirements regarding minimum investment or local participation in capital (except in very limited cases such as in financial institutions, insurance companies and other entities subject to specific regulations). Foreign participation, however, is limited (i.e.,(that is, subject to approvals) or forbidden in several sectors. A Presidential Decree enacted in November 1997 allows up to 100% foreign participation in our capital stock. Foreign investments in currency must be officially channeled through financial institutions duly authorized to deal in foreign exchange. Foreign currency must be converted into Brazilian currency and vice versa through the execution of an exchange contract. Foreign investments may also be made through the contribution of assets and equipment intended for the local production of goods and services. Capital Markets Investment Investors residing outside Brazil, including institutional investors, are authorized to purchase securities in Brazil on the Brazilian stock exchange, provided that they comply with the registration requirements set forth in Resolution No. 2,689, issued on January 26, 2000, of the CMN, and CVM Instruction No. 325, issued on January 27, 2000.2000, as amended. With certain limited exceptions, CMN Resolution No. 2,689 investors are permitted to carry out any type of transaction in the Brazilian capital markets involving a security traded on a stock, future or organized over-the-counter market, but may not transfer the ownership of investments made under CMN Resolution No. 2,689 to other non-Brazilian holders through private transactions. Investments and remittances outside Brazil of gains, dividends, profits or other payments under Santander Brasil’s preferred shares are made through the commercial rate exchange market. In order to become a CMN Resolution No. 2,689 investor, an investor residing outside Brazil must: | · | appoint at least one representative in Brazil that will be responsible for complying with registration and reporting requirements and reporting procedures with the Brazilian Central Bank and the CVM. If the representative is an individual or a non-financial company, the investor must also appoint an institution duly authorized by the Brazilian Central Bank that will be jointly and severally liable for the representative’s obligations; |
| · | complete the appropriate foreign investor registration form; |
| · | register as a foreign investor with the CVM; |
| · | register the foreign investment with the Brazilian Central Bank; |
| · | appoint a tax representative in Brazil; and |
| · | obtain a taxpayer identification number from the Brazilian federal tax authorities. |
The following summary contains a description of certain Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of units or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase commonthe ownership or disposition of units or ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change. Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of units or ADSs. Prospective holders of units or ADSs should consult their own tax advisorsadvisers as to the tax consequences of the acquisition, ownership and disposition of units or ADSs in their particular circumstances. Brazilian Tax Considerations The following discussion is a summary of the Brazilian tax considerations relating to the acquisition, exchange, ownership and disposition of units or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Resident Holder”). The discussion is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differences of interpretation. Any change in such law may change the consequences described below. The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil.
The description below is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, exchange, ownership and disposition of our units or ADSs. ProspectiveHolders of units or ADSs and prospective purchasers thereof should consult their tax advisorsadvisers with respect to an investment inthe tax consequences of owning and disposing of our units or ADSs in light of their particular investment circumstances. Income Tax Dividends Dividends paid by a Brazilian company, such as ourselves, including stock dividends and other dividends paid to a Non-Resident Holder are currently not subject to withholding income tax in Brazil, to the extent that such amounts are related to profits generated as ofsince January 1, 1996. Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding tax at varying rates, depending on the year the profits were generated. Interest Attributable to Shareholders’ Equity Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on net equity and treat those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and as from 1997, social contribution on net profits, as far asprofits; subject to the limits described below are observed.below. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the TJLP,Long Term Interest Rate (Taxa de Juros de Longo Prazo–TJLP), as determined by the Brazilian Central Bank from time to time, and the amount of the deductionthis deductible expense may not exceed the greater of: | · | 50.0% of the net income (after the deduction of any allowances for social contribution taxes on net profit but before taking into account allowances for income tax and the interest attributable to shareholders’ equity) for the period in respect of which the payment is made; and |
| · | 50.0% of our accumulated profits. |
Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% for individuals or entities residing in a “Tax Haven” (i.e.,(that is, a country where there is no income tax or where income tax is below 20% or where local legislation imposes restrictions on disclosure regarding the shareholder composition or investment ownership). These payments may be included, at their net value, as part of any mandatory dividend.dividend , as discussed above under “—Dividend Policy”. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend. If we pay interest attributable to shareholders’ equity in any year, and the payment is not recorded as part of the mandatory distribution, no additional amounts would be required to be paid by the Company. On June 24, 2008,Distributions of interest on shareholders’ equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, if the investment is registered with the Brazilian Central Bank.
Additionally, Law No. 11,727 was enacted establishingcreated the concept of a “privilegedprivileged tax regime”. Under this new law, a “privileged tax regime” is consideredregime. Pursuant to apply toLaw No. 11,727, a jurisdiction that meets any of the following requirements: (1)will be considered a privileged tax regime if it (i) does not tax income, or taxes income at a maximum rate lower than 20%; (2) it(ii) grants tax advantages to a non-resident entityentities or individualindividuals (a) without requiringthe need to carry out a substantial economic activity in the jurisdiction of such non-resident entitycountry or individuala said territory or (b) toconditioned upon the extent such non-resident entity or individual does not conductnon-exercise of a substantial economic activity in the jurisdiction of such non-resident entitycountry or individual; (3) ita said territory; (iii) does not tax income generated abroad, or imposes tax on incometaxes proceeds generated abroad at a maximum rate lower than 20%; or (4)(iv) restricts the ownership disclosure of information regarding assets and ownership rights or restricts disclosure about the execution of economic transactions. Although the interpretation of the current Brazilian tax legislation could lead to the conclusion that the above-mentionedabove mentioned concept of “privileged tax regime” should apply only for the purposes of Brazilian transfer pricing and thin capitalization rules, it is unclear whether such concept would also apply to investments carried out in the Brazilian financial and capital markets for purposes of this law. There is no judicial guidance as to the application of Law No. 11,727 of June 24, 2008 and, accordingly, we arethe Bank is unable to predict whether the Brazilian Internal Revenue Service or the Brazilian courts may decide that the “privileged tax regime” concept shall be applicableapply to deem a Non-Resident Holder as a Tax Haven resident whenHolders carrying out investments in the Brazilian financial and capital markets. InHowever, in the event that the “privileged tax regime” concept is interpreted to be applicable to transactions carried out in the Brazilian financial and capital markets, this tax law would accordingly result in the imposition of taxation on a Non-Resident Holder that meets the privileged tax regime requirements in the same manner andwithholding tax described above with respect to the same extent applicabledistributions to a Tax Haven resident.residents. Distributions of interest on shareholder’s equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank of Brazil.
Capital Gains According to Law 10,833/03, the gains recognized on a disposition of assets located in Brazil, such as our units, by a Non-Resident holder, areHolder, could be subject to withholding income tax in Brazil. This rule is applicable regardless of whether the disposition is conductedoccurs in Brazil or abroad and/or ifand regardless of whether the disposition is made to an individual or entity resident or domiciled in Brazil. As a general rule, capital gains realized as a result of a disposition transactionof units are the positive difference between the amount realized on the disposition of the units and the respective acquisition cost.cost of such units. Under Brazilian law, income tax on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Brazilian Central Bank and how the disposition is carried out, as described below. Capital gains realized by a Non-Resident Holder on thea disposition of units sold on the Brazilian stock exchange, (which includes the transactions carried out on the organized over-the-counter market)commodities or futures exchange (or a similar exchange): | · | are subject to the withholding of income tax at a zero percent rate, when realized by a Non-Resident Holder that (1) has registered its investment in Brazil before the Brazilian Central Bank under the rules of the Brazilian Monetary Counsel (“Registered Holder”), and (2) has appointed a representative in Brazil and (3) is not a Tax Haven resident; and |
| · | are subject to income tax at a rate of 15% with respect to gains realized by a Non-Resident Holder that is not a Registered Holder (includingor by a Non-Resident Holder who qualifies under Law 4,131/62) and gains earned by Tax Haven residentsresident that areis a Registered Holders.Holder. In this case, a withholding income tax of 0.005% shallwill be applicable and withheldapplied by the intermediary institution (i.e.,(that is, a broker) that receives the order directly from the Non-Resident Holder, which and can be later offset against anythe 15% income tax due on the capital gain, and which will be withheldcollected by the Non-Resident Holder’s tax representative in Brazil. |
Any other gains realized on the disposition of units that areis not carried out on the Brazilian stocksuch an exchange: | · | are subject to income tax at a rate of 15% when realized by any Non-Resident Holder that is not a Tax Haven resident, no matter ifregardless of whether such person is a Registered Holder or not;Holder; and |
| · | are subject to income tax at a rate of 25% when realized by a Tax Haven resident, no matter ifregardless of whether such person is a Registered Holder or not.Holder. |
In the cases above, ifIf the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market, with intermediation, the withholding income tax will be applied at the rate of 0.005%15% or 25% (if earned by a Tax Haven resident), and shall also be applicable and withheldcollected by the intermediary institution (i.e., a broker) that receivespurchaser of the order directly from the Non-Resident Holder, which can be later offset against any income tax due on the capital gain and which will be withheld by the Non-Resident Holder’s tax representative in Brazil. The Non-Resident Holder will not need to file a Brazilian tax return with the Brazilian tax authorities.
units. Any exercise of preemptive rights relating to units or ADSs will not be subject to Brazilian withholding income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposition of units or ADSs. In the case of a redemption of securities or a capital reduction by a Brazilian corporation, such as ourselves, the positive difference between the amount received by the Non-Resident Holder and the acquisition cost of the securities redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange marketdescribed above and is therefore subject to incomewithholding tax at the rate of 15%, or 25%, as the case may be. There can be no assurance that the current favorable tax treatment of Registered Holders will continue in the future. Sale of ADSs Pursuant to Section 26 of Law No. 10,833, the sale of property located in Brazil by a Non-Resident Holder, whether either to a Brazilian resident or to another Non-Resident Holder, is subject to Brazilian withholding income tax. Our understanding is that ADSs do not qualify as property located in Brazil and, thus, should not be subject to the Brazilian withholdingincome tax. Insofar as the regulatory norm referred to in Section 26 is recent and generic and has not been tested through the administrative or judicial courts, we are unable to assure the final outcome of such discussion. Gains on the exchange of ADSs for units Non-Resident Holders may exchange ADSs for the underlying units, sell the units on a Brazilian stock exchange and remit abroad the proceeds of the sale within five business days from the date of exchange or sale (in reliance on the depositary’s electronic registration), with no. We understand that this transaction will not be subject to income tax consequences.in Brazil. Upon receipt of the underlying units in exchange for ADSs, Non-Resident Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such units as a foreign portfolio investment under CMN Resolution No. 2689/00, which will entitle them to the tax treatment referredapplicable to Registered Holders described above. Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S. dollar value of such units as a foreign direct investment under Law 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a Registered Holder. Gains on the exchange of units for ADSs The deposit of units in exchange for the ADSs by a Non-Resident Holder may be subject to Brazilian withholding income tax on capital gains if the acquisition cost of the units is lower than: · | the average price per units on the Brazilian stock exchange on which the greatest number of such units were sold on the day of deposit; or |
· | if no units were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of units were sold during the 15 preceding trading sessions. |
than the market price for such unit. The difference between the amount previously registered, or the acquisition cost, as the case may be, and the average price of the units, calculated as set forth above, is considered a capital gain subject to income tax at a rate of 15%, or 25% for Tax Haven residents. Although thereIf a Non-Resident Holder that is no clear regulatory guidance, such taxation should not apply in the case of Non-Resident Holders registered under Resolution No. 2,689/00, other than Tax Haven residents, which are currently not subject to income tax in such a transaction. If a foreign direct investor under Law No. 4,131/62 wishes to deposit its units into the ADR program in exchange for ADS,ADSs, such holderNon-Resident Holder will be required to present to the custodian evidence, if applicable, of payment of the income tax assessed on capital gains at the rate of 15.0%, except for15% or, in the case of a Tax Haven resident, which, in this case, is subject to the income tax at a rate of 25.0%25%.
Tax on Foreign Exchange and Financial Transactions Foreign Exchange Transactions Brazilian law imposes aThe Tax on Foreign Exchange Transactions or “IOF/(IOF/Exchange Tax”Tax), is due on the conversion of reais intonational or foreign currency, and on the conversion of foreign currencyor any document that represents it, into reais.an available equivalent amount. Currently, for most exchange transactions, the rate of IOF/Exchange Tax rate is 0.38%.
However, on thedifferent rates apply to an inflow of resources into Brazil for investments carried out by Non-Resident Holders in the Brazilian financial and capital markets under regulations issued by the CMN IOF/Exchange is assessed at a rate of zero percent. The outflow of funds related to2.689 (‘Resolução 2689’). These rates are: (i) investments carried out by Non-Resident Holders in the Brazilian financial and capital markets (Fixed Income), constitution of guaranteed margin, derivatives operations with predetermined yield, including simultaneous operations: 6%; (ii) investment in variable income securities negotiated on a stock exchange, commodities and futures, acquisition of shares in public offers or subscription of shares, as welllong as they belong to companies that are allowed to deal in the remittancestock exchange: zero; (iii) application on investment funds in participations (FIP), investment funds in emergent companies (FIEE) and investment funds in shares from these funds (FIC-FIP and FIC-FIEE): zero; (iv) operations of dividendscancellation of depositary receipts for shares acquisition: zero; (v) return on investments in the Brazilian capital and financial markets: zero; (vi) distribution of interest on shareholders’ equity, are subject to IOF/Exchange at a zero percent rate. Although not clearly regulated, the conversion of reais into dollars for payment of dividends to holders of ADSs should also benefit from the above-mentioned zero percent IOF/Exchange rate.capital and dividends: zero; In any case,(vii) investment in Brazilian Depositary Receipts: zero.
Under the provisions of the Law, the Brazilian government may increase the rateany of these rates at any time, up to 25.0%. However, any increase in rates may only apply to future transactions. There is a 0% IOF tax on foreign exchange transactions for inflows that are designated to investments in debentures regulated by Law No. 12,431/2011, specifically infrastructure debentures, and all the conditions of Law No. 12,431/2011 should apply. Tax on Transactions involvingInvolving Bonds and Securities and Derivatives Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, known as “IOF/Bonds Tax”. Currently, the IOF tax on fixed income bonds has a daily rate of 1% on income generated by the bond, on the redemption amount, the amount on assignment or renegotiation, in each case limited to 30 days. The rate of IOF/Bonds Tax applicable to transactions involvingof variable income securities, including those traded in stock, commodities or futures markets that involve shares, or units comprised of shares, is zero, although the Brazilian government may increase such rate at any time, upreduced to 1.5% per day, but only in respect to future transactions.zero. The conversion of shares into ADRs or units into ADSs was not taxable before November 17, 2009. Following the enactment of Decree No. 7,011 of November 18, 2009, these transactions startedare subject to be taxed by the IOF/Bonds Tax at the rate of 1.5% overon the transaction value (obtained by multiplying the number of shares/units converted by its closing price at the day before the conversion, or, in the case no negotiation was made on that day, by the last closing price available). The IOF Derivatives was established by the Decree no. 7,563 of September 16, 2011, and has a rate of 1% on the notional value of the adjusted purchase sale or maturity of financial derivative contract in the country that individually result in an increased foreign exchange exposure on a short position. However, as from the issuance of the Decree 7,699/12, this tax has been reduced to zero for (i) derivative contracts to hedge risks inherent to the price fluctuation of foreign exchange resulting from export contracts signed by an individual or legal entity resident or domiciled in the country; and (ii) other transactions with financial derivative contracts not expressly mentioned by the tax law. Other Brazilian Taxes There are no BrazilianThe inheritance and gift or succession taxestax (ITCMD) is applicable to the ownership,transfer of any goods or rights by gift or bequest. The transfer or disposition of shares, or units comprised of shares, bythat are abroad to individuals or entities notthat are domiciled in Brazil except for giftis subject to taxation. If the shares are in Brazil and inheritance taxes imposed by some Brazilian states on gifts or bequests by these individuals or entitiesare transferred to individuals or entitiesa non-resident, the ITCMD will apply if the donor domiciled or residing within such states. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of shares, or units comprised of shares.in Brazil and the donee is domiciled abroad.
Material U.S. Federal Income Tax Considerations for U.S. Holders The following summary describes the material U.S. federal income tax consequences of the ownership and disposition of ADSs or units, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire such securities. This summary applies only to U.S. Holders (as defined below) that hold ADSs or units as capital assets for U.S. federal income tax purposes and does not address special classes of holders, such as: | · | certain financial institutions; |
| · | dealers and traders in securities that use a mark-to-market method of tax accounting; |
| · | persons holding ADSs or units as part of a hedge, “straddle,” conversion transaction or integrated transaction; |
| · | holders whose “functional currency” is not the U.S. dollar; |
| · | holders liable for the alternative minimum tax; |
| · | tax exempt entities, including “individual retirement accounts” and “Roth IRAs”; |
| · | partnerships or other entities classified as partnerships for U.S. federal income tax purposes; |
| · | holders that own or are deemed to own ten percent or more of our voting shares; and |
| · | persons holding ADSs or units in connection with a trade or business conducted outside the United States. |
If an entity that is classified as a partnership for U.S. federal income tax purposes holds units or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Partnerships holding units or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the units or ADSs. The summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as of the date hereof, changes to any of which may affect the tax consequences described herein, possibly with retroactive effect. In addition, the summary is based in part on representations of the depositary and assumes that each obligation provided for in, or otherwise contemplated by, the deposit agreement or any other related document will be performed in accordance with its terms. U.S. Holders are urged to consult their own tax advisers as to the U.S. federal income tax consequences of the acquisition, ownership and disposition of ADSs or units in their particular circumstances. As used herein, a “U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of ADSs or units that is: | (1) | (1) an individual that is a citizen or resident of the United States; |
| (2) | (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| (3) | (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| (4) | a trust if (a) a court within the United States is able to exercise primary supervision for the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) the trust has validly elected under applicable Treasury regulations to be treated as a U.S. person. | (4) a trust if (a) a court within the United States is able to exercise primary supervision for the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) the trust has validly elected under applicable Treasury Regulations to be treated as a U.S. person. In general, for U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the owners of the underlying units represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying units represented by those ADSs. The U.S. Treasury has expressed concerns that parties to whom ADSsAmerican depositary shares are released before delivery of shares to the depositary or(a practice called “pre-release”,) or intermediaries in the chain of ownership between U.S. holdersHolders and the issuer of the security underlying the ADSs,American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holdersHolders of ADSs.American depositary shares. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability of Brazilian taxes and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by these parties or intermediaries. Taxation of Distributions Distributions paid on our common sharesunits or ADSs (including distributions to shareholders that are treated as interest on net equity for Brazilian tax purposes and amounts withheld in respect of Brazilian tax), other than certain pro rata distributions of our common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. These dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s (or in the case of ADSs, the depositary’s) receipt of the dividend, and will not be eligible for the “dividends received deduction” generally allowed to corporations receiving dividends from domestic corporations under the Code. The amount of the distribution will equal the U.S. dollar value of the reais received, calculated by reference to the exchange rate in effect on the date that distribution is received (which, for U.S. Holders of ADSs, will be the date thaton which the distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any reais received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any gains or losses resulting from the conversion of reais into U.S. dollars will be treated as ordinary income or loss, as the case may be, of the U.S. Holder and will generally be U.S.-source. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, under current law, dividends paid with respect to our ADSs to certain non-corporate U.S. Holders in taxable years beginning before January 1, 2013 will be taxable at favorable rates, up to a maximum of 15%, in taxable years beginning before January 1, 2011. It is unclear whether these favorable rates will apply to dividends paid with respect to preferred shares also underlying the units.. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of these favorable rates in their particular circumstances. Sale or Other Disposition of ADSs or Units Subject to the discussion of the passive foreign investment company rules below, gain or loss realized by a U.S. Holder on the sale or exchange of ADSs or units will be subject to U.S. federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder’s adjusted tax basis in the ADSs or units and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss to the extent that the U.S. Holder’s holding period with respect to the shares underlying the ADSs or units exceeds one year. Gain or loss, if any, will generally be U.S.-source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations. Long-term capital gain of a noncorporatenon-corporate U.S. holderHolder is generally taxed at a preferential rate. If a Brazilian tax is withheld on the sale or other disposition of ADSs or units, a U.S. Holder’s amount realized will include the gross amount of proceeds of the sale or disposition before the deduction of the Brazilian tax. See “—Brazilian Tax Considerations” for a description of when a disposition may be subject to taxation by Brazil. Foreign Tax Credits Subject to certain generally applicable limitations, which may vary depending upon a U.S. Holder’s circumstances, and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Brazilian income taxes withheld from dividends on ADSs or units. TheA U.S. Holder will be entitled to use these foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Because a U.S. Holder’s gains from the sale or exchange of ADSs or units will generally be treated as U.S.-source income, this limitation may preclude a U.S. Holder from claiming a credit for all or a portion of the foreign taxes imposed on any such gains. U.S. Holders should consult their tax advisers as to whether these Brazilian taxes may be creditable against the U.S. Holder’s U.S. federal income tax liability on foreign-source income from other sources. Instead of claiming a credit, a U.S. Holder may, at its election, deduct such otherwise creditable Brazilian income taxes in computing taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year to foreign countries and possessions of the United States. U.S. Holders should consult their tax advisers as to whether these Brazilian taxes may be creditable against the holder’s U.S. federal income tax on foreign-source income from other sources or are otherwise deductible. year. The Brazilian IOF/Exchange Tax imposed on the purchases of units and the IOF/Bonds Tax on the deposits of units in exchange for ADSs (as discussed above under “—Brazilian Tax Considerations”), will not be treated as creditable foreign tax for U.S. federal income tax purposes. U.S. Holders should consult their tax advisers as to whether those taxes would be deductible for U.S. federal income tax purposes. A U.S. Holder must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends. The rules governing foreign tax credits are complex and, therefore, U.S. Holders are urged to consult their own tax advisers to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits. Passive Foreign Investment Company Rules Based on proposed Treasury regulations,Regulations, which are proposed to be effective for taxable years beginning after December 31, 1994, and on management estimates, we dobelieve we were not expect to be a PFICpassive foreign investment company (a “PFIC”) for our current taxable year or in the foreseeable future.ended December 31, 2011. However, because the proposed Treasury regulations may not be finalized in their current form, because the application of the proposed regulations is not entirely clear and because the composition of our income and assets will vary over time, there can be no assurance that we will not be a PFIC for any taxable year. The determination of whether we are a PFIC is made annually and is based upon the composition of our income and assets (including, among others, entities in which we hold at least a 25.0%25% interest), and the nature of our activities. If we arewere a PFIC for any taxable year during which a U.S. Holder held our ADSs or units, any gain recognized by a U.S. Holder on a sale or other disposition of ADSs or units would be allocated ratably over the U.S. Holder’s holding period for the ADSs or units. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to all other taxable years would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the resulting tax liability for each of those taxable years. Further, the portion of any distribution in respect of ADSs or units that is in excess of 125 percent125% of the average of the annual distributions on ADSs or units received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, would be subject to taxation as described above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ADSs or units. U.S. Holders should consult their tax advisers to determine whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. If we are a PFIC in any taxable year, a U.S. Holder may be required to file a report with the Internal Revenue Service (the “IRS”) containing such information as the Treasury Department may require. In addition, if we are a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividend rate discussed above with respect to certain dividends paid to non-corporate holders would not apply. Information Reporting and Backup Withholding Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (1) the U.S. Holder is an exempt recipient or (2) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.IRS. Certain U.S. Holders who are individuals may be required to report information relating to securities of a non-U.S. person, generally on IRS Form 8938, subject to certain exceptions (including an exception for securities held in custodial accounts maintained by a U.S. financial institution). U.S. Holders are urged to consult their tax advisers regarding the effect, if any, of this requirement on their tax reporting obligations. Not applicable. Not applicable. We are subject to the information requirements of the Exchange Act, except that as a foreign issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 100 F Street, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.20549. Copies of such material may also be inspected at the offices of the NYSE, 11 Wall Street, New York, New York 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information filed electronically with the SEC, which can be accessed over the internet at http://www.sec.gov.www.sec.gov. We also file consolidated financial statements and other periodic reports with the CVM located at Rua Sete de Setembro, 111, Rio de Janeiro, Rio de Janeiro 20159-900, Brazil. The CVM maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the CVM. The address of that website is www.cvm.gov.br.www.cvm.gov.br. We also file consolidated financial statements and other periodic information with BM&FBOVESPA. The address of the BM&FBOVESPA website is www.bovespa.com.br.www.bovespa.com.br. Not applicable. Overview Our operations are subject to a variety of risks. To manage these risks actively, we have incorporated the Santander Group’s worldwide risk management functions into various levels of our organization. Certain members of our risk management area are seconded from the Santander Group to ensure a consistent risk management approach worldwide by implementing Santander Group’s risk management policies for all of our areas, including financial, credit and market risk. In addition, committees headed by senior management oversee our financial, credit and market risk reports. Risk limits and exposures in local jurisdictions are further subject to approval from the Santander Group. Credit Risk Our credit risk management process is designed to follow the standards of the Santander Group while taking into account our product offerings and the specific regulatory requirements of our operations in Brazil. Our credit approval processes, particularly approval of new loans and risk monitoring, is structured in accordance with our customer and product classification. Credit approval and monitoring are conducted separately and on different information technology platforms for each of the networks operated under the Santander and Banco Real brands, until the technological integration process is concluded. Our credit approval processes are structured primarily around our retail lending and wholesale lending activities. For additional details on our credit risk management policies with respect to specific categories of loans by type of customer see “Item 4. Information on the Company—B. Business Overview—Selected Statistical Information—Loan Portfolio—Types of Loans by Type of Customer”Loans”. Retail Lending In our retail banking, credit requests by individuals are analyzed by a credit approval system applying various types of processes depending on the credit history of the customer and the type of credit requested. For standard credit requests in amounts less than R$400,000,2.000.000, approval is generally made at our individual branches are based on an automatic, standardized process. When the customer’s request is submitted for credit approval, we collect relevant credit information for the customer, including the individual’s profession, level of income, internal and external financial restrictions, credit history, current indebtedness, and relationship with us. Based on this data and the type of credit requested, our credit rating system automatically assigns a credit rating based on a scoring model and our risk management polices.policies. We use our scoring models in two different phases, an “initial” phase and an “ongoing” phase. A pure credit scoring model is applied in the initial phase when the customer starts the relationship with us. A behavioral scoring model is used when the customer has already had a relationship with us for the time period established by our risk management policies. This policy allows us to evaluate our existing customers with a more complete analysis than if we applied a pure scoring model for all customers. Our branches operating under the Santander Brasil and the Banco Real brands apply certain distinct operational criteria in approving credit requests, but follow the same risk boundaries. Preapproval limits are granted for lines of credit for a particular individual or wholesale banking customer based on creditworthiness and size as determined according to our scoring criteria. In the case of credit approval by our branches operating under the Santander Brasil brand, approval is based entirely on our scoring criteria and branch employees are not authorized to approve a credit application if the particular customer is not preapproved through our scoring criteria. With respect to branches operating under the Banco Real brand, certain branch personnel are authorized to approve a credit application (as indicated below), even where a particular customer has not been preapproved based on the relevant scoring criteria, after taking into account certain mitigating factors specific to the particular customer. Any such approvals are made within preset criteria to conform to our credit risk standards. This allows us to preserve relationships with key customers. As we continue to integrate the operations of Santander Brasil and Banco Real, we expect to establish uniform operational criteria for credit approval across all branches. An individualized analysis is made for products that are not subject to our automatic scoring process. In this case, evaluations are performed by credit committees that follow a standardized and centralized process within predefined criteria.
We have established procedures and authorized certain organizational bodies to approve credit requests in amounts greater than those delegated to individual branches (both for individuals and business customers). Such approvals are made following application of the relevant scoring model and individualized analysis by the relevant authorized body. The following table sets out the individuals or bodies authorized to make extensions of credit to retail borrowers for the amounts specified.
| | | Branch(1)
| | Up to R$600,000 | Business Committees
| | From R$600,000 to R$1.5 million | Decision centers
| | From R$1.5 million to R$6.0 million | Retail Risk Committee(2)
| | From R$6.0 million to R$15.0 million | Superior Risk Committee(3)
| | From R$15.0 million to U.S.$35.0 million | Brazil Executive Risk Committee(4)
| | From U.S.$35.0 million to €100.0 million |
(1) | Approval process at branches operating under the Santander brand is automatic based on standard scoring models. |
(2) | Members of Retail Risk Committee include our Director for Retail, Executive Superintendent for Retail and the representatives of risk departments. |
(3) | Members of Superior Risk Committee include the Director for wholesale, Director for Retail, Director for Market Risk, Director for Collections and representatives of each of the risk departments. |
(4) | Members of Brasil Executive Risk Committee include our Chief Executive Officer, Senior Vice President and Executive Vice President for Global Banking & Markets and Executive Vice President for Credit and Market Risk. |
For financing products designed to be offered to SMEs, the credit risk approval process is performed throughcan be based on an automated scoring system. For other financing products,system, based on credit policies, and or be manually individually analyzed and approved, based on the risk management analysis is performed by credit analysts who have detailed knowledge aboutcreditworthiness of the customer, and itsin accordance with the respective business group and economic and industrial sectors.credit risk approval authority levels as described in the table below. This preliminary analysis also generates a credit rating based on our internal models. Additional information, such as the characteristics of the financing product being offered, including related terms and conditions and collateral granted in connection therewith, is also taken into account as part of the approval process. Pre-approved limits are granted lines of credit for a particular individual or a SME based on the creditworthiness and size as determined according to our scoring criteria. Credit approval by our branches is allowed by authorized personnel according to established parameters. Credit limits are managed based on the performance of the client taking into account its risk profile. Credit authorizations are established through policies that define the rules and responsibilities of the members of each committee. We have established procedures and authorized certain organizational bodies to approve credit requests in amounts greater than those delegated to individual branches (both for individuals and SMEs). Such approvals are made following application of the relevant scoring model and individualized analysis by the relevant authorized body. The following table presents the individuals or bodies authorized to make extensions of credit to retail borrowers for the amounts specified: | | | Branch(1) | | Up to R$2 million | Business Committees(2) | | Up to R$2 million | Network Committees(3) | | Up to R$4 million | Decision centers(4) | | Up to R$8 million | Retail Risk Committee(5) | | Up to R$15 million | Superior Risk Committee for Retail(6) | | Up to R$60 million | Superior Risk Committee(7) | | Up to U.S.$70 million | Brazil Executive Risk Committee(8) | | Up to €100 million |
(1) | For individuals, the maximum value is R$2.0 million for mortgages; for other credit lines, the maximum is R$110 thousand. For SMEs the maximum value is R$600 thousand. |
(2) | Members of Business Committees include a credit risk consultant. |
(3) | Members of Network Committees include a credit risk consultant. |
(4) | Members of the Decision Centers of Risk includes Superintendents and other representatives of the Risk area. |
(5) | Members of the Retail Risk Committee include a Retail Risk Superintendent and other representatives of the Risk area. |
(6) | Members of the Superior Risk Committee for Retail include the Retail Risk Director. |
(7) | Members of the Superior Risk Committee include the Director of Wholesale, Retail Risk Director, Director of Market Risk, Director of Billing and representatives from each Risk department. |
(8) | Realized jointly with the Corporate Risk Committee, with members from Brazil and Spain, among them: Risk General Director/Madrid, Risk Executive Vice President/Brazil, Market Risk Director/Brazil, Risk Officers of Wholesale, Retail, Recovery and Solvency. |
Wholesale Lending For lending to our wholesale banking customers, the approval process is determined for each customer class and product separately. All creditCredit requests by our Global Banking & Markets customers, a group of approximately 700600 entities, are approved by the Customers and MarketSuperior Risk Committee or by the Brazil Executive Risk Committee. Credit requests by our corporate customerscustomers/Corporate Segment (corporations with annual revenues in excess of R$250 million) and business enterprise customers (corporations with annual revenues between R$30 million and R$25080 million) must be approved by the relevant bodies set forthcredit committees presented in the following table for the amounts indicated. | | Amount Corporate Customers (GB&M) | | Amount Business EnterpriseCorporate Customers
| Regional approval committee | | N/AN.A. | | Up to R$3.06 million | Regional Wholesale Risk Committee | | N.A. | | Up to R$15 million | Territorial Risk Committee | | N.A. | | Up to R$40 million | Wholesale Risk Committee | | N.A. | | Up to R$60 million | Regional WholesaleSuperior Risk Committee(1)
| | From R$3.0 millionUp to R$15.0U.S.$40 million | | From R$3.0 million to R$15.0 million | Wholesale Risk Committee(1)
| | From R$15.0 million to R$40.0 million | | From R$15.0 million to R$40.0 million | Central Risk Committee
| | From R$40.0 million toUp from U.S.$35.0 million | | From R$40.0 million to U.S.$35.070 million | Brazil Executive Risk Committee(2) | | From U.S.$35.0 millionUp to € 100.0€100 million | | From U.S.$35.0 millionUp to € 100.0€100 million |
(1) | Members of Wholesalethe Superior Risk Committee include, persons responsible for risk at Global Banking & Markets.among others, Officers of Wholesale, Retail, Market Risk, Recovery and representatives from the Risk departments. |
(2) | Realized jointly with the Corporate Risk Committee, with members from Brazil and Spain, among them: Risk General Director/Madrid, Risk Executive Vice President/Brazil, Market Risk Director/Brazil, Risk Officers of Wholesale, Retail, Recovery and Solvency. |
Credit Monitoring Credit lines to retail banking customers (companies) are reviewed on a weekly basis. Credit lines to retail customers (individuals) are reviewed on a daily basis, based on a client’s credit rating. This process allows improvements in the credit exposure with customers that have presented good credit quality. Specific early warnings are automatically generated in the case of the deterioration of a customer’s credit quality. In this event, a credit risk mitigation process designed to prevent default begins with identification of the customer’s solvency problem (expenditures and other financial commitments) and the customer is approached by the relationship manager. Early warnings are automatically generated for SMEs, and their performance is monitored monthly. In addition, the financial situation of each business is discussed by specific committees in the presence of the commercial area with the aim of continuously improving the quality of our credit portfolio. Credit Lines to wholesale banking customers and its credit quality are reviewed on an annual basis. There is a monitoring procedure and any specific concern in regard of the credit quality of a specific customer, a system of customer monitoring known as FEVE (Firms for Special Vigilance) is used, with possible actions to be taken under the following categories: “monitor”, “reduce exposure”, “seek collateral” or “cancel”. In these situations, client will be reviewed on a quarterly or a biannualsemi-annual basis. Credit Classifications We are required to classify our credit transactions, in accordance with criteria set forth in 2000 by the Brazilian Central Bank, as either AA, A, B, C, D, E, F, G or H. Each of these categories corresponds to a number of days a transaction is past due and one of our own internal risk rating categories, which have been approved by the Brazilian Central Bank. We classify all transactions with individuals based solely on the number of days past due. We classify all other transactions at the higher of our own internal risk classification or the risk classification resulting from the number of days the transaction is past due. Our credit classifications take into account: | · | the conditions of the debtor and any guarantor, such as the debtor’s and/or guarantor’s economic and financial situation, level of indebtedness, capacity for generating profits, cash flow, administration, corporate governance and quality of internal controls, payment history, the sector in which such debtor or guarantor is active, contingencies and credit limits; and |
| · | characteristics of the transaction, such as its nature and purpose, type, sufficiency and level of liquidity of collateral and the total amount of the credit. |
Our rating and risk management systems are reviewed by both the Brazilian Central Bank and the Santander Group’s internal auditors. Our management has not had any disputes with the Brazilian Central Bank or the Santander Group regarding our risk management operations. Credit Provisioning The Brazilian Central Bank specifies a minimum provision for each credit transaction rating category, which is measured as a percentage of the total amount of credit operations, as set forth in the table below. Brazilian Central Bank Classification (Risk level) | | | | Days Past Due Classification (days past due) | AA | | — | | None | A | | 0.5 | | <15 | B | | 1.0 | | 15-30 | C | | 3.0 | | 30-60 | D | | 10.0 | | 60-90 | E | | 30.0 | | 90-120 | F | | 50.0 | | 120-150 | G | | 70.0 | | 150-180 | H | | 100.0 | | 180-210 |
Our allowances for credit losses under IFRS are greater than the minimum amounts required by the Central Bank. The following table shows, at the dates indicated, the minimum allowances for credit losses required by the Central Bank and the allowances we established under IFRS.
| | | | | IFRS Allowances Established | | | | | | | | | | | | | | | | | (in millions of R$) | | Total | | | 8,827 | | | | 6,938 | | | | 10,070 | | | | 8,181 | |
In addition to the current regulatory requirements, we recorded additional provisions based on management’s risk assessments of R$636 million in 2009 and R$156 million in 2008.
Collections Our Collections departmentIn order to reduce costs and increase recovery, the Collection Area uses tools, such as behavior and collection scoringscore, to study the collection performance of certain groups in an attemptgroups. Customers who have a good probability to lower costs and increase recoveries. Customers likely to make paymentpay are classified as low risk requiring less aggressive strategiesand we give adequate attention to ensure payment, and more attention is paid to maintainingmaintain a healthy customer relationship. Customers unlikelyrelationship with them. On the other hand, customers with low probability to make paymentpay are classified as high risk and contacted consistently regarding payment.receive a more intense scrutiny. All the customers in delinquency or with past due amounts or whose loans have been rescheduled or otherwise restructured face strictrenegotiated contracts raise an internal restrictions.flag.
CollectionThe strategies and the different collection channels are modifieddefined according to the durationcustomer delinquency (days past due and amount). This results in what we call a Responsibility Map. We adopt an intense collection model to deal with customers in the beginning of the delay in payment, or days past due.delinquency. This model has specific strategies and an internal effective monitoring. In the early days of delinquency (less than 90 days past due), the collections department implements a more exhaustive model ofthis phase we use Call Centers, external credit bureaus, collection creating distinct strategies with closer monitoring. Call centers, letters and credit rating agencies, such as Serasa, whichsales force on the branches. A specialized team is a centralized data system used by several Brazilian financial institutionsin order to collect and others for the credit approval process, are utilized during this phase. During this phase of collection, our emphasis is on recovering our customers. However, if a customer is 90restructure cases with delinquency over 60 days past due our focus turns toward recoveringwith higher amounts. We also use external agencies and attorneys to collect from higher risk customers. These agencies receive a success fee according to the money owed. At this point, we outsource collection efforts to external collection agencies that earn a commission for any amounts recovered. The Collections department also manages debt and loan restructurings.collected amount.
Frequently, we perform portfolio sales focused on charge off accounts. These portfolio sales usually happen through auctions in order to look for the better market opportunity. Asset and Liability Management Committee Our asset and liability management strategy is defined by the Asset and Liability Management Committee, or “ALCO”, which operates under the strict guidelines and procedures established by the Santander Group. Members of the ALCO include our Chief Executive Officer, Chief Financial Officer, Treasurer, Executive Vice President of Risk Management, Senior Vice President of wholesale banking operations, Senior Vice President of Retail Banking, the head of ALM and Chief Economist, among others. The ALCO meets every two weeks to establishestablishes our funding strategy, structural balance sheet interest rate position and capital management. It uses several risk metrics to monitor the impact of market conditions, including market value and interest rate margin sensitivities. Other ALCO activities include the establishment of transfer pricing policies, management of risk-weighted assets and economic capital exposure, management of local regulatory capital and decision making on capital instrument issuances, each of which is in line with the Santander Group’s guidelines and limits. Market Risk Generally We are exposed to market risk mainly as a result of the following activities: | · | Trading in financial instruments, which involves interest rate, foreign exchange rate, equity price and volatility risks. |
| · | Engaging in retail banking activities, which involves interest rate risk because a change in interest rates affects interest income, interest expense and customer behavior. |
| · | Investing in assets (including subsidiaries) whose returns or accounts are denominated in currencies other than the real, which involves foreign exchange rate risk. |
| · | Investing in subsidiaries and other companies, which subjects us to equity price risk. |
| · | All trading and non-trading activities, which involve liquidity risk. |
Primary Market Risks and How They Arise The primary market risks to which we are exposed are interest rate risk, foreign exchange rate risk, equity price risk, volatility risk and liquidity risk. We are exposed to interest rate risk whenever there is a mismatch between interest rate sensitive assets and liabilities, subject to any hedging we have engaged in using interest rate swaps or other off-balance sheet derivative instruments. Interest rate risk arises in connection with both our trading and non-trading activities. We are exposed to foreign exchange rate risk as a result of mismatches between assets and liabilities, and off-balance sheet items denominated in different currencies, either as a result of trading or in the normal course of business. We maintain non-trading open currency positions arising from our investments in overseas subsidiaries (such as our Grand Cayman Islands branch), affiliates and their currency funding. Our principal non-trading currency exposure is the U.S. Dollar, which, as mandated by our policies, is hedged to the real within established limits. We are exposed to equity price risk in connection with both our trading and non-trading investments in equity securities. We are also exposed to liquidity risk. Market depth is the main liquidity driver in our trading portfolio, even though our policy is to trade the most liquid assets. Our liquidity risk also arises in non-trading activity due to the maturity gap between assets and liabilities mostly in the retail banking business. We use derivatives for both trading and non-trading activities. Trading derivatives are used to eliminate, reduce or modify risk in trading portfolios (interest rate, foreign exchange and equity price risk), and to provide financial services to customers. Our principal counterparties (in addition to customers) for this activity are financial institutions and the BM&FBOVESPA. Our principal derivative instruments include interest rate swaps, interest rate futures, foreign exchange forwards, foreign exchange futures, foreign exchange options, cross currency swaps, equity index futures and equity options and interest rate options. We also use derivatives in non-trading activity in order to manage the interest rate risk and foreign exchange risk arising from asset and liability management activity. We use interest rate and foreign exchange non-optional derivatives in non-trading activity. We have no credit derivatives in Brazil, as there is no market for credit derivatives in Brazil. Procedures for Measuring and Managing Market Risk Our board of directors through its risk committee, is responsible for establishing our policies, procedures and limits with respect to market risk, including which businesses to enter into and maintain. The risk committee also monitors our overall performance in light of the risks assumed. Together with the local and global assets and liabilities committees, each market risk unit measures and monitors our market and liquidity risk and provides figures to the assets and liabilities committees to use in managing such risks. Market risk is regulated and controlled through certain policies, set forth in our market and liquidity risk management policies manual (as described below), and through structures setting forth specific limits to our exposure to market risk which is based on global limits established for the entire Santander Group. In addition, authorized products are listed and reviewed periodically. These policies, procedures and limits on market risk are applicable to all units, businesses or portfolios susceptible to market risk. Market and Liquidity Risk Management Policies Manual The market and liquidity risk management policies manual, or the “Manual”, is a compilation of policies that describe the control framework used by the Santander Group to identify, measure and manage market risk exposures inherent in our activities in the financial markets. The Manual is employed for market risk management purposes at all levels in the Santander Group and within its subsidiaries (including us), providing a general and global action framework and establishing risk rules for all levels. The Manual’s main objective is to set forth the risk level which our board of directors deems acceptable and to describe and report all risk policies and controls that our board of directors has established. All risk managers within the Santander Group must ensure that each business activity is performed in accordance with the policies established in the Manual. The Manual is followed in market risk decision-making in all business units and activities. Market Risk Management Procedures All functions developed by risk management are documented and regulated by different procedures, including measurement, control and reporting responsibilities. Internal and external auditors audit the compliance with this internal regulation to ensure that our market risk policies are followed. Market Risk Limit Structure The market risk limit structure represents the board of directors’Bank’ risk appetite and is determined byaligned with our global market risk management policies, which encompass all of our business units and serve to: | · | Identify and define the main types of risk incurred in a manner consistent with our business strategy. |
| · | Quantify and report to our business segments with respect to appropriate risk levels and risk profile in line with senior management’s assessment of risks to help avoid any of our business segments taking undesired risks. |
| · | Provide flexibility to our business segments to timely and efficiently establish risk positions responsive to market changes and our business strategies, and always within acceptable Santander Group risk levels. |
| · | Allow the individuals and teams originating new business to take prudent risks that will help attain budgeted results. |
| · | Establish investment alternatives by limiting equity consumption. |
| · | Define the range of products and underlying assets within which each unit of treasury can operate, taking into consideration our risk modeling and valuation systems and our liquidity tools. This will help to constrain all market risk within the business management and defined risk strategy. |
Global market risk management policies define our risk limit structure while the risk committee reviews and approves such policies. Business managers administer their activities within these limits. The risk limit structure covers both our trading and non-trading portfolios and includes limits on fixed income instruments, equity securities, foreign exchange and other derivative instruments. Limits considered to be global limits refer to the business unit level. To date, system restrictions prevent intra-day limits. Our business units must comply with approved limits. Potential excesses require a range of actions carried out by the global market risk function unit including (1) providing risk-reducing suggestions and controls, which are the result of breaking “alarm” limits and (2) taking executive actions that require risk takers to close out positions to reduce risk levels. Statistical Tools for Measuring and Managing Market Risk Trading Activity The trading portfolio comprises our proprietary positions in financial instruments held for resale and/or bought to take advantage of current and/or expected differences between purchase and sale prices. This portfolio also includes positions in financial instruments deriving from market-making and sales. As a result of trading fixed income securities, equity securities and foreign exchange, we are exposed to interest rate, equity price and foreign exchange rate risks. We are also exposed to volatility when derivatives are used. We actively manage market risk arising from proprietary trading and market-making activities through the use of cash and derivative financial instruments traded in over-the-counter, or “OTC”, and organized markets. We typically hedge interest rate risk derived from market-making by buying or selling very liquid cash securities such as government bonds, or futures contracts listed in organized markets like theat BM&FBOVESPA, the London Metals Exchange, the NYSE, Euronext Liffe, the New York Mercantile Exchange, NYSE and Chicago Board of Trade.&FBOVESPA. We manage foreign exchange rate risk through spot transactions executed in the global foreign exchange inter-bank market, as well as through forward foreign exchange, cross-currency swaps, FX futures at the BM&FBOVESPA and foreign exchange options. We hedge equity price risk by buying or selling the underlying individual stocks in the organized equity markets in which they are traded or futures contracts on individual stocks listed in organized markets like the BM&FBOVESPA. We hedge volatility risk arising from market-making in options and option-related products by either buying and selling option contracts listed in organized markets like the BM&FBOVESPA, or entering risk reversal transactions in the inter-bank OTC market. We use value at risk or “VaR”, to measure our market risk associated with all of our trading activity. VaR model. Locally, we use a variety of mathematical and statistical models, including VaR models, historical simulations and stress testing to measure, monitor, report and manage market risk. Such numbers, produced locally, also serve as input for global activities such as evaluations of return on risk adjusted capital, or “RORAC”, and to allocate economic capital to various activities in order to evaluate the RORAC of such activities. As calculated by us, VaR is an estimate of the expected maximum loss in the market value of a given portfolio over a one-day time horizon at a 99% confidence interval. It is the maximum one-day loss that we estimate we would suffer on a given portfolio 99% of the time, subject to certain assumptions and limitations discussed below. Conversely, it is the figure that we would expect to exceed only 1.0% of the time, or approximately three days per year. VaR provides a single estimate of market risk that is comparable from one market risk to the other. Our standard methodology is based on historical simulation (520(521 days). In order to capture recent market volatility in the model, our VaR figure is the maximum between the 1% percentile and the 1% weighted percentile of the simulated profit and loss distribution. This loss distribution is calculated by applying an exponential decline factor, which accords less weight to the observations farthest away in time. We use VaR estimates to alert senior management whenever the statistically estimated losses in our portfolios exceed prudent levels. Limits on VaR are used to control exposure on a portfolio-by-portfolio basis. Assumptions and limitations. Our VaR methodology should be interpreted in light of the limitations that (1) a one-day time horizon may not fully capture the market risk of positions that cannot be liquidated or hedged within one day and (2) at present, we compute VaR at the close of business and trading positions may change substantially during the course of the trading day. Scenario analysis and calibration measures. Because of these limitations in VaR methodology, in addition to historical simulation, we use stress testing to analyze the impact of extreme market movements and adopt policies and procedures in an effort to protect our capital and results of operations against such contingencies. In order to calibrate our VaR model, we use back testing, which is a comparative analysis between VaR estimates and the daily clean profit and loss (theoretical result generated assuming the mark-to-market daily variation of the portfolio considering only the movement of the market variables). The purpose of these tests is to verify and measure the precision of the models used to calculate VaR. Non-trading Activities Interest rate risk. We analyze the sensitivity of net interest margin and market value of equity to changes in interest rates. This sensitivity arises from gaps in maturity dates and interest rates in the different asset and liability accounts. Certain repricingre-pricing hypotheses are used for products without explicit contractual maturities based on the economic environment (financial and commercial). On the basis of the positioning of balance sheet interest rates, as well as the market situation and outlook, we take financial measures to adjust the positioning to levels in line with Santander Group policies. These measures range from taking positions in markets to defining the interest rate features of commercial products. The measures used to control interest rate risk are the interest rate gap analysis, the sensitivity of net interest margin and market value of equity to changes in interest rates, VaR and analysis of scenarios. Interest rate gap of assets and liabilities. Interest rate gap analysis focuses on lags or mismatches between changes in the value of asset, liability and off-balance sheet items. Gap analysis provides a basic representation of the balance sheet structure and allows for the detection of interest rate risk by concentration of maturities. It is also a useful tool for estimating the impact of eventual interest rate movements on net interest margin or equity. All on- and off-balance sheet items must be broken down by their flows and analyzed in terms of repricingre-pricing and maturity. In the case of those items that do not have a contractual maturity, an internal model of analysis is used and estimates are made of their duration and sensitivity. Net interest margin sensitivity. The sensitivity of net interest margin measures the change in the short- and medium-term in the accruals expected over a 12-month period, in response to a shift in the yield curve. The yield curve is calculated by simulating the net interest margin, both for a scenario of a shift in the yield curve as well as for the current scenario. The sensitivity is the difference between the two margins calculated. Market value of equity sensitivity. Net worth sensitivity measures the interest risk implicit in net worth (equity) over the entire life of the operation on the basis of the effect that a change in interest rates has on the current values of financial assets and liabilities. This is an additional measure to the sensitivity of the net interest margin. Value at risk. The VaR for balance sheet activity and investment portfolios is calculated with the same standard as for trading and historical simulation, with a confidence level of 99% and a time frame of one day. Analysis of scenarios of stress test. We apply three scenarios for the performance of interest rates: six standard deviations up and six standard deviations down of risk factors and one abrupt scenario in which risk factors are increased by 50% up and down from current levels. These scenarios are applied to the balance sheet, obtaining the impact on net worth as well as the projections of net interest revenue for the year. Liquidity risk. Liquidity risk is associated with our capacity to finance our commitments at reasonable market prices, as well as to carry out our business plans with stable sources of funding. We permanently monitor maximum gap profiles. The measures used to control liquidity risk are the liquidity gap, liquidity ratio, stress scenarios and contingency plans. Liquidity gap. The liquidity gap provides information on contractual and expected cash inflows and outflows for a certain period of time, for each of the currencies in which we operate. The gap measures the net need or excess of funds at a particular date and reflects the level of liquidity maintained under normal market conditions. Liquidity ratios. The liquidity coefficient compares liquid assets available for sale (after applying the relevant discounts and adjustments) with total liabilities to be settled, including contingencies. This coefficient shows, for currencies that cannot be consolidated, the level of immediate response of the entity to firm commitments.
Net accumulated illiquidity is defined as the 30-day accumulated gap obtained from the modified liquidity gap. The modified contractual liquidity gap is calculated on the basis of the contractual liquidity gap and by placing liquid assets or repos at the point of settlement and not at the point of maturity.
Analysis of scenarios/contingency plan. Our liquidity management focuses on preventing a crisis. Liquidity crises, and their immediate causes, cannot always be predicted. Consequently, ourThe contingency plan concentrates on creating models of potential crises by analyzing different scenarios and identifying crisis types, internalincludes the local and external communicationsactivities and individual responsibilities.consists of a formal set of preventive and corrective actions taken in times of liquidity crises. TheUsing analysis of historical scenarios and simulations of impacts on bank liquidity we define action plans and contingencies to establish roles and responsibilities and levels to trigger the contingency plan. Each unit should prepare its contingency plan covers the activity of local units and of thesubmit it for Santander Group’s headquarters in Madrid. Each local unit must prepare a plan of contingency financing, indicating the amount it would potentially need from the Santander Group headquarters in the case of a crisis. Each unit must inform Santander Group headquarters of its plan at least every six months so that itSpain semi-annually. The document can be reviewed and updated. These plans, however, must be updated more or less frequently if prudent due todepending on the market circumstances.liquidity conditions.
Quantitative Analysis Trading Activity Quantitative analysis of daily VaR in 20092011. Our risk performance with regard to trading activity in financial markets during 2009,2011, measured by daily VaR, is shown in the following graph. |
* Date format used is day/month/year |
VaR during 20092011 fluctuated in a range between R$10 million and R$7845 million. The VaR variance shown in the chart above was mainly due to changes in theof positions taken by trading book during 2009.2011. As observed in the histogram below, the VaR maintained a range between R$2815 million and R$4530 million on 51%74% of days in 2009.2011. Histogram of Risk – VaR (in Millionmillions of BRL) R$) Risk by factor. The minimum, maximum, average and year-end 20092011 risk values in VaR terms were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | (in Million of R$) | | | (in Million of R$) | | Total Trading | | | | | | | | | | | | | | | | | | | | | | | | | Total VaR | | | 10.5 | | | | 38.0 | | | | 77.6 | | | | 20.9 | | | | 9.63 | | | | 21.74 | | | | 45.29 | | | | 19.52 | | Diversification Effect | | | (3.6 | ) | | | (12.9 | ) | | | (57.7 | ) | | | (12.7 | ) | | | (1.88 | ) | | | (11.73 | ) | | | (36.72 | ) | | | (5.67 | ) | IR VaR | | | 10.9 | | | | 29.9 | | | | 67.0 | | | | 18.7 | | | | 9.07 | | | | 19.94 | | | | 41.31 | | | | 18.72 | | Equity VaR | | | 1.2 | | | | 8.9 | | | | 31.4 | | | | 3.8 | | | | 1.46 | | | | 5.71 | | | | 14.19 | | | | 4.80 | | FX VaR | | | 2.1 | | | | 12.1 | | | | 37.0 | | | | 11.1 | | | | 0.98 | | | | 7.82 | | | | 26.52 | | | | 1.68 | |
The average VaR for 20092011 was R$38.021.7 million less thanwhich was close to the value of 2010, and, considering the fact that the 2008 crisis data moved out from the VaR historical series in 2008, due to a decrease in market volatility during 2009. 2011, the year of 2011 itself presented significant volatility. The average risk of the three main risk factors, interest rates, equity price and exchange rates, waswere R$29.919.9 million, R$8.95.7 million and R$12.17.8 million, respectively, with a negative average diversification effect of R$12.911.7 million. The chart below shows the evolution of the risk groups’groups VaR interest rates (IR), VaR exchange rates (FX) and VaR equity prices. |
* Date format used is day/month/year |
Risk Statistics in 20092011 Risk management of structured derivatives. Our structured derivatives activity (non-organized markets)(OTC) is mainly focused on structuring investment and hedging products for customers. These transactions include options on FX equities, currencies, fixed-income instruments and mostly market making books. Scenario analysis. Different stress test scenarios were analyzed during 2009.2011. A scenario of maximum volatility, which applies six standard deviations to different market factors as of December 31, 2009,correlation break, generated results that are presented below. Maximum VolatilityWorst Case Scenario
The table below shows, aton December 31, 2009,30, 2011, the maximum daily losses for each productrisk factor (fixed-income, equities and currencies), in a scenario in which volatility equivalent to sixuses historical volatilities and simulates variations of the risk factors of +/-3 and +/-6 standard deviations inon a normal distributiondaily basis. From this group of scenarios, we generate a table of stress test results, which identifies the largest loss per risk factor. The sum of the largest losses of each risk factor is applied (interest rate rises, falls in stock markets, dollar slides and rise in volatility).the result of the Worst Case Scenario, which considers the break of correlation between risk factors. Maximum VolatilityWorst Case Stress Test
| | | | | | | | | | | | | | | | | | (in millions of R$) | | Total trading | | | 9.9 | | | | (3.6 | ) | | | (7.0 | ) | | | (0.4 | ) | | | (1.2 | ) |
| | | | | | | | | | | | | | | (in millions of R$) | | Total trading | | | (18.5 | ) | | | (6.0 | ) | | | (7.6 | ) | | | (32.1 | ) |
The stress test shows that the economic loss suffered by the group in the marked-to-market result would be, if this scenario materialized in the market, R$1.232.1 million. Non-trading Activity Asset and liability management. We actively manage the market risks inherent in the banking book, mostly retail banking. Management addresses the structural risks of interest rates, liquidity and exchange rates. The purpose of financial management is to make net interest revenue from our commercial activities more stable and recurrent, maintaining adequate levels of liquidity and solvency. The financial management area analyzes structural interest rate risk derived from mismatches in maturity and revision dates for assets and liabilities in each of the currencies in which we operate. For each currency, the risk measured is the interest gap, the sensitivity of net interest revenue and the sensitivity of the economic value. The global financial management area manages structural risk on a centralized basis. This allows the use of homogenous methodologies, adapted to each local market where we operate. In the euro-dollar area, the financial management area directly manages the risks of our parent and coordinates management of the rest of the units that operate in convertible currencies. There is a local team in Santander Brasil that manages balance sheet risks under the same frameworks, in coordination with the global financial management area. The asset and liability committees of each country and, when necessary, the markets committee of our parent are responsible for risk management decisions. Quantitative Analysis of Interest Rate Risk in 20092011 Convertible Currencies At the end of 2009,2011, the sensitivity of net interest margin at one year, to a parallel rise of 100 basis points in the local yield curve was R$153 million (which includes the pre-payment of the subordinated certificate of deposit). The interest margin in foreign yield curve was R$29263 million. In addition, at the end of 2009,2011, the sensitivity of net worth to parallel rises of 100 basis points in the yield curves was R$1,0931,492 million in the local currency yield curve and R$34.0 million in the foreign currency yield curve. Structural Gap The following table shows the managerial gaps between the repricingre-pricing dates of our assets and liabilities in December 31, 2009.30, 2011. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | Structural Gap | | | (in millions of R$) | | Money Market | | | 129,885 | | | | 63,207 | | | | 3,027 | | | | 9,470 | | | | 9,804 | | | | 13,049 | | | | 14,381 | | | | 5,219 | | | | 11,727 | | | | 161,496 | | | | 66,851 | | | | 8,484 | | | | 7,813 | | | | 11,616 | | | | 25,182 | | | | 15,985 | | | | 18,076 | | | | 7,491 | | Loans | | | 121,069 | | | | 33,839 | | | | 14,978 | | | | 16,558 | | | | 19,051 | | | | 26,797 | | | | 4,756 | | | | 4,249 | | | | 840 | | | | 173,890 | | | | 37,776 | | | | 21,976 | | | | 26,507 | | | | 29,071 | | | | 47,057 | | | | 7,035 | | | | 4,332 | | | | 137 | | Permanent | | | 30,932 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,932 | | | | 28,208 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 28,208 | | Other | | | 84,062 | | | | 34,628 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 49,434 | | | | 104,007 | | | | 39,015 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 64,992 | | Total Assets | | | 365,947 | | | | 131,674 | | | | 18,005 | | | | 26,027 | | | | 28,856 | | | | 39,847 | | | | 19,137 | | | | 9,468 | | | | 92,933 | | | | 467,602 | | | | 143,642 | | | | 30,460 | | | | 34,320 | | | | 40,687 | | | | 72,239 | | | | 23,020 | | | | 22,408 | | | | 100,828 | | Money market | | | (95,718 | ) | | | (73,443 | ) | | | (3,095 | ) | | | (4,362 | ) | | | (2,058 | ) | | | (3,998 | ) | | | (2,502 | ) | | | (3,719 | ) | | | (2,540 | ) | | Money Market | | | | (162,619 | ) | | | (125,071 | ) | | | (1,390 | ) | | | (536 | ) | | | (2,137 | ) | | | (14,381 | ) | | | (7,474 | ) | | | (11,630 | ) | | | – | | Deposits | | | (113,132 | ) | | | (67,972 | ) | | | (2,878 | ) | | | (392 | ) | | | (25,548 | ) | | | (15,756 | ) | | | (386 | ) | | | (200 | ) | | | — | | | | (120,571 | ) | | | (69,866 | ) | | | (1,140 | ) | | | (417 | ) | | | (46,344 | ) | | | (1,362 | ) | | | (730 | ) | | | (350 | ) | | | (362 | ) | Equity and Other | | | (157,097 | ) | | | (38,465 | ) | | | (1,287 | ) | | | (1,320 | ) | | | (1,081 | ) | | | (2,059 | ) | | | (97 | ) | | | — | | | | (112,788 | ) | | | (184,412 | ) | | | (40,457 | ) | | | (4,557 | ) | | | (4,417 | ) | | | (3,537 | ) | | | (204 | ) | | | (8 | ) | | | – | | | | (131,232 | ) | Total Liabilities | | | (365,947 | ) | | | (179,880 | ) | | | (7,260 | ) | | | (6,074 | ) | | | (28,687 | ) | | | (21,813 | ) | | | (2,986 | ) | | | (3,920 | ) | | | (115,328 | ) | | | (467,602 | ) | | | (235,393 | ) | | | (7,087 | ) | | | (5,370 | ) | | | (52,018 | ) | | | (15,948 | ) | | | (8,212 | ) | | | (11,981 | ) | | | (131,594 | ) | Balance Gap | | | — | | | | (48,206 | ) | | | 10,745 | | | | 19,953 | | | | 169 | | | | 18,034 | �� | | | 16,152 | | | | 5,548 | | | | (22,395 | ) | | | – | | | | (91,751 | ) | | | 23,373 | | | | 28,949 | | | | (11,331 | ) | | | 56,291 | | | | 14,808 | | | | 10,427 | | | | (30,766 | ) | Off Balance Gap | | | — | | | | 6,145 | | | | (448 | ) | | | (5,417 | ) | | | (3,696 | ) | | | 705 | | | | 761 | | | | 1,951 | | | | — | | | | – | | | | 17,270 | | | | (14,950 | ) | | | (2,710 | ) | | | (925 | ) | | | 3,761 | | | | (3,106 | ) | | | 660 | | | | – | | Total Structural Gap | | | — | | | | (42,061 | ) | | | 10,297 | | | | 14,536 | | | | (3,528 | ) | | | 18,739 | | | | 16,913 | | | | 7,499 | | | | (22,395 | ) | | | – | | | | (74,482 | ) | | | 8,423 | | | | 26,240 | | | | (12,256 | ) | | | 60,052 | | | | 11,702 | | | | 11,087 | | | | (30,766 | ) | Accumulated Gap | | | — | | | | (42,061 | ) | | | (31,764 | ) | | | (17,228 | ) | | | (20,755 | ) | | | (2,016 | ) | | | 14,896 | | | | 22,395 | | | | — | | | | – | | | | (74,482 | ) | | | (66,059 | ) | | | (39,819 | ) | | | (52,075 | ) | | | 7,978 | | | | 19,679 | | | | 30,766 | | | | – | |
The interest rate risk of our balance sheet management portfolios, measured by the sensitivity of market value of the net interest margin to a parallel movement of 100 basis points, remained stable until June 2009 when we began to implement a strategy to lockincreased R$299 million along 2011, obtaining the financial margin after an analysismaximum level of future market scenarios. After October 2009,R$1,596 million in November. Increased sensitivity in 2011 was influenced primarily by the sensitivities remained again stable, but at a higher level.growth in the lending portfolio of R$18 billion, increasing MVE in the amount of R$194 million and the sale of Santander Seguros, increasing MVE in the amount of R$97 million). The following chart shows our net interest margin, or “NIM”, and equity, or “MVE”, sensitivity during each month in 2009.2011. Interest Rate Risk Profile at December 31, 200930, 2011 The currency gap tables below show the managerial distribution of risk by maturity and currency in Brazil as of December 31, 200930, 2011 (in millions of R$). | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaps in local currency | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | 315,137 | | | | 100,112 | | | | 16,065 | | | | 21,511 | | | | 25,789 | | | | 37,105 | | | | 17,658 | | | | 6,042 | | | | 90,854 | | Total liabilities | | | (314,947 | ) | | | (144,505 | ) | | | (3,061 | ) | | | (4,697 | ) | | | (26,525 | ) | | | (19,039 | ) | | | (1,664 | ) | | | (956 | ) | | | (114,500 | ) | Off balance gap | | | 1,779 | | | | 18,981 | | | | (1,470 | ) | | | (5,795 | ) | | | (5,114 | ) | | | (2,743 | ) | | | (1,287 | ) | | | (795 | ) | | | — | | Gap | | | 1,969 | | | | (25,412 | ) | | | 11,533 | | | | 11,020 | | | | (5,849 | ) | | | 15,324 | | | | 14,707 | | | | 4,292 | | | | (23,646 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaps in local currency | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money Market | | | 138,859 | | | | 61,000 | | | | 8,359 | | | | 7,795 | | | | 10,593 | | | | 22,172 | | | | 11,919 | | | | 9,572 | | | | 7,448 | | Loans | | | 148,663 | | | | 35,254 | | | | 18,374 | | | | 18,234 | | | | 22,130 | | | | 45,347 | | | | 5,059 | | | | 4,246 | | | | 18 | | Permanent | | | 28,051 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 28,051 | | Others | | | 70,853 | | | | 5,699 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 65,154 | | Total Assets | | | 386,425 | | | | 101,953 | | | | 26,733 | | | | 26,030 | | | | 32,723 | | | | 67,520 | | | | 16,978 | | | | 13,818 | | | | 100,671 | | Money Market | | | (137,175 | ) | | | (122,339 | ) | | | (491 | ) | | | (435 | ) | | | (495 | ) | | | (10,722 | ) | | | 21 | | | | (2,714 | ) | | | – | | Deposits | | | (117,060 | ) | | | (67,286 | ) | | | (312 | ) | | | (354 | ) | | | (46,325 | ) | | | (1,362 | ) | | | (708 | ) | | | (350 | ) | | | (362 | ) | Equity and Other | | | (135,440 | ) | | | (4,035 | ) | | | – | | | | (350 | ) | | | – | | | | – | | | | – | | | | – | | | | (131,055 | ) | Total Liabilities | | | (389,674 | ) | | | (193,659 | ) | | | (803 | ) | | | (1,139 | ) | | | (46,821 | ) | | | (12,085 | ) | | | (687 | ) | | | (3,064 | ) | | | (131,417 | ) | Off-Balance Gap | | | 16,588 | | | | 6,078 | | | | 708 | | | | (1,996 | ) | | | (2,350 | ) | | | 4,270 | | | | (2,497 | ) | | | (800 | ) | | | 13,174 | | Gap | | | 13,339 | | | | (85,628 | ) | | | 26,638 | | | | 22,895 | | | | (16,447 | ) | | | 59,705 | | | | 13,794 | | | | 9,954 | | | | (17,572 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaps in foreign currency | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | 50,811 | | | | 31,563 | | | | 1,940 | | | | 4,516 | | | | 3,066 | | | | 2,742 | | | | 1,479 | | | | 3,425 | | | | 2,079 | | Total liabilities | | | (51,001 | ) | | | (35,375 | ) | | | (4,198 | ) | | | (1,377 | ) | | | (2,162 | ) | | | (2,774 | ) | | | (1,321 | ) | | | (2,964 | ) | | | (828 | ) | Off balance gap | | | (1,779 | ) | | | (12,836 | ) | | | 1,022 | | | | 378 | | | | 1,417 | | | | 3,448 | | | | 2,048 | | | | 2,745 | | | | — | | Gap | | | (1,969 | ) | | | (16,649 | ) | | | (1,236 | ) | | | 3,516 | | | | 2,322 | | | | 3,415 | | | | 2,205 | | | | 3,207 | | | | 1,251 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Gaps in foreign currency | | | | | | | | | | | | | | | | | | | | | | | | | | | | Money Market | | | 22,638 | | | | 5,851 | | | | 124 | | | | 18 | | | | 1,023 | | | | 3,010 | | | | 4,066 | | | | 8,504 | | | | 43 | | Loans | | | 25,227 | | | | 2,522 | | | | 3,602 | | | | 8,272 | | | | 6,941 | | | | 1,709 | | | | 1,976 | | | | 86 | | | | 119 | | Permanent | | | 158 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 158 | | Others | | | 33,154 | | | | 33,316 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | (152 | ) | Total Assets | | | 81,177 | | | | 41,689 | | | | 3,727 | | | | 8,290 | | | | 7,963 | | | | 4,719 | | | | 6,042 | | | | 8,590 | | | | 157 | | Money Market | | | (25,444 | ) | | | (2,732 | ) | | | (899 | ) | | | (101 | ) | | | (1,642 | ) | | | (3,659 | ) | | | (7,495 | ) | | | (8,916 | ) | | | – | | Deposits | | | (3,512 | ) | | | (2,580 | ) | | | (828 | ) | | | (63 | ) | | | (19 | ) | | | – | | | | (22 | ) | | | – | | | | – | | Equity and Other | | | (48,973 | ) | | | (36,422 | ) | | | (4,557 | ) | | | (4,068 | ) | | | (3,537 | ) | | | (204 | ) | | | (8 | ) | | | – | | | | (177 | ) | Total Liabilities | | | (77,928 | ) | | | (41,734 | ) | | | (6,284 | ) | | | (4,232 | ) | | | (5,197 | ) | | | (3,863 | ) | | | (7,525 | ) | | | (8,916 | ) | | | (177 | ) | Off-Balance Gap | | | (16,588 | ) | | | 11,191 | | | | (15,658 | ) | | | (714 | ) | | | 1,425 | | | | (509 | ) | | | (609 | ) | | | 1,460 | | | | (13,174 | ) | Gap | | | (13,339 | ) | | | 11,146 | | | | (18,215 | ) | | | 3,344 | | | | 4,192 | | | | 347 | | | | (2,092 | ) | | | 1,133 | | | | (13,194 | ) |
Market Risk: VaR Consolidated Analysis Our total daily VaR as of December 31, 200830, 2011 and December 31, 2009,2010, broken down by trading and structural (non-trading) portfolios, is set forth below. The VaR data for trading and non-trading portfolios is the sum of Santander Brasil data and Banco Realwere summed and does not reflect the diversification effect. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Trading | | | 10.5 | | | | 38.0 | | | | 77.6 | | | | 20.9 | | | | 40.6 | | | | 9.63 | | | | 21.74 | | | | 45.29 | | | | 19.52 | | | | 20.60 | | Non-trading | | | 258.4 | | | | 319.7 | | | | 398.6 | | | | 371.4 | | | | 842.3 | | | | 251.8 | | | | 303.12 | | | | 362.70 | | | | 251.8 | | | | 351.86 | | Diversification effect | | | — | | | | — | | | | — | | | | — | | | | 6.3 | | | | – | | | | – | | | | – | | | | – | | | | – | | Total | | | 268.9 | | | | 357.7 | | | | 474.2 | | | | 392.3 | | | | 889.2 | | | | 261.43 | | | | 324.86 | | | | 407.99 | | | | 271.32 | | | | 372.46 | |
_____________
Note: VaR figures for trading and non-trading portfolios was summed, thus disregarding the diversification effect.
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Our daily VaR estimates of interest rate risk, foreign exchange rate risk and equity price risk were as set forth below. Interest Rate Risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Interest rate risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trading | | | 10.9 | | | | 29.9 | | | | 67.0 | | | | 18.7 | | | | 28.0 | | | | 9.07 | | | | 19.94 | | | | 41.31 | | | | 18.72 | | | | 20.18 | | Non-trading | | | 258.4 | | | | 319.7 | | | | 398.6 | | | | 371.4 | | | | 842.3 | | | | 251.8 | | | | 303.12 | | | | 362.70 | | | | 251.8 | | | | 351.86 | | Diversification effect | | | — | | | | — | | | | — | | | | — | | | | 6.7 | | | | – | | | | – | | | | – | | | | – | | | | – | | Total | | | 269.3 | | | | 349.6 | | | | 463.6 | | | | 390.1 | | | | 877.0 | | | | 260.87 | | | | 323.06 | | | | 404.01 | | | | 270.52 | | | | 372.04 | |
_____________
Note: VaR figures for trading and non-trading portfolios was summed, thus disregarding the diversification effect.
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Foreign Exchange Rate Risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Exchange rate risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trading | | | 2.1 | | | | 12.1 | | | | 37.0 | | | | 11.1 | | | | 13.1 | | | | 0.98 | | | | 7.82 | | | | 26.52 | | | | 1.68 | | | | 14.41 | | Non-trading | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | Non–trading | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | Diversification effect | | | — | | | | — | | | | — | | | | — | | | | — | | | | – | | | | – | | | | – | | | | – | | | | – | | Total | | | 2.1 | | | | 12.1 | | | | 37.0 | | | | 11.1 | | | | 13.1 | | | | 0.98 | | | | 7.82 | | | | 26.52 | | | | 1.68 | | | | 14.41 | |
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
_____________Note: VaR figures for trading and non-trading portfolios was summed, thus disregarding the diversification effect.234
Equity Price Risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Equity price risk | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Trading | | | 1.2 | | | | 8.9 | | | | 31.4 | | | | 3.8 | | | | 5.0 | | | | 1.46 | | | | 5.71 | | | | 14.19 | | | | 4.80 | | | | 3.80 | | Non-trading | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | Diversification effect | | | 1.2 | | | | 8.9 | | | | 31.4 | | | | 3.8 | | | | (5.0 | ) | | | 1.46 | | | | 5.71 | | | | 14.19 | | | | 4.80 | | | | 3.80 | |
_____________
Note: VaR figures for trading and non-trading portfolios was summed, thus disregarding the diversification effect.
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Our daily VaR estimates by activity were as set forth below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in millions of R$) | | | (in millions of R$) | | Trading | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate risk | | | 10.9 | | | | 29.9 | | | | 67.0 | | | | 18.7 | | | | 28.0 | | | | 9.07 | | | | 19.94 | | | | 41.31 | | | | 18.72 | | | | 20.18 | | Exchange rate risk | | | 2.1 | | | | 12.1 | | | | 37.0 | | | | 11.1 | | | | 13.1 | | | | 0.98 | | | | 7.82 | | | | 26.52 | | | | 1.68 | | | | 14.41 | | Equity | | | 1.2 | | | | 8.9 | | | | 31.4 | | | | 3.8 | | | | 5.0 | | | | 1.46 | | | | 5.71 | | | | 14.19 | | | | 4.80 | | | | 7.63 | | Total | | | 10.5 | | | | 38.0 | | | | 77.6 | | | | 20.9 | | | | 40.6 | | | | 9.63 | | | | 21.74 | | | | 45.29 | | | | 19.52 | | | | 20.60 | | Non-trading interest rate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate | | | 258.4 | | | | 319.9 | | | | 396.6 | | | | 371.4 | | | | 842.3 | | | | 251.80 | | | | 303.12 | | | | 362.7 | | | | 251.8 | | | | 351.86 | | Non-trading foreign exchange | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Exchange rate | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | | N.A. | | Non-trading equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 268.9 | | | | 357.1 | | | | 474.2 | | | | 392.3 | | | | 889.2 | | | | 261.43 | | | | 324.86 | | | | 407.99 | | | | 271.32 | | | | 372.46 | | Interest rate | | | 269.3 | | | | 349.6 | | | | 463.6 | | | | 390.1 | | | | 877.0 | | | | 260.87 | | | | 323.06 | | | | 404.01 | | | | 270.52 | | | | 372.04 | | Exchange rate | | | 2.1 | | | | 12.1 | | | | 37.0 | | | | 11.1 | | | | 13.1 | | | | 0.98 | | | | 7.82 | | | | 26.52 | | | | 1.68 | | | | 14.41 | | Equity | | | 1.2 | | | | 8.9 | | | | 31.4 | | | | 3.8 | | | | 5.0 | | | | 1.46 | | | | 5.71 | | | | 14.19 | | | | 4.80 | | | | 7.63 | |
_____________
Note: VaR figures for trading and non-trading portfolios was summed, thus disregarding the diversification effect.
Note: | VaR figures for trading and non-trading portfolios were added, thus disregarding the diversification effect. |
Management of Operational Risks, Technological Risks and Business Continuity The management and control model is not only a competitive driver but also a strategic factor for us. The model guides managerial staffis applicable to all employees in their daily activities. In addition, it ensures alignment and compliance with corporate Santander Group guidelines, the New Basel Capital Accord – BIS II, Brazilian Central BankCMN resolutions, local regulatory bodies and the provisions of the Sarbanes-Oxley Act. Operational Risk Objectives To accomplish theseour operational risk objectives, we have adopted the following organizational structure, which is part of our corporate governance framework: | · | Executive Operational Risks Committee—TheCommittee —The Committee is an independent senior committee, with decision-making autonomy. This committee is responsible for defining the strategies and guidelines throughout Santander Brasil for the management and control of operational, technological and business continuity risks; |
| · | Operational Risk Unit—Unit — The Operational Risk Unit is comprised of four departments: Information Security, Special Occurrences (fraud investigation), Intelligence and Fraud Prevention and Intelligence, in addition to Operational and Technological Risks. Responsibilities include a commitment to disseminate the culture, defining methodologies, standards, policies, tools, training and procedures applicable to and required for the effective and efficient management and control of the operational risks;risk; and |
| · | Operational and Technological Risks Department—Department — The Department is responsible for overseeingensuring the soundness of operational and technological risk management practices throughout the organization in addition to ensuringguarantying business continuity management for contingencies. The area assists managerial staff in meeting their strategic objectives, strengthening the decision-making process and optimizing execution of daily activities. The Department contributes to preventing and reducing operational risk losses, and also servesprovides the best practices for operational risk management as the reporting function forwell as to be in compliance with regulatory compliance purposes.requirements. |
In 2011, we focused on technological stabilization to full integration with Banco Real. These efforts have improved our internal control environment and have strengthened our operational risk culture. In addition, one of our other primary areas of emphasis was external fraud mitigation and prevention. Another important step among our operational risk objectives was to integrate business continuity management within our disaster recovery plan for scenarios of technological unavailability to strengthen our business areas’ ability to respond to technical disruptions as well as to minimize the impacts of any such disruptions to us and our stockholders. Environmental and Social Risk We are currently implementing thehave an environmental and social risk management system at Santander Brasil that had beenfor analyzing clients in place at Banco Real.the Wholesale Banking segment. Under this system, borrowers with credit limits and/or risk greater than R$1.0 million are screened for environmental and social concerns, such as contaminated land, deforestation, labor violations and other major environmental and social issues for which there are potential legal penalties. In 2008, Banco Real2011, we screened approximately 5,0001,100 corporate customers , including about 8 major new projects, for these types of risks. A specialized team of biologistswith backgrounds in biology, geology, health and geologistssafety engineering and chemistry monitors theour customers’ environmental practices, and a team ofour financial analysts studiesassess the likelihood of damagesdamage that unfavorable environmental conditions may cause to our customers’ financial condition and collateral, among other effects. Furthermore, Wholesale Banking segment clients, when starting their commercial relationship with the bank, are screened for environmental and social concerns by the new clients’ acceptance area. Our monitoring activity focuses on preserving our capital and our reputation in the market. We intend to expand these screening practices to include Santander Brasil customers in the Global Wholesale Banking segment, including trainingconstantly train our credit and commercial areas toabout how apply Banco Real’s environmental and social risk standards in corporate credit approval process.process for companies. Not applicable. Not applicable. Not applicable. Fees and Expenses The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of units, issuances in respect of unit distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities in any manner permitted by the deposit agreement or whose ADRs are cancelled or reduced for any other reason, U.S.$13.94 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a unit distribution, rights and/or other distribution prior to such deposit to pay such charge. The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing units or by any party surrendering ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Companyus or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADSs), whichever is applicable: | · | a fee of U.S.$1.50 per ADR for transfers of certificated or direct registration ADRs; |
| · | a fee of up to U.S.$0.05 per ADS for any cash distribution made pursuant to the deposit agreement; |
| · | a fee of U.S.$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering our ADR program (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in the next succeeding provision); |
| · | any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection with the servicing of our units or other deposited securities (which charge shall be assessed against registered holders of our ADRs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions); |
| · | a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs that would have been charged as a result of the deposit of such securities (treating all such securities as if they were units) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto; |
| · | stock transfer or other taxes and other governmental charges; |
| · | cable, telex and facsimile transmission and delivery charges incurred at the holder’s request; |
| · | transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities; |
| · | expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and |
| · | such fees and expenses as are incurred by the depositary (including, without limitation, expenses incurred in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable laws, rules or regulations. |
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The fees described above may be amended from time to time. Direct and Indirect Payments J.P. Morgan, as depositary, has agreed to reimburse certain of our reasonable expenses related to our ADR program and incurred by us in connection with the program. Under certain circumstances, including termination of the program, we are required to repay to J.P. Morgan amounts reimbursed in prior periods. The reimbursements include direct payments (legal and accounting fees incurred in connection with preparation of Form 20-F and ongoing SEC compliance and listing requirements, listing fees, investor relations expenses, advertising and public relations expenses and fees payable to Broadridge and other service providers for the distribution of hard copy materials to beneficial ADR holders in the Depositary Trust Company, such as information related to shareholders’ meetings and related voting instruction cards); and indirect payments (third-party expenses paid directly and fees waived). For the year ended December 31, 20092011, we did not have any direct or indirectreceived approximately U.S.$4.2 million as reimbursement payments. No matters to report. No matters to report. Not applicable.None.
As of December 31, 2009,2011, under the supervision and with the participation of our management, including our chief executive officer, chief financial officer and chief accounting officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are, as described below, inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Based on such evaluation, our chief executive officer, chief financial officer and chief accounting officer concluded that our disclosure controls and procedures are effective in ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated our management, including our chief executive officer, chief financial officer and the chief accounting officer, as appropriate to allow timely decisions regarding required disclosures. In addition to it and in accordance towith the legal requirement (“Resolução 2.554/98”)requirements (Resolutions 2,554/98 and 3,380/06), during 2009, we have evaluatedproduced and producedissued an internal report on March 30, 2012, according to the Brazilian Central Bank’s requirements (“BACEN”) aboutregarding the effectiveness of the internal control environment. Our management is responsible for establishing and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with generally accepted accounting principles. For us, generally accepted accounting principles refer to IFRS. Our internal control over financial reporting includes those policies and procedures that: | · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;officers; and |
| · | Provide reasonable assurance prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have adapted our internal control over financial reporting to the most rigorous international standards and comply with the guidelines set by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its Enterprise Risk Management Integrated Framework. These guidelines have been extended and installed in our Group companies, applying a common methodology and standardizing the procedures for identifying processes, risks and controls, based on the Enterprise Risk Management Integrated Framework. Risk Management Integrated Framework The documentation process in our companies has been constantly directed and monitored by a global coordination team, which set the guidelines for its development and supervised its execution at the unit level. The general framework is consistent, as it assigns to management specific responsibilities regarding the structure and effectiveness of the processes related directly and indirectly with the production of consolidated financial statements, as well as the controls needed to mitigate the risks inherent in these processes. Under the supervision and with the participation of our management, including our chief executive officer, our chief financial officer and our chief accounting officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009,2011, based on the framework set forth by COSO. Based on this assessment, management believes that, as of December 31, 2009,2011, its internal control over financial reporting was effective based on those criteria. The Registered Public Accounting firm, Deloitte Touche Tohmatsu Auditores Independentes, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2009.2011. This report follows below. For the report of Deloitte Touche Tohmatsu Auditores Independentes, our Registered Public Accounting firm, dated March 25, 2010,30, 2012, on the effectiveness of our Internal Control over financial reporting as of December 31, 2009,2011, see “Item 18. Financial Statements”. There was no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. The audit committee is composed of a minimum of three members and a maximum of six members, who serve one-year terms that can be renewed in successive elections, up to a limit of five years. The audit committee is currently composed of three independent members. The audit committee reports to our board of directors. OurThe board of directors has determined that Paulo Roberto SimõesSérgio Darcy da CunhaSilva Alves is an “Audit Committee Financial Expert” and meets the requirements set forth by the SEC and NYSE. In addition, he is considered independent under applicable Brazilian law.
For more details about the Audit Committeeaudit committee see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Statutory Bodies”. The Code of Ethics (the “Code”) is applicable to all directors, officers and employees of the companies within Santander Brasil. It defines the principles that must guide both the personal and professional behavior of employees. They must know the Code and seek to broaden it, by championing and striving for its enforcement. To that effect, each employee must signattend the form online training “‘Código de Ética – Termo de Responsabilidade’Ética no Banco Santander” (Ethics in Banco Santander). The employees’ behavior should be guided by ethical principles and rules of conduct consistent with the companies’ values. The Code helps us to establish respectful and transparent relationships and aims for the accomplishment of Grupo Santander’sSantander Brasil’s obligations with its customers, employees, shareholders, partners, regulators and society as a whole. The Code should also be a reference for the compliance with legal duties and for the maintenance of commercial relationships founded on trust with partners and clients. The full version of the Code is available in our website www.santander.com.br/ri.ri. The balance of “Other general administrative expenses—Technical reports” includes the fees paid by the consolidated companies (detailed in the accompanying Appendix I of the consolidated financial statements included elsewhere in this annual report) to their respective auditors, Deloitte Touche Tohmatsu, the detail being as follows: | | | | | | | | | | Audit of the annual financial statements of the companies audited by Deloitte (constant scope of consolidation) | | (in millions of R$) | | | | 6.18 | | | | 6.11 | | | | 3.76 | | Audit of the annual financial statements of the companies audited by Deloitte (additions to scope of consolidation) | | | 0.37 | | | | 0.17 | | | | – | |
| | | | | | | | | (in millions of R$) | | Audit of the annual financial statements of the companies audited by Deloitte (constant scope of consolidation) | | | 8.83 | | | | 9.05 | |
In addition to the expenses with audit of the financial statements, we paid a fee to Deloitte related to the audit of the Global Offering in the amount of R$8.8 million, after taxes and was recorded as transaction cost net of capital increase.
Non-audit services provided by audit firms other than Deloitte: R$2.5 million (2008—R$3.0 million and 2007 – R$3.5 million).
The services commissioned from our auditors meet the independence requirements stipulated by the Brazilian Central Bank and CVM regulation and by the Sarbanes-Oxley Act of 2002, and they did not involve the performance of any work that is incompatible with the audit function. If we are required to engage an auditing firm for audit and audit-related services, those services have to be pre-approved by the audit and compliance committee. The audit and compliance committee is regularly informed of all fees paid to the auditing firms by us. Under NYSE and SEC rules for listed companies, we must comply with Rule 10A-3 under the Securities Exchange Act (Listing Standards Relating to Audit Committees). Rule 10A-3 provides that we should establish an audit committee composed of members of the board of directors, meet the requirements specified in the listing standards, or appoint and establish a board of auditors or similar body to perform the role of the audit committee, in reliance on the general exemption of audit committees of foreign private issuers set forth in Rule 10A-3(c)(3) of the Securities Exchange Act. In accordance with the rules of the Brazilian Central Bank, of Brazil, we constituted a body similar to the audit committee of the board of directors of an American company, which we refer to as our “audit committee”. Our audit committee observes Brazilian legislation and performs all the functions of an audit committee under Rule 10A-3. As provided in Brazilian law, our board of directors and ourthe audit committee are distinct corporatestatutory entities. Moreover, according to Brazilian law, the function of hiring independent auditors is a power reserved exclusively to the board of directors of the company. Therefore, our board of directors acts as our audit committee in the nomination of our independent auditors. Celso Clemente Giacometti is the only member of the board of directors who is also a member of the audit committee. Except in these respects, ourthe audit committee of Santander Brasil is comparable to an audit committee of the board of an American company and performs the same functions. We believe ourfunctions of an American company. Our audit committee is able to act independently in carrying out the responsibilities of an audit committee under the Sarbanes-Oxley Act, meets the exemption requirements of Rule 10A-3(c)(3) and therefore is in compliance with Rule 10A-3 of the Securities Exchange Act. In 2009, neitherThe following table reflects purchases of our equity securities, including in the form of ADSs, by us or our affiliates in 2011.
Banco Madesant – Sociedade Unipessoal S.A. | | Total Number of Units Purchased | | | Average Price Paid per Unit in U.S.$ | | | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs | | January 1 to January 31 | | | — | | | | — | | | | — | | | | — | | February 1 to February 28 | | | 2,000,501 | | | | 11.8 | | | | — | | | | — | | March 1 to March 31 | | | 999,499 | | | | 11.5 | | | | — | | | | — | | April 1 to April 30 | | | 1,000,000 | | | | 11.5 | | | | — | | | | — | | May 1 to May 31 | | | 9,090,844 | | | | 11.0 | | | | — | | | | — | | June 1 to June 30 | | | 1,190,000 | | | | 10.6 | | | | — | | | | — | | July 1 to July 31 | | | 2,717,008 | | | | 9.2 | | | | — | | | | — | | August 1 to August 31 | | | 14,278,096 | | | | 8.8 | | | | — | | | | — | | September 1 to September 30 | | | 3,046,114 | | | | 7.9 | | | | — | | | | — | | October 1 to October 31 | | | — | | | | — | | | | — | | | | — | | November 1 to November 30 | | | — | | | | — | | | | — | | | | — | | December 1 to December 31 | | | — | | | | — | | | | — | | | | — | | Total | | | 34,322,062 | | | | 10.3 | | | | — | | | | — | |
Banco Santander Brasil nor its affiliates bought Santander Brasil shares.(Brasil) S.A. – Buyback Program UNITS | | Total Number of Units Purchased | | | Average Price Paid per Unit in U.S.$ | | | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs | | January 1 to January 31 | | | — | | | | — | | | | — | | | | — | | February 1 to February 28 | | | — | | | | — | | | | — | | | | — | | March 1 to March 31 | | | — | | | | — | | | | — | | | | — | | April 1 to April 30 | | | — | | | | — | | | | — | | | | — | | May 1 to May 31 | | | — | | | | — | | | | — | | | | — | | June 1 to June 30 | | | — | | | | — | | | | — | | | | — | | July 1 to July 31 | | | — | | | | — | | | | — | | | | — | | August 1 to August 31 | | | 1,773,000 | | | | 14.67 | | | | 1,773,000 | | | | — | | September 1 to September 30 | | | 2,927,600 | | | | 14.98 | | | | 2,927,600 | | | | — | | October 1 to October 31 | | | — | | | | — | | | | — | | | | — | | November 1 to November 30 | | | 324,600 | | | | 14.84 | | | | 324,600 | | | | — | | December 1 to December 31 | | | 355,600 | | | | 14.51 | | | | 355,600 | | | | — | | Total | | | 5,380,800 | | | | — | | | | 5,380,800 | | | | 49,892,602 | |
ADRs | | Total Number of Units Purchased | | | Average Price Paid per Unit in U.S.$ | | | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number (or Approximate Dollar Value) of Units that May Yet Be Purchased Under the Plans or Programs | | January 1 to January 31 | | | — | | | | — | | | | — | | | | — | | February 1 to February 28 | | | — | | | | — | | | | — | | | | — | | March 1 to March 31 | | | — | | | | — | | | | — | | | | — | | April 1 to April 30 | | | — | | | | — | | | | — | | | | — | | May 1 to May 31 | | | — | | | | — | | | | — | | | | — | | June 1 to June 30 | | | — | | | | — | | | | — | | | | — | | July 1 to July 31 | | | — | | | | — | | | | — | | | | — | | August 1 to August 31 | | | — | | | | — | | | | — | | | | — | | September 1 to September 30 | | | 1,732,900 | | | | 10.21 | | | | 1,732,900 | | | | — | | October 1 to October 31 | | | — | | | | — | | | | — | | | | — | | November 1 to November 30 | | | — | | | | — | | | | — | | | | — | | December 1 to December 31 | | | — | | | | — | | | | — | | | | — | | Total | | | 1,732,900 | | | | — | | | | — | | | | 49,892,602 | |
Not applicable.No changes.
Principal Differences between Brazilian and U.S. Corporate Governance Practices We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we are required only to: (1) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (2) provide prompt certification by our chief executive officer of any material non-compliance with any applicable NYSE corporate governance rules (3) submit an executed written affirmation annually to the NYSE and submit an interim written affirmation each time a change occurs to the board or any of the committees subject to Section 303A of the NYSE rules, and (4) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies. The discussion of the significant differences between our corporate governance practices and those required of U.S. listed companies follows below, as required for foreign private issuers by NYSE Rule 303A.11 Majority of Independent Directors The NYSE rules require that a majority of the board must consist of independent directors, although as a company the majority of whose voting shares are held by another group, we would not be required to comply with this rule. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Under the listing standards of Level 2 of BM&FBOVESPA, our board of directors must have at least five members, at least 20% of which must be independent, as determined pursuant to Article 14 of our by-laws. Also, Brazilian corporate law, the Brazilian Central Bank and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While we believe that these rules provide adequate assurances that our directors are independent and meet the requisite qualification requirements under Brazilian law, we believe such rules would permit us to have directors that would not otherwise pass the test for director independence established by the NYSE. Brazilian corporate law requires that our directors be elected by our shareholders at an annual shareholders’ meeting. Currently, all of our directors are elected by our controlling shareholder. Executive Sessions NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian corporate law does not have a similar provision. According to Brazilian corporate law, up to one-third of the members of the board of directors can be elected from management. Our president, Fábio Colletti Barbosa, and our executive senior vice presidents, José de Menezes Berenguer Neto and José de Paiva Ferreira, are membersMarcial Angel Portela Alvarez, is a member of our board of directors. There is no requirement that our non-management directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session. Committees NYSE rules require that listed companies have a nominating/corporate governance committee and a remuneration committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, although as a company the majority of whose voting shares are held by another group, we would not be required to comply with this rule. The responsibilities of the nominating/corporate governance committee include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. The responsibilities of the remuneration committee, in turn, include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans. CMN Resolution No. 3,921 from the Brazilian Central Bank requires us to have a compensation committee of at least three members. We arehave created the Compensation and Appointment Committee, an advisory body whose function is to advise our board of directors on matters in connection with (i) election of members for our board of directors, audit committee, and executive office, (ii) the succession plan, (iii) fixed and variable remuneration policies and benefits and (iv) the long-term incentive plan. The compensation and appointment committee shall be composed of at least three (3) and at most five (5) members, it being understood that at least one of the members may not requiredbe director of the Company and the others may or may not be members of the Board of Directors of the Company, and at least two members shall be independent pursuant to the provision under applicableart. 14, Paragraph 3 of our by-laws. The compensation of the appointment and remuneration committee’s members is established by our board of directors. See “Item 6. Directors, Senior Management and Employees—C. Board Practices. Pursuant to Brazilian corporate law to have a nominating committee, corporate governance committee and remuneration committee. Pursuant to our by-laws, our directors are elected by our shareholders at an annual shareholders’ meeting. Aggregatethe aggregate compensation for our directors and executive officers is established by our shareholders. Audit Committee and Audit Committee Additional Requirements NYSE rules require that listed companies have an audit committee that (1) is composed of a minimum of three independent directors who are all financially literate, (2) meets the SEC rules regarding audit committees for listed companies, (3) has at least one member who has accounting or financial management expertise and (4) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. CMN Resolution No. 3,198 from the Central Bank requires us to have an audit committee of at least three independent members. The audit committee is elected by the board of directors. In April 2003, the SEC stated that the listing of securities of foreign private issuers will be exempt from the audit committee requirements if the issuer meets certain requirements. We believe that ourOur audit committee, as established according to CMN Resolution No. 3,198, allows us to meet the requirements set forth by the SEC. We rely on this exemption. Shareholder Approval of Equity Compensation Plans NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under Brazilian corporate law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval. Our shareholders do not have the opportunity to vote on all equity compensation plans. Corporate Governance Guidelines NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with the corporate governance guidelines under applicable Brazilian law. We believe theThe corporate governance guidelines applicable to us under Brazilian law are consistent with the guidelines established by the NYSE. We have adopted and observe (1) the Policy of Material Fact Disclosure, which deals with the public disclosure of all relevant information as per CVM’s Instruction No. 358 guidelines; and (2) the Policy on Trading of Securities, which restricts the negotiation of securities during certain periods and requires management to disclose all transactions relating to our securities, and which is optional under CVM’s Instruction No. 358. corporate governance guidelines, on September 22, 2010, our board of directors approved a policy that regulates related-party transactions. This policy provides rules which aim to ensure that all decisions, in particular those involving related parties and other situations with potential conflict of interests, will be aligned with our interests and our shareholders. The policy applies to all employees and directors and executive officers of Santander Brasil. Code of Business Conduct and Ethics NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement. We adopted a Code of Ethics on February 27, 2009 which regulates the conduct of our managers, officers and directors in connection with the disclosure and control of financial and accounting information and their access to privileged and non-public information. Our Code of Ethics complies with the requirements of the Sarbanes-Oxley Act and the NYSE rules. Internal Audit Function NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Our internal auditingaudit department works independently to conduct methodologically structured examinations, analysis, surveys and fact finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the information systems processes and internal controls related to our risk management. The internal auditingInternal Audit department reports continually to our board of directors andbe audit committee. In carrying out its duties, the internal auditingInternal Audit department has access to all documents, records, systems, locations and professionals involved with the activities under review. Website Codes are available to the public on our website in Portuguese and English, which do not form part of this annual report, at www.santander.com.br under the heading “Investor Relations – Corporate Governance”. Not applicable. We have responded to Item 18 in lieu of this item. Consolidated Financial Statements are filed as part of this annual report, see pages F-1 to F-81.F-94. (a) Index to Consolidated Financial Statements | | Report of Deloitte Touche Tohmatsu | F-1 | Report of Deloitte Touche Tohmatsu regarding internal control | F-2F-3 | Consolidated Balance Sheets as offor the years ended December 31, 20092011, 2010 and 2008 2009 | F-4F-5 | Consolidated Income Statements for the Years Endedyears ended December 31, 2009, 20082011, 2010 and 20072009 | F-6F-7 | Consolidated Statements of Recognized Income and Expense for the Yearsyears ended December 31, 2009, 20082011, 2010 and 20072009 | F-7F-8 | Consolidated Statements Ofof Changes Inin Total Equity for the Years Endedyears ended December 31, 2009, 20082011, 2010 and 20072009 | F-8F-9 | Consolidated Cash Flow Statements for the Years Endedyears ended December 31, 2009, 20082011, 2010 and 20072009 | F-9F-10 | Notes to the Consolidated Financial Statements for the years ended December 31, 2011, 2010 and 2009 | F-10F-11 |
(b) List of Exhibits. | | | 1.1 | | English translation of By-laws of Santander Brasil, amended and restated on April 27,May 21, 2010. (Incorporated by reference to Exhibit 1.1 to our annual report on Form 20-F (file no. 001-34476) filed with the SEC on June 9, 2010.) | 2.1 | | Form of Deposit Agreement among Santander Brasil, JPMorgan Chase Bank, N.A., as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts. (Incorporated by reference to our Registration Statement on Form F-6 (file no. 333-162027) filed with the SEC on September 21, 2009.2009) | 2.2 | | Amendment No. 1 to Deposit Agreement dated as of February 10, 2011 among Santander Brasil, JPMorgan Chase Bank, N.A., as depositary, and holders from time to time of American depositary receipts issued thereunder. (Incorporated by reference to Exhibit (a)(2) to our Registration Statement on Form F-6 (file no. 333-172167) filed with the SEC on February 11, 2011.) | 4.1 | | Option Plan to Purchase Share deposit Certificate of Santander Brasil (Incorporated by reference to Attachment I to our Form 6-K/A filed with the SEC on January 6, 2010.) | 8.1 | | List of Subsidiaries (Incorporated by reference as Appendix I of our Consolidated Financial Statements filed with this Form 20-F.) |
11.1 | | English translation of the Code of Ethics of Santander Brasil.Brasil, amended and restated on October 8, 2010. (Incorporated by reference to Exhibit 11.1 to our Registration Statementannual report on Form F-120-F (file no. 001-34476) filed with the SEC on September 3, 2009.April 8, 2011.) | 12.1 | | Section 302 Certification by the principal executive officer. | 12.2 | | Section 302 Certification by the principal financial officer. | 13.1 | | Section 906 Certification by the chief executive officer. | 13.2 | | Section 906 Certification by the chief financial officer. | 15.1 | | Consent of Deloitte Touche Tohmatsu Auditores Independentes. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. BANCO SANTANDER (Brasil), S.A. | | | | By: | /s/ Fabio Colletti BarbosaMarcial Angel Portela Alvarez | | | Name: | Fabio Colletti BarbosaMarcial Angel Portela Alvarez | | | Title: | Chairman and Chief Executive Officer | |
Date: June 9, 2010March 30, 2012
| Deloitte Touche Tohmatsu Rua José Guerra, 127 04719-030 - São Paulo - SP Brasil Tel.: +55 (11) 5186-1000 Fax: +55 (11) 5181-2911 www.deloitte.com.br |
To the Board of Directors and Shareholders of Banco Santander (Brasil) S.A. Sao Paulo - SP - Brazil We have audited the accompanying consolidated balance sheets of Banco Santander (Brasil) S.A. and subsidiaries (“Bank”) as of December 31, 2011, 2010 and 2009, and the related consolidated statements of income, recognized income and expense, changes in equity, and cash flows for each of the three years in the period ended December 31, 2011, all expressed in Brazilian reais. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Banco Santander (Brasil) S.A. and subsidiaries at December 31, 2011, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in note 41.j) under the caption Statements of Value Added is presented for the purpose of additional analysis, whose presentation by publicly-held companies is required by Brazilian Corporate Law, and is not a required part of the basic financial statements in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. This supplementary information is the responsibility of the Bank's management. Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. 1.
| We have audited the consolidatedbalance sheetsDeloitte refers to one or more of Banco Santander (Brasil) S.A.Deloitte Touche Tohmatsu, a Swiss Verein, and subsidiaries (“Bank”) asits network of December 31, 2009 and 2008, and the related consolidated statements of income, statements of recognized income and expense, changes in equity, and cash flows formember firms, each of the three years in the period ended December 31, 2009, all expressed in Brazilian reais. These financial statements are the responsibilitywhich is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.legal structure of Deloitte Touche Tohmatsu and its member firms.
| | Member of Deloitte Touche Tohmatsu |
F-1
2. | We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. |
3.
| In our opinion, such consolidated financial statements present fairly, in all material respects, thefinancial position of the Bank at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with International Financial Reporting Standards as issued by the International Accounting Standard Board.
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4. | We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB, the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO, and our report, dated March 25, 2010, expressed an unqualified opinion on the Company’sTable of ContentsDeloitte Touche Tohmatsu
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB, the Bank’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO, and our report dated March 30, 2012 expressed an unqualified opinion on the Bank’s internal control over financial reporting.
São Paulo, March 30, 2012 /s/ DELOITTE TOUCHE TOHMATSU | /s/ Gilberto Bizerra de Souza | DELOITTE TOUCHE TOHMATSU | Gilberto Bizerra de Souza | Auditores Independentes | Engagement Partner |
/s/
© 2012 Deloitte Touche Tohmatsu. All rights reserved. | Deloitte Touche Tohmatsu Rua José Guerra, 127 04719-030 - São Paulo - SP Brasil
Tel.: +55 (11) 5186-1000 Fax: +55 (11) 5181-2911 www.deloitte.com.br |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Banco Santander (Brasil) S.A. Sao Paulo - SP - Brazil
We have audited the internal control over financial reporting of Banco Santander (Brasil) S.A. and subsidiaries (“Bank”) as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO. The Company’s Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Banks’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included: obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards - IFRS. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards - IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.
© Deloitte Touche Tohmatsu. All rights reserved. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB, the consolidated financial statements as of and for the year ended December 31, 2011 of Banco Santander (Brasil) S.A. and subsidiaries (“Bank”) and our report dated March 30, 2012 expressed an unqualified opinion on those consolidated financial statements. /S/ DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU Auditores Independentes São Paulo, Brazil March 25, 2010 Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed
description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
| Member of
Deloitte Touche Tohmatsu
|
| Deloitte Touche Tohmatsu
Rua José Guerra, 127
04719-030 - São Paulo - SP
Brasil
Tel.: +55 (11) 5186-1000
Fax: +55 (11) 5181-2911
www.deloitte.com.br
|
To the Board of Directors and Shareholders of
Banco Santander (Brasil) S.A.
Sao Paulo - SP - Brazil30, 2012
1. | We have audited the internal control over financial reporting of Banco Santander (Brasil) S.A. and subsidiaries (“Bank”) as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO. The Company’s Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. |
2. | We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included: obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. |
3. | A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards - IFRS. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards - IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed
description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
| Member of
Deloitte Touche Tohmatsu
|
© 2012 Deloitte Touche Tohmatsu 4. | Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
5. | In our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission - COSO. |
6. | We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) - PCAOB, consolidatedbalance sheets of Banco Santander (Brasil) S.A. and subsidiaries (“Bank”) as of December 31, 2009 and 2008, and the related consolidated statements of income, statements of recognized income and expense, changes in equity, and cash flows for each of the three years in the period ended December 31, 2009. Our report, dated March 25, 2010, expressed an unqualified opinion on those consolidated financial statements.
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/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Auditores Independentes
São Paulo, Brazil
March 25, 2010
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms,
each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed
description of the legal structure of Deloitte Touche Tohmatsu and its member firms.
| Member of
Deloitte Touche Tohmatsu
|
BANCO SANTANDER (BRASIL) S.A. | | | | | | | | | | | | (Thousands of Brazilian Reais) | | | | | | | | | | | | | |
ASSETS | | Note | | | 2009 | | | 2008 | | | | | | | | | | | | CASH AND BALANCES WITH THE BRAZILIAN CENTRAL BANK | | | 4 | | | | 27,269,012 | | | | 23,700,500 | | | | | | | | | | | | | | | FINANCIAL ASSETS HELD FOR TRADING | | | | | | | 20,115,652 | | | | 19,986,000 | | Loans and advances to credit institutions | | | 5 | | | | 67,170 | | | | - | | Debt instruments | | | 6 | | | | 12,554,035 | | | | 10,011,999 | | Equity instruments | | | 7 | | | | 2,544,441 | | | | 678,993 | | Trading derivatives | | 8 & 41-a | | | | 4,950,006 | | | | 9,295,008 | | | | | | | | | | | | | | | OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS | | | | | | | 16,294,460 | | | | 5,574,961 | | Loans and advances to credit institutions | | | 5 | | | | 1,907,265 | | | | 4,046,898 | | Loans and advances to customers | | | 9 | | | | 389,113 | | | | 1,434,789 | | Debt instruments | | | 6 | | | | 210,973 | | | | 93,274 | | Equity instruments | | | 7 | | | | 13,787,109 | | | | - | | | | | | | | | | | | | | | AVAILABLE-FOR-SALE FINANCIAL ASSETS | | | | | | | 46,406,120 | | | | 30,735,681 | | Debt instruments | | | 6 | | | | 44,745,924 | | | | 29,491,191 | | Equity instruments | | | 7 | | | | 1,660,196 | | | | 1,244,490 | | | | | | | | | | | | | | | LOANS AND RECEIVABLES | | | | | | | 152,162,954 | | | | 162,725,106 | | Loans and advances to credit institutions | | | 5 | | | | 24,228,143 | | | | 29,691,635 | | Loans and advances to customers | | | 9 | | | | 127,934,811 | | | | 133,033,471 | | | | | | | | | | | | | | | HEDGING DERIVATIVES | | | 41-a | | | | 163,425 | | | | 106,321 | | | | | | | | | | | | | | | NON-CURRENT ASSETS HELD FOR SALE | | | 10 | | | | 171,464 | | | | 112,824 | | | | | | | | | | | | | | | INVESTMENTS IN ASSOCIATES | | | 11 | | | | 419,122 | | | | 633,595 | | | | | | | | | | | | | | | TANGIBLE ASSETS | | | 12 | | | | 3,701,769 | | | | 3,829,074 | | | | | | | | | | | | | | | INTANGIBLE ASSETS | | | | | | | 31,617,939 | | | | 30,995,287 | | Goodwill | | | 13 | | | | 28,312,236 | | | | 27,488,426 | | Other intangible assets | | | 14 | | | | 3,305,703 | | | | 3,506,861 | | | | | | | | | | | | | | | TAX ASSETS | | | | | | | 15,779,222 | | | | 12,919,894 | | Current | | | | | | | 2,162,063 | | | | 1,150,737 | | Deferred | | | 23 | | | | 13,617,159 | | | | 11,769,157 | | | | | | | | | | | | | | | OTHER ASSETS | | | 15 | | | | 1,871,437 | | | | 2,870,604 | | | | | | | | | | | | | | | TOTAL ASSETS | | | | | | | 315,972,576 | | | | 294,189,847 | | | | | | | | | | | | | | | | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | | | | | | | | | | | | | | |
Tohmatsu. All rights reserved. BANCO SANTANDER (BRASIL) S.A. | | | | | | | CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2009 AND 2008 | | | | | (Thousands of Brazilian Reais) | | | | | | | | | | | | | |
LIABILITIES AND EQUITY | | Note | | | 2009 | | | 2008 | | | | | | | | | | | | FINANCIAL LIABILITIES HELD FOR TRADING | | | | | | 4,434,734 | | | | 11,209,600 | | Trading derivatives | | 8 & 41-a | | | | 4,401,709 | | | | 11,197,268 | | Short positions | | | 8 | | | | 33,025 | | | | 12,332 | | | | | | | | | | | | | | | OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | | | | | | | 1,795 | | | | 307,376 | | Deposits from credit institutions | | | 16 | | | | 1,795 | | | | 307,376 | | | | | | | | | | | | | | | FINANCIAL LIABILITIES AT AMORTISED COST | | | | | | | 203,567,734 | | | | 213,973,314 | | Deposits from the Brazilian central bank | | | 16 | | | | 240,113 | | | | 184,583 | | Deposits from credit institutions | | | 16 | | | | 20,955,846 | | | | 26,325,636 | | Customer deposits | | | 17 | | | | 149,440,156 | | | | 155,494,839 | | Marketable debt securities | | | 18 | | | | 11,439,010 | | | | 12,085,655 | | Subordinated liabilities | | | 19 | | | | 11,304,445 | | | | 9,197,429 | | Other financial liabilities | | | 20 | | | | 10,188,164 | | | | 10,685,172 | | | | | | | | | | | | | | | HEDGING DERIVATIVES | | | 41-a | | | | 9,806 | | | | 264,771 | | | | | | | | | | | | | | | LIABILITIES FOR INSURANCE CONTRACTS | | | 2-z | | | | 15,527,197 | | | | - | | | | | | | | | | | | | | | PROVISIONS | | | | | | | 9,480,262 | | | | 8,915,245 | | Provisions for pensions funds and similar obligations | | | 21 | | | | 1,096,799 | | | | 1,078,916 | | Provisions for contingent liabilities, commitments and other provisions | | | 21 | | | | 8,383,463 | | | | 7,836,329 | | | | | | | | | | | | | | | TAX LIABILITIES | | | | | | | 9,456,537 | | | | 6,156,101 | | Current | | | | | | | 5,588,680 | | | | 3,025,207 | | Deferred | | | 23 | | | | 3,867,857 | | | | 3,130,894 | | | | | | | | | | | | | | | OTHER LIABILITIES | | | 22 | | | | 4,227,768 | | | | 3,526,962 | | | | | | | | | | | | | | | TOTAL LIABILITIES | | | | | | | 246,705,833 | | | | 244,353,369 | | | | | | | | | | | | | | | EQUITY | | | | | | | | | | | | | SHAREHOLDERS' EQUITY | | | 26 | | | | 68,706,363 | | | | 49,317,582 | | Issued capital | | | | | | | 62,612,455 | | | | 47,152,201 | | Reserves | | | | | | | 2,161,302 | | | | 1,240,031 | | Profit for the year attributable to the Parent | | | | | | | 5,507,606 | | | | 2,378,395 | | Less: Dividends and remuneration | | | | | | | (1,575,000 | ) | | | (1,453,045 | ) | | | | | | | | | | | | | | VALUATION ADJUSTMENTS | | | | | | | 559,042 | | | | 513,617 | | Available-for-sale financial assets | | | 25 | | | | 791,966 | | | | 795,412 | | Cash flow hedges | | | 25 | | | | (232,924 | ) | | | (281,795 | ) | | | | | | | | | | | | | | MINORITY INTERESTS | | | 24 | | | | 1,338 | | | | 5,279 | | | | | | | | | | | | | | | TOTAL EQUITY | | | | | | | 69,266,743 | | | | 49,836,478 | | TOTAL LIABILITIES AND EQUITY | | | | | | | 315,972,576 | | | | 294,189,847 | |
| The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | | | | | | | |
| | BANCO SANTANDER (BRASIL) S.A. | | | | | | | | CONSOLIDATED BALANCE SHEETS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Thousands of Brazilian Reais - R$) |
| | | | | ASSETS | Note | 2011 | 2010 | 2009 | | CASH AND BALANCES WITH THE BRAZILIAN CENTRAL BANK | 4 | 65,938,003 | 56,800,151 | 27,269,012 | | FINANCIAL ASSETS HELD FOR TRADING | | 29,901,495 | 24,821,365 | 20,115,652 | Loans and amounts due from credit institutions | 5 | - | 47,662 | 67,170 | Debt instruments | 6 | 25,298,804 | 16,472,413 | 12,554,035 | Equity instruments | 7 | 448,209 | 3,283,931 | 2,544,441 | Trading derivatives | 8 | 4,154,482 | 5,017,359 | 4,950,006 | | OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS | | 665,369 | 17,939,781 | 16,294,460 | Loans and amounts due from credit institutions | 5 | 60,813 | 292,034 | 1,907,265 | Loans and advances to customers | 9 | - | - | 389,113 | Debt instruments | 6 | 230,037 | 224,388 | 210,973 | Equity instruments | 7 | 374,519 | 17,423,359 | 13,787,109 | | AVAILABLE-FOR-SALE FINANCIAL ASSETS | | 44,608,201 | 47,206,019 | 46,406,120 | Debt instruments | 6 | 43,300,354 | 45,477,982 | 44,745,924 | Equity instruments | 7 | 1,307,847 | 1,728,037 | 1,660,196 | | LOANS AND RECEIVABLES | | 202,757,191 | 174,106,525 | 152,162,954 | Loans and amounts due from credit institutions | 5 | 19,628,861 | 22,658,520 | 24,228,143 | Loans and advances to customers | 9 | 183,066,268 | 151,366,561 | 127,934,811 | Debt instruments | 6 | 62,062 | 81,444 | - | | HEDGING DERIVATIVES | 8 | 80,708 | 115,640 | 163,425 | | NON-CURRENT ASSETS HELD FOR SALE | 10 | 132,388 | 66,821 | 171,464 | | INVESTMENTS IN ASSOCIATES | 11 | 422,225 | 370,586 | 419,122 | | TANGIBLE ASSETS | 12 | 5,008,306 | 4,518,109 | 3,701,769 | | INTANGIBLE ASSETS | | 31,435,080 | 31,962,619 | 31,617,939 | Goodwill | 13 | 27,217,565 | 28,312,236 | 28,312,236 | Other intangible assets | 14 | 4,217,515 | 3,650,383 | 3,305,703 | | TAX ASSETS | | 16,250,373 | 14,842,066 | 15,779,222 | Current | | 2,077,224 | 1,217,186 | 2,162,063 | Deferred | 23 | 14,173,149 | 13,624,880 | 13,617,159 | | OTHER ASSETS | 15 | 2,686,743 | 1,913,001 | 1,871,437 | | TOTAL ASSETS | | 399,886,082 | 374,662,683 | 315,972,576 |
* For a better disclosure, are being released compared the Balance Sheet of the last two years, even without any adjustments or retrospective restatement of previously disclosed information. The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. F-5
| | BANCO SANTANDER (BRASIL) S.A. CONSOLIDATED BALANCE SHEETS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Thousands of Brazilian Reais - R$) |
| | | | | LIABILITIES AND EQUITY | Note | 2011 | 2010 | 2009 | | FINANCIAL LIABILITIES HELD FOR TRADING | | 5,047,288 | 4,784,653 | 4,434,734 | Trading derivatives | 8 | 4,709,660 | 4,755,314 | 4,401,709 | Short positions | 8 | 337,628 | 29,339 | 33,025 | | OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS | | - | - | 1,795 | Deposits from credit institutions | 16 | - | - | 1,795 | | FINANCIAL LIABILITIES AT AMORTISED COST | | 291,451,686 | 253,340,771 | 203,567,734 | Deposits from Central Bank and deposits from credit institutions | 16 | 51,527,021 | 42,391,572 | 21,195,959 | Customer deposits | 17 | 174,473,891 | 167,949,201 | 149,440,156 | Marketable debt securities | 18 | 38,590,423 | 20,086,645 | 11,439,010 | Subordinated liabilities | 19 | 10,908,344 | 9,695,105 | 11,304,445 | Other financial liabilities | 20 | 15,952,007 | 13,218,248 | 10,188,164 | | HEDGING DERIVATIVES | 8 | 36,071 | 112 | 9,806 | | LIABILITIES FOR INSURANCE CONTRACTS | 21 | - | 19,643,129 | 15,527,197 | | PROVISIONS | | 9,515,295 | 9,395,161 | 9,480,262 | Provisions for pensions funds and similar obligations | 22 | 1,246,040 | 1,190,108 | 1,096,799 | Provisions for judicial and administrative proceedings, commitments and other provisions | 22 | 8,269,255 | 8,205,053 | 8,383,463 | | TAX LIABILITIES | | 11,875,899 | 10,529,625 | 9,456,537 | Current | | 8,127,795 | 6,249,466 | 5,588,680 | Deferred | 23 | 3,748,104 | 4,280,159 | 3,867,857 | | OTHER LIABILITIES | 24 | 3,927,851 | 3,605,838 | 4,227,768 | | TOTAL LIABILITIES | | 321,854,090 | 301,299,289 | 246,705,833 | | SHAREHOLDERS' EQUITY | 27 | 77,044,886 | 72,571,563 | 68,706,363 | Share capital | | 62,634,585 | 62,634,585 | 62,612,455 | Reserves | | 9,950,144 | 6,094,885 | 2,161,302 | Treasury shares | | (112,768) | - | - | Profit for the year attributable to the Parent | | 7,747,925 | 7,382,093 | 5,507,606 | Less: dividends and remuneration | | (3,175,000) | (3,540,000) | (1,575,000) | | VALUATION ADJUSTMENTS | 25 | 968,146 | 783,755 | 559,042 | Available-for-sale financial assets | | 960,199 | 949,597 | 791,966 | Cash flow hedges | | 7,947 | (165,842) | (232,924) | | NON-CONTROLLING INTERESTS | 26 | 18,960 | 8,076 | 1,338 | | TOTAL EQUITY | | 78,031,992 | 73,363,394 | 69,266,743 | TOTAL LIABILITIES AND EQUITY | | 399,886,082 | 374,662,683 | 315,972,576 |
* For a better disclosure, are being released compared the Balance Sheet of the last two years, even without any adjustments or retrospective restatement of previously disclosed information. The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. F-6
| | BANCO SANTANDER (BRASIL) S.A. CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2009, 20082011, 2010 AND 20072009 | (Thousands of Brazilian Reais - R$, except for per share data) | | | | | | | | | | | | | | | |
| | | | | | Note | 2011 | 2010 | 2009 | | Interest and similar income | 29 | 51,736,080 | 40,909,204 | 39,342,956 | Interest expense and similar charges | 30 | (23,834,316) | (16,814,126) | (17,175,865) | NET INTEREST INCOME | | 27,901,764 | 24,095,078 | 22,167,091 | Income from equity instruments | 31 | 93,727 | 51,721 | 29,903 | Income from companies accounted for by the equity method | 11 | 54,216 | 43,942 | 295,414 | Fee and commission income | 32 | 8,769,170 | 7,833,293 | 7,148,164 | Fee and commission expense | 33 | (1,429,672) | (997,785) | (910,402) | Gains (losses) on financial assets and liabilities (net) | 34 | (113,659) | 1,458,150 | 2,716,323 | Financial assets held for trading | | (902,167) | 1,159,058 | 2,032,272 | Other financial instruments at fair value through profit or loss | | 57,039 | (26,828) | (10,132) | Financial instruments not measured at fair value through profit or loss | | 705,279 | 254,162 | 755,916 | Other | | 26,190 | 71,758 | (61,733) | Exchange differences (net) | 35 | (121,364) | 416,900 | (51,191) | Other operating income (expense) | 36 | (379,418) | (347,999) | (115,624) | TOTAL INCOME | | 34,774,764 | 32,553,300 | 31,279,678 | Administrative expenses | | (12,372,632) | (11,230,602) | (10,947,217) | Personnel expenses | 37 | (6,643,731) | (5,926,176) | (5,510,972) | Other administrative expenses | 38 | (5,728,901) | (5,304,426) | (5,436,245) | Depreciation and amortization | | (1,462,034) | (1,237,410) | (1,248,612) | Tangible assets | 12 | (570,132) | (487,626) | (447,138) | Intangible assets | 14 | (891,902) | (749,784) | (801,474) | Provisions (net) | 22 | (3,061,463) | (1,974,326) | (3,480,693) | Impairment losses on financial assets (net) | | (9,381,549) | (8,233,810) | (9,966,404) | Loans and receivables | 9 | (9,381,549) | (8,232,912) | (9,982,881) | Other financial instruments not measured at fair value through profit or loss | | - | (898) | 16,477 | Impairment losses on other assets (net) | | (38,646) | (20,600) | (900,554) | Other intangible assets | 14.b | (17,070) | (813) | (859,216) | Other assets | | (21,576) | (19,787) | (41,338) | Gains (losses) on disposal of assets not classified as non-current assets held for sale | 39 | 5,320 | (59,186) | 3,369,301 | Gains (losses) on non-current assets held for sale not classified as discontinued operations | 40 | 446,776 | 199,137 | 31,630 | OPERATING PROFIT BEFORE TAX | | 8,910,536 | 9,996,503 | 8,137,129 | Income taxes | 23 | (1,154,683) | (2,613,929) | (2,629,165) | CONSOLIDATED PROFIT FOR THE YEAR | | 7,755,853 | 7,382,574 | 5,507,964 | Profit attributable to the Parent | | 7,747,925 | 7,382,093 | 5,507,606 | Profit attributable to non-controlling interests | 26 | 7,928 | 481 | 358 | | EARNINGS PER SHARE (Reais) | 27 | | | | Basic and Diluted earnings per 1,000 share (Reais - R$) | | | | | Common shares | | 18.55 | 17.67 | 15.32 | Preferred shares | | 20.41 | 19.44 | 16.85 | Profit attributable (Reais - R$) | | | | | Common shares | | 3,948,342 | 3,761,914 | 2,813,623 | Preferred shares | | 3,799,583 | 3,620,179 | 2,693,983 | Weighted average shares outstanding (in thousands) - basic and diluted | | | | | Common shares | | 212,841,732 | 212,841,732 | 183,650,861 | Preferred shares | | 186,202,385 | 186,202,385 | 159,856,132 | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | | | |
F-7
| | Note | | | 2009 | | | 2008 | | | 2007 | | Interest and similar income | | | 29 | | | | 39,342,956 | | | | 23,767,814 | | | | 13,197,368 | | Interest expense and similar charges | | | 30 | | | | (17,175,865 | ) | | | (12,329,845 | ) | | | (7,002,082 | ) | INTEREST INCOME / (net) | | | | | | | 22,167,091 | | | | 11,437,969 | | | | 6,195,286 | | Income from equity instruments | | | 31 | | | | 29,903 | | | | 36,972 | | | | 36,387 | | Income from companies accounted for by the equity method | | | 11 | | | | 295,414 | | | | 112,330 | | | | 5,884 | | Fee and commission income | | | 32 | | | | 7,148,164 | | | | 4,809,014 | | | | 3,363,518 | | Fee and commission expense | | | 33 | | | | (910,402 | ) | | | (555,311 | ) | | | (265,546 | ) | Gains/losses on financial assets and liabilities (net) | | | 34 | | | | 2,716,323 | | | | (1,286,113 | ) | | | 1,516,664 | | Held for trading | | | | | | | 2,032,272 | | | | (1,214,846 | ) | | | 254,128 | | Other financial instruments at fair value through profit or loss | | | | | | | (10,132 | ) | | | 39,956 | | | | 24,873 | | Financial instruments not measured at fair value through profit or loss | | | | | | | 755,916 | | | | 320,307 | | | | 1,236,856 | | Other | | | | | | | (61,733 | ) | | | (431,530 | ) | | | 807 | | Exchange differences (net) | | | 35 | | | | (51,191 | ) | | | 1,475,779 | | | | 381,587 | | Other operating income (expense) | | | 36 | | | | (115,624 | ) | | | (59,817 | ) | | | 132,924 | | TOTAL INCOME | | | | | | | 31,279,678 | | | | 15,970,823 | | | | 11,366,704 | | Administrative expenses | | | | | | | (10,947,217 | ) | | | (7,184,937 | ) | | | (4,460,217 | ) | Personnel expenses | | | 37 | | | | (5,510,972 | ) | | | (3,548,162 | ) | | | (2,384,267 | ) | Other general expenses | | | 38 | | | | (5,436,245 | ) | | | (3,636,775 | ) | | | (2,075,950 | ) | Depreciation and amortization | | 12 & 14 | | | | (1,248,612 | ) | | | (846,005 | ) | | | (579,746 | ) | Provisions (net) | | | 21 | | | | (3,480,693 | ) | | | (1,230,317 | ) | | | (1,196,412 | ) | Impairment losses on financial assets (net) | | | | | | | (9,966,404 | ) | | | (4,099,284 | ) | | | (2,159,437 | ) | Loans and receivables | | | 9 | | | | (9,982,881 | ) | | | (4,102,645 | ) | | | (2,179,843 | ) | Other financial instruments not measured at fair value through profit or loss | | | 16,477 | | | | 3,361 | | | | 20,406 | | Impairment losses on other assets (net) | | | | | | | (900,554 | ) | | | (77,277 | ) | | | (298,082 | ) | Other intangible assets | | | 14 | | | | (859,216 | ) | | | (52,002 | ) | | | (227,533 | ) | Other assets | | | | | | | (41,338 | ) | | | (25,275 | ) | | | (70,549 | ) | Gains on disposal of assets not classified as non-current assets held for sale | | | 39 | | | | 3,369,301 | | | | 6,611 | | | | 861 | | Gains on non-current assets held for sale not classified as discontinued operations | | | 40 | | | | 31,630 | | | | 9,219 | | | | 13,470 | | OPERATING PROFIT BEFORE TAX | | | | | | | 8,137,129 | | | | 2,548,833 | | | | 2,687,141 | | Income taxes | | | 23 | | | | (2,629,165 | ) | | | (170,207 | ) | | | (784,142 | ) | CONSOLIDATED PROFIT FOR THE YEAR | | | | | | | 5,507,964 | | | | 2,378,626 | | | | 1,902,999 | | Profit attributable to the Parent | | | | | | | 5,507,606 | | | | 2,378,395 | | | | 1,902,999 | | Profit attributable to minority interests | | | 24 | | | | 358 | | | | 231 | | | | - | | | | | | | | | | | | | | | | | | | EARNINGS PER SHARE (Brazilian reais) | | | | | | | | | | | | | | | | | Basic and diluted earnings per 1,000 share (reais) | | | | | | | | | | | | | | | | | Common shares | | | | | | | 15.32 | | | | 11.59 | | | | 14.02 | | Preferred shares | | | | | | | 16.85 | | | | 12.75 | | | | 15.43 | | Weighted average shares outstanding (in thousands) - Basic and diluted | | | | | | | | | | | | | Common shares | | | | | | | 183,650,861 | | | | 104,926,194 | | | | 69,383,705 | | Preferred shares | | | | | | | 159,856,132 | | | | 91,168,064 | | | | 60,285,449 | | | | | | | | | | | | | | | | | | |
| | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | |
| | BANCO SANTANDER (BRASIL) S.A. | | | | | | | | | | | | | | FOR THE YEARS ENDED DECEMBER 31, 2009, 20082011, 2010 AND 2007 | | | | | | 2009 | (Thousands of Brazilian Reais) | | | | | | | | | | | | | | | | | Reais - R$) |
| | | | | 2011 | 2010 | 2009 | | CONSOLIDATED PROFIT FOR THE YEAR | 7,755,853 | 7,382,574 | 5,507,964 | | OTHER RECOGNIZED INCOME AND EXPENSE | 184,391 | 224,713 | 45,425 | Available-for-sale financial assets | 102,092 | 328,349 | 62,088 | Valuation adjustments | 807,371 | 582,511 | 818,004 | Amounts transferred to income statement | (705,279) | (254,162) | (755,916) | Cash flow hedges | 276,752 | 121,335 | 65,017 | Valuation adjustments | 15,149 | 121,335 | 65,017 | Amounts transferred to income statement | 261,603 | - | - | Income taxes | (194,453) | (224,971) | (81,680) | TOTAL RECOGNIZED INCOME AND EXPENSE | 7,940,244 | 7,607,287 | 5,553,389 | | Attributable to the Parent | 7,932,316 | 7,606,806 | 5,553,031 | Attributable to non-controlling interests | 7,928 | 481 | 358 | TOTAL | 7,940,244 | 7,607,287 | 5,553,389 | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | | |
F-8
| | 2009 | | | 2008 | | | 2007 | | CONSOLIDATED PROFIT FOR THE YEAR | | | 5,507,964 | | | | 2,378,626 | | | | 1,902,999 | | | | | | | | | | | | | | | OTHER RECOGNIZED INCOME AND EXPENSE | | | 45,425 | | | | (1,023,427 | ) | | | (46,824 | ) | Available-for-sale financial assets | | | 62,088 | | | | (1,099,982 | ) | | | (58,787 | ) | Revaluation gains/losses | | | 818,004 | | | | (779,675 | ) | | | 1,178,069 | | Amounts transferred to income statement | | | (755,916 | ) | | | (320,307 | ) | | | (1,236,856 | ) | Cash flow hedges | | | 65,017 | | | | (447,792 | ) | | | - | | Revaluation gains/losses | | | 65,017 | | | | (447,792 | ) | | | - | | Income taxes | | | (81,680 | ) | | | 524,347 | | | | 11,963 | | TOTAL RECOGNIZED INCOME AND EXPENSE | | | 5,553,389 | | | | 1,355,199 | | | | 1,856,175 | | | | | | | | | | | | | | | Attributable to the Parent | | | 5,553,031 | | | | 1,354,968 | | | | 1,856,175 | | Attributable to minority interests | | | 358 | | | | 231 | | | | - | | TOTAL | | | 5,553,389 | | | | 1,355,199 | | | | 1,856,175 | | | | | | | | | | | | | | |
| The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. |
| | BANCO SANTANDER (BRASIL) S.A. | | | | | | | | | | | | | | | | | | (Thousands of Brazilian Reais) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reais - R$) |
| | | Equity Attributableto theParent | | | | | | | Shareholders' Equity | | | | | | | Note | Share Capital | Reserves | Treasury Shares | Profit Attributed to the Parent | Dividends and Remuneration | Total Shareholders' Equity | Valuation Adjustments | Total | Non-controlling Interests | Total Equity | Balances at December 31, 2008 | | 47,152,201 | 1,240,031 | - | 2,378,395 | (1,453,045) | 49,317,582 | 513,617 | 49,831,199 | 5,279 | 49,836,478 | | Total recognized income and expense | | - | - | - | 5,507,606 | - | 5,507,606 | 45,425 | 5,553,031 | 358 | 5,553,389 | Other changes in Equity | | | | | | | | | | | | Appropriation of profit for the year | | - | 2,378,395 | - | (2,378,395) | - | - | - | - | - | - | Dividends and interest on capital | 27.b | - | (1,453,045) | - | - | (121,955) | (1,575,000) | - | (1,575,000) | - | (1,575,000) | Capital increase | 27.a | 15,460,254 | - | - | - | - | 15,460,254 | - | 15,460,254 | (4,046) | 15,456,208 | Acquisition of own shares | 27.e | - | - | (1,948) | - | - | (1,948) | - | (1,948) | - | (1,948) | Other | | - | (4,079) | 1,948 | - | - | (2,131) | - | (2,131) | (253) | (2,384) | Balances at December 31, 2009 | | 62,612,455 | 2,161,302 | - | 5,507,606 | (1,575,000) | 68,706,363 | 559,042 | 69,265,405 | 1,338 | 69,266,743 | | Total recognized income and expense | | - | - | - | 7,382,093 | - | 7,382,093 | 224,713 | 7,606,806 | 481 | 7,607,287 | Other changes in Equity | | | | | | | | | | | | Appropriation of profit for the year | | - | 5,507,606 | - | (5,507,606) | - | - | - | - | - | - | Dividends and interest on capital | 27.b | - | (1,575,000) | - | - | (1,965,000) | (3,540,000) | - | (3,540,000) | - | (3,540,000) | Capital increase | 27.a | 22,130 | (22,130) | - | - | - | - | - | - | - | - | Equity-instruments-based payments | 37.b | - | 20,976 | - | - | - | 20,976 | - | 20,976 | - | 20,976 | Other | | - | 2,131 | - | - | - | 2,131 | - | 2,131 | 6,257 | 8,388 | Balances at December 31, 2010 | | 62,634,585 | 6,094,885 | - | 7,382,093 | (3,540,000) | 72,571,563 | 783,755 | 73,355,318 | 8,076 | 73,363,394 | | Total recognized income and expense | | - | - | - | 7,747,925 | - | 7,747,925 | 184,391 | 7,932,316 | 7,928 | 7,940,244 | Other changes in Equity | | | | | | | | | | | | Appropriation of profit for the year | | - | 7,382,093 | - | (7,382,093) | - | - | - | - | - | - | Dividends and interest on capital | 27.b | - | (3,540,000) | - | - | 365,000 | (3,175,000) | - | (3,175,000) | - | (3,175,000) | Equity-instruments-based payments | 37.b | - | 13,153 | - | - | - | 13,153 | - | 13,153 | - | 13,153 | Treasury shares | 27.e | - | - | (112,768) | - | - | (112,768) | - | (112,768) | - | (112,768) | Results of treasury shares | 27.e | - | 13 | - | - | - | 13 | - | 13 | - | 13 | Other | | - | - | - | - | - | - | - | - | 2,956 | 2,956 | Balances at December 31, 2011 | | 62,634,585 | 9,950,144 | (112,768) | 7,747,925 | (3,175,000) | 77,044,886 | 968,146 | 78,013,032 | 18,960 | 78,031,992 | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. |
F-9
| | Equity Attributable to the Parent | | | | | | | | | | Shareholders' Equity | | | | | | | | | | | | | | | | Share Capital | | | Reserves | | | Treasury Shares | | | Profit Attributed to the Parent | | | Dividends and Remuneration | | | Total Shareholders' Equity | | | Valuation Adjustments | | | Total | | | Minority Interests | | | Total Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balances at January 1, 2007 | | | 6,831,448 | | | | 1,263,450 | | | | - | | | | - | | | | (559,033 | ) | | | 7,535,865 | | | | 1,583,868 | | | | 9,119,733 | | | | 57 | | | | 9,119,790 | | Total recognized income and expense | | | - | | | | - | | | | - | | | | 1,902,999 | | | | - | | | | 1,902,999 | | | | (46,824 | ) | | | 1,856,175 | | | | - | | | | 1,856,175 | | Other Changes in Equity | | | | | | | | | | | | | | | | | | | | | | | - | | | | | | | | - | | | | | | | | - | | Dividends/Remuneration | | | - | | | | (559,033 | ) | | | - | | | | - | | | | (1,705,735 | ) | | | (2,264,768 | ) | | | - | | | | (2,264,768 | ) | | | - | | | | (2,264,768 | ) | Capital increase | | | 1,500,000 | | | | - | | | | - | | | | - | | | | - | | | | 1,500,000 | | | | - | | | | 1,500,000 | | | | - | | | | 1,500,000 | | Other | | | - | | | | (2,617 | ) | | | - | | | | - | | | | - | | | | (2,617 | ) | | | - | | | | (2,617 | ) | | | - | | | | (2,617 | ) | Balances at December 31, 2007 | | | 8,331,448 | | | | 701,800 | | | | - | | | | 1,902,999 | | | | (2,264,768 | ) | | | 8,671,479 | | | | 1,537,044 | | | | 10,208,523 | | | | 57 | | | | 10,208,580 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized income and expense | | | - | | | | - | | | | - | | | | 2,378,395 | | | | - | | | | 2,378,395 | | | | (1,023,427 | ) | | | 1,354,968 | | | | 231 | | | | 1,355,199 | | Other Changes in Equity | | | | | | | | | | | | | | | | | | | | | | | - | | | | | | | | - | | | | - | | | | - | | Appropriation of profit for the year | | | - | | | | 1,902,999 | | | | - | | | | (1,902,999 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Dividends/Remuneration | | | - | | | | (2,264,768 | ) | | | - | | | | - | | | | 811,723 | | | | (1,453,045 | ) | | | - | | | | (1,453,045 | ) | | | - | | | | (1,453,045 | ) | Capital increase | | | 38,820,753 | | | | 900,000 | | | | - | | | | - | | | | - | | | | 39,720,753 | | | | - | | | | 39,720,753 | | | | - | | | | 39,720,753 | | Other | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,991 | | | | 4,991 | | Balances at December 31, 2008 | | | 47,152,201 | | | | 1,240,031 | | | | - | | | | 2,378,395 | | | | (1,453,045 | ) | | | 49,317,582 | | | | 513,617 | | | | 49,831,199 | | | | 5,279 | | | | 49,836,478 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized income and expense | | | - | | | | - | | | | - | | | | 5,507,606 | | | | - | | | | 5,507,606 | | | | 45,425 | | | | 5,553,031 | | | | 358 | | | | 5,553,389 | | Other Changes in Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Appropriation of profit for the year | | | - | | | | 2,378,395 | | | | - | | | | (2,378,395 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Dividends/Remuneration | | | - | | | | (1,453,045 | ) | | | - | | | | - | | | | (121,955 | ) | | | (1,575,000 | ) | | | - | | | | (1,575,000 | ) | | | - | | | | (1,575,000 | ) | Capital increase | | | 15,460,254 | | | | - | | | | - | | | | - | | | | - | | | | 15,460,254 | | | | - | | | | 15,460,254 | | | | (4,046 | ) | | | 15,456,208 | | Acquisition of own shares | | | - | | | | - | | | | (1,948 | ) | | | - | | | | - | | | | (1,948 | ) | | | - | | | | (1,948 | ) | | | - | | | | (1,948 | ) | Other | | | - | | | | (4,079 | ) | | | 1,948 | | | | - | | | | - | | | | (2,131 | ) | | | - | | | | (2,131 | ) | | | (253 | ) | | | (2,384 | ) | Balances at December 31, 2009 | | | 62,612,455 | | | | 2,161,302 | | | | - | | | | 5,507,606 | | | | (1,575,000 | ) | | | 68,706,363 | | | | 559,042 | | | | 69,265,405 | | | | 1,338 | | | | 69,266,743 | |
| | | | | | | | | | | | | | | | | | | | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | | | | | | | | |
| | BANCO SANTANDER (BRASIL) S.A. | | | | | | | | | | (Thousands of Brazilian Reais) | | | | | | | | | | | | | | | | | Reais - R$) |
| | | | | | Note | 2011 | 2010 | 2009 | 1. CASH FLOWS FROM OPERATING ACTIVITIES | | | | | Consolidated profit for the year | | 7,755,853 | 7,382,574 | 5,507,964 | Adjustments to profit | | 11,915,926 | 11,415,282 | 10,885,192 | Depreciation of tangible assets | 12 | 570,132 | 487,626 | 447,138 | Amortization of intangible assets | 14.b | 891,902 | 749,784 | 801,474 | Impairment losses on other assets (net) | | 38,646 | 20,600 | 859,216 | Provisions and Impairment losses on financial assets (net) | | 12,443,012 | 10,208,136 | 13,463,574 | Gains (losses) on disposal of tangible assets, investments and non-current assets held for sale | | (452,096) | (139,951) | (3,369,301) | Share of results of entities accounted for using the equity method | 11 | (54,216) | (43,942) | (295,414) | Changes in deferred tax assets and liabilities | | (1,534,607) | 112,053 | (1,021,495) | Others | | 13,153 | 20,976 | - | Net (increase) decrease in operating assets | | (57,373,896) | (74,520,336) | (11,978,247) | Cash and Bank with the brazilian central bank | | (8,824,495) | (45,103,539) | (1,588,979) | Financial assets held for trading | | (5,080,130) | (4,705,713) | 2,129,972 | Other financial assets at fair value through profit or loss | | (4,277,011) | (1,645,321) | 78,642 | Available-for-sale financial assets | | 2,696,868 | (471,550) | (13,703,838) | Loans and receivables | | (39,864,486) | (24,059,733) | 1,029,639 | Other assets | | (2,024,642) | 1,465,520 | 76,317 | Net increase (decrease) in operating liabilities | | 28,524,361 | 46,406,369 | (14,648,437) | Financial liabilities held for trading | | 262,635 | 349,919 | (6,776,832) | Other financial liabilities at fair value through profit or loss | | - | (1,795) | (305,581) | Financial liabilities at amortized cost | | 24,290,139 | 46,469,159 | (9,656,576) | Other liabilities | | 3,971,587 | (410,914) | 2,090,552 | Payments of income tax | | (1,932,317) | (1,043,419) | (1,973,257) | Total net cash flows from operating activities (1) | | (11,110,073) | (10,359,530) | (12,206,785) | | 2. CASH FLOWS FROM INVESTING ACTIVITIES | | | | | Investments | | (2,547,692) | (2,372,866) | (3,129,033) | Tangible assets | 12 | (1,074,509) | (1,319,869) | (1,815,803) | Intangible assets | 14.b | (1,478,802) | (1,086,208) | (1,466,411) | Capital Increase in affiliates | | (6,356) | - | - | Dividends and Interest on Capital Received | 11-b | 11,975 | 33,211 | 153,181 | Divestments | | 2,758,295 | 38,757 | 5,862,334 | Subsidiaries, jointly controlled entities and associates | 3.a | 2,741,102 | - | 4,436,325 | Tangible assets | | 17,193 | 38,757 | 1,426,009 | Non-current assets held for sale; net | | - | - | - | Total net cash flows from investing activities (2) | | 210,603 | (2,334,109) | 2,733,301 | | 3. CASH FLOWS FROM FINANCING ACTIVITIES | | | | | Capital increase | 27 | - | - | 12,986,710 | Acquisition of own shares | 27 | (112,755) | - | (1,948) | Issuance of subordinated liabilities | 19 | - | - | 1,507,000 | Issuance of other long-term financial liabilities | 18 | 29,501,246 | 21,402,252 | 14,746,518 | Dividends paid and interest on capital | | (3,926,417) | (2,734,666) | (1,540,914) | Payments of subordinated liabilities | 19 | - | (2,534,750) | (159,905) | Payments of other long-term financial liabilities | 18 | (14,895,052) | (12,828,958) | (16,080,145) | Increase/Decrease in non-controlling interests | 26 | 2,956 | 6,257 | (4,299) | Total net cash flows from financing activities (3) | | 10,569,978 | 3,310,135 | 11,453,017 | NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (1+2+3) | | (329,492) | (9,383,504) | 1,979,533 | Cash and cash equivalents at beginning of year | | 9,346,899 | 18,730,403 | 16,750,870 | Cash and cash equivalents at end of year | | 9,017,407 | 9,346,899 | 18,730,403 | | Cash and cash equivalents components | | | | | Cash | 4 | 3,542,707 | 3,158,003 | 3,630,669 | Loans and other | 5.a | 5,474,700 | 6,188,896 | 15,099,734 | Total of cash and cash equivalents | | 9,017,407 | 9,346,899 | 18,730,403 | | Non-cash transactions | | | | | Foreclosures loans and other assets transferred to non-current assets held for sale | | 143,511 | 38,037 | 183,195 | Shares issued in connection with acquisition of Santander Seguros S.A., Banco Comercial e de InvestimentoSudameris S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. | | - | - | 2,471,413 | Dividends and interest on capital declared but not paid | | 1,175,000 | 2,166,714 | 1,451,529 | Supplemental information | | | | | Interest received | | 50,042,248 | 40,437,556 | 37,399,672 | Interest paid | | 22,901,817 | 16,799,971 | 16,860,547 | | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. |
F-10
| | 2009 | | | 2008 | | | 2007 | | 1. CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | Consolidated profit for the year | | | 5,507,964 | | | | 2,378,626 | | | | 1,902,999 | | Adjustments to profit | | | 10,885,192 | | | | 5,108,513 | | | | 4,211,636 | | Depreciation of tangible assets | | | 447,138 | | | | 301,731 | | | | 237,695 | | Amortization of intangible assets | | | 801,474 | | | | 544,274 | | | | 342,051 | | Impairment losses on other assets (net) | | | 859,216 | | | | 52,002 | | | | 227,533 | | Provisions (net) | | | 13,463,574 | | | | 5,332,962 | | | | 3,376,255 | | Gains (net) on disposal of tangible assets and investments | | | (3,369,301 | ) | | | (6,611 | ) | | | (861 | ) | Share of results of entities accounted for using the equity method | | | (295,414 | ) | | | (112,330 | ) | | | (5,884 | ) | Changes in deferred tax assets and liabilities | | | (1,021,495 | ) | | | (1,003,515 | ) | | | 34,847 | | | | | 16,393,156 | | | | 7,487,139 | | | | 6,114,635 | | Net (increase) decrease in operating assets: | | | (11,825,066 | ) | | | (38,972,480 | ) | | | 3,472,971 | | Brazilian central bank compulsory deposits | | | (1,588,979 | ) | | | (958,826 | ) | | | (1,257,825 | ) | Financial assets held for trading | | | 2,129,972 | | | | (1,450,457 | ) | | | 10,700,999 | | Other financial assets at fair value through profit or loss | | | 78,642 | | | | (3,927,155 | ) | | | (1,647,806 | ) | Available-for-sale financial assets | | | (13,703,838 | ) | | | (3,979,372 | ) | | | 9,527,782 | | Loans and receivables | | | 1,182,820 | | | | (27,988,641 | ) | | | (14,078,839 | ) | Other assets | | | 76,317 | | | | (668,029 | ) | | | 228,660 | | Net increase (decrease) in operating liabilities: | | | (16,781,599 | ) | | | 18,275,075 | | | | 5,856,990 | | Financial liabilities held for trading | | | (6,776,832 | ) | | | 5,394,798 | | | | 2,332,780 | | Other financial liabilities at fair value through profit or loss | | | (305,581 | ) | | | (382,909 | ) | | | 690,285 | | Financial liabilities at amortized cost | | | (9,816,481 | ) | | | 15,048,503 | | | | 6,760,404 | | Other liabilities | | | 117,295 | | | | (1,785,317 | ) | | | (3,926,479 | ) | Total net cash flows from operating activities (1) | | | (12,213,509 | ) | | | (13,210,266 | ) | | | 15,444,596 | | | | | | | | | | | | | | | 2. CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | Investments | | | (3,282,214 | ) | | | (2,791,665 | ) | | | (1,570,030 | ) | Tangible assets | | | (1,815,803 | ) | | | (2,103,308 | ) | | | (326,858 | ) | Intangible assets | | | (1,466,411 | ) | | | (688,357 | ) | | | (1,243,172 | ) | Net cash received on acquisition of subsidiary | | | - | | | | 12,147,982 | | | | - | | Divestments | | | 5,862,334 | | | | 600,613 | | | | 59,902 | | Subsidiaries, jointly controlled entities and associates | | | 4,436,325 | | | | - | | | | - | | Tangible assets | | | 1,426,009 | | | | 600,613 | | | | 59,902 | | Total net cash flows from investing activities (2) | | | 2,580,120 | | | | 9,956,930 | | | | (1,510,128 | ) | | | | | | | | | | | | | | 3. CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | Capital increase | | | 12,986,710 | | | | 800,000 | | | | 607,043 | | Acquisition of own shares | | | (1,948 | ) | | | - | | | | - | | Issuance of subordinated liabilities | | | 1,507,000 | | | | 651,000 | | | | - | | Issuance of other long-term liabilities | | | 14,746,518 | | | | 12,148,373 | | | | 2,370,030 | | Dividends paid | | | (1,540,914 | ) | | | (1,502,647 | ) | | | (900,010 | ) | Redemption of other long-term liabilities | | | (16,080,145 | ) | | | (8,378,657 | ) | | | (1,918,130 | ) | Increase/Decrease in minority interests | | | (4,299 | ) | | | - | | | | - | | Total net cash flows from financing activities (3) | | | 11,612,922 | | | | 3,718,069 | | | | 158,933 | | NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (1+2+3) | | | 1,979,533 | | | | 464,733 | | | | 14,093,401 | | Cash and cash equivalents at beginning of year | | | 16,750,870 | | | | 16,286,137 | | | | 2,192,736 | | Cash and cash equivalents at end of year | | | 18,730,403 | | | | 16,750,870 | | | | 16,286,137 | | | | | | | | | | | | | | | Non-cash transactions: | | | | | | | | | | | | | Loans transferred to foreclosed assets | | | (183,195 | ) | | | 166,579 | | | | 73,348 | | Shares issued in connection with acquisition of Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. | | | - | | | | 38,920,753 | | | | - | | Shares issued in conection with acquisition of Santander Seguros S.A., Banco Comercial e de Investimento Sudameris S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. | | | 2,471,413 | | | | - | | | | - | | Dividends and interest on capital declared but not paid | | | 1,451,529 | | | | 1,413,748 | | | | 1,463,350 | | Supplemental information: | | | | | | | | | | | | | Interest received | | | 37,399,672 | | | | 22,468,869 | | | | 12,926,559 | | Interest paid | | | 16,860,547 | | | | 11,952,981 | | | | 7,108,238 | | Taxes paid | | | 1,973,257 | | | | 918,677 | | | | 392,791 | |
| | The accompanying Notes and Appendix I are an integral part of these consolidated financial statements. | |
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Banco Santander (Brasil) S.A. (the “Bank”(Banco Santander or “Santander” or "Banco Santander")Bank), indirectly controlled by Banco Santander, S.A., with headquarters in Spain (Banco Santander Spain)Spain or Santander Group), is the lead institution of the financial and non-financial brazilian Santander Group companiesgroup (Conglomerate Santander) with the Brazilian Central Bank of Brazil (Bacen), established as a corporation, with main offices at Rua Amador Bueno, 474, Santo Amaro,Avenida Presidente Juscelino Kubitschek, 2041 e 2235 - Bloco A - Vila Olímpia - São Paulo and- SP. Banco Santander operates as a multiple service bank conductingand through its subsidiaries carries out its operations such asthrough three segments (note 42): (i) Commercial Bank, (ii) Global Wholesale Bank, which operate with commercial, foreign exchange, investment, credit and financing, mortgage lending, leasing, credit cards and mortgage loan, leasing portfoliossecurities brokerage, and through related entities, insurance, pension plan,(iii) Asset Management, capitalization, leasing, asset management and securities and insurance brokerage operations. Transactionsbrokerage. Its operations are conducted within the contextas part of a conglomerateset of financial institutions that operate on an integrated basis infinancial markets and capital. The financial statements for the financial and capital markets. On February 2, 2010, ityear ended on December 31, 2011 was approved by the Board of Directors at the change of the Head office of Banco Santander to Avenida Presidente Juscelino Kubitschek, 2041 and 2235 – Bloco A, Vila Olimpia, São Paulo.
As discussed in note 3, Banco ABN AMRO Real S.A. (Banco Real) and ABN AMRO Brasil Dois Participações S.A. (“AAB Dois Par”) and their respective subsidiaries were consolidated by the Bank as from August 2008.
b) Global Offering of shares
The Board of Directors’ meeting held on September 18, 2009 approved the implementation of the public offering, denominated Global Offering, which included the issue of 525,000,000 Units (Each representing one of 55 common shares and 50 preferred shares), all registered shares, without par value, free and clear of any liens or encumbrances, consisting of the simultaneous initial public offering of, (i) of Units in Brazil (Brazilian Offering), on the over-the-counter, in accordance with Brazilian Securities and Exchange Commission (CVM) Instruction 400/2003, and (ii) Units abroad, including in the form of ADRs representing ADSs registered with the U.S. Securities and Exchange Commission (SEC) under the Securities Act of 1933 the United States of America.
At the same meeting was approved the listing of Banco Santander and the trade of the Units of common shares and preferred shares in BM&FBovespa - Securities, Commodities and Futures exchanges (BM&FBovespa) level 2 Corporate Governance Practices.
The Global Offering was coordinated on a firm guarantee of settlement. Under the Article 24 of CVM Instruction 400/2003, the total number of Units/ADSs initially offered in the Global Offering (excluding the Additional Units, as defined below) was increased in 6.85 %, i.e., which means 35,955,648 Units, in the form of ADSs under the same conditions and at the same price of the Units/ADSs initially offered (Supplemental Units), according to the options granted to Credit Suisse Securities (USA) LLC, designed to meet a possible excess of demand over the Global Offering (Supplemental Option).
Under the Article 14, paragraph 2 of CVM Instruction 400, the total number of Units initially offered (not including the supplemental Units) could have been but were not increased. (to a maximum of 4.76%), i.e., up to 25,000,000 Units, including the form of ADSs under the same conditions and at the same price initially offered the Units (Additional Units).
The Brazilian Offering was directed in the Retail Offer, to Non-Institutional Investors and the Institutional Offer to Institutional Investors.
On October 6, 2009, the Global Offering shares were priced at R$23.50 per Unit. The Units are traded on the BM&FBOVESPA and the New York Stock Exchange (NYSE) as of October 7, 2009.
The other characteristics and terms set out in the "Final Global Offering Prospect for the Initial Public Offering of Certificates of Deposit Shares (Units) Issuance of Banco Santander (Brasil) S.A.", dated October 6,2009, and the Notice to the Market, is available at www.santander.com.br and the website of the CVM and its English version of the Prospectus on Form-F1, available on the SEC website.
On OctoberFebruary 29, 2009, due to the completion of the Global Offering and the partial exercise of the Supplemental Option, the Bacen approved the capital increase.
The results of the Global Offering was disclosed under the closing announcement published in issues of Valor Econômico on November 10, 2009.
c)2012.b) Basis of presentation of the consolidated financial statements The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’)(IFRS) as issued by the International Accounting Standards Board (“IASB”)(IASB), and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”)(IFRIC). The consolidated financial statements for the year ended December 31, 2008 and 2007 were the first to be prepared in accordance with IFRS, with a date of first implementation of January 1, 2007 (opening balance sheet). The statutory financial statements have been prepared locally in Brazil in accordance with accounting practices established by Brazilian Corporate Law and standards established by the National Monetary Council (CMN), the Brazilian Central Bank (BACEN) and the Brazilian Securities Commission (CVM), the National Council of Private Insurance (CNSP) and the Superintendency of Private Insurance (SUSEP). Hereafter it shall be referred to as “Brazilian GAAP”.
The note 45 to the consolidated financial statements contains the reconciliation of the shareholders' equity and the results for the year ended December 31, 2007, and in accordance to the CVM regulation, the years ended December 31, 2009 and 2008.
The notes to the consolidated financial statements contain supplementary information to that presented in the consolidated balance sheet, consolidated income statement, consolidated statement of recognize income and expense, consolidated statement of changes in total equity and consolidated cash flow statement. The Notes provide, in a clear, relevant, reliable and comparable manner, narrative descriptions and breakdowns of these financial statements.
All accounting policies and measurement bases with a material effect on the consolidated financial statements were applied in their preparation. There were no changes in accounting policies and estimates during the year ended on December 31, 2009. 2011. The adoption of the new standards and interpretation of IFRS in 2011 did not have any impact to the comparability with the financial statements for the yearperiod ended on December 31, 2009 was approved by the Board of Directors at the meeting held on March 25, 2010. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
2010 and 2009.Adoption of new standards and interpretations All standards and interpretations which came into force were adopted by the Bank in 2009.2011. Following are the standards and interpretations applicable to the Bank: -• Revision of IAS 1 Presentation of Financial Statements: introduces certain changes in the presentation of financial statements, including changes to the titles of individual financial statements, since balance sheet could be also referred to as a statement of financial position. The statement of changes in equity will only include changes in equity arising from transactions with owners acting in their capacity as owners. As regards “non-owner” changes (e.g. transactions with third parties or income and expenses recognized directly in equity), entities are no longer permitted to present items of other comprehensive income separately in the statements of changes in equity. Such non-owner movements must be presented in a statement of comprehensive income and the total carried to the statement of changes in equity. All items of income and expense (including those recognized outside of profit or loss) must be presented either in a single statement of comprehensive income with subtotals or in two separate statements (a separate income statement and a statement of comprehensive income). IAS 1 also introduces new reporting requirements when the entity applies a change in accounting policy retrospectively, makes a restatement or reclassifies items in previously issued statements. Paragraph 10 of the revised IAS 1 provides the possibility of changing the names of the financial statements. The new terminology which could be used to refer to the financial statements is as follows:
The balance sheet becomes the statement of financial position.
The statement of recognised income and expense becomes the statement of comprehensive income.
The statement of cash flows does not undergo any terminology changes.
In preparing these financial statements the Bank has retained the names of the financial statements used in the consolidated financial statements for 2008.
- Amendments to IAS 32 and IAS 1 – Puttable Financial Instruments and Obligations Arising on Liquidation: the amendments address the classification of puttable financial instruments and obligations arising only on liquidation. Following the revisions, this instruments are presented as equity provided that they meet certain criteria including that of being the most subordinated class, and they evidence a residual interest in the net assets of the entity.
- Amendments to IFRS 1 and IAS 27 - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate: this amendment refers to separate financial statements and, therefore, is not applicable to consolidated financial statements. - Amendment to IFRS 7 Financial Instruments: the objective of this amendment is basically to increase disclosure requirements. It increases the requirements for disclosure of fair value measurement and liquidity risk.
- Amendment to IAS 39 and IFRIC 9 clarifying the treatment of embedded derivatives for companies which have made use of the Amendment to IAS 39 on reclassifications, issued by the IASB. This amendment clarifies that in a reclassification of an asset in the “financial assets at fair value through profit or loss” category all the embedded derivatives must be measured and, where necessary, accounted for separately in the financial statements.
- IFRIC 13 Customer Loyalty Programmes: this interpretation addresses the accounting by entities that provide their customers with incentives to buy goods or services by providing awards as part of a sales transaction, such as credit card reward schemes.
- Amendments to IAS 39, Eligible Hedged Items: this amendment establishes that inflation may only be designated as a hedged item if it is a contractually specified portion of the cash flows to be hedged. Only the intrinsic value and not the time value of a purchased option may be used as a hedge instrument.
- IFRIC 16 Hedges of a Net Investment in a Foreign Operation: this interpretation clarifies the following matters: (i) the exposure to foreign exchange differences between the functional currency of the foreign operation and the presentation currency of the parent cannot be designated as a hedged risk, and only the foreign currency exposure arising between the functional currency of the parent and that of its foreign operation qualifies for hedge accounting; (ii) the hedging instrument used to hedge the net investment may be held by any entity within the Bank, not necessarily by the parent of the foreign operation; and, (iii) it addresses how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item on disposal of the foreign operation.
- IFRS 2 Share-based payment: Vesting conditions and cancellations The IASB published an amendment to IFRS 2, ‘Share-based payment’, in January 2008. The changes pertain mainly to the definition of vesting conditions and the regulations for the cancellation of a plan by a party other than the company.
Improvements to IFRS’ were issued in May 2008. They contain numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Most of the amendments are effective for annual periods beginning on or after January 1, 2009 , with earlier application permitted. The adoption of the above-mentioned standards and interpretations did have not a material effect on the consolidated financial statements taken as a whole.
Standards and interpretations effective subsequent to December 31, 2009
The Bank has not yet adopted the following new or revised IFRS or Interpretations, which have been issued but their effective date is subsequent to the date of these financial statements:
- IFRS 9 – Financial Instruments: Recognition and Measurement – The main changes of IFRS 9 compared to IAS 39 are: (i) all financial assets are initially measured at fair value and, in the case of a financial asset not at fair value through profit or loss, plus transactions costs. (ii) new requirements for classifying and measuring financial assets. The standard divides all financial assets that are currently in the scope of IAS 39 in two classifications: amortised cost and fair value (iii) the IAS 39’s available for sale and held to maturity categories were eliminate. (iv) the embedded derivatives concept of IAS 39 is not included in IFRS 9.
- Amendments to IFRS 2 : The amendment of IFRS 2 provide additional guidance on the accounting for share-based payment transactions among group entities (incorporating guidance previously contained in IFRIC 11).
- Revision of IFRS 3 Business Combinations and Amendment to IAS 27 Consolidated and Separate Financial Statements: introduce significant changes in several matters relating to accounting for business combinations, and only applied prospectively. These changes include the following: acquisition costs must be expensed, rather than recognized as an increase in the cost of the business combination; in step acquisitions the acquirer must remeasure at fair value the investment held prior to the date that control is obtained; and there is an option to measure at fair value the minority interests of the acquiree, as opposed to the single current treatment of measuring them as the proportionate share of the fair value of the net assets acquired.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
- Revision to IAS 32: Classification of Rights Issues: otherwise meeting the definition of equity instruments in IAS 32.11 – issued to acquire a fixed number of an entity’s own non-derivative equity instrumentsinstrument for a fixed amount in any currency are classified as equity instruments, provided the offer is made pro-rata to all existing owners of the same class of the entity’s own non-derivative equity instruments.
-• Amendment to IAS 38 Intangible Assets:39 – Eligible hedged Items – This amendment provides clarification how to determinate which part can be designated as hedge accounting related to inflation and options. • Amendments to clarifyIFRS 3 - (1) Measurement of non-controlling interests: Specifies that the description of valuation techniques commonly used by entities when measuring theoption to measure non-controlling interests either at fair value or at the proportionate share of intangiblethe acquiree’s net identifiable assets acquiredat the acquisition date under IFRS 3 applies only to non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation. All other components of non-controlling interests should be measured at their acquisition date fair value, unless another measurement basis is required by IFRSs, (2) Un-replaced and voluntary replaced share based payment awards, specifies that the current requirement to measure awards of the acquirer that replace acquiree share-based payment transactions in accordance with IFRS 2 at the acquisition date (‘market-based measure’) applies also to share-based payment transactions of the acquiree that are not replaced and also specifies that the current requirement to allocate the market-based measure of replacement awards between the consideration transferred for the business combination and post-combination remuneration applies to all replacement awards regardless of whether the acquirer is obliged to replace the awards or does so voluntarily, (3) transitional requirements for contingent consideration from a business combination that areoccurred before the effective date clarifies that IAS 32, IAS 39 and IFRS 7 do not tradedapply to contingent consideration that arose from business combinations whose acquisition dates preceded the application of IFRS 3. • Amendments to IAS 27 - Requirements for transition to the upgrade of IAS 27: clarifies that the update made by IAS 21, IAS 28 and IAS 31 as a result of IAS 27 should be applied prospectively (with the exception of paragraph 35 of IAS 28 and paragraph 46 of IAS 31) in active markets. which must be applied retrospectively.• Amendment to IAS 34 - significant events and transactions: emphasises the principle in IAS 34 that the disclosure about significant events and transactions in interim periods should update the relevant information presented in the most recent annual financial report, also clarifies how to apply this principle in respect of financial instruments and their fair values. • Amendment to IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. 13 - fair value of award credit: clarifies that the ‘fair value’ of award credits should take into account: (1) the amount of discounts or incentives that would otherwise be offered to customers who have not earned award credits from an initial sale; and (2) any expected forfeitures.• Amendment to IFRIC 14 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction- This IFRIC has been amended to remedy an unintended consequence of IFRIC 14 where entities are in some circumstances not permitted to recogniserecognize prepayments of minimum funding contributions, as an asset. Entities shall apply this Interpretation prospectively for annual periods beginning on or after January 1, 2011. Standards and interpretations effective subsequent to December 31, 2011 The Company’s management estimates thatBank has not yet adopted the application of the amendments of IFRIC 14 will notfollowing new or revised IFRS or Interpretations, which have a material effect on the Company’s financial condition or results of operations. - IFRIC 17 Distributions of Non-cash Assetsbeen issued but their effective date is subsequent to Owners - The Interpretation provides guidance on the appropriate accounting treatment when an entity distributes assets other than cash as dividends to its shareholders.
- IFRIC 18 Transfers of Assets from Customers - The Interpretation addresses the accounting by recipients for transfers of property, plant and equipment from ‘customers’ and concludes that when the item of property, plant and equipment transferred meets the definition of an asset from the perspective of the recipient, the recipient should recognise the asset at its fair value on the date of these financial statements:• IFRS 9 – Financial Instruments: Recognition and Measurement – The main changes of IFRS 9 compared to IAS 39 are: (i) All recognized financial assets that are currently in the transfer, withscope of IAS 39 will be measured at either amortized cost or fair value; (ii) IFRS 9 does not retain IAS 39’s concept of embedded derivatives for hybrid contracts if the host contract is a financial asset within the scope of IFRS 9; (iii) the guidance included in IFRS 9 retains the classification criteria for financial liabilities currently contained in IAS 39. However, there are two key differences, relating to presentation and measurement, compared to IAS 39: (a) the presentation of the effects of changes in fair value attributable to a liability’s credit recognised as revenue in accordance with IAS 18 Revenue. Improvementsrisk; and (b) the elimination of the cost exemption for derivative liabilities to be settled by delivery of unquoted equity instruments. This standard is effective for annual periods beginning on or after January 1, 2013.• Amendment to IFRS ‘Improvements to IFRS’ were issued7 - clarifications of disclosures: encourages qualitative disclosures in April 2009. They contain numerous amendments to IFRS that the IASB considers non-urgent but necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes for presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. Mostcontext of the amendments are effectivequantitative disclosure required to help users in comparing the financial statements. Entities shall apply this Interpretation prospectively for annual periods beginning on or after 1 January 2013. F-11
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• The amendments to IAS 1 - clarifications of disclosures: comprehensive income (OCI) - and their classification within OCI. Because of anticipated changes in IFRS 9, IAS 19 among others, the IASB explains how to display the components that fit the requirements of this standard. The amendments are effective for reporting periods beginning on or later 1 July 2012. • IFRS 10 - Consolidated Financial Statements replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements (2008) and SIC-12 Consolidation — Special Purpose Entities by introducing a single consolidation model for all entities based on control, irrespective of the nature of the investee (so whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities). Under IFRS 10, control is based on whether an investor has i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee; and iii) the ability to use its power over the investee to affect the amount of the returns. • IFRS 11 -Joint Arrangements introduces new accounting requirements for joint arrangements, which replaces IAS 31 - Interests in Joint Ventures. According to IFRS 11, will be obligatory to use the equity method and is not allowed to choose the method of accounting for jointly controlled entity. The fundamental principle of IFRS 11 is that parts of a joint venture agreement must determine the type of joint venture in question, based on the assessment of rights and obligations and, according to the accounting for the type of joint venture. There are two types of joint ventures: - Joint Operations: Rights and obligations on the assets and liabilities related to the agreement. The parties acknowledge their assets, liabilities and related income and expenses. - Joint Venture: Rights to the net assets of the Agreement. The parties acknowledge their investments by the equity method. • IFRS 12 - Disclosures of Involvement with Other Entities requires enhanced disclosures about both consolidated entities and unconsolidated entities in which an entity has involvement. The objective of IFRS 12 is to require information so that financial statement users may evaluate the basis of control, any restrictions on consolidated assets and liabilities, risk exposures arising from involvements with unconsolidated structured entities and non-controlling interest holders' involvement in the activities of consolidated entities. • IAS 27 - Separate Financial Statements (2011) keeps the requirements relating to separate financial statements. The other portions of IAS 27(2008) are replaced by IFRS 10. • IAS 28 - Investments in Associates and Joint Ventures (2011) amended IAS 28 Investments in Associates (2008) to conform changes based on the issuance of IFRS 10, IFRS 11 and IFRS 12. The standards previously mentioned have an effective date for annual periods beginning on January 2013, with earlier application permitted so long as each of the other standards mentioned are also early applied. The early adoption for financial institutions in Brazil is subject to the pronouncements issued by the IASB, translated into Portuguese by a Brazilian entity accredited by the International Accounting Standards Committee Foundation (IASC Foundation). However, entities are permitted to incorporate any of the disclosure requirements in IFRS 12 into their financial statements without technically early applying of the others items of IFRS. On 12 May 2011, the IASB also issued IFRS 13 - Fair Value Measurement, which replaces the guidance on fair value measurement in existing IFRS accounting literature with a single standard. IFRS 13 defines fair value, provides guidance on how to determine fair value and requires disclosures about fair value measurements. However, IFRS 13 does not change the requirements regarding which items should be measured or disclosed at fair value. IFRS 13 is effective for annual periods beginning on January 2013 with early application permitted. On 16 June 2011, the IASB issued amendments to IAS 19 - Employee Benefits (2011) (the “amendments”) that change the accounting for defined benefit plans and termination benefits. The amendments require the recognition of changes in the defined benefit obligation and in plan assets when those changes occur, eliminating the corridor approach and accelerating the recognition of past service costs. Changes in the defined benefit obligation and plan assets are disaggregated into three components: service costs, net interest on the net defined benefit liabilities (assets) and remeasurements of the net defined benefit (assets). Net interest is calculated using high quality corporate Bond yield. This may be lower than the rate currently used to calculate the expected return on plan assets, resulting in a decrease in net income. The amendments are effective for annual periods beginning on 1 January 2013, with earlier application permitted. No material changesRetrospective application is required with certain exceptions. On 16 June 2011, the IASB also issued “Presentation of Items of Other Comprehensive Income” (amendments to accounting policiesIAS 1). The amendments to IAS 1 are expected as athe result of these amendments. - Revisiona joint Project with the US Financial Accounting Standards Board and provide guidance on the presentation of items contained in the comprehensive income (OCI) and their classification within OCI. The amendments are effective for reporting periods beginning on or later 1 July 2012, with earlier application permitted.On December 16, 2011, the IASB has postponed the date for mandatory adoption of IFRS 5 Non Current Assets Held for Sale9 and Discontinued Operation - Amendmenttheir disclosure items referred to clarify that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. - Revision of IFRS 8 Operating Segments - Amendment to clarify that an entity is required to disclose a measure of segment assets only if that measure is regularly reported to the chief operating decision maker.
- Revision of IAS 1 Presentation of Financial Statements - Clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or noncurrent. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditionalright to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.
- Revision of IAS 7 Statement of Cash Flows - Amendment to require that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities.
- Revision of IAS 17 Leases - Deletion of specific guidance regarding classification of leases of land, so as to eliminate inconsistency with the general guidance on lease classification. As a result, leases of land should be classified as either finance or operating using the general principles of IAS 17.
- Revision of IAS 24 Related Party Disclosures – The revision of IAS 24 clarifies the definition of related parties.
- Revision of IAS 36 Impairment of Assets - Amendment to clarify that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment as defined by paragraph 5 of IFRS 8 Operating Segments.
- Revision of IAS 39 Financial Instruments: Recognition and Measurement – Amendments to clarify (i) that prepayment options, the exercise price of which compensates the lender for loss of interest by reducing the economic loss from reinvestment risk, should be considered closely related to the host debt contract; (ii) it only applies to binding (forward) contracts between an acquirer and a vendor in a business combination to buy an acquiree at a future date, the term of the forward contract should not exceed a reasonable period normally necessary to obtain any required approvals and to complete the transaction and the exemption should not be applied to option contracts (whether or not currently exercisable) that on exercise will result in control of an entity, nor by analogy to investments in associates and similar transactions; (iii) when to recognise gains or losses on hedging instruments as a reclassification adjustment in a cash flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment clarifies that gains or losses should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects profit or loss; (iv)transient changes in impairment of financial assets as mentioned in the Exposure Draft 2009/12; and (v) changes in the requirements of derecognition of financial assets as mentioned in the Exposure Draft 2009/3.
IFRS 7 to January 2015.The Bank does not expect the adoption of the above-mentioned standards and interpretations to have a material effect on the consolidated financial statements taken as a whole, except to IFRS 9, which the Bank is analyzing the impacts from the adoption of this standard. The consolidated results and the determination of consolidated equity are influenced by the accounting policies, assumptions, estimates and measurement bases used by the management of the Bank in preparing the consolidated financial statements. The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year.of future periods. All estimates and assumptions required, in conformity with IFRS, are best estimates undertaken in accordance with the applicable standard. The main accounting policies and measurement bases are set forth in Note 2. In the consolidated financial statements estimates were occasionally made by the senior executivesmanagement of the Bank and of the consolidated entities in order to quantify certain of the assets, liabilities, income, expenses and commitments reported herein.disclosure notes. These estimates, which were made on the basis of the best information available, relate basicallymainly to the following: -• Fair value measurement of certain financial instruments are further discussed in note 2-d. • Allowance for loan losses are further discussed in note 2-h. F-12
The fair value of a financial instrument is the value at which it could be bought or sold in a current transaction between knowledgeable, willing parties on an arm’s length basis. If a quoted price in an active market is available for an instrument, the fair value is calculated based on that price.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
If there is no market price available for a financial instrument, its fair value is estimated on the basis of the price established in recent transactions involving the same or similar instruments and, in the absence thereof, on the basis of valuation techniques, using valuation techniques commonly used by the financial markets as follows:
• The present value method for valuing financial instruments permitting static hedging (principally, forwards and swaps) and loans and advances. Expected future cash flows are discounted using the interest rate curves of the applicable currencies. The interest rate curves are observable market data. • The Black-Scholes model for valuing financial instruments requiring dynamic hedging (principally structured options and other structured instruments). Certain observable market inputs are used in the Black-Scholes model to generate variables such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity, as appropriate.
• Each of the present value method and Black-Scholes models is used for valuing financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors.
• The Bank uses dynamic models similar to those used in the measurement of interest rate risk for measuring credit risk of linear instruments (such as bonds and fixed-income derivatives.
The methodology used for fair value measurements of certain financial instruments is further described in note 2.d.
- The allowance for loan losses
The Bank cover losses inherent in debt instruments not measured at fair value taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods that have not yet been allocated to specific transactions.
The Bank uses the concept of incurred loss to quantify the cost of the credit, using statistical models that consider the following three factors: “exposure at default”, “probability of default” and “loss given default”, as further discussed in note 2.g.
- The impairmentImpairment losses on certain assets other than loans (including goodwill and other tangible and intangible assets)
Certain assets, including are further discussed in note 2-m and 2-n.• Measurement of goodwill otherin a business combination are further discussed in note 2-n. • The useful life of tangible and intangible assets and equity method investments are subject to impairment review. We record impairment charges when we believe there is objective evidence of impairment, or that the cost of the assets may not be recoverable. Assessment of what constitutes impairment is a matter of significant judgment. Tangible assets are further discussed in note 2.k,
Intangible assets are further discussed in note 2.m
2-m, 2-n and 14.• Other assets are further discussed in note 2.n - The assumptions used2-k and 2-o.• Provisions, contingent assets and liabilities are further discussed in the actuarial calculation of the post-employment benefit liabilities and commitments and other obligations; The Bank provides pension plans in the form of both defined contribution plans and defined benefit plans, in accordance with IAS 1.
The actuarial valuation is dependent upon a series of assumptions; the principal ones being:
annual social security pension revision rate
annual salary growth rate, and
the method used to calculate vested commitments to current employees
note 2-q.• Post-employment benefits are further discussed in note 2.u. - The recognition2-w.• Recognition and measurementevaluation of deferred tax items. Astaxes are further discussed in note 2.x, deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the combined entities will have sufficient future taxable profits against which the deferred tax assets can be utilized. Other deferred tax assets (tax loss and tax credit carryforwards) are only recognized if it is considered probable that the combined entities will have sufficient future taxable profits against which they can be utilized. In accordance with the current regulation, the expected realization of the Banks’ tax credits, is based on the projection of future income and technical studies.
2-z.These estimates are based on current expectations and estimates on projections of future events and trends, which may affect the consolidated financial statements. The principal assumptions that may affect these estimates, in addition to those previously mentioned above, relate to the following factors: -• Changes in deposit amounts, customer basis and defaults by borrowers -borrowers;• Changes in interest rates -rates;• Changes in inflation rates -rates;• Government regulation and tax matters -matters;• Adverse legal or regulatory disputes or proceedings -proceedings;• Credit, market and other risks of lending and investment activities BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
-activities;• Changes in market values of Brazilian securities, particularly Brazilian government securities -securities; and• Changes in regional, national and international business and economic conditions e)conditions.d) Capital management The Bank’s capitalCapital management is performed atconsiders the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios using the criteria of Brazilian Central Bank. The aimobjective is to achieve aan efficient capital structure that is as efficient as possible in terms of both cost and compliance, withmeeting the requirements of regulators, ratingsthe regulatory body and contributing to achieving the goals of the classification of rating agencies and investors. Activeinvestors' expectations. The capital management includes securitizations, salessecuritization, sale of assets, preference andraising capital through issue of shares, subordinated issues of equity instrumentsliabilities and hybrid instruments.
From an economic standpoint, capital management seeks to optimize value creation at the Bank and at its different business segment. To this end, the economic capital, RORAC (return on risk-adjusted capital) and value creation data for each business segment are generated, analyzed and reported to the management committee on a quarterly basis. Within the framework of the internal capital adequacy assessment process (Pillar 2 of the Basel Capital Accord), the Group uses an economic capital measurement model with the objective of ensuring that there is sufficient capital available to support all the risks of its activity in different economic scenarios, with the solvency levels agreed upon by the Group. In order to adequately manage the Bank’s capital, it is essential to estimate and analyze future needs, in anticipation of the various phases of the business cycle. Projections of regulatory and economic capital are made based in financial projections (balance sheet, income statement, etc.) and on macroeconomic scenarios estimated by the Economic Research Service. These estimates are used by the Bank as a reference to plan the management actions (issues, securitizations, etc.) required to achieve its capital targets. In addition, certain stress scenarios are simulated in order to assess the availability of capital in adverse situations. These scenarios are based on sharp fluctuations in macroeconomic variables, GDP, interest rates, stock market indexes, etc. that mirror historical crises that could happen again.
The accounting policies and measurement bases applied in preparing the consolidated financial statements were as follows: a) Foreign currency transactions The individual financial statements of each entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Brazilian Reais, the functional currency of the Bank and subsidiaries and the presentation currency for the consolidated financial statements. The assets and liabilities that are monetary items are converted by exchange rates at the end of the period, the non-monetary items are stated at historical cost in foreign exchange rates at the date of such transactions and the income statement balances is converted by the average exchange rates for the period. The exchange differences arising on the translation of foreign currency balances to the functional currency are generally recognized at their net amount under “Exchange differences” in the consolidated income statement, except for exchange differences arising on financial instruments at fair value through profit or loss, which are recognized in the consolidated income statement without distinguishing them from other changes in fair value, and for exchange differences arising on non-monetary items measured at fair value through equity, which are recognized under “Valuation adjustments - Exchange differences”. value.b)Basis of consolidation “Subsidiaries” are defined as entities over which the Bank has the capacity to exercise control; this capacitycontrol. It is in general but not exclusively, presumed to exist whenunderstood as defining control the Parent owns directly or indirectly half or more of the voting power of the investee or, even if this percentage is lower , when as in the case of agreements with shareholders of the investee,designated the Bank is granted control. Control is the poweras controller to govern the financial and operating policies of an entity, as stipulated by the law, the Bylaws or agreement, so as to obtain benefits from its activities. The financial statements of the subsidiaries are fully consolidated with those of the Bank. Accordingly, all balances and transactions between consolidated entities are eliminated on consolidation. F-13
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
On acquisition of a subsidiary, its assets, liabilities and contingent liabilities are recognized at fair value at the date of acquisition. Any positive differences between the acquisition cost and the fair values of the identifiable net assets acquired are recognized as goodwill (note 13). Negative differences are charged to income on the date of acquisition.
Additionally, the share of third parties of the Bank’s equity is presented under “Minority“Non-controlling interests” in the consolidated balance sheet (note 24)26). Their share of the profit for the year is presented under “Profit attributable to minoritynon-controlling interests” in the consolidated income statement. Changes in the Bank’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Bank’s interests and the minoritynon-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. The results of subsidiaries acquired during the year are included in the consolidated income statement from the date of acquisition to year-end. Similarly, the results of subsidiaries disposed of during the year are included in the consolidated income statement from the beginning of the year to the date of disposal. The Appendix I contains significant information on these entities. ii. Interests in joint ventures (jointly controlled entities) and associates “Joint ventures” are deemed to be ventures that are not subsidiaries but which are jointly controlled by two or more unrelated entities. This is evidenced by contractual arrangements whereby two or more entities (“ventures”) acquire interests in entities (jointly controlled entities) or undertake operations or hold assets so that strategic financial and operating decisions affecting the joint venture require the unanimous consent of the venturers. Associates are entities over which the Bank is in a position to exercise significant influence, but not control or joint control, usually because it holds 20% or more of the voting power of the investee. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
In the consolidated financial statements, interest in joint ventures and investments in associates are accounted for using the equity method, i.e. at the Bank’s share of net assets of the investee, after taking into account the dividends received there from and other equity eliminations. In the case of transactions with an associate, the related profits or losses are eliminated to the extent of the Bank’s investment in the associate. Relevant information regarding companies accounted for under the equity method by the Bank is provided in note 11.iii. Special purpose entities When the Bank incorporates special purpose entities, or holds ownership interests therein, to enable its customers to access certain investments, or for the transfer of risks or other purposes, it determines,Bank assesses, using internal criteria and procedures, and taking into consideration the applicable legislation, whether control (as defined above) exists and, therefore, whether these entities should be consolidated. These criteria and procedures take into account, inter alia,among other things, the risks and rewards retained by the Bank and, accordingly, all relevant matters are taken into consideration, including any guarantees granted or any losses associated with the collection of the related assets retained by the Bank. These entities include the securitization special purpose vehicles, which are fully consolidated in the case of the SPVs over which, based on the aforementioned analysis, it is considered that the Bank continues to exercise control. iv.Business combinations, acquisitions and disposals A business combination is the bringing together of two or more separate entities or economic units into one single entity or group of entities and is accounted for in accordance with IFRS 3, “Business Combinations”. Business combinations are performed whereby the Bank obtains control over an entity are recognized for accounting purposes as follows: • The Bank measures the cost of the business combination, defined as the fair value of the assets given, the liabilities incurred and the equity instruments issued, if any. • The fair values of the assets, liabilities and contingent liabilities of the acquired entity or business, including any intangible assets which might not have been recognized by the acquiree, are estimated and recognized in the consolidated balance sheet. • Any positive difference between the net fair value of the assets, liabilities and contingent liabilities of the acquiree and the cost of the business combination is recognized as Goodwill based on future economic benefits. Appendix I include relevant information on the Bank companies that were consolidated. Similar information regarding companies accounted for under the equity method by the Bank is provided in note 11.
Also, note 3 below includes a description of the most significant transaction carried out in 2008 and 2009. 2011.c)Definitions and classification of financial instruments A “financial instrument” is any contract that gives rise to a financial asset of one entity and, simultaneously, to a financial liability or equity instrument of another entity. An “equity instrument” is any agreement that evidences a residual interest in the assets of the issuing entity after deducting all of its liabilities. A “financial derivative” is a financial instrument whose value changes in response to the change in an observable market variable (such as an interest rate, foreign exchange rate, financial instrument price, market index or credit rating), whose initial investment is very small compared with other financial instruments with a similar response to changes in market factors, and which is generally settled at a future date. “Hybrid financial instruments” are contracts that simultaneously include a non-derivative host contract together with a derivative, known as an embedded derivative, that is not separately transferable and has the effect that some of the cash flows of the hybrid contract vary in a way similar to a stand-alone derivative. The following transactions are not treated for accounting purposes as financial instruments. -instruments:• Investments in subsidiaries, jointly controlled entities and associates (note 11). -• Rights and obligations under employee benefit plans (note 21)22). F-14
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
ii. Classification of financial assets for measurement purposes Financial assets are initially classified into the various categories used for management and measurement purposes, unless they have to be presented as “Non-current assets held for sale” or they relate to “Cash and balances with the Brazilian Central Bank”, “Hedging derivatives” and “Investments”“Investment in associates”, which are reported separately. Financial assets are included for measurement purposes in one of the following categories: -• Financial assets held for trading (at fair value through profit or loss): this category includes the financial assets acquired for the purpose of generating a profit in the near term from fluctuations in their prices and financial derivatives that are not designated as hedging instruments. -• Other financial assets at fair value through profit or loss: this category includes hybrid financial assets not held for trading that are measured entirely at fair value and financial assets not held for trading that are included in this category in order to obtain more relevant information, either because this eliminates or significantly reduces recognition or measurement inconsistencies (“accounting mismatches”) that would arise from measuring assets or liabilities or recognizing the gains or losses on themorlossesonthem on different bases, or because a group of financial assets or financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided on that basis to the Bank’s key management personnel. Financial instruments included in this category (and “Other financial liabilities at fair value through profit or loss”) are permanently subject to an integrated anda consistent system of measuring, managing and controlling risks and returns that enables all the financial instruments involved to be monitored and identified and allows the effective reduction of risk to be checked. Financial assets may only be included in this category on the date they are acquired or originated. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
-• Available-for-sale financial assets: this category includes debt instruments not classified as “Held-to-maturity investments”, “Loans and receivables” or “Financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as “Financial assets held for trading” or as “Other financial assets at fair value through profit or loss”. Available-for-sale financial assets are stated at fair value. This category includes debt instruments not classified as “Held-to-maturity investments”, “Loans and receivables” or “Financial assets at fair value through profit or loss”, and equity instruments issued by entities other than subsidiaries, associates and jointly controlled entities, provided that such instruments have not been classified as “Financial assets held for trading” or as “Other financial assets at fair value through profit or loss”. Gains and losses arising from changes in fair value are recognisedrecognized in "Equity" in the line item "Valuation Adjustment" with the exception of impairment losses, which are recognisedrecognized in profit or loss. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in "Equity - Valuation-Valuation Adjustments" is reclassified to profit or loss. -• Loans and receivables: this category includes financing granted to third parties, based on their nature, irrespective of the type of borrower and the form of financing, including finance lease transactions in which the consolidated entities act as lessors. The consolidated entities generally intend to hold the loans and credits granted by them until their final maturity and, therefore, they are presented in the consolidated balance sheet at their amortized cost (which includes the required adjustments to reflect estimated impairment losses). -• Held-to-maturity investments: this category includes debt instruments traded in an active market, with fixed maturity and with fixed or determinable payments, for which the Bank has both the intention and proven ability to hold to maturity. These investments are measured at amortisedamortized cost less any impairment, with revenue recognisedrecognized on an effective yield basis. iii. Classification of financial assets for presentation purposes Financial assets are classified by nature into the following items in the consolidated balance sheet: -• Cash and balances with the Brazilian Central Bank: cash balances and balances receivable on demand relating to deposits with the Brazilian Central Bank. -• Loans and advances:receivables: includes the balance of loans granted by the Bank, other than those represented by securities, as well as finance lease receivables and other debit balances of a financial nature in favor of the Bank, such as checks drawn on credit institutions, balances receivable from clearing houses and settlement agencies for transactions on the stock exchange and organized markets, bonds given in cash, capital calls, fees and commissions receivable for financial guarantees and debit balances arising from transactions not originated in banking transactions and services, such as the collection of rentals and similar items. • Loans and advances toamounts due from credit institutions: credit of any nature in the name of credit institutions. • Loans and advances to customers: includes the debit balances of all the remaining credit and loans granted by the Bank, other than those represented by securities, including money market operations through central counterparties. -• Debt instruments: bonds and other securities that represent a debt for their issuer, that generate an interest return, and that are in the form of certificates or book entries. -• Equity instruments: financial instruments issued by other entities, such as shares, which have the nature of equity instruments for the issuer, unless they are investments in subsidiaries, jointly controlled entities or associates. Investment fund units are included in this item. -• Trading derivatives: includes the fair value in favor of the Bank of derivatives which do not form part of hedge accounting. -• Hedging derivatives: includes the fair value in favor of the Bank of derivatives designated as hedging instruments in hedge accounting. -• Investments in associates: includes the investments in the share capital of associates. F-15
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
iv. Classification of financial liabilities for measurement purposes Financial liabilities are classified for measurement purposes into one of the following categories: -• Financial liabilities held for trading (at fair value through profit or loss): this category includes the financial liabilities issued for the purpose of generating a profit in the short term from fluctuations in their prices, financial derivatives not considered to qualify for hedge accounting and financial liabilities arising from the outright sale of financial assets purchased under resale agreements or borrowed (“shortShort positions”). -• Other financial liabilities at fair value through profit or loss: financial liabilities are included in this category when more relevant information is obtained, either because this eliminates or significantly reduces recognition or measurement inconsistencies (“accounting mismatches”) that would arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases, or because a group of financial liabilities or financial assets and liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the Bank is provided on that basis to the Bank’s key management personnel. -• Financial liabilities at amortized cost: financial liabilities, irrespective of their instrumentation and maturity, not included in any of the above-mentioned categories which arise from the funding-taking activities carried on by financial institutions. v. Classification of financial liabilities for presentation purposes Financial liabilities are classified by nature into the following items in the consolidated balance sheet: -• Deposits from the Brazilian Central Bank: deposits of any nature received from the Brazilian Central Bank. -• Deposits from credit institutions: deposits of any nature, including creditBorrowings and Onlendings and money market operationsfunding received in the name offrom credit institutions. -• Customer deposits: includes all repayable balances received in cash by the Bank, other than those represented by marketable securities,deposits of any nature such as demand deposits, saving deposits and time deposits including money market operations through central counterparties, subordinated liabilities and depositsoperation received from the Brazilian Central Bank and credit institutions. -customer.• Marketable debt securities: includes the amount of bonds and other debt represented by marketable securities, other than subordinated liabilities. -• Trading derivatives: includes the fair value, with a negative balance for the Bank, of derivatives which do not form part of hedge accounting. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
-• Short positions: includes the amount of financial liabilities arising from the outright sale of financial assets purchased under reverse repurchase agreements or borrowed. -• Subordinated liabilities: amount of financing received which, for the purposes of payment priority, ranks behind ordinary debt. This category also includes the financial instruments issued by the Bank which, although equity for legal purposes, do not meet the requirements for classification as equity. -• Other financial liabilities: includes the amount of payment obligations having the nature of financial liabilities not included in other items, and liabilities under financial guarantee contracts, unless they have been classified as doubtful. -• Hedging derivatives: includes the fair value of the Bank’s liability in respect of derivatives designated as hedging instruments in hedge accounting. d) Measurement of financial assets and liabilities and recognition of fair value changes In general, financial assets and liabilities are initially recognized at fair value which, in the absence of evidence to the contrary, is deemed to be the transaction price. Financial instruments not measured at fair value through profit or loss are, adjusted by the transaction costs. Financial assets and liabilities are subsequently measured at each period-end as follows: i. Measurement of financial assets Financial assets are measured at fair value, without deducting any transaction costs that may be incurred on their disposal, except for loans and receivables, held-to-maturity investments, equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those equity instruments as their underlying and are settled by delivery of those instruments. The “fair value” of a financial instrument on a given date is taken to be the amount for which it could be bought or sold on that date by two knowledgeable, willing parties in an arm's length transaction acting prudently. The most objective and common reference for the fair value of a financial instrument is the price that would be paid for it on an active, transparent and deep market (“quoted price” or “market price”). If there is no market price for a given financial instrument, its fair value is estimated on the basis of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it. All derivatives are recognized in the balance sheet at fair value from the trade date. If the fair value is positive, they are recognized as an asset and if the fair value is negative, they are recognized as a liability. The fair value on the trade date is deemed, in the absence of evidence to the contrary, to be the transaction price. The changes in the fair value of derivatives from the trade date are recognized in “Gains/losses on financial assets and liabilities” in the consolidated income statement. Specifically, the fair value of standard financial derivatives included in the portfolios of financial assets or liabilities held for trading is deemed to be their daily quoted price and if, for exceptional reasons, the quoted price cannot be determined on a given date, these financial derivatives are measured using methods similar to those used to measure over the counter “OTC” derivatives. The fair value of OTC derivatives is taken to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of measurement (“present value” or “theoretical close”) using valuation techniques commonly used by the financial markets: “net present value” (NPV), option pricing models and other methods. “Loans and receivables” and “Held-to-maturity investments” are measured at amortized cost using the effective interest method. “Amortized cost” is understood to be the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the cumulative amortization (taken to the income statement) of the difference between the initial cost and the maturity amount. In the case of financial assets, amortized cost furthermore includes any reductions for impairment or uncollectibility. In the case of loans and receivables hedged in fair value hedges, the changes in the fair value of these assets related to the risk or risks being hedged are recognized. F-16
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The “effective interest rate” is the discount rate that exactly matches the initial amount of a financial instrument to all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date plus, where applicable, the fees and transaction costs that, because of their nature, form part of their financial return. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date. Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying and are settled by delivery of those instruments are measured at acquisition cost adjusted, where appropriate, by any related impairment loss. The amounts at which the financial assets are recognized represent, in all material respects, the Bank’s maximum exposure to credit risk at each reporting date. Also, the Bank has received collateral and other credit enhancements to mitigate its exposure to credit risk, which consist mainly of mortgage guarantees, cash collateral, equity instruments and personal security, assets leased out under leasing and renting agreements, assets acquired under repurchase agreements, securities loans and derivatives. ii. Measurement of financial liabilities In general, financial liabilities are measured at amortized cost, as defined above, except for those included under “Financial liabilities held for trading” and “Other financial liabilities at fair value through profit or loss” and financial liabilities designated as hedged items (or hedging instruments) in fair value hedges, which are measured at fair value. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
iii. Valuation techniques The following table shows a summary of the fair values at 2009 and 2008 year-end, of the financial assets and liabilities on the period ended December 31, 2011, 2010 and 2009 indicated below, classified on the basis of the various measurement methods used by the Bank to determine their fair value: | | | | | | | Thousands of Reais | | 2011 | | | 2010 | | | Published Price Quotations in Active Markets (Level 1) | Internal Models (Level 2) | Total | Published Price Quotations in Active Markets (Level 1) | Internal Models (Level 2) | Total | | Financial assets held for trading | 448,210 | 29,453,285 | 29,901,495 | 3,283,931 | 21,537,434 | 24,821,365 | Other financial assets at fair value through profit or loss | 374,519 | 290,850 | 665,369 | 17,423,359 | 516,422 | 17,939,781 | Available-for-sale financial assets | 608,901 | 43,999,300 | 44,608,201 | 1,348,989 | 45,857,030 | 47,206,019 | Hedging derivatives (assets) | - | 80,708 | 80,708 | - | 115,640 | 115,640 | Financial liabilities held for trading | 337,628 | 4,709,660 | 5,047,288 | 29,339 | 4,755,314 | 4,784,653 | Hedging derivatives (liabilities) | - | 36,071 | 36,071 | - | 112 | 112 | | Thousands of Reais | | | | | 2009 | | | | | | Published Price Quotations in Active Markets (Level 1) | Internal Models (Level 2) | Total | | | | | | | | Financial assets held for trading | | | | 2,544,441 | 17,571,211 | 20,115,652 | Other financial assets at fair value through profit or loss | | | | 13,787,109 | 2,507,351 | 16,294,460 | Available-for-sale financial assets | | | | 1,633,945 | 44,772,175 | 46,406,120 | Hedging derivatives (assets) | | | | - | 163,425 | 163,425 | Financial liabilities held for trading | | | | 33,025 | 4,401,709 | 4,434,734 | Other financial liabilities at fair value through profit or loss | | | | - | 1,795 | 1,795 | Hedging derivatives (liabilities) | | | | - | 9,806 | 9,806 |
Thousands of Reais | | 2009 | | | 2008 | | | | Published Price Quotations in Active Markets | | | Internal Models | | | Total | | | Published Price Quotations in Active Markets | | | Internal Models | | | Total | | | | Financial assets held for trading | | | 2,544,441 | | | | 17,571,211 | | | | 20,115,652 | | | | 959,609 | | | | 19,026,391 | | | | 19,986,000 | | Other financial assets at fair value through profit or loss | | | 13,787,109 | | | | 2,507,351 | | | | 16,294,460 | | | | - | | | | 5,574,961 | | | | 5,574,961 | | Available-for-sale financial assets | | | 1,633,945 | | | | 44,772,175 | | | | 46,406,120 | | | | 1,145,483 | | | | 29,590,198 | | | | 30,735,681 | | Hedging derivatives (assets) | | | - | | | | 163,425 | | | | 163,425 | | | | - | | | | 106,321 | | | | 106,321 | | | | Financial liabilities held for trading | | | 33,025 | | | | 4,401,709 | | | | 4,434,734 | | | | 45,781 | | | | 11,163,819 | | | | 11,209,600 | | Other financial liabilities at fair value through profit or los | | | - | | | | 1,795 | | | | 1,795 | | | | - | | | | 307,376 | | | | 307,376 | | Hedging derivatives (liabilities) | | | - | | | | 9,806 | | | | 9,806 | | | | - | | | | 264,771 | | | | 264,771 | |
Financial instruments at fair value, determined on the basis of public price quotations in active markets (Level 1), include government debt securities, private-sector debt securities, securitized assets, shares, short positions and fixed-income securities issued. In cases where price quotations cannot be observed, management makes its best estimate of the price that the market would set using its own internal models. In most cases, these models use data based on observable market parameters as significant inputs (Level 2). In order to make these estimates, various techniques are employed, including the extrapolation of observable market data and extrapolation techniques. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, unless the fair value of the instrument can be obtained from other market transactions performed with the same or similar instruments or can be measured by using a valuation technique in which the variables used include only observable market data, mainly interest rates. There were no reclassifications between the levelLevel 1 and levelLevel 2 in the exercise ended on December 31, 20092011, 2010 and 2008. 2009.The Level 3 records financial assets and liabilities which are not used observable market data to make the measurement. On December 31, 20092011, 2010 and 20082009 the Bank did not have any financial instrument classified as Level 3. F-17
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The main techniques used at December 31, 20092011 by the Bank’s internal models (Level 2) to determine the fair value of the financial instruments detailed in the foregoing table are as follows: • In the valuation of financial instruments permitting static hedging (basically forwards and swaps) and in the valuation of loans and advances to customers, the “present value” method is used. Estimated future cash flows are discounted using the interest rate curves of the related currencies. The interest rate curves are generally observable market data. • In the valuation of financial instruments requiring dynamic hedging (basically structured options and other structured instruments), the Black-Scholes model is normally used. Where appropriate, observable market inputs are used to obtain factors such as the bid-offer spread, exchange rates, volatility, correlation between indexes and market liquidity. • In the valuation of certain financial instruments exposed to interest rate risk, such as interest rate futures, caps and floors, the present value method (futures) and the Black-Scholes model (plain vanilla options) are used. The main inputs used in these models are basically observable market data, including the related interest rate curves, volatilities, correlations and exchange rates. • In the case of linear instruments (e.g. credit risk and fixed-income derivatives), credit risk is measured using dynamic models similar to those used in the measurement of interest rate risk. In the case of non-linear instruments, if the portfolio is exposed to credit risk (e.g. credit derivatives), the joint probability of default is determined using the Standard Gaussian Copula model. The main inputs used to determine the underlying cost of credit of credit derivatives are quoted credit risk premiums and the correlation between the quoted credit derivatives of various issuers. The fair value of the financial instruments arising from the aforementioned internal models takes into account, inter alia, the contract terms and observable market data, which include interest rates, credit risk, exchange rates, the quoted market price of raw materials and shares, volatility and prepayments. The valuation models are not significantly subjective, since these methodologies can be adjusted and gauged, as appropriate, through the internal calculation of fair value and the subsequent comparison with the related actively traded price. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Set forth below are the financial instruments at fair value whose measurement was based on internal models (Level 2) at December 31, 2009.: | | | | | | | | | Thousands of Reais | | | | | | | Fair Values Calculated Using Internal | | | | | Models | | | | | 2011 | 2010 | 2009 | Valuation Techniques | Main Assumptions | ASSETS: | | | | | | Financial assets held for trading | 29,453,285 | 21,537,434 | 17,571,211 | | | Loans and amounts due from credit institutions | - | 47,662 | 67,170 | Present Value Method | Observable market data (interest and discount rates) | Debt and equity instruments | 25,298,803 | 16,472,413 | 12,554,035 | Present Value Method | Observable market data (interest and discount rates) | Trading derivatives | 4,154,482 | 5,017,359 | 4,950,006 | | | Hedging derivatives | 80,708 | 115,640 | 163,425 | | | Swaps | 80,708 | 115,640 | 163,425 | Present Value Method | Observable market data (interest rates) | Other financial assets at fair value throughprofit or loss | 290,850 | 516,422 | 2,507,351 | | | Loans and amounts due from credit institutions | 60,813 | 292,034 | 1,907,265 | Present Value Method | Observable market data (interest and discount rates) | Loans and advances to customers | - | - | 389,113 | Present Value Method | Observable market data (interest and discount rates) | Debt instruments | 230,037 | 224,388 | 210,973 | Present Value Method | Observable market data (interest and discount rates) | Available-for-sale financial assets | 43,999,300 | 45,857,030 | 44,772,175 | | | Debt and equity instruments | 43,999,300 | 45,857,030 | 44,772,175 | Present Value Method | Observable market data (interest and discount rates) | | LIABILITIES: | | | | | | Financial liabilities held for trading | 4,709,660 | 4,755,314 | 4,401,709 | | | Trading derivatives | 4,709,660 | 4,755,314 | 4,401,709 | | | Hedging derivatives | 36,071 | 112 | 9,806 | | | Swaps | 36,071 | 112 | 9,806 | Present Value Method | Observable market data (interest and exchange rates) | Other financial liabilities at fair value throughprofit or loss | - | - | 1,795 | Present Value Method | Observable market data (interest and exchange rates) |
F-18
| Fair Values Calculated
Using Internal Models
| | Valuation Techniques | | Main Assumptions | ASSETS: | | | | | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | Financial assets held for trading | 17,571,211 | | | | | Loans and advances to credit institutions | 67,170 | | Present Value Method | | Observable market data (interest and discount rates) | Debt and equity instruments | 12,554,035 | | Present Value Method | | Observable market data (interest and discount rates) | Trading derivatives | 4,950,006 | | | | | Swaps | 3,998,734 | | Present Value Method | | Observable market data, liquidity (interest and exchange rates) | Exchange rate options | 288,080 | | Black-Scholes Model | | Observable market data, liquidity (exchange rates) | Interest rate options | 293,198 | | Black-Scholes Model | | Observable market data, liquidity, correlation (interest rates) | Exchange rate futures | 342,681 | | Present Value Method | | Observable market data, liquidity (exchange rates) | Stock options | 27,313 | | Black-Scholes Model | | Observable market data, liquidity, correlation (shares and ratios) | | Hedging derivatives | 163,425 | | | | | Swaps | 163,425 | | Present Value Method | | Observable market data (interest rates) | | Other financial assets at fair value through | 2,507,351 | | | | | profit or loss | | | | | | Loans and advances to credit institutions | 1,907,265 | | Present Value Method | | Observable market data (interest and discount rates) | Loans and advances to customers | 389,113 | | Present Value Method | | Observable market data (interest and discount rates) | Debt and equity interests | 210,973 | | Present Value Method | | Observable market data (interest and discount rates) | | Available-for-sale financial assets | 44,772,175 | | | | | Debt and equity instruments | 44,772,175 | | Present Value Method | | Observable market data (interest and discount rates) | | LIABILITIES: | | | | | | Financial liabilities held for trading | 4,401,709 | | | | | Trading derivatives | 4,401,709 | | | | | Swaps | 3,076,202 | | Present Value Method | | Observable market data, liquidity (interest and exchange rates) | Exchange rate options | 450,836 | | Black-Scholes Model | | Observable market data, liquidity (exchange rates) | Interest rate options | 251,618 | | Black-Scholes Model | | Observable market data, liquidity, correlation (interest rates) | Interest rate and investment futures | 589,780 | | Present Value Method | | Observable market data (interest rates) | Stock options | 33,273 | | Black-Scholes Model | | Observable market data, liquidity, correlation (shares and ratios) | | Hedging derivatives | 9,806 | | | | | Swaps | 9,806 | | Present Value Method | | Observable market data (interest and exchange rates) | | Other financial liabilities at fair value through | 1,795 | | Present Value Method | | Observable market data (interest and discount rates) | profit or loss | | | | | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | Thousands of Reais | | | 2011 | | | | | Effect of reasonable changes of assumptions on fair values | | | | | (1) | | | | | More favorable | Less favorable | Trading derivatives (net) | 2011 | Valuation Techniques | Main Assumptions | | | | Swaps | (285,167) | Present Value Method | Observable market data, liquidity (interest and exchange rates) | 53,554 | (53,554) | Exchange rate options | 167,556 | Black-Scholes Model | Observable market data, liquidity (exchange rates) | 507 | (507) | Interest rate options | (347,913) | Black-Scholes Model | Observable market data, liquidity, correlation (interest rates) | 212 | (212) | Exchange rate futures | 108,987 | Present Value Method | Observable market data, liquidity (exchange rates) | - | - | Stock options | (198,641) | Black-Scholes Model | Observable market data, liquidity, correlation (shares and ratios) | 5,334 | (5,334) |
(1) The methodology applied is related to the assumptions of changes in fair value in case of necessity to discard a position, which is directly related to the liquidity of each market. In this context, instruments / markets with high liquidity are exempted from such estimates, for the other instruments such estimates are based on internal methodologies that generate multiplier, taking into consideration one or more of the following, as applicable: (i) observed spread between the Bid / Offer (ii) liquidity factor (trading) in different risk factors; (iii) term of the position; (iv) size of the position; and (v) in the case of options, the price in relation to changes in the parameters of volatility (vega). For linear products, the Effect of reasonable changes of assumptions on fair values symmetrically (more favorable and less favorable) refers to the variability of price in relation to changes in interest rate used in their pricing and in the case of options, the variability of its price in relation to changes in the parameters of volatility (vega). The use of observable market data assumes that the markets in which the Bank operates are functioning efficiently and, therefore, that these data are representative. The main assumptions used in the measurement of the financial instruments included in the foregoing table that were valued by means of internal models employing unobservable market data are as follows: • Correlation: the assumptions relating to the correlation between the value of quoted and unquoted assets are based on historical correlations between the impact of adverse changes in market variables and the corresponding valuation of the associated unquoted assets. The measurement of the assets will vary depending on whether a more or less conservative scenario is selected. • Dividends: the estimates of the dividends used as inputs in the internal models are based on the expected dividend payments of the issuers. Since the dividend expectations can change or vary depending on the source of the price (normally historical data or market consensus for the measurement of options) and the companies’ dividend policies can vary, the valuation is adjusted to the best estimate of the reasonable dividend level expected in more or less conservative scenarios. • Liquidity: the assumptions include estimates in response to market liquidity. For example, they take market liquidity into consideration when very long-term estimates of exchange rates or interest rates are used, or when the instrument is part of a new or developing market where, due to the absence of market prices that reflect a reasonable price for these products, the standard valuation methods and the estimates available might give rise to less precise results in the measurement of these instruments at that time. iv. Recognition of fair value changes As a general rule, changes in the carrying amount of financial assets and liabilities are recognized in the consolidated income statement, distinguishing between those arising from the accrual of interest and similar items -which are recognized under “Interest and similar income” or “Interest expense and similar charges”, as appropriate- andappropriate-and those arising for other reasons, which are recognized at their net amount under “Gains/losses“Gains (losses) on financial assets and liabilities”liabilities (net)”. Adjustments due to changes in fair value arising from Available-for-sale financial assets are recognized temporarily in stockholders equity under “Valuation adjustments - Available-for-sale financial assets”adjustments”. Items charged or credited to this account remain in the Bank’s consolidated stockholders equity until the related assets are derecognized, whereupon they are charged to the consolidated income statement. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
v. Hedging transactions The consolidated entities use financial derivatives for the following purposes: i) to facilitate these instruments to customers who request them in the management of their market and credit risks; ii) to use these derivatives in the management of the risks of the Bank entities' own positions and assets and liabilities (“hedging derivatives”); and iii) to obtain gains from changes in the prices of these derivatives (“tradingfinancial derivatives”). Financial derivatives that do not qualify for hedge accounting are treated for accounting purposes as trading derivatives. A derivative qualifies for hedge accounting if all the following conditions are met: 1. | The derivative hedges one of the following three types of exposure: | | | a. | Changes in the fair value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”); | | | b. | Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”); | | | c. | The net investment in a foreign operation (“hedge of a net investment in a foreign operation”). | | | 2. | It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that: | | | a. | At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”). | | | b. | There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (“retrospective effectiveness”). |
F-19
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a. Changes in the fair value of assets and liabilities due to fluctuations, among others, in the interest rate and/or exchange rate to which the position or balance to be hedged is subject (“fair value hedge”);
b. Changes in the estimated cash flows arising from financial assets and liabilities, commitments and highly probable forecast transactions (“cash flow hedge”).
c. The net investment in a foreign operation (“hedge of a net investment in a foreign operation”).
2. It is effective in offsetting exposure inherent in the hedged item or position throughout the expected term of the hedge, which means that:
a. At the date of arrangement the hedge is expected, under normal conditions, to be highly effective (“prospective effectiveness”).
b. There is sufficient evidence that the hedge was actually effective during the whole life of the hedged item or position (“retrospective effectiveness”).
3. There must be adequate documentation evidencing the specific designation of the financial derivative to hedge certain balances or transactions and how this effective hedge was expected to be achieved and measured, provided that this is consistent with the Bank’s management of own risks. The changes in value of financial instruments qualifying for hedge accounting are recognized as follows: a. In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items (attributable to the type of risk being hedged) are recognized directly in the consolidated income statement. b. In cash flow hedges, the effective portion of the change in value of the hedging instrument is recognized temporarily in stockholders equity under “Valuation adjustments - Cash flow hedges” until the forecast transactions occur, when it is recognized in the consolidated income statement, unless, if the forecast transactions result in the recognition of non-financial assets or liabilities, it is included in the cost of the non-financial asset or liability. The ineffective portion of the change in value of hedging derivatives is recognized directly in the consolidated income statement. c. The ineffective portion of the gains and losses on the hedging instruments of cash flow hedges and hedges of a net investment in a foreign operation are recognized directly under “Gains/losses“Gains (losses) on financial assets and liabilities”liabilities (net)” in the consolidated income statement. If a derivative designated as a hedge no longer meets the requirements described above due to expiration, ineffectiveness or for any other reason, the derivative is classified as a trading derivative. When fair value hedge accounting is discontinued, the adjustments previously recognized on the hedged item are transferred to profit or loss at the effective interest rate recalculatedre-calculated at the date of hedge discontinuation. The adjustments must be fully amortized at maturity. When cash flow hedges are discontinued, any cumulative gain or loss on the hedging instrument recognized in stockholders equity under “Valuation adjustments” (from the period when the hedge was effective) remains recognized in stockholders equity until the forecast transaction occurs at which time it is recognized in profit or loss, unless the transaction is no longer expected to occur, in which case any cumulative gain or loss is recognized immediately in profit or loss. e) Derecognition of financial assets and liabilities The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards associated with the transferred assets are transferred to third parties: 1. If the Bank transfers substantially all the risks and rewards to third parties - -unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option that is deeply out of the money, securitization of assets in which the transferor does not retain a subordinated debt or grant any credit enhancement to the new holders, and other similar cases-, the transferred financial asset is derecognizedwritten off and any rights or obligations retained or created in the transfer are recognized simultaneously. 2. If the Bank retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities lending agreement in which the borrower undertakes to return the same or similar assets, and other similar cases-, the transferred financial asset is not derecognizedwritten off and continues to be measured by the same criteria as those used before the transfer. However, the following items are recognized: a. An associated financial liability, for an amount equal to the consideration received; this liability is subsequently measured at amortized cost. b. The income from the transferred financial asset not derecognizedwritten off and any expense incurred on the new financial liability. 3. If the Bank neither transfers nor retains substantially all the risks and rewards associated with the transferred financial asset -sale of financial assets with a purchased call option or written put option that is not deeply in or out of the money, securitization of assets in which the transferor retains a subordinated debt or other type of credit enhancement for a portion of the transferred asset, and other similar cases-, the following distinction is made: a. If the transferor does not retain control of the transferred financial asset, the asset is derecognizedwritten off and any rights or obligations retained or created in the transfer are recognized. b. If the transferor retains control, it continues to recognize the transferred financial asset for an amount equal to its exposure to changes in value and recognizes a financial liability associated with the transferred financial asset. The net carrying amount of the transferred asset and the associated liability is the amortized cost of the rights and obligations retained, if the transferred asset is measured at amortized cost, or the fair value of the rights and obligations retained, if the transferred asset is measured at fair value. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Accordingly, financial assets are only derecognizedwritten off when the rights on the cash flows they generate have been extinguished or when substantially all the inherent risks and rewards have been transferred to third parties. Similarly, financial liabilities are only derecognizedwritten off when the obligations they generate have been extinguished or when they are acquired, with the intention either to cancel them or to resell them. f) Offsetting of financial instruments f)Financial asset and liability balances are offset, i.e. reported in the consolidated balance sheet at their net amount, only if the Bank and their subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on a net basis, or to realize the asset and settle the liability simultaneously. g) Regular way purchases of financial assets Regular way purchases of financial assets are recognized on trade date. The assets are derecognized when the rights to receive cash flows have expired or the Bank has transferred substantially all the risks and rewards of ownership. F-20
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
h)Impairment of financial assets A financial asset is considered to be impaired and therefore its carrying amount is adjusted to reflect the effect of impairment when there is objective evidence that events have occurred which: - In the case of debt instruments (loans and debt securities), give• Give rise to an adverse impact on the future cash flows that were estimated at the transaction date. - Indate, in the case of equitydebt instruments mean(loans and debt securities).• Mean that their carrying amount cannot be fully recovered. recovered, in the case of equity instruments.As a general rule, when the events above are observed, the carrying amount of impaired financial instruments is adjusted withby recording a charge toprovision for losses on debts expense as "Losses on financial assets (net)" in the consolidated income statement for the period in which the impairment becomes evident, and thestatement. The reversal if any, of previously recognized impairmentrecorded losses is recognized in the consolidated income statement forin the period in which the impairment is reversed or reduced. and decrease can be related objectively to an event of recovery.Balances are deemed to be impaired, and the interest accrual is suspended, normally, after 60 days late, when there are reasonable doubts as to their full recovery and/or the collection of the related interest for the amounts and on the dates initially agreed upon, after taking into account the guarantees received by the consolidated entities to secure (fully or partially) collection of the related balances. Collections relating to impaired loans and advances are used to recognize the accrued interest and the remainder, if any, to reduce the principal amount outstanding. The amount of the financial assets that would be deemed to be impaired had the conditions thereof not been renegotiated is not material with respect to the Bank’s financial statements taken as a whole. When the recovery of any recognized amount is considered unlikely, the amount is fully written off. Usually this occurs when the write off have low delay exceeds 360 days. In the case of long-term operations (over 3 years), loans are written off without prejudice to anywhen they complete 540 days late. The loss is recorded in memorandum accounts for a minimum period of 5 years and until they are exhausted all the procedures and collection actions that the consolidated entities may initiate to seek collection untiland their contractual rights are extinguished. ii. Debt instruments carried at amortized cost The amount of an impairment loss incurred for determination of the recoverable amount on a debt instrument measured at amortized cost is equal to the difference between its carrying amount and the present value of its estimated future cash flows, and is presented as a reduction of the balance of the asset adjusted. In estimating the future cash flows of debt instruments the following factors are taken into account: -• All the amounts that are expected to be obtained over the remaining life of the instrument; including, where appropriate, those which may result frominstrument, in this case, the collateral provided for the instrument (less the costs for obtaining and subsequently selling the collateral).guarantees. The impairment loss takes into account the likelihood of collecting accrued interest receivable. -• The various types of risk to which each instrument is subject,subject; and -• The circumstances in which collections will foreseeably be made. These cash flows are subsequently discounted using the instrument's effective interest rate (if its contractual rate is fixed) or the effective contractual rate at the discount date (if it is variable). rate.Specifically in regards to impairmentrecoverable amount losses resulting from materialization of the insolvency risk of the obligors (credit risk), a debt instrument is impaired due to insolvency when there is evidence of a deterioration of the obligor's ability to pay, either because it is in arrears or for other reasons. The Bank has certain policies, methods and procedures for covering its credit risk arising both from insolvency allocable to counterparties counterparties.These policies, methods and procedures are applied in the granting, examination and documentation of debt instruments, and contingent liabilities and commitments, the identification of their impairmentrecoverable amount and the calculation of the amounts necessary to cover the related credit risk. The procedures applied in the identification, measurement, control and reduce the exposure to credit risk, are based on an individual basis or grouped by similarity. • Customers with individual management: Wholesale segment customers, financial institutions and certain companies. Risk management is performed through an analysis complemented by tools to support decision-making model-based risk assessment internal procedure. • Customers with standardized management: individuals and companies not classified as individual clients. Risk management models based on automated decision-making and risk assessment procedure, complemented, when the model is not comprehensive or accurate enough, by teams of analysts specializing in this type of risk. the credits related to customers standardized, are usually considered when they have not recoverable delay greater than 90 days. With respect to the allowance for loss arising from credit risk, the Bank makes the following distinction: The Bank uses a proxy for specific allowance, as further explained below. These rules are used to calculate the minimum allowance requirements. The Bank evaluate the need for further provision, as considered necessary, following the requirements of IAS 39, based on our historical experience of impairment and other circumstances known at the time of assessment.
The Bank classifies our credit transactions according to their level of risk and the number of days such transaction is past due. Such credit classifications are determined in accordance with: • The conditions of the debtor and any guarantor, such as their economic and financial situation, level of indebtedness, capacity for generating profits, cash flow, administration, corporate governance and quality of internal controls, payments history, the sector in which they are active, contingencies and credit limits; and • The characteristics of the transaction, such as its nature and purpose, type, sufficiency and level of liquidity of collateral and the total amount of the credit. The rating and risk management systems used byBased on the rules above are calculated the minimum allowance requirements. Additionally, the Bank may be reviewed by bothevaluate the Central Bankneed for further provision, as considered necessary, following the requirements of IAS 39, based on our historical experience of impairment and other circumstances known at the Santander Group’s internal auditors. The Bank's management has not had any disputes with the Central Bank or the Santander Group regarding our risk management operations.time of assessment. F-21
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
b. Allowance for incurred losses not specifically identified identified:The Bank covers its losses inherent in debt instruments not measured at fair value through profit or loss and in contingent liabilities taking into account the historical experience of impairment and other circumstances known at the time of assessment. For these purposes, inherent losses are losses incurred at the reporting date, calculated using statistical methods that have not yet been allocated to specific transactions. The Bank uses the concept of incurred loss to quantify the cost of the credit risk and include it in the calculation of the risk-adjusted return of its transactions. The incurred loss is the expected cost of the credit risk of a transaction, that will manifest itself within a one year (business cycle) lead time from the balance sheet date considering the characteristics of the counterparty and the guarantees and collateral associated with the transaction. The loss is calculated by using statistical models that consider the following three factors: "exposure at default", "probability of default" and "loss given default. -• Exposure at default (EAD) is the amount of risk Exposure at the date of default by the counterparty. In accordance with IFRS, the exposure at default used for this calculation is the current exposure, as reported in the balance sheet. -• Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The probability of default is associated with the rating/scoring of each counterparty/transaction. PD is measured using a time horizon of one year; i.e. it quantifies the probability of the counterparty defaulting in the coming year. The definition of default used includes past-dues by 90 days or more and cases in which there is no default but there are doubts as to the solvency of the counterparty (subjective doubtful assets). -• Loss given default (LGD) is the loss arising in the event of default. LGD calculation is based on the observation of the recoveries of defaulted loans, taking into account the guarantees/collateral associated with the transaction, the income and expenses associated with the recovery process, and also the timing thereof and the indirect costs arising from the recovery process. This parameter does not consider downturn adjustments.
The methodology used by the Bank for determining the loans allowance for incurred losses not specifically identified intends to identify the amount of incurred losses as of the balance sheet date of loans that have not yet been identified as impaired, but it is estimate based on our past history and specific facts that will manifest within a one year lead time period from the balance sheet date. The above demonstrates those loans were having problems as of the balance sheet date. That is, what the Bank calls inherent losses in the context of our internal models in which loan loss allowances are calculated. The approach described above is used as a general rule. However, in certain cases, as a result of its particular characteristics, this approach is not applied and alternative approaches are used: 1.• Low default portfolios portfolios: In certain portfolios (credit institutions or large corporations) the number of defaults observed is very small or zero. In these cases, the Bank opted to use the data contained in the credit derivative spreads to estimate the incurred loss discounted by the market and break it down into PD and LGD. units: In the exceptional cases in which the Bank does not have sufficient data to construct a sufficientlyasufficiently robust credit risk measurement model, the incurred loss on the loan portfolios is estimated based on a top-down approximation in which the historically observed average cost of the loan portfolios is used as the best estimate of the incurred loss. As the credit models are developed and bottom-up measurements are obtained, the top-down measurements used for these units are gradually replaced. iii. Debt or equity instruments classified as available for sale The amount of the impairment losses on these instruments is the positive difference between their acquisitionthe amortized cost (net of any principal repayment or amortization in the caseand adjustment value of debt instruments) and their fair value, less any impairment loss previously recognizedor equity instruments classified as available for sale are recorded in the consolidated income statement. stockholders equity under "Valuation adjustments - financial assets available for sale".When there is objective evidence at the date of measurement of these instruments that the aforementioned differences are dueconsiderate a loss to permanent, impairment, they are no longer recognized in stockholders equity under “Valuation adjustments - Available-for-sale financial assets” and are reclassified, for the cumulative amount at that date, to the consolidated income statement. If all or part of the impairment losses are subsequently reversed, the reversed amount is recognized, in the case of debt instruments, in the consolidated income statement for the year in which the reversal occurred (or Losses considered like a permanent on investment in equity “Valuation adjustments - Available-for-sale financial assets”instruments are not reversed in the case of equity instruments).
subsequent periods.iv. Equity instruments measured at cost The impairmentrecoverable amount loss on equity instruments measured at cost is the difference between the carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities. Impairment lossesLosses of recoverable amounts are recognized in the consolidated financial income statement for the period in which they arise as a direct reduction of the cost of the instrument. These losses can only be reversed subsequently if related assets are sold. h)i) Repurchase agreements Purchases (sales)(disposal) of financial assets under a non-optional resale (repurchase) agreement at a fixed price (“repos”) are recognized in the consolidated balance sheet as financing granted (received)Investment (funding), in repurchase agreements based on the nature of the debtor (creditor), under “Balances“Cash and balances with the Brazilian Central Bank”, “Loans and advances toamounts due from credit institutions” or “Loans and advances to customers” (“Deposits from the Brazilian Central Bank”, “Deposits from credit institutions” or “Customer deposits”). Differences between the purchase and sale prices are recognized as interest over the contract term. j)Accounting for leasesi.Financial leases Financial leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. When the consolidated entities act as the lessors of an asset, the sum of thepresent valueof the lease payments receivable from the lessee plus the guaranteed residual value which is generally the exercise price of the purchase option of the lessee at the end of the lease term is recognized as lending to third parties and is therefore included under “Loans and receivables” in the consolidated balance sheet. F-22
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The finance income arising from these contracts is credited to “Interest and similar income” in the consolidated income statement so as to achieve a constant rate of return over the lease term. ii. Operational Leases In operational leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor. When the consolidated entities act as the lessors, they present the acquisition cost of the leased assets under “Tangible assets” (note 12). The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment for own use and income from operational leases is recognized on a straight-line basis under “Other operating income (expense)” in the consolidated income statement. When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight-line basis to “Other administrative expenses” in their consolidated income statements. i)k) Non-current assets held for sale
“Non-current assets held for sale” includes the carrying amount of individual items or disposal groups or items forming part of a business unit earmarked for disposal (“Discontinued operations”), whose sale in their present condition is highly probable and is expected to occur within one year, from the reporting date. Therefore, the carrying amount of these items, which can be of a financial nature or otherwise, will foreseeably be recovered through the proceeds from their disposal. Specifically, property or other non-current assets received by the consolidated entities as total or partial settlement of their debtors' payment obligations to them are deemed to be non-current assets held for sale through the completion of actions which normally occurs up to one year. Non-current assets held for sale are generally measured at the lower of fair value less costs to sell and their carrying amount at the date of classification in this category. Non-current assets held for sale are not depreciated as long as they remain in this category. depreciated.Impairment losses on an asset or disposal group arising from a reduction in its carrying amount to its fair value (less costs to sell) are recognized under “Gains/“Gains (losses) on non-current assets held for sale not classified as discontinued operations” in the consolidated income statement. The gains on a non-current asset held for sale resulting from subsequent increases in fair value (less costs to sell) increase its carrying amount and are recognized in the consolidated income statement up to an amount equal to the impairment losses previously recognized. j)l) Residual maturity periods and average interest rates The analysis of the maturities of the balances of certain items in the consolidated balance sheets and the average interest rates at 20092011, 2010 and 20082009 year-end is provided in note 41-d. “Tangible assets” includes the amount of buildings, land, furniture, vehicles, computer hardware and other fixtures owned by the consolidated entities,Bank, including tangible assets received by the Bank in full or partial satisfaction of financial assets representing receivables from third parties which are intended to be held for continuing use and tangible assets acquired under finance leases are presented at acquisition cost, less the related accumulated depreciation and any impairment losses (net carrying amount higher than recoverable amount). Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. The land on which the buildings and other structures stand has an indefinite life and, therefore, is not depreciated. The tangible asset depreciation charge is recognized in the consolidated income statement and is calculated basically using the following depreciation rates (based on the average years of estimated useful life of the various assets): | | Annual
Rate
| | | Annual Rate | | Buildings for own use | | | 4 | %4% | Furniture | | | 10 | %10% | Fixtures | | | 10 | %10% | Office and IT equipment | | | 20 | %20% | Leasehold improvements | | 10% or up to contractual maturity | |
The consolidated entities assessBank assesses at the reporting date whetherend of each period, if there is anno indication that the items of tangible assets may present an impairment loss, ie an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the case,that presents the carrying amount higher than the value of achievement, either for use or sale. The assessment of property is done through reports prepared by independent companies. Once identified a reduction in the impairment loss of tangible assets, this is adjusted to reach its realizable value by recognizing an impairment loss recorded in "Impairment loss on other assets. " Additionally the value of depreciation of that asset is recalculated in order to adjust the value of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion tolife of the revised carrying amount and to the new remaining useful life (if the useful life has to be re-estimated). Similarly, if there is anasset.In case of evidence or indication of a recovery in the valuean impairment loss of a tangible asset, the consolidated entities recognizeBank recognizes the reversal of the impairment loss recognizedrecorded in prior periodsyears and should adjust the future depreciation charges accordingly. Inexpenses according to the lifetime value of the property. Under no circumstances may thewill a reversal of an impairment loss onof an asset raisemay increase its carrying amount abovehigher than the amount that which it would have if no impairment lossesloss had been recognized in prior years. The estimated useful lives of the items of property, plant and equipment for own use are reviewed at least at the end of the reporting period with a view to detecting significant changes therein. If changes are detected, the useful lives of the assets are adjusted by correcting the depreciation charge to be recognized in the consolidated income statement in future years on the basis of the new useful lives.
Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognized as an expense in the period in which they are incurred. l) Accounting for leases
i. Finance leases
Finance leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee.
When the consolidated entities act as the lessors of an asset, the sum of the present value of the lease payments receivable from the lessee plus the guaranteed residual value which is generally the exercise price of the purchase option of the lessee at the end of the lease term is recognized as lending to third parties and is therefore included under “Loans and receivables” in the consolidated balance sheet.
The finance income arising from these contracts is credited to “Interest and similar income” in the consolidated income statement so as to achieve a constant rate of return over the lease term.
ii. Operating leases
In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.
When the consolidated entities act as the lessors, they present the acquisition cost of the leased assets under “Tangible assets” (note 12). The depreciation policy for these assets is consistent with that for similar items of property, plant and equipment for own use and income from operating leases is recognized on a straight-line basis under “Other operating income” in the consolidated income statement.
When the consolidated entities act as the lessees, the lease expenses, including any incentives granted by the lessor, are charged on a straight-line basis to “Other general administrative expenses” in their consolidated income statements.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
m)n) Intangible assets
Intangible assets are identifiable non-monetary assets (separable from other assets) without physical substance which arise as a result of a legal transaction or whichsoftware are developed internally by the consolidated entities.internally. Only assets whose cost can be estimated reliably and from which the consolidated entities consider it probable that future economic benefits will be generated are recognized. F-23
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Intangible assets are recognized initially at acquisition or production cost and are subsequently measured at cost lessdeducted any accumulated amortization and any accumulated impairment losses. AnIn the acquisition of investment in an associate is accounted for using the equity method from the date on which it becomes an associate. On acquisition of the investmentsubsidiary, any difference between the investment cost of the investment and the investor's share of thein net fair value of the associate's identifiable assets, liabilities and contingent liabilities of the investee (subsidiary or affiliate) is accounted for in accordance with IFRS 3 Business Combinations. Therefore: (a) goodwill relating to an associate"Business Combination ".Goodwill is included inrecognized only when the carrying amount of the investment. However, amortisation of that goodwill is not permitted and is therefore not included in the determinationconsideration of the investor's share ofinvestee acquired exceeds the associate's profits or losses. (b) any excess of the investor's share of the net fair value ofat the associate's identifiable assets, liabilitiesacquisition date, and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the investor's share of the associate's profit or loss in the period in which the investment is acquired.
Goodwill - which is only recognized when it has been acquired for consideration -therefore represents therefore, a payment made by the acquirer in anticipation of future economic benefits fromof assets of the acquired entity that arecan not capable of beingbe individually identified and separately recognized.
Atrecognized separately.The amortization of this goodwill is not allowed, and also tested for the purpose of "impairment". The goodwill impairment test is performed at the end of each reporting period presented, or when there isa lesser period if any indication of impairment, goodwill is reviewed for impairment (i.e. a reduction in itsthe recoverable amount to below its carrying amount) and any impairmentthe amount considered irrecoverable is written down with a charge to “Impairmentoff and debited as "Impairment losses on other assets (net) – Goodwill and other- Other intangible assets” inassets "in the consolidated income statement. An impairment A loss recognized forof recoverable value of goodwill is not reversed in subsequent periods;The net fair value adjustments of assets, liabilities and contingent liabilities of the investee in relation to its carrying amount are allocated to individual identifiable assets acquired and liabilities assumed that compose based on their respective fair values at the date of purchase. In the case of a subsequent period. business combination achieved in stages, is measured again prior involvement in the acquiree at fair value at date of acquisition that obtains control of the acquiree.A business combination involving entities or businesses under common control is a business combination in which all the combining entities or businesses are controlled by the same party or parties before and after the business combination, and this control is not transitory and therefore are trademarks of their carrying amount. ii. Other intangible assets “Other intangible assets” includes the amountIt is a non-monetary asset without physical substance. It is basically due to software development and acquisition of identifiable intangible assetsrights (such as purchased customer lists and computer software). list acquired) that can generate benefits for the Bank. They can have characteristics of definite or indefinite period.Other intangible assets canare considered to have an indefinite useful life when, based on an analysis of all the relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the consolidated entities,Bank, or a finite useful life, in all other cases. Intangible assets with indefinite useful lives are not amortized, but ratherinstead, at the end of each reporting period, the consolidated entities reviewentity reviews the remaining useful liveslife of the assets in order to determine whetherif they continue to be indefiniteare still undefined and, if this is not the case, to take the appropriate steps. change should be accounted for as a change in accounting estimate.Intangible assets with finitedefinite useful liveslife are amortized over thoseits useful liveslife by using methods similar to those used to depreciate tangible assets. The intangible asset amortization chargeexpense is recognized under “Depreciation"Depreciation and amortization”amortization" in the consolidated income statement. In both casesThe Bank assesses at the consolidated entities recognize anyend of each period, if there is no indication that the items of intangible assets may present an impairment loss, oni.e. an asset that presents the carrying amount of these assets with a chargehigher than the net realizable value. Identifying any reduction in impairment loss, this is adjusted to “Impairment losses on goodwill andreach its fair value. Measuring the recoverable amount of other intangible assets”assets - software is made based on value in use, as well as the consolidated income statement. analysis of the discontinuity of the asset in relation to the activities of the Bank. The criteria used to recognizeBank uses the value in use of other intangible assets - customer lists as a basis for measuring the impairment losses on these assets and, where applicable,since it is not reasonably possible to determine the reversalnet value of impairment losses recognizedsales, because there is no basis for making a reliable estimate of the value be obtained by selling the asset in prior years are similara transaction at cumulative basis, between knowledgeable, willing parties. The value in use of customer lists acquired related to those used for tangible assets (see note 2-k). Internally developed computer softwarethe purchase of the "payroll" will be determined individually. It is recognized as an intangible asset if, among other requisites (basicallyprepared by the Bank’s abilitybusiness areas a "Business Case" that aims to use or sell it), can be identified and its ability to generatedemonstrate the expectation of generating future economic benefits can be demonstrated.
Expenditurebenefit and the present value of expected cash flows. Quarterly, these "Business Case" are reviewed based on research activitiesthe actual cash flows of each business (value in use), which are compared with book value, checking whether there is recognized as an expense in the year.
n)a need to record a loss on non-recoverability.o) Other assets It includes the balance of all prepayments and accrued income (excluding accrued interest), the net amount of the difference between pension plan obligations and the value of the plan assets with a balance in the entity’s favor, when this net amount is to be reported in the consolidated balance sheet, and the amount of any other assets not included in other items. p) Liabilities for insurance contracts The liabilities for insurance contracts are comprised substantially by mathematical reserves for current and future benefits (PMBaC and PMBC). Insurance contracts are contracts under which the Bank accepts a significant risk – other than a financial risk – from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which the policyholder will be adversely affected. Insurance liabilities are recognized when the contract is entered into and the premiums are charged. Contracts that have been classified as insurance are not reclassified subsequently. The liability is derecognized when the contract expires or is cancelled. Mathematical reserves for current and future benefits are recognized based on contributions made under the capitalization financial system. The mathematical reserves for current benefits represent commitments under continued income plans which are recognized through actuarial calculation for the traditional, pension plan (PGBL) and cash value life insurance (VGBL) plans. F-24
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts. Investment assumptions are either determined by the local regulator or based on management's future expectations. In the latter case, the anticipated future investment returns are set by management, considering the available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities, is the annual long-term growth rate of the underlying assets.
At each balance sheet date an assessment is made of whether the provisions for Mathematical reserves are adequate. q) Provision of contingent assets and liabilities Banco Santander and its subsare involved in judicial and administrative proceedings related to tax, labor and civil, in the normal course of their activities. The judicial and administrative proceedings are recognized in the accounts based on the nature, complexity and history of actions and beliefs of the internal and external legal advisors. Provisions are made when the risk of loss of judicial or administrative action is assessed as probable and the amounts involved can be measured with sufficient accuracy, based on best available information. The provisions include legal obligations, judicial and administrative proceedings related to tax and social security obligations, whose object is to challenge their legality or constitutionality, regardless of the assessment that the probability of success, the amounts are fully recognized in the financial statements. They are fully or partially reversed when the obligations cease to exist or are reduced. Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by theoccurrenceor nonoccurrence of one or more future events that are not totally under the control of the consolidated entities. Under accounting rules, contingent liabilities classified as possible losses are not recognized, but disclosed in the notes to the financial statements. Contingent assets are not accounting recognized , except when there are guarantees or favorable judicial decisions, about which no longer fit features, characterizing the gain as practically certain. Assets with probable success, if any, are only disclosed in the financial statements. Management believes that the provisions made are sufficient to cover losses from judicial proceedings, and believe that, in aggregate, will not have significant impacts on results, cash flow or financial condition of the Bank. Given the uncertainties arising from the proceedings is not practicable to determine the time of any outflow (cash disbursement). r) Other liabilities “Other liabilities” includes the balance of all accrued expenses and deferred income, excluding accrued interest, and the amount of any other liabilities not included in other categories. p) Provisions and contingent assets and liabilities
The directorss) Share-based compensation Settlement in shares It refers to options to purchase shares of the consolidated entities, in preparing their respective financial statements,Bank promoting a commitment of the executives with the long-term results. The number of shares granted to executives vary according to certain performance parameters. At the beginning of the plan is made a distinction between: • Provisions: credit balances covering present obligations (legal or constructive) atan estimate of the balance sheet date arising from past events which could give rise to a loss for the consolidated entities, which is consideredlikely amount of options to be probable to occurgranted and a reliable estimate can be madethe fair value amount is recorded in Personal expenses against "Equity - Reserves - Share-Based Payment" throughout the vesting period.Settlement in cash At the beginning of the Plan is made an estimate of the likely amount of the obligation. • Contingent liabilities: possible obligationsshares "hypothetical" that arise from past events and whose existence will be confirmed onlyreceived by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated entities. They include the present obligations of the consolidated entities when itexecutives. It is not probable that an outflow of resources embodying economic benefits will be required to settle them.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• Contingent assets: possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Bank. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement, but rather are disclosed in the notes, provided that it is probable that these assets will give rise to an increase in resources embodying economic benefits.The Bank’s consolidated financial statements include all the material provisions with respect to which it is considered that it is more likely than not that the obligation will have to be settled. In accordance with accounting standards, contingent liabilities must not be recognized in the consolidated financial statements, but must rather be disclosed in the notes.
Provisions, which are quantified on the basis of the best information available on the consequences of the event giving rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for which they were originally recognized. Provisions are fully or partially reversed when such obligations cease to exist or are reduced.
Provisions are classified according to the obligations covered as follows:
• Provisions for pensions and similar obligations: includes the amount of all the provisions made to cover post-employment benefits, including obligations to early retirees and similar obligations.
• Provisions for contingent liabilities, commitments and provisions for taxes and other legal contingencies and other provisions: include the amount of the provisions recognized to cover tax and legal contingencies and labor and civil litigation and the other provisions recognized by the consolidated entities.
q) Equity-instrument-based employee remuneration
Equity instruments delivered to employees in consideration for their services, if the instruments are delivered once the specific period of service has ended, are recognized as an expense for services (with the corresponding increase in equity) as the services are rendered by employees during the service period. At the grant date the services received (and the related increase in equity) are measured atdetermined the fair value of the equity instruments granted. Ifshares "hypothetical" and accounted throughout the equity instruments granted are vested immediately, the Bank recognizesvesting period a provision in full, at the grant date, the expense for the services received.
When the requirements stipulated in the remuneration agreement include external market conditions (such as equity instruments reaching a certain quoted price), the amount ultimately to be recognized in equity will depend on the other conditions being met by the employees (normally length of service requirements), irrespective of whether the market conditions are satisfied. If the conditions of the agreement are met but the external market conditions are not satisfied, the amounts previously recognized in equity are not reversed, even if the employees do not exercise their right to receive the equity instruments.
r)Other liabilities against Personal expenses.t) Recognition of income and expenses The most significant criteria used by the Bank to recognize its income and expenses are summarized as follows: i. Interest income, interest expenses and similar items Interest income, interest expenses and similar items are generally recognized on an accrual basis using the effective interest method. Dividends received from other companies are recognized as income when the consolidated entities' right to receive them arises. However, the recognition of accrued interest in the consolidated income statement is suspended for debt instruments and loans and advances individually classified as impaired and for the instruments for which impairment losses have been assessed collectively because they have payments more than two months past due. This interest is recognized as income, when collected, as a reversal of the related impairment losses. ii. Commissions, fees and similar items Fee and commission income and expenses are recognized in the consolidated income statement using criteria that vary according to their nature. The main criteria are as follows: • Fee and commission income and expenses relating to financial assets and financial liabilities measured at fair value through profit or loss are recognized when paid; • Those arising from transactions or services that are performed over a period of time are recognized over the life of these transactions or services; and • Those relating to services provided in a single act are recognized when the single act has been performed. F-25
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
iii. Non-financeNon-financial income and expenses These are recognized for accounting purposes on an accrual basis. iv. Deferred collections and payments These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates. Loan arrangement fees, mainly loan origination and application fees, are accrued and recognized in income over the term of the loan. In the case of loan origination fees, the portion relating to the associated direct costs incurred in the loan arrangement is recognized immediately in the consolidated income statement. s)u) Financial guarantees “Financial guarantees” are defined as contracts whereby an entity undertakes to make specific payments for a third party if the latter does not do so, irrespective of the various legal forms they may have, such as guarantees, irrevocable documentary credits issued or confirmed by the entity, etc. among others.The Bank initially recognizes the financial guarantees provided on the liability side of the consolidated balance sheet at fair value, which is generally the present value ofthepresent valueof the fees, commissions and similar interest receivable from these contracts over the term thereof, and simultaneously the Bank recognizes, on the asset side of the consolidated balance sheet, the amount of the fees, commissions and interest received at the start of the transactions and the amounts receivable at the present value of the fees, commissions and interest receivable. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost. The provisions made for these transactions are recognized under “Provisions - Provisions for contingent liabilities, commitments and commitments”other provisions” in the consolidated balance sheet (note 21)22). If a specific provision is required for financial guarantees, the related unearned commissions recognized under “Financial liabilities at amortized cost – Other financial liabilities” in the consolidated balance sheet are reclassified to the appropriate provision. t)v) Assets under management and investment and pension funds managed by the Bank Assets owned by third parties and managed by the consolidated entities are not presented on the face of the consolidated balance sheet. Management fees are included in “Fee and commission income” in the consolidated income statement. Note 41-b contains information on the third-party assets managed by the Bank. The investment funds and pension funds managed by the consolidated entities are not presented onrecorded in the face of the Bank’s consolidated balance sheet since the related assets are owned by third parties. The fees and commissions earned in the year for the services rendered by the Bank entities to these funds (asset management and custody services) are recognized under “Fee and commission income” in the consolidated income statement. u)w) Post-employment benefits The bank has undertakenPost-employment benefit plans include the commitments of the Bank: (i) addition to supplement the benefits of public social security system benefits accruing to certain employees,pension plan; and to their beneficiary right holders, for(ii) medical assistance in case of retirement, permanent disability or death the benefitsfor that employees eligible and indemnity payments payable, the contributions to employee welfare systems for early retirees andtheir direct beneficiaries. Defined contribution plans Defined benefit plans is the post-employment welfare benefits. The Bank's post-employment obligations to its employees are deemed to be "defined contribution plans" whenbenefit plan which the Bank makes pre-determinedand its subsidiaries as the sponsoring entity pays fixed contributions (recognized in “Personnel expenses” in the consolidated income statement) tointo a separate entity and will have nopension fund, not having a legal or effectiveconstructive obligation to makepay further contributions if the separate entity cannotfund does not hold sufficient assets to pay the employeeall benefits relating to the service renderedservices provided in the current and priorin previous periods. Post-employment obligations that do not meet the aforementioned conditions are classified as “defined benefit plans” (note 21).
Defined contribution plans
The contributions made in this connection in each year are recognized under “Personnel expenses”personnel expenses in the consolidated income statement. The amounts not yet contributed at each year-end are recognized, at their present value under “Provisionsin balance sheets like "Provisions - Provisionsprovisions for pensionspension funds and similar obligations” on the liability side ofobligations" in the consolidated balance sheet. Defined benefit plan is the post-employment benefit plan which is not defined contribution plan and are shown ate Note 22. The Bank recognizes under “Provisions - Provisionspresentvalueof obligations of defined benefit plans are recorded, net (i) the fair value of plan assets,(ii) of gains and / or net unrecognized actuarial losses, which are deferred using the corridor method, and (iii) the costs of past service, which is deferred over time. The obligations are recorded in the balance sheet as "Provisions -provisions for pensionspension funds and similar obligations” onobligations" in the liability side ofconsolidated balance sheet. In case the net amount represents an asset, the actuarial asset is recorded in the consolidated balance sheet (or underas “Other assets” onwhen: (i) the asset side, as appropriate)excess funds represent future economic benefits in the present valueshape of its defined benefit post-employment obligations, neta return of funds to the sponsor or a reduction in future contributions, according to the conditions set forth in Resolution 26/2008 of the fair valueSupplementary Pension Plan Management Board (CGPC); and (ii) resulting from any accrued, net and unrecorded actuarial losses and costs of the plan assets and of the net unrecognized cumulative actuarial gains and/or losses disclosedpast services that will be offset in the valuation of these obligations, which are deferred using a corridor approach, and net of the past service cost, which is deferred over time, as explained below. “Plan assets”long term by their respective record.The plan’s assets are defined as those that will be used directly used to settlein the settlement of obligations, and: (i) whose ownership is sponsored; and (ii) that meet the following conditions: • They are not owned by the consolidated entities, but by a legally separate third party that is not a party related to the Bank.
• They can only be used to pay or finance post-employment benefits and cannot be returned to the consolidated entities, unless the assets remaining in the plan are sufficient to meet all obligations of the plan andplan’s obligations.F-26
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
“Actuarial gains and losses”losses are defined as those arisingresulting from differences between the previous actuarial assumptions and what has actually occurredeffectively took place, and from the effects of those changes inon actuarial assumptions. The Bank uses on a plan-by-plan basis, the corridor method and recognizes in the consolidated income statement the amount resulting from dividing by fiverecords the net amount of the cumulativeaccrued actuarial gains and/or losses not recognized atexceeding the beginning of each year which exceedshigher between 10% of the present value of the obligations orand 10% of the fair value of the plan assets at the beginningplan’s assets. The cost of the year, whichever amount is higher. The “past service cost”, which arisespast services results either from changes toin the current post-employment benefits or from the introduction of new benefits, and is recognized on arecorded according to the straight-line basis in the consolidated income statementmethod over the period frombetween the time when the new commitments arise toand the date on whichwhen the employee has anacquired the irrevocable right to receive the new benefits.
Post-employment benefits are recognizedrecorded in the consolidated income statement as follows: • CurrentCost of the current service cost, defined as the– increase in the present value of the obligations resulting from employee serviceservices in the current period, underperiods – “Personnel expenses”. • Interest cost, defined as theCost of interest – increase during the year in the present value of the obligations as a result of the passagepassing of time under “Interest expense- "Interest and similar charges”. When obligations are presented on the liability side of the consolidated balance sheet, net of the plan assets, the cost of the liabilities recognized in the income statement relates exclusively to the obligations recognized as liabilities. expenses."• The expected return on planthe plan’s assets and the gains or losses on the value of the planthose assets under– “Interest and similar income"revenues”. • The actuarial gains and losses calculated by using the corridor approachmethod and the unrecognizedunrecorded cost of past service cost, under “Provisions (net)” inservices – “ Provisions (Net)". Defined benefit plans are recorded based on an actuarial study conducted annually by an external consulting firm at the consolidated income statement. v)end of each fiscal year and effective for the subsequent period. The actuarial valuation of these plans depends on a number of assumptions, including the following stand:• Assumed interest rates; • Boards of mortality; • Annual index applied to the review of pensions; • Index of inflation; • Annual index salary readjustments; and • Method used to calculate the commitments relating to acquired rights of active employees. x) Other long-term employee benefits “Other long-term employee benefits”, defined as obligations to early retirees taken to be those who have ceased to render services at the entity but who, without being legally retired, continue to have economic rights vis-à-visrelating to the entity until they acquire the legal status of retiree, long-service bonuses, obligations for death of spouse or disability before retirement that depend on the employee's length of service at the entity and other similar items, are treated for accounting purposes, where applicable, as established above for defined benefit post-employment plans, except that all past service costs and actuarial gains and losses are recognized immediately (note 21)22). BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
w)y) Termination benefitsTermination benefits are recognized when there is a detailed formal plan identifying the basic changes to be made, provided that implementation of the plan has begun, its main features have been publicly announced or objective facts concerning its implementation have been disclosed. Income tax is calculated at the rate of 15% plus a 10% surtax; social contribution tax is calculated at the rate of 15% (9% in 2007 and the period from January 1st to April 30, 2008) for financial institutions, and for non-financial companies the social contribution tax rate is 9%, after adjustments determined by tax legislation. In accordance with the current regulation, the expected realization of the Bank’s tax credits, as shown in note 23, is based on the projection of future income and a technical study.
The expense for corporation income tax is recognized in the consolidated income statement, except when it results from a transaction recognized directly in equity, in which case the tax effect is also recognized in equity. The current income tax expense is calculated as the sum of the current tax resulting from application of the appropriate tax rate to the taxable profit for the year (net of any deductions allowable for tax purposes), and of the changes in deferred tax assets and liabilities recognized in the consolidated income statement. “Tax assets” includes the amount of all tax assets, which are broken down into “current” amounts of tax to be recovered within the next twelve months and “deferred” amounts of tax to be recovered in future years, including those arising from unused tax losses or tax credits. “Tax liabilities” includes the amount of all tax liabilities (except provisions for taxes), which are broken down into “current” the amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months and “deferred” the amount of income tax payable in future years. Deferred tax assets and liabilities include temporary differences, which are identified as the amounts expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities and their related tax bases, and tax loss and tax credit carryforwards. These amounts are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled. “Tax assets” includes the amount of all tax assets, which are broken down into “current” amounts of tax to be recovered within the next twelve months and “deferred” amounts of tax to be recovered in future years, including those arising from unused tax losses or tax credits.
“Tax liabilities” includes the amount of all tax liabilities (except provisions for taxes), which are broken down into “current” the amount payable in respect of the income tax on the taxable profit for the year and other taxes in the next twelve months and “deferred” the amount of income tax payable in future years.
Deferred tax liabilities are recognized in respect of taxable temporary differences associated with investments in subsidiaries, associates or joint ventures, except when the Bank is able to control the timing of the reversal of the temporary difference and, in addition, it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are only recognized for temporary differences to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profits against which the deferred tax assets can be utilized, and the deferred tax assets do not arise from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit or accounting profit. Other deferred tax assets (tax loss and tax credit carryforwards) are only recognized if it is considered probable that the consolidated entities will have sufficient future taxable profits against which they can be utilized. Income and expenses recognized directly in stockholders equity are accounted for as temporary differences. F-27
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The deferred tax assets and liabilities recognized are reassessed at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed. Under the current regulation, the expected realization of tax credits based on the Bank's projections of future results and based on technical study, as shown in Note 23. PIS (Social Integration Program) and COFINS (Tax for Social Security Financing) taxes have been computed at a combined rate of 4.65% on certain gross revenues and expenses. Financial institutions may deduct financial expenses in determining the PIS/COFINS tax basis. PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 it is recorded as income taxes. y)aa) Consolidated cash flow statements The following terms are used in the consolidated cash flow statements with the meanings specified: • Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value. • Operating activities: the principal revenue-producing activities of credit institutions and other activities that are not investing or financing activities. • Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents. • Financing activities: activities that result in changes in the size and composition of the equity and liabilities that are not operating activities. In preparing the consolidated cash flowflows statement, short-term highly liquidthe high liquidity investments that are subject to anwith insignificant risk of changes in valuetheir values were classified as “Cash"Cash and cash equivalents”equivalents". Accordingly, theThe Bank classifies as cash and cash equivalents the balances recognizedrecorded under “Cash"Cash and balancesbalance with the Brazilian Central Bank”Bank" and "Loans and amounts due from credit institutions" in the consolidated balance sheet. z) Liabilitiessheet, except restricted resources and long-term transactions.The interest paid and received correspond basically to operating activities of Banco Santander. 3. Change in the scope of consolidation a) Sale of Santander Seguros Based on the approval issued by Superintendence of Private Insurance (Susep) on August 23, 2011, on October 5, 2011 was held the closing of the sale (the "Transaction") of all shares issued by its wholly owned subsidiary Santander Seguros for (i) Zurich Santander Insurance America, SL, a holding company based in Spain (Zurich Santander) held, directly or indirectly, 51% (fifty one percent) by the Zurich Financial Services Ltd. and its affiliates (Zurich) and 49% (forty nine percent) by Banco Santander Spain, and (ii) Inversiones ZS America SPA, a company established in Chile and held by Zurich Santander (Inversiones ZS). Referred closing understood the actual transfer, (i) by Banco Santander to ZS Insurance of 11,251,174,948 common shares of Santander Seguros, and (ii) Banco Santander to Inversiones ZS of 3 common shares of Santander Seguros, and payment of the purchase sale price preliminary to Banco Santander, net amounts R$2,741,102 thousand (received in October 5,2011). The assets of Santander Seguros R$24,731,463 thousand, main represented by R$21,551,422 thousand of debts instruments and equity (public securities, private and fund units specially constituted - guarantors of benefit plans - PGBL / VGBL). The Santander Seguros liabilities amounts R$22,349,428 thousand, main represented by R$21,278,718 thousand of liabilities for securities agreements - technical provision for insurance contracts operations and pension plans. The liabilitiesincome recognized in this operation was R$424,292 thousand, recorded as a result on disposal of non-current assets held for insurance contracts are comprised substantially by mathematical reserves for currentsale not classified as discontinued operations.The final sale and future benefits (PMBaC and PMBC). Insurance contracts are contracts under which the Bank accepts a significant risk – other than a financial risk – from a policyholder by agreeing to compensate the beneficiarypurchase price will be set appropriately based on the occurrencebalance sheet to be specially prepared by Santander Seguros for the period ended September 30, 2011 to be released at the first half of an uncertain future event by which the policyholder will be adversely affected. Insurance liabilities are recognized when the contract is entered into2012 and the premiums are charged. Contractsprice adjustment mechanisms expressly provided for in the Purchase and Sale Agreement dated July 14, 2011, and once set, Banco Santander will disclose it to the general public and make the offering of preemptive rights to shareholders, in accordance with Article 253 of Law 6.404/1976.The transaction fits into the context of the strategic partnership between Santander Spain and Zurich, involving the acquisition by Zurich Santander, all property and casualty insurers and life and welfare of Santander Spain in Argentina, Brazil, Chile, Mexico and Uruguay. As part of the arrangement of the transaction, Banco Santander exclusively distribute the insurance products in the next 25 years, through its network branch, with the exception of automobile insurance that have been classified as insurance are not reclassified subsequently. included in the exclusivity scope in the arrangement of the transaction. As a result of these contracts, Banco Santander will receive a payment equivalent to the currently received. The liability is derecognized whenoperation aims to promote and strengthen Banco Santander activities in the contract expires or is cancelled. Mathematical reserves for currentinsurance market, providing a greater range of products, including classes of customers not currently exploited and future benefits are recognized basedleveraging the distribution capabilities of Banco Santander, among others.The operation, according to the regulations, subject to the approval of Susep. b) Partial spin-off of Santander Seguros with the transfer of the split portion constitution to Sancap Investimentos e Participações S.A. In the context of sale transaction of Santander Seguros, at the extraordinary stockholders' meeting held on contributions madeApril 29, 2011, was approved the Partial spin-off of Santander Seguros with the transfer of its equity to a new company, constituted in the act of the partial spin-off, under the capitalization financial system.company name of Sancap Investimentos e Participações S.A. (“Sancap”). The mathematical reserves for current benefits represent commitments under continued income plans which are recognized through actuarial calculation forspun-off assets to Sancap is total amounting of R$511,774 thousands and refers only and exclusively to the traditional, pension plan (PGBL)totality of the participation held by Santander Seguros on Santander Capitalização's capital. The Sancap is in the process of formation and cash value life insurance (VGBL) plans.operation of the Partial Split is in the process of approval in Susep on August 9, 2011. F-28
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts. Investment assumptions are either determined by the local regulator or based on management’s future expectations. In the latter case, the anticipated future investment returns are set by management, considering the available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities, is the annual long-term growth rate of the underlying assets.
At each balance sheet date an assessment is made of whether the provisions for Mathematical reserves are adequate.
a) Contribution of Banco Real
On July 24, 2008, Banco Santander Spain took indirect share control of the companies of the ABN AMRO Real Conglomerate in Brazil, after meeting all conditions for this transfer of control, especially the approval of De Nederlandsche Bank (the Central Bank of the Netherlands) and the Bacen.
The Extraordinary Stockholders' Meeting held on August 29, 2008 of Banco Santander, Banco Real and AAB Dois Par approved the corporate restructuring as defined in the Agreement and Plan of Merger of Shares of Banco ABN AMRO Real S.A. and ABN AMRO Brasil Dois Participações S.A. into Banco Santander S.A. (Merger Agreement).
The above-mentioned merger agreement established the justifications and conditions for the corporate restructuring consisting of the merger of all shares of Banco Real and AAB Dois Par into Banco Santander (Merger of Shares). As a result of the merger of shares: (a) Banco Real and AAB Dois Par were converted into wholly-owned subsidiaries Banco Santander; (b) Banco Santander’s capital was increased based on the economic value of the shares of Banco Real and AAB Dois Par from R$9,131,448 thousand to R$47,152,201 thousand and (c) shares were issued by Banco Santander and delivered to the respective stockholders of Banco Real and AAB Dois Par.
The objectives of the operation were: (a) assure the transfer of the businesses acquired by Banco Santander Spain to its subsidiary already established and in operation in Brazil - - Banco Santander; (b) assure the preservation of the corporate entity of Banco Santander, Banco Real and AAB Dois Par; (c) concentrate the minority interest in these institutions only in Banco Santander.
The operation allows to rationalize and simplify the equity structure of the companies of the Santander in Brazil will enable the stockholders of Banco Real and AAB Dois Par to become stockholders of a publicly traded company and have access to the current dividend policy of Banco Santander.
This new structure also allows a reduction of administrative costs, especially those related to legal and regulatory requirements.
As this is an operation involving the merger of shares, the legal personality of Banco Real and AAB Dois Par were preserved and any variations subsequent to the date of their balance sheets were properly accounted for in their respective accounting books.
The merger of shares of Real to the Bank was approved by the Brazilian Central Bank (Bacen) in January, 2009.
The following purchase price allocation, accounted for in accordance with IFRS 3, “Business Combinations,” reflects the purchase accounting adjustments determined on the date that Santander Spain acquired control of Banco Real since on that date Banco Real came under common control with the Bank. This allocation is explained below:
Thousands of reais | | Book value | | | Fair value (1) | | | Adjustment | | | Net assets acquired | | | | | | | | | | Assets | | | 132,301,795 | | | | 130,930,255 | | | | (1,371,540 | ) | Of which: | | | | | | | | | | | | | Cash and balances with central banks | | | 12,147,982 | | | | 12,147,982 | | | | - | | Debt instruments | | | 21,758,968 | | | | 21,728,385 | | | | (30,583 | ) | Loans and advances to customers | | | 69,669,710 | | | | 68,039,392 | | | | (1,630,318 | ) | Tangible assets | | | 1,072,896 | | | | 1,344,375 | | | | 271,479 | | | Liabilities | | | (119,436,124 | ) | | | (120,826,655 | ) | | | (1,390,531 | ) | Of which: | | | | | | | | | | | | | Deposits from credit institutions | | | (20,946,768 | ) | | | (20,932,165 | ) | | | 14,603 | | Customer deposits | | | (75,372,552 | ) | | | (75,419,151 | ) | | | (46,599 | ) | Subordinated liabilities | | | (3,440,670 | ) | | | (3,491,143 | ) | | | (50,473 | ) | Other financial liabilities | | | (5,974,858 | ) | | | (5,852,833 | ) | | | 122,025 | | Provisions (4) | | | (3,536,049 | ) | | | (4,968,623 | ) | | | (1,432,574 | ) | | Net assets acquired | | | 12,865,671 | | | | 10,103,600 | | | | (2,762,071 | ) | Intangible assets (2) | | | | | | | 1,229,716 | | | | | | Fair value of the assets | | | | | | | 11,333,316 | | | | | | | Total consideration (3) | | | | | | | 38,946,426 | | | | | | Satisfied by: | | | | | | | | | | | | | Shares | | | | | | | 38,920,753 | | | | | | Cash | | | | | | | 25,673 | | | | | | Goodwill | | | | | | | 27,613,110 | | | | | |
(1) The fair values of the assets and liabilities acquired were determined based on appraisals on October 2008, 29 (date of acquisition) and adjusted on June 30, 2009 as permitted by IFRS. This assets and liabilities were measured based on appraisals of tangible assets, consideration of advice provided by legal counsel for contingent liabilities in Provisions, and discounted cash flow analysis for all other assets and liabilities, taking into consideration the expected future economic benefits of the intangible assets.
(2) Amount relates to customer list with an estimated useful life of 10 years.
(3) Total consideration is based on amounts paid by the Santander Group for the acquisition of Banco Real.
(4) Includes R$124,684 thousand adjustment booked in the six months ended June 30, 2009 respective to a revision in the fair value of provisions, as permitted under IFRS 3.
The incorporation of Banco Real and AAB Dois Par into the Bank resulted in an increase in the Bank’s market share and distribution capacity and diversified the Bank’s portfolio, resulting in a stronger capital and liquidity position.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
If the acquisition had been completed on January 1, 2008, the Bank´s net interest income for the year ended December 31, 2008 would have been R$ 19,292 million (unaudited) and profit would have been R$ 3,219 million (unaudited).
b) Merger of Shares of Santander Seguros S.A. (Santander Seguros), Banco Comercial e de Investimento Sudameris S.A. (BCIS) and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. (Santander Brasil Asset)
The Extraordinary Stockholders' Meeting held on August 14, 2009, of Banco Santander, Santander Seguros, BCIS and Santander Brasil Asset approved the corporate restructuring as set out in the Agreement for the "Merger of Santander Seguros S.A., Banco Comercial e de Investimento Sudameris S.A. and Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. into the equity of Banco Santander (Brasil) S.A." (the merger agreement).
The Merger Agreement establishes the reasons and conditions for the corporate restructuring consisting of the merger of all the shares of Santander Seguros, Banco BCIS and Santander Brasil Asset into the equity of Banco Santander (Share Merger). As a result of the Share Merger, Santander Seguros, Banco BCIS and Santander Brasil Asset (Merged Companies) were transformed into wholly-owned subsidiaries of Banco Santander (Merging Company), under Article 252 of Law 6404/76. The stockholders’ equity of Banco Santander was increased in the amount of R$2,471,413 thousand to the corresponding value of the shares of Santander Seguros, the BCIS and Santander Asset Brazil, through the issuance of 14,410,886 shares (7,710,343 shares and 6,700,543 preferred shares), all registered shares with no par value, delivered to the respective shareholders of the Merged Companies.
The mergers were accounted by the Bank using the historical IFRS balance sheet of the merged companies as of June 30, 2009, since such mergers were accounted as a business combination under common control.
Considering the fact that such transaction is a merger of shares, the legal personality of Santander Seguros, Banco BCIS and Santander Brasil Asset were preserved and any variations subsequent to the date of their balance sheets were properly accounted for in their respective accounting books.
Santander Seguros' shares incorporation caused mutual ownership for Banco Santander and Santander Seguros. This united ownership will be eliminated within one year after the of the Extraordinary Stockholders´ meeting which have approved the shares incorporation, as established by the current regulation.
The merger of shares was approved by Bacen on September 28, 2009.
Balance sheets as of June 30, 2009 are presented below. The purpose of this information is to provide the position of impacts on equity related to these acquisitions.
| | | | 4. Cash and balances with the Brazilian Central Bank | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Cash and cash equivalents | 3,542,707 | 3,158,003 | 18,730,403 | of which: | | | | Cash | 3,542,707 | 3,158,003 | 3,630,669 | Money market investments(1) | - | - | 15,099,734 | Money market investments(2) | 17,607,917 | 12,456,450 | - | Central bank compulsory deposits(3) | 44,787,379 | 41,185,698 | 8,538,609 | Total | 65,938,003 | 56,800,151 | 27,269,012 | (1) Includes securities purchased under agreements to resell, short-term and present insignificant risk of changes in value. | (2) Includes securities purchased under agreements to resell, long term and not considered cash equivalents. |
| | | (3) Central bank compulsory deposits relate to a minimum balance financial institutions are required to maintain with the Brazilian Central Bank based on a percentage of deposits received from third parties, regarded as restricted use of resources. | Assets | | | 17,680,796 | | Of which: | | | | 5.Loans and amounts due from credit institutions | Debt instruments | | | 2,522,657 | | Equity instruments | | | 13,372,434 | | Loans and advances to customers | | | 172,190 | | Tangible assets | | | 4,072 | | | | Liabilities | | | 17,680,796 | | Of which: | | | | | Customer deposits | | | 918,682 | | Liabilities for insurance contracts | | | 13,350,163 | | Provisions | | | 159,758 | | Shareholders' equity | | | 2,471,413 | | | a)Breakdown |
Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Cash and cash equivalents | | | 18,730,403 | | | | 16,750,870 | | of which | | | | | | | | | Cash | | | 3,630,669 | | | | 3,218,899 | | Money market investments (1) | | | 15,099,734 | | | | 13,531,971 | | Central bank compulsory deposits (2) | | | 8,538,609 | | | | 6,949,630 | | | | | 27,269,012 | | | | 23,700,500 | |
(1) Federal funds sold and securities purchased under agreements to resell, which are short-term and present insignificant risk of changes in value.
(2) Central bank compulsory deposits relate to a minimum balance financial institutions are required to maintain with the Brazilian Central Bank based on a percentage of deposits received from third parties.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The breakdown, by classification, type and currency, of the balances of “Loans and advances toamounts due from credit institutions” in the consolidated balance sheets is as follows: | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Financial assets held for trading | - | 47,662 | 67,170 | Other financial assets at fair value through profit or loss | 60,813 | 292,034 | 1,907,265 | Loans and receivables | 19,628,861 | 22,658,520 | 24,228,143 | Of which: | | | | Loans and amounts due from credit institutions, gross | 19,690,528 | 22,658,520 | 24,228,143 | Impairment losses (note 9.c) | (61,667) | - | - | Loans and amounts due from credit institutions, net | 19,689,674 | 22,998,216 | 26,202,578 | Loans and amounts due from credit institutions, gross | 19,751,341 | 22,998,216 | 26,202,578 | | Type: | | | | Time deposits(2) | 7,136,037 | 9,110,447 | 9,945,047 | Reverse repurchase agreements(1)(2) | 1,039,551 | 599,999 | 6,160,397 | Escrow deposits | 6,868,943 | 7,316,926 | 6,192,292 | Cash and Foreign currency investments(2) | 4,247,179 | 5,826,715 | 3,493,254 | Other accounts | 459,631 | 144,129 | 411,588 | Total | 19,751,341 | 22,998,216 | 26,202,578 | | Currency: | | | | Brazilian Real | 15,067,109 | 17,412,613 | 20,775,625 | US dollar | 4,300,075 | 5,100,831 | 5,086,320 | Euro | 354,078 | 455,831 | 293,329 | Pound sterling | 4,519 | 3,046 | 14,729 | Other currencies | 25,560 | 25,895 | 32,725 | Impairment losses | - | - | (150) | Total | 19,751,341 | 22,998,216 | 26,202,578 | (1) Collateralized by debt instruments. | (2) Includes R$5,474,700 thousand (2010 - R$6,188,896 thousand), of transactions short-term transactions and low risk of change its value, considered cash equivalents. | | Note 41-d contains a detail of the residual maturity periods of loans and receivables and of the related average interest rates. |
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | Classification: | | | | | | | Financial assets held for trading | | | 67,170 | | | | - | | Other financial assets at fair value through profit or loss | | | 1,907,265 | | | | 4,046,898 | | Loans and receivables | | | 24,228,143 | | | | 29,691,635 | | | | | 26,202,578 | | | | 33,738,533 | | | Type: | | | | | | | | | Time deposits | | | 9,945,047 | | | | 10,702,723 | | Reverse repurchase agreements | | | 6,160,397 | | | | 4,582,903 | | Escrow deposits | | | 6,192,292 | | | | 6,200,677 | | Foreign currency investments | | | 3,493,254 | | | | 10,689,007 | | Other accounts | | | 411,588 | | | | 1,563,223 | | | | | 26,202,578 | | | | 33,738,533 | | | Currency: | | | | | | | | | Brazilian Real | | | 20,775,625 | | | | 22,661,621 | | US dollar | | | 5,086,320 | | | | 10,764,513 | | Euro | | | 293,329 | | | | 228,710 | | Pound sterling | | | 14,729 | | | | 13,252 | | Other currencies | | | 32,725 | | | | 70,861 | | Impairment losses | | | (150 | ) | | | (424 | ) | | | | 26,202,578 | | | | 33,738,533 | |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 6. Debt instruments | | | | | The breakdown, by classification, type and currency, of the balances of “Debt instruments” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Financial assets held for trading | 25,298,804 | 16,472,413 | 12,554,035 | Other financial assets at fair value through profit or loss | 230,037 | 224,388 | 210,973 | Available-for-sale financial assets | 43,300,354 | 45,477,982 | 44,745,924 | Loans and receivables | 62,062 | 81,444 | - | Total | 68,891,257 | 62,256,227 | 57,510,932 | | Type: | | | | Government securities - Brazil(1) | 56,833,361 | 55,443,469 | 53,620,439 | Government securities - others | - | 379,341 | 366,252 | Debentures and Promissory notes | 8,281,136 | 4,523,111 | 2,301,584 | Other debt securities | 3,776,760 | 1,910,306 | 1,252,332 | Impairment losses(2) | - | - | (29,675) | Total | 68,891,257 | 62,256,227 | 57,510,932 | | Currency: | | | | Brazilian Real | 68,187,067 | 61,329,205 | 56,782,142 | US dollar | 704,191 | 547,681 | 392,213 | Euro | - | 379,341 | 366,252 | Impairment losses(2) | - | - | (29,675) | Total | 68,891,257 | 62,256,227 | 57,510,932 | (1) Includes, substantially, National Treasury Bills (LTN), Treasury Bills (LFT) e National Treasury Notes (NTN-B, NTN-C e NTN-F). | (2) It was settled in 2010 the position in debentures and therefore written off the respective impairment loss. |
The breakdown, by classification, type and currency, of the balances of “Debt instruments” is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | Classification: | | | | | | | Financial assets held for trading | | | 12,554,035 | | | | 10,011,999 | | Other financial assets at fair value through profit or loss | | | 210,973 | | | | 93,274 | | Available-for-sale financial assets | | | 44,745,924 | | | | 29,491,191 | | | | | 57,510,932 | | | | 39,596,464 | | | Type: | | | | | | | | | Brazilian government securities | | | 54,580,584 | | | | 37,492,944 | | Other debt securities | | | 2,960,023 | | | | 2,132,409 | | Impairment losses | | | (29,675 | ) | | | (28,889 | ) | | | | 57,510,932 | | | | 39,596,464 | | | Currency: | | | | | | | | | Brazilian Real | | | 56,782,142 | | | | 38,965,760 | | US dollar | | | 392,213 | | | | 258,310 | | Euro | | | 366,252 | | | | 401,283 | | Impairment losses | | | (29,675 | ) | | | (28,889 | ) | | | | 57,510,932 | | | | 39,596,464 | |
At December 31, 2011, includes R$34,521,029 thousand (2010 - R$27,348,766 thousand e 2009 - R$2,590,485 thousand) of debt securities totaling R$2,590,485 thousand (2008 - R$ 3,916,554 thousand) had been assigned to repurchase agreements, R$17,994,4432,221,258 thousand (2008(2010 - R$17,970,8177,259,356 thousand e 2009 - R$ 17,994,443 thousand) to compulsory deposits in Central Bank, R$2,298,5618,851,981 thousand (2008(2010 - R$ 7,953,0414,316,863 thousand e 2009 - R$2,392,715 thousand) to guarantee BM&FBovespa derivative transactions and R$1,044,7033,066,458 thousand (2008(2010 -R$5,130,939 thousand e 2009 - R$ 1,370,7383,973,566 thousand) to escrow deposits and other guarantee. Additionally, in 2010 - R$17,425,576 thousand and 2009 -R$14,183,647 thousand related coverage of PGBL/VGBL and in 2010 - R$1,502,934 thousand and 2009 - R$1,563,334 thousand related to other investment funds.Note 41-d contains a detail of the residual maturity periods of available-for-sale financial assets and of loans and receivables and of the related average interest rates. 7. Equity instruments | | | | a) Breakdown | | | | | The breakdown, by classification and type, of the balances of “Equity instruments” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Financial assets held for trading | 448,209 | 3,283,931 | 2,544,441 | Other financial assets at fair value through profit or loss(1) | 374,519 | 17,423,359 | 13,787,109 | Available-for-sale financial assets | 1,307,847 | 1,728,037 | 1,660,196 | Total | 2,130,575 | 22,435,327 | 17,991,746 | | Type: | | | | Shares of Brazilian companies | 1,001,644 | 1,153,037 | 1,470,918 | Shares of foreign companies | 1,229 | 503 | 67,876 | Investment fund units and shares(1) | 1,127,702 | 21,281,787 | 16,452,952 | Total | 2,130,575 | 22,435,327 | 17,991,746 | (1) In 2010 and 2009, includes Investment fund units Guarantors of Benefit Plans - PGBL/VGBL, related to the liabilities for insurance contracts (note 3.a). | | b) Changes | | | | | The changes in the balance of “Equity instruments – Financial assets held for trading” were as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 3,283,931 | 2,544,441 | 678,993 | Changes in the scope of consolidation (note 3.a) | (1,643,066) | - | 1,722,965 | Net additions /disposals | (1,193,006) | 360,610 | (9,148) | Valuation adjustments | 350 | 378,880 | 151,631 | Balance at end of year | 448,209 | 3,283,931 | 2,544,441 |
F-30
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | The changes in the balance of “Equity instruments – Other financial assets at fair value through profit or loss” were as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 17,423,359 | 13,787,109 | - | Changes in the scope of consolidation (note 3.a) | (19,819,585) | - | 11,257,572 | Net additions /disposals | 374,518 | 2,480,188 | - | Valuation adjustments(1) | 2,396,227 | 1,156,062 | 2,529,537 | Balance at end of year | 374,519 | 17,423,359 | 13,787,109 |
a) Breakdown
The breakdown, by classification and type,(1) Refers to variation of the balances of “Equity instruments” is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Classification: | | | | | | | Financial assets held for trading | | | 2,544,441 | | | | 678,993 | | Other financial assets at fair value through profit or loss | | | 13,787,109 | | | | - | | Available-for-sale financial assets | | | 1,660,196 | | | | 1,244,490 | | | | | 17,991,746 | | | | 1,923,483 | | | | Type: | | | | | | | | | Shares of Brazilian companies | | | 1,470,918 | | | | 1,015,603 | | Shares of foreign companies | | | 67,876 | | | | 312,402 | | Investment fund units and shares(1) | | | 16,452,952 | | | | 595,478 | | | | | 17,991,746 | | | | 1,923,483 | |
(1) In 2009, includes Investment fund units Guarantors of Benefit Plans - PGBL/VGBL are accounted as income in "Other operating income (expense) - Expense from insurance contracts" net of the variations of their technical provisions. | | | | | | | The changes in the balance of “Equity instruments – Available-for-sale financial assets” were as follows: | | Thousands of Reais | | | | 2011 | 2010 | 2009 | | Balance at beginning of year | | | | 1,728,037 | 1,660,196 | 1,244,490 | Net changes in the scope of consolidation (note 3.a) | | | | (18,539) | - | 4,526 | Net additions /disposals | | | | (319,221) | (22,584) | 192,600 | Valuation adjustments | | | | (82,430) | 90,425 | 218,580 | Balance at end of year | | | | 1,307,847 | 1,728,037 | 1,660,196 | | 8. Derivative financial instruments and Short positions | | a) Notional amounts and market values of trading and hedging derivatives | | The breakdown of the notional and/or contractual amounts and the market values of the trading and hedging derivatives held by the Bank is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Notional Amount | Market Value | Notional Amount | Market Value | Notional Amount | Market Value | Trading derivatives | | | | | | | Interest rate risk and other: | | | | | | | Interest rate swaps | 51,472,807 | 2,808,157 | 53,050,746 | 15,076,839 | 50,761,630 | 12,646,099 | Options - purchase and sales | 258,827,369 | (343,371) | 351,261,588 | (136,695) | 181,501,740 | 33,762 | Forward and futures contracts | 64,819,935 | 16,780 | 81,921,145 | 10,289 | 32,263,081 | - | Foreign currency risk: | | | | | | | Currency swaps(1) | 47,621,292 | (3,004,037) | 36,923,396 | (14,522,887) | 40,616,308 | (11,648,297) | Options - purchase and sales | 7,785,211 | 14,014 | 12,351,165 | 2,193 | 28,983,489 | (333,259) | Forward and futures contracts | 58,267,968 | (46,721) | 26,713,978 | (167,694) | 22,063,175 | (150,008) | | 488,794,582 | (555,178) | 562,222,018 | 262,045 | 356,189,423 | 548,297 | Hedging derivatives | | | | | | | Interest rate risk: | | | | | | | Futures contracts(2) (3) | 1,794,034 | - | 7,165,189 | - | 15,294,094 | - | Interest rate swaps(4) | 417,731 | 44,637 | 549,276 | 115,528 | 1,249,645 | 153,619 | | 2,211,765 | 44,637 | 7,714,465 | 115,528 | 16,543,739 | 153,619 | Total | 491,006,347 | (510,541) | 569,936,483 | 377,573 | 372,733,162 | 701,916 |
(1) Includes credit derivatives, which the Bank uses to reduce or eliminate its exposure to specific risks arising from the purchase or sale of assets associated with the credit portfolio management. In 2011, the volume of credit derivatives with total return rate – credit risk received corresponds to R$500,425 thousand (2010 - R$444,330 thousand and 2009 – R$527,532 thousand) of fair value. During the period there were no credit events related to events provided for in the liabilities for insurancecontracts. Required base capital used amounted to R$3,291 thousand (2010 - R$8,121 thousand and 2009 – R$7,498 thousand). (2) Futures contracts registered at BM&FBovespa has positions receivables and payables settled daily.
(3) In the first quarter of 2011, due to the incorporationbusiness strategy, the structures of Santander Seguros (Nota 3 b.).
b) Changes
hedge cash flow as they had hedged certificates of deposit (CDB) were discontinued. The changesnet effect of the outstanding debt in equity will be repaid by January 2012, the balanceremaining term of “Equity instruments – Financial assets held for trading” were as follows: | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Balance at beginning of year | | | 678,993 | | | | 340,267 | | Changes in the scope of consolidation (note 3 | | | 1,722,965 | | | | 301,377 | | Net additions /disposals | | | (9,148 | ) | | | (97,755 | ) | Valuation adjustments | | | 151,631 | | | | 135,104 | | Balance at end of year | | | 2,544,441 | | | | 678,993 | |
the hedging instruments. (4) The changes in the balance of “Equity instruments – Other financial assets at faircurve value through profit or loss” were as follows: | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Balance at beginning of year | | | - | | | | - | | Changes in the scope of consolidation (note 3) | | | 11,257,572 | | | | - | | Valuation adjustments | | | 2,529,537 | | | | - | | Balance at end of year | | | 13,787,109 | | | | - | |
The changes in the balance of “Equity instruments – Available-for-sale financial assets” were as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | Balance at beginning of year | | | 1,244,490 | | | | 2,618,697 | | Net changes in the scope of consolidation (note 3 | | | 4,526 | | | | 79,770 | | Net additions /disposals | | | 192,600 | | | | (284,934 | ) | Of which: | | | | | | | | | Companhia Energética de São Paulo - CESP | | | - | | | | (373,670 | ) | Fundos de Investimento em Direitos Creditórios - FIDC | | | - | | | | (85,246 | ) | Wtorre Empreendimentos Imobiliários S.A. | | | - | | | | 299,091 | | Visa Inc | | | (228,138 | ) | | | - | | COLI - Fundo Investimento em Participações Coliseu | | | 288,383 | | | | - | | Santelisa Vale Bionergia S.A | | | 48,598 | | | | - | | Santelisa Vale S.A. PN | | | 69,526 | | | | - | | Valuation adjustments | | | 218,580 | | | | (1,169,043 | ) | Balance at end of year | | | 1,660,196 | | | | 1,244,490 | |
a) Trading derivatives
The detail, by type of inherent risk, of the fair value of loans and advance to customers classified as hedge market risk item is R$342,437 thousand (December 31, 2010 - R$429,896 thousand) and R$346,260 thousand (December 31, 2010 - R$443,446 thousand), respectively.The notional and/or contractual amounts of the trading derivatives arrangedcontracts entered into do not reflect the actual risk assumed by the Bank, since the net position in these financial instruments is the result of offsetting and/or combining them. This net position is used by the Bank basically to hedge the interest rate, underlying asset price or foreign currency risk; the results on these financial instruments are recognized under “Gains/losses on financial assets and liabilities (net)” in the consolidated income statements and increase or offset, as follows (note 41-a):appropriate, the gains or losses on the investments hedged. Additionally, in order to interpret correctly the results on the “Securities and Commodities Derivatives” shown in the foregoing table, it should be considered that these items relate mostly to securities options for which a premium has been received which offsets their negative market value. Also, this market value is offset by positive market values generated by symmetrical positions in the Bank’s held-for-trading portfolio. The Bank manages the credit risk exposure of these contracts through netting arrangements with its main counterparties and by receiving assets as collateral for its risk positions. F-31
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Debit Balance | | | Credit Balance | | | Debit Balance | | | Credit Balance | | Interest rate risk | | | 4,291,939 | | | | 3,327,827 | | | | 5,145,948 | | | | 8,197,517 | | Foreign currency risk | | | 630,711 | | | | 1,040,600 | | | | 4,111,758 | | | | 2,973,718 | | Price risk | | | 27,356 | | | | 33,282 | | | | 36,449 | | | | 26,368 | | Other risks | | | - | | | | - | | | | 853 | | | | (335 | ) | | | | 4,950,006 | | | | 4,401,709 | | | | 9,295,008 | | | | 11,197,268 | |
b) Short positions
Short positions for 2009 and 2008 are related to Equity instruments from borrowed securities.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | b) Trading derivatives | | | | | | | | The breakdown of the notional and/or contractual amounts of trading derivative by maturity is as follows: | | Thousands of Reais | | 2011 | 2010 | 2009 | | Up to 3 months | From 3 to 12 months | Over 12 months | Total | Total | Total | | Swap | 26,822,206 | 20,790,385 | 51,481,508 | 99,094,099 | 89,974,142 | 91,377,938 | Options | 205,148,983 | 46,243,577 | 15,220,020 | 266,612,580 | 363,612,753 | 210,485,229 | Futures contracts | 61,622,162 | 6,299,968 | 32,438,882 | 100,361,012 | 94,302,441 | 44,886,986 | Forward contracts and Others | 14,871,654 | 4,105,167 | 3,750,070 | 22,726,891 | 14,332,682 | 9,439,270 | Total | 308,465,005 | 77,439,097 | 102,890,480 | 488,794,582 | 562,222,018 | 356,189,423 | | Thousands of Reais | | 2011 | 2010 | 2009 | | Exchange(1) | Cetip(2) | Over the Counter | Total | Total | Total | | Swap | 31,839,671 | 41,448,124 | 25,806,304 | 99,094,099 | 89,974,142 | 91,377,938 | Options | 266,092,016 | 377,701 | 142,863 | 266,612,580 | 363,612,753 | 210,485,229 | Futures contracts | 100,361,012 | - | - | 100,361,012 | 94,302,441 | 44,886,986 | Forward contracts and Others | 17,427 | 14,680,915 | 8,028,549 | 22,726,891 | 14,332,682 | 9,439,270 | Total | 398,310,126 | 56,506,740 | 33,977,716 | 488,794,582 | 562,222,018 | 356,189,423 | (1) Includes trades with the BM&FBovespa and other securities and commodities exchanges. | (2) Includes amount traded on other clearinghouses. | | The detail of the fair value of the trading derivatives reported in assets and liabilities: | | Thousands of Reais | 2011 | 2010 | 2009 | | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | | Swap Differentials Receivable/Payable(1) | 3,254,929 | 3,512,724 | 4,328,952 | 3,775,000 | 3,998,568 | 3,000,766 | Option Premiums to Exercise | 208,117 | 537,474 | 210,232 | 344,734 | 570,923 | 870,420 | Forward Contracts and others | 691,436 | 659,462 | 478,175 | 635,580 | 380,515 | 530,523 | Total | 4,154,482 | 4,709,660 | 5,017,359 | 4,755,314 | 4,950,006 | 4,401,709 | (1) Includes swap options, credit and embedded derivatives. | | c) Market risk hedge | | | 2011 | 2010 | Thousands of Reais | Cost | Fair value | Adjustment to fair value | Cost | Fair value | Adjustment to fair value | | Hedge instruments | | | | | | | Swap Contracts | 74,928 | 76,175 | 1,247 | 118,348 | 115,528 | (2,820) | Asset | 417,731 | 453,595 | 35,864 | 549,276 | 557,766 | 8,490 | Interbank Deposit Rates - CDI | 145,940 | 146,711 | 771 | 424,211 | 426,852 | 2,641 | Indexed to Foreign Currency - Libor - Dollar | 271,791 | 306,884 | 35,093 | 125,065 | 130,914 | 5,849 | Liabilities | (342,803) | (377,420) | (34,617) | (430,928) | (442,238) | (11,310) | Indexed to Foreign Currency - Dollar | (101,410) | (102,318) | (908) | (305,837) | (311,367) | (5,530) | Indexed to Foreign Currency - Fixed - Dollar | (55,498) | (60,565) | (5,067) | (125,091) | (130,871) | (5,780) | Interbank Deposit Rates - CDI | (185,895) | (214,537) | (28,642) | - | - | - | | Hedge Object | 342,473 | 346,260 | 3,787 | 429,896 | 443,446 | 13,550 | Credit Portfolio | 342,473 | 346,260 | 3,787 | 429,896 | 443,446 | 13,550 | Indexed to Foreign Currency - Dollar | 100,871 | 102,321 | 1,450 | 304,794 | 311,381 | 6,587 | Indexed to Foreign Currency - Fixed - Dollar | 55,663 | 60,565 | 4,902 | 125,102 | 132,065 | 6,963 | Interbank Deposit Rates - CDI | 185,939 | 183,374 | (2,565) | - | - | - |
F-32
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | | | | | | | 2009 | Thousands of Reais | | | | | Cost | Fair value | Adjustment to fair value | | Hedge instruments | | | | | | | | Swap Contracts | | | | | 169,931 | 153,619 | (16,312) | Asset | | | | | 1,249,645 | 1,259,020 | 9,375 | Interbank Deposit Rates - CDI | | | | | 862,027 | 867,810 | 5,783 | Indexed to Foreign Currency - Pound | | | | | 387,618 | 391,210 | 3,592 | Liabilities | | | | | (1,079,714) | (1,105,401) | (25,687) | Indexed to Foreign Currency - Dollar | | | | | (1,075,922) | (1,101,588) | (25,666) | Fixed Interest Rate - Reais | | | | | (3,792) | (3,813) | (21) | | Hedge Object | | | | | 1,073,020 | 1,100,046 | 27,026 | Credit Portfolio | | | | | 685,405 | 708,566 | 23,161 | Indexed to Foreign Currency - Dollar | | | | | 681,613 | 704,753 | 23,140 | Fixed Interest Rate - Reais | | | | | 3,792 | 3,813 | 21 | Borrowings | | | | | 387,615 | 391,480 | 3,865 | Indexed to Foreign Currency - Pound | | | | | 387,615 | 391,480 | 3,865 | | d) Cash flow hedge | | | | | | | | | | | 2011 | 2010 | Thousands of Reais | Reference Value | Cost | Fair Value | Adjustment to Fair Value | Reference Value | Cost/ Market | Adjustment to Fair Value | | Hedge instruments | | | | | | | | Swap Contracts | - | (30,354) | (31,538) | (1,184) | - | - | - | Asset | 651,490 | 651,490 | 678,479 | 26,989 | - | - | - | Indexed to Foreign Currency - Swiss Franc(1) | 300,488 | 300,488 | 326,280 | 25,792 | - | - | - | Indexed to Pre Interest Rate- Real(2) | 351,002 | 351,002 | 352,199 | 1,197 | - | - | - | Liabilities | (681,844) | (681,844) | (710,017) | (28,173) | - | - | - | Indexed to Foreign Currency - Pre Dolar | (681,844) | (681,844) | (710,017) | (28,173) | - | - | - | Future Contracts(3)(4) | (1,794,034) | - | - | - | (6,850,698) | - | - | DI1 Rate | (1,794,034) | - | - | - | (6,850,698) | - | - | | | | | | | 2009 | Thousands of Reais | | | | | Reference Value | Cost/ Market | Adjustment to Fair Value | | Hedge instruments | | | | | | | | Future Contracts(4) | | | | | (15,294,094) | - | - | DI1 Rate | | | | | (15,294,094) | - | - | | | | | | | | | | Thousands of Reais | | | | | 2011 | 2010 | 2009 | | Hedge Object - Cost | | | | | 2,518,986 | 7,385,636 | 15,337,856 | Eurobonds | | | | | 300,803 | - | - | Foreign Loans | | | | | 351,002 | - | - | Bank Deposit Certificate- CDB | | | | | 1,867,181 | 7,385,636 | 15,337,856 | (1) Operation with maturing on December 1, 2014, whose object of hedge transactions are eurobonds. | (2) Operation with maturing on June 15, 2012, whose object of hedge transactions are obligations with foreign loans. |
a) Breakdown
(3) In 2011, operation with maturing on January 2, 2014, and the updated amount of instruments is R$1,812,796 (2010 - R$7,165,189) whose object of hedge are Bank deposits certificates (CDB). (4) The breakdown, by classification,opened operations in 2010 and 2009, in the first quarter of 2011, due to business strategy, the structures of hedge cash flow which had the object are hedge bank deposits certificates (CDB) have been discontinued in the first quarter of 2011. The net effect of the balancesoutstanding equity will be amortized up to January 2012, the remaining term of “Loansthe hedging instruments. The effect of marking to market the swaps and advancesfuture contracts amounts R$15,149 is recorded in stockholders' equity, net of tax effects. e) Short positions Short positions for 2011, 2010 and 2009 are related to customers”Equity instruments from borrowed securities. F-33
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 9. Loans and advances to customers | | a) Breakdown | | | | | The breakdown, by classification, of the balances of “Loans and advances to customers” in the consolidated balance sheets is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Other financial assets at fair value through profit or loss | - | - | 389,113 | Loans and receivables(1) | 183,066,268 | 151,366,561 | 127,934,811 | Of which: | | | | Loans and receivables at amortized cost | 194,184,437 | 160,558,323 | 138,005,290 | Impairment losses | (11,118,169) | (9,191,762) | (10,070,479) | Loans and advances to customers, net | 183,066,268 | 151,366,561 | 128,323,924 | Loans and advances to customers, gross | 194,184,437 | 160,558,323 | 138,394,403 |
(1) In 2011, the consolidated balance sheets is as follows:Bank, through its Grand Cayman branch, acquired from Banco Santander Spain, under commutative conditions, asset portfolio of contracts for financing export and import credit, related to operations contracted with brazilian clients or their affiliates abroad, amounting to US$943 million (2010 - US$808 million). | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Type: | | | | Loans operations(1) | 192,681,804 | 159,184,714 | 137,062,083 | Repurchase agreements | 337,986 | 167,163 | 72,555 | Other receivables | 1,164,647 | 1,206,446 | 1,259,765 | Total | 194,184,437 | 160,558,323 | 138,394,403 | (1) Includes loans, leasing and other loans with credit characteristics. |
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Other financial assets at fair value through profit or loss | | | 389,113 | | | | 1,434,789 | | Loans and receivables | | | 127,934,811 | | | | 133,033,471 | | Of which: | | | | | | | | | Loans and receivables at amortized cost | | | 138,005,290 | | | | 141,214,627 | | Impairment losses | | | (10,070,479 | ) | | | (8,181,156 | ) | Loans and advances to customers, net | | | 128,323,924 | | | | 134,468,260 | | Loans and advances to customers, gross | | | 138,394,403 | | | | 142,649,416 | |
Note 41-d contains a detail of the residual maturity periods of loans and receivables and of the related average interest rates. There are no loans and advances to customers for material amounts without fixed maturity dates. Following is a detail, by loan type and status, borrower sector and interest rate formula, of the loans and advances to customers, which reflect the Bank’s exposure to credit risk in its core business, gross of impairment losses: | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Loan borrower sector: | | | | Commercial, financial and industrial | 94,921,748 | 78,101,177 | 66,600,944 | Real estate-construction | 6,280,168 | 5,392,015 | 3,828,675 | Real estate-mortgage | 10,017,772 | 6,698,125 | 5,225,798 | Installment loans to individuals | 76,458,873 | 60,250,581 | 49,103,083 | Lease financing | 6,505,876 | 10,116,425 | 13,635,903 | Total(1) | 194,184,437 | 160,558,323 | 138,394,403 | (1) It includes commercial credit, secured loans, reverse repurchase agreements, finance leases, other term loans and impaired assets. | | Interest rate formula: | | | | Fixed interest rate | 133,503,436 | 98,669,915 | 90,663,927 | Floating rate | 60,681,001 | 61,888,408 | 47,730,476 | Total | 194,184,437 | 160,558,323 | 138,394,403 | | c) Impairment losses | | | | | The changes in the allowances for the impairment losses on the balances of “Loans and receivables” were as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 9,191,762 | 10,070,479 | 8,181,156 | Impairment losses charged to income for the year | 11,190,886 | 9,050,547 | 10,520,390 | Of which: | | | | Commercial, financial and industrial | 2,943,221 | 3,097,195 | 3,071,839 | Real estate-mortgage | 97,472 | 70,538 | 27,531 | Installment loans to individuals | 7,972,084 | 5,780,316 | 7,197,954 | Lease finance | 178,109 | 102,498 | 223,066 | Write-off of impaired balances against recorded impairment allowance | (9,202,812) | (9,929,264) | (8,631,067) | Of which: | | | | Commercial, financial and industrial | (2,469,617) | (3,209,180) | (3,072,849) | Real estate-mortgage | (36,447) | (42,026) | (31,177) | Installment loans to individuals | (6,484,338) | (6,508,585) | (5,377,097) | Lease finance | (212,410) | (169,473) | (149,944) | Balance at end of year | 11,179,836 | 9,191,762 | 10,070,479 | Of which: | | | | Loans and advances to customers | 11,118,169 | 9,191,762 | 10,070,479 | Loans and amounts due from credit institutions (Note 5.a) | 61,667 | - | - |
F-34
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | Loan type and status: | | | | | | | Commercial credit | | | 429,588 | | | | 629,177 | | Secured loans | | | 31,595,312 | | | | 29,518,688 | | Reverse repurchase agreements | | | 72,555 | | | | 5,111 | | Other term loans | | | 83,662,056 | | | | 83,328,780 | | Finance leases | | | 12,534,102 | | | | 11,836,050 | | Others | | | 200,906 | | | | 9,601,146 | | Impaired assets | | | 9,899,884 | | | | 7,730,464 | | | | | 138,394,403 | | | | 142,649,416 | | | | Loan borrower sector: | | | | | | | | | Commercial, financial and industria | | | 69,301,774 | | | | 76,406,755 | | Real estate-construction | | | 3,828,300 | | | | 2,469,227 | | Real estate-mortgage | | | 5,225,957 | | | | 4,472,602 | | Installment loans to individuals | | | 47,036,774 | | | | 46,856,869 | | Lease financing | | | 13,001,598 | | | | 12,443,963 | | | | | 138,394,403 | | | | 142,649,416 | | | | Interest rate formula: | | | | | | | | | Fixed interest rate | | | 90,663,927 | | | | 79,074,052 | | Floating rate | | | 47,730,476 | | | | 63,575,364 | | | | | 138,394,403 | | | | 142,649,416 | |
c) Impairment losses
The changes in the allowances for the impairment losses on the balances of “Loans and receivables - Loans and advances to customers” were as follows:
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | Balance at beginning of year | | | 8,181,156 | | | | 2,249,432 | | | | 2,170,380 | | Impairment losses charged to income for the year | | | 10,520,390 | | | | 4,533,301 | | | | 2,473,689 | | Of which: | | | | | | | | | | | | | Commercial, financial and industrial | | | 3,071,839 | | | | 1,451,583 | | | | 260,532 | | Real estate-mortgage | | | 27,531 | | | | 25,939 | | | | 6,175 | | Installment loans to individuals | | | 7,197,954 | | | | 2,951,494 | | | | 2,179,544 | | Lease finance | | | 223,066 | | | | 104,285 | | | | 27,438 | | Inclusion of entities in the Bank in the year | | | - | | | | 4,717,191 | | | | - | | Of which: | | | | | | | | | | | | | Commercial, financial and industrial | | | - | | | | 1,987,596 | | | | - | | Real estate-mortgage | | | - | | | | 48,301 | | | | - | | Installment loans to individuals | | | - | | | | 2,609,890 | | | | - | | Lease finance | | | - | | | | 71,404 | | | | - | | Write-off of impaired balances against recorded impairment allowance | | | (8,631,067 | ) | | | (3,318,768 | ) | | | (2,394,637 | ) | Of which: | | | | | | | | | | | | | Commercial, financial and industrial | | | (3,072,849 | ) | | | (738,611 | ) | | | (309,529 | ) | Real estate-mortgage | | | (31,177 | ) | | | (13,279 | ) | | | (7,175 | ) | Installment loans to individuals | | | (5,377,097 | ) | | | (2,513,112 | ) | | | (2,027,492 | ) | Lease finance | | | (149,944 | ) | | | (53,766 | ) | | | (50,441 | ) | Balance at end of year | | | 10,070,479 | | | | 8,181,156 | | | | 2,249,432 | | | | Recoveries of loans previously charged off | | | 537,509 | | | | 430,656 | | | | 293,846 | |
Taking into account these amounts and those recognized in “Impairment losses charged to income for the year” in the foregoing table, impairment losses on “Loans and receivables” amounted to R$9,982,881 thousand, R$ 4,102,645 thousand in 2008 and R$2,179,843 thousand in 2007.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | Thousands of Reais | 2011 | 2010 | 2009 | | Recoveries of loans previously charged off | 1,809,337 | 817,635 | 537,509 | Of which: | | | | Commercial, financial and industrial | 352,638 | 88,507 | 41,995 | Real estate-mortgage | 65,323 | 68,792 | 57,757 | Installment loans to individuals | 1,331,104 | 634,779 | 420,366 | Lease finance | 60,272 | 25,557 | 17,391 |
Taking into account these amounts recognized in “Impairment losses charged to income for the year” and the "Recoveries of loans previously charged off", the "Impairment losses on financial assets - Loans and receivables” amounted to R$9,381,549 thousand in 2011, R$8,232,912 thousand in 2010, R$9,982,881 thousand in 2009. d) Impaired assets The detail of the changes in the balance of the financial assets classified as “Loans and receivables – loans and advances to customers” and considered to be impaired due to credit risk is as follows: | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 9,348,648 | 9,899,884 | 7,730,464 | Net additions | 12,926,857 | 9,378,028 | 10,800,487 | Written-off assets | (9,202,812) | (9,929,264) | (8,631,067) | Balance at end of year | 13,072,693 | 9,348,648 | 9,899,884 | | This amount, after deducting the related allowances, represents the Bank’s best estimate of the fair value of the impaired assets. | | Following is a detail of the financial assets considered to be impaired classified by age of the oldest past-due amount: | | Thousands of Reais | 2011 | 2010 | 2009 | | With no Past-Due Balances or Less than 3 Months Past Due | 5,480,930 | 3,002,651 | 1,725,651 | With Balances Past Due by | | | | 3 to 6 Months | 2,473,485 | 2,450,311 | 2,813,568 | 6 to 12 Months | 4,342,172 | 3,171,528 | 4,818,827 | 12 to 18 Months | 445,032 | 372,151 | 493,371 | 18 to 24 Months | 311,679 | 293,796 | 30,770 | More than 24 Months | 19,395 | 58,211 | 17,697 | Total | 13,072,693 | 9,348,648 | 9,899,884 |
Normally, the Bank writes-off its loans when they have arrears of more than 360 days. In the case of long term loans (over 3 years), they are written-off when they complete 540 days of delay. The loss is recorded in a compensation account for a minimum of 5 years and while not exhausted all procedures for collection. | | | | e) Lease portfolio at present value | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Gross investment in lease transactions | 7,991,849 | 12,921,149 | 18,199,753 | Lease receivables | 5,720,996 | 8,721,847 | 11,165,564 | Unrealized residual values(1) | 2,270,853 | 4,199,302 | 7,034,189 | Unearned income on lease | (5,570,537) | (8,496,306) | (10,858,258) | Offsetting residual values | (2,270,853) | (4,199,302) | (7,034,188) | Leased property and equipment | 16,485,919 | 21,304,308 | 24,214,659 | Accumulated depreciation | (11,346,459) | (12,324,135) | (10,041,819) | Excess depreciation | 8,049,256 | 9,805,118 | 8,781,285 | Losses on unamortized lease | 198,119 | 166,451 | 154,887 | Advances for guaranteed residual value | (7,050,545) | (9,107,457) | (9,824,700) | Other assets | 19,127 | 46,599 | 44,284 | Total | 6,505,876 | 10,116,425 | 13,635,903 | (1) Guaranteed residual value of lease agreements. | | | |
Leasing unrealized financial income (Income to appropriate related to Minimum payments to receive) is R$1,485,973 thousand (2010 - R$2,804,729 thousand and 2009 -R$4,563,850 thousand). As of December 31, 2011, 2010 and 2009 there were no material agreements for lease contracts. F-35
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | Balance at beginning of year | | | 7,730,464 | | | | 2,092,787 | | | | 2,009,508 | | Net additions | | | 10,800,487 | | | | 5,035,515 | | | | 2,477,916 | | Written-off assets | | | (8,631,067 | ) | | | (3,318,768 | ) | | | (2,394,637 | ) | Increase in scope of consolidation | | | - | | | | 3,920,930 | | | | - | | Balance at end of year | | | 9,899,884 | | | | 7,730,464 | | | | 2,092,787 | |
Table of Contents | | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | Breakdown by maturity | | | | | Gross investment in lease transactions | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Overdue | 214,378 | 322,851 | 339,103 | Due to: | | | | Up to 1 year | 3,728,746 | 5,207,603 | 6,330,608 | From 1 to 5 years | 4,042,054 | 7,384,925 | 11,523,166 | Over 5 years | 6,671 | 5,770 | 6,876 | Total | 7,991,849 | 12,921,149 | 18,199,753 | | Report per lease portfolio maturity at present value | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Overdue | 143,337 | 228,222 | 258,589 | Due to: | | | | Up to 1 year | 3,427,190 | 4,796,604 | 5,733,608 | From 1 to 5 years | 2,932,795 | 5,089,299 | 7,639,674 | Over 5 years | 2,554 | 2,300 | 4,032 | Total | 6,505,876 | 10,116,425 | 13,635,903 |
This amount, after deductingf) Transfer of financial assets with retention of risks and benefits In December 2011, the related allowances, represents the Bank’s best estimateBank made a credit assignment with recourse amounting R$688,821 thousand, with retention of risks and benefits; this sale was not written off. The agreements and parts there of purpose of the fair valueassignment refer to real estate financing maturing up to October 2041. On December 31, 2011, the amount recorded on “Loans and advances to customers” referring to those assigned operations is R$686,587 thousand, and R$R$686,015 thousand of “Financial Liabilities Associated with the Transfer of Assets”. The assignment operation was conducted with a co-obligation clause and the mandatory repurchase is provided for in the following events: - agreements in default for longer than 90 consecutive days; - agreements under renegotiation; - agreements subject to portability, pursuant to Resolution 3,401 of the impaired assets. Following is a detailBrazilian Monetary Council (CMN);- agreements subject to intervenience.The amount of mandatory repurchase will be calculated based on the outstanding balance of credit duly updated on the date of said repurchase. As of the financial assets classified as loans and receivables and considereddate of assignment, the cash flows of assigned operations will be paid directly to be impaired due to credit risk at December 31, 2009 and 2008, classified by age of the oldest past-due amount: | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | With no Past-Due Balances or Less than 3 Months Past Due | | | 1,725,651 | | | | 2,214,111 | | With Balances Past Due by | | | | | | | | | 3 to 6 Months | | | 2,813,568 | | | | 2,259,350 | | 6 to 12 Months | | | 4,818,827 | | | | 3,048,197 | | 12 to 18 Months | | | 493,371 | | | | 182,799 | | 18 to 24 Months | | | 30,770 | | | | 8,515 | | More than 24 Months | | | 17,697 | | | | 17,492 | | Total | | | 9,899,884 | | | | 7,730,464 | |
At December 31, 20092011, 2010 and December 31, 2008,2009, the total amount of non-current assets held for sale includes foreclosed assets and other tangible assets. a) Breakdown
The breakdown, by company, of the balance of “Investments in associates” (see note 2-b)"Non-current assets held for sale" is as follows: | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 167,526 | 355,285 | 291,002 | Foreclosures loans and other assets transferred(1) | 24,874,974 | 38,037 | 228,267 | Sales(1) (2) | (24,819,126) | (225,796) | (183,195) | Acquired companies | - | - | 19,211 | Final balance, gross(3) | 223,374 | 167,526 | 355,285 | Impairment losses | (90,986) | (100,705) | (183,821) | Impairment as a percentage of foreclosed assets | 40.73% | 60.11% | 51.74% | Balance at end of year | 132,388 | 66,821 | 171,464 |
Thousands of Reais | | | Participation % | | | Investments | | | Results from companies accounted for by the equity method | | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | 2007 | | | | Norchem Holding e Negócios S.A. | | | | 21.75 | % | | | 21.75 | % | | | 24,056 | | | | 21,186 | | | | 2,870 | | | | 1,899 | | | | 2,950 | | Norchem Participações e Consultoria S.A. | | | | 50.00 | % | | | 50.00 | % | | | 28,918 | | | | 27,621 | | | | 1,297 | | | | 3,046 | | | | 3,916 | | Companhia de Crédito, Financiamento e | | | | 39.64 | % | | | 39.59 | % | | | 101,303 | | | | 82,087 | | | | 16,720 | | | | 2,639 | | | | - | | Investimento RCI Brasil | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 39.88 | % | | | 39.88 | % | | | 189,088 | | | | 179,072 | | | | 13,133 | | | | 4,548 | | | | - | | Companhia de Arrendamento Mercantil RCI Brasil | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Celta Holding S.A. | | | | 26.00 | % | | | 26.00 | % | | | 65,612 | | | | 61,468 | | | | 4,267 | | | | 30,676 | | | | - | | ABN AMRO Brasil Dois Participações S.A. (5) | | | | - | | | | - | | | | - | | | | - | | | | 126,442 | | | | - | | | | - | | Real Seguros Vida e Previdência S.A. (current | | | | - | | | | 49.99 | % | | | - | | | | 86,980 | | | | 8,766 | | | | 14,338 | | | | - | | denomination of Real Tókio Marine Vida e | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Previdência S.A.) (4) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Diamond Finance Promotora de Vendas(5) | | | | - | | | | 25.50 | % | | | - | | | | 787 | | | | 106 | | | | 564 | | | | - | | Fonet Brasil S.A. (3)(5) | | | | - | | | | 50.99 | % | | | - | | | | 7,644 | | | | (1,324 | ) | | | (539 | ) | | | - | | Companhia Brasileira de Meios de Pagamento - | | | | - | | | | 14.87 | % | | | - | | | | 104,409 | | | | 115,796 | | | | 50,726 | | | | - | | Visanet (2)(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cibrasec - Companhia Brasileira de Securitização(2) | | | | 13.64 | % | | | 13.64 | % | | | 10,145 | | | | 9,933 | | | | 475 | | | | (49 | ) | | | (785 | ) | | | Tecban - Tecnologia Bancária S.A. (5) | | | | - | | | | 20.68 | % | | | - | | | | 32,044 | | | | 531 | | | | 271 | | | | (197 | ) | Companhia Brasileira de Soluções e Serviços - | | | | - | | | | 15.32 | % | | | - | | | | 20,364 | | | | 6,335 | | | | 3,892 | | | | - | | CBSS (5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interchange Serviços S.A. (1) | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 319 | | | | - | | Total | | | | | | | | | | | | 419,122 | | | | 633,595 | | | | 295,414 | | | | 112,330 | | | | 5,884 | |
(1) Changes in the scopeIn 2011, includes R$24,731,463 thousand of consolidationassets of Santander Seguros. Additionally, were sold R$22,349,428 thousand of liabilities directly associated with non-current assets held for sale of Santander Seguros. The assets and subsequently sold during 2008. (2) Although the participations were less than 20%, the bank presumed significant influence on such participations, which was evidenced dueliabilities related to the bank’s representation on the board of directors of investees, participation in policy-making process, including participation in decisions about dividends and material transactions between the bank and the investees.
(3) Although the Bank possesses a minimum of 50% on each of these companies, they are not consolidated, as the Bank does not have control of such entities, either through veto rights or other shareholders’ agreement items.
(4) The company has become consolidated by the Bank, as part of the mergersale of Santander Seguros into(note 3.a) are presents at net by cash flow statement.(2) Includes sale of administrative buildings, and in 2010, mainly related to the Bank, approved on August 14, 2009, as described in note 2.b.move to new headquarter.(3) Refers mainly to buildings and incorporated by Santander Seguros in September 2009.vehicles due to executions of loans.F-36 (5) Investment sold in 2009.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | 11. Investments in associates | | | | | | | | a) Breakdown | | | | | | | | The breakdown, by company, of the balance of “Investments in associates” (see note 2-b) is as follows: | | Thousands of Reais | | Participation % | | | Investments | | | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | | Norchem Holding e Negócios S.A. | 21.75% | 21.75% | 21.75% | 24,200 | 22,325 | 24,056 | Norchem Participações e Consultoria S.A.(1) | 50.00% | 50.00% | 50.00% | 22,528 | 28,525 | 28,918 | Companhia de Crédito, Financiamento e Investimento RCI Brasil(1) (6) | 39.64% | 39.58% | 39.58% | 132,514 | 106,939 | 101,303 | Companhia de Arrendamento Mercantil RCI Brasil(1) | 39.88% | 39.88% | 39.88% | 232,017 | 202,825 | 189,088 | Celta Holding S.A.(2) | - | - | 26.00% | - | - | 65,612 | Cibrasec - Companhia Brasileira de Securitização(2) | 13.64% | 13.64% | 13.64% | 10,287 | 9,972 | 10,145 | Estruturadora Brasileira de Projetos S.A. - EBP(2) | 11.11% | - | - | 679 | - | - | Total | | | | 422,225 | 370,586 | 419,122 | | | | | | Results from companies accounted for by the equity method | | | | | 2011 | 2010 | 2009 | | Norchem Holding e Negócios S.A.(3) | | | | 4,074 | 1,780 | 2,870 | Norchem Participações e Consultoria S.A.(1) (3) | | | | (2,973) | 2,432 | 1,297 | Companhia de Crédito, Financiamento e | | | | | | | Investimento RCI Brasil(1) | | | | 25,424 | 21,025 | 16,720 | Companhia de Arrendamento Mercantil RCI Brasil(1) | | | | 29,102 | 18,017 | 13,133 | Celta Holding S.A.(4) | | | | - | 522 | 4,267 | ABN AMRO Brasil Dois Participações S.A.(5) | | | | - | - | 126,442 | Companhia Brasileira de Meios de Pagamento - Visanet(5) | | | | - | - | 115,796 | Cibrasec - Companhia Brasileira de Securitização(2) (3) | | | | 909 | 166 | 475 | Estruturadora Brasileira de Projetos S.A. - EBP(2) (3) | | | | (2,320) | - | - | Others(2) | | | | - | - | 14,414 | Total | | | | 54,216 | 43,942 | 295,414 | (1) Joint-controlled company. | (2) Although the participations was less than 20%, the Bank exercises control over the entity together with other major shareholders through a shareholders' agreement where no business decision can be taken by a single shareholder. | (3) Companies delayed by one month for the calculation of equity; | (4) Investment sold in 2010. | (5) Investment sold in 2009. | (6) The new composition of the Board of Directors is in approval process in the Bacen. Participation will be changed to 39.58% after approval of the Bacen. | (*) Associates companies do not have their shares listed on the Stock Exchange. | (**) The Bank does not have collateral with associates. | (***) The Bank does not have contingent liabilities with significant risk of possible losses related to investments in affiliates. | | b) Changes | | | | | | | | The changes in the balance of this item were as follows: | | Thousands of Reais | | | | 2011 | 2010 | 2009 | | Balance at beginning of year | | | | 370,586 | 419,122 | 633,595 | Capital increase | | | | 6,107 | - | - | Additions | | | | 2,999 | - | - | Changes in the scope of consolidation | | | | - | - | 338,715 | Disposals and capital reductions(1) | | | | - | (59,267) | (698,988) | Effect of equity accounting | | | | 54,216 | 43,942 | 295,414 | Dividends received/proposed | | | | (11,975) | (33,211) | (153,181) | Other | | | | 292 | - | 3,567 | Balance at end of year | | | | 422,225 | 370,586 | 419,122 |
b) Changes
The changes in the balance of this item were as follows
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Balance at beginning of year | | | 633,595 | | | | 54,565 | | Changes in the scope of consolidation | | | 338,715 | | | | 517,143 | | Disposals and capital reductions(1) | | | (698,988 | ) | | | (3,098 | ) | Effect of equity accounting | | | 295,414 | | | | 112,330 | | Dividends paid | | | (153,181 | ) | | | (46,384 | ) | Other | | | 3,567 | | | | (961 | ) | Balance at end of year | | | 419,122 | | | | 633,595 | |
(1) In 2009, the Bank made a disposal of investment of Companhia Brasileira de Meios de Pagamentos - (VisaNet), Tecban - Tecnologia Bancária S.A. and Companhia Brasileira de Soluções e Serviços - CBSS accounting a net gain of R$3,315 million recorded in Gains/losses on disposal of assets not classified as non-current asset held for sale. No impairment was accounted for with respect to investments in associates in 2009 or 2008.2011, 2010 and 2009. F-37
d) Other disclosures
Following is a summary of the financial information on the associates (obtained from the information available at the reporting date).
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Total assets | | | 6,040,977 | | | | 16,354,230 | | Total liabilities | | | 5,087,708 | | | | 14,099,847 | | Total revenues | | | 605,491 | | | | 5,883,440 | | Total profit | | | 101,906 | | | | 1,613,115 | |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | d) Other disclosures | | | | | | | | Following is a summary of the financial information on the associates (obtained from the information available at the reporting date). | | | | Thousands of Reais | 2011 | 2010 | 2009 | Total assets | 6,344,404 | 3,786,154 | 6,040,977 | Total liabilities | 5,190,461 | 2,721,128 | 5,087,708 | Total revenues | 1,389,839 | 1,087,588 | 605,491 | Total profit | 156,549 | 134,577 | 101,906 |
12. Tangible assets Tangible assets of the Bank relate to property, plant and equipment for own use. The Bank does not have tangible assets held as investment property nor leased out under operating leases. The Bank is also not a part of any financial lease contracts as of and during fiscal years ended December 31, 20092011, 2010 and 2008. 2009.The detail, by class of asset, of the tangible assets in the consolidated balance sheets is as follows: Thousands of Reais | Cost | Accumulated Depreciation | Impairment Losses | Net Balance | | Land and buildings | 2,098,622 | (220,186) | (86,053) | 1,792,383 | IT equipment and fixtures | 1,233,776 | (747,826) | - | 485,950 | Furniture and vehicles | 2,068,058 | (644,622) | - | 1,423,436 | Balance at December 31, 2009 | 5,400,456 | (1,612,634) | (86,053) | 3,701,769 | | Land and buildings | 2,226,175 | (269,553) | (61,304) | 1,895,318 | IT equipment and fixtures | 1,317,006 | (852,129) | - | 464,877 | Furniture and vehicles | 3,000,988 | (844,337) | - | 2,156,651 | Works in progress and others | 1,263 | - | - | 1,263 | Balance at December 31, 2010 | 6,545,432 | (1,966,019) | (61,304) | 4,518,109 | | Land and buildings | 2,409,478 | (311,518) | (51,348) | 2,046,612 | IT equipment and fixtures | 1,529,811 | (999,913) | - | 529,899 | Furniture and vehicles | 3,586,082 | (1,157,120) | - | 2,428,962 | Works in progress and others | 2,833 | - | - | 2,833 | Balance at December 31, 2011 | 7,528,204 | (2,468,550) | (51,348) | 5,008,306 | | Changes | | | | | | The changes in “Tangible assets” in the consolidated balance sheets were as follows: | | Thousands of Reais | | 2011 | 2010 | 2009 | | Cost: | | | | | Balance at beginning of the year | | 4,518,109 | 3,701,769 | 3,829,074 | Changes in the scope of consolidation (note 3) | | (1,727) | - | 4,072 | Additions | | 1,074,509 | 1,319,869 | 1,815,803 | Write-off | | (22,102) | (15,356) | (1,552,876) | Depreciation | | (570,132) | (487,626) | (447,138) | Impairment losses | | 9,642 | 1,317 | 4,566 | Other net items | | 7 | (1,864) | 48,268 | Balance at end of the year | | 5,008,306 | 4,518,109 | 3,701,769 |
Thousands of Reais | | Cost | | | Accumulated Depreciation | | | Impairment Losses | | | Net Balance | | | | Land and buildings | | | 1,961,109 | | | | (184,664 | ) | | | (90,619 | ) | | | 1,685,826 | | IT equipment and fixtures | | | 1,129,380 | | | | (624,970 | ) | | | - | | | | 504,410 | | Furniture and vehicles | | | 2,275,198 | | | | (662,038 | ) | | | - | | | | 1,613,160 | | Construction in progress and other items | | | 25,678 | | | | - | | | | - | | | | 25,678 | | Balances at December 31, 2008 | | | 5,391,365 | | | | (1,471,672 | ) | | | (90,619 | ) | | | 3,829,074 | | | | Land and buildings | | | 2,098,622 | | | | (220,186 | ) | | | (86,053 | ) | | | 1,792,383 | | IT equipment and fixtures | | | 1,233,776 | | | | (747,826 | ) | | | - | | | | 485,950 | | Furniture and vehicles | | | 2,068,058 | | | | (644,622 | ) | | | - | | | | 1,423,436 | | Balances at December 31, 2009 | | | 5,400,456 | | | | (1,612,634 | ) | | | (86,053 | ) | | | 3,701,769 | |
Changes
The changes in “Tangible assets” in the consolidated balance sheets were as follows
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | Cost: | | | | | | | Balances at beginning of the year | | | 5,391,365 | | | | 2,539,531 | | Changes in the scope of consolidation (note 3) | | | 5,524 | | | | 1,344,375 | | Additions/Disposals (net) | | | 5,781 | | | | 1,509,306 | | Exchange differences and other items | | | (2,214 | ) | | | (1,847 | ) | Balances at end of the year | | | 5,400,456 | | | | 5,391,365 | | | Accumulated depreciation: | | | | | | | | | Balances at beginning of the year | | | (1,471,672 | ) | | | (1,336,134 | ) | Changes in the scope of consolidation (note 3) | | | (1,452 | ) | | | - | | Disposals | | | 257,146 | | | | 149,204 | | Charge for the year | | | (447,138 | ) | | | (301,731 | ) | Exchange differences and other items | | | 50,482 | | | | 16,989 | | Balances at end of the year | | | (1,612,634 | ) | | | (1,471,672 | ) | | Impairment losses: | | | | | | | | | Balances at beginning of the year | | | (90,619 | ) | | | (92,427 | ) | Impairment charge for the year | | | 4,566 | | | | (28,129 | ) | Transfers and other changes | | | - | | | | 29,937 | | Balances at end of the year | | | (86,053 | ) | | | (90,619 | ) | | Tangible assets, net: | | | 3,701,769 | | | | 3,829,074 | |
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The depreciation expenses has been included in the line item “Depreciation and Amortisation”amortization” in the income statement. The goodwill recorded is subject to impairment test at least annually or in a short period, whenever there are indications of impairment. Forimpairment and was allocated according to the operating segments (note 42).The base used to evaluate the impairment test is the value in use, for this purpose, management estimates cash flow that is subject to several factors, including: (i) macro-economic projections of interest rates, inflation, exchange rate and other, (ii) the conduct and growth estimates (iii) increased costs, returns, synergies and investment plan, (iv) the behavior of customers, and (v) growth rate and adjustments applied to flows in perpetuity. The adoption of these estimates involves the likelihood of future events and changing some of these factors could have a different result. F-38
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | Based on the assumptions described above the tests carried out did not identify any impairment to goodwill in 2011, 2010 e 2009. | | Thousands of Reais | | 2011 | 2010 | 2009 | | Breakdown: | | | | | Banco ABN Amro Real S.A. | | 27,217,565 | 27,217,565 | 27,217,565 | Real Seguros Vida e Previdência(3) | | - | 1,094,671 | 1,094,671 | Total | | 27,217,565 | 28,312,236 | 28,312,236 | | Operating segments: | | | | | Commercial Banking | | 27,217,565 | 27,217,565 | 27,217,565 | Asset Management and Insurance | | - | 1,094,671 | 1,094,671 | Total | | 27,217,565 | 28,312,236 | 28,312,236 | | | | | | | | | | | | | | | | | | | Commercial Banking | | Asset Management and Insurance (3) | | 2011 | 2010 | 2009 | 2010 | Main assumptions: | | | | | Basis of valuation | | Value in use: cash flows | | Period of the projections of cash flows(1) | 10 years | 10 years | 3 years | 7 years | Growth rate | 5.0% | 5.0% | 4.5% | 5.0% | Discount rate(2) | 15.2% | 15.5% | 15.2% | 16.7% | (1) The projections of cash flow are prepared using internal budget and growth plans of the administration, based on historical data, market expectations and conditions such as industry growth, interest hate and inflation. | (2) The discount rate is calculated based on the capital asset pricing model (CAPM). |
(3) In 2011, the amount of Real Seguros Vida and Previdência was redeemed based on the assumptions described aboveprocess of the tests carried out did not identify any impairmentsale of the Santander Seguros (note 3.a). In 2009, due to the Company’s goodwill in 2009. The breakdownmerger of “Goodwill” is as follows:shares of Santander Seguros completed later this year and the result of calculating the economic value assessment made recently, the Bank has not detected and therefore not recognized losses for non-recovery of value (impairment). | | | | Sensitivity test was carried out of the main premises, reasonable possible change, and was not identified any impairment to goodwill. | | The changes of goodwill in December, 31 2011, 2010 and 2009 were as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of the year | 28,312,236 | 28,312,236 | 27,488,426 | Acquisitions: | | | | Banco ABN Amro Real S.A.(1) | - | - | 124,684 | Real Seguros Vida e Previdência | - | - | 1,094,671 | Disposals: | | | | Banco ABN Amro Real S.A.(2) | - | - | (395,545) | Real Seguros Vida e Previdência(3) | (1,094,671) | - | - | Balance at end of the year | 27,217,565 | 28,312,236 | 28,312,236 |
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Banco ABN Amro Real S.A. | | | 27,217,565 | | | | 27,488,426 | | Real Seguros Vida e Previdência | | | 1,094,671 | | | | - | | | | | 28,312,236 | | | | 27,488,426 | | | | The changes of goodwill in December, 31 2009 and 2008 were as follows | | | | | | | | | | | Thousands of Reais | | | 2009 | | | | 2008 | | | | Balance at beginning of the year | | | 27,488,426 | | | | - | | Acquisitions: | | | | | | | | | Banco ABN Amro Real S.A. (1) | | | 124,684 | | | | 27,488,426 | | Real Seguros Vida e Previdência | | | 1,094,671 | | | | - | | Disposals: | | | | | | | | | Banco ABN Amro Real S.A. (2) | | | (395,545 | ) | | | - | | Balance at end of the year | | | 28,312,236 | | | | 27,488,426 | |
(1) IncludesIn 2009 includes the adjusted amount of R$124,684 thousand, in June 30, 2009, related to fair value´s final determination, as allowed by IFRS 3. (2) ItIn 2009, includes the partial write-off of the goodwill on investments on ABN Amro Brasil Dois Participações S.A. and Companhia Brasileira de Meios de Pagamento - Visanet. (3) In 2011, includes the write-off of the goodwill related to Real Seguros Vida e Previdência, due the sale of the all shares of Santander Seguros (note 3.a).F-39
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | 14. Intangible assets - Other intangible assets | | | | | | | a) Breakdown | | | | | | | The details by asset category of the "other intangible assets" of the consolidated balance sheets are as follow: | | | | | | Thousands of Reais | Estimated Useful Life | Cost | Accumulated Depreciation | Impairment Losses(1) | Net Balance | | IT developments | 3 years | 1,711,000 | (655,186) | (65,046) | 990,768 | Customer relationship | (2) | 4,288,031 | (1,468,512) | (742,101) | 2,077,418 | Other assets | Up to 5 years | 237,517 | - | - | 237,517 | Balance at December 31, 2009 | | 6,236,548 | (2,123,698) | (807,147) | 3,305,703 | | IT developments | 3 years | 2,405,493 | (782,054) | (64,695) | 1,558,744 | Customer relationship | (2) | 4,616,136 | (2,033,146) | (740,748) | 1,842,242 | Other assets | Up to 5 years | 249,397 | - | - | 249,397 | Balance at December 31, 2010 | | 7,271,026 | (2,815,200) | (805,443) | 3,650,383 | | IT developments | 3 years | 2,981,909 | (985,676) | (335) | 1,995,898 | Customer relationship | (2) | 4,514,257 | (1,874,746) | (623,392) | 2,016,119 | Other assets | Up to 5 years | 205,498 | - | - | 205,498 | Balance at December 31, 2011 | | 7,701,664 | (2,860,422) | (623,727) | 4,217,515 |
The breakdown(1) Includes impairment loss of the balanceasset recorded for the purchase of “Other intangible assets” is as follows | | | | | | | | | | | | Estimated | | | Thousands of Reais | | | | Useful Life | | | 2009 | | | 2008 | | | With finite useful life: | | | | | | | | | | IT developments | | 3 years | | | | 1,711,000 | | | | 1,122,446 | | Customer relationship | | | (1) | | | | 4,288,031 | | | | 3,701,604 | | Other assets | | up to 5 years | | | | 237,517 | | | | 11,684 | | Accumulated amortization | | | | | | | (2,123,698 | ) | | | (1,177,222 | ) | Impairment losses | | | | | | | (807,147 | ) | | | (151,651 | ) | | | | | | | | 3,305,703 | | | | 3,506,861 | |
(1)the payroll of public entities. This loss was recognized due to: (i) change in the law of the portability of the current account that allowed customers to choose the bank which they want to receive their salaries, (ii) reduction on the market value of payrolls And (iii) contracts termination history.(2) Includes accrued payments related to the commercial partnership contracts with the private and public sectors to secure exclusivity for banking services of payroll credit processing and payroll loans, maintenance of collection portfolio, supplier payment services and other banking services. Banco Real’s customer relationship is amortized in 10 years and exclusivity contracts for provision of banking services are amortized over the term of the respective agreements. | | | | b) The changes in “Other intangible assets” were as follows: | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 3,650,383 | 3,305,703 | 3,506,861 | Change in the scope of consolidation (note 3.a) | (2,754) | - | 8,296 | Additions/Disposals | 1,478,802 | 1,086,208 | 1,466,411 | Amortization | (891,902) | (749,784) | (801,474) | Impairment losses(1) | (17,070) | (813) | (859,216) | Other net changes | 56 | 9,069 | (15,175) | Balance at end of year | 4,217,515 | 3,650,383 | 3,305,703 | (1) In 2009, includes a provision for impairment losses over the purchase of contracts for providing banking services in the amount of R$818,843 thousand. This impairment was recognized due to: (i) change in the Law of the portability of current accounts which allowed customers to choose the bank which they want to receive their salaries; (ii) reduction on the market value of contracts for provision of banking services; and (iii) the contracts termination experience. | | The amortization expenses has been included in the line item “Depreciation and amortization” in the income statement. | | 15. Other assets | | | | | The breakdown of the balance of “Other assets” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Prepayments and accrued income | 641,098 | 870,276 | 1,059,738 | Contractual guarantees of former controlling stockholders (Note 22.d iv) | 992,687 | - | - | Actuarial asset (Note 22.b) | 86,751 | - | - | Other receivables | 966,207 | 1,042,725 | 811,699 | Total | 2,686,743 | 1,913,001 | 1,871,437 |
F-40
The changes in “Other intangible assets” were as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Balance at beginning of year | | | 3,506,861 | | | | 1,799,182 | | Change in the scope of consolidation (note 3) | | | 8,296 | | | | 1,610,007 | | Additions/Disposals (net) | | | 1,466,411 | | | | 688,357 | | Amortization | | | (801,474 | ) | | | (544,274 | ) | Impairment losses (1) | | | (859,216 | ) | | | (52,002 | ) | Exchange differences and other changes (net) | | | (15,175 | ) | | | 5,591 | | Balance at end of year | | | 3,305,703 | | | | 3,506,861 | |
(1) In 2009, includes a provision for impairment losses over the purchase of contracts for providing banking services in the amount of R$818,843 thousand. This impairment was recognized due to: (i) change in the Law of the portability of current accounts which allowed customers to choose the bank which they want to receive their salaries; (ii) reduction on the market value of contracts for provision of banking services; and (iii) the contracts termination experience.
The amortization expenses has been included in the line item “Depreciation and Amortization” in the income statement.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 16. Deposits from the Brazilian Central Bank and Deposits from credit institutions | | The breakdown, by classification, type and currency, of the balances of these items is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Other financial liabilities at fair value through profit or loss | - | - | 1,795 | Financial liabilities at amortized cost | 51,527,021 | 42,391,572 | 21,195,959 | Total | 51,527,021 | 42,391,572 | 21,197,754 | | Type: | | | | Demand deposits(1) | 133,567 | 344,072 | 195,081 | Time deposits(2) | 27,022,696 | 28,867,406 | 20,838,179 | Repurchase agreements | 24,370,758 | 13,180,094 | 164,494 | Total | 51,527,021 | 42,391,572 | 21,197,754 | | Currency: | | | | Reais | 33,811,322 | 26,794,663 | 10,706,908 | Euro | 437,811 | 307,022 | 236,572 | US dollar | 15,141,075 | 14,065,828 | 10,004,349 | Other currencies | 2,136,183 | 1,224,059 | 249,925 | Total | 51,527,021 | 42,391,572 | 21,197,754 | (1) Non-interest bearing accounts. | (2) It includes the operation with credit institution arising from export and import financing lines, BNDES and Finame on-lending and abroad and other credit lines abroad. | | Note 41-d contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates. | | 17. Customer deposits | | The breakdown, by classification and type, of the balance of “Customer deposits” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Financial liabilities at amortized cost | 174,473,891 | 167,949,201 | 149,440,156 | Total | 174,473,891 | 167,949,201 | 149,440,156 | | Type: | | | | Demand deposits | | | | Current accounts(1) | 13,561,003 | 16,131,836 | 15,139,942 | Savings accounts | 23,293,434 | 30,303,463 | 25,216,924 | Time deposits | 83,941,820 | 68,916,301 | 74,633,544 | Repurchase agreements | 53,677,634 | 52,597,601 | 34,449,746 | Total | 174,473,891 | 167,949,201 | 149,440,156 | (1) Non-interest bearing accounts. | | | | | Note 41-d contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates. | | 18. Marketable debt securities | | The breakdown, by classification and type, of the balance of “Marketable debt securities” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Classification: | | | | Financial liabilities at amortized cost | 38,590,423 | 20,086,645 | 11,439,010 | Total | 38,590,423 | 20,086,645 | 11,439,010 | | Type: | | | | Real estate credit notes - LCI | 8,550,108 | 7,614,891 | 5,985,385 | Bonds and other securities | 6,539,765 | 3,351,137 | 2,850,777 | Treasury Bills(1) | 19,926,031 | 6,638,936 | - | Securitization notes (MT100)(2) | 2,152,543 | 1,577,181 | 1,371,588 | Agribusiness credit notes - LCA | 1,341,232 | 904,500 | 1,231,260 | Debenture(3) | 80,744 | - | - | Total | 38,590,423 | 20,086,645 | 11,439,010 |
The breakdown(1) In 2010, National Monetary Council (CMN) allowed financial institutions to issue Treasury Bills. This instrument can be used to expand the long-term financing market; its main features are: minimum term of two years, minimum notional amount of R$300 thousand and only 5% of the balanceissued amount may be early redeemed by the issuer. On December 31, 2011, have a maturity between 2012 to 2016.(2) Issuance of “Other assets” is as follows:bonds tied to the right to receive of future flow of payment orders receivable from foreign correspondent banks. (3) Debentures issued with remuneration indexed CDI + 1.77%p.a. interest rate and maturity November 21, 2012, issued by subsidiaries MS Participações Societárias S.A.F-41
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Transactions in transit | | | 684,409 | | | | 3,873 | | Prepayments and accrued income | | | 1,059,738 | | | | 1,186,188 | | Other receivables | | | 127,290 | | | | 1,680,543 | | | | | 1,871,437 | | | | 2,870,604 | |
The breakdown, by classification, type and currency, of the balances of these items is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Classification: | | | | | | | Other financial liabilities at fair value through profit or loss | | | 1,795 | | | | 307,376 | | Financial liabilities at amortized cost | | | 21,195,959 | | | | 26,510,219 | | Of which: | | | | | | | | | Deposits from the Brazilian Central Bank | | | 240,113 | | | | 184,583 | | Deposits from credit institutions | | | 20,955,846 | | | | 26,325,636 | | | | | 21,197,754 | | | | 26,817,595 | | | | Type: | | | | | | | | | Demand deposits | | | 195,081 | | | | 65,585 | | Time deposits | | | 20,838,179 | | | | 26,720,554 | | Repurchase agreements | | | 164,494 | | | | 31,456 | | | | | 21,197,754 | | | | 26,817,595 | | | | Currency: | | | | | | | | | Reais | | | 10,706,908 | | | | 9,711,892 | | Euro | | | 236,572 | | | | 979,026 | | US dollar | | | 10,004,349 | | | | 12,957,208 | | Other currencies | | | 249,925 | | | | 3,169,469 | | | | | 21,197,754 | | | | 26,817,595 | |
Note 41-d contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates.
The breakdown, by classification and type, of the balance of “Customer deposits” is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Classification: | | | | | | | Financial liabilities at amortized cost | | | 149,440,156 | | | | 155,494,839 | | | | | 149,440,156 | | | | 155,494,839 | | | | Type: | | | | | | | | | Demand deposits | | | | | | | | | Current accounts | | | 15,139,942 | | | | 15,297,660 | | Savings accounts | | | 25,216,924 | | | | 20,642,679 | | Time deposits | | | 74,633,544 | | | | 88,880,022 | | Repurchase agreements | | | 34,449,746 | | | | 30,674,478 | | | | | 149,440,156 | | | | 155,494,839 | |
Note 41-d contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | The breakdown, by currency, of the balance of this account is as follows: | | | Thousands of Reais | Average interest (%) | Currency: | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | | Reais | 32,681,252 | 16,174,057 | 9,718,114 | 10.2% | 10.5% | 9.0% | US dollar | 5,608,368 | 3,905,890 | 1,671,530 | 3.8% | 2.4% | 3.3% | Swiss Francs | 300.803 | - | - | 3.0% | - | - | Euro | - | 6,698 | 49,366 | - | 0.3% | 0.4% | Total | 38,590,423 | 20,086,645 | 11,439,010 | 8.8% | 10.4% | 7.9% | | The changes in the balance of Marketable debt instruments were as follows: | | Thousands of Reais | | | | 2011 | 2010 | 2009 | | Balance at beginning of the period | | | | 20,086,645 | 11,439,010 | 12,085,655 | Issues | | | | 29,501,246 | 21,402,252 | 14,746,518 | Payments | | | | (14,895,052) | (12,828,958) | (16,080,145) | Interest (Note 30) | | | | 3,226,644 | 1,212,962 | 1,047,750 | Exchange differences and Others | | | | 670,940 | (1,138,621) | (360,768) | Balance at end of the period | | | | 38,590,423 | 20,086,645 | 11,439,010 |
The breakdown, by classification and type, of the balance of “Marketable debt securities” is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Classification: | | | | | | | Financial liabilities at amortized cost | | | 11,439,010 | | | | 12,085,655 | | | | | 11,439,010 | | | | 12,085,655 | | | | Type: | | | | | | | | | Bonds outstanding | | | 5,805,455 | | | | 5,342,334 | | Notes and other securities | | | 5,633,555 | | | | 6,743,321 | | Total | | | 11,439,010 | | | | 12,085,655 | | Of which: | | | | | | | | | Securitization notes (MT100) (1) | | | 1,371,588 | | | | 1,816,289 | | Agribusiness credit notes - LCA | | | 1,231,260 | | | | 2,016,367 | | Real estate credit notes - LCI | | | 5,985,385 | | | | 4,496,764 | |
(1) It includes the series 2004-1 in the amount of US$190 million (2008- US$277 million), with charges equivalent to 5.5% p.a., payable semiannually until September 2011, the series 2008-1 in the amount of US$190 million, with charges equivalent to 6.2% p.a., payable semiannually, with the principal payable in 10 installments between September 2010 to September 2015 and the series 2008-2 in the amount of US$300 million, with charges equivalent to Libor (6 months) + 0.80 p.a., payable semiannually, with the principal payable in 10 installments between March 2010 to September 2014 related to Payable for sale of right to receipt of future flow of payment orders receivable from foreign correspondent banks, the series 2009-1 in the amount of US$50 million, with charges equivalent to 2.8% p.a., payable semiannually, with the principal payable in 6 installments between March 2012 to September 2014 and the series 2009-2 in the amount of US$50 million, with charges equivalent to 6.2% p.a., payable semiannually, with the principal payable between March 2013 to September 2019.
At December 31, 20092011, 2010 and 2008,2009, none of these issues was convertible into Bank shares or granted privileges or rights which, in certain circumstances, make them convertible into shares. NoteA note 41-d contains a detail of the residual maturity periods of financial liabilities at amortized cost and of the related average interest rates in each year.
The breakdown by currency, of the balance of this account is as follows: | | | | | | | | | | | | | | | Thousands of Reais | | | Average Interest Rate (%) | | Currency | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | Reais | | | 9,718,114 | | | | 9,630,331 | | | | 9.0 | % | | | 10.19 | % | US dollar | | | 1,671,530 | | | | 2,455,324 | | | | 3.3 | % | | | 4.23 | % | Euro | | | 49,366 | | | | - | | | | 0.4 | % | | | - | | Balance at end of year | | | 11,439,010 | | | | 12,085,655 | | | | 7.9 | % | | | 8.98 | % |
The changes in “Marketable debt securities”"Bonds and other securities" were as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Balance at beginning of year | | | 12,085,655 | | | | 2,805,417 | | Change in the scope of consolidation (note 3) | | | - | | | | 4,077,492 | | Issues | | | 14,746,518 | | | | 12,148,373 | | Redemption | | | (16,080,145 | ) | | | (8,378,657 | ) | Interest | | | 1,047,750 | | | | 548,834 | | Foreign exchange | | | (564,515 | ) | | | 356,261 | | Other | | | 203,747 | | | | 527,935 | | Balance at end of year | | | 11,439,010 | | | | 12,085,655 | |
| | | | | | | | | Issuance | Maturity | Currency | Interest rate (p.a) | 2011 | 2010 | 2009 | Eurobonds | March-11 | March-14 | R$ | Libor + 2.1% | 2,252,536 | - | - | Eurobonds | April and November-10 | April-15 | US$ | 4.5% | 1,617,341 | 1,447,210 | - | Eurobonds | January and June-11 | January-16 | US$ | 4.3% | 1,608,424 | - | - | Eurobonds | November-05 | November-13 | R$ | 17.1% | 333,182 | 471,849 | 471,849 | Eurobonds | June-11 | December-14 | CHF$ (2) | 3.1% | 300,803 | - | - | | Eurobonds | December-10 | December-11 | US$ | Zero Cupom | - | 730,948 | - | Eurobonds | March-05 | March-13 | R$ | 17.0% | 169,223 | 169,299 | 169,299 | | Eurobonds | December-11 | January-12 | US$ | Zero Cupom | 73,017 | - | - | Eurobonds(1) | June-07 | May-17 | R$ | FDIC | 28,196 | 31,347 | 25,676 | Eurobonds | February-05 | February-10 | R$ | 16.2% | - | - | 803,154 | Structured notes | April-09 | April-10 | R$ | 102.5% CDI | - | - | 179,494 | Others | | | | | 157,043 | 500,484 | 1,201,305 | Total | | | | | 6,539,765 | 3,351,137 | 2,850,777 | (1) Indexed to Credit Event Notes. | (2) Swiss Francs. | | The composition of "securitization notes - MT100" is as follows: | | | Issuance | Maturity | Currency | Interest rate (p.a) | 2011 | 2010 | 2009 | | Series 2004-1(1) | September-04 | September-11 | US$ | 5.5% | - | 33,457 | 334,070 | Series 2008-1(1) | May-08 | March-15 | US$ | 6.2% | 265,203 | 294,133 | 336,599 | Series 2008-2(1) (2) | August-08 | September-17 | US$ | Libor (6 months) + 0.8% | 753,126 | 668,916 | 524,595 | Series 2009-1(1) (3) | August-09 | September-14 | US$ | Libor (6 months) + 2.1% | 94,494 | 83,924 | 87,752 | Series 2009-2(1) (4) | August-09 | September-19 | US$ | 6.3% | 95,435 | 84,771 | 88,572 | Series 2010-1(1) (5) | December-10 | March-16 | US$ | Libor (6 months) + 1.5% | 471,594 | 411,980 | - | Series 2011-1(1) (6) | May-11 | March-18 | US$ | 4.2% | 189,790 | - | - | Series 2011-2(1) (7) | May-11 | March-16 | US$ | Libor (6 months) + 1.4% | 282,901 | - | - | Total | | | | | 2,152,543 | 1,577,181 | 1,371,588 | (1) With charges payable semiannually. | (2) Principal is payable in 6 semiannual installments from March, 2015 (the period of this series was extended by three years in August, 2011). | (3) The principal will be paid semiannually in 6 installments from March 2012. | (4) The principal will be paid semiannually in 14 installments from March 2013. | (5) The principal will be paid semiannually in 7 installments from March 2013. | (6) The principal will be paid semiannually in 9 installments from March 2014. | (7) The principal will be paid semiannually in 5 installments from March 2014. |
F-42
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | | 19. Subordinated liabilities | | The detail of the balance of “Subordinated liabilities” is as follows: | | Thousands of Reais | | | | | | | | | | | | | | | | | Issuance | Maturity(1) | Amount (millions) | Interest rate | 2011 | 2010 | 2009 | | Subordinated Certificates | June-06 | July-16 | R$1.500 | 105.0% CDI | 2,801,102 | 2,495,990 | 2,263,856 | Subordinated Certificates(4) (6) | March-09 | March-19 | R$1.507 | 13,8% | - | - | 1,667,219 | Subordinated Certificates | | | R$850 | 104.5% CDI | 1,516,018 | 1,351,627 | 1,226,492 | | October-06 | September-16 | | | | | | Subordinated Certificates | July-07 | July-14 | R$885 | 104.5% CDI | 1,427,982 | 1,273,137 | 1,155,269 | | Perpetual Bonds(5)(6) | September-05 | Indeterminate | US$500 | 8,7% | - | - | 870,259 | | | | | 100.0% CDI + | | | | Subordinated Certificates | April-08 | April-13 | R$600 | 1.3% | 920,870 | 814,922 | 733,444 | | | | | 100.0% CDI + | | | | Subordinated Certificates | April-08 | April-13 | R$555 | 1.0% | 848,876 | 753,066 | 679,443 | | July-06 to | July-16 to July- | | | | | | Subordinated Certificates | October-06 | 18 | R$447 | 104.5% CDI | 822,956 | 733,718 | 665,790 | Subordinated Certificates | January-07 | January-13 | R$300 | 104.0% CDI | 516,217 | 460,494 | 418,055 | | | | | 100.0% CDI + | | | | Subordinated Certificates | August-07 | August-13 | R$300 | 0.4% | 482,026 | 430,041 | 390,192 | Subordinated Certificates | January-07 | January-14 | R$250 | 104.5% CDI | 431,194 | 384,437 | 348,846 | | May-08 to | May-13 to May- | | | | | | Subordinated Certificates | June-08 | 18 | R$283 | CDI(2) | 422,628 | 374,705 | 338,366 | | May-08 to | May-13 to | | | | | | Subordinated Certificates | June-08 | June-18 | R$268 | IPCA(3) | 431,919 | 372,952 | 325,676 | Subordinated Certificates(1) | | | R$100 | 120.5% CDI | 146,183 | 128,062 | 114,490 | | November-08 | November-14 | | | | | | Subordinated Certificates(1) | February-08 | February-13 | R$85 | IPCA +7.9% | 140,373 | 121,954 | 107,048 | Total | | | | | 10,908,344 | 9,695,105 | 11,304,445 |
The detail of the balance of “Subordinated liabilities” is as follows:
| | | | | | | | | | | | | | | | | Thousands of Reais | | | | | | | | | | | | 2009 | | | 2008 | | | Issuance | | Maturity | | | Amount (millions) | | | Interest rate | | | Total | | | Total | | Subordinated Certificates (1) | Jun-06 | | Jul-16 | | | | R$1.500 | | | 105.0% CDI | | | | 2,263,856 | | | | 2,050,292 | | Subordinated Certificates (1) | Mar-09 | | Mar-19 | | | | R$1.507 | | | 13.8% | | | | 1,667,219 | | | | - | | Subordinated Certificates (1) | Oct-06 | | Sep-16 | | | | R$850 | | | 104.5% CDI | | | | 1,226,492 | | | | 1,111,313 | | Subordinated Certificates (1) | Jul-07 | | Jul-14 | | | | R$885 | | | 104.5% CDI | | | | 1,155,269 | | | | 1,046,778 | | Perpetual Bonds (2) | Sep-05 | | N/A | | | | US$500 | | | 8.7% | | | | 870,259 | | | | 1,163,487 | | Subordinated Certificates (1) | Apr-08 | | Apr-13 | | | | R$600 | | | 100.0% CDI + 1.3% | | | | 733,444 | | | | 659,220 | | Subordinated Certificates (1) | Apr-08 | | Apr-13 | | | | R$555 | | | 100.0% CDI + 1.0% | | | | 679,443 | | | | 612,183 | | Subordinated Certificates (1) | Jul-06 to Oct-06 | | Jul-16 | | | | R$447 | | | 104.5% CDI | | | | 665,790 | | | | 603,266 | | Subordinated Certificates (1) | Jan-07 | | Jan-13 | | | | R$300 | | | 104.0% CDI | | | | 418,055 | | | | 378,974 | | Subordinated Certificates (1) | Aug-07 | | Aug-13 | | | | R$300 | | | 100.0% CDI + 0.4% | | | | 390,192 | | | | 353,546 | | Subordinated Certificates (1) | Jan-07 | | Jan-14 | | | | R$250 | | | 104.5% CDI | | | | 348,846 | | | | 316,086 | | Subordinated Certificates (1) (3) | May-08 to Jun-08 | | May-13 to May-18 | | | | R$283 | | | CDI | | | | 338,366 | | | | 305,087 | | Subordinated Certificates (1) (4) | May-08 to Jun-08 | | May-13 a Jun-18 | | | | R$268 | | | IPCA | | | | 325,676 | | | | 288,447 | | Subordinated Certificates (1) | Nov-08 | | Nov-14 | | | | R$100 | | | 120.5% CDI | | | | 114,490 | | | | 102,184 | | Subordinated Certificates (1) | Feb-08 | | Feb-13 | | | | R$85 | | | IPCA +7.9% | | | | 107,048 | | | | 95,175 | | "Floating Rate Notes" | Nov-99 | | Nov-09 | | | | US$170 | | | Libor + 4.5% | | | | - | | | | 94,704 | | "Floating Rate Notes" | Nov-99 | | Nov-09 | | | | US$30 | | | Libor + 4.5% | | | | - | | | | 16,687 | | Total | | | | | | | | | | | | | | | | 11,304,445 | | | | 9,197,429 | |
(1) Subordinated certificates of deposit issued by Banco Santander S.A. with yield paid at the end of the term together with the principal. (2) Perpetual bonds issued by the Grand Cayman branch with quarterly interest payments. These bonds do not have a maturity date or mandatory redemption, although they may, at the discretion of Banco Santander S.A. and with prior authorization by the Central Bank of Brazil, be redeemed in full at December 2010 or on any subsequent interest payment date.
(3) Indexed to 109% and 112% of the CDI or CDI plus interest of 1.16% p.a. to 1.53% p.a.
(4) (3) Indexed to the IPCA (extended consumer price index) plus interest of 8.28% p.a. to 8.65% p.a.
The detail (4) On January 22, 2010, the Bank redeemed in advance the Subordinate CDB (bank certificate of deposit), whose creditor was Banco Santander Spain, pursuant to authorization granted by currency,the Central Bank of Brazil on January 8, 2010. In addition, in the redeemed of the balanceSubordinate CDB, it was established a discount of “Subordinated liabilities” is as follows:R$ 64,188 thousand accounted in "Gains/losses on financial assets and liabilities".(5) On September 20, 2010, was redeemed in advance the Perpetual Bonds, issued by the Grand Cayman branch pursuant to authorization by the Bacen in August 4, 2010.(6) The purpose of the anticipated redemption was to improve the funding structure of the Bank, accordingly to the strategy informed in the use of proceeds of the "Final Global Offering Prospect for the Initial Public Offering of Certificates of Deposit Shares (Units) Issuance of Banco Santander (Brasil) S.A" and Form F-1. | | | | | | | The detail by currency, of the balance of “Subordinated liabilities” is as follows: | | | Thousands of Reais | Average Interest Rate (%) | Currency: | 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | | Reais | 10,908,344 | 9,695,105 | 10,434,186 | 11.2% | 10.9% | 9.7% | US Dollar | - | - | 870,259 | - | - | 8.7% | Total | 10,908,344 | 9,695,105 | 11,304,445 | 11.2% | 10.9% | 9.7% | | The changes in “Subordinated liabilities” were as follows: | | | | | | 2011 | 2010 | 2009 | | Balance at beginning of year | | | | 9,695,105 | 11,304,445 | 9,197,429 | Issues | | | | - | - | 1,507,000 | Subordinated Certificates (maturity in May 2019 and 13.5% fixed interest rate) | - | - | 1,507,000 | Payments | | | | - | (2,598,938) | (159,905) | Redemption | | | | | | | Subordinated Certificates (maturity in May 2019 and 13.5% fixed interest rate) | - | (1,680,461) | - | Perpetual Non-Cumulative Junior Subordinated Securities (indeterminate maturity 8.7% fixed interest rate andamount of issuance U$500 million) | - | (879,294) | - | Interest payments | | | | - | (39,183) | (159,905) | Interest (Note 30) | | | | 1,213,239 | 999,423 | 1,076,557 | Foreign exchange | | | | - | (9,825) | (316,636) | Balance at end of year | | | | 10,908,344 | 9,695,105 | 11,304,445 |
| | Thousands of Reais | | | Average Interest Rate (%) | | Currency: | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | | | | | | | | | | | | | | | | | Reais | | | 10,434,186 | | | | 7,922,551 | | | | 9.68 | % | | | 14.90 | % | US Dollar | | | 870,259 | | | | 1,274,878 | | | | 8.70 | % | | | 8.64 | % | Balance at end of year | | | 11,304,445 | | | | 9,197,429 | | | | 9.60 | % | | | 13.77 | % | | | | | | | | | | | | | | | | | | The changes in “Subordinated liabilities” were as follows: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 2009 | | | | 2008 | | Balances at beginning of year | | | | | | | | | | | 9,197,429 | | | | 4,210,224 | | Change in the scope of consolidation (note 3) | | | | | | | | | | | - | | | | 3,491,143 | |
Issues | | | 1,507,000 | | | | 650,000 | | Subordinated Certificates (maturity within May 2013 to May 2018 and index to CDI) | | | - | | | | 282,500 | | Subordinated Certificates (maturity within May 2013 to May 2018 and index to IPCA) | | | - | | | | 267,500 | | Subordinated Certificates (maturity in November 2014 and index to CDI) | | | - | | | | 100,000 | | Subordinated Certificates (maturity in May 2019 and 13.5% fixed interest rate) | | | 1,507,000 | | | | - | | Redemption | | | | | | | | | Quarterly interest payments | | | (159,905 | ) | | | (126,802 | ) | Interest | | | 1,076,557 | | | | 690,014 | | Foreign exchange | | | (316,636 | ) | | | 282,850 | | Balances at end of year | | | 11,304,445 | | | | 9,197,429 | |
Note 41-d contains a detail of the residual maturity periods of subordinated liabilities at each year-end and of the related average interest rates in each year. F-43
The breakdown of the balances of these items is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Credit card obligations | | | 5,293,202 | | | | 4,898,336 | | Unsettled financial transactions | | | 2,060,835 | | | | 3,107,531 | | Dividends payable | | | 1,623,885 | | | | 1,449,922 | | Tax collection accounts - Tax payables | | | 482,544 | | | | 838,893 | | Other financial liabilities | | | 727,698 | | | | 390,490 | | | | | 10,188,164 | | | | 10,685,172 | |
Note 41-d contains a detail of the residual maturity periods of other financial assets and liabilities at each year-end.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | 20. Other financial liabilities | | | | | | | | The breakdown of the balances of these items is as follows: | | Thousands of Reais | | | | 2011 | 2010 | 2009 | | Credit card obligations | | | | 11,000,043 | 7,332,714 | 5,293,202 | Unsettled financial transactions | | | | 1,914,897 | 2,370,678 | 2,060,835 | Dividends payable | | | | 1,182,284 | 2,166,714 | 1,623,885 | Tax collection accounts - Tax payables | | | | 579,413 | 621,510 | 482,544 | Liability associated with the transfer of assets (Note 9.f) | | | | 686,015 | - | - | Other financial liabilities | | | | 589,355 | 726,632 | 727,698 | Total | | | | 15,952,007 | 13,218,248 | 10,188,164 | | Note 41-d contains a detail of the residual maturity periods of other financial assets and liabilities at each year-end. | | 21. Liabilities for insurance contracts | | | | | | | | In 2010 and 2009 consisted mainly of technical provisions - Individual Life and Life covering survival (note 3.a). | | 22. Provisions | | | | | | | | a) Breakdown | | | | | | | | The breakdown of the balance of “Provisions” is as follows: | | Thousands of Reais | | | | 2011 | 2010 | 2009 | | Provisions for pensions and similar obligations | | 1,246,040 | 1,190,108 | 1,096,799 | Provisions for judicial and administrative proceedings, commits and other provisions | | 8,269,255 | 8,205,053 | 8,383,463 | Of which: | | | | | Provisions for judicial and administrative proceedings, commitments and other provisions (1) | | 7,276,568 | 8,205,053 | 8,383,463 | Provisions for judicial and administrative proceedings under the responsibility of former controlling stockholders (note 22.d iv) | | 992,687 | - | - | Total | | 9,515,295 | 9,395,161 | 9,480,262 | (1) Includes mainly provisions for taxes and others legal, civil and labor contingencies. | | b) Changes | | | | | | | | The changes in “Provisions” were as follows: | | Thousands of Reais | 2011 | 2010 | | | Pensions | Other Provisions(1) | Total | Pensions | Other Provisions(1) | Total | | Balance at beginning of year | 1,190,108 | 8,205,053 | 9,395,161 | 1,096,799 | 8,383,463 | 9,480,262 | Net change in the scope of consolidation (Note 3.a) | - | (127,419) | (127,419) | - | - | - | Additions charged to income: | | | | | | | Interest income and similar charges (Note 29) | (55,103) | - | (55,103) | - | - | - | Interest expense and similar charges (Note 30) | 145,181 | - | 145,181 | 156,419 | - | 156,419 | Personnel Expenses (Note 37.a & 22.d) | 19,460 | - | 19,460 | 16,212 | - | 16,212 | Additions to provisions(2) | 118,502 | 2,942,961 | 3,061,463 | 179,265 | 1,795,061 | 1,974,326 | Payments to pensioners and early retirees with a charge to internal provisions | (39,596) | - | (39,596) | (38,200) | - | (38,200) | Payments to external funds | (219,263) | - | (219,263) | (220,387) | - | (220,387) | Amount used | - | (2,672,142) | (2,672,142) | - | (2,233,557) | (2,233,557) | Transfer to other assets - actuarial assets (Note 15) | 86,751 | - | 86,751 | - | - | - | Transfers, exchange differences and other changes | - | (79,198) | (79,198) | - | 260,086 | 260,086 | Balance at end of year | 1,246,040 | 8,269,255 | 9,515,295 | 1,190,108 | 8,205,053 | 9,395,161 |
F-44
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | Thousands of Reais | 2009 | | Pensions | Other Provisions(1) | Total | | Balance at beginning of year | 1,078,916 | 7,836,329 | 8,915,245 | Net change in the scope of consolidation | - | 96,459 | 96,459 | Additions charged to income: | | | | Interest expense and similar charges (Note 30) | 100,567 | - | 100,567 | Personnel Expenses (Note 37.a & 22.d) | 36,534 | - | 36,534 | Additions to provisions | 43,464 | 3,437,229 | 3,480,693 | Payments to pensioners and early retirees with a charge to internal provisions | (35,752) | - | (35,752) | Payments to external funds | (130,095) | - | (130,095) | Amount used(3) | - | (2,726,181) | (2,726,181) | Transfers, exchange differences and other changes | 3,165 | (260,373) | (257,208) | Balance at end of year | 1,096,799 | 8,383,463 | 9,480,262 |
a) Breakdown
(1) Includes, primarily, legal obligations, tax and social security, labor and civil contingencies. (2) In the fourth quarter of 2011 were made up an additional R$648.7 million provision for labor proceedings concerning the Bank's initiative to accelerate the agreements in order to reduce the volume of open cases. Alongside this, the Bank has been working strongly in the prevention of labor disputes, with improvements in controls journey governance in outsourcing, among other measures. (3) In 2009, includes payment for the adhesion to the program of installments and payment of tax, debts and social security established by Law 11,941/2009. The breakdownmain processes included in this program were: (i) Deductibility of CSLL, in which the Conglomerate Santander's entities were claiming the deduction of CSLL in the calculation of IRPJ. (ii) CSLL equal tax treatment lawsuit filed by several companies of the balanceConglomerate Santander's entities challenging the application of “Provisions” isan increased CSLL rate (18% - 30%) for financial institutions as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Provisions for pensions and similar obligations | | | 1,096,799 | | | | 1,078,916 | | Provisions for commitments and other provisions (1) | | | 8,383,463 | | | | 7,836,329 | | Provisions | | | 9,480,262 | | | | 8,915,245 | |
(1) Includes mainly provisionscompared to the rate for taxesnon-financial companies (8% - 10%) and others legal, civil(iii) Concurrency IRPJ, in which ABN Leasing intended to reconcile for income tax depreciation expense in the same period of leasing revenue recognition. Considering the regulations established in this Law, the accounting effects in the case of processes including tax and labor contingencies.
b) Changes
The changessocial security in “Provisions”the form of cash payments were as follows:recorded at the time of joining the program.
Thousands of Reais | | 2009 | | | 2008 | | | | | | Provisions for | | | | | | | | | Provisions for | | | | | | | | | | commitments | | | | | | | | | commitments | | | | | | | | | | and other | | | | | | | | | and other | | | | | | | Pensions | | | provisions (1) | | | Total | | | Pensions | | | provisions (1) | | | Total | | Balances at beginning of year | | | 1,078,916 | | | | 7,836,329 | | | | 8,915,245 | | | | 777,639 | | | | 4,038,682 | | | | 4,816,321 | | Net change in the scope of consolidation (note 3) | | | - | | | | 96,459 | | | | 96,459 | | | | 273,423 | | | | 4,570,516 | | | | 4,843,939 | | Additions charged to income: | | | | | | | | | | | | | | | | | | | | | | | | | Interest expense and similar charges (note 30) | | | 100,567 | | | | - | | | | 100,567 | | | | 91,437 | | | | - | | | | 91,437 | | Personnel Expenses (note 37) | | | 36,534 | | | | - | | | | 36,534 | | | | 45,060 | | | | - | | | | 45,060 | | Additions to provisions | | | 43,464 | | | | 3,437,229 | | | | 3,480,693 | | | | 18,359 | | | | 1,211,958 | | | | 1,230,317 | | Payments to pensioners and early retirees with a charge to | | | (35,752 | ) | | | - | | | | (35,752 | ) | | | (33,054 | ) | | | - | | | | (33,054 | ) | internal provisions | | | | | | | | | | | | �� | | | | | | | | | | | | | Payments to external funds | | | (130,095 | ) | | | - | | | | (130,095 | ) | | | (93,948 | ) | | | - | | | | (93,948 | ) | Amount used | | | - | | | | (2,726,181 | ) | | | (2,726,181 | ) | | | - | | | | (2,142,761 | ) | | | (2,142,761 | ) | Transfers, exchange differences and other | | | 3,165 | | | | (260,373 | ) | | | (257,208 | ) | | | - | | | | 157,934 | | | | 157,934 | | Balances at end of year | | | 1,096,799 | | | | 8,383,463 | | | | 9,480,262 | | | | 1,078,916 | | | | 7,836,329 | | | | 8,915,245 | |
(1) Includes, primarily, legal obligations, tax and social security, labor and civil contingencies.
| | | | | |
c)Provisions for pensions and similar obligations i.Supplemental Pension Plan The BankBanco Santander and its subsidiaries sponsor private pension entities and plans forexclusive to employees and former employees, pension funds and cash assistance with the purpose of providing retirement and pension benefits that supplement those provided by the government, as defined in the basic regulations of each plan. ● •Banesprev - Fundo Banespa de Seguridade Social (Banesprev) - Plan I: Defineddefined benefit plan fully defrayed by the Bank,Banco Santander, covers employees hired on or after May 22, 1975 called Participants Recipients, and those hired byuntil May 22, 1975 called Participants Aggregates, who are also entitled to death benefits.
Plan is closed to new entrants since March 28, 2005.- Plan II: Defineddefined benefit plan, effectiveconstituted from July 27, 1994, wheneffective of the new text of the StatutesStatute and Basic Regulations of the Basic Plan II, came into effect, Plan I participants who opted forchose the new plan began contributing 44.94%to contribute to the rate of the funding rate established44.9% stipulated by the actuary for funding each period. year. Plan is closed to new entrants since June 3, 2005.- Plan V: Defineddefined benefit plan fully defrayed by the Bank,Banco Santander, covers employees hired on oruntil after May 22, 1975. - Supplemental Pension Plan: Defineddefined benefit plan was created in view of the privatization of Banespa and is managed by Banesprev. ThisBanesprev and offered only to employees hired before May 22, 1975, this Plan effective January 1, 2000,2000. Plan is provided onlyclosed to employees hired until May 22, 1975.new entrants since April 28, 2000.- Plan III: Definedvariable contribution coveringplan, for employees hired on or after May 22, 1975,22,1975, previously enrolled inserved by the Plans I and II. InUnder this plan contributions are made by both the sponsor and the participants. The benefits are in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefit, if paid as monthly income for life.- Plan IV: Definedvariable contribution coveringplan, designed for employees hired on or afteras of November 27, 2000, in which the sponsor only contributes only to the risk benefits and administrative costs. ● expenses. In this plan the benefit is set in the form of defined contribution during the period of contribution and defined benefit during the receipt of benefits in the form of monthly income for life, in whole or in part of the benefit. The risk benefits of the plan are in the form of defined benefit. Plan is closed to new entrants since July 23, 2010.•Sanprev - Santander Associação de Previdência (Sanprev) - Plan I: Defineddefined benefit plan, established on September 27, 1979, as a defined benefit plan forcovering employees of plan sponsors, and has beenthe sponsor enrolled in the plan and is in process of discontinuancetermination since July 1,June 30, 1996.- Plan II: plan that provides ainsurance risk, coverage,pension supplement temporary, supplemental pension, disability retirement lump-sumannuity and the supplemental death benefit, supplemental sick payand sickness allowance and birth, grant, forincluding employees ofenrolled in the plan sponsorssponsor and is funded exclusivelysolely by the sponsors through monthly contributions, correspondingas indicated by the actuary. Plan is closed to 1.16% of the total payroll, structured as a defined benefit plan. Monthly contributions are apportioned as follows: 0.28% for risk benefits and 0.88% for the administrative program. new entrants since March 10, 2010.- Plan III: provides period-certain annuity and monthly life annuity forvariable contribution plan covering employees of the sponsors who made the choice to contribute, by contributing sponsors andfreely chosen by participants from 2% of salary contribution. That the benefit plan is structured as a defined contribution plan, whereby contributions are freely made by participants starting at 2%during the contribution and defined benefit during the receipt of the contribution salary. benefit, being in the form of monthly income for life, in whole or in part of the benefit. Plan is closed to new entrants since March 10, 2010.•Bandeprev - Bandepe Previdência Social (Bandeprev) Defined benefit plan, sponsored by Banco Bandepe and Banco Santander, managed by Bandeprev. The plans are divided into basic plan and special retirement supplement plan, with different eligibility requirements, contributions and benefits by subgroups of participants. Both plans are closed to new entrants.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
DefinedOther plansSantanderPrevi - Sociedade de Previdência Privada (SantanderPrevi):defined contribution plan. Inplan, which was redesigned since June 2009, the Holandaprevi Pension Plan was redesigned to offer to the employees of the Santander thewith shared contribution to which is shared by thebetween employee and the company. HolandapreviSantanderPrevi is a private pension entity engaged in providing social security benefit plans which are supplementary to the government social security plan, in accordance with prevailing legislation. • Previban:
Defined benefit plan, managed by Previban - PrevidêFundação América do Sul de Assistência Privada Paraiban, sponsored by Banco Santander, whose participants are the former employees of Banco da Paraíba S.A. - - Paraiban. This plan is closed to new entrants and is in process of withdrawal of sponsoring. • Bandeprev:
Defined benefit plan, sponsored by Banco Santander and managed by Bandeprev - Bandepe Previdência social. The plans are divided into basic plan and special plan, with different eligibility requirements, contributions and benefits by subgroups of participants. Both plans are closed to new entrants. As a result of the spin-off of Banco de Pernambuco S.A. – Bandepe’s operations and subsequent merger into Banco Real, the employees of Bandepe were transferred to Banco Real on May 1, 2006.
• Fasass:
e Seguridade Social (Fasass):In June,July, 2009, after the approval of the Supplementary Pension Plan Secretariat (SPC), the individual reserves of defined benefit and variable contribution private pension plans, under the responsibility of Fundação América do Sul de Assistência e Seguridade Social (FASASS),Fasass, were transferred to the private pension plan company which is not a member of the Santander.Santander Group. The purpose of this operation is to offer to the assisted members and beneficiaries the option of receiving a benefit equivalent to that of the PGBL (pension plan similar to a life insurance), in view of the cancellation of the sponsorship by the Bank, approved by SPC on February 27, 2009. For the members who joined the new plans (PGBLs), Banco Santander transferred R$26,963 with financial settlement in July 2009,thousand, to form the Mathematical Reserve for Benefits Granted. • Other:
Previban - Previdência Privada Paraiban (Previban):In March de 2009, the withdrawal of Previban sponsoring was completed with the settlement of R$213 thousand in actuarial obligations. Banco Santander S.A. isand subsidiary companies are the sponsor of the welfare plans, supplemental retirement plan and of pension plans for associated employees, structured as defined benefit plans. The amount of the defined benefit obligations was determined by independent actuaries using the following actuarial techniques: Projected unit credit method, which sees each year of service as giving rise to an additional unit of benefit entitlement and measures each unit separately. • Nominal discount rate for actuarial obligation: - Banesprev, - Plan VSanprev, SantanderPrevi, Bandeprev and Other Plans - 11.1% (200810.4% (2010 - 11.07%). - Banesprev - Supplementary Pension Plan -10.7% and 2009 - 11.1% (2008 - 14.9%).
- Sanprev - 11.1% (2008 - 12.5%)
- Bandeprev, Holandaprevi e Previban - 11.1% (2008 - 10.3%).
• Expected rate of return on plan assets:- Banesprev - Plan I - 12.1% (200810.9% (2010 - 12.9%11.3% and 2009 -12.1%). - Banesprev - Plan II - 12.5% (200812.4% (2010 - 12.9%11.1% and 2009 -12.5%).
- Banesprev - Plan III - 12.5% (200812.4% (2010 - 12.9%11.3% and 2009 -12.5%).
- Banesprev - Plan IV - 10.6% (200810.7% (2010 - 12.5%12.2% and 2009 -10.6%).
- Banesprev - Supplementary Pension Planretirement and pension plan - 10.7% (2010 - 11.1% (2008 11.4% and 2009 -11.1%). - 14.9%).
- Banesprev - Plan V - 10.8% (200810.7% (2010 - 16.5%11.0% and 2009 - 10.8%).
- Sanprev - 10.6% (2008(2010 - 11.1% and 2009 - 10.6%)
. - Bandeprev - 10.0% (200810.5% (2010 - 12.1%), Holandaprevi 9.7%11.0% and Previban 2009 -10.0%). - 11.7% (PrevibanSantaderPrevi - 10.7% (2010 - 10.8% and Holandaprevi for 20082009 - 11.8%9.7%). - Other Plans: null - the plan does not have assets.• Estimated long-term inflation rate:- Banesprev, Sanprev, - All Plans - 4.2% (2008 - 4.0%).- Banesprev,SantanderPrevi, Bandeprev and Holandaprevi - 4.2% (2008 - 4.0%).
- Previban - 4.0% (2008, 4.0%).
• Estimate salary increase rate:
- Banesprev - Plans I to V and Other Plans - 4.7% (2008, 4.0%).
4.4% (2010 - Bandeprev4.4% and Holandraprevi2009 - 4.7% (2008, 1.0%). - Previban - Null growth, as they do not have active participants.
- Sanprev - 4.7% (2008, 4.2%).
• Estimated benefitEstimate salary increase rate:- Banesprev - 4.2% (2008, 4.0%).- Previban - 4.0% (2008 - 0%)
- Holandaprevi - 4.2% (2008, 4.0%).
- Bandeprev - 4.2% (2008, 4.0%).
- Sanprev - 4.2% (2008, 4.0%).
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• General mortality biometric table:
- Banesprev, Sanprev, Holandaprevi,SantanderPrevi, Bandeprev and others plans - AT-2000.
- Previban - UP-94 segregated by sex.
• Disability biometric table and disability mortality table:
- Banesprev, Sanprev,
- Bandeprev - Mercer Disability Entrance Table.
• Expected Turnover table:
- Banesprev - Plan V (0.1/length os service + 1) until 50 years of age. (There was no change since 2008 for this criteria).
- Banesprev - Plan II - 2.0% (2008, 2.0%).
- Banesprev - Supplementary Pension PlanBásico and Other Plans - 0%.
4.9% (2010 - Sanprev4.9% and 2009 - 0%4.7%). - Holandaprevi segregated by age according to the rates below, by minimum wage (MW): up to 10 MW - 10% (under 30 years old) or 9% (between 30 and 35 years old); from 10 MW to 20 MW - - 9% (under 30 years old) or 8% (between 30 and 35 years old); and above 20 MW - 8% (under 30 years old) or 7% (between 30 and 35 years old). (There was no change in this criteria since 2008).
- Bandeprev. segregated by age and wage, as follow: upt to 10 MW = 0.45/(length of service+ 1); from 10 MW to 20 MW = 0.30/(length of service + 1); and above 20 MW = 0.15/(length of service + 1). (There were no changes for this criteria since 2008).
- Previban null turnover table, due to absense of active participants. (There was no change in this criteria since 2008).
• Probability of retirement: 100% upon first eligibility.
iii. Health and Dental Care Plan • Cabesp - Caixa Beneficente dos Funcionários do Banco do Estado de São Paulo S.A S.A.The BankBanco Santander contributes to Cabesp, an entity that covers health and dental care expenses of employees hired until Banespa privatization in 2000. • Holandaprevi’s retirees Holandaprevi’sSantanderPrevi’s RetireesSantanderPrevi’s retirees’ health care plan is a lifetime benefit and receives a subsidy of 30% of the basic plan cost from the sponsor, payable only to beneficiaries entitled to the benefits through December 31, 2002. Costing is made directly by the sponsor. • Former employees of Banco Real S.A. (retiree by Circulares) The health care plan of the former employees of Banco Real is a lifetime benefit and receives a subsidy of 90% of the basic plan cost from the sponsor. The health care plan of Bandeprev’s pension plan beneficiaries is a lifetime benefit, for which the BankBanco Santander is responsible for defraying 50% of the benefits of employees retired before the date the sponsor Banco de Pernambuco S.A. - Bandepe was privatized and 30% of the benefits of employees retired after privatization. F-46
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• Officer with lifetime benefits Lifetime Benefits (Lifetime Officers)Lifetime health care benefit granted to former officers of Banco Sudameris Brasil S.A. who held an officer position at Banco Sudameris Brasil S.A. for a period of ten10 years or more (closed group). With the merger of Banco Sudameris Brasil S.A., Banco Real became responsible for ensuring the benefit. • Plasas - Supplementary Health Plan
Voluntary health plan, created on July 1, 1989, supplementary to the health care plan and only for cases of hospitalization.
It includes a reserve made up by participants’ and Fasass’ contributions, which are suspended since August 1999. The Plan is closed to new entrants since July 1999.
• Life insurance for Banco Real’s retirees Life insurance policy for former employees of Banco Real. Upon the death of the beneficiary, his/her dependent receives a lump-sum death benefit and, upon the death of the beneficiary’s spouse, the beneficiary receives 50% of such amount. Banco Real subsidizes 45% of the total premium (closed group). The health care plan "free clinic" is a lifetime plan offered to the retirees who have contributed to Fundação Sudameris for at least 25 years and is funded by the users. The plan is offered only for hospitalization in wards. • Plasas Voluntary health plan, created on July 1, 1989, supplementary to the health care plan and only for cases of hospitalization. It includes a reserve made up by participants’ and Fasass’ contributions, which are suspended since August 1999. The Plan is closed to new entrants since July 1999. Additionally, it is assured to retired employees, since they meet to certain legal requirements and full pays their respective contributions, the right to be maintaining as a beneficiary of the Bank health plan, in the same conditions for healthcare coverage, taken place during their employment contract. The Bank’s provisions related to this retired employees are accrued using actuarial calculations based in the present value of the current cost. The funding status of the defined benefit obligations in 2011 and in the last 4 years are as follows: During 2009, the Bank recognized an expense of R$36,534 thousand (2008 - R$33,166 thousand and 2007 - R$ 3,919 thousand) related to contributions to pension funds (note 37). | | | | | | | Thousands of Reais | 2011 | 2010 | 2009 | 2008 | 2007 | | Present value of the obligations - Post-employment plans: | | | | | | To current employees | 1,312,325 | 1,212,603 | 1,078,765 | 954,321 | 798,056 | Vested obligations to retired employees | 15,268,283 | 14,009,689 | 12,644,915 | 11,676,568 | 9,205,628 | | 16,580,608 | 15,222,292 | 13,723,680 | 12,630,889 | 10,003,684 | Less: | | | | | | Fair value of plan assets | 15,051,746 | 14,522,452 | 13,324,387 | 12,390,745 | 10,117,296 | Unrecognized actuarial (gains)/losses | 1,181,202 | 439,175 | 223,152 | (180,135) | (576,868) | Unrecognized assets(1) | (525,613) | (581,833) | (619,308) | (378,950) | (314,201) | Unrecognized past service cost | - | - | 358 | - | - | Provisions – Post-employment plans, net | 873,273 | 842,498 | 795,091 | 799,229 | 777,457 | | Present value of the obligations - Other similar obligations: | | | | | | To current employees | 601,549 | 530,858 | 23,053 | 26,806 | - | Vested obligations to retired employees | 4,569,371 | 3,759,378 | 3,842,505 | 2,684,670 | 2,786,207 | To beneficiaries of early retirement | - | - | - | 44 | 181 | | 5,170,920 | 4,290,236 | 3,865,558 | 2,711,520 | 2,786,388 | Less: | | | | | | Fair value of plan assets | 4,535,896 | 4,142,589 | 3,683,450 | 2,897,569 | 2,782,114 | Unrecognized actuarial (gains)/losses | 447,397 | (6,600) | 282,858 | (223,100) | 148,346 | Unrecognized assets(1) | (98,389) | (193,363) | (402,457) | (242,636) | (144,254) | Provisions – Other similar obligations, net | 286,016 | 347,610 | 301,707 | 279,687 | 182 | | Total provisions for pension plans, net | 1,159,289 | 1,190,108 | 1,096,798 | 1,078,916 | 777,639 | Of which: | | | | | | Actuarial provisions | 1,246,040 | 1,190,108 | 1,096,799 | 1,078,916 | 777,639 | Actuarial assets (note 15) | 86,751 | - | - | - | - | (1) Refers to fully funded plans Banesprev I, III and IV, Sanprev I,II and III, Bandeprev and Plasas. | | The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows: | | Thousands of Reais | | Post-Employment Plans | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Current service cost (note 37 & 22.b) | 19,460 | 16,212 | 22,051 | 21,284 | 24,745 | Interest cost | 1,561,367 | 1,460,199 | 1,362,265 | 1,362,586 | 1,195,156 | Expected return on plan assets | (1,543,051) | (1,337,358) | (1,291,696) | (1,278,663) | (1,082,537) | Extraordinary charges: | | | | | | Actuarial (gains)/losses recognized in the year | 135,628 | 61,699 | 36,552 | 16,726 | 8,305 | Past service cost | - | - | 57 | - | - | Early retirement cost | 89 | 32 | - | - | - | Total | 173,493 | 200,784 | 129,229 | 121,933 | 145,669 |
F-47
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | Thousands of Reais | | Other Similar Obligations | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Current service cost (note 37 & 22.b) | - | - | 14,483 | 23,776 | 13,732 | Interest cost | 445,405 | 424,157 | 307,459 | 311,758 | 269,275 | Expected return on plan assets | (469,625) | (390,579) | (277,461) | (304,244) | (269,275) | Extraordinary charges: | | | | | | Actuarial (gains)/losses recognized in the year | 2,310 | 58,958 | 6,857 | - | - | Early retirement cost | 38,335 | 58,576 | - | 1,633 | 8,426 | Total | 16,425 | 151,112 | 51,338 | 32,923 | 22,158 | The changes in the present value of the accrued defined benefit obligations were as follows:
| |
| Thousands of Reais | | Post-Employment Plans | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Present value of the obligations at beginning of year | 15,222,292 | 13,723,680 | 12,630,889 | 10,003,684 | 8,732,563 | Changes in the scope of consolidation | - | - | - | 1,372,869 | - | Current service cost | 19,460 | 16,212 | 22,051 | 21,284 | 24,745 | Interest cost | 1,561,367 | 1,460,199 | 1,362,265 | 1,362,586 | 1,195,156 | Early retirement cost | 89 | 32 | - | - | - | Benefits paid | (1,171,279) | (1,064,412) | (1,394,064) | (922,771) | (843,702) | Actuarial (gains)/losses | 924,447 | 1,085,254 | 1,102,539 | 931,691 | 989,648 | Others | 24,232 | 1,327 | - | (138,454) | (94,726) | Present value of the obligations at end of year | 16,580,608 | 15,222,292 | 13,723,680 | 12,630,889 | 10,003,684 | | Thousands of Reais | | Other Similar Obligations | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Present value of the obligations at beginning of year | 4,290,236 | 3,865,558 | 2,711,520 | 2,786,388 | 2,047,784 | Changes in the scope of consolidation | - | - | - | 291,755 | - | Current service cost | - | - | 14,483 | 23,776 | 13,732 | Interest cost | 445,405 | 424,157 | 307,459 | 311,758 | 269,275 | Early retirement cost | (4,411) | 1,026 | - | 1,633 | 8,426 | Benefits paid | (220,030) | (177,674) | (178,875) | (157,266) | (157,685) | Actuarial (gains)/losses | 633,116 | 132,301 | 1,010,971 | (539,867) | 651,450 | Other | 26,604 | 44,868 | - | (6,657) | (46,594) | Present value of the obligations at end of year | 5,170,920 | 4,290,236 | 3,865,558 | 2,711,520 | 2,786,388 | | The changes in the fair value of the plan assets were as follows: | | Thousands of Reais | | Post-Employment Plans | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Fair value of plan assets at beginning of year | 14,522,452 | 13,324,387 | 12,390,745 | 10,117,296 | 3,745,220 | Changes in the scope of consolidation(1) | - | - | - | 1,574,595 | - | Expected return on plan assets | 1,543,051 | 1,337,358 | 1,291,696 | 1,278,663 | 1,082,537 | Actuarial gains/(losses) | (16,316) | 778,074 | 684,445 | 230,194 | 1,373,486 | Contributions | 173,838 | 129,051 | 106,837 | 83,055 | 4,730,968 | Of which: | | | | | | By the Bank(2) | 153,744 | 108,501 | 84,495 | 67,513 | 4,712,879 | By plan participants | 20,094 | 20,550 | 22,341 | 15,542 | 18,089 | Benefits paid | (1,171,279) | (1,051,854) | (1,149,336) | (893,058) | (814,915) | Exchange differences and other items | - | 5,436 | - | - | - | Fair value of plan assets at end of year | 15,051,746 | 14,522,452 | 13,324,387 | 12,390,745 | 10,117,296 | | Thousands of Reais | | | Other Similar Obligations | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Fair value of plan assets at beginning of year | 4,142,589 | 3,683,450 | 2,897,569 | 2,782,114 | 2,430,500 | Changes in the scope of consolidation(1) | - | - | - | 93,401 | - | Expected return on plan assets | 469,625 | 390,579 | 277,461 | 304,244 | 269,275 | Actuarial gains/(losses) | 94,361 | 188,771 | 638,240 | (169,057) | 169,143 | Contributions | 64,878 | 58,833 | 42,751 | 41,487 | 42,860 | Of which: | | | | | | By the Bank(2) | 59,576 | 53,944 | 37,635 | 36,021 | 36,184 | By plan participants | 5,301 | 4,889 | 5,116 | 5,466 | 6,676 | Benefits paid | (218,173) | (192,371) | (172,571) | (153,225) | (129,664) | Exchange differences and other items | (17,384) | 13,327 | - | (1,395) | - | Fair value of plan assets at end of year | 4,535,896 | 4,142,589 | 3,683,450 | 2,897,569 | 2,782,114 | (1) In 2008, refers mainly to Banco Real. | (2) In 2007, includes the initial transfer and the monthly amounts paid to Banesprev for the plan V. | | In 2012 the Bank expects to make contributions to fund these obligations for amounts similar to those made in 2011. |
F-48
The funding status of the defined benefit obligations in 2009 and 2008 is as follows:
Thousands of Reais | | Post-Employment Plans | | | Other Similar Obligations | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Present value of the obligations: | | | | | | | | | | | | | To current employees | | | 1,078,765 | | | | 954,321 | | | | 23,053 | | | | 26,806 | | Vested obligations to retired employees | | | 12,644,915 | | | | 11,676,568 | | | | 3,842,505 | | | | 2,684,670 | | To early retirees | | | | | | | - | | | | | | | | 44 | | | | | 13,723,680 | | | | 12,630,889 | | | | 3,865,558 | | | | 2,711,520 | | Less: | | | | | | | | | | | | | | | | | Fair value of plan assets | | | 13,324,387 | | | | 12,390,745 | | | | 3,683,450 | | | | 2,897,569 | | Unrecognized actuarial (gains)/losses | | | 223,152 | | | | (180,135 | ) | | | 282,858 | | | | (223,100 | ) | Unrecognized assets | | | (619,308 | ) | | | (378,950 | ) | | | (402,457 | ) | | | (242,636 | ) | Unrecognized past service cost | | | 358 | | | | - | | | | - | | | | - | | Provisions – Provisions for pensions | | | 795,091 | | | | 799,229 | | | | 301,707 | | | | 279,687 | |
The amounts recognized in the consolidated income statement in relation to the aforementioned defined benefit obligations are as follows:
Thousands of Reais | | Post-Employment Plans | | | Other Similar Obligations | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Current service cost | | | 22,051 | | | | 21,284 | | | | 14,483 | | | | 23,776 | | Interest cost | | | 1,362,265 | | | | 1,362,586 | | | | 307,459 | | | | 311,758 | | Expected return on plan assets | | | (1,291,696 | ) | | | (1,278,663 | ) | | | (277,461 | ) | | | (304,244 | ) | Extraordinary charges: | | | - | | | | | | | | - | | | | | | Actuarial (gains)/losses recognized in the year | | | 36,552 | | | | 16,726 | | | | 6,857 | | | | - | | Past service cost | | | 57 | | | | - | | | | - | | | | - | | Early retirement cost | | | - | | | | - | | | | - | | | | 1,633 | | Total | | | 129,229 | | | | 121,933 | | | | 51,338 | | | | 32,923 | |
The changes in the present value of the accrued defined benefit obligations were as follows:
Thousands of Reais | | Post-Employment Plans | | | Other Similar Obligations | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | | | Present value of the obligations at beginning of year | | | 12,630,889 | | | | 10,003,684 | | | | 2,711,520 | | | | 2,786,388 | | Change in the scope of consolidation (note 3) | | | - | | | | 1,372,869 | | | | - | | | | 291,755 | | Current service cost | | | 22,051 | | | | 21,284 | | | | 14,483 | | | | 23,776 | | Interest cost | | | 1,362,265 | | | | 1,362,586 | | | | 307,459 | | | | 311,758 | | Early retirement cost | | | - | | | | - | | | | - | | | | 1,633 | | Benefits paid | | | (1,394,064 | ) | | | (922,771 | ) | | | (178,875 | ) | | | (157,266 | ) | Past service cost | | | - | | | | - | | | | - | | | | - | | Actuarial (gains)/losses | | | 1,102,539 | | | | 931,691 | | | | 1,010,971 | | | | (539,867 | ) | Other | | | - | | | | (138,454 | ) | | | - | | | | (6,657 | ) | Present value of the obligations at end of year | | | 13,723,680 | | | | 12,630,889 | | | | 3,865,558 | | | | 2,711,520 | |
The net inclusion of entities in the Bank mainly relates to Banco Real.
The changes in the fair value of the plan assets were as follows:
Thousands of Reais | | Post-Employment Plans | | | Other Similar Obligations | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | | Fair value of plan assets at beginning of year | | | 12,390,745 | | | | 10,117,296 | | | | 2,897,569 | | | | 2,782,114 | | Change in the scope of consolidation (note 3) * | | | - | | | | 1,574,595 | | | | - | | | | 93,401 | | Expected return on plan assets | | | 1,291,696 | | | | 1,278,663 | | | | 277,461 | | | | 304,244 | | Actuarial gains/(losses) | | | 684,445 | | | | 230,194 | | | | 638,240 | | | | (169,057 | ) | Contributions | | | 106,837 | | | | 83,055 | | | | 42,751 | | | | 41,487 | | Of which: | | | - | | | | | | | | - | | | | | | By the Bank (1) | | | 84,495 | | | | 67,513 | | | | 37,635 | | | | 36,021 | | By plan participants | | | 22,341 | | | | 15,542 | | | | 5,116 | | | | 5,466 | | Benefits paid | | | (1,149,336 | ) | | | (893,058 | ) | | | (172,572 | ) | | | (153,225 | ) | Exchange differences and other items | | | - | | | | - | | | | - | | | | (1,395 | ) | Fair value of plan assets at end of year | | | 13,324,387 | | | | 12,390,745 | | | | 3,683,450 | | | | 2,897,569 | |
* The net inclusion of entities in the Bank relates mainly to Banco Real in 2008 (Note 3).
In 2010 the Bank expects to make contributions to fund these obligations for amounts similar to those made in 2009.
The main categories of plan assets as a percentage of total plan assets are as follows:
| | 2009 | | | 2008 | | Equity instruments | | | 2.55 | % | | | 5.47 | % | Debt instruments | | | 96.58 | % | | | 92.85 | % | Properties | | | 0.12 | % | | | 0.10 | % | Other | | | 0.75 | % | | | 1.58 | % |
The expected return on plan assets was determined on the basis of the market expectations for returns over the duration of the related obligations.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | The main categories of plan assets as a percentage of total plan assets are as follows: | | | 2011 | 2010 | 2009 | 2008 | 2007 | | Equity instruments | 2.77% | 5.05% | 2.55% | 5.47% | 8.66% | Debt instruments | 93.38% | 92.91% | 96.58% | 92.85% | 89.33% | Properties | 0.50% | 0.47% | 0.12% | 0.10% | 0.01% | Other | 3.36% | 1.57% | 0.75% | 1.58% | 2.00% | | The expected return on plan assets was determined on the basis of the market expectations for returns over the duration of the related obligations. | | The following table shows the estimated benefits payable at December 31, 2011 for the next ten years: | | Thousands of Reais | | | | | | | 2012 | | | | | 1,472,012 | 2013 | | | | | 1,553,172 | 2014 | | | | | 1,631,184 | 2015 | | | | | 1,712,929 | 2016 to 2020 | | | | | 12,052,042 | Total | | | | | 18,421,339 |
The following table showsPresumptions about the estimated benefits payable at December 31, 2009rates related to medical care costs have a significant impact on the amounts recognized in income. A change of one percentage point in the medical care cost rates would have the effects as follows: | | | Thousands of Reais | Sensitivity | | (+) 1.0% increase | (-) 1.0% decrease | | Effect on current service cost and interest on actuarial liabilities | 4,723 | (3,544) | Effects on present value of obligation | 841,994 | (683,696) |
d)Provisions for the next ten years: Thousands of Reais | | | | | | | | 2010 | | | 1,264,185 | | 2011 | | | 1,309,276 | | 2012 | | | 1,364,315 | | 2013 | | | 1,420,332 | | 2014 | | | 1,476,617 | | 2015 a 2019 | | | 8,220,000 | | | | | 15,054,725 | |
d) Provisions forjudicial and administrative proceedings, commitments and other provisions
Banco Santander S.A. and its subsidiaries are parties to judicial and administrative proceedings involving tax, civil and labor matters arising in the normal course of their business.
Provisions were recognized based on the nature, complexity and history of the lawsuits, and the opinion of the in-house and outside legal counsel. Santander’s policy is to accrue the full amount of lawsuits whose likelihood of unfavorable outcome is probable.
Legal obligations - tax and social security were fully recognized in the financial statements.
Management understands that the recognized provisions are sufficient to cover probable losses on the lawsuits.
i. Legal obligations and tax and social security contingencies In November 2009, the Bank and its controlled entities joined the program of installments and payment of tax debts and social security established by Law 11941/2009. The main processes included in this program were: (i) Deductibility of CSLL, in which the entities were claiming the deduction of CSLL in the calculation of IRPJ. (ii) lawsuit filed by several companies of the consolidated challenging the application of an increased CSLL rate (18% - 30%) for financial institutions as compared to the rate for non-financial companies (8% - 10) and (iii) Concurrency IRPJ, in which ABN Leasing intended to reconcile for income tax depreciation expense in the same period of recognition of revenue from leasing consideration.
Considering the rules established in this Law, the accounting effects of tax and social security contingencies included as cash payment, were recorded at the time of entry into the program. As a result, was settled contingent tax liabilities in the amount of R$ 1,344,860 through the payment (R$ 422,857) and the conversion of guarantee deposits (R$ 731,160). It was recorded in the income of the year a net gain of R$ 207,603 before taxes. It was not used tax (probable loss carryforwards or social contribution in the settlement of these tax debts as authorized by the Law.
The Bank and its subsidiaries also accepted to split the tax debts and social security, which may be settled at a later date after the formal consolidation of debts, to be held by the Federal Revenue Service, under the rules of the program. Thus, no accounting effect was recognized in the case of this kind of a split as it was not possible to identify and quantify the processes to be included in the program and its accounting effects.
risk)The main judicial and administrative proceedings involving tax and social security obligations that remain after the application of Law n° 11.941/09remains are: -• PIS and Cofins - R$3,734,0786,833,010 thousand (2008(2010 - R$2,210,4895,119,731 thousand and 2009 - R$3,734,078 thousand): lawsuit filed by several companies of the conglomerate against the provisions of article 3, paragraph 1 of Law No. 9718/9,718/98, pursuant to which PIS and COFINS must be levied on all revenues of legal entities. Prior to said provisions, already overruled by several recent decisions by the Federal Supreme Court, PIS and Cofins were levied only on revenues from services and sale of goods. -• CSLL - equal tax treatment - R$258,98549,314 thousand (2008(2010 - R$ 502,948278,194 thousand and 2009 - R$258,985 thousand) - lawsuitlawsuits filed by several companies of the consolidatedGroup challenging the application of an increased CSLL rate (18% - 30%) for financial institutions as compared to the rate for non-financial companies (8% - 10%). These proceedings were not subject of the application of Law n° 11.941/09. - Increase in CSLL tax11,941/2009.•IncreaseinCSLLtax rate - R$548,550979,938 thousand (2008 – 136,853(2010 - R$848,734 thousand and 2009 - R$548,550 thousand) - theThe Bank and other companies of the conglomerateGroup filed for an injunction to avoid the increase in the CSLL tax rate established by Executive Act 413/2008, converted into Law 11.727/11,727/2008. Financial institutions were subject to a CSLL tax rate of 9%, however the new legislation established a 15% tax rate. -• Service Tax (ISS) - Financial Institutions - R$268,845542,443 thousand (2008(2010 - R$279,554473,371 thousand and 2009 - R$268,845 thousand): refers to discussions to administrative and judicial proceedings withagainst several municipalities thatcounties require the payment of ISS on several revenues from operations that are not usually do not qualifyqualified as service provision. -on several companies of the Consolidated.• Social Security Contribution (INSS) - R$209,045288,137 thousand (2008(2010 - R$163,896259,526 thousand and 2009 - R$209,045 thousand): refers to discussions to administrative and judicial proceedings on several companies seeking collection of social security contribution and salary premium for education allowance on amounts that normally are not considered as wage which is the basis for application of a salary nature. the percentage of Social Security contribution on several companies of the Consolidated.ii. Provisions for judicial and administrative proceedings - Allowance for doubtful accounts - R$209,559 thousand (R$205,714 thousand) - collection of IRPJ and CSLL levied on the allowance for doubtful accounts, arising from the deduction, considered undue by tax authorities, in calendar 1995, alleging that the tax criteria in effect at the time were not complied with. ii. Labor contingencies
labor lawsuitsThese are lawsuits brought by labor unionsUnions, Associations, Public Prosecutors and former employees claiming labor rights they understand are due, especially payment for overtime and other labor rights, including retirement benefit lawsuits. For labor claims considered to be similar and usual, provisions are recognized based on the history of payments made. Labor claimsClaims that do not fit into the previous criterion are accrued according to the escrow deposits made for the lawsuits or are assessed individually, and provisionsprovision are recognized based on the status of each lawsuit, law and previous court decisions according to the assessment of the likelihood of a favorable outcome, and the risk assessment made by the legal counsel. F-49
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
ii. Provisions for judicial and administrative proceedings - civil lawsuits Refer to judicial proceedings related to civil lawsuits classified, are: Lawsuits for indemnity- seek indemnity for property damage and/or moral, relating to the consumer relationship on matters related to credit cards, consumer credit, bank accounts, collection and loans. There are also collection lawsuits related to the elimination of inflation effects in savings and escrow deposit accounts deriving from the Economic Plans (Bresser, Verão, Collor I and II)loans and other matters. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Foroperations. In the civil lawsuits considered to be similar and usual, provisions are recognized based on the history of payments made. Civil lawsuits that do not fit into the previous criterion are accrued according to the individual assessment made, and provisions are recognized based on the status of each lawsuit, law and previous court decisions according to the assessment of the likelihood of a favorable outcome, and the risk assessment made by the legal counsel.
On September 1, 2009,Economic Plans- efforts to recover the Bank reached an settlement with the non-controlling stockholders of the extinct Banco Noroeste relateddeficient inflation adjustments in savings accounts and judicial deposits arising from Economic Plans (Bresser, Verão, Collor I and II). These refer to the lawsuits filed by savings accountholders disputing the interest credited by Banco Santander under such plans as they considered that such legal amendments infringed on the rights acquired with regard to the application of the inflation indexes. Provisions are set aside for such lawsuits based on the average payments made historically. Civil lawsuits that do not fit into the previous criterion are accrued according to the individual assessment made, and provisions are recognized based on the status of each lawsuit, law and previous court decisions according to the assessment of the likelihood of a favorable outcome, and classification of the legal counsel. Banco Santander is also party in public class action suits on the same issue filed by consumer rights organizations, Public Prosecutor’s Offices and Public Defender’s Offices. In these cases, the provision is made only after the final unappealable sentence is handed down on the lawsuits, based on the individual execution orders. The Superior Court of Justice (STJ) position’s by the moment is against the corporate events that occurredbanks. The Supreme Court is still analyzing the subject and has already ordered the suspension of all cases except those which have not yet been judged or those which are in 1998 and 1999an execution stage. The Supreme Court has decided favorably to the banks in similar cases involving CDBs (Bank Deposit Certificates) and the lawsuits were terminated. This settlement andrevision of agreements (Tablita). However it has not definitively decided about the resulting terminationconstitutionality of the lawsuits have already been confirmed by courts. rules involving Economic Plans. On April 14, 2010, the Superior Court decided that the period of prescription for class actions regarding Economic plans is five years from each Economic Plan dates. With this decision, most actions, such as were proposed after a period of 5 years will probably be dismissed, reducing the involved values. Still, in October 2011 the Supreme Court decided that the deadline for individual savers qualify in civil class actions, it is also five years, counted from the res judicata of the respective sentence. Banco Santander believes that its defense’s arguments can be well succeed.iv. Other lawsuits under the responsibility of former controlling stockholders Refer to tax, labor and civil lawsuits in the amounts of R$969,485 thousand, R$14,150 thousand and R$9,052 thousand (2010 - R$455,841 thousand, R$30,764 thousand and R$7,180 thousand and 2009 - R$430,357 thousand, R$61,141 thousand and R$33,601 (2008 - R$459,291, R$137,861 and R$57,386)thousand), with responsibility of the former controlling stockholders of the banks and acquired entities. TheBased on the agreements signed these lawsuits have guarantees of integral reimbursement by the former controlling stockholders, whose respective rights were recorded under the agreements signed at the time of the acquisitions in the amount of R$525,099 (2008 - R$654,538) . These lawsuits have no effects on the balance sheet. other assets.v. Contingent liabilities classified as possible loss risk Refer to judicial and administrative proceedings involving tax, civil and labor matters assessed by the legal counsels as possible losses, which were not accounted for. The main lawsuits are: -• CPMF (tax on banking transactions) on Customer Operations - in May 2003, the Federal Revenue Service issued an Infraction Notice against Santander Distribuidora de Títulos e Valores Mobiliários Ltda. (Santander DTVM), actual Produban Serviços Técnicos de Informática S.A. and another Infraction Notice against the former Banco Santander Brasil S.A., both in the amount of R$290 million. The notices refer to the collection of a CPMF tax credit on transactions conducted by Santander DTVM in the management of its customers’ funds and clearance services provided by the Bank to Santander DTVM, according to the agreement between these two companies, in 2000, 2001 and the first two months of 2002. Both companies consider that the tax treatment adopted was adequate since said transactions were subject to CPMF atCPMFat zero rate. The Board of Tax Appeals (CARF) judged the administrative proceedings, annulling the infraction notice of Santander DTVM and confirmingmaintaining the infraction notice of the Bank. It is awaiting a trial filed byAll these administrative proceedings are pending of decisions at the bank, in faceend of order dismissingtheir resources to the continuitylast instance of the appeal.CARF. The updated amount of each proceeding is approximately R$515564 million. -• IRPJ and CSLL on Reimbursement arisingArising from Contractual Guarantees – in December 2007, the- The Federal Revenue Service issued an Infraction Notice in the amount of R$320 millioninfraction notices against Banco Santander, S.A. The notice refers towhose objects are the collection of IRPJ and CSLL taxes for tax yearyears 2002 to 2006 on amounts reimbursed by the former controlling stockholdershareholder of Banco Santander S.A. forthe Bozano Simonsen group arising from acts of management responsibility, which payments madewere paid by the Bank that wereconsolidated entities. The tax authority deemed the responsibilityamounts deposited on behalf of these entities to be taxable income and not reimbursements. In December 2011 the controlling stockholder.CARF judged the administrative process for the 2002 base period (R$438.7 million), offsetting the full assessment notice. The Federal Revenue Service understood thatdecision may be appealed by the amount deposited in favorAuthority by the last instance of Santander S.A. is not a reimbursement but a taxable income. The Bank has filed an administrative defense and the decision was unfavorable.CARF. The updated amount of each proceeding is approximately R$381644 million. - Losses on lending operations - Administrative collection by the Federal Revenue Service in view of the deduction from the IRPJ and CSLL basis of losses on lending operations once they would not have met the conditions and terms laid down in the current legislation. The updated amount involved is approximately R$224 million.
- CSLL - Unconstitutionality - Noncompliance with the amnesty established by Law 9.779/1999 - claims that entities that joined the amnesty failed to comply with the requirements of such Law, alleging that such entities were not supported by an injunction for all periods paid (1989 to 1999). The judicial and administrative proceedings are awaiting judgment. The updated amount involved is approximately R$165 million.
- CSLL - equal tax treatment - Amendment 10/96 - Lawsuit regarding the difference in social contribution tax rate applied to financial institutions and equivalent entities in the first half of 1996, as such tax rate was higher than the rates applied to other legal entities, which is contrary to the precedence and non-retroactivity constitutional principle. There is a lawsuit awaiting judgment and other appeals pending decisions. The adjusted amount involved is approximately R$162 million.
- CSLL - Final and unappealable decision - This lawsuit claims the right not to recognize the tax credit claimed by the Federal Revenue Service related to alleged irregularities in the payment of CSLL, as the Entity was granted a favorable final and unappealable decision that overrules the collection of CSLL under Law 7.689/1988 and Law 7.787/1989. The appeals filed with the Federal Regional Court are awaiting a decision. The amount involved adjusted for inflation is approximately R$148 million.
- - Semiannual Bonus or Profit Sharing - labor lawsuit relating to the payment of a semiannual bonus or, successively, profit sharing to retired employees from the former Banco do Estado de São Paulo S.A. - Banespa, hired by May 22, 1975. This lawsuit was filed by Banespa’s Retirees Association and was judged by the Superior Labor Court and the Bank has filed an appeal. The involved amount is not disclosed due to the current stage of the lawsuit and the possibility of affecting its progress.
-• Addition to the Price on the Purchase of Shares of Banco do Estado de São Paulo S.A. - Banespa - Filed an ordinary action claiming the inexistence of legal relationship before the National Treasury in relation to item 3.1 of the Banespa’s Share Purchase and Sale Agreement. Such item provided for the payment of an addition to the minimum price should Banespa be released from the tax contingency recognized at the time of the privatization upon the setting of the minimum price. After an unfavorable lower court decision, on April 23, 2008, the 1st Region Federal Court accepted the appeal filed by the Bank and declared undue the collection. At these moment, awaits the decision on the appeal trial by the Union. The updated amount involved is approximately R$345422 million.
The breakdown• Credit Losses - Administrative collection by the Federal Revenue Service in view of the balancededuction from the IRPJ and CSLL basis of “Other Liabilities”credit losses once they would not have met the conditions and terms laid down in the current legislation. The updated amount involved is approximately R$335 million. • CSLL - equal tax treatment - Constitutional Amendment 10 from 1996 - Lawsuit regarding the difference from social contribution tax rate applied to financial institutions and equivalent entities in the first half of 1996, as follows:such tax rate was higher than the rates applied to other legal entities, which is contrary to the precedence and non-retroactivity constitutional principle. The adjusted amount involved is approximately R$108 million. • CSLL - Favorable and unappealable decision - This lawsuit claims to remove the requirements of the tax credit claimed by the Federal Revenue Service related to alleged irregularities in the payment of CSLL. The Bank has granted a favorable final and unappealable decision that overrule the collection of CSLL under Law 7,689/1988 and Law 7,787/1989 in the period required by Federal Revenue Service. The updated amount involved is approximately R$170 million. • IRPJ and CSLL - Capital Gain - the Brazilian Federal Revenue Service issued a tax assessment against Santander Seguros (legal successor of ABN AMRO Brasil Dois Participações S.A. (AAB Dois Par)) charging income tax and social contribution related to 2005 tax year, their understanding was that the capital gain should be paid on tax rate an aliquot of lower than supposed due on the sale of the Real Seguros S.A. and Real Vida e Previdência S.A by AAB Dois Par . The assessment was appealed at the administrative level as the Company understanding is that the tax treatment adopted in the transaction was in compliance with the current tax law and the capital gain was properly taxed. The administrative process is to be trial. Banco Santander is responsible for any adverse outcome in this process as a former controlling stock holders of Santander Seguros.The amount involved is R$212 million. • INSS on Profit Sharing (PLR) - refers to administrative and legal proceedings arising from tax assessments, which aim to collect social security contributions on payments made by the Bank and the consolidated companies, as a PLR. The Tax Authorities have concluded that the requirements were not met the law. Against these charges were brought the applicable appeals, because the Management believes that all procedures have been adopted under the law to characterize the nature of payment of PLR. The updated amount involved is approximately R$273 million. F-50
Thousands of Reais | | 2009 | | | 2008 | | | | Accrued expenses and deferred income | | | 1,751,717 | | | | 2,026,316 | | Transactions in transit | | | 349,097 | | | | 336,265 | | Other | | | 2,126,954 | | | | 1,164,381 | | | | | 4,227,768 | | | | 3,526,962 | |
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a) Income• Semiannual Bonus or Profit Sharing - Labor lawsuit relating to the payment of a semiannual bonus or, successively, profit sharing to retired employees from the former Banco do Estado de São Paulo S.A. - Banespa, hired by May 22, 1975. This lawsuit was filed by Banespa’s Retirees Association and Social Contribution Taxes was judged by the Superior Labor Court and the Banco Santander has filed an appeal, which the admissibility of the Supreme Court has been granted. The total charge forinvolved amount is not disclosed due to the year can be reconciled to accounting profit as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Income before taxes, net of profit sharing | | | 8,137,129 | | | | 2,548,833 | | | | 2,687,141 | | Interest on capital (1) | | | (825,122 | ) | | | (480,000 | ) | | | (527,600 | ) | Unrealized profits | | | (4,707 | ) | | | (1,335 | ) | | | - | | Income before taxes | | | 7,307,300 | | | | 2,067,498 | | | | 2,159,541 | | Total income and social contribution tax at the rates of 25% and 15%, respectively (*) | | | (2,922,920 | ) | | | (826,999 | ) | | | (734,244 | ) | PIS and COFINS (net of income and social contribution taxes) (2) | | | (993,057 | ) | | | (492,554 | ) | | | (389,984 | ) | Equity in subsidiaries | | | 118,166 | | | | 44,932 | | | | 2,001 | | Goodwill | | | 1,519,094 | | | | 375,542 | | | | 303,178 | | Nondeductible expenses and provisions | | | 32,865 | | | | (74,441 | ) | | | 63,150 | | Exchange variation - foreign branches (3) | | | (634,492 | ) | | | 681,453 | | | | (28,899 | ) | Effect of income and social contribution taxes on prior year's temporary differences | | | 157,493 | | | | 125,311 | | | | 26,664 | | Effects of change in tax rate and result in subsidiaries at the rate of 9% | | | 67,176 | | | | (9,221 | ) | | | - | | Other adjustments | | | 26,510 | | | | 5,770 | | | | (26,008 | ) | Income and social contribution taxes | | | (2,629,165 | ) | | | (170,207 | ) | | | (784,142 | ) | Of which: | | | | | | | | | | | | | Current tax | | | (3,650,660 | ) | | | (1,173,722 | ) | | | (749,295 | ) | Deferred taxes | | | 1,021,495 | | | | 1,003,515 | | | | (34,847 | ) | Taxes paid in the year | | | (1,973,257 | ) | | | (918,677 | ) | | | (392,791 | ) |
(*) 25%current stage of the lawsuit and 9% for 2007.the possibility of affecting its progress. | | | | 23. Tax assets and liabilities | | a) Income and Social Contribution Taxes | | The total charge for the year can be reconciled to accounting profit as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Operating profit before tax, net of profit sharing | 8,910,536 | 9,996,503 | 8,137,129 | Interest on capital(1) | (1,550,000) | (1,760,000) | (825,122) | Unrealized profits | (914) | (6,614) | (4,707) | Income before taxes | 7,359,622 | 8,229,889 | 7,307,300 | Rates (25% income and contribution tax and 15% social contribution tax) | (2,943,849) | (3,291,956) | (2,922,920) | PIS and COFINS (net of income and social contribution taxes)(2) | (1,037,570) | (856,107) | (993,057) | Permanent differences: | | | | Equity in subsidiaries | 21,687 | 17,577 | 118,166 | Goodwill(3) | 1,241,381 | 1,391,527 | 1,462,386 | Exchange variation - foreign branches(4) | 767,921 | (196,941) | (634,492) | Adjustments: | | | | Constitution of income and social contribution taxes on temporary differences | 602,394 | 165,083 | 195,529 | Effects of change in rate of social contribution taxes(5) | 9,439 | 19,911 | 29,140 | Other adjustments | 183,915 | 136,977 | 116,083 | Income and social contribution taxes | (1,154,683) | (2,613,929) | (2,629,165) | Of which: | | | | Current tax | (2,732,999) | (2,501,876) | (3,650,660) | Deferred taxes | 1,578,316 | (112,053) | 1,021,495 | Taxes paid in the year | (1,932,317) | (1,043,419) | (1,973,257) |
(1) Amount distributed to shareholders as interest attributable to shareholders’ equity. For accounting purposes, although the interest should be reflected in the statement of income for tax deduction, the charge is reversed before the calculation of the net income in the statutory financial statements and deducted from the shareholders’ equity since is considered as dividend. (2) PIS and COFINS are considered a profit-base component (net basis of certain revenues and expenses), therefore and accordingly to IAS 12 it is recorded as income taxes.
(3) The difference between the tax basis and accounting basis of goodwill on acquisition of Banco ABN Amro Real S.A. is a difference of a permanent nature and definitive, since the possibility of future use of resources to settle a tax liability is considered remote by the Administration in this case the possibility of loss on impairment or disposal only applies to the entity as a whole and according to the characteristics of the business combination performed, it is not possible to segregate and identify the business originally acquired. Therefore, amortization of goodwill tax creates a permanent differences and there is not record of the deferred tax liability (note 45). (4) Relates to the netgain (net loss in 20092010 and net gain in 20082009) arising from the economic hedge of the Bank’s position in Cayman, which is a non-autonomous subsidiary, offset by a loss (gain in 2010 and 2009) recorded on “Gain/Losses on Financial Assets and Liabilities (Net)” (note 34), the latter being taxable/deductible. (5) Effect of rate differences for the other non-financial corporations, which the social contribution tax rate is 9%. See Note 34.
b) Effective tax rate calculation The effective tax rate is as follows: | | | | | | | | Thousands of Reais | 2011 | 2010 | 2009 | Operating profit before tax | 8,910,536 | 9,996,503 | 8,137,129 | Income tax | 1,154,683 | 2,613,929 | 2,629,165 | Effective tax rate(1) | 12.96% | 26.15% | 32.31% |
Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Profit Before Taxes | | | 8,137,129 | | | | 2,548,833 | | Income tax | | | 2,629,165 | | | | 170,207 | | Effective tax rate (1) | | | 32.31 | % | | | 6.68 | % |
(1) In 20092011, 2010 and 2008,2009, considering the tax effect of the exchange variation over foreign branches and the economic hedge, accounted in the Gains/lossesGains (losses) on financial assets and liabilities (net) (note 34) the effective tax rate would have been 23.5%, 23.2% and 25.0%25%, respectively. | | | | c) Tax recognized in equity | | In addition to the income tax recognized in the consolidated income statement, the Bank recognized the following amounts in consolidated equity: | | Thousands of Reais | 2011 | 2010 | 2009 | | Tax credited to equity | 97,498 | 94,911 | 149,851 | Measurement of available-for-sale securities | 97,498 | 90,888 | - | Measurement of cash flow hedges | - | 4,023 | 149,851 | Tax charged to equity | (852,474) | (692,881) | (568,155) | Measurement of available-for-sale securities | (845,109) | (681,097) | (568,155) | Measurement of cash flow hedges | (7,365) | (11,784) | - | Total | (754,976) | (597,970) | (418,304) |
c) Tax recognized in equityF-51
In addition to the income tax recognized in the consolidated income statement, the Bank recognized the following amounts in consolidated equity:
Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Tax credited to equity: | | | 170,038 | | | | 463,203 | | Measurement of available-for-sale fixed-income securities | | | - | | | | 463,203 | | Measurement of available-for-sale equity securities | | | 20,187 | | | | - | | Measurement of cash flow hedges | | | 149,851 | | | | - | | Tax charged to equity: | | | (568,155 | ) | | | (165,996 | ) | Measurement of non-current assets held for | | | (19,397 | ) | | | - | | Measurement of available-for-sale fixed-income securities | | | (548,758 | ) | | | - | | Measurement of cash flow hedges | | | - | | | | (165,996 | ) | Total | | | (398,117 | ) | | | 297,207 | |
d) Deferred taxes
The detail of the balances of “Tax assets – Deferred” and “Tax liabilities – Deferred” is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Tax assets | | | 13,617,159 | | | | 11,769,157 | | Of which: | | | | | | | | | Tax loss carryforwards | | | 1,669,755 | | | | 1,377,470 | | Temporary differences (1) | | | 11,947,404 | | | | 10,391,687 | | | | Tax liabilities | | | 3,867,857 | | | | 3,130,894 | | Of which: | | | | | | | | | Excess depreciation of leased assets | | | 2,153,120 | | | | 1,156,283 | | Adjustment to fair value of trading securities and derivatives | | | 1,714,737 | | | | 1,372,552 | |
(1) Temporary differences relate mainly to impairment losses on loans and receivables and contingent liabilities.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | d) Deferred taxes | | | | | | | The detail of the balances of “Tax assets – Deferred” and “Tax liabilities – Deferred” is as follows: | | Thousands of Reais | | | 2011 | 2010 | 2009 | | Tax assets deferred | | | 14,171,076 | 13,415,298 | 13,617,159 | Of which: | | | | | | Temporary differences(1) | | | 12,121,076 | 11,211,372 | 11,947,404 | Tax loss carryforwards | | | 1,352,273 | 1,462,490 | 1,669,755 | Social contribution taxes 18% | | | 697,727 | 741,436 | - | Tax offset | | | 2,073 | 209,582 | - | Total deferred tax assets | | | 14,173,149 | 13,624,880 | 13,617,159 | | Tax liabilities deferred | | | 3,748,104 | 4,280,159 | 3,867,857 | Of which: | | | | | | Excess depreciation of leased assets | | | 2,012,314 | 2,454,253 | 2,153,120 | Adjustment to fair value of trading securities and derivatives | | | 1,735,790 | 1,825,906 | 1,714,737 | Total deferred tax liabilities | | | 3,748,104 | 4,280,159 | 3,867,857 | (1) Temporary differences relate mainly to impairment losses on loans and receivables and provisions for judicial and administrative proceedings. | | In 2011, were not recorded tax assets amounting R$995,838 thousand. | | The changes in the balances of “Tax Assets – Deferred” and “Tax Liabilities – Deferred” in the last two years were as follows: | | | | | | | | Thousands of Reais | Balances at December 31, 2010 | Adjustment to Income | Valuation adjustments (1) | Acquisitions for the Year (Net ofdisposals) | Balances at December 31, 2011 | | Deferred tax assets | 13,415,298 | 827,601 | (2,873) | (68,950) | 14,171,076 | Temporary differences | 11,211,372 | 981,527 | (2,873) | (68,950) | 12,121,076 | Tax loss carryforwards | 1,462,490 | (110,217) | - | - | 1,352,273 | Social contribution taxes 18% | 741,436 | (43,709) | - | - | 697,727 | Deferred tax liabilities | 4,280,159 | (707,006) | 276,494 | (101,543) | 3,748,104 | Temporary differences | 4,280,159 | (707,006) | 276,494 | (101,543) | 3,748,104 | Total | 9,135,139 | 1,534,607 | (279,367) | 32,593 | 10,422,972 | | | | | | | | Thousands of Reais | Balances at December 31, 2009 | Adjustment to Income | Valuation adjustments (1) | Acquisitions for the Year (Net ofdisposals) | Balances at December 31, 2010 | | Deferred tax assets | 13,617,159 | 212,960 | (205,239) | - | 13,624,880 | Deferred tax liabilities | 3,867,857 | 325,013 | 87,289 | - | 4,280,159 | Total | 9,749,302 | (112,053) | (292,528) | - | 9,344,721 | | | | | | | | Thousands of Reais | Balances at December 31, 2009 | Adjustment to Income | Valuation adjustments (1) | Acquisitions for the Year (Net ofdisposals) | Balances at December 31, 2010 | | Deferred tax assets | 11,769,157 | 1,753,146 | 107,989 | (13,133) | 13,617,159 | Deferred tax liabilities | 3,130,894 | 731,651 | 3,960 | 1,352 | 3,867,857 | Total | 8,638,263 | 1,021,495 | 104,029 | (14,485) | 9,749,302 | (1) It relates to tax recognized in equity. | | e) Expected realization of tax loss carryforwards | | | | | | | | Year | | | Temporarydifferences | Tax loss carryforwards | Social contribution taxes 18% | | 2012 | | | 6,427,415 | 359,626 | 14,146 | 2013 | | | 2,833,213 | 657,469 | 162,471 | 2014 | | | 1,675,781 | 204,696 | 100,278 | 2015 | | | 271,989 | 76,785 | 25,949 | 2016 | | | 260,824 | 53,697 | 207,524 | 2017 to 2019 | | | 310,804 | - | 187,359 | After 2019 | | | 341,050 | - | - | Total | | | 12,121,076 | 1,352,273 | 697,727 |
F-52
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 24. Other liabilities | | | | | The breakdown of the balance of “Other Liabilities” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Accrued expenses and deferred income | 1,930,290 | 1,646,121 | 1,751,717 | Transactions in transit | 695,880 | 411,426 | 349,097 | Provision for share-based payment | 158,543 | 86,568 | 33,221 | Other | 1,143,138 | 1,461,723 | 2,093,733 | Total | 3,927,851 | 3,605,838 | 4,227,768 |
| | | | | | | | Charge/ | | | | | | | | | | | | | | | | Credit to | | | | | | | | | | | | | | | | Asset and | | | | | | | | | | Balances at | | | (Charge)/ | | | Liability | | | Acquisitions | | | Balances at | | | | December 31, | | | Credit to | | | Revaluation | | | for the | | | December 31, | | Thousands of Reais | | 2008 | | | Income | | | Reserve | | | Year (Net) | | | 2009 | | | | Deferred tax assets | | | 11,769,157 | | | | 1,753,146 | | | | 107,989 | | | | (13,133 | ) | | | 13,617,159 | | Deferred tax liabilities | | | 3,130,894 | | | | 731,651 | | | | 3,960 | | | | 1,352 | | | | 3,867,857 | | Total | | | 8,638,263 | | | | 1,021,495 | | | | 104,029 | | | | (14,485 | ) | | | 9,749,302 | | | |
| | | | | | | | | | Charge/ | | | | | | | | | | | | | | | | | | | | Credit to | | | | | | | | | | | | | | | | | | | | Asset and | | | | | | | | | | | | Balances at | | | (Charge)/ | | | Liability | | | Acquisitions | | | Balances at | | | | December 31, | | | Credit to | | | Revaluation | | | for the | | | December 31, | | Thousands of Reais | | | 2007 | | | Income | | | Reserve | | | Year (Net) | | | | 2008 | | | | Deferred tax assets | | | 4,073,205 | | | | 2,224,953 | | | | 45,185 | | | | 5,425,814 | | | | 11,769,157 | | Deferred tax liabilities | | | 1,452,640 | | | | 1,221,438 | | | | (491,031 | ) | | | 947,847 | | | | 3,130,894 | | Total | | | 2,620,565 | | | | 1,003,515 | | | | 536,216 | | | | 4,477,967 | | | | 8,638,263 | | | | | | | | | | | | | | | | | | | | | | | | |
“Minority interests” include the net amount of the equity of subsidiaries attributable to equity instruments that do not belong, directly or indirectly, to the Bank, including the portion attributed to them of profit for the year.
a) Breakdown
The detail, by company, of the balance of “Equity - Minority interests” is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | Agropecuária Tapirapé S.A. | | | 63 | | | | 60 | | Banco ABN AMRO Real S.A. | | | - | | | | 80 | | Banco Comercial e de Investimento Sudameris S.A. | | | - | | | | 3,977 | | Real Leasing S.A. Arrendamento Mercantil | | | 910 | | | | 819 | | Real CHP S.A. | | | 297 | | | | 334 | | Brasil Foreign Diversified Payment Rights Finance Company | | | 67 | | | | - | | Other companies | | | 1 | | | | 9 | | | | | 1,338 | | | | 5,279 | | | | Profit for the year attributed to minority interests | | | 358 | | | | 231 | | Of which: | | | | | | | | | Agropecuária Tapirapé S.A. | | | 3 | | | | - | | Banco Comercial e de Investimento Sudameris S.A. | | | - | | | | 206 | | Real Leasing S.A. Arrendamento Mercantil | | | 94 | | | | 19 | | Real CHP S.A. | | | 261 | | | | - | | Other companies | | | - | | | | 6 | |
b) Changes
The changes in the balance of “Minority interests” are summarized as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Balance at beginning of year | | | 5,279 | | | | 57 | | Change in the scope of consolidation (note 3) | | | (4,299 | ) | | | 4,991 | | Profit for the year attributed to minority interests | | | 358 | | | | 231 | | Balance at end of year | | | 1,338 | | | | 5,279 | |
The balances of “Valuation adjustments” include the amounts, net of the related tax effect, of the adjustments to assets and liabilities recognized temporarily in equity stated in the statement of changes in equity and recognized income and expense until they are extinguished or realized, when they are recognized in the consolidated income statement. The amounts arising from subsidiaries and jointly controlled entities are presented, on a line by line basis, in the appropriate items according to their nature. It should be noted that the statement of recognized income and expense includes the changes to “Valuation adjustments” as follows: - Revaluation gains/losses: includes the amount of the income, net of the expenses incurred in the year, recognized directly in equity. The amounts recognized in equity in the year remain under this item, even if in the same year they are transferred to the income statement or to the initial carrying amount of the assets or liabilities or are reclassified to another line item. - Amounts transferred to income statement: includes the amount of the revaluation gains and losses previously recognized in equity, even in the same year, which are recognized in the income statement. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
- - Amounts transferred to the initial carrying amount of hedged items: includes the amount of the revaluation gains and losses previously recognized in equity, even in the same year, which are recognized in the initial carrying amount of assets or liabilities as a result of cash flow hedges. - Other reclassifications: includes the amount of the transfers made in the year between the various valuation adjustment items. TheIn the Consolidated Statements of Recognized Income and Expense the amounts of these itemsin "Valuation adjustments" are recognized gross, including the amount of the valuation adjustments relating to minoritynon-controlling interests, and the corresponding tax effect is presented under a separate item, except in the case of entities accounted for using the equity method, the amounts for which are presented net of the tax effect. a) Available-for-sale financial assets This item includes the net amount of unrealized changes in the fair value of assets classified as available -for-saleavailable-for-sale financial assets. The changes in the balance at December 31, 2009 with respect to the previous year relate mainly to the increase arising from the gain of unrealized gains that were recognized in equity at 2008 year-end.
This item includes the gains or losses attributable to hedging instruments that qualify as effective hedges. These amounts will remain under this heading until they are recognized in the consolidated income statement in the periods in which the hedged items affect it (see note 41-a)8-d). Accordingly, amounts representing valuation losses will be offset in the future by gains generated by the hedged instruments. 26. Non-controlling interests “Non-controlling interests” include the net amount of the equity of subsidiaries attributable to equity instruments that do not belong, directly or indirectly, to the Bank, including the portion attributed to them of profit for the year.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | a) Breakdown | | | | | The detail, by company, of the balance of “Equity - Non-controlling interests” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Agropecuária Tapirapé S.A. | - | 67 | 63 | Santander Leasing S.A. Arrendamento Mercantil | 784 | 987 | 910 | Santander CHP S.A. | 1,712 | 409 | 297 | Brasil Foreign Diversified Payment Rights Finance Company | 2 | 2 | 67 | Santander Getnet Serviços para Meios de Pagamentos S.A.(1) | 13,061 | 6,611 | - | MS Participações Societárias S.A.(2) | 3,401 | - | - | Other companies | - | - | 1 | Total | 18,960 | 8,076 | 1,338 | | | Profit attributable to non-controlling interests | 7,928 | 481 | 358 | Of which: | | | | Agropecuária Tapirapé S.A. | - | 3 | 3 | Santander Leasing S.A. Arrendamento Mercantil | 83 | 77 | 94 | Santander CHP S.A. | 1,302 | 276 | 261 | Santander Getnet Serviços para Meios de Pagamentos S.A.(1) | 6,450 | 111 | - | MS Participações Societárias S.A.(2) | 93 | - | - | Other companies | - | 14 | - | | b) Changes | | | | | The changes in the balance of “Non-controlling interests” are summarized as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Balance at beginning of year | 8,076 | 1,338 | 5,279 | Inclusion of companies(1) (2) | 3,308 | 6,500 | - | Dividends paid | (352) | (164) | (297) | Profit attributable to non-controlling interests | 7,928 | 481 | 358 | Others(3) | - | (79) | (4,002) | Balance at end of year | 18,960 | 8,076 | 1,338 |
(1) On January 14, 2010, the Bank signed the contractual and bylaw instruments with GetNet to explore, develop and market transaction capture and processing services involving credit and/or debit cards in the Brazilian market. Santander holds veto power in decisions related to business strategy also enables the Bank to Getnet the use of the branch network the Bank's brand and marketing products, which among other factors determines the Bank's control under the authority. | (2) Refers to minority interests in MS Participações Societárias S.A. | (3) In 2009, refers substantially to the reduction of minority interest in Banco Comercial e de Investimento S.A. Sudameris (BCIS) and Banco ABN AMRO Real S.A., due to the incorporation of these institutions by Banco Santander. In these transactions the Bank's shares were given to the minority shareholders, which now directly participate in Banco Santander. |
27. Shareholders’ equity
a) Capital
According to the Banco Santander’s bylaws, the Bank'sBanco Santander's capital may be increased to the limit of authorized capital, regardless of statutory, by resolution of the Board of Directors and through the issuance of up to 500 billion new shares, within the limits legally established as the number of preferred shares. Any increase in capital in excess of this limit will require the approval of the stockholders. The paid-up capital is represented as follows: | | | | | | | | Thousands of shares | | 2011 | 2010 | | Common | Preferred | Total | Common | Preferred | Total | Brazilian residents | 16,000,704 | 16,052,894 | 32,053,598 | 38,084,679 | 36,130,149 | 74,214,828 | Foreign residents | 196,841,028 | 170,149,491 | 366,990,519 | 174,757,053 | 150,072,236 | 324,829,289 | Total shares | 212,841,732 | 186,202,385 | 399,044,117 | 212,841,732 | 186,202,385 | 399,044,117 | (-) Treasury shares | (391,254) | (355,685) | (746,939) | - | - | - | Total outstanding | 212,450,478 | 185,846,700 | 398,297,178 | 212,841,732 | 186,202,385 | 399,044,117 | | | | | | Thousands of shares | | | | | | 2009 | | | | | | Common | Preferred | Total | Brazilian residents | | | | 33,546,259 | 32,004,313 | 65,550,572 | Foreign residents | | | | 179,295,473 | 154,198,072 | 333,493,545 | Total shares | | | | 212,841,732 | 186,202,385 | 399,044,117 |
On April 27, 2010, the Extraordinary Stockholders' Meeting approved the proposal of capital increase amounting to R$22,130 thousand, without the issuance of new shares, through the incorporation of capital reserves, which was ratified by Bacen on June 24, 2010. F-54
| | Thousands of shares: | | | | 2009 | | | 2008 | | | | Common | | | Preferred | | | Total | | | Common | | | Preferred | | | Total | | Brazilian residents | | | 33,546,259 | | | | 32,004,313 | | | | 65,550,572 | | | | 2,734,410 | | | | 3,993,767 | | | | 6,728,177 | | Foreign residents | | | 179,295,473 | | | | 154,198,072 | | | | 333,493,545 | | | | 171,558,006 | | | | 147,472,100 | | | | 319,030,106 | | Total shares | | | 212,841,732 | | | | 186,202,385 | | | | 399,044,117 | | | | 174,292,416 | | | | 151,465,867 | | | | 325,758,283 | | Total in thousands of reais | | | 33,396,165 | | | | 29,216,290 | | | | 62,612,455 | | | | 25,228,125 | | | | 21,924,076 | | | | 47,152,201 | |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
On October 13, 2009, as a result of the Global Share Offering, the capital of Banco Santander was increased by 525,000.000 Units (totaling 55,125,000 thousand shares, out of which 28,875,000 thousand are common shares and 26,250,000 thousand are preferred shares), each Unit represents 55 common shares and 50 preferred shares, all registered shares, without par value. On October 29, 2009 the number of shares initially offered in the Global Share Offering was increased by 6.85%, i.e., 35,955,648, (3,775,343 thousand shares, of which 1,977,561 thousand are ordinary shares and 1,797,782 thousand are preferred shares). The capital increase totaled R$ 12,988,842 thousand net of issuances costs of R$ 193,616. 193,616 thousand.The Extraordinary Shareholders' Meeting held on August 14, 2009 approved the capital increase of Banco Santander in the amount of R$2,471,413, with the issuance of 14,410,886 thousand shares (7,710,343 thousand are common shares and 6,700,543 thousand are preferred share), all ,all of them registered and without par value, related to the share merger of Santander Seguros, Santander Brasil Asset and BCIS. The Extraordinary Stockholders’ Meeting held on August 29, 2008 approved the increase in Banco Santander’s total capital from R$38,920,753, of which R$38,020,753 were allocated to Capital and R$900,000 to Capital Reserves, through the issuance of 189,300,327 thousand shares, (101,282,490 thousand are common shares and 88,017,837 thousand are preferred shared), without par value, related to the merger of shares of Banco Real and AAB Dois Par.
At the meeting held on July 25, 2008, the Board of Directors approved a capital increase of 3,689,477 thousand shares (1,974,003 thousand common shares and 1,715,474 thousand preferred shares), in the amount of R$800,000.
b) Dividends and Interest on Capital In accordance with the Bank’s bylaws, stockholders are entitled to a minimum dividend equivalent to 25% of net income for the year, adjusted according to legislation. Preferred shares are nonvoting and nonconvertible, but have the same rights and advantages granted to common shares, in addition to priority in the payment of dividends 10% higher than those paid on common shares, and in the capital reimbursement, without premium, in the event of liquidation of the Bank. Banco Santander.Dividend payments have been prepared and will continue to be prepared in accordance with Brazilian Corporate Law. Before the annual shareholders meeting, the Board of Directors may establish the amount of dividends out of earnings based on (i) balance sheets or earning reserves from the last balance sheet; or (ii) balance sheets issued in the period shorter than 6 months, in which case the payment of dividends shall not exceed the amount of capital reserves. These payments are fully input into the mandatory dividend. | | | | | | | 2011 | | Thousands of Reais | Reais per Thousand Shares / Units | Common | Preferred | Units | Interest on capital(1)(5)(9) | 600,000 | 1.4366 | 1.5802 | 158.0216 | Reserve for equalization dividend(2)(5) | 273,840 | 0.6556 | 0.7212 | 72.1211 | Interim Dividends(2)(5)(9) | 476,160 | 1.1401 | 1.2541 | 125.4059 | Interest on capital(3)(5)(9) | 550,000 | 1.3168 | 1.4485 | 144.8532 | Interim Dividends(4)(5)(9) | 100,000 | 0.2394 | 0.2634 | 26.3369 | Interest on capital(6)(8)(9) | 400,000 | 0.9592 | 1.0551 | 105.5127 | Interim Dividends(7) (8) (9) | 775,000 | 1.8590 | 2.0449 | 204.4944 | Total in December 31, 2011 | 3,175,000 | | | | (1) Established by the Board of Directors in March, 2011, Common Shares - R$1.2211, and Preferred Shares - R$1.3432 and Units - R$134.3184, net of taxes. (2) Established by the Board of Directors in May, 2011. (3) Established by the Board of Directors in June, 2011, Common Shares - R$1.1193, and Preferred Shares - R$1.2313 and Units - R$123.1252, net of taxes. (4) Established by Board of Directors in June, 2011. (5) The amount of interest on capital and dividends intermediate / intermediate was paid on August 29, 2011. (6) Established by the Board of Directors in September, 2011, Common Shares - R$0.8153, and Preferred Shares - R$0.8969 and Units - R$89.6858, net of taxes. (7) Established by Board of Directors in December 2011. (8) The amount of interest on capital will be paid on a date to be timely informed, without any compensation as monetary. (9) The amount of interim dividends and interest on capital will be allocated entirely to the mandatory distribution of income for the year 2011. | |
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| | | | 2010 | | Thousands of Reais(9) | Reais per Thousand Shares / Units | Common | Preferred | Units | Interest on capital(1)(4) | 400,000 | 0.9577 | 1.0535 | 105.3477 | Intermediate dividends(2)(4) | 500,000 | 1.1917 | 1.3168 | 131.6847 | Interest on capital(3)(4) | 400,000 | 0.9577 | 1.0535 | 105.3477 | Interest on capital(5)(8) | 530,000 | 1.2690 | 1.3959 | 139.5858 | Interest on capital(6)(8) | 430,000 | 1.0295 | 1.1325 | 113.2488 | Intermediate dividends(7)(8) | 1,280,000 | 3.0647 | 3.3711 | 337.1128 | Total in December 31, 2010 | 3,540,000 | | | | (1) Established by the Board of Directors in March, 2010, Common Shares - R$0.8141 and Preferred Shares - R$0.8955 and Units - R$89.5456, net of taxes. (2) Established by the Board of Directors in June, 2010. (3) Established by the Board of Directors in June, 2010, Common Shares - R$0.8141 and Preferred Shares - R$0.8955 and Units - R$89.5456, net of taxes. (4) The Amounts for the Interest on Capital were paid on August 25, 2010. (5) Established by the Board of Directors in September, 2010, Common Shares - R$1.0786 and Preferred Shares - R$1.1865 and Units - R$118.6479, net of taxes. (6) Established by the board of Directors in December, 2010, Common Shares - R$0.8751, and Preferred Shares - R$0.9626 and Units - R$96.2615, net of taxes. (7) Established by the Board of Directors in December 2010. (8) The amounts for the Interest on Capital and Dividends were paid on February 25, 2011, without any additional amount for monetary correction. (9) The amount for to the intermediate dividends and interest on capital are fully input into the mandatory dividends, recognized in income for the period ended December 31, 2010. | |
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F- 55
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Before the annual shareholders meeting, the Board of Directors may determine the payment of interim dividends out of earnings based on (i) semiannual balance sheets or earning reserves; or (ii) balance sheets issued on shorter periods, in which case the distribution of dividends shall not exceed the amount of capital reserves. These interim payments are offset against the annual mandatory dividend.
| | | | | | | 2009 | | Thousands of | Reais per Thousand Shares / Units | | Reais(5) | Common | Preferred | Units | Interest on capital(1) | 340,000 | 0.9974 | 1.0972 | n.a. | Interest on capital(2) | 285,000 | 0.8361 | 0.9197 | n.a. | Intermediate Dividends(3) | 327,400 | 0.7839 | 0.8623 | 86.2271 | Intercalary Dividends(3) | 422,600 | 1.0118 | 1.1130 | 111.2999 | Interest on capital(3)(4) | 200,000 | 0.4789 | 0.5267 | 52.6738 | Total in December 31, 2009 | 1,575,000 | | | | (1) Established by Board of Directors in April 2009. Common shares - R$0.8478 and Preferred shares - R$0.9326, net of taxes. (2) Established by Board of Directors in June 2009. Common shares - R$0.7107 and Preferred shares - R$0.7817, net of taxes. (3) Established by Board of Directors in December 2009. (4) Common shares - R$0.4070 and Preferred shares - R$0.4477, net of taxes, and Units R$44,7728. (5) The amount for to the intermediate dividends, intercalary dividends and interest on capital are fully input into the mandatory dividends for the period ended December 31, 2009, which will be paid on February 22, 2010, without any additional amount for monetary correction. | |
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| | 2009 | | | | Thousands of | | | Reais per Thousand Shares / Units | | | | Reais(5) | | | Common | | | Preferred | | | Units | | Interest on capital based on interim net income for the period of December 31, 2009 (1) | | | 340,000 | | | | 0.9974 | | | | 1.0972 | | | n.a. | | Interest on capital based on interim net income for the period of December 31, 2009 (2) | | | 285,000 | | | | 0.8361 | | | | 0.9197 | | | n.a. | | Intermediate Dividends for the period of December 31, 2009 (3) | | | 327,400 | | | | 0.7839 | | | | 0.8623 | | | | 86.2271 | | Intercalary Dividends for the period of December 31, 2009 (3) | | | 422,600 | | | | 1.0118 | | | | 1.1130 | | | | 111.2999 | | Interest on capital based on interim net income for the period of December 31, 2009 (3)(4) | | | 200,000 | | | | 0.4789 | | | | 0.5267 | | | | 52.6738 | | Total in December 31, 2009 | | | 1,575,000 | | | | | | | | | | | | | |
(1) Established by Board of Directors in April 2009. Common shares - R$0.8478 and Preferred shares - R$0.9326, net of taxes.
(2) Established by Board of Directors in June 2009. Common shares - R$0.7107 and Preferred shares - R$0.7817, net of taxes.
(3) Established by Board of Directors in December 2009.
(4) Common shares - R$0.4070 and Preferred shares - R$0.4477, net of taxes, and Units R$44,7728.
(5) The amount related to the intermediate dividends, intercalary dividends and interest on capital are fully input into the mandatory dividends, which will be paid on February 22, 2010, without any additional amount for monetary for monetary correction.
| | 2008 | | | Thousands of | | | Reais per Thousand Shares / Units | | | Reais | | | Common | | | Preferred | | Units | Interest on capital based on interim net income for the period of December 31, 2008 (1) | | | 752,807 | | | | 2.2084 | | | | 2.4293 | | n.a. | Interest on capital based on interim net income for the period of December 31, 2008 (1) | | | 217,193 | | | | 0.6372 | | | | 0.7009 | | n.a. | Dividends from constituted reserves for the period of December 31, 2008 (1) | | | 3,045 | | | | 0.0089 | | | | 0.0098 | | n.a. | Interest on capital based on interim net income for from December, 2008 (1)(2) | | | 480,000 | | | | 1.4081 | | | | 1.5489 | | n.a. | Total in December 31, 2008 | | | 1,453,045 | | | | | | | | | | |
(1) Established by Board of Directors in December 2008.
(2) Common shares - R$1.1969 and Preferred shares - R$1.3166, net of taxes.
c) Reserves The reserves are allocated as follows after the deductions and statutory provisions, from the net income: In accordance with BR GAAP, 5% (five percent) in transferred to the legal reserve, until it reaches 20% (twenty percent) of the share capital. This reserve is designed to ensure the integrity of the capital and can only be used to offset losses or increase capital. In accordance with BR GAAP, theThe Bank´s capital reserve is comprised for: (1) share premium paid by investors inconsists of: reserve of goodwill for the subscription of shares which exceeds the par value (not applicable to us), or part of the issue price of the shares without par value which exceed the amount destinated to the composition of theand other capital reserves, and (2) product from the disposal of beneficiary party (not applicable to us) and subscription bonds. The capital reserve can only be used for: (1) loss absorption whichto absorb losses that exceed the retained earnings and profit reserves, (2) redemption, repayment or purchase of treasury shares (3) redemption of beneficiary party (not applicable to the Bank), (4)our treasury; incorporation of the capital, or (5) payment of dividends to preferred shares in certain circumstances. Reserve for equalization dividend After the destination of dividends, the remaining balance if any, may, upon proposal of the Executive Board and approved by the Board of Directors, be destineddestinated to constitute a reserve for equalization of dividends, which is limited to 50% of the Capital. This reserve aims to ensure funds for the payment of dividends, including the form of Interest on Capital, or any interim payment to maintain the flow of shareholders remuneration. d) Global offering of shares TheBoardof Directors’ meeting held on September 18, 2009 approved the implementation of the public offering, which includes the issuance of 525,000,000 Units, each representing one of 55 common shares and 50 preferred shares, all registered shares, without par value, free and clear of any liens or encumbrances, consisting of the simultaneous initial public offering of Units in Brazil and Units abroad, included in the form of ADRs representing ADSs. At the same meeting the listing of Banco Santander was approved and the trade of the Units in BM&FBovespa - Securities, Commodities and Futures Exchange (BM&FBovespa) level 2 Corporate Governance Practices. The Global Offering was coordinated on a firm commitment of settlement. Under the Instruction 400/2003 of Brazilian Securities Commission (CVM), the total number of Units/ADSs initially offered in the Global Offering was increased in 6.85 %, i.e., which means 35,955,648 Units, in the form of ADSs, designed to meet a possible excess of demand over the Global Offering (Supplemental Option). On October 6, 2009, the global offered shares were priced at R$23.50 per Unit. The Units are traded on the BM&FBovespa and the New York Stock Exchange (NYSE) since October 7, 2009. The other characteristics and terms set out in the Final Global Offering Prospect for the Initial Public Offering of Certificates of Deposit Shares (Units) Issuance of Banco Santander dated October 6, 2009, available at www.santander.com.br and the CVM website and its english version on Form F-1, available on the SEC website. The ratification, by Bacen, of the Bank's capital increase due to the completion of the Global Offering and Supplemental Option occurred on October 14, 2009 and on October 29, 2009, respectively. The results of the Global Offering were disclosed under the closing announcement published in issues of Valor Econômico on November 10, 2009. e) Treasury shares On February, 2009 the Bank acquired 25.39525,395 thousands own shares for the amount R$1.948.1,948 thousand. The Extraordinary shareholders' Meeting held on August, 2009 decided the cancellation of shares of its own issuance held in treasury, without reducing capital, through the absorption of R$1,948 thousand of the Capital Reserves account. On November 9, 2010, the Board of Directors approved the Buyback Units Program issued by Banco Santander allowed purchase up to 1,452,282 Units, representing 79,875,510 common shares and 72,614,100 preferred shares, valid until November 9, 2011. However, in the meeting of Board Directors on August 24, 2011, the Buyback Program was canceled and a new Buyback Units Program issued by the Bank was approved, for held in treasury or subsequent sale valid up to August 24, 2012. The new Buyback Program aims to: (1) maximize value creations for shareholders through efficient management of capital structure and (2) enable the management of risk arising from the provision , by the Bank, of market maker services in Brazil for certain index funds, where the Units are included in the index theoretical portfolio of reference of such funds, according to the rules. Part of repurchased Units will be used by the Bank for protection (“hedge”) against the price fluctuation of securities comprising the benchmark index, and should be bought and sold in accordance with the policy of the Bank’s risk management. The Buyback Program will cover the procurement of over to 57,006,302 Units, representing 3,135,346,633 common shares and 2,850,315,121 preferred shares, or ADRs (American Depositary Receipts) by the Bank, or by its Cayman branch. F-56
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Still in November 9, 2010, the BMF&Bovespa has authorized the purchase of ADRs by Santander Madrid or its affiliates until 3% of the total shares issued by the Bank. Therefore, adding the number of Units/ADRs that may be acquired by the Company and Santander Madrid and its affiliates, that on July 31, 2011 was 18.63%, and shares outstanding could be reduced until 14.13%. This authorization does not imply in losses to the obligation assumed by Santander to reach a free float of 25% until October 7, 2012 (extendable under certain conditions until October 7, 2014), provided in the Contract for Adoption of Corporate Governance Practices Level 2 signed with BMF&Bovespa. Until December 31, 2011, was acquired and held in treasury 5,380,800 Units, amounting to R$79,547 thousand. The minimum, weighted average and maximum cost per Unit is, respectively, R$14.10, R$14.78 and R$16.06. The Bank also acquired and held in treasury 1,732,900 ADRs, amounting to R$33,221 thousand. The minimum cost, weighted average and maximum price per ADR is US$10.21 . The market value of these shares on December 31, 2011 was R$14,96 per Unit and US$8.14 per ADR. Additionally, during the period of 12 months ended in December 31, 2011, treasury shares were traded, refer to the services of a market maker that resulted ina gainof R$13, recorded directly in equity in capital reserves. f) Strategic Partner of Santander Conglomerate in Brazil and Latin America On October 28, 2010 Santander Spain and Qatar Holding Luxembourg S.à rl II (QHL) signed a contract in terms of the Acquisition of convertible bonds, regarding the subscription and payment by QHL the amount of US$ 2,718.8 million in bonds issued by Banco Santander Spain. These securities are mandatorily exchangeable for shares of Banco Santander and amount to 5.00024% of its capital. These shares are paid an interest rate of 6.75% pa in dollars and mature by October 29, 2013. This investment reflects the inclusion of QHL as a strategic partner of Group Santander Spain in Brazil and in the remaining of Latin America. This operation allows Banco Santander to advance in its commitment of 25% of capital free float . On December 31, 2011, except for convertible bonds, the QHL does not own, directly or indirectly, any shares, warrants, subscription rights or options over the share capital of Banco Santander. 28. Operational Ratios Financial institutions are required to maintain regulatory capital consistent with their activities, higher to the minimum of 11% of required capital. In July 2008 new regulatory capital measurement rules, under the Basel II Standardized Approach, went into effect, including a new methodology for credit risks and operational risks measurement, analysis and management. This ratio must be calculated on a consolidated basis, as shown below: | | | | | Financial Consolidated(1) | Thousands of Reais | 2011 | 2010 | 2009 | | Adjusted Tier I Regulatory Capital(2) | 48,327,406 | 44,883,986 | 42,352,612 | Tier II Regulatory Capital | 6,642,092 | 7,433,493 | 9,972,644 | Adjusted Regulatory Capital (Tier I and II)(2) | 54,969,498 | 52,317,479 | 52,325,256 | Required Regulatory Capital | 30,431,245 | 26,019,647 | 22,483,494 | Adjusted Portion of Credit Risk(2) (3) | 26,952,908 | 23,480,589 | 20,607,792 | Market Risk Portions(4) | 1,757,599 | 1,077,100 | 844,882 | Operational Risk Portion | 1,720,738 | 1,461,958 | 1,030,820 | Basel II Ratio | 19.9% | 22.1% | 25.6% | (1) Amounts calculated based on the consolidated information of the financial institutions (Financial Conglomerate). (2) Disregards the effect of goodwill on the merger of the shares of Banco Real and AA Dois Par, as determined by the international rule. (3) For the portfolio of individuals, the Central Bank Letter 3.515 of December 3,2010, introduced the risk weighting of 150% for lending operations over 24 months, allowing some exceptions given the type of operation, maturity and guarantees related. However, in November 11, 2011, the Central Bank annulled the Letter 3.515 and published Letter 3.563 which requires the application of the 150% funding for the financial operations of vehicles, reduces the risk weight for credit contracted consigned up to July 2011 from 150% to 75% or 100% and raises the risk weighting of 300% of the payroll loans and personal loans with no specific purpose with a term over 60 months, contracted as of November 14, 2011. (4) Includes portions for market risk exposures subject to variations in rates of foreign currency coupons (PJUR2), price indexes (PJUR3) and interest rate (PJUR1/PJUR4), the price of commodities (PCOM), the price of shares classified as trading portfolios (PACS), and portions for gold exposure and foreign currency transactions subject to foreign exchange (PCAM). | |
Thousands of Reais | | 2009 | | | 2008 | | | | Adjusted Tier I Regulatory Capital | | | 42,357,612 | | | | 23,033,013 | | Tier II Regulatory Capital | | | 9,972,644 | | | | 8,504,338 | | Adjusted Regulatory Capital (Tier I and II) | | | 52,330,256 | | | | 31,537,351 | | Required Regulatory Capital | | | 22,483,494 | | | | 23,527,735 | | Adjusted Portion of Credit Risk | | | 20,607,792 | | | | 22,324,423 | | Market Risk Portions | | | 844,882 | | | | 916,186 | | Operational Risk Portion | | | 1,030,820 | | | | 287,126 | | Basel II Ratio (*) | | | 25.6 | % | | | 14.7 | % |
(*) CalculatedBanco Santander, according to BACEN requirements, not considering goodwill effect.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
the structure and methodology will be disclosed in the legal deadline, at the website www.santander.com.br\ri.Financial institutions are required to maintain investments in permanent assets compatible with adjusted regulatory capital. Funds invested in permanent assets, calculated on a consolidated basis, are limited to 50% of regulatory capital, as per prevailing regulation. On December 31, 2008,2011, 2010 and 2009, Banco Santander exceededclassifies for said index. 29. Interest and similar income “Interest and similar income” in the limit for investmentconsolidated income statement comprises the interest accruing in permanentthe year on all financial assets with an implicit or explicit return, calculated by applying the effect, arising exclusivelyeffective interest method, irrespective of measurement at fair value; and the rectifications of income as a result of hedge accounting. Interest is recognized gross, without deducting any tax withheld at source. | | | | The breakdown of the main interest and similar income items earned in 2011, 2010 and 2009 is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | Cash and balances with the Brazilian Central Bank | 6,297,438 | 3,589,924 | 1,666,931 | Loans and amounts due from credit institutions | 1,219,218 | 1,397,840 | 2,901,054 | Loans and advances to customers | 35,397,614 | 29,290,024 | 29,469,976 | Debt instruments | 8,084,155 | 6,442,288 | 5,201,840 | Pension plans (Note 22.b) | 55,103 | - | - | Other interest | 682,552 | 189,128 | 103,155 | Total | 51,736,080 | 40,909,204 | 39,342,956 |
F-57
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
30. Interest expense and similar charges “Interest expense and similar charges” in the consolidated income statement includes the interest accruing in the year on all financial liabilities with an implicit or explicit return, including remuneration in kind, calculated by applying the effective interest method, irrespective of measurement at fair value; the rectifications of cost as a result of hedge accounting; and the interest cost attributable to pension funds. | | | | The breakdown of the main items of interest expense and similar charges accrued in 2011, 2010 and 2009 is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | Deposits from the Brazilian Central Bank | - | - | 29,340 | Deposits from credit institutions | 2,006,136 | 1,146,688 | 1,179,130 | Customer deposits | 16,494,482 | 12,773,546 | 13,164,015 | Marketable debt securities and subordinated liabilities: | | | | Marketable debt securities (note 18) | 3,226,644 | 1,212,962 | 1,047,750 | Subordinated liabilities (note 19) | 1,213,239 | 999,423 | 1,076,557 | Pensions (note 22.b) | 145,181 | 156,419 | 100,567 | Other interest | 748,634 | 525,088 | 578,506 | Total | 23,834,316 | 16,814,126 | 17,175,865 | | 31. Income from equity instruments |
“Income from equity instruments” includes the dividends and payments on equity instruments out of profits generated by investees after the acquisition of the equity interest. | | | | The breakdown of the balance of this item is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | Equity instruments classified as: | | | | Financial assets held for trading | 5,187 | 9,762 | 6,714 | Available-for-sale financial assets | 88,540 | 41,959 | 23,189 | Total | 93,727 | 51,721 | 29,903 | |
32. Fee and commission income “Fee and commission income” comprises the amount of all fees and commissions accruing in favor of the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments. | | | | The breakdown of the balance of this item is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | Collection and payment services: | | | | Bills | 374,103 | 384,942 | 378,519 | Demand accounts | 1,624,466 | 1,600,182 | 1,570,356 | Cards | 1,940,239 | 1,322,444 | 1,056,791 | Checks and other | 606,142 | 597,102 | 800,784 | Orders | 223,354 | 233,100 | 251,790 | Total | 4,768,304 | 4,137,770 | 4,058,241 | | Marketing of non-banking financial products: | | | | Investment funds | 1,189,527 | 1,108,586 | 851,766 | Insurance | 1,273,137 | 992,088 | 794,234 | Capitalization | 266,620 | 238,777 | 136,144 | Total | 2,729,284 | 2,339,451 | 1,782,144 | | Securities services: | | | | Securities underwriting and placement | 272,714 | 374,368 | 252,236 | Securities trading | 101,104 | 136,916 | 148,244 | Administration and custody | 102,603 | 109,353 | 129,241 | Asset management | 2,963 | 2,932 | 1,960 | Total | 479,384 | 623,569 | 531,681 | | Other: | | | | Foreign exchange | 351,768 | 310,311 | 314,720 | Financial guarantees | 232,688 | 248,127 | 219,549 | Other fees and commissions | 207,742 | 174,065 | 241,829 | Total | 792,198 | 732,503 | 776,098 | | Total | 8,769,170 | 7,833,293 | 7,148,164 |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
33. Fee and commission expense “Fee and commission expense” shows the amount of all fees and commissions paid or payable by the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments. | | | | The breakdown of the balance of this item is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Fees and commissions assigned to third parties | 1,015,786 | 660,802 | 485,182 | Of which: Credit cards | 834,412 | 463,391 | 349,874 | Other fees and commissions(1) | 413,886 | 336,983 | 425,220 | Total | 1,429,672 | 997,785 | 910,402 | (1) Refers mainly to expenditure on services of the financial system. | | | |
34. Gains (losses) on financial assets and liabilities (net) “Gains (losses) on financial assets and liabilities (net)” includes the amount of the valuation adjustments of financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and to allowances, and the gains or losses obtained from the mentioned corporate restructuring, does not represent any adverse impactsale and purchase thereof. | | | | a) Breakdown | | | | | The breakdown of the balance of this item, by type of instrument, is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Held for trading(1) | (902,167) | 1,159,058 | 2,032,272 | Other financial instruments at fair value through profit or loss(2) | 57,039 | (26,828) | (10,132) | Financial instruments not measured at fair value through profit or loss | 705,279 | 254,162 | 755,916 | Of which: Available-for-sale financial assets | | | | Debt instruments | 452,972 | 31,397 | 122,886 | Equity instruments | 256,694 | 204,592 | 559,080 | Hedging derivatives and other | 26,190 | 71,758 | (61,733) | Total | (113,659) | 1,458,150 | 2,716,323 | (1) Includes the economic hedge of the Bank’s position in Cayman, which is a non-autonomous subsidiary. See note 23 for the income tax impact of such hedge. (2) Includes the net gain arising from transactions involving debt securities, equity instruments and derivatives included in this portfolio, since the Bank manages its risk in these instruments on a global basis. | |
| b) Financial assets and liabilities at fair value through profit or loss | | The detail of the amount of the asset balances is as follows: | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Loans and amounts due from credit institutions | 60,813 | 339,696 | 1,974,435 | Loans and advances to customers | - | - | 389,113 | Debt instruments | 25,528,841 | 16,696,801 | 12,765,008 | Equity instruments | 822,728 | 20,707,290 | 16,331,550 | Derivatives | 4,154,482 | 5,017,359 | 4,950,006 | Total | 30,566,864 | 42,761,146 | 36,410,112 | | The detail of the amount of the liability balances is as follows: | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Deposits from credit institutions | - | - | 1,795 | Trading derivatives | 4,709,660 | 4,755,314 | 4,401,709 | Short positions | 337,628 | 29,339 | 33,025 | Total | 5,047,288 | 4,784,653 | 4,436,529 | | 35. Exchange differences (net) |
“Exchange differences (net)” shows basically the gains or losses on currency dealings, the financial positiondifferences that arise on translations of monetary items in foreign currencies to the functional currency, and those disclosed on non-monetary assets in foreign currency at the time of their disposal.
F-59
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 36. Other operating income (expense) | | The breakdown of "Other operating income (expense)" is as follows: | | | | | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Profit from insurance contracts | 432,135 | 311,835 | 232,976 | Of which: | | | | Income from insurance contracts | 4,132,663 | 6,830,524 | 3,591,713 | Expense from insurance contracts | (3,700,528) | (6,518,689) | (3,358,737) | Other operating income | 539,737 | 148,337 | 189,067 | Other operating expense | (1,167,571) | (642,970) | (355,776) | Contributions to fund guarantee of credit - FGC | (183,719) | (165,201) | (181,891) | Total | (379,418) | (347,999) | (115,624) | | 37. Personnel expenses | | | | | a) Breakdown | | | | | The breakdown of “Personnel expenses” is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Wages and salaries | 4,191,813 | 3,731,340 | 3,363,877 | Social security costs | 1,091,585 | 993,971 | 971,245 | Benefits | 865,517 | 791,361 | 749,366 | Defined benefit pension plans (note 22.b) | 19,460 | 16,212 | 36,534 | Contributions to defined contribution pension plans | 55,425 | 49,641 | 49,976 | Share-based payment costs | 95,689 | 90,461 | 19,990 | Training | 115,725 | 92,974 | 88,084 | Other personnel expenses | 208,517 | 160,216 | 231,900 | Total | 6,643,731 | 5,926,176 | 5,510,972 | | b) Share-Based Compensation |
Banco Santander has two long-term compensation plans linked to the market price of the shares – the Global Program and as required by prevailing regulation, a regularization plan was prepared so that said limit is met, which was approvedthe Local Program. The members of the Executive Board and other key employees of Banco Santander are eligible for these plans, besides the members selected by the regulatory agency (Bacen) Board of Directors and informed to the Human Resources, which selection may fall according to the seniority of the group. For the Board of Directors members in order to be eligible, it is necessary to exercise Executive Board functions.
b.1) Local Program The Extraordinary Shareholders’ Meeting of Banco Santander held on February 3, 2010 approved the Share-Based Compensation Program - Units of Banco Santander (Local Plan), consisting of two independent plans: Stock Option Plan for Share Deposit Certificates - Units (SOP) and Long-Term Incentive Plan - Investment in Share Deposit Certificates - Units (PSP). On 25 October 2011, Banco Santander held an Extraordinary General Meeting, which approved the grant of the Incentive Plan Long Term (SOP 2014) - Investment in Certificates of Deposit Shares ("Units") to certain directors and Managerial level employees of the Company and companies under its control. The characteristic of each plan are: SOP Plan:It is a three-year Stock Option Plan by which new shares of the Banco Santander are issued, as a manner of retaining the officers’ commitment to long-term results. The period for exercising the options starts on June 30, 2012 and is two years longer than the vesting period. The volume equivalent to 1/3 of the Units resulting from the exercise of options cannot be sold by the participant during a period of one year from the exercise date. Long-Term Incentive Plan - SOP 2014:It is a three-year Stock Option Plan. The period for exercise begins on June 30, 2014 until June 30, 2016. The number of Units exercisable by the participants will be determined according to the result of the determination of a performance parameter of the Company: total Shareholder Return (TSR) and may be reduced if failure to achieve the goals of reducing the Return on Risk Adjusted Capital (RORAC), comparison between realized and budgeted in each year, as determined by the Board of Directors. Additionally, it is necessary that the participant remains in the Company during the term of the Plan to acquire a position to exercise the corresponding Units. PSP Plan:It is a compensation plan based on shares settled in cash, launched in three-year cycles, retaining the executives’ commitment to long-term results. The minimum amount, corresponding to 50% of the compensation settled in cash, should be used by the participant to acquire Units, which cannot be sold during a period of 1 year from the exercise date. b.1.1) Fair Value and Plans Performance Parameters For accounting of the Local Program plans, an independent consultant promoted simulations based on Monte Carlo methodology's, as presented the performance parameters used to calculate the shares to be granted. Such parameters are associated with their respective probabilities of occurrence, which are updated at the close of each period. F-60
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | SOP, PI12 -PSP and PI13 - PSP Plans(1) | SOP 2014(2) | |
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Total Shareholder Return (TSR) rank | % of Exercisable Shares | 1st | 50% | 100% | 2nd | 35% | 75% | 3th | 25% | 50% | 4th | 0% | 25% | (1) Associated with the TSR, the remaining 50% of the shares subject to exercise refer to the realization of net income vs. budgeted profit. (2) The percentage of shares determined at the position of TSR is subject to a penalty according to the implementation of the Return on Risk Adjusted Capital (RORAC). | |
| For measurement of the fair value the following premises was used: | | | | | PI13 - PSP | PI12 - PSP | Method of Assessment | Binomial | Binomial | Volatility | 57.37% | 57.37% | Probability of Occurrence | 37.58% | 60.93% | Risk-Free Rate | 10.50% | 11.18% | | | SOP 2014 | SOP plan | Method of Assessment | Black&Scholes | Binomial | Volatility | 40.00% | 57.37% | Rate of Dividends | 3.00% | 5.43% | Vesting Period | 2 years | 2,72 years | Average Exercise Time | 5 years | 3,72 years | Risk-Free Rate | 10.50% | 11.18% | Probability of Occurrence | 53.43% | 60.93% | Fair Value of the Option Shares | R$5,81 | R$7,19 |
The average value of shares SANB11 in the end of the year is R$14.96 (2010 - R$21.90).
On December 31, 2009,daily pro-rata expenses amounting R$13,153 (2010 - R$20,976), relating to the SOP plan and R$15,910 (2010 - R$6,525) relating to the PSP plan. Also recorded in the period a gain with the movement of the market value of the share of the PSP Plan in the amount of R$5.650 as "Gains (losses) on financial assets and liabilities (net) - Others". The stock options of Plan SOP may dilute the basic earnings per share in the future. On December 31, 2011, these options were not included in the calculation of diluted earnings per share because they are anti-dilutive for the presented years. | | Number of Shares | Exercise Price in Reais | Concession Year | Employees | Date ofCommencement of ExercisePeriod | Expiration DateofExercisePeriod | |
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Balance on December 31, 2009 | - | | | | | | Granted SOP options | 15,500,000 | 23.50 | 2010 | Managers | 02/03/10 | 06/30/14 | Granted PSP options | 1,471,475 | - | 2010 | Managers | 02/03/10 | 06/30/12 | Cancelled SOP options | (2,877,141) | 23.50 | 2010 | Managers | 02/03/10 | 06/30/14 | Cancelled PSP options | (179,802) | - | 2010 | Managers | 02/03/10 | 06/30/12 | Final Balance on December 31, 2010 | 13,914,532 | | | | | | Cancelled PI12 - PSP options | (106,718) | - | 2010 | Managers | 02/03/10 | 06/30/12 | Cancelled PI12 - SOP options | 40,479 | 23.50 | 2010 | Managers | 02/03/10 | 06/30/14 | Granted PI13 - PSP options | 1,498,700 | - | 2011 | Managers | 02/03/10 | 06/30/13 | Cancelled PI13 - PSP options | (130,493) | - | 2011 | Managers | 02/03/10 | 06/30/13 | Granted SOP 2014 options | 14,450,000 | 14.31 | 2011 | Managers | 10/26/11 | 12/31/13 | Final Balance on December 31, 2011 | 29,666,500 | | | | | | SOP | 12,663,338 | - | 2011 | Managers | 02/03/10 | 06/30/14 | PI12 - PSP | 1,184,955 | - | 2011 | Managers | 02/03/10 | 06/30/12 | PI13 - PSP | 1,368,207 | - | 2011 | Managers | 02/03/10 | 06/30/13 | SOP 2014 | 14,450,000 | - | 2011 | Managers | 10/26/11 | 12/31/13 | Total | 29,666,500 | | | | | | | b.2) Global Program | | | | | | | | Long-Term Incentive Policy | | | | | | |
The meeting of the Board of Directors’ of Santander qualifiesSpain held on March 26, 2008, approved the long-term incentive policy intended for this ratio.the executives of Banco Santander Spain and the Santander Group companies (except Banco Español de Crédito, S.A. - Banesto). This policy provides for compensation tied to the performance of the stock of Santander Spain, as established in the Annual Stockholders’ Meeting.
Among the plans of Banco Santander Spain, Conglomerate Santander's executives in Brazil already participate in the Stock Plan Tied to Goals: multiyear plan paid in shares of Banco Santander Spain. This plan’s beneficiaries are the Executive Officers and other members of Top Management, as well as any other group of executives appointed by the Executive Board or the Executive Committee.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
This plan involves three-years cycles for the delivery of shares to the beneficiaries, so that each cycle is started within a year, and starting 2009, ends in the following year. The purpose is to establish an appropriate sequence between the end of the incentive program, tied to the previous plan, I-06, and the successive cycles of this plan. Accordingly, the first two cycles started in July 2007, with the first cycle lasting two years (Plan I09) and the other cycles lasting three years, on average (Plan I10/Plan I11/Plan I12/Plan I13 and Plan l14). Each of these parameters has a weight of 50% in the determination of the percentage of shares to be granted. The number of shares to be granted is determined in each cycle by the goal attainment level on the third anniversary of the start of each cycle (except the first cycle, for which the second anniversary will be considered). From the plan Pl12 the purpose determines the number of actions relate just one performance condition, which has 100% weight in the percentage of shares tobe distributed: the TSR Group. Global Plan Fair Value It was assumed that the beneficiaries will not leave the Bank’s employ during the term of each plan. The fair value of the 50% linked to the Bank’s relative TSR position was calculated, on the grant date, on the basis of the report provided by external valuators whose assessment was carried out using a Monte Carlo valuation model, performing 10 thousand simulations to determine the TSR of each of the companies in the Benchmark Group, taking into account the variables set forth below. The results (each of which represents the delivery of a number of shares) are classified in decreasing order by calculating the weighted average and discounting the amount at the risk-free interest rate. | | | | | | | PI10 | PI11 | PI12 | PI13 | PI14 | Expected volatility (*) | 15.67% | 19.31% | 42.36% | 49.64% | 51.35% | Annual dividend yield based on last few years | 3.24% | 3.47% | 4.88% | 6.33% | 6.06% | Risk-free interest rate (Treasury Bond yield –zero coupon) over the period of the plan | 4.50% | 4.84% | 2.04% | 3.33% | 4.07% | (*) calculated on the basis of historical volatility over the corresponding period (two or three years) |
In view of the high correlation between TSR and EPS, it was considered feasible to extrapolate that (in a high percentage of cases) the TSR value is also valid for EPS. Therefore, it was initially determined that the fair value of the portion of the plans linked to the Bank’s relative EPS position, i.e. of the remaining 50% of the options granted, was the same as that of the 50% corresponding to the TSR. Since this valuation refers to a non-market condition, it is reviewed and adjusted on a yearly basis.
| | Number of Shares | Granted Year | Employees | Data of Commencement of ExercisePeriod | Data of Expiry of Exercise Period | |
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| Final Balance on December 31, 2007 | 7,996,687 | | | | | Options Exercised (Plan I06) | (4,657,550) | - | Managers | 01/15/08 | 01/15/09 | Options Granted (Plan I11) | 2,311,231 | 2008 | Managers | 06/21/08 | 07/31/11 | Final Balance on December 31, 2008 | 5,650,368 | | | | | Options Cancelled (Plan I06) | (1,261,450) | - | Managers | 01/15/08 | 01/15/09 | Exercised Options (Plan I09) | (681,767) | 2007 | Managers | 06/23/07 | 07/31/09 | Cancelled Options (Plan I09) | (152,565) | 2007 | Managers | 06/23/07 | 07/31/09 | Options Granted (Plan I12) | 455,008 | 2009 | Managers | 06/19/09 | 07/31/12 | Final Balance on December 31, 2009 | 4,009,594 | | | | | Exercised Options (PI10) | (1,161,014) | 2007 | Managers | 06/23/07 | 07/31/10 | Cancelled Options (PI10) | (82,341) | 2007 | Managers | 06/23/07 | 07/31/10 | Granted Options (PI12) | 86,198 | 2009 | Managers | 06/19/09 | 07/31/12 | Granted Options (PI13) | 597,811 | 2010 | Managers | 07/01/10 | 07/31/13 | Final Balance on December 31, 2010 | 3,450,248 | | | | | Exercised Options (PI11) | (1,783,945) | 2008 | Managers | 06/21/08 | 07/31/11 | Cancelled Options (PI11) | (527,286) | 2008 | Managers | 06/21/08 | 07/31/11 | Granted Options (PI14) | 531,684 | 2011 | Managers | 07/01/11 | 07/31/14 | Final Balance on December 31, 2011 | 1,670,701 | | | | | Plan I12 | 541,206 | 2009 | Managers | 06/19/09 | 07/31/12 | Plan I13 | 597,811 | 2010 | Managers | 07/01/10 | 07/31/13 | Plan I14 | 531,684 | 2011 | Managers | 07/01/11 | 07/31/14 | Total | 1,670,701 | | | | |
On 2011, pro-rata expenses were registered in the amount of R$10,147 thousand (2010 - R$14,393 thousand and 2009 - R$19,893 thousand), related to the costs of the cycles mentioned above, regarding the total amount of the Global Program Plans. In 2010, include the "pro rata" expenses for PI10, which had its last cycle closed in July, 2010. Expenses related to these plans are recognized in contrast to "Other liabilities - Provision for share-based payment" (note 24) because they are settled in cash. Plans do not cause dilution of the share capital of the Bank, because they are paid in shares of Banco Santander Spain. b.3) Share-Based Bonus The Annual Shareholders’ Meeting of Banco Santander Spain, held on June 11, 2010, approved the new policy for executive compensation through a share-based bonus plan effective for all the companies of the Group, including Santander Brasil. This new policy, subject to adjustments applicable to Santander Brasil, were approved by Appointment and Compensation Committee and Board of Directors at the meeting to be held on February 2, 2011.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The plan's objectives are: (i) to align the compensation program with the principles of the “Financial Stability Board” (FSB) agreed upon at the G20; (ii) to align Banco Santander’s interests with those of the plan’s participants (to achieve the sustainable and recurring growth and profitability of Banco Santander’s businesses and to recognize the participants’ contributions); (iii) to allow the retention of participants; and (iv) to improve Banco Santander’s performance and defend the interests of shareholders via a long-term commitment. The purpose of the plan is the cash payment of part of the variable compensation owed by Banco Santander to the plan’s participants pursuant to the bank’s compensation policy, based on the future performance of the bank’s shares. The payment of share-based bonus is within the limits of the overall management compensation approved by Banco Santander's Annual Shareholders' Meeting. The total number of shares on which the compensation plan is based will be settled in three installments and equally allocated to each of the three fiscal years following the reference year. On December 31, 2011, was recorded daily pro-rata expenses amounting R$56,479 (2010 - R$48,544 thousand) referring to the provision for Share-Based Bonus and Gain was recorded with the oscillation of the market value of the share of the plan of R$14,287 as personnel expenses. On December 21, 2011, the Board of Directors approved the proposed new incentive plan (deferred) for payment of the variable remuneration of directors and certain employees, which will be subject to resolution of the ordinary general meeting February 7, 2012. This proposal are certain requirements for deferred payment of part of the future variable compensation due to its managers and other employees, given the financial basis for sustainable long-term adjustments in future payments due to the risks assumed and fluctuations in cost of capital. The plan is divided into 3 programs: • Supervised Collective - Participants of the Executive Committee and other executives who take significant risks in the Bank and responsible for the control areas. The deferral will be half in cash, indexed to 100% of CDI and half in shares. • Collective unsupervised - Statutory Directors - not part of the Statutory Directors' Collective Supervised ", the amount deferred will be 100% in Units" SANB11". • Unsupervised Collective - Employees - managerial employees and other employees of the organization that will be benefited from the deferral plan. The deferred amount will be 100% cash, indexed to 120% of CDI. | | | | 38. Other administrative expenses | | a) Breakdown | | | | | The breakdown of the balance of this item is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | Property, fixtures and supplies | 1,087,222 | 965,633 | 1,043,498 | Technology and systems | 1,006,015 | 888,922 | 897,581 | Advertising | 493,630 | 421,643 | 497,246 | Communications | 566,083 | 554,713 | 612,904 | Per diems and travel expenses | 174,166 | 150,875 | 167,954 | Taxes other than income tax | 58,633 | 88,833 | 54,208 | Surveillance and cash courier services | 521,462 | 513,325 | 468,833 | Insurance premiums | 10,234 | 8,811 | 8,888 | Specialized and technical services | 1,563,545 | 1,504,306 | 1,448,984 | Technical reports | 363,525 | 380,866 | 377,331 | Others specialized and technical services | 1,200,020 | 1,123,440 | 1,071,653 | Other administrative expenses | 247,912 | 207,365 | 236,149 | Total | 5,728,901 | 5,304,426 | 5,436,245 | | b) Other information | | | |
The balance of “Technical reports” includes the fees paid by the consolidated companies (detailed in the accompanying Appendix I) to their respective auditors, the detail being as follows: | Thousands of Reais | 2011 | 2010 | 2009 | Audit of the annual financial statements and audit related services of the companies audited by Deloitte (constant scope of consolidation) | 8,828 | 9,054 | 6,180 | |
Audit of the annual financial statements audit related services of the companies audited by Deloitte (additions to scope of consolidation) | - | - | 373 |
Additionally to the expenses with audit of the financial statements, the Bank had an fee paid to Deloitte in 2009 related to the audit of the Global Offering in the amount of R$8.8 million, after taxes and was recorded as transaction cost net of capital increase. Services provided by others audit firms totaled R$5,4 million (2010 - R$15,0 million and 2009 - R$2,5 million).
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | 39. Gains (losses) on disposal of assets not classified as non-current assets held for sale | | The breakdown of the balance of this item is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | Gains | 6,759 | 341 | 3,377,953 | On disposal of tangible assets | 6,759 | 229 | 36,161 | On disposal of investments(1) | - | 112 | 3,341,792 | Losses | (1,439) | (59,527) | (8,652) | On disposal of tangible assets | (1,439) | (260) | (8,652) | On disposal of investments | - | (59,267) | - | Total | 5,320 | (59,186) | 3,369,301 |
(1) In 2009, the Bank made a disposal of investment of Companhia Brasileira de Meios de Pagamentos - (VisaNet), Tecban - Tecnologia Bancária S.A. and Companhia Brasileira de Soluções e Serviços - CBSS accounting a net gain of R$3,315 million. 40. Gains (losses) on non-current assets held for sale not classified as discontinued operations It refers basically to the result on disposal of property received in the processes of recovery of loans to customers and the provision of the recoverable value of these assets. In 2011, includes R$424,292 thousand gain on sale of Santander Insurance (note 3.a). In 2010, includes R$106,827 thousand of gain on sale of office buildings, mainly related to the move to new headquarter (2009 - R$63,000 thousand). 41. Other disclosures a) Guarantees and commitments The Bank provides a variety of guarantees to its customers to improve their credit standing and allow them to compete. The following table summarizes at December 31, 20092011, 2010 and 20082009 all of the guarantees. As required, the “maximum potential amount of future payments” represents the notional amounts that could be lost if there were a total default by the guaranteed parties, without consideration of possible recoveries from collateral held or pledged, or recoveries under recourse provisions. There is no relationship between these amounts and probable losses on these guarantees. In fact, maximum potential amount of future payments significantly exceeds inherent losses. | | | | Thousands of Reais | 2011 | 2010 | 2009 | | Maximum potential amount of future payments | | Contingent liabilities | | | | Guarantees and other sureties | | | | Financial guarantees | 17,818,624 | 18,117,260 | 17,379,109 | Performance guarantees | 910,655 | 907,676 | 695,099 | Financial standby letters of credit | 2,213,135 | 2,823,715 | 2,189,135 | Other | 929,378 | 273,759 | 243,406 | Other contingent exposures | 700,160 | 440,702 | 460,621 | Documentary Credits | 700,160 | 440,702 | 460,621 | Total Contingent Liabilities | 22,571,952 | 22,563,112 | 20,967,370 | | Commitments | | | | Loan commitments drawable by third parties(1) | 98,552,891 | 93,472,343 | 77,789,371 | Total Commitments | 98,552,891 | 93,472,343 | 77,789,371 | | Total | 121,124,843 | 116,035,455 | 98,756,741 | (1) Includes the approved limits and unused overdraft, credit card and others. | | | |
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Maximum potential amount of future payments | | | | | | | | | Contingent liabilities: | | | | | | | Guarantees and other sureties | | | | | | | Financial guarantees | | | 17,379,109 | | | | 20,804,663 | | Performance guarantees | | | 695,099 | | | | 745,792 | | Financial standby letters of credit | | | 2,189,135 | | | | 3,019,320 | | Other | | | 243,406 | | | | 195,239 | | Other contingent exposures | | | 460,621 | | | | 640,296 | | Documentary Credits | | | 460,621 | | | | 640,296 | | | | Total Contingent Liabilities | | | 20,967,370 | | | | 25,405,310 | | | | Commitments: | | | | | | | | | Loan commitments drawable by third parties | | | 77,789,371 | | | | 68,777,962 | | Other commitments | | | 3,437,417 | | | | 9,614,810 | | Securities placement commitments | | | 3,437,417 | | | | 9,614,810 | | | | Total Commitments | | | 81,226,788 | | | | 78,392,772 | | Total | | | 102,194,158 | | | | 103,798,082 | |
Financial guarantees are provided to our clients in obligations with third parties. We have the right to seek reimbursement from our clients for any amount we shall have to pay under such guarantee. Additionally, we may hold cash or other highly liquid collateral for these obligations. These agreements are subject to the same credit evaluation performed on the executionorigination of loans.
We expect many of these guarantees to expire without the need to advancedisburse any cash. Therefore, in the ordinary course of business, we expect that these transactions will have virtually no impact on our liquidity. Performance guarantees are issued to guarantee customers obligations such as to make contractually specified investments, to supply specified products, commodities, or maintenance or warranty services to a third party, completion of projects in accordance with contract terms, etc. Financial standby letters of credit include guarantees of payment of loans, credit facilities, promissory notes and trade acceptances. The Bank always requires collateral to grant this kind of financial guarantees. In Documentary Credits, the Bank acts as a payment mediator between trading companies located in different countries (import-export transactions). Under a documentary credit transaction, the parties involved deal with the documents rather than the commodities to which the documents may relate. Usually the traded commodities are used as collateral to the transaction and the Bank may provide some credit facilities. Loan commitments drawable by third parties include mostly credit card lines and commercial commitments. Credit card lines are unconditionally cancelable by the issuer. Commercial commitments are mostly 1 year facilities subject to information requirements to be provided by our customers. The risk criteria followed to issue all kinds of guarantees, financial standby letters of credit, documentary credits and any risks of signature are in general the same as those used for other products of credit risk, and therefore subject to the same admission and tracking standards. The guarantees granted on behalf of our customers are subject to the same credit quality review process as any other risk product. On a regular basis, at least once a year, the solvency of the mentioned customers is checked as well as the probability of those guarantees to be executed. In case that any doubt on the customer’s solvency may arise we create allowances with charge to net income, by the amount of the inherent losses even if there is no claim to us. F-64
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The provision for losses on the non-recovery guarantees and other securities (Note 9.c) is recorded as "Impairment losses on financial assets (net)” on consolidated income statement and its calculation is described in note 2.h. Additionally, the liability recognized as deferred revenue for the premium received for providing the above guarantees, which is being amortized into income over the life of the related guarantees is R$76,324 thousand (2010 - R$R$80,056 thousand and 2009 - R$65,041 thousands (2008,thousand). | | | | b) Off-balance-sheet funds under management | | | | The detail of off-balance-sheet funds managed by the Bank is as follows: | | Thousands of Reais | 2011 | 2010 | 2009 | | | | | Investment funds | 104,877,454 | 102,516,308 | 95,324,100 | Assets under management | 8,144,334 | 8,822,049 | 3,083,043 | Total | 113,021,788 | 111,338,357 | 98,407,143 |
c) Third-party securities held in custody At December 31, 2011, the Bank held in custody debt securities and equity instruments totaling R$58,520) .122,198,361 thousand (2010 - R$194,063,773 thousand and 2009 -R$94,949,464 thousand) entrusted to it by third parties. | | | | | | | | | d) Residual maturity periods and Average interest rates | | The breakdown, by maturity, of the balances of certain items in the consolidated balance sheets is as follows: | | | | | | December 31, 2011 | | | | | | | | Thousands of Reais | | | | | On Demand | Up to 3 Months | 3 to 12 Months | 1 to 3 Years | 3 to 5 Years | After 5 Years | Total | Average Interest Rate | |
|
| Assets: | | | | | | | | | Cash and balances with the Brazilian Central Bank | 48,330,086 | 10,073,723 | 7,534,194 | - | - | - | 65,938,003 | 11.3% | Debt instruments | - | 6,498,289 | 5,795,261 | 25,972,025 | 12,507,634 | 18,118,048 | 68,891,257 | 11.0% | Equity instruments | 2,130,575 | - | - | - | - | - | 2,130,575 | | Loans and amounts due from credit institutions | 5,731,172 | 2,309,372 | 2,199,399 | 1,189,022 | 1,919,282 | 6,341,427 | 19,689,674 | 9.7% | Loans and advances to customer, gross | 10,113,580 | 44,546,345 | 59,788,958 | 52,036,749 | 19,390,744 | 8,308,061 | 194,184,437 | 23.7% | Total | 66,305,413 | 63,427,729 | 75,317,812 | 79,197,796 | 33,817,660 | 32,767,536 | 350,833,946 | 18.0% | | Liabilities: | | | | | | | | | Financial liabilities at amortized cost: | | | | | | | | | Deposits from credit institutions | 618,585 | 29,430,719 | 12,555,672 | 6,923,632 | 1,043,065 | 955,348 | 51,527,021 | 9.2% | Customer deposits | 37,035,145 | 40,490,745 | 19,044,846 | 56,390,445 | 15,123,854 | 6,388,857 | 174,473,891 | 9.6% | Marketable debt securities | - | 3,389,679 | 16,130,779 | 15,781,068 | 3,204,393 | 84,505 | 38,590,423 | 8.8% | Subordinated liabilities | - | - | - | 5,402,364 | 5,269,434 | 236,546 | 10,908,344 | 11.2% | Other financial liabilities | 176,974 | 15,461,434 | 45,819 | 267,780 | - | - | 15,952,007 | | Total | 37,830,704 | 88,772,577 | 47,777,115 | 84,765,289 | 24,640,746 | 7,665,256 | 291,451,687 | 9.5% | | Difference (assets less liabilities) | 28,474,709 | (25,344,848) | 27,540,696 | (5,567,493) | 9,176,914 | 25,102,280 | 59,382,259 | |
“Interest and similar income” in the consolidated income statement comprises the interest accruing in the year on all financial assets with an implicit or explicit return, calculated by applying the effective interest method, irrespective of measurement at fair value; and the rectifications of income as a result of hedge accounting. Interest is recognized gross, without deducting any tax withheld at source.
The breakdown of the main interest and similar income items earned in 2009, 2008 and 2007 is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Balances with the Brazilian Central Bank | | | 1,666,931 | | | | 2,270,494 | | | | 1,893,765 | | Loans and advances to credit institutions | | | 2,901,054 | | | | 1,818,645 | | | | 701,693 | | Debt instruments | | | 5,201,840 | | | | 3,327,287 | | | | 2,165,840 | | Loans and advances to customers | | | 29,469,976 | | | | 16,296,436 | | | | 8,047,359 | | Other interest | | | 103,155 | | | | 54,952 | | | | 388,711 | | | | | 39,342,956 | | | | 23,767,814 | | | | 13,197,368 | |
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
“Interest expense and similar charges” in the consolidated income statement includes the interest accruing in the year on all financial liabilities with an implicit or explicit return, including remuneration in kind, calculated by applying the effective interest method, irrespective of measurement at fair value; the rectifications of cost as a result of hedge accounting; and the interest cost attributable to pension funds.
| | | | | | | | | | | | | December 31, 2010 | | | | | | | | Thousands of Reais | | | | | On Demand | Up to 3 Months | 3 to 12 Months | 1 to 3 Years | 3 to 5 Years | After 5 Years | Total | Average Interest Rate | |
|
| Assets: | | | | | | | | | Cash and balances with the Brazilian Central Bank | 44,343,701 | 7,966,178 | 4,490,272 | - | - | - | 56,800,151 | 11.0% | Debt instruments | - | 6,705,785 | 3,455,031 | 36,393,309 | 6,947,815 | 8,754,287 | 62,256,227 | 11.5% | Equity instruments | 22,435,327 | - | - | - | - | - | 22,435,327 | | Loans and amounts due from credit institutions | 5,735,109 | 1,747,182 | 2,319,266 | 946,794 | 3,716,619 | 8,533,246 | 22,998,216 | 6.7% | Loans and advances to customer, gross | 9,744,791 | 37,616,374 | 51,095,094 | 45,347,623 | 10,536,509 | 6,217,932 | 160,558,323 | 21.3% | Total | 82,258,928 | 54,035,519 | 61,359,663 | 82,687,726 | 21,200,943 | 23,505,465 | 325,048,244 | 15.1% | | Liabilities: | | | | | | | | | Financial liabilities at amortized cost: | | | | | | | | | Deposits from credit institutions | 856,322 | 19,304,849 | 10,358,095 | 10,669,471 | 524,889 | 677,946 | 42,391,572 | 6.0% | Customer deposits | 46,603,707 | 28,910,116 | 26,300,047 | 58,599,472 | 4,401,853 | 3,134,006 | 167,949,201 | 9.7% | Marketable debt securities | - | 3,194,214 | 6,446,755 | 7,422,491 | 2,482,347 | 540,838 | 20,086,645 | 10.4% | Subordinated liabilities | - | - | - | 3,010,208 | 1,902,811 | 4,782,086 | 9,695,105 | 10.9% | Other financial liabilities | 2,432,612 | 10,608,134 | 20,440 | 157,062 | - | - | 13,218,248 | | Total | 49,892,641 | 62,017,313 | 43,125,337 | 79,858,704 | 9,311,900 | 9,134,876 | 253,340,771 | 9.2% | | Difference (assets less liabilities) | 32,366,287 | (7,981,794) | 18,234,326 | 2,829,022 | 11,889,043 | 14,370,589 | 71,707,473 | | | | December 31, 2009 Thousands of Reais | | |
| On Demand | Up to 3 Months | 3 to 12 Months | 1 to 3 Years | 3 to 5 Years | After 5 Years | Total | Average Interest Rate | |
|
| Assets: | | | | | | | | | Cash and balances with the Brazilian Central Bank | 12,169,277 | 6,828,836 | 8,270,899 | - | - | - | 27,269,012 | 8.9% | Debt instruments | - | 14,279,921 | 1,784,616 | 13,049,117 | 20,751,920 | 7,645,358 | 57,510,932 | 10.8% | Equity instruments | 17,991,746 | - | - | - | - | - | 17,991,746 | | Loans and amounts due from credit institutions | 3,246,260 | 8,375,243 | 4,313,669 | 1,308,300 | 2,477,758 | 6,481,348 | 26,202,578 | 9.2% | Loans and advances to customer, gross | 6,716,360 | 25,651,927 | 41,119,405 | 47,045,584 | 12,505,072 | 5,356,055 | 138,394,403 | 23.8% | Total | 40,123,643 | 55,135,927 | 55,488,589 | 61,403,001 | 35,734,750 | 19,482,761 | 267,368,671 | 16.4% | | Liabilities: | | | | | | | | | Financial liabilities at amortized cost: | | | | | | | | | Deposits from credit institutions | 189,858 | 5,237,243 | 7,437,307 | 7,486,135 | 742,446 | 104,765 | 21,197,754 | 8.5% | Customer deposits | 40,358,100 | 33,634,930 | 30,639,047 | 40,770,381 | 4,032,168 | 5,530 | 149,440,156 | 8.8% | Marketable debt securities | - | 3,242,520 | 4,882,803 | 936,678 | 1,532,956 | 844,053 | 11,439,010 | 7.9% | Subordinated liabilities | - | 2,104 | - | - | 4,330,919 | 6,971,422 | 11,304,445 | 9.6% | Other financial liabilities | 3,650,259 | 6,340,210 | (33,470) | 249,391 | (18,226) | - | 10,188,164 | | Total | 44,198,217 | 48,457,007 | 42,925,687 | 49,442,585 | 10,620,263 | 7,925,770 | 203,569,529 | 8.8% | | Difference (assets less liabilities) | (4,074,574) | 6,678,920 | 12,562,902 | 11,960,416 | 25,114,487 | 11,556,991 | 63,799,142 | | | e) Equivalent Reais value of assets and liabilities | | The detail of the main foreign currency balances in the consolidated balance sheet, based on the nature of the related items, is as follows: | | Equivalent Value in Thousands of Reais | | 2011 | 2010 | 2009 | | | | Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | | Cash and balances with the Brazilian Central Bank | | 71,341 | - | 66,065 | - | 2,069,530 | - | Financial assets/liabilities held for trading | | 1,441,332 | 1,370,402 | 1,127,863 | 1,050,380 | 1,981,386 | 1,048,742 | Available-for-sale financial assets | | | 701,636 | - | 1,057,000 | - | 713,042 | - | Loans and receivables | | | 22,060,787 | - | 21,437,906 | - | 15,092,956 | - | Financial liabilities at amortized cost | | | - | 27,087,602 | - | 22,926,205 | - | 17,469,224 | Total | | | 24,275,667 | 28,458,004 | 23,688,834 | 23,976,585 | 19,856,914 | 18,517,966 |
The breakdown of the main items of interest expense and similar charges accrued in 2009, 2008 and 2007 is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Deposits from the Brazilian Central Bank | | | 29,340 | | | | 467 | | | | - | | Deposits from credit institutions | | | 1,179,130 | | | | 1,630,639 | | | | 1,362,276 | | Customer deposits | | | 13,164,015 | | | | 9,145,873 | | | | 4,709,093 | | Marketable debt securities and subordinated liabilities | | | | | | | | | | | | | Marketable debt securities (note 18) | | | 1,047,750 | | | | 548,834 | | | | 276,493 | | Subordinated liabilities | | | 1,076,557 | | | | 690,014 | | | | 451,828 | | Pensions (note 21) | | | 100,567 | | | | 91,437 | | | | 112,619 | | Other interest | | | 578,506 | | | | 222,581 | | | | 89,773 | | | | | 17,175,865 | | | | 12,329,845 | | | | 7,002,082 | |
“Income from equity instruments” includes the dividends and payments on equity instruments out of profits generated by investees after the acquisition of the equity interest.
The breakdown of the balance of this item is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | Equity instruments classified as: | | | | | | | | | | Financial assets held for trading | | | 6,714 | | | | 7,627 | | | | 16,089 | | Of which: | | | | | | | | | | | | | Petroquimica Uniao S.A. | | | 523 | | | | 2,654 | | | | 5,256 | | Petroleo Brasileiro S.A. | | | 2,349 | | | | 261 | | | | 725 | | Cia Vale do Rio Doce | | | 1,108 | | | | 1,473 | | | | 143 | | Available-for-sale financial assets | | | 23,189 | | | | 29,345 | | | | 20,298 | | Of which: | | | | | | | | | | | | | Bovespa Holding S.A. | | | 4,192 | | | | 11,760 | | | | - | | SERASA S.A | | | 8,811 | | | | 3,721 | | | | 8,273 | | BMF Bovespa S.A. | | | 6,522 | | | | - | | | | - | | | | | 29,903 | | | | 36,972 | | | | 36,387 | |
“Fee and commission income” comprises the amount of all fees and commissions accruing in favor of the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of the balance of this item is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | Collection and payment services: | | | | | | | | | | Bills | | | 378,519 | | | | 218,979 | | | | 127,514 | | Demand accounts | | | 1,570,356 | | | | 449,385 | | | | 424,829 | | Cards | | | 1,056,791 | | | | 601,782 | | | | 332,086 | | Checks and other | | | 800,784 | | | | 983,773 | | | | 742,852 | | Orders | | | 251,790 | | | | 134,713 | | | | 82,328 | | | | | 4,058,241 | | | | 2,388,632 | | | | 1,709,609 | | | | Marketing of non-banking financial products: | | | | | | | | | | | | | Investment funds | | | 851,766 | | | | 700,233 | | | | 620,278 | | Insurance | | | 794,234 | | | | 643,810 | | | | 428,216 | | Capitalization | | | 136,144 | | | | 102,185 | | | | 17,902 | | | | | 1,782,144 | | | | 1,446,228 | | | | 1,066,396 | | | | Securities services: | | | | | | | | | | | | | Securities underwriting and placement | | | 252,236 | | | | 110,653 | | | | 90,691 | | Securities trading | | | 148,244 | | | | 147,307 | | | | 139,751 | | Administration and custody | | | 129,241 | | | | 64,232 | | | | 22,580 | | Asset management | | | 1,960 | | | | 2,968 | | | | 3,191 | | | | | 531,681 | | | | 325,160 | | | | 256,213 | | | | Other: | | | | | | | | | | | | | Foreign exchange | | | 314,720 | | | | 100,129 | | | | 70,484 | | Financial guarantees | | | 219,549 | | | | 146,625 | | | | 73,800 | | Other fees and commissions | | | 241,829 | | | | 402,240 | | | | 187,016 | | | | | 776,098 | | | | 648,994 | | | | 331,300 | | | | | 7,148,164 | | | | 4,809,014 | | | | 3,363,518 | |
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
33. Fee and commission expense“Fee and commission expense” shows the amount of all fees and commissions paid or payable by the Bank in the year, except those that form an integral part of the effective interest rate on financial instruments.
The breakdown of the balance of this item is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Fees and commissions assigned to third parties | | | 485,182 | | | | 351,471 | | | | 129,617 | | Of which: Credit cards | | | 349,874 | | | | 243,946 | | | | 52,643 | | Other fees and commissions | | | 425,220 | | | | 203,840 | | | | 135,929 | | | | | 910,402 | | | | 555,311 | | | | 265,546 | |
“Gains/losses on financial assets and liabilities” includes the amount of the valuation adjustments of financial instruments, except those attributable to interest accrued as a result of application of the effective interest method and to allowances, and the gains or losses obtained from the sale and purchase thereof.
a) Breakdown
The breakdown of the balance of this item, by type of instrument, is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Held for trading (1) | | | 2,032,272 | | | | (1,214,846 | ) | | | 254,128 | | Other financial instruments at fair value through profit or loss (2) | | | (10,132 | ) | | | 39,956 | | | | 24,873 | | Financial instruments not measured at fair value through profit or loss | | | 755,916 | | | | 320,307 | | | | 1,236,856 | | Of which: Available-for-sale financial assets | | | | | | | | | | | | | Debt instruments | | | 122,886 | | | | (15,476 | ) | | | 672,863 | | Equity instruments | | | 559,080 | | | | 260,855 | | | | 547,343 | | Hedging derivatives and other | | | (61,733 | ) | | | (431,530 | ) | | | 807 | | | | | 2,716,323 | | | | (1,286,113 | ) | | | 1,516,664 | |
(1) In 2009 and 2008, includes the net loss and net gain, respectively, arising from the economic hedge of the Bank’s position in Cayman, which is a non-autonomous subsidiary. See note 23 for the income tax impact of such hedge.
(2) Includes the net gain arising from transactions involving debt securities, equity instruments and derivatives included in this portfolio, since the Bank manages its risk in these instruments on a global basis.
b) Financial assets and liabilities at fair value through profit or loss
The detail of the amount of the asset balances is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Loans and advances to credit institutions | | | 1,974,435 | | | | 4,046,898 | | Loans and advances to customers | | | 389,113 | | | | 1,434,789 | | Debt instruments | | | 12,765,008 | | | | 10,105,273 | | Other equity instruments | | | 16,331,550 | | | | 678,993 | | Derivatives | | | 4,950,006 | | | | 9,295,008 | | | | | 36,410,112 | | | | 25,560,961 | |
The detail of the amount of the liability balances is as follows:
Thousands of Reais | | 2009 | | | 2008 | | Deposits from credit institutions | | | 1,795 | | | | 307,376 | | Trading derivatives | | | 4,401,709 | | | | 11,197,268 | | Short positions | | | 33,025 | | | | 12,332 | | | | | 4,436,529 | | | | 11,516,976 | |
“Exchange differences” shows basically the gains or losses on currency dealings, the differences that arise on translations of monetary items in foreign currencies to the functional currency, and those disclosed on non-monetary assets in foreign currency at the time of their disposal.
These items in the consolidated income statement include:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Revenues from insurance contracts (1) | | | 232,976 | | | | - | | | | - | | Other operating income | | | 189,067 | | | | 379,102 | | | | 631,188 | | Other operating expense | | | (355,776 | ) | | | (333,831 | ) | | | (448,610 | ) | Contributions to fund guarantee of credit | | | (181,891 | ) | | | (105,088 | ) | | | (49,654 | ) | | | | (115,624 | ) | | | (59,817 | ) | | | 132,924 | |
(1) In 2009, includes the Income from insurance related to the merger of shares of Santander Seguros as mentioned in Note 3 b.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a) Breakdown
The breakdown of “Personnel expenses” is as follows
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Wages and salaries | | | 3,363,877 | | | | 2,253,313 | | | | 1,483,211 | | Social security costs | | | 971,245 | | | | 569,136 | | | | 354,220 | | Defined benefit pension plans (note 21) | | | 36,534 | | | | 45,060 | | | | 38,477 | | Contributions to defined contribution pension fund | | | 49,976 | | | | 33,166 | | | | 3,919 | | Share-based payment costs (1) | | | 19,990 | | | | 19,647 | | | | 87,603 | | Benefits | | | 749,366 | | | | 423,218 | | | | 294,158 | | Other personnel expenses | | | 319,984 | | | | 204,622 | | | | 122,679 | | | | | 5,510,972 | | | | 3,548,162 | | | | 2,384,267 | |
(1) In 2007, the amount includes R$ 77,292 thousands related to the distribution of 100 shares to each employee that is a part of Grupo Santander (Spain), as part of the celebration of its 150 years, as approved in the Stockholders’ Meeting in June 2007.
b) Share-based payments
Banco Santander Spain and Santander Brasil, likewise other companies controlled by Santander Spain Group, have remuneration programs tied to the performance of the stock market price of the its shares, based on the achievement of certain targets indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | Data of | | | | | | | | | | | | | | | Commencement | | | | | Number of | | | Exercise | | | Concession | | | | of Exercise | | Data of Expiry of | | | Shares | | | Price in Euros | | | Year | | Employees | | Period | | Exercise Period | | Plans Outstanding at January 1 2007 | | | 6,032,700 | | | | | | | | | | | | | Options Granted (Plan I09) | | | 834,332 | | | | - | | | | 2007 | | Managers | | 6/23/2007 | | 7/31/2009 | Options Granted (Plan I19) | | | 1,243,355 | | | | - | | | | 2007 | | Managers | | 6/23/2007 | | 7/31/2010 | Options Cancelled, net (Plan I06 | | | (113,700 | ) | | | 9.09 | | | | - | | Managers | | 1/15/2008 | | 1/15/2009 | Plans Outstanding at 31 December 2007 | | | 7,996,687 | | | | | | | | | | | | | | | Options Exercised (Plan I06) | | | (4,657,550 | ) | | | 9.09 | | | | - | | Managers | | | | | Options Granted (Plan I10) | | | - | | | | - | | | | 2008 | | Managers | | | | | Options Granted (Plan I11) | | | 2,311,231 | | | | - | | | | 2008 | | Managers | | | | | Plans Outstanding at 31 December 2008 | | | 5,650,368 | | | | | | | | | | | | | | | Options Cancelled (Plan I06) | | | (1,261,450 | ) | | | 9.09 | | | | 2006 | | Managers | | 1/15/2008 | | 1/15/2009 | Exercised Options (Plan I09) | | | (681,767 | ) | | | - | | | | 2007 | | Managers | | 6/23/2007 | | 7/31/2009 | Cancelled Options (Plan I09) | | | (152,565 | ) | | | - | | | | 2007 | | Managers | | 6/23/2007 | | 7/31/2010 | Options Granted (Plan I12) | | | 455,008 | | | | - | | | | 2008 | | Managers | | 6/21/2008 | | 7/31/2011 | Plans Outstanding at 31 December 2009 | | | 4,009,594 | | | | | | | | | | | | | | | Plan I10 | | | 1,243,355 | | | | - | | | | 2007 | | Managers | | 6/27/2007 | | 7/31/2010 | Plan I11 | | | 2,311,231 | | | | - | | | | 2008 | | Managers | | 1/15/2008 | | 7/31/2011 | Plan I12 | | | 455,008 | | | | - | | | | 2009 | | Managers | | 7/1/2009 | | 7/31/2012 |
Due to the remuneration programs, daily pro rata expenses were recorded in the amount of R$19,893 (2008 - R$19,646), referring to initial costs in respective granting dates for each cycle above mentioned.
Plan I06
In 2004, Santander Spain created a long-term incentive plan for its executives (I06), linked to the attainment of two goals related to the controlling stockholder’s shares: appreciation of share price and growth of earnings per share. The conditions to receive the income were met and the variable compensation was paid from January 15, 2008 to January 15, 2009, at the price of €9.09 per stock option.
Long-Term Incentive Policy
The meeting of the Board of Directors’ of Santander Spain, held on March 26, 2008, approved the long-term incentive policy intended for the executives of Banco Santander Spain and the Santander (except Banesto). This policy provides for compensation tied to the performance of the stock of Santander Spain, as established in the Annual Stockholders’ Meeting.
The plans shaping the aforementioned incentive policy are as follows: (i) Performance Share Plan; and (ii) Selective Delivery Share Plan and (iii) Minimum Investment Program.
(i) Performance share plan
This multiannual incentive plan is payable in shares of Santander Spain. The beneficiaries of the plan are the executive directors and other members of senior management, together with any other Bank executives determined by the board of directors or, when delegated by it, the executive committee.
This plan involves three-year cycles for the delivery of shares to the beneficiaries. Accordingly, the first cycle lasts for two years (Plan I09) and the other cycles last for approximately three years each.
For each cycle a maximum number of shares is established for each beneficiary who remains in the Bank’s employ for the duration of the plan. The targets, which, if met, will determine the number of shares to be delivered, are defined by comparing the Bank’s performance with that of a benchmark group of financial institutions and are linked to two parameters, namely Total Shareholder Return (TSR) and growth in Earnings per Share (EPS).
The ultimate number of shares to be delivered will be determined in each of the cycles by the degree of achievement of the targets on the third anniversary of commencement of each cycle (with the exception of the first cycle, for which the second anniversary will be considered), and the shares will be delivered within a maximum period of seven months from the end of the cycle.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
At the end of each cycle, the TSR and the EPS growth will be calculated for Santander and each of the benchmark entities and the results will be ranked from first to last. Each of the two criteria (TSR and EPS growth) will be weighted at 50% in the calculation of the percentage of shares to be delivered, based on the following scale and in accordance with Santander Spain relative position among the group of benchmark financial institutions:
Santander’s Place in the TSR | | Percentage of Maximum | | Santander’s Place in the EPS | | Percentage of Maximum Shares to | Ranking | | Shares to Be Delivered | | Growth Ranking | | Be Delivered | 1º a 6º | | 50% | | 1º a 6º | | 50% | 7º | | 43% | | 7º | | 43% | 8º | | 36% | | 8º | | 36% | 9º | | 29% | | 9º | | 29% | 10º | | 22% | | 10º | | 22% | 11º | | 15% | | 11º | | 15% | 12th and below | | 0% | | 12th and below | | 0% |
Any benchmark group entity that is acquired by another company, whose shares cease trading or that ceases to exist will be excluded from the benchmark group. In an event of this or any similar nature, the comparison with the benchmark group will be performed in such a way that, for each of the measures considered (TSR and EPS growth) the maximum percentage of shares will be delivered if Santander Spain ranks within the first quartile (including the 25th percentile) of the benchmark group; no shares will be delivered if Santander Spain ranks below the median (50th percentile); 30% of the maximum amount of shares will be delivered if Santander Spain is placed at the median (50th percentile). The linear interpolation method will be used for calculating the corresponding percentage for positions between the median and the first quartile (25th percentile) (neither included).
(ii) Selective delivery share plan
This plan envisages the selective delivery of shares in special circumstances relating to the hiring or retention of employees. All employees and executives, except for the Bank’s executive directors, are eligible for this plan, provided that they have completed a minimum of three to four years of service at the Bank. Each participant will be entitled to receive the shares upon completion of the minimum period of service.
(iii) Fair value
The fair value of each option granted by the Bank is calculated at the grant date. In order to value Plan I06 two valuation reports were performed by two multinational investment banks. These banks used the Black-Scholes equity option pricing model considering the following parameters: the expected life of the options, interest rates, volatility, exercise price, market price and dividends of Santander Spain shares and the shares of comparable banks. The fair value of the options granted was determined by management based on the average value resulting from the two valuations.
With the exception of the share option plans which include terms relating to market conditions, the transfer terms included in the vesting conditions are not taken into account to estimate fair value. The transfer terms that are not based on market conditions are taken into account by adjusting the number of shares or share options included in the measurement of the service cost of the employee so that, ultimately the amount recognized in the consolidated income statement is based on the number of shares or share options transferred. When the transfer terms are related to market conditions, the charge for the services received is recognized regardless of whether the market conditions for the transfer are met, although the non-market transfer terms must be satisfied. The share price volatility is based on the implicit volatility scale for Santander Spain shares at the exercise prices and the duration corresponding to most of the sensitivities.
The fair value of the Performance Share Plans was calculated as follows:
- It was assumed that the beneficiaries will not leave the Bank’s employ during the term of each plan.
- The fair value of the 50% linked to the Bank’s relative TSR position was calculated, on the grant date, on the basis of the report provided by external valuators whose assessment was carried out using a Monte Carlo valuation model, performing 10,000 simulations to determine the TSR of each of the companies in the Benchmark Group, taking into account the variables set forth below. The results (each of which represents the delivery of a number of shares) are classified in decreasing order by calculating the weighted average and discounting the amount at the risk-free interest rate.
| | | | | | | | | | | | | | | PI09 | | | PI10 | | | PI11 | | | PI12 | | | Expected volatility (*) | | | 16.25 | % | | | 15.67 | % | | | 19.31 | % | | | 42.36 | % | Annual dividend yield based on last few years | | | 3.23 | % | | | 3.24 | % | | | 3.47 | % | | | 4.88 | % | Risk-free interest rate (Treasury Bond yield – zero coupon) over the period of the plan | | | 4.47 | % | | | 4.50 | % | | | 4.84 | % | | | 2.04 | % |
(*) calculated on the basis of historical volatility over the corresponding period (two or three years)
The application of the simulation model results in percentage values of 42.7% for PI09, 42.3% for PI10, 44.9% for PI11 and 52.42% for PI12, which are applied to 50% of the value of the options granted, in order to determine the cost per books of the TSR-based portion of the incentive. Since this valuation refers to a market condition, it cannot be adjusted after the grant date.
In view of the high correlation between TSR and EPS, it was considered feasible to extrapolate that (in a high percentage of cases) the TSR value is also valid for EPS. Therefore, it was initially determined that the fair value of the portion of the plans linked to the Bank’s relative EPS position, i.e. of the remaining 50% of the options granted, was the same as that of the 50% corresponding to the TSR. Since this valuation refers to a non-market condition, it is reviewed and adjusted on a yearly basis.
c) Employee Benefit Plans
Employee Benefit Plans - The Board of Directors Meeting held on December 23, 2009, approved and decided to submit to approval in the Extraordinary Shareholders Meeting to be held on February 3, 2010: (i) the Purchase Option Plan for Certificate of Depositary Shares (“Units”), to certain managers and managerial employees of the Bank and subsidiaries thereby, as per article 5, paragraph 4 of the Bank´s By-laws; and (ii) the Long-Term Incentive Plan - Investment in Units, the purpose of which is the payment of resources, in cash, by the Bank to certain collaborators, including managers, managerial employees and other employees of the Bank and subsidiaries thereby.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a) Breakdown
The breakdown of the balance of this item is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Property, fixtures and supplies | | | 1,043,498 | | | | 552,538 | | | | 363,463 | | Other administrative expenses | | | 1,307,802 | | | | 841,948 | | | | 509,650 | | Technology and systems | | | 897,581 | | | | 636,739 | | | | 197,445 | | Advertising | | | 497,246 | | | | 404,052 | | | | 274,908 | | Communications | | | 612,904 | | | | 457,675 | | | | 251,397 | | Technical reports | | | 377,331 | | | | 293,122 | | | | 173,404 | | Per diems and travel expenses | | | 167,954 | | | | 114,150 | | | | 73,505 | | Taxes other than income tax | | | 54,208 | | | | 55,365 | | | | 66,891 | | Surveillance and cash courier services | | | 468,833 | | | | 275,423 | | | | 160,559 | | Insurance premiums | | | 8,888 | | | | 5,763 | | | | 4,728 | | | | | 5,436,245 | | | | 3,636,775 | | | | 2,075,950 | |
b) Other information
The balance of “Technical reports” includes the fees paid by the consolidated companies (detailed in the accompanying Appendix I) to their respective auditors, the detail being as follows:
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Audit of the annual financial statements of the companies audited by Deloitte (constant scope of consolidation) | | | 6,180 | | | | 6,109 | | | | 3,759 | | | | | | | | | | | | | | | Audit of the annual financial statements of the companies audited by Deloitte (additions to scope of consolidation) | | | 373 | | | | 172 | | | | - | |
Additionally to the expenses with audit of the financial statements, the Bank had an fee paid to Deloitte in 2009 related to the audit of the Global Offering in the amount of R$8.8 million, after taxes and was recorded as transaction cost net of capital increase.
Services provided by others audit firms totaled R$2.5 million (2008 - R$3.0 million and 2007 - R$3.5 million).
The breakdown of the balance of this item is as follows:
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | Gains | | | 3,377,953 | | | | 19,701 | | | | 12,759 | | On disposal of tangible assets | | | 36,161 | | | | 13,162 | | | | 12,759 | | On disposal of investments (1) | | | 3,341,792 | | | | 6,539 | | | | - | | | Losses | | | (8,652 | ) | | | (13,090 | ) | | | (11,898 | ) | On disposal of tangible assets | | | (8,652 | ) | | | (13,090 | ) | | | (11,898 | ) | | Net gains | | | 3,369,301 | | | | 6,611 | | | | 861 | |
(1) In 2009, the Bank made a disposal of investment of Companhia Brasileira de Meios de Pagamentos - (VisaNet), Tecban - Tecnologia Bancária S.A. and Companhia Brasileira de Soluções e Serviços - CBSS accounting a net gain of R$3,315 million
The breakdown of the net balance of this item is as follows:
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | On disposal of tangible assets | | | 167,585 | | | | 49,859 | | | | - | | On impairment of tangible assets | | | (135,955 | ) | | | (40,640 | ) | | | 13,470 | | Net gains | | | 31,630 | | | | 9,219 | | | | 13,470 | |
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a) Notional amounts and market values of trading and hedging derivatives
The breakdown of the notional and/or contractual amounts and the market values of the trading and hedging derivatives held by the Bank is as follow
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Notional | | | | | | Notional | | | | | | | Amount | | | Market Value | | | Amount | | | Market Value | | | | Trading derivatives | | | | | | | | | | | | | Interest rate risk and other: | | | | | | | | | | | | | Interest rate swaps | | | 50,761,630 | | | | 12,646,099 | | | | 55,901,265 | | | | 15,868,331 | | Options - purchase and sales | | | 181,501,740 | | | | 33,762 | | | | 154,139,645 | | | | (175,456 | ) | Forward and futures contracts | | | 32,263,081 | | | | - | | | | 43,271,519 | | | | 7,788 | | Foreign currency risk: | | | | | | | | | | | | | | | | | Currency swaps (1) | | | 40,616,308 | | | | (11,648,297 | ) | | | 56,333,178 | | | | (17,867,750 | ) | Options - purchase and sales | | | 28,983,489 | | | | (333,259 | ) | | | 58,473,829 | | | | (1,559,102 | ) | Forward and futures contracts | | | 22,063,175 | | | | (150,008 | ) | | | 48,517,742 | | | | 1,823,929 | | | | | 356,189,423 | | | | 548,297 | | | | 416,637,178 | | | | (1,902,260 | ) | Hedging derivatives | | | | | | | | | | | | | | | | | Interest rate risk | | | | | | | | | | | | | | | | | Futures contracts (2) | | | 15,294,094 | | | | - | | | | 18,055,336 | | | | - | | Interest rate swaps | | | 1,249,645 | | | | 153,619 | | | | 1,701,594 | | | | (158,450 | ) | | | | 16,543,739 | | | | 153,619 | | | | 19,756,930 | | | | (158,450 | ) | Total | | | 372,733,162 | | | | 701,916 | | | | 436,394,108 | | | | (2,060,710 | ) |
(1) Includes credit derivatives, which the Bank uses to reduce or eliminate its exposure to specific risks arising from the purchase or sale of assets associated with the credit portfolio management. In 2009, the volume of credit derivatives with total return rate – credit risk received corresponds to R$655,126 thousands of cost (2008, R$697,606) and R$527,532 thousands of fair value (2008, R$696,162). In 2008 the credit risk volume transferred corresponds to R$94,852 thousands of cost and R$99,785 thousands of fair value. During the period there were no credit events related to events provided for in the contracts. Required base capital used amounted to R$7,498 thousands (2008, R$3,805).
(2) The mark-to-market effect of these cash flow hedges, with maturity that varies from January 4, 2010 to January 2, 2012, is recorded directly in equity, and at December 31, 2009 corresponded to a debit of R$262,295 (2008, R$85,917), net of taxes. The fair value of Certificate of Deposits designated as a hedged item was R$15,337,856 at December 31, 2009 (2008, R$18,308,306). No ineffective portion of such hedges, which would require recording in income, was identified during the period. Futures-DI transactions designated as hedge instrument have daily adjustments and are recorded in assets or liabilities and settle in cash daily.
The breakdown of the notional and/or contractual amounts of trading derivative by maturity is as follows:
Thousands of Reais | | 2009 | | | 2008 | | | | Up to 3 | | | From 3 to 12 | | | Over 12 | | | | | | | | | | months | | | months | | | months | | | Total | | | Total | | Swap | | | 30,256,852 | | | | 15,792,470 | | | | 45,328,616 | | | | 91,377,938 | | | | 112,234,443 | | Options | | | 97,356,867 | | | | 61,770,883 | | | | 51,357,479 | | | | 210,485,229 | | | | 212,613,474 | | Forward and futures contracts | | | 27,901,875 | | | | 13,222,330 | | | | 13,202,051 | | | | 54,326,256 | | | | 91,789,261 | | | | | 155,515,594 | | | | 90,785,683 | | | | 109,888,146 | | | | 356,189,423 | | | | 416,637,178 | |
The notional and/or contractual amounts of the contracts entered into do not reflect the actual risk assumed by the Bank, since the net position in these financial instruments is the result of offsetting and/or combining them. This net position is used by the Bank basically to hedge the interest rate, underlying asset price or foreign currency risk; the results on these financial instruments are recognized under “Gains/losses on financial assets and liabilities (net)” in the consolidated income statements and increase or offset, as appropriate, the gains or losses on the investments hedged.
Additionally, in order to interpret correctly the results on the “Securities and Commodities Derivatives” shown in the foregoing table, it should be considered that these items relate mostly to securities options for which a premium has been received which offsets their negative market value. Also, this market value is offset by positive market values generated by symmetrical positions in the Bank’s held-for-trading portfolio.
The Bank manages the credit risk exposure of these contracts through netting arrangements with its main counterparties and by receiving assets as collateral for its risk positions.
The detail of the cumulative credit risk exposure, by financial derivative, is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Securities derivatives | | | 162,588 | | | | 95,670 | | Currency derivatives | | | 91,662,972 | | | | 163,324,749 | | Interest rate derivatives | | | 280,907,602 | | | | 272,973,689 | | Total | | | 372,733,162 | | | | 436,394,108 | |
b) Off-balance-sheet funds under management
The detail of off-balance-sheet funds managed by the Bank is as follows:
| | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Investment funds | | | 95,324,100 | | | | 76,777,598 | | Assets under management | | | 3,083,043 | | | | 3,624,448 | | | | | 98,407,143 | | | | 80,402,046 | |
c) Third-party securities held in custody
At December 31, 2009, the Bank held in custody debt securities and equity instruments totaling R$94,949,464 thousand (2008 - R$80,454,575 thousand) entrusted to it by third parties.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
d) Residual maturity periods and Average interest rates
The breakdown, by maturity, of the balances of certain items in the consolidated balance sheets is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | Thousands of Reais | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average | | | | On | | | Up to | | | 3 to | | | 1 to | | | 3 to | | | After 5 | | | | | | Interest | | | | Demand | | | 3 Months | | | 12 Months | | | 3 Years | | | 5 Years | | | Years | | | Total | | | Rate | | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Cash and balances with the | | | | | | | | | | | | | | | | | | | | | | | | | Brazilian Central Bank | | | 12,169,277 | | | | 6,828,836 | | | | 8,270,899 | | | | - | | | | - | | | | - | | | | 27,269,012 | | | | 8.9 | % | Debt instruments | | | - | | | | 14,279,921 | | | | 1,784,616 | | | | 13,049,117 | | | | 20,751,920 | | | | 7,645,358 | | | | 57,510,932 | | | | 10.8 | % | Equity instruments | | | 17,991,746 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 17,991,746 | | | | | | Loans and receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans and advances to credit institutions | | | 3,246,260 | | | | 8,375,243 | | | | 4,313,669 | | | | 1,308,300 | | | | 2,477,758 | | | | 6,481,348 | | | | 26,202,578 | | | | 9.2 | % | Loans and advances to customer, gross | | | 6,716,360 | | | | 25,651,927 | | | | 41,119,405 | | | | 47,045,584 | | | | 12,505,072 | | | | 5,356,055 | | | | 138,394,403 | | | | 23.8 | % | | | | 40,123,643 | | | | 55,135,927 | | | | 55,488,589 | | | | 61,403,001 | | | | 35,734,750 | | | | 19,482,761 | | | | 267,368,671 | | | | 16.4 | % | | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities at amortised cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits from the Brazilian Central Bank | | | - | | | | 176,432 | | | | 63,681 | | | | - | | | | - | | | | - | | | | 240,113 | | | | 3.1 | % | | Deposits from credit institutions | | | 189,858 | | | | 5,060,811 | | | | 7,373,626 | | | | 7,486,135 | | | | 742,446 | | | | 104,765 | | | | 20,957,641 | | | | 8.5 | % | Customer deposits | | | 40,358,100 | | | | 33,634,930 | | | | 30,639,047 | | | | 40,770,381 | | | | 4,032,168 | | | | 5,530 | | | | 149,440,156 | | | | 8.8 | % | Marketable debt securities | | | - | | | | 3,242,520 | | | | 4,882,803 | | | | 936,678 | | | | 1,532,956 | | | | 844,053 | | | | 11,439,010 | | | | 7.9 | % | Subordinated liabilities | | | - | | | | 2,104 | | | | - | | | | - | | | | 4,330,919 | | | | 6,971,422 | | | | 11,304,445 | | | | 9.6 | % | Other financial liabilities | | | 3,650,259 | | | | 6,340,210 | | | | (33,470 | ) | | | 249,391 | | | | (18,226 | ) | | | - | | | | 10,188,164 | | | | - | | | | | 44,198,217 | | | | 48,457,007 | | | | 42,925,687 | | | | 49,442,585 | | | | 10,620,263 | | | | 7,925,770 | | | | 203,569,529 | | | | 8.8 | % | | Difference (assets less liabilities) | | | (4,074,574 | ) | | | 6,678,920 | | | | 12,562,902 | | | | 11,960,416 | | | | 25,114,487 | | | | 11,556,991 | | | | 63,799,142 | | | | | | | | | | | | | | | | | | | | | December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Thousands of Reais | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Average | | | | On | | | Up to | | | 3 to | | | 1 to | | | 3 to | | | After 5 | | | | | | | Interest | | | | Demand | | | 3 Months | | | 12 Months | | | 3 Years | | | 5 Years | | | Years | | | Total | | | Rate | | | Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and balances with the | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Brazilian Central Bank | | | 10,180,498 | | | | 11,570,645 | | | | 1,949,357 | | | | - | | | | - | | | | - | | | | 23,700,500 | | | | 9.7 | % | Debt instruments | | | - | | | | 5,067,650 | | | | 4,254,433 | | | | 14,092,854 | | | | 10,826,959 | | | | 5,354,568 | | | | 39,596,464 | | | | 14.9 | % | Equity instruments | | | 1,923,483 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,923,483 | | | | - | | Loans and receivables: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Loans and advances to credit institutions | | | 2,341,914 | | | | 16,054,833 | | | | 6,009,372 | | | | 3,023,897 | | | | 212,747 | | | | 6,095,770 | | | | 33,738,533 | | | | 9.9 | % | Loans and advances to customer, gross | | | 8,050,623 | | | | 37,176,761 | | | | 41,720,532 | | | | 32,897,225 | | | | 15,903,692 | | | | 6,900,583 | | | | 142,649,416 | | | | 25.4 | % | | | | 22,496,518 | | | | 69,869,889 | | | | 53,933,694 | | | | 50,013,976 | | | | 26,943,398 | | | | 18,350,921 | | | | 241,608,396 | | | | 19.8 | % | Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities at amortised cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deposits from the Brazilian Central Bank | | | - | | | | - | | | | 184,583 | | | | - | | | | - | | | | - | | | | 184,583 | | | | 6.2 | % | | Deposits from credit institutions | | | 1,188,957 | | | | 3,652,291 | | | | 12,815,453 | | | | 5,639,095 | | | | 2,387,885 | | | | 641,955 | | | | 26,325,636 | | | | 8.5 | % | Customer deposits | | | 36,374,095 | | | | 38,129,028 | | | | 25,625,227 | | | | 35,907,327 | | | | 18,618,151 | | | | 841,011 | | | | 155,494,839 | | | | 12.4 | % | Marketable debt securities | | | - | | | | 3,948,416 | | | | 3,796,188 | | | | 2,346,840 | | | | 1,273,523 | | | | 720,688 | | | | 12,085,655 | | | | 9.0 | % | Subordinated liabilities | | | - | | | | 6,431 | | | | 103,865 | | | | - | | | | 2,407,277 | | | | 6,679,856 | | | | 9,197,429 | | | | 13.8 | % | Other financial liabilities | | | 1,997,660 | | | | 4,376,111 | | | | 4,338,811 | | | | (45,998 | ) | | | 18,588 | | | | - | | | | 10,685,172 | | | | - | | | | | 39,560,712 | | | | 50,112,277 | | | | 46,864,127 | | | | 43,847,264 | | | | 24,705,424 | | | | 8,883,510 | | | | 213,973,314 | | | | 11.2 | % | | Difference (assets less liabilities) | | | (17,064,194 | ) | | | 19,757,612 | | | | 7,069,567 | | | | 6,166,712 | | | | 2,237,974 | | | | 9,467,411 | | | | 27,635,082 | | | | | |
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
e) Equivalent reais value of assets and liabilities
The detail of the main foreign currency balances in the consolidated balance sheet, based on the nature of the related items, is as follows:
| | | | | | | | | | | | | | | Equivalent Value in Thousands of Reais | | | | 2009 | | | 2008 | | | | Assets | | | Liabilities | | | Assets | | | Liabilities | | | | Cash and balances with the Brazilian Central Bank | | | 2,069,530 | | | | - | | | | 1,870,340 | | | | - | | Financial assets/liabilities held for trading | | | 1,981,386 | | | | 1,048,742 | | | | 401,283 | | | | 1,091,874 | | Available-for-sale financial assets | | | 713,042 | | | | - | | | | 115,480 | | | | - | | Loans and receivables | | | 15,092,956 | | | | - | | | | 13,568,903 | | | | - | | Financial liabilities at amortized cost | | | - | | | | 17,469,224 | | | | - | | | | 31,464,106 | | | | | 19,856,914 | | | | 18,517,966 | | | | 15,956,006 | | | | 32,555,980 | |
f) Fair value of financial assets and liabilities not measured at fair value The financial assets owned by the Bank are measured at fair value in the accompanying consolidated balance sheet, except for loans and receivables. F-66
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Similarly, the Bank’s financial liabilities -exceptexcept for financial liabilities held for trading and those measured at fair value - are measured at amortized cost in theinthe consolidated balance sheet. i) Financial assets measured at other than fair value Following is a comparison of the carrying amounts of the Bank’s financial assets measured at other than fair value and their respective fair values at year-end: | | | | | | | Thousands of Reais | 2011 | 2010 | 2009 | Assets | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |
Loans and receivables: | | | | | | | Loans and amounts due from credit institutions (note 5) | 19,628,861 | 19,535,160 | 22,658,520 | 22,658,520 | 24,228,143 | 24,228,143 | Loans and advances to customers (note 9) | 183,066,268 | 183,202,428 | 151,366,561 | 151,536,439 | 127,934,811 | 128,065,076 | Debt instruments (note 6) | 62,062 | 58,043 | 81,444 | 87,208 | - | - | Total | 202,757,191 | 202,795,631 | 174,106,525 | 174,282,167 | 152,162,954 | 152,293,219 |
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Carrying | | | | | | Carrying | | | | | Assets | | Amount | | | Fair Value | | | Amount | | | Fair Value | | | | Loans and receivables: | | | | | | | | | | | | | Loans and advances to credit institutions (note 5) | | | 24,228,143 | | | | 24,228,143 | | | | 29,691,635 | | | | 30,374,956 | | Loans and advances to customers (note 9) | | | 127,934,811 | | | | 128,065,076 | | | | 133,033,471 | | | | 127,044,873 | | | | | 152,162,954 | | | | 152,293,219 | | | | 162,725,106 | | | | 157,419,829 | |
ii) Financial liabilities measured at other than fair value
Following is a comparison of the carrying amounts of the Bank’s financial liabilities measured at other than fair value and their respective fair values at year-end: | | | | | | | Thousands of Reais | 2011 | 2010 | 2009 | Liabilities | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |
Financial liabilities at amortized cost: | | | | | | | Deposits from credit institutions (note 16) | 51,527,021 | 51,524,429 | 42,391,572 | 42,391,572 | 21,195,959 | 21,195,959 | Customer deposits (note 17)(*) | 174,473,891 | 174,496,664 | 167,949,201 | 167,953,896 | 149,440,156 | 149,448,949 | Marketable debt securities (note 18) | 38,590,423 | 38,564,263 | 20,086,645 | 20,054,667 | 11,439,010 | 11,435,722 | Subordinated liabilities (note 19) | 10,908,344 | 10,908,344 | 9,695,105 | 9,695,105 | 11,304,445 | 11,304,445 | Other financial liabilities (note 20) | 15,952,007 | 15,952,007 | 13,218,248 | 13,218,248 | 10,188,164 | 10,188,164 | Total | 291,451,686 | 291,445,707 | 253,340,771 | 253,313,488 | 203,567,734 | 203,573,239 | (*) For these purposes, the fair value of customer demand deposits, which are included within customer deposits, are taken to be the same as their carrying amount. | | The methods and assumptions to estimate the fair value are defined below: |
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | Carrying | | | | | | Carrying | | | | | Liabilities | | Amount | | | Fair Value | | | Amount | | | Fair Value | | | | Financial liabilities at amortized cost: | | | | | | | | | | | | | Deposits from the Brazilian Central Bank (note 16) | | | 240,113 | | | | 240,113 | | | | 184,583 | | | | 184,583 | | Deposits from credit institutions (note 16) | | | 20,955,846 | | | | 20,955,846 | | | | 26,325,636 | | | | 26,187,014 | | Customer deposits (note 17) (*) | | | 149,440,156 | | | | 149,448,949 | | | | 155,494,839 | | | | 155,173,062 | | Marketable debt securities (note 18) | | | 11,439,010 | | | | 11,435,722 | | | | 12,085,655 | | | | 12,009,351 | | Subordinated liabilities (note 19) | | | 11,304,445 | | | | 11,304,445 | | | | 9,197,429 | | | | 9,161,607 | | Other financial liabilities (note 20) | | | 10,188,164 | | | | 10,188,164 | | | | 10,685,172 | | | | 10,832,240 | | | | | 203,567,734 | | | | 203,573,239 | | | | 213,973,314 | | | | 213,547,857 | |
(*) For these purposes, the fair value of customer demand deposits, which are included within customer deposits, are taken to be the same as their carrying amount.
The methods and assumptions to estimate the fair value are defined below
- Short-term investments:investments - The short-term investments includes the interbank deposits and the repurchase agreements. The carrying amount is approximated to the fair value. - Loans operations – Fair value are estimated for groups of loans with similar characteristics. The fair value was measured by discounting estimated cash flow using the interest rate of new contracts. - Deposits – The fair value of deposits was calculated by discounting the difference between the cash flows on a contractual basis and current market rates for instruments with similar maturities. For variable-rate deposits, the carrying amount was considered to approximate fair value. - Long-temLong-term loans – The fair value of long-term loans were estimated by cash flow discounted at the interest rate offered on the market with similar terms and maturities. The Bank rents properties, mainly used for branches, based on a standard contract which may be cancelled at its own criterion and includes the right to opt for renewals and adjustment clauses, classified as operating lease. Total future minimum payments of non-cancelable operating leases as of December 31, 20092011 is R$1,077,586,2,019,005 thousand, of which R$314,250602,554 thousand matures in up to 1 year, R$686,8851,361,285 thousand from 1 year to up to 5 years and R$76,45155,166 thousand after 5 years. Additionally, the Banco Santander has contracts for a matures indeterminate, totaling R$2,273 thousand monthly rent corresponding to the contracts with this feature. Payment of operating leases recognized as expenses for the period were R$304,366. 633,342 thousand.Monthly rental contracts will be adjusted on an annual basis, as per prevailing legislation, at IGPMÍndice Geral de Preços do Mercado(IGPM) variation. The lessee is entitled to unilaterally rescind the agreement, at any time, without paying fines, encumbrances or penalties, through a written communication to the lesser upon 30 days prior notice, without prejudice to rent payment and charges due until then. h) Obligation offset and settlement agreements Obligation offset and settlement agreements - Resolution CMN 3.263/2005 – The Bank has an obligation offset and settlement agreement within the ambit of national financial institutions (SFN), entered into with individuals and legal entities which may or may not be members of SFN, resulting in improved assurance of financial settlement, with the parties with which it has this type of agreement. These agreements establish that payment obligations with the Bank, arising from loans and derivative transactions, in case of default of the counterparty, will be offset against payment obligations of the Bank with the counterparty. i) Contingent assets On December 31, 2011, 2010 and 2009 no contingent assets were accounted. F-67
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | j) Statements of value added | | The following Statements of value added is not required under IFRS but being presented as supplementary information as required by Brazilian Corporate Law for publicly-held companies, and has been derived from the Bank´s consolidated financial statements prepared in accordance with IFRS. | | | Thousands of Reais | 2011 | | 2010 | | 2009 | | Interest and similar income | 51,736,080 | | 40,909,204 | | 39,342,956 | | Net fee and commission income | 7,339,498 | | 6,835,508 | | 6,237,762 | | Impairment losses on financial assets (net) | (9,381,549) | | (8,233,810) | | (9,966,404) | | Other income and expense | (520,714) | | 1,578,772 | | 2,579,411 | | Interest expense and similar charges | (23,834,316) | | (16,814,126) | | (17,175,865) | | Third-party input | (7,771,693) | | (6,605,215) | | (5,969,602) | | Materials, energy and others | (540,634) | | (500,280) | | (650,747) | | Third-party services | (4,150,734) | | (3,882,909) | | (3,925,548) | | Impairment of assets | (38,646) | | (20,600) | | (900,554) | | Other | (3,041,679) | | (2,201,426) | | (492,753) | | Gross added value | 17,567,306 | | 17,670,333 | | 15,048,258 | | Retention | | | | | | | Depreciation and amortization | (1,462,034) | | (1,237,410) | | (1,248,612) | | Added value produced | 16,105,272 | | 16,432,923 | | 13,799,646 | | Added value received from transfer | | | | | | | Investments in affiliates and subsidiaries | 54,216 | | 43,942 | | 295,414 | | Added value to distribute | 16,159,488 | | 16,476,865 | | 14,095,060 | | Added value distribution | | | | | | | Employee | 5,834,177 | 36.1% | 5,176,648 | 31.4% | 4,874,983 | 34.6% | Compensation | 4,277,355 | | 3,807,408 | | 3,365,593 | | Benefits | 950,549 | | 871,607 | | 854,150 | | Government severance indemnity funds for employees - FGTS | 319,941 | | 285,373 | | 246,238 | | Other | 286,332 | | 212,260 | | 409,002 | | Taxes | 2,022,870 | 12.5% | 3,452,290 | 21.0% | 3,319,362 | 23.5% | Federal | 1,971,489 | | 3,402,502 | | 3,294,845 | | State | 877 | | 410 | | 453 | | Municipal | 50,504 | | 49,378 | | 24,064 | | Compensation of third-party capital - rental | 546,588 | 3.4% | 465,353 | 2.8% | 392,751 | 2.8% | Remuneration of interest on capital | 7,755,853 | 48.0% | 7,382,574 | 44.8% | 5,507,964 | 39.1% | Dividends and interest on capital | 2,901,160 | | 3,540,000 | | 1,575,000 | | Profit Reinvestment | 4,846,765 | | 3,842,093 | | 3,932,606 | | Profit (loss) attributable to non-controlling interests | 7,928 | | 481 | | 358 | | | Total | 16,159,488 | 100.0% | 16,476,865 | 100.0% | 14,095,060 | 100.0% | | 42. Operating segments | | In accordance with IFRS 8, an operating segment is a component of an entity: |
In accordance with IFRS 8, an operating segment is a component of an entity:
(a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. Following such guidance, the Bank has identified the following business segments as its operating segments: • Global Wholesale Banking,
• Asset Management and Insurance.
The Bank operates in Brazil and abroad, through the Cayman branch, with Brazilian clients and therefore has no geographical segments. The Commercial Banking segment encompasses the entire commercial banking business (except for the Corporate Banking business managed globally using the Global Relationship Model). The Asset Management and Insurance segment includes the contribution to the Bank arising from the design and management of the investment fund, pension and insurance businesses of the various units. The Global Wholesale Banking segment reflects the returns on the Global Corporate Banking business, those on Investment Banking and Markets worldwide, including all the globally managed treasury departments and the equities business.
The condensed income statements and other significant data are as follows:
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | | | | | | Global | | | Asset | | | | | | | Commercial | | | Wholesale | | | Management | | | | | (Condensed) Income Statement | | Banking | | | Banking | | | and Insurance | | | Total | | | NET INTEREST INCOME | | | 20,260,381 | | | | 1,766,812 | | | | 139,898 | | | | 22,167,091 | | Income from equity instruments | | | 29,903 | | | | - | | | | - | | | | 29,903 | | Share of results of entities accounted for using the equity method | | | 295,414 | | | | - | | | | - | | | | 295,414 | | Net fee and commission income | | | 4,969,848 | | | | 863,326 | | | | 404,588 | | | | 6,237,762 | | Gains (losses) on financial assets and liabilities and Exchange differences | | | 1,751,572 | | | | 859,209 | | | | 54,351 | | | | 2,665,132 | | Other operating income/(expenses) | | | (280,861 | ) | | | (22,540 | ) | | | 187,777 | | | | (115,624 | ) | TOTAL INCOME | | | 27,026,257 | | | | 3,466,807 | | | | 786,614 | | | | 31,279,678 | | Personnel expenses | | | (4,971,773 | ) | | | (474,295 | ) | | | (64,904 | ) | | | (5,510,972 | ) | Other administrative expenses | | | (5,213,092 | ) | | | (175,017 | ) | | | (48,136 | ) | | | (5,436,245 | ) | Depreciation and amortization of tangible and intangible assets | | | (1,175,995 | ) | | | (38,635 | ) | | | (33,982 | ) | | | (1,248,612 | ) | Provisions (net) | | | (3,389,253 | ) | | | (45,050 | ) | | | (46,390 | ) | | | (3,480,693 | ) | Net impairment losses on financial assets | | | (9,883,382 | ) | | | (83,022 | ) | | | - | | | | (9,966,404 | ) | Net impairment losses on non-financial assets | | | (899,172 | ) | | | - | | | | (1,382 | ) | | | (900,554 | ) | Other non-financial gains/(losses) | | | 3,400,931 | | | | - | | | | - | | | | 3,400,931 | | PROFIT BEFORE TAX | | | 4,894,521 | | | | 2,650,788 | | | | 591,820 | | | | 8,137,129 | | | Other aggregates: | | | | | | | | | | | | | | | | | Total assets | | | 269,457,520 | | | | 46,515,056 | | | | - | | | | 315,972,576 | | Loans and advances to customers | | | 95,176,323 | | | | 33,147,601 | | | | - | | | | 128,323,924 | | Customer deposits | | | 128,127,568 | | | | 21,312,588 | | | | - | | | | 149,440,156 | | | Thousands of Reais | | 2008 | | | | | | | | | Global | | | Asset | | | | | | | | Commercial | | | Wholesale | | | Management | | | | | | (Condensed) Income Statement | | Banking | | | Banking | | | and Insurance | | | Total | | | NET INTEREST INCOME | | | 10,191,650 | | | | 1,213,502 | | | | 32,817 | | | | 11,437,969 | | Income from equity instruments | | | 36,972 | | | | - | | | | - | | | | 36,972 | | Share of results of entities accounted for using the equity method | | | 112,330 | | | | - | | | | - | | | | 112,330 | | Net fee and commission income | | | 3,602,255 | | | | 449,289 | | | | 202,159 | | | | 4,253,703 | | Gains (losses) on financial assets and liabilities and Exchange differences | | | (358,011 | ) | | | 540,636 | | | | 7,041 | | | | 189,666 | | Other operating income/(expenses) | | | (21,570 | ) | | | (37,782 | ) | | | (465 | ) | | | (59,817 | ) | TOTAL INCOME | | | 13,563,626 | | | | 2,165,645 | | | | 241,552 | | | | 15,970,823 | | Personnel expenses | | | (3,104,942 | ) | | | (403,671 | ) | | | (39,549 | ) | | | (3,548,162 | ) | Other administrative expenses | | | (3,485,160 | ) | | | (129,640 | ) | | | (21,975 | ) | | | (3,636,775 | ) | Depreciation and amortization of tangible and intangible assets | | | (797,536 | ) | | | (44,065 | ) | | | (4,404 | ) | | | (846,005 | ) | Provisions (net) | | | (1,160,918 | ) | | | (38,638 | ) | | | (30,761 | ) | | | (1,230,317 | ) | Net impairment losses on financial assets | | | (4,076,108 | ) | | | (23,176 | ) | | | - | | | | (4,099,284 | ) | Net impairment losses on non-financial assets | | | (77,267 | ) | | | - | | | | (10 | ) | | | (77,277 | ) | Other non-financial gains/(losses) | | | 15,830 | | | | - | | | | - | | | | 15,830 | | PROFIT BEFORE TAX | | | 877,525 | | | | 1,526,455 | | | | 144,853 | | | | 2,548,833 | | | Other aggregates: | | | | | | | | | | | | | | | | | Total assets | | | 243,957,824 | | | | 50,232,023 | | | | - | | | | 294,189,847 | | Loans and advances to customers | | | 106,317,159 | | | | 28,151,101 | | | | - | | | | 134,468,260 | | Customer deposits | | | 117,516,868 | | | | 37,977,971 | | | | - | | | | 155,494,839 | |
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | The condensed income statements and other significant data are as follows: | | Thousands of Reais | | 2011 | | | (Condensed) Income Statement | CommercialBanking(2) | GlobalWholesaleBanking | AssetManagementand Insurance | Total | |
|
| NET INTEREST INCOME | 24,971,366 | 2,589,070 | 341,328 | 27,901,764 | Income from equity instruments | 93,727 | - | - | 93,727 | Income from companies accounted for by the equity method | 54,216 | - | - | 54,216 | Net fee and commission income | 6,191,891 | 796,350 | 351,257 | 7,339,498 | Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) | (753,198) | 513,041 | 5,134 | (235,023) | Other operating income (expense) | (695,387) | (29,304) | 345,273 | (379,418) | TOTAL INCOME | 29,862,615 | 3,869,157 | 1,042,992 | 34,774,764 | Personnel expenses | (6,031,433) | (525,525) | (86,773) | (6,643,731) | Other administrative expenses | (5,431,219) | (242,032) | (55,650) | (5,728,901) | Depreciation and amortization | (1,331,287) | (105,780) | (24,967) | (1,462,034) | Provisions (net) | (3,024,150) | 2,866 | (40,179) | (3,061,463) | Impairment losses on financial assets (net) | (9,334,483) | (47,066) | - | (9,381,549) | Impairment losses on non-financial assets (net) | (33,743) | (4,707) | (196) | (38,646) | Other non-financial gains (losses) | 452,096 | - | - | 452,096 | OPERATING PROFIT BEFORE TAX(1) | 5,128,396 | 2,946,913 | 835,227 | 8,910,536 | | Other: | | | | | Total assets | 345,579,236 | 51,045,367 | 3,261,479 | 399,886,082 | Loans and advances to customers | 148,372,380 | 34,653,359 | 40,529 | 183,066,268 | Customer deposits | 150,404,639 | 22,471,578 | 1,597,674 | 174,473,891 | | | Thousands of Reais | 2010 | | (Condensed) Income Statement | CommercialBanking | GlobalWholesale Banking | AssetManagementand Insurance | Total | |
|
| NET INTEREST INCOME | 21,301,329 | 2,501,318 | 292,431 | 24,095,078 | Income from equity instruments | 51,721 | - | - | 51,721 | Income from companies accounted for by the equity method | 43,942 | - | - | 43,942 | Net fee and commission income | 5,529,572 | 891,897 | 414,039 | 6,835,508 | Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) | 1,550,319 | 244,408 | 80,323 | 1,875,050 | Other operating income (expense) | (596,271) | (29,992) | 278,264 | (347,999) | TOTAL INCOME | 27,880,612 | 3,607,631 | 1,065,057 | 32,553,300 | Personnel expenses | (5,354,100) | (512,097) | (59,979) | (5,926,176) | Other administrative expenses | (5,003,189) | (215,499) | (85,738) | (5,304,426) | Depreciation and amortization | (1,129,919) | (57,718) | (49,773) | (1,237,410) | Provisions (net) | (1,940,727) | 4,039 | (37,638) | (1,974,326) | Impairment losses on financial assets (net) | (8,225,451) | (8,359) | - | (8,233,810) | Impairment losses on non-financial assets (net) | (20,601) | - | 1 | (20,600) | Other non-financial gains (losses) | 139,951 | - | - | 139,951 | OPERATING PROFIT BEFORE TAX(1) | 6,346,576 | 2,817,997 | 831,930 | 9,996,503 | | Other: | | | | | Total assets | 308,973,195 | 40,139,949 | 25,549,539 | 374,662,683 | Loans and advances to customers | 121,175,888 | 30,149,793 | 40,880 | 151,366,561 | Customer deposits | 144,385,872 | 22,180,522 | 1,382,807 | 167,949,201 |
Table of Contents | | | | | | | | | | | | | Thousands of Reais | | 2007 | | | | | | | | Global | | | Asset | | | | | | | Commercial | | | Wholesale | | | Management | | | | | (Condensed) Income Statement | | Banking | | | Banking | | | and Insurance | | | Total | | | NET INTEREST INCOME | | | 5,491,818 | | | | 693,259 | | | | 10,209 | | | | 6,195,286 | | Income from equity instruments | | | 36,387 | | | | - | | | | - | | | | 36,387 | | Share of results of entities accounted for using the equity method | | | 5,884 | | | | - | | | | - | | | | 5,884 | | Net fee and commission income | | | 2,694,428 | | | | 253,022 | | | | 150,522 | | | | 3,097,972 | | Gains (losses) on financial assets and liabilities and Exchange differences | | | 944,229 | | | | 950,485 | | | | 3,537 | | | | 1,898,251 | | Other operating income/(expenses) | | | 143,362 | | | | (10,412 | ) | | | (26 | ) | | | 132,924 | | TOTAL INCOME | | | 9,316,108 | | | | 1,886,354 | | | | 164,242 | | | | 11,366,704 | | Personnel expenses | | | (2,071,426 | ) | | | (277,737 | ) | | | (35,104 | ) | | | (2,384,267 | ) | Other administrative expenses | | | (1,963,009 | ) | | | (95,500 | ) | | | (17,441 | ) | | | (2,075,950 | ) | Depreciation and amortization of tangible and intangible assets | | | (528,960 | ) | | | (43,027 | ) | | | (7,759 | ) | | | (579,746 | ) | Provisions (net) | | | (1,192,553 | ) | | | 7,654 | | | | (11,513 | ) | | | (1,196,412 | ) | Net impairment losses on financial assets | | | (2,164,523 | ) | | | 5,075 | | | | 11 | | | | (2,159,437 | ) | Net impairment losses on non-financial assets | | | (298,085 | ) | | | - | | | | 3 | | | | (298,082 | ) | Other non-financial gains/(losses) | | | 14,331 | | | | - | | | | - | | | | 14,331 | | PROFIT BEFORE TAX | | | 1,111,883 | | | | 1,482,819 | | | | 92,439 | | | | 2,687,141 | | | Other aggregates: | | | | | | | | | | | | | | | | | Total assets | | | 85,783,918 | | | | 22,535,315 | | | | - | | | | 108,319,233 | | Loans and advances to customers | | | 38,513,016 | | | | 10,690,066 | | | | - | | | | 49,203,082 | | Customer deposits | | | 46,720,925 | | | | 8,489,533 | | | | - | | | | 55,210,458 | |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | Thousands of Reais | 2009 | | (Condensed) Income Statement | CommercialBanking | GlobalWholesaleBanking | AssetManagement and Insurance | Total | |
|
| NET INTEREST INCOME | 20,260,381 | 1,766,812 | 139,898 | 22,167,091 | Income from equity instruments | 29,903 | - | - | 29,903 | Income from companies accounted for by the equity method | 295,414 | - | - | 295,414 | Net fee and commission income | 4,969,848 | 863,326 | 404,588 | 6,237,762 | Gains (losses) on financial assets and liabilities (net) and Exchange differences (net)(1) | 1,751,572 | 859,209 | 54,351 | 2,665,132 | Other operating income (expense) | (280,861) | (22,540) | 187,777 | (115,624) | TOTAL INCOME | 27,026,257 | 3,466,807 | 786,614 | 31,279,678 | Personnel expenses | (4,971,773) | (474,295) | (64,904) | (5,510,972) | Other administrative expenses | (5,213,092) | (175,017) | (48,136) | (5,436,245) | Depreciation and amortization | (1,175,995) | (38,635) | (33,982) | (1,248,612) | Provisions (net) | (3,389,253) | (45,050) | (46,390) | (3,480,693) | Impairment losses on financial assets (net) | (9,883,382) | (83,022) | - | (9,966,404) | Impairment losses on non-financial assets (net) | (899,172) | - | (1,382) | (900,554) | Other non-financial gains (losses) | 3,400,931 | - | - | 3,400,931 | OPERATING PROFIT BEFORE TAX(1) | 4,894,521 | 2,650,788 | 591,820 | 8,137,129 | | Other: | | | | | Total assets | 253,639,547 | 40,738,892 | 21,594,137 | 315,972,576 | Loans and advances to customers | 99,511,366 | 28,571,262 | 241,296 | 128,323,924 | Customer deposits | 124,296,966 | 23,872,581 | 1,270,609 | 149,440,156 |
(1) Includes in the Commercial Bank, the fiscal hedge of investment on Cayman branch (a strategy to mitigate the effects of fiscal and exchange rate changes on investments offshore over the net income), which result is recorded in “Gains/losses on financial assets and liabilities (net)” fully offset the tax line. The effects of the devaluation of the Real against the Dollar in 2011 generated losses of R$1,646,212 thousand. In 2010 were recorded gains of R$272,131 thousand and 2009 earnings of R$936,528 thousand. (2) Institutional results, such as the gain on the sale of Santander Seguros in 2011, are allocated in the Commercial Banking segment. To allow a better assessment of the operating segment, from 2010, the assets related to insurance activities are presented in the insurance segment and asset management. For purposes of comparison, in 2009 we made the reclassification of these assets, since they were assigned to other operating segments. The insurance assets were incorporated into the Bank in the third quarter of 2009 with the merger of shares of Santander Seguros. Additionally, the Bank does not have any customers that individually accounted for 10% or greater of our interest and similar income for 2009, 20082011, 2010 and 2007. The parties related to the Bank are deemed to include, in addition to its subsidiaries, associates and jointly controlled entities, the Bank’s key management personnel and the entities over which the key management personnel may exercise significant influence or control. Following is a detail of the ordinary business transactions performed by the Bank with its related parties: parties on December 31, 2011, 2010 and 2009:a) ManagementKey-person management compensation i) Short-term benefits
At the stockholders meeting held on April 26, 2011, was defined to maximum aggregateapproved the global compensation for the Boardproposal of directors (Board of Directors and Executive OfficersOfficers) for the year 2011, amounting to R$283,540 thousand, covering fixed remuneration, variable and equity-based and other benefits. Additionally, was approved the global compensation of the Audit Committee members for the period of 12 months from March 24, 2011, in the amount of up to R$ 225,554 thousands. In 2008,3,960 thousand. i) Long-term benefits The Santander Brazil as well as Santander Spain, as other subsidiaries of Santander Group, have long-term compensation programs tied to its share's performance, based on the management compensation, correspondsachievement of goals. | | | | ii) Short-term benefits | | | | | The following table shows the Board of Directors’, Executive Board’s and Audit Committee compensation: | | Thousands of Reais | 2011 | 2010 | 2009 | Fixed compensation | 48,997 | 45,078 | 35,258 | Variable compensation | 162,154 | 133,649 | 118,240 | Share based payments | 18,067 | 29,083 | 3,250 | Other | 11,818 | 8,659 | 6,294 | Total(1) (2) | 241,036 | 216,469 | 163,042 |
(1) Refers to the amount deferredpaid by Banco Santander to its executives officers for the positions which they hold in the Stockholders' MeetingBank and other companies of Bancothe conglomerate. And in 2011, includes the share incurred with the changes in administrative structure and governance in the completion of the Bank's integration process. (2) In 2011, they were paid to the Directors of Santander Seguros and Santander Asset the amount of R$8,312 thousand (2010 - R$6,667 thousand). Additionally, in 2011, charges were collected on key-person management compensation of Banco Real from August 29,amounting R$22,768 thousand (2010 - R$23,547 thousand and 2009 totaling- R$108,702. Board of Directors’ and Executive Board’s compensation:
| | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | 2007 | | | | Fixed compensation | | | 35,258 | | | | 16,017 | | | | 9,321 | | Variable compensation | | | 121,490 | | | | 55,421 | | | | 56,160 | | Other | | | 6,294 | | | | 4,335 | | | | 3,462 | | Total | | | 163,042 | | | | 75,773 | | | | 68,943 | |
ii)12,294 thousand).iii) Contract termination Employment contracts have an undefined period. The termination of the employment relationship for non-fulfillment of obligations or voluntarily does not entitle executives to any financial compensation.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
In conformity with prevailing regulations, financial institutions cannot grantUnder current law, it is not granted loans or advances to: a) anyinvolving:I - officers, members of board of directors and audit committee as well as their spouses and relatives up to the 2nd degree; II - individuals or legal entities that control the institution or any entity under joint control with the institution, or any officer, memberof Banco Santander, which hold more than 10% of the board of directors, membershare capital; III - Legal entities which hold more than 10% of the supervisory board, or membershare capital, Banco Santander and its subsidiaries; IV - - legal entities which hold more than 10% of the immediate family of such individuals; b)share capital, any entity controlled by the institution; or
c) any entity in which the Bank holds, directly or indirectly, 10% or more of the capital.
Accordingly, loansdirectors or advances are not granted to any subsidiaries, associates, management (Board of directors and Directors), members of audit committeethe Board of Directors and Audit Committee or management's own financial institution, as well as their families.
spouses or relatives up to the second degree.c) Ownership Interest The table below shows the direct interest (common shares and preferred shares) as of December 31, 20092011, 2010 and 2008 exceeding five percent2009: | | | | | | | | | | December 31, 2011 | | | Stockholders' | Common Shares (thousands) | Common Shares (%) | PreferredShares (thousands) | PreferredShares (%) | TotalShares (thousands) | TotalShares (%) | |
|
Grupo Empresarial Santander, S.L.(1) | 72,876,994 | 34.2% | 61,631,776 | 33.1% | 134,508,770 | 33.7% | Sterrebeeck B.V.(1) | 99,527,083 | 46.8% | 86,492,330 | 46.5% | 186,019,413 | 46.6% | Banco Santander, S.A.(1) | 2,090,231 | 1.0% | 1,900,210 | 1.0% | 3,990,441 | 1.0% | Santander Insurance Holding(1) | 206,664 | 0.1% | - | 0.0% | 206,664 | 0.1% | Employees | 211,427 | 0.1% | 193,458 | 0.1% | 404,885 | 0.1% | Members of the Board of Directors | (*) | (*) | (*) | (*) | (*) | (*) | Members of the Executive Board | (*) | (*) | (*) | (*) | (*) | (*) | Other | 37,929,333 | 17.8% | 35,984,611 | 19.3% | 73,913,944 | 18.5% | Total | 212,841,732 | 100.0% | 186,202,385 | 100.0% | 399,044,117 | 100.0% | (1) Companies of the Santander Spain Group. (*) None of the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares. | |
| | | | December 31, 2010 | | | Stockholders' | CommonShares (thousands) | CommonShares (%) | PreferredShares (thousands) | PreferredShares (%) | TotalShares (thousands) | TotalShares (%) | |
|
Grupo Empresarial Santander, S.L.(1) | 74,967,225 | 35.2% | 63,531,986 | 34.1% | 138,499,211 | 34.7% | Sterrebeeck B.V.(1) | 99,527,083 | 46.8% | 86,492,330 | 46.5% | 186,019,413 | 46.6% | Santander Insurance Holding(1) (2) | 206,663 | 0.1% | - | 0.0% | 206,663 | 0.1% | Employees | 240,934 | 0.1% | 220,512 | 0.1% | 461,446 | 0.1% | Members of the Board of Directors | (*) | (*) | (*) | (*) | (*) | (*) | Members of the Executive Board | (*) | (*) | (*) | (*) | (*) | (*) | Other | 37,899,827 | 17.8% | 35,957,557 | 19.3% | 73,857,384 | 18.5% | Total | 212,841,732 | 100.0% | 186,202,385 | 100.0% | 399,044,117 | 100.0% |
(*)None of total shares:the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares. (1) Companies of the Santander Spain Group. (2) On August, 2010, a F-1 filling took place at CVM and SEC, which reported on the intention of sale of equity interest held by Santander Insurance Holding, SL, in the form of ADRs, in the United States market. Therefore, 4,538,420,040 common shares and 4,125,836,400 preferred shares were converted to compose 82,516,728 Units/ADRs (equivalent to ownership position of 2.17% in Banco Santander). Between the months of August to December 2010, the equity position owned by SIH in the form of ADRs were totally alienated; 77,627,222 in the third quarter and 4,889,506 in the fourth quarter.
| | | | | | | | | | December 31, 2009 | | | Stockholders' | Common Shares (thousands) | Common Shares (%) | Preferred Shares (thousands) | Preferred Shares (%) | Total Shares (thousands) | Total Shares (%) | |
|
Grupo Empresarial Santander, S.L.(1) | 74,967,225 | 35.2% | 63,531,986 | 34.1% | 138,499,211 | 34.7% | Sterrebeeck B.V.(1) | 99,527,083 | 46.8% | 86,492,330 | 46.5% | 186,019,413 | 46.6% | Santander Seguros S/A(2) | 7,241 | 0.0% | 9,525 | 0.0% | 16,766 | 0.0% | Santander Insurance Holding(1) | 4,745,084 | 2.2% | 4,125,836 | 2.2% | 8,870,920 | 2.2% | Employees | 311,840 | 0.1% | 284,366 | 0.2% | 596,206 | 0.1% | Members of the Board of Directors | (*) | (*) | (*) | (*) | (*) | (*) | Members of the Executive Board | (*) | (*) | (*) | (*) | (*) | (*) | Other | 33,283,259 | 15.7% | 31,758,342 | 17.0% | 65,041,601 | 16.4% | Total | 212,841,732 | 100.0% | 186,202,385 | 100.0% | 399,044,117 | 100.0% |
| | | | | | | | | | | | | | | | | | | | | December 31, 2009 | | | | Common | | | Common | | | Preferred | | | Preferred | | | Total | | | Total | | Stockholders' | | Shares | | | Shares (%) | | | Shares | | | Shares (%) | | | Shares | | | Shares (%) | | Grupo Empresarial Santander, S.L. (1) | | | 74,967,225 | | | | 35.2 | % | | | 63,531,986 | | | | 34.1 | % | | | 138,499,211 | | | | 34.7 | % | Sterrebeeck B.V. (1) | | | 99,527,083 | | | | 46.8 | % | | | 86,492,330 | | | | 46.5 | % | | | 186,019,413 | | | | 46.6 | % | Santander Seguros S/A (2) | | | 7,241 | | | | 0.0 | % | | | 9,525 | | | | 0.0 | % | | | 16,766 | | | | 0.0 | % | Santander Insurance Holding | | | 4,745,084 | | | | 2.2 | % | | | 4,125,836 | | | | 2.2 | % | | | 8,870,920 | | | | 2.2 | % | Employees | | | 311,840 | | | | 0.1 | % | | | 284,366 | | | | 0.2 | % | | | 596,206 | | | | 0.1 | % | Members of the Board of Directors | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | Members of the Executive Board | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | Other | | | 33,283,259 | | | | 15.7 | % | | | 31,758,342 | | | | 17.0 | % | | | 65,041,601 | | | | 16.4 | % | Total | | | 212,841,732 | | | | 100.0 | % | | | 186,202,385 | | | | 100.0 | % | | | 399,044,117 | | | | 100.0 | % |
(*) None of the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares. (1) Companies of the Santander Spain Group. (2) The Merger of Santander Seguros' shares, mentioned in note 2,3, led to mutual participation between Banco Santander and Santander Seguros, which will be eliminated within a maximum period of one year from the Extraordinary General Meeting that approved the merger of shares, in accordance with the current regulation.
| | | | | | | | | | | | | | | | | | | | | December 31, 2008 | | | | Common | | | Common | | | Preferred | | | Preferred | | | Total | | | Total | | Stockholders' | | Shares | | | Shares (%) | | | Shares | | | Shares (%) | | | Shares | | | Shares (%) | | Grupo Empresarial Santander, S.L. (1) | | | 72,504,460 | | | | 41.6 | % | | | 61,391,761 | | | | 40.5 | % | | | 133,896,221 | | | | 41.1 | % | Sterrebeeck B.V. (1) | | | 99,048,194 | | | | 56.8 | % | | | 86,076,161 | | | | 56.8 | % | | | 185,124,355 | | | | 56.8 | % | Members of the Board of Directors | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | Members of the Executive Board | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | | | ( | *) | Other | | | 2,739,762 | | | | 1.6 | % | | | 3,997,945 | | | | 2.7 | % | | | 6,737,707 | | | | 2.1 | % | Total | | | 174,292,416 | | | | 100.0 | % | | | 151,465,867 | | | | 100.0 | % | | | 325,758,283 | | | | 100.0 | % |
(*) None of the members of the Board of Directors and the Executive Board holds 1.0% or more of any class of shares.
(1) Companies ofSeguros. On May 26, 2010, the Santander Spain Group.Seguros sold the participation in Banco Santander corresponding to16,767 thousand shares (7,241 thousand ordinary shares and 9,526 thousand preference shares) traded at BM&FBovespa, eliminating the mutual participation between Banco Santander and Santander Seguros.F-71
d) Related-Party Transactions
From time to time the Bank engages in lending and borrowing transactions to fund its operations and other miscellaneous transactions with various companies of the Santander Group, in compliance with restrictions on loans or advances imposed by Brazilian law. All such transactions with Santander Group companies were conducted on an arm’s length basis on terms substantially similar to those available from other providers in the market.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Amendment to Form F-3 and sales of ADS by Santander Group On November 14, 2011, Banco Santander filed the application for registration of an amendment number 2 to the Registration Statement on Form F-3, which is valid automatically, with the Securities and Exchange Commission (SEC), to allow the sale of ADS or Units of Banco Santander by the Santander Group companies orown Banco Santander. Additionally, in terms of a prospectus supplement filed on November 16, 2011, any one shareholder of Banco Santander SA (Santander Spain), Grupo Empresarial Santander SL (GES), and Banco Madesant - Sociedade Unipessoal S.A. (an affiliate company of the group) may offer for sale, periodically, to 310,832,288 ADS or Units of Banco Santander. The purpose of these documents is to have available for sale on a registered basis, by Banco Santander and certain companies belonging to Grupo Santander, about 8% of the share capital of Banco Santander. As reported by Banco Santander Spain, is the intention of Grupo Santander the record is used to: (i) allow greater flexibility to the Santander Group in relation to the fulfillment of its commitment to deliver about 5% of its shareholding in Banco Santander on the terms of the exchangeable securities issued; and (ii) comply with the commitment of Santander Spain to reach a free float of 25% in Banco Santander before October, 2012 (or subject to an agreement with BM&FBOVESPA, before October 2014), when market conditions are appropriate. No registration with the CVM public offering of securities in Brazil was requested. On 9 January, 2012 the GES transferred to Santander Spain ADRs representing approximately 5.18% of the capital of Santander Brasil, in an internal reorganization at the Santander Group, for the transfer of approximately 4.41% of the capital of Santander Brasil to a third party that will deliver the same share to investors in the exchangeable securities issued by Santander Spain in October 2010 when due and as provided in such securities. The exchangeable securities issued by Santander Spain has been the subject of a Material Fact dated October 29, 2010. As a result of these transfers Santander Spain, directly or indirectly, now holds 78.14% of voting capital and 76.97% of the total capital of Santander Brasil, and the free float rose to 22.75% of total capital. d) Related-Party Transactions Transactions among the entities of Banco Santander are carried out under usual market value, rates and terms, and under commutative condition. Santander has the Policy on Related Party Transactions approved by theBoardof Directors, which aim to ensure that all transactions are made on the policy typified in view the interests of Banco Santander and its shareholders. The policy defines powers to approve certain transactions by the Board of Directors. The rules laid down are also applied to all employees and directors of Banco Santander and its subsidiaries. The operations and remuneration of services with related parties are made in the ordinary course of business and under reciprocal conditions, including interest rates, terms and guarantees, and involve no greater risk than the normal billing or have other disadvantages.
The principal transactions and balances are as follows:
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | The principal transactions and balances are as follows: | | Thousands of Reais | | 2011 | | | 2010 | | | Parent(1) | Joint-controlled companies | Other Related-Party(2) | Parent(1) | Joint-controlled companies | Other Related-Party(2) | |
|
| Assets | | | | | | | Trading derivatives, net | (25,639) | - | (442,496) | 35,513 | - | (125,147) | Banco Santander, S.A. – Spain | (25,639) | - | - | 35,513 | - | - | Santander Benelux, S.A., N.V. | - | - | (308,821) | - | - | (118,521) | Abbey National Treasury Services Plc | - | - | (39,102) | - | - | (33,076) | Real Fundo de Investimento Multimercado Santillana Credito Priv | - | - | (94,573) | - | - | 26,450 | Loans and amounts due from credit institutionso - Cash and | | | | | | | overnight operations in foreign currency | 227,724 | - | 1,097 | 4,245,332 | - | 729 | Banco Santander, S.A. – Spain(3) | 227,724 | - | - | 4,245,332 | - | - | Banco Santander Totta, S.A. | - | - | 1,097 | - | - | 729 | Loans and amounts due from credit institutions - Others | 95,539 | 822,928 | 266,568 | 16,922 | 269,667 | 279,535 | Banco Santander, S.A. – Spain | 95,539 | - | - | 16,922 | - | - | Santander Benelux, S.A., N.V. | - | - | 262,818 | - | - | 258,261 | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 822,606 | - | - | 263,559 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | 322 | - | - | 6,108 | - | Abbey National Treasury Services Plc | - | - | 1,369 | - | - | 18,817 | Santander Overseas Bank, Inc – Puerto Rico | - | - | 2.381 | - | - | 2.457 | Other Assets | 5,438 | 615 | 383,871 | 27,090 | 795 | - | Banco Santander, S.A. – Spain | 5,438 | - | - | 27,090 | - | - | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 615 | - | - | 529 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | - | - | - | 266 | - | Santander Seguros | - | - | 326,637 | - | - | - | Others | - | - | 57,234 | - | - | - | | Liabilities | | | | | | | Deposits from credit institutions | (1,200,207) | (15,213) | (171,371) | (2,167,452) | (76,340) | (1,940,158) | Banco Santander, S.A. – Spain(4) | (1,200,207) | - | - | (2,167,452) | - | - | Grupo Banesto: Sociedades consolidables | - | - | (167,081) | - | - | (75,477) | Banco Madesant - Sociedade Unipessoal, S.A.(5) | - | - | - | - | - | (1,857,963) | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | (10,348) | - | - | (73,270) | - | Companhia de Arrendamento Mercantil RCI Brasil | - | (4,865) | - | - | (3,070) | - | Others | - | - | (4,290) | - | - | (6,718) | Customer deposits | - | - | (422,753) | - | - | (375,869) | ISBAN Brasil S.A. | - | - | (110,341) | - | - | (129,500) | Produban Serviços de Informática S.A. | - | - | (47,970) | - | - | (43,439) | Universia Brasil S.A. | - | - | (310) | - | - | (3,218) | Real Fundo de Investimento Multimercado Santillana Credito Priv | - | - | (223,367) | - | - | (198,236) | Fundo de Investimento Multimercado Menorca Crédito Privado | - | - | (31,062) | - | - | - | Others | - | - | (9,703) | - | - | (1,476) | Other Liabilities - Dividends and Bonuses Payable | (908,004) | - | (3,615) | (1,703,847) | - | (1,037) | Banco Santander, S.A. – Spain(4) | (7,772) | - | - | - | - | - | Grupo Empresarial Santander, S.L.(1) | (379,617) | - | - | (726,925) | - | - | Santander Insurance Holding, S.L. | - | - | (553) | - | - | (1,037) | Sterrebeeck B.V.(1) | (520,615) | - | - | (976,922) | - | - | Banco Madesant - Sociedade Unipessoal, S.A. | - | - | (3,062) | - | - | - | Other Payables | (3,972) | - | (85,979) | (6,353) | - | (52,586) | Banco Santander, S.A. – Spain | (3,972) | - | - | (6,353) | - | - | Santander Insurance Holding, S.L. | - | - | (9,257) | - | - | (52,358) | Santander Seguros | - | - | (74,772) | - | - | - | Others | - | - | (1,950) | - | - | (228) |
| | | | | | | | | | | | | Thousands of Reais | | 2009 | | | 2008 | | | | | | | | | | | | | | | | | controlled | | | | | | controlled | | | | | | | companies | | | Related-Party | | | companies | | | Related-Party | | | Assets | | | | | | | | | | | | | Cash and balances with the Brazilian Central Bank (1) | | | - | | | | 295,448 | | | | - | | | | 714,127 | | Banco Santander, S.A. – Spain | | | - | | | | 294,539 | | | | - | | | | 713,858 | | Other | | | - | | | | 909 | | | | - | | | | 269 | | Loans and advances to credit institutions (2) | | | 335,849 | | | | 994,019 | | | | 455,844 | | | | 10,605,899 | | Banco Santander, S.A. – Spain | | | - | | | | 994,019 | | | | - | | | | 3,605,118 | | Abbey National Treasury Services Plc | | | - | | | | - | | | | - | | | | 4,674,000 | | Santander Benelux, S.A., N.V. | | | - | | | | - | | | | - | | | | 2,326,781 | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | 298,095 | | | | - | | | | 380,808 | | | | - | | Companhia de Arrendamento Mercantil RCI Brasil | | | 37,754 | | | | - | | | | 75,036 | | | | - | | Trading derivatives | | | - | | | | 953,243 | | | | - | | | | 1,501,689 | | Santander Benelux, S.A., N.V. | | | - | | | | 891,133 | | | | - | | | | 1,472,414 | | Santander Overseas Bank, Inc – Puerto Rico | | | - | | | | - | | | | - | | | | 28,858 | | Other | | | - | | | | 62,110 | | | | - | | | | 417 | | Other Assets | | | 218 | | | | 142 | | | | 111 | | | | 125,237 | | Banco Santander, S.A. – Spain | | | - | | | | 115 | | | | - | | | | 1,924 | | Santander Seguros S.A. | | | - | | | | - | | | | - | | | | 115,720 | | Santander Brasil Seguros S.A. | | | - | | | | - | | | | - | | | | 4,539 | | Santander Capitalização S.A. | | | - | | | | - | | | | - | | | | 3,054 | | Other | | | 218 | | | | 27 | | | | 111 | | | | - | | | Liabilities | | | | | | | | | | | | | | | | | Trading derivatives | | | - | | | | (1,037,799 | ) | | | - | | | | (1,667,390 | ) | Banco Santander, S.A. – Spain | | | - | | | | - | | | | - | | | | (160,648 | ) | Santander Benelux, S.A., N.V. | | | - | | | | (957,392 | ) | | | - | | | | (1,468,981 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | - | | | | - | | | | - | | | | (2,232 | ) | Abbey National Plc | | | - | | | | - | | | | - | | | | (35,529 | ) | Abbey National Treasury Plc | | | - | | | | (24,028 | ) | | | - | | | | - | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | - | | | | (55,891 | ) | | | - | | | | - | | Other | | | - | | | | (488 | ) | | | - | | | | - | | Deposits from credit institutions | | | (15,142 | ) | | | (3,551,162 | ) | | | (40,229 | ) | | | (5,471,056 | ) | Banco Santander, S.A. – Spain | | | - | | | | (2,705,728 | ) | | | - | | | | (4,071,725 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | - | | | | - | | | | - | | | | (1,153,129 | ) | Banco Español de Crédito, S.A. – Banesto | | | - | | | | - | | | | - | | | | (240,852 | ) | Grupo Banesto: Sociedades consolidables | | | - | | | | (157,283 | ) | | | - | | | | - | | Abbey National Treasury Services Plc | | | - | | | | (387,616 | ) | | | - | | | | - | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | - | | | | (192,139 | ) | | | - | | | | - | | Fundo de Investimento Multimercado Menorca Crédito Privado | | | - | | | | (106,490 | ) | | | - | | | | - | | Companhia de Arrendamento Mercantil RCI Brasil | | | (2,626 | ) | | | - | | | | (25,589 | ) | | | - | | Other | | | (12,516 | ) | | | (1,906 | ) | | | (14,640 | ) | | | (5,350 | ) | Customer deposits | | | - | | | | (1,832 | ) | | | (85,198 | ) | | | (120,400 | ) | Produban Serviços de Informática S.A. | | | - | | | | - | | | | - | | | | (35,438 | ) | Santander Seguros S.A. | | | - | | | | - | | | | - | | | | (8,094 | ) | ISBAN S.A. | | | - | | | | - | | | | - | | | | (73,153 | ) | Cia Brasileira de Soluções e Serviços – CBSS | | | - | | | | - | | | | (67,225 | ) | | | - | | Celta Holdings Ltda | | | - | | | | - | | | | (1,686 | ) | | | - | | Tecnologia Bancária – TECBAN | | | - | | | | - | | | | (16,280 | ) | | | - | | Other | | | - | | | | (1,832 | ) | | | (7 | ) | | | (3,715 | ) | Subordinated liabilities | | | - | | | | (1,667,219 | ) | | | - | | | | - | | Banco Santander, S.A. – Spain | | | - | | | | (1,667,219 | ) | | | - | | | | - | | Other Liabilities - Dividends and Bonuses Payable | | | - | | | | (1,392,079 | ) | | | - | | | | (1,352,252 | ) | Grupo Empresarial Santander, S.L. | | | - | | | | (570,414 | ) | | | - | | | | (567,344 | ) | Santander Insurance Holding, S.L. | | | - | | | | (81,701 | ) | | | - | | | | - | | Sterrebeeck B.V. | | | - | | | | (739,683 | ) | | | - | | | | (784,892 | ) | Others | | | - | | | | (281 | ) | | | - | | | | (16 | ) | Other Payables | | | - | | | | (9,266 | ) | | | (7,925 | ) | | | (40,534 | ) | Banco Santander, S.A. – Spain | | | - | | | | (9,266 | ) | | | - | | | | (12,075 | ) | Ingeniería de Software Bancario, S.L | | | - | | | | - | | | | - | | | | (14,479 | ) | ISBAN S.A. | | | - | | | | - | | | | - | | | | (6,368 | ) | Altec, S.A. – Chile | | | - | | | | - | | | | - | | | | (4,395 | ) | Produban Serviços de Informática S.A. | | | - | | | | - | | | | - | | | | (3,084 | ) | Other | | | - | | | | - | | | | (7,925 | ) | | | (133 | ) |
Table of Contents(1) Comprised of cash balances that did not bear interest. | | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
(2) | | | | Thousands of Reais | Parent(1) | 2009Joint-controlled companies | Other Related-Party(2) | |
|
|
| Assets | | | | Trading derivatives, net | 35,331 | - | (84,068) | Banco Santander, S.A. – Spain | 35,331 | - | - | Santander Benelux, S.A., N.V. | - | - | (66,259) | Abbey National Treasury Services Plc | - | - | (24,028) | Others | - | - | 6,219 | Loans and amounts due from credit institutionso - Cash and overnight operations in foreign currency | - | - | 909 | Banco Santander Totta, S.A. | - | - | 901 | Others | - | - | 8 | Loans and amounts due from credit institutions - Others | - | 335,526 | - | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 297,772 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | 37,754 | - | Other Assets | 115 | 541 | 27 | Banco Santander, S.A. – Spain | 115 | - | - | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 323 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | 218 | - | Others | - | - | 27 | | Liabilities | | | | Deposits from credit institutions | (2,741,547) | (15,142) | (546,805) | Banco Santander, S.A. – Spain(4) | (2,741,547) | - | - | Grupo Banesto: Sociedades consolidables | - | - | (157,283) | Abbey National Beta Investments Limited | - | - | (387,616) | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | (12,516) | - | Others | - | (2,626) | (1,906) | Customer deposits | - | - | (455,733) | ISBAN Brasil S.A. | - | - | (112,134) | Produban Serviços de Informática S.A. | - | - | (43,138) | Real Fundo de Investimento Multimercado Santillana Credito Privado | - | - | (192,139) | Fundo de Investimento Multimercado Menorca Crédito Privado | - | - | (106,506) | Others | - | - | (1,816) | Other Liabilities - Dividends and Bonuses Payable | (1,310,097) | - | (81,701) | Grupo Empresarial Santander, S.L.(1) | (570,414) | - | - | Santander Insurance Holding, S.L. | - | - | (81,701) | Sterrebeeck B.V.(1) | (739,683) | - | - | Other Payables | (9,266) | - | (60,203) | Banco Santander, S.A. – Spain | (9,266) | - | - | Santander Insurance Holding, S.L. | - | - | (59,922) | Others | - | - | (281) |
(*) All loans and amounts to related parties were made in our ordinary course of business and on substantially the same terms,sustainable basis, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features. (1) Banco Santander (Brasil) S.A. is indirectly controlled by Banco Santander Spain (note 1-a), through its subsidiary Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. (2) Refers to the Company's subsidiaries (Banco Santander, S.A .- Spain). (3) In 2011, includes cash (2010 - R$315,203). In 2010, refers to overnight operations in foreign currency, amounting R$3,930,129 with interest of 0.22% p.a. and 2009 - R$ 993,768 thousand with interest of 0.07% p.a. (4) In 2011, refers to fund raising operations through transfers abroad amounting R$1,200,207 thousand with maturity until January 2015 and interest between 0.39% and 5.82% p.a. In 2010, includes raising funds through operations overseas transfers totaling R$1,995,608 thousand with maturity date until January 2015 and interest between 0.25% and 7.89% p.a. (2009 - R$2,663,465 thousand with maturity until July 2014 and interest between 0.43% and 6.8% p.a.). (5) In 2010, refers to raising funds through time deposits with maturity on February 28, 2011 and interest of R$1.76% p.a.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | | | | Thousands of Reais | Parent(1) | 2011Joint-controlledcompanies | Other Related-Party(2) | Parent(1) | 2010Joint-controlled companies | Other Related- Party(2) | |
|
|
| Income | | | | | | | Interest and similar income - Loans and amounts due fromcredit institutions | 5,046 | 50,771 | 267 | 2,384 | 39,395 | 1,029 | Banco Santander, S.A. – Spain | 5,046 | - | - | 2,384 | - | - | Abbey National Treasury Services Plc | - | - | 14 | - | - | 1,029 | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 50,771 | - | - | 38,545 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | - | - | - | 850 | - | Santander Benelux, S.A., N.V. | - | - | 253 | - | - | - | Interest expense and similar charges - Customer deposits | - | - | (37,974) | - | - | (28,827) | ISBAN Brasil S.A. | - | - | (10,551) | - | - | (9,359) | Produban Serviços de Informática S.A. | - | - | (3,841) | - | - | (2,736) | Real Fundo de Investimento Multimercado Santillana Credito Priv | - | - | (21,777) | - | - | (16,166) | Others | - | - | (1,805) | - | - | (566) | Interest expense and similar charges - Deposits from creditinstitutions | (15,311) | (620) | (5,044) | (47,134) | (526) | (32,676) | Banco Santander, S.A. – Spain | (15,311) | - | - | (47,134) | - | - | Abbey National Beta Investments Limited | - | - | - | - | - | (7,415) | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | (620) | - | - | (526) | - | Banco Madesant - Sociedade Unipessoal, S.A. | - | - | (5,013) | - | - | (25,143) | Others | - | - | (31) | - | - | (118) | Expense and similar charges - Marketable debt securities | (1,789) | - | - | - | - | - | Banco Santander, S.A. – Spain | (1,789) | - | - | - | - | - | Fee and commission income (expense) | (14,820) | 13,262 | 56,224 | 73,975 | 6,770 | 9,449 | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 10,118 | - | - | 6,327 | - | Banco Santander, S.A. – Spain | (14,820) | - | - | 73,975 | - | - | Aviación Antares, A.I.E. | - | - | - | - | - | 9,449 | Aviación Centaurus, A.I.E. | - | - | 11,928 | - | - | - | Santander Seguros | - | - | 35,785 | - | - | - | Others | - | 3,144 | 8,511 | - | 443 | - | Gains (losses) on financial assets and liabilities (net) and exchange differences (net) | (245,096) | 6,522 | 505,726 | (44,953) | - | (42,090) | Banco Santander, S.A. – Spain | (245,096) | - | - | (44,953) | - | - | Santander Benelux, S.A., N.V. | - | - | (38,238) | - | - | 32,489 | Santander Overseas Bank, Inc – Puerto Rico | - | - | 160 | - | - | 188 | Fundo de Investimento Multimercado Santillana Cred. Privado | - | - | (342,975) | - | - | (86,572) | Abbey National Treasury Services Plc | - | - | (91,726) | - | - | 14,763 | Santander Investment Securities Inc. | - | - | (11,714) | - | - | - | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 6,522 | - | - | - | - | Others | - | - | (21,233) | - | - | (2,958) | Administrative expenses and Amortization | (152) | - | (256,681) | - | - | (226,127) | ISBAN Brasil S.A. | - | - | (54,104) | - | - | (50,320) | Produban Serviços de Informática S.A. | - | - | (103,991) | - | - | (108,741) | ISBAN Chile S.A. | - | - | (4,814) | - | - | (5,491) | Aquanima Brasil Ltda. | - | - | (21,500) | - | - | (21,256) | Ingeniería de Software Bancario, S.L. | - | - | (32,209) | - | - | (19,722) | Produban Servicios Informaticos Generales, S.L. | - | - | (23,629) | - | - | (15,868) | Santander Seguros | - | - | (89) | - | - | - | Zurich Santander Insurance America, S.L. | - | - | (12,151) | - | - | - | Others | (152) | - | (4,194) | - | - | (4,729) | Gains (losses) on non-current assets held for sale not classified as discontinued operations | - | - | 424,292 | - | - | - | Zurich Santander Insurance America, S.L. | - | - | 424,292 | - | - | - |
| | | | | | | | | | | | | Income | | | | | | | | | | | | | Interest and similar income - Loans and advances to credit institutions | | | 40,034 | | | | 4,950 | | | | 6,167 | | | | 33,348 | | Banco Santander, S.A. – Spain | | | - | | | | 2,463 | | | | - | | | | 23,911 | | Abbey National Treasury Services Plc | | | - | | | | 2,487 | | | | - | | | | 9,437 | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | 33,674 | | | | - | | | | 3,947 | | | | - | | Companhia de Arrendamento Mercantil RCI Brasil | | | 6,360 | | | | - | | | | 2,220 | | | | - | | Interest expense and similar charges - Customer deposits | | | (7,233 | ) | | | (12,039 | ) | | | (8,153 | ) | | | (10,374 | ) | Produban Serviços de Informática S.A. | | | - | | | | - | | | | - | | | | (2,654 | ) | ISBAN S.A. | | | - | | | | - | | | | - | | | | (7,445 | ) | Fundo de Investimento Multimercado Menorca Crédito Privado | | | - | | | | (11,940 | ) | | | - | | | | - | | Companhia de Arrendamento Mercantil RCI Brasil | | | (6,379 | ) | | | - | | | | (8,153 | ) | | | - | | Other | | | (854 | ) | | | (99 | ) | | | - | | | | (275 | ) | Interest expense and similar charges - Deposits from credit institutions | | | (400 | ) | | | (125,466 | ) | | | - | | | | (552,897 | ) | Banco Santander, S.A. – Spain | | | - | | | | (100,574 | ) | | | - | | | | (439,379 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | - | | | | (9,062 | ) | | | - | | | | (50,406 | ) | Banco Español de Crédito, S.A. – Banesto | | | - | | | | - | | | | - | | | | (12,263 | ) | Banco Santander, S.A. – Chile | | | - | | | | - | | | | - | | | | (50,838 | ) | Grupo Banesto: Sociedades consolidables | | | - | | | | (1,131 | ) | | | - | | | | - | | Abbey National Treasury Services Plc | | | - | | | | (1,869 | ) | | | - | | | | - | | Cia Brasileira de Soluções e Serviços – CBSS | | | - | | | | (4,821 | ) | | | - | | | | - | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | - | | | | (7,922 | ) | | | - | | | | - | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | (400 | ) | | | - | | | | - | | | | - | | Other | | | - | | | | (87 | ) | | | - | | | | (11 | ) | Gains/losses on financial assets and liabilities | | | - | | | | (468,098 | ) | | | - | | | | (675,087 | ) | Banco Santander, S.A. – Spain | | | - | | | | - | | | | - | | | | (295,815 | ) | Santander Benelux, S.A., N.V. | | | - | | | | (320,972 | ) | | | - | | | | (349,805 | ) | Santander Overseas Bank, Inc – Puerto Rico | | | - | | | | (6,001 | ) | | | - | | | | 24,145 | | Fundo de Investimento Multimercado Menorca Crédito Privado | | | - | | | | 46,023 | | | | - | | | | - | | Fundo de Investimento Multimercado Santillana Cred. Privado | | | - | | | | (182,833 | ) | | | - | | | | - | | Other | | | - | | | | (4,315 | ) | | | - | | | | (53,612 | ) | Other income expenses | | | 6,861 | | | | (188,209 | ) | | | - | | | | (175,929 | ) | Banco Santander, S.A. – Spain | | | - | | | | (83,843 | ) | | | - | | | | 15,511 | | Santander Seguros S.A. | | | - | | | | (475 | ) | | | - | | | | 1,078 | | Santander Capitalização S.A. | | | - | | | | 13,351 | | | | - | | | | 35,054 | | ISBAN S.A. | | | - | | | | - | | | | - | | | | (95,552 | ) | Altec, S.A. – Chile | | | - | | | | (7,805 | ) | | | - | | | | (2,837 | ) | Aquanima Brasil Ltda. | | | - | | | | (22,239 | ) | | | - | | | | (16,095 | ) | Ingeniería de Software Bancario, S.L. | | | - | | | | (24,900 | ) | | | - | | | | (19,857 | ) | Santander Investment Securities Inc. | | | - | | | | (44,757 | ) | | | - | | | | - | | Companhia de Crédito, Financiamento e Investimento RCI Brasil | | | 6,134 | | | | - | | | | - | | | | - | | Other | | | 727 | | | | (17,541 | ) | | | - | | | | (93,231 | ) | Gains on disposal of assets not classified as non-current assets held for sale | | | - | | | | 2,376,460 | | | | - | | | | - | | Santusa Holding, S.L. | | | - | | | | 2,376,460 | | | | - | | | | - | |
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
| | | | Thousands of Reais | Parent(1) | 2009Joint-controlled companies | Other Related-Party(2) | |
|
|
| Income | | | | Interest and similar income - Loans and amounts due from | | | | credit institutions | 2,463 | 40,034 | 2,487 | Banco Santander, S.A. – Spain | 2,463 | - | - | Abbey National Treasury Services Plc | - | - | 2,487 | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 33,674 | - | Companhia de Arrendamento Mercantil RCI Brasil | - | 6,360 | - | Interest expense and similar charges - Customer deposits | - | - | (39,482) | ISBAN Brasil S.A. | - | - | (8,112) | Produban Serviços de Informática S.A. | - | - | (4,820) | Real Fundo de Investimento Multimercado Santillana Credito Privado | - | | (7,922) | Fundo de Investimento Multimercado Menorca Crédito Privado | - | - | (11,940) | Cia Brasileira de Soluções e Serviços – CBSS | - | - | (5,051) | Others | - | - | (1,637) | Interest expense and similar charges - Deposits from credit institutions | (240,448) | (7,630) | (12,156) | Banco Santander, S.A. – Spain | (240,448) | - | - | Santander Overseas Bank, Inc – Puerto Rico | - | - | (9,062) | Abbey National Beta Investments Limited | - | - | (1,869) | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | (1,253) | - | Companhia de Arrendamento Mercantil RCI Brasil | - | (6,377) | - | Banco Madesant - Sociedade Unipessoal, S.A. | - | - | - | Others | - | - | (1,225) | Fee and commission income (expense) | 20,963 | 6,861 | 13,407 | Companhia de Crédito, Financiamento e Investimento RCI Brasil | - | 6,134 | - | Banco Santander, S.A. – Spain | 20,963 | - | - | Santander Capitalização | - | - | 12,597 | Others | - | 727 | 810 | Gains (losses) on financial assets and liabilities (net) | 51,758 | 2 | (512,920) | Banco Santander, S.A. – Spain | 51,758 | - | - | Santander Benelux, S.A., N.V. | - | - | (320,972) | Santander Overseas Bank, Inc – Puerto Rico | - | - | (6,001) | Fundo de Investimento Multimercado Menorca Crédito Privado | - | - | 46,022 | Fundo de Investimento Multimercado Santillana Cred. Privado | - | - | (182,833) | Abbey National Treasury Services Plc | - | - | (2,836) | Santander Investment Securities Inc. | - | - | (44,757) | Others | - | 2 | (1,543) | Administrative expenses and Amortization | - | - | (211,796) | ISBAN Brasil S.A. | - | - | (42,061) | Produban Serviços de Informática S.A. | - | - | (99,548) | Aquanima Brasil Ltda. | - | - | (22,239) | Ingeniería de Software Bancario, S.L. | - | - | (20,689) | Produban Servicios Informaticos Generales, S.L. | - | - | (15,318) | Others | - | - | (11,941) | Gains on disposal of assets not classified as non-current assets held for sale | - | - | 2,376,460 | Santusa Holding, S.L. | - | - | 2,376,460 |
(1) Banco Santander (Brasil) S.A. is indirectly controlled by Banco Santander Spain (note 1-a), through its subsidiary Grupo Empresarial Santander, S.L. and Sterrebeeck B.V. (2) Refers to the Company's subsidiaries (Banco Santander, S.A .- Spain). 44. Risk management Risk management at the Santander Brazil follow that same principles that are set at the Group level: • Independence of the risk function with respect to the business. The head of the Bank’s Risk Division, reports directly to the executive committee and the board. The local risk unit keeps its independence with a direct report to the Corporate risk Unit. • Commitment to supporting the business by contributing, without undermining the preceding principle, to the achievement of commercial objectives whilst safeguarding risk quality. To this end, the risk organizational structure is adapted to the commercial structure so as to encourage cooperation between business and risk managers. • Collective decisions (even at branch level), which ensure that different opinions are taken into account and avoid situations in which decisions are taken individually. • Well-established tradition of using internal rating and statistical tools to predict delinquency , internal rating, credit scoring tools,and scoring Behavior, return on risk-adjusted capital (RORAC), value-at-risk (VaR), economic capital, extreme scenario analyses, etc. • Global approach, achieved by addressing on an integrated basis all the risk factors in all the business units and geographical locations, and using the concept of economic capital as a consistent measure of the risk assumed and as the basis for assessing the management performed.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• Desire to continue to targetMaintenance of a medium-low risk profile, emphasizing itsand low volatility and its predictability, by: - seeking to achieve a high degree of risk diversification, thus limiting risk concentration on particular customers, groups, sectors, products or geographical locations; - maintaining a low level of complexity in Markets operations; - paying ongoing attention to risk monitoring in order to prevent potential portfolio impairment sufficiently in advance. At Santander Brazil,Bank, the risk management and control process has been structured using as reference the framework defined at corporate level and described according to the following phases: • Adaptation of corporate risk management frameworks and policies that reflect Group Santander’s risk management principles. Santander BrazilThe Bank adopts a series of risk policies and procedures that constitute its regulatory framework, which, taking the form of circulars, frameworks (formerly the Risk Management Policy Manuals)policies and operating rules, regulates the risk activities and processes. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Within this regulatory framework, the Corporate Risk Management Framework, approved by Senior Management (Risks), regulates the principles and standards governing the general modus operandi of the Santander Brazil´s risk activities, based on the corporate organizational and a management models. One of the main characteristics of this Corporate Risk Management Framework is that it leads to the regulation, through a series of more specific corporate frameworks, of the functions reporting to the Risk Unit. The organizational model comprises the management map, the risk function and governance, and the regulatory framework itself. The management model contains the basic pillars for risk management, the channels for the planning and setting of targets, the budgeting and risk limit setting process, the control of operations, the framework for risk reporting to senior management and the technological reference model for risk management. • Identification of risks, through the constant review and monitoring of exposures, the assessment of new products and businesses and the specific analysis of singular transactions; • Measurement of risks using extensivelyperiodically tested methods and models; • Preparation and distribution of a complete set of reports that are reviewed daily by the heads at all levels of Santander management. Implementation of a risk control system which checks, on a daily basis, the degree to which Santander Brazil´Bank´s risk profile matches the risk policies approved and the risk limits set. The most noteworthy corporate tools and techniques (abovementioned) already in use in Santander Bank are in different stages of maturity regarding the level of implementation and use in Santander Brazil.Bank. For wholesale segment, these techniques are quite in line with the corporate level development. For local segments, internal ratings and scorings based models, VaR and market risk scenario analysis and stress testing have been already embeddedembbebed in risk management routine while Expected loss, Economic Capital and RORAC have been recently started. integrated in risk management.• Internal ratings- and scorings-based models which, by assessing the various qualitative and quantitative risk components by customer and transaction, make it possible to estimate, firstly, the probability of default and, subsequently, the expected loss, based on LGD estimates. • Economic capital, as a homogeneous measure of the risk assumed and a basis for the measurement of the management performed. • RORAC, which is used both as a transaction pricing tool (bottom-upin the whole sale segment, more precisely in global ranking and markets(bottom-up approach) and in the analysis of portfolios and units (top-down approach). • VaR, which is used for controlling market risk and setting the market risk limits for the various tradingtreasury portfolios. • Scenario analysis and stress testing to supplement market and credit risk analyses in order to assess the impact of alternative scenarios, even on provisions and capital. Santander BrazilThe Bank intends to use the internal Models for the calculation of regulatory capital (regulatory) and for this has agreed a timetable with the homelocal supervisor. This plan is currently under revision due to the Banco Real´s acquirement. Notwithstanding, the Santander BrazilThe Bank has defined a Basel2 governance structure and has assigned for this purpose, all the necessary human and technology resources necessary to meet the stringent requirements established by the Bankregulators. a) Corporate Governance of Spain, the supervisory authority responsible for the validation of these internal models in the Santander Group. It is also important to mention that this Basel2 governance structure is also responsible to incorporate the local regulator requirements and assures the compliance with these requirements. I. CORPORATE GOVERNANCE OF THE RISK FUNCTION
Risk FunctionThe risk committee framework forof Santander Brazil is set based on corporate risk standards. The executivestandards and are structured by type of business and risk committees havesegment. Brazil Executive Risk Committee (Comitê Executivo de Riscos Brasil) has their level of approvals delegated by the risk committee at Santander Bank, an executive body that adopts decisions within the scopeRisk Committee of the powers delegated by the board, is presided over by the third deputy chairman of the Banco Santander in Spain and also comprises a further four directors ofhas the Bank. The Executive committees are responsiblefollowing responsibilities: - Integrate and adapt the risk functions in Santander, the strategy, the arrangements for ensuring that the local risk policies are implemented and ensures that the Santander Brazil´s activities are consistent with its risk tolerance level, for the main risk exposures approvedaccordingly to existing corporate standards. - Approve proposals and operations and limits customers and portfolios. - Set references on general themes related to Market Risk, Country Risk, wholesale segment customers (including a global relationship) and retail themes (Credit Management Programs). - Keep informed, evaluate and follow any comments and recommendations that may be made periodically by Banco Santander. Those exposures are systematically reviewed and presented to these committees that also decide upon any transactions that exceed the powers delegated to lower-ranking bodies. The executive risk committee is also responsible for advising the Group Risk Committee about the proposals that exceedsupervisors in discharging its level of approval. The executive risk committees take place on weekly basis evidencing the importancefunctions;- Ensure that the performance of Santander Brazil attaches to the proper management of its risks. The responsibilities assigned to the executive risk committee are essentially as follows:
• To ensure to the Senior Management of the Bank, that the local policies are implemented and followed in accordance with the corporate standards including:
- The various types of risk (financial, operational, technological, legal and reputational, inter alia) facing the Bank;
- The information and internal control systems to be used to control and manage these risks;
- The level of risk deemed acceptable by the Bank;
- The measures envisaged to mitigate the impact of the identified risks in the event that they materialize;
- To conduct systematic reviews of the Bank’s exposure to its main customers, economic activity sectors, geographical areas and types of risk.
• To authorize the local management tools and risk models and ascertain the result of their internal validation.
• To ensure that the Santander Brazil´s actions areis consistent with the level of risk tolerance, previously approved at group level.
• To be informed of, assess and follow any remarks and recommendations that may be periodically made by the supervisory authorities in discharging their function.
• To resolve transactions outsideExecutive Committee and Council, and aligned with the powers delegated to lower-ranking bodiespolicies of the Santander Group;- Authorize the use of management tools and models of local risks and know the overall limits for pre-classified risk categories in favor of economic groups or in relation to exposure by type of risk. The executive risk committee has delegated certainresult of its powers to risk committees which are structured by, business line, type and segment of risk. internal validity.The risk function at the Santander BrasilBank is performed through an Executive Risk Unit, which is independent from the business areas from both a hierarchical and a functional standpoint. This Executive Risk Unitstandpoint, and reports directly reports to the CEOPresident of Santander and the Director of Corporate Risk Group Santander. More details of the Santander Brazilstructure, methodology and control system related to risk management is described in the Head of Risk of Santander Bank.report, available on the site www.santander.com.br.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
b)Credit Risk
In Santander Brazil the Executive Risk Unit has divided into two blocks:
- A control and methodology structure, which adapts the risk policies, methodologies and control systems and consists of several units organized by type of risk (solvency, market risks and methodology).
- A business structure, centered on the performance and management integration of the risk function in the Santander Brazil´s retail, corporate and wholesale businesses. There are specific areas for each of these businesses, a Collection area and a socio environmental risk analysis area.
Additionally, there is a specific area named “Governance and Regulation”, which is responsible for assuring that the risk governance model works and that it is adherent to the local and international regulation.
Santander Brazil follows the same risk policy of Banco Santander Spain that is oriented towards maintaining a predictable medium-low risk profile, as regards both credit and market risks. Following is an analysis of the Bank’s main types of risk: credit, market, operational and reputational risks.
II – CREDIT RISK
1.b.1) Introduction to the treatment of credit risk
The Bank develops Credit Risk Management policies and strategies with the support of several business departments, which are responsible for guaranteeing the appropriate validation of the systems and internal procedures applied in the credit risk ismanagement. These systems and procedures are applied to the identification, measurement, control, and mitigation of exposure to loss stemming fromcredit risk, by individual transaction or aggregate of similar transactions. The goal is to maintain a risk profile and adequate minimum return that outweighs the total or partial failurerisk of our customers or counterparties to meet their financial obligations todefault and estimated customer and portfolio, as defined by the Bank. Credit Risk management seeks to provide credit to help in defining strategies, in addition to setting limits, including review of exhibitions and trends as well the effectiveness of credit policy. Executive Committee.The specialization of the Bank’s risk function is based on the type of customer and, accordingly, a distinction is made between individualized customers and standardized customers in the risk management process: • Individualized customers are defined as those to which a risk analyst has been assigned, basically because ofCustomers with individual management: Customers with individual management: the risk assumed. This category includes wholesale bankingsegment customers, financial institutions and certain enterprises belonging to retail banking.companies. Risk management is performedimplemented through an analysis supplemented by decision-making support tools based on internal risk assessment models. • Standardized customers are those which have not been expressly assigned a risk analyst. This category generally includesanalyst set. The client is linked to risk analyst who prepares the analysis, the Committee directs and monitors the progress of the client.• Customers with standardized management: individuals individual entrepreneurs, and retail banking enterprisescompanies not classified as individualized customers. Managementindividual clients. The management of these risks isthis risk models based on internalautomated decision-making and risk assessment of local risks, complemented by commercial competencies and automatic decision-making models, supplemented subsidiarily, when the model is not comprehensive enough or is not sufficiently accurate, by teams of analysts specializingto handle exceptions. Collection of documentation and information necessary for a comprehensive analysis of the risk involved, the identification of the decision-maker, the counterparty, the risk involved in this typethe transactions, the classification of risk. 2. Main aggregatesthe risk level into different categories, credit granting, periodic assessments of risk levels; these procedures are applied by the Bank to determine the volumes of guarantees and variations
allowances necessary so that lending transactions are conducted according to existing standards and with the necessary security. Policies, systems and procedures used are reassessed annually to ensure they are consistent with the risk management requirements and current market scenarios.The profile of the credit risk assumed by the Bank is characterized by a diversified geographical distributiondiversity of clients and the prevalencelarge volume of retail banking operations. a) Map Aspects Macroeconomic and market conditions, as well as sector and geographical concentration, customer profiling, economic prospects are also evaluated and considered in the appropriate measuring of credit risk - 2009
The following table shows the map of credit risk, expressed in nominal amounts (with the exception of exposure in derivatives and repos, which is expressed in credit risk equivalent), to which the Bank was exposed at December 31 2009 (in thousands of Reais).
BANCO SANTANDER - GROSS CREDIT RISK EXPOSURE AS OF DECEMBER 31, 2009 |
| | Sovereign | | | | | | | Customer | Drawable | Fixed | Private Fixed | Credit | Drawable by | Derivatives | | | Draw-Downs | by | Income | Income (Excl. | Institutions | Credit | and Repos | | Change/ | (1) | customers | (Excl. Trad) | Trad) | Drawdowns | Institutions | (CRE) | Total | Dez 08 | 159.361.775 | 77.789.371 | 41.987.587 | 3.043.193 | 36.437.270 | - | 13.972.122 | 332.591.318 | 107,50 % |
(1) it refers to the gross portfolio in the amount of R$138,394,405 thousand plus the balance of guarantees in the amount of R$20,967,370 thousand.
Data as December 31, 2009.
CRE (Credit Risk Equivalent: net replacement value plus maximum potential value. Includes credit risk mitigants).
Balances drawn down by customers exclude repos.
Balances with credit institutions (excluding repos and trading portfolio) include R$ 23,638,345 thousand of deposits at the Brazilian Central Bank.
b) Variations in main aggregates in 2009
The international financial turmoil, initiated in 2nd semester of 2008, had negatively impacted the steady growing of credit risk portfolio observed over the last years in Brazilian financial market. The economic effects such as demand restrictions, decrease on industrial production, unemployment growth and consumption downturn, brought severe restrictions to credit offer and quality deterioration of the existing credit portfolio.
Brazilian Government had adopted two main measures in order to contain the crisis impacts in the credit market, such as, funding maintenance for medium banks and incentive for public banks to increase the credit offer on the local market. As a result, the credit grew 15% on 2009, which represents half of the last year’s growth. Notwithstanding as the last default rates has shown that the credit portfolio quality improved in the last quarter, one can expect better results and optimistic estimates for 2010.
Santander Brazil had proactively acted in twofold ways. From a portfolio perspective, all the credit admission policies were reviewed in order to become more restricted, whilst allowing the choice of clients with profile closer to the corporate credit risk policy.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Once identified signs of enhancements on economic scenario and on Group client’s profile, Santander increased stimulation to credit, as kept active on cases that demand special attention, offering individualized products, such as “Cheque Essencial”, which intends to offer the best between overdraft and installment loans. Santander credit operations grew close to private banks. Default rates increased strongly on 1st semester, reached the highest level on 3rd quarter, and began to fall during the 4th quarter, reaching figures closer to those before the world crisis. Santander increased share on individuals and mortgage to individuals volumes.
Credit Risk Exposure to Customers (*) | Non-Performing Loans Ratio (%) | Impairment Coverage Ratio (%) | Specific Credit Loss Provisions, Net of RAWO (**) (Thousands of Reais) | Cost of Credit (1) (% of Risk) | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 159.361.775 | 164.695.074 | 6,21 | 4,69 | 101,7 | 105,8 | 10.070.479 | 8.181.156 | 7,24 | 4,45 |
Data prepared on the basis of management criteria. Memorandum item Spain for 2009, on basis of controller’s unit accounting criteria.
(*) Includes gross loans and advances to customers, guarantees and documentary credits.
(**) RAWO = Recoveries of Assets Written Off.
c) Distribution of credit risk
The Bank is well diversified within segments and products and concentrates its activities on its core markets. Retail business represents 57% and non-retail 43% of total credit assets.
3.risk.b.2) Measures and measurement tools SantanderThe Bank has used proprietary internal rating models to measure the credit quality of a given customer or transaction. Each rating relates to a certain probability of default or non-payment, determined on the basis of the Entity’s historical experience, with the exception of certain portfolios classified as “low default portfolios”. More than 50 internal ratingRating/Scores models are used in the Bank’s loan approval and risk monitoring process. Global rating tools are applied to the sovereign risk, financial institutions and global wholesale banking segments.clients (GBM). Management of these segments is centralized at Bank level, for both rating calculation and risk monitoring purposes.level. These tools assign a rating to each customer, which is obtained from a quantitative or automatic module, based on balance sheet ratios or macroeconomic variables, supplemented by the analyst’s judgment. For the corporate and individualized institutions segments, the Parent of the Santander Bank hasit was defined a single methodology for the construction of a rating system in each country, based on the same modules as the above-mentioned ratings: a quantitative or automatic module (analyzing the credit performance of a sample of customers and the correlation with their financial statements), a qualitative or analyst judgment module, and final reviews. Ratings assigned to customers are reviewed periodically to include any new financial information available and the experience in the banking relationship. The frequency of the reviews is increased in the case of customers that reach certain levels in the automatic warning systems and of customers classified as requiring special monitoring. The rating tools themselves are also reviewed in order to progressively fine-tune the ratings they provide. For customers with standardized customers,management, both legal entities and individuals, the Bank has scoring tools that automatically assign a score to the proposed transaction transactions.These loan approval systems are supplemented by performance rating models. These tools provide enhanced predictability of the risk assumed and are used for preventive and marketing activities. b) Credit risk parameters The estimates of the risk parameters (PD and LGD) should be based on internal experience, i.e. on default observations and on the experience in defaulted loan recoveries. For low portfolios, such as banks, sovereign risk or global wholesale banking,clients, the parameters are based on CDS market data and with global broadness, using Santander´s world presence. For the other portfolios, parameter estimates are based on the Bank’s internal experience. In retail portfolios, the internal rating is estimated based on models that use client behavior data and available external bureau information; PDs are then calculated based on default rates, which is defined as up to 90 days past due. LGD calculation is based on the observation of the recoveries of defaulted loans, taking into account not only the income and expenses associated with the recovery process, but also the timing thereof and the indirect costs arising from the recovery process. The estimated parameters are then assigned to performing, i.e. non-defaulted, loans. For low-default portfolios, which are managed globally, the assignment process follows the same patterns in all Santander units. By contrast, the retail portfolios have specific scoring systems in each of the Bank’s units, which require the development of separate estimates and the assignation of parameters in a particular manner in each case. F-78
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
In order to achieve equivalent internal ratings in the different models available –corporate, sovereign risk, financial institutions and other segments– and to make them comparable with the external ratings of rating agencies, the Bank has a so-called master rating scale. The equivalence is established through the probability of default associated with each rating. Internally calibrated PDs are compared against the default rates associated with the external ratings, which are published periodically by rating agencies. | | | | | | | | Equivalence with: | | Internal rating | Probabilityof Default | | Standard &Poor's | Moody's | |
9.3 | 0.017% | | AAA | Aaa | 9.2 | 0.018% | | AA+ | Aa1 | 9.0 | 0.022% | | AA | Aa2 | 8.5 | 0.035% | | AA- | Aa3 | 8.0 | 0.06% | | A+ | A1 | 7.5 | 0.09% | | A | A2 | 7.0 | 0.14% | | A- | A3 | 6.5 | 0.23% | | BBB+ | Baa1 | 6.0 | 0.36% | | BBB+ | Baa2 | 5.5 | 0.57% | | BBB- | Baa3 | 5.0 | 0.92% | | BB+ | Ba1 | 4.5 | 1.46% | | BB | Ba2 | 4.0 | 2.33% | | BB/BB- | Ba2/Ba3 | 3.5 | 3.71% | | BB-/BB+ | Ba3/B1 | 3.0 | 5.92% | | B+/B | B1/B2 | 2.5 | 9.44% | | B | B2 | 2.0 | 15.05% | | B- | B3 | 1.5 | 24.00% | | CCC | Caa1 | 1.0 | 38.26% | | CC/C | Caa1/Caa2 | | b.3) Observed loss: measures of cost of credit |
| | Equivalence with | Internal rating | Probability of Default | Standard & Poor’s | Moody’s | 9,3 | 0,017 % | AAA | Aaa | 9,2 | 0,018 % | AA+ | Aa1 | 9,0 | 0,022 % | AA | Aa2 | 8,5 | 0,035 % | AA- | Aa3 | 8,0 | 0,06 % | A+ | A1 | 7,5 | 0,09 % | A | A2 | 7,0 | 0,14 % | A- | A3 | 6,5 | 0,23 % | BBB+ | Baa1 | 6,0 | 0,36 % | BBB | Baa2 | 5,5 | 0,57 % | BBB- | Baa3 | 5,0 | 0,92 % | BB+ | Ba1 | 4,5 | 1,46 % | BB | Ba2 | 4,0 | 2,33 % | BB/BB- | Ba2/Ba3 | 3,5 | 3,71 % | BB-/B+ | Ba3/B1 | 3,0 | 5,92 % | B+/B | B1/B2 | 2,5 | 9,44 % | B | B2 | 2,0 | 15,05 % | B- | B3 | 1,5 | 24,00 % | CCC | Caa1 | 1,0 | 38,26 % | CC/C | Caa1/Caa2 |
d) Distribution of EAD and associated EL
The table below details the distribution, by segment, of the credit risk exposure in terms of EAD. Approximately 60% of total risk exposure to customers (excluding sovereign and counterparty risk and other Assets) relates to the SME and individuals financing segments, which reflects the commercial orientation of the Santander Bank’s business and risks. The expected loss arising from customer exposure is 7,3% of total credit exposure of the Bank (excluding sovereign, counterparty risk and other Assets), which reflects the crisis consequences and effects in the global market.
| Segmentation of credit risk exposure | | | % | Average PD (%) | Average LGD (%) | EL | Public sector | 966 | 0,8 | 3,05 | 74,60 | 22 | Corporate | 44.928 | 35,0 | 3,95 | 19,12 | 361 | SMEs | 20.311 | 15,8 | 9,23 | 69,16 | 1.283 | Mortgage loans to individuals | 5.116 | 4,0 | 2,27 | 40,00 | 47 | Consumer loans to individuals | 47.873 | 37,3 | 10,00 | 67,39 | 2.656 | Credit cards – individuals | 7.751 | 6,0 | 4,29 | 68,30 | 227 | Other assets | 1.528 | 1,2 | - | - | 1 | Total | 128.474 | 100,0 | 5,15 | 31,06 | 4.596 |
Data at December 2009.
Excluding doubtful assets/non-performing loans.
4. Observed loss: measures of cost of credit
To supplement the use of the advanced models described above (see related data in the “Economic Capital” section), other habitual measures are used to facilitate prudent and effective management of credit risk based on observed loss. The cost of credit risk atis mainly measured by performance indicators such as the Bank is measured using different approaches: variation in non-performingthe provision for credit losses, nonperforming loans in the process of recovery process (ending doubtful assets – beginning doubtful assets + assetsand net credits written off – recovery of assets written off), net credit loss provisions (provisions to specific allowances – recovery of assets written off); and net assets written off (assets written off – recovery of assets written off). 5.as losses.b.4) Credit risk cycle The risk management process consists of identifying, measuring, analyzing, controlling, negotiating and deciding on, as appropriate, the risks incurred in the Bank’s operations. The parties involved in this process are the risk taking areas, senior management and the risk function. The process begins at senior management level, through the board of directors and the risk committee, which establishes the risk policies and procedures, and the limits and delegations of powers, and approves and supervises the scope of action of the risk function. The risk cycle comprises three different phases: pre-sale, sale and post-sale: • Pre-sale: this phase includes the risk planning and target setting processes, determination of the Bank’s risk appetite, approval of new products, risk analysis and credit rating process, and limit setting. • Sale: this is the decision-making phase for both pre-classified and specific transactions. • Post-sale: this phase comprises the risk monitoring, measurement and control processes and the recovery process. Risk limit planning and setting Risk limit setting is a dynamic process that identifies the Banco Santander’s risk appetite by assessing business proposals and the attitude to risk. This process is defined in the global risk limit plan, an agreed-upon comprehensive document for the integrated management of the balance sheet and the inherent risks, which establishes risk appetite on the basis of the various factors involved. The risk limits are founded on two basic structures: customers/segments and products. For individualized risks, customers represent the most basic level, for which individual limits are established (pre-classification). For large corporate groups a pre-classification model, based on an economic capital measurement and monitoring system, is used. As regards the corporate segment, a simplified pre-classification model is applied for customers meeting certain requirements (thorough knowledge, rating, and others). Inthecaseof standardized risks, the risk limits are planned and set using the credit management programs (PGC), a document agreed upon by the business areas and the risk units and approved by the Risk Executive Committee, which contains the expected results of transactions in terms of risk and return, as well as the limits applicable to the activity and the related risk management.
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
a) Risk limit planning and setting
Risk limit setting is a dynamic process based on the Bank’s risk appetite by assessing business proposals for credit portfolios, Wholesale clients and Treasury business. Credit limits are approved by the Executive Board, though a global risk limit plan.
For clients individualized risks, individual limits are established (pre-classification) which defines the maximum acceptable credit level for this client and minimum capital return based on the allocated capital.
In the case of risks from Retail credit portfolio, the risk limits are registered through credit management programs (PGC, using the Spanish acronym), a document that includes details of each portfolio, such as target population, product commercial conditions, admission and recovery policies, and risk return analysis.
b) Risk analysis and credit rating process Risk analysis is a pre-requisite for the approval of loans to customers by the Bank. This analysis consists of examining the counterparty’s ability to meet its contractual obligations to the Bank,Banco Santander, which involves analyzing the customer’s credit quality, its risk transactions, its solvency, and sustainability of business and the return to be obtained in view of the risk assumed. The risk analysis is conducted yearly, at least, and can be held shortly when client profile indicates (through systems with centralized alerts, managers visits to clients or specific credit analysis), or when operations are not covered by pre-classification. c) Transaction decision-making The purpose of the transaction decision-making process is to analyze transactions and adopt resolutions thereon, taking into account the interest risk appetite(risk appetite) and any transaction elements that are important in achieving a balance the relation between risk and return. Since 1993 theThe Bank has been using, among others, the RORAC (return on risk-adjusted capital) methodology for the risk analysis and pricing in the decision-making process on transactions and deals. d) Risk monitoring and control In addition to the tasks performed by the Internal Audit Division, the Risk UnitRisks Vice Presidency has a specific risk monitoring function for adequate credit quality control, which consists of local and global teams to which specific resources and persons in charge have been assigned. This monitoring function is based on an ongoing process of permanent observation to enable early detection of any incidents that might arise in the evolution of the risk, the transactions, the customers and their environment, and the adoption of mitigating actions. The risk monitoring function is specialized by customer segment. For this purpose a system called “special surveillance firms” (FEVE, using the Spanish acronym) has been designed that distinguishes four categories based on the degree of concern raised by the circumstances observed (extinguish, secure, reduce and monitor). The inclusion of a company in the FEVE system does not mean that there has been a default, but rather that it is deemed advisable to adopt a specific policy for this company, to place a person in charge and to set the policy implementation period. Customers classified as FEVE are revised at least every six months, or every three months for those classified in the most severe categories. A company is classified as FEVE as a result of the monitoring process itself, a review performed by Internal Audit, a decision made by the sales manager responsible for that company or the triggering of the automatic warning system. Assigned ratings are reviewed at least annually, but should any weakness be detected, or depending on the rating itself, more frequent reviews are performed. For exposures to standardized customers, the key indicators are monitored in order to detect any variance in the performance of the loan portfolio with respect to the forecasts contained in the credit management programs. b.5) Risk control function Supplementing the management process, the risk control function obtains a global view of the Bank’s loan portfolio, through the various phases of the risk cycle, with a level of detail sufficient to permit the assessment of the current situation of the risk process, its qualities and any changes therein. Any changes in the Bank’s risk exposure are controlled on an ongoing and systematic basis against budgets, limits and benchmarks, and the impacts of these changes in certain future situations, both of an exogenous nature and those arising from strategic decisions, are assessed in order to establish measures that place the profile and amount of the loss portfolio within the parameters set by the Bank. Executive Commission.The risk control function is performed by assessing risks from various complementary perspectives, the main pillars being control by geographical location, business area, management model, product and process, thus facilitating the detection of specific areas warranting action and for which decisions have to be taken. 6.b.5.1) Credit recovery The Credit Recovery department works in the credit collection and recovery of Bank Santander clients. The strategies and channels of collection operation are defined according analysis which showed the greatest efficiency in the recovery. In the early days of delinquency, is adopted a more enhanced recovery model, with specific strategies, with a closer internal monitoring. Call centers, negativation in the organs of credit protection (credit bureaus), letters of collection and collection through the branches network are used during this phase, in order to recover the loan and maintain customer relationship. In cases with arrears exceeding 60 days past due and higher values, come into play internal teams specialized in restructuring and credit recovery with direct management of delinquent customers. Lower values or more severe delays have the recovery carried out through third party collection administrative (friendly) or judicial, according to internal criteria, receiving a commission for any amounts recovered. Tools are used, such as behavioral score, to study the performance of collecting certain groups, in an attempt to reduce costs and increase recoveries. The customers probability of payment are classified as low risk, and greater attention is paid to maintaining a healthy relationship with them. Customers with little chance of making the payment, in turn, are classified as high risk, and are being monitored more closely . All customers, with overdue amounts or restructured credits, have internal restrictions. Sales of portfolios of defaulted loans, with a focus on operations in write-off status, are also held periodically through an auction process, in which are assessed conditions and characteristics of operations for its evaluation, without retention of risk. b.6) Credit risk from other standpoints Certain areas and/or specific views of credit risk deserve specialist attention, complementary to global risk management. Concentration risk is an essential factor in the area of credit risk management. The Bank constantly monitors the degree of concentration of its credit risk portfolios, by geographical area/country, economic sector, product and customer group.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The risk committee establishes the risk policies and reviews the exposure limits required to ensure adequate management of credit risk portfolio concentration. From the sectorial standpoint, the distribution of the corporate portfolio is adequately diversified. The Bank’s Risk DivisionArea works closely with the Finance DivisionArea in the active management of credit portfolios, which includes reducing the concentration of exposures through several techniques, such as the arrangement of credit derivatives for hedging purposes or the performance of securitization transactions, in order to optimize the risk/return ratio of the total portfolio. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
b) Credit risk from financial market operations This heading includes the credit risk arising in treasury operations with customers, mainly credit institutions. These operations are performed both via money market financing products with different financial institutions and via derivative instruments arranged for the purpose of serving our customers. Risk control is performed using an integrated, real-time system that enables the Bank to know at any time the unused exposure limit with respect to any counterparty, any product and maturity and at any Bank unit. Credit risk is measured at its current market value and its potential value (exposure value considering the future variation in the underlying market factors). Therefore, the credit risk equivalent (CRE) is defined as the sum of net replacement value plus the maximum potential value of the contracts in the future. The environmental riskAre in place Environmental Risk Practice for the Bank Santander for the Wholesale Bank which in addition to lending, provides analysis of credit transactions is oneenvironmental issues in accepting clients. The Environmental Risk area analyzes the social management of the main featuresclient and its value chain by checking items such as contaminated areas, deforestation, labor violations and other problems for which there is the risk of the Strategic Corporate Social Responsibility Plan. The analysis is founded on two major cornerstones: The Equator Principles: an initiative of the International Finance Corporation of the World Bank. These principles constitute an international standard for the analysis ofpenalties.A specialized team with a background in Biology, Geology, Chemistry, Health and Safety Engineering monitors the social and environmental implicationspractices of project finance transactions. Banco Santander adheres to these principles and its management incorporates the analysis and assessment of the social and environmental risks of projects financed in developing countries. The VIDA tool: implemented since 2004, the main aim of this tool is to assess the environmental risk of both current and potential customer companies, using a system that classifies each of the companies into one of seven categories, depending on the degree of environmental risk incurred.
Currently the Bank is implementing the environmental and social risk management system for Santander’s operations in Brazil that had previously been in place at Banco Real. Under this system, borrowers are screened for environmental and social problems, such as contaminated land, deforestation, slave labor and other major environmental and social issues for which there are potential penalties. In 2008, Banco Real screened approximately 5,000 corporate clients for these types of risks. A specialized team of biologists and geologists monitors the customers’ environmental practices, and a team of financial analysts studiesstudying the likelihoodprobability of damages related to such practices that unfavorable environmental conditions may causeaffect the guarantees and the financial condition of Banks' customers. Our experience shows that the company cares for the well-being of its employees and the environment in which it operates tend to have a more efficient and therefore more likely to honor their commitments and generate good business.b.7) Variations in main aggregates in 2011 Systems integration and search for speed and simplicity in our day to day operations resulted in a new risk model, consolidated in 2011 into a single technology platform, which allowed us to streamline processes and improve the approval period for our credit customers. The new model has brought significant synergy gains for credit analysis as more scope to the team's commercial retail and new models score without losing credit quality and prudence that has characterized our political risk. Thus, we reinforce our regionalized structure and were better prepared to grow and gain market share, supporting the business strategy of Santander in Brazil. Thus, we end the year with above-market results, reversing the trend of the first month. In 2011, we also work on credit recovery, especially due to the increase in defaults. Reinforce controls and guidance we offer to our customers’ financial conditioncustomers in order to ensure they have access to products and collateral, among other effects. This monitoring activity also aimsservices commensurate with their income. For this, we created a team of experts prepared to preserveunderstand the reality of customers and thus offer solutions for all types of situations. Even before this, we are still adopting a strategy of expanding credit, supported by the positive momentum of the Brazilian economy and our reputationpolitical risk. One of the differences of this policy is the involvement of top management in decision making. The discussions take place in the market.Risk Committee and the resolutions are defined in a collegiate manner to ensure maximum alignment. Another important point is the independence of staff in relation to the business, which allows more assertive decisions and reduces credit risk. On the environmental risk, the year 2011 was important to consolidate our practices and improve processes, increasing the rigor of the controls the most critical areas of the productive sector. The following table shows the key indicators of credit risk: | | | | | 2011 | 2010 | 2009 | | | | | Credit risk exposure - customers (*) (Thousand of Reais) | 216,756,389 | 183,121,435 | 159,465,631 | Non-performing loans ratio (%) | 6.73% | 5.82% | 7.15% | Impairment coverage ratio (%) | 85.52% | 98.32% | 101.72% | Specific credit loss provisions, net of RAWO (**) (Thousand of Reais) | 11,179,835 | 9,191,762 | 10,070,479 | Cost of credit (% of risk) | 4.76% | 4.86% | 6.24% | Data prepared on the basis of management criteria and the accounting criteria of the controller unit. |
(*) Includes gross loans and advances to customers, guarantees and documentary credits. | (**) RAWO = Recoveries of Assets Written Off. | | c) Market Risk |
Market risk is the exposure to risks such as interest rates, exchange rates, prices of goods, prices in the stock market and others according to the type of product, volume of operations, term and conditions of the agreement and underlying volatility. The Bank operates according to global policies, within the Group’s risk tolerance level, aligned with the objectives in Brazil and in the world. With this purpose, it has developed its own Risk Management model, according to the following principles: - Functional independence;
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
III.1- Executive capacity sustained by knowledge and proximity with the client; - Global and far-reaching of the function (different types of risk); - Collective decision-making, which evaluate a variety of possible scenarios and do not compromise the results with individual decision, including Brazil Executive Risk Committee (Comitê Executivo de Riscos Brasil), which delimits and approves the operations and the Asset and Liabilities Committee, which responds for the capital management and structural risks, including country-risk, liquidity and interest rates. - Management and improvement of the equation risk/return; and - Advanced methodologies for risk management, such as Value at Risk – VaR (historical simulation of 521 days with a confidence level of 99¨and time horizon of one day), scenarios, financial margin sensibility, book value and contingency plan. The Market Risks structure is part of the Vice Presidency of Credit and Market Risks, an independent area that aligns risk policies taking into consideration the guidelines of the Board of Directors and the Risks Division of Santander in Spain. c.1) Activities subject to market risk The measurement, control and monitoring of the market risk area comprises all operations in which net worth risk is assumed. This risk arises from changes in the risk factors –interest rate, exchange rate, equities, commodity prices and the volatility thereof– and from the solvency and liquidity risk of the various products and markets in which the Bank operates. The activities are segmented by risk type as follows: 1.- Trading: this item includes financial services for customers, trading operations and positioning mainly in fixed-income, equity and, foreign currency products. 2.products and shares.- Balance sheet management: A risk management assessment aims to give stability to interest income from the commercial and economic value of the Bank, maintaining adequate levels of liquidity and solvency. The risk is measured by the balance sheet exposure to movements in interest rates and level of liquidity. a.i. Structural foreign currency risk/hedges of results: foreign currency risk arising from the currency in which investments in consolidable and non-consolidable companies are made (structural exchange rate). This item also includes the positions taken to hedge the foreign currency risk on future results generated in currencies other than the Real (hedges of results). b.ii. Structural equities risk: this item includes equity investments in non-consolidated financial and non-financial companies that give rise to equities risk. The Treasury area is responsible for managing the positions taken in the trading activity. The Financial Management area is responsible for managing the balance sheet management risk and structural risks centrally through the application of uniform methodologies adapted to the situation of each market in which the Bank operates. Thus, in the convertible currencies area, Financial Management directly manages the Parent's risks and coordinates the management of the other units operating in these currencies. Decisions affecting the management of these risks are taken through the ALCO committees in the respective countries and, ultimately, by the Parent's markets committee. The aim pursued by Financial Management is to ensure the stability and recurring nature of both the net interest margin of the commercial activity and the Bank’s economic value, whilst maintaining adequate liquidity and solvency levels. Each of these activities is measured and analyzed using different tools in order to reflect their risk profiles as accurately as possible. Trading The Bank calculates trading market risk capital requirement using a standard model provided by Brazilian Central Bank. Bacen.The standard methodology applied to trading activities by the Santander Bank in 2009 wasand the value at risk (VaR), which measures the maximum expected loss with a given confidence level and time horizon. This methodology was based on a standard historical simulation with a 99% confidence level and a one-day time horizon. Statistical adjustments were made to enable the swift and efficient incorporation of the most recent events that condition the level of risk assumed. Specifically, the Bank uses a time window of two years or 520521 daily data obtained retrospectively from the reference date of the VaR calculation. Two figures are calculated each day, one by applying an exponential decline factor which gives a lesser weighting to more distant observations in time, and another with uniform weightings for all observations. The VaR reported is the higher of these two figures. VaR is not the only measure. It is used because it is easy to calculate and because it provides a good reference of the level of risk incurred by the Bank. However, other measures are simultaneously being implemented to enable the Bank to exercise greater risk control in all the markets in which it operates. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
One of these measures is scenario analysis, which consists of defining behavior scenarios for various financial variables and determining the impact on results of applying them to the Bank’s activities. These scenarios can replicate past events (such as crises) or, conversely, determine plausible scenarios that are unrelated to past events. A minimum of three types of scenarios are defined (plausible, severe and extreme) which, together with VaR, make it possible to obtain a much more complete spectrum of the risk profile. The positions are monitored daily through an exhaustive control of changes in the portfolios, the aim being to detect possible incidents and correct them immediately. The daily preparation of an income statement is an excellent risk indicator, insofar as it allows us to observe and detect the impact of changes in financial variables on the portfolios.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Lastly, due to their atypical nature, derivatives and credit trading management (actively traded credit – Trading Book) activities are controlled by assessing specific measures on a daily basis. In the case of derivatives, these measures are sensitivities to fluctuations in the price of the underlying (delta and gamma), in volatility (vega) and in time (theta). For credit trading management activities, the measures controlled include sensitivity to spread, jump-to-default and position concentrations by rating level. With respect to the credit risk inherent in the trading portfolios (Credit Trading portfolios), and in keeping with the recommendations made by the Basel Committee of Banking Supervision, an additional measure has been introduced, the Incremental Default Risk (IDR), in order to cover the default risk which is not properly captured in the VaR, through the variation of the related market prices of credit spreads. The instruments affected are basically fixed-income bonds, , derivatives on bonds (forwards, options, etc.) and credit derivatives (credit default swaps, asset-backed securities, etc.). The method used to calculate the IDR, is defined globally at Group level. c.3) Balance-sheet management The Bank analyses the sensitivity of the net interest margin and market value of equity to changes in interest rates. This sensitivity arises from maturity and interest rate repricing gaps in the various balance sheet items. On the basis of the balance-sheet interest rate position, and considering the market situation and outlook, the necessary financial measures are adopted to align this position with that desired by the Bank. These measures can range from the taking of positions on markets to the definition of the interest rate features of commercial products. The measures used by the Bank to control interest rate risk in these activities are the interest rate gap, the sensitivity of net interest margin (NIM) and market value of equity (MVE) to changes in interest rates, the duration of capital, value at risk (VaR) and scenario analysis. a) Interest rate gap of assets and liabilities The interest rate gap analysis focuses on the mismatches between the interest reset periods of on-balance-sheet assets and liabilities and of off-balance-sheet items. This analysis facilitates a basic snapshot of the balance sheet structure and enables concentrations of interest rate risk in the various maturities to be detected. Additionally, it is a useful tool for estimating the possible impact of potential changes in interest rates on the entity's net interest margin and market value of equity. The flows of all the on- and off-balance-sheet aggregates must be broken down and placed at the point of repricing or maturity. The duration and sensitivity of aggregates that do not have a contractual maturity date are analyzed and estimated using an internal model. b) Net interest margin (NIM) sensitivity The sensitivity of the net interest margin measures the change in the expected accruals for a specific period (12 months) given a shift in the interest rate curve. The sensitivity of the net interest margin is calculated by simulating the margin both for a scenario of changes in the interest rate curve and for the current scenario, the sensitivity being the difference between the two margins so calculated. c) Market value of equity (MVE) sensitivity The sensitivity of the market value of equity is a complementary measure to the sensitivity of the net interest margin. This sensitivity measures the interest rate risk implicit in the market value of equity based on the effect of changes in interest rates on the present values of financial assets and liabilities. The value at risk for balance sheet aggregates and investment portfolios is calculated by applying the same standard as that used for trading: historical simulation with a confidence interval of 99% and a one-day time horizon.. Statistical adjustments were made to enable the swift and efficient incorporation of the most recent events that condition the level of risk assumed. Liquidity risk is associated with the Bank’s ability to finance its commitments at reasonable market prices and to carry out its business plans with stable sources of funding. The Bank permanently monitors maximum gap profiles. The measures used to control liquidity risk in balance sheet management are the liquidity gap, liquidity ratios, stress scenarios and contingency plans. The liquidity gap determines the inflow and outflow of funds for assets, liabilities and off-balance sheet accounts at a given time horizon, making it possible to analyze mismatches between the Bank's expected inflow and outflow of funds. A liquidity gap may be prepared and analyzed as divided into local currency liquidity gap and foreign currency liquidity gap, under which cash and cash equivalents, inflows and outflows and strategies are segregated into local and foreign currency, respectively. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
The Bank prepares three types of Liquidity Gap analyses analyses:1 - - Contractual liquidity gap The Contractual Liquidity Gap determines the contractual maturity flows of the Bank’s major products on a consolidated basis, and any existing mismatches. It also informs the available liquidity in one day and the consumption of or increase in liquidity in the period.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
2 - - Operational liquidity gap Daily cash monitoring and management considering the market situation, maturities and renewal of assets and liabilities, liquidity requirement and specific events. 3 - - Projected liquidity gap Based on the Contractual Liquidity Gap, new maturity flows are projected considering the Bank’s budget plan. In addition to the Liquidity Gap analysis, a Structure Liquidity model is also prepared to assess the structure profile of the sources and uses of the Bank’s funds, which includes Liquidity Ratio studies. The key Liquidity Ratios analyzed are as follows: • Deposits / Lending operations – measures the Institution’s ability to finance lending operations with more stable and lower-cost funding. • Stable Liabilities / Permanent Assets – measures the ration between Capital + Other Stable Liabilities and Investments + Other Permanent Assets. • Market Funding / Total Assets – measures the percentage of the Group’s assets financed with less stable and higher-cost funding. • Short-term market funding / Market Funding – measures the percentage of probable liquidity loss (less than 90 days) on total less stable funding. • Net Assets / Short-term Market Funding – measures the commitment ratio of highly-liquid assets and probable liquidity loss (lessloss(less than 90 days). c) Scenario analysis / Contingency plan Liquidity management requires an analysis of financial scenarios where possible liquidity issues are evaluated. For this, crisis scenarios are built and then studied. The model used for this analysis is the Liquidity Stress Test. The Liquidity Stress Test assesses the institution’s financial structure and ability to resist and respond to the most extreme situations. The purpose of the Liquidity Stress Test is to simulate adverse market conditions, making it possible assess impacts on the institution’s liquidity and payment ability, so as to take preventive actions or avoid positions that may adversely affect liquidity in worst-case scenarios. Scenarios are determined based on an analysis of the market commitment during prior crises and future estimates. Four scenarios with different intensity levels are prepared. Based on an analysis of the stress models, the Minimum Liquidity concept was determined, which is the minimum liquidity required to support the liquidity losses of up to 90% for 90 days in all crisis scenarios simulated. Based on the results obtained through the Liquidity Stress Test, the Bank prepares its Liquidity Contingency Plan, which is a formal combination of preventive and corrective actions to be taken in liquidity crisis scenarios. The Liquidity Contingency Plan is primarily intended to the following: • Crisis identification – the preparation of a Liquidity Contingency Plan requires the determination in advance of a measurable parameter determining the institution’s liquidity condition and structure. This parameter is the Liquidity Minimum Limit determined by the Liquidity Stress Test. When this limit is exceeded, there is a liquidity crisis environment, and thus, the Contingency Plan is used. • Internal Communication – after the crisis is identified, it is necessary to establish clear communication channels to mitigate the problems raised. People held accountable for taking these contingency actions should be notified of the extent of the contingency and measures to be taken. • Corrective actions – Actions intended to actually generate the funds required to solve or mitigate the effects of crisis, as follows: - Assess the type and severity of the crisis; - Identify the most impacted segment; - Put in practice the measures planned to generate funds, considering the required amount and cost of the additional resource, either financial or image cost. ALCO reviews and approves stress models, Minimum Liquidity and Contingency Plan on a semi-annual basis. If adverse market conditions occur, ALCO may review and approve new models, Minimum Liquidity and Contingency Plan on a need basis. c.5) Structural foreign currency risk / Hedges of results / Structural equities risk These activities are monitored by measuring positions, VaR and results. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
c.5.1) Complementary measures Calibration and test measures Back-testing consists of performing a comparative analysis between VaR estimates and daily “clean” results (profit or loss on the portfolios at the end of the preceding day valued at following-day prices). The aim of these tests is to verify and provide a measure of the accuracy of the models used to calculate VaR.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Back-testing analyses performed at the Santander Bank comply, at the very least, with the BIS recommendations regarding the verification of the internal systems used to measure and manage financial risks. Additionally, the Santander Bank also conducts hypothesis tests: excess tests, normality tests, Spearman’s rank correlation, average excess measures, etc. The assessment models are regularly calibrated and tested by a specialized unit. The limit setting process is performed together with the budgeting activity and is the tool used to establish the assets and liabilities available to each business activity. Limit setting is a dynamic process that responds to the level of risk considered acceptable by senior management. The limits structure requires a process to be performed that pursues, inter alia, the following objectives: 1. To identify and delimit, in an efficient and comprehensive manner, the main types of financial risk incurred, so that they are consistent with business management and the defined strategy. 2. To quantify and communicate to the business areas the risk levels and profile deemed acceptable by senior management so as to avoid undesired risks. 3. To give flexibility to the business areas for the efficient and timely assumption of financial risks, depending on market changes, and for the implementation of the business strategies, provided that the acceptable levels of risk are not exceeded. 4. To allow business makers to assume risks which, although prudent, are sufficient to obtain the budgeted results. 5. To delimit the range of products and underlyings with which each Treasury unit can operate, taking into account features such as assessment model and systems, liquidity of the instruments involved, etc. III.4c.7) Risks and results in 2009 The average VaR of the Bank’s trading portfolio in 2009,2011 at R$ 33.421.73 (2010 - R$27.19 million and R$ 62.738.0 million for 2008.2009). The dynamic management of this profile enables the Bank to change its strategy in order to capitalize on the opportunities offered by an environment of uncertainty. A.c.7.1) Balance sheet management(1) At 20092011 year-end, the sensitivity of the net interest margin at one year to parallel increases of 100 basis points applied to Banco Santander Brazil (Santander plus Real) portfolios was concentrated on the BRL interest rate curve was negative by R$ 199.74 million, and dollar interest rate curve was negative by R$ 28.67263.02 million. Also at 20092011 year-end, the sensitivity market value of equity to parallel increases of 100 basis points applied to the Banco Santander Brasil in the BRL interest rate curve was negative by R$1,093.251,491.78 million. With respect to the dollar curve, the sensitivity was negative by R$33.83 million. Quantitative risk analysis The interest rate risk in balance sheet management portfolios, measured in terms of sensitivity of the net interest margin (NIM) at one year to a parallel increase of 100 b.p. in the interest rate curve, of the Santander Brasil evolved in the third quarter of 2009, with the capture in the open market,increased R$40 million over 2011, reaching a maximum of R$269.6263 million in September reducing this level since the months following the balance-sheet.month in December. The sensitivity of value evolved from the third quarterincreased R$299 million during 2011, reaching maximum level in conjunction withNovember to R$1,596 million. The main factors that occurred in 2011 and influenced the growth of this sensitivity, we increase the balance sheet, set up by the inflowloan portfolio of capital and in this period varied in the rangeapproximately R$18 billion (generating an increase of R$1,078.76194 million MVE) and R$1,137.25 million. At 2009 year-end, the risk consumption, measured in termssale of an increase in 100 b.p. sensitivity of the MVE with Santander Brasil was negative R$1,093.77 million, while the net interest margin risk at one year, measured in terms of an increase in 100 b.p. sensitivity of this margin, was negative R$201.79 million. Seguros. | | Thousands of Reais | | | 2011 | MM BRLSensibilities | | Net Interest Margin | 263 | Dec 09Market Value of Equity | 1,492 | Value at Risk - Balance | | Sensitivity VaR | 252 | (1) Includes the balance sheet total, except for the financial assets and liabilities held for trading. | | Net interest margin
| | | 201.79 | | Market Value
| | | 1,093.77 | | Balance Sheet Management
| | | | | VaR
| | | 396.56Structural liquidity management | |
(1) Includes the balance sheet total, except for the financial assets and liabilities held for trading.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
A2. Structural liquidity management
Structural liquidity management seeks to finance the Bank’s recurring business with optimal maturity and cost conditions, avoiding the need to assume undesired liquidity risks. The main features of the structural liquidity management in 20092011 were as follows: • Ample structural liquidity position. Since Santander is basically a commercial bank, customer deposits constitute the main source of liquidity in its financing structure. These deposits, combined with capital and other similar instruments, enable the Bank to cover most of its liquidity requirements and, as a result, the financing raised in wholesale markets is moderate with respect to the size of its balance sheet. • In Brazil, the legal reserve requirement takes a considerable part of the funding. • Obtainment of liquidity through diversification in instruments. Additionally, subordinated and senior debts have an overall long maturity.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
• The local balance sheet should be self-funded. • Based on stress test results, a minimum liquidity buffer is maintained. • Santander reliance in international funding is not considerable. • The aim is that hard currency related activities be funded with third parties hard currency funding. • Though, given that potential disruptions in this market, Banco Santander Brazil has mechanisms to use the local liquidity in order to support hard currency activities. • High capacity to obtain on-balance-sheet liquidity. Government bond positions are held for liquidity management purposes. • The Bank performs control and management functions, which involves planning its funding requirements, structuring the sources of financing to achieve optimum diversification in terms of maturities and instruments, and defining contingency plans. In practice, the liquidity management performed by the Bank consists of the following: • Each year, a liquidity plan is prepared on the basis of the financing needs arising from the budgets of each business. Based on these liquidity requirements and taking into account certain prudential limits on the obtainment of short-term market financing, the Bank establishes an issue and securitization plan for the year. • Throughout the year the Bank periodically monitors the actual changes in financing requirements and updates this plan accordingly. • Control and analysis of liquidity risk. The primary objective is to guarantee that the Bank has sufficient liquidity to meet its short- and long-term financing requirements in normal market situations. To this end, the Bank employs certain balance-sheet control measures, such as the liquidity gap and liquidity ratios. Simultaneously,various scenario (or stress-scenario) analyses are conducted which consider the additional requirements that could arise if certain extreme but plausible events occur. The aim pursued is to cover a broad spectrum of situations that are more or less likely to affect the Bank, thus enabling it to prepare the related contingency plans. c.8) Trading book sensitivity analysis From a local regulatory point of view, Banco Santander’s trading risk management is focused on portfolios and risk factors pursuant to the requirements of regulators and good international practices. As in the management of market risk exposure, financial instruments are segregated into trading and banking portfolios according to the best market practices and the transaction classification and capital management criteria of the Basel II New Standardized Approach of Bacen. The trading portfolio consists of all transactions with financial instruments and products, including derivatives, held for trading, and the banking portfolio consists of core business transactions arising from the different Banco Santander business lines and their possible hedges. Accordingly, based on the nature of the Banco Santander’s activities, the sensitivity analysis was presented for trading and banking portfolios. The table below summarizes the stress amounts generated by Banco Santander’s corporate systems, related to the banking portfolio, for each one of the portfolio scenarios as at December 31, 2011. | | | | Trading portfolio | | | | | | 2011 | | Risk Factor | Scenario 1 | Scenario 2 | Scenario 3 | Coupon - US Dollar | (12,977) | (7,553) | 84,447 | Coupon - Other Currencies | (4,533) | (45,334) | (226,670) | Fixed Interest Rate - Reais | (4,590) | (45,899) | (229,495) | Shares and Indices | (5,990) | (14,974) | (29,948) | Inflation | 6,037 | 60,370 | 301,848 | Others | (1,413) | (14,128) | (70,640) | Total(1) | (23,466) | (67,518) | (170,458) | (1) Capital market value was calculated with 1.5 year maturity. | | | |
The table below summarizes the stress values generated by the Banco Santander’s corporate systems, related to the banking portfolio, for each one of the portfolio scenarios as of December 31, 2011. | | | | Portfolio Banking | | | | | | 2011 | | Risk Factor | Scenario 1 | Scenario 2 | Scenario 3 | Coupon - US Dollar | (964) | (9,643) | (48,217) | TR and Long-term Interest Rate (TJLP) | (3,502) | (35,025) | (175,125) | Fixed Interest Rate - Reais | (36,903) | (369,034) | (1,845,171) | Inflation | (1,496) | (14,959) | (74,793) | Total(1) (2) | (42,865) | (428,661) | (2,143,306) |
(1) Capital market value was calculated with 1.5 year maturity. (2) Amounts net of tax effects.
IV. Operational and Technological Risks and Business Continuity Management
The adequate management and control of operational risks are among the competitive drivers for the Santander Brazil . In the Bank’s ongoing endeavor to ensure the effectiveness of its internal control system and to prevent and mitigate operational risk events and losses, it is necessary to adopt, maintain and disseminate an operational risk management culture, policies and framework.
The mission statement for the Operational Risk Unit reflects this concern:
“The Unit is responsible for implementing and disseminating the culture, policies and framework necessary to ensure that all employees are actively committed to adequately managing and controlling operational risks, technological risks and business continuity while maintaining the effectiveness of the internal control system. It is in this manner that the area contributes to attaining the objectives of both the Santander Brazil and its stakeholders.”
Through its operational risk management practices and its operational processes, the Santander Brazil strives to continually rank among the top financial institutions recognized as having the best practices. As such, the Bank’s processes contribute to achieving its strategic objectives while at the same time continually enhancing its soundness, reliability and reputation in both the domestic and international markets.
In alignment with external supervisory and regulatory bodies, the Santander Brazil defines operational risk events as those resulting from deficiencies or failures in internal processes, people and systems, in additional to those resulting from external events. An operational risk event may or may not result in financial losses, affect business continuity, or have an adverse effect on stakeholders.
The Santander Brazil has adopted a well defined model to meet the challenges that operational and technological risks present. Risk management for daily activities falls under the aegis of the functional units. At the same time, the following organizational structure is part of the Bank’s corporate governance framework:
• Operational Risk Executive Committee
• Operational Risk Unit
• Information Security Department
• Special Occurrences Department
• Fraud Prevention and Intelligence Department
• Operational and Technological Risks Department
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Scenarios 2 and 3 above consider the deterioration situations considered as of low probability. According to the strategy defined by Management, if signs of deterioration are detected, actions are taken to minimize possible negative impacts. Scenario 1: usually reported in our daily reports and corresponds to an upward shock of 10 basis points on the local and foreign currencies coupon curves, plus a shock of 10% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of ten basis points on the volatility surface of currencies used to price options. Scenario 2: corresponds to an upward shock of 100 basis points on the local and foreign currency coupon curves, plus a shock of 25% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of 100 base points on the volatility surface of currencies used to price options. Scenario 3: corresponds to an upward shock of 500 basis points on the local and foreign currency coupon curves, plus a shock of 50% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of 500 basis points on the volatility surface of currencies used to price options. IR USD: all products with price changes tied to changes in the US currency and the US dollar interest rate. IR Other Currency: all products with price changes tied to changes in any currency other than the US dollar and the US dollar interest rate. Fixed rate (BRL): in Brazilian Reais: all products with price changes tied to changes in interest rate in Brazilian reais. TR and TJLP: all products with price changes in the TR and TJLP. Equities and indices: stock market indices, shares and options tied to share indices or the shares themselves. Inflation: all products with price changes tied to changes in inflation coupons and inflation indices. Other: any other product that does not fit in the classifications above. d) Operational Risks Technological Business Continuity, Internal Controls and Sarbanes-Oxley Law Management Banco Santander´s corporative areas, responsible for Technologic and Operational Risk Management and Internal Controls - SOX, are subject to different vice presidents, with structure, procedure, methodologies, tools and specific internal model guarantying through, managerial models, an adequate identification, capture, assessment, control, monitoring, mitigation and loss events reduction. In addition, management and prevention of operational, technological and business continuity plan risks, besides the improvement of the internal control model, satisfies the determinations of regulators, New Basel Accord - BIS II, and Sarbanes-Oxley requirements. Banco Santander also complies with the guidelines set out by Banco Santander Spain, which are based on the COSO - Committee of Sponsoring Organizations of the Treadway Commission – Enterprise Risk Management – Integrated Framework. The procedures developed and adopted are intended to put and maintain Banco Santander among the financial institutions recognized as the entities with the best practices for the management of operational risks, contributing to continuously improve the reputation, soundness and reliability in the local and international markets. Senior management is an acting party, aligned with the function’s mission, by recognizing, participating and sharing responsibility for the continuous improvement of this culture and framework of the technologic and operational risk management risk and the internal control system, in order to ensure the fulfillment of defined objectives and goals, as well as the security and quality of the products and services provided. The Board of Directors of Banco Santander opted for the Alternative Standardized Approach (ASA) to calculate the regulatory capital ratio required for operational risk. d.1) Operational and Technological Risks Department The Operational and Technological Risks Department is responsible for implementing best practices for the management and control of operational risks, technological risks and business continuity. The department assists managerial and operational staff in meeting their strategic objectives, strengthening the robustness of the decision-making process, optimizing execution of daily activities, in addition to complying with regulatory obligations. Overall, the joint effort results in maintaining the Bank’s soundness, reliability and reputation. The foundations of the operational and technological risk management and control model combine two approaches: centralized and decentralized. As per the centralized approach, the Operational and Technological Risks Department is responsible for the control of operational and technological risks. Departmental responsibilities include: identify, assess, capture, monitor, control, analyze, consolidate, model and assist in mitigating not only relevant operational risks but also loss events resulting from operational and technological risks. The scope of the Department’s responsibility comprises organizational units, processes and entities belonging to the Santander Brazil.Bank. F-87
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
As per the decentralized approach, each individual organizational unit along with the corresponding managers is responsible for operational and technological risk management. Internal Control and Operational Risk Agents in conjunction with the Operational and Technological Risks Department provide support through policies, methodologies and tools. The Santander Brazil strives to integrate and consolidate best practices for operational risk management and control. In conjunction with the centralized and decentralized management approaches, the Bank adopts complementary approaches. Such additional practices are based on qualitative and quantitative elements, technological risk management and control, and business continuity management. d.2) Qualitative and Quantitative Approaches The objective of the qualitative approach is to identify and mitigate the materialization of operational risk. Moreover, through qualitative analysis, risk profiles are determined for departments, processes and products. The goal is to strengthen the internal control environment and monitor corporate key risk indicators. The quantitative and qualitative approaches correlate. The quantitative approach aids in detecting, remedying and mitigating operational risk. In addition, quantitative techniques provide tools for analysis and decision-making whether strategic or operational. The main methodological tools for the qualitative and quantitative approaches are as follows: • Operational and technological risk tools • Operational and technological risk matrix • Abridged operational for processes and technological risk matrix for new products
• Self-assessment questionnaires • Internal historical database for operational risk events and losses • Projecting forecasts and monitoring limits for operational risk losses • Analysis and treatment of operational risk failures and events, including corrective action plans • Key risk indicators for operational risks By combining the qualitative and quantitative approaches, the Bank optimizes operational, technological and business continuity risk management. Consequently, this reflects on economic and regulatory capital requirements. d.3) Technological Risk Management and Control With regards to technological risks, the responsibility is to assist managers in identifying and evaluating risks and the respective internal controls as they specifically pertain to information technology (IT) processes and activities. The scope of activities comprises defining methodologies, tools and systems for corporate technological risk management in addition to coordinating efforts with IT managers to prevent and reduce the frequency and severity of technological risk events. d.4) Business Continuity Risk Management and Control With regards to business continuity management, the responsibility is to coordinate and control the implementation, maintenance and upkeep of the methodology as it pertains to the Santander Brazil.Bank. Key elements of the methodology are: • Business Impact Analysis • Business Continuity Plan: Development and Simulation BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
d.5) Scope and Sustainability By acting in an ethical and professional manner, risk management and control result in important achievements that contribute to the continuity of the Institution and its sustainable development. Accomplishments include: • Improved operational efficiency, productivity enhancements, optimized economic and regulatory capital allocations. • Strengthening the Bank’s reputation and improving the stakeholders’ risk versus reward relationship. • Timely compliance with new regulatory requirements. • Preserve the quality and reliability of the product and service offering. offering• Timely correction of vulnerabilities identified in processes. • Timely follow-up and compliance with specific regulatory requests. • Acculturation of risk management awareness and accountability. • Develop and deliver both on-line and face-to-face training programs. • Create awareness of operational risk management and control through internal communication channels.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
This framework allows the Bank to continuously improve its methodologies and to embed a cultural awareness throughout the Organization with respect to the responsibility for managing and controlling operational risk. TheIn line with the rest of the Bank, the Operational Risk Unit maintains its staff professionally up-to-date and trained to face a changing business environment. Moreover, the Unit offers both Intranet and face-to-face training programs to other staff members throughout the Bank. Noteworthy accomplishments include: • Annual Operational and Technological Risk Prevention and Control Week. • Integration program for new employees, consisting of lectures that focus on each individual’s responsibility within the context of operational risk management. • Training on how to assess the internal control environment. • Elaborate, publish and maintain policy manuals that reinforce cultural awareness and employee involvement in operational risk management practices. • Coordinate the annual operational risk loss forecast, identify action plan initiatives to reduce losses and improve accountability. • Develop key risk indicators to obtain data for absolute and comparative analysis based on volumes and benchmarks. Expansion / extension of the scope of Business Continuity Management, incorporating testing Disaster Recovery.• Interact with other units throughout the Bank and elect representatives within the most risk-prone areas including the department of Information Technology. Based upon the framework, methodologies, and modus operandi that are in place, the Banco Santander Brazil aims to strengthen its position both locally and internationally. As such, the Bank strives to consolidate its strategy and remain in the forefront of operational, technological and business continuity risk management and control. Further substantiating this claim is the implementation of not only an efficient and effective internal control environment but also a risk exposure identification process. Key accomplishments and additional information, such as the establishment of the Operational Risk Executive Committee, have been published since December 2008 in Annual Reports and Consolidated Financial Statements, which can be found at. Internal Controls area and Sarbanes-Oxley (Sox) Act The Bank implemented the Internal Controls SOX area to constantly fortify, improve and monitor the Internal Control environment. To reach this objective, implemented a Internal Control Model – MCI that aims to mitigate risks on the preparation and disclosure of the financial statements risk mitigation. It is a corporative area responsible for the Internal Controls Model - SOX (MCI) implementation and maintenance. This consolidated model has information registered in a database, named “System SOX”, that allows access only by authorized responsible managers and other users, also auditors, via local Intranet or electronic address access. The system provides support to senior management to perform the Internal Control Model management, beyond documenting sub processes, risks and related controls. It also allows the control activities, sub processes, processes, activities and sub-groups certification by the responsible managers, that provides comfort / support for the Chief Executive Officer and Executive Vice President to certify the financial statements. The methodology applied in the Bank establishes a periodic internal controls environmental evaluation, with the objective of: - Obtain, from the established and performed control activities tests registered in the Internal Control Model, a reasonable design and effectiveness’s assurance; - Assure that control activities are operating in a appropriate manner, for all transactions and during all accounting year; - Obtain information to support corrective action plans aiming at www.ri.santander.com.br.to remediate internal controls deficiencies; and - Develop a sustainable test program to support periodic Santander´s management evaluations. Internal Controls Sox area attributions Contribution to reinforce the Internal Controls SOX Model, with efficient attendance, to fulfill American “Sarbanes-Oxley” law, that was promulgated in 2002. To comply with the requirements demanded in the related law, Santander adjusted its MCI - Model of Internal Controls to highest international standards, which complies with the direction lines established by COSO - Committee of Sponsoring Organizations of the Treadway Commission, covering strategical, operational, financial statements disclosure and compliance components. The methodology contemplates the following internal certification periods: - Half-year certification - beginning of second Semester: design and effectiveness control activities evaluation related to de first Semester. - Annual certification - beginning of the next accounting year: design and effectiveness control activities evaluation related to the second Semester or during the exercise to verify annual controls or not first semester contemplated controls. Additionally, elaborates a semiannually report to evaluate the quality and adequacy of the internal controls system and to identify risks of relevant distortion that may impact the Financial Statements as well as evaluating the quality of the internal controls environment that allows a adequate elaboration and disclosure of the Financial Statements and thus to attend the requirements of regulators. The internal controls report considers the entire developed, applied and monitored Internal Controls Model of the Sox System methodology.
1. | | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Main area Objectives: • Spread the culture of risks and internal controls management at the different layers of the organization; • Implement and provide formal maintenance of the Risks and Controls Model based in consistent methodology (COSO and COBIT) accepted by regulators and considering relevant areas; • Document the operational flow, allowing a process vision as part of all, identification of relevant risks and controls that involve the business and processes improvement; • Endorse conclusion if the Internal Controls Model is adequate to the nature and the complexity of its businesses; • Validate the controls identified and registered to mitigate relevant potential risks of the activities, through design and effectiveness tests. e)Reputational Risk Santander (Brazil)e.1) Reputational Risk A key component of risk management is to ensure that the bank’s reputation is preserved and enhanced. The Bank believes that the fundamental precept of its long-term business sustainability and shareholder value creation requires proper conduct of the business activities in accordance with Santander Corporate Values. A good way to do that is to engage responsibly in the right business, with the right clients.The Bank defines reputational risk as a risk arising from negative public opinion, irrespective of whether this opinion is based on facts or merely on public perception. Such risk can result from either: • Actions and behavior of the organization or its staff like products sold, services provided or interactions with stakeholders, which constitutes direct risk. • Actions and behavior of external parties, which constitutes indirect risk. e.2) Organization and independence of the Compliance function Compliance risk has been defined as the risk of legal or regulatory sanctions, material financial loss, or reputational harm Banco Santander (Brazil) may suffer as a result of its failure to comply with relevant laws, regulations, principles and rules, standards and codes of conduct applicable to its activities, in letter and in spirit. Santander (Brazil) defines reputational risk as a risk arising from negative public opinion, irrespective of whether this opinion is based on facts or merely on public perception.
Such risk can result from either:
• Actions and behaviour of the organization or its staff like products sold, services provided or interactions with stakeholders, which constitutes direct risk.
• Actions and behaviour of external parties, which constitutes indirect risk.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
2. Organization and independence of the Compliance function
A key component of risk management is to ensure that the bank’s reputation is preserved and enhanced through selecting to engage responsibly in the right business, with the right clients.
The Compliance Department is responsible for assisting the bank to identify, to measure and to mitigate a significant part of the compliance risk but not in its entirety. Other key stakeholders in the process include the Supervisory Board, Senior Management and Finance Department,Departments, Human Resources, Risk Department and Legal. The compliance function within the bank is the independent oversight on behalf of senior management of those core processes and related policies and procedures that seek to ensure the bank is in conformity with industry-specific laws and regulations in letter and spirit, thereby helping to maintain the bank’s reputation. 3.Risk management compliance has proactive approach to compliance risk, with monitoring, education and communication. e.3) Directives a.Compliance principles – Ethics and Conduct in the Securities Markets • The Bank’s ethical principles and conduct parameters are established in internal policies which are made available and formally adhered to by all employees. Proper communication channels are in place to clarify doubts and complaints from staff, and monitoring and controls are conducted in a way that adherence is secured. • The Bank’s anti-money laundering policies are based on the knowledge and rigorousness inof the acceptance of new clients, complemented by the continuous scrutiny of all transactions entered into bywhere the bank.Bank are involved in. The importance given to the theme is reflected on the direct involvement of highersenior management, namely the Executive Committee for AML and Compliance, which meets each trimester to deliberate on issues regarding the theme and to be directly involved with new clients acceptance and suspicious transactions reporting. c.New products and services and suitability • All new products and services are debated/analyzed in internal committees on several levels until their risks are completely minimized, the GlobalCorporate Commercialization Committee of New Products (CNGP)(Comité Corporativo de Comercialización - CCC) , integrated by senior executives of Santander (Spain), being the ultimate approval instance. VI. COMPLIANCE WITH THE NEW REGULATORY FRAMEWORK
f) Compliance with the new regulatory framework The Santander Bank has assumed from the outset a firm commitment to the principles underlying the “Revised Framework of International Convergence of Capital Measurement and Capital Standards” (Basel II). This framework allows entities to make internal estimates of the capital they are required to hold in order to safeguard their solvency against events caused by various types of risk. As a result of this commitment, the Santander Bank has devoted all the human and material resources required to ensure the success of the Basel II implementation plan. For this purpose, a Basel II team was created in the past, consisting of qualified professionals from the Bank’s different areas: mainly Risks, Technology and Operations, the Controller’s Unit, Financial Management, Internal Audit -toto verify the whole process, as the last layer of control at the entity-entity , and Business -particularlyparticularly as regards the integration of the internal models into management. Additionally, specific work teams have been set up to guarantee the proper management of the most complex aspects of the implementation. Supplementing the efforts of the Basel II operating team, Santander Bank senior management has displayed total involvement from the very beginning. Thus, the progress of the project and the implications of the implementation of the New Capital Accord for the Santander Bank have been reported to the management committee and to the board of directors on a regular basis. F-90
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
In the specific case of credit risk, the implementation of Basel II entails the recognition, for regulatory capital purposes, of the internal models that have been used for management purposes. The Bank intends to apply, over the next few years, the advanced internal ratings-based (AIRB) approach under Basel II for substantially all its banks, until the percentage of net exposure of the loan portfolio covered by this approach is close to 100%. Given the medium-low risk profile characterizing Santander’s business activities, since it focuses primarily on commercial banking (corporations, SMEs and individuals), and the significant diversification of the Bank’s risk and business profiles will enable it to offset the additional capital requirements arising from the Internal Capital Adequacy Assessment Process (presented under Pillar 2), which takes into account the impact of risks not addressed under Pillar 1 and the benefits arising from the diversification among risks, businesses and geographical locations. In addition to the supervisory validation and approval process, the Santander Bank continued in 20092010 with the project for the progressive implementation of the technology platforms and methodological developments required for the roll-out of the AIRB approaches for regulatory capital calculation purposes. Therefore, the Bank expects to apply advanced approaches for the calculation of regulatory capital requirements at its business units in Brazil in 2013,2014, after the required approval from the supervisory authorities has been obtained. As regardsRegarding the other risks explicitly addressed under Pillar 1ofIof Basel II, the Banco Santander Bank is developing internal modelmodels for market risk with respect toand will remain using the Treasury area’s trading activities in Brazil. It is expected thatstandardized method for operational risk, since it considers the premature use of advanced models (AMA) for this purpose . Regarding the Market Risk, Banco Santander Brazil presents the applicationpresented his candidacy in the 2nd. Semestersecond half of 2010 to2011, pending approval with the regulators in order to use internal models to calculate regulatory capital. As far as operational risk is concerned, the Bank decided to use the standardized approach for regulatory capital calculation purposes, since it considers that the use of AMA approachesinternal models for this risk is somewhat premature. calculating regulatory capital.Pillar 2 is another significant line of action under the Basel II Corporate Framework. In addition to reviewing and strengthening the methodology supporting the economic capital model, the technology was brought into line with the platform supporting Pillar 1, so that all the information on credit risk will come from this source when Brazil implement internal models under Pillar 1. In 2008 the Santander Bank’s economic capital model was submitted to a thorough review by an international team of CEBS supervisors led by the Bank of Spain, in addition to the internal review conducted at the end of 2008 by the Bank’s internal validation and internal audit teams. I.f.1) Internal validation of risk models Internal validation is a pre-requisite for the supervisory validation process. A specialized unit of the Entity, with sufficient independence, obtains a technical opinion on the adequacy of the internal models for the intended internal or regulatory purposes, and concludes on their usefulness and effectiveness. This unit must also assess whether the risk management and control procedures are adequate for the Entity’s risk strategy and profile. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
In addition to complying with the regulatory requirement, the internal validation function provides an essential support to the risk committee and the local risk committees in the performance of their duties to authorize the use of the models (for management and regulatory purposes) and in their regular reviews, since senior management must ensure that the Entity has appropriate procedures and systems in place for the monitoring and control of credit risk. Internal model validation at the Santander Bank encompasses credit risk models, market risk models, option pricing models and the economic capital model. The scope of the validation includes not only the more theoretical or methodological aspects, but also the technology systems and the quality of the data they provide, on which their effective operation relies, and, in general, all the relevant aspects of advanced risk management (controls, reporting, uses, involvement of senior management, etc.). Therefore, the aim of internal validation is to review quantitative, qualitative, technological and corporate governance-related aspects. The internal validation function is located, at corporate level, within the Integrated Risk Control and Internal Risk Validation area (CIVIR) and reports directly to head office (the third deputy chairman of the Bank and to the chairman of the risk committee) in Madrid. This function is performed at a global and corporate level in order to ensure uniformity of application. The need to validate models implemented at thirteen different units subject to nine different local supervisors, combining efficiency and effectiveness, made it advisable to create threefour corporate validation centers located in Madrid, London, New York and Sao Paulo. This facilitates the application of a corporate methodology that is supported by a set of tools developed internally by the Santander Bank which provide a robust corporate framework for application at all the Bank’s units and which automate certain verifications to ensure efficient reviews. It should be noted that the Santander Bank’s corporate internal validation framework is fully consistent with the internal validation criteria for advanced approaches issued by the Bank of Spain.regulators. Accordingly, the Bank maintains the segregation of functions between internal validation and internal audit, which, in its role as the last layer of control at the Bank, is responsible for reviewing the methodology, tools and work performed by internal validation and for giving its opinion on the degree of effective independence. The Bank’s capitalCapital management is performed atconsiders the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios using the criteria of Brazilian Central Bank. The aimobjective is to achieve aan efficient capital structure that is as efficient as possible in terms of both cost and compliance, withmeeting the requirements of regulators, ratingsthe regulatory body and contributing to achieving the goals of the classification of rating agencies and investors. Activeinvestors' expectations. The capital management includes securitizations, salessecuritization, sale of assets, preference andraising capital through issue of shares, subordinated issues of equity instrumentsliabilities and hybrid instruments.
From an economic standpoint, capital management seeks to optimize value creation at the Bank and at its different business units.segment. To this end, the economic capital, RORAC (return on risk-adjusted capital) and value creation data for each business unitsegment are generated, analyzed and reported to the management committee on a quarterly basis. Within the framework of the internal capital adequacy assessment process (Pillar 2 of the Basel Capital Accord), the BankGroup uses an economic capital measurement model with the objective of ensuring that there is sufficient capital available to support all the risks of its activity in different economic scenarios, with the solvency levels agreed upon by the Bank. Group.In order to adequately manage the Bank’s capital, it is essential to estimate and analyze future needs, in anticipation of the various phases of the business cycle. Projections of regulatory and economic capital are made based on reference to the budgetary informationin financial projections (balance sheet, income statement, etc.) and on macroeconomic scenarios definedestimated by the Economic Research Service. These estimates are used by the Bank as a reference to plan the management actions (issues, securitizations, etc.) required to achieve its capital targets. g) Economic capital |
| g.1) Main objectives |
In addition, certain stress scenarios are simulated in order to assess the availability of capital in adverse situations. These scenarios are based on sharp fluctuations in macroeconomic variables, GDP, interest rates, stock market indexes, etc. that mirror historical crises that could happen again.
VII. ECONOMIC CAPITAL
Main objectives
The emergence of economic capital models across the financial world was aimed at addressing a fundamental problem of regulatory capital.capital, Risk Sensitiveness. The latter is mandatory and has been defined by regulators in a one-size-fits-all manner for comparison purposes. By contrast, economic capital models are primarily designed to yield risk sensitive estimations with two objectives in mind: managing risk more accurately and allocating the cost of maintaining regulatoryeconomic capital among different units within the organisation.organization. F-91
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Taking into consideration the importance of developing risk sensitive capital models, Santander Brazil has been making all the efforts to build a robust economic capital model and integrate it fully in the management of the business. The main objectives of Santander’sBank’s Economic capital framework are: 1 – Consolidate Pillar III and other risks impinging business activities into a single quantitative model, as well as fine tune capital estimations by establishing correlations between the different risks; 2 – Quantify and monitor variations on different types of risk; 3 – Distribute capital consumption for the main portfolios and manage its return on capital efficiency (RoRAC); 4 – Estimate the Economic Value Added for each business unit in order to assess performance targets and improve the shareholder’s return.unit. The Economic profit must surpass the group’s Cost of Capital; 5 – Compliance with the home and host regulators in the process of the supervisory review of Pillar II. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
When calculating economic capital the Bank must decide the levels of losses it wants to cover. This is defined by the level of confidence with which it wants to ensure the continuation of its business. Santander’s adopted confidence level is at 99.97% which is considerably above the 99.90% required by Basel II. This basically means that Santander assumes a probability of default of 0.03%, three times lower than the 0.1% proposed by Basel II. | | | | As a result of its prudent economic capital model, Santander meets the criteria for receiving a global AA rating. | | Brazil’s Risk profile | | The risk profile of Brazil is distributed by the following types of risks: | | % Capital | 2011 | 2010 | 2009 | Risk Type | | | | Credit | 63% | 53% | 54% | Market | 4% | 7% | 7% | ALM | 7% | 12% | 12% | Business | 9% | 11% | 10% | Operational | 16% | 16% | 15% | Fixed Assets | 1% | 1% | 1% | TOTAL | 100% | 100% | 100% |
As a result of its prudent economic capital model, Santander meets the criteria for receiving a global AA rating.
Brazil’s Risk profile
The risk profile of Brazil is distributed by the following types of risks:
% Capital
| | | | Risk
| | Dec 09 | | Credit
| | | 68.6 | % | Market
| | | 4.1 | % | ALM
| | | 10.4 | % | Business
| | | 8.8 | % | Operational
| | | 8.1 | % | TOTAL
| | | 100 | % |
The Credit activity, which in Dec 20092010 required 68,6%58% of Brazil’s economic capital, had increased its stake to 63% in December 2011, mainly because of higher loan portfolio presented in this same period and continued to be the main source of risk. This was followed by Operational , ALM Business and OperationalBusiness Risk respectively.
Business risk has very conservative Beta factors which are applied to General Business Expenses. Operational Risk uses as its basis the StandardisedStandardized approach. As such, it applies Beta factors to the Gross Income which is and it is very punitive for countries with high spreads. | | | | | | | | | | | | | Risk | | Dec 08 | | | | | | Dec 09 | | | | | Credit | | | 73.7 | % | | | 73.1 | % | | | 68.6 | % | | | 69.8 | % | Market | | | 1.8 | % | | | 4.2 | % | | | 4.1 | % | | | 6.7 | % | ALM | | | 7.2 | % | | | 6.7 | % | | | 10.4 | % | | | 7.0 | % | Business | | | 10.3 | % | | | 8.5 | % | | | 8.8 | % | | | 8.6 | % | Operational | | | 7.0 | % | | | 7.5 | % | | | 8.1 | % | | | 7.7 | % | TOTAL | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
(*) The Economic Capital model did not include data of Banco Real for Jun 08. In order to include both banks a proxy was used for estimating the number.
(**) A forecast has been used for Dec 09.
The estimated RoRAC (risk adjusted return) for Dec 0911 is 22.91%30.2%. Santander BrazilThe Bank periodically assesses the level and evolution of the creation of value (EVA)RORAC of its main business units. The EVARORAC is the profit generated above the cost ofover its economic capital employed, and is calculated using the following formula: EVA=RoRAC – Cost of Capital
RoRAC=Economic Profit/Economic Capital The economic profit is obtained by making some necessary adjustments to the Net profit. The cost of capital, which is the minimum remuneration required by the shareholders, can be calculated by adding to the risk free return , the premium that shareholders require to invest in Santander. The model currently in use is the CAPM. SantanderBank also conducts capital planning based on stress test scenarios with the purpose of obtaining future projections of economic and regulatory capital. Results forecasts for the Bank are incorporated into the various scenarios in a coherent way, including their strategic objectives (organic growth, M&A, pay-out ratio, debt issues, etc). Possible capital management strategies are identified to enable the Bank’s solvency and return on capital to be optimised.
Despite the fact that the economic capital estimations yield conservative numbers, Santander is in a very comfortable position. optimized.RoRAC The bank has 95% more capital than the economic capital requirement. As for the regulatory capital the bank has 108% more capital. (It does not consider the goodwill effect). RoRAC
SantanderBank has been using RoRAC, since 1993, with the following purposes:
1 – To analyseanalyze and set a minimum price for operations (admissions) and clients (monitoring); 2 – To estimate the capital consumption of each client, economic groups, portfolio or business segments in order to optimize the allocation of economic capital thus maximisingmaximizing the bank’s efficiency; 3 – To calculatemeasure and follow the levelperformance of provisions that correspond to average expected losses. its businesses.For assessing each transaction with our global clients the economic capital takes into consideration some variables in order to calculate the Expected and Unexpected losses. Amongst these variables it is taken into consideration:
Losses:1 – Counterparty rating; 3 – Guarantees; 4 – Type of financing;
| | BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEARYEARS ENDED DECEMBER 31, 20092011, 2010 AND 20082009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
4 – Type of financing;
The return on capital is determined by the cost of capital. In order to create value for the shareholders the minimum return that a transaction must yield must be higher than Santander’s cost of capital. A transaction which does not cover the cost of capital is not approved. VIII. TRADING BOOK SENSITIVITY ANALYSIS
From a local regulatory point of view, Banco Santander’s trading risk management is focused on portfolios and risk factors pursuant to BACEN’s regulations and good international practices.
As in the management of market risk exposure, financial instruments are segregated into trading and banking portfolios according to the best market practices and the transaction classification and capital management criteria of the Basel II New Standardized Approach of BACEN. The trading portfolio consists of all transactions with financial instruments and products, including derivatives, held for trading, and the banking portfolio consists of core business transactions arising from the different Bank business lines and their possible hedges. Accordingly, based on the nature of the Bank’s activities, the sensitivity analysis was fully applied to the trading portfolio, as this portfolio represents the exposures that may have impacts on the Bank’s income.
The table below summarizes the stress values generated by the Bank’s corporate systems, related to the trading portfolio, for each one of the portfolio scenarios as of the dates specified on each table and does not necessarily reflect the current position, in view of the market dynamics and the Bank’s activities.
Santander Group Brazil Trading Book Sensitivity
| | | | | | | | | | | | | | | | | | | | | in thousand of BRL | | | | | | | | Dec 08 | | | | | | | | | | | Dec 09 | | | | | | | | | | | | | | | | | | | | | | | Risk Factor | | Scenario | | | Scenario | | | Scenario | | | Risk Factor | | Scenario | | | Scenario | | | Scenario | | | | 1 | | | 2 | | | 3 | | | | | 1 | | | 2 | | | 3 | | IR USD | | | (1,092 | ) | | | 14,279 | | | | | 96,598 | | | IR USD | | | 4,727 | | | | 36,066 | | | | 169,130 | | IR Other Currency | | | (1,198 | ) | | | (11,981 | ) | | | | (59,903 | ) | | IR Other Currency | | | (4,025 | ) | | | (40,251 | ) | | | (201,256 | ) | Fixed Rate (BRL) | | | (3,354 | ) | | | (33,536 | ) | | | | (167,681 | ) | | Fixed Rate (BRL) | | | (3,640 | ) | | | (36,401 | ) | | | (182,006 | ) | Cash Equity & Equity | | | 3,812 | | | | 9,529 | | | | | 19,058 | | | Cash Equity & Equity | | | (565 | ) | | | (1,411 | ) | | | (2,823 | ) | Index | | | | | | | | | | | | | | | Index | | | | | | | | | | | | | Inflation | | | (1,809 | ) | | | (18,086 | ) | | | | (90,431 | ) | | Inflation | | | 465 | | | | 4,654 | | | | 23,272 | | Other | | | (3,609 | ) | | | (36,091 | ) | | | | (180,455 | ) | | Other | | | (2 | ) | | | (23 | ) | | | (114 | ) | TOTAL | | | (7,250 | ) | | | (78,886 | ) | | | | (382,814 | ) | | TOTAL | | | (3,040 | ) | | | (37,366 | ) | | | (193,797 | ) |
Scenarios 2 and 3 above consider the deterioration situations established in CVM Instruction 475, of December 17, 2008, considered as of low probability. According to the strategy defined by Management, if signs of deterioration are detected, actions are taken to minimize possible negative impacts.
Scenario 1: usually reported in our daily reports and corresponds to an upward shock of 10 basis points on the local and foreign currencies coupon curves, plus a shock of 10% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of ten basis points on the volatility surface of currencies used to price options.
Scenario 2: corresponds to an upward shock of 100 basis points on the local and foreign currency coupon curves, plus a shock of 25% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of 100 base points on the volatility surface of currencies used to price options.
Scenario 3: corresponds to an upward shock of 500 basis points on the local and foreign currency coupon curves, plus a shock of 50% on the currency rates (upwards) and stock market (downwards) spot prices, and an upward shock of 500 basis points on the volatility surface of currencies used to price options.
IR USD: all products with price changes tied to changes in the US currency and the US dollar interest rate.
IR Other Currency: all products with price changes tied to changes in any currency other than the US dollar and the US dollar interest rate.
Fixed rate (BRL) - in Brazilian reais: all products with price changes tied to changes in interest rate in Brazilian reais.
Equities and indices: stock market indices, shares and options tied to share indices or the shares themselves.
Inflation: all products with price changes tied to changes in inflation coupons and inflation indices.
Other: any other product that does not fit in the classifications above.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
Following the Brazilian Securities Commission (CVM)CVM Instruction 457/7 from 13/07/07,485/2010, we present a reconciliation of shareholders’ equity and net income attributed to the parent between Brazilian GAAP and IFRS, for each of the periods presented, below: | | | | | Thousands of Reais | Note | 2011 | 2010 | 2009 | | | | | | Shareholders' equity attributed under Brazilian GAAP | | 65,578,565 | 64,850,978 | 64,492,693 | IFRS adjustments, net of taxes, when applicable: | | | | | Pension plan discount rate | c | - | - | (174,218) | Classification of financial instruments at fair value through profit or loss | d | 13,840 | (251) | 19,440 | Redesignation of financial instruments to available-for-sale | a | 303,686 | 558,032 | 555,104 | Impairment on loans and receivables | b | 1,128,106 | 220,590 | 960 | Deferral of financial fees, commissions and inherent costs under effective interest rate method | e | 545,763 | 300,000 | 217,205 | Reversal of goodwill amortization | f | 9,786,227 | 6,682,775 | 3,441,629 | Realization on purchase price adjustments | g | 708,533 | 639,520 | 727,101 | Share based payments | h | 34,132 | 20,976 | - | Others | | (85,820) | 82,698 | (14,509) | Shareholders' equity attributed to the parent under IFRS | | 78,013,032 | 73,355,318 | 69,265,405 | Non-controlling interest under IFRS | | 18,960 | 8,076 | 1,338 | Shareholders' equity (including non-controlling interest) under IFRS | | 78,031,992 | 73,363,394 | 69,266,743 | | Thousands of Reais | Note | 2011 | 2010 | 2009 | Net income attributed under Brazilian GAAP | | 3,557,203 | 3,863,298 | 1,805,899 | IFRS adjustments, net of taxes, when applicable: | | | | | Pension plan discount rate | c | - | (1,082) | 5,125 | Classification of financial instruments at fair value through profit or loss | d | 18,918 | (17,887) | (6,687) | Redesignation of financial instruments to available-for-sale | a | 18,402 | (16,300) | (15,243) | Impairment on loans and receivables | b | 907,516 | 219,630 | 235,260 | Deferral of financial fees, commissions and inherent costs under effective interest rate method | e | 245,763 | 82,795 | 43,089 | Reversal of goodwill amortization | f | 3,103,452 | 3,241,146 | 3,064,864 | Realization on purchase price adjustments | g | 69,013 | (87,581) | 411,109 | Others | | (172,342) | 98,074 | (35,810) | Net income attributed to the parent under IFRS | | 7,747,925 | 7,382,093 | 5,507,606 | Non-controlling interest under IFRS | | 7,928 | 481 | 358 | Net income (including non-controlling interest) under IFRS | | 7,755,853 | 7,382,574 | 5,507,964 | | a) Redesignation of financial instruments to available-for-sale: |
| | | | | | | | | | | | | Thousands of Reais | | | | | Note | | | 2009 | | | 2008 | | | Shareholders' equity attributed to the parent under Brazilian GAAP | | | | | | | | | 64,492,693 | | | | 48,756,557 | | IFRS adjustments, net of taxes: | | | | | | | | | | | | | | | Pension plan discount rate | | | | | | e | | | | (174,218 | ) | | | (179,343 | ) | Classification of financial instruments at fair value through profit or loss | | | | | | f | | | | 19,440 | | | | 43,675 | | Redesignation of financial instruments to available-for-sale | | | | | | a | | | | 555,104 | | | | 552,854 | | Impairment on loans and receivables | | | | | | b | | | | 960 | | | | (234,300 | ) | Accounting under equity method | | | | | | c | | | | (15,078 | ) | | | (5,970 | ) | Deferral of financial fees, commissions and inherent costs under effective interest rate method | | | | | | g | | | | 217,205 | | | | 174,116 | | Reversal of goodwill amortization and others | | | | | | h | | | | 3,424,772 | | | | 376,766 | | Mark to market of foreign currency forward | | | | | | i | | | | (30,186 | ) | | | (11,069 | ) | Impairment losses of other financial assets | | | | | | j | | | | 31,773 | | | | 32,200 | | Impairment losses on non financial assets | | | | | | d | | | | 17,439 | | | | 1,542 | | Realization on purchase price adjustments | | | | | | k | | | | 727,101 | | | | 315,992 | | Other | | | | | | | | | | (1,600 | ) | | | 8,179 | | Shareholders' equity attributed to the parent under IFRS | | | | | | | | | | 69,265,405 | | | | 49,831,199 | | Minority interest under IFRS | | | | | | | | | | 1,338 | | | | 5,279 | | Shareholders' equity (including minority interest) under IFRS | | | | | | | | | | 69,266,743 | | | | 49,836,478 | | | Thousands of Reais | | Note | | | | 2009 | | | | 2008 | | | | 2007 | | | Net income attributed to the parent under Brazilian GAAP | | | | | | 1,805,899 | | | | 1,580,614 | | | | 1,845,396 | | IFRS adjustments, net of taxes: | | | | | | | | | | | | | | | | Pension plan discount rate | | | e | | | | 5,125 | | | | 6,966 | | | | 12,501 | | Classification of financial instruments at fair value through profit or loss | | | f | | | | (6,687 | ) | | | 34,015 | | | | 9,660 | | Redesignation of financial instruments to available-for-sale | | | a | | | | (15,243 | ) | | | 49,260 | | | | (11,220 | ) | Accounting under equity method | | | c | | | | - | | | | (16,897 | ) | | | (758 | ) | Deferral of financial fees, commissions and inherent costs under effective interest rate method | | | g | | | | 43,089 | | | | (39,716 | ) | | | 71,898 | | Reversal of goodwill amortization and others | | | h | | | | 3,030,122 | | | | 376,766 | | | | - | | Impairment on loans and receivables | | | b | | | | 235,260 | | | | 27,720 | | | | (25,080 | ) | Mark to market of foreign currency forward | | | i | | | | (19,117 | ) | | | (11,069 | ) | | | - | | Impairment losses of other financial assets | | | j | | | | (427 | ) | | | 32,200 | | | | - | | Impairment losses on non financial assets | | | d | | | | 15,897 | | | | 13,332 | | | | 2,310 | | Realization on purchase price adjustments | | | k | | | | 411,109 | | | | 315,992 | | | | - | | Other | | | | | | | 2,579 | | | | 9,212 | | | | (1,708 | ) | Net income attributed to the parent under IFRS | | | | | | | 5,507,606 | | | | 2,378,395 | | | | 1,902,999 | | Minority interest under IFRS | | | | | | | 358 | | | | 231 | | | | - | | Net income (including minority interest) under IFRS | | | | | | | 5,507,964 | | | | 2,378,626 | | | | 1,902,999 | |
a) Redesignation of financial instruments to available-for-sale:
Under BR GAAP,BRGAAP, the Bank accounts some investments as for certain investmentsexample in debt securities at amortized cost and equity instruments at cost. Under IFRS, the Bank has classified these investments as available-for-sale, measuring them at fair value with the changes recognized in consolidated statements of recognized income and expense, under the scope of IAS 39 “Financial Instruments: Recognition and Measurement”.
b) Impairment on loans and receivables: Under IFRS,On the income refers to the adjust based on the guidance provided by IAS 39 “Financial Instruments: Recognitionestimated losses on loans and Measurement”, the Bank estimates the allowance for loan lossesreceivables portfolio, which was established with based on historical experienceloss of impairment and other circumstances known at the time of assessment. Suchevaluation, according to the guidance provided by IAS 39 "Financial Instruments: Recognition and Measurement. These criteria differsdiffer in certain aspects toof the criteria adopted under BR GAAP,BRGAAP, which uses certain regulatory limits definedset by the BACEN for purposes of allowance for loan losses calculation. c) Accounting under equity method:
Under Brazilian GAAP, investments in certain associates are accounted for at cost, as they do not meet the criteria, under these accounting principles, to be accounted for usingCentral Bank. Additionally, the equity method. Such criteria include total ownership of at least 10% and the relevanceaccumulated adjustments of the investment inallocation of purchase price when the associate in relationacquisition of Banco Real, according to the investor’s total equity. Underrequirements of IFRS in accordance with IAS 28 “Investments in Associates”, an investment in an associate which the investor has significant influence, even if less than 20% of ownership, is accounted for using the equity method of accounting. In accordance to Resolution CMN No. 3.619, BR GAAP has been amended to converge with the guidance provided by IAS 28.
d) Impairment losses on non financial assets:
Under BR GAAP, impairment losses on certain tangible assets relating to the Bank’s branches were recognized during the year ended December 31, 2008 as a result of the adoption of CPC 01, “Reduction in the Recoverable Value of Assets.” CPC 01 changed the methodology used in BR GAAP to converge to IFRS (IAS No. 36, “Impairment of Assets.”)3 "Business Combinations". Prior to the issuance of CPC 01, the Bank grouped together certain branch assets when evaluating for recoverability. Under IFRS, the Bank evaluates these assets for impairment at the level of each individual branch, in which for the Bank represents a cash generating unit in accordance with IAS 36 “Impairment of Assets”.
e)c) Pension plan discount rate: Under BR GAAP,In 2010, the BRGAAP used the discount rate used for benefit obligations reflects the nominal interest rate. Underrate while IFRS, in accordance with IAS 19 “Employee Benefits”, used the rate used to discount post-employment benefit obligations was determined by reference to market yields atof debts instruments. In December 2010, BRGAAP began to adopt CVM Resolution 600/2009, which eliminated the end ofasymmetry with the reporting period on high quality bonds. BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
f)d) Classification of financial instruments at fair value through profit or loss:
Under BR GAAP,BRGAAP, all loans and receivables and deposits are accounted for at amortized cost. Under IFRS, in accordance with IAS 39 Financial Instruments: Recognition and Measurement” the Bank designated certain loansfinancial assets can be measured at fair value and receivables and depositsincluded in the category as “fair“other financial assets at fair value through profit or loss” to eliminate or significantly reduce the accounting mismatch the recognition or measurement derived from measuring assets or liabilities or recognizing gains or losses on them on different bases, which are managed and their performance evaluated on the basis of fair value. Thus, the Bank classified loans, deposits and loans that meet these parameters, as the "other financial assets at fair value through profit or loss", in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”. Additionally,as well as certain debt instruments classified as “available for sale” under BR GAAP were designated as “fair value through profit or loss” under IFRS.BRGAAP. The Bank has selected such classification basis as it eliminates an accounting mismatch in the recognition of income and expenses. g)e) Deferral of financial fees, commissions and inherent costs under effective interest rate method: Under IFRS, in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, financial fees, commissions and inherent costs that are integral part of effective interest rate of financial instruments measured at amortized cost are recognized in profit or loss over the term of the corresponding contracts. Under BRGAAP these fees and expenses are recognizes directly at income when received or paid.
| | BANCO SANTANDER (BRASIL) S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
f) Reversal of goodwill amortization and others: amortization:Under BR GAAP,BRGAAP, goodwill is amortized systematically over a period of up tountil 10 years and additionally, the goodwill recorded is measured annually or whenever there is any indication that the asset may be impaired. Under IFRS, in accordance with IAS 38 “Intangible Assets”, goodwill is not amortized, but instead, is tested for impairment, at least annually, and whenever there is an indication that the goodwill may be impaired; by comparing its recoverable amount with its carrying amount.value. The tax amortization of goodwill amortization isof Banco ABN Amro Real SA represents a difference between book and tax basis of a permanent difference deductible for taxes mattersnature and definitive as the possibility of future use of resources to settle a tax liability is considered remote by management, supported by the opinion of expert external advisors. The tax amortization of goodwill is permanent and definitive, and therefore there is no recorddoes not apply to the recognition of a deferred tax liability. i) Mark to Market of Foreign Currency Forward:
Under IFRS,liability in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, foreign currency forward contracts are derivatives that are recorded at fair value. Under BR GAAP, these contracts are recorded at amortized cost.
j) Impairment losses of other assets:
Under IFRS, the Bank estimated the impact of accounting for allowance other assets, which is different, in certain aspects, to the criteria adopted under BR GAAP.
k)12, on temporary differences.g) Realization on purchase price adjustments: As part of the allocation of the purchase price allocation,when the acquisition of Banco Real, following the requirements of IFRS 3, the Bank has revalued its assets and liabilities of the acquired to fair value, including identifiable intangible assets with finite lives. Under BR GAAP,BRGAAP, in a business combination, the assets and liabilities are not remeasured tokept at their related fair values. Therefore, thisbook value. This purchase price adjustment relates substantially to the following items: -• The amortizationappropriation related to the step up in the value of assets in the loan portfolio in relation to its book value: As theportfolio. The initial registration of value of the loans were adjusted toat fair value, this causes an adjustment to the yield curve of the related loansloan portfolio in comparison to its nominal value, which is offset pro-rata with this adjustment. -appropriated by its average realization period.• The amortization of the identified intangible assets with finite lives over their estimated useful lives (over 10 years). Anticipated Redemption of Subordinate CDB
On January 22, 2010, the Bank redeemed in advance the Subordinate CDB (bank certificate of deposit), whose creditor was Banco Santander Espanha, with original maturity on March 25, 2019has a local long-term compensation plans linked to payments based in shares. According to IFRS 2 "share based payments", the amount of shares to be paid should be measured at the fair value and amounting to R$1,507,000 thousand, pursuant to authorization granted by the Central Bank of Brazil on January 8, 2010. The purpose of the anticipated redemption was to improve the funding structure of the Bank, accordingly to the strategy informedaccounted in the use of proceeds of the "Final Global Offering Prospect for the Initial Public Offering of Certificates of Deposit Shares (Units) Issuance of Banco Santander (Brasil) S.A." and Form F-1.
Association with Getnet
On January 14, 2010, the Bank signed the contractual and by-law documents instruments with Getnet Tecnologia em Captura e Processamento de Transações Eletrônicas Hua Ltda. ("Getnet") to jointly explore, develop and market transaction capture and processing services involving credit and/or debit cardsequity, while in the Brazilian market. The details of this alliance and its business plan will be presented by the end of the first quarter.
BANCO SANTANDER (BRASIL) S.A. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 | (Amounts in thousands of Brazilian Reais - R$, unless otherwise stated) |
APPENDIX I – SUBSIDIARIES OF BANCO SANTANDER (BRASIL) S.A. | | | Thousands of Reais | | | | | Direct and Indirect controlled by Banco | | | Participation % | | | Stockholders' | | | Net Income | | Santander (Brasil) S.A. | Activity | | Direct | | | Indirect | | | Equity | | | (Losses) | | Santander Seguros S.A. (5) | Insurance and Pension Plans | | | 100.00 | % | | | 100.00 | % | | | 2,360,554 | | | | 340,600 | | Santander S.A. Corretora de Câmbio e Títulos | Broker | | | 99.99 | % | | | 100.00 | % | | | 246,393 | | | | 66,519 | | Santander Brasil Asset Management Distribuidora de Títulos e Valores Mobiliários S.A. | Asset manager | | | 100.00 | % | | | 100.00 | % | | | 237,661 | | | | 35,913 | | Banco BANDEPE S.A. (1) | Bank | | | 100.00 | % | | | 100.00 | % | | | 4,015,044 | | | | 349,539 | | Santander Leasing S.A. Arrendamento Mercantil (2) | Leasing | | | 78.57 | % | | | 99.99 | % | | | 11,720,578 | | | | 1,056,756 | | Aymoré Crédito, Financiamento e Investimento S.A. | Financial | | | 100.00 | % | | | 100.00 | % | | | 685,460 | | | | 62,518 | | Santander Administradora de Consórcios Ltda. | Buying club | | | 100.00 | % | | | 100.00 | % | | | 3,809 | | | | 172 | | Santander Brasil Administradora de Consórcio Ltda. (3) | Buying club | | | 100.00 | % | | | 100.00 | % | | | 92,925 | | | | 38,470 | | Real Microcrédito Assessoria Financeira S.A. | Microcredit | | | 100.00 | % | | | 100.00 | % | | | 9,616 | | | | 3,053 | | Santander Advisory Services S.A. (4) | Other Activities | | | 100.00 | % | | | 100.00 | % | | | 131,902 | | | | 13,867 | | Companhia Real Distribuidora de Títulos e Valores Mobiliários | Dealer | | | 100.00 | % | | | 100.00 | % | | | 82,625 | | | | 6,596 | | Santander Corretora de Câmbio e Valores Mobiliários S.A.(6) | Broker | | | 99.99 | % | | | 100.00 | % | | | 40,200 | | | | 1,762 | | Real Argentina S.A. | Other Activities | | | 98.99 | % | | | 98.99 | % | | | 53 | | | | (123 | ) | Webmotors S.A. | Other Activities | | | 100.00 | % | | | 100.00 | % | | | 40,762 | | | | 11,743 | | Agropecuária Tapirapé S.A. | Other Activities | | | 99.07 | % | | | 99.07 | % | | | 6,797 | | | | 355 | | Real CHP S.A. | Holding | | | 92.78 | % | | | 92.78 | % | | | 4,112 | | | | 3,614 | | | Controlled by Santander Seguros S.A. | | | | | | | | | | | | | | | | | | Santander Brasil Seguros S.A. (5) | Insurance and Pension Plans | | | - | | | | 100.00 | % | | | 144,634 | | | | 14,859 | | Santander Capitalização S.A. (5) | Savings and annuities | | | - | | | | 100.00 | % | | | 386,870 | | | | 138,222 | | | Controlled by Companhia Real Distribuidora de Títulos e Valores Mobiliários | | | | | | | | | | | | | | | | | | Santander Securities (Brasil) Corretora de Valores Mobiliários S.A. | Broker | | | - | | | | 100.00 | % | | | 67,784 | | | | 5,030 | | | Controlled by Santander Advisory Services S.A. | | | | | | | | | | | | | | | | | | Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros | Insurance | | | - | | | | 100.00 | % | | | 63,762 | | | | 11,162 | | Real Corretora de Seguros S.A. | Insurance | | | - | | | | 100.00 | % | | | 63,792 | | | | 47,162 | | | Brazil Foreign Diversified Payment Rights Finance Company | Securitisation | | | - | | | (a) | | | | 67 | | | | - | |
(a) Company over which effective controlBRGAAP it is exercised.
(1) Current denomination of Banco de Pernambuco S.A.accounted in "Other Payables - BANDEPE. Other".(2) Current denomination of Real Leasing S.A. Arrendamento Mercantil.
(3) Current denomination of ABN AMRO Administradora de Consórcio Ltda.
(4) Current denomination of ABN AMRO Advisory Services S.A.
(5) Consolidated companies with income from July 2009.
(6) Current denomination of ABN AMRO Real Corretora de Câmbio e Valores Mobiliários S.A.
| | | | | | APPENDIX I – SUBSIDIARIES OF BANCO SANTANDER (BRASIL) S.A. | | Thousands of Reais | | | | | | | Direct and Indirect controlled by Banco Santander (Brasil) S.A. | Activity | Participation % | Adjusted Stockholders' Equity(5) | Net Income(5) | Direct | Indirect | Santander Brasil Asset Management Distribuidora de Títulos eValores Mobiliários S.A.(4) | Asset Manager | 99.99% | 100.00% | 187,770 | 73,977 | Banco Bandepe S.A.(4) | Bank | 100.00% | 100.00% | 4,408,918 | 378,659 | Santander Leasing S.A. Arrendamento Mercantil(4) | Leasing | 78.57% | 99.99% | 9,999,296 | 969,827 | Aymoré Crédito, Financiamento e Investimento S.A.(4) | Financial | 100.00% | 100.00% | 1,221,515 | 347,494 | Santander Administradora de Consórcios Ltda.(4) | Buying club | 100.00% | 100.00% | 4,231 | 173 | Santander Brasil Administradora de Consórcio Ltda.(4) | Buying club | 100.00% | 100.00% | 147,715 | 38,876 | Santander Microcrédito Assessoria Financeira S.A.(6) | Microcredit | 100.00% | 100.00% | 17,556 | 5,882 | Santander Brasil Advisory Services S.A.(1) (6) | Other Activities | 96.56% | 96.56% | 40,659 | 37,837 | CRV Distribuidora de Títulos e Valores Mobiliários S.A. (CRV DTVM)(4) (7) | Dealer Broker | 100.00% | 100.00% | 22,394 | 13,224 | Santander Corretora de Câmbio e Valores Mobiliários S.A.(4) | Other Activities | 99.99% | 100.00% | 253,076 | 60,353 | Webmotors S.A.(6) | Holding | 100.00% | 100.00% | 60,514 | 11,207 | Santander Participações S.A.(1) (6) (7) | Other Activities | 100.00% | 100.00% | 268,730 | 39,191 | Santander Getnet Serviços para Meios de Pagamento S.A.(6) | Holding | 50.00% | 50.00% | 26,122 | 12,899 | Sancap Investimentos e Participações S.A. (Sancap)(2) (6) | Other Activities | 100.00% | 100.00% | 241,716 | 146,248 | Mantiq Investimentos Ltda(6) (9) | Holding | 100.00% | 100.00% | 50 | - | Santos Energia Participações S.A.(6) (9) | Holding | 100.00% | 100.00% | 1,311 | (144) | MS Participações Societárias S.A(6) (9) | Holding | 78.35% | 78.35% | 15,712 | 397 | | | | | | | Controlled by Sancap | | | | | | Santander Capitalização S.A.(3) (5) | Savings and annuities | - | 100.00% | 276,449 | 135,050 | | Controlled by Santander Advisory Services S.A. | | | | | | Santander S.A. Serviços Técnicos, Administrativos e de Corretagem de Seguros(6) (8) | Insurance | | 100.00% | 166,876 | 34,469 | | Brazil Foreign Diversified Payment Rights Finance Company | Securitisation | - | (a) | - | - | (a) Company over which effective control is exercised and there is no equity. (1) In Meeting held on August 26, 2011, were approved: (i) change its name Santander Advisory Services S.A. to Santander Participações SA, (ii) change the name of Santander CHP S.A. into Santander Brazil Advisory Services and (iii) amendment of its corporate purposes of both companies. (2) Company in constitution stage. (3) Participation transferred to Sancap through the partial spin-off of Santander Seguros. (4) The adjusted stockholders' equity and the net income are in accordance with accounting practices established by Brazilian Corporate Law and standards established by the CMN, the Bacen and document template provided in the Accounting National Financial System Institutions (Cosif) and the CVM, that does not conflict with the rules of Bacen. (5) The adjusted stockholders' equity and the net income are in accordance with the pronouncements and interpretations issued by the Accounting Pronouncements Committee (CPC) and countersigned by the National Council of Private Insurance (CNSP) and the Susep. (6) The adjusted stockholders' equity and the net income are in accordance with accounting practices established by Brazilian Corporate Law, in conjunction to technical pronouncement of the CPC, correlated to the International Financial Reporting Standards - IFRS. (7) In Meeting held on August 31, 2011 were approved (i) of the partial split CRV DTVM by Santander Participações, and the version of the separated part refers exclusively to the entire stake held by CRV DTVM in the capital of Santander Securities (Brasil) Corretora de Valores Mobiliarios S.A. (Santander Securities), and (ii) the merger of Securities by Santander Participações. Both cases are in the process of approval by Bacen. (8) The Extraordinary Shareholders’ Meeting held on October 29, 2010 of Real Corretora de Seguros S.A. (Real Corretora) and Santander Serviços, its shareholders approved the merger of the Real Corretora into Santander Serviços, based on their net book values at the base date of September 30, 2010. (9) Investment acquired in 2011. |
*** F-81
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