OFFERING CIRCULAR AMENDMENT (THE “OFFERING CIRCULAR AMENDMENT”) DATED 21 MAY 2014 TO THE OFFERING CIRCULAR (THE “OFFERING CIRCULAR”) DATED 20 MAY 2014

Banco Espírito Santo, S.A. (incorporated with limited liability in Portugal) Combined Offering of up to 1,607,033,212 New Ordinary Shares Subscription Price of €0.65 per Ordinary Share

Reference is made to the Offering Circular relating to the above mentioned Combined Offering of New Ordinary Shares. The first sentence on page 35 of the Offering Circular, which reads as follows: Considering the global financial position of ESI and the challenges associated with its capability to fully implement the reorganization and deleveraging programmes, ESFG issued an unconditional and irrevocable guarantee to secure the performance of ESI’s obligations under the debt instruments that were issued by ESI and distributed by BES to its retail and institutional clients. is amended to remove the words “and institutional” and now reads as follows: Considering the global financial position of ESI and the challenges associated with its capability to fully implement the reorganization and deleveraging programmes, ESFG issued an unconditional and irrevocable guarantee to secure the performance of ESI’s obligations under the debt instruments that were issued by ESI and distributed by BES to its retail clients. This Offering Circular Amendment amends and supersedes the Offering Circular, and should be read together with the Offering Circular. The Offering Circular is not otherwise changed.

Joint Global Coordinators and Joint Bookrunners ESPÍRITO SANTO INVESTMENT BANK MORGAN STANLEY UBS INVESTMENT BANK

Joint Bookrunners BofA MERRILL LYNCH CITIGROUP J.P. MORGAN NOMURA

Co-Managers BANCA IMI BANCO SANTANDER BBVA COMMERZBANK CRÉDIT AGRICOLE CIB KBC SECURITIES KEEFE, BRUYETTE & WOODS, A STIFEL COMPANY

ING MEDIOBANCA SOCIÉTÉ GÉNÉRALE CORPORATE & INVESTMENT BANKING Offering Circular CONFIDENTIAL

Banco Espírito Santo, S.A. (incorporated with limited liability in Portugal) Combined Offering of up to 1,607,033,212 New Ordinary Shares Subscription Price of €0.65 per Ordinary Share Banco Espírito Santo, S.A. (“BES” and, together with its consolidated subsidiaries, the “BES Group”) is offering up to 1,607,033,212 new ordinary shares (the “New Shares”), with no par value, of BES (BES’ ordinary shares, the “Shares”) in book-entry form at a subscription price of €0.65 per New Share (the “Subscription Price”). If all of the New Shares are subscribed for, they will represent approximately 28.57% of the shares representing the share capital of BES following completion of the Combined Offering (as defined below). In proportion to their existing holdings of Shares (the “Existing Shares”), holders of Existing Shares as of the Record Date (as defined below) (the “Existing Shareholders”) will receive transferable preemptive subscription rights (the “Proportional Rights”), which include oversubscription rights to subscribe for any New Shares that are not subscribed for pursuant to the exercise of the Proportional Rights (the “Oversubscription Rights” and, together with the Proportional Rights, the “Rights”). Existing Shareholders will receive one Proportional Right for every one Existing Share they own as of the Record Date. Subject to compliance with applicable law, holders of Proportional Rights will be entitled to subscribe with preference over other investors at the Subscription Price for a number of New Shares determined by multiplying the number of Proportional Rights they hold by a factor of 0.4, which for Existing Shareholders is equivalent to 2 New Shares for every 5 Existing Shares owned on the Record Date (the “Rights Offering”). Fractions of New Shares will not be issued, and any fractions arising through the exercise of Rights will be rounded down to the nearest whole Share. The exercise of Rights will become irrevocable and may not be cancelled or modified after the close of business on 4 June 2014. The Rights may, if not exercised by the holder thereof, be traded (as described below). See “Terms and Conditions of the Combined Offering”. Rights may be exercised only during the period from 8:30 a.m. on 27 May 2014 to 3:00 p.m. on 9 June 2014 (the “Subscription Period”). Any Rights unexercised at the end of the Subscription Period will expire valueless without any compensation. The underwriters identified under “Plan of Distribution and Arrangement” (the “Underwriters”) have severally (and not jointly) agreed, subject to certain conditions, either to procure subscribers, or themselves to subscribe, at the Subscription Price, the New Shares not otherwise subscribed for in the Rights Offering (the “Remaining Shares”). Any such Remaining Shares are expected to be offered to eligible investors in Portugal and elsewhere outside the United States (the “Institutional Offering” and, together with the Rights Offering, the “Combined Offering”). The Combined Offering may be terminated in certain circumstances, at any time, as described herein. Neither the Rights nor the New Shares have been, or will be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and the Rights and the New Shares may only be offered, sold, exercised or otherwise transferred pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the New Shares are being offered and sold in the Rights Offering (subject to certain limited exceptions at BES’ discretion) and the Institutional Offering only outside the United States pursuant to Regulation S under the Securities Act. Investing in the Rights and/or New Shares involves risks. See “Risk Factors” beginning on page 21 for certain factors to be considered before subscribing for New Shares. The Shares are traded on Euronext Lisbon under the symbol “BES”. On 14 May 2014, the closing price of the Shares on Euronext Lisbon was €1.12 per Share. BES has applied to list the New Shares on Euronext Lisbon. The record date for the purpose of determining entitlement to Rights (the “Record Date”) is 4:40 p.m. (Lisbon time) on 21 May 2014, if Shares are acquired on Euronext Lisbon, which will be the last day that the Shares will trade Cum-Rights on Euronext Lisbon. If Shares are acquired on an over-the-counter market, and such Shares are delivered by 7:00 p.m. (Lisbon time) on 26 May 2014, the Record Date with respect to such Shares is 7:00 p.m. (Lisbon time) on 26 May 2014. The Shares are expected to commence trading ex-Rights on Euronext Lisbon on 22 May 2014. Subject to compliance with relevant securities laws, the Rights will be freely transferable and are expected to trade on Euronext Lisbon under the symbol “BESDS” from 27 May 2014 until 3 June 2014. BES expects to issue the New Shares on or around 16 June 2014 and to deliver them to subscribers on or around 16 June 2014, but no assurance can be given that such issuance and delivery will not be delayed. The expected date for commencement of trading of the New Shares on Euronext Lisbon is on or around 17 June 2014. At the opening of business on 27 May 2014, the Rights are expected to be credited through the book-entry system of the Central de Valores Mobiliários (the “CVM”) to the accounts of persons who held Shares on the Record Date. Joint Global Coordinators and Joint Bookrunners ESPÍRITO SANTO INVESTMENT BANK MORGAN STANLEY UBS INVESTMENT BANK Joint Bookrunners BofA MERRILL LYNCH CITIGROUP J.P. MORGAN NOMURA Co-Managers BANCA IMI BANCO SANTANDER BBVA COMMERZBANK CRÉDIT AGRICOLE CIB KBC SECURITIES KEEFE, BRUYETTE & WOODS, A STIFEL COMPANY

ING MEDIOBANCA SOCIÉTÉ GÉNÉRALE CORPORATE & INVESTMENT BANKING The date of this Offering Circular is 20 May 2014 This Offering Circular is to be read and construed on the basis that all documents that are deemed to be incorporated by reference herein form part of this Offering Circular. See “Documentation Incorporated by Reference”.

A separate offering document in connection with the Rights and the New Shares has been prepared for use in connection with the Rights Offering in Portugal (the “Portuguese Prospectus”) which has been approved by the competent authority in Portugal and published in accordance with the Prospectus Directive (as defined below) as implemented in Portugal. Persons in Portugal who receive this Offering Circular in connection with the Rights Offering should disregard it and obtain a copy of the Portuguese Prospectus at BES’ registered office or via http://www.cmvm.pt or http://www.bes.pt.

None of the Underwriters has separately verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Underwriters as to the accuracy, completeness or verification of the information contained in this Offering Circular or any other information provided by BES in connection with the Combined Offering or the Rights or the New Shares or their distribution and nothing contained in this Offering Circular is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Underwriters assume no responsibility for its accuracy, completeness or verification and accordingly disclaim, to the fullest extent permitted by applicable law, any and all liability whether arising in tort, contract or otherwise which they might otherwise be found to have in respect of this document or any such statement.

No person is or has been authorised to give any information or to make any representation not contained in or not consistent with this Offering Circular or any other information supplied in connection with the Combined Offering, the Rights or the New Shares, and if given or made, such information or representation must not be relied upon as having been authorised by BES or the Underwriters. Neither the delivery of this Offering Circular nor any subscription or purchase made under it shall, under any circumstances, create any implication that there has been no change in the affairs of BES or the BES Group since the date of this Offering Circular or that the information in this Offering Circular is correct as of any subsequent time.

Neither this Offering Circular nor any other information supplied in connection with the Combined Offering or the Rights or the New Shares should be considered as a recommendation or constituting an invitation or offer by BES or the Underwriters that any recipient of this Offering Circular or any other information supplied in connection with the Combined Offering or the Rights or the New Shares should subscribe for or purchase New Shares. Each investor contemplating subscribing for or purchasing New Shares should make its own independent investigation of the financial condition and affairs of BES.

The delivery of this Offering Circular does not imply that the information contained herein concerning BES is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Combined Offering is correct as of any time subsequent to the date indicated in the document containing the same. The Underwriters do not expressly undertake to review the financial condition or affairs of BES after the date of the Offering Circular. Investors should review the documents incorporated by reference into this Offering Circular when deciding whether or not to subscribe for or purchase New Shares. See “Documentation Incorporated by Reference”.

No action has been taken by BES or any of the Underwriters which would permit a public offering of any Rights or New Shares outside Portugal or distribution of this Offering Circular in any jurisdiction where action for that purpose is required. The distribution of this Offering Circular and the offering and sale of the Rights and the New Shares in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by BES and the Underwriters to inform themselves about and to observe any such restrictions. This Offering Circular does not constitute an offer of, or an invitation to purchase, the Rights or the New Shares in any jurisdiction in which such offer or invitation would be unlawful. For a description of certain restrictions on the offer and sale and other transfers of the Rights and the New Shares, see “Plan of Distribution and Arrangement—Selling Restrictions”.

Neither the Rights nor the New Shares have been or will be, registered under the Securities Act, or with the securities regulatory authority of any state or other jurisdiction in the United States, and the Rights and the New Shares may not be offered, sold, exercised or otherwise transferred except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state law.

i In any European Economic Area (“EEA”) Member State that has implemented Directive 2003/71/EC (as amended and together with any applicable implementing measures in any Member State, the “Prospectus Directive”), this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the law of that state implementing the Prospectus Directive.

This Offering Circular has been prepared on the basis that all offers of Rights or New Shares, other than the offers contemplated in the Portuguese Prospectus once such prospectus has been approved by the competent authority in Portugal and published in accordance with the Prospectus Directive as implemented in Portugal, will be made pursuant to an exemption under the Prospectus Directive, as implemented in EEA Member States, from the requirement to produce a prospectus for offers of Rights or New Shares. Accordingly, any person making or intending to make any offer, within the EEA, of Rights or New Shares which are the subject of the placement contemplated in this Offering Circular should only do so in circumstances in which no obligation arises for the BES Group or any of the Underwriters to produce a prospectus for such offer. Neither the BES Group nor the Underwriters have authorised, nor do they authorise, the making of any offer of Rights or New Shares through any financial intermediary other than offers of Rights or New Shares made by the Underwriters as contemplated in this Offering Circular.

Each person in an EEA Member State which has implemented the Prospectus Directive (each, a “Relevant Member State”) other than, in the case of the first paragraph below, persons receiving offers contemplated in the Portuguese Prospectus who receive any communication in respect of, or who acquire any Rights or New Shares under, the offers contemplated in this Offering Circular will be deemed to have represented, warranted and agreed to and with each Underwriter and the BES Group that: • it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive and, if it is in the United Kingdom, it is also a “Relevant Person” within the meaning of such expression in “Notice to Prospective Investors in the United Kingdom” below; and • in the case of any Rights or New Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the Rights or New Shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the Joint Global Coordinators has been given to the offer or resale; or (ii) where Rights or New Shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Rights or New Shares to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this representation, the expression “offer” in relation to any Rights or New Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Rights or New Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Rights or New Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State.

This Offering Circular is an advertisement for the purposes of the Prospectus Directive. The Portuguese Prospectus prepared pursuant to the Prospectus Directive will be published in Portugal.

The contents of this Offering Circular should not be construed as legal, business or tax advice. Each prospective investor should consult his or her own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice.

The Underwriters, each of which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, are acting exclusively for BES and no one else in connection with the Combined Offering. They will not regard any other person (whether or not a recipient of this document) as their respective clients in relation to the Combined Offering and will not be responsible to anyone other than BES for providing the protections afforded to their respective clients nor for giving advice in relation to the Combined Offering or any transaction or arrangement referred to herein.

In making an investment decision, each investor must rely on their own examination, analysis and enquiry of BES and the terms of the Combined Offering, including the merits and risks involved. The New Shares and the Rights have not been recommended by any US federal or state securities commission or regulator authority. Furthermore, such authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offence in the US.

ii None of BES or the Underwriters, or any of their respective representatives, is making any representation to any offeree or purchaser of the Rights and the New Shares regarding the legality of an investment in the Rights and the New Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser.

Prospective investors also acknowledge that: (i) they have not relied on the Underwriters or any person affiliated with the Underwriters in connection with any investigation of the accuracy of any information contained in this Offering Circular or their investment decision; and (ii) they have relied only on the information contained in this document, and that no person has been authorised to give any information or to make any representation concerning BES or its subsidiaries or the Rights or the New Shares (other than as contained in this document) and, if given or made, any such other information or representation should not be relied upon as having been authorised by BES or the Underwriters.

In connection with the Combined Offering, each of the Underwriters and any of their respective affiliates, acting as an investor for its own account, may take up Rights or New Shares in the Combined Offering and in that capacity may retain, purchase or sell for its own account such securities and any Rights or New Shares or related investments and may offer or sell such Rights or New Shares or other investments otherwise than in connection with the Combined Offering. Accordingly, references in the Offering Circular to Rights or New Shares being offered or placed should be read as including any offering or placement of Rights or New Shares to any of the Underwriters or any of their respective affiliates acting in such capacity. In addition certain of the Underwriters or their affiliates may enter into financing arrangements (including swaps or contracts for differences) with investors in connection with which such Underwriters (or their affiliates) may from time to time acquire, hold or dispose of Rights or New Shares. None of the Underwriters intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.

NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE IMPLIES THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES

Neither the Rights nor the New Shares have been, or will be, registered under the Securities Act and the Rights and the New Shares may only be offered, sold, exercised or otherwise transferred pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The New Shares will be offered and sold only outside the United States in accordance with Rule 903 of Regulation S under the Securities Act. Notwithstanding the foregoing, independently from and without the participation of the Underwriters, BES may allow holders of Rights in the United States who are qualified institutional buyers as defined in Rule 144A under the Securities Act to exercise their Rights in reliance on exemptions provided for private placements under Section 4(a)(2) of the Securities Act.

In addition, until the expiration of the period beginning 40 days after the commencement of the Institutional Offering, an offer or sale of Rights or New Shares within the United States by a dealer (whether or not it is participating in the Rights Offering or the Institutional Offering) may violate the registration requirements of the Securities Act.

NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to the public of any New Shares or Rights which are the subject of the offering contemplated by this Offering Circular may not be made in that Relevant Member State,

iii other than the offers contemplated in the Portuguese Prospectus once such prospectus has been approved by the competent authority in Portugal and published in accordance with the Prospectus Directive as implemented in Portugal, except that an offer to the public in that Relevant Member State of any New Shares or Rights may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: • to any legal entity which is a qualified investor as defined in the Prospectus Directive; • to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Joint Global Coordinators for any such offer; or • in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Shares or Rights shall result in a requirement for the publication by BES or any Underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any New Shares or Rights in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any New Shares or Rights to be offered so as to enable an investor to decide to purchase or subscribe for any New Shares or Rights, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in the Relevant Member State. The expression 2010 PD Amending Directive means Directive 2010/73/EU.

NOTICE TO PROSPECTIVE INVESTORS IN FRANCE

No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of the Rights or the New Shares that has been approved by the Autorité des marchés financiers (the “Financial Markets Authority”) or by the competent authority of another Member State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorité des marchés financiers; no Rights or New Shares have been offered or sold nor will be offered or sold, directly or indirectly, to the public in France; this Offering Circular or any other offering material relating to the Rights or the New Shares has not been distributed or caused to be distributed and will not be distributed or caused to be distributed to the public in France; such offers, sales and distributions have been and shall only be made in France to persons licensed to provide the investment service of portfolio management for the account of third parties (service d’investissement de gestion de portefeuille pour compte de tiers), qualified investors (investisseurs qualifiés) investing for their own account and/or a restricted circle of investors (cercle restreint d’investisseurs) investing for their own account, all as defined in Articles L.411-2, D.411-1 to D.411-4, D.744-1, D.754-1 and D.764-1 of the Code monétaire et financier (the Monetary and Financial Code). The direct or indirect distribution to the public in France of any so acquired Rights or New Shares may be made only as provided by Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the Code monétaire et financier and applicable regulations thereunder.

NOTICE TO PROSPECTIVE INVESTORS IN SPAIN

This Offering Circular has not been approved by or registered in the administrative registries of the Spanish Comisión Nacional del Mercado de Valores (the National Securities Market Commission) and, therefore, neither the Rights nor the New Shares may be offered in Spain except in circumstances which do not constitute a public offer of securities in Spain within the meaning of article 30bis of the Spanish Securities Market Law of 28 July 1988 (Ley 24/1988, de Julio, del Mercado de Valores), as amended and restated, and supplemental rules enacted thereunder, or pursuant to an exemption from registration set out in article 41 of Royal Decree 1310/1995 of 4 November 1995.

NOTICE TO PROSPECTIVE INVESTORS IN SWITZERLAND

This Offering Circular does not constitute a public offering prospectus as that term is understood pursuant to article 652a or 1156 of the Swiss Code of Obligations nor is it a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange. Accordingly, public offering, solicitation or marketing of the Rights or the New Shares in and from Switzerland is not permitted.

iv This Offering Circular has not been issued, circulated or distributed in or from Switzerland, except under exceptional circumstances hereinafter described, and is not intended as an offer or solicitation with respect to the purchase or sale of the Rights or the New Shares by the public. The Offering Circular may be distributed only on a private placement basis, without any public distribution, offering or marketing in or from Switzerland, provided that any such distribution does not occur as a result of, or in connection with, public solicitation, offer or marketing with respect to the purchase or sale of the Rights or the New Shares.

NOTICE TO PROSPECTIVE INVESTORS IN BRAZIL

This Offering Circular has not been filed or registered with the Comissão de Valores Mobiliários (the Brazilian Securities Commission). The Rights and the New Shares have not been and will not be issued nor placed, distributed, offered or negotiated in the Brazilian capital markets. Neither the issuer of the Rights and the New Shares nor the issuance of the Rights or the New Shares have been or will be registered with the Brazilian Securities Commission. Therefore, the Rights or the New Shares may not be offered or sold in Brazil, except in circumstances which do not constitute a public offering, placement, distribution or negotiation of securities in the Brazilian capital markets.

NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM

This Offering Circular is directed only at persons in United Kingdom who are qualified investors as defined in the Prospectus Directive and who, (i) have professional experience in matters relating to investments which fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), or (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associates, etc.”) of the Order (all such persons together being referred to as “Relevant Persons”). This Offering Circular must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this communication relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.

NOTICE TO PROSPECTIVE INVESTORS IN AUSTRALIA AND CANADA

Neither the Rights nor the New Shares may be offered, sold, exercised or acquired in Australia or Canada, except in accordance with applicable law.

NOTICE TO PROSPECTIVE INVESTORS IN JAPAN

The Rights and the New Shares offered hereby have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly, the Rights and the New Shares may not, directly or indirectly, be offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.

v Table of Contents

Page EXCHANGE RATES ...... vii USE OF CERTAIN DEFINITIONS ...... viii FORWARD-LOOKING STATEMENTS ...... xiii STATUTORY AUDITORS ...... xiv PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... xiv DOCUMENTATION INCORPORATED BY REFERENCE ...... xv SUMMARY ...... 1 SUMMARY OF THE TERMS OF THE COMBINED OFFERING ...... 8 SUMMARY RISK FACTORS ...... 15 SUMMARY FINANCIAL AND OTHER DATA ...... 17 RISK FACTORS ...... 21 USE OF PROCEEDS ...... 47 DILUTION ...... 48 CAPITALISATION AND INDEBTEDNESS OF THE BES GROUP ...... 49 SELECTED FINANCIAL AND OTHER INFORMATION OF THE BES GROUP ...... 53 OPERATING AND FINANCIAL REVIEW ...... 57 RISK MANAGEMENT ...... 113 INFORMATION ON THE BES GROUP ...... 148 REGULATION ...... 192 MANAGEMENT AND SUPERVISORY CORPORATE BODIES AND SENIOR MANAGEMENT OF THE ISSUER AND OFFEROR ...... 199 PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ...... 247 TERMS AND CONDITIONS OF THE COMBINED OFFERING ...... 253 INFORMATION ON THE SECURITIES BEING OFFERED AND ADMITTED TO TRADING ...... 259 DESCRIPTION OF SHARE CAPITAL AND RIGHTS ATTACHED TO THE SHARES ...... 262 TAXATION ...... 271 PLAN OF DISTRIBUTION AND ARRANGEMENT ...... 280 APPENDIX 1 ...... A-1

vi EXCHANGE RATES

The following table sets forth, for the periods indicated, information concerning the noon buying rate in U.S. dollars for euro. The rates set forth below are provided solely for your convenience and are not used by the BES Group in the preparation of the audited financial statements of the BES Group as at and for the years ending 31 December 2013, 2012 and 2011 (the “Audited Group Financial Statements”) incorporated by referenced in this Offering Circular. The “noon buying rate” is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the euro could have been, or could be, converted into U.S. dollars at that rate or at any other rate.

U.S. dollars per €1.00 Year: Period End Average(1) High Low 2009 ...... 1.4332 1.3955 1.5100 1.2547 2010 ...... 1.3269 1.3218 1.4536 1.1959 2011 ...... 1.2973 1.4002 1.4875 1.2926 2012 ...... 1.3186 1.2909 1.3463 1.2062 2013 ...... 1.3779 1.3303 1.3816 1.2774 2014 (through 16 May) ...... 1.3708 1.3732 1.3927 1.3500

Month: January 2014 ...... 1.3500 1.3618 1.3682 1.3500 February 2014 ...... 1.3806 1.3665 1.3806 1.3507 March 2014 ...... 1.3777 1.3828 1.3927 1.3731 April 2014 ...... 1.3870 1.3810 1.3898 1.3704 May 2014 (through 16 May) ...... 1.3708 1.3808 1.3924 1.3708 Note: (1) The average of the noon buying rate for euros on the last day of each full month during the relevant year or each business day during the relevant month.

vii USE OF CERTAIN DEFINITIONS

Unless the context requires otherwise, the following terms as used in this Offering Circular have the following meanings:

“ACT” The collective labour agreement for the banking sector established with the unions (the Acordo Colectivo de Trabalho)

“Adjustment Programme” The economic and financial adjustment programme jointly provided by the IMF and the EU, agreed upon by the Portuguese government, with the support of the main Portuguese political parties, on 5 May 2011

“Audited Group Financial The audited consolidated financial statements of the BES Group as at Statements” and for the years ending 31 December 2013, 2012 and 2011, prepared in accordance with IFRS, and incorporated by reference in this Offering Circular. See “Documentation Incorporated by Reference”

“Aman Bank” Aman Bank for Commerce & Investment Stock Company

“Banco Bradesco”or“Bradesco” Banco Bradesco, S.A.

“bp”or“bps” Basis point or basis points

“Basel II” The banking prudential regime adopted by Decree-Law no. 103/2007 and Decree-Law no. 104/2007, both published on 3 April 2007, that transposed into Portuguese law Directives 2006/48/EC and 2006/49/EC, both issued on 14 June 2006

“Basel III” The banking prudential regime that substitutes the regime set out in Basel II, and which was partially adopted by Decree-Law no. 103/2007 and Decree-Law no. 104/2007, both published on 3 April 2007, as amended by Decree-Law no. 88/2011, from 20 July, that transposed into Portuguese law Directive 2010/76/EU from the European parliament and the Council, and that revoked 2006/49/EC, both issued on 14 June 2006, and the CRR. Pursuant to the transposition process, Basel III was approved by the Council of Ministers on 28 April 2014 by a law which authorises the Portuguese government to adapt the RGICSF

“BES”, “Bank”or“Company” Banco Espírito Santo, S.A.

“BES África” BES África, SGPS, S.A.

“BESA”or“BES Angola” Banco Espírito Santo Angola, S.A.R.L.

“BESAACTIF” BESAACTIF—Sociedade Gestora de Fundos de Investimento, S.A.

“BES Finance” BES Finance Ltd.

“BES Group”or“Group” BES and companies in its consolidation perimeter, both under full consolidation and the equity method

“BES Investimento”, “BESI”or Banco Espírito Santo de Investimento, S.A. “Espírito Santo Investment Bank”

“BES Investimento do Brasil” BES Investimento do Brasil, S.A.

“BES Oriente” Banco Espírito Santo do Oriente, S.A.

“BESPAR” BESPAR—Sociedade Gestora de Participações Sociais, S.A.

“BES Seguros” BES Seguros, S.A.

viii “BEST” BEST—Banco Electrónico de Serviço Total, S.A

“BES Vida” BES Vida Companhia de Seguros, S.A.

“BIS” Bank of International Settlements

“BPP” Banco Privado Português, S.A.

“Board” The board of directors of BES

“Bradport SGPS”or“Bradport” Bradport SGPS (Sociedade Unipessoal), Lda.

“CAFEB” Caixa de Abono de Família dos Empregados Bancários

“Capital Requirements Directive” Directive 2006/49/EC of the European Parliament and Council, of 14 June 2006

“CMVM”or“Portuguese Securities The Portuguese Securities and Exchange Commission or Comissão do Commission” Mercado de Valores Mobiliários

“Combined Offering” The Rights Offering and the Institutional Offering

“Crédit Agricole” Crédit Agricole, S.A.

“Crisis Management Framework” The EC’s resolution regarding the framework for Banking Recovery and Resolution

“CRD IV” The legislative package consisting of the Directive and the Regulation (CRR) of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms, the first drafts of which were published by the European Commission on 20 July 2011

“CRR” Regulation No. 575/2013/EU of the European Parliament and Council, of 26 June 2013, as amended

“Cum-Rights Date” 21 May 2014, the date on which the Shares commence trading with Rights on Euronext Lisbon

“CVM” The central securities depository managed by Interbolsa or Central de Valores Mobiliários

“EBA” The European Banking Authority

“EC” The European Commission

“ECB” The European Central Bank

“EEA” The European Economic Area

“EMU” The Economic and Monetary Union

“EDP—Energia de Portugal”or EDP—Energias de Portugal, S.A. “EDP”

“ESAF” Espírito Santo Activos Financeiros, S.G.P.S., S.A

“ESCB” European System of Central Banks

“Espírito Santo Financial Group”or Espírito Santo Financial Group, S.A. “ESFG”

“Espírito Santo International”or Espírito Santo International, S.A. “ESI”

ix “EU” The European Union

“Euro”, “EUR”, “euro” or “€” The single currency introduced at the start of the third stage of the European Economic Monetary Union pursuant to the Treaty on the Functioning of the EU, as amended from time to time

“Euronext” Euronext Lisbon—Sociedade Gestora de Mercados Regulamentados, S.A.

“Euronext Lisbon” The Regulated Market managed by Euronext

“Euro Zone”or“Euro Area” The region composed of member states of the EU that at the relevant time have adopted the euro

“Ex-Rights Date” 22 May 2014. The Shares will trade on Euronext Lisbon without any Rights on and after such date.

“Existing Shares” Existing Shares has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“Existing Shareholders” Existing Shareholders has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“GDP” Gross domestic product

“IMF” International Monetary Fund

“Interbolsa” Interbolsa—Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A.

“International Financial Reporting International Financial Reporting Standards adopted by Portugal Standards”or“IFRS” through the Decree-Law no. 35/2005, of 17 February 2005, which implements the Directive 2003/51/EC, of the European Parliament and Council, of 18 June 2003, into the Portuguese legal system, and which amends Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC, of the Council, regarding consolidated annual statements within certain kinds of companies, banks and other financial entities, and insurance companies, with the amendments introduced by Law no. 53-A/2006, of 29 December, Decree-Law no. 237/2008, of 15 December and Decree-Law no. 158/2009, of 13 July

“Institutional Offering” The offer of any New Shares not subscribed for pursuant to the Rights Offering by the Underwriters to eligible investors in Portugal and elsewhere outside the United States or the subscription by the Underwriters pursuant to the Underwriting Agreement

“IRB” Internal Ratings Based, used as part of the approach to calculate regulatory capital requirements to cover credit risk

“Joint Bookrunners” Banco Espírito Santo de Investimento, S.A., Morgan Stanley & Co. International plc, UBS Limited, Merrill Lynch International, Citigroup Global Markets Limited, J.P. Morgan Securities plc and Nomura International plc

“Joint Global Coordinators” Banco Espírito Santo de Investimento, S.A., Morgan Stanley & Co. International plc and UBS Limited

“Lead Underwriters” Merrill Lynch International, Citigroup Global Markets Limited, J.P. Morgan Securities plc, Morgan Stanley & Co. International plc, Nomura International plc and UBS Limited

x “Moza Banco” Moza Banco, S.A.

“New Shares” The ordinary shares, in book-entry form and with no par value, issued and offered pursuant to the Combined Offering, representing up to 28.57% of the shares representing the share capital of BES, following the capital increase and assuming full subscription of the New Shares, which are identical to the other existing shares representing BES’ capital and grant the same rights assigned thereto, without prejudice of the article 25/b) of the Portuguese Securities Code

“Oversubscription Rights” Oversubscription Rights has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“Portugal Telecom” Portugal Telecom, SGPS S.A.

“Portuguese Companies Code”or The Portuguese Companies Code established by Decree-Law “Companies Code” no. 262/86, of 2 September 1986, republished by Decree-Law no. 76-A/2006, 29 March 2006, as amended by Decree-Law no. 8/2007 of 7 January 2007, Decree-Law no. 357-A/2007, of 31 October 2007 (rectified by Rectification no. 117-A/2007, 28 December 2007), Decree-Law no. 247-B/2008, of 30 December 2008, Decree-Law no. 64/2009, of 20 March 2009, Law no. 19/2009, of 12 May 2009, Decree-Law no. 185/2009, of 12 August 2009, Decree-Law no. 49/2010, of 19 May 2010, Decree-Law no. 33/2011, of 7 March 2011, and Decree-Law no. 53/2011, of 13 April 2011

“Portuguese Securities Code”or The Portuguese Securities Code established by Decree-Law “Securities Code” no. 486/99, of 13 November 1999, republished by Decree-Law no. 357-A/2007, of 31 October 2007, as amended by Decree-Law no. 211-A/2008, of 3 November 2008, Law no. 28/2009, of 19 June 2009, Decree-Law no. 185/2009, of 12 August 2009, Decree-Law no. 49/2010, of 19 May 2010, Decree-Law no. 52/2010, of 26 May 2010, Decree-Law no. 71/2010, of 18 June 2010, Law no. 46/2011, of 24 June 2011, Decree-Law no. 85/2011, of 29 June 2011, Decree-Law no. 18/2013, of 6 February 2013, Decree-Law no. 63-A/2013, of 10 May 2013, Decree-Law no. 29/2014, of 25 February 2014 and Decree-Law no. 40/2014, of 18 March 2014

“Portuguese Prospectus” The prospectus for use in Portugal in connection with the Rights Offering as approved for use by the CMVM and published in accordance with the Prospectus Directive

“pp” Percentage point

“PPRV—2008/2010” The Variable Remuneration Payment Plan or Plano de Pagamento de Remuneração Veriável

“Proportional Rights” Proportional Rights has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“Prospectus Directive” Directive 2003/71/EC of the European Parliament and Council, of 4 November 2003, as amended

“PRVIF” The Variable Remuneration Plan in Financial Instruments or Plano de Remuneração Variável em Instrumentos Financeiros

“Q1 Release” The press release of the BES Group’s quarterly results, with respect to the three months ended, and as at 31 March 2014, released on

xi 15 May 2014, and reproduced in full in Appendix 1 to this Offering Circular and made a part of the Offering Circular

“Record Date” Record Date has the meaning given to such term in “Terms and Conditions of the Combined Offering—Cum-Rights Date, Record Date and Ex-Rights Date”

“Relevant Member State” Any Member State of the European Economic Area that has implemented the Prospectus Directive

“Remaining Shares” Remaining Shares has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“RGICSF” The General Regime for Credit Institutions and Financial Companies or Regime Geral das Institutuicões de Crédito e Sociedades, established by Decree-Law no. 298/92, of 31 December 1992, as amended

“Rights” Rights has the meaning given to such term in “Terms and Conditions of the Combined Offering—General Information”

“Rights Offering” BES’ offering of up to 1,607,033,212 New Shares to the holders of Rights at the Subscription Price. See “Terms and Conditions of the Combined Offering—General Information”

“SAMS” The Social Medical Assistance Service

“SEC” U.S. Securities and Exchange Commission

“Securities Act” U.S. Securities Act of 1933, as amended

“Shares” BES’ ordinary shares with no par value

“SIP” Special Inspection’s Programme, a programme undertaken as part of the measures and actions agreed by the Portuguese authorities for its financial system under the Economic Adjustment Programme agreed with the Troika in May 2011

“SMEs” Small and medium enterprises

“Subscription Period” The period of time between 8:30 a.m. on 27 May 2014 and 3 p.m. on 9 June 2014

“Subscription Price” €0.65 per New Share subscribed for, either through exercises of Rights or in the Institutional Offering

“Tranquilidade” Companhia de Seguros Tranquilidade, S.A.

“Troika” The EC, the ECB and the IMF

“TSA method” The Standardised Approach used to calculate regulatory capital requirements for operational risk

“Underwriters” The Underwriters of the Combined Offering identified in “Plan of Distribution and Arrangement”

“Underwriting Agreement” The agreement, governed by English law, executed on 15 May 2014, between BES and the Underwriters, under which the Underwriters have severally (and not jointly) agreed, subject to certain conditions and with effect as of the last day of the Subscription Period, to procure subscribers or themselves to subscribe, at the Subscription Price, a certain amount of New Shares not otherwise subscribed for in the Rights Offering

xii FORWARD-LOOKING STATEMENTS

Certain statements in this Offering Circular constitute “forward-looking statements”. All statements other than statements of historical facts included in this Offering Circular, including, without limitation, those regarding the financial position, revenue and profitability (including, without limitation, any financial or operating projections or predictions), business strategy, prospects, plans and objectives of management for future operations of BES, and macro-economic conditions in Portugal, Europe and elsewhere, are forward-looking statements. Some of these statements can be identified by forward-looking terms, such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “forecast”, “intend”, “may”, “plan”, “will” and “would” or similar words. However, these words are not the exclusive means of identifying forward-looking statements. These forward-looking statements and any other predictions contained in this Offering Circular involve known and unknown risks, uncertainties and other factors which may cause actual results or performance of the BES Group, industry results, or macro-economic conditions, to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements are based on current beliefs, assumptions, expectations, estimates and projections of the directors and management of BES, public statements by BES, present and future business strategies and the environment in which they will operate in the future. Accordingly, investors should not place undue reliance on these forward-looking statements, which speak only as of the date they are made.

Many factors could cause the BES Group’s actual performance, results or achievements to be materially different from any future performance, results or achievements that may be expressed or implied by such forward-looking statements. These factors include: • changes in general economic and business conditions in Portugal and in other countries in which BES has significant operations, including Spain, Brazil and Angola, and other European countries; • changes and volatility in currency exchange rates, interest rates, share prices, financial instruments and credit spreads; • changes in the price of BES’ shares; • changes in the availability and conditionality of funding; • changes in governmental policy and regulation; • changes in the BES Group’s competitive environment; • other factors that are discussed in more detail under “Risk Factors” below; and • factors that are not known to BES at this time.

Should one or more of these risks or uncertainties materialise, or should the underlying assumptions prove incorrect, events described in this Offering Circular might not occur or actual results may vary materially from those described in this Offering Circular as anticipated, believed, estimated or expected. These forward-looking statements speak only as of the date of this Offering Circular. BES expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in BES’ expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based.

xiii STATUTORY AUDITORS

The Audited Group Financial Statements of the BES Group as at and for the years ended 31 December 2013, 2012 and 2011, which have been prepared in accordance with IFRS, and the notes thereto, have been audited by KPMG & Associados SROC, S.A., with registered office at Avenida Praia da Vitória, 71-A, 11, 1069-006 Lisbon, Portugal, chartered accountants and registered auditors, a member of Ordem dos Revisores Oficiais de Contas (Edict of the Official Accounts’ Examiners), as indicated in the audit reports with respect thereto.

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The financial information contained in this Offering Circular was extracted or derived from the Audited Group Financial Statements and from the press release of the BES Group’s non-audited quarterly results with respect to the three months ended as at 31 March 2014 released on 15 May 2014.

The Audited Group Financial Statements were prepared in accordance with IFRS, in accordance with Regulation (EC) no. 1606/2002, of 19 July 2002, and Notice no. 1/2005 of the Bank of Portugal (Banco de Portugal), and audited by KPMG & Associados – Sociedade de Revisores Oficiais de Contas, S.A.

The Audited Group Financial Statements are incorporated by reference herein, as stated in “Documentation Incorporated by Reference”.

The press release of the BES Group’s quarterly results, with respect to the three months ended and as at 31 March 2014, released on 15 May 2014, is a part of this Offering Circular and is reproduced in full in Appendix 1 to this Offering Circular (the “Q1 Release”). The financial information with respect to the three months ended, and as at 31 March 2014, included in “Summary Financial and Other Data”, “Capitalisation and Indebtedness of the BES Group” and “Selected Financial and Other Information of the BES Group” has been extracted or derived from the Q1 Release.

The analysis of the consolidated financial and economic information contained in this Offering Circular should be read in conjunction with the Audited Group Financial Statements.

Unless stated otherwise, in this Offering Circular financial and statistical information for BES or the BES Group is presented on a consolidated basis.

BES’ consolidated financial information is stated in Euros, unless otherwise mentioned if a specific context so requires. References to “euro”, “Euro”, “EUR” or “€” are to the single currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union (the “EU”), as amended from time to time.

Certain financial information contained in this Offering Circular has been rounded. For this reason, in some cases, the sum of the figures in a given column may not conform exactly to the total figure presented in that same column. Figures that are represented in percentages in this Prospectus have not been calculated on the basis of rounded figures, but rather on those values prior to rounding.

BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Source: Bank of Portugal), 18.8% in retirement savings plan (Source: Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Source: Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Source: Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Source: Bank of Portugal), 18.8% in other loans to individuals (Source: Bank of Portugal), 12.3% in billing cards (Source: SIBS), 25.7% in corporate loans (Source: Bank of Portugal), 17.2% in leasing (Source: Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Source: Portuguese Factoring Companies Association), 30.6% in trade finance (Source: SWIFT), 15% in brokerage (Source: Euronext) and 28.8% in POS (Source: SIBS).

The market share in the corporate segment of BES’ domestic business, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Source: Bank of Portugal), 25.7% in corporate loans (Source: Bank of Portugal), 17.2% in leasing (Source: Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Source: Portuguese Factoring Companies Association), 30.6% in trade finance (Source: SWIFT), 15% in brokerage (Source: Euronext) and 28.8% in POS (Source: SIBS).

xiv DOCUMENTATION INCORPORATED BY REFERENCE

Certain information is incorporated by reference into this Offering Circular, which means that important information is being disclosed by referring to such information. The information being incorporated by reference is an important part of this document and should be reviewed before deciding whether or not to participate in the Combined Offering.

The Audited Group Financial Statements, including the external auditor report and the report of the Statutory Auditor in respect of each such year therein are incorporated by reference into, and shall be treated as forming an integral part of, this Offering Circular. Other than such documents, no other document or information is incorporated by reference in this Offering Circular.

The Audited Group Financial Statements may be accessed at http://www.bes.pt/annualreport. The Audited Group Financial Statements incorporated by reference in this Offering Circular are set forth within BES’ annual reports for the relevant years. Other than the financial statements specifically referred to above, no other part of such annual reports is incorporated into, or forms any part of, this Offering Circular and should be disregarded in connection with decisions in respect of the Rights or New Shares.

This Offering Circular (including the documents incorporated by reference herein) refers to certain websites and documents. The contents of such websites and documents are not incorporated by reference in this Offering Circular.

xv THIS PAGE INTENTIONALLY LEFT BLANK SUMMARY

This summary highlights certain information contained in this Offering Circular. This summary is not complete and does not contain all the information that investors should consider in connection with any decision relating to the Rights or the New Shares. This summary should be read in conjunction with, and this summary is qualified in its entirety by, the more detailed information included in this Offering Circular, including the Audited Group Financial Statements incorporated by reference herein. Any decision to exercise Rights or to invest in the Rights or the New Shares should be based on consideration of this Offering Circular as a whole. Potential investors should pay special attention to the risks of exercising Rights or investing in the Rights or the New Shares as set out in the “Risk Factors” section.

BES Overview The BES Group, a universal financial services group, has its headquarters in Portugal, which makes it its primary market. With a presence in four continents, activity in 25 countries and employing more than 10,000 people, the BES Group is currently the largest Portuguese listed bank by market capitalisation (€5.5 billion as of 31 March 2014) and the second largest private-sector bank in Portugal by total assets (€80.6 billion on 31 December 2013).

With its differentiated approaches and value propositions, the BES Group offers a broad range of financial products and services intended to meet the specific needs of all client segments—companies, institutions and individual clients. These include deposits, loans to companies and individuals, investment funds management, brokerage and custodian services, investment banking services, and also the sale of life and non-life insurance.

Since its privatisation, BES has followed a clear and consistent strategy of organic growth in its domestic market (where its share has increased from 8.5% in 1992 to 19.5% in 2013)1, which has benefited from the development of a market approach based on a multi-specialist model. An organic growth strategy based on solid brand recognition and strong commercial dynamics have made BES a leading financial institution in the domestic market and in particular in the corporate segment where it holds a 25.5% market share2 as at December 2013.

Distribution capacity is a key factor in the BES Group’s competitive positioning. At 31 December 2013, the BES Group had a domestic retail network of 643 branches and a network of 145 international branches, including 31 in Spain, 71 in Angola, 33 in Libya and 2 in Cape Verde. This is complemented by specialised centres fully dedicated to the corporate and private banking segments: at the end of 2013 the BES Group had 28 private banking centres (23 in Portugal, 4 in Spain and 1 in Angola) and 37 corporate banking centres (25 in Portugal, 7 in Spain and 5 in Angola).

The resizing of the domestic distribution network involved the closure of 23 less profitable branches but also included investment in new, more efficient and flexible formats, such as smaller branches and onsite branches in partnership with insurance agents, within the scope of the Assurfinance programme (a joint venture with Companhia de Seguros Tranquilidade).

1 BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Bank of Portugal), 18.8% in retirement savings plan (Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Bank of Portugal), 18.8% in other loans to individuals (Bank of Portugal), 12.3% in billing cards (SIBS), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS). 2 The market share in the corporate segment, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

1 In addition to its offices and branches, the BES Group has also developed a multi-channel approach to its clients, particularly with offerings over the internet. In 2013 the number of frequent users of BESnet, the internet banking service for individual clients, increased by 7% year-on-year to 377,000, consolidating the BES Group’s leading position in internet banking in Portugal. This multi-channel approach has been progressively enhanced and reinforced, through the implementation of a Customer Relationship Management system that ensures the integration of the various client interaction channels, and also through the increasing dematerialisation of processes.

Complementing its domestic operations, the BES Group has a targeted international focus on countries with cultural and economic affinities with Portugal, such as Spain, Angola and Brazil.

The know-how developed in the domestic market in corporate banking, investment banking and private banking allows the BES Group to export its skills and expertise to serve both local customers and those who engage in cross-border business, namely by supporting the internationalisation of Portuguese companies. In this regard, particular emphasis is placed on facilitating access to strategic markets and markets offering business opportunities and where the BES Group can provide support, either through its direct presence or through partnerships with local banks.

Key Strengths and Strategic Positioning Key Strengths BES’ position in the banking industry is due to the following key strengths:

Leadership in the corporate segment BES has achieved a position of leadership in the corporate segment in Portugal, with a market share of 25.5%3. The success in this segment stems in part from the BES Group’s development of a wide range of tools to promote and support the internationalisation of Portuguese companies, including having direct presence in most important international markets, running a dedicated unit to support the process of internationalisation (International Premium Unit or IPU), offering specialised trade finance products, maintaining a wide range of relationships with correspondent banks, a research team focused on countries and sectors and organising trade missions with corporate clients to target markets, among others.

BES’ leadership position in the corporate segment should position it to be able to take advantage of the economic recovery in Portugal.

Broad international presence, focused in markets with strong growth potential and traditional business relations with Portugal Complementing its domestic operations, the BES Group has developed international activities focused on countries with cultural and economic affinities with Portugal, such as Spain, Angola and Brazil. The know-how developed in the domestic market in corporate banking, investment banking and private banking has allowed the BES Group to export its skills and expertise to serve both local customers and those who engage in cross-border business, particularly in supporting the internationalisation of Portuguese companies. In this regard, the BES Group places particular emphasis on facilitating access to markets offering business opportunities and to where it can provide support, either through its direct presence or through partnerships with local banks.

The historic links with Africa and South America (especially with Angola and Brazil), the internationalisation of national companies, the growing inter-dependence of global economies and the Portuguese communities established across several continents have provided the basis for the international expansion of the BES Group.

3 The market share in the corporate segment, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

2 Today, with its presence in 25 countries on four continents, BES is the most international of all Portuguese private-sector banks4. The expansion of international activities has been crucial to offsetting the slowdown of domestic activity5.

Strong brand identity, with more than 145 years of history, strengthening the relationship between BES, its clients and all other stakeholders BES has been creating value for clients, employees and shareholders for more than 145 years. Its first and foremost mission is to align a strategy of sustained reinforcement of its competitive position with absolute respect for the interests and well-being of its clients and employees. BES is aware of its duty to actively contribute to the economic, social, cultural and environmental development of Portugal and of the communities among which it develops its activity.

Brand strength is the reflection of this positioning. In the Brand Finance Banking 500 League Table Report of 2014, Brand Finance considers BES the most valuable banking brand on PSI20. Reliance, innovation, transparency and social responsibility are the values behind this recognition.

Built over classical values such as financial competence, experience, reliance, stability and resilience, the BES Group’s brand adds contemporary values such as competitiveness, inclusiveness, accessibility and internationalisation. Cristiano Ronaldo is the brand’s “super awareness asset”, reinforcing the brand’s contemporary values of high performance through sustained effort.

The BES Group’s brand messaging is communicated effectively: since 2008 BES has consistently been the leader among the top 5 banks in Portugal for ad recall among customers6.

Consistency, depth and mainstreaming of the work that has been pursued over the last five years have granted the BES Group a leading role in the sustainability of the Portuguese financial sector (according to the Carbon Disclosure Project, in the Iberia 125 Climate Change Report 2013). Its external visibility in terms of social responsibility and sustainable development is demonstrated by the BES Group’s position among financial companies that are referenced in the Dow Jones Sustainability Indexes and FTSE4Good.

In 2013 BES was included among the 100 most sustainable companies in the world (Global 100 Most Sustainable Corporations in the World index), and also in the Dow Jones Sustainability World Index, being qualified in the bronze category of the Sustainability Yearbook 2014 for its excellent performance in sustainability and ranking among the 6 best banks in the Dow Jones Sustainability Indexes.

BES has grown organically within the Portuguese financial system and increased its average domestic market share from 8.5% when it was privatised in 1992 to 19.5% in 20137. Product innovation, focus on quality service, and strong brand recognition (particularly in attributes such as solidity and trust) makes the BES Group a reference leader in the domestic and international markets.

4 Source: Annual Reports of the Portuguese banks. 5 Source: Annual Reports and Accounts of the Portuguese banks. 6 Marketest—Publivaga Generic Advertising Tracking 2008 to 2013. 7 BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Bank of Portugal), 18.8% in retirement savings plan (Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Bank of Portugal), 18.8% in other loans to individuals (Bank of Portugal), 12.3% in billing cards (SIBS), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

3 Distinctive model of Retail and Private banking, allowing BES to systematically grow client base and funds above the market average In Retail Banking, BES has developed a segmented approach which allows for serving different groups of clients (mass-market, affluent and small business) with dedicated teams operating under a common network of branches and a common brand. BES has also developed partnerships with external, variable-cost, channels such as networks of assurfinance agents and external promoters that significantly contribute towards client acquisition and client funds growth.

BES is the market leader in private banking (with approximately a 30% market share, according to a study conducted by McKinsey & Co.) leveraging a personalised, high-quality private banking service. BES Private Banking operates based on a physical proximity network of 23 private banking centres in Portugal and 5 international points of contact. It offers specialised support by relationship managers and highly skilled asset allocation consultants and offers a broad range of products and services provided by in-house suppliers and by recognised third parties.

This retail and private banking model, together with the Espírito Santo brand awareness, translate into customer confidence. As a result, in 2013 BES achieved the position of market leader in customer satisfaction in Portugal in ECSI Portugal’s “European Customer Satisfaction Index”.

As a consequence, the growth in retail clients that consider BES their main bank has consistently been stronger than in the market (2011: BES: 3.9%, market: 0.0%; 2012: BES 5.0%, market: -0.1%; 2013: BES 5.0%, market: 0.0%)8.

With regards to individual client funds, BES has also achieved growth levels significantly above the market average (2011: BES: 3.7%; market: -2.6%; 2012: BES 8.3%, market: 1.5%; 2013: BES: 5.0%, market: 2.1%)9.

One of the most efficient banks in Iberia BES has been able to consistently reduce its domestic cost base: 2013 domestic operating costs were 4% lower than cost levels in 2012. Cost reduction has been achieved through the implementation of several productivity enhancement projects (credit and account workflow improvements, remote client managers model allowing for one manager to serve significantly more clients) that have allowed the time available to commercial activities to increase from 49% in 2010 to 58% in 2012.

The domestic cost base was also reduced by reorganising the branch network, closing branches with lower potential, innovating in branch formats with the creation of 2 FTE (full-time equivalent) branches and 1 FTE on- site branches in partnership with assurfinance agents.

Consequently, BES stands as one of the most efficient banks in Iberia and the most efficient of the four largest banks in Portugal by total assets, with a Cost-to-Income ratio10 in 2013, excluding Market Results, of 65.8% (BPI: 85.4%, MBCP: 89.0%; CGD: 95.5%).

Funding & Liquidity The balance sheet has been undergoing a deleveraging process, which started in the second half of 2010. Since then the loans to deposits ratio has decreased by 77p.p. to 121% as at 31 December 2013 (129% as at 31 March 2014), backed by a 41% increase in the deposit base (€10.7bn) and a 7% reduction of the loan portfolio (€3.7bn).

Net ECB funding amounted to €5.4bn as at 31 December 2013, much lower than the average for Portuguese Banks. There was a significant increase of ECB eligible pool of repoable securities, with the current liquidity buffer covering over five years of maturities.

8 Source: Marketest, BES. 9 Source: Marketest, BES. 10 Cost to income corresponds to the ratio between operating costs (including staff costs, general administrative expenses and depreciation and amortisation) in the numerator and banking income (including net interest income, net fees and commissions, net gains/(losses) from financial assets and liabilities at fair value through profit and loss, net gains from available for sale securities, other operating income, gains on disposals of investments in subsidiaries and associates, losses arising on business combinations achieved in stages and share of profit of associates) in the denominator.

4 Access to the international capital markets was regained. In November 2012, BES was the first Portuguese bank to issue debt in the capital markets since 2010, when such market had been closed to Portugal and Portuguese banks. Since then the Bank has completed four issuances of senior debt and one subordinated debt (that was already compliant with the new CRD IV/CRR (Basel III) rules) in the principal amount of €4 billion.

Solvency In the current environment, capital preservation has been a top priority for BES. Currently, the Core Tier 1 Ratio is above all minimum regulatory requirements, without the use of any public funds, allowing BES to maintain its strategic independence. As at 31 December 2013: • Bank of Portugal IRB Core Tier 1 ratio was 10.6%, above the 10% threshold, through reinforced core capital and deleveraging. • EBA Core Tier 1 ratio of 9.8% was above the 9% threshold. • CRD IV / CRR phasing-in common equity Tier 1 ratio of 10.2% was comfortably above the 7% minimum required. • Risk-weighted assets/prudential net assets ratio (according to the applicable Bank of Portugal rules, holdings in insurance and other non-banking companies are consolidated by the equity method) was 76%, which was due to a conservative approach to solvency levels.

Strategic Positioning The BES Group’s main pillar for development and strategic differentiation lies on service quality and innovation and a permanent focus on the needs of each client, whether individual, corporate or institutional.

With its differentiated value propositions, the BES Group offers a broad range of financial products and services intended to meet the specific needs of its clients.

A solid and stable management has enabled the development of a consistent strategy oriented towards a long- term vision based on long-standing relationships with its various stakeholders and a core group of leading shareholders since the Bank’s reprivatisation in 1991-1992.

The BES Group’s key strategic objectives are as follows: • Strengthening domestic positioning and improving profitability. This will be achieved through new retail and corporate clients and the reinforcement of the share-of-wallet in the current client base (particularly in saving products), combined with the diversified offering of innovative products and services, supported by cross-selling and cross-segment initiatives, such as bancassurance and assurfinance (in partnership with Companhia de Seguros Tranquilidade). In addition, the recovery of the Portuguese economy, mainly due to investment and exports growth, is expected to prompt an acceleration of corporate lending. With a market share of close to 25.5%11 in the corporate business, BES expects to have an important role in this process. The total credit portfolio is expected to post a marginal increase in the near term and the credit margin is expected to be positively impacted by the growing proportion of corporate loans in the overall loan portfolio. The acceleration in Portugal’s GDP coupled with the decrease in unemployment levels is expected to maintain the household savings rate at historically high levels, allowing for deposits in banks to continue growing. Backed by a strong brand, BES has been a leader in household funds growth, a trend that is expected to be maintained in the future, with BES expecting to grow above average market levels. In terms of efficiency, BES aims to continue streamlining its domestic cost base. Despite the macroeconomic and financial turmoil caused by the economic crisis, the BES Group has been able to

11 The market share in the corporate segment, which was 25.5% at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

5 maintain high standards of efficiency. BES’ cost-to-income ratio averaged 50.4% between 2008 to 2013, and from 2011 to 2013 it was able to maintain a flat consolidated cost base, despite the ongoing expansion of its international operations. This cost control performance was made possible by a decline of 3.6% per year on its average domestic operating costs from 2011 to 2013 (3.7% in staff costs), which offset the growth in international operating costs. BES expects that the gradual improvement of banking income, along with cost control measures, mainly on the domestic side driven by the cost-cutting programme initiated in 2013 that was aimed at reaching cost savings of €100 million between 2013 and 2015, should support improved efficiency levels, with BES’ cost to income ratio expected to trend consistently below 50%. The core profitability of the Bank has been severely hampered by the need to set aside significant provisions over the past several years, with provision charges surpassing 200 basis points of the gross loan portfolio in 2013, mainly due to BES’ focus on corporate loans. A sustained economic recovery in Portugal should translate into an improved outlook for asset quality, which in turn is expected to positively impact the provision charge. Hence, domestic provision charge is expected to gradually reduce to levels of approximately 85 bp in the medium-term. • Expanding international activities. This will be achieved through a stronger positioning in the strategic triangle (Iberia, Brazil and Africa) and expansion into new markets considered strategic and offering business opportunities. BES’ international footprint complements its domestic activity, as it is established in markets that have strong economic and cultural ties with Portugal as well as significant growth prospects. BES expects that Portuguese-speaking African countries will be a key driver in the profitability of its international operations. Additionally, BES’ presence in Spain, which has been a key market for customer funds, presents good prospects for continuing to develop an Iberian approach to both corporate business on the one hand and household funds on the other. BES has supported Iberian corporates in their cross-border business as well as in their internationalisation effort, namely leveraging on its African presence. BES’ presence in Portuguese-speaking African countries is mainly focused on Angola and Mozambique. Angola has experienced, on average, double-digit GDP growth for the last 10 years and the forecasts for the next 5 years remain encouraging. Angola’s outlook for banking activity is positive, with up to a 56% increase in total banking income and over 3 million new customers opening their first bank account by 2017, according to the Global Insight World Market Monitor. BES Angola intends to take advantage of these opportunities, and it defined a set of strategic priorities in 2013 aimed at (i) reinforcing its financial sustainability, (ii) expanding its branch network to over 100 branches by 2017 and (iii) strengthening all support capabilities. BES Angola’s equity was reinforced in 2013 by a capital increase of USD 500 million, placing this subsidiary among the best capitalised financial institutions in Angola. Mozambique also has been a core region for the BES Group since 2011, when BES became shareholder of Moza Banco with the acquisition of a 25.1% stake. In less than two years, Moza Banco launched over 25 new branches and is already the 4th largest bank with a market share of approximately 6% in February 2014, according to Banco de Moçambique. In June 2013, BES increased its stake in Moza Banco to 49% and aims to reach 15% market share in Mozambique by 2018 through the development of a local financial group leveraging complementary business lines such as investment banking, investment funds and asset management. Besides sub-Saharan Africa, Macao also presents high potential not only given its expected economic sustained growth levels but also by being an increasingly relevant trade hub between China and Portuguese- speaking countries on which BES has already established a presence. BES’ subsidiary in Macao was established in 1996 and thus far has mainly addressed trade finance operations. Aiming to reach higher profitability levels and given the opportunities referred to above, BES has developed a strategic plan for its Macao unit to 2017; • Supporting Portuguese companies in the phase of international expansion. BES achieves this through (i) partnerships with local entities; (ii) trade missions with entrepreneurs to relevant countries; (iii) recognised know-how in trade finance, a business area in which the BES Group has consistently been the market leader in Portugal, with a share of 30.6% (with market average shares in billing, cash letters, documentary credits and guarantees, according to SWIFT) in 2013; and (iv) dedicated teams and structures specialising in supporting companies in the process of internationalisation (including the International Premium Unit (the “IPU”), which has no equal in the Portuguese banking sector); and

6 • Developing a sustainability strategy. This strategy has the following dimensions: governance and ethics, corporate identity, innovation and entrepreneurship, financial inclusiveness; biodiversity and climate change and responsible citizenship. These areas have been defined on the basis of stakeholder consultation, the BES Group’s vision and activities and the trends for the financial sector.

Reason for the Combined Offering BES intends to use the net proceeds of the Combined Offering to further strengthen its capital ratios, leveraging on its competitive position in order to take advantage of the recovery of the Portuguese economy and to expand its international units, simultaneously creating additional capital buffers to face: 1. The new regulatory framework known as CRD IV, applicable to EU financial institutions since 1 January 2014, aligning the fully loaded Basel III CET1 ratio with the new market benchmark. 2. The asset quality review and stress tests which will be performed before the ECB assumes the supervisory function of the main banks of the European Union at the end of 2014.

7 SUMMARY OF THE TERMS OF THE COMBINED OFFERING

For further information on the terms and conditions of the Combined Offering, see “Terms and Conditions of the Combined Offering”. This summary terms and conditions of the Combined Offering and other parts of this Offering Circular (including “Terms and Conditions of the Combined Offering”) state certain dates and actions to be taken by certain dates. Such dates are expected and subject to change. All times stated in this Offering Circular are Lisbon time unless otherwise stated.

BES Banco Espírito Santo, S.A., a public company (sociedade aberta) incorporated in Portugal on 26 September 1990 for an unlimited duration (with registered and tax identification number 500852367).

The Combined Offering The Combined Offering, comprising: • the Rights Offering; and • the Institutional Offering,

representing in aggregate approximately 28.57% of the shares representing the share capital of BES (immediately after the registration of the capital increase in the Companies Register and assuming all of the New Shares are subscribed for). The maximum number of New Shares and the impact on BES’ share capital is as follows:

Number of Shares in issue as of 15 May 2014 (the latest practical date prior to the date of this Offering Circular) 4,017,928,471

Number of New Shares (maximum) 1,607,033,212

Number of Shares in issue immediately following the issuance of the New Shares (assuming all of the New Shares are subscribed for) 5,624,961,683

Subscription Price €0.65 per New Share subscribed for, either through exercises of Rights or in the Institutional Offering. The Subscription Price must be paid in Euros.

The size of the share capital increase as a result of the Combined Offering will be reduced to the extent that New Shares are not subscribed for pursuant to the exercise of the Rights in the Rights Offering and are not underwritten by the Underwriters.

For more detailed information on participating in the Combined Offering, see “Terms and Conditions of the Combined Offering”.

The Combined Offering may be terminated under certain circumstances at any time, including with respect to Rights already exercised. See “Terms and Conditions of the Combined Offering”.

The Rights Offering BES is offering up to 1,607,033,212 New Shares to existing holders of its ordinary shares (the “Existing Shareholders”), no par value (“Shares”), as of the Record Date at the Subscription Price. Existing Shareholders will receive one Proportional Right for every one Existing Share they own as of the Record Date. Subject to compliance with applicable law, holders of Proportional Rights will be entitled to subscribe with preference over other investors at the Subscription Price for a number of New Shares determined by multiplying the

8 number of Proportional Rights they hold by a factor of 0.4, which for Existing Shareholders is equivalent to 2 New Shares for every 5 Existing Shares owned on the Record Date. See “—Proportional Rights” and “—Oversubscription Rights”. The Rights Offering may be terminated under certain circumstances at any time prior to the end of the Subscription Period, including with respect to Rights already exercised. Rights must be exercised in accordance with applicable laws, including securities laws, and BES reserves the right to reject applications to exercise Rights where it is not satisfied (in its sole discretion) that this is the case.

See “Terms and Conditions of the Combined Offering”.

Subscription Period The Subscription Period for the Rights Offering is from 8:30 a.m. on 27 May 2014 to 3:00 p.m. on 9 June 2014. Any Rights unexercised at the end of the Subscription Period will expire valueless without any compensation. Any exercise of Rights will become irrevocable after the close of business on 4 June 2014.

Underwriting The Underwriters have severally (and not jointly) agreed, subject to certain conditions either to procure subscribers, or themselves to subscribe, at the Subscription Price, for the Remaining Shares. Any such Remaining Shares are expected to be offered to eligible investors in Portugal and elsewhere outside the United States in the Institutional Offering.

The Institutional Offering The Remaining Shares, if any, are expected to be offered by the Underwriters in the Institutional Offering, which consists of an offering to eligible investors in Portugal and elsewhere outside the United States.

The New Shares The New Shares represent up to 1,607,033,212 new Shares. The New Shares will be created pursuant to Portuguese law, including the Portuguese Companies Code (Código das Sociedades Comerciais) and Portuguese Securities Code (Código dos Valores Mobiliários) and other applicable legislation, and pursuant to the articles of association of BES.

Proportional Rights Existing Shareholders will receive one Proportional Right for every one Existing Share they own as of the Record Date. The Proportional Rights may, if not exercised by the recipient thereof, be traded (see “—Transfer of Rights” below). Subject to compliance with applicable law, holders of Proportional Rights will be entitled to subscribe at the Subscription Price for a number of New Shares determined by multiplying the number of Proportional Rights they hold by a factor of 0.4, which for Existing Shareholders is equivalent to 2 New Shares for every 5 Existing Shares owned on the Record Date. Fractions of New Shares will not be issued, and any fractions arising through the exercise of Proportional Rights will be rounded down to the nearest whole Share.

Subscriptions will be accepted for a whole number of New Shares only, although holders of Proportional Rights may exercise their right to subscribe for New Shares in whole or in part.

Oversubscription Rights The Rights include Oversubscription Rights entitling holders that exercise Proportional Rights to apply to subscribe, at the Subscription Price, for a number of New Shares in addition to those subscribed for

9 by exercising Proportional Rights. Such applications to exercise Oversubscription Rights will be satisfied, in whole or in part, in the event that all of the New Shares are not subscribed for pursuant to the exercise of Proportional Rights.

In the event that less than all the New Shares are subscribed for pursuant to the exercise of Proportional Rights, the New Shares not subscribed for pursuant to the exercise of the Proportional Rights will be allocated to holders of Proportional Rights who have exercised their Oversubscription Rights. Such allocation will be prorated among holders of Proportional Rights who have exercised Oversubscription Rights in proportion to their exercise of Proportional Rights, subject to any maximum limit in respect of their exercise of Oversubscription Rights. An Oversubscription Right is not separable from a Proportional Right. Fractions of New Shares will not be issued, and any fractions arising through the exercise of Oversubscription Rights will be rounded down to the nearest whole Share. Any New Shares that are not subscribed for pursuant to the above will be allocated, once, on a random basis for subscription among all Existing Shareholders whose exercise of Oversubscription Rights have not already been satisfied in full.

Transfer of Rights Subject to compliance with relevant securities laws, the Rights are freely transferable and are expected to trade on Euronext Lisbon under the symbol “BESDS” from 27 May 2014 to 3 June 2014. It may also be possible to trade Rights on an over-the-counter market.

Irrespective of whether Rights are traded on Euronext Lisbon or on an over-the-counter market, Rights that are not exercised prior to the end of the Subscription Period will expire valueless without any compensation, and the corresponding New Shares will be allocated to any holders of Rights who have validly exercised their Oversubscription Rights, subject to any limit indicated by the exercising holder, or otherwise in the Institutional Offering.

Cum-Rights Date The Cum-Rights Date, on which the Shares commenced trading with Rights on Euronext Lisbon, was 21 May 2014 following the approval of the Board on 15 May 2014, the announcement of the Rights Offering on 15 May 2014 and the notice regarding the exercise of Rights issued 20 May 2014.

Record Date The Record Date for the purpose of determining entitlement to Rights is 4:40 p.m. (Lisbon time) on 21 May 2014, if Shares are acquired on Euronext Lisbon, which will be the last day that the Shares will trade with Rights on Euronext Lisbon. If Shares are acquired on an over- the-counter market, and such Shares are delivered by 7:00 p.m. (Lisbon time) on 26 May 2014, the Record Date with respect to such Shares is 7:00 p.m. (Lisbon time) on 26 May 2014.

At the opening of business on 27 May 2014, the Rights are expected to be credited through the book-entry system of the Central de Valores Mobiliários (the “CVM”) to the accounts of persons who held Shares on the Record Date.

Ex-Rights Date The Ex-Rights Date will be 22 May 2014. The Shares will trade on Euronext Lisbon without any Rights on and after such date.

Dilution In the event that any Existing Shareholder does not exercise its Proportional Rights, such Existing Shareholder may experience

10 substantial dilution of its ownership interest, since other Existing Shareholders may subscribe for additional New Shares pursuant to the exercise of their Rights and any New Shares not subscribed for in the Rights Offering will be allocated, subject to certain conditions, subsequently to eligible investors outside of the United States in the Institutional Offering.

Existing Shareholders that do not exercise their Proportional Rights will be diluted such that an Existing Shareholder holding 1.00% of the Shares prior to the Combined Offering will have its shareholding reduced to approximately 0.714% assuming the issuance of 1,607,033,212 New Shares in the Combined Offering.

Delivery of Shares Upon valid exercise of any Rights and payment of the Subscription Price, the authorised financial intermediary with whom the subscription was made will register with the CVM such subscriber’s name or such subscriber’s nominee’s name and the amount of the New Shares subscribed. BES expects to issue the New Shares on or around 16 June 2014. Following the registration of the resulting share capital increase with the Portuguese Commercial Registry in Lisbon, the issued New Shares will be delivered to subscribers by credit of such New Shares to each subscriber’s individual book-entry securities account. This is expected to take place on or around 16 June 2014. However, BES can give no assurance that such issuance and delivery will not be delayed.

The New Shares will rank equally in all respects with the existing Shares. The New Shares will confer all of the other rights of the existing Shares, including voting rights, from their date of issuance. However, these rights are exercisable by their holders only from the date of the registration of the relevant resulting share capital increase with the Portuguese Commercial Registry in Lisbon and credit of the relevant New Shares to the subscriber’s individual book-entry securities account with a financial intermediary registered with the CVM. The New Shares will grant to their holders the right to any dividend that may be approved for the year ended 31 December 2014 and thereafter.

Exercise of Rights Each holder of Rights may exercise all or only part of its Proportional Rights and, if it elects to exercise Proportional Rights, may also elect to exercise its Oversubscription Rights. Each holder of Rights can subscribe for New Shares pursuant to the exercise of Rights by any means approved by such authorised financial intermediary through which the subscription is made.

The authorised financial intermediary through which a subscription for the New Shares is made may require a subscriber to pay the full subscription price into a deposit account as a condition to accepting the relevant subscription. Subscriptions must be received prior to 3:00 p.m. on 9 June 2014. Any subscriber for New Shares will bear any risk associated with the delivery of its subscriptions and its subscription payment of the New Shares. Each holder of Rights who wishes to exercise such Rights should consult the financial intermediary through which it holds its Shares and such Rights as to the manner, timing and form of exercise documentation, method of making the subscription payment and other related matters required to effect such exercise. Following the end of the Subscription Period and the receipt from the CVM of details of all subscriptions, BES or, if so

11 designated, BES Investimento will determine the aggregate number of New Shares subscribed by each subscriber. BES Investimento will publish a notice on the CMVM website indicating the number of New Shares subscribed for pursuant to the Combined Offering.

Intention of the Core Shareholders to Subscribe Espírito Santo Financial Group, S.A. has informed BES that it intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell during the Rights Offering Shares or Rights for New Shares and reinvest in full the net proceeds from such sale in the subscription of New Shares in the Rights Offering. Crédit Agricole also has informed BES that it intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell Shares or Rights and reinvest approximately €10 million of the net proceeds thereof in the subscription of New Shares in the Rights Offering.

Governing Law The Combined Offering will be governed by Portuguese law.

Expected Proceeds Based on the Subscription Price, and assuming full subscription of the New Shares, BES expects that the net proceeds of the Combined Offering will be approximately €1,011 million, after deducting (i) fees, commissions and expenses related to the Combined Offering in an amount of €2.5 million; and (ii) underwriting and other commissions payable to the Underwriters in a maximum amount of approximately €31 million.

Use of Proceeds BES intends to use the net proceeds of the Combined Offering to further strengthen its capital ratios, leveraging on its competitive position in order to take advantage of the recovery of the Portuguese economy and to expand its international units, simultaneously creating additional capital buffers to face: 1. The new regulatory framework known as CRD IV, applicable to EU financial institutions since 1 January 2014, aligning the fully loaded Basel III CET1 ratio with the new market benchmark. 2. The asset quality review and the stress tests, which will be performed before the ECB assumes the supervisory function of the main banks of the European Union at the end of 2014.

Listing and Admission to Trading The Shares are admitted to trading on a regulated market, Euronext Lisbon, and have the following ISIN: PTBES0AM0007. BES has applied for the admission to trading of the New Shares on the same regulated market after registration of the share capital increase with the Portuguese Commercial Registry in Lisbon, which is expected to occur on or around 16 June 2014. BES expects that the New Shares will be admitted to trading on or around 17 June 2014, at which time the New Shares are expected to trade together with, and have the same ISIN as, the Existing Shares unless required to be issued on a separate ISIN. However, BES can give no assurance that registration of the share capital increase and admission to trading of the New Shares will not be delayed.

Expected Transaction Timetable The timetable below lists certain important dates relating to the Combined Offering. All time references are to Lisbon time. All dates and times are expected and subject to change. No assurance can be given that the settlement of New Shares will not be delayed.

12 Announcement of terms of the Combined Offering ...... 15May2014 Record Date(1) ...... 21May2014 Ex-Rights date ...... 22May2014 Subscription Period for exercise of Rights commences ...... 27May2014 Trading of Rights commences on Euronext Lisbon ...... 27May2014 Trading of Rights ceases on Euronext Lisbon ...... 3June 2014 Exercises of Rights become irrevocable(2) . . . after close of business on 4 June 2014 Expiration of Subscription Period ...... 3:00 p.m. 9 June 2014 Announcement of results of the Rights Offering subscription(3) ...... 11June 2014 Financial settlement ...... 16June 2014 Expected date for the registration of share capital increase with the Portuguese Commercial Registry ...... onoraround 16 June 2014 Expected date of issue of the New Shares(4) ...... onoraround 16 June 2014 Expected date for commencement of trading of the New Shares on Euronext Lisbon(4) ...... onoraround 17 June 2014

Notes: (1) 4:40 p.m. (Lisbon time). If investors acquire Shares on an over- the-counter market, and such Shares are delivered by 7:00 p.m. (Lisbon time) on 26 May 2014, the Record Date with respect to such Shares is 7:00 p.m. (Lisbon time) on 26 May 2014. (2) Following this date, subscription orders may be amended to increase the number of New Shares requested. (3) The results of the Rights Offering will be announced by BESI. (4) The issue of New Shares and the commencement of trading on Euronext Lisbon is conditioned on obtaining the share capital increase registry on the Portuguese Commercial Registry, which is expected to occur on 16 June 2014. No assurance can be given that the Registration of the share capital increase and, consequently, the issuance and delivery of the New Shares will not be delayed.

Existing Shares New Shares (once admitted Rights ISIN and Trading Symbol to trading)

ISIN: PTBES0AM0007 PTBES0AM0007 PTBES0AMS068

Trading Symbol: BES BES BESDS

Lockup of BES BES has agreed with the Underwriters, that, subject to certain exceptions, during the period that began on 15 May 2014 and continues through and including the date 180 days after the date of delivery of the Remaining Shares, not to offer, sell, contract to sell or otherwise dispose of any ordinary shares of BES or any of its other securities that are substantially similar to its ordinary shares,

13 including, but not limited to, any securities that are convertible into or exchangeable for, or that represent the right to receive, any of its ordinary shares, or any such substantially similar securities. See “Plan of Distribution and Arrangement”.

Lockup of Core Shareholders Each of Crédit Agricole and ESFG has agreed that, subject to certain exceptions permitting, inter alia, sales of Shares or Rights prior to the settlement of the Rights Offering, during the period that began on 15 May 2014 and continues through to and including the date 180 days after the date of physical settlement of the Combined Offering, such parties and their respective subsidiaries and other affiliates will not offer, sell, contract to sell or otherwise dispose of any ordinary shares of BES or any other securities of BES that are substantially similar to the ordinary shares of BES, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, ordinary shares of BES or any such substantially similar securities. See “Plan of Distribution and Arrangement”.

14 SUMMARY RISK FACTORS The BES Group is exposed to a number of risks and uncertainties which have the potential to adversely affect the BES Group’s business, results of operations, financial condition, prospects and its ability to meet its targets. These risks include, but are not limited to, the following:

Risks Relating to the Economic Crisis in Portugal, the Volatility in Global Financial Markets and the BES Group’s Business • Risks relating to the Portuguese economy • The BES Group’s business and performance are and may continue to be negatively affected by actual or perceived risks relating to global economic conditions and to the Euro Zone sovereign debt crisis • The BES Group is exposed to the economic conditions in the international markets and to adverse political, governmental or economic developments related to its international expansion • The BES Group’s business and performance are and may continue to be negatively affected by risks relating to conditions in the global financial markets and the soundness of other financial institutions • The BES Group is subject to the risk that liquidity may not be available, and this risk may be exacerbated by market conditions • The BES Group is constrained in its ability to obtain funding in the capital markets and is dependent on the ECB for funding and liquidity • Any reduction in BES’ credit rating would increase its cost of funding and adversely affect its net interest margin • The BES Group’s business is particularly sensitive to volatility in interest rates • The BES Group engages in various proprietary trading activities and is exposed to risks relating to losses from proprietary trading caused by adverse changes in financial assets recorded at fair value • The BES Group is exposed to the risk of public debt securities of peripheral Euro Zone countries • The BES Group faces currency fluctuation risks relating to its operations outside the Euro Zone • The BES Group’s business is significantly affected by credit risk • The BES Group is exposed to credit concentration risks • The BES Group is exposed to the Portuguese real estate market • Competition in Portugal and in the international markets in which the BES Group operates could have a negative effect on the BES Group’s business • The BES Group’s success depends on its ability to maintain its customer base • The BES Group is exposed to reputational risks • Reputational risks for the BES Group associated with a potential deterioration or perceived deterioration of the financial position of Espírito Santo International, S.A. or its subsidiaries • The financial condition of Espírito Santo International, S.A. could have an adverse impact on the BES Group’s reputation and the market price of BES’ shares • The BES Group is exposed to actuarial and financial risks related to its pension and medical care obligations towards its employees • The personal guarantee provided by the Portuguese state for loans provided by the European Investment Bank (“EIB”) to Portuguese credit institutions may not be renewed and as a consequence BES may lose its eligibility status with the EIB • Guarantees granted by the Portuguese state to debt instruments issued by BES may be enforced • The personal guarantee provided by the Angolan state in favour of BESA, regarding transactions with Angolan companies, may not be renewed • The BES Group’s hedging operations may not avoid losses or be effective • The BES Group may not successfully implement its gradual plan for the reduction of domestic activity costs • The BES Group’s business is subject to operational risks • The BES Group is increasingly dependent on information technology systems and, as a result, is exposed to the risk of information technology system failure

15 • The BES Group could face difficulties in hiring and retaining qualified personnel • Terrorist attacks, a pandemic or other unpredictable events could have an adverse effect on the business and results of the BES Group

Risks Relating to the Activities of the BES Group Being Highly Regulated and the Requirement for the BES Group to Raise New Capital • The BES Group operates in an industry that is highly regulated in Portugal and in the other markets in which it operates • The prudential regulatory framework of CRD IV/CRR establishes, among others, more demanding requirements and minimum capital reserves and liquidity ratios • Under the Single Supervisory Mechanism, the ECB will take on the supervision of ESFG and the BES Group in late 2014 • The creation of the Single Resolution Mechanism may have an adverse impact on the BES Group’s credit rating • The planned creation of a deposit protection system applicable throughout the EU may result in additional costs to the BES Group • Governmental regulatory responses to market disruptions may be inadequate and may have unintended consequences • Compliance with anti-money laundering and anti-terrorism financing rules may involve further cost and effort • The BES Group may be adversely affected by changes in fiscal legislation and regulations • Risks relating to standardised contracts and forms may have an adverse effect on the BES Group’s financial condition and results of operations • The results of litigation in which the BES Group is not a party may have adverse consequences for the BES Group

Risks Relating to BES’ Shareholding and Corporate Structure • If the BES core shareholders were to sell their holdings, it could have a material adverse effect on BES’ share price • The BES Group is exposed to the risk of changes to its strategic partnerships • The BES Group is exposed to the risk of changes in its management • Operations intended to increase BES’ capital may result in a successive dilution of shareholders’ holdings, if pre-emption rights are not exercised • BES may be subject to an unsolicited takeover bid

Risks Relating to the Combined Offer and the New Shares • The price of the BES’ shares may decline • Investors’ rights as shareholders will be governed by Portuguese law, which may differ in some respects from the rights of shareholders under the laws of other countries • The development of a trading market for the Rights cannot be assured • No compensation will be received by shareholders if the Rights expire unexercised • Shareholders’ ownership will be diluted if they do not exercise all of their Proportional Rights • There can be no assurance that the BES Group will be able to pay dividends in the future • The Underwriting Agreement may be terminated in certain limited circumstances • The rights of minority shareholders may be limited under Portuguese law • Legal or regulatory investment constraints may restrict certain investments • Possible FATCA withholding after 2016 • If BES were to become a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, U.S. investors would be subject to certain adverse U.S. federal income tax rules

16 SUMMARY FINANCIAL AND OTHER DATA

The financial information as at and for the years ended 31 December 2013, 2012 and 2011 contained in this Offering Circular was extracted from the Audited Group Financial Statements incorporated by reference herein. See “Documentation Incorporated by Reference”. The financial information as at and for the three months ended 31 March 2014 and 31 March 2013 set forth in the tables below was extracted from the Q1 Release, reproduced in full in Appendix 1 hereto.

The Audited Group Financial Statements were prepared in accordance with IFRS in accordance with Regulation (EC) no. 1606/2002, of 19 July 2002, applicable as stated in Notice no. 1/2005 of the Bank of Portugal (Banco de Portugal).

The consolidated financial and other information contained in this section should be read in conjunction with the remaining financial information included in this Offering Circular, in particular the information included in “Operating and Financial Review”, and in the Audited Group Financial Statements incorporated by reference in this Offering Circular, as well as the Q1 Release, reproduced in full in Appendix 1.

For a description of certain post-31 March 2014 balance sheet events, including adjustments to BES’ share capital assuming completion of the Combined Offering, see “Capitalisation and Indebtedness of the BES Group”.

As at 31 March As at 31 December Balance Sheet 2014 2013 2012 2011 (EUR million) Assets Cash and deposits at Central Banks ...... 1,806.0 1,719.4 1,377.5 1,090.4 Deposits with banks ...... 705.1 542.9 681.1 580.8 Financial assets held for trading ...... 2,620.4 2,507.9 3,925.4 3,434.6 Financial assets at fair value through profit or loss ...... 3,922.0 3,874.3 2,821.6 1,964.0 Available-for-sale financial assets ...... 11,131.2 8,486.6 10,755.3 11,482.9 Loans and advances to banks ...... 2,930.5 5,431.5 5,426.5 3,282.6 Loans and advances to customers ...... 47,350.6 46,334.9 47,706.4 49,043.4 Held-to-maturity investments ...... 1,532.8 1,499.6 941.5 1,541.2 Hedging derivatives ...... 322.4 363.4 516.5 510.1 Non-current assets held for sale ...... 3,510.4 3,567.0 3,277.5 1,646.7 Investment properties ...... 393.1 395.9 442.0 0.0 Other tangible assets ...... 928.7 925.4 931.6 851.7 Intangible assets ...... 458.8 455.4 555.3 230.3 Investments in associates ...... 433.8 536.7 581.0 807.0 Current income tax assets ...... 34.3 36.4 24.6 28.7 Deferred income tax assets ...... 1,054.7 1,034.3 728.9 712.2 Reinsurance Technical Provisions ...... 10.9 10.4 3.8 0.0 Other assets ...... 3,671.5 2,886.0 2,994.2 3,030.9 Total assets ...... 82,817.3 80,608.0 83,690.8 80,237.4 Non-current Assets(1) ...... 3,269.1 3,347.6 3,238.8 2,601.2 Liabilities Deposits from central banks ...... 9,863.0 9,530.1 10,893.3 10,013.7 Financial liabilities held for trading ...... 1,375.0 1,284.3 2,122.0 2,125.3 Deposits from banks ...... 5,296.7 4,999.5 5,088.7 6,239.4 Due to customers ...... 36,241.9 36,830.9 34,540.3 34,206.2 Debt securities ...... 12,666.1 11,919.5 15,424.1 18,452.6 Hedging derivatives ...... 114.0 130.7 125.2 238.6 Investment contracts ...... 4,763.6 4,278.1 3,413.6 0.0 Non current liabilities held for sale ...... 155.1 153.6 175.9 141.0 Provisions ...... 215.9 192.5 237.0 190.5

17 As at 31 March As at 31 December Balance Sheet 2014 2013 2012 2011 (EUR million) Technical provisions ...... 1,771.5 1,754.7 1,577.4 0.0 Current income tax liabilities ...... 146.9 101.9 221.2 44.9 Deferred income tax liabilities ...... 130.0 97.1 154.0 110.5 Other subordinated loans ...... 982.9 1,066.3 839.8 961.2 Other liabilities ...... 2,077.5 1,219.7 1,145.6 1,321.1 Total Liabilities ...... 75,800.1 73,558.7 75,958.1 74,045.0 Equity Capital ...... 5,040.1 5,040.1 5,040.1 4,030.2 Share Premium ...... 1,070.1 1,067.6 1,069.5 1,081.7 Other capital instruments ...... 29.2 29.2 29.3 29.5 Treasury stock ...... (0.9) (0.9) (7.0) (1.0) Preference shares ...... 159.3 159.3 193.3 211.9 Other reserves and retained earnings ...... 113.1 468.9 641.9 360.5 Profit for the period attributable to equity holders of the bank holders of the bank ...... (89.2) (517.6) 96.1 (108.8) Total equity attributable to equity holders of the Bank ...... 6,321.9 6,246.7 7,063.2 5,604.0 Non-controlling interest ...... 695.4 802.6 669.4 588.4 Total Equity ...... 7,017.3 7,049.3 7,732.6 6,192.4 Total Liabilities and Equity ...... 82,817.3 80,608.0 83,690.8 80,237.4

Notes: (1) Non-current Assets includes other tangible assets, intangible assets, investments in associates, deferred tax assets and investment properties.

Three months ended 31 March Year ended 31 December 2014 2013 2013 2012 2011 (EUR million) Interest and similar income ...... 826.6 860.4 3,467.0 3,914.1 4,084.9 Interest expense and similar charges ...... 556.6 638.5 2,432.7 2,733.6 2,903.3 Net interest income ...... 269.9 221.9 1,034.3 1,180.5 1,181.6 Dividend income ...... 2.5 1.9 58.5 72.6 167.7 Fees and Commissions ...... 145.9 163.0 665.6 793.9 758.1 Net gains from financial assets at fair value through profit or loss ...... (49.4) (70.5) (299.4) (59.4) (178.9) Net gains from available-for-sale financial assets ...... 203.3 161.0 441.1 600.2 (68.8) Other operating income ...... (19.8) (29.2) 0.8 53.0 233.5 Operating income ...... 552.3 448.0 1,900.9 2,640.8 2,093.2 Operating costs ...... 286.4 280.5 1,137.0 1,149.1 1,129.2 Impairment and provision ...... 380.6 240.1 1,422.9 1,199.4 848.3 Operating expenses ...... 667.0 520.6 2,559.9 2,348.5 1,977.5 Gains on disposals of investments in subsidiaries and associates ...... (3.1) 0.0 0.0 0.4 1.8 Losses arising on business combination achieved in stages .... 22.7 0.0 0.0 (89.6) 0.0 Share of profit of associates ...... 2.8 1.8 1.1 8.3 (175.2) Profit before income tax ...... (92.4) (70.7) (657.8) 211.4 (57.7) Income tax ...... (2.2) (6.3) (172.5) 82.9 (61.5) Results of continuous operations ...... (90.2) (64.4) (485.3) 128.5 3.8 Results of discontinuous operations ...... (6.3) (2.7) (29.6) (8.7) 0.0 Profit for the year ...... (96.6) (67.2) (514.9) 119.8 3.8 Attributable to equity holders of the Bank ...... (89.2) (62.0) (517.6) 96.1 (108.8) Attributable to non-controlling interests ...... (7.4) (5.1) 2.7 23.7 112.6

18 Three months ended 31 March Year ended 31 December Key Performance Indicators 2014 2013 2013 2012 2011 (EUR million) Profitability Return on Assets (ROA)(1) ...... (0.4)% (0.3)% (0.6)% 0.1% 0.00% Return on Equity (ROE)(2) ...... (5.8)% (3.5)% (6.9)% 1.2% (0.1)% Earnings per share (in EUR)(3) ...... (0.02) (0.02) (0.13) 0.03 (0.04) Net interest margin(4) ...... 1.59% 1.28% 1.51% 1.70% 1.68% Solvency(5) Total(6) ...... n.a. 11.2% 11.8% 11.3% 10.7% Tier 1(7) ...... n.a. 10.4% 10.4% 10.4% 9.4% Core Tier 1(8) ...... n.a. 10.5% 10.6% 10.5% 9.2% Core Tier 1—EBA(9) ...... n.a. 9.9% 9.8% 9.9% n.a. Basel III—Common Equity Tier 1 (phasing in)(10) ...... 9.8% n.a. 10.2% n.a. n.a. Basel III—Common Equity Tier 1 (fully implemented)(10) ...... 8.0% n.a. 8.2% n.a. n.a. Liquidity ECB Funds (net) ...... 8,346 7,877 5,414 6,897 8,677 ECB Eligible Assets (Collateral) ...... 23,783 25,435 18,578 19,402 15,057 Loans to Deposits Ratio(11) ...... 129% 129% 121% 137% 141% Asset Quality Overdue Loans > 90 days/Gross Loans ...... 6.01% 4.34% 5.68% 3.90% 2.74% Credit at Risk/Gross Loans(12) ...... 11.1% 10.1% 10.6% 9.4% 6.6% Restructured Credit/Gross Loans (13) ...... 12.1% n.a. 11.8% n.a. n.a. Restructured credit not included in Credit at Risk/Gross Loans(13) ...... 9.5% n.a. 9.4% n.a. n.a. Provisions/Overdue Loans > 90 days ...... 119.0% 126.8% 119.9% 136.9% 15.5% Coverage of Credit at Risk(12) ...... 64.2% 54.5% 64.5% 56.6% 64.2% Credit Provisions Reserve/Customer Loans (Gross) ...... 7.15% 5.51% 6.81% 5.34% 4.23% Provision charge(14) ...... 2.17% 1.46% 2.02% 1.62% 1.17% Efficiency Cost to income with markets(15) ...... 49.7% 61.8% 59.8% 44.6% 57.9% Notes: (1) Return on assets corresponds to the ratio between net profit (deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves) and average net assets. (2) Return on equity corresponds to the ratio between net profit (deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves) and the average of share capital and reserves. (3) Net profit deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves. (4) Net interest margin corresponds to the ratio between net interest income and average interest earning assets. (5) Common Equity Tier I (phasing in/fully implemented) ratios were calculated based on Directive 2013/36/UE and Regulation (UE) nº 75/2013. The remaining ratios were calculated according to Bank of Portugal Notice 5/2007 and Instruction 23/2007. (6) The total solvency ratio is the ratio between total equity and the equivalent risk-bearing assets (corresponding to the totality of assets held and some off-balance sheet exposures, weighted by risk indicators according to criteria provided by the regulator). (7) The Tier 1 ratio is the ratio between own funds (which includes, in addition to the assets considered as Core Tier 1, preferred shares and hybrid capital instruments, offset against the value in holdings exceeding 10% in financial institutions and insurance companies, and adjusted for 50% of the amount of losses expected from exposures for the part that exceeds the sum of value adjustments and existing provisions) and equivalent risk-bearing assets. (8) The core Tier 1 ratio is the ratio between Core Tier 1 capital (including fully paid statutory share capital, share premium, the eligible reserves, positive retained earnings for the year when certified and non-controlling interests, net of negative fair value reserves regarding shares or other equity instruments, goodwill, intangible assets, negative actuarial deviations and, where applicable, the negative results for the year) and the equivalent risk-bearing assets.

19 (9) The Core Tier 1—EBA corresponds the ratio of own funds Core Tier 1 adjusted by the settings of EBA (including the treatment of stakes held in financial companies) and the equivalent risk-bearing assets. (10) Estimate. The Commom Equity Tier 1 Ratio is the ratio between the main Tier 1 own funds and the equivalent risk-bearing assets, calculated in accordance with Regulation n. º 575/2013 of the EU. The fully implemented ratio corresponds to the full implementation of this regulation, while the phasing in ratio uses the transitional arrangements provided for in this regulation, in particular regarding the level of non- controlling interests, intangible assets and deferred taxes. (11) Credit net of impairments. (12) According to the definition set forth in Instruction No. 23/2011 of Bank of Portugal, credit at risk includes: credit overdue for more than 90 days (installments overdue + coming due); restructured loans with interest capitalisation or where capital is not fully covered by guarantees or where interests or other charges have not been paid in full by the debtor; and installments overdue less than 90 days where there is a bankruptcy or liquidation of the debtor. (13) A loan is considered restructured when there is a change to the terms and conditions of the contract, as defined in Instruction No. 32/2013 of Bank of Portugal. (14) Credit provisions charge (P&L provision / Gross Loans). (15) Cost to income with markets corresponds to the ratio between operating costs (including staff costs, general administrative expenses and depreciation and amortisation) in the numerator and banking income (including net interest income, net fees and commissions, net gains/(losses) from financial assets and liabilities at fair value through profit and loss, net gains from available for sale securities, other operating income, gains on disposals of investments in subsidiaries and associates, losses arising on business combinations achieved in stages and share of profit of associates) in the denominator.

20 RISK FACTORS

Prospective investors should carefully consider the risk factors set forth below and the other information contained in this Offering Circular prior to making any investment decision to accept the Rights Offering. Each of the risks highlighted below could have a material adverse effect on BES or the BES Group’s business, results of operations, financial condition, prospects or ability to meet its targets. In addition, each of the risks highlighted below could adversely affect the future market price of the shares representing BES’ share capital, including the New Shares, or the Rights and, as a result, investors could lose some or all of their investment.

Prospective investors should note that the risks described below are not the only risks BES and the BES Group face. BES describes only those risks and uncertainties relating to BES’ and the BES Group’s business, results of operations, financial condition, prospects or ability to meet BES’ and the BES Group’s targets that it considers to be material and of which it is currently aware. There may be additional risks and uncertainties that BES currently considers not material or of which BES is currently not aware, and any of these risks could have a material adverse effect on BES’ or the BES Group’s business, results of operations, financial condition, prospects or ability to meet its targets. The order in which the following risks are presented is no indication of the likelihood of their occurrence.

Risks Relating to the Economic Crisis in Portugal, the Volatility in Global Financial Markets and the BES Group’s Business Risks relating to the Portuguese economy As a financial group whose core business is banking (taking deposits and extending credit) in Portugal, the BES Group is dependent on the state of the Portuguese economy. For the year ended 31 December 2013, 67.2% of the BES Group’s consolidated net assets and 69.3% of net operating income derived from activities in Portugal (as at December 2012: 70.7% and 75.1%, respectively). Consequently, the business of the BES Group is particularly exposed to macroeconomic conditions, which affect growth, particularly in the Portuguese market.

As a result of deteriorating economic conditions in Portugal since the crisis that began in mid-2007, the Portuguese government requested external assistance from the “IMF”, the “EC” and the “ECB”, (together, the “Troika”) in April 2011. The Economic Adjustment Programme (the “Adjustment Programme” or “Programme”), agreed with the Troika, provided for the availability of financial support to Portugal in the amount of €78 billion over a three year period ending 17 May 2014 (for technical reasons an extension of six weeks was granted to complete a final assessment and the disbursement of the last tranche of €500 million), subject to the implementation of a series of budgetary and structural measures, which were subject to quarterly reviews for the duration of the Programme.

As part of the Programme, the Portuguese government committed to meet certain budgetary and public debt targets and to implement a series of structural reforms that, subject to certain assumptions, were intended to reduce the general government deficit to a level of approximately 5.9% of GDP in 2011, to approximately 5.0% of GDP in 2012 (target reviewed in September 2012), approximately 5.5% of GDP in 2013 and 4.0% in 2014 (targets reviewed in February 2013). In addition, the Programme is intended to lead to a reduction in the Portuguese public debt to GDP ratio after 2013 and contains structural measures and policy guidelines designed to boost the country’s competitiveness and improve Portugal’s growth rates in the medium term.

Portugal complied with the targets imposed by the Troika. The last assessment of the Programme in April 2014 was positive. To date, Portugal has received €76.1 billion from the Programme.

The performance of the Portuguese economy since 2011 has been highly dependent on the implementation of the Programme. The need to reduce the public deficit was addressed by the adoption of very restrictive budgetary policies, with negative impacts on economic activity in the near term. At the same time, the private sector— corporate, financial and households—continued its deleveraging process. Under these circumstances, GDP decreased by approximately 1.4%. in 2013, after having contracted by 3.2% in 2012 and by 1.3% in 2011 according to Statistics Portugal. This contraction is mainly a result of the significant decline in domestic demand, equalling approximately 13.7% (according to the Portuguese Ministry of Finance) in real and accumulated terms for this three-year period. In 2013, the favourable performance of exports and a stabilisation trend in domestic demand translated into the recovery of economic activity from the second quarter. While GDP fell by 1.4% in 2013, there were positive quarterly fluctuations in the second quarter (1.1%, 0.3% and 0.6%) as well as overall growth during the fourth quarter (1.7%, following 11 quarters of contraction). In the first quarter of 2014, GDP fell 0.7% when compared to the fourth quarter of 2013, increasing uncertainty as to the level of economic

21 recovery although it represented an increase of 1.2% as compared to the first quarter of 2013. The deleveraging and financial rebalancing of all business sectors resulted in a surplus of external accounts of 2.0% of GDP in 2013 according to Statistics Portugal. The recovery of activity and the fiscal consolidation measures contributed toward a reduction in the general government deficit (as adjusted by the Troika’s criteria) to about 4.5% of GDP in 2013 according to the Portuguese Ministry of Finance, which is below the target of 5.5%. of GDP, with expenditures and income showing better than expected performance, thereby creating a favourable context for budgetary implementation in 2014. In previous years the Portuguese government deficit was also below set targets: 4.3% in 2011 (target of 5.9%) and 4.7% in 2012 (revised target of 5%) The main risk relating to budgetary implementation is the rejection of certain measures (which the BES Group estimates accounted for 0.5% of GDP in total) by the Constitutional Court of Portugal. Notwithstanding these improvements, budgetary policy will continue to be quite restrictive in 2014 and thus continue to have an impact on economic growth.

Although the outlook for the recovery of economic activity in Portugal has improved, with both the Portuguese government and the Troika moving their GDP forecasts upward to 1.2% and 1.5% for 2014 and 2015, respectively, and the unemployment rate expected to fall to 15.7% in 2014 and 14.8% in 2015, risks remain to the Portuguese economy, including the impact of continued weak growth in many parts of the global economy.

The positive sentiment towards the peripheral countries of the Euro Zone in general and Portugal in particular has contributed to a significant decrease in the public debt yields. In relation to the end of the Programme on 17 May 2014, discussions about Portugal’s exit from the Programme have intensified and the Portuguese government has announced a “clean” exit without a precautionary programme. The need for short-term financing has been reduced, global funding needs for 2014 have been already covered and the forthcoming debt issuances should partially pre-finance 2015 funding needs. Nonetheless, market risks remain high and uncertainties continue as to the financing conditions Portugal will face upon the completion of the Programme. Following the exit from the Programme, the Portuguese sovereign yields may suffer from increased volatility, which might in turn have a negative impact on the funding conditions for the BES Group.

Given its high level of public debt, even with the successful conclusion of the Programme, Portugal will need to continue to pursue a fiscal consolidation strategy and implement structural reforms that favour medium term growth, provide for the reduction of budgetary deficit (the target for 2015 is 2.5% of GDP) and reduce the public debt ratio from 2014 onwards. The implementation of such measures requires the continued commitment of the Portuguese government. Possible changes to the Portuguese government or to governmental policies may have an effect on budget execution and on structural reform. In addition, significant resistance from unions and/or the Portuguese public to these continuing reforms may put pressure on the Portuguese government’s capacity to implement such measures in the future.

Concerns relating to Portuguese public finances and to political and social stability in Portugal have affected and may continue to affect the liquidity and profitability of financial institutions in Portugal, resulting in, amongst other things, lower market values for Portuguese government debt; limited liquidity in the Portuguese banking system and reliance on external funding; increased competition for, and thus cost of, customer deposits; limited credit extension to customers; and a deterioration of credit quality.

The macroeconomic conditions in Portugal adversely affect the behaviour and the financial condition of the BES Group’s clients, and consequently, the supply and demand of the products and services that the BES Group offers. In particular, and despite the recent signs of stabilisation of the labour market and the reduction of corporate insolvencies, it is expected that the high unemployment rates, the low profitability and the high level of indebtedness of companies and an increase in company and personal insolvencies will continue to have a negative influence on BES’ clients’ ability to pay back loans, and, consequently, could cause an increase in overdue loans and in impairments related to loans and other financial assets. The occurrence of any one or more of these events could have a material adverse effect on the business, financial condition and results of operations of the BES Group.

The BES Group’s business and performance are and may continue to be negatively affected by actual or perceived risks relating to global economic conditions and to the Euro Zone sovereign debt crisis The BES Group’s businesses and performance are and may continue to be negatively affected by local and global economic conditions and adverse perceptions of those conditions and future economic prospects.

2013 was characterised by moderate optimism concerning global macroeconomic indicators. The developed economies, namely the United States and Europe, registered economic recovery in the second half of 2013,

22 although the recovery in Europe remained weak. Although the year began with certain adverse events that affected confidence, namely political instability in Italy and the Cyprus crisis, financial markets in the Euro Zone stabilised during the second half of 2013 and there was a gradual improvement in business growth forecasts. Improved confidence in the Euro Zone economies was extended to the economies of peripheral countries such as Portugal.

Despite the favourable forecasts for the global economy in the near and medium term, sustainable economic growth continues to be a challenge, especially in the peripheral countries of the Euro Zone, including Portugal. It is therefore expected that the central banks of the main global economies will maintain expansionary monetary policies, to boost demand in those economies. Some factors may negatively affect forecasts for the global economy, namely the volatility felt in emerging markets, political tensions in Ukraine and Venezuela and the evolution of interest rates in developed countries, given the tapering of the asset purchase programme in the United States.

Disinflationary pressures on the Euro Zone also represent a risk to the Portuguese economy, as the persistence of low inflation rates can lead to the postponement of investment decisions as well as to debt increases in real terms. In this context, it is expected that the ECB will keep or broaden its expansionist policies.

Adverse economic and market conditions pose various challenges and exert downward pressure on asset prices and on credit availability, increase funding costs, and impact credit recovery rates and the credit quality of the BES Group’s businesses, customers and counterparties, including issuers of sovereign debt. In particular, the BES Group has significant exposure to customers and counterparties in the EU (particularly in Portugal) that would be affected by the restructuring of the terms, principal, interest or maturity of their borrowings.

During the next few years, a combination of anticipated recovery in private sector demand and of a reduced pace of fiscal austerity in Europe and the United States is likely to result in a return by central banks towards more conventional monetary policies, following the recent period that has been characterised by highly accommodative policies, which have helped to support demand at a time of very pronounced fiscal tightening and balance sheet repair. The possibility of a withdrawal of such programmes or slowing of monetary stimulus by one or more governments could lead to a generally weaker than expected growth, or even contracting GDP, reduced business confidence, higher levels of unemployment, adverse changes to levels of inflation, potentially higher interest rates and falling property prices, and consequently to an increase in delinquency rates and default rates among customers. Any further slowing of monetary stimulus and the actions and commercial soundness of other financial institutions have the potential to impact market liquidity. The adverse impact on the credit quality of the BES Group’s customers and counterparties, coupled with a decline in collateral values, could lead to a reduction in recovery rates and high levels of impairment provisions, which could have a material adverse effect on the BES Group’s business, financial condition and results of operations.

Any significant deterioration in the global economy, including in the credit profiles of other EU member states or in the solvency of Portuguese or international banks, or other economic changes in the Euro Zone could: • Negatively affect the capacity of Portugal to satisfy its financing needs; • Have a material negative impact on the value of portfolios of public debt securities of peripheral Euro Zone countries (as at 31 March 2014, the Bank held approximately €6.8 billion of such securities). See “—The BES Group is exposed to government securities of peripheral Euro Zone countries”; • Have a significant adverse effect on the Bank’s capacity to raise and/or generate capital and comply with minimum regulatory capital requirements; • Significantly restrict the Bank’s ability to obtain liquidity; and • Negatively affect the Bank’s capital position, its operational results and its financial condition.

The BES Group is exposed to the economic conditions in the international markets and to adverse political, governmental or economic developments related to its international expansion The BES Group continues to pursue its international strategy, with particular emphasis on Spain, Brazil and Africa (namely in Angola, Mozambique, Libya and Cape Verde), but also on the expansion to countries with large Portuguese communities such as Venezuela, France or Luxembourg. The BES Group’s performance, results of operations and financial condition are affected by the economic conditions and levels of economic activity in the countries where the BES Group operates, particularly in Spain, Brazil and Angola. Consequently,

23 if global economic weakness should continue, it could reduce the overall level of economic activity of any one or more of the international markets where the BES Group operates, which could have a material adverse effect on the BES Group and its results of operations and financial condition.

The strategy of the BES Group in Spain is based on a single approach to the Iberian Market, taking advantage of the geographical proximity of Portugal to the country and is developed by BES’ branch in the corporate banking, private banking and affluent segments, by BESI’s branch in the investment banking segment and by ESAF in the asset management segment. Similar to other peripheral countries of the Euro Zone, the Spanish economy has contracted since the crisis, mainly due to the restrictive budgetary policies, the deleveraging process in the private sector, the high unemployment rate and the strong correction in real estate prices, with GDP having fallen 1.2% in 2013. Notwithstanding business developments in Spain, namely the expansion of the branch network, increase in deposits of current and new customers and retaining the support of international activity of companies, the Spanish branch of BES had negative results in 2013 of €47.8 million, which reflected high levels of provisioning due to the adverse macroeconomic situation.

Taking into account the risks faced in its business activities, BES cannot guarantee that it will succeed in implementing its strategy in Spain, in which case this operation may have a material adverse effect on the BES Group’s business.

The activity of the BES Group in Angola is developed by its subsidiary BES Angola (in which the BES Group holds a 55.7% interest) that operates in the commercial and investment banking areas and by BESA-ACTIF, which operates in the asset management area. The expansion of its business in Angola has a strategic importance for the BES Group and its subsidiary has positioned itself as a leading player in the Angolan banking system.

While implementing its strategic plan for 2013-2017, BESA undertook a capital increase of U.S.$500 million in 2013, to reinforce its capital base in order to support the execution of its strategic plan. This plan involved the appointment of new management (completed in 2013), and still has as its main objectives: (i) the expansion of BESA’s sales network to 100 branches by 2017 (72 as of March 2014); (ii) the development of a multichannel strategy with greater reach in attracting customers, especially small and medium enterprises, affluent and private banking customers; and (iii) the issuance of specialised and innovative products that will increase customer resources, reducing the ratio of loans to deposits and financing costs.

By December 2013, the commercial gap of BES Angola amounted to €3,115 million, which corresponds to the net loans to customers of €5,712 million less clients’ deposits of €2,597 million, which results in a loan to deposits ratio of 220%. The commercial gap of BES Angola represented, as at 31 December 2013, 37% of its assets and 4% of the BES Group’s assets.

The BES Group aims to balance the commercial gap and the loan to deposits ratio of BES Angola in the coming years, primarily via attempting to increase BES Angola’s deposit base and attracting other customer funds. However, the BES Group cannot guarantee that it will succeed in this strategy and it may have to pursue other, more expensive, funding sources or deleverage by selling assets of BES Angola. The audit report for BES Angola’s accounts as at 31 December 2013 has not yet been issued, and it is legally due to be issued as of 30 June 2014.

According to the IMF, GDP of the Angolan economy grew in 2013 around 5.6% (compared to 5.2% in 2012) and is highly dependant on the oil sector, which represented 45% of its total GDP in 2013. The economic growth in Angola was not only due to the slight increase in oil production, but also due to activity of non-oil sectors, such as the agriculture, diamond and manufacturing areas. The activity of the BES Group in Angola, similarly to other emerging markets, is exposed to political, social, financial and economic risks, such as political and social instability, changes in tax regulation or foreign exchange volatility. These risks may have a material adverse effect on the results of operations of BES Angola and therefore on the BES Group.

The Brazilian market is part of the integrated approach of a strategic triangle (formed by Iberia, Brazil and Africa) defined by the BES Group for its international expansion. The growth potential of the Brazilian economy and the cultural and social proximity with Portugal and other Portuguese-speaking countries make Brazil a key market. The BES Group develops its business in Brazil in the investment banking area (through BES Investimento do Brasil and BES Securities do Brasil, a partnership with Banco Bradesco) and in the asset management area through BESAF—BES Ativos Financeiros.

In 2013, the Brazilian economy grew 2.3% and was characterised by growing imbalances due to the increase in private consumption and a slow down in manufacturing capacity. Due to insufficient supply of consumption

24 products manufactured in Brazil, imports increased significantly (growth of 8.6% between 2012 and 2013 according to the IMF), which further deteriorated the current account deficit, from 2.4% to 3.7% of the GDP in 2013 and contributed to further depreciation of the Real and generated inflationary pressures. As a consequence, the growth prospects of the Brazilian economy have deteriorated successively and the IMF currently forecasts that Brazil’s GDP will grow around 1.8% in 2014.

In 2013, the net income of BES Group in Brazil was €6.7 million, which represented a decrease of 40% from 2012, reflecting the worsening of the economic situation described above. The business and results of operations of the BES Group in Brazil are dependent on the evolution of the Brazilian economy and are exposed to risks relating to political, social or financial adverse events, such as political and social instability, changes in tax regulation or foreign exchange volatility.

Accordingly, BES can give no assurance that it will be successful in Spain, Brazil, Angola or any of the other international markets in which it operates. The BES Group’s international operations are exposed to the risk of adverse political, governmental or economic developments in the countries in which it operates and other risks associated with doing business in emerging markets. In particular, certain countries where the BES Group has operations, especially Libya and Venezuela have been subject to U.S. and/or international sanctions (e.g. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC)) and have experienced political, social and economic instability in the past and may face such instability again in the future. Additionally, the results for the international activity of the BES Group are subject to the exchange rate volatility of the currencies of the countries in which it operates, which is particularly relevant in emerging market countries. For example, in 2013, as a result of the significant devaluation that affected the Venezuelan currency, the BES Group’s operations in Venezuela recognized a loss of €7 million, although, in local currency terms, its operational results were positive.

Any of these factors can have a material adverse effect on the BES Group’s business strategy, financial condition and results of operations. As at 31 December 2013, the BES Group’s international operations generated net income of €21.9 million, compared to €87.6 million in 2012, which reflects the difficulties faced by the economies in emerging countries.

The BES Group’s business and performance are and may continue to be negatively affected by risks relating to conditions in the global financial markets and the soundness of other financial institutions The performance of the BES Group is generally influenced by conditions in the financial markets and the macroeconomic conditions in the countries in which it operates. Since the beginning of the crisis, the global financial system has operated under difficult conditions and the markets are still recovering from the negative effects following the insolvency of several international banks since September 2008. As a result, over the past five years there have been periods of unprecedented disruptions in the financial markets worldwide in relation to liquidity and funding of the international banking system. In addition, this situation put significant pressure on the core business of many investment banks, commercial banks, and insurance companies worldwide. In response to the instability and lack of liquidity in the market, some countries (including some members of the EU and the United States) intervened by injecting liquidity and capital into the financial system with the goal of stabilising these financial markets and, in some cases, preventing the insolvency of certain banking institutions.

Despite these measures, volatility in the capital markets has continued. The sovereign debt crisis in Europe in the 2010 to 2012 period exacerbated investors’ fears and led to uncertainty with respect to the European financial sector, particularly with respect to the economies in the periphery of the Euro Zone. Although financial and economic conditions in the Euro Zone stabilised during 2013, certain adverse factors remained, including political instability in Ukraine and Italy and the financial crisis in Cyprus. Greater stability in the financial markets resulted from a strong improvement in systemic risks related to the sovereign debt crisis, as well as a gradual improvement in business growth forecasts. New steps toward consolidation in banking also contributed to a boost in confidence. Nevertheless, the risk of default and the possibility that the contagion effect spreads to other EU member states remains.

The impact a sovereign default could have on the Euro Zone countries, including the potential exit of some countries from the Euro Zone, continues to raise concerns, though to a lesser extent, about the ongoing viability of the euro currency and the European Economic and Monetary Union (“EMU”).

25 A worsening of the economic and financial climate may create challenges for the BES Group and the ocurrence of any one or more of the events described above may adversely affect its business, financial condition and results of operations in the following ways: • A general slowdown in the business of the BES Group may increase its funding costs (both wholesale and retail) and reduce its share prices and asset values, which may have a material adverse effect on its financial performance and condition. • An exposure of the BES Group to potential losses if certain financial institutions, or other counterparties to the BES Group, become insolvent or are not able to meet their obligations to the BES Group. Moreover, the performance of the BES Group may be influenced by an inability to recover the value of its assets at percentage levels consistent with its historical recovery estimates, particularly as such estimates could prove to be inaccurate if significant volatility returned to the financial markets. • Numerous banks worldwide continue to be supported in part by various “rescue plans” and other types of support by their home country governments, and the BES Group is unable to determine how much longer governmental support will be needed to keep these banks solvent and whether governments will have the means or the political will to continue, or if necessary expand, this support. Any failure of government support to continue, or if necessary to expand, could result in more bank failures and a heightened lack of confidence in the global banking system, thus increasing the challenges faced by BES and other financial institutions. With the goal of reducing or completely eliminating the link between the sovereign and the financial system, the Euro Zone has recently adopted legislation relating to a unified regulatory framework for the banking industry (the “Banking Union”) so that in future financial crises countries no longer have to bear the support to the financial system. This new regulation will limit the support governments can give to financial institutions in the future. See “—Under the Single Supervisory Mechanism, the ECB will take on the supervision of BES in 2014”.

In general, the deterioration of economic conditions and an unfavourable financial environment, including those potential developments outlined above, could have a material adverse effect on the BES Group’s business, financial condition and results of operations.

The BES Group is subject to the risk that liquidity may not be available, and this risk may be exacerbated by market conditions Liquidity risk arises from the present or future inability to pay liabilities as they mature. Banks, principally by virtue of their business of providing long-term loans and receiving short-term deposits, are subject to liquidity risk.

Customer deposits are the main source of funding for the BES Group. The maintenance of sufficient customer deposits to fund the BES Group’s loan portfolio is subject to certain factors outside the BES Group’s control, such as depositors’ concerns relating to the economy in general, the financial services industry or the BES Group specifically, ratings downgrades, significant further deterioration in economic conditions in Portugal and the existence and extent of deposit guarantee schemes. Any of these factors on their own or in combination could lead to a reduction in the BES Group’s ability to access customer deposit funding on appropriate terms and could result in deposit outflows, both of which would have an impact on the BES Group’s ability to fund its operations and meet its minimum liquidity requirements, potentially increase its funding costs and may require BES to increase its use of sources other than deposits, if available, to fund its loan portfolio.

The BES Group’s liquidity could also be impaired, namely by an inability to access the capital markets, an inability to sell assets or redeem its investments, other outflows of cash or collateral deterioration. These situations may arise due to circumstances that the BES Group is unable to control, such as market volatility, loss in confidence in financial markets, uncertainty and speculation regarding the solvency of market participants, credit rating downgrades or operational problems that affect third parties. Access to financial markets has been challenging since the disruptions in the financial markets in 2007. Despite the improvement in the markets since mid 2013, funding in the interbank markets or via the capital markets has been very difficult, especially since 2010 for banks from the EU periphery economies. Even a perception among market participants that a financial institution is experiencing greater liquidity risk can cause significant damage to the institution. Specific ways in which the BES Group could find its liquidity further impaired include the following: • Increased difficulty selling Group assets, particularly if other participants in distressed situations are seeking to sell similar assets or because the market value of assets, including financial instruments underlying derivative transactions, has become difficult to ascertain, which has occurred in the recent past.

26 • Financial institutions with which the BES Group interacts may exercise set-off rights or the right to require additional collateral. • If the customers with which the BES Group has outstanding but undrawn lending commitments were to draw down on these credit lines at a rate that is higher than BES is anticipating. • The BES Group’s contingency plan for liquidity stress scenarios relies largely on its ability to enter into repo transactions with the ECB. If the ECB were to suspend its repo programme, and if no similar source of repo financing were to exist in the market, this could severely impede BES’ ability to manage a period of liquidity stress. See “—Risks relating to difficulties in obtaining funding in the capital markets and a resulting dependence on the ECB”. • An increase in credit spreads, as well as any restriction to inter-bank credit and other credit.

Any of these events could cause the BES Group to curtail its business activities and could increase its cost of funding, both of which could have a material adverse effect on the BES Group’s business and results of operations.

Although the BES Group puts significant effort in liquidity risk management and focuses on maintaining a liquidity surplus in the short term, the BES Group is exposed to the general risk of liquidity shortfalls and cannot ensure that the procedures in place to manage such risks will be adequate or sufficient.

The BES Group is constrained in its ability to obtain funding in the capital markets and is dependent on the ECB for funding and liquidity Notwithstanding the continuous improvement in the ability to access the financial markets, financing conditions for Portuguese banks are still constrained. In this context, despite the ECB’s net funding (net of investment) having been reduced to €5.4 billion in December 2013 (December 2012: €6.9 billion), the BES Group’s liquidity operations with the ECB continue to be very important. The ECB currently makes funding available to European banks that satisfy certain conditions to obtain such funding, including pledging eligible collateral.

As at 31 December 2013, the BES Group’s portfolio of securities eligible for rediscount with the ECB was €18.6 billion, compared to €19.4 billion as at 31 December 2012. The ECB establishes the valuation and the eligibility criteria for collateral assets to be used on repo transactions with financial institutions. Changes to these valuations or the eligibility criteria can have a negative impact on the amount of available assets for that purpose, and reduce the liquidity lines available from the ECB. Additionally, downgrades of the credit rating of Portugal or of Portuguese companies could result in an increase in haircuts to any eligible collateral or to the non- eligibility of such assets and thereby decreasing the total amount of eligible portfolio. As the Portuguese government has elected not to negotiate a precautionary programme at the end of the Adjustment Programme, the eligibility of Portuguese public debt will depend on the maintenance of an “investment grade” rating by at least one rating agency (currently Dominion Bond Rating Service or “DBRS”, is the only rating agency that attributes an “investment grade” rating to Portugal). In this context, a credit rating downgrade of Portugal by DBRS would result in the non-eligibility of Portuguese public debt for financing with the ECB.

The curtailment or termination of liquidity operations by the ECB, including the end of the ECB LTRO Programme without a substitute or transitional measure, would force the BES Group to substitute its financing with the ECB with alternative sources of funding which may be available, if at all, at unfavourable conditions or force the BES Group to dispose of its assets, potentially with a high discount to their book values, in order to comply with its obligations and could significantly increase its funding costs. This would have a corresponding negative impact on its results of operations and financial condition.

The BES Group has been implementing measures in order to diversify its financing sources beyond the ECB, and has implemented a deleveraging process, since 2010, by making an effort to increase customer funds and reduce customer loans, having resumed its financing in the capital markets in November 2012. Since then, the BES Group has been able to access the market by issuing senior unsecured debt (€500 million in January 2013, €750 million in January 2014 and €750 million in May 2014), a U.S.$450 million bond issue of exchangeable bonds, exchangeable for shares of Bradesco, in December 2012 and subordinated Tier 2 debt (€750 million in November 2013). This situation represents a risk of increasing financing costs, particularly considering the significant difference between EBC financing cost and the cost associated with collecting deposits and financing operations in the market, which may not be completely offset by the process of repricing of loans, and could have a negative impact on the financial margin of the BES Group.

27 In addition to the usual and to the extraordinary liquidity measures implemented throughout the Euro Zone and provided through the ECB in the last years, there is a further measure of last resort, the Emergency Liquidity Assistance (“ELA”), that allows all Euro Zone central banks to support domestic financial institutions, which is applicable to illiquid but solvent financial institutions.

Any reduction in BES’ credit rating would increase its cost of funding and adversely affect its net interest margin Credit ratings affect the cost and other terms upon which the BES Group is able to obtain funding. Rating agencies regularly evaluate BES, and its long-term debt ratings are based on a number of factors, including its financial strength, the rating of Portugal and the conditions affecting the financial services industry generally and the Portuguese banking system in particular. Despite the positive trend over the past year, as evidenced by the evolution of credit spreads (which has not been reflected in the ratings), in light of the difficulties in the financial services industry and the financial markets, it cannot be assured that the rating agencies will maintain BES’ current ratings or outlooks.

As of the date of this Offering Circular, BES’ ratings are as follows: (i) Standard & Poor’s Credit Market Services Europe Limited—long-term rating: BB-; short-term: B; negative outlook; (ii) DBRS Ratings Limited—long-term rating: BBBL; short-term: R-2 (mid); negative outlook; (iii) Moody’s Investors Service, España, S.A.—long-term rating: Ba3; short-term: NP, negative outlook; and (iv) Dagong Europe Credit Rating S.r.l.—long-term rating: BB; short-term: B, negative outlook.

Downgrades of BES’ ratings (or the threat of a downgrade) could increase its cost of funding and adversely affect its net interest margin or, in a scenario that combines a sharp ratings drop with a further deterioration of the credit environment, could result in increasing difficulties or the total inability of the BES Group in accessing funding in the markets. Additionally, this can have an adverse impact on the BES Group’s contractual obligations that depend on rating triggers.

Since 2010, Portugal has had its long-term debt rating downgraded several times. This was driven by the deterioration of Portuguese public finances and the increased difficulties Portugal had in accessing funding in international markets following the financial crisis.

The rating agencies’ future outlook for Portugal is dependent on a variety of factors, including the conditions of access to the financial markets. As of the date of this Offering Circular, Portugal’s ratings are as follows: (i) Standard & Poor’s Credit Market Services Europe Limited—long term rating: BB; stable outlook; (ii) DBRS Ratings Limited—long term rating: BBBL; negative outlook; (iii) Moody’s Investors Service, España, S.A.—long term rating: Ba2; outlook stable; (iv) Fitch Ratings Inc—long term rating: BB+; positive outlook; and (v) Dagong Europe Credit Rating S.r.l.—long-term rating: BB, negative outlook.

All the rating agencies referred above are registred in ESMA—European Securities and Markets Authority, in accordance with the Regulation no. 1060/2009 of European Parliament and of the Council, of 16 September.

Further deterioration in Portugal’s public finances could lead to a further downgrade of its sovereign rating. In addition to increasing the cost of funding for Portugal, a sovereign downgrade could have a negative effect on the Portuguese economy and a negative impact on the BES credit rating and funding base, such as a withdrawal of deposits from the Bank.

The BES Group’s business is particularly sensitive to volatility in interest rates The BES Group is subject to the risks typical of banking activities, such as interest rate fluctuations. Interest rate risk may be defined as the impact on shareholders’ equity or on net interest income due to an adverse change in market interest rates. As is the case with other banks in Portugal, the BES Group, and especially its corporate and retail segment, is particularly exposed to differentials between the interest rates payable by it on deposits and the interest rates that it is able to charge on loans to customers and other banks. This exposure comes from the fact

28 that, in the Portuguese market, loans typically have variable interest rates, whereas the interest rates applicable to deposits are usually fixed for periods that may vary between three months and three years. As a result, Portuguese banks, including BES, frequently experience difficulties in adjusting the interest rates that they pay for deposits in line with market interest rate changes. This trend is reinforced by intense competition in the sector and the current historically low interest rates that puts pressure on a bank’s deposit margin.

Interest rates are sensitive to several factors that are out of the BES Group’s control, including fiscal and monetary policies of governments and central banks, as well as domestic and international political conditions. Changes in market interest rates can affect the interest rates that the BES Group receives on its interest-earning assets, in a different way when compared to the rates that the BES Group pays for its interest bearing liabilities. This difference may reduce the net interest margin, which could have an adverse effect on the BES Group’s results of operations.

A rise in interest rates could reduce the demand for credit and the BES Group’s ability to generate credit for its clients, as well as contribute to an increase in the credit default rate of its clients. Conversely, a reduction in the level of interest rates may adversely affect the BES Group through, among other things, a lower margin on deposits, a decrease in demand for deposits and an increase in competition in deposit taking and lending to customers. As a result of these factors, significant changes or volatility in interest rates could have a material adverse impact on the business, financial condition or results of operations of the BES Group.

If the BES Group is unable to adjust the interest rate payable on deposits in line with the changes in market interest rates receivable by it on loans, or if the BES Group’s monitoring procedures are unable to manage adequately interest rate risk, its net interest income could rise less or decline more than its interest expense, in which case the BES Group’s results could be negatively affected. According to a sensitivity analysis of interest rate risk of the book exposure from a prudential portfolio perspective, based on an approach similar to the duration model of the impact on the liquidity position of the BES Group under a scenario of a parallel change in the yield curve of an annual increase of 100 basis points and 50 basis points would result in a negative impact of €22.3 million and €1.3 million, respectively. See “Risk Management” for a detailed description of the management of these specific risks.

The BES Group engages in various proprietary trading activities and is exposed to risks relating to losses from proprietary trading caused by adverse changes in financial assets recorded at fair value The BES Group engages in various activities for its own account, including entering into interest rate, credit, shares and exchange rate derivative transactions, as well as taking positions in fixed income and equity in the domestic and international markets and trading in the primary and secondary securities markets, including for government securities.

The BES Group had a value at risk (“VaR”) of €36.8 million as at 31 December 2013 in its trading positions in respect of shares, interest rates, volatility and credit spread, total commodities position and total foreign exchange position (excluding the position of foreign exchange relating to shares of the portfolio of assets available for sale and the portfolio of assets at fair value), compared to €38.1 million as at 31 December 2012 (€57.8 million if the BESI Group’s credit spread as at 31 December 2012 is included). VaR is calculated using the Monte Carlo simulation, with a 99% confidence level and an investment period of 10 days.

Proprietary trading involves a certain degree of risk. Future proprietary trading results will in part depend on market conditions, and although the BES Group seeks to actively manage its capital markets exposure in light of prevailing market conditions, there can be no assurance that it will be successful in doing so. Protracted adverse market movements, particularly price declines, can reduce the level of activity in the market or reduce market liquidity. These developments can lead to material losses if the BES Group cannot close out deteriorating positions in a timely way. This may especially be the case for assets for which there are less liquid markets. Assets that are not traded on stock exchanges or other public trading markets, such as derivative contracts between banks, may have values that the BES Group calculates using models other than publicly quoted prices. Monitoring the deterioration of prices of assets like these is difficult and could lead to losses that the BES Group cannot anticipate. As such, the BES Group could incur significant losses, which could have an adverse effect on the BES Group’s financial condition and results of operations. Although the results of the market in recent years were positive (capital markets results net of securities provisions were €68 million as at 31 December 2013 and €463.6 million as at 31 December 2012) and notwithstanding the active management of this portfolio, the volatility associated with these positions may translate into the recognition of significant losses by the BES Group.

29 The BES Group is exposed to risks relating to losses caused by adverse changes in financial assets recorded at fair value. Under IFRS, the BES Group recognises at fair value financial assets classified as “held for trading”, financial assets classified as “fair value through profit or loss”, financial assets classified as “available-for-sale” and derivatives on such assets. As at 31 December 2013, the BES Group held a portfolio of available-for-sale financial assets equal to €8.5 billion, financial assets at fair value through profit or loss of €3.9 billion and financial assets held for trading of €2.5 billion (December 2012: €10.8 billion, €2.8 billion and €3.9 billion, respectively). From the BES Group’s assets recorded at fair value, 42% are public debt instruments, 15% are funds and insurance certificates, 14% are private sector bonds, 11% are shares, 9% are derivatives, 8% is commercial paper and 1% are securitisation instruments. Additionally, 54% of such assets are classified as Level 1 (those that are quoted on a recognised market), 31% as Level 2 (those for which valuation methods with prices and standards that are observable in the markets are used) and 14% as Level 3 (those for which valuation methods with prices and standards that are not observable in the markets are used).

In order to establish the fair value of these assets, the BES Group relies on quoted market prices or, where the market for the financial asset is not sufficiently active, internal valuation models. In certain circumstances, the data for individual financial instruments or classes of financial instruments utilised by such valuation models may not be available or may become unavailable due to changes in market conditions. In such circumstances, internal valuation models require the BES Group to make assumptions, judgments and estimates in order to establish fair value. These assumptions, judgments and estimates are inherently uncertain and may need to be updated to reflect changing trends and market conditions, potentially resulting in significant decreases in value.

In the context of the merger between telecommunication companies Oi, S.A. (“Oi”) and Portugal Telecom, SGPS, S.A. (“Portugal Telecom”) initially announced in October 2013 and further detailed on 17 May 2014, BES, the current holder of 10% of the shares of Portugal Telecom through its wholly-owned subsidiary, Avistar, will cease to have a direct interest in Portugal Telecom and will hold an estimated 5.6% share of the resulting merged company that will hold the assets of Oi and Portugal Telecom. The €75 million subscription by Avistar for the share capital increase of Oi concluded in May was included in the calculation of BES’ estimated percentage share. At 31 March 2014, the share held in Portugal Telecom was recorded on the available-for-sale assets portfolio in the amount of €346.6 million, which corresponds to a negative fair value reserve of €76.7 million.

Any reduction in the fair value of financial assets would require the BES Group to recognise a loss. These losses may have the effect of reducing the BES Group’s Core Tier 1 capital used in determining the BES Group’s solvency ratios and may negatively impact the BES Group’s results of operations. Any decrease in the BES Group’s solvency ratios may hinder its ability to operate its business in accordance with its strategy.

The BES Group is exposed to the risk of public debt securities of peripheral Euro Zone countries The BES Group is exposed to public debt securities of peripheral Euro Zone countries, particularly Portuguese public debt. BES is a market maker for Portuguese sovereign debt and also engages in proprietary trading. The amounts and average maturity of the debt held over time varies as a result of its market making and proprietary trading activities and of its outlook as to the attractiveness of such debt.

As at 31 March 2014, the BES Group’s public debt securities of peripheral Euro Zone countries portfolio was comprised of €4,984 million in Portuguese public debt (of which €3,200 has a maturity of more than 5 years and, because of that, is subject to heightened levels of volatility), €693 million in Spanish public debt, €908 million in Italian public debt and an exposure of €178 million in Greek public debt. At that date, these securities were registered in its portfolio of financial assets held to maturity (€54 million), held for trading (€74 million), in the through profit and loss (€1,464 million) and the financial assets available-for-sale portfolio (€5,171 million). Changes in the fair value of financial assets available-for-sale are registered under fair value reserves until sold or until there are signs of impairment. In the sale of financial assets available-for-sale, the accumulated gains or losses registered under reserves are recognised as income. Depreciations in the value of the BES Group’s trading portfolio and the sovereign debt securities in the portfolio of financial assets available-for-sale could adversely affect the BES Group’s financial condition and results of operations. By 31 March 2014, this portfolio registered unrealised gains amounting to €227 million.

In extreme situations of economic, political and social crises, governments may be reluctant or may not have access to funding to refinance or repay capital or pay interest on their debt securities. In a scenario of default, the recourse to legal mechanisms may be limited. In addition, there could be an increase in default risk in a scenario in which a Euro Zone member state enters into default thereby exacerbating the negative sentiment toward other Euro Zone members under a contagion effect.

30 Depreciations in the public debt portfolio can have the effect of reducing the BES Group’s Common Equity Tier 1 capital used to determine its capital ratios and could adversely affect its results of operations. Any decrease of the BES Group’s solvency ratios could hinder its ability to operate its business in accordance with its strategy.

The BES Group faces currency fluctuation risks relating to its operations outside the Euro Zone The BES Group’s reporting currency is the Euro. However, a portion of the BES Group’s operations, assets and customers are located in countries outside of the member states of the EU that use the Euro. As at 31 December 2013, net exposure to currencies other than the Euro was €238.3 million. The currencies other than the Euro to which the BES Group has substantial exposure are the Angolan Kwanza and the U.S. dollar. As at 31 December 2013, these negative exposures were €157 million and €82 million, respectively.

Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Euro at the foreign exchange rates in effect at the balance sheet date. Foreign exchange differences arising on translation are recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate in effect at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the foreign exchange rates in effect at the dates the fair value was determined. The resulting exchange differences are accounted for in the income statement, except if related to equity instruments classified as available-for-sale, which are accounted for in reserves. In order to mitigate this risk, the BES Group seeks to hedge currency risk as appropriate. However, there can be no assurance that these hedging activities will be effective and hedge counterparties are subject to credit risk.

The financial statements of the BES Group companies whose reporting currency is other than the Euro are translated into Euro at the following rates: (i) assets and liabilities are converted at the prevailing exchange rate at the balance sheet date; (ii) net income and net losses are converted at exchange rates approximating the real exchange rates on the transaction date; and (iii) differences between the exchange rate for the beginning of the year and the exchange rate of the balance sheet are recorded in reserves. Likewise, with respect to subsidiaries and affiliate companies, differences between the average exchange rate used for the income statement and the exchange rate used for purposes of the balance sheet are recorded in reserves. On the date of sale of such subsidiary/affiliate, such differences are recorded as part of the gain or loss associated with the sale.

Fluctuations in currency exchange rates can thus adversely affect the BES Group’s net income and assets. In addition, these currency fluctuations can adversely affect the BES Group’s capital ratios and thus impact its ability to conduct business in line with its strategy.

The BES Group’s business is significantly affected by credit risk The BES Group is subject to credit risk, i.e. the risk that the BES Group’s clients and other counterparties are unable to fulfil their payment obligations. Risks arising from changes in credit quality and the repayment of loans and amounts due from borrowers and counterparties are inherent in the BES Group’s businesses. Adverse changes in the credit quality of the BES Group’s clients, a general deterioration in Portuguese or global economic conditions, or increased systemic risks in financial systems, affect the recovery rate and value of the BES Group’s assets and could require an increase in provisions. In addition, the BES Group may be affected by reclassifications of restructured loans, which could require additional provisions. The ratio of overdue loans over 90 days to gross loans has increased from 2.7% as at 31 December 2011 to 3.9% as at 31 December 2012 and to 5.7% as at 31 December 2013, with a coverage ratio of 119.9%. The ratio of overdue loans over 90 days has increased to 6.0% with a coverage ratio of 119.0% as at 31 March 2014 and the ratio of credit at risk (calculated according to Bank of Portugal Instruction no. 23/2011) increasing from 9.4% in December 2012 to 10.6% in December 2013, with a coverage ratio of 64.5% (December 2012: 56.6%). The ratio of credit at risk was 11.1% with a coverage ratio of 64.2% as at 31 March 2014. The ratio between restructured loans and gross loans to customers, calculated according to the definitions set forth in Bank of Portugal Instruction No. 32/2013, was 11.8% in 2013 and 9.5% as at 31 March 2014. The exposure of the BES Group to corporate loans was 73.4% of total loans in 2013, compared to an average in the Portuguese banking system of 53.3% in 2012 (according to the most recent available information from the Portuguese Banking Association). Considering that the default rate of this segment is, on average, higher than the default rate of loans to individuals (10.3% in corporate loans compared to 2.1% in mortgage loans in December 2013, according to the Bank of Portugal), BES’ exposure to credit risk is higher than the sector average.

31 The BES Group has set aside provisions for credit impairment (through its income statement) of €600.6 million, €814.8 million and €1,005.1 million in each of 2011, 2012 and 2013, respectively. The BES Group’s increase in provisions over the last three years is the result of Portugal’s economic and financial environment, which has been highly impacted by the implementation of the Adjustment Programme and has translated into a significant deterioration of the BES Group’s assets, particularly its loan portfolio. This impact is noticeable on the provision charge, defined as the quotient of the provisions for credit impairment and gross loans to customers, which increased from 1.62% to 2.02% between 2012 and 2013. In the context of its supervisory activity, the Bank of Portugal developed a “credit portfolio impairment review exercise” (“ETRICC”), which resulted in a reinforcement of BES’ provisions of €28.7 million.

In a context of continued market turmoil, continued weak economic conditions and high levels of unemployment, loans to corporates and individuals and the value of assets collateralising the BES Group’s loans will remain under pressure.

The BES Group is exposed to many different counterparties in the normal course of its business, but its exposure to counterparties in the financial services industry is also significant. This exposure can arise through trading, lending, deposit taking, clearance and settlement and numerous other activities and relationships. These counterparties include institutional clients, brokers and dealers, commercial banks and investment banks. Many of these relationships expose the BES Group to credit risk in the event of default of a counterparty or client. In addition, the BES Group’s credit risk may be exacerbated when the collateral it holds cannot be realised at, or is liquidated at prices not sufficient to recover, the full amount of the loan or derivative exposure it is due to cover. Many of the hedging and other risk management strategies utilised by the BES Group also involve transactions with financial services counterparties. The insolvency of these counterparties may impair the effectiveness of the BES Group’s hedging and other risk management strategies, which could in turn have a material adverse effect on the BES Group’s financial condition and results of operations.

Although the BES Group regularly reviews its exposure to its clients and other counterparties, as well as its exposure to certain economic sectors and countries which the BES Group believes to be particularly critical, payment defaults may arise from events and circumstances that are unforeseeable or difficult to predict or detect. In addition, the collateral and security provided to the BES Group may be insufficient to cover the exposure, for example, as a result of sudden market declines that reduce the value of the collateral. Accordingly, if a major client or other significant counterparty were to default on its obligations this could have a material adverse effect on the BES Group’s financial condition and results of operations.

The BES Group actively manages credit risk and analyses credit transactions. Expectations about future credit losses may, however, be incorrect for a variety of reasons. A prolonged decline in general economic conditions, particularly of those in Portugal, unanticipated political events or a lack of liquidity in the economy may result in losses which exceed the amount of the BES Group’s provisions or the maximum probable losses envisaged by its risk management models. As part of the asset quality review that is being undertaken by the ECB in anticipation of assuming its supervisory authority, there is a risk that the results of the assessment may require BES to increase its provisions. An increase in the BES Group’s provisions for loan losses or any losses in excess of the provisions mentioned above could have a material adverse effect on the BES Group’s financial condition and results of operations. The BES Group’s exposure to credit risk was €76.9 billion as at 31 December 2013 (December 2012: €83.0 billion). For further information on the BES Group’s risk management policies, see “Risk Management”.

The BES Group is exposed to credit concentration risks The BES Group has significant credit exposure to certain groups of clients. Excluding banks and sovereigns, the 20 largest clients (on a consolidated group basis) represented, as at 31 December 2013, 12.6% of total credit exposure (12.2% as at 31 December 2012) calculated in accordance with Bank of Portugal instructions. Additionally, the BES Group has a significant exposure to certain segments of its business, mainly services provided to corporate customers, with a total exposure (including financial and off-balance assets) of €7,000 million, and business sectors such as the real estate sector, with an exposure of €6,092 million. In the event that any of these groups default, such defaults may lead to a material increase in impairment charges, which could have a material adverse effect on the BES Group’s results of operations and asset quality.

The BES Group is exposed to the Portuguese real estate market The BES Group is exposed to the Portuguese real estate market, either directly, through assets related to its operations or obtained in lieu of payments, or indirectly, through real estate that secures loans or by financing real estate projects, which makes it vulnerable to a downturn in the housing market.

32 The BES Group has implemented a credit recovery plan through the enforcement of security over assets, i.e. receiving real estate and other assets in lieu of payment.

The real estate acquired is classified as non-current assets held for sale and is registered at initial recognition of the asset at the lower of its fair value, less the expected selling costs, and the book value of the loans under recovery. Subsequently, these assets are measured at the lower of the value of initial recognition and the fair value less the expected selling costs and are not amortised. The unrealised losses on these assets are recognized in the income statement.

Pursuant to the RGICSF, banks are prevented, unless authorised by the Bank of Portugal, from acquiring real estate that is not essential to their daily operations or their corporate purpose (paragraph 1 of Article 112 of the RGICSF). However, banks may acquire real estate as reimbursement of loans, should situations resulting therefrom be regularised within 2 years which, with reasonable grounds, may be extended by the Bank of Portugal, at its discretion (Article 114 of the RGICSF).

The BES Group aims to sell all properties acquired in lieu of payment, having implemented a plan for the immediate sale of non-current assets held for sale. However, given the market conditions, it has not been possible, in some situations, to realise such sales on the intended schedule. However, the BES Group continues to work towards the implementation of the sales program it established. These efforts include (i) the existence of a website specially devoted to the sale of real estate; (ii) the development and participation in real estate events in the country or abroad; (iii) the execution of protocols with several real estate mediators; (iv) the promotion of regular auctions; and (v) marketing campaigns in big emigration centres.

The BES Group, despite maintaining its intention to sell this real estate, continues to request from the Bank of Portugal extensions for the 2 year statutory period of ownership of the real estate received in lieu of payment.

BES Group’s impairment charges for real estate assets obtained through credit recoveries were €218.2 million in 2013, as compared to €40.1 million in December 2012.

In 2013, the BES Group carried out a physical re-evaluation of all the real estate assets received as credit reimbursement, for which the date of the last evaluation was prior to 31 July 2012, pursuant to the Circular Letter 11/13/DSPDR of 20 September, from the Bank of Portugal. This re-evaluation was carried out by independent experts, which resulted in 90% of the real estate having an evaluation no older than one year and 10% with evaluations aged between 12 and 18 months. This initiative resulted in an additional €52.9 million in provisions for real estate registered as non-current assets held for sale, which represented a devaluation of 3.7%. During 2013, the BES Group sold 3,462 properties for a total of €444 million which did not result in any material gain. As at 31 December 2013 the net value of the real estate registered on the balance sheet through credit recovery amounted to €2.1 billion, representing 2.6% of the BES Group’s assets, as compared to €1.8 billion as at 31 December 2012, of which €0.5 billion corresponded to real estate owned for more than two years. Additionally, at 31 March 2014, the BES Group had recorded on its balance sheet units of real estate funds held for more than one year in a total amount of €333 million.

Any significant devaluation of Portuguese real estate market prices may result in impairment losses on such assets held directly by the BES Group, as well as cause a decrease in the coverage of credit exposures of real estate collateral, thus adversely affecting the financial condition and results of operations of the BES Group.

Competition in Portugal and in the international markets in which the BES Group operates could have a negative effect on the BES Group’s business The BES Group faces intense competition in all of its areas of operation (including, among others, corporate and retail banking, investment banking, specialised credit and asset management), both in Portugal and in international markets. The BES Group’s competitors in the markets in which it is active are principally commercial and investment banks.

Structural changes in the Portuguese economy in the past have significantly increased competition in the Portuguese banking sector. These changes are principally related to the privatisation of several sectors of the economy, including banking and insurance, as well as to the integration of the Portuguese economy into the EU and the introduction of the Euro. Mergers and acquisitions involving the largest Portuguese banks have resulted in a significant concentration of market share, a process that may continue. Competition has further increased with the emergence of non-traditional distribution channels such as internet and telephone banking. As at

33 31 December 2013, the five main financial groups in the Portuguese banking sector are: Caixa Geral de Depósitos, the Millennium BCP Group, the BES Group, the Santander Totta Group and the BPI Group, which represented approximately 78.6% of total assets in the Portuguese banking system, according to the Portuguese Banking Association statistics (December 2012).

Competition for customer deposits has been especially intense in Portugal. Competition in the domestic market can have an adverse effect on the activities of the BES Group. The competition is affected by demand, technological changes, the impact of consolidation, regulatory actions and other factors. If the BES Group is unable to offer attractive products and services that are profitable, it may lose market share or incur losses on some or all of its activities, which could adversely affect its financial condition and its results of operations. Although the BES Group believes it is in a strong position to continue to compete in the markets in which it operates, there can be no assurance that it will be able to compete effectively in these markets in the future.

Furthermore, competition in the Angolan market is robust, with international banks competing against some very strong local and regional players. The BES Group believes that increased competition in Angola could put pressure on its operations there.

The BES Group’s success depends on its ability to maintain its customer base The BES Group’s success depends on its ability to maintain its customer base, which, as at 31 December 2013, amounted to 2.0 million in Portugal and 200,000 overseas as at 31 December 2013, and to offer its customers a wide range of high quality and competitive products and consistently high levels of service. The BES Group has sought to achieve this objective by segmenting its branch networks, with 788 branches globally (of which 643 comprise the domestic network and 145 comprise the international network), to better serve the diverse needs of each customer segment through, amongst other things, cross-selling the products and services of the BES Group’s subsidiaries through its marketing and distribution networks in Portugal. Any failure or reputational damage resulting from an inability to maintain the BES Group’s customer base or to offer the BES Group’s customers a wide range of high quality and competitive products or consistently high levels of service could have a material adverse effect on the BES Group’s financial condition and results of operations. For additional information see “—Competition in Portugal and in the international markets in which the BES Group operates could have a negative effect on the BES Group’s business”.

The BES Group is exposed to reputational risks Reputational risk is embedded in the BES Group’s activity. Negative public opinion regarding the BES Group or the financial services sector as a whole may arise from actual or perceived practices within the banking sector, such as defaults by issuers of securities sold to investors through entities related to the BES Group, or in the way, real or perceived, that the BES Group conducts its activities. Negative publicity or negative public opinion may adversely affect the ability of the BES Group to retain and attract customers, especially retail and institutional depositors, the loss of which could have a material adverse effect on the BES Group’s financial position, its results and the value of its shares.

Reputational risks for the BES Group associated with a potential deterioration or perceived deterioration of the financial position of Espírito Santo International, S.A. or its subsidiaries ESI has started a reorganization and deleveraging programme regarding its group that is aimed at rebalancing its financial position and its accounts have been subject to audits.

Certain debt instruments, including commercial paper, issued by ESI and certain of its subsidiaries have been subscribed by BES clients (both institutional and retail investors).

At 31 December 2013, the total amount of these debt instruments that remained outstanding was €3,035 million, of which €1,565 million was held by retail investors and €1.470 million was held by institutional investors. As at 30 April 2014, the amount of debt instruments held by retail clients was €516 million, while the amount held by institutional investors was €732 million. As at 19 May 2014, the amount of debt instruments held by retail clients was €395 million, while the amount held by institutional investors was €564 million.

In its audit report to the BES Group’s financial accounts for the year ended 31 December 2013, KPMG included an emphasis of matter with respect to note 46 therein, which makes reference to the BES Group’s placement of certain debt instruments issued by ESI and certain of its subsidiaries.

34 Considering the global financial position of ESI and the challenges associated with its capability to fully implement the reorganization and deleveraging programmes, ESFG issued an unconditional and irrevocable guarantee to secure the performance of ESI’s obligations under the debt instruments that were issued by ESI and distributed by BES to its retail and institutional clients.

Although, BES is not responsible for the reimbursement of the abovementioned debt instruments, in the event of a change of perception by the investors regarding the financial capacity of the relevant issuers to duly perform their obligations under those debt instruments or in the event of a default, it may negatively affect the reputation of the BES Group or give rise to litigation against it, which may, in turn, have a substantial negative effect on its financial position and results.

The financial condition of Espírito Santo International, S.A. could have an adverse impact on the BES Group’s reputation and the market price of BES’ shares Espírito Santo International, S.A. (ESI) has been subject to a special purpose limited review, regarding the pro forma consolidated financial statements of 30 September 2013 and 31 December 2013, carried out by an external auditor, which identified irregularities in its accounts and concluded that ESI is in a serious financial condition.

The Audit Committee of ESFG has also identified material irregularities in ESI accounts.

Although BES is not responsible for ESI’s financial condition and ESFG has implemented measures to safeguard potential events of default by ESI that may have an impact on BES, further deterioration of ESI’s financial condition as well as the irregularities detected on its accounts, and the possible consequences they may give rise to, may affect BES reputation and the price of its shares, notably because some of the former members of ESI’s board of directors are current board members of ESFG and BES’ board of directors and because ESI holds a qualifying holding, even though indirectly, in BES share capital.

The BES Group is exposed to actuarial and financial risks related to its pension and medical care obligations towards its employees The BES Group faces risks that returns on the assets in its pension fund may be less positive than expected or even negative. In such a case, the BES Group will be required to recognise actuarial losses on the difference between a greater expected value of the assets and the actual value. Similarly, demographic factors, such as an increase in life expectancy amongst active employees and pensioners, can result in changes in mortality tables used by insurance companies and thus negatively affect the BES Group’s defined-benefit obligations, generating actuarial losses that require recognition and contribution to the BES Group’s pension fund in order to guarantee that the BES Group’s pension fund liabilities are fully funded, as required by regulation. In addition to such losses requiring contribution to the BES Group’s pension fund, these actuarial losses may have the effect of reducing the BES Group’s Core Tier 1 capital, as defined by the Bank of Portugal, and the Common Equity Tier 1 ratio under CRD IV (BIS III) undermining the BES Group’s solvency ratios and negatively impacting the BES Group’s shareholder’s equity through the recognition of such deviations in Reserves—Other Comprehensive Income.

Any possible future actuarial losses will require the BES Group to make contributions to finance its pension fund in order to meet its minimum pension liabilities funding obligations, which will reduce its own funds and consequently its capital ratios. In this case, the BES Group’s ability to expand its business may be hindered and the BES Group may have to reduce its activities or its risk exposures in order to comply with the regulatory capital requirements.

As at 31 December 2013, BES’ pension obligations, amounting to €1,308 million, were fully covered by its pension fund, which had a value as at the same date of €1,311.9 million.

The personal guarantee provided by the Portuguese state for loans provided by the European Investment Bank (“EIB”) to Portuguese credit institutions may not be renewed and as a consequence BES may lose its eligibility status with the EIB The Portuguese state has provided a guarantee in favour of BES, as well as in favour of other Portuguese credit institutions, to address the need for these banks to provide additional collateral in favour of the EIB under the agreements by which the banks borrow funds.

35 This guarantee was provided on 7 December 2012 due to the EIB requirement for Portuguese banks to post additional collateral, for the purpose of preventing an increase in borrowing costs for Portuguese banks with the EIB, and as a consequence for the Portuguese economy. This ensures that Portuguese banks keep their eligibility status with the EIB (which was lost after the consecutive downgrades of the ratings of both the banks and the Portuguese state), notably, as lenders and guarantors.

The guarantee was provided for current and future exposures, to cover operations up to €6.0 billion and with the maximum amount of €2.8 billion. BES benefits from a guarantee of the Portuguese state in the amount of €1.283 billion as of 31 March 2014.

This guarantee was considered compliant with the European state aids regime on 27 June 2013 and the final agreement was signed by the relevant Portuguese banks, the Portuguese government and the EIB on 30 September 2013. However, it will be re-examined every six months by the EC to assess its compatibility with the EU treaties relating to competition rules. The guarantee was considered compliant following the first re- examination performed in December 2013.

If the guarantee is not renewed, or BES is no longer considered as an eligible bank by the EIB, its business, financial conditions and results from operations could be materially adversely affected.

Guarantees granted by the Portuguese state to debt instruments issued by BES may be enforced BES currently has three tranches of non-subordinated bonds, maturing between December 2014 and February 2015 and totalling €3.5 billion that are guaranteed by the Portuguese state pursuant to Law no. 60-A/2008, of 20 October, and Ordinance no. 1219-A/2008, of 23 October, as amended. In accordance with Portuguese law, in the event such guarantees are enforced, the Portuguese state has the right, among other things, to appoint members to BES’ board of directors (the “Board”), decide on certain corporate governance matters or the directors’ remuneration policy, and/or convert the amount paid out under the guarantee into special shares in BES’ share capital. These special shares entitle the Portuguese state, among others, to receive a dividend in priority to other shareholders and may carry voting rights.

To ensure compliance with these requirements, in respect of each issuance of bonds guaranteed by Portugal, a general meeting of BES’ shareholders approved the suppression of the shareholders’ pre-emption rights in the event of the capital increase to be resolved by the Board following the enforcement of the guarantees granted by Portugal. In a scenario where the guarantee is enforced, any payment of interests or dividends by BES will depend on the prior approval of the Portuguese government (except to satisfy legal obligations) and any share capital increase to allow the conversion of the amount paid out under the guarantee into share capital would result in a dilution of the existing shareholders’ ownership.

The personal guarantee provided by the Angolan state in favour of BESA, regarding transactions with Angolan companies, may not be renewed Due to the importance of BES Angola in the financing of Angolan companies, particularly those from the non-oil sectors considered strategic for the economic development of Angola and its major role in providing loans relevant to the objectives of the National Development Plan for 2013-2017, the Angolan state granted to BESA, on 31 December 2013, a sovereign, independent and on first-demand guarantee, up to a total of U.S.$5,700 million (equivalent to €4,200 million as at 31 December 2013).

Considering that in the overall context of the economic recovery of the Angolan private sector, Angolan companies and investors may not have the necessary liquidity to timely meet their financial responsibilities, the Angolan state has established this guarantee as a way of protecting BES Angola from late payments and defaults on the assets, covering loans and interest, covered by the guarantee (loans and proceeds of real estate sales).

The personal guarantee of the Angolan state is valid for eighteen months from the date of signature and was established between the Angolan State and BESA such that, during the period of the guarantee, it can be replaced by another guarantee or by the negotiation of a global agreement, as long as it has the same purpose provided by this personal guarantee. As of the date of this Offering Circular, this guarantee has not been executed.

Although the personal guarantee was considered in the calculation of the credit impairments as of 31 December 2013, it was not reflected in the BES Group’s capital position since it is still being considered by the Bank of Portugal. If the personal guarantee of the Angolan state is not renewed, and if there are defaults on loans or devaluations in the real estate assets covered by this guarantee, the financial condition and results of operations of BESA may be adversely affected, and as a consequence, negatively affect the financial position and results of operations of the BES Group.

36 Additionally, this guarantee does not cover the entirety of BESA’s loan portfolio, thus the part of BESA’s loan portfolio that is not covered by the guarantee is, naturally, subject to the general risks of operating in Angola discussed above. In the first quarter of 2014, due in part to such risks, BESA recognised credit impairment losses of €70 million.

The BES Group’s hedging operations may not avoid losses or be effective The BES Group undertakes hedging operations in order to reduce its exposure to the different risks associated with its activities, such as interest rate risk, credit risk and currency risk, among others. However, the BES Group does not hedge all of its risk exposure. In addition, the BES Group cannot assure its hedging strategies will be successful, and in case they are not effective, this could have a material adverse effect on the financial condition and results of operations of the BES Group.

The BES Group may not successfully implement its gradual plan for the reduction of domestic activity costs The BES Group launched a programme intended to reduce the operational costs associated with its domestic activity with a goal of gradually achieving cost savings of €100 million, essentially by redesigning procedures and reducing the number of employees and branches. The programme is intended to be implemented over the three year period 2013 to 2015. The cost reduction programme has been designed to be gradual and with targets of a 3% operating cost reduction in 2013, a 5% operating cost reduction in 2014 and a 6% operating cost reduction in 2015. At the end of 2013, a reduction of 3.8% was reached, better than that year’s target. In the first quarter of 2014, 64 employees retired early, representing a non-recurring cost of €7.6 million. The domestic distribution network had a reduction of 28 units in relation to the previous year.

Although the plan is being implemented according to the objectives outlined, the BES Group cannot guarantee that the expected savings will be achieved in full or in part.

The BES Group’s business is subject to operational risks The BES Group is subject to certain operational risks, including interruption of service, errors, fraud by third parties (including large-scale organised frauds, as a result of the BES Group’s financial operations), breach or delays in the provision of services, confidentiality obligations with regards to customer information and compliance with risk management requirements. The BES Group continually monitors these risks by means of, among other things, advanced administrative and information systems and insurance coverage in respect of certain operational risks. However, the BES Group may be unable to successfully monitor or prevent these risks in the future. Any failure to successfully execute the BES Group’s operational risk management and control policies could have a material adverse effect on the BES Group’s financial condition and results of operations.

The BES Group is increasingly dependent on information technology systems and, as a result, is exposed to the risk of information technology system failure Banks and their activities are increasingly dependent on highly sophisticated information technology (“IT”) systems. IT systems are vulnerable to a number of problems, such as software or hardware defects, malicious hacking, physical damage to vital IT centres and computer viruses. Harmonising the IT systems in the BES Group to create a consistent IT architecture poses significant challenges. IT systems need regular upgrading to meet the needs of changing business and regulatory requirements and to keep pace with possible expansion into new markets.

The BES Group may not be able to implement necessary upgrades on a timely basis, and such upgrades may fail to function as planned. In addition to costs that may be incurred as a result of any failure of its IT systems, the BES Group could face fines from banking regulators if its IT systems fail to enable it to comply with applicable banking or reporting regulations, including disclosure requirements.

The BES Group maintains back-up systems for its operations, with one of those back-up systems being located in Portugal outside of its premises. However, there are limited scenarios, for example in the event of a major catastrophe resulting in the failure of its information systems, where the BES Group could lose certain recently entered data with regard to its Portuguese operations or could lose more significant portions of data with regard to its international operations.

37 The BES Group is reliant on its outsourcing contract with IBM for the maintenance and operation of its IT systems. Should IBM become unwilling or unable to fulfil its obligations under the outsourcing contract, the BES Group could find the smooth functioning of its IT systems compromised.

Critical system failure, any prolonged loss of service availability or any material breach of data security, particularly involving confidential customer data, could cause serious damage to the BES Group’s ability to service its clients, result in a loss of customers and significant compensation costs, breach regulations under which the BES Group operates and cause long term damage to the BES Group’s business and reputation. For example, the failure to protect the BES Group’s operations from cyber attacks could result in the loss of customer data or other sensitive information. Although the BES Group has been implementing measures to improve its resilience to the increasing intensity and sophistication of cyber-attacks, the BES Group expects to be the target of cyber attacks in the future and there can be no assurance that the BES Group will be able to prevent all threats.

Any of the foregoing could have a material adverse effect on the normal operation of the BES Group’s business and thus on its reputation, financial condition and results of operations.

The BES Group could face difficulties in hiring and retaining qualified personnel The BES Group’s capacity to implement its strategy depends on its ability to recruit and maintain appropriately qualified and competent employees. The inability to attract and retain qualified and competent employees for each specific task, in particular on a senior level, could limit or delay the execution of the BES Group’s strategy, which could have a negative impact on the business, financial condition and operating results of the BES Group.

Terrorist attacks, a pandemic or other unpredictable events could have an adverse effect on the business and results of the BES Group Despite the likelihood, time, place and degree of disruption of an event of this nature being very difficult to measure, a major terrorist attack or a pandemic or other similar unpredictable events could cause a significant disturbance to economic activity, an increase in the degree of economic uncertainty, a reduction in the levels of economic confidence and could lead to a serious distortion in global economic activity. The occurrence of any of these events could have a material adverse effect on the business, financial condition and results of operations of the BES Group.

Risks Relating to the Activities of the BES Group Being Highly Regulated and the Requirement for the BES Group to Raise New Capital The BES Group operates in an industry that is highly regulated in Portugal and in the other markets in which it operates Banking activities in Portugal are subject to extensive and detailed regulation and supervision by supervisory authorities, which have broad administrative power over many aspects of the financial and banking services business, which include liquidity, capital adequacy and permitted investments, ethical issues, money laundering, privacy, securities (including debt instruments) issuance and offering/placement, financial intermediation issues, record-keeping, marketing and selling practices, among others. These various regulations can significantly increase the costs of the BES Group’s structure and limits its possibilities for increasing its income.

Specific examples from the last year where regulation can impact the conduct of the BES Group’s business include the following: • Bank of Portugal’s Instruction No. 15/2012 (which repeals Instruction No. 28/2011) establishes limits on the interest that Portuguese banks can offer to depositors. The limits are expressed as a spread over the reference index for the maturity of the deposit: 225bp if tenor is equal or less than 91 days, 250bp if tenor between 92 and 182 days, 275bp if tenor between 183 and 273 days and 300bp if tenor is greater then 274 days. • The minimum cash requirement to be held with the Bank of Portugal applicable to Portuguese banks was fixed at 2% of the total amount of deposits until 18 January 2012 when the reserve requirement ratio was reduced to 1%. An increase in this percentage or a decline in the interest rate accrued on those cash reserves would have an adverse impact on the BES Group’s net income. • Following Bank of Portugal Notice no. 6/2013, which establishes the transitory regime under Regulation (EU) No 575/2013 (“CRR”) until Directive 2013/36/EU is integrated into the Portuguese legal framework, Portuguese credit institutions must maintain a Common Equity Tier 1 ratio of not less than 7%.

38 • Bank of Portugal Instruction no. 32/2013 (which repeals Instruction no. 18/2012) specifies what should be considered “restructured credit due to client financial difficulty”. The identification and limitation of what can be considered “restructured credit due to client financial difficulty” has an effect on credit risk management, on loan impairment assessment, as well as on compliance with other prudential requirements. The change in the criteria provided for in Instruction no. 32/2013 could have a negative impact on the results of operations and financial condition of the BES Group.

In addition, the Bank of Portugal establishes minimum provisioning requirements regarding loans, non-performing loans, overdue loans, impairment for securities and equity holdings, sovereign risk and other contingencies (Circular Letter 2/2014 from the Bank of Portugal). Therefore, any increase in the amount of these requirements could have an adverse impact on the BES Group’s results of operations.

The regulatory laws governing banking activity may change at any time in ways which may have an adverse effect on the business of the BES Group. Furthermore, the BES Group cannot predict the timing or form of any future regulatory initiatives. Changes in existing regulatory laws may materially affect the way in which the BES Group conducts its business, the products and services it can offer and the value of its assets.

In addition, the BES Group’s operations are subject to regulation in each jurisdiction in which it operates. Often, these regulations are complex and costly to comply with in terms of time and other resources. Breach of applicable regulations may lead to penalties, fines, compliance costs, reputational harm and even loss of licenses to operate.

The prudential regulatory framework of CRD IV/CRR establishes, among others, more demanding requirements and minimum capital reserves and liquidity ratios The regulatory package known as CRD IV/CRR, comprised of Regulation (EU) No 575/2013 and Directive 2013/36/EU of the European Parliament and of the Council, of 26 June, has implemented the prudential regulatory framework known as “Basel III” at the level of the EU and establishes new minimum requirements on capital, new rules on the type of capital instruments that are eligible for own funds and new liquidity and leverage requirements. These rules will be applied gradually between January 2014 and January 2024.

The established minimum capital requirements are 4.5% for Common Equity Tier 1 (“CET1”) capital, 6% for Tier 1 capital and 8% for total capital. Credit institutions will be required to maintain minimum buffers, namely a 2.5% capital conservation buffer, a countercyclical buffer specific to the institution of between 0% and 2.5%, a buffer between 0% and 3.5% for certain institutions deemed to be globally systematically important institutions, a buffer between 0% and 2% for other certain globally systematically important institutions and an amount designated by the regulatory authority for systemic risk. In addition, the regulatory authorities may impose minimum requirements to address Pillar 2 risks. CRD IV/CRR also changed the criteria for qualification as regulatory capital instruments, namely Additional Tier 1 capital instruments (“AT1” or “Additional Tier 1”) and Tier 2 capital instruments (“Tier 2”). As at 31 March 2014 BES had a CET1 ratio (phasing in) of 9.8% and a CET1 ratio (fully implemented) of 8.0%, according to the rules set forth in CRD IV/CRR respectively. These ratios represent preliminary estimates that BES discloses upon presenting the quarterly results. The ratios for regulatory purposes are presented later, in the legal period for such presentation.

Under the Basel III framework as adopted in CRD IV/CRR, there are also changes related to liquidity requirements including the provision for near and medium/long term liquidity and financing requirements referred to as the liquidity coverage ratio (“LCR”) and net stable funding ratio (“NSFR”). The LCR, whose implementation is recommended for 2015, requires sufficient high-quality liquid assets to satisfy short-term liquidity needs under stressed conditions and which can be no less than 100% of the liquidity outflows for the following 30 days. The NSFR, whose implementation is recommended for 2018, seeks to establish a stable funding minimum amount based on the liquidity of the institution’s assets and its activities over a one-year period.

CRD IV/CRR also introduce a leverage ratio aimed at monitoring possible under-estimations of risk-weighted assets and avoid excess leverage through a simple calculation. This ratio is calculated by dividing the total Tier 1 capital by total exposure as defined in CRD IV. In addition to the balance sheet assets, the denominator includes other off-balance sheet items.

The introduction of more demanding capital requirements could have a material adverse effect on the bank’s profitability, in addition to creating the need to reinforce its CET1, AT1 and Tier 2 capital, thereby reducing shareholder return and other profitability indicators. Furthermore, the uncertainty around the possible imposition

39 of additional capital requirements may worsen the described effects. More demanding liquidity requirements may require BES to increase the maturities of funds collected and to increase the portfolio of net assets, which will lead to an increase in funding costs and a reduction in results of operations.

There can be no assurance that the effects mentioned in the previous paragraphs will not reduce BES’ capacity to pay out dividends, force BES to sell assets in adverse conditions or to restructure its business segments or other actions which have a negative effect on its financial condition and results of operations.

Under the Single Supervisory Mechanism, the ECB will take on the supervision of ESFG and the BES Group in late 2014 In order to ensure financial stability and to create the foundations for sustainable economic growth, the member states of the EU have created the Banking Union. Under this framework, the ECB will assume responsibility for the supervision of the majority of credit institutions operating within the EU.

As part of the European single supervisory mechanism, certain bank supervisory responsibilities will be transferred from national regulators to the ECB. In a transitional period, which began in the first quarter of 2014 as part of a comprehensive balance sheet assessment, the ESFG asset portfolio was subject to review by external auditors on behalf of the ECB in order to assess the quality of BES’ assets. Based on the balance sheet as at 31 December 2013, the assessment covered credit and market exposures, off-balance sheet arrangements and domestic and non-domestic exposures and an assessment of the adequacy of the BES Group’s asset valuation, its classification of non-performing exposures, collateral valuation as well as a recalculation of the BES Group’s provisions for risk-weighted assets.

The asset quality review will be followed by a stress test, which builds on and complements the asset quality review, to be conducted by the ECB and the European Banking Authority (the “EBA”). The ECB announced that it expects to release results of the asset quality review before assuming bank supervisory functions in November 2014.

In preparation for the asset quality review, on 21 October 2013, the EBA published draft technical standards on non-performing loans and forbearance reporting requirements, which are intended to provide consistent indicators of asset quality of banks across the EU and to harmonise the definitions of non-performing loans. In addition, the last week of April 2014 saw multiple announcements from European bodies on the upcoming 2014 European Comprehensive Assessment, consisting of the Asset Quality Review and subsequent stress test. The key publications included: • The European Banking Authority methodological note on the EU-wide stress test 2014; and • The ECB note on the Comprehensive Assessment.

This evaluation may be an indicator that could have a significant impact on ESFG’s and the BES Group’s balance sheet, and, as a result, the amount of loan loss provision, and regulatory capital requirements for ESFG and for the BES Group.

Should the result of the asset quality assessment not be deemed satisfactory by the ECB, this could result in the imposition of corrective measures to ESFG group by the regulators (for example, recapitalisation through profit retention, equity issuance, re-orientation of funding sources, asset separation and sales).

The BES Group anticipates that the regulators will continue to ask for similar stress tests and will announce the results to the public. If ESFG (or the BES Group) fails these tests or if the result is not perceived as satisfactory by the regulators, the market or the rating agencies, it can trigger an intervention by the regulators, which may require an increase in regulatory capital.

The occurrence of any of these events could have a material adverse effect on the BES Group’s business, financial position and results of operations.

The creation of the Single Resolution Mechanism may have an adverse impact on the BES Group’s credit rating In July 2013, the EC proposed the creation of a Single Resolution Mechanism, which, together with the Single Supervisory Mechanism, the single rulebook for financial institutions and a centralised system of deposit guarantee schemes form the four pillars of the Banking Union. The main purpose of the Single Resolution

40 Mechanism is to ensure that the costs of state intervention in a banking crisis be totally borne by member state taxpayers. The mechanism will firstly require the participation of bank shareholders and creditors at a minimum amount, requiring that bank’s shareholders and creditors absorb a minimum amount of losses beforehand. This mechanism provides a methodical approach to avoiding banking crises and, should this prove impossible, to handle these promptly and with access to European funds.

The financial institutions of countries covered by the Single Resolution Mechanism will make contributions to national resolution funds, which will be gradually mutualised over an eight-year period. The expected financial contributions to the Banking Single Resolution Fund could have a material effect on the results of operations and the financial condition of the BES Group.

An intervention under the Single Resolution Mechanism reduces the possibility of individual government support, increasing the likelihood of losses being absorbed by a financial institution’s shareholders and bondholders before such an intervention is initiated.

This new regulation, in general, may have an impact on the credit ratings of financial institutions, including the BES Group, which may materially adversely affect the BES Group’s cost of borrowing and financial outlook.

The planned creation of a deposit protection system applicable throughout the EU may result in additional costs to the BES Group The harmonisation of the deposit guarantee systems in Europe will represent significant changes to the mechanisms of the deposit guarantee systems currently in force. Taking into account proposed increased ex ante financing to approximately three quarters of total financing and the objective relating to the level of deposit guarantee schemes to 2% of eligible deposits, banks may be required to contribute to the deposit guarantee systems in amounts that are much higher than the current contributions. The EU estimates that the cumulative impact on banks will be a reduction of 4% in their results of operations over the first five years, and a reduction of 2.5% over the following five years.

Although the harmonisation of the deposit guarantee systems is currently expected to maintain a level of coverage at €100,000, pressure from EU authorities to simplify eligibility criteria and put in place swifter payment procedures may lead to additional adjustments in the level and scope of coverage, implying higher bank contributions to the deposit guarantee schemes.

The additional indirect costs of the deposit guarantee systems may also be significant, even if they are much lower than the direct contributions to the fund, as may the cost of providing detailed information to clients about products as well as complying with specific regulations about advertising for deposits or products similar to deposits.

Governmental regulatory responses to market disruptions may be inadequate and may have unintended consequences As a result of the financial crisis and subsequent government intervention in response to the financial crisis, there has been, and there likely will continue to be a substantial increase in government regulation of the financial services industry, in addition to the imposition of higher capital requirements, heightened disclosure standards and restrictions on certain types of transactions. New regulations could require BES to inject further capital into its business as well as in companies it purchases, to restrict or limit the type or volume of transactions it enters into, or to change rates or fees that it charges on certain loans or other products, any of which could have an adverse impact on the BES Group’s financial condition and results of operations. The BES Group may also face increased compliance costs and limitations on its ability to pursue certain business opportunities.

Compliance with anti-money laundering and anti-terrorism financing rules may involve further cost and effort The BES Group is subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financial institutions and pose significant technical problems. Although BES believes that its current policies and procedures sufficiently comply with applicable rules and regulations, it cannot guarantee that its group-wide anti-money laundering and anti-terrorism financing policies and procedures completely prevent situations of money laundering or terrorism financing. Any of such events may have severe consequences, notably reputational consequences, and could have a material adverse effect on the BES Group’s financial condition and results of operations.

41 In October 2005, BES and other Portuguese credit institutions were subject to investigation procedures directed by the Public Prosecutor (Ministério Público), in the context of a criminal investigation related to suspicions of money laundering and fiscal fraud involving some clients of BES. The investigations are being conducted exclusively by the Public Prosecutor.

On 24 March 2014, a Spanish branch of BES was fined €1.2 million for alleged infringement of Spanish anti- money laundering laws. The penalties relate to two specific clients. The Bank contested the penalties and has filed an appeal in a Spanish court, which is currently pending. The Bank believes that it implements best practices and rigorously complies with anti-money laundering laws.

Following a visit from the Financial Conduct Authority (the “FCA”) to a BES branch in London, the FCA identified certain procedural deficiencies in the context of money laundering prevention. Where no administrative fine proceedings were initiated, the FCA determined that BES’ London branch should review its procedures under the coordination of qualified experts. This review is being implemented.

The BES Group may be adversely affected by changes in fiscal legislation and regulations The BES Group may be adversely affected by fiscal changes in Portugal, in the EU, and in the other countries where it operates. The BES Group has no control over these fiscal changes or over changes in the interpretation of fiscal legislation by any tax or other authority. Significant changes in fiscal legislation in Portugal, the EU or the other countries where the BES Group operates, or difficulties in implementing or complying with new tax laws and regulations may have a material adverse impact on the BES Group’s activity, financial condition and results of operations.

One specific example of the above is the approval in 2011 of a tax to be applied to Portuguese banks under Decree Law no. 55-A/2010, of 31 December, and Ordinance no. 121/2011, of 31 March. This tax will be applied to (i) the Bank’s liabilities at a rate of 0.05% and (ii) the notional amount of off-balance sheet derivatives, excluding hedging derivatives and back-to-back derivatives, at a rate of 0.00015%. The taxable base is calculated on the basis of the annual average of the monthly balances of the qualifying items, as reflected in the approved accounts for the relevant year.

This tax has been successively extended and the maximum rates have been increased to 0.07% and 0.0003% under law no. 83-C/2013, from 31 December 2013 (2014 State Budget Law). In 2013, BES paid €27.3 million under the tax, as compared to €27.9 million in 2012.

Another example relates to the possibility, relating to the law 83-C/2013, to create a tax over financial transactions over the secondary market. This new tax should apply as Stamp Duty, at a maximum rate of 0.3% on the purchase and sale of financial instruments, as well as derivative contracts including changes to those contracts. To date it has not been specified how the tax will be applicable.

The law no. 12/2014 established the so-called “Corporate Tax Rate Reform” in Portugal, which lowered the corporate tax rate to 23%, but increased the municipal surcharge for large corporate taxpayers from 5% to 7%, applicable to the component of taxable income that exceeds €35 million.

At the same time, it was determined that the corporate tax rate will be lowered to 21% by 2015 with an aim to set this rate between 17% to 19% by 2016, depending on the analysis and discretion of a commission that will monitor the impacts of the reform.

The reduction of the tax rate implies that the future tax amounts paid by the bank on its taxable income will be lower and that the deferred tax assets and liabilities registered on the bank’s balance sheet will be revalued.

Risks relating to standardised contracts and forms may have an adverse effect on the BES Group’s financial condition and results of operations The BES Group maintains contractual relationships with a large number of clients. In all of the BES Group’s business areas and departments, the management of such a large number of legal relationships involves the use of general terms and conditions and standard templates for contracts and forms. This standardisation implies that for subjects that need clarification, contain drafting errors or need individual terms and conditions, the use of standard contracts and forms poses a significant risk due to the large number of contracts entered into under these conditions. In the light of recent amendments to the applicable legal framework as a result of new laws and judicial decisions, and the growing influence of European legislation on national laws, it is possible that not all

42 the general terms and conditions, standard contracts and forms used by the BES Group comply with all the applicable legal requirements at all times. If there are drafting errors, interpretive issues, or if the individual contractual terms or the contracts are invalid in their entirety or in part, a large number of client relationships may be affected negatively, which may result in claims for compensation or other legal consequences that may have an adverse effect on the financial condition and results of operations of the BES Group.

The results of litigation in which the BES Group is not a party may have adverse consequences for the BES Group Judicial and regulatory decisions that are unfavourable to other banks may also have implications for the BES Group, even in cases in which the BES Group is not a part of the proceedings. This could occur in cases where the contractual practices or clauses in question are in common use throughout the sector and are declared illegal. For example, decisions that have an impact on clauses in general terms and conditions or schedules for repayment of loans could affect the whole sector. This could also be the case in a decision that depends on the special circumstances of an individual case, where its result is used by third parties against the BES Group. The BES Group may, as a consequence, be forced to change its practices or to pay compensation to avoid damage to its reputation. These decisions may have a material adverse affect on the financial condition or results of operations of the BES Group.

Risks Relating to BES’ Shareholding and Corporate Structure If the BES core shareholders were to sell their holdings, it could have a material adverse effect on BES’ share price The sale of a significant number of shares by any of BES’ shareholders may have a negative effect on the share price of BES shares. This effect would be compounded if the sellers were one of BES’ core shareholders, in particular ESFG or Credit Agricóle.

ESFG has informed BES that it intends to subscribe for New Shares in the Rights Offering. For that purpose it intends to sell, during the Rights Offering, Shares or Rights for New Shares and reinvest in full the net proceeds from such sale in the subscription of New Shares in the Rights Offering. Crédit Agricole also has informed BES that it intends to subscribe for New Shares in the Rights Offering. It intends to sell, during the same period, shares or subscription rights for new shares and reinvest approximately €10 million of the net proceed of such sale.

In addition, each of Credit Agricole, S.A. and ESFG have agreed that from 15 May 2014 through a period of 180 days after the conclusion of the capital increase they will not dispose of the shares they hold (“lock-up period”) but they can however sell rights or shares until the settlement of the Rights Offering, so long as they hold, immediately after such settlement, a number of shares not less than what they held at 15 May 2014. See “Plan of Distribution and Arrangement”.

The BES Group is exposed to the risk of changes to its strategic partnerships The BES Group’s activities are, in part, linked to strategic partnerships with several other companies that are independent from the BES Group, especially in the BES Group’s bancassurance (with the Group Crédit Agricóle) and investment banking activities (with Bank Bradesco). See “Information on the BES Group— Material Contracts”. The BES Group has no ability to control the exit of its partners from these strategic partnerships nor the compliance with the agreements governing these strategic partnerships. Termination of one or more of these partnerships may establish a need to change the Group’s business model associated with such partnerships or require the BES Group to find a new local partner, either of which might negatively affect its financial position and its results associated with such partnerships. For additional information, see “—Principal Shareholders” and “Related Party Transactions”.

The BES Group is exposed to the risk of changes in its management The BES Group’s management has been relatively stable since its reprivatisation and this has contributed to the BES Group’s development in Portugal and abroad. However, the composition of the BES Group’s management may change due to shareholders’ or the Board’s decisions or to personal matters of the directors or, if the relevant legal conditions are fulfilled, to actions of the regulators. BES could have difficulty replacing any departing directors, and this could adversely affect its financial condition and results of operations.

43 Operations intended to increase BES’ capital may result in a successive dilution of shareholders’ holdings, if pre-emption rights are not exercised Under BES’ articles of association, the Board is authorised, following a favourable opinion from the Audit Committee, and during the five-year period following the resolutions passed 9 July 2011 and 11 November 2011 by the General Meetings, to increase the share capital by cash contributions, on one or more occasions, through the issue of ordinary shares or preferential shares, redeemable or not, up to a maximum amount of €7,500 million. In this context, in addition to the Combined Offering, both the BES General Meeting and the Board can, under the law and the articles of association, decide on further increases of BES’ share capital, by means of public offers or private placements of shares or other capital instruments or securities that grant the right to subscribe to shares. The issue of such instruments, if significant in volume, could cause a dilution in the percentage holding of the current shareholders that do not exercise their pre-emption rights (unless these have been suppressed, in which case shareholders may suffer dilution). In addition, the issue and distribution of new shares could adversely affect the market price for BES Shares and increase their volatility. The share capital increases to be resolved by the Board must be subject to shareholders’ pre-emption rights, except where the General Meeting resolves to limit or suppress such pre-emption rights.

BES may be subject to an unsolicited takeover bid BES may be subject to an unsolicited takeover bid. In such case, there may be changes in BES’ current strategy, business plan, operations and resources, which could have an impact on BES’ business, financial condition, results of operations and BES’ share price.

Risks Relating to the Combined Offer and the New Shares The price of the BES’ shares may decline BES cannot assure investors that the public trading market price of its Ordinary Shares will not decline below the Subscription Price. Should that occur after investors irrevocably take up their Rights to subscribe New Shares, investors will suffer an immediate unrealised loss as a result. Moreover, BES cannot assure investors that following the subscription of New Shares, they will be able to sell ordinary shares at a price equal to or greater than the Subscription Price. Until the New Shares are placed in book-entry accounts upon expiration of the Combined Offering, investors may not sell the New Shares that they purchase in the Combined Offering. Furthermore, the sale of a substantial number of ordinary shares or the perception that such sales might occur may negatively affect the public trading market price of BES’ ordinary shares.

The admission to trading of the New Shares on Euronext Lisbon depends on the registration of BES’ share capital increase with the Portuguese Commercial Registry following settlement of the Combined Offering. A delay in admission to trading of the New Shares may affect the liquidity of such shares. BES cannot assure investors that the registration of the share capital increase with the Portuguese Commercial Registry and the admission of the New Shares to trading on Euronext Lisbon will take place when anticipated.

Investors’ rights as shareholders will be governed by Portuguese law, which may differ in some respects from the rights of shareholders under the laws of other countries BES is a public company (sociedade aberta) governed by Portuguese law, and the rights of the holders of its Ordinary Shares are governed by BES’ articles of association and Portuguese corporate and securities laws, regardless of the national law applicable to any shareholder. The ability of shareholders to bring claims against BES and its officers and directors under foreign laws and the ability of shareholders to enforce judgments obtained in foreign jurisdictions in the Portuguese courts are limited as a result.

In addition, under Portuguese law, shareholders may seek to invalidate resolutions of a company’s corporate bodies that breach the company’s articles of association or applicable law. Such actions could be taken, for example, in connection with resolutions adopted with respect to the payment of dividends, share capital increases or reductions and any other amendments to the articles of association or the spin-off or merger of the company. In the case of a share capital increase of a public company, such a claim may lead to the issuance of shares that are not fully fungible with outstanding shares pending final resolution of the relevant claim, as set forth in article 25 of the Portuguese Securities Code. Shareholders must hold at least 0.5% of the share capital to seek an injunction suspending the effects of a resolution of a public company.

Furthermore, given that the offer is accompanied by the information that admission of the New Shares in Euronext Lisbon has been requested, the addressees of the offer may terminate their subscription of New Shares,

44 if the admission is refused based on a fact imputable to the Issuer, BESI or an entity which falls under one of the situations set out in article 20, paragraph 1 of the Securities Code in relation to the Issuer or BESI.

In case of termination of subscription of New Shares, the Issuer must refund to the addressees any amounts received within 30 days of receipt of the termination notice.

The development of a trading market for the Rights cannot be assured A trading period in the regulated market for the Rights is expected to be established from 27 May until 3 June 2014 inclusive. Although the Rights will be admitted to trading on Euronext Lisbon, BES cannot assure investors that an active secondary trading market will develop for the Rights on Euronext Lisbon or that any over-the- counter trading market in the Rights will develop. Even if an active market develops, the trading price of the Rights may be volatile.

No compensation will be received by shareholders if the Rights expire unexercised The Subscription Period for the New Shares being offered pursuant to the exercise of Rights commences on 27 May 2014 and expires on 9 June 2014. If a holder fails to exercise its Rights prior to the end of the Subscription Period, its Rights will expire and it will receive no monetary or other compensation as a result of their expiry.

Shareholders’ ownership will be diluted if they do not exercise all of their Proportional Rights The Combined Offering is designed to enable BES to raise capital in a manner that gives the opportunity to all Existing Shareholders to subscribe for New Shares. Under the Underwriting Agreement, the Underwriters have agreed, subject to certain conditions (including as to the number of New Shares underwritten), to subscribe for a portion of any remaining New Shares that are not subscribed for pursuant to the exercise of Rights during the Subscription Period. To the extent that an investor does not exercise its Proportional Rights during the Subscription Period, its proportionate ownership and voting interest in BES will, accordingly, be reduced. Even if an investor elects to sell its unexercised Rights, the consideration it receives for them may not be sufficient to fully compensate it for the dilution caused as a result of the Combined Offering. Existing Shareholders that do not exercise their Rights within the Rights Offering will be diluted by 28.57% such that an Existing Shareholder holding 1% of the ordinary shares prior to the Combined Offering will have its shareholding reduced to approximately 0.714% following the issuance of 1,607,033,212 New Shares in the Combined Offering.

Without prejudice to the Underwriting Agreement, there is no guarantee of the placement of all the New Shares. The size of the capital increase as a result of the Combined Offering will be reduced to the extent that New Shares are not subscribed for pursuant to the exercise of the Rights in the Rights Offering and are not underwritten by the Underwriters.

There can be no assurance that the BES Group will be able to pay dividends in the future The BES Group’s ability to pay dividends may be adversely affected by the risks described in this Offering Circular. Dividends will depend on results of operations and financial condition, debt service obligations, liquidity position, regulatory requirements and other factors that may be relevant from time to time. There can be no assurance that the BES Group will be able to pay dividends in the future.

The Underwriting Agreement may be terminated in certain limited circumstances BES and the Underwriters have entered into an Underwriting Agreement governed by English law, under which the Underwriters have agreed, subject to certain conditions, to procure subscribers or otherwise subscribe themselves, for New Shares not otherwise subscribed for pursuant to the Rights Offering.

The Underwriting Agreement can be terminated, among other reasons, in the event of force majeure, illegality, default, rating downgrade or abnormal and adverse changes to BES’ financial condition, among others.

For further information on the Underwriting Agreement, see section “Terms And Conditions Of The Combined Offering—Plan of Distribution and Arrangement”.

45 The rights of minority shareholders may be limited under Portuguese law Despite the high degree of harmonisation in the legal framework that regulates shareholders’ rights in the member states of the EU, the rights of minority shareholders, as well as other issues that may influence these rights, may be different in Portugal as compared to other jurisdictions, and an investor’s capacity to exercise such rights could be limited. In addition, the ability to enforce judicial or arbitration decisions handed down against BES or any of its representatives outside Portugal is subject to verification of certain legal requirements.

Legal or regulatory investment constraints may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or to the supervision and regulation by various authorities. Prior to an investment decision and in light of its particular situation, each potential investor should consult with its legal advisers to determine whether and to what extent: (i) the Rights and/or the subscription of New Shares are legal investments permitted by law; (ii) the Rights and/or New Shares may be used as collateral for various types of borrowings; and (iii) other restrictions that apply to the purchase, sale or pledge of any of the Rights and/or New Shares. Financial institutions should consult their legal advisers and the relevant regulatory authorities to determine the appropriate treatment of the Rights and/or New Shares under any applicable rules.

Possible FATCA withholding after 2016 Certain provisions of the U.S. Internal Revenue Code of 1986, as amended, (the “Code”) and U.S. Treasury regulations thereunder (commonly referred to as “FATCA”) impose 30% withholding on certain “foreign passthru payments” made by a non-U.S. financial institution (such as BES or a relevant intermediary) that has entered into an agreement with the U.S. Internal Revenue Service (each such non-U.S. financial institution, a “Participating Foreign Financial Institution”) when such payments are made to any non-U.S. financial institution (including an intermediary through which a holder may hold New Shares) that is not a Participating Foreign Financial Institution and is not otherwise exempt from FATCA and to other holders who do not provide sufficient identifying information. Under current guidance, the term “foreign passthru payment” is not defined and therefore it is not clear whether or to what extent payments on the Shares would be considered foreign passthru payments. Withholding on foreign passthru payments would not be required with respect to payments made before 1 January 2017.

A number of jurisdictions have entered into, or have announced their intention to enter into, intergovernmental agreements (or similar mutual understandings) (“IGAs”) with the United States, which modify the way the FATCA withholding regime described above applies in their jurisdictions. In particular, the United States and Portugal have reached an agreement in substance for an IGA. The full impact of IGAs (and the laws implementing IGAs) on reporting and withholding responsibilities under FATCA is unclear. It is not yet certain how the United States and the jurisdictions which enter into IGAs will address withholding on “foreign passthru payments” (which may include payments on the New Shares) or if such withholding will be required at all.

Prospective investors should consult their tax advisers regarding the consequences of FATCA, or any IGA or non-U.S. legislation implementing FATCA, to their investment in the New shares.

If BES were to become a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes, U.S. investors would be subject to certain adverse U.S. federal income tax rules In general, a non-U.S. corporation will be a PFIC for any taxable year if (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents, royalties and capital gains. Based upon proposed Treasury regulations dealing with the application of the PFIC rules to foreign banks, BES does not believe that it will be a PFIC for its current taxable year and does not expect to become a PFIC in the foreseeable future. However, because there are uncertainties in the application of the relevant rules and because BES’ PFIC status depends upon the composition of its income and assets and the market value of its assets (including, among others, less-than-25%-owned equity investments) from time to time, there can be no assurance that BES will not be a PFIC for any taxable year. If BES were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders. See “Taxation—Certain U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”

46 USE OF PROCEEDS

Based on the Subscription Price of €0.65 per New Share subscribed, and assuming the full subscription of the New Shares, BES expects the net proceeds of the Combined Offering will be approximately €1,011 million, after deducting: (i) fees, commissions and expenses related to the Combined Offering of €2.5 million; and (ii) underwriting and other commissions payable to the Underwriters in a maximum amount of approximately €31.0 million.

BES intends to use the net proceeds of the Combined Offering to further strengthen its capital ratios, leveraging on its competitive position in order to take advantage of the recovery of the Portuguese economy and to expand its international units, simultaneously creating additional capital buffers to face: 1. The new regulatory framework known as CRD IV, applicable to EU financial institutions since 1 January 2014, aligning the fully loaded Basel III CET1 ratio with the new market benchmark. 2. The asset quality review and stress tests which will be performed before the ECB assumes the supervisory function of the main banks of the European Union at the end of 2014.

47 DILUTION

If the New Shares are fully subscribed, the exercise by Existing Shareholders of all of their Proportional Rights will result in their ownership interests being maintained and they will not be diluted.

In the event that Existing Shareholders elect not to exercise their Proportional Rights in full, such Existing Shareholders may experience substantial dilution of their ownership interest, since other Existing Shareholders may subscribe for additional New Shares pursuant to the exercise of their Rights and any New Shares not subscribed for in the Rights Offering will be allocated, subject to certain conditions, to eligible investors outside of the United States in the Institutional Offering. Existing Shareholders that do not exercise their Proportional Rights in full will be diluted such that an Existing Shareholder holding 1.00% of the ordinary shares prior to the Combined Offering will have its shareholding reduced to approximately 0.714% assuming the issuance of 1,607,033,212 New Shares in the Combined Offering.

The following table sets forth the number of Shares immediately prior to the Combined Offering, the maximum number of New Shares and the total maximum number of Shares following completion of the Combined Offering (assuming no Shares other than the New Shares are issued before completion of the Combined Offering):

As at 15 May 2014 (the last Immediately following practicable date prior to the completion of the Combined date of this Offering Circular) Offering Number of Shares immediately prior to the Combined Offering ...... 4,017,928,471 100% 4,017,928,471 71.43% Number of Shares to be issued in the Combined Offering (assuming full subscription thereof) ...... — — 1,607,033,212 28.57% Total ...... 4,017,928,471 100% 5,624,961,683 100%

48 CAPITALISATION AND INDEBTEDNESS OF THE BES GROUP The tables below should be read in conjunction with the financial information set forth in “Summary Financial and Other Data” and “Selected Financial and Other Information of the BES Group” as set forth in this Offering Circular and the Audited Group Financial Statements. Below is the consolidated balance sheet of BES as at 31 March 2014, as set forth in the Q1 Release and as adjusted to reflect the share capital increase by the maximum amount as may result from the Combined Offering as a result of the issuance of the maximum number of New Shares (unaudited). Balance as at Balance after the Balance Sheet 31 March 2014 Capital increase capital increase (EUR million) Cash and deposits at central banks ...... 1,806.0 — 1,806.0 Deposits with banks ...... 705.1 1,015.1(1) 1,720.2 Financial assets held for trading ...... 2,620.4 — 2,620.4 Other financial assets at fair value through profit or loss ...... 3,922.0 — 3,922.0 Available Available-for for-sale financial assets ...... 11,131.2 — 11,131.2 Loans and advances to banks ...... 2,930.5 — 2,930.5 Loans and advances to customers ...... 47,350.6 — 47,350.6 Held-to-maturity investments ...... 1,532.8 — 1,532.8 Derivatives for risk management purposes ...... 322.4 — 322.4 Non-current assets held for sale ...... 3,510.4 — 3,510.4 Investment properties ...... 393.1 — 393.1 Other tangible assets ...... 928.7 — 928.7 Intangible assets ...... 458.8 — 458.8 Investments in associates ...... 433.8 — 433.8 Current income tax assets ...... 34.3 — 34.3 Deferred income tax assets ...... 1,054.7 9.3 1,064.0 Reinsurance Technical Provisions ...... 10.9 — 10.9 Other assets ...... 3,671.5 — 3,671.5 ASSETS ...... 82,817.3 1,024.4 83,841.8 Deposits from central banks ...... 9,863.0 — 9,863.0 Financial liabilities held for trading ...... 1,375.0 — 1,375.0 Deposits from banks ...... 5,296.7 — 5,296.7 Due to customers ...... 36,241.9 — 36,241.9 Debt securities issued ...... 12,666.1 — 12,666.1 Derivatives for risk management purposes ...... 114.0 — 114.0 Investment contracts ...... 4,763.6 — 4,763.6 Non-current liabilities held for sale ...... 155.1 — 155.1 Provisions ...... 215.9 — 215.9 Technical provisions ...... 1,771.5 — 1,771.5 Current income tax liabilities ...... 146.9 — 146.9 Deferred income tax liabilities ...... 130.0 — 130.0 Subordinated debt ...... 982.9 — 982.9 Other liabilities ...... 2,077.5 — 2,077.5 LIABILITIES ...... 75,800.1 — 75,800.1 Share capital ...... 5,040.1 1,044.6 6,084.7 Share premium ...... 1,070.1 (20.1)(2) 1,050.0 Other equity instruments ...... 29.2 — 29.2 Treasury stock ...... (0.9) — (0.9) Preference shares ...... 159.3 — 159.3 Reserves, retained earnings and other comprehensive income ...... 113.1 — 113.1 Profit for the year attributable to equity holders of the Bank ...... (89.2) — (89.2) TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK ...... 6,321.9 1,024.4 7,346.3 Non-controlling interests ...... 695.4 695.4 TOTAL EQUITY ...... 7,017.3 1,024.4 8,041.7 TOTAL EQUITY AND LIABILITIES ...... 82,817.3 1,024.4 83,841.8

Notes: (1) Excludes around €4 million related to issuance fees paid to BESI that are eliminated on a consolidated group basis, since it is an intra-group operation. (2) Includes the fees related to the capital increase, less the respective deferred tax assets.

49 Below is the consolidated statement of short- and medium-term capitalisation and indebtedness of the BES Group as at 31 March 2014 and 31 December 2013, 2012 and 2011. The information set forth below as at 31 December 2013, 2012 and 2011 was extracted from the Audited Group Financial Statements. The information set forth below as at 31 March 2014 was derived from the Q1 Release.

As at 31 March As at 31 December Capitalisation and Indebtedness 2014 2013 2012 2011 (EUR million) Equity Share capital ...... 5,040 5,040 5,040 4,030 Preference shares ...... 159 159 193 212 Other equity instruments(1) ...... 33 33 33 34 Legal Reserve ...... 97 97 85 85 Other reserves, share premium and treasury stock ...... 996 921 1,716 1,247 Equity(1) ...... 6,326 6,251 7,067 5,608 Short and Medium Term Indebtedness Cash ...... 224 288 304 278 Deposits at Central Banks(2) ...... 1,556 1,401 1,048 702 Deposits with banks ...... 705 543 681 581 Securities held for trading ...... 1,154 1,114 1,661 1,218 Liquidity ...... 3,639 3,346 3,694 2,779 Short term Financial Assets(3) ...... 7,706 9,555 10,201 10,272 Deposits from Central Banks ...... 9,857 400 150 5,013 Short Term Deposits from Banks ...... 3,376 3,575 3,692 3,647 Short Term portion of Long Term Financial Liabilities . . 4,864 3,571 3,200 6,156 Collateralized Liabilities ...... 1,071 234 0 1,572 Other liabilities ...... 3,793 3,337 3,200 4,584 Other short term financial liabilities(4) ...... 851 984 389 32 Short term Financial Liabilities(5) ...... 18,948 8,530 7,431 14,848 ECB Eligible Assets(6) ...... 8,503 5,764 4,739 2,195 Short Term Net Indebtedness ...... (900) (10,135) (11,203) (398) Deposits from Central Banks ...... 6 9,130 10,743 5,001 Medium/Long Term Deposits from Banks ...... 1,921 1,425 1,397 2,592 Other Medium/Long Term Liabilities (debt securities issued) ...... 7,451 8,038 11,612 11,653 Collateralized Liabilities ...... 705 1,580 1,887 2,164 Other liabilities ...... 6,746 6,458 9,725 9,489 Other Medium/Long Term Financial Liabilities(4) ...... 4,896 4,360 3,864 929 Medium/Long Term Financial Liabilities(5) ...... 14,274 22,953 27,616 20,175 Indebtedness ...... 33,222 31,483 35,048 35,023 Net Indebtedness ...... 13,374 12,818 16,414 19,777 Equity+Net Indebtedness ...... 19,700 19,069 23,481 25,385

Notes: (1) Includes the amount of €4 million at 31 March 2014 and 31 December 2013, 2012 and 2011 related to the issue of perpetual subordinated bonds by BES Investimento recorded in non-controlling interest in the balance sheet (2) Excludes mandatory deposits (3) Includes securities registered at fair value through results, securities available for sale, securities held to maturity and investments in short-term credit institutions (4) Includes subordinated liabilities and investment contracts (5) Excludes deposits and customers certificates of deposits (6) Unused amount of eligible assets pledged as collateral to the ECB under the liquidity-providing operations

50 Total short-term net indebtedness was negative €900 million as at 31 March 2014 and reflected full coverage of short-term financial liabilities, which are covered by short-term financial assets and rediscountable assets from the ECB. Short-term financial liabilities amounted to €18,948 million, which included (i) secured obligations of the BES Group amounting to €236 million of covered bonds issued by its Spanish branch and collateralised by mortgages originated by the same branch and (ii) €835 million in mortgage bonds issued by BES and collateralised by mortgage loans.

In addition, as at 31 March 2014 medium/long-term financial loans included: (i) €84 million in covered bonds issued by the Spanish Branch and collateralised by mortgage funds originated by the same branch, (ii) €579 million in bonds issued by Lusitano Mortgages No. 6 PLC and Lusitano SME No. 1 PLC and collateralized by mortgage loans and corporate loans, respectively, originated by BES, and (iii) €42 million in mortgage bonds issued by BES and collateralised by mortgage loans. As at 31 March 2014, the remaining medium/long-term financial liabilities amounted to €13,569 million and represented senior unsecured obligations of the BES Group.

Total short-term net indebtedness was negative €10,135 million as at 31 December 2013 and reflected full coverage of short-term financial liabilities, which are covered by short-term financial assets and rediscountable assets from the ECB. The increase in eligible assets for rediscount with the ECB resulted from the decrease in loans from this entity. As at 31 December 2013, short-term financial liabilities amounted to €8,530 million, which included secured obligations of the BES Group amounting to €234 million of covered bonds issued by its Spanish branch and collateralised by mortgages originated by the same branch.

In addition, as of 31 December 2013 the medium/long-term financial loans include: (i) €83 million in covered bonds issued by the Spanish Branch and collateralised by mortgage funds originated by the same branch, (ii) €596 million in bonds issued by Lusitano Mortgages No. 6 PLC and Lusitano SME No. 1 PLC and collateralised by mortgage loans and corporate loans, respectively, originated by BES, and (iii) €901 million in mortgage bonds issued by BES and collateralised by mortgage loans. As of 31 December 2013, the remaining medium/long-term financial liabilities amounted to €21,373 million and represented senior unsecured obligations of the BES Group.

The total amount of contingent liabilities and commitments as at 31 March 2014 and 31 December 2013, 2012 and 2011 is set forth in the table below:

As at 31 March As at 31 December 2014 2013 2012 2011 (EUR million) Contingent liabilities Guarantees and stand by letters of credit ...... 7,705 7,618 8,023 8,376 Assets pledged as collateral ...... 17,376 20,425 21,633 12,875 Open documentary credits ...... 4,068 4,231 3,776 2,941 Other ...... 355 278 532 482 Commitments ...... 29,504 32,552 33,964 24,674 Revocable commitments ...... 7,018 7,108 5,463 5,844 Irrevocable commitments ...... 1,767 1,655 3,281 4,216 8,785 8,763 8,744 10,060

As at 31 December 2013, the balance assets pledged as collateral included: • Securities pledged as collateral to the ECB in the scope of a liquidity facility collateralised by securities for an amount of €18.8 billion, as compared to €19.6 billion as of 31 December 2012; • Securities pledged as collateral to the Portuguese Securities and Exchange Commission (CMVM) in the scope of the Investors Indemnity System (Sistema de Indemnizacao aos Investidores) for an amount of €17.2 million, as compared to €20.8 million as of 31 December 2012; • Securities pledged as collateral to the Deposits Guarantee Fund (Fundo de Garantia de Depósitos) for an amount of €75.7 million, as compared to €82.6 million as of 31 December 2012; and • Securities pledged as collateral to the European Investment Bank for an amount of €1.340 billion, as compared to €1.823 billion as of 31 December 2012.

51 Shown below are the significant changes in the BES Group’s consolidated indebtedness after 31 March 2014: • Debt issuance by BES of € 750 million, due 2017; • 3 zero coupon debt issuances by BES, through its Luxembourg branch, in the aggregate amount of 116.6 million, due 2046, 2048 and 2052; • Commercial paper issuance by Espírito Santo plc of €700 million, due 2014; • Debt issuance by BESI group, in the amounts of €71.5 million, USD 6.1 million and BRL883.3, due 2014, 2015, 2016, 2017, 2018, 2019 and 2021; • Repayment of debt in the amounts of € 30.7 million, USD 2.0 million and BRL 1.414 million; and • Early repayment of €1,000 million of the extraordinary line of long-term refinancing from the ECB.

52 SELECTED FINANCIAL AND OTHER INFORMATION OF THE BES GROUP

The financial information as at and for the years ended 31 December 2013, 2012 and 2011 contained in this Offering Circular was extracted from the Audited Group Financial Statements incorporated by reference herein. See “Documentation Incorporated by Reference”. The financial information as at and for the three months ended 31 March 2014 was extracted from the Q1 Release, reproduced in full in Appendix 1 hereto.

The Audited Group Financial Statements were prepared in accordance with IFRS in accordance with Regulation (EC) no. 1606/2002, of 19 July 2002, applicable as stated in Notice no. 1/2005 of the Bank of Portugal (Banco de Portugal).

The consolidated financial and other information contained in this section should be read in conjunction with the remaining financial information included in this Offering Circular, in particular the information included in “Operating and Financial Review”, and in the Audited Group Financial Statements incorporated by reference in this Offering Circular, as well as the Q1 Release, reproduced in full in Appendix 1.

For a description of certain post-31 March 2014 balance sheet events, including adjustments to BES’ share capital assuming completion of the Combined Offering, see “Capitalisation and Indebtedness of the BES Group”.

As at 31 March As at 31 December Balance Sheet 2014 2013 2012 2011 (EUR million) Assets Cash and deposits at Central Banks ...... 1,806.0 1,719.4 1,377.5 1,090.4 Deposits with banks ...... 705.1 542.9 681.1 580.8 Financial assets held for trading ...... 2,620.4 2,507.9 3,925.4 3,434.6 Financial assets at fair value through profit or loss . . . 3,922.0 3,874.3 2,821.6 1,964.0 Available-for-sale financial assets ...... 11,131.2 8,486.6 10,755.3 11,482.9 Loans and advances to banks ...... 2,930.5 5,431.5 5,426.5 3,282.6 Loans and advances to customers ...... 47,350.6 46,334.9 47,706.4 49,043.4 Held-to-maturity investments ...... 1,532.8 1,499.6 941.5 1,541.2 Hedging derivatives ...... 322.4 363.4 516.5 510.1 Non-current assets held for sale ...... 3,510.4 3,567.0 3,277.5 1,646.7 Investment properties ...... 393.1 395.9 442.0 0.0 Other tangible assets ...... 928.7 925.4 931.6 851.7 Intangible assets ...... 458.8 455.4 555.3 230.3 Investments in associates ...... 433.8 536.7 581.0 807.0 Current income tax assets ...... 34.3 36.4 24.6 28.7 Deferred income tax assets ...... 1,054.7 1,034.3 728.9 712.2 Reinsurance Technical Provisions ...... 10.9 10.4 3.8 0.0 Other assets ...... 3,671.5 2,886.0 2,994.2 3,030.9 Total assets ...... 82,817.3 80,608.0 83,690.8 80,237.4 Non-current Assets(1) ...... 3,269.1 3,347.6 3,238.8 2,601.2 Liabilities Deposits from central banks ...... 9,863.0 9,530.1 10,893.3 10,013.7 Financial liabilities held for trading ...... 1,375.0 1,284.3 2,122.0 2,125.3 Deposits from banks ...... 5,296.7 4,999.5 5,088.7 6,239.4 Due to customers ...... 36,241.9 36,830.9 34,540.3 34,206.2 Debt securities ...... 12,666.1 11,919.5 15,424.1 18,452.6 Hedging derivatives ...... 114.0 130.7 125.2 238.6 Investment contracts ...... 4,763.6 4,278.1 3,413.6 0.0 Non current liabilities held for sale ...... 155.1 153.6 175.9 141.0 Provisions ...... 215.9 192.5 237.0 190.5 Technical provisions ...... 1,771.5 1,754.7 1,577.4 0.0 Current income tax liabilities ...... 146.9 101.9 221.2 44.9 Deferred income tax liabilities ...... 130.0 97.1 154.0 110.5 Other subordinated loans ...... 982.9 1,066.3 839.8 961.2 Other liabilities ...... 2,077.5 1,219.7 1,145.6 1,321.1 Total Liabilities ...... 75,800.1 73,558.7 75,958.1 74,045.0

53 As at 31 March As at 31 December Balance Sheet 2014 2013 2012 2011 (EUR million) Equity Capital ...... 5,040.1 5,040.1 5,040.1 4,030.2 Share Premium ...... 1,070.1 1,067.6 1,069.5 1,081.7 Other capital instruments ...... 29.2 29.2 29.3 29.5 Treasury stock ...... (0.9) (0.9) (7.0) (1.0) Preference shares ...... 159.3 159.3 193.3 211.9 Other reserves and retained earnings ...... 113.1 468.9 641.9 360.5 Profit for the period attributable to equity holders of the bank holders of the bank ...... (89.2) (517.6) 96.1 (108.8) Total equity attributable to equity holders of the Bank ...... 6,321.9 6,246.7 7,063.2 5,604.0 Non-controlling interest ...... 695.4 802.6 669.4 588.4 Total Equity ...... 7,017.3 7,049.3 7,732.6 6,192.4 Total Liabilities and Equity ...... 82,817.3 80,608.0 83,690.8 80,237.4

Notes: (1) Non-current assets includes other tangible assets, intangible assets, investments in associates, deferred tax assets and investment properties.

Three months ended 31 March Year ended 31 December 2014 2013 2013 2012 2011 (EUR million) Interest and similar income ...... 826.6 860.4 3,467.0 3,914.1 4,084.9 Interest expense and similar charges ...... 556.6 638.5 2,432.7 2,733.6 2,903.3 Net interest income ...... 269.9 221.9 1,034.3 1,180.5 1,181.6 Dividend income ...... 2.5 1.9 58.5 72.6 167.7 Fees and Commissions ...... 145.9 163.0 665.6 793.9 758.1 Net gains from financial assets at fair value through profit or loss ...... (49.4) (70.5) (299.4) (59.4) (178.9) Net gains from available-for-sale financial assets ...... 203.3 161.0 441.1 600.2 (68.8) Other operating income ...... (19.8) (29.2) 0.8 53.0 233.5 Operating income ...... 552.3 448.0 1,900.9 2,640.8 2,093.2 Operating costs ...... 286.4 280.5 1,137.0 1,149.1 1,129.2 Impairment and provision ...... 380.6 240.1 1,422.9 1,199.4 848.3 Operating expenses ...... 667.0 520.6 2,559.9 2,348.5 1,977.5 Gains on disposals of investments in subsidiaries and associates . . (3.1) 0.0 0.0 0.4 1.8 Losses arising on business combination achieved in stages ...... 22.7 0.0 0.0 (89.6) 0.0 Share of profit of associates ...... 2.8 1.8 1.1 8.3 (175.2) Profit before income tax ...... (92.4) (70.7) (657.8) 211.4 (57.7) Income tax ...... (2.2) (6.3) (172.5) 82.9 (61.5) Results of continuous operations ...... (90.2) (64.4) (485.3) 128.5 3.8 Results of discontinuous operations ...... (6.3) (2.7) (29.6) (8.7) 0.0 Profit for the year ...... (96.6) (67.2) (514.9) 119.8 3.8 Attributable to equity holders of the Bank ...... (89.2) (62.0) (517.6) 96.1 (108.8) Attributable to non-controlling interests ...... (7.4) (5.1) 2.7 23.7 112.6

54 Three months ended 31 March Year ended 31 December Key Performance Indicators 2014 2013 2013 2012 2011 (EUR million) Profitability Return on Assets (ROA)(1) ...... (0.4)% (0.3)% (0.6)% 0.1% 0.0% Return on Equity (ROE)(2) ...... (5.8)% (3.5)% (6.9)% 1.2% (0.1)% Earnings per share (in EUR)(3) ...... (0.02) (0.02) (0.13) 0.03 (0.04) Net interest margin(4) ...... 1.59% 1.28% 1.51% 1.70% 1.68% Solvency(5) Total(6) ...... n.a. 11.2% 11.8% 11.3% 10.7% Tier 1(7) ...... n.a. 10.4% 10.4% 10.4% 9.4% Core Tier 1(8) ...... n.a. 10.5% 10.6% 10.5% 9.2% Core Tier 1—EBA(9) ...... n.a. 9.9% 9.8% 9.9% n.a. Basel III—Common Equity Tier 1 (phasing in)(10) ...... 9.8% n.a. 10.2% n.a. n.a. Basel III—Common Equity Tier 1 (fully implemented)(10) ...... 8.0% n.a. 8.2% n.a. n.a. Liquidity ECB Funds (net) ...... 8,346 7,877 5,414 6,897 8,677 ECB Eligible Assets (Collateral) ...... 23,783 25,435 18,578 19,402 15,057 Loans to Deposits Ratio(11) ...... 129% 129% 121% 137% 141% Asset Quality Overdue Loans > 90 days/Gross Loans ...... 6.01% 4.34% 5.68% 3.90% 2.74% Credit at Risk/Gross Loans(12) ...... 11.1% 10.1% 10.6% 9.4% 6.6% Restructured Credit/Gross Loans (13) ...... 12.1% n.a. 11.8% n.a. n.a. Restructured credit not included in Credit at Risk/Gross Loans(13) ...... 9.5% n.a. 9.4% n.a. n.a. Provisions/Overdue Loans > 90 days ...... 119.0% 126.8% 119.9% 136.9% 154.5% Coverage of Credit at Risk(12) ...... 64.2% 54.5% 64.5% 56.6% 64.2% Credit Provisions Reserve/Customer Loans (Gross) ...... 7.15% 5.51% 6.81% 5.34% 4.23% Provision charge(14) ...... 2.17% 1.46% 2.02% 1.62% 1.17% Efficiency Cost to income with markets(15) ...... 49.7% 61.8% 59.8% 44.6% 57.9% Notes: (1) Return on assets corresponds to the ratio between net profit (deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves) and average net assets. (2) Return on equity corresponds to the ratio between net profit (deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves) and the average of share capital and reserves. (3) Net profit deducted from dividends on preference shares, interest on other equity instruments and gains and losses accounted for in reserves. (4) Net interest margin corresponds to the ratio between net interest income and average interest earning assets. (5) Common Equity Tier I (phasing in/fully implemented) ratios were calculated based on Directive 2013/36/UE and Regulation (UE) nº 75/2013. The remaining ratios were calculated according to Bank of Portugal Notice 5/2007 and Instruction 23/2007. (6) The total solvency ratio is the ratio between total equity and the equivalent risk-bearing assets (corresponding to the totality of assets held and some off-balance sheet exposures, weighted by risk indicators according to criteria provided by the regulator). (7) The Tier 1 ratio is the ratio between own funds (which includes, in addition to the assets considered as Core Tier 1, preferred shares and hybrid capital instruments, offset against the value in holdings exceeding 10% in financial institutions and insurance companies, and adjusted for 50% of the amount of losses expected from exposures for the part that exceeds the sum of value adjustments and existing provisions) and equivalent risk-bearing assets. (8) The core Tier 1 ratio is the ratio between Core Tier 1 capital (including fully paid statutory share capital, share premium, the eligible reserves, positive retained earnings for the year when certified and non-controlling interests, net of negative fair value reserves regarding shares or other equity instruments, goodwill, intangible assets, negative actuarial deviations and, where applicable, the negative results for the year) and the equivalent risk-bearing assets. (9) The Core Tier 1—EBA corresponds the ratio of own funds Core Tier 1 adjusted by the settings of EBA (including the treatment of stakes held in financial companies) and the equivalent risk-bearing assets.

55 (10) Estimate. The Commom Equity Tier 1 Ratio is the ratio between the main Tier 1 own funds and the equivalent risk-bearing assets, calculated in accordance with Regulation n. º 575/2013 of the EU. The fully implemented ratio corresponds to the full implementation of this regulation, while the phasing in ratio uses the transitional arrangements provided for in this regulation, in particular regarding the level of non-controlling interests, intangible assets and deferred taxes. (11) Credit net of impairments. (12) According to the definition set forth in Instruction No. 23/2011 of Bank of Portugal, credit at risk includes: credit overdue for more than 90 days (installments overdue + coming due); restructured loans with interest capitalisation or where capital is not fully covered by guarantees or where interests or other charges have not been paid in full by the debtor; and installments overdue less than 90 days where there is a bankruptcy or liquidation of the debtor. (13) A loan is considered restructured when there is a change to the terms and conditions of the contract, as defined in Instruction No. 32/2013 of Bank of Portugal. (14) Credit provisions charge (P&L provision / Gross Loans). (15) Cost to income with markets corresponds to the ratio between operating costs (including staff costs, general administrative expenses and depreciation and amortisation) in the numerator and banking income (including net interest income, net fees and commissions, net gains/(losses) from financial assets and liabilities at fair value through profit and loss, net gains from available for sale securities, other operating income, gains on disposals of investments in subsidiaries and associates, losses arising on business combinations achieved in stages and share of profit of associates) in the denominator.

56 OPERATING AND FINANCIAL REVIEW

The analysis carried out in this section was prepared based on the Audited Group Financial Statements. These financial statements, including the respective notes to the accounts, are incorporated by reference herein. See “Documentation Incorporated by Reference”. The press release of the non-audited quarterly results referring to the three months ended 31 March 2014, released on 15 May 2014, is reproduced in full in Appendix 1 of this Offering Circular.

In this operating and financial review, references to “2013” or the “2013 financial year”, “2012” or the“2012 financial year”, and “2011” or the “2011 financial year” refer to the BES Group’s financial years ended 31 December 2013, 2012 and 2011, respectively. Any references to quarterly data relate to unaudited figures derived from the Q1 Release.

The analysis contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events could differ from those expressed or implied by such forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Offering Circular, particularly in “Forward Looking Statements” and Risk Factors”.

BES Overview The BES Group, a universal financial services group, has its headquarters in Portugal, which makes it its primary market. With a presence in four continents, activity in 25 countries and employing more than 10,000 people, the BES Group is currently the largest Portuguese listed bank by market capitalisation (€5.5 billion as of 31 March 2014) and the second largest private-sector bank in Portugal by total assets (€80.6 billion on 31 December 2013).

With its differentiated approaches and value propositions, the BES Group offers a broad range of financial products and services intended to meet the specific needs of all client segments—companies, institutions and individual clients. These include deposits, loans to companies and individuals, investment funds management, brokerage and custodian services, investment banking services, and also the sale of life and non-life insurance.

Since its privatisation, BES has followed a clear and consistent strategy of organic growth in its domestic market (where its share has increased from 8.5% in 1992 to 19.5% in 2013)12, which has benefited from the development of a market approach based on a multi-specialist model. An organic growth strategy based on solid brand recognition and strong commercial dynamics have made BES a leading financial institution in the domestic market and in particular in the corporate segment where it holds a 25.5% market share13 as at December 2013.

Distribution capacity is a key factor in the BES Group’s competitive positioning. At 31 December 2013, the BES Group had a domestic retail network of 643 branches and a network of 145 international branches, including 31 in Spain, 71 in Angola, 33 in Libya and 2 in Cape Verde. This is complemented by specialised centres fully dedicated to the corporate and private banking segments: at the end of 2013 the BES Group had 28 private banking centres (23 in Portugal, 4 in Spain and 1 in Angola) and 37 corporate banking centres (25 in Portugal, 7 in Spain and 5 in Angola).

12 BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Bank of Portugal), 18.8% in retirement savings plan (Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Bank of Portugal), 18.8% in other loans to individuals (Bank of Portugal), 12.3% in billing cards (SIBS), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS). 13 The market share in the corporate segment, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

57 The resizing of the domestic distribution network involved the closure of 23 less profitable branches but also included investment in new, more efficient and flexible formats, such as smaller branches and onsite branches in partnership with insurance agents, within the scope of the Assurfinance programme (a joint venture with Companhia de Seguros Tranquilidade).

In addition to its offices and branches, the BES Group has also developed a multi-channel approach to its clients, particularly with offerings over the internet. In 2013 the number of frequent users of BESnet, the internet banking service for individual clients, increased by 7% year-on-year to 377,000, consolidating the BES Group’s leading position in internet banking in Portugal. This multi-channel approach has been progressively enhanced and reinforced, through the implementation of a Customer Relationship Management system that ensures the integration of the various client interaction channels, and also through the increasing dematerialisation of processes.

Complementing its domestic operations, the BES Group has a targeted international focus on countries with cultural and economic affinities with Portugal, such as Spain, Angola and Brazil.

The know-how developed in the domestic market in corporate banking, investment banking and private banking allows the BES Group to export its skills and expertise to serve both local customers and those who engage in cross-border business, namely by supporting the internationalisation of Portuguese companies. In this regard, particular emphasis is placed on facilitating access to strategic markets and markets offering business opportunities and where the BES Group can provide support, either through its direct presence or through partnerships with local banks.

Macroeconomic Environment The Global Economy and Markets 2013 was marked by a recovery of global economic activity that was most noticeable in the main developed economies. The United States’ economy accelerated in the second half of the year, driven by the rebound of the labour and housing markets, the waning of fiscal risks and strong monetary policy stimuli—with a US Federal Reserve funds target rate close to zero and an aggressive quantitative easing policy. In the full year, US GDP grew by 1.9%, but registered annualised quarterly increases of 4.1% and 2.6% in the third and fourth quarter. The good performance of the developed economies was also supported by a recovery of activity in Europe, underpinned by strong monetary stimuli and progress in the deleveraging of companies and families in the United Kingdom (which grew by 1.7% in 2013) and a sharp abatement of the systemic risks associated to the sovereign debt crisis in the Euro Zone, with significant improvement in sovereign risk premiums in peripheral countries.

With activity picking up and the US Federal Reserve signalling a reduction in quantitative easing, the yields on the 10-year US treasuries and bonds rose in 2013 from 1.758% to 3.029%, and from 1.316% to 1.929%, respectively. Expectations of a hike in market interest rates in the US economy, of a rise in the US dollar and of a squeeze on access to liquidity led to increased volatility in the financial markets from May, which was particularly damaging for emerging markets. In Brazil, the BRL lost around 13% against the USD and 17% against the EUR while the Bovespa index declined by 15.5%. With a buoyant domestic demand and faced with inflationary pressures (an inflation rate of close to 6%), the Brazilian Central Bank lifted the SELIC interest rate from 7.25% to 10% in 2013 (and to 10.5% at the beginning of 2014). The Brazilian economy grew by 2.3% in 2013, but growth expectations for 2014 have steadily deteriorated (to close to 2%). Emerging markets have been further damaged by fears of a slowdown of economic activity in China, especially during the first half of the year. The stabilisation measures implemented by the government of China allowed the Chinese economy to grow by 7.7% in 2013, the same as in 2012, but the year ended with fresh signs of a cooling of activity and the Chinese authorities seeking to establish a more balanced, less credit-driven growth pattern.

In the Euro Zone, 2013 saw the stabilisation of financial and economic conditions, despite the occurrence of certain adverse factors, namely political instability in Italy and the financial crisis in Cyprus. In the financial markets, this stabilisation stemmed from a sharp abatement of the systemic risks associated with the sovereign debt crisis as well as from a progressive improvement of the outlook for economic growth. In addition, new steps taken towards the consolidation of the Banking Union also contributed to shore up confidence levels. In overall annual terms, Euro Area GDP contracted by 0.5%. However, this was due to a sharp contraction in the first quarter, as the second quarter saw positive growth and activity continued to pick up until the end of the year, with GDP growing by 0.3% quarter-on-quarter and by 0.5% year-on-year in the fourth quarter 2013. Unemployment remained high, rising in average terms from 11.4% to 12.1% of the labour force. In this context, annual inflation dropped from 2.5% in 2012 to 1.4% in 2013.

58 In May 2013, the ECB lowered the key benchmark rate by 25 basis points, from 0.75% to 0.50%, and in November, in light of an expressive deceleration of prices (the year-on-year inflation rate dropped to 0.7%), it made a further cut of 25 basis points that brought the rate to a low of 0.25%. In addition the ECB extended until (at least) mid-2015 the unlimited provision of liquidity through refinancing operations, and implemented an unprecedented monetary policy forward guidance, signaling that key interest rates would stay low for a long period of time. Even so the 3-month Euribor rose by 6 bps in the fourth quarter and 10 bps in 2013, to 0.287%, mainly reflecting the shrinking of liquidity through an increase in banks’ reimbursements of LTROs. The EUR gained close to 4.5% against the USD, reaching EUR/USD 1.3779 as at 31 December 2013. The rebound of growth and confidence in a context of expansionary monetary policies was particularly favourable for the equity market. In the US, the S&P500 and Nasdaq indices gained 29.6% and 38.3%, while in Europe the DAX, CAC and IBEX advanced by 25.5%, 18% and 21.4%, respectively. Thus, in 2013 the world economy continued the recovery which began in the second half of the previous year.

2012 was marked by the deceleration of economic activity at a global level and the contraction of GDP in the Euro Zone. This was mainly the result of restrictive fiscal policies and the deleveraging of the private sector in the main developed economies; lower demand and fears of an economic decline in China; and the uncertainty caused by the debt crisis in the Euro Zone, which was particularly acute in the first half of the year due to political and fiscal instability in Greece and growing contagion of the crisis to countries such as Spain and Italy. However, the second half of the year saw a stabilisation of the financial markets at the same time as fears about the fragmentation of the Euro Zone receded, translating into the contraction of spreads against Germany of the yields of the peripheral economies’ public debt securities. In addition to some progress made towards greater financial and fiscal integration, this improvement in sentiment mainly resulted from the ECB’s launch of its Outright Monetary Transactions programme, which opened the possibility for unlimited purchases of Euro Zone public debt securities, as a complement to a possible formal financial assistance programme under the European Stability Mechanism (ESM). Moreover, in a context of low inflationary pressures, the impact of the strongly expansionary monetary policies followed by the main central banks—reinforcement of quantitative easing by the US Federal Reserve (the so called QE3), the ECB’s long-term refinancing operations, and quantitative easing by the United Kingdom’s and Japan’s central banks—also induced greater propensity to risk at a global level. After a last cut of 25 bps in July 2012, the ECB maintained the key benchmark rate unchanged for the rest of the year, at 0.75%. The 3-month Euribor slid from 1.356% to 0.187% in the year, while the euro advanced by 1.8% against the dollar, to 1.32.

2011 was, in turn, dominated by the difficulties resulting from the Euro Zone debt crisis. In addition to fears over Greece’s default, there was a visible contagion effect not only to peripheral economies such as Spain and Italy, but also to some of the core economies, namely France and Austria. The loss of confidence and growing risk aversion associated with financial instability in the Euro Zone led to a liquidity dry-up in the money and credit markets, which was particularly acute in August and September 2011. In this context, and near to the end of 2011, the EU leaders agreed on a reinforcement of budget consolidation and control rules. On the other hand, the ECB, after raising the key benchmark rate from 1% to 1.5%, reversed its monetary policy course, lowering the benchmark rate to 1%, with two 25 bps cuts in the fourth quarter of 2011. At the same time, the ECB significantly reinforced liquidity injections in the financial system, loosened collateral rules and reduced the reserve requirement ratio for European banks. In December, the monetary authority conducted the first of two unlimited three-year refinancing operations, with demand reaching €489 billion. Aversion to risk caused the yields on 10-year bunds to fall from 2.963% to 1.829% in the year. The Euro dropped by 3% against the dollar during 2011, from EUR/USD 1.3366 to EUR/USD 1.296, with this trend becoming sharper towards the latter part of the year. Fears over the debt crisis contagion, especially within the financial sector, also fed into the equity markets, with significant losses in the main European indices.

The Portuguese Economy The performance of the Portuguese economy over the past three years reflected the external developments described above, as well as the economic and financial adjustment efforts pursued domestically. In 2013, the strong performance of exports and the stabilising trend of domestic demand supported an upturn of economic activity as from the second quarter. GDP fell by 1.4% in the year, though registering positive quarterly changes as from the second quarter (1.1%, 0.3% and 0.6%) and resuming year-on-year growth in the fourth quarter (1.7%, after 11 quarters of contraction) 2013. This intra-year performance of economic activity coincided with a gradual improvement of household and business confidence levels, with the EC’s economic sentiment indicator nearing its long-term average (and rising above that average in the first quarter of 2014).

59 However, the Portuguese economy’s growth remained constrained by the deleveraging process under way across the various sectors. For the full-year 2013, private consumption and gross fixed capital formation registered real falls (-1.7% and -7.3%, respectively), even if significantly smaller than in 2012 and tending to recover in the latter part of the 2013. Alongside the evolution of private consumption, the increase in the households’ savings rate, to 12.6% of disposable income, supported an increase in their net financing capacity to 6.8% of GDP (6.4% in 2012 and 2% in 2008). Non-financial corporations, in turn, once again reduced their net financing needs, to 2.1% of GDP (3.9% in 2012 and 11.4% in 2008), as a result of a new contraction in capital expenditure but, also, with an increase in current savings. In this context, the economy lost approximately 120,000 jobs in the year, thus keeping the rate of unemployment at a high level (16.3% of the labour force, in average annual terms, up from 15.7% in 2012). Despite this, the development of the labour market kept pace with the intra-year profile of economic activity. From the first to the fourth quarter of 2013, the unemployment rate retreated from 17.7% to 15.3% of the labour force, supported by the creation of nearly 130,000 jobs in the last three quarters of the year and also by a contraction of the labour force (in part due to a high emigration flow).

Exports registered real growth of 6.1% in 2013, underpinned by positive contributions from goods and services, namely featuring an increase in fuel production and exporting capacity and strong external demand for the tourism industry. The performance of exports, related to the increase in domestic savings, allowed the combined current and capital account balance to attain a surplus of 2% of GDP. The recovery of economic activity and the fiscal consolidation measures implemented contributed to lower the general Government deficit, to 4.9% of GDP (Eurostat criteria), or 4.5% of GDP (adjusted for Troika criteria), in both cases below target (of 5.9% and 5.5% of GDP, respectively). Portugal returned to the capital markets in December with a debt exchange (€6.6 billion), immediately followed in early 2014 by 5- and 10-year syndicated bond issues for a total of €6.25 billion. After hitting a high of 7.5% in July, the yield on the 10-year treasury bonds closed the year at 6.13%, continuing to subside in the first months of 2014, to below 4%. The PSI-20 index climbed by 16% in 2013. The improvement in external sentiment towards Portugal, supported by the results of the adjustment programme, by the recovery in economic activity and by a better view of the Euro Zone periphery on the part of investors, translated, in the first half of 2014, into an improvement in the outlook for Portugal’s sovereign rating, to “stable” (from Moody’s Investors Service, Inc.) and to “positive” (from Fitch Ratings Inc.). On 9 May 2014 Moody’s upgraded Portugal’s government bond rating to Ba2 and Standard & Poor’s Rating Service upwardly revised its outlook on Portugal to stable from negative.

In 2012, the performance of the Portuguese economy was chiefly marked by the implementation of the economic and financial adjustment programme. The ongoing deleveraging in the financial and non-financial private sectors, combined with the cooling of economic activity in the Euro Zone caused GDP to contract by approximately. 3.2%, as consumption and investment retreated sharply, while the rate of unemployment rose to 15.7% of the labour force. Household spending slumped by 5.3%, reflecting a sharp fall in disposable income together with an increase in savings. In a context of growing uncertainty about the fiscal policy and the prospects for economic activity evolution, businesses cautiously retrenched spending and increased savings. Private consumption was further penalised by relatively high inflation (2.8% in average annual terms), which was pushed up by the increase in indirect taxes. Investment once again registered a steep fall (13.4%), with drops across all institutional sectors. Investment was harmed not only by restrictive financing conditions but also by a retreat in demand for credit by families and businesses alike, reflecting a deleveraging effort already underway, and in the case of firms, the negative outlook for demand. Though tending to slow down, particularly in the latter part of the year, exports continued to perform well, growing by more than 3% in real terms. Exports were negatively affected by the economic downturn in the Euro Zone (and particularly in Spain), but nevertheless sales to markets outside the EU registered double-digit growth.

The public deficit (adjusted for Troika criteria) reached 4.7% of GDP in 2012, in line with the (revised) target of 5% of GDP. This was the result of a sharper than initially foreseen reduction in expenditure. Regarding extraordinary measures on the revenue side, the 2012 budget execution mainly benefitted from non-recurrent revenue in connection with the concession of the airport management public services to ANA. The public debt continued to climb, reaching close to 124% of GDP. The positive reviews of the implementation of the adjustment programme contributed, together with the stabilising course of action undertaken by the ECB, to the gradual improvement of financial conditions in the Portuguese economy, as seen in the significant reduction of public debt yields and credit spreads and the reopening of wholesale debt markets to businesses and banks. After reaching an annual peak of close to 17.4% at the end of January 2012, the returns on the 10-year treasury bonds dropped to approximately 7% at the end of the year. The favourable implementation of the privatisation programme, with total revenues close to €6.4 billion, above expectations, also illustrated the growing openness of foreign investors to the Portuguese economy. Nevertheless, the negative sentiment that marked the beginning of the year led to a downward revision of Portugal’s sovereign rating in January, by S&P, from BBB- to BB, below investment grade.

60 2011 was marked by contagion effects from the Euro Area debt crisis and the start of the implementation of the economic and financial adjustment programme. The effects of the overall deterioration in financing conditions and investors’ growing aversion to risk were enhanced, in the case of Portugal, by the successive cuts of the sovereign debt rating (from A- to BBB and from BBB to BBB-, both in March 2011, by S&P). The yield on 10- year public debt securities rose from 6.6% to 13.4%, widening the spread against the German bunds’ yield by 789 basis points, to 1153 basis points. The financial adjustment programme agreed with the Troika, under which the Portuguese economy received a bailout package of €78 billion, started to be implemented in May 2011. On the fiscal consolidation front, the public deficit was reduced from 9.8% to 4.3% of GDP. This result was in part achieved through extraordinary measures (chiefly the partial transfer of banks’ pension funds to the general public pension system), but it also reflected the important effort undertaken to reduce public expenditure (without one-off measures, the public deficit would have reached 7.3% of GDP). However, the fiscal consolidation effort induced a contraction of domestic demand in 2011, with public and private consumption retreating by 5% and 3.3%, respectively, and investment by 11.1% (average annual terms). Exports of goods and services continued to grow at a brisk pace (6.9% in real terms), with Africa, Latin America and Asia becoming increasingly important destinations. The performance of exports cushioned the annual contraction of GDP, which reached 1.3% in 2011.

Information on trends Current projections from the IMF point to world economic growth of 3.6% in 2014, mainly supported by a moderate acceleration of growth in developed economies. This recovery will rely on the continuation of expansionary monetary policies, less restrictive fiscal policies, financial readjustments and an improvement in confidence levels due to a perceived reduction in systemic risks, especially in the Euro Zone. After a small contraction in 2013 the overall economy of the countries in the Euro Zone is expected to achieve growth of around 1.2% in 2014, according to the IMF.

The Portuguese economy will likely benefit from the signs of economic and financial stabilisation which Portugal has been showing in recent quarters, and return to growth in 2014, even if it continues at a modest pace. Growth will be driven by investment, exports, and also a rebound in consumption. On the other hand Portugal should also gain from the improving perception of investors about the European peripheral countries’ risk, which has already had a significant influence on the decline of public debt yields observed since the start of 2014 and was the basis of the decision of the Portuguese government to finish the Programme without a precautionary credit line.

Under the assistance programme agreed with the Troika, major banking groups, including the BES Group, have been presenting and discussing, with international partners and the Bank of Portugal, the respective financing and capital plans (the “Funding & Capital Plan”) on a quarterly basis. The plan aims to achieve, in late 2014, a “loans/deposits” ratio of less than 120%; a stable funding ratio of 100% and the maintenance of a minimum Common Equity Tier 1 ratio of 7%, as defined by the Bank of Portugal in its Notice n.º 6/2013 and in accordance with the new regulatory framework established in the Directive 2013/36/UE and in Regulation (EU) N.º 575/ 2013 of 26 June 2013, both from European Parliament and the Council. The fulfillment of the objectives set forth in the Funding & Capital Plan, the new regulatory framework referred to above and developments that may occur in the context of the creation of the Banking Union, will have a significant effect on the activity and performance of BES Group in the future.

In order to satisfy the requirements of the Funding & Capital Plan, the capturing of deposits will remain a key pillar of the BES Group’s commercial strategy, alongside a very selective loan granting policy, targeting strategic segments and aiming in particular to support exporting SMEs. This strategy will be key to reaching the target of 120% for the loans to deposits ratio.

However, risk levels are expected to remain high, requiring strong risk prevention and monitoring processes as well as the continued reinforcement of provisions for impairments in sizeable amounts. The process of recovery of credit at risk will also require particular attention, involving the reinforcement of recovery units and the active sale of assets received as payment in-kind. The BES Group will also continue to implement streamlining measures to ensure compliance with its cost cutting programme, emphasising in particular a reduction in domestic costs.

In its international activities, the BES Group will continue to support Portuguese companies in their internationalisation processes. For this the BES Group relies on its international network, which has proven an important counterbalance for the effects of the recession at home. The BES Group expects an increase of the international contribution to the BES Group’s results in the future, and that it will increasingly contribute towards the value of the BES Group.

61 Given the relevance of this process within the context of the creation of the Banking Union, a note is due on the Comprehensive Assessment of the European financial system from the ECB during 2014. This process aims to: assess the risk profile of banks in terms of liquidity, leverage and funding (Risk Assessment: RAS); perform an Asset Quality Review; and carry out stress tests to assess banks’ resilience when faced with adverse scenarios. Given the wide scope and level of detail of this work in progress, it is not currently possible to identify the eventual impact which the process may have on the BES Group. However, it could have an effect on the kind of capital the BES Group is required to maintain.

On the other hand, following the entry into force of CRD IV and CRR for calculation of the BES Group’s capital ratios (BIS III), there is an increased emphasis by the BES Group on the impact that deferred tax assets (“DTA”) will have on the calculation of eligible capital. Under Article 39 of the above-mentioned Regulation, the deferred tax assets arising from temporary differences can be excluded from deduction from own funds set out in Article 36 if they meet the conditions laid down therein. The Portuguese government, like Spain and Italy, is studying the creation of legal rules to accommodate, even partially, the conditions set forth in Article 39 for certain DTA to be treated as assets risk-weighted at 100%. Assuming that the DTA related to provisions for impairment on loans and pensions would be considered, the BES Group’s Common Equity Tier 1 ratio (fully Implemented), as at 1 January 2014, would improve by approximately 0.9 percentage points.

The key events and results of the first quarter of 2014 were: • Positive performance of banking income and net operating income, which reached €576.5 million, a 27.1% increase as compared to the first quarter of 2013, and €290.1 million, a 7.5% increase as compared to the first quarter of 2013, respectively, underpinned by €154.7 million gains on capital markets and other results (1Q13: €60.0 million), a 21.7% increase in net interest income, and a 3.1% reduction in domestic operating costs (excluding early retirement costs). • The quarter’s results, a net loss of €89.2 million, were dictated by impairments, though showing an improvement compared to the fourth quarter of 2013 (€136.6 million) and the 2013 quarterly average (€129.4 million). • The international results reached €13.9 million (1Q13: €4.4 million), backed by a 60.7% year on year increase in banking income, mainly driven by the performance of BES’ operations in Spain and France/ Luxembourg. • Operating costs were reduced by 1.5% on a comparable basis versus the first quarter of 2013, with domestic operating costs falling by 3.1%. 64 employees were early retired in the first quarter of 2014, representing a non-recurrent cost of €7.6 million. The cost to income improved in the quarter to 49.7% (1Q13: 61.8%). • The positive performance of banking income combined with cost containment positively impacted the net operating income/cash flow generated, which reached €290.1 million, a year on year increase of 67.5%, and 52% above the 2013 quarterly average. • The credit impairment cost increased by 47.6% to €276.3 million (annualised charge of 2.17% versus 2013: 2.02%) due to the non-recurrent change to assets not covered by the sovereign guarantee given to BES Angola; provisions for securities were reinforced by €46.1 million (1Q13: €18.5 million) due to impairment losses in credit restructuring funds, while provisions for real estate totalled €47.7 million (1Q13: €25.2 million). As a result the total impairment cost in the quarter was €380.6 million, showing an increase of 7.0% on the 2013 quarterly average. • Deleveraging was pursued: assets decreased by €2.1 billion year on year (2.5%), with main drops in net customer loans (€1.1 billion; 2.3%) and securities (€1.7 billion; 8.8%); deposits and insurance products increased by €0.5 billion (1.3%) while debt securities decreased by €1.8 billion (11.7%). The loan to deposits ratio remained flat year on year (129%) and higher than the levels as at 31 December 2013 (121%) partially due to the inclusion of Banque Espírito Santo et de Vénétie in the full consolidation perimeter. • The provisions for credit/gross loans ratio increased to 7.16% (Dec.13: 6.81%) with the coverage of credit at risk ratio reaching 64.2% (Dec.13: 64.5%); the ratio of overdue loans over 90 days/gross loans reached 6.0% (Dec.13: 5.7%) and on-balance sheet provisions for credit impairments increased to €3.6 billion (Dec.13: €3.4 billion; Mar.13: €2.8 billion). • Full compliance with the new Basel III rules: calculated under CRD IV/CRR and Bank of Portugal criteria, the Common Equity Tier I ratio was 9.8%, if considering the transitory period (Bank of Portugal’s minimum requirement: 7%), or 8.0%, if fully implemented.

62 Future Prospects BES aims to achieve a return on equity above 12% in the medium-term, assuming a fully loaded Common Equity Tier 1 ratio minimum of 10% under the CRD IV/CRR definition (fully implemented). These profitability levels depend on the recovery of the Portuguese economy and the related improvement of the domestic business, a gradual reduction of domestic impairment costs and a continued focus on efficiency (with the BES Group’s cost to income ratio in the medium term expected to trend gradually to levels below 50%), additionally, an increasing contribution to the results of the international operations is expected, which should approach approximately 45% of consolidated net income in 2017.

Contents of Key Income Statement Items and Other Financial Items Net Interest Income Net interest income is the difference between interest received and interest paid. Interest income consists primarily of interest income from loans and advances to customers, to credit institutions and from fixed-income securities, including available-for-sale financial assets. Interest received from hedging derivatives and other interest income also contributes to interest income. Interest expense consists primarily of interest paid on debt securities and on interest paid on amounts owed to customers and to credit institutions. Interest on subordinated debt, from hedging derivatives and other expenses also contribute to interest income.

Net Fee and Commission Income Net fee and commission income principally includes fees generated from banking services rendered to third parties, which comprises income from collections, securities transactions, guarantees, means of payment management, loans, project finance, trade finance, factoring, documentary credits, asset management, cards, bancassurance and other services.

Capital Markets and Other Results Capital markets and other results include income from equity instruments (dividends), income from financial assets at fair value through profit or loss and available-for-sale financial assets, including bonds, shares, derivative financial instruments (over interest, credit and currency) and other variable income securities. Capital markets and other results also include income from foreign exchange differences, sale of subsidiaries, as well as income from associated companies and other operating income.

Operating Costs Operating costs include wages and benefits paid to staff, general and administrative expenses, depreciations and amortisation.

Impairment and Provisions Impairment and provisions include loan impairments net of reversals, impairment on other assets (including financial assets) and other provisions.

Taxes Income taxes consist of current and deferred taxes, as well as a special banking levy introduced in 2011 by Law 55-A/2010, of 31 December and extended by Law 64-B/2011 of 30 December and Law 66-B/2012 of 31 December.

Net Income Attributable to Equity Holders of the BES Group Net income attributable to the equity holders of the BES Group includes net income less income attributable to minority interests.

Total Capital Ratio The total capital ratio is defined as Tier 1 capital plus Tier 2 capital divided by risk-weighted assets, i.e., it assesses whether the BES Group’s capital is adequate with respect to covering potential unexpected losses arising from the BES Group activities. The supervisory authorities determine minimum ratios for these purposes.

63 Return on Equity Return on equity is the ratio of (i) net income of the period less dividends paid on preferred shares and other equity instruments to (ii) the average capital and reserves for the period.

Recent Developments No significant changes have occurred in the financial condition and the results of operations of the BES Group from the date of the most recent financial statements to the date of this Offering Circular, except as disclosed by this Offering Circular.

Three Months Ended 31 March 2014 Compared to the Three Months Ended 31 March 2013 For a discussion of the three month period ended 31 March 2014 compared to the three month period ended 31 March 2013, please see the Q1 Release attached as Appendix 1 hereto.

Year Ended 31 December 2013 Compared to the Year Ended 31 December 2012 For discussion of the financial results of the BES Group’s segments, see “Information on the BES Group—Main Business Areas”.

Key Performance Indicators The following table contains the main performance indicators of the BES Group for 2013 and 2012:

As at or for the year ended 31 December 2013 2012 Change (EUR million) Activity Total Assets(1) ...... 93,342 97,765 (4.5)% Net Assets ...... 80,608 83,691 (3.7)% Gross Loans ...... 49,722 50,399 (1.3)% Customer Deposits ...... 36,831 34,540 6.6% Core Capital—BoP ...... 6,084 6,471 (6.0)% Core Capital—EBA ...... 5,646 6,092 (7.3)% Solvency Solvency Ratios(2) Core Tier 1—BoP ...... 10.6% 10.5% 0.1pp Core Tier 1—EBA ...... 9.8% 9.9% (0.1)pp Tier 1 Capital Ratio ...... 10.4% 10.4% 0.0pp Total Capital Ratio ...... 11.8% 11.3% 0.5pp Liquidity ECB funds (net)(3) ...... 5,414 6,897 (1,483) Repayable Assets ...... 20,912 22,256 (1,344) Loan/deposits ratio(4) (%) ...... 121% 137% (16)pp Asset Quality Overdue loans + 90 days / Gross loans ...... 5.7% 3.9% 1.8pp Coverage of Overdue Loans + 90 days ...... 119.9% 136.9% (17.0)pp Credit at Risk(5) ...... 10.6% 9.4% 1.2pp Provisions for Credit / Gross loans ...... 6.8% 5.3% 1.5pp Provision charge(6) ...... 2.0% 1.6% 0.4pp Results & Profitability Net income ...... (517.6) 96.1 — ROE...... (6.9)% 1.2% — ROA...... (0.62)% 0.12% — Efficiency Cost to Income(7) ...... 59.8% 44.6% 15.2pp Cost to Income (ex markets)(8) ...... 65.8% 57.2% 8.6pp Branch Network Retail Network ...... 788 775 13 Domestic ...... 643 666 (23) International ...... 145 109 36 Note: (1) Net assets + asset management + off-balance sheet items + non-consolidated securitised credit.

64 (2) Data calculated based on the IRB Foundation method (Basel II). Basel III data for information purposes only. Calculated and estimated according to CRDIV/CRR regulations. (3) Includes funding and investments from/in the ECB; a positive value represents an asset; a negative value represents an investment. (4) Ratio calculated according to the definition established for purposes of the goal set by Bank of Portugal objective regarding this indicator in the Funding & Capital Plan. (5) According to the definition set forth in Instruction No. 23/2011 of Bank of Portugal, credit at risk includes: credit overdue for more than 90 days (installments overdue + coming due); restructured loans with interest capitalisation or where capital is not fully covered by guarantees or where interests or other charges have not been paid in full by the debtor; and installments overdue less than 90 days where there is a bankruptcy or liquidation of the debtor. (6) Provisions for Loans/Gross Loans to Costumers. (7) Operational Costs / Banking Income. (8) Operational Costs / Commercial Banking Income.

Analysis of Results 2013 was a particularly difficult year due to Portugal’s economic and financial adjustment process, entailing the closure of many businesses and widespread staff cutbacks, and naturally affecting the performance of the financial sector. However there were indications that the situation is improving. The BES Group posted a net loss of €517.6 million in 2013 which resulted primarily from the reduction of banking income (26.3%) and the reinforcement of provisions for impairments (18.6%).

Income Statement

Year ended Year ended 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Net Interest Income ...... 1,034.3 1,180.5 (146.2) (12.4) Fees and Commissions ...... 693.4 828.4 (135.0) (16.3) Commercial Banking Income ...... 1,727.7 2,008.9 (281.2) (14.0) Capital Markets and Other Results ...... 172.1 570.2 (398.1) (69.8) Banking Income ...... 1,899.8 2,579.1 (679.3) (26.3) Operating Costs ...... 1,137.0 1,149.1 (12.1) (1.1) Net Operating Income ...... 762.8 1,430.0 (667.2) (46.7) Provisions ...... 1,422.8 1,199.4 223.4 18.6 Credit ...... 1,005.1 814.8 190.3 23.4 Securities ...... 104.1 106.6 (2.5) (2.3) Other ...... 313.6 278.0 35.6 12.8 (Loss)/Income before Taxes and Minorities ...... (660.0) 230.6 (890.6) — Income Tax ...... (172.5) 82.9 (255.4) — Special Tax on Banks ...... 27.3 27.9 (0.6) (2.2) (Loss)/Income Before Minorities ...... (514.8) 119.8 (634.6) — Minority Interests ...... 2.8 23.7 (20.9) (88.0) Net (Loss)/Income ...... (517.6) 96.1 (613.7) —

The BES Group posted a net loss of €517.6 million in 2013 compared to net income of €96.1 million in 2012, mainly explained by the following: • total banking income fell by 26.3% year-on-year, primarily due to the decrease in capital markets and other results; • capital markets and other results were positive (€172.1 million), though 69.8% below the previous year’s, which had benefitted from a significant reduction in Portuguese sovereign yields; • operating costs dropped by 1.1% (2.0% on a comparable basis, i.e., disregarding the new consolidations, namely BES Vida), with domestic costs falling by 3.8% (5.3% on a comparable basis); • provisions for impairment losses reached €1,422.8 million, following the economic downturn of the last few years; this includes the adjustments resulting from the “Credit portfolio impairment review exercise”

65 (“ETRICC”) requested by the Bank of Portugal (resulting in an additional charge of €28.7 million) and the revaluation of property under the terms of Bank of Portugal’s Circular Letter 11/13/DSPDR with a negative impact of 52.9 million; and

Domestic and International Activity The international area’s net income was positive, notwithstanding the problems faced by emerging countries’ economies, and offset losses reported in the domestic area. The international commercial banking income increased by 1.6% (16.6% on a comparable basis, i.e., disregarding the new consolidations, namely BES Vida), with net interest income rising by 31.8%.

Year ended Year ended 31 December Relative Change 31 December 2012 2013/2012 2013 Stated L-f-L(1) Stated (%) L-f-L (%) (EUR million) Net Interest Income ...... 470.9 357.1 357.1 31.8 31.8 Fees and Commissions ...... 192.0 295.4 211.4 (35.0) (9.2) Commercial Banking Income ...... 662.9 652.5 568.5 1.6 16.6

Note: (1) excluding non recurrent commissions related to carbon certificates

The fall in capital markets and other results, the increase in operating costs (4.9%), and the €204.4 million provisioning cost prevented the international units from posting a better performance, causing their contribution to the consolidated results to drop by 75.0% year-on-year.

Domestic banking income contracted by 31.0% due mainly to the impact of the economic recession in Portugal. Operating costs were reduced by 3.8% (5.3% on a comparable basis), reflecting the results of the ongoing cost rationalisation plan, while impairments were reinforced by €1,218.4 million (25.2%). The result was a net loss of €539.5 million

Domestic and International Income Statement

Domestic International Year ended Year ended Year ended Year ended 31 December 31 December Change 31 December 31 December Change 2013 2012 (%) 2013 2012 (%) (EUR million) Net Interest Income ...... 563.4 823.4 (31.6) 470.9 357.1 31.8 Fees and Commissions ...... 501.4 533.0 (5.9) 192.0 295.4 (35.0) Commercial Banking Income ...... 1,064.8 1,356.4 (21.5) 662.9 652.5 1.6 Capital Markets and Other Results ...... 216.0 499.2 (56.7) (43.9) 71.0 — Banking Income ...... 1,280.8 1,855.6 (31.0) 619.0 723.5 (14.5) Operating Costs ...... 751.9 782.0 (3.8) 385.1 367.1 4.9 Net Operating Income ...... 528.9 1,073.6 (50.7) 233.9 356.4 (34.4) Provisions ...... 1,218.4 973.5 25.2 204.4 225.9 (9.5) Credit ...... 848.5 723.8 17.2 156.6 91.0 72.0 Securities ...... 101.2 103.3 (2.0) 2.9 3.3 (12.5) Other ...... 268.7 146.4 83.5 44.9 131.6 (65.8) Income before Taxes and Minorities .. (689.5) 100.1 — 29.5 130.5 (77.4) Income Tax ...... (160.8) 66.6 — (11.7) 16.2 — Special Tax on Banks ...... 26.0 27.9 (6.9) 1.3 — — Income Before Minorities ...... (554.7) 5.6 — 39.9 114.3 (65.1) Minority Interests ...... (15.2) (2.9) — 18.0 26.7 (32.1) Net Income ...... (539.5) 8.5 — 21.9 87.6 (75.0)

66 Geographical Breakdown of International Activity Results (Net income) The United Kingdom increased results by approximately 70% year-on-year, to €32.6 million, driven by the expansion of wholesale funding, while results in France/Luxembourg rose by 63.1% to €10.3 million. The losses in Spain reflect the provisioning costs in light of the economic recession in Iberia. Africa’s contribution to the consolidated results decreased due to the performance of BES Angola, where a new strategic plan and business model are being implemented. In December 2013, BES Angola increased its share capital by U.S.$500 million with the aim of strengthening its capital base to support its new business plan.

Year ended Year ended 31 December 31 December 2013 2012 Change (EUR million) Geography Africa(1) ...... 19.3 33.9 (14.6) Brazil ...... 6.7 11.1 (4.3) Spain ...... (47.8) 15.7 (63.5) Strategic Triangle ...... (21.8) 60.7 (82.5) United Kingdom ...... 32.6 19.2 13.4 USA...... 2.8 5.9 (3.1) France/Luxembourg ...... 10.3 6.3 4.0 Macao ...... 3.7 4.0 (0.3) Other(2) ...... (5.7) (8.5) 2.8 Total ...... 21.9 87.6 (65.7)

Notes: (1) includes Angola, Mozambique, Cape Verde, Libya and Algeria (2) includes Venezuela, Poland, Italy, India and Mexico

Net interest income and Net interest margin The 12.4% year-on-year reduction in Net Interest Income, to €1,034.3 million, was driven by the impacts of the domestic recession, the adjustment of the balance sheet to the financial constraints and mandatory ratios dictated by the Economic and Financial Adjustment Programme, and the repricing of assets and liabilities in light of the historically low levels of interest rates (Euribor).

Net interest income and Net interest margin

Year ended 31 December 2013 Year ended 31 December 2012 Average Average Average Average Balance Rate (%) NII Balance Rate (%) NII (EUR million) Interest Earnings Assets ...... 68,583 4.77 3,271 69,443 5.14 3,571 Customer Loans ...... 49,848 4.63 2,308 50,316 5.02 2,528 Other Assets ...... 18,735 5.14 963 19,127 5.45 1,043 Other ...... — — — — — — Interest Earning Assets & Other ...... 68,583 4.77 3,271 69,443 5.14 3,571 Interest Bearing Liabilities ...... 65,490 3.42 2,237 68,161 3.51 2,390 Deposits ...... 36,223 2.77 1,005 34,030 3.05 1,038 Other Liabilities ...... 29,267 4.21 1,232 34,131 3.96 1,352 Other ...... 3,093 — — 1,282 — — Interest Bearing Liabilities & Other ...... 68,583 3.26 2,237 69,443 3.44 2,390 NIM/NII ...... 1.51 1,034 1.70 1,181 Euribor 3 M—average ...... 0.22 0.57

During 2013, Net Interest Income management was conducted in an adverse environment characterised by the following constraints: (i) restricted access to the medium and long term financial markets; (ii) the need to reduce funding from the ECB in an environment of unstable money markets; (iii) fierce competition over corporate

67 customers’ funds (institutional and retail); (iv) poor performance of the Portuguese economy with a negative impact on asset quality; (v) the lack of stimuli to stimulate the economy and consequent weak demand for credit; and (vi) benchmark interest rates remaining at historical lows.

The net interest margin thus dropped from 1.70% to 1.51% (19bps) as a result of the fall in the average interest rate on financial assets (37bps, to 4.77%), a decline that exceeded the fall in the average rate of financial liabilities (18bps, to 3.26%).

Fees and Commissions Fees and commissions decreased by 16.3% year-on-year in 2013, reflecting the sluggish economy in Portugal and certain non-recurrent positive results registered by the international area in 2012. Excluding the cost of the guarantees provided by the Portuguese state (government guaranteed bonds used as eligible assets under the ECB) and non-recurrent fees relating to carbon certificates booked by the international area in 2012, the reduction was 6.1%.

Fees and Commissions

Year ended Year ended 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Collections ...... 15.7 17.0 (1.3) (7.7) Securities ...... 74.3 73.4 0.9 1.2 Guarantees ...... 138.7 139.6 (0.9) (0.6) Account management ...... 76.6 79.0 (2.4) (3.0) Commissions on loans and other(1) ...... 152.5 155.4 (2.9) (1.9) Documentary credit ...... 105.1 87.1 18.0 20.7 Asset management(2) ...... 87.9 85.9 2.0 2.3 Cards ...... 34.0 56.7 (22.7) (40.1) Bancassurance ...... 29.5 47.6 (18.1) (38.0) Other Services(3) ...... (20.9) 86.7 (107.6) — Total ...... 693.4 828.4 (135.0) (16.3) State Guarantees ...... 60.6 58.5 — — BESA non-recurrent Commissions ...... — 84.0 — — Total (l-f-l) ...... 754.0 802.9 (48.9) (6.1)

Notes: (1) Includes commissions on loans, project finance, export financing and factoring (2) Includes investment funds and discretionary management (3) Includes costs with Portuguese state guarantees

Commissions on documentary credits increased by 20.7%, mainly due to the development of the trade finance business with the emerging countries and reflecting BES’ role in the opening of new markets to the Portuguese companies and its support of their internationalisation processes.

Asset management fees increased by 2.3% year-on-year, driven by the growth in investment funds and portfolio discretionary management activities, with commission income from securities rising by 1.2% and commissions on guarantees provided remaining flat.

Fees and commissions more directly linked to the domestic corporate business, namely on collections, loans, and corporate and project finance were lower than in 2012. Commission income from credit cards and account management (commissions on current accounts, transfers, and payment orders) was also impacted by the contraction of private consumption due to rising unemployment and shrinking disposable income of families. Commissions on bancassurance products (saving and non-life insurance products) also decreased, (38% compared to 2012).

Capital markets and other results Capital markets and other results were positive (€172.1 million), though substantially lower than in 2012 (€570.2 million).

68 Capital markets and other results

Year ended Year ended 31 December 31 December 2013 2012 Change (EUR million) Interest rate, Credit and FX ...... 96.6 825.0 (728.4) Interest rate ...... 123.9 781.3 (657.4) Credit ...... (27.1) 32.5 (59.6) FX and Other ...... (0.2) 11.2 (11.4) Equity ...... 107.1 (126.5) 233.6 Trading ...... 48.6 (199.1) 247.7 Dividends ...... 58.5 72.6 (14.1) Other Results ...... (31.6) (128.3) 96.7 Total ...... 172.1 570.2 (398.1)

2013 was marked by fears about the withdrawal of stabilisation measures by the Federal Reserve of the United States and by social instability in a number of emerging countries, leading investors to consider that these markets did not offer an adjusted risk premium and in turn resulting in a sharp devaluation of these countries’ assets and currencies.

The BES Group’s capital markets and other results were positive in 2013, mainly in interest rate and equity. The interest rate results were mainly due to gains in the negotiation of public debt in the amount of €330 million, compared to a gain of €989 million in 2012. The majority of the equity results are due to the sale of the shareholdings in EDP and ZON (total of €58 million).

“Other Results” includes €182 million (gross) of the reinsurance of BES Vida’s individual life risk portfolio. In addition, it also includes €40 million losses on insurance premiums and a €48.8 million loss on the sale of non financial assets by BES Angola, booked in December.

Operating Costs In 2013, total operating costs decreased to €1,137 million, €12.1 million lower than 2012 (1.1% year-on-year), with domestic costs decreasing by 3.8% and international costs increasing by 4.9%. Excluding the impact of new consolidations, namely BES Vida), operating costs would have fallen by 2.0%.

Operating costs

Year ended Year ended 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Staff Costs ...... 575.0 598.9 (23.9) (4.0) Administrative Costs ...... 454.1 442.1 12.0 2.7 Depreciation ...... 107.9 108.1 (0.2) (0.2) Total ...... 1,137.0 1,149.1 (12.1) (1.1) Excluding new consolidations ...... 1117.1 1140.1 (23.0) (2.0) Domestic ...... 751.9 782.0 (30.1) (3.8) Excluding new consolidations ...... 732.0 773.0 (40.9) (5.3) International ...... 385.1 367.1 18.0 4.9

In 2013, domestic costs continued to fall, dropping by €30.1million (3.8%), or by €40.9 million (5.3%) excluding the impact of the new consolidations. International costs increased by 4.9% in 2013, mainly reflecting the costs of expansion in the Angolan market (opening of 30 new branches during the year), though slowing down compared to 2012 (9.3%) as a result of the extension of the BES Group’s cost-cutting effort to its units abroad.

69 Staff costs

Year ended Year ended 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Remunerations ...... 458.6 483.8 (25.2) (5.2) Pensions, Long term service benefits & Other ...... 116.4 115.1 1.3 1.1 Total ...... 575.0 598.9 (23.9) (4.0) Excluding new Consolidations ...... 569.2 594.7 (25.5) (4.3) Domestic ...... 375.0 389.7 (14.7) (3.8) Excluding new Consolidations ...... 369.2 385.5 (16.3) (4.2) International ...... 200.0 209.2 (9.2) (4.4)

Domestic staff costs were down by 3.8% through reductions on variable remunerations and number of employees (106 employees). Excluding the impact of the new consolidations, the reduction would have been 4.2%. The 4.4% drop in the international staff costs, despite the increase in the number of employees (378), mainly resulted from variable remuneration cuts.

General administrative costs increased by 2.7%, with domestic costs dropping by 3.6% and international costs increasing by 18.2%.

Depreciation also decreased in the domestic area (5.4%), where 23 branches were closed and the streamlining of structures and processes has permitted a reduction of investment and consequent depreciation, and increased in the international area (13.3%), where new investments in tangible and intangible assets were required to pursue the development of the international business. Total depreciation was €107.9 million, which is slightly less than in 2012 (€108.1 million).

Gradual cost-cutting plan In light of the challenges currently faced by the financial sector and the country’s economic and financial context, the BES Group has launched a programme aimed at gradually streamlining and reducing operating costs. The programme will be implemented in 2013-2015 and is expected to generate savings of €100 million in the period, or 3% reduction in 2013, 5% in 2014 and 6% in 2015.

The €30.1 million reduction achieved in domestic costs in 2013 (3.8%) shows that the target for the year was achieved. Added to the cuts made in the last three years a total reduction of €135 million (15%) has been attained.

Efficiency Efficiency indicators continued to be adversely impacted by the contraction in both commercial banking income and total banking income, notwithstanding the reduction in domestic operating costs:

Year ended Year ended 31 December 31 December 2013 2012 Change (%) pp Cost to Income ...... 59.8 44.6 15.2 Cost to Income (ex-markets) ...... 65.8 57.2 8.6

Provisions The BES Group recognised impairment costs of €1,422.8 million in 2013, which is nearly twice the income before tax and minorities for the year and represents a year-on-year increase of 18.6%.

The reinforcement of provisions in 2013 included the following: • physical revaluation by independent experts of all properties acquired in lieu of payment (the last valuation had been prior to 31 July 2012) pursuant to the Bank of Portugal’s Circular Letter 11/13/DSPDR—at year- end 2013 90% of all properties had been valued within the last 12 months, with only 10% having older

70 valuations (between 12 and 18 months). This resulted in a devaluation of 3.7% that required a €52.9 million additional provision charge. Real estate acquired by BES through loan foreclosures is valued based on the immediate sale value (ISV) of the properties; and • complementary credit portfolio impairment review carried out by a second independent auditor under the terms of the exercise defined by the Bank of Portugal (ETRICC), which led to an additional €28.7 million reinforcement of the credit provision charge. In the context of the credit portfolio impairment review processes and persistence of the domestic recessionary cycle, impairments increased to €1,005.1 million (23.4%), while the cost with impairment in the securities portfolio was of €104.1 million. Provisions for real estate acquired through credit recovery amounted to €218.2 million and the provision for impairment of other assets amounted to €95.4 million. Provisions for contingencies and other assets include approximately €54 million of impairment charges for loans originally recognized.

Provision charges

As at As at 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Credit Provisions ...... 1,005.1 814.8 190.3 23.4 Securities Provisions ...... 104.1 106.6 (2.5) (2.3) Foreclosed Premises ...... 218.2 40.1 178.1 — Other Provisions ...... 95.4 237.9 (142.5) (59.9) Total ...... 1,422.8 1,199.4 223.4 18.6

At the end of 2013, provisions for credit registered in the BES Group balance sheet stood at €3387.4 million (25.8% year-on-year), lifting the credit provisions/gross customer loans ratio to 6.8% (Dec.12: 5.3%).

Credit provisions

As at As at 31 December 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Gross Loans ...... 49,722.0 50,399.0 (677.0) (1.3) Credit Provisioning Charge ...... 1,005.1 814.8 190.3 23.4 Provisions for credit ...... 3,387.4 2,692.3 695.1 25.8 Provision Charge(1) ...... 2.02% 1.62% 0.40pp Provisions for Credit/Gross Loans ...... 6.8% 5.3% 1.5pp Note: (1) Yearly allocation for Provisions for Credit/Gross Loans

The credit provision charge in 2013 (2.02%) was 40 bps higher than in 2012 (1.62%).

Profitability The BES Group’s return on equity (ROE) and return on assets (ROA) reflect the reduction of banking income and the reinforcement of provisions for impairments.

Profitability

Year ended Year ended 31 December 31 December 2013 2012 Return on Equity (6.94%) 1.25% Return on Assets (0.62%) 0.12%

Activity The performance of the Portuguese economy in 2013 continued to be constrained by the targets set in the Economic and Financial Adjustment Programme. In this context the BES Group’s activity during the year focused on reinforcing the equilibrium and strength of the balance sheet, through the following main initiatives:

71 (i) deployment of a deleveraging programme that permitted the sustained improvement of the loans to deposits ratio; (ii) funding structure emphasising the more stable components (deposits and life insurance products), with a reduction in the weight of debt securities; and (iii) maintaining buffers at capitalisation levels in order to ensure compliance with the regulatory ratios and hence the BES Group’s compliance with the regulatory ratios and strategic autonomy (avoiding a dependence on Portuguese government aid).

At the end of 2013 the loan/deposits ratio had dropped to 121%, down by 16pp on the end of 2012. This was due to a strong increase in customer deposits acquisition (up by 6.6%, i.e. €2.3 billion) combined with a €1.4 billion reduction in customer loans net of provisions for impairments. Loans to Deposits Ratio*

192% 165% 141% 137% 121%

Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13

*Calculated according to the BoP definition for Funding & Capital Plan (F&CP)

The growth in customer funds, 1.2% year-on-year (€650 million) to €56.8 billion, was one of the more striking aspects of 2013, with the 10.0% reduction in off-balance sheet customer funds being largely offset by the performance of deposits (6.6%) and life insurance products (20.9%).

Assets, Credit and Customer Funds

As at 31 December Change 2013 2012 Absolute Relative (%) (EUR million) Total Assets(1) ...... 93,342 97,765 (4,423) (4.5) Net Assets ...... 80,608 83,691 (3,083) (3.7) Customer Loans (gross) ...... 49,722 50,399 (677) (1.3) Loans to Individuals ...... 13,198 13,762 (564) (4.1) Mortgage ...... 10,815 11,134 (319) (2.9) Other Loans to Individuals ...... 2,383 2,628 (245) (9.3) Corporate Lending ...... 36,524 36,637 (113) (0.3) (Loans to SME’s Winners) ...... 1,381 1,324 57 4.3 Total Customer Funds ...... 56,838 56,188 650 1.2 On-Balance Sheet Customer Funds ...... 46,577 44,785 1,792 4.0 Deposits ...... 36,831 34,540 2,291 6.6 Debt Securities placed with Clients(2) ...... 3,713 5,254 (1,541) (29.3) Life Insurance ...... 6,033 4,991 1,042 20.9 Off-Balance Sheet Customer Funds ...... 10,261 11,403 (1,142) (10.0) Loans/Deposits(3) ...... 121% 137% (16pp)

Notes: (1) Net assets + asset management + off-balance sheet items + non-consolidated securitised credit. (2) Includes funds associated with consolidated securitisations and commercial paper. (3) Ratio calculated based on the definition of BoP.

The €677 million decrease in customer loans (gross) was mainly driven by the reduction in Loans to individuals (4.1%) due to a decline in consumption and the maturity and non-renewal of mortgage loans; corporate loans dropped by 0.3% year-on-year, but loans to Winner SME’s increased by 4.3%. Winner SME’s are SME’s with a credit rating above BB and a focus on exporting and potential for internationalisation, belonging to a strategic group of SME’s which are classified as innovative or tradable goods companies (excluding retail).

72 As for other funding components, net funding from the ECB decreased by 60.4% falling from €13.7 billion at 30 June 2012, to €5.4 billion at 31 December 2013.

In the course of 2013 the structure of liabilities and equity continued to improve towards an increase in the share of customer deposits and lower reliance on the financial markets, thus making financial management less dependent on cyclical fluctuations in the debt markets. Structure of liabilities and equity (EUR billion)

82.3 80.6

25.4 Deposits Deposits (31%) 36.8 (46%)

Life Insurance (7%) Debt Securities 35.7 6.0 (43%) 13.0 Debt Securities (16%)

17.8 Other Liabilities 14.3 Other Liabilities (1) (17%)(1) (22%) 6.9 7.0 Equity Equity Dec. 09 Dec. 13

(1) Includes ECB Facilities

At the end of 2013 deposits remained as the main financing source (46%, or 53% if including customer funds in the form of life insurance products), while debt securities accounted for 16% only—a marked change since the end of 2009 (immediately before the escalation of the Euro Zone crisis at the start of 2010) when debt securities accounted for 43% and deposits for 31% only of the total asset financing sources. The increase in customer funds as financing source positively impacted the net stable funding ratio, which rose to 95%. Net stable funding ratio (1)

94% 95% 90%

Dec,11 Dec,12 Dec,13

(1) Calculated under BoP Funding & Capital Plan

73 International Activity The international business continued to reinforce its contribution to the BES Group’s total activity, notwithstanding the difficulties experienced by several emerging economies and the strategic adjustments and internal reorganisations undertaken by some of the business units. Hence, international assets grew by 8.0%, the international loan portfolio by 4.8% and total international customer funds by 11.8%.

International and Domestic Activity Domestic International As at 31 December As at 31 December 2013 2012 Change 2013 2012 Change (EUR million) Total Assets(1) ...... 64,149 70,252 (8.7)% 29,193 27,513 6.1% Assets ...... 54,124 59,176 (8.5)% 26,484 24,515 8.0% Loans to Customers (gross) ...... 36,927 38,191 (3.3)% 12,795 12,208 4.8% Total Customer Funds(2) ...... 41,749 42,694 (2.2)% 15,089 13,494 11.8% Loans/Deposits(3) ...... 122% 136% (14 )pp 117% 143% (26)pp

Note: (1) Net Assets + Asset Management + Off-Balance sheet liabilities + Non-consolidated securitised credit (2) Customer Funds on Balance Sheet (deposits, debt securities placed with clients, life insurance, off balance sheet customer funds) (3) Ratio calculated according to the BoP definition for Funding & Capital Plan

Asset Quality The table below summarises the performance of credit, overdue loans, credit at risk, restructured loans, provisions for impairment losses and overdue loans ratios and coverage ratios in 2013 to 2012: As at As at 31 December 31 December Change YoY 2013 2012 Absolute Relative (%) (EUR million) Gross loans ...... 49,722 50,399 (677) (1.3) Overdue Loans ...... 2,990 2,185 805 36.8 Overdue Loans +90d ...... 2,826 1,966 860 43.7 Credit at risk(1) ...... 5,249 4,758 491 10.3 Restructured Loans(2) ...... 5,846 — — — Restructured Loans not included in Credit at Risk(2) ...... 4,678 — — — Provisions for Credit ...... 3,387 2,692 695 25.8 Reinforcement of Provisions for Credit ...... 1,005 815 190 23.3% Indicators (%) Overdue Loans / Gross Loans ...... 6.0 4.3 1.7pp Overdue Loans + 90d / Gross Loans ...... 5.7 3.9 1.8pp Credit at risk(1)/Gross Loans ...... 10.6 9.4 1.2 pp Restructured Credit / Gross Loans ...... 11.8 — — Restructured Credit not included in Credit at Risk(2)/Gross Loans ...... 9.4 — — Coverage of Overdue Loans ...... 113.3 123.2 (9.9)pp Coverage of Overdue Loans + 90d ...... 119.9 136.9 (17.0)pp Coverage of Credit at risk(1) ...... 64.5 56.6 7.9 pp Provisions for Credit / Gross Loans ...... 6.8 5.3 1.5pp Provision charge ...... 2.0 1.6 0.4pp Provision charge, net of recoveries ...... 1.57 1.98 0.41 pp Notes: (1) According to the definition set forth in Instruction No. 23/2011 of Bank of Portugal, credit at risk includes: credit overdue for more than 90 days (installments overdue + coming due); restructured loans with interest capitalisation or where capital is not fully covered by guarantees or where interests or other charges have not been paid in full by the debtor; and installments overdue less than 90 days where there is a bankruptcy or liquidation of the debtor.

74 (2) According to the definition of BoP Instruction n°32/2013

Asset quality indicators showed broad deterioration during 2013. The overdue loans/gross loans ratio increased to 6.0% as at 31 December 2013 from 4.3% at 31 December 2012 while the overdue loans + 90 days /gross loans ratio increased to 5.7% at 31 December 2013 from 3.9% as at 31 December 2012 and the credit-at-risk ratio stood at 10.6%. The new performance indicators now required by the Bank of Portugal, namely ‘restructured loans/gross loans’ and ‘restructured loans not included in credit at risk / gross loans’, were 11.8% and 9.4%, respectively.

The Provisions for Credit / Gross Loans ratio continued to be reinforced, reaching 6.8% (Dec.12: 5.3%), with the Coverage of Credit at Risk ratio (Provisions for Credit/Credit at Risk), excluding collaterals and guarantees, standing at 64.5% (Dec.12: 56.6%).

The table below shows the development of overdue loan ratios broken down by type of credit. The ratio of overdue loans to corporate customers was 7.3%; the ratio for consumer loans and for other purposes was 9.0% and mortgage loans demonstrated the lowest growth in overdue loans.

Overdue Loans

As at 31 December Change 2013 2012 (%) YoY Overdue Loans ...... 6.0 4.3 1.7 Individuals ...... 2.4 2.2 0.2 Mortgage ...... 1.0 0.9 0.1 Other Purposes (loans to households, excluding mortgages loans) ...... 9.0 7.4 1.6 Corporate ...... 7.3 5.2 2.1 According to the most recent statistics published by the Bank of Portugal (November 2013), the BES Group’s overdue loan ratios compare favourably with those of the Portuguese banking sector, where corporate overdue loans stand at 10.7% (BES Group: 7.3%), mortgage overdue loans at 2.1% (BES Group: 1.0%) and other loans to individuals overdue loans at 12.4% (BES Group: 9.0%).

The BES Group has put in place a recovery process relating to real estate assets, involving the execution of real guarantees through foreclosures. Foreclosed assets thus totalled €2.1 billion, included in ‘Non current assets held for sale’. These assets are initially booked at fair value based on the immediate sale value (“ISV”) of the property as determined at the time by an independent expert. In subsequent periods these real estate assets are subject to regular revaluations and whenever the new ISV is lower than balance sheet value, provisions for impairment losses are created or reinforced. The table below shows the distribution of these assets by the domestic and international areas:

Foreclosed Premises

As at 31 December 2013 2012 (EUR million) Domestic ...... 2,453 1,965 International ...... 156 120 Gross Value ...... 2,609 2,085 Provisions ...... 477 304 Net Value ...... 2,132 1,781

The BES Group has put in place a strategy with the view of actively monitoring the sale of these properties, through various internal and external sales channels and innovative sale strategies adjusted to each channel and target market. The sales target of €400 million in full 2013 was fully met and even surpassed: 3,462 such properties were sold for a gross balance sheet value of €444 million, which represents a year-on-year increase of 103%. No material gains or losses were recognised on these sales.

75 Property Sales Year ended 31 December 2013 2012 Change (%) Sold Premises 3,462.0 1,537.0 125 Proceeds (€mn) 444.0 219.0 103 Gain/Losses(€mn) 0.5 (3.1) —

Risk Assets, Equity and Capital Ratios Until the end of 2013, the BES Group’s Capital ratios were calculated under the Basel II regulations. From the first quarter of 2009, the BES Group has been authorised by the Bank of Portugal to use the IRB14 approach for credit risk and the Standardised Approach—TSA method for operational risk. Under the Portuguese banking regulations (Bank of Portugal Notice 3/2011) promulgated in 2011, Portuguese banks were required to report a Core Tier 1 ratio of 10%. Also beginning 30 June 2012, European banks, including Portuguese banks, were required to demonstrate a Core Tier 1 ratio of 9%, calculated according to the definition established by the EBA. In the context of the Basel III prudential framework, the European Parliament and the Council approved Regulation (EU) no. 575/2013 and Directive 2013/36/EU which establish the applicable prudential requirements for credit institutions and investment firms in the EU effective January 2014.

Risk Weighted Assets and Regulatory Capital The table below provides information about risk weighted assets, regulatory capital and capital ratios under the Basel II IRB and Basel III (CRD IV/CRR) approach: According to BoP (BIS II) According to BIS III (CRD IV/CRR) as at 31 December from January 2014 Fully 2013(1) 2012 Phasing in(1) implemented(1) (EUR million) Risk Weighted Assets (A) ...... 57,332 61,681 60,871 60,330 Banking Book ...... 52,851 56,484 56,390 55,849 Trading Book ...... 1,227 1,503 1,227 1,227 Operational Risk ...... 3,254 3,694 3,254 3,254 Regulatory Capital Core Tier 1 / Common Equity Tier 1(B) ...... 6,084 6,471 6,193 4,933 Core Tier 1 EBA (B’) ...... 5,646 6,092 —— Tier 1 (C) ...... 5,959 6,439 6,193 5,002 Tier 2 and Deductions ...... 781 518 Total (D) ...... 6,740 6,957 7,120 5,988 Core Tier 1 / Common Equity Tier 1 (B/A) ...... 10.6% 10.5% 10.2% 8.2% Core Tier 1 EBA(B’/A) ...... 9.8% 9.9% —— Tier 1 (C/A) ...... 10.4% 10.4% 10.2% 8.3% Capital Ratio (D/A) ...... 11.8% 11.3% 11.7% 9.9% The capital base is managed with the aim of complying with the capital ratios established by the Bank of Portugal and the EBA. During 2013 a number of initiatives were taken to reinforce BES Group’s capital ratios, namely: • BES Vida reinsured its individual life risk portfolio; • sale of a large part of the stake in EDP; • proactive sale of real estate assets obtained through credit recoveries; • synthetic securitisations;

14 The IRB Foundation method uses the probability of default estimated by the Bank and the other parameters of risk (e.g. LGD—loss given default and CCF—credit conversion factors) used in the formula for calculating the risk weighted assets are determined by the regulator. The LGD corresponds to an estimate of the economic losses as percentage of the risk positions in case of default. The CCF corresponds to a percentage applicable to the value of off-balance sheet assets at risk, except derivatives, aimed at converting them in credit (equivalent) in the moment of default or exposure at default.

76 • Tier 2 subordinated debt issues; and • BES Angola capital increase. Core Tier 1 capital decreased by €387 million in 2013, mainly due to losses for 2013, offset in part by the positive impacts of BES Vida’s reinsurance operation and BES Angola’s capital increase provided by its shareholders. Risk weighted assets decreased by €4.3 billion due to the slow general commercial activity and consequent decrease in assets (by €3.1 billion), and also the risk mitigation measures implemented. Tier 2 capital increased to €781 million, through a €750 million Tier 2 debt issue that was already compliant with the Basel III requirements. In the context of Basel II, the Core Tier 1 ratio increased to 10.6%, above the Bank of Portugal’s requirement (minimum of 10%); under the EBA calculation method, the Core Tier 1 ratio increased to 9.8%, which is also above the minimum 9% established by the European authority. Under Basel III (CRD IV/CRR), the Common Equity Tier 1 ratio is 10.2% phasing in, or 8.2% if fully implemented.

Year Ended 31 December 2012 Compared to the Year Ended 31 December 2011 For discussion of the financial results of the BES Group’s segments, see “Information on the BES Group—Main Business Areas”.

Key Performance Indicators The following table contains the main performance indicators of the BES Group for 2012 and 2011: As at or for the year ended 31 December 2012 2011 Change (EUR million) Activity Total Assets(1) ...... 97,765 98,589 (0.8)% Net Assets ...... 83,691 80,237 4.3% Gross Loans ...... 50,399 51,211 (1.6)% Customer Deposits ...... 34,540 34,206 1.0% Core Capital—BoP ...... 6,471 6,020 7.5% Core Capital—EBA ...... 6,092 — — Solvency Solvency Ratios(2) Core Tier 1—BoP ...... 10.5% 9.2% 1.3pp Core Tier 1—EBA ...... 9.9% — — Tier 1 capital ratio ...... 10.4% 9.4% 1.1pp Total capital ratio ...... 11.3% 10.7% 0.6pp Liquidity ECB funds (net)(3) ...... 6,897 8,677 (1,780) Repayable Assets ...... 22,256 18,881 3,375 Loan/deposits ratio(4) (%)...... 137% 141% -4pp Asset Quality Overdue loans + 90 days / Gross loans ...... 3.90% 2.74% 1.16pp Coverage of Overdue Loans + 90 days ...... 136.9% 154.5% (17.4)pp Credit at Risk(5) ...... 9.44% 6.59% 2.85pp Provisions for Credit / Gross loans ...... 5.34% 4.23% 1.11pp Provision charge(6) ...... 1.62% 1.17% 0.45pp Results & Profitability Net income ...... 96.1 (108.8) — ROE ...... 1.25% (0.05)% — ROA ...... 0.12% 0.00% 0.12pp Efficiency Cost to Income(7) ...... 44.6% 57.9% (13.3)pp Cost to Income (ex markets)(8) ...... 57.2% 57.3% (0.1)pp Branch Network Retail Network ...... 775 801 (26) Domestic ...... 666 701 (35) International ...... 109 100 9

77 Note: (1) Net assets + asset management + off-balance sheet items + non-consolidated securitised credit. (2) Data calculated based on the IRB Foundation method (Basel II). (3) Includes funding and investments from/in the ECB; a positive value represents an asset; a negative value represents an investment. (4) Ratio calculated according to the definition established for purposes of the goal set by Bank of Portugal objective regarding this indicator in the Funding & Capital Plan. (5) According to the definition set forth in Instruction No. 23/2011 of Bank of Portugal, credit at risk includes: credit overdue for more than 90 days (installments overdue + coming due); restructured loans with interest capitalisation or where capital is not fully covered by guarantees or where interests or other charges have not been paid in full by the debtor; and installments overdue less than 90 days where there is a bankruptcy or liquidation of the debtor. (6) Provisions for Loans/Gross Loans to Costumers. (7) Operational Costs / Banking Income. (8) Operational Costs / Commercial Banking Income.

Analysis of Results The BES Group’s activity and results in 2012 were attributable to the adverse economic and financial conditions in Europe in general, stemming from the European policies intended to stabilise the Euro Zone, and in Portugal in particular from the execution of the Adjustment Programme agreed with the international institutions. The adoption by the Portuguese government of restrictive fiscal policies combined with the deleveraging process carried out among companies and families slashed investment and demand, with strong impacts in terms of a contraction of economic activity, and rising unemployment offset only in part by a significant improvement of the trade balance.

The long-standing Portuguese external deficit nearly flattened out in 2012, while the financial markets improved significantly in the second half of the year, mainly due to the ECB’s announcement of its Outright Monetary Transactions (OMT) programme, which led to a sharp reduction in the credit spreads demanded from the Portuguese Republic and Portuguese companies.

Income Statement

Year ended 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Net Interest Income ...... 1,180.5 1,181.6 (1.1) (0.1) Fees and Commissions ...... 828.4 790.5 37.9 4.8 Commercial Banking Income ...... 2,008.9 1,972.1 36.8 1.9 Capital Markets and Other Results ...... 569.5 (21.9) 591.4 — Banking Income ...... 2,578.4 1,950.2 628.2 32.2 Insurance Premiums and Costs ...... 0.7 — 0.7 — Operating Costs ...... 1,149.1 1,129.2 19.9 1.8 Net Operating Income ...... 1,430.0 821.0 609.0 74.2 Provisions ...... 1,199.4 848.3 351.1 41.4 Credit ...... 814.8 600.6 214.2 35.7 Securities ...... 106.6 73.3 33.3 45.4 Other ...... 278.0 174.4 103.6 59.4 Income/(loss) before Taxes and Minorities ...... 230.6 (27.3) 257.9 — Income Tax ...... 82.8 (61.6) 144.4 — Special Tax on Banks ...... 27.9 30.5 (2.6) (8.5) Income Before Minorities ...... 119.8 3.8 116.0 — Minority Interests ...... 23.7 112.6 (88.8) (78.9) Net Income/(loss) ...... 96.1 (108.8) 204.8 —

The BES Group posted net income of €96.1 million in 2012, compared to a loss of €108.8 million in 2011. Excluding non-recurrent factors, 2012 net income would have been €194.9 million (2011: €166.6 million).

78 Non recurrent impacts

Year ended 31 December 2012 2011 (EUR million) Net Income ...... 96.1 (108.8) 2011 non-recurrent losses(1) ...... — 275.4 BES Vida acquisition Impact ...... 54.1 — OIP Impact(2) ...... 55.0 — Gespastor Indemnity ...... (10.3) Net Income excluding non-recurrent items 194.9 166.6

Notes: (1) Transfer of the pension fund to Portuguese Social Security system (€76.1 million); Impairment related to BES Vida (€143.9 million); Loan disposals (€55.4million) (2) On-site Inspection Programme Despite the extreme difficulties felt throughout 2012, the following developments should be highlighted as they impacted the year’s result: • banking income increased 1.9% year-on-year, despite the deepening economic recession and corresponding drops in GDP of 1.7% in 2011 and 3.0% in 2012; • very positive performance of financial transactions, principally involving debt instruments, which boosted total banking income by 32.2% (13.2% without non recurrent factors), to €2,578.4 million, together with the contribution of BES Vida (€158.4 million or 6% of the BES Group’s total); • the strengthening of the balance sheet following the intensification of the economic crisis required a €1,199.4 million increase (41.4%) in provisions; and • increase in operating costs (1.8%) induced by the expansion of international business (9.3%), partially offset by the reduction in domestic costs (2.5% on a comparable basis).

Domestic and International Activity Income Domestic net income (€8.5 million) strongly rebounded in 2012 compared to 2011 (€269.6 million). Commercial banking income increased by 8.9%, with total banking income benefiting from the investments in Portuguese public debt, which allowed the Bank to overcome the level of deterioration of impairments due to the economic recession.

Pre-tax profit was €100 million. However, the net income for 2012 was impacted by the increase in income taxes in 2012 due to the non acceptance of losses on the BES Group’s strategic holdings for tax purposes.

The international area recorded net income of €87.6 million in 2012, despite being affected by the economic and financial situation in some geographies (Angola, Brazil and the US), which led to a 2% reduction in banking income in 2012 and required a €225.9 million reinforcement in provisions. The strategic decision to deleverage the international area, mainly through sales of international loans, inevitably impacted its performance when compared to prior years.

79 Domestic and International Income Statement

Domestic International Year ended Year ended 31 December Change 31 December Change 2012 2011 (%) 2012 2011 (%) (EUR million) Net Interest Income ...... 823.4 645.7 27.5 357.1 535.9 (33.4) Fees and Commissions ...... 533.0 600.1 (11.2) 295.4 190.4 55.1 Commercial Banking Income ...... 1,356.4 1,245.8 8.9 652.5 726.3 (10.2) Capital Markets and Other Results ...... 498.5 (34.0) — 71.0 12.1 — Banking Income ...... 1,854.9 1,211.8 53.1 723.5 738.4 (2.0) Insurance Premiums and Costs ...... 0.7 — — — — — Operating Costs ...... 782.0 793.5 (1.4) 367.1 335.7 9.3 Net Operating Income ...... 1,073.6 418.3 — 356.4 402.7 (11.5) Provisions ...... 973.5 778.5 25.0 225.9 69.8 — Credit ...... 723.8 538.2 34.5 91.0 62.4 45.9 Securities ...... 103.3 73.4 40.7 3.3 (0.1) — Other ...... 146.4 166.9 (12.3) 131.6 7.5 — Income before Taxes and Minorities ...... 100.1 (360.2) — 130.5 332.9 (60.8) Income Tax ...... 66.6 (119.8 ) — 16.2 58.2 (72.1 ) Special Tax on Banks ...... 27.9 30.5 (8.5) — — — Income Before Minorities ...... 5.6 (270.8) — 114.3 274.7 (58.4) Minority Interests ...... (2.9) (1.3) — 26.6 113.9 (76.6) Net Income ...... 8.5 (269.6) — 87.6 160.8 (45.5)

The geographic breakdown of international activity was as follows:

Geographical Breakdown of International Activity Results (Net Income)

Year ended 31 December Change 2012 2011 (%) (EUR million) Geography Africa(1) ...... 33.9 91.0 (62.8) Brazil ...... 11.1 20.4 (45.8) Spain(2) ...... 15.7 9.9 59.0 Strategic Triangle ...... 60.7 121.3 (50.0) United Kingdom ...... 19.2 18.6 3.2 USA ...... 5.9 14.3 (59.1) Other ...... 1.8 6.5 (72.3) Total ...... 87.6 160.8 (45.5)

Notes: (1) Angola, Mozambique, Cape Verde and Libya (2) Includes €10.3 million non-recurrent income in 2012

The business units within the strategic triangle once again played a key role in 2012, posting net income of €60.7 million, which represents 69.3% of the international area’s total net income. The BES Group’s units in Africa, Spain and the United Kingdom continued to contribute to the BES Group’s profit generation. The reduction under “Other” stems from the negative contribution of the new Venezuela and India units which were still in a start-up phase.

80 Net interest income and Net interest margin Net interest income remained flat year-on-year, at €1,181 million. The increase in the net interest margin (2 bps, from 1.68% to 1.70%) in 2012 compensated for the reduction in interest earning assets (€836 million), with the margin and volume effects cancelling each other out.

The improvement of the net interest margin in 2012 was backed by a 4 bps increase in the average rate on interest earning assets (in particular the portfolio of securities and other investments drove up the average rate by 60 bps, from 4.85% to 5.45%), while the average rate on interest bearing liabilities rose by 2 bps, to 3.44%, underpinned by a 34 bps increase, from 3.62% to 3.96%, in the average rate on debt securities and other liabilities.

Year ended 31 December 2012 2011 Average Average Average Average Balance Rate (%) NII Balance Rate (%) NII (EUR million) Interest Earnings Assets ...... 69,443 5.14 3,571 70,267 5.10 3,587 Customer Loans ...... 50,316 5.02 2,527 51,520 5.20 2,678 Other Assets ...... 19,127 5.45 1,043 18,747 4.85 909 Other ...... — — — 12 — — Interest Earning Assets & Other ...... 69,443 5.14 3,571 70,279 5.10 3,587 Interest Bearing Liabilities ...... 68,161 3.51 2,390 70,279 3.42 2,405 Deposits ...... 34,030 3.05 1,038 32,535 3.19 1,038 Other Liabilities ...... 34,131 3.96 1,352 37,744 3.62 1,367 Other ...... 1,282 — — — — — Interest Bearing Liabilities & Other ...... 69,443 3.44 2,390 70,279 3.42 2,405 NIM/NII ...... 1.70 1,181 1.68 1,182 Euribor 3 M—average ...... 0.57% 1.39%

Despite BES’ successful placement of two unsecured bond issues in the second half of 2012 (€750 million in October and €450 million in November), net interest income management continued to be conducted in a context of restricted access to the financial markets, fierce competition over customer funds, the increase in risk and asset impairment levels and constraints to the expansion of activity levels resulting from deleveraging. In this regard, the following items were particularly relevant: • the cost of interest bearing liabilities totalled €2,390 million, with the average rate on deposits decreasing by 14 bps, to 3.05%; however, the increase in the differential vis-à-vis the market’s average reference rate (the 3-month Euribor), to 248 bps (3.05—0.57), from 180 bps (3.19—1.39) in 2011 permitted a substantial improvement in the depositors’ returns; and • interest on interest earning assets totalled €3,571 million, underpinned by the improvement in the average rate on Securities and Other investments (60 bps, to 5.45%) that mainly translates the implicit yields of the Portuguese public debt portfolio. The full year average interest rate on customer loans (5.02%) represented a good cost of funding for the clients, namely corporate clients, when compared to the cost imposed by the financial markets on both Portugal and the financial sector.

81 Fees and Commissions Fees and commissions increased by 4.8% (€37.9 million) in 2012, driven by innovation and the adjustment of the offer of products and services to the needs of the clients. Excluding the cost of the guarantees provided by the Portuguese state (2012: €58.5 million; 2011: €8.0 million), fees and commissions increased by 11.1%.

Year ended 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Collections ...... 17.0 19.7 (2.7) (13.7) Securities ...... 73.4 89.9 (16.5) (18.4) Guarantees ...... 139.6 125.4 14.2 11.3 Account management ...... 79.0 81.1 (2.1) (2.6) Commissions on loans and other(1) ...... 155.4 176.2 (20.8) (11.8) Documentary credit ...... 87.1 81.4 5.7 6.9 Asset management(2) ...... 85.9 85.8 0.1 0.2 Cards ...... 56.7 40.9 15.8 38.5 Bancassurance ...... 47.6 34.9 12.7 36.3 Other Services(3) ...... 86.7 55.2 31.5 57.1 Total ...... 828.4 790.5 37.9 4.8 State Guarantees ...... 58.5 8.0 50.5 — Total ...... 886.9 798.5 88.4 11.1

Notes: (1) Includes commissions on loans, project finance, export financing and factoring (2) Includes investment funds and discretionary management (3) Includes costs with Portuguese state guarantees

Commissions on bancassurance products (saving and insurance products) increased by 36.3%, underpinned by BES Vida’s new commercial dynamics; commissions on guarantees provided rose by 11.3%, increasingly driven by commissions linked to the BES Group’s “Express Bill”15 product; card commissions grew by 38.5%; commissions on documentary credit were up by 6.9%, boosted by the trade finance business with South America; commissions on account management (chiefly relating to commissions on current accounts, transfers, and payment orders) totaled €79.0 million, being close to the 2011 level despite the impact of the economic recession; finally, income from commissions on advisory services, servicing and other also increased, supported by the international area.

Commissions and fees related to capital markets (commissions on securities) and financings (collections, loans, corporate and project finance) decreased as a result of the deleveraging process and, particularly at the domestic level, the impact of the economic recession.

Capital markets and other results Capital markets and other results totalled €569.5 million in 2012.

Year ended 31 December Change 2012 2011 (EUR million) Interest rate, Credit and FX ...... 825.0 142.6 682.4 Interest rate ...... 781.3 84.1 697.2 Credit ...... 32.5 117.1 (84.6) FX and Other ...... 11.2 (58.6) 69.8 Equity ...... (126.5) 125.8 (252.3) Trading ...... (199.1) (41.9) (157.2) Dividends ...... 72.6 167.7 (95.1) Other Results ...... (129.0) (290.3) 161.3 Total ...... 569.5 (21.9) 591.4

15 A network, credit and payment platform that allows BES clients to anticipate client payments and to provide payment guarantees to their suppliers

82 The start of 2012 was marked by the downgrade of Portugal’s credit rating, leading to the exclusion of Portuguese public debt securities from the indexes of investment grade funds and pushing up yields to historic high levels. In this context, the BES Group, which then held mostly short-term public debt in its securities portfolio, moved towards exposures with longer maturities, thus increasing the portfolio’s average maturity. The monetary policy measures meanwhile adopted by the ECB boosted investors’ demand for Portuguese bonds which was partially responsible for the extraordinary performance of the Portuguese yield curve, which culminated in January 2013 with the successful issuance of 5-year bonds.

The BES Group thus sold part of its bond portfolio, with gains on interest rate, credit and foreign exchange instruments. However, the poor performance of the equity markets, particularly in the first three quarters of the year (relating mainly to the BES Group’s strategic holdings in Portugal Telecom and EDP), had a negative impact on capital markets results. Other results include -€54.1 million concerning the impact of the acquisition of control of BES Vida.

Operating costs Operating costs were €1,149.1 million in 2012, which represents a year-on-year increase of 1.8%. On a comparable basis, i.e., excluding the impacts of the full consolidation of BES Vida and the start-up of the new BES branches, operating costs were flat (increasing only 0.3%)

Year ended 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Staff Costs ...... 598.9 587.5 11.4 1.9 Administrative Costs ...... 442.1 433.8 8.3 1.9 Depreciation ...... 108.1 107.9 0.2 0.2 Total ...... 1,149.1 1,129.2 19.9 1.8 Domestic ...... 782.0 793.5 (11.4) (1.4) International ...... 367.1 335.7 31.4 9.3 Costs with BES Vida and new offices ...... 18.5 1.7 16.8 — Total ...... 1,130.6 1,127.5 3.1 0.3

Despite the full consolidation of BES Vida, domestic costs decreased by 1.4% (2.5% on a comparable basis), while international costs increased by 9.3%, largely due to the expansion of the branch network in Angola and the start of operation of two new branches abroad (6.9% on a comparable basis).

Staff costs

Year ended 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Remunerations ...... 483.8 471.6 12.2 2.6 Pensions, Long term service benefits & Other ...... 115.1 115.9 (0.8) (0.7) Total ...... 598.9 587.5 11.4 1.9 Domestic ...... 389.7 395.2 (5.5) (1.4) International ...... 209.2 192.3 16.9 8.8

Staff costs increased by 1.9%, down from 19.1% in 2011. This increase was driven by the international area, where the admission of 141 new employees drove up costs by 8.8% in 2012. Domestic staff costs declined by 1.4% due to the reduction of variable remunerations and the downsizing of the workforce by 136 employees (excluding the consolidation impact of BES Vida).

General administrative costs increased by 1.9% in 2012. Depreciation totalled €108.1 million, reflecting the rollout of new IT systems to support the international units. The domestic operations’ depreciation dropped by 4.8%, despite the impact of the closure of 41 branches, which led to exceptional depreciation of €1.6 million.

83 Efficiency The total cost to income ratio improved to 44.6% as a result of the increase in total banking income (32.2%) above the increase in operating costs (1.8%). The cost to income ratio excluding capital markets and other results remained flat year-on-year, at 57.2%.

Year ended 31 December 2012 2011 Change (%) Cost to Income ...... 44.6 57.9 (13.3)pp Cost to Income (ex-markets) ...... 57.2 57.3 (0.1)pp

Provisions The Portuguese economy remained in recession in 2012 with a consequent increase in risk levels which forced the BES Group to increase provisions as a result of the devaluation of assets. The balance of provisions for credit increased by 24.2%, to €2,692.3 million as at 31 December 2012, lifting the credit provisions/gross customer loans ratio to 5.34% (2011: 4.23%).

As at 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Gross Loans ...... 50,399.0 51,211.0 (812.0) (1.6) Credit Provisioning Charge ...... 814.8 600.6 214.2 35.7 Provisions for credit ...... 2,692.3 2,167.4 524.9 24.2 Provision Charge ...... 1.62 % 1.17 % 0.45pp Provisions for credit / Gross Loans ...... 5.34 % 4.23 % 1.11pp

Credit provision charges increased by 35.7% in 2012, to €814.8 million (2011: €600.6 million), including an additional charge of €78 million resulting from the On-site Inspection Programme (“OIP”), as explained below. The provision charge in 2012 (1.62%) was thus 45 bps higher than in 2011 (1.17%).

As at 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Credit Provisions ...... 814.8 600.6 214.2 35.7 Securities Provisions ...... 106.6 73.3 33.3 45.4 Loans disposals ...... 50.8 — — — Other Provisions ...... 278.0 174.4 103.6 59.4 Loans disposals ...... 85.8 23.0 62.8 — Total ...... 1,199.4 848.3 351.1 41.4

Provisions for securities and other purposes also required a larger charge than in 2011. This was related to the credit assignment operations conducted in 2012. As part of the process of restructuring the real estate and tourism sector during the year, several initiatives were launched to set in place the financial, operational and management conditions required to reorganise and stimulate the sector. The Portuguese government, in close association with companies and the financial sector, encouraged the creation of companies and funds in order to, through merger and concentration operations, achieve the necessary synergies for the sector’s recovery. Banks entered the capital of these companies through the assignment of credits, which, for reasons of efficiency in the organisation of the operations, originated a reallocation of provisions, associating them with the financial instruments acquired through the assignment of credits—to securities when shares and participation units are subscribed, and to other assets when accessory capital, supplementary capital or shareholder loans are provided.

In addition, provisions for foreclosed real estate assets (€39 million), for other contingencies (€47 million), and for non financial assets of the international area were also reinforced.

Outcomes of the OIP (On-Site Inspection Programme) on exposure to the construction and real estate sectors Within the scope of its supervisory action, the Bank of Portugal in 2012 paid special attention to banks’ exposure to the construction and real estate sectors, which were particularly affected by macroeconomic conditions. For

84 this reason, as part of regular prudential supervision activity, an OIP was developed on the exposure of financial institutions to the construction and real estate sectors in Portugal and Spain, with reference to 30 June 2012. Its purpose was to assess the adequacy of impairment levels recorded with regard to exposure to such sectors, based on conservative assessment criteria. This inspection programme involved, on a consolidated basis, the eight largest national banking groups, including ESFG. BES Group was subject to the inspections programme since it is fully consolidated by ESFG.

The inspection took as a reference the balance sheet position on 30 June 2012, taking into account the information and events which occurred from 1 July up to the conclusion of works, on 16 November 2012. The programme estimated that the BES Group needed to reinforce provisions by €98 million (0.9% of the exposure analysed) relative to the balance sheet position as at 30 September 2012. Of this amount €78 million (0.7% of the exposure) related to differences of judgments concerning the amounts of impairment to be recognised for certain credits. As of 31 December 2012 all reinforcements had been duly booked.

Profitability The table below shows the development of return on equity (ROE) and return on assets (ROA):

2012 2011 (%) Return on Equity ...... 1.25 (0.05) Return on Assets ...... 0.12 0.00

Activity Adding to macroeconomic restraints, activity in the Portuguese banking sector in 2012 remained constrained by the requirement imposed on banks to meet the targets set for the end of 2014 concerning the loans to deposits ratio, solvency, and share of stable liabilities in the funding of these businesses.

The progressive deleveraging of the balance sheet, the reinforcement of equity, a selective support to the business sector (in particular to the exporting companies), and greater focus on obtaining savings from individual clients were the main objectives of the BES Group’s activity in 2012.

Assets, Credit and Customer Funds

As at 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Total Assets(1) ...... 97,765 98,589 (824) (0.8) Net Assets ...... 83,691 80,237 3,454 4.3 Customer Loans (gross) ...... 50,399 51,211 (812) (1.6) Loans to Individuals ...... 13,762 14,326 (564) (3.9) Mortgage ...... 11,134 11,610 (476) (4.1) Other Loans to Individuals ...... 2,628 2,716 (88) (3.2) Corporate Lending ...... 36,637 36,885 (248) (0.7) Total Customer Funds ...... 56,188 54,383 1,805 3.3 On-Balance Sheet Customer Funds ...... 44,785 44,147 638 1.4 Deposits ...... 34,540 34,206 334 1.0 Debt Securities placed with Clients(2) ...... 5,254 6,463 (1,209) (18.7) Life Insurance(3) ...... 4,991 3,478 1,513 43.5 Off-Balance Sheet Customer Funds ...... 11,403 10,236 1,167 11.4 Loans/Deposits(4) ...... 137 % 141 % (4pp)

Notes: (1) Net Assets + Asset Management + Off-Balance sheet items + Non-consolidated Securitised credit (2) Includes funds associated with consolidated securitisations and commercial paper (3) December 2011 data reclassified for comparison (4) Ratio calculated based on the definition of BoP

85 Total assets decreased by 0.8% as a result of the execution of the deleveraging programme. Net assets increased by €3.5 billion (4.3%) due to the full consolidation of BES Vida. Excluding this impact, Net assets developed in line with the deleveraging effort, declining by 1.5%.

Customer loans show one of the highest declines from among all asset classes, dropping by €812 million (1.6%), with decreases across all segments but particularly in Other loans to individuals (3.2%); Corporate loans declined by 0.7%.

Total customer funds increased by 3.3% (as opposed to a decrease of 2.9% in 2011), reversing the downward trend observed throughout 2012; customer deposits increased by €334 million (1.0%), while on-balance sheet customer funds (bonds and other securities) decreased by €1.2 billion.

As a result of the increase in deposits combined with the reduction in credit, the loans to deposits ratio was 137% (in accordance with the Bank of Portugal’s criteria).

Loans to Deposits Ratio(1)

192% 165% 141% 137%

Dec. 09 Dec. 10 Dec. 11 Dec. 12

(1) Calculated under the terms of BoP Funding & Capital Plan

As to other funding components, equity increased by €1.5 billion due to a capital increase in 2012 and the recovery of fair value reserves, while net funding from the ECB decreased by 50% compared to the peak attained in June 2012, to €6.9 billion.

Net ECB Funding(1) (EUR billion)

13.7 -50% 12.1 9.8 8.7 6.9

Dec. 11 Mar. 12 Jun. 12 Sep. 12 Dec. 12 (1) Dec. 12: Funding (EUR 10.0 billion): Net exposure (EUR 3.1 billion)

86 In 2012, the structure of liabilities and equity continued to develop towards an increase in the share of customer deposits and lower dependence from the financial markets, viewing compliance with the guidelines for the financial sector agreed with the international institutions and thus making financial management less dependent on cyclical fluctuations in the debt markets.

Structure of liabilities and equity (EUR billion)

+1.4 82.3 83.7

Deposits Deposits 25.4 (31%) +9.1 34.5 (41%)

5 Life Insurance (6%) Debt 35.7 Securities -20.3 15.4 Debt Securities (43%) (18%) Other Liabilities Other Liabilities 21.1 14.3 +6.8 (25%) (1) (17%) (1)

6.9 +0.8 7.7 Equity

Dec. 09 Dec. 12

(1) Includes ECB liquidity facilities

In December 2009 (immediately before the escalation of the Euro Zone crisis at the start of 2010) debt securities totalled €35.7 billion, representing the largest share of total asset financing sources (43%, or €82.3 billion). In December 2012 deposits had become the main financing source (41%, or 47% if also considering life insurance products sold to clients), with debt securities representing only 18% of assets.

International Activity The international units benefited from the dynamics of the economies where they were operating, namely emerging economies: international assets grew by 16.8%, while the international loan portfolio increased by 12.6% and total international customer funds increased by 13.5% driven by the debt securities placed with institutional clients, mainly by BES London branch.

International Balance Sheet Information Activity Domestic International As at 31 December Change As at 31 December Change (EUR million) Total Assets(1) ...... 70,252 72,711 (3.4)% 27,513 25,878 6.3% Assets ...... 59,176 59,249 (0.1)% 24,515 20,988 16.8% Loans to Customers (gross) ...... 38,191 40,365 (5.4)% 12,208 10,846 12.6% Total Customer Funds ...... 42,694 42,478 0.5% 13,494 11,905 13.5% Loans/Deposits(2) ...... 136% 140% (4)pp 143% 148% (5)pp

Note: (1) Net Assets + Asset Management + Off-Balance sheet liabilities + Non-consolidated securitised credit (2) Ratio calculated under the BoP definition

87 Asset Quality The table below summarises the performance of credit, overdue loans, credit at risk, provisions for impairment losses and overdue loans ratios and coverage ratios in 2012 and 2011:

As at 31 December Change 2012 2011 Absolute Relative (%) (EUR million) Gross loans ...... 50,399 51,211 (812) (1.6)% Overdue Loans ...... 2,185.4 1,545.6 639.8 41.4% Overdue Loans +90d ...... 1,966.0 1,403.3 562.7 40.1% Credit at risk(1) ...... 4,758.4 3,373.6 1,384.8 41.0% Provisions for Credit ...... 2,692.3 2,167.4 524.9 24.2% Indicators (%) Overdue Loans/Gross Loans ...... 4.34 3.02 1.32pp Overdue Loans +90d/Gross Loans ...... 3.90 2.74 1.16pp Credit at risk(1)/Gross Loans ...... 9.44 6.59 2.85pp Coverage of Overdue Loans ...... 123.2 140.2 (17.0)pp Coverage of Overdue Loans + 90d ...... 136.9 154.5 (17.4)pp Coverage of Credit at risk(1) ...... 56.6 64.2 (7.6)pp Provisions for Credit/Gross Loans ...... 5.34 4.23 1.11pp Provision Charge ...... 1.62 1.17 0.45pp Note: (1) According to Instruction 23/2011 of Bank of Portugal. Credit at risk includes: a) total value of credit with capital or interest past due by 90 days or more; b) other restructured credit, where the principal or interest payments were past due by more than 90 days and have been capitalised or refinanced without full coverage by collaterals or the interest fallen due have not been fully paid by the debtor and c) credits of an insolvent or bankrupt debtor.

Credit risk indicators were penalised by the deterioration of the economy: the Overdue loans + 90 days ratio increased to 3.90% (Dec.11: 2.74%), with the corresponding provision coverage standing at 136.9% (Dec.11: 154.5%). Credit at risk reached €4,758 million, rising to 9.44% of gross loans (Dec.11: 6.59%), with a provision coverage (excluding collaterals and guarantees) of 56.6% (Dec.11: 64.2%).

The Provisions for Credit / Gross Loans ratio continued to increase, reaching 5.34% at the end of 2012 (Dec.11: 4.23%).

The asset quality deterioration was sharpest in corporate credit, rising to 5,15% (Dec.11: 3.56%) and other loans to individuals and consumer credit, where it reached 7.44% (Dec.11: 4.98%) and lowest in mortgage credit, where the ratio was 0.92%.

The table below shows the development of overdue loan ratios broken down by type of credit. In 2012, the ratio stabilised at 5.2% in corporate loans, reached 2.2% in loans to individuals and was 0.9% in mortgage loans, the same as in the third quarter of 2013.

Overdue Loans

As at 31 December 2012 2011 Change (%) Overdue Loans ...... 4.34 3.02 1.32 Individuals ...... 2.16 1.62 0.54 Mortgage ...... 0.92 0.84 0.08 Other Purposes ...... 7.44 4.98 2.46 Corporate ...... 5.15 3.56 1.59

According to statistics published by the Bank of Portugal (November 2012), the BES Group’s overdue loan ratios compared favourably with those of the Portuguese banking sector in 2012, where corporate overdue loans stood at 8.65% (BES Group: 5.15%) mortgage overdue loans at 1.92% (BES Group: 0.92%) and other loans to individuals overdue loans at 11.59% (BES Group: 7.44%).

88 Capital Ratios On 3 October 2012 the Bank of Portugal made public the EBA’s report regarding the final assessment of the European capital exercise and fulfilment of the EBA December 2011 recommendation.

ESFG, which fully consolidates the BES Group, met the 9% Core Tier 1 ratio after valuation of sovereign debt in the Held-to-Maturity and Available-for Sale portfolios, reflecting current market prices. ESFG had as of 30 June 2012 a Core Tier 1 ratio of 9.6%, deducting the sovereign buffer.

The results of BES were calculated based on the methodology and assumptions defined by the EBA, which were used in the capital exercise of ESFG. According to EBA methodology, BES had as of 30 June 2012 a core Tier 1 ratio of 9.9% (above the 9% reference level defined by that entity).

The BES Group took several management actions in 2011 and 2012 that significantly reinforced its core capital: • exchange offer (LME) concluded in the last quarter of 2011 which reinforced Core Tier 1 by €668 million; • €1010 million rights issue concluded in May 2012; and • broad-based deleveraging programme allowed for a €7.1 billion reduction in RWA from Dec.10 to Dec.12. The table below provides the relevant information about risk weighted assets, regulatory capital and solvency ratios under the Basel II IRB approach.

Risk Weighted Assets and Regulatory Capital

As at 31 December 2012 2011 (EUR million) Risk Weighted Assets (A) ...... 61,681 65,385 Banking Book ...... 56,484 59,705 Trading Book ...... 1,503 1,742 Operational Risk ...... 3,694 3,938 Regulatory Capital Core Tier 1 (B) ...... 6,471 6,020 Tier 1 (C) ...... 6,092 6,171 Tier 2 and Deductions ...... 518 799 Total (D) ...... 6,957 6,970 Core Tier 1 (B/A) ...... 10.5% 9.2% Tier 1 (C/A) ...... 10.4% 9.4% Solvency Ratio (D/A) ...... 11.3% 10.7%

The BES Group’s Core Tier 1 ratio was 10.5% in December 2012, thus meeting the Bank of Portugal’s requirement (minimum of 10%). Under the EBA calculation method, the Core Tier 1 ratio was 9.9%, which was above the minimum 9% established by the European authority.

Liquidity and Financial Resources

Strategy and Funding Over the years, the BES Group has maintained a very conservative approach to liquidity risk management, and its structure is designed to ensure that liquidity management complies with all regulatory rules in force in every geography where it operates, and that all its responsibilities are met, whether in normal market conditions or under stress conditions.

The BES Group separates liquidity risk management in three major groups: • Short-term liquidity; • Structural liquidity; and • Contingency liquidity.

BES monitors its short-term liquidity levels through daily mismatch reports prepared in accordance with pre- established guidelines and internally defined warning signals of the potential impacts on the Bank, namely through the risk of contagion (due to market tension) or repercussions of an economic crisis.

89 With respect to short-term liquidity management, in October 2012 the Financial Services Authority (FSA) approved BES’ application for a 3-year renewal of the Whole Firm Liquidity Modification (WFLM), which allows the Bank to continue to operate in London without being required to create additional liquidity buffers. In 2013 the Prudential Regulation Authority (PRA), which replaced the FSA in this area, confirmed that BES would maintain the Whole Firm Liquidity Modification to October 2015.

With regard to structural liquidity, the BES Group prepares a monthly liquidity report that takes into account not only the effective maturity but also the behavioural maturity of the various products, which allows it to determine the structural mismatches for each time bucket. Based on this map, and taking into account the budget targets established, the BES Group prepares an annual activity funding plan. This plan, which is regularly revised, prioritises as far as possible medium/long-term funding instruments over short-term instruments. According to Bank of Portugal Instruction 13/2009 of 15 September, the liquidity gap is defined as (Net assets—Volatile Liabilities) / (Assets—Net assets) in each cumulative scale of residual maturity, where liquid assets include cash and liquid securities and volatile liabilities include cash, emissions, commitments, derivatives and other liabilities. This indicator allows a characterization of the liquidity position of the risk of wholesale institutions.

The BES Group’s liquidity gap up to one year was, as at 31 December 2013, negative 0.1% compared to 1.7% in the same period the previous year. This increase reflects the conservative approach to the management of the liquidity risk and is primarily due to the increase in financing through deposits.

As of 31 December 2013, the Group, met the goal set for 2015 regarding Basel III liquidity ratio.

For contingency liquidity, the BES Group has defined a set of measures that, when triggered, permit it to address and/or minimise the effects of a liquidity crisis.

Hence one of the main components of the BES Group’s liquidity risk management is its funding policy, which uses the various instruments available in the financial markets, encompassing various funding sources, including customer funds, medium/long-term funding instruments, and ordinary and preferred shareholder’s equity.

Liquidity Management and Funding in 2013 At the beginning of 2013 the improved trend of market sentiment seen towards the end of 2012 continued, with the main central banks’ strong expansionary policies supporting an abatement of risk aversion and the shrinking of peripheral sovereign debt yields. Taking advantage of these favourable conditions, BES Group tapped the market with a €500 million issue of senior debt with a 5-year maturity and a 4.75% coupon.

At the end of November 2013 BES Group issued €750 million of subordinated Tier 2 debt, compliant with the new Basel III (CRD IV/CRR) rules. The notes have a maturity of 10 years, with a call in year 5, and pay a coupon of 7.125%. This transaction was a further step in the BES Group’s strategy to reinforce its capital ratios, while diversifying its capital and funding base. The success of the issue was evident in the final order book, which reached approximately €3 billion, with approximately 300 accounts and a very strong presence from international investors (representing 95% of allocations), reflecting the markets’ confidence in the BES Group. The transaction marked the return of the Portuguese banks, after four years, to the institutional subordinated debt market.

In 2014, taking advantage of favourable market conditions, the BES Group tapped the international capital markets with two unsecured debt issues in the global amount of €1.5 billion, with 5-year and 3-year maturities (€750 million in January, paying a coupon of 4%, which represented a spread of 285bp over the mid-swap rate and €750 million in May, paying a coupon of 2.625%, which represented a spread of 208bp over the mid-swap rate).

In total, the medium- and long-term funding operations generated liquidity of roughly €2.0 billion in 2013 (of which €1.25 billion through public placements), representing an important step in regaining access to funding through the markets. Moreover, the liquidity obtained allowed the BES Group to pursue a strategy of gradual reduction of exposure to the ECB. The balance sheet deleveraging pursued during the year permitted BES to reduce medium- and long-term lines by €4.1 billion (of which €1.6 billion in reimbursements of wholesale funding) and also to reduce by €1.5 billion the net exposure to the ECB. As a result of its improved liquidity position, at the start of 2013 BES repaid in advance €1.0 billion of its LTRO facility.

90 The following chart presents the Net ECB Funding Evolution:

Net ECB Funding Evolution (EUR billion)

8.7

6.9 -1,5

5.4

3.9

-1.8

2009 2010 2011 2012 2013

Although liquidity conditions improved and allowed a return to market funding, 2013 was still characterised by scarce liquidity in the markets and the BES Group’s guidelines used over the last three years were therefore maintained: 1. Continued deleveraging of the balance sheet, initiated in mid-2010. This involved the sale of positions in the securities portfolio totalling €1.3 billion during 2013. The loan book was also reduced by €2.9 billion since 2010 with the objective of reaching a loans to deposits ratio of 120% by the end of 2014. This is aimed at deleveraging and reducing loans to Portuguese families (through the reduction of consumer loans and the amortisation of mortgage loans) and Portuguese companies, with the exception of export-oriented companies.

The following chart presents the evolution of the BES Group’s loan book since 2009, showing its decline:

52.6 51.2 50.5 50.4 49.7

Dec. 2009 Dec. 2010 Dec. 2011 Dec. 2012 Dec. 2013

91 2. Growth of customer deposits, underpinning the strategic guideline of keeping this product as the main funding source. Customer deposits increased by €2.3 billion (6.6%) in 2013. The following chart shows this positive evolution.

Deposits (EUR billion) +€11.4; +44.7%

36.8 34.2 34.5 30.8

25.4

Dec.2009 Dec.2010 Dec.2011 Dec.2012 Dec.2013

Deposit growth in 2013 was impacted by clients’ demand for savings products with higher returns than deposits (whose rates are limited by a maximum spreads), such as bonds, investment funds and bancassurance products. However, the acquisition of control of BES Vida in 2012 resulted in the inclusion within BES’ offer of customer funds of bancassurance products, which at the end of 2013 amounted to € 6 billion, representing 9% of funding. Customer deposits have remained BES’ main funding source since 2010, representing 57% of the funding structure (a 21 p.p. increase since 2009). Together, customer deposits and bancassurance products accounted for 66% of the funding structure at the end of 2013. The following chart shows the funding structure evolution.

Funding Structure Evolution

2%

26% 21% 33% 39% 50% 9% 8%

57% 46% 55% 53% 36%

14% 15% 12% 13% 13%

-8% -11% -9% -6%

2009 2010 2011 2012 2013

Capital & Sub. Debt Customer Deposits Bancassurance MLT Funds Treasury Gap (net interbank deposits)

Over the last few years the increase in customer deposits and the reduction of the loan and securities portfolios in part offset the reduction in medium- and long-term funding lines, which as a percentage of the Bank’s overall funding structure dropped by 29 p.p., from 50% in 2009 to 21% in 2013.

3. Reinforcement/maintenance of assets eligible for rediscount with the ECB During 2013, BES pursued a policy of reinforcing or maintaining the portfolio of assets eligible for rediscount with the ECB. These decreased by €0.8 billion compared with 2012; however, if cash and deposits at central banks are added to the total eligible assets the net assets remained flat.

92 Measures taken in 2013 to reinforce eligible assets: • Increased the share of European public debt in the investment portfolio. • Use of the credit portfolios in accordance with the new eligibility criteria. The following chart shows the increase of the rediscountable securities, pursuant to the aforementioned policy.

Evolution of Rediscountable Securities (EUR billion)

-0.8

19.4 18.6

15.1

10.8

5.6

2009 2010 2011 2012 2013

At the end of 2013, the portfolio of repo-eligible securities included exposure to Portuguese sovereign debt of €3.5 billion, as well as exposure to other peripheral countries’ sovereign debt, including €558 million to Spanish public debt, €156 million to Italian public debt and €30 million to Greek public debt. These assets guaranteed access to the longer-term refinancing operations which the BES Group used at the end of 2011 and beginning of 2012. At the end of 2013, the BES Group’s net borrowing position at the ECB was €5.4 billion, broken down as follows: (i) €9.3 billion under 3-year long term refinancing operations (LTROs); (ii) €3.9 billion of placements with the ECB. The following chart shows the evolution of the Net ECB funding as at 31 December 2013, compared to 31 December 2012.

Net ECB Funding Evolution in 2013 (EUR billion)

Inflows: +7.3 Outflows: -5.8

6.9

-4.1 5.4

+2.3 +1.0 +0.7 -0.8 -0.4 -0.5 +2.0

+1.3

Dec 12 Deposits Insurance Loans MLT Issuances Securities Other Money Mkt CD’s Reembolso Dec 13 & PC MLP

The implementation of the guidelines above allowed the BES Group to refinance all of its debt maturing before the end of 2013, including the €1.6 billion medium and long-term debt maturing during the year, to improve the loans to deposits ratio by 16 p.p., to 121% and to reduce net funding from the ECB by €1.5 billion.

93 The following chart shows the evolution of the loan to deposit ratio. Loans to Deposits Ratio*

192% 165% 141% 137% 121%

Dec. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13

*Calculated according to the BoP definition for Funding & Capital Plan (F&CP)

In 2014 medium and long-term market debt maturities total €2.2 billion and are mainly concentrated in the first half of the year. Of the amount coming to maturity, approximately 68% has been refinanced bond issues made by BES in January and May 2014.

The following chart shows the maturity profile of the medium and long-term market resources until 2017, as at 31 December 2013.

Maturity Profile (EUR billion)

reimbursed

4.3

3.4 3.1 2014: 2.2

1.6 1.7

0.5 0.2 0.3 0.2 0

2011 2012 2013 1Q14 2Q14 3Q14 4Q14 2015 2016 2017

Cash Flows The BES Group conducts its business mainly in the financial sector; consequently the main sources of funds consist of funding from customers, either in the form of deposits or debt securities placed in the financial markets. Funds obtained are primarily used for loans, investments in banks and investments in financial instruments (securities).

94 The table below presents the consolidated cash flow statement for the years ended 31 December 2013, 2012 and 2011:

Consolidated Cash Flow Statement

As of 31 December 2013 2012 2011 (EUR million) Cash flows from operating activities Interest and similar income received ...... 3,241.0 3,866.8 3,891.9 Interest expense and similar charges paid ...... (2,195.1) (2,761.6) (2,911.3) Fees and commission received ...... 867.5 980.8 894.7 Fees and commission paid ...... (209.3) (189.0) (143.5) Insurance premiums ...... 137.8 (301.8) — Recoveries on loans previously written off ...... 21.1 21.9 26.6 Contributions to pensions’ fund ...... (103.8) (86.4) (92.5) Cash payments to employees and suppliers ...... (864.3) (845.8) (1,088.7) 894.8 684.8 577.2 Changes in operating assets and liabilities: Deposits with central banks ...... (2,015.2) (2,884.0) 3,315.4 Financial assets at fair value through profit or loss . . (811.7) 1,433.4 (173.9) Loans and advances to banks ...... 559.2 1,225.4 (290.7) Deposits from banks ...... (80.4) (1,296.2) (171.3) Loans and advances to customers ...... (273.5) (388.9) 332.3 Due to customers ...... 2,267.3 320.1 3,313.7 Derivatives for risk management purposes ...... 63.3 226.6 (142.8) Other operating assets and liabilities ...... 86.8 (471.0) (746.3) Net cash from operating activities before income tax ...... 690.5 (1,149.8) 6,013.6 Income taxes paid ...... (268.0) (39.9) 46.9 Net cash from operating activities ...... 422.5 (1,189.7) 6,060.5 Cash flows from investing activities Acquisition of subsidiaries and associates ...... (37.3) (257.4) (98.2) Sale of subsidiaries and associates ...... 75.1 51.6 5.6 Dividends received ...... 62.8 76.0 171.9 Acquisition of available-for-sale financial assets .... (53,895.4) (69,490.1) (47,352.1) Sale of available-for-sale financial assets ...... 56,735.6 72,942.3 47,680.0 Held-to-maturity investments ...... (549.5) 648.7 394.5 Issued insurance investment contracts ...... 666.4 200.8 — Purchase of tangible and intangible assets and investment properties ...... (163.8) (532.5) (145.4) Sale of tangible and intangible assets and investment properties ...... 0.6 7.5 0.5 Net cash from investing activities ...... 2,894.4 3,647.0 656.9 Cash flows from financing activities Capital increase ...... — 997.7 — Capital increase in subsidiaries ...... 155.9 — — Acquisition of preference shares ...... (26.5) (11.4) (41.8) Bonds issued ...... 5,254.6 13,218.4 9,095.6 Bonds paid ...... (8,709.9) (16,529.5) (14,422.8) Subordinated debt issued ...... 750.0 — 8.2 Subordinated debt paid ...... (510.5) (210.1) (989.5) Treasury stock ...... 6.1 (6.0) (1.0) Interest from other equity instruments ...... (2.8) (2.8) (21.8) Dividends paid on ordinary shares ...... — — (147.0) Dividends paid on preference shares ...... (8.4) (11.0) (25.7) Net cash from financing activities ...... (3,091.4) (2,554.7) (6,545.8) Net changes in cash and cash equivalents ...... 225.5 (97.4) 171.7

95 As of 31 December 2013 2012 2011 (EUR million) Cash and cash equivalents at the beginning of the period ...... 1,616.0 1,542.3 1,341.4 BES Vida full consolidation impact ...... — 198.6 — Effect of exchange rate changes on cash and cash equivalents ...... (69.7) (27.5) 29.2 Net changes in cash and cash equivalents ...... 225.5 (97.4) 171.7 Cash and cash equivalents at the end of the period . . . 1,771.7 1,616.0 1,542.3

Off-Balance Sheet Transactions The BES Group conducts a variety of off-balance transactions, including securitisation transactions.

The BES Group conducts securitisation transactions pursuant to Portuguese law.

In these transactions, the BES Group sells loan portfolios to securitisation funds (Fundos de Titularização de Créditos) managed by securitisation fund management companies (Sociedades Gestoras de Fundos de Titularização de Créditos or SGFTC) or to securitisation companies (Sociedades de Titularização de Créditos). When the assets are sold to securitisation funds, the purchase is financed through the issuance of units, which are bought by special purpose vehicles, which finance themselves through the issuance of notes placed with international investors. When the assets are sold to securitisation companies, the funding is obtained through the direct issuance of notes. The BES Group has no control over these entities.

In light of the extreme volatility and disruption in the global capital and credit markets in recent years and since the sub-prime crisis in mid 2007, the BES Group has maintained its use of securitisation activities in order to monetise loan portfolios as part of its liquidity management strategy, originating securities eligible for rediscount with the ECB or in the repo market. As a result of the successive downgrades in the ratings of Portugal by several rating agencies and consequently of the application of the country ceilings, it has become virtually impossible to structure new securitisation transactions using Portuguese loans or assets that comply with the eligibility criteria set by the ECB.

The last securitisation transactions executed by the BES Group were concluded in 2011: loans to households (Lusitano Finance Nº3) in the amount of €658 million and other of corporate loans (IM BES Empresas 1) in the amount of €485 million.

Under IFRS, an asset is removed from the balance sheet whenever the sale of the portfolio of assets is executed within a securitisation transaction, which corresponds to an effective and complete assignment of the underlying asset (true sale), provided that the majority of the associated risks and rewards is not retained by the originator.

The entities that acquired the assets from the BES Group’s securitisation transactions are not consolidated in its financial statements, with the exception of Lusitano SME No.1 Funds, Lusitano Mortgages No. 6 plc, Lusitano Project Finance No. 1 plc, Lusitano Mortgage No.7 plc, Lusitano Leverage No. 1 B.V., Lusitano Finance Nº3 and IM BES Empresas 1.

Significant Accounting Policies Basis of preparation In accordance with Regulation (EC) no. 1606/2002 of 19 July 2002 from the European Council and Parliament and Notice nº 1/2005 of the BoP, of 21 February, BES is required to prepare its consolidated financial statements in accordance with IFRS as adopted by the EU.

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

The preparation of financial statements in conformity with IFRS requires the application of judgment and the use of estimates and assumptions by management that affects the process of applying the BES Group’s accounting policies and the reported amounts of income, expenses, assets and liabilities. Actual results in the future may

96 differ from those reported. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Audited Group Financial Statements are set out in the section “Critical Accounting Estimates and Judgments in Applying Accounting Policies”.

Basis of consolidation The Audited Group Financial Statements comprise the assets, liabilities, gains and losses of BES and its subsidiaries, and the results attributable to the BES Group from its associates. These accounting policies have been consistently applied by the BES Group companies, during all the periods covered by the Audited Group Financial Statements.

Subsidiaries Subsidiaries are entities over which the BES Group exercises control. Control is presumed to exist when the BES Group owns more than one half of the voting rights. Additionally, control also exists when the BES Group has the power to, directly or indirectly, govern the financial and operating policies of the entity, so as to obtain benefits from its activities, even if its shareholding is equal or less than 50%. Subsidiaries are fully consolidated from the date on which control is transferred to the BES Group until the date that control ceases.

Accumulated losses of a subsidiary are attributed proportionally to the owners of the parent and to the non- controlling interest even if this results in non-controlling interest having a deficit balance.

In a business combination achieved in stages (step acquisition) where control is obtained, the BES Group remeasures its previously held non-controlling interest in the acquisition at its acquisition date fair value and recognises the resulting gain or loss in the income statement when determining the respective goodwill. At the time of a partial sale, from which arises a loss of control of a subsidiary, any remaining non-controlling interest retained is remeasured to fair value at the date the control is lost and the resulting gain or loss is recognised against the income statement.

Associates Associates are entities over which the BES Group has significant influence over the company’s financial and operating policies but not its control. Generally when the BES Group owns more than 20% of the voting rights it is presumed that it has significant influence. However, even if the BES Group owns less than 20% of the voting rights, it can have significant influence through the participation in the policy-making processes of the associated entity or the representation in its executive board of directors.

Investments in associates are accounted for by the equity method of accounting from the date on which significant influence is transferred to the BES Group until the date that significant influence ceases. The book value of the investments in associates includes the value of the respective goodwill determined on acquisition and is presented net of impairment losses.

In a step acquisition that results in the BES Group obtaining significant influence over an entity, any previously held stake in that entity is remeasured to fair value through the income statement when the equity method is first applied.

If the BES Group’s share of losses of an associate equals or exceeds its interest in the associate, including any medium and long-term interest, the BES Group discontinues the application of the equity method, except when it has a legal or constructive obligation of covering those losses or has made payments on behalf of the associate.

Gains or losses on sales of shares in associate companies are recognised in the income statement even if that sale does not result in the loss of significant influence.

Special purpose entities (“SPE”) The BES Group consolidates certain special purpose entities (“SPE”), specifically created to accomplish a narrow and well defined objective, when the substance of the relationship with those entities indicates that they are controlled by the BES Group, independently of the percentage of the equity held.

97 The evaluation of the existence of control is made based on the criteria established by SIC 12—Consolidation—Special Purpose Entities, which can be summarised as follows: • In substance, the activities of the SPE are being conducted in accordance with the specific needs of the BES Group’s business, so that the BES Group obtains the benefits from these activities; • In substance the BES Group has the decision-making powers to obtain the majority of the benefits from the activities of the SPE; • In substance, the BES Group has rights to obtain the majority of the benefits of the SPE, and therefore may be exposed to the inherent risks of its activities; and • In substance, the BES Group retains the majority of residual or ownership risks related to the SPE so as to obtain the benefits from its activities.

Investment funds managed by the BES Group As part of the asset management activity, the BES Group manages investment funds on behalf of the holders of the participation units. The financial statements of these funds are not consolidated by the BES Group except in the cases where control is exercised over its activity based on the criteria established by SIC—12. It is assumed that there is control when the BES Group owns more than 50% of the participation units.

Goodwill Goodwill resulting from business combinations that occurred until 1 January 2004 was offset against reserves, according to the option granted by IFRS 1, adopted by the BES Group on the date of transition to the IFRS.

Goodwill resulting from business combinations that occurred from 1 January 2004 until 31 December 2009 was accounted under the purchase method. The cost of acquisition was measured as the fair value, determined at the acquisition date, of the assets and equity instruments given and liabilities incurred or assumed plus any costs directly attributable to the acquisition.

Goodwill represents the difference between the cost of acquisition and the fair value of the BES Group’s share of identifiable net assets, liabilities and contingent liabilities acquired.

For acquisitions on or after 1 January 2010, in accordance with IFRS 3—Business Combinations, the BES Group measures goodwill as the fair value of the consideration transferred including the fair value of any previously held non-controlling interests in the acquire, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Transaction costs are expensed as incurred.

At the acquisition date, the non-controlling interests are measured at their proportionate interest in the fair value of the net identifiable assets acquired and of the liabilities assumed, without the respective portion of goodwill. As a result, the goodwill recognised in the Audited Group Financial Statements corresponds only to the portion attributable to the equity holders of the Bank.

In accordance with IFRS 3—Business Combinations, goodwill is recognised as an asset at its cost and is not amortised. Goodwill relating to the acquisition of associates is included in the book value of the investment in those associates determined using the equity method. Negative goodwill is recognised directly in the income statement in the period the business combination occurs.

The recoverable amount of the goodwill recognised as an asset is reviewed annually, regardless of whether there is any indication of impairment. Impairment losses are recognised directly in the income statement. The recoverable amount corresponds to the higher of the fair value less costs to sell and the respective value in use. In determining value in use, estimated futures cash flows are discounted using a rate that reflects market conditions, time value of money and business risks.

Transactions with non-controlling interest Acquisitions of non-controlling interest, that did not result in a change in control, are accounted for as transactions with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such a transaction. Any difference between the consideration paid and the amount of non-controlling interest acquired is accounted for as a movement in equity.

98 Similarly, sales of non-controlling interest and dilutions from which does not result a loss of control, are accounted for as transactions with equity holders in their capacity as equity holders and therefore no gain or loss is recognised in the income statement. Any difference between the sale proceeds and the recognised amount of non-controlling interest in the Audited Group Financial Statements is accounted for as a movement in equity.

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

Foreign currency translation The financial statements of each of the BES Group entities are prepared using their functional currency which is defined as the currency of the primary economic environment in which that entity operates. The Audited Group Financial Statements are prepared in euro, which is BES’ functional and presentation currency.

The financial statements of each of the BES Group entities that have a functional currency different from the euro are translated into euro as follows: • Assets and liabilities are translated into the functional currency using the exchange rate prevailing at the balance sheet date; • Income and expenses are translated into the functional currency at rates approximating the rates ruling at the dates of the transactions; and • The exchange differences resulting from the translation of the equity at the beginning of the year using the exchange rates at the beginning of the year and at the balance sheet date are accounted for against reserves net of deferred taxes. Similarly, regarding the subsidiaries and associates results, the exchange differences arising from the translation of income and expenses at the rates ruling at the dates of the transactions and at the balance sheet date are accounted for against reserves. When the entity is sold such exchange differences are recognised in the income statement as a part of the gain or loss on sale.

Balances and transactions eliminated in consolidation Inter-company balances and transactions, including any unrealised gains and losses on transactions between Group companies, are eliminated in preparing the Audited Group Financial Statements, unless unrealised losses provide evidence of an impairment loss that should be recognised in the Audited Group Financial Statements.

Unrealised gains on transactions between the BES Group and its associates are eliminated to the extent of the BES Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment loss.

Derivative financial instruments and hedge accounting Classification Derivatives for risk management purposes include (i) hedging derivatives and (ii) derivatives used to manage the risk of certain financial assets and financial liabilities designated at fair value through profit or loss that were not classified as being hedging derivatives.

All other derivatives are classified as trading derivatives.

Recognition and measurement Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into (trade date). Subsequent to initial recognition, the fair value of derivative financial instruments is re-measured on a regular basis and the resulting gains or losses on re-measurement are recognised directly in the income statement, except for derivatives designated as hedging instruments. The recognition of the resulting gains or losses of the derivatives designated as hedging instruments depends on the nature of the risk being hedged and of the hedge model used.

Fair values are obtained from quoted market prices, in active markets, if available or are determined using valuation techniques, including discounted cash flow models and options pricing models, as appropriate.

99 Derivatives traded in organised markets, namely futures and some options, are recognised as trading derivatives, being marked to market on a daily basis and the resulting gains or losses are recognised directly in the income statement. Once the fair value changes on these derivatives are settled daily through the margin accounts held by the BES Group, these derivatives do not present any fair value on the balance sheet. The margin accounts are included under the caption Other assets and comprise the minimum collateral mandatory for open positions.

Hedge accounting Classification criteria Hedge accounting is used for derivative financial instruments designated as hedging instruments, provided the following criteria are met: • At the inception of the hedge, the hedge relationship is identified and documented, including the identification of the hedged item and of the hedging instrument and the evaluation of the effectiveness of the hedge; • The hedge is expected to be highly effective, both at the inception of the hedge and on an ongoing basis; • The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing basis; • For cash flows hedges, the cash flows are highly probable of occurring.

Fair value hedge In a fair value hedge, the book value of the hedged asset or liability, determined in accordance with the respective accounting policy, is adjusted to reflect the changes in its fair value that are attributable to the risks being hedged. Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk being hedged.

If the hedge no longer meets the criteria for hedge accounting, the derivative financial instrument is transferred to the trading portfolio and the hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying amount of a hedged item for which the effective interest rate method is used is amortised to the income statement over the period to maturity.

Cash flow hedge When a derivative financial instrument is designated as a hedge of the variability in highly probable future cash flows, the effective portion of changes in the fair value of the hedging derivatives is recognised in equity. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect the income statement. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognised in equity at that time is recognised in the income statement when the hedged transaction also affects the income statement. When a hedged transaction is no longer expected to occur, the cumulative gain or loss reported in equity is recognised immediately in the income statement and the hedging instrument is reclassified for the trading portfolio.

During the period covered by these financial statements the BES Group did not have any transactions classified as cash flow hedge.

Embedded derivatives Derivatives that are embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement.

100 Loans and advances to customers Loans and advances to customers include loans and advances originated by the BES Group, which are not intended to be sold in the short term. Loans and advances to customers are recognised when cash is advanced to borrowers.

Loans and advances to customers are derecognised from the balance sheet when (i) the contractual rights to receive their cash flows have expired, (ii) the BES Group has transferred substantially all risks and rewards of ownership or (iii) although retaining some but not substantially all of the risks and rewards of ownership, the BES Group has transferred the control over the assets.

Loans and advances to customers are initially recorded at fair value plus transaction costs and are subsequently measured at amortised cost, using the effective interest rate method, less impairment losses.

In accordance with the documented strategy for risk management, the BES Group contracts derivative financial instruments to manage certain risks of a portion of the loan portfolio, without applying, however, the provisions of hedge accounting as mentioned in Note 2.4 of the 2013 Audited Financial Statements incorporated by reference herein. These loans are measured at fair value through profit or loss, in order to eliminate a measurement inconsistency resulting from measuring loans and derivatives for risk management purposes on different basis (accounting mismatch). This procedure is in accordance with the accounting policy for classification, recognition and measurement of financial assets at fair value through profit or loss.

Impairment The BES Group assesses, at each balance sheet date, whether there is objective evidence of impairment within its loan portfolio. Impairment losses identified are recognised in the income statement and are subsequently reversed through the income statement if, in a subsequent period, the amount of the impairment losses decreases.

A loan or a loan portfolio, defined as a group of loans with similar credit risk characteristics, is impaired when: (i) there is objective evidence of impairment as a result of one or more events that occurred after its initial recognition and (ii) that event (or events) has an impact on the estimated future cash flows of the loan or of the loan portfolio, that can be reliably estimated.

The BES Group first assesses whether objective evidence of impairment exists individually for each loan. In this assessment the BES Group uses the information that feeds the credit risk models implemented and takes into consideration the following factors: • the aggregate exposure to the customer and the existence of non-performing loans; • the viability of the customer’s business model and its capability to trade successfully and to generate sufficient cash flow to service their debt obligations; • the extent of other creditors’ commitments ranking ahead of the BES Group; • the existence, nature and estimated realisable value of collaterals; • the exposure of the customer within the financial sector; and • the amount and timing of expected recoveries. When loans have been individually assessed and no evidence of loss has been identified, these loans are grouped together on the basis of similar credit risk characteristics for the purpose of evaluating the impairment on a portfolio basis (collective assessment). Loans that are assessed individually and found to be impaired are not included in a collective assessment for impairment.

If an impairment loss is identified on an individual basis, the amount of the impairment loss to be recognised is calculated as the difference between the book value of the loan and the present value of the expected future cash flows (considering the recovery period), discounted at the original effective interest rate. The carrying amount of impaired loans is reduced through the use of an allowance account. If a loan has a variable interest rate, the discount rate for measuring the impairment loss is the current effective interest rate determined under the contract rules.

The changes in the recognised impairment losses attributable to the unwinding of discount are recognised as interest and similar income.

101 The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics, taking in consideration the BES Group’s credit risk management process. Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the BES Group and historical loss experience. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the BES Group with the purpose of reducing any differences between loss estimates and actual loss experience.

When a loan is considered by the BES Group as uncollectible and an impairment loss of 100% was recognised, it is written off against the related allowance for loan impairment.

Other financial assets Classification The BES Group classifies its other financial assets at initial recognition in the following categories:

Financial assets at fair value through profit or loss This category includes: (i) financial assets held for trading, which are those acquired principally for the purpose of selling in the short term or that are owned as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking and (ii) financial assets that are designated at fair value through profit or loss at inception.

The BES Group classifies, at inception, certain financial assets at fair value through profit or loss when: • such financial assets are managed, measured and their performance evaluated on a fair value basis; • such financial assets are being hedged (on an economical basis), in order to eliminate an accounting mismatch; or • such financial assets contain an embedded derivative.

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

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

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

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

Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value through profit or loss, in which case these transaction costs are directly recognised in the income statement.

Financial assets are derecognised when (i) the contractual rights to receive their cash flows have expired, (ii) the BES Group has transferred substantially all risks and rewards of ownership or (iii) although retaining some but not substantially all of the risks and rewards of ownership, the BES Group has transferred the control over the assets.

102 Subsequent measurement Financial assets at fair value through profit or loss are subsequently carried at fair value and gains and losses arising from changes in their fair value are included in the income statement in the period in which they arise.

Available-for-sale financial assets are also subsequently carried at fair value. However, gains and losses arising from changes in their fair value are recognised directly in equity, until the financial assets are derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Foreign exchange differences arising from equity investments classified as available-for-sale are also recognised in equity, while foreign exchange differences arising from debt investments are recognised in the income statement. Interest, calculated using the effective interest rate method and dividends are recognised in the income statement.

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

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

Reclassifications between categories The BES Group only reclassifies non-derivative financial assets with fixed or determinable payments and fixed maturities, from the available-for-sale financial assets category to the held-to-maturity investments category, if it has the intention and ability to hold those financial assets until maturity.

Reclassifications between these categories are made at the fair value of the assets reclassified on the date of the reclassification. The difference between this fair value and the respective nominal value is recognised in the income statement until maturity, based on the effective interest rate method. The fair value reserve at the date of the reclassification is also recognised in the income statement, based on the effective interest rate method.

Impairment The BES Group assesses periodically whether there is objective evidence that a financial asset or group of financial assets is impaired.

A financial asset or a group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after their initial recognition, such as: (i) for equity securities, a significant or prolonged decline in the fair value of the security below its cost, and (ii) for debt securities, when that event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

For held-to-maturity investments, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (considering the recovery period) discounted at the financial asset’s original effective interest rate and are recognised in the income statement. The carrying amount of the impaired assets is reduced through the use of an allowance account. If a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. For held-to-maturity investments if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through the income statement.

If there is objective evidence that an impairment loss on available-for-sale financial assets has been incurred, the cumulative loss recognised in equity—measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement—is taken to the income statement. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognised impairment loss is reversed through the income statement up to the acquisition cost if the increase is objectively related to an event occurring after the impairment loss was recognised, except in relation to equity instruments, in which case the reversal is recognised in equity.

103 Equity instruments An instrument is classified as an equity instrument when it does not contain a contractual obligation to deliver cash or another financial asset, independently from its legal form, being a contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Transaction costs directly attributable to the issue of equity instruments are recognised under equity as a deduction from the proceeds. Amounts paid or received related to acquisitions or sales of equity instruments are recognised in equity, net of transaction costs.

Distributions to holders of an equity instrument are debited directly to equity as dividends, when declared.

Preference shares issued are considered as equity instruments if the BES Group has no contractual obligation to redeem and if dividends, non cumulative, are paid only if and when declared by the BES Group.

Non-current assets held for sale Non-current assets or disposal groups (groups of assets to be disposed of together and related liabilities that include at least a non-current asset) are classified as held for sale when their carrying amounts will be recovered principally through sale (including those acquired exclusively with a view to its subsequent disposal), the assets or disposal groups are available for immediate sale and is highly probable.

Immediately before classification as held for sale, the measurement of the non-current assets or all assets and liabilities in a disposal group, is brought up to date in accordance with the applicable IFRS. Subsequently, these assets or disposal group are measured at the lower of their carrying amount or fair value less costs to sell.

In the scope of its activity, the BES Group incurs in the risk from failure of the borrower to repay all the amounts due. In case of loans and advances with mortgage collateral, the BES Group acquires the asset held as collateral in exchange for loans. In accordance with the requirements of Regime Geral das Instituições de Crédito e Sociedades Financeiras (RGICSF), banks are prevented, unless authorised by the Bank of Portugal, from acquiring property that is not essential to their daily operations (no. 1 of article 112 of RGICSF) being able to acquire, however, property in exchange for loans granted by the BES Group. This property must be sold within 2 years, period that may be extended by written authorisation from the Bank of Portugal and in conditions to be determined by this authority (no. 114 of art of RGICSF).

It is Group’s objective to immediately dispose all property acquired in exchange for loans. This property is classified as non-current assets held-for-sale and is initially recognised at the lower of its fair value less costs to sell and the carrying amount of the loans. Subsequently, this property is measured at the lower of its carrying amount and the corresponding fair value less costs to sell and is not depreciated. Any subsequent write-down of the acquired property to fair value is recorded in the income statement.

Property valuations are performed in accordance with one of the following methodologies, which are applied in accordance with the specific situation of the asset: (a) Market Method: The Market Comparison Criteria takes as reference transaction values of similar and comparable property to the property under valuation, obtained through market searching carried out in the zone; (b) Income Method: Under this method, the property is valued based on the capitalisation of its net income, discounted for the present moment, through the discounted cash-flows method; (c) Cost Method: This method separates the value of property on its basic components: Urbane Ground Value and Urbanity Value; Construction value; and Indirect Costs Value.

The valuations are performed by independent specialised entities. The valuation reports are analysed internally with the gauging of processes adequacy, by comparing the sales values with the revaluated values.

Assets/liabilities from subsidiaries acquired for resale purposes reflect, essentially, assets and liabilities from subsidiaries acquired by the BES Group in exchange for loans, for which the BES Group’s objective is its subsequent disposal within one year. Since these acquisitions arise from the exchange for loans, these acquisitions are recognised at its fair value, and any difference between its fair value and the extinguished loan following the acquisition, is recognised as an impairment for loan losses. In the recognition date of an entity

104 which meets the subsidiary criteria and for which the BES Group’s objective is the resale, this is consolidated in accordance with the applicable procedures adopted by the BES Group and its assets and liabilities are measured at fair value determined at the acquisition date. However, in these particular cases, assets are classified as non- current assets held for sale and liabilities are classified as non-current liabilities held for sale. Therefore, and at the first consolidation date, the net value of assets and liabilities from the subsidiary reflect its fair value determined on the acquisition date (which arises from the exchange for loan).

These subsidiaries are consolidated until its effective sale. At each balance sheet date, the net carrying amount of its assets and liabilities is compared with its fair value, less cost to sell and an impairment loss is recognised when necessary.

For the purpose of the fair value calculation for subsidiaries held for sale, the Bank adopts the following methodologies: • for subsidiaries whose assets correspond mainly to real estate properties, its fair value is determined with reference to the value of these assets, in accordance with the valuations performed by independent specialised entities; • for the remaining entities, the fair value is determined according to the discounted cash flow methodology, using assumptions consistent with the business risk of each subsidiary.

Employee benefits Pensions Arising from the signing of the “Acordo Colectivo de Trabalho” (ACT) and subsequent amendments resulting from the 3 tripartite agreements referred in “Information on the BES Group—Employees”, the Bank and other Group entities set up pension funds and other mechanisms to cover the liabilities with pensions on retirement and disability, widows’ pension and health-care benefits.

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

The pension plans of the BES Group are classified as defined benefit plans, since the criteria to determine the pension benefit to be received by employees on retirement are predefined and usually depend on factors such as age, years of service and level of salary.

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

The BES Group determines the net interest expense (income) for the period on the net defined benefit liability (asset) by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability (asset) at the beginning of the annual period, taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Consequently, the net interest expense (income) includes interest cost on the defined benefit obligation net of a theoretical return on the plan assets, both calculated using the discount rate applied in the determination of the defined benefit obligation.

Remeasurements gains and losses resulting from (i) actuarial gains and losses arising from the differences between actuarial assumptions used and real values obtained (experience adjustments) and from changes in the actuarial assumptions and (ii) gains and losses arising from the difference between theoretical return on plan assets and actual investment returns, are recognised in Other comprehensive income.

The BES Group recognises as a cost in the income statement a net total amount that comprises (i) the service cost, (ii) net interest expense (income), (iii) effect early retirement, (iv) past service costs, and (v) the effect of settlement or curtailment occurred during the period. The net interest expense (income) with the pension plan is recognised in interest and similar income or interest expense and similar charges, depending on its nature. Early retirement costs correspond to an increase on the liabilities due to the fact the employee retires before reaching 65 years of age.

105 The BES Group makes payments to the funds in order to maintain its solvency and to comply with the following minimum levels: (i) the liability with pensioners shall be totally funded at the end of each year, and (ii) the liability related to past services cost with employees in service shall be funded at a minimum level of 95%.

Semi-annually, the BES Group assesses for each plan separately, the recoverability of any recognised asset in relation to the defined benefit pension plans, based on the expectation of reductions in future contributions to the funds.

Health care benefits The BES Group provides to its banking employees health care benefits through a specific Social-Medical Assistance Service. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managed by the respective Union.

SAMS provides to its beneficiaries services and/or contributions on medical assistance expenses, diagnostics, medicines, hospital confinement and surgical operations, in accordance with its financing availability and internal regulations.

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

The measurement and recognition of the BES Group’s liability with post-retirement healthcare benefits is similar to the measurement and recognition of the pension liability described above. These benefits are covered by the Pension Fund which at present covers all responsibilities with pensions and health care benefits.

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

At the date of early retirement or disability, employees have the right to a premium proportional to what they would earn if they remained in service until the next payment date.

These long term service benefits are accounted for by the BES Group in accordance with IAS 19 as other long- term employee benefits.

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

In each period, the increase in the liability for long term service premiums, including actuarial gains and losses and past service costs is charged to the income statement.

Variable Remuneration Payment Plan (PPRV) BES and its subsidiaries established a benefits payment scheme, the PPRV—2008-2010, that ended in the first semester of 2011.

Under this incentive scheme, employees of BES and its subsidiaries had the right to a future cash payment, corresponding to the appreciation of BES shares above a pre-established price (strike price). In order to receive this payment, the employees had to remain with the Bank for a minimum period of three years.

This variable remuneration payment plan was within the scope of IFRS 2—Share-based payments and corresponded to a cash settlement share-based payment. The fair value of this benefit plan at inception, determined at its grant date, was taken to the income statement as staff costs over a period of three years. The recognised liability under the plan was remeasured at each balance sheet date, being the fair value changes recognised in the income statement under the caption “Net gains from financial assets at fair value through profit or loss”.

106 Variable remuneration payment plan on financial instruments (PRVIF) Following the recommendations of the Supervising and Regulatory authorities, on the shareholders General Meeting, held in 6 April 2010 a new remuneration policy was approved for the Executive Committee members. This policy consists in giving to the Executive Committee members a fixed remuneration, which should represent approximately 45% of the total remuneration, and a variable component representing around 55% of the total remuneration. The variable remuneration shall have two components: one associated with short-term performance and another with medium-term performance. Half of the short-term component must be paid in cash and the remaining 50% should be paid over a three years period, with half of these payments to be made in cash and the remaining through the attribution of shares. The medium-term component has associated a share options program with the exercise of the options set at 3 years from the date of its attribution.

The execution of the PRVIF relating to remuneration in cash, number of shares and options to be attributed to each Executive Committee member is performed through the deliberation of the Remunerations Committee.

As it relates to the model for the granting of shares under PRVIF, these are delivered to the beneficiaries on an accrual basis, through a period of three years (1st year: 33%; 2nd year: 33%; 3rd year 34%) and is conditioned to the verification of a Return on Equity equal to 5% or higher.

In relation to the model for the granting of options, these are also granted to the beneficiaries by the Remunerations Committee, being the exercise price equal to the mathematical average of the closing price of BES shares in NYSE Euronext Lisbon during the last 20 working days prior to the grant date, increased by 10%. The options can only be exercised at the maturity date, the beneficiary can choose between cash or physical settlement.

PRVIF establishes the possibility of attributing options over BES shares to its top management, e.g. general directors and Board advisors. These options are granted by the Board to the beneficiaries and work in the same way as the ones granted to the Executive Committee members. As at the date of this Offering Circular, no such grants have been made.

PRVIF is accounted for under IFRS rules (IFRS 2 and IAS 19).

Bonus to employee In accordance with IAS 19—Employee benefits, the bonus payment (participation in profit, bonus and others) to employees and to the Board is recognised in the income statement in the year to which they relate.

Income tax Income tax for the period comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Income tax recognised directly in equity relating to fair value re-measurement of available-for-sale financial assets and cash flow hedges is subsequently recognised in the income statement when gains or losses giving rise to the income tax are also recognised in the income statement.

Current tax is the tax expected to be paid on the taxable profit for the year, calculated using tax rates enacted or substantively enacted at the balance sheet date at each jurisdiction.

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

Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill, not deductible for tax purposes, differences arising on initial recognition of assets and liabilities that affect neither accounting nor taxable profit and differences relating to investments in subsidiaries to the extent that probably they will not reverse in the foreseeable future. Deferred tax assets are recognised to the extent it is probable that future taxable profits will be available against which deductible temporary differences can be deducted.

107 The BES Group offsets deferred taxes assets and liabilities for each subsidiary, whenever (i) the subsidiary has a legally enforceable right to set off current tax assets against current tax liabilities, and (ii) they relate to income taxes levied by the same taxation authority. This offset is therefore performed at each subsidiary level, being the deferred tax asset presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferred tax assets and the deferred tax liability presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferred tax liabilities.

Investment properties The BES Group classifies as investment property the property held to earn rentals or for capital appreciation or both. Investment property is recognised initially at cost, including transaction costs that are directly attributable expenditures, and subsequently at their fair value. Changes in the fair value determined at each balance sheet date are recognised in the income statement. Investment property is not amortised.

Subsequent expenditure is capitalised only when it is probable that it will give rise to future economic benefits in excess of the originally assessed standard of performance of the asset.

Insurance contracts The BES Group issues contracts that contain insurance risk, financial risk or a combination of both insurance and financial risk. A contract, under which the BES Group accepts significant insurance risk from another party, by agreeing to compensate that party on the occurrence of a specified uncertain future event, is classified as an insurance contract.

A contract issued by the BES Group without significant insurance risk, but on which financial risk is transferred with discretionary participating features is classified as investment contract recognised and measured in accordance with the accounting policies applicable to insurance contracts (IFRS 4). A contract issued by the BES Group that transfers only financial risk, without discretionary participating features, is classified as an investment contract and accounted for as a financial instrument (IAS 39).

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

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

Premiums Gross written premiums are recognised for as income in the period to which they respect, in accordance with the accrual accounting principle. Reinsurance premiums ceded are accounted for as expense in the period to which they respect in the same way as gross written premiums.

Acquisition costs Acquisition costs that are directly or indirectly related to the selling of insurance and investment contracts with discretionary participating features are capitalised and deferred through the life of the contracts. Deferred acquisition costs are subject to recoverability testing at the time of the insurance policy or investment contract is issued and subject to impairment test (liability adequacy test) at each reporting date.

Claims reserves Claims outstanding reflects the estimated total outstanding liability for reported claims and for incurred but not reported claims (IBNR). Reserves for both reported and not reported claims are estimated by management based on experience and available data using statistical methods. Claims reserves are not discounted.

Life assurance reserve The life assurance reserve reflects the present value of the BES Group’s future obligations arising from life policies (insurance contracts and investment contracts with discretionary participating features) written and is calculated in accordance with recognised actuarial methods within the scope of applicable legislation.

108 Reserve for bonus and rebates The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries of insurance or investment contracts, in the form of profit participation, which have not yet been specifically allocated and included in the life assurance reserve.

Shadow accounting In accordance with IFRS 4, the unrealised gains and losses on the assets covering liabilities arising out from insurance and investment contracts with discretionary participating features are attributable to policyholders, to the extent that it is expected that policyholders will participate on those unrealised gains and losses when they became realised in accordance with the terms of the contracts and applicable legislation, by recording those amounts under liabilities.

Liability adequacy test At each reporting date, the BES Group performs a liability adequacy test to the insurance and investment contracts with discretionary participating features liabilities. The assessment of the liabilities is performed using the best estimate of future cash flows under each contract, discounted at a risk free rate. The liability adequacy test is performed product by product or aggregate basis when contracts are subject to broadly similar risks and managed as a single portfolio. Any deficiency determined, if exists, is recognised directly through income.

Unearned premium reserve The reserve for unearned gross written premiums and reinsurance ceded premiums reflects the part of the written premiums before the end of the period for which the risk period continues after the end of the period.

Financial liabilities An instrument is classified as a financial liability when it contains a contractual obligation to transfer cash or another financial asset, independently from its legal form.

Non-derivatives financial liabilities include deposits from banks and due to customers, loans, debt securities, subordinated debt and short sales. Preference shares issued are considered to be financial liabilities when the BES Group assumes the obligation of reimbursement and/or to pay dividends.

The financial liabilities are recognised (i) initially at fair value less transaction costs and (ii) subsequently at amortised cost, using the effective interest rate method, except for short sales and financial liabilities designated at fair value through profit or loss, which are measured at fair value.

The BES Group designates, at inception, certain financial liabilities as at fair value through profit or loss when: • Such financial liabilities are being hedged (on an economical basis), in order to eliminate an accounting mismatch; or • Such financial liabilities contain embedded derivatives.

The structured products issued by the BES Group meet the above mentioned conditions and, in accordance, are classified under the fair value through profit or loss category.

The fair value of quoted financial liabilities is based on the current price. In the absence of a quoted price, the BES Group establishes the fair value by using valuation techniques based on market information, including the own credit risk of the issuer.

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

Critical Accounting Estimates and Judgments in Applying Accounting Policies IFRS sets forth a range of accounting treatments and require management to apply judgment and make estimates in deciding which treatment is most appropriate. The most significant of these accounting policies are discussed in this section in order to improve understanding of how their application affects the BES Group’s reported results and related disclosure.

109 Because in many cases there are other alternatives to the accounting treatment chosen by management, the BES Group’s reported results would differ if a different treatment were chosen. Management believes that the choices made are appropriate and that the financial statements present the BES Group’s financial position and results fairly in all material aspects.

Impairment of Available-for-Sale Financial Assets The BES Group determines that available-for-sale financial assets are impaired when there has been a significant or prolonged decline in the fair value below its cost or when the BES Group has identified an event with impact on the estimated future cash flows of the assets. This determination requires judgment based on all available relevant information, including the normal volatility of the financial instruments prices. Considering the high volatility of the markets, the BES Group has considered the following parameters when assessing the existence of impairment losses: (i) Equity securities: significant or prolonged decline of the market value over the acquisition cost; (ii) Debt securities: objective evidence of events that have an impact on the estimated future cash flows of these assets.

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

Alternative methodologies and the use of different assumptions and estimates could result in a higher level of impairment losses recognised with a consequent impact on the income statement of the BES Group.

Fair Value Derivatives Fair values are based on listed market prices if available; otherwise, fair value is determined either by dealer price quotations (for that transaction or for similar instruments traded) or by pricing models, based on net present value of estimated future cash flows which take into account market conditions for the underlying instruments, time value, yield curve and volatility factors. These pricing models may require assumptions or judgments in estimating fair values.

Consequently, the use of a different model or of different assumptions or judgments in applying a particular model may have produced different financial results from the ones reported.

Impairment Losses on Loans and Advances The BES Group reviews its loan portfolios to assess impairment on a regular basis.

The evaluation process in determining whether an impairment loss should be recorded in the income statement is subject to numerous estimates and judgments. The frequency of default, risk ratings and loss recovery rates and the estimation of both the amount and timing of future cash flows, among other factors, are considered in making this evaluation.

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

Goodwill Impairment Goodwill recoverable amount recognised as an asset of the BES Group is revised annually regardless of the existence of impairment losses.

For this purpose, the carrying amount of the business units of the BES Group for which goodwill has been recognised is compared with the respective recoverable amount. A goodwill impairment loss is recognised when the carrying amount of the business unit exceeds the respective recoverable amount.

In the absence of an available market value, the recoverable amount is determined using cash flows/ dividends predictions, applying a discount rate that includes a risk premium appropriate to the business unit being tested.

Changes in the expected cash flows and in the discount rate may lead to conclusions different from those that led to the preparation of these financial statements.

110 Securitisations and Special Purpose Entities (SPE) The BES Group sponsors the formation of SPEs, primarily for asset securitisation transactions.

The BES Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether the BES Group does control an SPE, it makes judgments about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question.

The determination of the SPEs that need to be consolidated by the BES Group requires the use of estimates and assumptions in determining the respective expected residual gains and losses and which party retains the majority of such residual gains and losses. Different estimates and assumptions could lead the BES Group to a different scope of consolidation with a direct impact on net income.

Held-to-Maturity Investments The BES Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgment.

In making this judgment, the BES Group evaluates its intention and ability to hold such investments to maturity. If the BES Group fails to keep these investments to maturity other than for specific circumstances—for example, selling an insignificant amount close to maturity—it will be required to reclassify the entire class as available- for-sale. The investments would therefore be measured at fair value instead of amortised cost.

Held-to-maturity investments are subject to impairment tests made by the BES Group. The use of different assumptions and estimates could have an impact on the income statement of the BES Group.

Income Taxes The BES Group is subject to income taxes in numerous jurisdictions. Significant interpretations and estimates are required in determining the worldwide amount for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

Different interpretations and estimates would result in a different level of income taxes, current and deferred, recognised in the period.

The Tax Authorities are entitled to review the Bank and its subsidiaries located in Portugal to determine annual taxable earnings, for a period of four or six years in case there are tax losses brought forward. Hence, it is possible that some additional taxes may be assessed, mainly as a result of differences in interpretation of the tax law.

Pension and Other Employee Benefits Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarial projections, estimated returns on investment and other factors that could impact the cost and liability of the pension plan.

Changes in these assumptions could materially affect these values.

Insurance and investment contracts liabilities Insurance and investment contracts liabilities represent liabilities for future insurance policy benefits. Insurance reserves for traditional life insurance, annuities and workmen’s compensation policies have been calculated based upon mortality, morbidity, persistency and interest rate assumptions applicable to those coverages. The assumptions used reflect the BES Groups’ and market experience and may be revised if it is determined that future experience will differ substantially from that previously assumed. Insurance and investment contracts liabilities include: (i) life mathematical reserve, (ii) reserve for bonus and rebates, (iii) claims reserves, (iv) unexpired risk reserve and (v) unearned premiums reserve. Claims reserves include estimated provisions for both reported and unreported claims incurred and related expenses.

When claims are made by or against policyholders, any amounts that the BES Group pays or expects to pay are recorded as losses. The BES Group establishes reserves for payment of losses for claims that arise from its insurance and investment contracts.

111 In determining their insurance reserves and investment contracts liabilities, the BES Group’s insurance companies perform a continuing review of their overall positions, their reserving techniques and their reinsurance coverage. The reserves are also reviewed periodically by qualified actuaries.

The BES Group maintains property and casualty loss reserves to cover the estimated ultimate unpaid liability for losses with respect to both reported and not reported claims incurred as of the end of each accounting year. Claims reserves do not represent an exact calculation of liability, but instead represent estimates, generally using actuarial valuations/techniques. These reserve estimates are expectations of what the ultimate settlement of claims is likely to cost based on an assessment of facts and circumstances then known, a review of historical settlement patterns, estimates of trends in claims severity, frequency, legal theories of liability and other factors. Variables in the reserve estimation process can be affected by both internal and external events, such as changes in claims handling procedures, economic inflation, legal trends and legislative changes. Many of these items are not directly quantifiable, particularly on a prospective basis. Additionally, there may be significant reporting lags between the occurrence of the insured event and the time it is actually reported to the insurer. Reserve estimates are continually reviewed in a regular ongoing process as historical loss experience develops and additional claims are reported and settled.

The liability adequacy test is performed considering the expected cash flows of each contract. These cash flows include premiums, mortality, maturities, surrenders, lapses, expenses and commissions. Whenever the contracts include options and guarantees, the present value of liabilities is determined stochastically based in the market consistent principles. This test is conducted product by product or in aggregate when the risks are similar or managed on a portfolio basis.

112 RISK MANAGEMENT

The Risk Function within the BES Group The objective of the Risk Management function is to identify, assess, monitor and report all the material risks to which the BES Group is subject, both internally and externally, so that such risks remain contained and therefore do not affect the BES Group’s financial situation.

The risk management function operates independently from the BES Group’s functional areas, providing advice on risk management to the management body.

Efficient risk management and control have always played a fundamental role in the balanced and sustained growth of the BES Group, contributing to optimal risk/return across the various business lines while simultaneously providing a consistently conservative risk profile in terms of solvency and liquidity.

Governance and Risk Management Principles • Independence of the risk function from the business units • Management involvement at senior level through specialised committees. • Applying the “Three Defense Lines” approach • Integrated view of risks • Specialised technical structures

Background The economic recession in Portugal has impacted the BES Group’s business activities, affecting the main risks to which it is exposed. The following tables, unless otherwise indicated are as at, or for the year ended, 31 December 2013.

Solvency Stronger capital ratios

• Core Tier 1 of 10.6% (BoP criteria) and 9.8% (EBA criteria) above minimum requirements, achieved without resorting to public funds, has allowed BES to maintain its strategic independence. 10.6% 9.8% • Risk weighted assets dropped by 7%, to Min. 10% €57,332 million, due to the BES Group’s risk Min. 9% management policy and continued balance sheet deleveraging. • The ICAAP exercise carried out in 2013 with reference to 31 December 2012 concluded that BES Group has a conservative risk appetite ensuring high solvency levels associated to a minimum rating target of A (debt holder BoP EBA perspective). Core Tier 1 Unit: EUR million Risk Weighted Assets 2013 Credit Risk 52,851 Market Risk 1,227 Operational Risk 3,254 Total 57,332

113 Credit Overdue loans and provisions

• The overdue loans (>90 days) ratio increased to Coverage 5.68% (Dec. 12: 3.9%) and the credit at risk ratio 120% 65% reached 10.6% (Dec. 12: 9.4%), reflecting Portugal’s economic situation. • Due to the increase in overdue loan levels, credit provisions were reinforced by €1,005 million (2.02% of the loan portfolio), compared to €815 million (1.62%) in 2012. 10.6%

• There was a marked increase in provisions on the 5.7% balance sheet (26% year-on-year) permitted to maintain prudent coverage ratios: the coverage of overdue loans (>90 days) and credit at risk were 120% and 65%, respectively, while the average Overdue Loans +90d Credit at Risk provisioning rate reached 6.8% (Dec. 12: 5.3%). 6.81%

2.02%

Provision Charge Provisioning Rate Provisions

Market Reduction of market volatility

• Consolidated VaR in the trading book relating to trading positions in commodities and foreign exchange positions totalled €36.8 million in December 2013, having decreased by €1.3 million 57.8 year-on-year. The inclusion of the BESI Group’s 36.8 credit spread as at December 2012 would have resulted in a decrease of €3.1 million. With the Dec. 12 Dec. 13 inclusion of credit spread BESI group, in VaR (EUR million) annual evolution December 2012, the decline would be 21 million.

• The BES Group’s banking book exposure to interest rate risk, assuming a parallel yield curve shift of 200 bps, was €179 million in December 2013, compared to €24 million in December 2012. 179.0 • A large part of the stake in EDP was sold. As at 31 December 2013, the BES Group had a residual 23.5 holding of EDP shares. Dec. 12 Dec. 13 Annual Evolution of IRR (EUR million)

114 Liquidity Prudent management of liquidity risk

• Although liquidity and the cost of funding in the wholesale market were still restricted by the recession, this was offset by a considerable increase in deposits that lowered the loans to 137% deposits ratio to 121%. • At 31 December 2013, BES Group met the limit set 121% for 2015 for the Basel III Liquidity Coverage Ratio (“LCR”). Dec. 12 Dec. 13 • The BoP liquidity gap up to 1 year decreased from Transformation Ratio -1.7% (December 2012) to -0.1% (December 2013). Dec. 12 Dec. 13

-0.1% -1.7%

Liquidity Gap up to 1 year

Organisation of the Risk Management Function within the BES Group The determination of the BES Group’s risk appetite is the responsibility of the Executive Committee. Its responsibility also includes establishing general principles of risk management and control and ensuring that the BES Group possesses the necessary skills and resources to meet the established objectives.

Risk management functions and responsibilities are defined according to the “Three Defense Lines” system, which clearly translates the delegation of powers and communication channels formally adopted in the BES Group’s policies. This segregation of functions is fundamental to the BES Group’s ability to align incentives and control and manage risk:

Defense Lines Goals Responsibilities 1st Maximise risk adjusted return within the Business Units Risk Taking established limits The business units are risk takers in their daily Business Units activity through the performance of business and the approval of operations, within delegated powers, limits and the BES Group’s policies; Responsible for the risks assumed (upside and downside). 2nd Keep the BES Group within risk limits Global Risk Department Risk Control through the measurement and monitoring of Proposes risk appetite and risk limits; risks Identifies and monitors risk, reporting excesses; Develops risk assessment models and tools; Has no responsibility for risk taking. 3rd Ensure the effectiveness and adequacy of risk Internal Audit Department Audit control through mechanisms of regular Independent review of compliance with rules, verification of key processes policies and regulations; Has no responsibility for risk taking or risk measurement.

The Risk Management Function is independent, supervising all the risks to which the BES Group’s various units are exposed.

115 The structure of the relevant committees for BES Group’s risk function is outlined below:

Executive Committee Audit Committee

Financial and Capital and Credit Risk Committee ALCO Liquidity Committee Committee

Group Risk Management

BESI BESA BES BESOR Other

Higher Committees

Executive Committee Responsible for defining the objective risk profile by establishing global and specific limits for exposures; Its responsibility also includes establishing the general principles of risk management and control, and ensuring that the BES Group has the necessary competences and resources for the purpose Audit Committee As BES’ supervisory body, it is responsible for assessing the functioning of the internal control system, and particularly of the risk control, compliance and internal audit functions within this system, as well as for assessing whether the system is adjusted to BES’ needs.

To ensure efficient control over the Executive Committee’s strategic decision-making and implementation process, several specialised committees were created that play a relevant role in the area of risk management and control, in line with the decisions taken by the Executive Committee:

Specialised Committees

Risk Committee Responsible for monitoring the evolution of the BES Group’s integrated risk profile, and for analysing and proposing methodologies, policies, procedures and instruments to deal with all types of risk to which the BES Group is subject, namely credit and operational, and also for analysing the evolution of risk adjusted return and the value added by the main segments/ clients. Financial and Credit Committee Decides on the main credit operations in which the BES Group intervenes, in line with the risk policies established at Group level. At its daily meetings, the Committee also monitors the Bank’s cash position and the evolution of the financial markets. Assets and Liabilities Committee (ALCO) Responsible for setting growth targets for customer loans and deposits, and for defining a funding strategy (management of balance sheet mismatch) and price/ margins targets. It also approves the offering and pricing of funding products.

116 Capital and Liquidity Committee Responsible for defining and monitoring the execution of the Bank’s policies on liquidity risk management, solvency levels, and the monitoring of recovery plans’ triggers.

Support Committees

Credit Risk Monitoring Committee (CRMC) Analyses and assesses clients whose creditworthiness shows signs of deteriorating and defines strategic options in commercial relations and the level of active vigilance required by the profile and specific circumstances of each of the entities/groups under analysis. Also analyses and validates the credit impairment levels established for the group of entities in question, in accordance with predetermined objective criteria. Risk Monitoring Group (RMG) Provides in-depth analysis and control of credit risk with the cooperation and intervention of the Bank’s technical areas, including the recovery department and control functions. Real Estate Risk Monitoring Group (RE RMG) Monitors clients in the real estate sector, taking into account the specific risk inherent to this sector. IT Risk Committee Monitors the execution of the Bank’s policies on the management of information systems risk.

At an operational level, risk management and monitoring are centralised at the Global Risk Department (“GRD”). This function, which is independent from the business areas, consistently incorporates risk and capital concepts within the BES Group’s strategy and business decisions.

Global Risk Department

Independent Validation Unit

Risk and Capital Strategic Credit Risk Marquet and Credit Risk Planning and Operational Risk Management of Monitoring Liquidity Risk Control Risk

The main functions of the GRD are: • Identify, assess and control the different types of risk assumed, thus managing the BES Group’s overall risk exposure, ensuring compliance with internal and regulatory rules, and promoting and monitoring mitigation actions; • Implement the risk policies outlined by the Executive Committee, while harmonising principles, concepts and methodologies across all the BES Group’s units; • Further the BES Group’s value creation objectives through the development and monitoring of methodologies and models to identify and quantify the various categories of risk, such as internal ratings and liquidity ratios, as well as support tools for the structuring, pricing and approval of operations, and also internal techniques for performance assessment and for optimising the capital position;

117 • Determine, control and report risk weighted assets for credit risk (using (i) a standardised approach for governments, central banks and investment funds within BES Group’s perimeter exposures as well as for registered exposures to BESA, BES Spanish Branch and other less significant branches, (ii) the IRB Foundation16 method for non retail segment; and (iii) the IRB Advanced17 method for the retail segment), market and operational risks (in accordance with the standardised approach). • Develop the internal capital adequacy assessment process (ICAAP) and stress tests exercises; • Validate on a continuous basis the risk models and parameters and validate the levels of internal usage of the risk models (use-test); • Monitor the BES Group’s internationalisation strategy, cooperating in the design of organisation solutions and in the monitoring and reporting of the risk exposure of the various international areas.

Regulatory Framework Basel III The Basel III rules, first presented by the Basel Banking Supervision Committee in 2010, represent a global regulatory change for the financial system. Their purpose is to strengthen financial institutions and prevent new financial crises in the future. Banks will have a transitory period (until 1 January 2019) to comply with the approved rules. The Basel III rules have established the following regulatory framework at the end of the transitory period: • minimum Common Equity Tier 1 of 7%, (4.5% minimum common equity and 2.5% capital conservation buffer); • minimum Tier 1 of 8.5%, (6.0% minimum and 2.5% capital conservation buffer); • total capital ratio of 10.5%; • introduction of a countercyclical buffer, ranging from 0% to 2.5% of Common Equity (Tier 1), under conditions to be defined by the national regulatory authorities; • transitory period intended for the absorption of deductions to capital not eligible under BIS III and for the new deductions to capital; • LCR of 100%; • definition of the short and long-term leverage and liquidity ratios (NSFR) in certain conditions, to be defined.

The Basel Committee’s agenda also includes the following steps in the near future: • Fundamental review of the rules applicable to the trading book of financial institutions; • Fundamental review of the treatment of securitisations within the scope of the Basel III regulations; • Review of the “major exposures” regime; • Review of the standard approach for calculating capital requirements and capital adequacy.

In the context of Basel III, the European Parliament and the Council of the EU adopted Regulation (EU) No 575/2013 and Directive 2013/36/EU defining the prudential requirements to be observed by credit institutions and investment firms in the EU.

16 The IRB Foundation method uses the probability of default estimated by the Bank, while the other parameters of risk (e.g. LGD—loss given default and CCF—credit conversion factors) used in the formula for calculating the risk weighted assets are determined by the regulator. The LGD corresponds to an estimate of the economic losses as percentage of the risk positions in case of default. The CCF corresponds to a percentage applicable to the value of off-balance sheet assets at risk, except derivatives, aimed at converting them in credit (equivalent) in the moment of default or exposure at default. 17 In the IRB Advanced method, all the risk parameters considered in the formula for calculating risk weighted assets are estimated by the Bank.

118 The CRR took effect on 1 January 2014, with a phase-in application period running through 1 January 2016. In the context of the implementation of this prudential framework in Portugal, the Council of Ministers approved a draft law that authorises the Portuguese government to adapt a legal framework applicable to credit institutions and financial companies.

BES Group closely follows the works and development process of the future regulatory framework so as to be able to determine and plan for the impacts of the final rules on the BES Group, namely with regard to market and liquidity risk, as explained below.

Main changes in 2013 relating to market risk were as follows: • At the European level—the entry into force of the CRD IV/CRR (Credit Requirements Directive / Credit Requirements Regulation), which transposed into European regulation the main components of Basel III, is expected to have immaterial impacts on the measurement of capital requirements for market risk. • the following main points were proposed by the Bank of International Settlements (BIS) after conducting a Fundamental Review of the Trading Book (included in the second consultative document): • The strengthening of the boundary between the trading book and banking book, making it more objective and reducing the incentives for regulatory arbitrage; • A shift in the measure of risk from value-at-risk to expected shortfall (ES) and calibration based on a period of significant financial stress; • The incorporation of the risk of market illiquidity, through the introduction of “liquidity horizons” in the market risk metric; and • Revision of the two approaches (standardised approach and internal models-based), establishing a closer calibration of the two and requiring mandatory calculation of the standardised approach by all banks.

Over the course of 2013 there was significant consultation and monitoring on the subject of Liquidity Risk, with the regulators issuing a series of papers which had a significant impact on the banking industry’s business models and management of risk.

To prepare for the entry into force of CRD IV/CRR in January 2014, the entire liquidity framework has been strengthened, through the development of two minimum standards for funding liquidity that aim to achieve two separate but complementary objectives. LCR was created to achieve the first objective, namely to promote short- term resilience of a banks’ liquidity risk profile by ensuring that it has sufficient high quality liquid assets to survive a significant stress scenario lasting for one month. The second objective, to reduce funding risk over a longer time horizon, is addressed by requiring banks to fund their activities with more stable sources of funding so as to mitigate the risk of future funding stress. The Net Stable Funding Ratio (NSFR) was developed for this purpose. In addition, a set of other liquidity monitoring metrics were also defined, namely concerning funding concentration, definition of unencumbered assets and balance sheet structure.

Recovery and Resolution Plans In 2012, the Bank of Portugal approved legislation (notice nº12/2012 e nº 18/2012) on recovery and resolution plans. This legislation aims, in the first case, at identifying measures which can be adopted to correct a situation of stress where the financial strength of an institution is seriously damaged, and in the second, at the possibility of carrying out an orderly resolution of an institution.

The BES Group has in place robust mechanisms to ensure the recovery of imbalances caused by serious events that impact its solvency or liquidity.

Prevention of Credit Risk (“PARI” and “PERSI”) The economic crisis with which Portugal is still struggling has resulted in a growing number of households experiencing financial stress. BES has sought to anticipate and respond to this reality through an increasingly close monitoring of the performance of loan agreements with individual clients. In 2012, the BES Group implemented a centralised process to identify clients in risk of default, promote proactive contact with these clients and adopt of measures to prevent default. Decree-Law no. 227/2012, of 25 October, which came into force on 1 January, 2013, established the obligation of credit institutions to draw up an Action Plan for the Risk

119 of Default (“Plano de Ação para o Risco de Incumprimento”, or “PARI”). The PARI specifically requires banks to adopt procedures and measures to monitor the execution of loan agreements and in particular to ensure the following: • The early detection of risks of default. To this end the Bank of Portugal has defined which factors it considers to be signs of deterioration in the financial capacity of a bank’s client to comply (e.g., the existence of defaults listed in the Bank of Portugal’s central credit registry, return of unpaid cheques and prohibition to use cheques, fiscal debts or debts to the social security); • Quick adoption of measures aimed at preventing default; and • The adoption of the Extrajudicial Procedure for Settling Default Situations (“Procedimento Extrajudicial de Regularização de Situações de Incumprimento” or “PERSI”). This procedure requires credit institutions to evaluate the temporary or lasting nature of default, assess the financial capacity of the client, and where possible, present settlement proposals that are adequate to the client’s financial situation, objectives and needs. BES has been implementing the measures required for compliance with the procedures laid out in the PERSI.

As a result of the combined effect of the economic crisis, the Bank’s proactive stance and the subsequent developments in the legal and regulatory framework, has resulted in the Bank making a significant commitment to monitoring the execution of loan contracts and controlling risk.

Solvency Internal Capital Adequacy Assessment Process (ICAAP) In addition to the regulatory perspective, the BES Group also considers its risks and available financial resources (“Risk Taking Capacity” or “RTC”) from an economic perspective in order to conduct a self-assessment exercise of internal capital adequacy, as foreseen in Pillar 2 of Basel II and Bank of Portugal Notice 15/2007.

Risks and RTC are estimated from a perspective of settlement, where the BES Group’s intention is to protect its capacity to redeem senior debt and deposits. The confidence interval used to estimate the risks in this perspective is in line with the risk appetite defined by the BES Group. In the ICAAP exercise conducted in 2013, and as it had done in 2012 and 2011, BES Group opted to focus only on the settlement perspective, and to not take into account the going concern perspective. The reason for taking this approach was, in view of the new regulatory capital requirements (minimum Core Tier 1 ratio of 9% in 2011 and 10% in 2012) and consequent changes in the business model, which entailed the deleveraging process which was already underway, the going concern perspective, which assumes that the previous model is maintained, was not applicable. As a result, the BES Group focused on the settlement perspective.

In order to quantify the risks, BES Group has developed several economic capital models that estimate the maximum potential loss over a period of one year based on a predefined confidence level. These models cover the various types of risk to which BES Group is exposed, including credit risk, market risk (trading book and banking book), real estate risk, pension fund risk, operational risk, reputational risk, strategy risk and business risk.

The amount of the economic capital requirements for each risk is aggregated, taking into account inter-group risk diversification effects. In addition to calculating economic capital requirements, the main risk factors are subject to stress tests in order to identify any weaknesses or risks which the internal models failed to uncover.

The capital adequacy analysis carried out at the end of each year is complemented by a forward looking analysis of capital requirements (risks) and available financial resources over a three-year timeframe, taking into account the BES Group’s funding and capitalisation plan.

The results obtained through the last ICAAP exercise conducted with respect to 31 December 2012, which were delivered to the Bank of Portugal in July 2013, led to the conclusion that BES’ regulatory capital was sufficient to cover the risks incurred, from both the regulatory and the economic perspective.

In line with its business strategy, the main risks to which the BES Group was subject in 2012 were credit risk and the banking book’s market risk. The credit risk is a product of the BES Group’s core business, mainly originating in the corporate segments, with a significant contribution from international operations. The banking book’s market risk mainly derived from: (i) the stakes held in Portugal Telecom and EDP Energias de Portugal as at

120 31 December 2012, (ii) the credit spread risk of obligations, which mainly arises from the commercial relations with clients and the need to maintain liquid assets on the balance sheet, and (iii) the real estate risk, arising from assets received as payment in-kind, assets not used in the operation and holdings in real estate investment funds.

In 2012 the total economic capital requirements decreased by ca. 7% relative to 2011 (on a comparable basis and after diversification effects), essentially through the reduction of requirements for credit risk (through the reduction of credit exposure and concentration) and the reduction of interest rate risk in the banking book.

2013 was again marked by an unfavourable macroeconomic environment, with GDP having fallen by 1.4%, (according to Instituto Nacional de Estatísticas) after having already contracted in the previous three years (2009, 2011 and 2012). This context inevitably impaired the BES Group’s activity and impacted the evolution of its risks. The ICAAP exercise for the 2013 year is currently being conducted.

Regulatory Capital Until the enactment of Law 6/2013 in December 2013, the BES Group’s capital ratios were calculated under the Basel II regulations. From the first quarter of 2009, BES has been authorised by the Bank of Portugal to use the IRB approach for credit risk and the Standardised Approach—TSA method for operational risk.

Under the Portuguese banking regulations (Bank of Portugal Notice 3/2011) Portuguese banks were required to report a Core Tier 1 ratio of 10% from 31 December 2011 onwards. In addition, from 30 June 2012, European banks, including Portuguese banks, were required to post a Core Tier 1 of 9%, calculated according to the definition established by the EBA.

Within the scope of the Adjustment Programme to Portugal, a set of rules to be observed by the Portuguese banks was agreed with the Troika and set out in the Bank of Portugal’s Notice 6/2013, of 30 December, which regulates the transition rules set out by the CRR under Basel III, which established the following: • minimum common equity Tier 1 ratio of 7%; and • the coefficients and percentages to be used for the calculation of own funds during the transition periods until the full application of CRD IV and CRR, include:

BoP Notice 6/2013 2014 2015 2016 2017 2018 2019 2024 Deduction of unrealised losses on assets measured at fair value(1) . . 20% 40% 60% 80% 100% Exclusion of unrealised gains on assets measured at fair value(1) . . . 100% 60% 40% 20% 0% Deferred tax assets (DTA) that rely on future profitability(2) ...... 0%10% 20% 30% 40%50% 100% Items that do not qualify as the minority interests(3) ...... 80%60% 40% 20% 0% Recognition in consolidated own funds of minority interests and qualifying additional Tier 1 and Tier 2 capital ...... 20%40% 60% 80% 100% Additional filters and deductions (e.g. Securitised assets, cash flow hedges) ...... 80%60% 40% 20% 0% Limits for grandfathering of items within additional Tier 1 and Tier 2 items ...... 80%70% 60% 50% 40%30% Other deduction items (e.g. Intangible assets, equity holdings, pension funds) ...... 20%40% 60% 80% 100% Note: (1) Do not include in any element of own funds unrealised gains or losses on exposures to central governments classified in the “Available for Sale” category of EU-endorsed AIS 39 until the IAS 39 is not replaced. (2) Deduction calculated by multiplying the applicable % to the existing DTA on the balance sheet as of 31 December 2013. (3) Determined by multiplying the % by the Minority Interests surplus.

121 The table below presents the relevant information about Risk Weighted Assets, Eligible Capital and Regulatory Capital, according to the BIS II and BIS III (CRD IV/CRR) approaches.

Risk Weighted Assets, Eligible Capital and Regulatory Capital

According to BIS III (CRD IV/ According to BoP (BIS II) CRR) Dec, 13 From Jan, 14 31-Dec-12 31-Dec-13 Phasing in fully implemented EUR million Net Assets (1) 83,691 80,608 —— Risk weight (2)/(1) 74% 71% — — Risk Weighted Assets (2) 61,681 57,332 60,871 60,330 Banking Book 56,484 52,851 56,390 55,849 Trading Book 1,503 1,227 1,227 1,227 Operational Risk 3,694 3,254 3,254 3,254 Regulatory Capital Core Tier I (3) 6,471 6,084 6,193 4,933 Core Tier I EBA (3) 6,092 5,646 — — Tier I (4) 6,439 5,959 6,193 5,002 Tier II and Deductions 518 781 Total (5) 6,957 6,740 7,120 5,988 Core TIER I (3)/(2) 10.5% 10.6% 10.2% 8.2% Core TIER I EBA (3)/(2) 9.9% 9.8% — — TIER I (4)/(2) 10.4% 10.4% 10.2% 8.3% Solvency Ratio (5)/(2) 11.3% 11.8% 11.7% 9.9%

Core Tier I capital decreased €387 million in 2013 mainly due to the incorporation of eligible results, offset mainly by the positive effects of the reinsurance operations of BES Vida and the rights issue of BESA.

The evolution of risk weighted assets was favourable (a decrease of €4.3 billion) due to a general reduction of activity which was reflected in the decrease of assets (€3.1 billion), as well as risk mitigation initiatives. Regulatory capital increased to €781 million, with the highlight being the issue of €750 million of Tier 2 capital, already in accordance with CRD IV/CRR.

Total Equity The decline in total equity from 2012 to 2013 reflects the net loss for 2013 and the increase in the negative value of revaluation reserves due to the variation in fair value reserves, namely for fixed income debt securities.

Total Equity

As at 31 December 2013 2012 Change (EUR million) Capital ...... 5,199 5,233 (34) Ordinary ...... 5,040 5,040 0 Preferred ...... 159 193 (34) Share Premium ...... 1,068 1,070 (2) Other Capital Instruments ...... 29 29 0 Own Shares ...... (1) (7) 6 Revaluation Reserves ...... (938) (687) (251) Other Reserves and Retained Earnings ...... 1,406 1,329 77 Net Income ...... (517) 96 (613) Minority Interests ...... 803 670 133 Total ...... 7,049 7,733 (684)

Risk Weighted Assets As at 31 December, 2013, Risk Weighted Assets totalled €57,332 million, of which €52,851 million (92% of total) corresponded to credit and counterparty risk, €1,227 million from market risk and €3,254 million to operational risk.

122 Credit and Counterparty Risk The BES Group uses the IRB approach for most exposures subject to credit risk, in accordance with the rules set out in Bank of Portugal’s Notice 5/2007.

The €3,633 million reductions in credit and counterparty risk-weighted assets in 2013, despite the adverse economic and financial context in which activity developed during the year reflects the strict monitoring of risk and the deleveraging process undertaken by the BES Group, which included the following:

• sale of a large part of the stake in EDP; • proactive sale of real estate assets obtained through credit recoveries; • synthetic securitisation of corporate loans; • reinforcement of the guarantees received in order to mitigate risk.

Risk Weighted Assets (Per Risk Category) as at 31 December 2013

Domestic Activity International Activity Total Risk Risk Risk Weighted Risk Weighted Risk Weighted Risk Assets Weight(1) Assets Weight(1) Assets Weight(1) (EUR million) Central Authorities or Central Banks ...... 34 1% 694 22% 728 8% Institutions ...... 1,112 21% 421 36% 1,533 23% Corporate ...... 29,689 71% 10,840 73% 40,529 72% Retail ...... 2,825 21% 491 72% 3,316 24% Other ...... 6,374 63% 371 77% 6,745 63% Total ...... 40,035 52% 12,816 63% 52,851 55%

Note: (1) Risk Weight: Risk weighted assets/original exposure

In terms of geographical distribution, the international activity contributed €12,816 million, or 24%, to total Risk Weighted Assets which includes credit and counterparty risk, while the domestic activity contributed €40,035 million. By categories of risk, the corporate segment represented 77% of total Risk Weighted Assets as of 31 December 2013, which is in line with its predominant role in the BES Group’s activity.

Market Risk Capital requirements for market risk are calculated using the standardised method. As at 31 December, 2013, the capital requirements for risk-weighted assets amounted to €1,227 million, with the main contributors being Interest Rate/Debt Instruments Risk (66% of the total) and Foreign Exchange Risk (31%).

Trading Book Risk Weighted Assets

As at 31 December 2013 2012 Change (EUR million) Debt instruments Specific risk ...... 233 632 (400) General Risk ...... 573 566 7 CIE(1) ...... 0 4 (4) Equity instruments Specific risk ...... 18 55 (36) General Risk ...... 20 17 2 CIE(1) ...... 0 0 0 Commodity Risk ...... 0 1 (1) Foreign exchange risk ...... 384 228 155 Total ...... 1,227 1,503 (276)

Note: (1) Collective investment entities – Investment funds.

123 The reduction in requirements in 2013 mainly resulted from a decrease in specific interest rate risk, which was in part offset by an increase in Foreign Exchange Risk.

Operational Risk Capital requirements for operational risk are determined under the Standardised Approach as the three-year average of the sum of relevant indicators, calculated each year across the regulatory business lines.

In 2013, risk-weighted assets decreased by €440 million as a result of the lower contribution of Trading and Sales, which was not offset by the increase in Commercial Banking (middle and large corporate).

As at 31 December 2013 2012 Capital Capital Charge RWA Charge RWA (EUR million) BES Group 260 3,254 295 3,694 Corporate Finance ...... 9 117 9 114 Trading and Sales ...... (18) (223) 22 280 Retail Brokerage ...... 2 29 2 29 Commercial Banking ...... 193 2,416 188 2,351 Retail Banking ...... 63 789 63 790 Payment and Settlement ...... 0 0 0 0 Agency services ...... 0 4 0 4 Asset Management ...... 10 121 10 126

Basel III In 2013, the European Parliament and the Council approved Regulation (EU) no. 575/2013 and Directive 2013/36/EU which transposed into community rules the prudential regulatory framework designated as “Basel III”, which came into force in January 2014, namely, the calculation of credit risk weighted assets.

Under the new calculation rules, BES estimates that risk weighted assets could have reached €60,871 million in December 2013, including the transition period, or €60,330 million, if fully implemented, which would result in a Common Equity Tier 1 ratio of 10.2% in the first case and 8.2% in the second, both being above the minimum ratio required from the Portuguese banks (7%).

Risk Management within the BES Group Credit Risk Credit risk, which is the possibility of financial loss resulting from the failure of a borrower or counterparty to fulfil its contractual obligations to the BES Group as part of its lending activity, is the most significant risk to which the BES Group is exposed. Credit risk is present in traditional banking products such as loans, guarantees and other contingent liabilities. Regarding credit default swaps (“CDS”), the net exposure between selling positions and buying protection on each reference entity constitutes credit risk for the BES Group.

Management Practices Credit portfolio management is carried out as an ongoing process that requires interaction between the various teams responsible for the management of risk during the different stages of the credit process. This approach has resulted in improvements in the following areas: • the credit risk modelling system, with a consequent reduction in subjective criteria in the assessment of credit; • The inclusion of behavioral warning signals in the rating systems; • the decision procedures and circuits, namely, the independence of the risk function, the delegation of powers according to rating levels and the systematic adjustment of prices, maturities and guarantees provided by the clients; • the information systems that produce the various elements required for credit risk assessment, by making these data available to all the parties involved in the credit process; and • the independence of the process of formalisation/execution of operations vis-à-vis the origination structure.

124 As a result of the large number of initiatives taken over the previous years, within the scope of the global project of revising the credit-decision process in various commercial segments, combined with the near full coverage of credit exposures by internal rating classification, the credit-granting process within the BES Group is now supported by the widespread use of risk-adjusted return metrics.

Across nearly all of the commercial segments, internal rating classifications are directly incorporated into the definition of credit powers at the various decision-making levels, while also being used to support the differentiation of pricing.

The use of rating classifications for purposes of establishing portfolio ceilings that limit credit granting by both product and rating levels and, in particular, restrict the amounts lent when higher risks are involved is now a broad-based practice. Portfolio ceilings are used as a management tool that is applied differently for individual or corporate client portfolios: • Mortgage credit, consumer loans and credit cards—portfolio ceilings on origination strongly restrict the approval of operations with the lowest scoring levels; • Corporate portfolios—ceilings are used to monitor the evolution of the risk profile of the various credit portfolios. The risk profile is assessed based on collaterals.

Compliance with the established ceilings is monitored on a regular basis. The resulting information is distributed to the commercial areas, to the members of the Executive Committee with responsibilities in the commercial or risk areas, and to the Risk Committee, where applicable.

The BES Group has in place a strict lending policy that mitigates risk at the various stages of the credit process— origination, monitoring and recovery.

Origination Monitoring Recovery • Restrictive limits on new credit • Senior management strongly • Early recovery steps involved in monitoring • Loan guarantees required • Monitoring of borrowers and process assets received as guarantee • Price adjusted to risk • Credit risk information • Credit recovery process • High coverage of rating automatically available to the adjusted to business sector, exposures commercial areas recovery, and divestment • Automatic availability of • Credit follow-up actions areas supporting information to credit (prior to default) • Credit risk included within decisions, namely in the front • Guarantee management the criteria of the objectives office processes and controls and incentive systems (“SOI”) for the commercial areas

Risk Rating Systems In line with the specific characteristics of the BES Group’s various client segments, different internal risk rating systems and risk parameters were developed for both corporate and individual clients.

In accordance with the rules on minimum regulatory capital requirements (Basel II) and following the best risk management practices, the internal risk rating systems are validated on a regular basis by the Independent Validation Unit. In 2013 the internal validation exercise applied to the various rating models for the main credit portfolios confirmed that these models were robust and well-calibrated for assessing credit risk.

Rating Models for Corporate Credit Portfolios Corporate Credit portfolios are approached differently, according to client size and industry sector, using different models specifically adapted to project finance, commodity finance, object finance, acquisition finance and construction finance.

125 Segment Criteria Model Type Description Expert Judgement Sector, Dimension, Template Ratings attributed by Product teams of analysts, using • Financial institutions sector-specific models • Municipalities (templates) as well as • Institutional clients financial and qualitative • Local and regional information. admin. • Large corporates (Sales > €50 million) • Real Estate (Investment/ Promotion) • Acquisition Finance • Project Finance • Object Finance • Commodity Finance Medium sized Semi-automatic Rating models based on companies: financial and qualitative Sales information validated (€1.25 million to €50 by analysts. million) Small businesses: Automatic Rating model based on Sales up to €1.25 financial, qualitative million and behavioural information. Start-ups and entrepreneurs Rating model based on qualitative and behavioural Statistical information.

For Large Companies, Financial Institutions, Institutional Clients, Local and Regional Administration, and Specialised Finance (i.e., project finance, object finance, commodity finance and acquisition finance), credit ratings are assigned by a rating desk. The Rating Desk, composed of specialised analysts, organised into multi- sectoral teams, validates at a central level the ratings submitted by the credit risk analysts geographically spread throughout the BES Group’s various units.

To assign internal risk ratings to these risk segments, classified as low default portfolios, these teams use expert- based rating systems (templates) that include quantitative and qualitative variables strongly linked to the industry sector in question. Except for Specialised Finance, the rating methodology used by the Rating Desk includes a risk analysis of the maximum consolidation scope, identifying the status of each subsidiary within the respective conglomerate. Ratings are validated daily by a Rating Committee formed by members of the Board and members of the various specialised teams.

For the Middle Market segment (companies with turnover between €1.25 million and €50 million, except when in sectors classified as specific risk segments, such as real estate development), the BES Group uses statistical rating models, which combine economic and financial data with behavioural and qualitative data.

The disclosure of risk ratings also requires previous validation by a team of risk analysts, who also take into account behavioural factors and, in the circumstances foreseen in the credit process regulations, draw up risk analysis reports expressing their opinion on the proposed operations.

The team also monitors the credit portfolio of the BES Group’s clients by preparing risk analyses that take into account the client’s current liabilities versus rating, as established in internal regulations, issuing specific recommendations concerning the credit relationship to be adopted with the client in question.

In the Small Businesses segment (companies with turnover below €1.25 million), ratings are also determined through statistical rating models that in addition to financial and qualitative data, also use behavioural information concerning both the companies and the respective partner(s).

Specific rating models have also been implemented to quantify the risk of start-ups (companies in business for less than two years and turnover below €25 million in the first year) and IPs (independent professionals).

126 Finally, in the Real Estate Sector (property developers, in particular small-and medium-sized firms), given its characteristics, ratings are assigned centrally by a specialised team, using specific models that combine quantitative and technical variables (e.g., property valuations conducted by specialised units) with qualitative variables. This team is also responsible for making the risk analyses included in specialised credit proposals (Construction Finance).

Scoring Models for Individual Client Portfolios The BES Group uses origination and behavioural scoring models for the main products offered to its individual clients—mortgage loans, consumer loans, credit cards, overdrafts and loan accounts—whose ratings are calibrated to a probability of default within one year. These models’ predictive capacity is regularly monitored.

Portfolios Models

Scoring at origination Behavioural Scoring

Mortgages Model for new and Model for current clients current clients (less than with more than 6 6 months’ history) months’ history Consumer Loans Model for new and Model for current clients current clients (less than with more than 6 6 months’ history) months’ history Loan Accounts Model for clients Model for current clients (account history of more with more than 6 than 6 months) months’ history Cards Model for clients Model for current clients (account history of more with more than 12 than 6 months) months’ history With limit Limit scoring at Model applied to origination: model for operations with limit and new clients (less than 6 with more than 6 months’ history), model months’ history for new accounts of Model applied to Current current clients and model operations with limit and Accounts for introduction of limits with more than 6 in accounts with more months’ history than 6 months’ history Without limit

Besides estimating the probability of default, the BES Group also regularly monitors other parameters required for risk quantification and management, namely, recovery (1-LGD) and Exposure at Default (EAD).

All the scoring models developed by the BES Group now play a key role, not only in the technical analysis of risk, but also in the credit risk approval and monitoring processes.

LGD Models When a client fails to pay its liabilities, the BES Group will not necessarily lose the entire claim, even if the risk is not reduced through collateral. Loss Given Default (LGD) measures the total economic loss when a debtor defaults on a loan. Hence the calculation of LGD also takes into account all the cash flows generated after default, including inflows from (partial) payments by the client or from foreclosure of collateral, recovery costs, administrative costs and the cost incurred through the financial effect of discounted cash flows.

Since 2004, the BES Group calculates LGD parameters based on internal data concerning the main products offered to its individual clients—mortgage loans, consumer loans, credit cards, overdrafts and loan accounts—as well as the portfolios of Small Businesses and Independent Professionals included in the Retail portfolios. Such parameters are used in risk management, impairment calculations and calculation of regulatory capital requirements for credit risk.

127 Finally, the BES Group also makes internal estimates of recovery rates for medium-sized and large companies’ portfolios, which are used in these segments’ business processes.

The LGD parameters for corporate clients (including in this case both the LGD parameters for Small Businesses and Independent Professionals used in the calculation of regulatory capital, and the estimated recovery rates for Medium-sized and Large Companies) were updated in 2013. This ensures that the parameters used internally by the BES Group are in line with its current recovery processes and policies and take into account the latest economic projections.

Independent Validation of the Models The various credit risk models developed by and implemented within BES Group are subject to independent internal validation, as required from institutions that use the IRB method.

The validation methodologies developed cover the various parameters of the Basel accords (PD, LGD and EAD/ CCF) using quantitative validation methods, namely statistical tests, as well as qualitative methods, namely the test on internal use of risk models (use test).

Typically, the models are validated annually by a dedicated specialised team, the Independent Validation Unit, which works in close cooperation with developers the models, helping to safeguard the independence between risk model development and validation functions.

The validation works are compiled into validation reports whose conclusions are approved by an internal Models Committee, and, as appropriate, by the Director in charge of Risk or the Executive Committee.

Credit Risk Monitoring The credit risk monitoring and control activities currently established at the BES Group aim to quantify and control the evolution of credit risk and to allow early definition and implementation of concrete measures to deal with specific situations indicative of a deterioration of risk—with a view to mitigating potential losses—as well as to outline global strategies for credit portfolio management.

In this context, and with the central aim of preserving the BES Group’s risk quality and standards, the credit risk monitoring function and its development are objectively considered as one of the top priorities of the risk management and control system. This function comprises the following processes: • Monitoring of clients with warning signals (CCRA); • Risk Monitoring Group (RMG); and • Global analysis of the credit portfolio risk profile.

Monitoring of clients with warning signals (CCRA) Clients with warning signals are monitored throughout the year through meetings chaired by the Credit Risk Monitoring Committee (CRMC) and attended by representatives from the various Group commercial structures, which then decide on specific follow-up actions that are reported to the Risk Committee and the Executive Committee. These meetings also discuss and report on the results of follow-up actions and analyse any additional cases as needed.

The main functions of the CRMC are: • To analyse and assess clients whose creditworthiness shows signs of deteriorating, based on: • The client’s economic and financial profile; • Type of credit exposure; • Nature and value of the guarantees received, paying attention to the dates when the assets provided as security were evaluated and the entities which carried out these evaluations; • Warning signals detected in the behavioural profile of clients in their relations with the Bank and with the financial system in general. • To define strategic options in commercial relations and the level of vigilance required by the profile and specific circumstances of each of the entities/groups under analysis;

128 • To analyse and validate the credit impairment levels established for the group of entities in question, in accordance with predetermined criteria.

In 2013 the CRMC exercise analysed and assessed 6,994 clients with an overall exposure of approximately €6,883 million, of which 1,038 (approximately 15%) were reported for the first time,

Taking into account the specific characteristics of each case, the CRMC approved recommendations for action on 5,311 clients with an overall exposure of €5,259 million (corresponding to 75.9% and 76.4%, respectively, of the overall number of clients analysed and the total exposure). From this total 708 clients (13.3%) were reported for the first time in 2013, which is 11.7% less than the number of clients first reported in 2012.

The chart below, which shows the breakdown of clients according to the type of recommendation issued, suggests the following conclusions: • An increase in ‘reduce exposure’ recommendations, which, together with ‘demobilise/exit’ recommendations accounted for 72% of the clients analysed and 71.6% of their credit exposure. • No specific recommendations were issued for 24.1% of the clients analysed (corresponding to 23.6% of the exposures analysed), which suggests that the BES Group’s credit risk is controlled and mitigated through a process that is independent from its credit origination.

CRMC Recommendations in 2013 (Distribution Profile of the Analysed Portfolio) Demobilise No recomendation 12.1% 23.6% Reinforce Guarantees 4.5%

24.1% 16.2% do not increase 3.1% involvment 0.8% 0.3%

55.8% Reduce Involvment 59.5% Clients Loan

By breakdown by activity sectors, the majority of recommendations issued (approximately 59%) related to clients in property development, business services and civil construction.

Risk Monitoring Group (“RMG”) The RMG was created in 2011 with the objective of further reinforcing the credit risk analysis and control performed within the CRMC. Subsequently, and given the particular risk presented by the real estate sector, a specific monitoring group was created to deal with clients in this sector—the Real Estate Risk Monitoring Group (Real Estate RMG).

The RMG process involves the daily classification of clients according to pre-established risk criteria into three risk categories, Pre-Watchlist, Watchlist and Recovery as well as the subsequent production of a report identifying for each category the causes for the risk deterioration and proposing the mitigation actions to be taken in each case.

In 2013 the RMG/Real Estate RMG analysed a total of 428 clients with liabilities exceeding €3.4 billion.

As the adverse macroeconomic environment continued, during 2013 the BES Group reinforced the importance of follow-up and monitoring of credit risk, and the result of the GAR continued to be discussed by the Executive Committee following a GAR synthesis report.

129 Global analysis of the risk profile of credit portfolios Credit portfolio management is an ongoing process that requires interaction among the various teams responsible for the management of risk during the different stages of the credit process. The risk profile of credit portfolios, specifically what concerns the evolution of credit exposure and the monitoring of credit losses, is reported on a monthly basis to the Risk Committee. Compliance with the approved credit ceilings and the correct functioning of the mechanisms of approval of credit lines used by the commercial areas in their day-to-day activity, are also regularly subject to analysis.

Credit Recovery Process The entire credit recovery process is developed based on the concept of the “integrated client.” Whether in a corporate or retail segment, each client is assigned a “recoverer” that monitors the client’s credits subject to recovery. In view of its nature and the volumes involved, credit to individual clients is in some phases addressed by automated processes, whereas a customised approach is used to treat credit to corporate clients.

Throughout the process, the possibilities of reaching an agreement are weighed and legal action taken whenever required to recover the credits and defend the BES Group’s rights. However, there is constant openness to consider solutions permitting a return to a non-default situation.

Concentration Risk Concentration risk arises from the possibility of an exposure or group of exposures producing sufficiently large losses to undermine an institution’s solvency. In particular, there is credit concentration risk when different counterparties share common or interrelated risk factors the deterioration of which may cause a simultaneous adverse effect on the credit quality of each of those counterparties.

The BES Group has established limits for the largest individual exposures and for exposures by sector. The regular monitoring of these limits, together with that of regulatory limits, namely for Large Exposures, reinforces the BES Group’s monitoring and follow-up framework for credit risk concentration.

The effect of concentration risk is incorporated in the economic capital model for credit risk.

Credit Risk Analysis Credit Portfolio As at 31 December 2013 gross customer loans decreased by 1.3% year-on-year due to low credit demand and a contraction in loans to individuals (4.1%) resulting from the amortisations of mortgage loans as well as a decrease in consumption.

Loan Portfolio Breakdown

As at 31 December 2013 2012 Change (EUR million) Total gross loans ...... 49,722 50,399 (1.3)% Mortgage ...... 10,815 11,134 (2.9)% Individuals ...... 2,383 2,628 (9.3)% Corporate ...... 36,525 36,637 (0.3)%

The sector breakdown of the credit portfolio shows not only the BES Group’s continued support to the business community, but also that concentration levels by industry sector remained within prudent limits.

130 In the following tables we set out the sectoral distribution of total loans in 2013 and 2012:

31.12.2013 Other Loans and advances to financial Available-for-sale Held-to-maturity customers Financial assets at fair Derivatives financial assets investments assets held value through for risk Gross for profit and management Gross Gross Guarantees amount Impairment trading loss purposes amount Impairment amount Impairment granted (in thousands of euro) Agriculture ...... 474,905 (29,573) 8,596 — — 7,017 — — — 36,054 Mining ...... 256,767 (15,077) 3,083 6,115 — 13,392 (777) — — 41,035 Food, beverage and tobacco ...... 983,444 (45,806) 26,696 47,396 — 11,605 (52) 4,594 — 69,924 Textiles ...... 361,240 (37,133) 645 — — 38,778 (3,957) — — 13,736 Shoes ...... 75,046 (6,609) 205 — — 499 (499) — — 1,543 Wood and cork ..... 139,638 (29,582) 302 80,627 — 15,528 (1,329) — — 7,801 Printing and publishing ...... 396,424 (36,462) 3,983 — — 33,734 (10,000) — — 59,427 Refining and oil .... 3,007 (171) 274 22,273 — 80,721 — — — 5,461 Chemicals and rubber ...... 644,899 (16,951) 9,715 26,062 — 23,731 (13,145) — — 95,966 Non-metallic minerals ...... 311,791 (30,756) 253 — — 12,730 (7,586) — — 21,146 Metallic products . . . 956,384 (69,669) 7,208 3,223 7,564 3,604 — — — 181,404 Production of machinery, equipment and electric device .... 243,660 (10,535) 1,264 257 — 12,645 (3,582) — — 117,996 Production of transport material ...... 133,638 (6,238) 541 36,011 — 36,871 (108) — — 71,154 Other transforming industries ...... 387,087 (30,205) 736 14,017 — 40,222 (16,490) — — 41,268 Electricity, gas and water ...... 1,355,310 (13,769) 124,426 28,689 — 237,106 (3,278) — — 480,074 Construction ...... 3,459,290 (460,961) 208,439 138,846 — 290,620 (1,687) 3,946 — 2,025,041 Wholesale and retail ...... 3,293,690 (369,869) 8,333 73,192 — 65,948 (22,649) 3,705 — 476,695 Tourism ...... 1,422,938 (121,539) 3,135 17,912 — 23,982 (401) — — 101,704 Transports and communications . . 2,140,639 (62,711) 184,269 63,668 3 195,468 (5,213) 5,649 — 1,092,754 Financial activities ...... 3,588,127 (214,469) 687,459 1,795,716 355,824 2,536,215 (116,696) 1,029,715 (8,808) 185,436 Real estate activities ...... 5,627,216 (616,989) 17,675 125,439 — 121,155 (4,177) 1,304 — 265,482 Services provided to companies ...... 5,053,097 (469,163) 228,639 95,886 — 735,571 (37,803) 64,272 — 1,325,101 Public services ..... 1,594,188 (25,454) 957,328 1,234,070 — 4,006,635 — 322,405 — 196,168 Non-profit organisations .... 3,459,283 (288,679) 23,737 64,662 — 232,430 (47,602) 77,470 (4,613) 463,271 Mortgage loans .....10,814,726 (185,863) — — — — — — — 6 Consumers loans . . . 2,382,973 (192,364) — — — — — — — 238,801 Other ...... 162,901 (815) 991 286 — 7,433 (4) — — 3,155 TOTAL ...... 49,722,308 (3,387,412) 2,507,932 3,874,347 363,391 8,783,640 (297,035) 1,513,060 (13,421) 7,617,603

131 31.12.2012 Other Loans and advances to financial Available-for-sale Held-to-maturity customers Financial assets at fair Derivatives financial assets investments assets held value through for risk Gross for profit and management Gross Gross Guarantees amount Impairment trading loss purposes amount Impairment amount Impairment granted (in thousands of euro) Agriculture ...... 434,485 (27,152) 14,202 — — 10,725 (6) — — 36,677 Mining ...... 309,229 (11,966) 3,742 11,708 — 12,969 (675) — — 53,656 Food, beverage and tobacco ...... 974,407 (50,542) 25,727 2,685 — 10,395 (52) — — 102,293 Textiles ...... 316,309 (31,090) 862 — — 10,425 (3,958) — — 12,779 Shoes ...... 63,359 (6,843) 38 — — 499 (499) — — 2,063 Wood and cork ..... 147,345 (23,121) 480 2,236 — 4,366 (1,330) — — 7,466 Printing and publishing ...... 331,889 (15,601) 6,683 — — 11,968 (11,968) — — 84,260 Refining and oil ..... 6,976 (45) 4,817 3,385 — 11,618 — — — 5,425 Chemicals and rubber ...... 616,899 (14,149) 20,744 1,471 — 24,009 (13,276) — — 102,280 Non-metallic minerals ...... 363,449 (28,435) 431 — — 13,103 (7,958) — — 20,152 Metallic products .... 877,138 (48,939) 14,592 194 — 2,407 — — — 155,603 Production of machinery, equipment and electric device .... 280,584 (11,883) 3,079 584 — 31,249 (5,632) — — 120,022 Production of transport material ...... 113,698 (9,677) 630 10,741 14 33,298 (3,438) — — 34,662 Other transforming industries ...... 389,355 (27,340) 1,611 2,642 — 31,758 (11,280) — — 38,449 Electricity, gas and water ...... 1,458,334 (11,032) 155,360 23,846 — 687,307 — — — 487,693 Construction ...... 4,429,927 (368,417) 416,606 57,643 — 27,858 (1,688) — — 2,292,619 Wholesale and retail ...... 3,188,671 (289,276) 10,810 1,366 — 33,764 (15,430) 1,537 — 546,904 Tourism ...... 1,453,173 (91,215) 14,625 65,301 — 39,439 (379) — — 101,949 Transports and communications . . 2,152,159 (46,964) 291,175 18,483 — 271,487 (8,916) 9,894 — 1,010,767 Financial activities . . 3,952,138 (123,257) 1,045,792 1,901,531 516,506 3,650,620 (70,301) 526,584 (20,794) 161,474 Real estate activities ...... 6,249,967 (431,611) 52,371 70,000 — 201,741 (1,891) 1,299 — 456,531 Services provided to companies ...... 4,749,180 (369,927) 344,883 91,424 — 1,156,930 (33,197) 39,139 — 1,484,414 Public services ...... 954,941 (22,959) 1,361,185 515,994 — 4,405,389 — 295,271 — 227,198 Non-profit organisations ..... 2,682,267 (268,571) 133,128 38,356 — 303,008 (46,089) 106,936 (18,317) 402,493 Mortgage loans .....11,133,822 (167,019) — — — — — — — 9 Consumers loans .... 2,627,780 (180,039) — — — — — — — 70,704 Other ...... 141,253 (15,272) 1,826 1,963 — 6,945 (4) — — 4,978 TOTAL ...... 50,398,734 (2,692,342) 3,925,399 2,821,553 516,520 10,993,277 (237,967) 980,660 (39,111) 8,023,520

In terms of geographical breakdown, international activity increased its share by 4.8% year-on-year, to 26% of the total loan portfolio.

Geographic Breakdown of Credit Portfolio

Domestic International

12,208 12,795

38,191 36,928

Dec. 2012 Dec. 2013

132 Loan portfolio breakdown by risk rating The BES Group uses an internal rating system to support credit decisions and credit risk monitoring. The average probability of default given by these ratings reflects the current economic slowdown, which affected both the corporate and the retail segments.

The following table shows the distribution of the loan portfolio by credit rating:

31.12.2013 31.12.2012 Internal Credit Credit Rating/Scoring models scale amount (%) amount (%) (in million of euro) Large companies aaa:a- 8 0.02% 8 0.02% bbb+:-bbb- 2,119 4.26% 2,313 4.59% bb+:bb- 4,549 9.15% 4,997 9.91% b+:b- 7,074 14.23% 8,080 16.02% ccc+ 1,981 3.98% 1,277 2.53% Medium enterprises 8-9 488 0.98% 535 1.06% 10-11 403 0.81% 532 1.06% 12-13 553 1.11% 632 1.25% 14-15 467 0.94% 438 0.87% 16-17 502 1.01% 567 1.13% 18-19 380 0.76% 342 0.68% 20-21 468 0.94% 347 0.69% 22-23 231 0.46% 294 0.58% 24-25 1,527 3.07% 1,659 3.29% Small enterprises A 62 0.12% 71 0.14% B 334 0.67% 305 0.61% C 556 1.12% 620 1.23% D 268 0.54% 311 0.62% E 137 0.28% 251 0.50% F 556 1.12% 557 1.11% Mortgage loans 01 1,220 2.45% 1,196 2.37% 02 4,398 8.85% 4,341 8.61% 03 1,427 2.87% 1,492 2.96% 04 680 1.37% 710 1.41% 05 506 1.02% 503 1.00% 06 496 1.00% 488 0.97% 07 617 1.24% 679 1.35% 08 712 1.43% 953 1.88% Private individuals 01 74 0.15% 86 0.17% 02 57 0.11% 66 0.13% 03 118 0.24% 130 0.26% 04 238 0.48% 312 0.62% 05 118 0.24% 136 0.27% 06 170 0.34% 198 0.39% 07 149 0.30% 144 0.29% 08 132 0.27% 109 0.22% 09 183 0.37% 260 0.52% 10 2 — 4 0.01% No internal rating/scoring loans 15,762 31.70% 14,456 28.68% TOTAL 49,722 100.00% 50,399 100.00%

Asset Quality The BES Group’s efforts to improve its risk management policies and procedures permitted it to reduce the effect of the weakness of the domestic and international economies.

133 Despite such improvements, the effects are visible in the development of the BES Group’s overdue loan ratios. As a result, the BES Group significantly reinforced its credit provisions.

As at 31 December Change 2013 2012 Absolute Relative (EUR million) Gross Loans ...... 49,722 50,399 (676) (1,3)% Overdue Loans ...... 2,990 2,185 805 36,8% Overdue Loans + 90d ...... 2,826 1,966 860 43,7% Credit at Risk(1) ...... 5,249 4,758 491 10,3% Restructured Credit(2) ...... 5,846 — Restructured Credit not included in Credit Risk(2) ...... 4,678 — On-balance sheet provision reserve ...... 3,387 2,692 695 25,8% Credit Provisions ...... 1,005 815 190 23,3% Indicators(%) Overdue Loans/Gross Loans ...... 6.01 4.34 1,67pp Overdue Loans + 90d/Gross Loans ...... 5.68 3.90 1,78pp Credit at Risk(1)/Gross Loans ...... 10.56 9.44 1,12pp Restructured Credit(2) ...... 11.76 — — Restructured Credit not included in Credit Risk(2) ...... 9.41 — — Coverage of Overdue Loans ...... 113.3 123.2 (9,9)pp Coverage of Overdue Loans + 90d ...... 119.9 136.9 (17,1)pp Coverage of Credit at Risk(1) ...... 64.5 56.6 7,9pp Provision Charge for Credit/Gross Loans ...... 6.81 5.34 1,47pp Provision charge ...... 2.02 1.62 0,40pp Provision Charge net of Recoveries ...... 1.98 1.57 0.41pp

Note: (1) According to Instruction nº23/2011 of Bank of Portugal. Credit at risk includes: (a) total value of credit with capital or interest past due by 90 days or more; (b) other restructured credit, where the principal or interest payments were past due by more than 90 days and have been capitalised or refinanced without full coverage by collaterals or the interest fallen due has not been fully paid by the debtor; and (c) credits of an insolvent or bankrupt debtors. (2) According to BoP Instruction nº32/2013.

The overdue loans (>90 days) ratio increased to 5.68% as at 31 December 2013 (Dec.12: 3.90%). The corresponding provisions coverage, though declining by 17.1 pp (Dec.12: 136.9%), remained at 119.9%.

Overdue Loans and Provisions Coverage

137%120% 57% 65% Coverage

10.6% 9.4% Overdue Loans

5.7% 3.9%

2012 2013 2012 2013

Overdue Loans +90 days Credit at Risk

134 Reflecting the deterioration of economic conditions, the credit at risk ratio increased to 10.6% as at 31 December 2013, from 9.4% as at 31 December 2012. This increase was mainly driven by corporate overdue loans (where the ratio rose from 10.0% to 11.4%) due to the weight of this segment in the total portfolio.

Non-Performing Loans Coverage Provision Balance 2013 2012 2013 2012 2013 2012 Total Loans ...... 10.56 % 9.44 % 65 % 57 % 6.81 % 5.34 % Corporate ...... 11.41 % 10.02 % 72 % 64 % 8.16 % 6.37 % Mortgage ...... 7.19 % 7.28 % 24 % 21 % 1.69 % 1.52 % Individuals (other) ...... 12.72 % 10.54 % 74 % 69 % 9.36 % 7.28 %

Credit provisions were 2.02% of gross loans in 2013 (1.62% in 2012). Credit impairment cost in 2013 was €1,005 million. As a result, the balance of provisions for credit increased by 26% year-on year, with provisions as percentage of gross loans rising from 5.34% in 2012 to 6.81% in 2013.

Credit Provisions Provision 1.62% 2.02% Charge

On Balance 5.34% 6.81% Sheet Provision (EUR million) +26%

Balance Sheet Provisions 3,387 2,692

2012 2013

Management of Distressed Loans In the second half of 2013, the Bank of Portugal performed a special audit of the management processes used for so-called distressed loans. The audit was conducted by a team of international consultants recruited for the purpose.

The purpose of this audit was to assess the policies, processes, organisational structures, information systems and tools used by banks to identify, manage and monitor distressed loans. The audit had a wide scope, embracing not only loans in the process of recovery but also regular loans with early warning signals and loans with slight delinquency (only a few days of default on contractual obligations). This audit was not an asset quality review, but an audit of policies, processes and all other items referred above.

Upon conclusion of the audit works, the Bank of Portugal and Oliver Wyman assessed BES Group’s management practices for distressed loans against best domestic and international practices, and classified these on a 3-level scale: Basic, Intermediate and Advanced. The BES Group management practices were considered ‘Advanced’ with regard to the loan portfolios of individual clients and the large majority of corporate credit portfolios, and ‘Intermediate’ with regard to a Middle Market sub-segment (small medium-sized companies) and the Small Businesses Segment. In addition, the Bank of Portugal also issued several recommendations on which the BES Group is working, and which are seen as opportunities for improvement.

Exposure to Emerging Markets As at 31 December 2013, the foreign currency exposure to emerging markets as determined under the Bank of Portugal country risk criteria (i.e. all financial assets and off-balance sheet assets of residents of those countries) was €4,257 million, which represented 5.3% of consolidated assets (31 December 2012: 6.8%).

135 Exposure to Emerging Markets

As at 31 December 2013 2012 Gross Exposure(1) Net Exposure Net Exposure Bank of Portugal Fair Guarantees In In Risk Value and Foreign Structure Foreign Structure Weight Total Reserve Deduction(2) Total Currency (%) Total Currency (%) (EUR million, except as noted) Country Latin America ...... 3,389 0 649 2,740 496 30 2,785 921 27 Bahamas ...... 10% 2 0 1 1 1 0 0 0 0 Brazil ...... 0% 2,494 0 41 2,453 221 26 2,548 685 24 Mexico ...... 0% 149 0 76 72 60 1 50 50 0 Panama ...... 0% 280 0 76 204 204 2 149 149 1 Venezuela ...... 50% 444 0 444 0 0 0 2 2 0 Other ...... 20 0 11 9 9 0 35 35 0 Eastern Europe ...... 184 0 6 178 49 2 123 42 1 Croatia ...... 10% 0 0 0 0 0 0 0 0 0 Ukraine ...... 50% 1 0 1 0 0 0 0 0 0 Other ...... 182 0 5 178 48 2 123 42 1 Asia Pacific ...... 519 0 414 105 31 1 71 59 1 China ...... 0% 4 0 2 2 2 0 2 2 0 India ...... 10% 358 0 353 5 3 0 4 4 0 Macau ...... 0% 96 0 0 96 25 1 64 52 1 Turkey ...... 10% 1 0 0 0 0 0 0 0 0 Others ...... 60 0 59 1 1 0 0 0 0 Africa ...... 8,270 0 2,016 6,253 3,682 67 7,473 4,639 71 South Africa ..... 0% 21 0 21 0 0 0 16 16 0 Angola ...... 10% 8,100 0 1,969 6,131 3,560 66 7,322 4,488 70 Cape Verde ...... 10% 105 0 2 102 102 1 113 113 1 Morocco ...... 10% 1 0 1 0 0 0 1 0 0 Other ...... 43 0 23 19 19 0 21 21 0 Total ...... 12,361 0 3,084 9,276 4,257 100 10,452 5,661 100 % of Net assets ...... 15.3% 11.5% 5.3% 13.2% 7.2% Note: (1) Exposure net of provisions for country risk. (2) Includes Trade Finance less than one year in the amount of €112.2 million and IFC B Loans in the amount of €0.4 million.

The BES Group operates in various countries outside of Portugal, most notably in Angola and Brazil. The BES Group’s net exposure to these two countries as of 31 December 2013 represents 66% and 26%, respectively, of its overall net exposure to emerging markets.

Market Risk Market risk is the possible loss resulting from an adverse change in the value of a financial instrument due to fluctuations in interest rates, foreign exchange rates, share prices, commodity prices, real estate prices, volatility or credit spreads.

Market risk is monitored on a short-term basis (10 days) for the BES Group’s trading book and on a medium- term basis (1 year) for the banking book.

Trading Book Risks Management Practices The main measure of market risk is the estimation of potential losses under adverse market conditions, for which the VaR methodology is used. VaR is calculated using the Monte Carlo simulation, with a 99% confidence level and an investment period of 10 days. The Monte Carlo method is based on pseudo-random simulations to

136 estimate the possible values of the risk factors, having in mind their volatilities and correlations. The BES Group makes 10,000 simulations and the volatilities and correlations are historical and are based on an observation period of one year.

To calibrate the VaR assessment, daily back testing exercises are performed, allowing a comparison of losses foreseen by the VaR model with actual losses. These exercises allow the model to be fine-tuned and its predictive capacity improved.

As a complement to the VaR model, stress testing is also carried out, allowing the BES Group to assess the potential for losses under extreme scenarios.

The BES Group’s portfolios are subject to VaR and stop loss limits with the objective of limiting potential losses. These limits are monitored daily by the Risk Department.

Analysis of Market Risk Consolidated VaR as at 31 December 2013, relating to trading positions in equities, interest rate instruments, volatility, credit spreads commodities, as well as foreign exchange positions (except the foreign exchange position in equities in the available-for-sale portfolio and in the portfolio of assets at fair value) totalled €36.8 million (compared to €38.1 million as at 31 December 2012; €57.8 million if including BESI Group’s credit spread on 31 December 2012).

As at As at 31 December Max Average 31 December 2013 2013 2013 2012(1) Equity and commodities ...... 11.2 21.4 12.6 15.0 Interest rate ...... 5.5 9.3 7.1 8.8 Foreign exchange ...... 11.2 11.0 9.2 3.4 Volatility ...... 3.1 4.1 5.8 7.1 Credit spreads ...... 16.8 33.9 23.9 13.9 Diversification effects ...... (10.9) (14.8) (11.0) (10.1) Total ...... 36.8 65.0 47.7 38.1

Note: (1) Does not include VaR from bonds and CDS credit spread from BESI.

Equity, foreign exchange and credit spread risks are the most significant in the total VaR (€36.8 million).

As a complement to market risk measurement, simulated extreme scenarios are also analysed. Such risk factors were subject to extreme scenario testing, based on the most positive and the most negative 10-day shifts that have occurred in the last 20 years.

137 As at 31 December 2013, the market risk factors to which the BES Group was most exposed were adverse changes to South American equity indices, South America’s credit spread and African exchange rates.

Extreme Scenario (measured as at 31 December 2013) Loss (EUR million) Interest Rate Risk 15% yield curve twist—Europe ...... 2.8 25% yield curve twist—North America ...... 3.0 25% parallel yield curve shift—Europe ...... 4.2 27% parallel yield curve shift—North America ...... 6.0 Foreign exchange Risk 17% change in African countries ...... 55.1 55% change in South America countries ...... 12.7 10% change in North America countries ...... 7.2 Equity Risk 50% change in South American indexes ...... 65.9 23% change in European Indexes ...... 7.5 Volatility Risk 15% change in volatility in South American indexes ...... 5.6 100% change in interest rate volatility in American countries ...... 2.0 95% change in volatility in South American countries ...... 1.1 Credit Spreads Risk 215% change in credit spreads in South American Countries ...... 95.0 65% change in credit spreads in European countries ...... 4.6

In relation to foreign exchange risk, the breakdown of assets and liabilities, by currency, as at 31 December 2013 and 2012, is analysed as follows:

31.12.2013 31.12.2012 Other Other Spot Forward elements Net exposure Spot Forward elements Net exposure (in thousands of euro) USD United States Dollars 152,396 (242,532) 7,997 (82,139) (802,201) 842,328 32,097 72,224 GBP Great Britain Pounds 488,580 (477,910) 65 10,735 466,168 (467,042) (1,057) (1,931) BRL Brazillian real 149,020 (148,191) (218) 611 187,801 (183,686) (4,738) (623) DKK Danish Krone 3,191 (3,278) — (87) 21,947 (21,579) — 368 JPY Japanese yene (13,732) 19,110 (16,882) (11,504) 27,297 5,171 (40,166) (7,698) CHF Swiss franc 7,632 1,427 (8,054) 1,005 9,944 (6,962) (1,286) 1,696 SEK Swedish krone (13,232) 13,203 — (29) 7,403 (7,778) (53) (428) NOK Norwegian krone (43,087) 43,156 — 69 (49,539) 49,807 69 337 CAD Canadian Dollar (1,048) 11,728 — 10,680 22,866 (23,290) (7,227) (7,651) ZAR Rand (14,340) 14,287 — (53) (5,569) 4,475 497 (597) AUD Australian Dollar (2,022) 2,760 — 738 (8,510) 10,124 17 1,631 AOA Kwanza (156,583) — — (156,583) (53,208) — — (53,208) CZK Czach koruna 105 — — 105 5 — — 5 MXN Mexican Peso 42,900 (43,878) — (978) 63,789 (75,772) 9,338 (2,645) Others (93,616) 55,649 27,090 (10,878) 16,727 45,008 34,626 96,361 506,164 (754,469) 9,998 (238,308) (95,080) 170,804 22,117 97,841

Note: asset / (liability)

BES Group manages the foreign exchange risk inherent in its activity within established VaR limits, and hedges such risks through derivative products whenever appropriate.

Banking Book Risks Risks in the banking book arise from adverse movements in interest rates, credit spreads, the market value of securities and real estate relating to non-trading exposures in the balance sheet. The interests of BES VIDA are independently monitored by this company’s risk area.

138 On-Balance Sheet Interest Rate Risk Interest rate risk may be understood in two different but complementary ways, as the effect of interest rate movements affecting an institution’s banking book on the net interest margin or the value of capital.

Changes in market interest rates affect the interest income of the Bank by altering the results and costs associated with interest rate products and by affecting the underlying assets, liabilities and off-balance sheet instruments value.

The BES Group’s banking book exposure to interest rate risk is calculated on the basis of Bank of International Settlements (“BIS”) methodology, classifying all interest rate-sensitive assets, liabilities and off-balance sheet items, excluding those from trading, using repricing schedules.

The model used is similar to the duration model, using a stress-testing scenario corresponding to a parallel shift of 200 basis points in the yield curve for all interest rate levels (Bank of Portugal Instruction nº 19/2005).

With regard to demand deposits with undetermined duration, based on historical data approximately, 74% are considered ‘core deposits’, i.e., with a maturity of up to three years with the remainder as sight deposits.

The interest rate risk on the banking book essentially derives from the combination of long-term fixed-rate credit and bonds with liabilities represented by long-term fixed-rate securities and customer funds.

Following the recommendations of Basel II (Pillar 2) and Instruction nº 19/2005, of the Bank of Portugal, the Group calculates its exposure to interest rate based on the methodology of the Bank of International Settlements (BIS) classifying all items of assets, liabilities and off-balance sheet, not belonging to the trading portfolio by repricing intervals.

The following tables lay out the figures for 2013 and 2012:

31.12.2013 Eligible Non Up to 3to 6to More than amounts sensitive 3 months 6 months 12 months 1 to 5 years 5 years (in thousands of euro) Cash and deposits 7,692,459 376,865 7,164,012 93,062 44,638 269 13,613 Loans and advances to customers 48,660,744 — 30,239,988 7,759,707 2,024,753 6,021,147 2,615,149 Securities 14,848,731 6,240,499 3,240,196 1,119,973 854,262 850,547 2,543,254 Technical Reserves of Reinsurance ceded — — — — — — — Total 40,644,196 8,972,742 2,923,653 6,871,963 5,172,016 Deposits from Banks 14,368,195 — 12,640,480 387,797 623,992 264,750 451,177 Due to customers 36,281,992 — 17,727,912 3,340,480 6,711,979 8,476,804 24,817 Securities issue 12,716,252 — 2,821,877 1,859,458 380,806 4,550,717 3,103,393 Investments contracts 4,278,066 1,619,788 — — — 2,658,278 — Technical Reserves of Direct Insurance 1,754,655 37,538 — 807,033 — — 910,084 Total 33,190,269 6,394,768 7,716,777 15,950,549 4,489,471 GAP (assets— liabilities) (3,157,264) 7,453,927 2,577,974 (4,793,125) (9,078,585) 682,545 Off Balance sheet (11,783) (8,473,342) (1,271,568) 6,120,832 3,703,511 (92,400) Structural GAP (3,170,232) (1,019,415) 1,306,406 1,327,707 (5,375,074) 590,145 Accumulated GAP (1,019,415) 286,991 1,614,698 (3,760,376) (3,170,232)

139 31.12.2012 Eligible Non Up to 3to 6to More than amounts sensitive 3 months 6 months 12 months 1 to 5 years 5 years (in thousands of euro) Cash and deposits with banks 7,492,060 438,713 6,664,597 269,579 103,370 15,754 46 Loans and advances to customers 49,673,250 — 29,712,842 8,957,736 2,736,210 5,965,359 2,301,103 Securities 16,725,064 7,367,973 4,002,972 1,359,061 1,058,477 1,742,554 1,194,026 Total 40,380,411 10,586,376 3,898,057 7,723,668 3,495,175 Deposits from Banks 15,867,594 — 14,182,895 525,694 648,472 270,027 240,506 Due to customers 34,031,479 — 22,337,278 2,929,281 3,066,320 5,685,175 13,424 Securities issue 15,858,652 — 5,139,450 752,979 279,880 6,547,539 3,138,805 Investments contracts 3,319,944 545,779 25,622 371,293 — 1,671,301 705,950 Technical Reserves of Direct Insurance 1,547,697 1,531,105 — — — 5,904 10,689 Total 41,685,244 4,579,247 3,994,673 14,179,946 4,109,373 GAP (assets—liabilities) (2,464,796) (1,304,833) 6,007,129 (96,616) (6,456,278) (614,198) Off Balance sheet (6,114,471) (751,350) 509,366 6,289,980 66,475 Structural GAP (2,464,796) (7,419,305) 5,255,779 412,750 (166,298) (547,723) Accumulated GAP (7,419,305) (2,163,525) (1,750,775) (1,917,073) (2,464,796)

Sensitivity analysis to the interest rate risk of the Bank’s prudential portfolio is performed using the duration model approach and considers several scenarios of changes in the yield curve at various interest rate levels.

31.12.2013 31.12.2012 Decrease Parallel Parallel Increase of Decrease of Parallel Parallel Increase of of increase of decrease of 50 bp after 50 bp after increase of decrease of 50 bp after 50 bp after 100 bp 100 bp 1 year 1 year 100 bp 100 bp 1 year 1 year (in thousands of euro) At 31 December (22,275) 22,275 (1,256) 1,256 (85,483) 85,483 (34,138) 34,138 Average for the year (70,993) 70,993 (21,050) 21,050 (22,320) 22,320 (976) 976 Maximum for the year (110,480) 110,480 (37,706) 37,706 (124,700) 124,700 60,383 (60,383) Minimum for the year (80,224) 80,224 (24,188) 24,188 13,477 (13,477) 22,242 (22,242)

In addition to parallel shocks, the yield curve is also subject to non-parallel shocks in order to measure the impact of the resulting variations on economic capital sensitivity.

Finally, the banking book interest rate risk is also measured on the basis of the 1-year historical VaR with a confidence interval of 99%. On 31 December 2013, this value was €313 million.

Credit Spread Risk The credit spread, which is the capacity of an issuer to meet its responsibilities up to the maturity of the debt security, is one of the factors considered in the evaluation of debt securities portfolio at market value.

An asset’s credit spread risk reflects the difference between the interest rate associated with that asset and the interest rate of a risk-free asset in the same currency.

140 This risk is measured based on a VaR at 99% with a holding period of one year, complemented by the analysis of simulated extreme scenarios.

10 Index Series 1 year 3 years 5 years 7 years years (basis points) Year 2013 CDX USD Main 21 7.67 29.88 62.44 88.95 107.99 iTraxx Eur Main 20 — 35.17 70.15 96.97 118.17 iTraxx Eur Senior Financial 20 — — 87.06 — 135.18 Year 2012 CDX USD Main 19 33.02 58.73 95.39 118.68 136.14 iTraxx Eur Main 18 — 76.38 117.43 141.58 154.60 iTraxx Eur Senior Financial 18 — — 142.44 — 174.98

Risk of Equity Instruments and Other Variable Income Securities The BES Group is also subject to other types of banking book risk, namely the risk of equity holdings, mutual funds and Bearer Insurance Certificates (“BICs”). These risks are assumed by the BES Group in its investment activity and may be broadly described as the probability of a loss resulting from an adverse change in the market value of these instruments. Whenever necessary the BES Group can implement strategies to hedge this type of risk, namely through derivative instruments.

The risk of equity holdings and mutual funds, which arises from the respective market prices and equity indexes, is measured based on a VaR at 99%, considering a holding period of one year. This includes the foreign exchange risk in equities in the available for sale portfolio and in the portfolio of assets at fair value.

With regard to the risk of equity holdings, it should be noted that a large part of the holding in EDP was sold. During 2013, the BES Group sold 2.12 % of EDP shares. As at 31 December 2013, the BES Group had a residual holding of EDP shares.

Finally, this risk analysis is complemented by the analysis of simulated extreme scenarios.

The risk of BICs, which derives from their price, is calculated based on a VaR with a confidence interval of 99% and a holding period of one year.

Real Estate Risk Real estate risk arises from adverse changes in the market value of real estate assets on the Bank’s balance sheet, either directly in real estate or indirectly through real estate investment funds. This risk results mainly from the Bank’s lending activity and is managed by a specialized unit, which is responsible, amongst others, for the implementation of marketing strategies and execution of sales transactions.

Such risk is analysed with consideration for both the residential and the commercial real estate sectors.

Additionally, the Group is also exposed to real estate risk through collateral received as collateral for loans, which is managed so that the respective Loan-to-value is adequate. All properties are regularly evaluated by independent evaluators.

The real estate risk is measured on the basis of the 1-year historical VaR with a confidence interval of 99%.

Pension fund risk Pension fund risk stems from the possibility of the value of the fund’s liabilities (the responsibilities of the fund) exceeding the value of its assets (the fund’s investments). When that occurs, the bank must cover the difference and incur in the respective loss (through BES Group contributions to the fund).

The BES Group’s pension fund risk is measured based on the estimated value of assets and liabilities with a timeframe of one year.

The estimated return on the fund’s assets represents the maximum loss which the Fund may incur in a period of one year. This return is determined by calculating, for a confidence interval of 99%, the 1-year VaR of the Pension Fund’s assets portfolio at the reference date.

141 The responsibilities are updated based on the projected current cost within one year.

To quantify the pension fund risk BES Group uses the same models and methodologies used to determine the material risks incurred by its assets.

Liquidity Risk Liquidity risk arises from an institution’s present or future inability to settle its liabilities as they mature without incurring substantial losses.

Liquidity risk may be divided into two types: • Market liquidity risk—the impossibility of selling an asset due to lack of liquidity in the market, leading to the widening of the bid/offer spread or the application of a discount from its market value. • Funding liquidity risk—the impossibility of obtaining market funding to finance assets and/or refinance debt coming to maturity in the desired currency. This can lead to a sharp increase in the cost of funding or to the requirement of collaterals to obtain funding. Difficulties in (re)financing may lead to the sale of assets, even if incurring in significant losses. The risk of re-financing should be reduced through an adequate diversification of funding sources and maturities.

Banks are subject to liquidity risk by virtue of their business and changing maturities (providing long-term loans and receiving short-term deposits) and therefore prudent management of liquidity risk is crucial.

Management Practices The structure established by the BES Group to manage liquidity risk clearly identifies responsibilities and processes with the objective of ensuring full coordination between all the participants in liquidity risk management and the effectiveness of management controls.

The BES Group’s liquidity risk management structure is prepared to respond to new challenges that may arise due to scarcity of wholesale funding and the increasingly frequent and demanding changes in the regulation on liquidity and funding.

The BES Group has defined liquidity indicators, internal stress scenarios and management decision processes. These liquidity indicators provide a precise measure of the liquidity risks to which the BES Group is subject and also translate the scarcity of liquidity that will impact the BES Group’s profitability.

Liquidity Risk Appetite The Global Risk Department (“GRD”) and the Financial Department are responsible for drawing up proposals concerning the methodology for defining the Liquidity Risk Appetite, its calibration and its translation into objectives and limits to be set to the BES Group and to its external units. The GRD submits these proposals to the Capital and Liquidity Committee, for approval, and this committee in turn submits them to the Executive Committee.

The GRD is responsible for monitoring actual performance versus the liquidity risk appetite and the objectives defined.

The BES Group’s Liquidity Risk Appetite is defined in accordance with two complementary variables: • Survival Horizons under stress situations; and • Liquidity ratios.

The survival horizons considered take into account the seriousness of the scenario and the mitigation actions. Scenarios of moderate and severe stress were considered, with impact at three levels: bank specific, market-wide and combined.

The liquidity ratios identified to define the BES Group’s Liquidity Risk Appetite are organised into the following categories: • Regulatory Ratios, including the Basel III liquidity ratios;

142 • Balance sheet liquidity profile; • Concentration of short-term wholesale funding; • Remaining indebtedness capacity; • Maturity mismatches.

Policy on Limits This process involves the definition of a set of limits/targets, calibrating them and distributing them to the external units, monitoring them, and in case they are surpassed, reporting that to the management bodies and setting a path for convergence towards the established targets.

The Global Risk Department and the Financial Department are responsible for drafting proposals concerning the methodology for the establishment of limits, which must also consider a path towards convergence within the BES Group and its vision for long-term liquidity. These proposals are submitted to the Liquidity and Capital Committee, for approval, and this committee in turn submits them to the Executive Committee.

Transfer Prices BES Group’s policy on transfer prices reflects the BES Group’s funding structure and establishes guiding objectives and principles, including: • Consistent coordination of liquidity costs/benefits with the liquidity risk policy and the risk appetite defined by the BES Group; • The liquidity price linked to the transfer price should be actively used as a guide in decisions about new businesses; • Coverage of all the more important elements of the balance sheet; • The establishment of prices must be based on the behavioural lifetime of assets/liabilities, differentiating the funding cost between short- and long-term assets and liabilities.

The transfer price is applied to all new credit/deposit operations and incorporated into the “Objectives and Incentives System”. Therefore, it plays an important role in determining the net interest margin and banking income of each business area.

Contingency Plan The BES Group’s Contingency Plan is proportional to the nature, scale and complexity of its business and permits the BES Group to manage liquidity needs in a crisis scenario. The purpose of the Liquidity Contingency Plan is to mitigate, as far as possible, the impact of a liquidity crisis, through the definition of a set of procedures aimed at: • Describing in detail the BES Group’s response to a liquidity problem, with regard to timely identification, warning procedures and principles for managing a liquidity crisis situation; • Understanding the potential impact of a liquidity crisis on the various stakeholders; • Establishing essential management information; • Establishing a mechanism to anticipate liquidity crises; • Identifying types and potential sources of liquidity crises; • Establishing principles on the use of last resource funding in case all the BES Group’s efforts at an effective resolution of a liquidity crisis fail.

Liquidity Risk Analysis While the markets have not yet returned to a normal situation in terms of liquidity risk and the wholesale market was not fully operational during 2013, towards the end of 2013 and in the beginning of 2014 there has been an improvement in sentiment towards the European peripheral countries.

143 In this context, the BES Group has managed its funding needs mainly through the growth of deposits, which is evident in the improvement of the loans to deposits ratio; from 137% in December 2012 to 121% in December 2013.

In accordance with the defined management structure for liquidity risk, stress scenarios with different degrees of severity (moderate and severe), different time horizons and different areas of impact (market-wide, bank specific, and combined) are applied.

As an example, the market-wide scenario may simulate the closure of the wholesale market, while the bank- specific scenario may simulate various degrees of run-off of retail and non-retail customer deposits.

As at 31 December 2013 the net assets buffer (consisting of cash and deposits at central banks and the securities available for rediscount with the ECB) largely exceeded the cash outflow resulting from application of the stress scenarios.

Bank of Portugal’s instruction no. 13/2009 defines the liquidity gap as (Liquid Assets—Volatile Liabilities)/ (Assets—Liquid Assets) x 100 for each cumulative ladder of residual maturity, where liquid assets include cash and liquid securities and volatile liabilities include cash, debt issues, commitments to third parties, derivatives and other liabilities. This indicator gives an image of the liquidity position of an institution’s wholesale risk.

At 31 December 2013 BES Group’s liquidity gap up to one year was -0.1% (1.7% in December 2012). This positive change, which reflects the BES Group’s conservative management of liquidity risk, essentially resulted from the increase of deposits as a source of funding.

As at 31 December 2013 BES Group complied with the limit established for 2015 for the Basel III LCR.

31.12.2013 From From Eligible Up to 7 days to From 1 to From 3 to 6 months to More than amounts 7 days 1 month 3 months 6 months 1 year 1 year (millions of euro) ASSETS Cash and deposits at central banks 377 377 — — — — — Loans and advances to banks 7,316 6,290 261 583 88 54 39 Loans and advances to customers 41,767 493 1,418 1,189 1,289 1,894 35,484 Securities 25,331 2,441 835 1,946 1,202 2,313 16,593 Technical Reserves of reinsurance ceded 1 — 1 — — — — Other Assets, net 1,839 718 16 61 4 123 917 Off Balance sheet (Commitments and Derivatives) 2,360 77 222 823 382 536 320 Total 10,396 2,753 4,602 2,965 4,920 53,353 LIABILITIES Deposits from banks, central banks and other loans 14,646 1,667 459 886 196 914 10,522 Due to customers 36,002 2,390 457 643 396 647 31,470 Securities 12,661 3 9 1,490 1,963 495 8,701 Investments contracts 4,278 236 101 47 69 113 3,713 Technical Reserves of Direct Insurance 1,755 10 5 18 11 29 1,681 Other short-term liabilities 1,469 1,286 128 12 — 10 34 Off Balance sheet (Commitments and Derivatives) 10,591 116 306 959 484 552 8,173 Total 5,708 1,465 4,055 3,119 2,760 64,294 GAP (Assets—Liabilities) 4,689 1,288 547 (155) 2,160 Accumulated GAP 4,689 5,977 6,525 6,370 8,530 Buffer > 12 months 2,127

144 31.12.2012 From From Eligible Up to 7 days to From 1 to From 3 to 6 months to More than amounts 7 days 1 month 3 months 6 months 1 year 1 year (millions of euro) ASSETS Cash and deposits at central banks 420 420 — — — — — Loans and advances to banks 7,072 5,614 504 607 223 95 30 Loans and advances to customers 43,500 561 1,170 1,411 1,501 2,291 36,566 Securities 25,684 2,601 1,140 2,226 889 1,500 17,328 Technical Reserves of reinsurance ceded 4 4 — — — — — Other Assets, net 1,816 1,816 — — — — — Off Balance sheet (Commitments and Derivatives) 6,570 313 139 268 454 513 4,883 Total 11,329 2,953 4,512 3,067 4,399 58,807 LIABILITIES Deposits from banks, central banks and other loans 16,110 2,092 515 680 479 770 11,573 Due to customers 33,789 594 957 1,974 731 138 29,396 Securities 15,862 176 441 1,936 927 278 12,103 Investments contracts 3,320 21 1 83 63 162 2,989 Technical Reserves of Direct Insurance 1,548 10 5 14 28 71 1,418 Other short-term liabilities 1,589 1,589 — — — — — Off Balance sheet (Commitments and Derivatives) 10,188 330 201 417 624 520 8,096 Total 4,812 2,120 5,104 2,852 1,939 65,575 GAP (Assets—Liabilities) 6,515 833 (593) 214 2,459 Accumulated GAP 6,515 7,348 6,755 6,970 9,429 Buffer > 12 months 581

Operational Risk Operational risk may be defined as the probability of the occurrence of events with a negative impact on earnings or capital resulting from inadequate or negligent application of internal procedures, information systems, staff behaviour or external events. Legal risk is also included in this definition. Operational risk is therefore the sum of the operational, information systems, compliance and reputation risks.

Management Practices Operational risk is managed through a set of procedures that standardise, systematise and regulate the identification, monitoring, control and mitigation of this risk. The priority in operational risk management is to identify and mitigate or eliminate risk elements, even if these have not resulted in financial losses.

The management methodologies in place are supported by the principles and approaches to operational risk management issued by the Basel Committee and those underlying the Risk Assessment Model implemented by the Bank of Portugal, recognised as representing the best practices in this area.

The operational risk management model is supported by a structure within the Global Risk Department exclusively dedicated to designing, monitoring and maintaining the model. This structure works in close coordination with the operational risk representatives from the BES Group’s departments, branches and subsidiaries and their teams, who ensure that the established procedures are implemented and are responsible for the day-to-day management of operational risk, their participation being crucial.

Other departments also participate in the established Management Model, namely the Compliance Department, through its Internal Control System Management Unit, the Internal Audit Department, and the Security Management and Coordination Department.

145 The Global Risk Department and the Operational Risk representatives appointed by BES Group’s relevant financial institutions are responsible for implementing operational risk management practices in accordance with the established methodologies, including the following: • Identification and reporting of operational risk incidents in BES Group’s corporate platform. This database not only considers loss-originating events but also events with positive impacts or others with no accounting impacts. The analysis of these events is essential to permit the mitigation of risk; • Execution of procedures to control the registration of events in order to verify the effectiveness of the identification processes implemented in each financial institution and, at the same time, ensure the accuracy and consistency of the information on incidents with financial impacts. This process consists of checking the financial movements booked under certain items against the incidents recorded in the database; • Identification and systematisation of risk sources and potential incidents in order to define incident reporting responsibilities within the institutions and thus promote a risk awareness culture and further improve the established identification process; • Regularly carrying out self-assessment exercises to identify the larger risks and corresponding mitigation actions; • Monitoring of risk factors through group-wide key risk indicators (KRI) including a comparative analysis, as well as specific indicators as required by the risk control needs of certain units; • Analysis of one-off scenarios for certain sources of risk; • Definition and monitoring of the implementation of measures to eliminate or mitigate the risk sources identified through the analysis of incidents, self-assessments, KRIs or workshops with the heads of the business units; • Production of consolidated management information for the BES Group’s senior management as well as specific reports for certain business units; • Training and sharing of experiences in a spirit of ‘lessons learned’ and adoption of best practices by the BES Group’s various units; and • Calculation of capital requirements in accordance with the Standardised Approach.

In 2013, the BES Group continued to make significant investments in the corporate IT platform involving the development of new modules to manage the self-assessment exercises and monitor the KRIs. The IT investment has also improved group-wide data collection, treatment and control through specific workflows permitting, among others, the segregation of functions. The main tools for operational risk management are thus contained in a single platform. Nevertheless, the BES Group continues to invest in further improving the IT platform and management processes through the automation of methods for mitigating risk sources, combining information and thus allowing for the integrated management of operational risk.

Analysis of Operational Risk An analysis of BES’ operational risk profile shows that incidents with low financial impact are quite frequent while incidents with a material financial impact are rare.

In 2013, 96% of the incidents had a financial impact below €5,000, representing 27% of the total impact. Incidents with an impact above €100,000 (34% of the total) were fewer than in 2012, measures have been implemented to address the identified deficiencies by the BES Group.

146 Loss amount Frequency

27% <= 5 000 96% 19% ]5 000 ; 20 000 ] 3% 20% ]20 000 ; 100 000 ] 1% 34% > 100 000 0%

The operational risk incidents identified are added to the BES Group’s Operational Risk application (AGIRO), which fully characterises and systematises them and controls the established mitigation actions. Every incident is classified in accordance with the risk categories defined in the Bank of Portugal’s Risk Assessment Model, by business lines and Basel Risk types.

In 2013, the “Execution, delivery & process management” incidents registered the highest scores in terms of both frequency and lost amount, representing 58% of the total loss in the year.

Breakdown Of Operational Risk Events By Type Of Risk

Incidents of “External fraud” were more frequent in 2013 compared to 2012 but their impact remained practically unchanged. ‘Business Disruption and System Failures’ incidents show an increase in loss volume, but this was due to an improvement in the identification processes of operational risk rather than an increase in risk.

147 INFORMATION ON THE BES GROUP

Banco Espírito Santo, S.A., a public company, has its registered offices at Av. da Liberdade, 195, 1250-142 Lisbon, Portugal, taxpayer number 500 852 367 and registered in the Commercial Registration Office of Lisbon, with fully paid share capital of € 5,040,124,063.26.

History of the BES Group Caza de Cambio to BESCL BES’ origins date back to 1869, the year José Maria do Espírito Santo e Silva, together with other investors, opened a Caza de Cambio, the exchange business that eventually gave rise to Banco Espírito Santo, in 1920. In the 1930s, BES became the leading private bank in Portugal, and after its merger with Banco Comercial de Lisboa in 1937 changed its name to Banco Espírito Santo e Comercial de Lisboa (“BESCL”). With an innovative management model focused on the expansion of the retail network and increase of the market share, the diversification of banking transactions, and modernisation, BESCL successfully weathered the effects of two world wars.

70s—from internationalisation to nationalisation In 1972, BESCL co-founded Libra Bank, based in London, and in the following year set up Banco Inter Unido, in Luanda, under a joint-venture with the First National City Bank of New York.

In 1975, the Portuguese government nationalised all national credit institutions and insurance companies, including BESCL. Prevented from pursuing its businesses in Portugal, the Espírito Santo family rebuilt its financial interests abroad and created the Espírito Santo Group (“GES”).

80s—the return of Espírito Santo Group to Portugal In the 1980s, GES developed its activities in Brazil, Switzerland, France and the United States of America.

In 1986, the Portuguese government initiated a privatisation programme. With banking activity once again open to the private sector, the Espírito Santo Group, under a joint venture with Caisse Nationale du Crédit Agricole and backed by a group of Portuguese investors, set up Banco Internacional de Crédito, which marked the return of the BES Group to Portugal. In the same year the Espírito Santo Group created Espírito Santo Sociedade de Investimento (the precursor of BES Investimento), with the participation of Union des Banques Suisses (Switzerland), Kredietbank (Luxembourg), and other financial institutions.

In 1989 Sociedade Euroges was set up to develop factoring activities.

90s—from the privatisation of BESCL to BES In 1990, BESleasing was set up to develop leasing activities.

1991 saw the first phase of BESCL’s privatisation which would end in 1992 with Espírito Santo Group’s acquisition of the majority of its share capital under a joint venture with Crédit Agricole.

This was followed in 1991 by the creation of Crediflash and ESER, Sociedade Financeira de Corretagem.

In 1992, BESCL purchased Banco Industrial del Mediterraneo, which later changed its name to Banco Espírito Santo (Spain), and created ESAF—Espírito Santo Activos Financeiros. In 1995, the Bank opened for business in Macao through Banco Espírito Santo do Oriente.

On 6 July 1999, BESCL changed its name to BES.

The new millennium—consolidation of strategy for Portugal and reinforcement of international expansion In 2000, BES reinforced its position in Spain through the acquisition of Benito y Monjardin and GES Capital, purchased Espírito Santo Bank in the United States and established an important joint venture with the Bradesco Group in Brazil involving the establishment of joint holdings in BES Investimento do Brasil and in the broker

148 BES Securities do Brasil. The same year saw the establishment of a joint venture with the Portugal Telecom Group, which would lead in 2001 to the creation of Banco BEST—Banco Electrónico de Serviço Total. After acquiring 9% from ESFG, BES holds 75% of Banco BEST share capital.

BES Angola, a bank set up under Angolan law, was incorporated in 2001.

In 2002, BES dos Açores opened for business and in 2003 BES acquired a 45% stake in Locarent (rent-a-car) under a joint venture with Caixa Geral de Depósitos and Serfingest, SGPS.

In 2005, BES’ subsidiary in Spain acquired the entire share capital of Banco Inversión (Spain), BES Investimento and the Polish Concórdia Sp z.o.o. set up a joint venture to create Concordia Espírito Santo Investment (CESI), and Banco Internacional de Crédito (BIC) was merged into BES.

In 2006, BES Group launched a new corporate identity and Crediflash was incorporated into BES. In 2007 BES Spain was also merged into BES.

In 2008, BES Angola, under a joint venture with ESAF, set up BESA-ACTIF, the first fund management firm to operate in Angola.

In 2009, BES Investimento announced the opening of a branch in New York and BES Group entered an agreement to acquire a 40% stake in Aman Bank for Commerce and Investment Stock Company, a private bank based in Tripoli, Libya.

2010 saw the opening of BES Cabo Verde, a universal bank incorporated under Cape Verde law, and BES ÁFRICA, SGPS, a holding company, entered into an agreement to acquire a 25.1% direct stake in Moza Banco (Mozambique). In 2013, the BES Group increased its stake in Moza Banco to 49%.

In April 2011, BES announced that an agreement had been reached with “Cidade de Deus—Companhia Comercial de Participaçoes” for the sale by BES of approximately 78 million ordinary shares, which represented 4.1% of the voting share capital, of Banco Bradesco SA.

In May 2011, BES applied for a guarantee by the Portuguese state through the Bank of Portugal (Banco de Portugal), for a new issue of non-subordinated bonds, up to €1,250,000,000 with a three-year maturity. For that purpose, the Bank of Portugal requested that BES amend its by-laws, so as to allow the Board to resolve a share capital increase in case the Portuguese state’s guarantee was called, and also resolve the waiver of shareholder pre-emptive rights in any capital increase resulting from any execution of the guarantee.

BES’ by-laws were amended by an Extraordinary Shareholders’ General Meeting held on June 2011. The Board was authorised to resolve a share capital increase, through cash contributions, in one or more instalments, by the issuance of ordinary shares or preferential redeemable or non-redeemable shares, under the terms and conditions to be later defined, up to a maximum amount of €5,000,000,000, preceded by a favourable approval of the Audit Committee. This authorisation is valid for a period of five years, and is not limited to the event of the Portuguese state’s guarantee being enforced, and therefore a share capital increase may be resolved outside the framework of a state guarantee.

In June 2011, BES and China Development Bank Corporation signed a Memorandum of Understanding under which both banks established cooperation principles for developing future business. Following this, in September, BES and China Development Bank Corporation signed an agreement for a mid/long-term credit facility in the amount of USD 300 million for a period of 3 years.

In October 2011, the Board requested an extraordinary general meeting of BES’ Shareholders for 11 November 2011 to resolve on a proposal by the Board to increase the share capital by new contributions in-kind of up to €790.7 million. These contributions would be received in connection with an exchange offer in which holders of debt securities issued by BES, BES Investimento and BES Finance exchanged such securities for new BES ordinary shares, strengthening BES’ Core Tier 1 ratio.

At the extraordinary shareholders’ general meeting held in November 2011, the increase in BES’ share capital up to €786,946,959.99, through contributions in-kind, by exchange offers in respect of securities issued by BES, by BES Investimento and by BES Finance was approved. On the same occasion, the amount up to which the Board can increase the share capital by cash contributions, without prior resolution of the General Meeting, was increased from €5,000,000,000 to €7,500,000,000.

149 A resolution was also approved to waive the shareholders’ pre-emption rights in share capital increases in the event that the guarantees to be provided by the Portuguese state within the context of three issuances of non- subordinated bonds with a maturity of up to 3 years, in the maximum global amount of €3.5 billion, are called upon, which the Board had stated was a possibility.

In December 2011, BES announced that the increase of its share capital from €3,499,999,998.00 to €4,030,232,150.40 had been registered with the Commercial Registry Office. This share capital increase related to the issuance of 294,573,418 new ordinary, registered and book-entry shares, with no par value, with an issuance price per share of €1.80, and was made through contributions in-kind comprising the securities issued by BES, Banco Espírito Santo de Investimento, S.A. and BES Finance Ltd., exchanged for ordinary shares pursuant to the exchange offers whose results were announced on 2 December 2011.

In April 2012, the Board resolved on a rights offering, respecting shareholders’ pre-emptive rights, to issue up to 2,556.7 million new ordinary shares at a subscription price of €0.395 per share, raising gross proceeds of €1,010 million.

On the same date the Board agreed with the Crédit Agricole Group on the acquisition of 50% of the share capital of BES Vida, Companhia de Seguros, S.A., for €225 million, to be financed with a portion of the net proceeds of the capital increase.

In May 2012 and as a result of the rights offering, respecting shareholders’ pre-emptive rights, BES issued 2,556,688,387 new ordinary, book-entry, registered shares with no par value. BES’ share capital increased to €5,040,124,063.26, represented by 4,017,928,471 shares. The acquisition of 50% of the share capital of BES Vida, Companhia de Seguros, S.A. was completed on the same date. Following this acquisition BES holds the entire share capital and management control of BES Vida.

In November 2012, BES accessed the international capital markets with a €750 million, 3-year maturity, unsecured senior debt issuance. This was the first issuance by a Portuguese bank in the international capital markets since April 2010.

In 2012 BES opened branches in Venezuela and Luxembourg, two countries that host large Portuguese communities.

Key Events in 2013 In January, BES placed a senior, unsecured debt issue under its EMTN programme in the amount of €500 million. The notes have a maturity of 5 years and pay a coupon of 4.75%.

In May, BES, through BES África, S.G.P.S., S.A., agreed the acquisition of the 18.9% stake owned by Geocapital, Gestão de Participações, S.A. in the share capital of Moza Banco, S.A. Simultaneously, BES África, SGPS, S.A. increased its stake in Moza Banco by 5%, to 49%, through a share capital increase and through the acquisition of a minority position from the shareholder Moçambique Capitais, S.A.

In June, BES Vida—Companhia de Seguros, S.A. executed a reinsurance agreement with New Reinsurance Company Ltd., a subsidiary of Munich Reinsurance Company, under which its whole individual life risk portfolio was reinsured.

In September, BES and COFACE, a French multinational, entered into a partnership agreement for the distribution of export credit insurance products. BES was included in the Dow Jones Sustainability World Index (DJSI), the most recognised sustainability index in the world, calculated jointly by RobecoSAM and S&P Dow Jones Indices, comprising 23 banks (from a total of 179 applicants), with BES as the only Portuguese bank. BES was also named, by the same entity, for the third consecutive year as one of the ten most sustainable banks in Europe (from 36 applicants) and again as the only Portuguese bank selected.

In October, BES entered a €200 million financing agreement with the European Investment Bank (EIB) intended to finance projects essentially promoted by SMEs and mid-caps, and, to a lesser extent, also by municipal authorities and firms.

In November, BES issued €750 million of subordinated debt compliant with the new CRD IV/CRR (Basel III) rules. The notes have a maturity of 10 years, with a call in year 5, and will pay a coupon of 7.125%.

150 In December, BES announced that BES Angola had concluded a USD 500 million capital increase. After this operation BES Angola’s main shareholders were: BES with a 55.71% stake, Portmill Investimentos e Telecomunicações, S.A., with a 24.00% stake and Geni Novas Tecnologias, S.A. with a 18.99% stake.

Key Events in 2014 On 13 January, BES placed a senior, unsecured debt issue under its EMTN programme amounting to €750 million. The notes have a maturity of 5 years and will pay a coupon of 4%.

On 13 February, BES acquired a 44.81% stake in the share capital and voting rights of Banque Espírito Santo et de la Vénétie (€55.0 million). Following this transaction BES held directly and indirectly 87.5% of the share capital of Banque Espírito Santo et de la Vénétie, which is now fully consolidated.

On 14 March, BES announced that in 2013 it had been named the leader in the Portuguese banking system in terms of client satisfaction, according to ECSI Portugal—Índice Nacional de Satisfação de Clientes (“ECSI Portugal”). ECSI Portugal is a member of the European Customer Satisfaction Index and is recognised by the ACSI—American Customer Satisfaction Index. In Portugal, the survey is done by the Portuguese Association for Quality—‘Associação Portuguesa para a Qualidade’, Portuguese Quality Institute—‘Instituto Português da Qualidade’ and by Nova’s Univesity Institut for Statistics and Information Management—‘Instituto Superior de Estatística e Gestão da Informação da Universidade Nova de Lisboa’, adding impartiality, credibility and rigor to what is recognised as the most important independent study of goods and services made in various sectors of activity in Portugal.

On 31 March, BES increased its direct holdings of the share capital and voting rights of Banco BEST to 75% following the acquisition from Espírito Santo Financial Group S.A. of a 9% stake worth €12 million.

In May, BES placed a senior, unsecured debt issue under its EMTN programme amounting to €750 million. The notes have a maturity of 3 years and will pay a coupon of 2.625%.

On 14 May, BES cancelled €1,250 million of a senior bond guaranteed by the Portuguese state. On the same date, BES repaid in advance €1,000 million borrowed under the ECB’s LTRO.

BES Overview The BES Group, a universal financial services group, has its headquarters in Portugal, which makes it its primary market. With a presence in four continents, activity in 25 countries and employing more than 10,000 people, the BES Group is currently the largest Portuguese listed bank by market capitalisation (€5.5 billion as of 31 March 2014) and the second largest private-sector bank in Portugal by total assets (€80.6 billion on 31 December 2013).

Information on Holdings The following list presents the undertakings in which BES holds an equity position, as of 31 March 2014:

% economic Consolidation Established Acquisition Headquartered Activity interest method

BANCO ESPÍRITO SANTO, SA 1937 — Portugal Commercial banking (BES) Banco Espírito Santo de 1993 1997 Portugal Investment bank 100.00% Full consolidation Investimento, SA (BESI) BES-Vida, Companhia de 1993 2006 Portugal Insurance 100.00% Full consolidation Seguros, SA (BES VIDA) Banque Espíríto Santo et de la 1927 1993 France Commercial banking 87.5% Full consolidation Vénétie, SA (ES Vénétie) Aman Bank for Commerce and 2003 2010 Libya Commercial banking 40.00%(a) Full consolidation Investment Stock Company Avistar, SGPS, SA 2009 2009 Portugal Holding company 100.00% Full consolidation Espírito Santo Servicios, SA 1996 1997 Spain Insurance 100.00% Full consolidation Espirito Santo Activos 1988 2000 Spain Asset management 95.00% Full consolidation Financieros, SA

151 % economic Consolidation Established Acquisition Headquartered Activity interest method

Espírito Santo Vanguarda, SL 2011 2011 Spain Services provider 100.00% Full consolidation Banco Espírito Santo dos Açores, 2002 2002 Portugal Commercial banking 57.53% Full consolidation S.A. (BAC) BEST—Banco Electrónico de 2001 2001 Portugal Internet banking 75.00% Full consolidation Serviço Total, SA (BEST) BES África SGPS SA 2009 2009 Portugal Holding company 100.00% Full consolidation Banco Espírito Santo Angola, 2001 2001 Angola Commercial banking 55.71% Full consolidation S.A. (BESA) Banco Espírito Santo do Oriente 1996 1996 Macau Commercial banking 99.75% Full consolidation SA (BESOR) Espírito Santo Bank (ESBANK) 1963 2000 USA Commercial banking 99.99% Full consolidation BES Beteiligungs, GmbH (BES 2006 2006 Germany Holding company 100.00% Full consolidation GMBH) BIC International Bank Ltd. 2000 2000 Cayman Islands Commercial banking 100.00% Full consolidation (BIBL) Parsuni—Sociedade Unipessoal, 2004 2005 Portugal Holding company 100.00% Full consolidation SGPs Praça do Marques—Serviços 1990 2007 Portugal Real estate 100.00% Full consolidation Auxiliares, SA (PÇMARQUÊS) Espírito Santo, plc (ESPLC) 1999 1999 Ireland Non-bank finance 99.99% Full consolidation company ESAF—Santo Activos 1992 1992 Portugal Holding company 89.99% Full consolidation Financieros, S.G.P.S, SA (ESAF) ES Tech Ventures, S.G.P.S, SA 2000 2000 Portugal Holding company 100.00% Full consolidation (ESTV) Banco Espírito Santo North 1990 1990 USA Financing vehicle 100.00% Full consolidation American Capital Limited Liability Co. (BESNAC) BES Finance, Ltd. 1997 1997 Cayman Islands Issue of preference 100.00% Full consolidation (BESFINANCE) shares and other securities ES, Recuperação de Crédito, ACE 1998 199S Portugal Financing vehicle 99.15% Full consolidation (ESREC) ES Concessões, SGPS, SA (ES 2002 2003 Portugal Holding company 71.66% Full consolidation CONCESSÕES) Espírito Santo—Informática, ACE 2006 2006 Portugal Services provider 82.28% Full consolidation (ESINF) Espírito Santo Prestação de 2006 2006 Portugal Services provider 88.26% Full consolidation Serviços, ACE 2 (ES ACE2) ESGEST—Esp. Santo Gestãao 1995 1995 Portugal Services provider 100.00% Full consolidation Instalações, Aprov. e Com., SA (ESGEST) Espírito Santo Representações, 1996 1996 Brazil Representation 99.99% Full consolidation Ltda. (ESREP) office Quinta dos Cónegos—Sociedade 1991 2000 Portugal Real estate 81.00% Full consolidation Imobiliária SA (CÓNEGOS) Fundo de Capital de Risco—ES 2006 2006 Portugal Venture capital fund 65.93% Full consolidation Ventures II Fundo de Capital de Risco—ES 2009 2009 Portugal Venture capital fund 60.85% Full consolidation Ventures III Fundo de Capital de Risco—BES 2009 2009 Portugal Venture capital fund 100.00% Full consolidation PME Capital Growth Fundo FCR PME/BES 1997 1997 Portugal Venture capital fund 55.07% Full consolidation Fundo Gestão Património 1997 2012 Portugal Real estate fund 100.00% Full consolidation Imobiliário—FUNGEPI—BES Fundo Gestão de Património 2011 2012 Portugal Real estate fund 95.53% Full consolidation Imobiliário—FUNGEPI— BES II

152 % economic Consolidation Established Acquisition Headquartered Activity interest method

FUNGERE—Fundo Gestão 1997 2012 Portugal Real estate fund 97.24% Full consolidation Património Imobiliário ImoInvestimento—Fundo 2012 2012 Portugal Real estate fund 100.00% Full consolidation Especial de Investimento Imobiliário Fechado Prediloc Capital—Fundo Especial 2006 2012 Portugal Real estate fund 100.00% Full consolidation de Investimento Imobiliário Fechado Imogestão—Fundo de 2006 2013 Portugal Real estate fund 100.00% Full consolidation Investimento Imobiliário Fechado Arrábida Fundo Especial de 2006 2013 Portugal Real estate fund 100.00% Full consolidation Investimento Imobiliário Fechado Invesfundo VII—Fundo de 2008 2013 Portugal Real estate fund 95.86% Full consolidation Investimento Imobiliário Fechado FLITPTREL VIII, SA 2011 2011 Portugal Real estate 10.00%(a) Full consolidation OBLOG CONSULTING, SA 1993 1993 Portugal Software 66.63% Full consolidation development BES, Companhia de Seguros, SA 1996 1996 Portugal Insurance 25.00% Equity method (BES SEGUROS) ESEGUR—Espírito Santo 1994 2004 Portugal Security 44.00% Equity method Segurança, SA (ESEGUR) Locarent—Compania Portuguesa 1991 2003 Portugal Renting 50.00% Equity method de Aluguer de Viaturas, SA (LOCARENT) Banco Delle Tre Venezie, Spa 2006 2007 Italy Commercial banking 20.00% Equity method Nanium, SA 1996 2010 Portugal Industry 41.06% Equity method Ascendi Pinhal Interior—Estradas 2010 2010 Portugal Motorway 18.57%(b) Equity method do Pinhal Interior, SA concession UNICRE—Instituição Financeira 1974 2010 Portugal Non-bank finance 17.50%(b) Equity method de Crédito, S.A. company Ijar Leasing Argélie 2011 2011 Algeria Leasing 35.00% Equity method Edenred Portugal, SA 1984 2013 Portugal Services provider 50.00% Equity method Multipessoal Recursos 1993 1993 Portugal Holding company 22.52% Equity method Humanos—SGPS, S.A.

Notes: a) These companies were fully consolidated, as the BES Group exercises control over their activities. b) The percentage in the table above represents the BES Group’s economic interest. These companies were accounted for following the equity method, as the BES Group exercises significant influence over them.

Sub Groups

% economic Consolidation Established Acquired Headquartered Activity interest method Banco Espírito Santo de 1983 — Portugal Investment bank 100.00% Full consolidation Investimento, SA (BESI) Espírito Santo Investments PLC 1996 1996 Ireland Non-bank finance 100.00% Full consolidation company Cominvest—SGII, S.A. 1993 1993 Portugal Real estate 99.18% Full consolidation ESSI Investimentos SGPS. SA 1998 1998 Portugal Holding company 100.00% Full consolidation Salgar Investments 2007 2007 Spain Services provider 24.90% Equity method ESSI SGPS, SA 1997 1997 Portugal Holding company 100.00% Full consolidation Espírito Santo Investment Sp, 2005 2005 Poland Services provider 100.00% Full consolidation Z.o.o. Espírito Santo Securities India 2011 2011 India Brokerage house 75.00% Full consolidation

153 % economic Consolidation Established Acquired Headquartered Activity interest method

Lusitania Capital. S.A.P.I. de C.V., 2013 2013 Mexico Non-bank finance 100.00% Full consolidation SOFOM, E.N.R. company MC02—Sociedade gestora de 2008 2008 Portugal Asset management— 25.00% Equity method Fundos de Investimento investment funds Mobiliario, S.A. Espírito Santo Capital—Sociedade 1988 1996 Portugal Venture capital 100.00% Full consolidation de Capital de Risco. SA fund (ESCAPITAL) SES Iberia 2004 2004 Spain Asset management— 50.00%(a) Full consolidation investment funds 2bCapital Luxembourg S.C.A. 2011 2011 Luxembourg Investment fund 42.12% Equity method SICAR Fundo Espírito Santo Iberia I 2004 2004 Portugal Venture capital 45.93% Equity method fund HLC—Centrais de Cogeração, 1999 1999 Portugal Services provider 24.50% Equity method S.A. Copogest, SA 2002 2002 Portugal Services provider 25.00% Equity method WindPart, Lda 2013 2013 Portugal Holding company 19.97%(a) Full consolidation Espírito Santo Investment Holding, 2010 2010 United Holding company 100.00% Full consolidation Limited Kingdom Execution Noble & Company 1990 2010 United Advisory on 100.00% Full consolidation Limited Kingdom investments Execution Noble (Hong Kong) 2005 2010 China Brokerage house 100.00% Full consolidation Limited Execution Noble Limited 2000 2010 United Brokerage house 100.00% Full consolidation Kingdom Noble Advisory India Private 2008 2010 India Research Services 100.00% Full consolidation Ltd Provider Execution Noble Research 2003 2010 United Research Services 100.00% Full consolidation Kingdom Provider Clear Info—Analytic Private 2004 2010 India Research Services 100.00% Full consolidation Ltd Provider Espírito Santo Investimentos, SA 1996 1999 Brazil Holding company 100.00% Full consolidation BES Investimento do Brasil, SA 2000 2000 Brazil Investment Bank 80.00% Full consolidation FI Multimercado Treasury 2005 2005 Brazil Investment Fund 80.00% Full consolidation BES Activos Financeiros, 2004 2004 Brazil Asset management 85.00% Full consolidation Ltda Espírito Santo Serviços 2009 2010 Brazil Asset management 80.00% Full consolidation Financeiros DTVM, SA BES Securities do Brasil, SA 2000 2000 Brazil Brokerage house 80.00% Full consolidation Gespar Participações, Ltda. 2001 2008 Brazil Holding company 80.00% Full consolidation Fundo FIM BES 2004 2009 Brazil Investment fund 80.00% Full consolidation Moderado Fundo BES Absolute 2002 2009 Brazil Investment fund 79.07% Full consolidation Return 2BCapital, SA 2005 2005 Brazil Venture capital 45.00% Equity method fund 2B Capital Luxembourg 2011 2011 Luxembourg Asset 45.00% Equity method General Partners S.à r.l. management— investment funds BES Beteiligungs, GmbH (BES 2006 2006 Germany Holding company 100.00% Full consolidation GMBH) Bank Espírito Santo International, 1983 2002 Cayman Commercial banking 100.00% Full consolidation Ltd (BESIL) Islands BES África, SGPS, SA (BES 2006 2006 Portugal Holding company 100.00% Full consolidation ÁFRICA) Banco Espírito Santo Cabo Verde, 2010 2010 Cape Verde Commercial 99.99% Full consolidation SA banking Moza Banco, SA 2008 2010 Mozambique Commercial 49.00% Equity method banking

154 % economic Consolidation Established Acquired Headquartered Activity interest method

ESAF—Espírito Santo Activos 1992 1992 Portugal Holding company 89.99% Full consolidation Financeiros, S.G.P.S., SA (ESAF) Espírito Santo Fundos de 1987 1987 Portugal Asset 89.99% Full consolidation Investimento Mobiliário, SA management— investment funds Espírito Santo International 1995 1995 Luxembourg Asset 89.81% Full consolidation Management, SA management— investment funds Espírito Santo Fundos de 1992 1992 Portugal Asset 89.99% Full consolidation Investimento Mobiliário, SA management— investment funds Espírito Santo Fundo de Pensões, SA 1989 1989 Portugal Asset 89.99% Full consolidation management— investment funds Capital Mais, Assessoria Financeira, 1998 1998 Portugal Advisory services 89.99% Full consolidation SA Espírito Santo International Asset 1998 1998 British Virgin Asset 44.10% Equity method Management, Ltd. Islands management— investment funds Espírito Santo Gestão Patrimónios, 1987 1987 Portugal Asset 89.99% Full consolidation SA management— investment funds ESAF—Espírito Santo Participações 1996 1996 Portugal Holding company 89.99% Full consolidation Internacionais, SGPS, SA ESAF—International Distributors 2001 2001 British Virgin Asset 89.99% Full consolidation Associates, Ltd Islands management— investment funds Banco Espírito Santo Angola, SA 2001 2001 Angola Commercial 55.71% Full consolidation (BESA) banking BESAACTIF—Sociedade Gestora de 2008 2008 Angola Asset 66.04% Full consolidation Fundos de Investimento, SA management— investment funds BESAACTIF Pensões—Sociedade 2009 2009 Angola Asset management 66.04% Full consolidation Gestora de Fundos de Pensões, SA Pension funds BESA Valorização—Fundo de 2012 2012 Angola Real estate fund 55.71% Full consolidation Investimento Imobilliário Fechado Tranquilldade Corporação Angolana 2007 2012 Angola Insurance 11.70%(b) Equity method de Seguros, S.A. Espírito Santo Activos Financieros, 1988 2000 Spain Assets management 95.00% Full consolidation SA Espírito Santo Gestión, SA, SGIIC 2001 2001 Spain Assets management 95.00% Full consolidation Espírito Santo Pensiones, S.G.F.P., 2001 2001 Spain Pension funds 95.00% Full consolidation SA management Espírito Santo Bank (ESBANK) .... 1963 2000 USA Commercial 99.99% Full consolidation banking ES Financial Services, Inc. 2000 2000 USA Brokerage 99.99% Full consolidation Tagide Properties, Inc. 1991 1991 USA Real Estate 99.99% Full consolidation Investment Management ES Investment Advisors, Inc. 2011 2011 USA Investment 99.99% Full consolidation Consultant ES Tech Ventures, S.G.P.S. SA 2000 2000 Portugal Holding company 100.00% Full consolidation (ESTV) ES Ventures—Sociedade de Capital 2005 2005 Portugal Venture capital 100.00% Full consolidation de Risco, SA fund Yunit Serviços, SA 2000 2000 Portugal Management of 33.33% Equity method internet portals FCR Espírito Santo Ventures 2011 2011 Portugal Venture capital 50.00% Equity method Inovação e Internacionalização fund Fundo Bem Comum, FCR 2011 2011 Portugal Venture capital 20.00% Equity method fund Espírito Santo Contact Center, 2000 2000 Portugal Cell centers 41.67% Equity method Gestão de Call Centers, SA management (ESCC) company

155 % economic Consolidation Established Acquired Headquartered Activity interest method

Fundo de Capital de Risco—ES 2006 2006 Portugal Venture capital 60.85% Full consolidation Ventures II fund Atlantic Ventures Corporation 2006 2006 USA Holding company 60.85% Full consolidation Sousacamp, SGPS, SA 2007 2007 Portugal Holding company 23.79% Equity method Global Active—SGPS, SA 2006 2006 Portugal Holding company 27.18% Equity method Outsystems, SA 2007 2007 Portugal IT Services 17.82%(b) Equity method Coreworks—Proj Circuito Sist. 2006 2006 Portugal IT Services 19.70% Equity method Elect., SA Multiwave Photonics, SA 2003 2008 Portugal IT Services 12.63%(b) Equity method Bio-Genesis 2007 2007 Brazil Holding company 18.21%(b) Equity method YDreams—Informática, SA 2000 2009 Portugal IT Services 29.20% Equity method Fundo de Capital de Risco—BES 2009 2009 Portugal Venture capital 100.00% Full consolidation PME Capital Growth fund Righthour, SA 2013 2013 Portugal Services provider 100.00% Full consolidation Imbassaí Participações, SA 2009 2013 Brazil Holding company 100.00% Full consolidation Lírios Investimentos 2007 2013 Brazil Real estate 100.00% Full consolidation Imobiliários, Ltda ..... UCH Investimentos 2007 2013 Brazil Real estate 100.00% Full consolidation Imobiliários, Ltda ..... UCS Participações e 2004 2013 Brazil Real estate 100.00% Full consolidation Investimentos, Ltda .... UR3 Investimentos 2007 2013 Brazil Real estate 100.00% Full consolidation Imobiliários, Ltda ..... Fundo de Capital de Risco—ES 2009 2009 Portugal Venture capital 100.00% Full consolidation Ventures III fund Nutrigreen, SA 2007 2009 Portugal Services provider 20.00%(b) Equity method Advance Cicione Systems, SA 2008 2009 Portugal Treatment and 40.00% Equity method elimination of residues Watson Brown, HSM, Ltd 1997 2009 United Recycling rubber 35.90% Equity method Kingdom Domática, Electrónica e Informática, 2002 2011 Portugal IT Services 29.41%(b) Equity method SA Fundo FCR PME/BES 1997 1997 Portugal Venture capital 55.07% Full consolidation fund Enkrott SA 2006 2006 Portugal Management and 16.52%(b) Equity method water treatment Palexpo—Imagem Empresarial, SA 2006 2006 Portugal Furniture 27.26% Equity method manufacturing Rodi—Sinks & Ideas, SA 2006 2006 Portugal Metal industry 24.81% Equity method BES—Vida, Companhia de Seguros, 1993 2006 Portugal Insurance 100.00% Full consolidation SA (BES VIDA) Caravela Defensive Fund 2006 2012 Luxembourg Investment Fund 99.73% Full consolidation Caravela Balanced Fund 2006 2012 Luxembourg Investment Fund 54.95% Full consolidation ES Plano Dinâmico 2008 2012 Portugal Investment Fund 97.57% Full consolidation ES Arrendamento 2009 2012 Portugal Investment Fund 100.00% Full consolidation Orey Reabilitação Urbana 2006 2012 Portugal Investment Fund 77.32% Full consolidation Fimes Oriente 2004 2012 Portugal Investment Fund 100.00% Full consolidation ES Concessões, SGPS, SA (ES 2002 2003 Portugal Holding Company 71.66% Full consolidation CONCESSÕES) ES Concessions International 2010 2010 Netherlands Holding Company 71.66% Full consolidation Holding, BV Empark—Aparcamientos y 1968 2009 Spain Car parking 15.92% Equity method Servicios, SA management Esconcessions Spain Holding BV 2013 2013 Netherlands Holding Company 71.66% Full consolidation Ascendi Group SGPS, SA 2010 2010 Portugal Holding Company 28.66% Equity method Auvisa—Autovia de los Viñedos, SA 2003 2010 Spain Motorway 35.83% Equity method concessions

Notes: a) These companies were fully consolidated, as the BES Group exercises control over their activities. b) The percentage in the table above represents the BES Group’s economic interest. These companies were accounted for following the equity method, as the BES Group exercises significant influence over them.

156 With its differentiated approaches and value propositions, the BES Group offers a broad range of financial products and services intended to meet the specific needs of all client segments—companies, institutions and individual clients. These include deposits, loans to companies and individuals, investment funds management, brokerage and custodian services, investment banking services, and also the sale of life and non-life insurance.

Since its privatisation, BES has followed a clear and consistent strategy of organic growth in its domestic market (where its share has increased from 8.5% in 1992 to 19.5% in 2013)18, which has benefited from the development of a market approach based on a multi-specialist model. An organic growth strategy based on solid brand recognition and strong commercial dynamics have made BES a leading financial institution in the domestic market and in particular in the corporate segment where it holds a 25.5% market share19 as at December 2013.

Distribution capacity is a key factor in the BES Group’s competitive positioning. At 31 December 2013, the BES Group had a domestic retail network of 643 branches and a network of 145 international branches, including 31 in Spain, 71 in Angola, 33 in Libya and 2 in Cape Verde. This is complemented by specialised centres fully dedicated to the corporate and private banking segments: at the end of 2013 the BES Group had 28 private banking centres (23 in Portugal, 4 in Spain and 1 in Angola) and 37 corporate banking centres (25 in Portugal, 7 in Spain and 5 in Angola).

The resizing of the domestic distribution network involved the closure of 23 less profitable branches but also included investment in new, more efficient and flexible formats, such as smaller branches and onsite branches in partnership with insurance agents, within the scope of the Assurfinance programme (a joint venture with Companhia de Seguros Tranquilidade).

In addition to its offices and branches, the BES Group has also developed a multi-channel approach to its clients, particularly with offerings over the internet. In 2013 the number of frequent users of BESnet, the internet banking service for individual clients, increased by 7% year-on-year to 377,000, consolidating the BES Group’s leading position in internet banking in Portugal. This multi-channel approach has been progressively enhanced and reinforced, through the implementation of a Customer Relationship Management system that ensures the integration of the various client interaction channels, and also through the increasing dematerialisation of processes.

Complementing its domestic operations, the BES Group has a targeted international focus on countries with cultural and economic affinities with Portugal, such as Spain, Angola and Brazil.

The know-how developed in the domestic market in corporate banking, investment banking and private banking allows the BES Group to export its skills and expertise to serve both local customers and those who engage in cross-border business, namely by supporting the internationalisation of Portuguese companies. In this regard, particular emphasis is placed on facilitating access to strategic markets and markets offering business opportunities and where the BES Group can provide support, either through its direct presence or through partnerships with local banks.

18 BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Bank of Portugal), 18.8% in retirement savings plan (Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Bank of Portugal), 18.8% in other loans to individuals (Bank of Portugal), 12.3% in billing cards (SIBS), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS). 19 The market share in the corporate segment, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

157 BES’ International Presence Spain In Spain, the BES Group has operations in corporate banking, private banking and affluent banking. The BES Group has also developed investment banking activities, holding a prominent position in the Spanish brokerage market and in mergers and acquisitions (ranking second in mergers and acquisitions in Iberia, according to Bloomberg, and with a market share of 4.1% in brokerage). Taking advantage of the geographical proximity to Spain, the BES Group has an Iberian vision of the market, facilitating and promoting exports and direct investment by Portuguese companies in Spain, and by Spanish companies in Portugal.

Brazil The BES Group is present in Brazil through BES Investimento do Brasil, in which Banco Bradesco holds a 20% stake. BES Investimento do Brasil focuses its activity on the capital markets, risk management, proprietary trading, project finance, distribution of fixed income products, private equity and corporate finance areas. The asset management activity in Brazil is conducted by BESAF—BES Ativos Financeiros, and securities brokerage by BES Securities.

Angola BES Angola (BESA) is a bank incorporated under Angolan law that provides a global service to individual and corporate clients.

BES Angola operates through a network of 71 branches and sub-branches distributed in six provinces, and a private banking centre in Luanda to serve private and affluent clients.

In corporate banking, BESA is supported by five corporate centres in Luanda, focusing its activity on establishing commercial partnerships of mutual added value with the large and medium-sized companies operating in Angola, namely by financing the investment projects or cash needs of these companies; and supporting foreign companies and entrepreneurs (principally from Portugal, Spain, Brazil and Germany) that are expanding their activity into Angola.

The investment banking business has also been expanding through tracking business opportunities and arranging financing solutions in the areas of project and corporate finance.

In asset management, BESAACTIF—Sociedade Gestora de Fundos de Investimento, the first fund management company in Angola, manages a closed-end real estate fund (with a second fund pending authorisation by the competent authorities), and BESAACTIF—Sociedade Gestora de Fundos de Pensões markets an open-end defined contribution pension fund called BESA Opções de Reforma.

BESA has been asserting its position as a leading bank in the Angolan market, while being actively engaged in society and participating in Angola’s growth process within the scope of its sustainability policy.

Cape Verde The activity of BES Cabo Verde is concentrated on the local corporate market, particularly the public sector and affiliates of Portuguese groups with economic interests in Cape Verde, and on the local affluent market. The BES Cape Verde branch continues to operate, concentrating its activity on loan granting to non resident entities.

Libya The BES Group operates in Libya through its 40% stake in Aman Bank where it also has management control. Through its presence in Libya, BES Group not only aims to provide support to its clients in that country but also to open access channels to the North-African markets.

Libya has been pursuing its process of political, social, institutional and economic reform, having held its first democratic elections in July 2012, with cabinet members appointed in November of that year.

Having received no sanctions or significant damage to its infrastructure, Aman Bank resumed the implementation of its commercial plans and the reinforcement of its operations so as to take advantage of the growth opportunities offered by the country.

158 United Kingdom BES operates through a branch in London which concentrates its activity in wholesale banking, including syndicated credit transactions, leveraged finance operations and commodities structured trade finance and, in close co-operation with BES Investimento, in project finance operations. At the end of 2010, BES Investimento acquired a 50.1% stake (currently 100%) in Execution Noble, a corporation focusing on international investment banking, in particular on brokerage, trading, research, mergers and acquisitions, corporate finance, corporate brokerage and equity capital markets. Through this acquisition, the BES Group fulfilled its intention to reinforce its presence in Europe’s largest financial centre, while opening an access route to emerging markets such as China and India.

France In France, BES holds an 87.5% stake in Banque Espírito Santo et de la Vénétie, which provides financial and corporate banking services to Portuguese residents in France.

United States Through Espírito Santo Bank, based in Miami, BES Group conducts international private banking activities in the United States, where its main customers are the local Portuguese and Latin American communities. BES’ New York branch focuses its activity in wholesale banking, mainly in the United States and Brazil. BES Investimento’s New York branch mainly operates in project finance and other structured finance activities, leveraged by its Brazilian presence and strong positioning in the capital markets business in Iberia. BES Group’s presence in New York provides access to institutional investors in one of the world’s main financial centres.

Macau BES Group is present in the Macau Special Administrative Region through BES Oriente, whose main activity is to support the business operations developed by the BES Group’s clients in the region, while seeking to seize business opportunities leveraged by the expressed intent of the central government of the People’s Republic of China to consider Macau as a platform for economic cooperation with Portuguese-speaking countries.

Poland BES Group established its presence in Poland in 2005, the year of the establishment of Concordia Espírito Santo Investment, a BES Investimento subsidiary that specialises in advisory services in mergers and acquisitions. In 2008, BES Investimento expanded its activities in the country, opening a branch that provides brokerage services on the Warsaw Stock Exchange.

Mozambique In January 2011, the BES Group acquired a 25.1% stake in Moza Banco, a Mozambican bank that opened for business in June 2008. In 2013, the BES Group increased its stake in this Bank to 49%.

Moza Banco focuses its activity on the corporate, private and affluent banking segments. At the end of 2013, it had a network of 23 branches, the result of an expansion effort aimed at covering all the provinces in the country.

Its holding in Moza Banco reinforces the BES Group’s presence in Africa and positions BES to take an active role in Mozambique’s growth, both as a partner of its local business community and by providing support to the Portuguese companies operating in the country. The BES Group thus offers its clients a wide range of financial products, namely trade finance, financing for investment projects, cash and savings management services, and trade transactions in the domestic and international markets.

Venezuela The BES Group operates in Venezuela through the Banco Espírito Santo Venezuela Branch, a universal services bank that opened in January 2012.

In Venezuela, it focuses on the corporate, private and affluent banking segments, mainly targeting the large Portuguese community in the country as well as the Venezuelan companies that do business with Portugal.

159 The aim of the BES Group is to take advantage of a closer relationship between Portugal and Venezuela which is taking shape through the increasing presence of Portuguese companies in this country as well as by the signing of various bilateral agreements.

Luxembourg In January 2012, BES opened a branch in Luxembourg, an important international financial centre and home to a large community of Portuguese residents. The main aim of the new unit is to serve the Portuguese community as well as the BES Group’s international clients.

The new branch concentrates its activity on the corporate, private and affluent banking segments, as well as in providing financial services to the Portuguese residents in Luxembourg who are also BES clients in Portugal.

Other International Operations The BES Group has representative offices in South Africa, Germany, Canada, China, Mexico and Switzerland. In addition, it has established partnerships with local banks, namely Banco delle Tre Venezi, in Italy, Banque Marocaine du Commerce Extérieur, in Morocco, and Banque Extérieure d’Algérie, in Algeria.

Key Strengths and Strategic Positioning Key Strengths BES’ position in the banking industry is due to the following key strengths:

Leadership in the corporate segment BES has achieved a position of leadership in the corporate segment in Portugal, with a market share of 25.5%20. The success in this segment stems in part from the BES Group’s development of a wide range of tools to promote and support the internationalisation of Portuguese companies, including having direct presence in the most relevant international markets, running a dedicated unit to support the process of internationalisation (International Premium Unit or IPU), offering specialised trade finance products, maintaining a wide range of relationships with correspondent banks, a research team focused on countries and sectors and organising trade missions with corporate clients to target markets, among others.

BES’ leadership position in the corporate segment should position it to be able to take advantage of the economic recovery in Portugal.

Broad international presence, focused in markets with strong growth potential and traditional business relations with Portugal Complementing its domestic operations, the BES Group has developed international activities focused on countries with cultural and economic affinities with Portugal, such as Spain, Angola and Brazil. The know-how developed in the domestic market in corporate banking, investment banking and private banking has allowed the BES Group to export its skills and expertise to serve both local customers and those who engage in cross-border business, particularly in supporting the internationalisation of Portuguese companies. In this regard, the BES Group places particular emphasis on facilitating access to markets offering business opportunities and to where it can provide support, either through its direct presence or through partnerships with local banks.

The historic links with Africa and South America (especially with Angola and Brazil), the internationalisation of national companies, the growing inter-dependence of global economies and the Portuguese communities established across several continents have provided the basis for the international expansion of the BES Group.

20 The market share in the corporate segment, which was 25.5% as at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

160 Today, with its presence in 25 countries on four continents, BES is the most international of all Portuguese private-sector banks21. The expansion of international activities has been crucial to offsetting the slowdown of domestic activity22.

Strong brand identity, with more than 145 years of history, strengthening the relationship between BES, its clients and all other stakeholders BES has been creating value for clients, employees and shareholders for more than 145 years. Its first and foremost mission is to align a strategy of sustained reinforcement of its competitive position with absolute respect for the interests and well-being of its clients and employees. BES is aware of its duty to actively contribute to the economic, social, cultural and environmental development of Portugal and of the communities among which it develops its activity.

Brand strength is the reflection of this positioning. In the Brand Finance Banking 500 League Table Report of 2014, Brand Finance considers BES the most valuable banking brand on PSI20. Reliance, innovation, transparency and social responsibility are the values behind this recognition.

Built over classical values such as financial competence, experience, reliance, stability and resilience, the BES Group’s brand adds contemporary values such as competitiveness, inclusiveness, accessibility and internationalisation. Cristiano Ronaldo is the brand’s “super awareness asset”, reinforcing the brand’s contemporary values of high performance through sustained effort.

The BES Group’s brand messaging is communicated effectively: since 2008 BES has consistently been the leader among the top 5 banks in Portugal for ad recall among customers23.

Consistency, depth and mainstreaming of the work that has been pursued over the last five years have granted the BES Group a leading role in the sustainability of the Portuguese financial sector (according to the Carbon Disclosure Project, in the Iberia 125 Climate Change Report 2013). Its external visibility in terms of social responsibility and sustainable development is demonstrated by the BES Group’s position among financial companies that are referenced in the Dow Jones Sustainability Indexes and FTSE4Good.

In 2013 BES was included among the 100 most sustainable companies in the world (Global 100 Most Sustainable Corporations in the World index), and also in the Dow Jones Sustainability World Index, being qualified in the bronze category of the Sustainability Yearbook 2014 for its excellent performance in sustainability and ranking among the 6 best banks in the Dow Jones Sustainability Indexes

BES has grown organically within the Portuguese financial system and increased its average domestic market share from 8.5% when it was privatised in 1992 to 19.5% in 201324. Product innovation, focus on quality service, and strong brand recognition (particularly in attributes such as solidity and trust) makes the BES Group a reference leader in the domestic and international markets.

Distinctive model of Retail and Private banking, allowing BES to systematically grow Client base and funds above the market average In Retail Banking, BES has developed a segmented approach which allows for serving different groups of clients (mass-market, affluent and small businesses) with dedicated teams operating under a common network of

21 Source: Annual Reports and Accounts of the Portuguese banks. 22 Source: Annual Reports and Accounts of the Portuguese banks. 23 Marketest—Publivaga Generic Advertising Tracking 2008 to 2013. 24 BES calculates its overall market share in the Portuguese market, which was 19.5% at 31 December 2013, as the arithmetic average of the market shares of the various products or services it provides. Market shares that make up this figure were, as at that date, the following: 16.6% in total balance sheet resources (Bank of Portugal), 18.8% in retirement savings plan (Portuguese Insurance Association and Portuguese Investment Funds Association), 18.4% in other life insurance products (Portuguese Insurance Association), 18.9% in investment funds, pension funds and discretionary portfolio management (Portuguese Investment Funds Association, Portuguese Insurance Institute and the CMVM), 10.2% in mortgage loans (Bank of Portugal), 18.8% in other loans to individuals (Bank of Portugal), 12.3% in billing cards (SIBS), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

161 branches and a common brand. BES has also developed partnerships with external, variable-cost, channels such as networks of assurfinance agents and external promoters that significantly contribute towards client acquisition and client funds growth.

BES is the market leader in private banking (with approximately a 30% market share, according to a study conducted by McKinsey & Co.) leveraging a personalised, high-quality private banking service. BES Private Banking operates based on a physical proximity network of 23 private banking centres in Portugal and 5 international points of contact. It offers specialised support from relationship managers and highly skilled asset allocation consultants and offers a broad range of products and services provided by in-house suppliers and by recognised third parties.

This retail and private banking model, together with the Espírito Santo brand awareness, translate into customer confidence. As a result, in 2013 BES achieved the position of market leader in customer satisfaction in Portugal in ECSI Portugal’s “European Customer Satisfaction Index”.

As a consequence, the growth in retail clients that consider BES their main bank has consistently been stronger than in the market (2011: BES: 3.9%, market: 0.0%; 2012: BES 5.0%, market: -0.1%; 2013: BES 5.0%, market: 0.0%)25.

With regards to individual client funds, BES has also achieved growth levels significantly above the market average (2011: BES: 3.7%; market: -2.6%; 2012: BES 8.3%, market: 1.5%; 2013: BES: 5.0%, market: 2.1%)26.

One of the most efficient banks in Iberia BES has been able to consistently reduce its domestic cost base: 2013 domestic operating costs were 4% lower than cost levels in 2012. Cost reduction has been achieved through the implementation of several productivity enhancement projects (credit and account workflow improvements, remote client managers model allowing for one manager to serve significantly more clients) that have allowed the time available to commercial activities to increase from 49% in 2010 to 58% in 2012.

The domestic cost base was also reduced by reorganising the branch network, closing branches with lower potential, innovating in branch formats with the creation of 2 FTE (full-time equivalent) branches and 1 FTE on- site branches in partnership with assurfinance agents.

Consequently, BES stands as one of the most efficient banks in Iberia and the most efficient of the four largest banks in Portugal by total assets, with a Cost-to-Income ratio27 in 2013, excluding Market Results, of 65.8% (BPI: 85.4%, MBCP: 89.0%; CGD: 95.5%).

Funding & Liquidity: The balance sheet has been undergoing a deleveraging process, which started in the second half of 2010. Since then the loans to deposit ratio has decreased by 77p.p. to 121% as at 31 December 2013 (129% as at 31 March 2014), backed by a 41% increase in the deposit base (€10.7bn) and a 7% reduction of the loan portfolio (€3.7bn).

Net ECB funding amounted to €5.4bn as at 31 December 2013, much lower than the average for Portuguese Banks. There was a significant increase of ECB eligible pool of repoable securities, with the current liquidity buffer covering over five years of maturities.

Access to the international capital markets was regained. In November 2012, BES was the first Portuguese bank to issue debt in the capital markets since 2010, when such market had been closed to Portugal and Portuguese banks. Since then the Bank has completed four issuances of senior debt and one subordinated debt (that was already compliant with the new CRD IV/CRR (Basel III) rules) in the principal amount of €4 billion.

25 Source: Marketest, BES 26 Source: Marketest, BES 27 Cost to income corresponds to the ratio between operating costs (including staff costs, general administrative expenses and depreciation and amortisation) in the numerator and banking income (including net interest income, net fees and commissions, net gains/(losses) from financial assets and liabilities at fair value through profit and loss, net gains from available for sale securities, other operating income, gains on disposals of investments in subsidiaries and associates, losses arising on business combinations achieved in stages and share of profit of associates) in the denominator.

162 Solvency In the current environment, capital preservation has been a top priority for BES. Currently, the Core Tier 1 Ratio is above all minimum regulatory requirements, without the use of any public funds, allowing BES to maintain its strategic independence. As at 31 December 2013: • Bank of Portugal IRB Core Tier 1 ratio was 10.6%, above the minimum 10% threshold, through reinforced core capital and deleveraging. • EBA Core Tier 1 ratio of 9.8% was above the 9% threshold. • CRD IV/CRR phasing-in common equity Tier 1 ratio of 10.2% was comfortably above the 7% minimum required. • Risk-weighted assets/prudential net assets ratio (according to the applicable Bank of Portugal rules, holdings in insurance and other non-banking companies are consolidated by the equity method) was 76%, which was due to a conservative approach to solvency levels.

Strategic Positioning The BES Group’s main pillar for development and strategic differentiation lies on service quality and innovation and a permanent focus on the needs of each client, whether individual, corporate or institutional.

With its differentiated value propositions, the BES Group offers a broad range of financial products and services intended to meet the specific needs of its clients.

A solid and stable management has enabled the development of a consistent strategy oriented towards a long- term vision based on long-standing relationships with its various stakeholders and a core group of leading shareholders since the Bank’s reprivatisation in 1991-1992.

The BES Group’s key strategic objectives are as follows: • Strengthening domestic positioning and improving profitability. This will be achieved through new retail and corporate clients and the reinforcement of the share-of-wallet in the current client base (particularly in saving products), combined with the diversified offering of innovative products and services, supported by cross-selling and cross-segment initiatives, such as bancassurance and assurfinance (in partnership with Companhia de Seguros Tranquilidade). In addition, the recovery of the Portuguese economy, mainly due to investment and exports growth, is expected to prompt an acceleration of corporate lending. With a market share of close to 25.5%28 in the corporate business, BES expects to have an important role in this process, namely through its exposure to Portuguese exporting SMEs. The total credit portfolio is expected to post a marginal increase in the near term and the credit margin is expected to be positively impacted by the growing proportion of corporate loans in the overall loan portfolio. The acceleration in Portugal’s GDP coupled with the decrease in unemployment levels is expected to maintain the household savings rate at historically high levels, allowing for deposits in banks to continue growing. Backed by a strong brand, BES has been a leader in deposits growth, a trend that is expected to be maintained in the future, with BES expecting to grow above average market levels. In terms of efficiency, BES aims to continue streamlining its domestic cost base. Despite the macroeconomic and financial turmoil caused by the economic crisis, the BES Group has been able to maintain high standards of efficiency. BES’ cost-to-income ratio averaged 50.4% between 2008 to 2013, and from 2011 to 2013 it was able to maintain a flat consolidated cost base, despite the ongoing expansion of its international operations. This cost control performance was made possible by a decline of 3.6% per year on its average domestic operating costs from 2011 to 2013 (3.7% in staff costs), which offset the growth in international operating costs.

28 The market share in the corporate segment, which was 25.5% at 31 December 2013, is calculated as the arithmetic average of the market shares of the various products and services in the segment, which are the following: 29.0% in total balance sheet resources (Bank of Portugal), 25.7% in corporate loans (Bank of Portugal), 17.2% in leasing (Portuguese Leasing, Factoring and Renting Association), 21.5% in factoring (Portuguese Factoring Companies Association), 30.6% in trade finance (SWIFT), 15% in brokerage (Euronext) and 28.8% in POS (SIBS).

163 BES expects that the gradual improvement of banking income, along with cost control measures, mainly on the domestic side driven by the cost-cutting programme initiated in 2013 that was aimed at reaching cost savings of €100 million between 2013 and 2015, should support improved efficiency levels, with BES’ cost to income ratio expected to trend consistently below 50%. The core profitability of the Bank has been severely hampered by the need to set aside significant provisions over the past several years, with provision charges surpassing 200 basis points of the gross loan portfolio in 2013, mainly due to BES’ focus on corporate loans. A sustained economic recovery in Portugal should translate into an improved outlook for asset quality, which in turn is expected to positively impact the provision charge. Hence, domestic provision charge is expected to gradually reduce to levels of approximately 85 bp in the medium-term. • Expanding international activities. This will be achieved through a stronger positioning in the strategic triangle (Iberia, Brazil and Africa) and expansion into new markets considered strategic and offering business opportunities. BES’ international footprint complements its domestic activity, as it is established in markets that have strong economic and cultural ties with Portugal as well as significant growth prospects. BES expects that Portuguese-speaking African countries will be a key driver in the profitability of its international operations. Additionally, BES’ presence in Spain, which has been a key market for customer funds, presents good prospects for continuing to develop an Iberian approach to both corporate business on the one hand and household funds on the other. BES has supported Iberian corporates in their cross-border business as well as in their internationalisation effort, namely leveraging on its African presence. BES’ presence in Portuguese-speaking African countries is mainly focused on Angola and Mozambique. Angola has experienced, on average, double-digit GDP growth for the last 10 years and the forecasts for the next 5 years remain encouraging. Angola’s outlook for banking activity is positive, with up to a 56% increase in total banking income and over 3 million new customers opening their first bank account by 2017, according to the Global Insight World Market Monitor. BES Angola intends to take advantage of these opportunities, and it defined a set of strategic priorities in 2013 aimed at (i) reinforcing its financial sustainability, (ii) expanding its branch network to over 100 branches by 2017 and (iii) strengthening all support capabilities. BES Angola’s equity was reinforced in 2013 by a capital increase of USD 500 million, placing this subsidiary among the best capitalised financial institutions in Angola. Mozambique also has been a core region for the BES Group since 2011, when BES became shareholder of Moza Banco with the acquisition of a 25.1% stake. In less than two years, Moza Banco launched over 25 new branches and is already the 4th largest bank with a market share of approximately 6% in February 2014, according to Banco de Moçambique. In June 2013, BES increased its stake in Moza Banco to 49% and aims to reach 15% market share in Mozambique by 2018 through the development of a local financial group leveraging complementary business lines such as investment banking, investment funds and asset management. Besides sub-Saharan Africa, Macao also presents high potential not only given its expected economic sustained growth levels but also by being an increasingly relevant trade hub between China and Portuguese- speaking countries on which BES has already established a presence. BES’ subsidiary in Macao was established in 1996 and thus far has mainly addressed trade finance operations. Aiming to reach higher profitability levels and given the opportunities referred to above, BES has developed a strategic plan for its Macao unit to 2017; • Supporting Portuguese companies in the phase of international expansion. BES achieves this through (i) partnerships with local entities; (ii) trade missions with entrepreneurs to relevant countries; (iii) recognised know-how in trade finance, a business area in which the BES Group has consistently been the market leader in Portugal, with a share of 30.6% (with market average shares in billing, cash letters, documentary credits and guarantees, according to SWIFT) in 2013; and (iv) dedicated teams and structures specialising in supporting companies in the process of internationalisation (including the IPU, which has no equal in the Portuguese banking sector); and • Developing a sustainability strategy. This strategy has the following dimensions: governance and ethics, corporate identity, innovation and entrepreneurship, financial inclusiveness; biodiversity and climate change and responsible citizenship. These areas have been defined on the basis of stakeholder consultation, the BES Group’s vision and activities and the trends for the financial sector.

164 Main Business Areas BES Group is a universal financial services group headquartered in Portugal serving all client segments – individual, corporate and institutional. Product innovation, focus on quality service, and strong awareness to the BES brand make the BES Group a leading financial institution in the domestic and international market.

The historic links with Africa and South America, notably with Angola, Brazil and Venezuela, the internationalisation of Portuguese companies, the growing interdependence of the Iberian economies and the large communities of Portuguese nationals established across various continents have provided the basis for the international expansion of the BES Group.

When monitoring the performance of each business area, the BES Group uses the following Operating Segments: • Domestic Commercial Banking, which includes the Retail, Corporate, Institutional and Private Banking sub segments) • International Commercial Banking • Investment Banking • Asset Management • Life Insurance (since the acquisition of BES Vida in May 2012) • Markets and Strategic Investments • Corporate Centre

Each segment is directly supported by specifically allocated structures, as well as by those central units whose activity is most closely related to each of these segments. These structures run individual monitoring of each operational unit of the BES Group (considered from the viewpoint of an investment centre) while the Executive Committee defines strategies and commercial plans for each Operating Segment.

The table below presents results before taxes and non-controlling interests and the net assets of each operational segment for the years ended 31 December 2013, 2012 and 2011:

As at and for the year ended 31 December 2013 Capital Corporate International markets and and Private commercial Investment Asset Life strategic Corporative Retail Institutional banking banking banking management insurance investments centre Total (EUR million) Net interest income ...... 451.0 348.2 117.8 431.8 82.1 1.9 144.2 (542.7) 0.0 1,034.3 Net income from fees and commissions ...... 165.2 242.6 14.1 120.3 101.8 51.6 (11.5) (18.5) 0.0 665.6 Other operating income ...... 45.7 21.8 13.6 (43.0) 62.6 5.2 267.1 (201.6) 0.0 171.4 Total operating income ...... 661.9 612.6 145.6 509.2 246.5 58.6 399.8 (762.8) 0.0 1,871.4 Operating expenses ...... 443.3 689.7 22.9 504.4 231.5 19.7 16.0 486.3 146.0 2,559.9 Includes: Provisions/Impairment ... 61.3 631.0 5.9 238.2 59.9 2.5 4.1 420.0 0.0 1,422.9 Depreciation and amortisation ...... 46.5 6.1 2.0 31.2 6.7 0.3 0.6 8.9 5.5 107.9 Gains on disposal of investments in subsidiaries and associates ...... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Losses arising on business combinations achieved in stages ...... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of profit of associates . . . 0.0 0.0 0.0 0.0 0.6 0.0 0.0 0.5 0.0 1.1 Profit before income tax and non-controlling interests .. 218.6 (77.1) 122.7 4.8 15.6 38.9 383.7 (1,248.7) (146.0) (687.4) Profit before income tax and non-controlling interests (%) ...... (31.8%) 11.2% (17.8%) (0.7%) (2.3%) (5.7%) (55.8%) 181.6% 21.2% 100.0% Total Net Assets ...... 15,118 22,400 1,760 24,534 5,963 204 7,964 2,665 0 80,608 Total Net Assets (%) ...... 18.8% 27.8% 2.2% 30.4% 7.4% 0.3% 9.9% 3.3% 0.0% 100.0%

165 As at and for the year ended 31 December 2012 Capital Corporate International markets and and Private commercial Investment Asset Life strategic Corporative Retail Institutional banking banking banking management insurance investments centre Total (EUR million) Net interest income ..... 397.6 268.1 92.8 300.5 94.8 3.0 115.9 (92.3) 0.0 1,180.5 Net income from fees and commissions ...... 197.9 261.0 18.6 214.2 100.7 50.8 (14.8) (34.3) 0.0 793.9 Other operating income ...... 47.1 15.2 8.5 57.8 63.6 11.0 138.4 316.2 0.0 657.7 Total operating income ...... 642.6 544.3 119.9 572.5 259.1 64.7 239.5 189.5 0.0 2,632.2 Operating expenses ..... 482.9 702.0 20.4 446.4 222.3 20.8 8.8 282.1 162.8 2,348.5 Includes: Provisions/ Impairment ..... 74.5 641.0 2.4 205.5 46.2 3.1 0.4 226.3 0.0 1,199.4 Depreciation and amortisation .... 51.1 6.6 2.1 27.3 5.8 0.4 0.4 8.5 5.8 108.1 Gains on disposal of investments in subsidiaries and associates ...... 0.0 0.0 0.0 0.0 2.5 0.0 0.0 (2.1) 0.0 0.4 Losses arising on business combinations achieved in stages .... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (89.6) 0.0 (89.6) Share of profit of associates ...... 0.0 0.0 0.0 0.3 0.3 0.0 0.0 7.7 0.0 8.3 Profit before income tax and non-controlling interests ...... 159.7 (157.7) 99.5 126.4 39.7 43.9 230.6 (176.6) (162.8) 202.8 Profit before income tax and non-controlling interests (%) ...... 78.8% (77.8)% 49.1% 62.3% 19.6% 21.7% 113.8% (87.1)% (80.3)% 100.0% Total Net Assets ...... 15,633 23,033 1,491 22,096 6,484 190 6,658 8,105 0 83,691 Total Net Assets (%) .... 18.7% 27.5% 1.8% 26.4% 7.7% 0.2% 8.0% 9.7% 0.0% 100.0%

As at and for the year ended 31 December 2011 Capital Corporate International markets and and Private commercial Investment Asset Life strategic Corporative Retail Institutional banking banking banking management insurance investments centre Total (EUR million) Net interest income ..... 347.7 161.5 60.9 471.3 76.9 2.4 0.0 60.9 0.0 1,181.6 Net income from fees and commissions ...... 183.4 246.8 17.0 88.1 131.0 47.6 0.0 44.2 0.0 758.1 Other operating income ...... 43.7 20.7 8.0 4.3 25.6 1.5 0.0 49.8 0.0 153.5 Total operating income ...... 574.8 429.0 86.0 563.6 233.4 51.5 0.0 154.9 0.0 2,093.2 Operating expenses ..... 489.7 355.3 19.1 304.0 22.8 18.5 0.0 399.7 168.3 1,977.5 Includes: Provisions/ Impairment ..... 67.4 290.4 (0.3) 102.0 44.2 (1.0) 0.0 345.6 0.0 848.3 Depreciation and amortisation .... 53.6 7.5 2.4 23.0 5.5 0.6 0.0 9.2 6.4 107.9 Gains on disposal of investments in subsidiaries and associates ...... 0.0 0.0 0.0 0.0 0.0 1.3 0.0 0.5 0.0 1.8 Losses arising on business combinations achieved in stages .... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of profit of associates ...... 0.0 0.0 0.0 0.1 4.8 0.0 0.0 (180.0) 0.0 (175.2) Profit before income tax and non-controlling interests ...... 85.1 73.7 66.9 259.6 15.4 34.3 0.0 (424.4) (168.3) (57.7) Profit before income tax and non-controlling interests (%) ...... (147.4)% (127.7)% (115.8)% (449.8)% (26.6)% (59.4)% — 735.2 % 291.6 % 100.0 % Total Net Assets ...... 17,093 22,911 2,342 18,891 6,579 174 0 12,248 0 80,237 Total Net Assets (%) .... 21.3 % 28.6 % 2.9 % 23.5 % 8.2 % 0.2 % 0.0 % 15.3 % 0.0 % 100.0 %

166 Domestic Commercial Banking This operational segment includes banking activity for both retail and corporate customers based on the distribution network composed of branches, corporate centres and other channels.

The BES Group’s approach to retail customers is based on a diversified and distinct offer that targets the clients’ financial needs. The creation of differentiated value propositions is supported by the constant development of products and services, segmentation criteria adjusted to the clients’ characteristics, high service quality and effective communication. This segment comprises the following subsegments:

(i) Retail Banking Retail banking relates to operations in Portugal with retail customers and small businesses. The financial information for this segment relates to, among others products and services, mortgage loans, consumer loans, small business financing, bank deposits, retirement saving plans and other retail insurance products, account and methods of payment management and services for placement of investment funds, sale and purchase and custody of securities.

The following table shows the key indicators regarding this sub-segment:

RETAIL BANKING

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 BALANCE SHEET Loans to Customers (Gross) 14 689 15 680 16 910 -6.3% -7.3% Customers Resources 12 963 12 289 12 544 5.5% -2.0% FINANCIAL STATEMENT Commercial Banking Product 622.9 607.3 539.0 2.6% 12.7% Financial Operations Results and Others 39.3 35.4 36.1 10.8% -1.9% Banking Product 662.1 642.8 575.1 3.0% 11.8% Operational Costs 382.0 408.4 422.3 -6.5% -3.3% Provisions 61.3 74.5 67.4 -17.7% 10.5% Profit Before Income Tax(*) 218.8 159.9 85.3 36.8% 87.3% (*) The cost of the contribution to the banking sector is not deducted

2013—In 2013, the Retail activity continued to grow significantly, supported by customer funds that increased by 5.5% year-on-year, underpinned by the strong growth of deposits (€733 million year-on-year). The growth of retail customer funds, despite the continued financial hardships currently faced by Portuguese retail clients, is due to the BES Group’s capacity to devise added value solutions for its clients, even in adverse market situations, and the trust placed by the clients in the BES brand. The growth in retail customer funds was also supported by an increase in the number of customers: a total of 95,000 new customers during the year as a result of coordinated action between the branch network and other client acquisition channels, in particular the Cross-segment and Assurfinance programmes, as well as external promoters29, which contributed to the strong commercial performance of the Retail segment. The banking income of this sub-segment grew by 3.0% year-on-year, supported by improved financial results, which combined with reductions in costs and impairment losses, allowing the sub-segment’s pre-tax earnings to increase to €218.8 million. Throughout 2013, the retail sub-segment maintained its selective loan granting policies, and achieved significant results in cross-selling, where commercial results are supported by a wide range of innovative products, services and tools. Growth was particularly significant in several areas of insurance production, namely health insurance, where the launch of the ‘Essential’ formula (a low-cost health insurance designed for mass market clients that offers a specific set of coverages at a very competitive price) drove a nearly two-fold year-on-year increase in sales of new policies, and life insurance policies, where sales increased by 9.6% year-on-year.

29 Carefully chosen freelancers such as accountants and former employees who assist in acquiring clients to work with BES.

167 2012—On-balance sheet customer funds decreased by 2.0% while off-balance sheet investment and saving products increased by around 23%. The growth in Retail customer funds in 2012 was also supported by an influx of new clients: a total of 100,000 new clients were acquired in 2012 (4.7% year-on-year), as a result of coordinated action between the branch network and other client acquisition channels, in particular the Cross-segment and Assurfinance programmes, as well as the external promoters. The Assurfinance programme maintained a significant contribution to the commercial performance of Retail, contributing to the acquisition of 19.7% of all new clients. The growth in customer funds was also driven by strong demand for the innovative saving products launched by the BES Group during 2012, such as planned and micro saving solutions, which reached approximately 346,000 accounts at the end of December 2012. The Retail sub-segment maintained a constant and dynamic management of the customer funds margin in order to protect banking income growth, which increased by 11.8%% year-on-year. This increase, combined with reductions in costs and in impairment losses, allowed the sub-segment to increase pre-tax earnings by 88% year-on-year in 2012. During 2012, the Retail sub-segment continued its selective loan granting policies, and achieved significant results in cross-selling, where commercial results were supported by a wide range of innovative products, services and tools. In particular, there was a strong growth across the various areas of insurance production: life and disability insurance unrelated to mortgage credit (130% year-on-year), home insurance unrelated to mortgage credit (32% year-on-year), and salary protection insurance, a product particularly well-suited to the current economic climate, (4% year-on-year). 2011—The Retail sub–segment registered a high growth in customer funds in 2011. This growth was achieved despite strong market competition based on retention rates and the need of other financial institutions to increase deposit volumes, especially until the entry into force in October 2011 of a Bank of Portugal circular establishing measures that penalised the capital of financial institutions which offered interest rates on deposits above a certain pre-established limit. In order to minimise this impact on Retail’s commercial banking income, the BES Group reinforced cross selling efforts and implemented additional measures intended to increase revenues. These initiatives limited the reduction in banking income in 2011 to -6.6% compared to 2010. For the full year 2011, 129,000 new customers were acquired, as a result of a close cooperation between the branch network and the main customer acquisition channels (in particular the Cross-Segment and Assurfinance programmes). Total client acquisition by the BES Group in 2011, including the contribution of the international units, totalled 149,000. The Retail segment growth in 2011 was supported by the following main drivers: (i) strong focus on attracting customer funds (ii) selectivity in loan granting and (iii) maintaining a high level of cross-selling. The effort to attract customer funds yielded positive results, mainly through the increased demand for on- balance sheet customer funds, which rose by 23.4% in 2011 compared with 2010. In order to foster growth of customer funds, the Bank launched several initiatives to promote long-term saving in 2011 compared with 2010 among its customer base, by widening and enhancing the offer of structured products and savings plans, including micro-savings and impulse saving solutions. There were 142,000 planned saving plans and micro-saving accounts as at 31 December 2011, which demonstrate to the success of these initiatives, which were intended to allow for the maximisation of long-term savings practices of the client base. Selectivity in loan granting combined with a sharp drop in demand (from both individuals and small businesses) caused the loan portfolio to decrease by 5.5% in 2011 compared with 2010. To ensure that sustained levels of cross-selling were maintained, the retail sub-segment was supported by a wide range of products, services and innovative tools. The Assurfinance programme continued to make an important contribution to the commercial performance of Retail, being responsible for the acquisition of 18,500 new clients throughout 2011.

(ii) Corporate and Institutional Customers This sub-segment includes businesses with large and medium-sized companies, as well as with institutional and municipal clients. The BES Group holds a leading position in the Corporate and Institutional Clients sub-segment as a result of its support to the development of the Portuguese business community, where it targets companies with an adequate risk profile (rating higher than BB), innovative characteristics and export orientation.

168 The following table shows the key indicators regarding this sub-segment:

CORPORATE AND INSTITUTIONAL CUSTOMERS

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 BALANCE SHEET Loans to Customers (Gross) 20 801 21 039 21 214 -1.1% -0.8% Customers Resources 11 131 10 449 10 539 6.5% -0.9% FINANCIAL STATEMENT Commercial Banking Product 599.2 537.3 418.1 11.5% 11.3% Financial Operations Results and Others 13.4 7.0 10.9 90.3% -35.8% Banking Product 612.6 544.3 429.0 12.6% 10.1% Operational Costs 58.7 61.0 64.9 -3.8% -6.0% Provisions 631.0 641.0 290.4 -1.6% 120.7% Profit Before Income Tax -77.1 -157.7 73.7 51.1% —

2013—The sub-segment’s results in 2013 were affected by the impact of overdue loan ratios, leading to an increase in the segment’s credit provisions as in prior years. To mitigate this impact, as in previous years, the BES Group continued to take action at various levels, including: (i) intensification of risk mitigation practices, namely by increasing the collateralisation of both new loans and the loan portfolio; ii) regular revision of pricing policies for both credit spreads and interest rates on customer funds and elimination of commissioning discounts and exemptions; and (iii) optimisation of the cost basis. The action taken at the pricing policy level allowed for a 12.6% year-on-year increase in the segment’s banking income, while the cost restructuring measures resulted in a 3.8% year-on-year reduction in operating costs. In the last few years, Portuguese companies have increasingly looked abroad in search of new markets to place their products and develop their activity. BES has been part of this process and organised itself to offer a range of products and services designed to meet the needs of companies in their internationalisation efforts. The service is provided by the IPU which comprises two different types of bankers, namely those managing relations with financial institutions in countries where the BES Group is not present, with the aim of better serving the clients and commercial bankers specialising in international business who offer the Portuguese business community their knowledge of each market. In 2013, the international bankers supported 770 companies at various stages of the internationalisation process. Companies using the BES Group’s services also benefit from several other advantages, including the following: • Enhanced access to BES’ network of international units and large network of correspondent banks, which increasingly cover the emerging markets in tandem with businesses’ evolving needs and thus assist them in providing their clients with a wide range of international trade solutions and helping them set up their businesses across the various countries; • Innovative market prospecting support services, ISKO, which includes detailed information about each country and a useful summary of the relevant features for internationalisation decisions, and the ‘BES Fine Trade’, a tool that identifies potential export markets for globally tradable goods; these services are now available online; • New products, namely export credit insurance provided under a partnership with Coface, a world leader in credit insurance, and export financing applying to companies in their initial stages where they are still making the necessary acquisitions to manufacture the goods to be exported; • Participation in trade missions organised by BES, namely in 2013 to Indonesia, Timor, Algeria and Poland, which offer a huge potential for Portuguese companies (92 participants); • Opening of new markets by BES teams’ missions to countries with the potential for the development of economic relations with Portugal, such as Ghana, the Ivory Coast, Senegal, Uruguay, Romania, Azerbaijan, Kazakhstan, Oman, Kuwait, Abu Dhabi, Mongolia and South Korea. Given the existing economic interconnection within the Iberian market, client acquisition and business development are supported by close cooperation between domestic and Spanish commercial networks: 267 new Iberian corporate clients were acquired in 2013.

169 The BES Group maintained its commitment to innovation and entrepreneurship, two critical mainstays of a business’ development cycle that are vital for the national economy. For the last three years, the BES Group’s team of innovation specialists has worked hands-on in close coordination with Espírito Santo Ventures, Sociedade de Capital Risco. The Bank has been gradually increasing its involvement with companies whose business model is entirely based on specific innovative products or processes, with now over 350 of such businesses among its clients. 2013 saw the highest increase in the number of investments in Portuguese start-ups by the Espírito Santo Ventures’ funds (a total of six, which, added to the eight investments made in 2011 and 2012, significantly expanded the area of the national territory with start-ups directly supported by the BES Group). The exports and entrepreneurship support initiatives developed during 2013 created positive dynamics of engagement with innovative export-oriented companies with adequate risk profiles (rating higher than BB) dealing in tradable goods (“Winner SMEs”). Client acquisitions of Winner SMES reached 169 during 2013 while loans to this segment increased by €57 million year-on-year (4.3%). BES actively promotes the PME Investe, PME Crescimento and Investe QREN credit lines, all important tools to support the national SMEs’ investment and growth, and under which it has approved €3,160 million of loans as at 31 December 2013. In the main lines currently in force—PME Crescimento 2013 and Investe QREN -, BES holds market shares of 18.3% (€467 million) and 41.8% (€88 million), and is the market leader in the specific line for exporting companies—PME Crescimento 2013 Exportadoras—with a share of 37.4% (€192 million). In late November 2013, BES contracted credit lines with the European Investment Bank (€200 million) and the European Investment Fund (€160 million) which allowed it to grant loans to the domestic SMEs under favourable conditions. In November and December 2013, more than €100 million of loans were approved under these new facilities. In the current market context, BES continues to focus on supporting companies’ cash management. In this area, BES maintains a strong position in Factoring Solutions, (including traditional factoring products, i.e. credit to anticipate client payments supported by invoices), with a market share of 21.5% (based on total factoring products, according to the Portuguese Leasing, Factoring and Renting Association) that represents €1,292 million of credit under management. Through the ‘BES Express Bill30’ the Bank remains at the forefront of financial innovation for businesses, actively promoting the dynamics of economic activity, the adoption of financial management best practices and the improvement of companies’ financial health. This service has been taking an increasingly important role as a critical source of liquidity and a booster of confidence in business dealing, distinguishing it from among other payment and receipt management solutions. As of 31 December 2013, more than 17,000 companies have already used this service, with over €2.6 billion in facilities approved (guaranteeing the advancing of payments of more than €13 billion per year). 2012—The business area’s results were affected by the impact of past due and non-performing loan ratios, leading to the need to reinforce the segment’s credit provisions. To mitigate this effect, the BES Group has taken action at various levels, including: (i) intensification of risk prevention practices, namely by increasing the collateralisation of both new loans and loan portfolio; ii) regular revision of pricing policies for both credit spreads and interest rates on customer funds; and (iii) optimisation of the cost basis. The action taken at the pricing policy level allowed for a 10.1% year-on-year increase in the segment’s banking income in 2012, while the cost restructuring measures resulted in a 6.0% year-on-year reduction in operating costs. Despite the strong contraction of demand for credit from the business sector, new loans granted by BES Group remained practically in line with loan repayments, keeping the loan portfolio stable during the period—€21.0 billion as at 31 December 2012—a fact that reflected the BES Group’s support to the corporate sector and the results of its IPU. One of the BES Group’s main concerns was to provide a comprehensive response to the needs of companies which are already or about to do business abroad. The model adopted relied on close coordination between BES’ commercial team and the IPU, a solid international presence, a wide network of correspondent banks and the Bank’s recognised knowhow and leadership in trade finance. As a result of this integrated approach, 43% of the Portuguese exporting companies were BES Group clients and BES’ market share in trade finance reached 31% (market average shares in billing, cash letters, documentary credits and guarantees, according to SWIFT (Society for Worldwide Interbank Financial Telecommunication)), reflecting a year-on-year increase of 2.2 pp.

30 “BES Express Bill” is a simple network and credit and payment platform that allows BES clients to anticipate client payments and to provide payment guarantees to their suppliers, connecting all companies (micro, small, medium-sized and large).

170 In 2012 the BES Group continued its engagement in other important initiatives to support the internationalisation of Portuguese companies: • partnerships established with two important international banking groups for business development, especially in the areas of trade finance, corporate banking and investment banking, widen geographical scope of client support: Ecobank, a leading bank in Sub-Saharan Africa, which is present in 32 countries, and OTP, which operates in Central and Eastern Europe; • participation in international business fairs; • joint promoter of the 7th edition of the Forum Portugal Exporter, the largest and most important event dedicated to the exports and internationalisation of Portuguese companies; • active participation in the “Portugal Exporter Club”, an initiative launched within the scope of the Forum Portugal Exporter aimed at informing its members about markets and business leaders in the main external markets; • launch of the 2nd edition of the “BES/Jornal de Negócios Exports & Internationalisation” prize, which is awarded to companies with the best performance in expanding their presence abroad and increasing exports; • publication, for the third consecutive year, of a regular supplement in the Expresso newspaper (“Companies and Internationalisation”) with information about the strategic markets for Portuguese companies, business opportunities in these markets, and reports from Portuguese companies that were success cases in those markets. The BES Group was also increasingly focused on the support provided to innovation and entrepreneurship. This “hands-on” work was carried out in cooperation with the various structures of the Bank, allowing for the tracking of a large number of opportunities across Portugal, both in new projects and existing companies. This identification and screening effort has fostered positive dynamics in terms of seed and pre- seed investments31. BES has also promoted the various PME Investe and PME Crescimento credit lines, two important tools to support the national SMEs’ investment and growth. In the special case of the current PME Crescimento line, BES was, in 2012, at the lead of the support provided to the exporting companies, with loans approved totalling €156 million, corresponding to a market share of 29%, according to INE. In 2012, BES focused on supporting companies’ cash management. In this area, BES was the undisputed market leader in Factoring Solutions, with a market share of 23.7% (calculated on the basis of the total volume of factoring, according to the Portuguese Association of Factoring and Renting (Associação Portuguesa de Factoring e Renting)) in 2012 representing €1.6 billion of credit under management. “BES Express Bill” was extremely important as a critical source of liquidity and a booster of confidence in business dealings. In 2012, more than 11,000 companies were subscribed to “BES Express Bill”, with approximately €2.1 billion in facilities approved (guaranteeing advancing payments of more than €10 billion per year). 2011—In 2011, the results of this sub-segment were affected by increased funding costs, with a negative impact on overall loan margins, as well as an increase in overdue loan ratios, leading to the need to increase the segment’s credit provisions. In order to mitigate these effects, the BES Group took the same type of actions as described above. Deposits did not register any significant changes compared to 2010 and although demand for credit from the business sector sharply declined, new loans granted by BES remained practically on level with loan repayments, keeping the loan portfolio stable during 2011, equalling €21.2 billion as at 31 December 2011. This performance, which contrasts to the steep drop in credit in the Portuguese market (2.4% year-on-year according to Bank of Portugal data of November 2011), facilitated the BES Group’s continued support to the corporate sector, and in particular to the exporting and innovative companies.

31 Pre-seed stage: Projects in a very embryonic phase of pre-prototype and pure research, without product development, in which an entrepreneur requires funding to explore the possibility of further developing a product with market potential. In this phase, the company is still composed only of its founders and it does not have any business plan, nor has it started any customer contact. Seed stage: Project in an almost complete stage of product development, usually with a request for patent pending. A company at this stage already has a detailed business plan and the team is comprised of more staff than its founders. Exploratory contacts have already been made with potential clients, although there is not widespread commercialisation.

171 The BES Group maintained a close relationship with its corporate clients in 2011, so as to offer differentiated products and services that meet the clients’ real needs and thus promoting long lasting partnerships. Particular attention was paid to the export-oriented companies and those expanding abroad, supported by the BES Group’s strong international presence, its network of more than 2,200 correspondent banks and its recognised know-how in trade finance, reaching a market share of 28.8% (market average shares in billing, cash letters, documentary credits and guarantees according to SWIFT) in 2011. Throughout 2011, the BES Group developed other important initiatives to support the internationalisation of Portuguese companies, including: • Joint organisation for the fifth consecutive year of the Forum Portugal Exporter, the largest and most important event dedicated to promoting Portuguese exports; • Reinforcement of the partnership with the Jornal de Negócios newspaper concerning the “BES/Jornal de Negócios Exports and Internationalisation” prize, which is awarded to companies with the best performance in expanding their presence abroad and increasing exports; and • Publication of a regular supplement in the Expresso Newspaper (“Companies and Internationalisation”) with information about the strategic markets for Portuguese companies, business opportunities in these markets, and reports from Portuguese companies that were success cases in those markets. The BES Group’s team was focused on the support provided to innovation and entrepreneurship. One of the more important initiatives in 2011 was the Advanced Management and Innovation Programme for Entrepreneurs, jointly organised with the Portuguese Catholic University. The aim of this programme was to enable entrepreneurs to move successfully from an innovative idea to company formation, to its market and, finally, to internationalisation. This initiative benefited from the active collaboration of key innovation hubs, such as incubators and technology transfer centres, as well as by meetings and conferences involving start- ups and potential investors. Another important area of activity in 2011 was the support provided to company cash management. The “BES Express Bill” solution continued to prove a valuable and innovative tool to manage company payments. In 2011, approximately 10,000 companies subscribed to the “BES Express Bill”, with more than €1.7 billion in facilities approved guaranteeing payments of €8 billion per year.

(iii) Private Banking This sub-segment is dedicated to serving private high net worth clients, that have an involvement (intermediation and disintermediation client assets managed by the BES Group, as well as direct investment made by clients in securities) over €500 thousand. The products marketed in this segment include products such as deposits, discretionary management, custody services, brokerage of securities and insurance products. The following table shows the key indicators regarding this sub-segment:

PRIVATE BANKING

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 BALANCE SHEET Loans to Customers (Gross) 856 933 1 042 -8.3% -10.4% Customers Resources 1 633 1 491 2 342 9.5% -36.3% FINANCIAL STATEMENT Commercial Banking Product 133.3 113.4 79.3 17.6% 42.9% Financial Operations Results and Others 12.3 6.6 6.6 87.3% 0.0% Banking Product 145.6 119.9 86.0 21.4% 39.6% Operational Costs 17.0 18.0 19.4 -5.4% -7.7% Provisions 5.9 2.4 -0.3 142.3% — Profit Before Income Tax 122.7 99.5 66.9 23.3% 49.1%

2013—In the Private Banking sub-segment, total customer funds grew by 2.1% year-on-year, with on- balance-sheet customer funds (consisting entirely of deposits) increasing by 9.5% to €1.6 billion.

172 The sub-segment’s pre-tax profit increased to €122.7 million in 2013, + 23.3% year-on-year. This improvement is attributable to the measures taken during 2013 to improve the customer funds margin (which led to a 21.4% increase in banking income) combined with the streamlining of the structure of operating costs (which fell by 5.4% year-on-year).

2012—Total customer funds grew by 6.7% in 2012, underpinned by a strong increase in off-balance sheet funds (28.5% year-on-year) that was driven by the clients’ increasing preference for other investment products as an alternative to deposits, which declined by 36.3% year-on-year.

The sub-segment’s pre-tax profit increased by 49% year-on-year. This improvement reflected the measures taken during 2012 to enhance the customer funds margin (which led to a 39.6% increase in banking income) combined with the streamlining of operating costs (which fell by 7.7% year-on-year).

2011—Total assets under management and custody reached €7.1 billion at the end of 2011, underpinned by a strong increase in deposits (55.6% year-on-year). With deposit volume exceeding credit volume, private banking made an important contribution to strengthening BES’ balance sheet. Despite high pressure on deposit acquisition rates, banking income registered strong growth as a result of various initiatives, such as a permanent optimisation of credit pricing policies and measures to increase the clients’ product ownership rates.

International Commercial Banking This operational segment incorporates the retail units located abroad whose banking activity is directed both at private and corporate customers, excluding investment banking and asset management businesses, which are incorporated in their respective segments. The most important units contributing to this segment are BES Angola, ES Bank (USA) and the BES branches in Spain, London, New York, Luxemburg and Venezuela. Available services and products include deposits, all forms of credit, leveraged finance operations, structured trade finance and project finance. This segment has played a leading role within the BES Group’s funding strategy, with institutional customers.

The following table shows the key indicators regarding this segment:

INTERNATIONAL COMMERCIAL BANKING

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 BALANCE SHEET Loans to Customers (Gross) 12,156 11,642 10,246 4.4% 13.6% Customers Resources 11,410 9,080 7,435 25.7% 22.1% FINANCIAL STATEMENT Commercial Banking Product 558.5 524.5 567.0 6.5% -7.5% Financial Operations Results and Others -49.4 48.0 -3.3 -202.3% — Banking Product 509.2 572.5 563.6 -11.1% 1.6% Operational Costs 266.2 240.9 202.0 10.5% 19.3% Provisions 238.2 205.5 102.0 15.9% 101.5% Profit Before Income Tax 4.8 126.4 259.6 -96.2% -51.3%

2013—The segment continued to be profitable. Customer funds increased by 25.7%, largely driven by bond issues placed with institutional clients, while customer loans grew by 4.4%, underpinned by the intensification of business in BES’ subsidiary in Angola. Banking income in 2013 declined, which taken together with the increase in operating costs (10.5%) and provisions (15.9%), resulted in pre-tax profit of, €4.8 million, 96.2% lower than in 2012.

2012—Retail units operating abroad maintained a globally positive performance during 2012. Customer funds increased by 22.1%, largely driven by bond issues placed with institutional clients through BES London Branch, while customer loans grew by 13.6%, underpinned by the increase of business in BES’ subsidiary in Angola. Total banking income grew by 1.6%, although net interest income declined, which led to a 7.5% drop in commercial banking income. The small increase in banking income was more than offset by increased operating costs (19.3%) and provisions (101.5%), resulting in pre-tax profit for the year of €126.4 million, a 51.3% decreased compared to 2011.

173 2011—This segment showed a positive performance in the end of 2011, even though commercial banking income dropped by 4.2% year-on-year and the pre-tax profit declined by 16.4% to €259.6 million at 31 December 2011. Balance sheet customer funds decreased by 11.6% in 2011 year-on-year due to the reduction in certificates of deposit placed in the international markets following the rating downgrades of Portugal and its banking institutions.

Investment Banking Investment banking includes advisory services in project finance, mergers and acquisitions, restructuring and consolidation of liabilities, preparation and public or private placement of shares, bonds and other fixed-income and equity instruments, stock broking and other investment banking services. In addition, the bank offers traditional banking services to corporate and institutional clients.

The following table shows the key indicators regarding this segment:

INVESTMENT BANKING

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 BALANCE SHEET Loans to Customers (Gross) 2 078 2 312 2 367 -10.1% -2.4% Customers Resources 2 055 1 057 934 94.3% 13.2% FINANCIAL STATEMENT Commercial Banking Product 188.8 198.9 212.7 -5.1% -6.5% Financial Operations Results and Others 59.4 64.2 27.1 -7.5% 136.9% Banking Product 248.2 263.2 239.8 -5.7% 9.7% Operational Costs 171.6 176.1 178.6 -2.5% -1.4% Provisions 59.9 46.2 44.2 29.5% 4.5% Profit Before Income Tax (*) 16.7 40.9 17.0 -59.1% 140.0% (*) The cost of the contribution to the banking sector is not deducted

2013—Despite constraints on the development of the investment banking business in 2013 the BES Group expanded its activities in certain important emerging markets, leading several transactions in Mexico, Poland and Brazil that helped to mitigate the activity downturn in the more developed markets. The Bank’s participation in Portugal’s privatisations programme and in the sovereign’s return to the international long-term bond markets, and also the buoyancy of the capital markets area (completion of more than 50 transactions for a total of €15 billion) helped to compensate for lower growth in certain business areas more exposed to adverse conditions. Banking income was €248.2 million, 5.7% lower than in 2012, while operating costs dropped by 2.5%. The year’s pre-tax results were negatively impacted by the increase in credit impairments, dropping by 59.1% year- on-year, to €16.7 million. The international area accounted for 59% of banking income in 2013 and was marked by an increased presence in Mexico, through Lusitania Capital (a non-banking subsidiary that provides financial advisory services and supports projects in local currency), by the expansion of activities in India to the M&A and capital markets businesses, and by the establishment of several operational joint ventures regarding brokerage and investment banking services, namely in Asia with the RHB Investment Bank and in Turkey with Global Securities. In the other countries where it operates, the Group pursued its efforts to consolidate the activity and concluded a number of relevant operations despite the unfavourable conditions.

2012—In 2012, banking income increased by 9.7%, in comparison with 2011. Participation in Portuguese privatisations programme, the support provided to Portuguese companies in accessing the international debt markets, and trading gains helped to compensate for lower growth in certain business areas more exposed to the adverse conditions. Operating costs decreased by 1.4%, despite the new steps taken towards international expansion. 2012’s net income was €40.9 million, well above the 2011 result (€17.0 million). The international area contributed 60% to consolidated banking income, and was marked by strong results in Brazil, the integration of the business and unification of the Espírito Santo Investment Bank brand in the United Kingdom and the start of operations in India. In other countries where the Group is present (Spain, Poland, the United States and Mexico), the bank has pursued efforts to consolidate the activity and concluded a number of relevant operations.

174 2011—In a very challenging year, banking income proved quite resilient, decreasing by only 7.7% in 2011 year- on-year, to €239.8 million. This business segment benefited not only from its diversified international presence– the international area contributed 72% of its 2011 total banking income–but also the measures taken to manage the difficult economic environment in Portugal, namely an increased focus on internationalisation, on advisory and intermediation services and on the loan portfolio rotation. The deterioration in operating performance and the increase in credit impairments led to a sharp fall in pre-tax profits, which were down by 81.3% in 2011 to €17.0 million. With respect to international expansion, the year’s main highlights were the increasing contribution of Brazil, which is now the main contributor to revenues and net income, the consolidation of activity in Spain, activity growth in the UK (2011 was the first full year of the integration of Execution Holding Limited), the progress achieved by the operation in Poland, the reinforcement of distribution activities in the United States, and the launch of business activities in India, where a joint venture was established with the Burman family, initially to open a brokerage house and subsequently an investment bank.

Asset Management This segment includes all the asset management activities of the BES Group, mainly conducted by Espírito Santo Activos Financeiros (“ESAF”), within Portugal and abroad (Spain, Luxembourg, Angola, and Brazil) through entities created specifically for that purpose. ESAF’s product range covers mutual funds, real estate funds and pension funds. ESAF also provides discretionary and portfolio management services.

The following table shows the key indicators regarding this segment:

ASSET MANAGEMENT

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 ASSETS UNDER MANAGEMENT 15,910 15,444 15,476 3.0% -0.2% FINANCIAL STATEMENT Banking Product 58.6 64.7 52.8 -9.4% 22.5% Operational Costs 17.2 17.7 19.5 -2.6% -8.8% Provisions 2.5 3.1 -1.0 -21.0% — Profit Before Income Tax 38.9 43.9 34.3 -11.4% 27.6%

2013—At the end of 2013, assets under management reached €15.9 billion, a year-on-year increase of 3.0% that was mainly driven by the strong growth in asset management volume, which more than made up for the reduction in mutual funds (20.9%), while the volume of real estate investment funds registered a small increase of 0.4%. In 2013 the number of funds under management remained practically unchanged, as compared to the streamlining that had occurred in prior years, while asset volume dropped by 29% year-on-year due to the liquidation of two ‘ES Rendimento Fixo’ funds which had reached maturity as well as the sharp reduction in the volume of several bond funds and mixed investment funds. With respect to domestic real estate investment funds, assets under management rose by approximately 6.0% due to the increase in the number and volume of closed-end funds under management, while the open-end funds’ volume dropped by approximately 5.4% due to a reduction in assets under management of the ‘Gespatrimónio Rendimento’ fund (6.7%) and their stabilisation in the ‘Fundo de Investimento Imobiliário Aberto Logística’ fund (0.9%). Volume under management of the domestic pension funds increased by 13.4%, with volumes increasing in open-end funds and remaining practically flat in closed-end funds. Domestic asset management saw a sharp volume increase in the portfolios of insurance companies, individual clients, institutional clients and in all areas of the multi-manager segment, while management mandates were also obtained for two new funds, the ‘ES Fixed Income Flexible Fund’ and the ‘ES Liquidy Fund’.

The value of international assets under management—€2.7 billion, of which approximately €1.8 billion in Spain—accounted at the end of 2013 for approximately 17% of total assets under management. In Luxembourg assets under management increased by 19.3%, to approximately €600 million, while dropping in Brazil by 30.6% year-on-year. Asset management’s income fell by 9.4% year-on-year, with operating costs also decreasing (2.6%). The pre-tax profit was €38.9 million, a year-on-year reduction of 11.4% that essentially reflects an extraordinary gain in 2012 in a Spanish subsidiary related to an indemnity from a termination agreement with the distributor Banco Pastor.

175 2012—At the end of 2012, assets under management were €15.4 billion, which was flat compared to 2011, while the pre-tax profit increased by 28%, to €43.9 million. These figures reflect an increase in net commissions (mainly boosted by performance commissions), the optimised management of funding and the reduction in operating costs, and the improvement in the results of equity consolidated subsidiaries, namely in Spain, underpinned by non recurrent earnings. Real estate funds and mutual funds increased assets under management by 52% and 10%, respectively, with domestic mutual funds rising by 22% due to the strong growth of the ES Rendimento and ES Liquidez funds. During the year, further steps were taken in the plan to consolidate the domestic portfolio of mutual funds, involving the merger by incorporation of six funds, and the adjustment of the investment policy for another three. Domestic real estate funds registered a 12% reduction in assets under management, mainly as a result of decreases in the Fundo de Investimento Imobiliário Aberto Gespatrimónio Rendimento (10%) and the Fundo de Investimento Imobiliário Aberto Logística (22%). Volume under management of the domestic pension funds stabilised (following the transfer of assets and liabilities to the Portuguese Social Security system) with a sharp increase in volumes of open-end funds (21%) and a small reduction in closed-end funds (3%). At the end of 2012 the international activity represented approximately 23% of the total assets under management, corresponding to more than €3.8 billion, of which over €2 billion in Spain and €850 million in Angola, where volume was boosted by the launch of the BESA Valorização real estate fund. In Luxembourg and Brazil assets under management increased by 23% and 16%, respectively.

2011—At 31 December 2011, total assets under management were €15.5 billion, a year-on-year decrease of 17.6%. Due to the financial markets crisis, the volume of assets under management of real estate funds and pension funds dropped by 12% and 19%, respectively in 2011. Mutual funds activity grew by 4% in 2011, driven by a volume increase in Spain due to the incorporation of Gespastor SGIIC. At the end of 2011, assets under management of the international operations totalled €3.1 billion, of which more than €2.3 billion was in Spain, representing around 23% of the total volume under management at 31 December 2011. In Luxembourg and Brazil, assets under management fell by 14% and 31%, respectively, while Angola registered an increase of 11%.

Life Insurance This segment comprises the activity of BES Vida, which provides both traditional and unit-linked insurance products as well as pension plans.

The following table shows the key indicators regarding this segment:

LIFE INSURANCE

in million euros Variables Dec. 13 Dec. 12 Variation BALANCE SHEET Customers Resources 6,033 4,991 20.9% GAINS AND LOSSES Gross Margin of Insurance Activity 399.8 239.5 67.0% Operational Costs 11.9 8.4 42.2% Provisions 4.1 0.4 — Profit Before Income Tax 383.7 230.6 66.4%

2013—For BES Vida, 2013 was marked by a sharp recovery of activity that was driven by growth in production of unit-linked products and pension plans. Results were also impacted by a reinsurance agreement, signed June 2013, between BES Vida and New Reinsurance Company Ltd., pursuant to which BES Vida reinsured its entire individual life risk portfolio. The insurer’s production (gross insurance premiums issued in relation to BES Vida insurance policies) in Portugal reached €1,996.7 million, which represents a 37.9% year-on-year increase in gross premiums. Moreover, claims volume registered a sharp contraction (31.7% year-on-year), mainly due to the reduction in financial products’ redemption volume (53.9%). These factors resulted in a 24.2% year-on-year increase in life reserves, which reached €7,030 million.

2012—In 2012 BES Vida contributed €122.7 million (on a current activity basis) to BES Group’s net income (this does not include the negative impact of the acquisition of control, which was recorded under Markets and Strategic Holdings). Insurance production of BES Vida in Portugal was €1,447.6 million, corresponding to a 380.6% year-on-year increase in premium volume that was driven by production growth of unit-linked products and pension plans. Claims volume registered a sharp contraction (47.7%) due to the reduction in financial products’ redemption volume. BES Vida investment contracts and the insurer’s technical reserves reached nearly €5 billion (€4.3 billion in May, the date of first-time consolidation), reflecting the contribution to BES Group’s on-balance-sheet customer trends.

176 Capital Markets and Strategic Investments This segment includes the global financial management activity of the BES Group, namely the raising and placement of funds in the financial markets, as well as investment in and risk management of credit, interest rate, foreign exchange and equity instruments, whether of a strategic nature or as part of current trading activity. It also includes activity with non-resident institutional investors, as well as any activities arising from strategic decisions impacting the entire BES Group.

The following table shows the key indicators regarding this segment:

CAPITAL MARKETS AND STRATEGIC INVESTMENTS

in million euros Variation Dec. 13/ Dec. 12/ Variables Dec. 13 Dec. 12 Dec. 11 Dec. 12 Dec. 11 FINANCIAL STATEMENT Banking Product -736.3 132.0 3.9 — — Operational Costs 66.3 55.8 54.1 18.9% 3.1% Provisions 420.0 226.3 345.6 85.6% -34.5% Profit Before Income Tax (*) -1 222.7 -150.1 -395.8 — 80.3% (*) The cost of the contribution to the banking sector is not deducted

2013—The reduction of funding from the ECB and its replacement for medium and long-term debt issues, as well as the policy on the internal allocation of the cost of funding, and the considerable reduction in the contribution of public debt securities impacted the negative banking income in the area. This, combined with an increase in impairments in securities, real estate assets obtained through credit recoveries, and other assets, that raised the respective cost to €420 million, primarily explains the pre-tax net loss of €1,222.7 million reported by the segment.

2012—The segment’s performance in 2012 was also impacted by impairment losses in subsidiaries and losses on the sale of international loans. These effects were offset by the gains obtained on the portfolio of financial instruments as the segment’s banking income increased to €132 million. Despite a reduction in operating costs, a €226.3 million reinforcement of provisions for securities, non-financial assets and other more than offset the income generated, leading to a pre-tax loss of €150.1 million – which still represented a significant improvement relative to the loss reported in 2011.

2011—The segment’s performance in 2011 was negatively impacted by the general devaluation of financial instruments, and in particular by nonrecurring factors (namely losses in the transfer of pension liabilities to the Portuguese Social Security system, loss in the stake held in BESVIDA and losses on the sale of international loans). The combined effect of a 99% reduction in banking income, an 11.1% increase in operating costs and a 65.0% rise in provisions resulted in a pre-tax loss of €395.8 million, of which €378.5 million derived from non- recurring factors.

Additional Information on the International Activity of the BES Group The BES Group segments its activity and results according to geographical criteria, separating the performance of the units located in Portugal (Domestic Area) from that achieved by the units abroad (International Area).

The tables below set out the distribution of net profit and net assets by geographic market for the years ended 31 December 2013, 2012 and 2011:

As at and for the year ended 31 December 2013 United France/ United States of Cape Portugal Spain Luxembourg Kingdom America Brazil Angola Verde Macao Other Total (EUR million) Net profit for the year ...... (539.5) (47.8) 10.3 32.6 2.8 6.7 15.5 1.4 3.7 (3.4) (517.6) Net assets ...... 54,124.1 6,351.8 985.9 5,107.3 1,548.2 2,336.0 8,300.6 261.0 389.7 1,203.4 80,608.0 Net profit for the year (%) ...... 104.2% 9.2% (2.0)% (6.3)% (0.5)% (1.3)% (3.0)% (0.3)% (0.7)% 0.7% 100.0% Net assets (%) .... 67.1% 7.9% 1.2% 6.3 % 1.9 % 2.9 % 10.3% 0.3% 0.5% 1.5% 100.0%

177 As at and for the year ended 31 December 2012 United France/ United States of Cape Portugal Spain Luxembourg Kingdom America Brazil Angola Verde Macao Other Total (EUR million) Net profit for the year ...... 8.4 15.8 6.3 19.2 5.9 11.1 31.7 1.8 4.0 (8.0) 96.1 Net assets ...... 59,175.8 4,652.6 464.2 5,944.4 1,393.2 2,440.0 7,970.7 208.0 446.4 995.4 83,690.8 Net profit for the year (%) ...... 8.8% 16.5% 6.5% 20.0% 6.1% 11.5% 33.0% 1.8% 4.1% (8.4)% 100.0% Net assets (%) ..... 70.7% 5.6% 0.6% 7.1% 1.7% 2.9% 9.5% 0.2% 0.5% 1.2% 100.0%

As at and for the year ended 31 December 2011 United France/ United States of Cape Portugal Spain Luxembourg Kingdom America Brazil Angola Verde Macao Other Total (EUR million) Net profit for the year ...... (269.6) 9.9 7.4 18.6 14.3 20.4 91.7 1.1 2.4 (5.2) (108.8) Net assets ...... 59,249.8 5,302.5 76.2 3,575.4 1,391.3 2,645.7 6,867.0 144.9 249.9 734.7 80,237.4 Net profit for the year (%) ...... 247.9% (9.1)% (6.8)% (17.1)% (13.2)% (18.8)% (84.3)% (1.0)% (2.3)% 4.8% 100.0% Net assets (%) ..... 73.8% 6.6% 0.1% 4.5% 1.7% 3.3% 8.6% 0.2% 0.3% 0.9% 100.0%

The BES Group’s international expansion strategy has been crucial to its performance and results.

During 2011, the BES Group increased its stake in Execution Holdings Limited to 65.4%. Since the end of 2013, the BES Group has held 100% of the entity.

In 2012, the Bank opened a branch in Caracas in Venezuela and in Luxembourg with the goal of strengthening support to the Portuguese community in these countries; in 2013 the BES Group increased its stake in Moza Banco (Mozambican bank) from 25.1% to 49%.

In 2013, the international area continued to reinforce its share of the BES Group’s total activity, notwithstanding the early development of its more recent business units and the difficulties experienced by several emerging economies. Despite these headwinds, total assets reached €26.5 billion, representing an increase of 8.0%, the loan portfolio increased by 4.8% and total customer funds 11.8%. In 2013 the international area’s net income was positive, notwithstanding the problems faced by the emerging countries’ economies, and offset in part the losses reported by the domestic area. The international commercial banking income increased by 1.6%, with net interest income rising by 31.8%. The decrease in capital markets and other results income, the increase in operating costs (4.9%), and the €204.4 million provisioning cost prevented the international units from posting a more significant profit, causing their contribution to the consolidated results to drop by 75.0% year-on-year to €21.9 million in 2013 compared to €87.6 million in 2012.

In 2013, income from the United Kingdom increased by close to 70% year-on-year, to €32.6 million, driven by the expansion of wholesale funding, while income from France/Luxembourg rose by 63.1%, to €10.3 million. Losses in Spain were attributable to provisioning costs in light of the economic recession in Iberia. Africa’s contribution to the consolidated results fell due to the performance of BES Angola, where a new strategic plan and business model are being implemented. In December, BES Angola increased its share capital by USD 500 million with the aim of strengthening its capital base and positioning it to execute its new business plan.

Material Contracts The BES Group is actively involved in a number of strategic partnerships and cross-selling arrangements to complement its range of products and services, and to increase its value proposition to current and potential clients.

The BES Group’s most important strategic partnerships and cross-selling arrangements are set forth below.

(i) Assurfinance programme In 1998, the BES Group developed a strategic partnership with Tranquilidade, (indirectly fully-owned by ESFG), aimed at attracting clients of Tranquilidade who do not use the BES Group’s banking services. This programme is carried out by a network of Tranquilidade’s insurance agents.

178 (ii) BES Seguros Currently, BES Seguros is held in 25% by the BES Group, 50% by the Crédit Agricole Group (through Crédit Agricole Assurances) and 25% by the Companhia de Seguros Tranquilidade. On 15 May 2014, the sale of the entire stake held by Crédit Agricole Group to Companhia de Seguros Tranquilidade was agreed. BES Seguros operates in the non-life insurance sector, including auto, home, health and personal accident insurance. After the completion of this transaction, BES Group will continue to distribute BES Seguros’ products through its commercial network.

(iii) BESA BESA is held in 55.71% by BES, with the main minority shareholders being Geni—Novas Tecnologias, S.A. (“Geni”), with 18.99%, and Portmill, Investimentos e Telecomunicações, S.A. (“Portmill”), with 24%. The participation of BES and these companies in the capital of BESA was approved by the competent authority, the National Bank of Angola. The current shareholder agreement concerning BESA was concluded on 10 December 2009, between BES, Geni and Portmill, containing rules of confidentiality as to their content. Pursuant to BESA’s articles of association, there are restrictions on the transferability of shares: the encumbrance or usufruct of shareholdings requires the consent of all shareholders, in a General Meeting, and the sale of shares to a third party requires the consent of BESA, to be granted by the Board of Directors. The shareholders have pre- emptive rights relating to the shares to be transferred.

(iv) Aman Bank Aman Bank for Commerce & Investment Stock Company (“Aman Bank”) is 40% owned by BES, with the remaining equity held by a group of citizens and entities incorporated under Libyan law. BES’ acquisition of a 40% stake in Aman Bank was concluded on 15 April 2010, having obtained the prior permission of the Central Bank of Libya and having been no opposition from the Bank of Portugal. Despite not being the majority shareholder of Aman Bank, BES contractually obtained management control of that entity. The current shareholder agreement concerning Aman Bank was signed on 27 November 2009, between BES and the other shareholders, containing rules of confidentiality as to their content. Pursuant to Aman Bank’s articles of association, there are restrictions on the transferability of shares. In particular, the sale of shares to a third party requires the consent of the Bank, to be provided by the Board. The shareholders have pre-emptive rights relating to the shares to be transferred. Similarly, certain resolutions, such as an increase or decrease of capital, dissolution, liquidation or merger with other companies, as well as any decisions to be taken at extraordinary General Meetings, as provided in the Libyan law, are subject to a qualified majority of 60%.

(v) Moza Banco, S.A. Moza Banco is 51% owned by Moçambique Capitais, S.A., a company incorporated under Mozambican law, and 49% owned by BES África, a company held in 100% by BES. The participation of BES Africa and Moçambique Capitais, S.A. in the share capital of Moza was approved by the competent authority, the Bank of Mozambique. The current shareholder agreement concerning Moza Banco was concluded on 17 June 2013, between BES and Moçambique Capitais, S.A., containing rules of confidentiality as to their content. Pursuant to Moza Banco articles of association, shareholders have pre-emptive rights in the transfer of shares within the company and to third parties. The encumbrance or the usufruct of Moza Banco shares, as well as the exchange, subscription in kind, donation or any other non-onerous transfer of shares shall be subject to the consent of Moza Banco, to be granted in the General Meeting. Certain actions are also subject to approval by the General Meeting by a majority of 80% of the capital of Moza, such as the election or removal of statutory bodies, the approval of capital increases, the amendment of bylaws or the adoption of the annual report and other management and accountability documents. Certain matters are also subject of approval by the Board of Directors by a qualified majority (favourable vote of 7 out of 9 members), such as adoption and amendment of the Regulation of the Board of Directors and Executive Committee, appointment of directors, appointment and dismissal of members of the Executive Commission and delegation of powers, responsibilities and limits of the power of decision, or the approval and revision of the strategic business plan.

179 After increasing the shareholding of BES África SGPS S.A. to 49% of the capital in Moza Banco, BES and Moçambique Capitais, SA., concluded, in 2013, an agreement of strategic partnership for the financial sector in Mozambique. This agreement aims at the development and expansion of the commercial activity of Moza Banco and the future creation of a financial institution dedicated to asset management and investment banking, in which Moza Banco will hold a majority stake.

(vi) Locarent Owned by the BES Group (50%) and by Caixa Geral de Depósitos (50%), Locarent is a car rental service operating in Portugal aimed at complementing the offerings of Caixa Geral de Depósitos and the BES Group as well as taking advantage of the distribution capabilities of the two banking networks.

(vii) Edenred Portugal Edenred Portugal is owned directly by BES (50%) and belongs to Edenred Group, the world leading company in pre-paid services to corporates. It develops solutions for the concession of social benefits to workers, such as offering subsidised meals through bank cards issued in partnership with BES and made available through its commercial network.

Other Material Contracts The BES Group has not entered into any material contracts, which are still in force, other than contracts entered into in the ordinary course of business, in the two years prior to the date of this Offering Circular, except for the outsourcing agreements set forth below: • On 27 January 2006, BES and PT Prime, Soluções Empresariais de Telecomunicações executed a services agreement for the restructuring and outsourcing of the communications network of the BES Group. Notwithstanding its signature date, the agreement became fully effective on 1 May 2006 and had an initial term of five years and six months, with successive and automatic renewals for one-year periods, except if terminated by any of the parties at least six months prior to the end of the initial period or any renewal period. The agreement is currently in one of its renewal periods. • In December 2005, BES entered into an outsourcing agreement with IBM for the management of the BES Group’s central computer systems infrastructure for a period of 10 years (2006-2016), encompassing equipment, base software and operational services. In June 2008, BES entered into a new outsourcing agreement with IBM, for a period of seven years (2008-2015) for the management of the BES Group’s midrange infrastructure systems, encompassing a similar scope of services. The resulting contracts will run from 2008 to 2015–2016.

Investments In order to develop its business activity according to its strategic goals, including the increase of its market share in Portugal and its international expansion in certain countries, the BES Group seeks to provide a high level of quality services, which demands a continuous investment effort, in particular in the following areas: (i) Information systems: BES banking activity as a global financial group demands a modern, efficient and effective information platform to support its operations and the launching of new products requiring heightened security and technological innovation. International expansion also raises new challenges regarding the integration and standardisation of the BES Group’s information systems infrastructure; (ii) Distribution network: The distribution network allows direct contact with clients and requires relevant actions to ensure that BES branches are more attractive and adapted to each customer segment; and (iii) Equity holdings: The BES Group’s investment portfolio is continuously adapted to track new business opportunities and/or to focus its business in preferential markets.

Information Systems The BES Group has pursued a rationalisation programme directed to the efficiency of IT procedures and platforms.

The rationalisation programme can be divided in three different areas: 1. Technical Architecture Evolution, 2. Infrastructure Rationalisation, and 3. Optimisation of Information Systems Governance Procedures.

180 With regards to outsourcing agreements, BES is party to an agreement with IBM, comprising operation systems for the whole mainframe and middle range infrastructure (about 2,000 Wintel and Unix servers) and the corresponding disaster recovery infrastructure.

The desktop equipment outsourcing agreement with Portugal Telecom, complementing the outsourcing related to the telecommunications technological tower, comprises all supply and maintenance services for the desktop equipment (over 10,000 elements), branch servers, multifunction printers and banking peripherals.

With these agreements, the operation of the whole IT platform of the BES Group is currently under outsourcing, in a multi-supplier form, whereby each technological tower is handled by the best-of-breed supplier in each category, and benefiting from a better cost efficiency.

As for IT running and management procedure improvements, ES Informática, ACE (the computer shared service company of the BES Group) achieved the CMMI 3 certification, thus becoming the first dedicated computer service company to obtain such certification in Portugal. In 2011, ES Informática extended the Lean IT methodology obtaining significant productivity and performance improvements (~15%) and becoming one of the five largest IT companies in the usage of Lean practices in Europe.

BES is developing the following IT projects domestically: • Development of a workflow and document management programme, with the implementation of new support workflows for the Bank’s main procedures (e.g., account opening, funding and limits for companies and other simple processes) and the corresponding document dematerialisation; • Improvement of multichannel functionalities focusing on web and mobile channels (e.g., micro savings, impulse savings, BESnet Mobile, BESnet for Tablets and new “BESnet” release with family planning and budgetary functionalities); and • Improvement of management information for commercial networks (e.g. next day information available through cockpit with all relevant indicators of commercial activity).

Internationally developed projects include: • Continued core system rationalisation programme to support international business and expansion, with the release, in April 2008, of BES Angola’s new information system and, in 2011 the BES London’s new information system, in January 2012 the launching of a new subsidiary in Venezuela, and in January 2014 the new IT system in BES Oriente, all based on the “Flex Cube” Solution by iFlex (Oracle Financial Services), and also the set-up of a new BES branch in Luxembourg. This solution allows for a swifter launching of new products, a faster expansion of the branch and user network and an improved channel functionality level (internet, telephone and trade at branches);

Optimisation and rationalisation of IT platforms in the main international geographies, namely in Spain and London. In these locations, measures were implemented allowing the usage of centralised resources in Portugal, providing efficiency gains with no loss of flexibility in the business development.

In 2013, BES Group invested more than €30 million on its IT systems and development of new projects. It also invested €31 million and €39 million in 2012 and 2011, respectively. During the first quarter of 2014, €3.8 million were invested in IT systems.

Distribution networks and support units During the first quarter of 2014, BES Group investments in real estate amounted to €7.8 million.

During the year 2013 the BES Group made investments in real estate in the amount of €121.2 million, which relate primarily to the expansion of its branch network in Angola. In 2012 and 2011, these investments (relating to expansion of the branch network) amounted to €87.6 million and €83.7 million, respectively.

Financial Investments During the first quarter of 2014, BES, S.A. acquired, through ESFIL—Espírito Santo Financiére a 44.81% stake in Banque Espírito Santo et de la Vénétie (“BESV”) for approximately €55 million from ESFG. As a result of this transaction, BES holds directly and indirectly 87.5% of the share capital of BESV and fully consolidates it. Before the acquisition, the BESV was consolidated in the accounts of the BES Group by the equity method. The impact of the first full consolidation of BESV resulted in an increase in assets in the BES Group of €0.8 billion.

181 In March 2014, BES acquired from Espírito Santo Financial Group a 9% stake that it held in the share capital and voting rights of Banco BEST—Total of Electronic Banking Service for €12 million. Following this transaction, the BES Group acquired 75% of Banco BEST, continuing its full consolidation of the entity (prior to this acquisition, the BES Group held 66%).

The main investments undertaken by the BES Group in 2013 were as follows: • In March 2013, the BES Group established Righthour (Portugal), a company held entirely held by BES PME Capital Growth fund. In April 2013 this company acquired 100% of the share capital of Imbassaí Participações, S.A., for the amount of €32.8 million (Brazil), which was then consolidated by the BES Group; • In April 2013, ESSI SGPS, S.A. acquired 31.6% of Espírito Santo Investment Holding Limited (United Kingdom) for 17.1 million pounds, increasing its holding to 100% of the company´s share capital; • In May 2013, ESSI SGPS, S.A. subscribed to a capital increase of Espírito Santo Investment Holding Limited (United Kingdom) in the amount of 10 million pounds; • In June 2013, BES acquired a 50% interest in Edenred Portugal, S.A. (for €8.1 million) (Portugal), which is accounted for in the Audited Group Financial Statements using the equity method; • On 30 June 2013, BES África acquired 23.9% of Moza Banco (Mozambique) for €24.9 million, increasing its holdings to 49% of this associate.

The most important events related to the investments portfolio in 2012 were the following: • In April 2012, ES Capital acquired a 42.99% interest in 2BCapital Luxembourg S.C.A SICAR (Luxembourg) for €0.9 million; in May 2012 ES Capital invested an additional €15.6 million in the company by taking part in a capital increase; • In May 2012, BES acquired the remaining 50% of BES Vida (Portugal) share capital, for €225.0 million, thereby holding 100.0% of the total share capital of the company, subsequently fully consolidating this entity; • In November 2012, the BES Group acquired participation units of Fungepi, Fungere and Imoinvestimento (all from Portugal) for €101 million, all of which were then fully consolidated in the BES Group;

During 2011, the main investments undertaken by the BES Group were as follows: • In January 2011, BES Africa acquired 25.1% of Moza Banco S.A (Mozambique)., a Mozambican financial institution, for € 8.0 million; • In February 2011, following the capital increase of Watson Brown HSM, Ltd, FCR Ventures III Fund (United Kingdom) began to hold 27.57% of its share capital, which corresponds to a €2.9 million investment, and started to consolidate this entity under the equity method; • In July and September 2011, ES Tech Ventures invested in the Funds FCR Espírito Santo Ventures Inovação e Internacionalização (Portugal) and Fundo Bem Comum, FCR (Portugal), respectively, holding 50% and 20% of their capital, which started to be included in the BES Group’s consolidation perimeter; • In December 2011, BES acquired an additional 30.70% of the capital of ES Concessões (Portugal), by an amount of €25.5 million, increasing its shareholding to 71.66%; • In December 2011, ES Bank acquired 14.9% of ES Financial Services (EUA) to Banque Privée Espírito Santo, for €2.0 million, becoming the holder of the entire share capital of that entity; • In December 2011, BES acquired 5% of ESAF—Espírito Santo Activos Financeiros, S.G.P.S. (Portugal) to Tranquilidade, for €13.2 million, becoming the holder of 90% of its share capital; • In December 2011, BESI increased its participation in Execution Holdings Limited (United Kingdom), for €23 million, becoming the holder of 65.40% of its share capital; and • In December 2011, the leasing company Ijar Leasing Algérie was established, in which Banque Exterieure d’Algerie (Algeria) holds 65% and the BES Group 35%. The BES Group’s investment amounted to €12.4 million.

182 In the last three years BES’ ratings were the following:

30 April Short-term 2014* 2013 2012 2011 Standard & Poor’s Credit Market Services Europe Limited . . . B B B B Moody’s Investors Service España S.A...... NP NP NP NP DBRS Ratings Limited ...... R-2M R-2M R-2M R-2H Dagong Europe Credit Rating S.r.l...... B B Long-term Standard & Poor’s Credit Market Services Europe Limited . . . BB- BB- BB- BB Moody’s Investors Service España S.A...... Ba3 Ba3 Ba3 Ba2 DBRS Ratings Limited ...... BBBL BBBL BBBL BBB Dagong Europe Credit Rating S.r.l...... BB BB * As of the date of this Offering Circular the ratings assigned by the rating agencies referred to above were in negative Outlook

All the rating agencies referred above are registred with ESMA—European Securities and Markets Authority, in accordance with the Regulation no. 1060/2009 of European Parliament and of the Council, of 16 September.

Dividend policy Under Portuguese law, the distributable net income of a credit institution represents the net income after covering accumulated losses and the allocation of at least 10% of such net income for legal reserve (up to the share capital or the sum of free reserves and retained earnings, if higher) and other mandatory reserves required by Portuguese law and the company’s articles of association.

The General Meeting decides, upon the Board’s proposal, on the allocation of net income and the amount of dividends. A shareholder’s right to a dividend lapses within 30 days from such resolution.

Dividend payment is executed through the CVM. Dividends are paid to shareholders who, on the payment date, have shares registered in an individual securities account. The shares are registered in CVM, with the right to receive a dividend until the day prior to the dividend payment date. However, the shares will trade ex-dividend within Euronext Lisbon as from the third business day prior to the dividend payment date (inclusive) as the securities traded in that period (i.e., the third business day) are already registered in the CVM accounts as ex- dividend.

Dividends revert to the Republic of Portugal within a five-year term whenever such dividend or right to receive such dividend is not claimed, or is not attempted to be claimed, or is not manifested by any other lawful or indisputable means, in accordance with Decree-Law no. 187/70, of 30 April 1970.

Even though BES does not have a defined dividend policy, the Board’s dividend distributions proposal to the Shareholders General Meeting will take into account the balance between financial strength (higher solvency ratios through retained earnings) and adequate return to the shareholders.

BES targets in the medium term to achieve positive results and distribute dividends corresponding to a payout ratio that should tend to converge to 40% in line with the last dividend distribution.

The New Shares to be issued as part of the Combined Offering entitle their holders the right to receive any dividends that may be approved in respect of the year ending on 31 December 2014 and subsequent years, subject to the BES Group’s results and BES’ capital position, capital ratios and minimum capital requirements and limitations that may arise from a possible execution of the guarantee provided by the Portuguese state to three unsubordinated bond issuances totalling €3,500 million maturing between December 2014 and February 2015.

For further information on dividends payment, please see “Taxation”.

Property and Equipment The BES Group owns the building where its headquarters are located in Lisbon, Portugal, at Avenida da Liberdade, 195, 1250-142 Lisbon, Portugal.

183 As of 31 December 2013, BES’ network consisted of 788 offices, of which 643 were in Portugal and 145 were abroad. The offices in Portugal include 612 BES offices, an offshore branch in Madeira, 13 offices of Banco BEST and 17 of Banco Espírito Santo dos Açores, 23 private banking centres and 25 corporate centres. Abroad BES had 31 offices in Spain, 71 in Angola, 33 in Libya and 2 in Cape Verde as well as branches in London, New York, Nassau, Cayman Islands, Cape Verde, Venezuela, Luxembourg, Spain and 10 international representative offices. As of 31 December 2013, the BES Group owned 173 buildings in which some of its offices and central services are located (Dec. 2012: 172). As of 31 December 2013, the net book value of the buildings owned by the BES Group was €752.2 million. The remaining branches are rented in accordance with local market practice. The consolidated amount recorded under the item “rents and leases of equipment” was €61.3 million as at that same date (2012: €56.4 million).

The BES Group is unaware of any environmental issues that may affect its ability to use any of its tangible fixed assets and maintains customary insurance on its leased and owned properties.

Research and Development, Patents and Licenses Research and Development BES has been implementing, since its establishment, a programme to assess its customers’ needs and research new products and services.

The BES Group’s strategy is focused on the development and launching of segmented offers adjusted to profitability requirements, while maintaining its sound financial condition and high quality levels in order to strengthen its relationship with its customers, thus promoting customer loyalty. The development of this activity in close cooperation with the BES Group’s subsidiaries is also a key goal that BES intends to maintain.

Trademarks and Patents BES has registered a significant number of names and slogans as trademarks in Portugal, for example, “Banco Espírito Santo” and “BES”. Additional trademarks utilised by members of the BES Group have also been registered in various countries. The BES Group is the owner of several internet domain names, including “bes” with local top level domains (“.pt”, “.es”), “besa” (BES Angola) with top level domain “.ao”, “besv” (Banque Espírito Santo et de la Vénétie) with top level domain “.fr”, “besdosacores” (BES dos Açores) with top level domain “.pt” and “espiritosantoib” (BES Investimento) with top level domain “.com”.

Patents, designs and licences pertaining to industrial property rights are not material to the BES Group’s business.

Employees As at 31 March 2014 BES Group had 10,338 employees, of which 6,546 worked at BES. As at 31 December 2013, BES had 6,626 employees, compared to 6,675 employees as at 31 December 2012. On a consolidated basis, the BES Group had 10,216 employees as at 31 December 2013 (compared to 9,944 as at 31 December 2012).

As at 31 March As at 31 December 2014 2013 2012 2011 BES Employees ...... 6,546 6,626 6,675 6,704 BES Group subsidiaries employees ...... 3,792 3,590 3,269 3,159 Total number of employees ...... 10,338 10,216 9,944 9,863

184 The tables below show the distribution of employees as at 31 March 2014, 31 December 2013, 2012 and 2011 by geographic location, activities and professional categories:

As at Employees by Geographic Location 31 March As at 31 December 2014 2013 2012 2011 Portugal ...... 7,322 7,369 7,495 7,557 Spain ...... 610 605 576 567 United Kingdom ...... 176 169 189 210 Europe (others) ...... 284 106 93 79 Africa ...... 1,456 1,443 1,118 1,047 South America ...... 263 260 269 197 North America ...... 195 208 174 178 Asia ...... 32 56 30 28 Total number of employees ...... 10,338 10,216 9,944 9,863

As at 31 December 2013, the BES Group had 10,216 employees spread over four continents, 7,369 in Portugal (72%) and 2,847 abroad (28%). As of 31 December 2012, the BES Group had 9,944 employees spread over four continents, 7,495 in Portugal (75%) and 2,449 abroad (25%). The distribution of employees across business segments is as follows:

As at Employees by business segment 31 March As at 31 December 2014 2013 2012 2011 Domestic commercial banking ...... 4,995 5,006 5,052 5,228 Retail banking ...... 4,178 4,223 4,258 4,401 Corporate and Institutional Customers ...... 614 621 620 638 Private Banking ...... 163 162 174 189 International commercial banking ...... 2,467 2,289 1,862 1,697 Investment Banking ...... 809 795 834 847 Asset Management ...... 147 147 147 149 Life insurance ...... 78 76 76 — Capital Markets and Strategic Investments ...... 329 329 333 267 Corporative Centre ...... 1,553 1,574 1,640 1,675 Total ...... 10,338 10,216 9,944 9,863

Employees are one of the key drivers of BES Group’s activity. BES’ human resources policies are developed from the essential principle of promotion of intellectual capital as a value inherent to Banco Espírito Santo.

The Human Resources Committee is responsible for establishing policies and practices for human capital in different geographies and businesses of the Group and its challenge is to adapt its policies and practices to the local cultures in which BES operates while complying with BES’ principles and its value of human capital, thus promoting a healthy, balanced, competitive and results-oriented working environment.

Considering the socio-economic context and the prospect of changing economic and social policies in Portugal, the Group reinforced its investment in support and benefits to its employees. This investment consisted in the provision of aid, particularly in respect of balancing Work—Family, supporting pensioners, health and education.

Human Capital 2013 2012 Gender ...... 45%Women 50% Women Work contract ...... 94%Permanent contract 91% Permanent contract Turnover rate ...... 3.3% 8.5% Average Hours of Training ...... 21 24 Absenteeism ...... 2.6% 3.2% Note: (1) In 2013 Employee Turnover was calculated according to the new GRI G4 guidelines, i.e., as the ratio of the number of employee exits to the total number of employees at year-end; however we maintained the figure that allows for comparison with the previous year (3.3%), calculated as the number of employee exits and admissions to the total number of employees at year-end.

185 Talent training and retention The BES Group’s Integrated Human Resources Management Model emphasises the implementation of measures to promote employee development and motivation and the reinforcement of skills through training plans, both specific and group-wide, thus consistently improving the BES Group’s capacity to attract and retain talent.

This strategic objective of consistently improving the capacity to attract and retain talent is pursued through the following tools: • Programme of individually tailored traineeships to suit the needs and future functions of each employee; • Identification and profound knowledge of the capacities of the employees, defining training profiles and tracking requirements in terms of technical and behavioural skills; • Tracking the training needs of all the employees and monitoring and managing the training provided to fulfil these needs; • Defining training actions and contents and establishing methodologies and schemes for measuring their impact, always in close connection with the respective target recipients, which are primarily BES’ commercial segments: BES 360º; Small Businesses, Mass Market, Corporate: International Corporate, Large Companies, Municipalities and Institutional Clients and Middle-Market.

In 2013, BES continued to invest in training plans covering all its employees. A total of 180,584 hours of training were provided, corresponding to 21 hours per employee.

Hours of training by category – 2013

Directors 10.2 Managers 26.4 Specific 23.5 Administrative 19.7 Auxiliary 9.1

Training Projects Performance in 2013

School Branch ...... Groundbreaking project in the 603 employees trained Portuguese financial sector. Training to newly hired employees provided in 34 branches of the bank, offering a real retail banking environment, the possibility to learn from the inside and interaction with the various business areas. BES Attitude Plan ...... Systematic and guided training In 2013 the programme was focusing on key behaviours in addressed to the Regional customer service and team Divisions and Branch Managers’ management with the objective of teams and was extended to the improving service quality. In 2013 Central Departments 424 the BES Attitude Plan used the employees involved in this School Branches to reinforce and programme in 2013 enhance the training provided

186 Training Projects Performance in 2013

BES University ...... BESUniversity is a reference Since its creation, the BES player in the development of the University received 183 BES Group employees’ skills in participants in the Executive terms of both structuring Master programme, 129 education (degrees, master’s employees in post-graduation degrees, PhDs, post graduations courses and specialisations and and MBAs) and in terms of 127 employees in degree courses. specific training designed to meet Seminars and workshops had identified needs, including around 1,050 participants. customised courses in multiple behavioural and technical areas.

The Bank continued to hold its ‘Pool of Ideas’ initiative, which challenges the employees to take an active role in the management of the company by submitting innovative ideas capable of making a difference in the Bank’s operations. In 2012/2013 a total of 507 ideas were submitted by 324 employees, with 58 of those being approved.

Employee Benefits In BES 2013 maintained its policy concerning the attribution of allowances and assistance under its Internal Social Responsibility Programme. The following benefits were provided to all the employees:

Support Performance in 2013 Education support ...... Child benefits, school grants, 330 child benefits scholarships and support to 153 scholarships 173 school children and youths with special grants 58 special needs needs allowances Senior support ...... Co-payment of expenses with 41 allowances to retired senior residences, day-centres, employees home support, drugs or other staple goods Health support ...... Co-payment of health expenses 47 employees supported Help in conciliating work and family ...... Co-payment of employees’ 141 travel allowances transport expenses (travel cards) 70 employees supported through Support to unemployed spouses or the Job Search programme children through the Job Search programme

In 2013 BES continued to support its employees through low-rate loans, namely mortgage, consumer, and in some cases social support loans. A total of €30,447 thousand was provided in this type of support.

BES allowed its employees to extend the maturity of their mortgage loans up to a maximum of 15 years (providing the employee would not be older than 75 at the loan maturity), thus effectively increasing their monthly disposable income. The employees may at any time reduce again the term of their loans, with no additional charges. In 2013, a total of 1,968 employees benefited from this initiative.

In 2013, the Bank organised a new edition of its “Used School Books Bank” programme, which consists in the voluntary exchange of used schoolbooks from the first to the 12th year. A total of 3,100 books were delivered, of which 846 were given to 150 families of BES and the BES Group companies’ employees.

Pension Funds

Certain terms and conditions of employment in private sector banks in Portugal are negotiated with trade unions and wage negotiations occur on an industry-wide basis.

In compliance with the Collective Labor Agreement (“ACT”) for the banking sector established with the unions, the Bank undertook the commitment to grant its employees, or their families, pension on retirement, disability and incapacity. Pension payments consist of a rising percentage based on years of service, applicable to each year’s negotiated salary table for the active work force.

187 The BES Group provides to its banking employees health care benefits through a specific Social-Medical Assistance Service (“SAMS”), managed by the respective Union. The annual contribution of the BES Group to SAMS amounts to 6.5% of the total annual remuneration of employees, including, among others, the holiday and Christmas subsidy. The measurement and recognition of the BES Group’s liability with post-retirement healthcare benefits is similar to the measurement and recognition of the pension liability described above. These benefits are covered by the Pension Fund, which at present covers all responsibilities with pensions and health care benefits.

As at 30 December 1987, in compliance with the ACT, the Bank established a pension fund to cover pension on retirement, disability and incapacity. Moreover, the Bank has changed the pension fund contract in order to allow the coverage of health care benefits and death allowance. Pension funds in Portugal are managed by ESAF—Espírito Santo Fundo de Pensões, S.A. However, it should be noted that only employees hired before 31 March 2008 are covered by this benefit. Employees hired after that date are covered by the Portuguese Social Security system.

Additionally, with the publication of Decree-Law n.1-A / 2011 of January 3, all banking sector employees beneficiaries of “CAFEB—Caixa de Abono de Família dos Empregados Bancários” were integrated into the Portuguese Social Security system from 1 January 2011, which assumed the protection of banking sector employees in the contingencies of maternity, paternity and adoption and even old age, remaining under the responsibility of the banks the protection in sickness, disability, survivor and death.

Retirement pensions of banking employees integrated into the second tripartite Portuguese Social Security system agreement continue to be calculated according to the provisions of ACT and other conventions. Banking employees are entitled to receive a pension under the general regime, which amount takes into account the number of years of discounts for that scheme. Banks are responsible for the difference between the pension determined in accordance with the provisions of ACT and that the one that the banking employees are entitled to receive from the Portuguese Social Security system.

The contribution rate to the Portuguese Social Security system is 26.6%, 23.6% paid by the employer and 3% paid by the employees, instead of Caixa de Abono de Família dos Empregados Bancários (CAFEB), abolished by the same law. As a result of this change, the pension rights of active employers are to be covered under the terms defined by the Portuguese Social Security system, taking into account the length of service from 1 January 2011 until retirement. The difference required to support the guaranteed pension in terms of the ACT is paid by the Banks.

At the end of 2011 following the third tripartite agreement, it was decided to transfer to the Portuguese Social Security system the banks liabilities with pension in payment as at 31 December 2011.

The tripartite agreement established provides for the transfer to the Portuguese Social Security system liabilities with pensions in payment as of 31 December 2011 at constant values (0% discount rate). The responsibilities relating to updates of pensions value, other pension benefits in addition to those to be borne by the Social Security, health-care benefits, death allowance and deferred survivor pensions, will remain in the sphere of responsibility of the banks with the correspondent funding being provided through the respective pension funds.

The banks pension funds assets, specifically allocated to the cover of the transferred liabilities, were also transferred to the Portuguese Social Security system. Being thus a definitive and irreversible transfer of the liabilities with pensions in payment (even if only on a portion of the benefit), the conditions set out in IAS 19 ‘Employee benefits’ underlying the concept of settlement were met, as the obligation with pension in payment as at 31 December 2011 extinguished at the date of transfer.

Variable remuneration payment plan on financial instruments (PRVIF) Following the recommendations of the Supervising and Regulatory authorities, on the BES shareholders General Meeting, held in 6 April 2011 it was approved a new remuneration policy for the Executive Committee members. This policy consists in giving to the Executive Committee members a fixed remuneration, which should represent approximately 45% of the total remuneration, and a variable component representing around 55% of the total remuneration. The variable remuneration shall have two components: one associated with short-term performance (45% of the total remuneration) and another with medium-term performance (10% of the total remuneration). Half of the short-term component must be paid immediately upon attribution and the remaining 50% should be paid over a three years period, with half of these payments to be made in cash and the remaining through the attribution of BES shares. The medium-term component has associated a share options program with the exercise of the options set at 3 years from the date of its attribution.

188 Regarding the first scheme, the attribution of PRVIF shares to the beneficiaries is performed on a deferred basis over a period of three years (1st year: 33%; 2nd year: 33% and 3rd year: 34%) and is subject to the achievement of a Return on Equity (ROE) greater than or equal to 5%.

The attribution of options are attributed to the beneficiaries by the Remuneration Committee, with the exercise price equal to the single average of the closing prices of BES shares on NYSE Euronext Lisbon during the 20 days preceding the day of attribution of the options, plus 10%.

The option can only be exercised at maturity and the beneficiary may choose between the physical settlement and the financial settlement of the options.

PRVIF establishes the possibility of attributing options over BES shares to its top management, e.g. general directors and Board of Directors advisors. These options are granted by the Board of Directors to the beneficiaries and work in the same way as the ones granted to the Executive Committee members. To date, no such grant has been made.

Litigation BES Group legal proceedings Disputes relating to Banco Privado Português, SA (“BPP”) BES and other BES Group companies judicially and extra-judicially have challenged the triggering of payouts under the Portuguese Investor Compensation Scheme (“PICS”) due to the insolvency of BPP. The BES Group believes that when BPP’s financial difficulties began, the legal framework of the PICS did not cover BPP investor rights in a way that should trigger payouts. Such rights were only encompassed within the PICS through a later amendment, the constitutionality and retroactive application of which is questionable. BES and other BES Group companies are co-plaintiffs in related administrative proceedings which are currently underway against the PICS. In October 2011, the PICS made public a draft decision requiring the payment of contributions of €20,997,622.80 by BES individually and €24,453,648.27 by all BES Group companies that participate in the PICS, including BES. The issue of whether BES and the other BES Group companies are bound by this payment obligation is currently being disputed. Following the PICS decision, BES and the BES Group companies stated their disagreement in a Portuguese court, made payment under protest and, together with other financial institutions, presented a claim contesting the resolution to trigger payouts under the PICS. These proceedings are presently awaiting trial in Portugal.

Separately, in December 2008, various banks, including BES, extended a loan to BPP with a guarantee from the Portuguese state. Following BPP’s default, the Portuguese banks enforced the guarantee granted by the Portuguese state. In April 2011, Privado Clientes—Associação de Defesa dos Clientes do Banco Privado Português, an association for the protection of BPP client interests, initiated judicial proceedings to invalidate the payments made by the Portuguese state to the Portuguese banks and to request the restitution to the state of the amounts paid out under the guarantee, BES having been paid €80 million. BES presented its defence in June 2011 and the resolution of the case is currently pending in a Portuguese court.

Investigation by the Competition Authority in Portugal On 6 March 2013, the Competition Authority of Portugal, (Autoridade da Concorrência), searched the premises of various banks, including BES, under infringement proceedings (PRC/2012/9). The search was performed to obtain evidence of the exchange of commercially sensitive information allegedly related to collusion in the markets of mortgage lending, consumer lending, commercial lending, deposits, structured products and banking products- related insurance. The case is currently under investigation and its conclusion is expected within the current year.

Espirito Santo Bank Legal Proceedings In December 2013, a claim was filed with the United States Bankruptcy Court, Southern District of Florida, against Espírito Santo Bank by the trustee of Banco Santos S.A., a Brazilian bank that was subject to a bankruptcy proceeding in 2005. The complaint refers to alleged collusion and participation of Espiríto Santo Bank in illicit activities carried out by members of Banco Santos S.A. management, including fraud and money laundering. U.S.$38.7 million is claimed for losses and damages. Espirito Santo Bank contested the accusations and filed a motion to dismiss in February 2014. A court hearing on this motion is scheduled for 9 June 2014.

189 Following visits by the English banking authorities, the Financial Conduct Authority (the “FCA”), to various medium sized banks operating in the United Kingdom, a BES branch was visited in London. The FCA identified certain procedural deficiencies in the context of money laundering prevention. No administrative fine proceedings were initiated, but the FCA has determined that the London branch should proceed with a review of its procedures under the coordination of qualified experts, which review is currently in the implementation phase.

Allegations of violation on Spanish anti-money laundering laws On 24 March 2014, a Spanish branch of BES was fined €1.2 million for alleged infringement of Spanish anti- money laundering laws. The penalties relate to two specific clients. The Bank contested the penalties and has filed an appeal in a Spanish court, which is currently pending. The Bank believes that it implements best practices and rigorously complies with anti-money laundering laws.

Legal proceedings regard BES directors and top management Allegations of improper trading by BES staff In August 2007, a senior BES top manager was accused by the Portuguese Public Prosecutor of the crime of trading in influence within his duties at the Bank. The proceedings ended with the acquittal of the BES staff member, but the Public Prosecutor appealed the decision and a final decision by a court of appeal is expected in the second half of 2014.

Insider trading investigation in Portugal Two of BES’ directors and three BES’ employees are currently under investigation by the Portuguese Public Prosecutors’ Office for insider trading. Several managers and employees of BES provided statements to the Portuguese Public Prosecutor’s Office in order to explain the legality of the operations under investigation and to demonstrate that no insider information was revealed or used. BES is actively cooperating with the authorities in order to clarify facts in question and show their absolute compliance with the law.

Investigation in Portugal A director of the BES Group was investigated by public prosecutors in Portugal regarding allegations of improper trading. The director in question cooperated actively with the authorities to clarify the facts and demonstrate that they are in full compliance with the law. The proceedings are confidential.

Organisational Structure The following chart summarises the organisational structure of BES:

General Meeting Remuneration Committee

Board of Directors

Executive Committee Audit Committee Corporate Governance Remuneration Committee Advisory Committee

Support Committees Support Offices Other Business Units: Other • Corporate Office • Solidarity • International • ALCO (Assets & Liabilities) • Investor Relations • BESart • Private • Financial and Credit Committee • General Secretary of the Executive Committee • BES Numismatics • Retail (Individuals and Small • IT, Operations, Quality and Costs • Strategic Restructuring • BES History Research Center Businesses) • Risk • Wholesale & Investment Banking • Liquidity • Sustainability

Marketing and Product Units Commercial Units Operating Units Business Units & Risk Support Units

• Mortgage and Real Estate • Personal Credit and Cards • Retail (North & South) • International Banking • Legal Credit Analysis • Savings Management • Private Banking • Finance, Markets and Studies • Internal Audit • Operations • Leasing & Factoring • Corporate Banking • Real Estate Management • Compliance • Proprietary Real Estate • Medium Corporates (North & South) • Credit Recovery • Retail Marketing , Direct and Self Management • Corporate Communication • Company Monitoring • Management of Agents Banking • Information Management • International Premium • Emigrants • Marketing - Corporates and • Strategic Marketing Institutionals • Municipalities and Institutionals • Global Risk Management • Comunication, Marketing • Monetization of Corporate Credit • Universities • Business Structuring and Consumer Studies • Real State Business • Procurement and Cost • International Business & Private Control Banking • Organisation and Service Quality • Planning and Accounting • Human Resources • Research • Security Coordination

190 In March 2014 the Board approved the creation of a Related Party Transactions Control Committee which has as main purpose to make a preventive review of any proposed transactions with related parties, including credit operations or other transactions between any company of the BES Group and companies included in a business group which includes anyone holding more than 2% in BES’ share capital and voting rights.

The Transactions Control Committee is formed by the Chairman of the Audit Committee, one member of the Corporate Governance Committee and the Member of BES’ Board of Directors in charge of the Risk area.

As well as being an operating entity in its own right, BES is the Portugal-based holding company of a financial group, the BES Group, and thus has investments in subsidiary and associated companies.

191 REGULATION

Introduction BES is subjected to EU regulation, to the banking and commercial laws applicable to joint-stock companies (“sociedades anónimas”)—namely the Portuguese Companies Code—and, in particular, to the RGICSF, to the Portuguese Securities Code and other related legislation.

Membership in the EU subjects Portugal to compliance with European legislation which may either be in the form of regulations, which are directly enforceable in any member state, or directives addressed to the member states, which may require the enactment of implementing legislation or which, as established by the European Court of Justice in several decisions, may be deemed to be directly enforceable in a member state in the event that they are clear, precise and unconditional. In addition, the EC and the Council of Ministers issue non-binding recommendations to member states. The Portuguese authorities have introduced EU directives and recommendations into legislation to adapt Portuguese laws to European regulatory standards.

Generally, BES’ activity is under the supervision of the Bank of Portugal, as a credit institution, the CMVM, as an issuer and as a financial intermediary, and the Portuguese Insurance Institute, as a tied insurance intermediary.

ECB will become, in the short-term, the supervisor of BES’ activity.

European Central Bank In order to ensure financial stability and lay foundations for sustained economic growth, the EU Member States have created a banking union. This union provides that, from November 2014 onwards, the ECB will become responsible for the prudential supervision of the credit institutions considered significant which operate in the European Union (the “Single Supervisory Mechanism”). Behavioural supervision of these credit institutions shall remain with the European Banking Authority and with their respective national regulators. Credit institutions from European Union countries outside of the eurozone may elect to be supervised by the ECB, under the banking union, having to ensure that their national regulator cooperates closely with the ECB.

In its role as the sole regulatory authority under the Single Supervisory Mechanism, the goal of the ECB is to promote the safety and soundness of credit institutions and the stability of the financial system, taking into account the unity and integrity of the internal market. Under the Single Supervision Mechanism, responsibility for prudential supervision, currently carried out by national regulators, will be transferred to the ECB.

Furthermore, the European Commission proposed the creation of a single bank resolution mechanism (the “Single Resolution Mechanism”), as the natural next step after the Single Supervisory Mechanism towards the banking union. Once in force, the Single Resolution Mechanism will be responsible for resolving certain credit institutions and financial institutions and coordinate, in particular the application of resolution tools within the banking union. Following the achievement of a political agreement in respect of the legislation on the Single Resolution Mechanism in early 2014, legislation was subsequently adopted by the European Parliament in plenary session on 15 April 2014. The Single Resolution Mechanism will come into effect on 1 January 2015.

Additionally, in the wake of the financial crisis and the observed situations of insufficiencies in the existing regulatory capital structure and lack of adequate capital reserves in systemically important financial institutions, capital requirement has been an area subject to a number of national and international initiatives. Key initiatives in this context are Basel III and Directive 2013/36/EU, of the European Parliament and of the Council, of 26 June 2013, relating to the access to the activity of credit institutions and the prudential supervision of credit institutions and of investment firms.

In late December 2010, the Basel Committee published its final recommendations for reform of the global regulatory framework applicable to credit institutions. These recommendations, known as Basel III, revised certain aspects of the recommendations contained in Basel II (having entered into force on January 2007, through the Capital Requirements Directive and since repealed by CRD IV/CRR) and introduced new rules on capital and liquidity. Despite being recommendations to national governments to approve laws and regulations to adopt these measures, as of January 2014 most jurisdictions had already implemented rules in line with the Basel III recommendations. In the EU, this implementation was achieved by way of a combined package of a directly applicable Regulation, Regulation (EU) no. 575/2013 of the European Parliament and of the Council, of 26 June 2013, on prudential requirements for credit institutions and for investment firms which amends Regulation (EU) no. 648/2012 and Directive mentioned above, together known as “CRD IV”. The CRD IV has been in force in the Member States since 1 January 2014.

192 Bank of Portugal The Bank of Portugal is part of the European System of Central Banks (“ESCB”), which was created in connection with the EMU. The EMU implements a single monetary policy, the main features of which are a single currency—the Euro—and the creation of the ECB and the ESCB. According to the EU Treaty, the primary objective of the ESCB is to maintain price stability through monetary policy.

The Bank of Portugal is committed to providing for the stability of the domestic financial system and performs for this purpose the function of lender of last resort (as set forth in Law no. 5/98, 31 January 1998). This goal is achieved through the supervision of credit institutions, financial companies and other entities subject to the supervision of the Bank of Portugal.

According to the Regime Geral das Instituições de Crédito e Sociedades Financeiras, or Legal Framework of Credit Institutions and Financial Companies (Decree-Law no. 298/92 of 31 December 1992), the Bank of Portugal authorises the establishment of credit institutions and financial companies based on technical-prudential criteria, monitors the activity of the institutions under its supervision and their compliance with the rules governing their activities, issues recommendations for the correction of any deviations from such rules, sanctions breaches should they occur and possesses the ability to take extraordinary measures of reorganisation.

The Bank of Portugal has established rules governing solvency ratios, reserve requirements, control of major risks and provisions for specific and general credit risks. It monitors compliance with these rules through periodic inspections, review of regularly filed financial statements and reports, and continuing assessment of adherence to current legislation.

The Bank of Portugal is also charged with the duty to regulate, oversee and promote the smooth operation of payment systems within the scope of its participation in the ESCB.

Capital and Capital Ratios Portuguese credit institutions are subject to capital ratio requirements. These requirements conform to the EU legal framework establishing common standards for the measurement of capital and a system for weighting assets according to credit risk. Currently, in the context of Basel III, the European Parliament and the Council of the EU adopted Regulation (EU) No 575/2013 and Directive 2013/36/EU defining the prudential requirements to be observed by credit institutions and investment firms in the EU. The CRR took effect on 1 January 2014, with a phase-in application period running through 1 January 2016. CRD IV has not yet been implemented in Portugal, despite the fact that the deadline for implementation expired on 31 December 2013. In the context of the implementation of this prudential framework in Portugal, the Council of Ministers approved a draft law that authorises the Portuguese government to adapt a legal framework applicable to credit institutions and financial companies.

The capital elements of the BES Group, considered for the calculation of solvency ratio, are divided into: Common Equity Tier 1, Tier 1, Tier 2 and Total Own Funds: • Common Equity Tier 1: This category includes share capital, share premiums, eligible reserves and the net profit for the year retained when certified and non-controlling interests adjusted in proportion to the risk of entities that give rise to them; goodwill, intangible assets, negative actuarial deviations arising from liabilities related to post-employment benefits to employees and, when applicable, the negative results for the year are also deductible; • Additional Equity Tier 1 (or Tier 1): In addition to the amounts considered as Common Equity Tier 1, the category includes preferred shares and hybrid capital instruments;; • Equity Level II (or Tier 2) essentially incorporates subordinated eligible debt.

Under the Programme for Economic and Financial Assistance, Portugal agreed with the Troika a set of rules, set out in Aviso 6/2013, of December 30 from the Bank of Portugal, which also regulates the transitory regime established in CRR, to be observed by Portuguese banks, including a minimum of 7% to equity Ratio Top Tier 1 (common equity Tier 1).

The Law 6/2013 further provides that if at some point the common equity Tier 1 capital ratio is below that threshold, Banco de Portugal shall apply the provisions laid out in Directive 2013/36/EU regarding the preservation of a capital conservation buffer.

193 Risk-weighted assets comprise a component reflecting credit risk, but also components that reflect operational and market risk. Under the current legal framework, credit institutions may calculate the risk weighting of their assets, insofar as credit risk is concerned, according to a standard-based approach or based on their own internal risk-management models, in the latter case subject to authorisation by the Bank of Portugal.

Market risk is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. Market risk also includes the risks pertaining to interest rate-related instruments and equities in the trading book and foreign exchange risk and commodities risk throughout the bank.

Operational risk is defined as the risk of loss resulting from inadequate or deficient internal processes, information systems, people’s behaviour or from external events. This definition includes legal risk, but excludes strategic and reputational risk.

Own Funds and Large Exposures Credit institutions are required by Portuguese law to maintain an adequate level of own funds, which shall be at least equal to the minimum share capital. The relevant criteria to determine the level of own funds are determined by the Bank of Portugal.

Under Portuguese law, a large exposure corresponds to risks incurred by a credit institution to a client or group of connected clients with a value equal to or exceeding 10% of its own funds. A Credit institution could not have exposure to a client or group of connected clients exceeding 25% of its own funds. In terms of the exposure to the economic group on which a credit institution is incorporated, this limit is not applicable to the exposure assumed by an institution to entities included within the scope of the supervision of the Bank of Portugal on a consolidated basis and which all have their head offices located in Portugal. Under prior authorisation of the Bank of Portugal, this exemption may be extended to other entities that have the same characteristics as those described above but whose head office is located in a third country.

Similarly, the current law permits the exemption limit of 25% of a credit institution’s own funds for exposures to certain assets, including assets constituting credits and other risks on central governments, central banks, international organisations or multilateral lending agencies to which a 0% risk weighting would be applicable under the relevant Bank of Portugal regulation.

Minimum Reserve Requirements Credit institutions are required to maintain mandatory deposits with national central banks in order to comply with minimum reserve requirements. According to the European Central Bank Regulation (EC) no. 1358/2011 of 14 December 2011 (ECB/2003/9) that changes the European Central Bank Regulation (EC) no. 1745/2003 of 12 September 2003 (ECB/2003/9), minimum cash requirements kept as deposits with the Bank of Portugal earn interest and correspond to 1% of deposits and issued debt certificates with a maturity of less than two years, excluding responsibilities towards the ECB, national central banks and other institutions subject to minimum cash reserves requirements.

As at 31 December 2013, the interest earnings average rate of these deposits was 0.55% (31 December 2012: 0.89%). The failure of a bank to maintain adequate liquidity may result in (i) an increase in the cash amount required (of up to three times the original amount) or (ii) an additional payment of interest over the amount of deposits not made up to double the rediscount rate or up to five percentage points over the market rate.

Deposit Guarantee Fund The Deposit Guarantee Fund was established in 1992 and started operating in December 1994 and has administrative and financial autonomy. Credit institutions with head offices in Portugal that accept deposits must participate in this fund. The financial resources of the Deposit Guarantee Fund are mainly composed of initial contributions from the Bank of Portugal and participating credit institutions and, thereafter, periodic contributions from the participating credit institutions.

The annual contributions are calculated according to the monthly average of the deposits balance accepted in the previous year. An annual contributions rate is determined annually by the Bank of Portugal. The rate was set for 2014 at 0.03%, plus a multiplicative factor determined in accordance with the average individual solvency ratio for the June to December period for the year for which the contribution is being determined (the higher an institution’s average ratio, the lower its contribution). The factor is defined in Notice no. 11/94 of the Bank of Portugal.

194 The Bank of Portugal may determine that the payment of up to 75% of the annual contributions may be partly replaced by an irrevocable undertaking to make full or partial payment upon request from the fund at any moment, guaranteed where necessary by securities having a low credit risk and high liquidity. The Bank of Portugal determined that this limit would be 10% for the 2011 annual contribution.

Bank of Portugal issued Notice no. 23/2013 which established the annual contribution rate (0.03% for all territory) and the minimum contribution (€17,500) for 2014, and it also issued Notice no. 24/2013, which established that in 2014 the participating credit institutions cannot replace their annual contributions by irrevocable undertakings.

When a credit institution is unable to comply with its commitments, the Deposit Guarantee Fund guarantees the repayment to depositors of up to €100,000 per depositor.

The deposits made on Portuguese territory are guaranteed regardless of the currency in which they are denominated, and whether the depositor is resident or non-resident in Portugal. However, some deposits are excluded from the guarantee scheme, such as those made by credit institutions, financial companies, insurance companies, investment funds, pension funds, pension fund management companies, and central or local administration bodies in their own name and for their own account. Moreover, in order to prevent a conflict of interest, the Deposit Guarantee Fund does not guarantee deposits made by an institution’s managing bodies, qualifying shareholders, external auditors and non-financial companies under the control of the credit institution at issue, or which together with the latter belong to the same group.

Borrowing from the Bank of Portugal The Bank of Portugal has followed a policy of intervening as a lender of last resort in cases of liquidity shortfalls in the banking system. The basic method of lending used takes the form of advances and overdrafts against collateral. For this purpose, the Bank of Portugal discloses a list of securities eligible as collateral. The rediscount rate is now set by the ECB.

International Capital Flows The Portuguese authorities have established a programme of liberalisation of international capital flows in furtherance of the country’s integration into the single market of the EU.

Investment in Non-Financial Companies According to Article 100 of the Legal Framework of Credit Institutions and Financial Companies, credit institutions may not have any direct or indirect qualified holding exceeding 15% of their regulatory capital. This is not applicable to holdings in credit institutions, financial companies, financial institutions, pension fund management companies, and insurance and reinsurance companies. In addition, the total amount of qualified holdings by a credit institution in such non-banking companies may not exceed 60% of its regulatory capital.

The Legal Framework of Credit Institutions and Financial Companies (article 101) also provides that no credit institution may directly or indirectly own more than 25% of voting rights in any single non-financial company for a period longer than three years (five years for shareholdings held through venture capital companies and holding companies). These limitations are not applicable to holdings in other credit institutions, financial companies and auxiliary services companies.

Conduct Supervision The Bank of Portugal has supervisory powers relating to the conduct of credit institutions. These powers are supported by fiscal, decision-making and sanction powers relating to the rules on the conduct of business, client relationships, professional secrecy, conflicts of interest and competition, to which credit institutions are subject. The conduct supervision rules on client relationships consist of information obligations, rules relating to the management of client complaints, a requirement to adopt a code of conduct and rules relating to the publicity of credit institutions.

Granting Credit to Members of the Corporate Bodies In general, credit institutions are not authorised to grant credit in any way, including the granting of guarantees, to members of their board of directors or board of auditors or people and entities related to them, or to companies or other legal entities directly or indirectly controlled by them.

195 This limitation does not apply to (i) operations with a social nature or purpose or those deriving from personnel policy; (ii) credit granted as a result of the use of credit cards associated with deposit accounts, in conditions similar to the ones applicable to other clients with a similar profile and risk; (iii) members of the supervisory board (Conselho Geral e de Supervisão) who are not part of any financial or audit committees, nonexecutive directors of credit institutions who are not part of the Audit Committee, or companies or other legal entities that are controlled by them; or (iv) the credit granting operations of certain entities within the supervisory ambit of the relevant credit institution.

The members of the board of directors or fiscal body of a credit institution cannot participate in the analysis and decision-making process relating to operations where they may have a conflict of interest.

Breach of Rules under the Bank of Portugal’s Supervision Breaches of rules under the Bank of Portugal’s supervision constitute misdemeanours and may result in the Bank of Portugal imposing fines of up to approximately €5 million. Ancillary sanctions may also be imposed, such as, among others, disgorgement of the proceeds obtained through the offence, public censure, prohibition against exercising management functions in credit institutions and the suspension of voting rights of the shareholders of credit institutions.

Other Controls The Bank of Portugal imposes a number of other controls covering various aspects of a bank’s business. It administers these controls through reporting requirements and ongoing supervision, including periodic examinations of the operations and asset portfolios of individual banks and consolidated banking groups.

Portuguese Securities Market Commission (“CMVM”) Supervision The regulation and supervision of the securities markets and financial intermediation activities in Portugal are carried out by the central government, acting through the Ministry of Finance and the CMVM.

The Ministry of Finance may establish policies relating to markets in financial instruments, investor protection, financial intermediation activities and generally any matters regulated by the Portuguese Securities Code. The Ministry of Finance also oversees the CMVM and coordinates the supervision and regulation relating to financial instruments when powers have been delegated to more than one public entity. When a disturbance in the markets in financial instruments puts the national economy at serious risk, the Ministry of Finance may, by means of a joint Ministerial Order by the Prime Minister and the Minister of Finance, impose necessary measures. These may include the temporary suspension of: (i) the regulated markets and certain categories of transactions or activities of their management entities; (ii) multilateral trading facilities; (iii) settlement systems; (iv) clearing houses or central counterparties; and (v) central securities depositaries.

The CMVM is the regulatory entity in charge of the supervision and regulation of the securities markets and financial intermediation services. It is an administrative agency overseen by the Ministry of Finance.

In particular, the responsibilities of the CMVM include the supervision of certain conduct of business rules relating to financial intermediation activities and markets in financial instruments and the prudential supervision of certain entities.

For this purpose, the CMVM may issue regulations on matters within the scope of its powers of supervision, including the conduct of business rules for providers of investment services, the recognition of markets for financial instruments and the establishment of rules for the operation of such markets as well as rules on public offers and prospectus requirements.

The CMVM may, within the course of its supervision activities, carry out inspections, issue information requests, conduct hearings, require the collaboration of other persons or entities, including police authorities, disclose information, including in substitution of supervised entities, conduct investigations and organise a registration system, carry out enforcement actions and impose administrative sanctions.

BES is subject to the CMVM’s supervision both as a financial intermediary and an issuer of securities admitted to trading on a regulated market.

196 Supervisory Rules Applicable to BES as a Financial Intermediary BES and some of its Portuguese subsidiaries, the main ones being BESI and ESAF, are authorised as financial intermediaries. They are subject to the supervision by the CMVM in relation to their performance of financial intermediation activities.

The conduct of business rules applicable to financial intermediaries are laid out in the Portuguese Securities Code, CMVM regulations and legislation applicable to specific financial intermediation activities.

Conduct of Business Rules For the provision of regulated activities, financial intermediaries such as BES must comply with conduct of business rules set out in the Legal Framework of Credit Institutions and Financial Companies and the Portuguese Securities Code, as well as those which may be established by CMVM regulation or special legislation.

As a general principle, financial intermediaries must conduct their activity in a manner which protects the legal interests of their clients and the efficiency of the market. In their dealings with other market parties, financial intermediaries must observe the dictates of good faith, in accordance with high standards of diligence, loyalty and transparency.

The main conduct of business rules applicable to financial intermediaries carrying out financial intermediation activities relate to: (i) “know your client” obligations and suitability requirements; (ii) the financial intermediaries’ human, material and technical resources; (iii) complaint procedures; (iv) segregation of clients’ assets; (v) recordkeeping and reporting; (vi) conflicts of interest policy; and (vii) information duties.

Supervisory Rules Applicable to BES as an Issuer of Shares Admitted to Trading in a Regulated Market A company whose shares are admitted to trading on a regulated market must, in addition to all the disclosure rules established in the Portuguese Companies Code, disclose to the CMVM and the public on its own website information regarding its organisation, the main aspects of its activity and how its business is conducted.

The main rules concern: (i) the obligation to disclose to the CMVM and the public on its own website all notices received regarding qualified holdings by third parties in the company’s share capital and the relevant annual, semi annual and quarterly financial and management information; (ii) specific procedures for the organisation of the company’s general shareholder meetings, including postal votes and proxies for the exercise of voting rights; (iii) disclosure of privileged information; and (iv) the obligation of the company’s directors and other senior executives to disclose any transactions undertaken by them in relation to the company’s shares.

CMVM’s Powers As stated above, the CMVM supervises the activities and participants in the financial markets in Portugal. The CMVM has the power to issue binding regulations, take appropriate enforcement measures of these regulations and of the Portuguese Securities Code, and to sanction such breaches.

In the exercise of its powers, the CMVM has the right, without limitation, to request non-public information, including information otherwise subject to professional confidentiality obligations, hold hearings, undertake investigations and summon people to cooperate with such investigations, and take the place of supervised entities to provide information to the market.

The CMVM also operates an information disclosure system which can be used by parties subject to disclosure rules as a cheap and efficient means of complying with information rules.

Breach of Rules under the CMVM’s Supervision A breach of the rules laid out in the Portuguese Securities Code may constitute a crime or misdemeanour. Crimes: Market manipulation and the abuse of privileged information are punishable with prison sentences of up to five years and with ancillary administrative sanctions that include the prohibition against exercising any intermediation activity, prohibition against participating in the management of a publicly traded company or financial intermediary, the publication of the crime and the disgorgement of any proceeds of the illegal activity.

197 Misdemeanours: Different levels of misdemeanour are punishable by different penalties. Very serious misdemeanours, such as the disclosure of untrue or misleading information to the market or undertaking an offer without the disclosure of an approved prospectus, are punishable by a fine of up to €5.0 million. Serious misdemeanours, such as the failure to disclose publicly traded companies’ shareholder agreements or the breach of the obligation to launch a mandatory public offer, are punishable by fines of up to €2.5 million, and less serious misdemeanours are punishable by fines of up to €500,000.

Portuguese Insurance Institute BES is also subject to the supervision of the Portuguese Insurance Institute insofar as it is a tied insurance mediator.

Evolution of the Regulatory Environment As part of the EU’s internal market programme, the EC and the European Council have proposed and adopted a number of regulations, directives and recommendations relating to the provision of banking and financial services. These include existing and proposed legislation concerning capital movements, depositors’ guarantees, payment systems, collective investment companies, investment firms, public disclosure of acquisitions and dispositions of holdings in listed companies, prospectuses for the public issuance of securities, shareholders’ rights, consumer credit, insider trading, mortgage credit, insurance, publication of annual accounting documents and taxation. Such legislation promotes greater competition in the provision of financial services, including areas in which BES operates, such as securities brokerage, dealing and underwriting, and the provision of investment advice.

198 MANAGEMENT AND SUPERVISORY CORPORATE BODIES AND SENIOR MANAGEMENT OF THE ISSUER AND OFFEROR

Corporate Governance Overview The corporate governance of listed companies in Portugal is governed by the Portuguese Companies Code, the Portuguese Securities Code, CMVM Regulation no. 4/2013 and the Listed Companies Governance Code (as amended in 2013). Under article 245-A of the Portuguese Securities Code and CMVM Regulation no. 4/2013, listed companies are required to publish a report on corporate governance in conjunction with their annual financial statements. This report must state whether BES complies with the CMVM’s recommendations on corporate governance or, if not, explain the reasons for non-compliance (the “comply or explain rule”). See “—Statement regarding compliance with Portuguese corporate governance requirements” for a list of the principal CMVM recommendations which have been adopted or not adopted by the BES Group, including reasons for non-adoption.

Pursuant to the Portuguese Companies Code, BES has adopted a corporate governance structure consisting of the Board (the “Board”), which includes an executive committee (the “Executive Committee”), an audit committee (the “Audit Committee”) and a statutory auditor (the “Statutory Auditor”). All members of the Board and of the Audit Committee, as well as the Statutory Auditor, are elected by the general meeting of shareholders (the “General Meeting”). The Board also includes a Corporate Governance Committee (the “Corporate Governance Committee”) and a Remuneration Advisory Committee ( the “Remuneration Advisory Committee”) which is different from the Remuneration Committee. In 2014, the Board approved the creation of a Related Party Transactions Committee (the “Related Party Transactions Committee”) (See “—Board Committees— Commission for the Control of Transactions with related parties”) and a Monitoring and Evaluating Committee of the execution of the business plan of Grupo Espírito Santo’s non-financial business (“The Plan”) (See “— Board Committees—Commission for Monitoring and Evaluation”).

The Board is responsible for managing BES and for defining its strategy and, in particular, for guaranteeing that BES establishes adequate policies in order to manage the various categories of risk incurred in its activities, as well as for establishing means for guaranteeing the independence of the decisions taken by the Board and ensuring that the principle of equal treatment is observed with regard to all shareholders. (See section “—Board of Directors”).

The day-to-day management of BES is delegated by the Board to the Executive Committee, which meets once a week and whenever convened by its Chairman. The Board elects the chairman and other members of the Executive Committee from the members of the Board. The chairman of the Executive Committee has a deciding vote.

At present, the Executive Committee consists of 10 Directors. There are no matters restricted from consideration by the Executive Committee, except those for which Portuguese law requires full Board participation, and those relating to BES’ corporate strategy and policies, the structure of the BES Group as well as strategic decisions due to their amount, risk or special features. The chairman of the Executive Committee submits meeting minutes and convocations to the Chairman of the Board as well as the Chairman of the Audit Committee.

The Corporate Governance Committee is composed of three independent non executive Directors and has advisory powers in relation to corporate governance matters, as well as selection and evaluation of directors and senior managers.

The Remuneration Advisory Committee is composed of three independent non-executive Directors and has advisory functions concerning the BES Group’s remuneration policy, namely maintaining compliance with the provisions of Decree Law no. 88/2011, of 20 July, and Bank of Portugal Notice no. 10/2011.

The Related Party Transactions Committee is composed of the Chairman of the Audit Committee, one member of the Corporate Governance Committee and the member of BES’ Board of Directors in charge of risk management. This Committee’s main purpose is to make a preventive review of any proposed transactions with related parties, including credit operations or other transactions between any company of the BES Group and companies included in a business group which includes anyone holding more than 2% in BES’ share capital and voting rights.

The Committee who monitors and evaluates the Plan is composed by the Chairman of the Audit Committee, one member of the Corporate Governance Committee, the member of BES’ Board of Directors in charge of risk

199 management and the member of BES’ Board of Directors in charge of compliance. This Committee is in charge of the permanent monitoring and evaluation of the plans of the non-financial businesses of Grupo Espírito Santo namely by guaranteeing the reimbursement of Espírito Santo International, S.A. debt securities placed through BES.

The Audit Committee is responsible for supervising the management of BES, preparing an annual report on its supervising activities and opining on the report, accounts and proposals submitted by the Board, as well as checking the effectiveness of the Internal Control System (“SCI”) and of the risk management and internal audit functions.

The Audit Committee is currently composed of three independent and non-executive members of the Board.

The Statutory Auditor is KPMG & Associados SROC, S.A.

BES is also supervised by external entities, namely the Bank of Portugal, the Portuguese Securities Commission and the Portuguese Insurance Regulator.

The following table outlines the internal and external governance, supervisory and management structure of the BES Group.

General Meeting

Board of Directors Remuneration Committee Certified Auditor (ROC)

Executive Committee Audit Committee Corporate Governance Committee CMVM

Remuneration Advisory Committee Compliance Bank of Portugal

Related Party Transactions Committee Risk Committee Instituto de Seguros de Portugal

Monitoring and Evaluating Committee of the Audit Department execution of the business plan of Grupo Espírito Santo’s non-financial business

External Supervision

Auditor: KPMG e Associados SROC, S.A. Internal Supervision Supervision Authorities: Banco de Portugal; CMVM, ISP Management

Board of Directors Under BES’ articles of association, the Board is to be composed of a minimum of 11 and a maximum of 31 members (each a “Director”), who may or may not be shareholders. On 31 March 2014, the Board was made up of 25 Directors. The term of office for a Director is four years and re-election is permitted without any term limits. The General Meeting appoints the chairman of the Board (the “Chairman”), who has a deciding vote. In the Chairman’s absence or in the event that an impediment arises, the Chairman is replaced by the chairman of the Executive Committee. The Board may also elect one or more of its members to take the position of vice- chairman. In the case of definitive absence or impediment of any member of the Board, a substitute member will be co-opted, and this co-optation ratified in the next General Meeting. The mandate of the member so elected will expire at the end of the office period for which the replaced member was elected.

200 The Board comprises 10 executive and 15 non-executive members. The non-executive Board members are responsible for generally overseeing the activities of the Executive Committee.

According to CMVM Regulation no. 4/2013, listed companies should, in their Annual Report on Corporate Governance, distinguish the executive members of the Board of Directors from the non-executive directors and, among these, indicate those that are deemed independent in accordance with the criteria set out in recommendation number II.1.7 of the CMVM’s Corporate Governance Code or, concerning the members of the Audit Committee, the independence criteria set out in paragraph 5 of article 414 of the Companies Code.

In any case, in addition to verifying the independence criteria set forth by the CMVM, the Board must ensure, in a well-founded manner, the independence of its Directors in light of other relevant circumstances. For this purpose, the Board on an annual basis utilises questionnaires to assess non executive directors’ independence. The non executive directors in question are notified of the Board’s judgement as to their independence and are required to confirm the absence of any fact that might affect their independence. The Corporate Governance Committee shall evaluate the compliance with the corporate bodies’ independence requirements, according to the applicable laws and regulations.

Considering the criteria above, of the 15 non-executive members of the Board, seven were determined to be independent, representing more than 25% of the total, an adequate proportion of independent members, in line with the CMVM’s recommendations.

The Board is responsible for managing BES and for defining its strategy and, in particular, for guaranteeing that BES establishes adequate policies in order to manage the various categories of risk incurred in its activities, as well as for establishing means of guaranteeing the independence of the decisions taken by the Board and ensuring that the principle of equal treatment is observed with regard to all shareholders. Additionally, the Board is responsible for: (i) requesting the convening of General Meetings; (ii) preparing annual reports; (iii) proposing the distribution of results; (iv) deciding on the opening or closing down of BES Group entities or important parts thereof; (v) resolving important extensions or reductions of BES’ activities; (vi) deciding on important changes in BES’ organisation; (vii) establishing or terminating long lasting and important agreements and initiatives with other companies; (viii) deciding on any change of BES’ headquarters within the Portuguese territory; (ix) resolving and proposing resolutions to be approved by the General Meeting on merger, demerger and transformation issues; (x) resolving the issue of bonds and other securities, except in the case of securities whose issue depends on a resolution of the General Meeting; and (xi) resolving, upon an Audit Committee’s favourable opinion, and for a five-year period, to increase of the share capital by new cash contributions, one or more times, up to €7,500,000,000.00, with this authorisation having been granted at the General Meetings held on 9 June and 11 November 2011.

The Board meets at least quarterly and whenever convened by the Chairman, by two board members or by the Audit Committee. Board meetings may be held through remote telecommunications.

201 Composition of the Board of Directors The following table sets out the members of the Board for the 2012-2015 four-year mandate, with an indication of name, position, qualification as independent director or not, year of birth and first date of appointment:

Year of First date of Name Position Independence birth appointment Alberto Alves de Oliveira Pinto Chairman of the Board of Directors Yes 1932 2006 Ricardo Espírito Santo Silva Salgado Vice-Chairman of the Board of Directors and Chairman of the Executive Committee No 1944 1991 Bruno de Laage de Meux Vice-Chairman of the Board of Directors No 1951 2010 José Manuel Pinheiro Espírito Santo Member of the Board of Directors and Silva of the Executive Committee No 1945 1992 António José Baptista do Souto Member of the Board of Directors and of the Executive Committee No 1950 1990 Jorge Alberto Carvalho Martins Member of the Board of Directors and of the Executive Committee No 1957 1993 Aníbal da Costa Reis de Oliveira Member of the Board of Directors No 1935 1992 Manuel Fernando Moniz Galvão Member of the Board of Directors No 1958 1992 Espírito Santo Silva32 José Maria Espírito Santo Silva Member of the Board of Directors and Ricciardi of the Executive Committee No 1954 1999 Rui Manuel Duarte Sousa da Silveira Member of the Board of Directors and of the Executive Committee No 1954 2000 Joaquim Aníbal Brito Freixial de Goes Member of the Board of Directors and of the Executive Committee No 1966 2000 Ricardo Abecassis Espírito Santo Silva Member of the Board of Directors No 1958 2002 Amílcar Carlos Ferreira de Morais Pires Member of the Board of Directors and of the Executive Committee No 1961 2004 Nuno Maria Monteiro Godinho de Member of the Board of Directors Matos Yes 1949 2006 João Eduardo Moura da Silva Freixa Member of the Board of Directors and of the Executive Committee No 1956 2006 Pedro Mosqueira do Amaral Member of the Board of Directors No 1968 2008 Isabel Maria Osório de Antas Mégre de Member of the Board of Directors Sousa Coutinho Yes 1946 2008 João de Faria Rodrigues Member of the Board of Directors and of the Audit Committee Yes 1955 2008 Marc Olivier Tristan Oppenheim Member of the Board of Directors No 1967 2010 Vincent Claude Paul Pacaud Member of the Board of Directors No 1961 2011 Rita Maria Lagos do Amaral Cabral Member of the Board of Directors Yes 1954 2012 Stanislas Gerard Marie Georges Ribes Member of the Board of Directors and of the Executive Committee No 1964 2012 Horácio Lisboa Afonso Member of the Board of Directors and President of the Audit Committee Yes 1949 2012 Pedro João Reis de Matos Silva Member of the Board of Directors Yes 1949 2012 Xavier Musca Member of the Board of Directors No 1960 2012

32 Mr. Manuel Fernando Moniz Galvão Espírito Santo Silva submitted his resignation letter to the Board in April 2014, effective end of May 2014.

The business address of the members of the Board is Avenida da Liberdade, 195, 1250-142 Lisbon, Portugal.

Executive Committee The Executive Committee currently consists of the ten Directors listed below; the respective responsibilities of each member within the BES Group are also noted below their name: Ricardo Espírito Santo Silva Salgado Chairman of the Executive Committee, of the Financial and Credit Council and of ALCO

202 Planning and Accounting Department Communication Department Corporate Structuring Department Investors Relations Department General Secretariat of the Executive Commission Espírito Santo Ativos Financeiros, SGPS, SA—ESAF BEST—Banco Electrónico de Serviço Total, S.A. ES Tech Ventures, SGPS, S.A. ESEGUR—Empresa de Segurança, S.A. Strategy and International Coordination Committee

José Manuel Pinheiro Espírito Santo Silva Private Banking Department International Business & Private Banking Department Madeira Offshore Branch Venezuela Branch (responsibility shared with Amílcar Carlos Ferreira de Morais Pires) Luxembourg Branch (responsibility shared with Amílcar Carlos Ferreira de Morais Pires) Abroad Resident Clients Department1 BES History Study Centre Strategy and International Coordination Committee

(1) Except the French residents segment, for which Stanislas Ribes is responsible

António José Baptista do Souto Department of North Enterprises1 Department of South Enterprises1 Corporate Banking Department1 International Premium Unit2 Corporate and Institutional Clients Marketing Department Compliance Department Municipalities and Institutional Clients Department Human Resources Department Business monitoring department Leasing and Factoring Department Multipessoal, Soc de Prestação e Gestão de Serviços, S.A. Ijar Leasing Financial and Credit Council

(1) Except for enterprises comprising the French Desk, for which Stanislas Ribes is responsible (2) Except relations with the Portuguese-French Chamber of Industry and Commerce, for which Stanislas Ribes is responsible

Jorge Alberto Carvalho Martins Chairman of Oporto’s Credit Council North Commercial Department Real Estate Management Department, including the Real Estate Improvement Department and Real Estate Management Department

203 External Promoters Department Locarent—Companhia Portuguesa de Aluguer de Viaturas, S.A. Financial and Credit Council

José Maria Espírito Santo Silva Ricciardi CEO of Espírito Santo Investment Bank Strategy and International Coordination Committee Global Risk Department (responsibility shared with Joaquim Aníbal Brito Freixial de Goes) Financial and Credit Council

Rui Manuel Duarte Sousa da Silveira Legal Department Audit and Inspection Department Security Management and Coordination Department Corporate Office

Joaquim Aníbal Brito Freixial de Goes Strategic Marketing Department Marketing, Innovation and Channels Department Marketing of Communication and Consumer Research Department Global Risk Department (responsibility shared with José Maria Espírito Santo Silva Ricciardi) Management Information Department University Office BES University Credit Recovery Department Espírito Santo Recuperação de Crédito (Group of Complementary Companies) Real Estate Clients Support Department Real Estate Technical Department Espírito Santo Informárica (Group of Complementary Companies) Oblog Consulting, S.A. BES Seguros, S.A. Contact, S.A. Assurfinance Office Financial and Credit Council

Amílcar Carlos Ferreira de Morais Pires Financial, Markets and Management Control Studies Department (responsability shared with the Executive Committee Chairman) Strategy and International Coordination Committee Strategical Reorganisation Office Savings Management Department Internacional Development Department London Branch

204 New York Branch Spain Branch Venezuela Branch (responsibility shared with José Manuel Pinheiro Espírito Santo Silva) Luxembourg Branch (responsibility shared with José Manuel Pinheiro Espírito Santo Silva) ES Bank BES África, SGPS, S.A. Aman Bank BES Angola, SARL Moza Banco Banco e Sucursal de Cabo Verde Escritórios de representação no estrangeiro Avistar, SGPS, SA Espírito Santo Research BES Vida, Companhia de Seguros, S.A. BES Finance BES Cayman BESIL BIBL BES GmbH Financial and Credit Council

João Eduardo Moura da Silva Freixa South Commercial Department Cards and Loans to Individuals Department Negotiation and Cost Control Department BES dos Açores, S.A. Representation at Unicre Representation at SIBS Financial and Credit Council

Stanislas Gerard Marie Georges Ribes Organisation and Quality Department Executive Department of Operations Monetisation of Corporate Credit Department French Residing Clients Segment Client Companies to include in a French Desk Segment Relationship Manager with the Portuguese-French Chamber of Industry and Commerce

Relevant Experience of the Members of the Board and Family Relationships Below are details of the relevant experience in the last five years and family relationships of each member of the Board (including those members serving on the Executive Committee):

Alberto Alves de Oliveira Pinto graduated in Economic and Financial Sciences from Instituto Superior de Ciências Económicas e Financeiras (Lisbon). He was chairman of the Board of Directors of Banco Nacional de

205 Crédito Imobiliário from 1991 to 2005, non-executive member of the Board of Directors of Galp Energia from 2006 to 2008, non-executive member of BES’ Board of Directors from February 2006 to March 2008 and Chairman of the Board since March 2008.

Ricardo Espírito Santo Silva Salgado, graduated in Economics from Instituto Superior de Ciências Económicas e Financeiras of the Universidade Técnica de Lisboa. He is Vice-Chairman of the Board and Chairman of the Executive Committee, Chairman of the Board of Directors of Espirito Santo Financial Group, S.A., Bespar— SGPS, S.A. and Partran, SGPS, S.A., member of the Institut International d’Etudes Bancaires since 2003 and its Chairman from October 2005 to December 2006. He is the cousin of José Manuel Pinheiro Espírito Santo Silva, José Maria Espírito Santo Silva Ricciardi, Manuel Fernando de Moniz Galvão Espírito Santo Silva and Ricardo Abecassis Espírito Santo Silva.

Bruno de Laage de Meux, graduated from the École des Hautes Études Commerciales (H.E.C.), with an MBA from INSEAD. He has been a member of the Board of Directors and of the Strategy Committee of Crédit Agricole S.A., and deputy secretary general of the Crédit Agricole National Federation since 2006. He was appointed Vice-Chairman of Crédit Agricole S.A. in March 2010, in charge of Caisses Régionales, International Retail Banking, Payment Systems and Specialised Financial Services (Consumer Crédit, Leasing and Factoring) and was appointed as a member of the Board in April 2010, to replace Jean Frederic de Leusse.

José Manuel Pinheiro Espírito Santo Silva graduated in Economics, specialising in Business Administration and Management, from Évora University (former Instituto de Estudos Superiores de Évora). He is Chairman of Banque Privée Espirito Santo S.A., executive member of the Board and Vice-Chairman of Espirito Santo Financial Group, S.A. He is the cousin of Ricardo Espírito Santo Silva Salgado and José Maria Espírito Santo Silva Ricciardi and uncle of Manuel Fernando de Moniz Galvão Espírito Santo Silva and Ricardo Abecassis Espírito Santo Silva.

António José Baptista do Souto graduated in Economics from the School of Economics of Porto University. He is an executive member of the Board and a member of the Board of Directors of SIBS—Sociedade Interbancária de Serviços, S.A.

Jorge Alberto Carvalho Martins graduated in Economics from the School of Economics of Porto University. He is an executive member of the Board and a member of the Board of Directors of Locarent—Companhia Portuguesa de Aluguer de Viaturas, S.A.

Aníbal da Costa Reis de Oliveira has completed a General Commercial Management course (Porto) and received a degree in Chemical Engineering (Germany). He holds executive positions in companies of the Riopele Group and has been a non-executive member of the Board since 1992.

Manuel Fernando Moniz Galvão Espírito Santo Silva received a B.A. in Business Administration from Richmond College, London International Bankers’ Course at Barclays and Midland Bank, London, as well as an Inter-Alpha Banking Programme at INSEAD, Fontainebleau. He has been a member of the Board since 1994 and an executive member of the World Travel & Tourism Council since 2003. He has been Chairman of the Executive Committee of Espirito Santo Resources since 2006 as well as Chairman of the Board of Directors of Rioforte Investments since 2008 and of Rioforte (Portugal) S.A. since 2010. He is the nephew of José Manuel Pinheiro Espírito Santo Silva and cousin of José Maria Espírito Santo Silva Ricciardi, Ricardo Espírito Santo Silva Salgado e de Ricardo Abecassis Espírito Santo Silva.

José Maria Espírito Santo Silva Ricciardi graduated in Sciences Économiques Appliquées from the Université Catholique de Louvain, Faculté des Sciences Economiques, Sociales et Politiques, Institut d’Administration et de Gestion, Belgium. He is an executive member of the Board and Vice-Chairman of the Board of Directors and Chief Executive Officer of BES Investimento. He is also Chairman of the Board of Directors of BES Investimento do Brasil, S.A., a member of the Board of Directors of Espirito Santo Financial Group, Chairman of the Board of Directors of Espirito Santo Investment Holdings Limited. He is the cousin of Ricardo Espírito Santo Silva Salgado, José Manuel Pinheiro Espírito Santo Silva, Manuel Fernando de Moniz Galvão Espírito Santo Silva and Ricardo Abecassis Espírito Santo Silva

Rui Manuel Duarte Sousa da Silveira graduated in Law from the Law School of the Lisbon University. He is a practising lawyer and an executive member of the Board. He is a member of the Fiscal Board of Companhia de Seguros Tranquilidade, S.A., Chairman of the Board of the General Meeting of AVISTAR S.G.P.S., S.A., BEST—Banco Eletrónico de Serviço Total, S.A., ES Tech Ventures S.G.P.S., S.A., ESAF—Espírito Santo Ativos Financeiros S.G.P.S., S.A., Espírito Santo Ventures, Sociedade de Capital de Risco, S.A., Bespar— S.G.P.S., S.A., Partran—S.G.P.S., S.A. and T-Vida, Companhia de Seguros, S.A.

206 Joaquim Aníbal Brito Freixial de Goes graduated in Corporate Management and Administration, specialising in Marketing and Finance from Lisbon’s Portuguese Catholic University. He also received an MBA from INSEAD, Fontainebleau. He is an executive member of the Board and has been a member of the Board of Directors of Portugal Telecom since 2000.

Ricardo Abecassis Espírito Santo Silva graduated in Economics from the City University, London. He is the Executive Chairman of BES Investimento do Brasil has been a member of the Board of Directors of BES Investimento since 2003, where he was appointed Executive Director in 2005. He has been a member of the Board since 2002. He is the nephew of José Manuel Espírito Santo Silva and a cousin of Ricardo Espírito Santo Silva Salgado, José Maria Espírito Santo Silva Ricciardi and Manuel Fernando Moniz Galvão Espírito Santo Silva. He is the nephew of José Manuel Espírito Santo Silva and cousin of Ricardo Espírito Santo Silva Salgado, José Maria Espírito Santo Silva Ricciardi Moniz and Manuel Fernando Espírito Santo Silva Galvão.

Amílcar Carlos Ferreira de Morais Pires graduated in Economics from the Portuguese Catholic University. He was BES’ General Manager, an advisor to the Board and Coordinator of BES’ Financial Department, Markets and Surveys until 2004. He has been an executive member of the Board since March 2004 and a member of the Board of Directors of BES Investimento since 2005. He has also been a member of the Board of Directors of Portugal Telecom since 2006.

Nuno Maria Monteiro Godinho de Matos graduated in Law from Universidade Clássica de Lisboa. He is a practising lawyer and has been a member of the Board since 2006, as well as a member of BES’ Corporate Governance Committee since 2010 and a member of its Remuneration Advisory Committee since 2012.

João Eduardo Moura da Silva Freixa graduated in Business Management from Instituto Superior de Economia, Lisbon and received an MBA from Universidade Nova de Lisboa. He was Vice-Chairman of Caixa Geral de Depósitos and Caixa—Banco de Investimento (Caixa BI) and a non-executive member of the Board of Directors of EDP- Energias de Portugal from 2004 to 2005. He has been an advisor to the Board since October 2005 and an executive member of the Board since 2006, as well as Vice-Chairman of BES dos Acores since November 2006. He also has been a member of the Board of Directors of Unicre—Instituição Financeira de Crédito, S.A. since 2010.

Pedro Mosqueira do Amaral graduated in Business Management from the European University, Brussels, Belgium. He has been a member of the Board of Directors of BES GmbH since 2006 and member of the Board since 2008.

Isabel Maria Osório de Antas Mégre de Sousa Coutinho graduated in Finance from Instituto Superior de Ciências Económicas e Financeiras (ISCEF) in 1969, Lisbon. She was Chairman of Fundação Pão de Açúcar— Auchan until 2007. She has been a member of the Board since 2008, Chairman of BES’ Corporate Governance Committee since 2010 and a member of its Remuneration Advisory Committee since 2012.

João de Faria Rodrigues graduated in Business Organisation and Management from Instituto Superior de Economia in 1980, Lisbon. He has been a Certified Auditor since 1992 and was Senior Audit Manager with Grant Thornton & Associados—SROC, Lda. from 1997 to 2008. He has been a member of the Board since 2008 and is a member of the Audit Committee.

Marc Olivier Tristan Oppenheim graduated from the École Supérieure des Sciences Économiques et Commerciales. He was appointed Retail Market manager and member of the General Committee of Crédit Lyonnais in 2007. He has been a Manager of International Retail Banking and a member of the Executive Committee of Crédit Agricole since June 2010. In 2010, he was appointed a non-executive member of the Board.

Vincent Claude Paul Pacaud graduated from the École Polytéchnique, and also received an MBA from INSEAD. He has served as CEO of BNP Paribas Assurance in Asia and as a member of the International Strategy Committee of BNP Paribas Assurance. In 2008, he joined the Crédit Agricole Group as head of insurance for Asia and in 2010 was appointed CEO of Credit Agricole Life Japan. He was appointed a member of the Board in 2011 and is a member of the Board of Directors of BESPAR, ESAF, BES Vida and BES Seguros.

Rita Maria Lagos do Amaral Cabral graduated in Law from Lisbon University’s Law School. She is a practicing lawyer. She is also a Partner and Director at Amaral Cabral & Associados—Sociedade de Advogados, R.L. as well as an invited assistant professor at the Law School of the Portuguese Catholic University, Vice-Chairman of the Portuguese Catholic University’s Bioethics Institute and a member of the National Ethics Council for Life Sciences. She has been a member of the Board, Corporate Governance Committee and Remuneration Advisory Committee since 2012.

207 Stanislas Gérard Marie Georges Ribes graduated in Economics from the Institut d’Études Politiques de Paris. He has served as head of the Ile de France Nord region Division, with LCL, Crédit Lyonnais. From 2009 to 2011, he was a member of LCL, Crédit Lyonnais’s General Management Committee and was responsible for the corporate and institutional segment as head of the Business Division from 2006 to 2009 and Regional Manager— Corporates North from 2002 to 2006. He has been an executive member of the Board since 2012.

Horácio Lisboa Afonso graduated in Finance from the Instituto Superior de Economia (Lisbon). He is a certified auditor and certified accountant. In January 2012, as partner of Camacho Palma & Lisboa Afonso—SROC, he joined Nexia International as International Contact Partner until 2011. He was a member of the Management Board of the Portuguese Chamber of Certified Auditors from 2006 to 2008. In July 2007, he was appointed a member of the Board of Directors and of the Audit Committee of ESFG, S.A., until the start of 2012. He has been a member of the Board and Chairman of the Audit Committee since 2012.

Pedro João Reis de Matos Silva graduated in Finance from the Instituto Superior de Ciências Económicas e Financeiras, and also received a degree in Auditing and Accounting from Centre d’Enseignement Supérieur des Affaires, France. He has been a certified auditor since 1981 and a partner of P. Matos Silva, Garcia JR, P. Caiado & Associados, SROC, Lda. He was Chairman of the Fiscal Board of the Portuguese Chamber of Certified Orders from 2005 to 2010 and is a member of its Higher Board from 2012 to 2014. He has been a member of the Board since 2012.

Xavier Musca graduated in Politic Science from Institut d’Etudes Politiques in Paris (Sciences Po) and from École Nationale d’Administration. In 2007 he was General Director of the Treasury and Economic Policy (Direction générale du Trésor et de la Politique économique (DGTPE)). In 2009 he was appointed executive director of economic issues in the French President’s office. In 2011 he become General Secretary in the French President’s office. In July 2012 he joined Crédit Agricole as responsible for the retail international area, the comercial banking and assets and insurance management. In November 2012 he was appointed a non executive director of Banco Espírito Santo.

List of positions held in other companies by the members of the management and supervisory corporate bodies The following table sets out, based on available information as of the date of this document, the companies and partnerships in which members of the Board were members of the management or supervisory board, including positions in consolidated direct subsidiaries and affiliated companies, as well as external positions:

Alberto Alves de Oliveira Pinto Holds no positions in other companies Ricardo Espírito Santo Silva Salgado A. Corporate positions held in companies of the BES Group Board of Directors Banco Espírito Santo de Investimento, S.A. (Chairman) Banque Espírito Santo et de la Vénétie, S.A. (Member) BES África, S.G.P.S. S.A. (Chairman) BES Finance, Ltd (Member) BEST—Banco Electrónico de Serviço Total, S.A. (Chairman) ES Tech Ventures, S.G.P.S., S.A. (Chairman) ESAF—Espírito Santo Activos Financeiros, S.G.P.S., S.A. (Chairman) Espírito Santo—Empresa de Prestação de Serviços 2, ACE (Chairman) Espírito Santo Ventures, Sociedade de Capital de Risco, S.A. (Chairman) Other Positions Banco Espírito Santo de Investimento, S.A. (Member of the Remuneration Committee) B. Corporate positions held in companies outside BES Group

208 Board of Directors Banque Privée Espírito Santo, S.A. (Member) Casa dos Pórticos—Sociedade de Administração de Bens, S.A. (Chairman) E.S. Control Overseas Limited. (Member) E.S. Holding Administração e Participações S.A. (Vice- Chairman) ES Bankers (Dubai) Limited (Chairman) Espírito Santo Control S.A. (Member) Espírito Santo Financial (Portugal)—Sociedade Gestora de Participações Sociais, S.A. (Chairman) Espírito Santo Financial Group S.A. (Chairman) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A. (Chairman) Partran—Sociedade Gestora de Participações Sociais, S.A. (Chairman) Sociedade de Administração de Bens Pedra da Nau, S.A. (Chairman) Other Positions Associação Portuguesa de Bancos (Vice-Chairman of the Board, in representation of Banco Espírito Santo, S.A.) Fundação Stanley Ho (Member of the General Board) Instituto Internacional de Estudos Bancários IIEB (Member) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors BESPAR—Sociedade Gestora de Participações Sociais, S.A. (Chairman) Banco Bradesco S.A. (Member) ESFG Overseas Limited (Chairman) Espírito Santo Bank (Member) Espírito Santo Financial Services Inc. (Member) Espírito Santo International SA (Member) Espírito Santo Resources Limited (Member) Espírito Santo Saúde—S.G.P.S., S.A. (Chairman) Espírito Santo Services, SA (Member) NYSE Euronext (Member) Supervisory Body IIEB—Institut International d’Études Bancaires (Chairman) Other Positions APDMC—Associação Portuguesa Para o Desenvolvimento do Mercado de Capitais (Member of the General Committee) NYSE Euronext (Member of the Human Resources & Compensation Committee) NYSE Euronext (Member of Nominating & Governance Committee)

209 Bruno Bernard Marie Joseph de Laage de Meux A. Corporate positions held in companies outside BES Group Board of Directors BFORBANK (Member) CA Assurances (Censeur) CA Cards & Payments (Member) CA Consumer Finance (Chairman) CA Paiement (Member) Crédit Agricole Creditor Insurance (Member) Crédit Agricole Leasing & Factoring (Member) FIA-NET Europe (Member) Fireca (Member) Fonds de Garantie des Dépôts (Member of the Supervisory Board) Groupement des Cartes Bancaires (Chairman) LCL—Le Crédit Lyonnais (Member) Uni—Éditions (Chairman) Other Positions Crédit Agricole, S.A. (Member of the Executive Committee, Member of the General Management Committee, Deputy Chief Executive Officer in Charge of Retail Banking France (Regional Banks and LCL), Specialised Financial Services and Payment Systems & Services) B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Bespar—Sociedade Gestora de Participações Sociais, S.A. Cassa di Risparmio di Parma e Piacenza S.p.A. (Groupe Cariparma Crédit Agricole) (Director) Cedicam (Director) Crédit Agricole Egypt, S.A.E. (Vice—Chairman) Crédit Agricole Titres (Director) Crédit Agricole, SA (Director) Crédit du Maroc (Member of the Conseil de Surveillance) Emporiki Bank (Director) GIE Atlantica (Chairman/Director) Uni Expansion Ouest (Director) Union de Banques Arabes et Françaises—U.B.A.F. (Vice- Chairman) Vegepolys (pôle du vegetal spécialisé d’Angers) (Chairman) Other Positions Caisse Régionale de Crédit Agricole de L’Anjou et du Maine (Directeur Général) Fédération Nationale de Crédit Agricole (Secrétaire Général Adjoint)

210 José Manuel Pinheiro Espírito Santo Silva A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Member) Banco Espírito Santo de Investimento, S.A. (Member) BES África, S.G.P.S. S.A. (Member) ESAF—Espírito Santo Activos Financeiros, S.G.P.S., S.A. (Member) Banque Espírito Santo et de la Vénétie, S.A. (Member) Other Positions Banco Espírito Santo de Investimento, S.A. (Member of the Remuneration Committee) B. Corporate positions held in companies outside BES Group Board of Directors Banque Privée Espírito Santo, S.A. (Chairman) Casa da Saudade—Administração de Bens Móveis e Imóveis, S.A. (Chairman) ES Bankers (Dubai) Limited (Member) Espírito Santo Control S.A. (Member) Espírito Santo Financial (Portugal)—Sociedade Gestora de Participações Sociais, S.A. (Vice-Chairman) Espírito Santo Financial Group S.A. (Vice-Chairman) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A. (Member) Europ Assistance—Companhia Portuguesa de Seguros, S.A. (Member) Ponte Alta—Consultoria e Assistência (Sociedade Unipessoal), Lda. (Member) Raimul Holdings, Ltd (Chairman) Ribeira do Marchante—Administração de Bens Móveis e Imóveis, S.A. (Chairman) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors BESPAR—Sociedade Gestora de Participações Sociais, S.A. (Member) ESFG Overseas Limited (Vice-Chairman) Espírito Santo Bank (Member) Espírito Santo Financial Consultants, Gestão de Patrimónios, S.A (Chairman) Espírito Santo International SA (Member) Espírito Santo Resources Limited (Member) Espírito Santo Services,SA (Member) Fiduprivate—Sociedade de Serviços, Consultadoria, Administração de Empresas, S.A. (Chairman)

211 António José Baptista do Souto A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Member) BES África, S.G.P.S. S.A. (Member) Other Positions Banco Espírito Santo dos Açores, S.A. (Member of the Remuneration Committee) B. Corporate positions held in companies outside BES Group Board of Directors Angra Moura—Sociedade de Administração de Bens, S.A. (Chairman) Companhia de Seguros Tranquilidade, S.A. (Member) Ijar Leasing Algérie (Member) Other Positions Controlinveste Conteúdos, S.A. (Member of the Remuneration Committee) ELO—Associação Portuguesa Para o Desenvolvimento Económico e a Cooperação (Vice-Chairman of the General Board) TF Turismo Fundos—SGFII, S.A. (appointed in representation of the Member of the Remuneration Committee, Banco Espírito Santo, S.A.) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors BesLeasing & Factoring, IFIC, S.A. (Chairman) Espírito Santo Data, S.G.P.S., S.A (Chairman) SIBS—Forward Payment Solutions, S.A. (Member) SIBS—SGPS, S.A. (Member)

Jorge Alberto Carvalho Martins A.Corporate positions held in companies outside BES Group Board of Directors Locarent—Companhia Portuguesa de Aluguer de Viaturas, S.A. (Member) Fiscal Board Advita—Associação para o Desenvolvimento de Novas Iniciativas Para a Vida (Substitute) Agência de Desenvolvimento Regional de Entre-o-Douro e Tâmega (Chairman) Instituto Empresarial do Tâmega (Chairman) Other Positions Futebol Clube do Porto—Futebol, S.A.D (Member of the Advisory Board)

212 B. Corporate positions held in the last 5 years from which has already stepped down Other positions Primus, Promoção e Desenvolvimento Regional, S.A. (Member of the Superior Committee)

Aníbal da Costa Reis de Oliveira A.Corporate positions held in companies outside BES Group Board of Directors ACRO—SGPS, S.A. (Chairman) Diliva—Sociedade de Investimentos Imobiliários, S.A. (Chairman) Espírito Santo Financial (Portugal)—Sociedade Gestora de Participações Sociais, S.A. (Member) Espírito Santo Financial Group S.A. (Member) Espírito Santo International S.A. (Member) Olinerg—SGPS, S.A. (Chairman) Olinveste—S.G.P.S., Lda. (Chairman) Oliren—SGPS, S.A. (Chairman) Q. L. PORTUGAL—Sociedade de Agricultura e Serviços da Quinta da Lage, Lda. (Member) B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Saramagos—Sociedade Produtora de Energia, S.A. (Chairman) Shareholders General Meeting Board Olifil Têxteis, S.A (Chairman) Texarte Têxteis, S.A. (Chairman)

Manuel Fernando Moniz Galvão Espírito Santo Silva A.Corporate positions held in companies outside BES Group Board of Directors Academia de Música de Santa Cecília (Non-executive Member) BEMS, SGPS, S.A. (Chairman) Bensaúde Turismo, S.G.P.S., S.A. (Member) ESCOPAR—Sociedade Gestora de Participações Sociais, S.A. (Chairman) Espírito Santo Control SA (Member) Espírito Santo Financial Group S.A. (Member) Espírito Santo Health Care Investments S.A (Chairman) Espírito Santo Industrial (Portugal),SGPS, S.A. (Chairman) Espírito Santo Industrial, S.A. (Chairman) Espírito Santo International S.A. (Member) Espírito Santo Resources (Portugal), S.A. (Member)

213 Espírito Santo Resources Limited (Chairman) Espírito Santo Services, S.A. (Member) GESTRES—Gestão Estratégica Espírito Santo, S.A. (Chairman) Euroamerican Finance Corporation, Inc. (Chairman) Euroamerican Finance S.A. (Chairman) Herdade da Comporta—Actividades Agro Silvícolas e Turísticas, S.A. (Chairman) Rio Forte Investments, SA (Chairman) RIOFORTE (Portugal), S.A. (Chairman) Rioforte Investment Holding Brasil SA (Chairman) Rioforte Investment Holding Mozambique, SGPS, S.A. (Chairman) Santogal—Sociedade Gestora de Participações Sociais, S.A. (Member) Sapec, S.A. (Member) Suliglor—Imobiliária do Sul, S.A. (Chairman) Board of the General Meeting Espírito Santo Property Portugal (S.G.P.S.), S.A. (Chairman) Sociedade Imobiliária e Turística da Quinta do Perú, S.A. (Chairman) B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Ambassador Portugal—Promoção Imobiliária, S.A. (Chairman) BESPAR—Sociedade Gestora de Participações Sociais, S.A. (Member) Espírito Santo Bank (Member) Espírito Santo Health & SPA, S.A. (Chairman) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A (Chairman) Espírito Santo Tourism (Europe), S.A. (Chairman) Paraguay Agricultural Corporation S.A. (Chairman) SODIM, S.G.P.S., S.A. (Member)

José Maria Espírito Santo Silva Ricciardi A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Member) Banco Espírito Santo de Investimento, S.A. (Vice-Chairman and Chief Executive Officer) BES África, S.G.P.S. S.A. (Member) BES Investimento do Brasil S.A. (Chairman) Espírito Santo Investment Holdings Limited (Chairman)

214 B. Corporate positions held in companies outside BES Group Board of Directors Espírito Santo Financial Group S.A. (Member) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A. (member) Board of the General Meeting Espírito Santo Property Portugal (S.G.P.S.), S.A. (Vice-Chairman) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Espírito Santo International S.A. (Member) Casa do Guincho—Sociedade de Administração de Bens S.A. (Member) Coporgest—Companhia Portuguesa de Gestão e Desenvolvimento Imobiliário, S.A. (Member) ES Recuperação de Crédito, ACE (Member) General and Supervisory Board EDP—Energias de Portugal, S.A. (Member) Shareholders General Meeting ESAF—Espírito Santo Gestão de Patrimónios, S.A. (Vice- Chairman) Supervisory Board Sporting Clube de Portugal—Futebol, S.A.D. (Member Supervisory Board) Sporting Clube de Portugal (Vice-Chairman of the Supervisory and Disciplinary Committee) Other Positions APDMC—Associação Portuguesa Para o Desenvolvimento do Mercado de Capitais (Member of the management) EDP—Energias de Portugal, S.A. (Member of the Corporate Governance and Sustainability Committee)

Rui Manuel Duarte Sousa da Silveira A. Corporate positions held in companies of the BES Group Board of the General Meeting AVISTAR S.G.P.S., S.A. (Chairman) Banco Espírito Santo Cabo Verde, S.A. (Chairman) Banco Espírito Santo dos Açores, S.A. (Chairman) BEST—Banco Electrónico de Serviço Total, S.A. (Chairman) Capital Mais—Assessoria Financeira, S.A. (Chairman) ES Tech Ventures, S.G.P.S., S.A. (Chairman) ESAF—Espírito Santo Activos Financeiros, S.G.P.S., S.A. (Chairman) ESAF—Espírito Santo Fundos de Investimento Imobiliário, S.A. (Chairman)

215 ESAF—Espírito Santo Fundos de Investimento Mobiliário, S.A. (Chairman) ESAF—Espírito Santo Fundos de Pensões, S.A. (Chairman) ESAF—Espírito Santo Gestão de Patrimónios, S.A. (Chairman) ESAF—Espírito Santo Participações Internacionais, S.G.P.S., S.A. (Chairman) Espírito Santo Ventures, Sociedade de Capital de Risco, S.A (Chairman) OBLOG—Consulting, S.A. (Chairman) B. Corporate positions held in companies outside BES Group Board of Directors Sociedade de Administração de Bens Casa de Bons Ares, Lda. (Chairman) Sociedade de Silvicultura Monte do Arneirinho, Lda. (Chairman) Fiscal Board Companhia de Seguros Tranquilidade, S.A. (Member) Board of the General Meeting BES—Companhia de Seguros, S.A. (Chairman) Casa dos Pórticos—Sociedade de Administração de Bens, S.A. (Secretary) ESEGUR—Empresa de Segurança, S.A. (Vice-Chairman) Esumédica—Prestação de Cuidados Médicos, S.A. (Chairman) Europ Assistance—Companhia Portuguesa de Seguros, S.A. (Vice-Chairman) Partran—Sociedade Gestora de Participações Sociais, S.A. (Chairman) T-Vida, Companhia de Seguros, S.A. (Chairman) Other positions Espírito Santo Saúde—S.G.P.S., S.A (Chairman of the Remunerations Committee) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Cimigest—S.G.P.S., S.A . (Member) Shareholders General Meeting Board BES África, S.G.P.S. S.A (Chairman) Espírito Santo Data, S.G.P.S., S.A. (Chairman) Espírito Santo Saúde—S.G.P.S., S.A. (Chairman) SGPICE—Sociedade de Serviços de Gestão de Portais na Internet e de Consultoria de Empresas, S.A. (Secretary) TC Turismo Capital—SCR, S.A. (Chairman) TF Turismo Fundos—SGFII, S.A. (Chairman) Board of the General Meeting BESPAR—Sociedade Gestora de Participações Sociais, S.A. (Chairman of the General Meeting)

216 Joaquim Aníbal Brito Freixial de Goes A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Member) BES—Vida, Companhia de Seguros, S.A (Member) E.S.—Recuperação de Crédito, ACE (Chairman) Espírito Santo Informática, ACE (Chairman) Espírito Santo Ventures, Sociedade de Capital de Risco, S.A. (Member) OBLOG—Consulting, S.A. (Chairman) B. Corporate positions held in companies outside BES Group Board of Directors BES—Companhia de Seguros, S.A (Chairman) Edenred Portugal, S.A. (Chairman) Glintt—Global Intelligent Technologies, S.A. (Member) Portugal Telecom, S.G.P.S., S.A. (Member) Fiscal Board Centro Social e Paroquial de Nossa Senhora da Ajuda (Chairman) Fundação Brazelton/Gomes-Pedro Para as Ciências do Bebé e da Família (Member) Fundação da Universidade Católica Portuguesa (Chairman) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Espírito Santo Data, Sociedade Gestora de Participações Sociais, S.A. (Member)

Ricardo Abecassis Espírito Santo Silva A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Chairman) Banco Espírito Santo de Investimento, S.A. (Vice-Chairman) BES Finance Ltd (Member) BES Investimento do Brasil S.A. (Member) Espírito Santo Bank (EUA) (Vice-Chairman) Espírito Santo Investimentos S.A. (Brazil) (Chairman) Executive Committee BES Investimento do Brasil S.A. (Chairman) Espírito Santo Investimentos S.A. (Brazil) (Chairman) Gespar Participações Ltda (Brazil) (Member) Fiscal Board Banco Espírito Santo do Oriente, S.A. (Chairman)

217 B. Corporate positions held in companies outside BES Group Board of Directors 2bCapital S.A. (Member) Agriways S.A. (Brazil) (Vice-Chairman) BHG S.A.—Brazil Hospitality Group (Brazil) (Member) Câmara Portuguesa de Comércio no Brasil (Chairman) Espírito Santo Control S.A. (Member) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A. (Member) Espírito Santo Property (Brazil) S.A. (Member) Europ Assistance (Brazil) (Member) Monteiro Aranha S.A. (Brazil) (Member) Pojuca S.A. (Brazil) (Chairman) Raimul Holdings Ltd (Vice-Chairman) Executive Committee Associação Espírito Santo Cultura (Brazil) (Member) Companhia Agrícola Botucatu (Chairman) E.S. Holding Administração e Participações, S.A. (Chairman) ES Consultoria Ltda (Brazil) (Partner—Member) ESCAE Consultoria, Administração e Empreendimentos, Ltda. (Brazil) (Member) Saramagos S.A. Empreendimentos e Participações (Brazil) (Member) Advisory Board Associação Brasileira de Bancos Internacionais S.A. (Member) C. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Banco Espírito Santo de Angola, SA (Chairman) Bradespar S.A. (Brasil) (Member) Companhia Agrícola Botucatu (Chairman) EABS Serviços de Assistência e Participações S/A (Brasil) (Member) Espírito Santo International S.A. (Member) Espírito Santo Resources Limited (Member) Euroamerican Finance Corporation, Inc. (BVI) (Vogal) Novagest Assets Management Ltd. (Member) Rioforte Investement Holding Brasil SA (Member) Seicor—Comércio Administração e Participações S.A. (Brasil) (Member) Ushuaia—Gestão e Trading International Limited (Member)

218 Executive Committee 2bCapital S.A. (Member) ESAI—Espírito Santo Activos Imobiliários Ltda. (Brasil) (Member) ESAP Brasil Agro-Pecuária Ltda. (Brasil) (Member) ESAP—Espírito Santo Agro-Pecuária S.A. (Uruguai) (Member) Europ Assistance (Brasil) (Member) Pojuca Administração S.A. (Brasil) (Chairman) Quinta da Baroneza Emp.e Part. Ltda. (Member) Seicor—Comércio Administração e Participações S.A. (Brasil) (Chairman) Sintra Empreendimentos Imobiliários Ltda (Member) Terras de Bragança Participações Ltda. (Member) Fiscal Board Banco Bradesco S.A. (Member) Other positions Portugal Telecom—Brasil (Member of the Advisory Board)

Amílcar Carlos Ferreira de Morais Pires A. Corporate positions held in companies of the BES Group Board of Directors AVISTAR S.G.P.S., S.A. (Chairman) Banco Espírito Santo de Investimento, S.A. (Member) Banco Espírito Santo do Oriente, S.A. (Member) Bank Espirito Santo (International) Limited (Chairman) BES—Vida, Companhia de Seguros, S.A (Member) BES África, S.G.P.S. S.A. (Vice-Chairman) BES Finance Ltd (Member) BIC International Bank Limited (Chairman) ES Tech Ventures, S.G.P.S., S.A. (Member) ESAF—Espírito Santo Activos Financeiros, S.G.P.S., S.A. (Member) Espírito Santo—Empresa de Prestação de Serviços 2, ACE (Member) Espírito Santo PLC (Member) Other Positions Banco Espírito Santo de Investimento, S.A. (Member of the Remuneration Committee) B. Corporate positions held in companies outside BES Group Board of Directors Moza Banco, SA (Vice-Chairman) Portugal Telecom, S.G.P.S., S.A. (Member)

219 C. Corporate positions held in the last 5 years from which has already stepped down Corporate positions held in companies of the BES Group Board of Directors Espírito Santo Bank (Member) Espírito Santo Investment Holdings Limited (Non Executive Director)

Nuno Maria Monteiro Godinho de Matos A. Corporate positions held in companies inside and outside of the BES Group Holds no positions in other companies B. Corporate positions held in the last 5 years from which has already stepped down Shareholders General Meeting Board VAA—Vista Alegre Atlantis, SGPS, S.A (Chairman)

João Eduardo Moura da Silva Freixa A. Corporate positions held in companies of the BES Group Board of Directors Banco Espírito Santo dos Açores, S.A. (Vice-Chairman) B. Corporate positions held in companies outside BES Group Board of Directors SIBS—Forward Payment Solutions, S.A. (Member, appointed by Banco Espírito Santo, S.A. under the terms of Article 390 (4) of the CSC) SIBS—SGPS, S.A. (Member, appointed by Banco Espírito Santo, S.A. under the terms of Article 390 (4) of the CSC) UNICRE—Instituição Financeira de Crédito, S.A. (Member, appointed by Banco Espírito Santo, S.A. under the terms of Article 390 (4) of the CSC)

Pedro Mosqueira do Amaral A. Corporate positions held in companies of the BES Group Board of Directors Banco Espírito Santo de Investimento, S.A. (Member) Bank Espirito Santo (International) Limited (Member) BES Beteiligungs GmbH (Manager) Banque Espírito Santo et de la Vénétie, S.A. (Member) B. Corporate positions held in companies outside BES Group Board of Directors Banque Marocaine du Commerce Extérieur (Member) Espírito Santo Irmãos—Sociedade Gestora de Participações Sociais, S.A. (Member) C. Corporate positions held in the last 5 years from which has already stepped down Espírito Santo International S.A. (Member)

220 Isabel Maria Osório de Antas Mégre de Sousa Coutinho Corporate positions held in companies outside BES Group Associação Novo Futuro (IPSS) (Chairman of the Board) Entrajuda—Associação para o Apoio a Instituições de Solidariedade Social (Member of the Higher Council) EPIS—Empresários pela Inclusão Social (Member of the Advisory Board) Instituto de Negociação e Vendas (Member of the Advisory Board)

João de Faria Rodrigues Corporate positions held in companies outside BES Group Fiscal Board Partran—Sociedade Gestora de Participações Sociais, S.A. (Member) Seguros LOGO, S.A. (Member) T-Vida, Companhia de Seguros, S.A. (Member)

Marc Olivier Tristan Oppenheim A. Corporate positions held in companies outside BES Group Board of Directors BSF Banque Saudi Fransi (Member) CA Cards & Payments (Member) CA Paiement (Member) Cassa di Risparmio di Parma e Piacenza (Cariparma Crédit Agricole Group) (Member) Crédit Agricole Bank Polska (Chairman of the of the Supervisory Board) Crédit Agricole Egypt, S.A.E. (Member) Crédit du Maroc (Member of the Supervisory Board) FIA-NET Europe (Member) IFCAM (Member) IUB Holding (Chairman) Other Positions Crédit Agricole, S.A. (Member of the Executive Committee and Head of International Retail and Commercial Banking) B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors CA Titres (SNC) (Member of the Conseil de Surveillance) Crédit Logement (Permanent representative of LCL—Le Crédit Lyonnais—Director) Emporiki Bank (Director) Europay France (Director)

221 Fireca (Director) LCL—Actions Monde (Director) Lyonsof (SP) (Representante permanente do LCL—Le Crédit Lyonnais—Gérant) Lyonsof II (SP) (Permanent representative of LCL—Le Crédit Lyonnais—Gérant) SAS Carte Bleue (Director in representation of LCL—Le Crédit Lyonnais Other Positions Groupement Cartes Bancaires (Member of the Conseil de Direction em representação do LCL—Le Crédit Lyonnais) LCL—Le Crédit Lyonnais (Directeur du Marché des Particuliers et Membre du Comité de Direction Générale)

Vincent Claude Paul Pacaud A. Corporate positions held in companies of the BES Group Board of Directors BES—Vida, Companhia de Seguros, S.A. (Member) ESAF—Espírito Santo Activos Financeiros, SGPS,S.A. (Member) B. Corporate positions held in companies outside BES Group Board of Directors BES—Companhia de Seguros, S.A. (Member and Chief Executive Officer) C. Corporate positions held in the last 5 years from which has already stepped down Corporate positions held in companies outside the BES Group Board of Directors BES—Vida, Companhia de Seguros, S.A. (Chairman of the Executive Committee) Bespar—Sociedade Gestora de Participações Sociais, S.A. (Member) CA Life Japon Member

Rita Maria Lagos do Amaral Cabral A. Corporate positions held in companies outside BES Group Board of Directors Amaral Cabral & Associados—Sociedade de Advogados, R.L. (Member) Board of the General Meeting Casa Agrícola da Quinta do Duque, S.A. (Chairman) Sociedade Agrícola do Margarido, S.A. (Chairman) Other Positions Associação Novo Futuro (IPSS) (Member of the Board) Entrajuda—Associação para o Apoio a Instituições de Solidariedade Social (Member of the Higher Council) Instituto de Bioética da Universidade Católica Portuguesa (Vice- Chairman)

222 B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Cimigest—S.G.P.S., S.A. (Non executive director) Semapa, Sociedade de Investimento e Gestão, SGPS, S.A. (Non executive director) SODIM, S.G.P.S., S.A. (Non executive director) Other Positions Conselho Nacional de Ética para as Ciências da Vida (Member)

Stanislas Gérard Marie Georges Ribes A. Corporate positions held in companies outside BES Group Holds no positions in other companies B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors LCL Obligations Court Terme Euro (Non executive director)

Horácio Lisboa Afonso A. Corporate positions held in companies outside BES Group Board of Directors UPGEST—Consultores de Gestão, S.A. (sole Member) Supervisory Body Companhia de Seguros Tranquilidade, S.A. (Member of the Fiscal Board) Partran—Sociedade Gestora de Participações Sociais, S.A. (Chairman of the Fiscal Board) Somincor—Sociedade Mineira de Neves-Corvo, S.A. (Member of the Fiscal Board) Other Positions Argani Municipal Assembly (Member) B. Corporate positions held in the last 5 years from which has already stepped down Board of Directors Camacho Palma & Lisboa Afonso—Sociedade de Revisores Oficiais de Contas (Partner) Espírito Santo Financial Group S.A. (Member) Supervisory Board Espírito Santo Financial (Portugal)—Sociedade Gestora de Participações Sociais, S.A. (Chairman of the Supervisory Board) Espírito Santo Financial Group S.A. (Member of the Audit Committee) Staples Portugal, Equipamento de Escritório, Lda. (Member of the Fiscal Board) Teixeira Duarte, S.A. (Substitute in the Fiscal Board)

223 Pedro João Reis de Matos Silva A.Corporate positions held in companies outside BES Group Board of Directors P. Matos Silva, Garcia Jr., P. Caiado & Associados—Sociedade de Revisores Oficiais de Contas, Lda. (Chairman) Other Positions Ordem dos Revisores Oficiais de Contas (Portuguese Chamber of Certified Auditors) (Member of the Higher Council) B. Corporate positions held in the last 5 years from which has already stepped down Fiscal Board Portuguese Institute of Statutory Auditors (Chairman)

Xavier Musca A. Corporate positions held in companies outside BES Group Board of Directors Amundi Groupe (Member) CA Assurances (Member) CACEIS (Member) CACI (Member) Cassa di Risparmio di Parma e Piacenza S.p.A. (Groupe Cariparma Crédit Agricole) (Member) Crédit Agricole Egypt S.A.E. (Vice-Chairman) Crédit du Maroc (Vice-Chairman of the Supervisory Board) Pacifica (Director and Permanent Representative of Crédit Agricole, S.A.) Predica (Vice-Chairman) Union de Banques Arabes et Françaises—U.B.A.F. (Vice- Chairman) Other Positions Crédit Agricole, S.A. (Managing Director in Charge of International Proximity Banking, Asset Management and Insurance) Crédit Agricole, S.A. (Member of the Executive Committee) B. Corporate positions held in the last 5 years from which has already stepped down Bespar—Sociedade Gestora de Participações Sociais, S.A. (Member) Other Positions French Republic (Director of the Treasury) French Republic (Deputy Secretary-General of the Presidency) French Republic (Secretary-General of the Presidency))

224 Shareholding and Incentive Plans Shareholdings The following table sets forth the direct beneficial ownership information of members of the Board as of 31 March 2014:

Number of Shares held as at 31 March 2014 Director Ricardo Espírito Santo Silva Salgado ...... 3,806,915 José Manuel Pinheiro Espírito Santo Silva ...... 1,011,301 António José Baptista do Souto ...... 106,081 Jorge Alberto Carvalho Martins ...... 34,058 Aníbal da Costa Reis de Oliveira ...... 700,000 Manuel Fernando Moniz Galvão Espírito Santo Silva ...... 6,831 José Maria Espírito Santo Silva Ricciardi ...... 30,000 Rui Manuel Duarte Sousa da Silveira ...... 6,366 Joaquim Aníbal Brito Freixial de Goes ...... 31.204 Ricardo Abecassis Espírito Santo Silva ...... 160,000 Amílcar Carlos Ferreira de Morais Pires ...... 334,725 Pedro Mosqueira do Amaral ...... 50,000 6,277,481

As of 31 March 2014, the members of the Board owned a total of 6,277,481 BES shares, or 0.16% of BES’ share capital.

Incentive Plans In the last five years, BES has had in place the following incentive plans (which shall not be deemed as schemes for the attribution of stock options): • BES and its subsidiaries have established a profit-sharing plan known as the “Objectives and Incentives System” (“SOI”) pursuant to which a part of the net income for the year is distributed to officers and staff during the immediately succeeding year. The allocation of the total amount is determined by the Board on a discretionary basis in accordance with its assessment of the performance of each officer and staff member. Individual performance is assessed in both qualitative terms (through a professional rating given by the supervising officer) and quantitative terms (commercial objectives, cost to income or service levels, depending on the department where the employee in question works). The SOI is still in place. • With regard to the allotment of shares and/or options to members of the Board, as well as to the other managers of BES, the following plans co-existed until the end of 2010: • Share Based Incentive System, approved by the General Meeting in 2000, ceased in 2008, its last series having fallen overdue at the end of 2010; • Variable Remuneration Payment Plan—PPRV 2008-2010, approved by the General Meeting in 2008. It granted the right to receive a variable remuneration (and therefore it was not a share allocation or stock options plan) indexed to the potential appreciation of BES Shares during the three-year period 2008- 2010. This plan was completed in April 2011.

Both members of the BES Executive Committee and BES Group employees were entitled to participate in the above-mentioned plans.

The General Meeting of 6 April 2010 and the Remuneration Committee meeting of 25 February 2010 approved a new structure for the remuneration of the members of the BES Executive Committee (“Remuneration Policy”), which includes: • A deferred annual remuneration which consists of a variable remuneration paid in-kind, with the assignment of three lots of shares whose payment is deferred for a period of three years;

225 • A medium-term variable remuneration to be paid through the allocation of options to purchase shares which may be exercised only three years after the date of allocation.

The medium-term variable remuneration was also approved to possibly be applied to certain managers of BES, including its General Managers, Advisors and Coordinating Managers, although this has not yet been done.

The Remuneration Policy was approved again, in its general terms, at the Annual General Meetings of 2011, 2012 and 2013. The General Meeting of 22 March 2012 introduced (i) non-financial criteria in the performance assessment of the executive members of the Board, (ii) the rule that at least 50% of any variable remuneration, whether or not deferred, shall be paid in BES shares or equivalent financial instruments and (iii) the rule that the members of the Executive Committee shall hold, until the end of their term of office, up to a minimum of twice the value of the total annual remuneration, the shares that were acquired by virtue of the payment of the variable remuneration, exception made to those shares that must be sold for the payment of taxes on the gains of said shares.

In order to execute the Remuneration Policy, two “Plans of Variable Remuneration based on Financial Instruments” are in force and are available at www.bes.pt/investidor.

Remuneration Policy of the Members of the Corporate Bodies The Remuneration Committee, appointed by the General Meeting, determines the remuneration of the members of BES’ corporate bodies. Every year the Remuneration Committee submits to the General Meeting, for approval, a proposal setting out the remuneration policy of the corporate bodies.

The full text of the remuneration policy, as approved by the General Meeting of 5 May 2014 is available at www.bes.pt/investidor.

Remuneration Individual remuneration paid to the members of the management and supervisory bodies BES’ Board of Directors is composed of 25 members, of whom 10 are executive members and 15 are non- executive members. Of the non-executive directors, three are members of the Audit Committee, three are members of the Corporate Governance Committee and two (Ricardo Abecassis Espírito Santo Silva and Pedro Mosqueira do Amaral) hold executive positions in other companies of the BES Group. Except for the executive directors, BES’ corporate bodies only have fixed remuneration.

226 The remuneration paid to each of the members of the Board of Directors in 2013 is set out in the table below:

Remuneration 2013 Corporate Bodies Remuneration (excludes Executive Committee)

BES Other BES Group Total Total Total Fixed Variable BES Fixed Variable Other Fixed Variable Total Subsidies Subsidies Subsidies Salary and other Salary and other Salary and other (EUR thousand) João Faria Rodrigues .... 119 0 0 119 00 00 119 0 0 119 Horácio Lisboa Afonso . . 141 0 0 141 00 00 141 0 0 141 Pedro João Reis Matos Silva ...... 119 0 0 119 00 00 119 0 0 119 Total Audit Committee ...... 379 0 0 379 0 0 0 0 379 0 0 379 Board Members (excluding Executive Committee) Alberto Alves de Oliveira Pinto ...... 185 185 0 0 0 0 0 185 0 185 Aníbal da Costa Reis de Oliveira ...... 11 11 0 0 0 0 0110 11 Manuel Fernando Moniz Galvão Espírito Santo Silva ...... 22 22 0 0 0 0 0220 22 Ricardo Abecassis Espírito Santo Silva . . . 22 22 356 16 124 496 356 39 124 518 Pedro Mosqueira do Amaral ...... 26 161 408 0 0 408 543 26 0 589 Nuno Maria Monteiro Godinho de Matos .... 42 42 0 0 0 0 0420 42 Rita Maria Lagos do Amaral Cabral ...... 42 42 0 0 0 0 0420 42 Bruno Bernard Marie Joseph de Laage de Meux ...... 0 0 0 0 0 0 00 0 0 Marc Olivier Tristan Oppenheim ...... 0 0 0 0 0 0 00 0 0 Vincent Claude Paul Pacaud ...... 30 30 0 0 0 0 0300 30 Isabel Maria Osório de Antas Mégre de Sousa Coutinho ...... 42 42 0 0 0 0 0420 42 Xavier Musca ...... 0 0 0 0 0 0 00 0 0 Total Board Members (excluding Executive Committee) ...... 135 424 0 559 764 16 124 904 899 440 124 1,463 Board of the General Meeting Paulo Manuel de Pitta e Qunha ...... 0 19 0 19 0 0 0 0 0 19 0 19 Nuno Miguel Matos Silva Pres Pombo ...... 0 9 0 9 0 0 0 0 0 9 0 9 Jose Alexandre Teixeira Sousa Machado ...... 0 9 0 9 0 0 0 0 0 9 0 9 Totalof the Board of the General Meeting .... 0370370000037037 Remuneration Committee Jacques dos Santos ..... 0 18 0 18 0 0 0 0 0 18 0 18 Daniel Proença de Carvalho ...... 0 18 0 18 0 0 0 0 0 18 0 18 Alvara João Duarie Pinto Correia ...... 0 18 0 18 0 0 0 0 0 18 0 18 Total Remuneration Committee ...... 0540540000054054 Total Corporate Bodies (excluding Executive Committee) ...... 515 515 0 1,029 764 16 124 904 1,278 531 124 1,933

227 Members of the Executive Committee

BES Other BES Group Total Total Total Fixed Variable BES Fixed Variable Other Fixed Variable Total Subsidies Subsidies Subsidies Salary and other Salary and other Salary and other (EUR thousand) Ricardo Espirito Santo Silva Salgado ...... 547 2 0 550 00 0 0 547 2 0 550 José Manuel Pinheiro Espirito Santo Silva ...... 462 2 0 464 00 0 0 462 2 0 464 Antonio José Baptista do Souto ...... 459 2 0 461 00 0 0 459 2 0 461 Jorge Alberto Carvalho Martins ...... 457 2 0 459 00 0 0 457 2 0 459 Amilcar Carlos Ferreira de Morais Pires .... 455 2 0 457 00 0 0 455 2 0 457 Rui Manuel Duarte Sousa da Silveira . . . 457 67 0 524 00 0 0 457 67 0 524 Joaquim Anibal Brito Freixal de Goes .... 455 3 0 458 00 0 0 455 3 0 458 José Maria Espirito Santo Silva Ricciardi ...... 0 0 0 0 530 0 76 606 530 0 76 606 João Eduardo Moura de Silva Freixa ...... 454 67 0 521 02 0 2 454 69 0 523 Stanistas Gerard Marie Georges Ribes ..... 452 93 0 544 00 0 0 452 93 0 544 Total ...... 4,200 239 0 4,439 530 2 76 608 4,729 242 76 5,047

The members of the Executive Committee are also provided stock options, which can only be exercised after a period of at least three years.

The rules on provision of stock options to the members of the Executive Committee are set out in a specific regulation of the BES Group.

Medium Term Variable Remuneration (“MTVR”) is linked to medium term performance and will correspond to approximately 10% of total annual remuneration.

At the beginning of each year, the Remuneration Committee may decide on awarding an MTVR, based on the assessment of the previous year’s performance. This MTVR will be paid through the granting of stock options which can only be exercised at least three years after the date of their being granted, thus resulting in the accrual of their cost until such time as they are exercised.

The MTVR is linked to the sustainability of BES’ indicators, and calculated in accordance with the global return afforded to the shareholders over the period of their being granted, such return deriving from dividends paid and stock market capitalisation. The exercise price of the MTVR’s underlying stock options at the end of the exercise period will be 10% higher than the market price at the beginning of this period.

A MTVR for an overall amount of €1.94 million was attributed on in October 2012, consisting of options on BES shares which can only be exercised at the end of January 2016, provided that the price of the shares has risen by at least 10% in the previous three-year period. This MTVR is in addition to that made in 2011, in the overall amount of €1.13 million, consisting of stock options on BES shares which can only be exercised three years after their date of provision (end of March 2014).

228 The chart below shows stock options attributed to the Executive Committee:

Stock Options attributed to the Executive Committee

Deferred Deferred Deferred Cash Shares Options Options (2012-2014) (2012-2014) (2011-2014) (2012-2016) Total (EUR thousand) Ricardo Espirito Santo Silva Salgado ...... 127 127 130 230 614 José Manuel Pinheiro Espirito Santo Silva ...... 106 106 100 190 502 Antonio José Baptista do Souto ...... 106 106 100 190 502 Jorge Alberto Carvalho Martins ...... 106 106 100 190 502 José Maria Espirito Santo Silva Ricciardi ...... 0 0 100 190 290 Rui Manuel Duarte Sousa da Silveira ...... 106 106 100 190 502 Joaquim Anibal Brito Freixal de Goes ...... 106 106 100 190 502 Amilcar Carlos Ferreira de Morais Pires ...... 106 106 100 190 502 João Eduardo Moura de Silva Freixa ...... 106 106 100 190 502 Stanistas Gerard Marie Georges Ribes ...... 0 0 0 190 190 Total ...... 869 869 930 1,940 4,608

The payment of the Deferred Annual Variable Remuneration relative to 2011 was suspended in 2012 and 2013 (2012-2014 period), and the Remuneration Committee has decided to cancel it definitively.

The liabilities relating to the retirement pensions of the Executive Committee members, as at 31 December 2013, amounted to €64.1 million and are substantially covered. The breakdown of such liabilities is as follows:

(€ millions) Ricardo Espírito Santo Silva Salgado ...... 9.6 José Manuel Pinheiro Espírito Santo Silva ...... 8.5 António José Baptista do Souto ...... 8.9 Jorge Alberto Carvalho Martins ...... 5.7 Amílcar Carlos Ferreira de Morais Pires ...... 6.3 Rui Manuel Duarte Sousa da Silveira ...... 7.2 Joaquim Aníbal Brito Freixial de Goes ...... 3.4 José Maria Espírito Santo Silva Ricciardi ...... 6.3 João Eduardo Moura da Silva Freixa ...... 7.7 Stanislas Gerard Marie Georges Ribes ...... 0.4 Executive Committee Total ...... 64.1

There are no liabilities relating to the retirement pensions of the current non-executive members of the Board.

Information on the manner in which the remuneration is structured The remuneration of the Executive Committee consists of a fixed component and a potential variable component. The remuneration of the members of the Executive Committee is set by the Remuneration Committee by the end of April each year, based on an assessment of performance in the previous year.

The fixed component is subject to limits established by the Remuneration Committee and corresponds to at least 45% of the total annual remuneration. The fixed component consists of the salary of the members of the Executive Committee, plus supplements that are provided to all the employees of the Bank, such as seniority payments or other allowances resulting from the collective wage agreement for the banking sector.

Non-Portuguese members of the Executive Committee who establish residence in Portugal are provided adequate allowances to provide for setting up and residence expenses, namely: (a) housing allowance, (b) travel allowance, including a certain number of trips per year to the country of origin; (c) education maintenance allowance for directors with minor children; and (d) an additional set-up allowance may also be attributed.

It is up to the Remuneration Committee to establish the limits for each of these allowances.

229 Providing that the net results for the year are positive, the exact amount of the variable component will vary in each year in accordance with the level of achievement of the main annual objectives set in the annual budget, as approved by the Board.

The variable component is divided into two sub-components:

(A) Short-term performance (Annual Variable Remuneration) Annual Variable Remuneration (“AVR”) is linked to short-term performance and will correspond to a maximum of 45% of the total annual remuneration.

The AVR is divided into an immediate portion (“Immediate AVR”), which is paid after the accounts for the year in question have been approved, and another portion that is deferred for a period of three years (“Deferred AVR”).

The Immediate AVR and the Deferred AVR are each divided into two equal parts (one in cash and another in-kind, the latter consisting of BES shares).

(B) Medium-Term Performance (Medium-Term Variable Remuneration) MTVR for members of the Executive Committee is linked to medium-term performance and will correspond to approximately 10% of the total annual remuneration.

At the beginning of each year, the Remuneration Committee may decide on the awarding an MTVR based on an assessment of performance in the previous year. This MTVR will be paid through the provision of stock options, which can only be exercised at least three years after their date of attribution, thus resulting in the accrual of their cost until they are exercised.

The MTVR will be linked to the sustainability of BES’ indicators, and calculated in accordance with the global return afforded to the shareholders over the period of its attribution, such return deriving from dividends paid and stock market capitalisation. The exercise price of the MTVR’s underlying Stock Options at the end of the exercise period will be 10% higher than the market price at the beginning of this period.

(C) Deferred Annual Variable Remuneration (“DAVR”) Deferred Annual Variable Remuneration is subject to two general limitations: (a) its payment is deferred over a period of three years; and (b) it is only attributed if it is sustainable in light of BES’ financial situation and justified by the performance of BES and of each of its executive directors. The variable remuneration will be reduced or cancelled in case of a significant reduction in BES’ activity and consequently in its results.

It is the responsibility of the Remuneration Committee to ascertain and determine whether a DAVR is being attributed and should be maintained.

In case of a negative performance of BES’ results or if return on equity drops to below 5%, the DAVR may only be attributed subject to a decision of the Remuneration Committee stating specific reasons therefore, and this decision must be submitted to the next General Meeting.

By definition, the MTVR is limited by the performance of the BES shares. This remuneration will have no value unless the share price increases by at least 10% over the period in question.

Criteria for performance assessment The assessment of the performance of the executive directors is based on the following financial and non- financial criteria: • Cost to Income (ratio of operating costs to total banking income)—an indicator of the Bank’s operational activity, this ratio measures its capacity to generate revenues against operating costs; • Net Income for the year—this indicator translates the contribution to shareholders, already deducted of elements not included in the cost to income, such as provision charges, taxes and minority interests;

230 • Return on Equity (ratio of net income to equity)—this indicator measures the net income generated as a percentage of the funds invested by the shareholders; • Stock market capitalisation—reflecting the market’s assessment of BES’ performance, this indicator translates the wealth effectively created for the shareholders. This indicator permits to align the shareholders’ perspective to the markets’ perspective; • Individual performance of each member of the Executive Committee—this assessment allows to identify the relative contribution of each executive director to BES’ overall results; it is objectively assessed through the analysis of the performance of the functions and departments under their responsibility, as well as from their individual contribution to decisions taken collectively; • Loans to Deposits Ratio—this ratio gauges the level of balance of BES’ growth trajectory, permitting to assess whether this growth enables compliance with the regulatory requirements concerning the deleveraging of the financial sector in Portugal; • Core Tier 1 Ratio—the main indicator used to measure solvency from the regulatory standpoint (based on references established both by the Bank of Portugal and the EBA); • Service Quality Indicators—these indicators permit to factor in the opinion of BES’ client base about the level of protection of their interests; • Compliance with the main rules applying to the institution’s activity—this is assessed by the Internal Control functions to identify any lack of conformity in the areas of risk, internal audit and compliance and the measures implemented to remedy such inadequacies, which are reported to the Bank of Portugal.

Criteria concerning the retention by the executive directors of shares allocated to them The members of the Executive Committee are given a variable remuneration payable in-kind, through allocation of a certain number of BES shares. This payment in-kind is deferred for a period of three years.

The members of the Executive Committee are also given stock options, which can only be exercised after a period of at least three years.

Up to the end of their term of office, members of the Executive Committee shall hold, up to a minimum of twice the value of the total annual remuneration, the shares that were acquired by virtue of the payment of the variable remuneration, except those shares that must be sold for the payment of taxes on the gains of said shares.

Criteria governing agreements on the shares attributed No agreements concerning the shares given to the members of the Executive Committee, including hedging contracts or other risk transfer contracts, shall be permitted.

This rule is included in the Internal Regulation of the Board of Directors.

Annual bonuses and other benefits There are no other forms of remuneration in place besides the fixed and variable remuneration described in the remuneration policy.

Share in the profits There are no other forms of remuneration in place besides the fixed and variable remuneration described in the remuneration policy.

Compensation No compensation has been paid or is due to former members of the Executive Committee in relation to early contract terminations.

Compensation in case of dismissal without due cause Directors are dismissed by the General Meeting. There are no agreements in place that establish amounts to be paid in case of dismissal without due cause and therefore there is no need to envisage contractual restraints on compensation owed to BES directors due to dismissal without due cause.

231 Mechanisms to prevent contracts that call into question the grounds for the variable remuneration The regulation of the Board forbids the performance of any agreements concerning the shares attributed to the members of the Executive Committee, including hedging contracts or other risk transfer contracts.

Remuneration of the non-executive board members The remuneration of the non-executive directors does not include variable components Only the members of the Executive Committee are entitled to a variable remuneration, which is set by the Remuneration Committee and approved by the General Meeting. All other members of the corporate bodies are entitled to a fixed remuneration.

Remuneration Committee The Remuneration Committee, composed of three members elected by the General Meeting, determines the remuneration of the Board members. Currently, the Remuneration Committee’s members are Daniel Proença de Carvalho, Jacques dos Santos and Álvaro Pinto Correia, who were elected by the General Meeting of 22 March 2012.

None of the members of the Remuneration Committee is a member of the Board of Directors nor has any family relationship with any of the Board members.

Statutory Auditor (Revisor Oficial de Contas) KPMG & Associados SROC, S.A., which is a member of the Chamber of Statutory Auditors (Ordem dos Revisores Oficiais de Contas), under no. 189 and registered with the CMVM under no. 9093, with registered office at Edificio Monumental, Avenida Praia da Vitória, 71-A, 11°, 1069-006 Lisbon, Portugal, in its capacity as Statutory Auditor and External Auditor responsible for the legal certification of accounts and auditor’s report on the individual and consolidated accounts for the financial years ended on 31 December 2011, 2012 and 2013, represented by the partner Sílvia Cristina de Sá Velho Corrêa da Silva Gomes, Statutory Auditor no. 1131.

Board of Directors Practices Contracts with the Board of Directors or Supervisory Bodies Neither BES nor its subsidiaries have agreements with members of its or their Board or supervisory bodies that provide for payments or benefits upon termination of their terms-in-office.

Performance and independency evaluation In March 2014, amendments were made to the BES Group’s code of conduct (the “Code of Conduct”) to introduce a principle to carry out internal and external evaluations of management and supervisory bodies of BES Group companies. The Code of Conduct also references the need for sufficient expertise in the management bodies of BES Group companies, as well as the requirement to ensure the availability of board members for the exercise of their functions.

The BES Group’s Code of Conduct also introduced the rule that members of the governing bodies of the BES Group should promote regular self-evaluation, and identifying situations where a decision to suspend their term or even to terminate their relationship with the institution is recommended, in order to protect the institution from any reputational risks that such situations are likely to entail.

Rules of accumulation of roles The employees of the BES Group who are members of the management board or supervisory board of BES Group companies are prohibited from performing roles or being appointed to the governing bodies of non- financial companies of the group of economic shareholders who hold shares exceeding 10% in the share capital of BES, maintaining the prohibition to members of the governing bodies of BES to accept any benefits or offers that relate or may relate to their professional activity in the BES Group. These rules are being implemented by the BES Group and were established as a general limit to the accumulation of mandates in the BES group (a limit of five positions), and the rule that any accumulation of functions outside the BES Group is subject to prior authorisation from the Corporate Governance Committee.

232 Board Committees Executive Committee For general information on the Executive Committee as well as information on the individual members of this committee and their respective responsibilities as members of the committee, “Executive Committee” above.

Corporate Governance Committee The Corporate Governance Committee is an internal body of the Board with advisory functions, consisting of three independent directors who are not members of the Executive Committee. The main purpose of the Corporate Governance Committee is to reinforce the efficiency of the Board, making sure that all its decisions are based on all relevant elements and that they are not conditioned by possible conflicts of interest. The Corporate Governance Committee has the following members: • Isabel Maria Osório de Antas Mégre de Sousa Coutinho (Chairman); • Nuno Maria Monteiro Godinho de Matos; and • Rita Maria Lagos do Amaral Cabral.

The Corporate Governance Committee has the following responsibilities: • monitor compliance with the guiding principles of the BES Group’s corporate governance policy; • express an opinion, at its own initiative or at the request of the Board, on national or international guidelines on corporate governance, viewing their possible integration into the BES Group’s corporate governance model and/or the improvement of this model; • draw up an annual report that contains a description of its activities during the year, an assessment of the functioning of the Company’s corporate governance structure, as well as its opinion on the Company’s internal rules, procedures, principles and practices of conduct, and on the performance of the Board vis-à-vis the established objectives; • verify at all times that the independence requirements of the Company’s corporate bodies are complied with, in accordance with the applicable legal and regulatory provisions; • analyse and issue an opinion on the “Corporate Governance Report” prior to the date of approval of the Company’s Annual Report; and • inform the Board about any situations or events of which it is aware, that in its opinion represent cases of noncompliance with the established corporate governance rules and practices.

Concerning its assessment duties, the Corporate Governance Committee has the following responsibilities: • support and advise the Board on the filling of vacancies occurring within the Board, namely by evaluating the profile of each candidate in terms of qualifications, expertise and experience; • examine the Board’s policy on the selection and appointment of senior officers; • implement, in cooperation with the Company’s internal structures, a programme intended to acquaint newly appointed directors with the organisation and its activities, as well as with their responsibilities and duties as members of the Board; and • determine which areas require improvement in the qualifications and expertise of the Company’s directors, and make an annual proposal on the subject.

In March 2014, the powers of Corporate Governance Committee were re-inforced, as the mechanisms for the prevention, identification, mitigation and reporting of conflict of interests began to be subjected to the scrutiny of the Corporate Governance Committee, who now has the powers to (i) evaluate, whenever requested, the existence of conflicts of interests; and (ii) to analyze and monitor the sufficiency, adequacy and effectiveness of the mechanisms used by the BES Group for the identification, prevention, mitigation and reporting of conflict of interests.

In this respect, the powers of the Corporate Governance Committee in matters of appointments and assessments were also significantly strengthened, as the committee was given powers including (i) to assess regularly, at least once a year, the knowledge, skills and experience of each member of the Board and of the Board globally, as well as (ii) to evaluate the structure, size, composition and performance of the Board. The Corporate Governance Committee is now also entrusted to authorise the number of other positions outside the BES Group which may be accepted.

233 Remuneration Advisory Committee The Remuneration Advisory Committee was created in January 2012 as an internal body of the Board with advisory functions, currently consisting of three independent directors who are not members of the Executive Committee. It was set up with the main objective of meeting the requirements of new regulations on the remuneration policy of financial institutions, namely those contained in Decree-Law no. 88/2011, of 20 July 2011, and Bank of Portugal Notice no. 10/2011. The committee has the following members: • Rita Maria Lagos do Amaral Cabral (President); • Isabel Maria Osório de Antas Mégre de Sousa Coutinho; and • Nuno Maria Monteiro Godinho de Matos.

The Remuneration Advisory Committee has the following responsibilities: • draw up proposals and recommendations on the fixing of the remuneration of the members of the Board of Directors and Audit Committee, and senior officers of the Company; • provide all necessary support and issue recommendations for the purpose of approval of the Company’s general remuneration policy for its corporate bodies and senior officers; • draw up proposals and recommendations to ensure that all branches, subsidiaries, including subsidiaries abroad and offshore branches, and all entities within the Company’s supervision consolidation scope (i.e. all BES Group companies) implement remuneration policies that are consistent among them; • test the capacity of the remuneration system implemented to react to external and internal events, using various possible scenarios and backtesting the model used for such purpose; and • ensure and carry out a revision of the Company’s remuneration policies and their implementation on at least an annual basis.

Audit Committee Pursuant to Portuguese law and BES’ articles of association, the Audit Committee is principally responsible for: • supervising the management of BES; • ensuring compliance with (i) he law and BES’ articles of association; (ii) the Code of Conduct and to BES Group entities; and (iii) applicable regulatory provisions issued by the financial authorities, including the Bank of Portugal and the CMVM; • preparing an annual report on its supervising activities and opining on the report, accounts and proposals submitted by the Board; • assessing the adequacy and effectiveness of risk management systems, internal control systems, internal audit systems and compliance functions; • preparing an annual report to the Bank of Portugal and to the CMVM, containing a detailed opinion on the adequacy and effectiveness of BES’ internal control system, except for the process of preparation and disclosure of financial information (financial report) of BES; • proposing to the General Meeting the appointment of the Statutory Auditor (Revisor Oficial de Contas), to whom the responsibility for verifying documents and accounts must be allocated as required under Portuguese law; • monitoring the external audit/legal certification of BES and the BES Group’s financial statements and assessment of the internal control system by the Statutory Auditor (Revisor Oficial de Contas); • ensuring that the Statutory Auditor is independent, especially with regard to the provision of non-audit services; • obtaining from any BES director, senior officer or employee or another BES Group company all the information it deems necessary for the execution of its responsibilities; • convening with the Statutory Auditor and/or members of the audit bodies of other BES Group companies whenever and insofar as it so deems necessary to carry out its duties;

234 • requesting the Board to engage the services of external experts as considered necessary to assist one or more of its members in the performance of their duties; • receiving reports on irregularities from shareholders, company employees or others; • summoning the General Meeting when the chairman of the Board of the General Meeting fails to do so when required; and • performing any other duties as required under Portuguese law, or as set forth in BES’ articles of association or by other applicable regulatory provisions.

Potential Audit Committee members must fulfil the following governance requirements: • they must be non-executive members of the Board and, for at least the majority of their appointed term, independent in accordance with the following criteria set forth in Portuguese law: they are unaffiliated with any specific group with a specific interest in the BES Group and no circumstance exists which may affect their impartiality for analysing, deciding, or performing their duties, notably by virtue of: • holding or acting in the name of beneficial shareholders holding 2% or more of BES’ share capital; and/or • having served more than two terms, consecutive or not; • at least one of the Audit Committee members must have a degree adequate to the exercise of its functions, and have knowledge of auditing or accountancy; and • the remaining Audit Committee members may be from law firms, statutory accountants, from firms of statutory accountants (Revisores Oficiais de Contas and Sociedades de Revisores Oficiais de Contas)or shareholders, but, in the case of shareholders, such shareholders must have full legal capacity and the qualifications and professional experience adequate for the exercise of their functions.

The following persons cannot be appointed Audit Committee members: • the beneficiaries of private benefits from BES; • the members of the management bodies of companies in a control or group relationship with BES; • the partner of a commercial partnership (sociedade em nome colectivo) in a control or group relationship with BES; • those persons that have functions in a competitor company and that act in the name of, or on behalf of, a competitor company or that, by any other means, are tied to a competitor company’s interests; • the spouse, direct relative and other relatives until the third degree of any aforementioned individuals; • those persons that, directly or indirectly, provide services or have a significant commercial relationship with BES or with companies in a control or group relationship with BES, as well as their spouses; • those persons who perform management or supervision functions in five or more companies, except law firms, statutory accountants’ firms or statutory accountants (Sociedades de Revisores Oficiais de Contas and Revisores Oficiais de Contas); • Statutory Auditors precluded from acting under other provisions of Portuguese law; and • those who are interdict, legally unqualified, insolvent, bankrupt or subject to a sanction, even if temporary, which precludes the exercise of public functions.

The Audit Committee is composed of a minimum of three and a maximum of five members of the Board elected by the General Meeting, of which one is appointed Chairman of the Audit Committee. The members of the Audit Committee are appointed in conjunction with the other Directors for a period of four years. Re-election is permitted. The members of the Audit Committee may only be dismissed by the General Meeting with just cause.

The Audit Committee is currently composed of the following three non-executive Board members who were appointed by the General Meeting held on 22 March 2012: Horácio Lisboa Afonso (Chairman), Pedro João Reis de Matos Silva and João de Faria Rodrigues. The Audit Committee meets at least every two months and whenever its Chairman so deems necessary or any of its other members requests it. Resolutions are adopted by a majority of votes, the Chairman having a casting vote. The minutes of all Committee meetings must be drawn up, and copies thereof, duly signed by all members present, are sent to the Board of Directors and to the Executive Committee.

235 The members of the Audit Committee who fail to attend more than half of the meetings held during the year, without a justification accepted by the Audit Committee incur a penalty of definitive absence and must be replaced.

The Audit Committee’s powers and responsibilities concern the following principal areas:

External Auditing and Supervision BES’ individual accounts and the BES Group’s consolidated accounts are subject to legal account certification by the Statutory Auditor (Revisor Oficial de Contas) and to an audit report made by an auditor registered with the CMVM, who is also responsible for preparing an annual report addressed to the Bank of Portugal on the adequacy and effectiveness of the internal control system underlying the preparation and disclosure of BES financial information (financial report), a copy of which should also be sent to the Bank of Portugal.

The Audit Committee shall: • appoint the BES Group’s Statutory Auditor (Revisor Oficial de Contas); • propose to the General Meeting the Statutory Auditor’s (Revisor Oficial de Contas) appointment; • analyse BES individual and the BES Group’s annual audit work planning proposal; • analyse and assess the reasonableness of the annual proposed fees submitted by the Statutory Auditor (Revisor Oficial de Contas) for the provision of auditing and internal control assessment services; • supervise and assess the Statutory Auditor (Revisor Oficial de Contas) every year, including, but not limited to, prior discussion of the audited accounts reports, the participation in regular informative meetings in respect of auditing services throughout the year and co-ordination with BES’ PAD and Audit and Inspection Department (“AID”), internal auditors of BES Group entities other than the entities under AID’s supervision and other chartered accountants that render services to BES Group entities; • ensure the personal and professional independence of the Statutory Auditor (Revisor Oficial de Contas), including, but not limited to, the attainment and discussion of statements relating to each regarding their professional relationship, personal and institutional, with the BES Group, and establishing and implementing a process of prior approval for services that they may render to other BES Group entities; and • submit to the Board and to the General Meeting a proposal identifying the grounds for Statutory Auditor (Revisor Oficial de Contas) dismissal before the end of their term, but only for just cause.

The Audit Committee shall also acknowledge all requests made by the financial authorities (the Bank of Portugal and the CMVM) in due time and any proceedings or investigations initiated by these in any BES division, in Portugal or abroad. It shall receive copies not only of the reports issued by the above-mentioned authorities, but also of the answers and/or explanations sent to these authorities, as well as follow-up correspondence until the matters dealt with are fully settled.

Risk Management, Compliance and Internal Audit The Audit Committee receives reports and information requested from and provided by the following areas: • risk management under the responsibility of the Global Risk Department, which ensures the effective running of the risk management system; • compliance under the responsibility of the Compliance Department, which controls compliance with applicable laws, regulations and other internal BES statutes; and • internal audit under the responsibility of the AID, which performs autonomous evaluations, on a regular basis, of the internal control system.

The Audit Committee supervises these activities on a regular basis by: • scheduling regular meetings with directors and members of the Executive Committee responsible for each of the above-mentioned areas; • acknowledging in due time the annual action plans, as well as the organisational, human resource and technical structures;

236 • assuring the reception in due time of the reports on assessment and control of activities carried out by each of the departments referred to above which evidences any material weaknesses in the internal control systems and recommends any amendment or improvements; • assessing the independence of these activities compared to the activities performed by other BES divisions, and ensuring if those activities are carried out in compliance with the applicable and internationally accepted professional standards; and • analysing the annual reports prepared and presented by each of the departments to the management and audit bodies of BES in the context of the annual report to the financial authorities (Bank of Portugal and CMVM) on BES’ internal control systems, and discussing with the respective responsible persons the conclusions drawn by in these reports concerning weaknesses or opportunities to improve the activities carried out in each of these areas, including plans for implementing any corrective measures.

Preparation and Disclosure of Financial Information The Audit Committee shall: (i) monitor the process of preparation and disclosure of financial information, (ii) draft the annual report on its audit activities and (iii) issue its opinion in relation to the report, accounts and proposals submitted by the Board. In order to comply with the foregoing goals, the Audit Committee shall: • prepare the information on the composition and performance of the Audit Committee which will be included in the corporate governance report that comprises part of BES’ annual report and accounts; • review all reports and other documentation issued by any BES Group entity which in any way provides significant details related to the composition, responsibilities and/or performance of the BES Audit Committee prior to submission or publication; • analyse together with PAD the most significant aspects of the BES Group’s financial reporting, notably transactions of a noteworthy nature and complexity involving BES’ related entities or others, as well as the most important amendments to the applicable professional, accounting and regulatory rules, determining and assessing their impact on BES’ financial statements; and • review BES’ annual financial statements and annual management report drafts and other related financial documentation to be submitted to the financial authorities (Bank of Portugal and CMVM) prior to the submission or public disclosure of their final version, and assess if the information contained in those documents is complete and consistent with the data and information which the members of the Audit Committee are aware of.

Commission for the Control of Transactions with related parties In April 2014, the BES Group established a Commission for the Control of Transactions with related parties, which has oversight on credit transactions or significant business relationships entered into between all institutions of the BES Group and any direct and indirect holder of more than 2% of the capital or voting rights of BES, or any entity belonging to the same economic group of the holder of such participation.

Related party transactions may only be submitted for the approval of the competent bodies after obtaining a “no objection” opinion issued in writing by the Commission for the Control of Transactions with Related Parties. The Commission is chaired by the Chairman of the Audit Committee and is also composed of an independent director and the executive administrator of the BES responsible for risk. Its membership is currently comprised of Mr. Horácio Lisboa Afonso, Ms. Rita Maria Lagos do Amaral Cabral and Mr. Joaquim Aníbal Brito Freixial de Goes.

Commision for Monitoring and Evaluation Another Committee was also set up within the Board in March 2014, primarily responsible for the permanent monitoring and evaluation of the implementation of the non-financial business of the BES Group’s plan, as well as to monitor the formalisation and implementation mechanisms of the guarantee approved by ESFG in a meeting of its board of directors in 17 February 2014 to monitor the repayment of debt securities issued by ESI and placed through BES.

This Committee is chaired by the Chairman of the Audit Committee and is also composed of an independent director and of the executive directors responsible for the risk and compliance departments. Its membership is currently comprised of Mr. Horácio Lisboa Afonso, Ms. Rita Maria Lagos do Amaral Cabral and Mr. Joaquim Aníbal Brito Freixial de Goes.

237 Compliance, Internal Control and Anti-Money Laundering The Compliance Department reports functionally to the Audit Committee, regardless of the matter being reported and of its hierarchical relationship with the Executive Committee. It ensures the day-to-day management of compliance activities, which include: • advising the Board on compliance with legal, regulatory, ethical and conduct obligations to which BES is subject; • implementing policies and procedures for the prevention and detection of money laundering and terrorism financing; • ensuring the monitoring and maintenance of the Bank’s internal control system, reporting internally and to the Bank of Portugal on the respective results; • verifying compliance with regard to financial intermediation activities registered with the CMVM, under the terms set forth in the Securities Code; • within the scope of its powers, ensuring and promoting the relations with Legal and Police authorities, with the Bank of Portugal, the CMVM and other supervision authorities; and • monitoring the implementation of the Code of Conduct of BES Group employees.

BES has in place an effective and documented internal control system which is managed by its Compliance Department.

To assist it in carrying out these duties, the Compliance Department set up in 2005 a separate independent unit, the Internal Control System Management Unit (“UGSCI”).

The UGSCI is responsible for all the assessment, systematisation, monitoring and maintenance tasks required by BES’ internal control system, and for guaranteeing an overall perspective and integrated management of the entire internal control system of the BES Group as the guarantor of the reliability of the financial information, the protection of assets and the adequate prevention of risks.

The UGSCI is also responsible for external reporting to the various regulatory authorities as well as for internal reporting, namely through monthly update briefings.

For the design and assessment of its internal control system, BES Group adopted the COSO (Committee of Sponsoring Organisations of the Treadway Commission) and COBIT (“Control Objectives for Information and related Technology”) methodologies and principles, which rely on the following basic concepts: • the internal control culture promoted within the organisation determines the conduct and awareness of its employees; • internal control is the responsibility of all employees; • internal control is a dynamic process that must be integrated within business and support processes; • the definition of policies and procedures helps ensure that objectives are met, reducing operational and human resources risks; • internal control can only provide reasonable assurance that objectives are met; • the internal control system must be supported by a monitoring process; • all relevant information must be obtained and reported.

Money Laundering Prevention The Bank’s risk assessment model is designed to prevent money-laundering activities. In addition, BES uses an IT application that analyses the accounts’ transactional profiles and triggers automatic warnings whenever there are deviations in the expected pattern for each contract.

Any situations which, after a thorough analysis and investigation, confirm the existence of sustained grounds for suspicion, are duly communicated to the competent authorities, which then take the steps deemed convenient for compliance with legally established duties and obligations.

238 BES has decided to develop a new online training exercise on the prevention of money laundering and the financing of terrorism addressed to all the employees (commercial and central structures, including management staff). This was complemented by in-class training designed to provide the employees with the skills required to cooperate with the control functions in the mitigation of the risks inherent to the exercise of their jobs.

Statement Regarding Compliance with Portuguese Corporate Governance Requirements BES complies with the legislation and recommendations on corporate governance currently in place in Portugal and has adopted the majority of recommendations issued by the CMVM, contained in the Corporate Governance Code, approved in 2013.

The table below presents the CMVM recommendations which have been adopted or not adopted by BES, and the reasons for non-adoption as well as the corresponding section in the BES corporate governance report made available to its shareholders.

Corporate Governance Code Not BES CMVM Recommendations Adopted Adopted Report I.1. Companies shall encourage shareholders to attend and vote at X(1) 12 general meetings and shall not set an excessively large number of shares required for the entitlement of one vote, and implement the means necessary to exercise the right to vote by mail and electronically. I.2. Companies shall not adopt mechanisms that hinder the passing of X14 resolutions by shareholders, including fixing a quorum for resolutions greater than that provided for by law. I.3. Companies shall not establish mechanisms intended to cause X1 mismatching between the right to receive dividends or the subscription of new securities and the voting right of each common share, unless duly justified in terms of long-term interests of shareholders. I.4. Companies’ articles of association that provide for the restriction NA NA of the number of votes that may be held or exercised by a sole shareholder, either individually or in concert with other shareholders, shall also foresee for a resolution by the General Meeting (at least at 5-year intervals) on whether that statutory provision is to be amended or prevails—without super quorum requirements as to the one legally in force—and that in said resolution, all votes issued be counted, without applying said restriction. I.5. Measures that require payment or assumption of fees by the X4 company in the event of change of control or change in the composition of the management body and which appear likely to impair the free transfer of shares and free assessment by shareholders of the performance of Board members, shall not be adopted. II.1.1. Within the limits established by law, and except for the small size X21 of the company, the board of directors shall delegate the daily management of the company and said delegated powers shall be identified in the Annual Report on Corporate Governance. II.1.2. The Board of Directors shall ensure that the company acts in X21 accordance with its objectives and shall not delegate its responsibilities as regards the following: i) definition of the strategy and general policies of the company, ii) definition of the business structure of the group iii) decisions considered strategic due to the amount, risk and particular characteristics involved.

239 Corporate Governance Code Not BES CMVM Recommendations Adopted Adopted Report II.1.3. The General and Supervisory Board, in addition to its supervisory NA NA duties, shall take full responsibility at corporate governance level, whereby through a statutory provision or equivalent means, shall enshrine the requirement for this body to express its opinion on the strategy and major policies of the company, the definition of the corporate structure of the group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the company. II.1.4. Except for small-sized companies, the Board of Directors and the X 15,16,24,25 General and Supervisory Board, depending on the model adopted, and 27 shall create the necessary committees in order to: a) ensure a competent and independent assessment of the performance of the executive directors and its own overall performance, as well as of other committees; b) reflect on the system structure and governance practices adopted, verify their effectiveness and propose to the competent bodies, measures to be implemented with a view to their improvement. II.1.5. The Board of Directors or the General and Supervisory Board, X50to55 depending on the applicable model, should set objectives in terms of risk-taking and create systems for their control to ensure that the risks effectively incurred are consistent with those objectives. II.1.6. The Board of Directors shall include a number of non-executive X18 members ensuring effective capacity to monitor, supervise and assess the activity of the remaining members of the board. II.1.7. Non-executive members shall include an appropriate number of X 18 and 32 independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the relevant free float. The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in force. The other members of the Board of Directors are considered independent when not associated with any specific group of interests in the company or in any situation likely to affect their impartiality in terms of analysis or decision, namely by virtue of: a. having been an employee at the company or at a company holding a controlling or group relationship within the last three years; b. Having, in the past three years, provided services or established a significant commercial relationship with the company or company with which it is in a control or group relationship, either directly or as a partner, board member, manager or senior officer of a legal person; c. being paid by the company or by a company with which it is in a control or group relationship besides the remuneration arising from the exercise of the functions of a board member; d. Living with a partner or spouse, relative or any first degree next of kin and up to and including the third degree of collateral affinity of board members or natural persons that are direct or indirect holders of qualified shareholdings; e. being a qualified shareholder or representative of a qualified shareholder. II.1.8. When requested by other members of the corporate bodies to X21 provide information, board members that carry out executive duties shall provide the information requested in a timely and appropriate manner to the request.

240 Corporate Governance Code Not BES CMVM Recommendations Adopted Adopted Report II.1.9. The Chair of the Executive Board or of the Executive Committee X23 shall submit, as applicable, to the Chair of the Board of Directors, the Chair of the Supervisory Board, the Chair of the Audit Committee, the Chair of the General and Supervisory Board or the Chair of the Financial Matters Board, the convening notices and minutes of the relevant meetings. II.1.10. If the chair of the management body carries out executive duties, NA NA said body shall appoint, from among its members, an independent member to ensure the coordination of the work of the other non- executive members and the conditions allowing them to make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination. II.2.1. Depending on the applicable model, the Chair of the Supervisory X 31 and 32 Board, the Audit Committee or the Financial Matters Committee shall be independent in accordance with the applicable legal standard, and have the necessary skills to carry out their relevant duties. II.2.2. The supervisory body shall be the main representative of the X37 external auditor and the first recipient of the relevant reports, being responsible, inter alia, for proposing the remuneration of the external auditor and ensuring that the proper conditions for the provision of services are provided within the company. II.2.3. The supervisory body shall assess the external auditor on an X 30, 37 and annual basis and propose to the competent body its dismissal or 45 termination of the contract on the provision of their services when there is a valid basis for said dismissal. II.2.4. The supervisory board shall assess the functioning of the internal X 38 and 50 control and risk management systems and propose adjustments as deemed necessary. II.2.5. The Audit Committee, the General and Supervisory Board and the X 30,38 and 50 Supervisory Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the company (compliance services), and should be recipients of reports made by these services at least when it concerns matters related to accounts reporting, identification or resolution of conflicts of interest and detection of potential improprieties. II.3.1. All members of the Remuneration Committee or equivalent X 67 and 68 should be independent from the executive members of the management board and include at least one member with knowledge and experience in matters of remuneration policy. II.3.2. Any natural or legal person that provides or has provided services NA NA in the past three years, to any structure under the management body of the company, the management body itself or who has a current relationship with the company or consultant of the company, shall not be hired to assist the Remuneration Committee in the performance of its duties. This recommendation also applies to any natural or legal person that is related by employment contract or provision of services with the above.

241 Corporate Governance Code Not BES CMVM Recommendations Adopted Adopted Report II.3.3. A statement on the remuneration policy of the management and X69 supervisory bodies referred to in Article 2 of Law No. 28/2009 of 19 June, shall also contain the following: a) Identification and details of the criteria for determining the remuneration paid to the members of the corporate bodies; b) Information regarding the maximum potential amount, in individual and aggregate terms, to be paid to members of corporate bodies, and identification of the circumstances whereby these maximum amounts may be payables; c) Information regarding the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members. II.3.4. The approval of plans for the attribution to board members of X85 shares and/or options to acquire shares or based on share price variation shall be submitted to the General Meeting. The proposal shall contain all the necessary information for the correct assessment of the plan. II.3.5. Approval of any retirement benefit scheme established for X76 members of corporate the corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information for the correct assessment of the scheme. III.1. The remuneration of the executive members of the management X 25,69 and 70 body shall be based on actual performance and shall discourage excessive risk-taking. III.2. The remuneration of the non-executive members of the X69 management body and the remuneration of the members of the supervisory body shall not include any component whose value depends on the performance of the company or of its value. III.3. The variable component of remuneration shall be reasonable X 69 and 71 overall in relation to the fixed component of the remuneration and maximum limits should be set for all components. III.4. A significant part of the variable remuneration should be deferred X72 for a period of no less than three years, and the right to receive it should depend on the continued positive performance of the company during that period. III.5. The members of the management body shall not enter into X73 contracts with the company or with third parties, the effect of which is to mitigate the risk inherent to the variability of their remuneration as set by the company. III.6. The executive board members shall maintain the company’s X86 shares that were allotted by virtue of variable remuneration schemes, up to twice the value of the total annual remuneration, except for those that need to be sold for paying taxes on the gains of said shares, until the end of their mandate. III.7. When the variable remuneration includes the allocation of X74 options, the beginning of the exercise period shall be deferred for a period of no less than three years. III.8. When the removal of a board member is not due to serious breach X83 of their duties or to their unfitness for the normal exercise of their functions but yet is due to inadequate performance, the company shall be endowed with the adequate and necessary legal instruments to make any damages or compensation, beyond that which is legally due, unenforceable.

242 Corporate Governance Code Not BES CMVM Recommendations Adopted Adopted Report IV.1. The external auditor shall, within the scope of its duties, verify X37 the implementation of remuneration policies and systems of the corporate bodies as well as the efficiency and effectiveness of the internal control mechanisms and report any shortcomings to the supervisory body of the company. IV.2. The company or any entity in a control relationship with it shall X 37 and 46 not recruit the external auditor or any entity in a control relationship with it or belonging to the same network for services other than audit services. If there are reasons for hiring such services—which must be approved by the supervisory body and explained in its Annual Report on Corporate Governance—these should not exceed 30% of the total value of services rendered to the company. IV.3. Companies shall advocate the rotation of auditors after two or X 37 and 40 three terms, depending on whether they have four or three year mandates, respectively. Their continuance beyond this period must be based on a specific opinion of the supervisory body that explicitly considers the conditions of auditor independence and the benefits and costs of replacement. V.1. Where deals are concluded between the company and holders of X 89 and 91 qualified shareholdings, or entities with which same are linked in accordance with Article 20 of the Portuguese Securities Code, such deals shall be carried out in normal market conditions. V.2. The supervisory or audit body shall establish the necessary X(2) 89 procedures and criteria to define the relevant level of significance of business with holders of qualifying holdings—or entities with which they are in any of the relationships described in article 20/1 of the Portuguese Securities Code—thus the performance of significant relevance businesses is dependent upon prior opinion of that body. VI.1. Companies shall provide, via their websites, access to information X 56 and 59 to in both the Portuguese and English languages on their progress 65 and current situation in economic, financial and governance terms. VI.2. Companies shall ensure the existence of an investor support and X 56 and 58 market liaison office, which responds to requests from investors in a timely fashion and a record of the submitted requests and their processing shall be kept. Notes: (1) BES believes that it follows this recommendation since, although it has not implemented the means to vote electronically (which no shareholder has ever requested), it ensures the right to vote by mail, as well as electronic voting within the General Meeting, thus ensuring the participation of shareholders. (2) BES believes that this recommendation is complied with since, although it was not followed in 2013, on 17 March 2014 the Board approved the creation of a Related Party Transactions Control Committee, the main purpose of which is to make a preventive review of any proposed transactions with related parties, including credit operations or other transactions between any company of the BES Group and companies included in a business group which includes anyone holding more than 2% in BES’ share capital and voting rights.

243 The tables below present the CMVM recommendations which BES does not adopt, together with the reasons for the deviation, as well as those recommendations which are not applicable as a whole to it.

Corporate Governance Code CMVM Recommendations Reasons for the Deviation BES Report I.2. Companies shall not adopt mechanisms that BES requires that shareholders representing 14 hinder the passing of resolutions by at least 50% of the share capital be present shareholders, including fixing a quorum for or represented for the General Meeting to resolutions greater than that provided for by be held on first call. law. Matters for which the law requires a qualified majority must be approved by two-thirds of the votes expressed, whether the General Meeting is held on first or second call. BES believes that these rules ensure that resolutions are passed by a sufficiently representative number of shareholders. IV.1. The supervisory or audit body shall Under the terms of the General Law on 37 establish the necessary procedures and Credit Institutions and Financial criteria to define the relevant level of Companies, the granting of credit to holders significance of business with holders of of qualifying holdings is always subject to qualifying holdings—or entities with which the approval of each specific operation by a they are in any of the relationships qualified majority of at least two-thirds of described in article 20/1 of the Portuguese the members of the Board and the Securities Code—thus the performance of favourable opinion of the Audit Committee. significant relevance businesses is There is no formal extension of this rule to dependent upon prior opinion of that body. other deals of significant importance.

Relevant senior management and positions held in other companies outside the BES Group in the last 5 years The following includes BES’ relevant senior management, their respective offices in the BES Group, their family relationships with the members of the management and supervisory corporate bodies of BES, and the name of the companies outside the BES Group in which they have acted as members of the management or supervisory corporate bodies or in which they have held shareholdings (as applicable), in the five years prior to the date of this Offering Circular:

Bernardo Leite Faria Espírito Santo, General Manager of BES and Managing Director of the Corporate Banking Department, national PMEs segment and Southern Companies Department. He also carries out the following offices: Board Member of BES Angola, Board member of Companhia de Seguros Tranquilidade, S.A., Chairman of the Board of Directors of Quinta dos Cónegos—Sociedade Imobiliária, S.A., Board Member of Avistar, SGPS, SA;. Nephew of José Manuel Espírito Santo, cousin of Ricardo Abecassis Espírito Santo, Manuel Fernando Moniz Galvão Espírito Santo, Ricardo Espírito Santo Salgado, and José Maria Espírito Santo Ricciardi.

José Alexandre Maganinho Pinto Ribeiro, General Manager of ESGEST since January 2014. Until the end of 2013 he was the General Manager in charge of BES’ Real Estate Management. Until 2010 Mr. Ribeiro was BES’ Managing Director and between 17 January 2010 and 31 January 2011, he was an executive Director of MozaBank, S.A.

Rui José Costa Raposo, Advisor to BES’ Board of Directors and Managing Director of the Northern Companies Department. Manuel José Dias Freitas, Advisor to BES’ Board of Directors and Managing Director of the Planning and Accountancy Department.

Miguel Beirão da Veiga de Almeida de Carvalho, Advisor to the Board and Managing Director of the Credit Recovery Department. Board Member of ES Recuperação de Crédito, ACE. He is married to a niece of Ricardo Espírito Santo Salgado.

244 Isabel Maria Carvalho de Almeida Bernardino, General Manager of BES and Managing Director of the Financial Markets and Research Department.

Carlos Manuel Garcia Calvário, Advisor to the Board in charge of the Business Structuring Unit (DEE— Departamento de Estruturação de Empresas) since February 2013. Before that Mr. Calvário was Managing Director of the Global Risk Department.

Jorge Daniel Lopes da Silva, Advisor to the Board and Managing Director of the Operations Executive Department. He is also a non-executive Board member of Espírito Santo Serviços, ACE.

Rui Manuel Fernandes Pires Guerra, Advisor to the Board and CEO of BES Angola since November 2012. Mr. Guerra was the Managing Director of the International Department until 2012. He is also a non-executive Board member of Banco Espírito Santo do Oriente, S.A., Espírito Santo, Plc, Moza Bank and of the holding BES Africa, SGPS, S.A.

Pedro Roberto Meneres Cudell, Advisor to the Board, Chairman of the Board of Directors of Banco Espírito Santo Cabo Verde, S.A. He is also a member of the Board of Directors of SOFID—Sociedade Financeira para o Desenvolvimento.

João Filipe Carvalho Martins Pereira, is currently Advisor to the Board. Mr. Martins Pereira was Managing Director of the Compliance Department until October 2013.

António Manuel Rodrigues Marques, Advisor to the Board and a Board member of Companhia de Seguros Tranquilidade and Norgarante-Sociedade de Garantia Mútua, S.A.

Eduardo Nuno de Sousa Feijó Moradas, Advisor to BES’ Board of Directors and Managing Director of Strategic Marketing. . Between 2010 and 2011, he was Chairman of the Executive Committee and General Manager of Aman Bank in Libya and between 2006 and 2009 was executive Board Member in BES Spain.

António Miguel Natário Rio Tinto has been a member of the board of Espírito Santo Informática since 2005. He holds board positions in several IT related companies of Group Espírito Santo (Oblog Consulting, SA, (since 2006); Espírito Santo Ventures, SCR SA (since 2005); Espírito Santo Contact Center (since 2005). He is also the CIO of the Insurance Companies of ESFG, holding board positions on, Companhia de Seguros Tranquilidade, SA (since 2002); Seguros LOGO, SA (since 2007); T-Vida—Companhia de Seguros, SA (since 2006).

Paulo António Estima Gonçalves Padrão is Advisor to BES’ Board of Directors and Managing Director of the Communication Department. Board Member of ES Ventures. He is the son-in-law of José Manuel Pinheiro Espírito Santo.

Lourenço Albuquerque D’Orey Vieira de Campos, is Advisor to BES’ Board of Directors and Managing Director of the Private Banking Department. He is also Chairman of the Supervisory Board of Centro Social do Sagrado Coração de Jesus.

João Maria Magalhães Barros de Mello Franco, is Advisor to BES’ Board of Directors and Managing Director the Marketing, Innovation and Direct Channels Department and Non Executive Director of BES Açores.

Eugénio Fernando Quintais Lopes, Secretary of BES, is Advisor to BES’ Board of Directors and Coordinating Manager of the Corporate Office.

Statement Regarding Potential Conflict of Interest BES management is not aware of any potential conflicts of interest between the duties to BES of the members of the Board or of the managers listed in section “Relevant senior management and positions held in other companies outside the BES Group in the last 5 years” above, and their private interests and/or other duties.

Statement Regarding Litigation As of the date of this Offering Circular, except for the information included in this Offering Circular, none of the members of the Board, including members of the Executive Committee, and none of the managers listed in

245 section “Relevant senior management and positions held in other companies outside the BES Group in the last 5 years” above, for at least the previous five years: • has any convictions in relation to fraudulent offences; • has held an executive function in the form of a senior manager or a member of the administrative, management or supervisory bodies of any company, at the time of or preceding any bankruptcy, receivership or liquidation; or • has been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any designated professional body) or has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company, apart from what is mentioned below.

In August 2007, Carlos Manuel Garcia Calvário, was accused by the Portuguese Public Prosecutor of the crime of trading influence within his duties at the bank. The proceedings ended with the acquittal of the staff member, but the Public Prosecutor appealed the decision and a final decision by a court of appeal is expected in the second half of 2014.

On 18 January 2012, the Mozambican Ministry of Employment prohibited José Alexandre Maganinho Pinto Ribeiro, General Manager, in charge of BES’ Real Estate Management, from the right to work in Mozambique, on the grounds of alleged disrespect towards the employees of MozaBank S.A. (a Mozambican bank in which BES holds 25%). On 29 February 2012, MozaBank S.A. filed a judicial appeal against this decision before the judicial court of Maputo, arguing the illegality of said decision and the absence of any hearings prior to the same.

246 PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Main Shareholders The following chart shows BES’ principal shareholders as of the date of this Offering Circular.

% – voting rights Espírito Santo ( ) – number of shares Crédit Financial Group Agricole

20.12% 27.36%* (808,298,587) (1,099,409,191)

Banco 4.8% 2.1% Bradesco Espírito PT (194,104,165) Santo (84,594,976)

4.9% 3.1% 5.1% (198,162,426) (123,330,784) (205,593,787)

Capital Silchester BlackRock Research

(*) Does not include 0.14% held by the members of its Board of Directors and Supervisory Bodies.

247 To BES’ knowledge, the main shareholders of BES as of 15 May 2014 as calculated pursuant to article 20 of the Portuguese Securities Code are the following:

QUALIFIED HOLDINGS 15 May 2014 %of the voting rights including treasury Nº of shares % voting rights shares4 ESPIRITO SANTO FINANCIAL GROUP, S.A (Luxembourg) —directly ...... 55,539,362 1.38% 1.38% —through Espirito Santo Financial (Portugal),SGPS, S.A...... 1,043,869,829 25.98% 25.98% —through members of its Board of Directors and Supervisory Bodies ...... 5,674,930 0.14% 0.14% Total Attributable ...... 1,105,084,121 27.50% 27.51% CRÉDIT AGRICOLE, S.A (France) —directly ...... 670,477,142 16.69% 16.69% —through PREDICA—Prévoyance Dialogue du Crédit Agricole, S.A...... 137,821,445 3.43% 3.43% Total Attributable ...... 808,298,587 20.12% 20.12% BRADPORT, SGPS, S.A1 —directly ...... 194,104,165 4.83% 4.83% Total Attributable ...... 194,104,165 4.83% 4.83% PORTUGAL TELECOM, SGPS, S.A —through PT Prestações—Mandatária de aquisições e gestão de bens, S.A...... 84,109,047 2.09% 2.09% —through members of its Board of Directors and Supervisory Bodies of PT Group ...... 485,929 0.01% 0.01% Total Attributable ...... 84,594,976 2.10% 2.11% SILCHESTER INTERNATIONAL INVESTORS LIMITED (U.K.)2 —directly and indirectly ...... 198,162,426 4.93% 4.93% Total Attributable ...... 198,162,426 4.93% 4.93% CAPITAL RESEARCH AND MANAGEMENT —directly and indirectly ...... 123,330,784 3.07% 3.07% Total Attributable ...... 123,330,784 3.07% 3.07% BLACKROCK, Inc.3 —directly and indirectly ...... 205,593,787 5.12% 5.12% Total Attributable ...... 205,593,787 5.12% 5.12%

1 Portuguese Company fully owned by Banco Bradesco (Brazil). 2 Through investment funds,in particular, Silchester International Investors International Value Equity Trust which holds 2.22%. 3 According to BlackRock notice from February 2014. 4 The number of treasury shares on the BES Group’s balance sheet, as at 31 March 2014, was 345,441.

On 31 December 2013 BlackRock held 80,441,859 shares, corresponding to a 2.00% stake in BES share capital. In 2014 BlackRock increased its shareholding in BES to 5.12%.

BES is not aware of any shareholders other than the ones mentioned above that hold more than 2% of its voting rights.

In 1991, BESPAR was formed by ESFG and Crédit Agricole S.A. as a vehicle for the acquisition of BES, during its privatisation. As at 31 March 2014, ESFG held 73.6% of the voting rights in BESPAR, which in turn owned directly 35% of the shares of BES’ share capital. As a result, ESFG had the ability to exercise significant influence over certain shareholder actions.

248 On 15 May 2014, the shareholders of BESPAR voted to dissolve BESPAR. As a result, ESFG now holds, directly and indirectly, a stake of 27.36% in BES’ share capital and 20.12% of Crédit Agricole’s share capital. Considering the new regulatory framework to which European banks are subject, such resolution was made with a view to simplifying BES shareholder structure.

Further to BESPAR’s dissolution, Crédit Agricole intends to sell its stake in BES Seguros and ESAF and, as of this date, has ended any partnership agreement between those parties with respect to their banking and insurance activities.

As of the date of this Offering Circular BES is unaware of any arrangements that may at a subsequent date result in a change of control of BES.

Related Party Transactions The BES Group maintains commercial relations with various affiliate and subsidiary companies in which the BES Group has significant shareholdings or to which the BES Group is otherwise related. Additionally, the BES Group maintains commercial relations with various companies in which members of the Board of Directors of the BES Group hold management or board of director positions. The commercial relations the BES Group has with these companies cover many of the same products and services the BES Group offers to its clients. All related party transactions are conducted on an arm’s length basis, under the fair value principle.

In March 2014 the Board of Directors approved the creation of a Related Party Transactions control Committee which has as main purpose to make a preventive review of any proposed transactions with related parties, including credit operations or other transactions between any company of the BES Group and companies included in a business group which includes anyone holding more than 2% in BES’ share capital and voting rights.

The balances and transactions with related parties as at and for the years ended 31 December 2013, 2012 and 2011 are presented as follows:

As at or year ended 31 December 2013 Assets Liabilities Guarantees Income Expenses (EUR million) Associated Companies BES VÉNÉTIE ...... 448.7 0.9 5.6 1.7 — ASCENDI GROUP SGPS ...... 378.8 13.4 21.0 25.6 0.1 LOCARENT ...... 109.5 1.8 — 1.4 9.7 NANIUM ...... 30.9 0.5 0.2 0.2 — EMPARK ...... 3.4 — 1.1 1.6 — ASCENDI PINHAL INTERIOR ...... 141.8 4.7 10.8 4.4 — BES SEGUROS ...... — 17.5 — 0.4 — ESEGUR ...... 6.7 — 2.3 1.1 0.4 ES CONTACT CENTER ...... 1.9 — — 0.1 — UNICRE ...... 15.0 — — 0.1 — OTHER ...... 76.3 78.6 14.3 2.6 1.6 1,213.1 117.5 55.4 39.2 11.9

249 As at or year ended 31 December 2012 As at or year ended 31 December 2011 Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses (EUR million) Associated Companies BES VIDA(1) ...... — — — — — 1,355.8 293.7 — 25.8 1.9 BES VÉNÉTIE ...... 726.9 0.6 5.6 2.7 — 865.1 139.8 11.8 2.7 0.1 ASCENDI GROUP SGPS ...... 299.5 3.8 28.4 11.3 — 188.1 8.3 29.4 16.0 — LOCARENT ...... 129.8 3.7 — 2.7 11.0 142.3 0.3 — 4.7 10.4 AENOR DOURO ...... 271.9 3.5 11.0 9.0 — 248.0 1.9 12.0 11.2 — NANIUM ...... 35.3 4.3 18.3 0.3 — 42.0 2.8 18.4 1.0 — EMPARK ...... 49.2 — 4.7 3.9 0.2 40.1 — — 2.7 — ASCENDI PINHAL INTERIOR ...... 98.4 2.1 15.4 3.1 — 33.7 10.7 15.4 1.5 0.1 PALEXPO ...... 7.3 0.1 — 0.5 — 6.8 0.1 — 0.5 — BES SEGUROS ...... 0.6 18.5 — 0.4 — — 12.6 — 0.1 — ESEGUR ...... 7.7 — 2.1 1.1 0.4 2.6 0.2 2.2 0.9 0.1 ES CONTACT CENTER ...... 1.9 — — 0.1 0.9 2.2 — — 0.1 1.0 UNICRE ...... — — — — — — 10.0 — — 0.3 OTHER ...... 58.4 24.5 11.5 12.3 1.3 48.9 20.4 14.6 7.2 3.0 1,686.8 61.0 97.1 47.3 13.8 2,975.7 500.9 103.7 74.4 16.8

Note: (1) In 2012 BES Vida was fully consolidated.

Apart from the transactions mentioned above, the balances and transactions of the BES Group with ESFG (Bank holding) and related companies for the same periods, are as follows:

As at or for the year ended 31 December 2013 Assets Guarantees Liabilities Income Expenses (EUR million) Shareholders ES FINANCIAL GROUP ...... 27.2 — 0.1 1.0 0.3 ESF PORTUGAL ...... 37.6 — 0.1 0.9 — BESPAR ...... — 0.2 — GRUPO CRÉDIT AGRICOLE ...... 8.4 1.4 0.5 — — Subsidiaries, associates from shareholders ESPÍRITO SANTO FINANCIÈRE, SA ...... 29.0 — 43.0 — — COMPANHIA SEGUROS TRANQUILIDADE ...... 0.9 21.5 6.7 1.7 1.2 BANQUE PRIVÉE ESPÍRITO SANTO ...... 15.6 7.9 46.1 0.4 0.4 ES BANK PANAMA ...... 183.0 — 1.8 3.1 — ES SAUDE ...... 64.4 4.0 25.1 0.4 — T-VIDA ...... 277.5 — 114.3 0.4 — ESUMÉDICA ...... 0.9 — — — 0.1 EUROP ASSISTANCE ...... — — 1.3 — — Other ES IRMÃOS ...... — — 7.3 — — OPWAY ...... 13.6 44.7 2.4 0.2 — CONSTRUCCIONES SARRION ...... 15.4 8.1 — 0.1 ESPÍRITO SANTO RESOURCES ...... — — 1.6 — 0.2 OTHER ...... 102.5 9.7 65.0 8.2 2.8 TOTAL ...... 776.0 97.3 315.5 16.6 5.0

250 As at or for the year ended 31 December 2012 As at or for the year ended 31 December 2011 Assets Guarantees Liabilities Income Expenses Assets Guarantees Liabilities Income Expenses (EUR million) Shareholders ...... ES FINANCIAL GROUP ...... 41.2 — — 1.2 — 5.4 — 0.7 3.4 — ESF PORTUGAL ...... 72.7 — 0.1 2.3 — 78.8 — 0.5 1.4 — BESPAR ...... — — 0.4 — — — — 0.7 — — GRUPO CRÉDIT AGRICOLE ...... 2.2 1.1 0.3 — — 1.1 1.2 0.5 — — Subsidiaries, associates from shareholders ESPÍRITO SANTO FINANCIÈRE, SA ..... 7.6 — 0.2 — — 173.6 — 0.2 — — COMPANHIA SEGUROS TRANQUILIDADE ....150.7 22.0 116.7 1.6 1.2 167.7 21.2 102.2 1.2 1.3 BANQUE PRIVÉE ESPÍRITO SANTO .... 15.8 8.0 32.9 0.5 0.4 40.6 7.9 27.1 0.5 0.4 ES BANK PANAMA ....135.0 — 35.5 10.1 — 384.1 — 0.7 9.0 — ES SAUDE ...... 63.7 24.3 13.1 0.5 — 53.8 24.9 23.9 0.7 — T-VIDA ...... 65.0 — 98.6 0.5 0.4 361.9 — 96.3 0.2 — ESUMÉDICA ...... 1.0 — — 0.1 0.1 2.0 — — 0.1 0.1 EUROP ASSISTANCE . . . 0.1 — 2.7 0.1 — — — 1.8 — — Other ES IRMÃOS ...... 104.6 — — 4.7 — 99.3 — — 5.2 — OPWAY ...... 6.3 48.0 35.1 0.4 0.2 15.4 47.6 13.1 0.3 — CONSTRUCCIONES SARRION ...... 16.5 8.7 — 0.2 — 25.8 10.8 — — — ESPÍRITO SANTO RESOURCES ...... — — 2.4 0.1 0.2 — — 0.9 0.1 0.2 OTHER ...... 84.1 17.3 32.4 5.2 2.4 78.7 22.3 30.4 6.7 0.6 TOTAL ...... 766.4 129.4 370.4 27.4 4.9 1,488.3 135.8 298.8 28.9 2.6

As at 31 December 2013, loans granted by the BES Group to its key management personnel (the Board and Audit Committee, the subsidiary companies board members and BES senior management) amounted to €21.2 million (31 December 2012, 2011: €28.9 million and €28.2 million, respectively).

In 2013 the Audit Committee issued a prior opinion on a €255,000 mortgage loan subsequently granted to a nonexecutive member of the Board of Directors under the BES Staff scheme for the acquisition of homes for permanent residence.

As at 31 December 2013, loans granted by the BES Group to the members of the Board of Directors of ESFG who are not simultaneously members of the Board, amounted to €3.1 million (31 December 2012, 2011: €4.0 million and €4.9 million, respectively).

All transactions with related parties are made on an arms length basis, under the fair value principle.

However, credit granted by the BES Group to members of the Board of credit institutions are under the scope of article 85 of the Regime Geral das Instituições de Crédito e Sociedades Financeiras (RGICSF) being these operations subject to reporting to the Bank of Portugal, under the terms of Instruction nr. 17/2011, of August 2011.

Under the above-mentioned legislation, the main conditions for granting loans to members of the Board of Directors of credit institutions are: • It cannot be granted credit to executive members of the Board and to the Fiscal Board (including first degree relatives), with the exception of operations (i) with a social purpose, (ii) under the company policies, or (iii) resulting from the use of credit cards in conditions similar to the ones applied to the general clients with similar risk profile. All these exception are included in nr. 4 of article 85 of RGICSF;

251 • Credit operations with non-executive members of the Board are subject to approval by a majority of at least two thirds of the remaining Board Members and can only be granted with the approval of the Fiscal Board, in accordance with nr. 8 of article 85 of RGICSF; • The credit is granted and approved at market prices and the Board Member involved in the operation cannot intervene in the decision making process.

All credit granted to Board members and to Audit Committee members must fulfil the above-mentioned requirements. Board member involved in the transaction cannot intervene in the decision-making process.

All credits granted to related parties are included in the impairment model, being subject to provisions in the same manner that the commercial credits granted by the BES Group. As at 31 March 2014, 31 December 2013, 2012 and 2011 none of the credits granted to related parties were subject to individual impairment. However, these credits are subject to an impairment evaluation on a portfolio basis.

BES Group, in its implementation of customer resources (and taking into account client risk profiles), offers a wide range of options for investment of savings, including the direct underwriting of debt instruments issued by various types of issuers, in particular by financial entities within the scope of consolidation of Grupo Espírito Santo (GES) and entities related to the non financial sector of Espírito Santo Group.

In this process, BES Group provides information about the possible risks underlying the underwriting of such instruments, as required by the regulatory framework in force, proceeding to the off-balance sheet recording of the values that keeps under its custody and providing normal services associated with the custodian bank role in relation to the securities portfolio.

BES customers subscribed to debt instruments issued by Espírito Santo Internacional, SA and its subsidiaries Espírito Santo Property, SA and Espirito Santo Industrial, SA, amounting to €3,035 million, of which €1,565 million were held on 31 December 2013 by retail customers and €1,470 million were held at the same date by institutional customers. As at 30 April 2014, the total amount of these debt instruments held by retail customers of the BES Group was €516 million and the total amount held by institutional investors was €732 million. As at 19 May 2014, the value of the debt instruments held by retail investors amounted to €395 million, while the value held by institutional investors amounted to €564 million.

ESI Group has an ongoing plan of internal reorganisation and deleveraging of its assets in order to rebalance its financial condition and to repay liabilities. The effects of the measures comprised within this plan are included in the business plan and cash flows statement projected for ESI for the years 2013 to 2023, which were subject to review under ETRICC conducted by the Bank of Portugal.

With the challenges associated with the full implementation of the internal reorganisation and deleveraging of the assets plan in mind, ESFG, pursuant a resolution from its board of directors, (that was also discussed by BES’ Board), decided to assume, through guarantees, the risks assumed by retail clients.

The Board expects, given the current information available in ESI’s 2013-2023 business plan and its projected cash flow statements, which have been made available to the regulator under ETRICC, that the reimbursement of the debt instruments referred to above will be realised through the implementation of an asset deleveraging plan, the support of its shareholders, the capacity to obtain or renew credit lines and the support, if necessary, from the BES and the ESFG Groups.

Additionally, within the scope of the fundraising activity, BES Group customers subscribed debt instruments issued by Rio Forte Investiments, S.A., Espírito Santo Saúde, S.G.P.S., S.A., Espart, Quinta da Foz, Euroamerican Finance, S.A. and Espírito Santo Irmãos, S.A. amounting to €479 million, €38 million, €24 million, €13 million, €9 million and €2 million, respectively, as at 31 December 2013, by retail customers.

252 TERMS AND CONDITIONS OF THE COMBINED OFFERING

General Information BES is offering New Shares in book-entry form at a subscription price of €0.65 per New Share (the “Subscription Price”). The Combined Offering has two components (i) the Rights Offering and (ii) the Institutional Offering, each as described below. The Combined Offering will be governed by Portuguese law.

Rights Offering In proportion to their existing holdings of ordinary shares (“Existing Shares”), holders of Shares as of the Record Date (as defined below) (the “Existing Shareholders”) will receive preemptive transferable subscription rights (the “Proportional Rights”), which include oversubscription rights to subscribe for any New Shares that are not subscribed for pursuant to the exercise of the Proportional Rights (the “Oversubscription Rights” and, together with the Proportional Rights, the “Rights”). Existing Shareholders will receive one Proportional Right for every one Existing Share they own as of the Record Date. Subject to compliance with applicable law, holders of Proportional Rights will be entitled to subscribe with preference over other investors at the Subscription Price for a number of New Shares determined by multiplying the number of Proportional Rights they hold by a factor of 0.4, which for Existing Shareholders is equivalent to 2 New Shares for every 5 Existing Shares owned on the Record Date (the “Rights Offering”). No Rights will be allotted in respect of Shares held in treasury by BES. The Rights Offering may be terminated under certain circumstances at any time, including with respect to Rights already exercised. Rights must be exercised in accordance with applicable laws, including securities laws, and BES reserves the right to reject applications to exercise Rights where it is not satisfied (in its sole discretion) that this is the case. See “—Cancellation, Withdrawal and Suspension of the Rights Offering”.

Institutional Offering and Underwriting The Underwriters have severally (and not jointly) agreed, subject to certain conditions, to procure subscribers, or otherwise themselves to subscribe for, and BES has agreed to issue to the subscribers procured by the Underwriters or to the Underwriters, as the case may be, at the Subscription Price, the Remaining Shares. Any such Remaining Shares are expected to be offered to eligible investors in Portugal and elsewhere outside the United States (the “Institutional Offering”, and together with the Rights Offering, the “Combined Offering”). The Portuguese Companies Code limits the possibility of companies subscribing for their own shares (directly or through an affiliate). As a result, BES Investimento, an affiliate of BES and a Joint Global Coordinator and Joint Bookrunner in the Combined Offering, will not assume an underwriting commitment in the Institutional Offering.

Espírito Santo Financial Group, S.A. intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell during the Rights Offering Shares or Rights for New Shares and reinvest in full the net proceeds from such sale in the subscription of New Shares in the Rights Offering. Crédit Agricole also intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell Shares or Rights and reinvest approximately €10 million of the net proceeds thereof in the subscription of New Shares in the Rights Offering. In any case, Espírito Santo Financial Group, S.A. and Crédit Agricole committed to holding, immediately after the physical settlement of the combined offering, a number of shares not less than the number of shares held by each of them on 15 May 2014.

Fractions of New Shares will not be issued and any fractions arising through the exercise of Rights will be rounded down to the nearest whole Share. The exercise of Rights will become irrevocable and may not be cancelled or modified after the close of business on 4 June 2014. Any Rights unexercised at the end of the Subscription Period (as defined below) will expire valueless without any compensation.

Assuming all the New Shares are subscribed for in the Combined Offering, BES will issue 1,607,033,212 New Shares. Further information about the Rights, the procedures for exercising the Rights, the transfer of the Rights and the Combined Offering is summarised below.

The size of the share capital increase as a result of the Combined Offering will be reduced to the extent that New Shares are not subscribed for pursuant to the exercise of the Rights in the Rights Offering or not underwritten by the Underwriters.

253 Restrictions on Participation in the Combined Offering by Certain Existing Shareholders United States No Existing Shareholder or any other holder of Rights may exercise its rights in the United States unless it is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act. Independently from, and without the participation of, the Underwriters, BES may allow such qualified institutional buyers in the United States to exercise their Rights in reliance on exemptions provided for private placements under Section 4(a)(2) of the Securities Act. See “Plan of Distribution and Arrangement—Selling Restrictions”.

Other Jurisdictions Applicable laws in certain jurisdictions may restrict or condition the exercise of the Rights. Existing Shareholders subject to any such laws should consult their professional advisers as to how they can exercise their Rights. Neither this Offering Circular nor any document relating to the Combined Offering constitutes an offer to subscribe in any countries where such an offer would contravene applicable laws. The subscription of New Shares or exercise of Rights by investors with an address in a country in which the offer is restricted will not be accepted and will be deemed to be null and void. See “Plan of Distribution and Arrangement—Selling Restrictions”.

Expected Transaction Timetable The timetable below lists certain important dates relating to the Combined Offering. All time references are to Lisbon time. All dates and times are expected and subject to change. No assurance can be given that the settlement of New Shares will not be delayed.

Announcement of terms of the Combined Offering ...... 15May2014 Record Date(1) ...... 21May2014 Ex-Rights date ...... 22May2014 Subscription Period for exercise of Rights commences ...... 27May2014 Trading of Rights commences on Euronext Lisbon ...... 27May2014 Trading of Rights ceases on Euronext Lisbon ...... 3June 2014 after close of business on Exercises of Rights become irrevocable(2) ...... 4 June 2014 Expiration of Subscription Period ...... 3:00 p.m. 9 June 2014 Announcement of results of the Rights Offering subscription(3) ...... 11June 2014 Financial settlement ...... 16June 2014 Expected date for the registration of share capital increase with the Portuguese Commercial Registry ...... onoraround 16 June 2014 Expected date of issue of the New Shares(4) ...... onoraround 16 June 2014 Expected date for commencement of trading of the New Shares on Euronext Lisbon(4) ...... onoraround 17 June 2014 Notes: (1) 4:40 p.m. (Lisbon time). If investors acquire Shares on an over-the-counter market, and such Shares are delivered by 7:00 p.m. (Lisbon time) on 26 May 2014, the Record Date with respect to such Shares is 7:00 p.m. (Lisbon time) on 26 May 2014. (2) Following this date, subscription orders may be amended to increase the number of New Shares requested. (3) The results of the Rights Offering will be announced by BESI. (4) The issue of New Shares and the commencement of trading on Euronext Lisbon is conditioned on obtaining the share capital increase registry on the Portuguese Commercial Registry, which is expected to occur on 16 June 2014. No assurance can be given that the Registration of the share capital increase and, consequently, the issuance and delivery of the New Shares will not be delayed.

Rights Offering Proportional Rights Existing Shareholders and transferees of their preferential subscription rights will receive one Proportional Right for every one Existing Share they own as of the Record Date. The Proportional Rights may, if not exercised by the recipient thereof, be traded (see “—Transfer of Rights” below). Subject to complying with applicable law, holders of Proportional Rights will be entitled to subscribe at the Subscription Price for a number of New Shares

254 determined by multiplying the number of Proportional Rights they hold by a factor of 0.4, which for Existing Shareholders is equivalent to 2 New Shares for every 5 Existing Shares owned on the Record Date. Fractions of New Shares will not be issued and any fractions arising through the exercise of Proportional Rights will be rounded down to the nearest whole Share.

Subscriptions will be accepted for a whole number of New Shares only, although holders of Proportional Rights may exercise their right to subscribe for New Shares in whole or in part.

Oversubscription Rights The Rights include Oversubscription Rights entitling holders that exercise Proportional Rights to apply to subscribe, at the Subscription Price, for a number of New Shares in addition to those subscribed for by exercising Proportional Rights. Such applications to exercise of Oversubscription Rights will be satisfied, in whole or in part, in the event that all of the New Shares are not subscribed for pursuant to the exercise of Proportional Rights.

In the event that less than all of the New Shares are subscribed for pursuant to the exercise of Proportional Rights, the New Shares not subscribed for pursuant to the exercise of the Proportional Rights will be allocated to holders of Proportional Rights who have exercised their Oversubscription Rights. Such allocation will be pro- rated among holders of Proportional Rights who have exercised Oversubscription Rights in proportion to their exercise of Proportional Rights, subject to any maximum limit in respect of their exercise of Oversubscription Rights. Fractions of New Shares will not be issued and any fractions arising through the exercise of Oversubscription Rights will be rounded down to the nearest whole Share. Any New Shares that are not subscribed for pursuant to the above will be allocated, once, on a random basis for subscription among all Existing Shareholders whose exercise of Oversubscription Rights have not already been satisfied in full. The Oversubscription Right is not separable from the Proportional Right.

Limited Revocation Rights Exercises of Rights are revocable until four business days before the expiration of the Subscription Period (namely on or before close of business on 4 June 2014) through a communication to the receiving financial intermediary. After the close of business on 4 June 2014, Rights that have been exercised or are exercised after such date are irrevocable, except as described under “—Cancellation, Withdrawal and Suspension of the Rights Offering”.

Cum-Rights Date, Record Date and Ex-Rights Date The Cum-Rights Date, on which the Shares commenced trading with Rights on Euronext Lisbon, was 21 May 2014 following the Board of Directors’ approval on 15 May 2014, the announcement of the Rights Offering on 15 May 2014 and the notice regarding the exercise of Rights issued on 20 May 2014.

The Record Date for the purpose of determining entitlement to Rights is 4:40 p.m. (Lisbon time) on 21 May 2014, if Shares are acquired on Euronext Lisbon, which will be the last day that the Shares will trade with Rights on Euronext Lisbon. If Shares are acquired on an over-the-counter market, and such Shares are delivered by 7 p.m. (Lisbon time) on 26 May 2014, the Record Date with respect to such Shares is 7 p.m. (Lisbon time) on 23 May 2014. At the opening of business on 27 May 2014, the Rights are expected to be credited through the book-entry system of the CVM to the accounts of persons who held Shares on the Record Date.

The Ex-Rights Date will be 22 May 2014. The Shares will trade on Euronext Lisbon without any Rights on and after such date.

Subscription Period Rights may be exercised during the period from 8:30 a.m. on 27 May 2014 to 3 p.m. on 9 June 2014. Any Rights unexercised at the end of the Subscription Period will expire valueless without any compensation.

Any exercise of Rights or order to subscribe for New Shares will become irrevocable after the close of business on 4 June 2014.

Subscription Price The Subscription Price is €0.65 per New Share subscribed for, either through exercises of Rights or in the Institutional Offering. The Subscription Price must be paid in Euros. The Subscription Price will be settled in accordance with instructions given by the CVM on or around 16 June 2014 in respect of New Shares subscribed for pursuant to the exercise of Rights or within the Institutional Offering.

255 The subscription price was determined taking into account the market price of BES’ ordinary shares, the recommendations from the underwriters and similar capital markets transactions as well as the need to establish conditions to ensure the success of the capital increase.

The subscription price represents a 34.06% discount to the theoretical ex-rights price, or TERP, based on the closing price of BES’ ordinary shares on 14 May 2014, which was €1.12.

The holder of Rights may need to pay any costs charged by the financial intermediary to which he transmits his subscription order.

Exercise of Rights Each holder of Rights may exercise all or only part of its Proportional Rights, and, if it elects to exercise Proportional Rights, may also elect to exercise its Oversubscription Rights. Fractions of New Shares will not be issued and any fractions arising through the exercise of Rights will be rounded down to the nearest whole Share. Each holder of Rights can subscribe for New Shares pursuant to the exercise of Rights by any means approved by such authorised financial intermediary through which the subscription is made. Financial intermediaries should send to BES Investimento the daily result of the subscription orders received by them during the Subscription Period and also to Interbolsa in accordance with customary procedures.

The authorised financial intermediary through which a subscription for the New Shares is made may require any subscriber to pay the full subscription price into a deposit account as a condition to accepting the relevant subscription. Subscriptions must be received prior to 3 p.m. on 9 June 2014. Any subscriber for the New Shares will bear any risk associated with the delivery of its subscriptions and its subscription payment of the New Shares. Each holder of Rights who wishes to exercise such Rights should consult with the financial intermediary through which it holds its ordinary shares and such Rights as to the manner, timing and form of exercise documentation, method of making the subscription payment and other related matters required to effect such exercise. Following the end of the Subscription Period and the receipt from the CVM of details of all subscriptions, BES or, if so designated, BES Investimento will determine the aggregate number of New Shares subscribed by each subscriber. BES Investimento will publish a notice on the CMVM website, indicating the number of New Shares subscribed for pursuant to the Combined Offering.

BES reserves the right to reject any application to exercise Rights in its discretion, including where an application does not adequately establish (as determined by BES in its sole discretion) the applicant’s basis for its exercise of Rights and/or receipt of New Shares under applicable securities laws.

Transfer of Rights Subject to compliance with relevant securities laws, the Rights are freely transferable and are expected to trade on Euronext Lisbon under the symbol “BESDS” from 27 May 2014 to 3 June 2014. It may also be possible to trade Rights on an over-the-counter market.

Irrespective of whether Rights are traded on Euronext Lisbon or on an over-the-counter market, Rights that are not exercised prior to the end of the Subscription Period will expire valueless without any compensation, and the corresponding New Shares will be allocated to any holders of Rights who have validly exercised their Oversubscription Rights, subject to any limit indicated by the exercising holder, or otherwise in the Institutional Offering.

Delivery of Shares Upon valid exercise of any Rights and payment of the Subscription Price, the authorised financial intermediary with whom the subscription was made will register with the CVM such subscriber’s name or such subscriber’s nominee’s name and the amount of the New Shares subscribed. BES expects to issue the New Shares on or around 16 June 2014. Following the registration of the resulting share capital increase with the Portuguese Commercial Registry in Lisbon, the issued New Shares will be delivered to subscribers by credit of such New Shares to each subscriber’s individual book-entry securities account. This is expected to take place on or around 16 June 2014. However, BES can give no assurance that such issuance and delivery will not be delayed.

The New Shares will rank equally in all respects with the existing Shares. The New Shares will confer all of the other rights of the existing Shares, including voting rights, from their date of issuance, except if the validity of the Board resolution approving the share capital increase is challenged in due time at a court of law, in which

256 case the New Shares shall form a different class of shares until the relevant court’s ruling becomes definitive. Additionally, these rights are exercisable by their holders only from the date of the registration of the relevant resulting share capital increase with the Portuguese Commercial Registry in Lisbon and credit of the relevant New Shares to the subscriber’s individual book-entry securities account with a financial intermediary registered with the CVM. The New Shares will grant to their holders the right to any dividend that may be approved for the year ended 31 December 2014 and thereafter.

Listing and Admission to Trading BES’ Shares are admitted to trading on a regulated market, Euronext Lisbon, and have the following ISIN: PTBES0AM0007. BES has applied for the admission to trading of the New Shares on the same regulated market after the share capital increase is registered with the Portuguese Commercial Registry in Lisbon, which is expected to occur on or around 16 June 2014. BES expects that the New Shares will be admitted to trading on or around 17 June 2014, at which time the New Shares are expected to trade together with, and have the same ISIN as the Existing Shares, unless required to be issued on a separate ISIN. However, BES can give no assurance that registration of the share capital increase and admission to trading of the New Shares will not be delayed.

The Institutional Offering The Underwriters have severally (and not jointly) agreed, pursuant to an underwriting agreement, subject to certain conditions, to procure subscribers, or otherwise themselves to subscribe for, and BES has agreed to issue to the subscribers procured by the Underwriters or to the Underwriters as the case may be, at the Subscription Price the Remaining Shares. Any such Remaining Shares are expected to be offered to eligible investors in Portugal and elsewhere outside the United States in the Institutional Offering. The size of the share capital increase as a result of the Combined Offering will be reduced to the extent that New Shares are not subscribed for pursuant to the exercise of the Rights in the Rights Offering and are not underwritten by the Underwriters.

Joint Global Coordinators and Joint Bookrunners Banco Espírito Santo de Investimento, S.A., Morgan Stanley & Co. International plc and UBS Limited are acting as Joint Global Coordinators and Joint Bookrunners with respect to the Combined Offering. BES Investimento is responsible for the preparation and co-ordination of the process for obtaining approval of the Portuguese Prospectus and for the admission of the New Shares to trading on Euronext Lisbon.

Cancellation, Withdrawal and Suspension of the Rights Offering Under the Portuguese Securities Code, in the case of an increase in the nature of the risks associated with the Rights Offering due to an unforeseen and substantial change of circumstances that are known to the offerees to form the basis upon which BES based its decision to launch the Rights Offering, BES may, within a reasonable period and subject to the CMVM’s authorisation, modify or revoke the Rights Offering.

A modification of the terms and conditions of the Rights Offering requires the extension of the Subscription Period, to be decided by the CMVM on its own initiative or at the request of BES. The declarations of acceptance of the offer prior to amendment are considered effective for the modified offerings.

If the Rights Offering is revoked, all exercises of Rights and the subscription orders given by subscribers and other acts of acceptance are ineffective, with subscribers entitled to restitution of whatever funds have been delivered to subscribe for the New Shares.

The CMVM may order the withdrawal of the Rights Offering if it concludes that the Rights Offering includes any irreparable illegality or violation of an applicable regulation. A decision to withdraw the offerings would be published by the CMVM, at the expense of BES, according to the same means used to announce the Combined Offering.

The CMVM may suspend the Rights Offering when any reparable illegality or violation of regulation is discovered. In addition, BES may suspend the offerings and immediately request CMVM’s approval for an amendment or supplement of the Portuguese Prospectus if, from the date of approval of the Portuguese Prospectus to the end of the Subscription Period, any deficiency in the Portuguese Prospectus is detected or any new fact occurs or any fact not previously considered is brought to light, which is relevant to the decision to be taken by the offerees. If the Portuguese Prospectus is supplemented or amended, BES may or may not decide to amend or supplement this Offering Circular.

257 If the Rights Offering is suspended for any reason, parties who have exercised their Rights or given orders to subscribe for New Shares may withdraw their exercise for a five-day period following the end of the suspension, with the right to restitution of whatever funds have been delivered to subscribe for the New Shares. The Rights Offering may not be suspended for more than 10 working days. If at the end of that period the defects that caused the suspension have not been rectified, the CMVM must order the withdrawal of the Rights Offering.

The Combined Offering may be affected by the cancellation, withdrawal and/or suspension of the Rights Offering.

258 INFORMATION ON THE SECURITIES BEING OFFERED AND ADMITTED TO TRADING

Description of the New Shares Being Offered and Admitted to Trading The New Shares are ordinary shares, in book entry form and with no par value, and will be registered on the centralised system of the CMVM, managed by Interbolsa—Sociedade Gestora de Sistemas de Liquidação e de Sistemas Centralizados de Valores Mobiliários, S.A. (“Interbolsa”), with registered offices in Avenida da Boavista, 3433, 4100-138 Porto, Portugal.

The New Shares will be created pursuant to Portuguese law, including the Portuguese Companies Code, the Portuguese Securities Code and other applicable legislation, and pursuant to BES’ articles of association.

The physical settlement of the Combined Offering will be made through the registration of the New Shares in each subscriber’s individual book-entry securities account opened with licensed financial intermediaries.

BES will perform certain functions in relation to the New Shares, notably regarding the payment of dividends and may charge commissions for this service, as mentioned in BES’ price list available at CMVM’s website www.cmvm.pt. Costs relating to the maintenance of the book-entry securities accounts depend on the price therefor in effect, from time to time, as set forth in the price lists of the relevant licensed financial intermediaries, available at CMVM’s website www.cmvm.pt. Such costs must be disclosed by the relevant licensed financial intermediary.

In respect of dividends, the New Shares grant the right to any dividends that may be approved in relation to the financial year ending on 31 December 2014 and thereafter.

Description of the Rights Attached to the New Shares Once issued, the New Shares will be fungible with the existing BES shares and will confer upon their holders, from the date of their issue, the same rights as all other shares existing prior to the Combined Offering, unless the validity of the Board’s resolution that approves the share capital increase is disputed in a Court of Law, in which case the New Shares form an autonomous category of shares until the definitive ruling of the Court.

The New Shares to be issued entitle their holders to receive any dividends that might be distributed in the exercise ending on 31 December 2014 and further exercises, providing BES’ capital position, ratios and minimum capital ratios, among others.

For more information about the rights attached to the New Shares and their exercise, see “Description of Share Capital and Rights Attached to the Shares—Articles of Association”.

Resolutions under Which the New Shares will be Issued This share capital increase was resolved by BES’ Board of Directors on 15 May 2014, with the favourable opinion of the Audit Committee, and was authorised by the Shareholders’ General Meetings held on 9 June and 11 November 2011.

Expected Issuance Date for the New Shares As the New Shares will be issued in book-entry form, they will be subject to registration in the accounts of the respective holders with licensed financial intermediaries. No certificates will be issued. The issuance of the New Shares and such registration will only take place following the registration of the share capital increase with the Portuguese Commercial Registry, which BES expects to take place on 16 June 2014.

Transfer of the New Shares Subject to complying with applicable law and restrictions on transfer in each relevant jurisdiction, the New Shares are freely transferable in accordance with the applicable statutory rules, including the provisions regarding the control of qualifying holdings by the Bank of Portugal. Neither the Rights nor the New Shares have been, or will be, registered under the Securities Act and the Rights and the New Shares may only be offered, exercised or sold pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

There are no restrictions contained in BES’ articles of association on the free transferability of the shares that represent the share capital of BES.

259 Rules Regarding Mandatory Takeover Bids BES is a public company (“sociedade aberta”) with all of its share capital admitted to trading on the Euronext Lisbon regulated market and, therefore is subject to rules governing public takeover bids, mandatory takeover bids, squeeze-outs and loss of public company status.

The provisions applicable to mandatory takeover bids are laid out in the Portuguese Securities Code that already implements the rules laid out in Directive no. 2004/25/EC, of the European Parliament and of the Council, of 21 April 2004, on takeover bids.

Pursuant to article 187 of the Portuguese Securities Code, the obligation to launch a mandatory takeover bid in respect of all the shares representing the capital of a public company and other securities issued by that company which confer the right to subscribe for or acquire the respective shares lies with any natural or legal person that exceeds, directly or a third or half of the voting rights attached to the share capital of that company pursuant to paragraph 1 of article 20 of the Portuguese Securities Code.

In accordance with paragraph 1 of article 20 of the Portuguese Securities Code, in calculating the voting rights in the share capital of a public company attributable to a participant, in addition to the voting rights attached to the shares of which such participant has ownership or usufruct, the following types of voting rights should also be considered: (a) held by third parties in their own name, although on behalf of the participant; (b) held by a company in a control or group relationship with the participant, in accordance with article 21 of the Portuguese Securities Code; (c) held by holders of voting rights with whom the participant has entered into an agreement for the exercise of voting rights, unless, under such agreement, it is obliged to follow third party instructions; (d) held, if the participant is a company, by the members of its management or supervisory bodies; (e) that the participant is entitled to acquire as a result of an agreement entered into with the corresponding owners; (f) attaching to shares given as guarantee to the participant or managed by or deposited with the participant, in case the corresponding voting rights have been attributed to him; (g) held by holders of voting rights which the participant has been given discretionary powers to exercise; (h) held by persons who have executed an agreement with the participant seeking to acquire the control of the company or frustrate the change of control or which otherwise constitute an instrument of concerted exercise of influence over the company. For these purposes, pursuant to article 20.4 and 20.5 of the Portuguese Securities Code, any agreements pertaining to the transfer of the company’s shares are deemed to constitute an instrument to exercise concert influence. This assumption may be rebutted before the CMVM by evidencing that the relationship established does not influence the target; and (i) those voting rights attributed to any entity mentioned in the previous paragraphs through the application, mutatis mutandis, of a criteria mentioned in any other of those paragraphs.

In accordance with the provisions of article 188.1 of the Portuguese Securities Code, the consideration in a mandatory takeover bid cannot be less than the higher of the following amounts: (a) the highest price paid by the offeror or by any individuals that are in any of the circumstances contemplated in article 20 of the Portuguese Securities Code in respect of the offeror, for the acquisition of securities of the same class, in the six months immediately prior to the date of publication of the preliminary announcement of the offer; and (b) the weighted average price of those securities on the regulated market established during the same period.

However, if the consideration cannot be determined by reference to the above criteria or if the CMVM considers that the consideration, in cash or securities, offered by the offeror is not properly justified or is not fair due to being insufficient or excessive, the minimum consideration shall be set by an independent auditor appointed by the CMVM at the offeror’s expense.

260 In accordance with article 188.3 of the Portuguese Securities Code, the consideration, in cash or securities, offered by the offeror in a mandatory takeover bid shall be presumed not equitable if: (a) the highest price has been fixed by agreement between the purchaser and the seller through private negotiation; (b) the securities in question have reduced liquidity by reference to the regulated market on which they are admitted to trading; or (c) has been determined based on the market price of the securities in question and that price, or the regulated market where they are admitted to trading, have been affected by exceptional events.

The consideration may consist of securities, provided that these securities are of the same type as those targeted by the bid and are admitted or are of the same class of demonstrably liquid securities admitted to trading on a regulated market, and further provided that the offeror and any person that is in any of the circumstances contemplated in article 20 of the Portuguese Securities Code with regard to the offeror have not acquired any shares representing the target company’s share capital for a consideration in cash in the six-month period preceding the preliminary announcement and until the closing of the offer, in which case an equivalent consideration in cash must be made available.

Takeover Bids Launched by Third Parties in Respect of BES’ Share Capital During the Previous and Current Financial Years No public takeover bids by third parties in respect of the BES’ share capital were launched during 2013 or the current financial year.

261 DESCRIPTION OF SHARE CAPITAL AND RIGHTS ATTACHED TO THE SHARES The following summary briefly describes BES’ share capital and articles of association. This description does not intend to be complete and, therefore, does not contain all the information that may be considered relevant. Additionally, this summary should be read together with BES’ articles of association.

Share Capital Value and Form BES has a share capital of €5,040,124,063,26, represented by 4,017,928.471 shares, issued and fully paid and in book entry form, listed on Euronext Lisbon. All the shares are ordinary shares, with no par value. There is no subscribed capital that has not been paid up or is non-issued.

Pursuant to the resolutions of the Shareholders’ General Meeting dated 9 June and 11 November 2011, BES’ Board of Directors is authorised, for a period of five years, to increase the share capital up to (in addition to the share capital amount) €7,500,000,000.00. Both the present and the capital increase executed in 2012 were approved by the Board under this authorisation.

Treasury Shares During 2011, BES acquired treasury shares under PRVIF. On 27 January 2012, BES sold 67,184 shares, following the retirement of two directors to whom had been assigned 33,592 shares on the distribution of results in 2010, according to PRVIF approved by the General Meeting held on 6 April 2010 and in accordance with the proposal of the Board on the acquisition and disposal of own shares approved at the General Meeting on 31 March 2011. As at 31 December 2013, the BES Group held 275,291 shares under PRVIF (275,291 and 342,475 in 31 December 2012 and 2011, respectively). Additionally, as at 31 December 2013 and 2012, there were 150 treasury shares registred on BES’ balance sheet.

The shares in BES which are directly or indirectly held by a subsidiary, as defined in article 486 of the Portuguese Companies Code, are considered, for all purposes, BES treasury shares. This way, the BES Group also holds treasury shares held by BES Vida Group. As at 31 December 2013, this subsidiary held 70,000 shares in BES (10,112,765 shares as at 31 December 2012).

The table below shows changes in treasury shares as of the dates indicated:

As at 31 March As at or year ended 31 December 2014 2013 2012 2011 Amount (in Amount (in Amount (in Amount (in Number of thousands Number of thousands Number of thousands Number of thousands shares of €) shares of €) shares of €) shares of €) Transactions under PRVIF Opening balance 275,291 801 275,291 801 342,475 997 — — Shares acquired(1) — — — — — — 342,475 997 Shares sold(2) — — — — (67,184) (196) — — 275,291 801 275,291 801 275,291 801 342,475 997 Other transactions Opening balance 70,150 57 10,112,915 6,190 — — — — Changes in the scope of consolidation(3) — — — — 55,271,581 35,540 — — Shares acquired — — 2,154,826 1,925 14,085,500 6,964 — — Shares sold — — (12,197,591) (8,058) (59,244,166) (36,314) — — 70,150 57 70,150 57 10,112,915 6,190 — Year end balance 345,441 858 345,441 858 10,388,206 6,991 342,475 997

Notes: (1) Shares acquired in 2011 under PRVIF, at a price of 2.909 EUR per share. (2) Shares sold under PRVIF, at a price of 1.315 EUR per share in January 2012. (3) Shares acquired/sold that became part/left to be part of BES Vida portfolio.

262 Preference Shares A wholly owned subsidiary of the BES Group, BES Finance issued 450,000 non-voting preference shares, which were listed in the Luxembourg Stock Exchange in July 2003. In March 2004, 150,000 additional preference shares were issued forming a single series with the existing preference shares, in a total amount of €600 million. The face value of these shares is EUR 1,000 and is wholly (but not partially) redeemable by option of the issuer at its face value, as at 2 July 2014, subject to prior approvals of BES and Bank of Portugal. During the year ended 31 December 2011, the BES Group acquired 388,000 preference shares, issued by BES Finance, of which 197,000 were acquired in scope of the exchange offer over securities referred to above. The BES Group recorded a capital gain, net of taxes in the amount of €105.6 million recognised in other reserves. In the year ended 31 December 2012, the BES Group acquired 19,000 preference shares, having recorded a net gain in the amount of €4.5 million recognised in Other reserves. In the year ended 31 December 2013, the BES Group acquired 34,000 preference shares, having recorded a net gain in the amount of €6.1 million recognised in Other reserves. As at 31 December 2013, there were 159,000 preference shares outstanding with a value of €159.3 million.

These preference shares pay an annual non-cumulative preferred dividend, if and when declared by the Board of Directors of the issuer, of 5.58% per annum on nominal value. The dividend is paid on 2 July of each year, beginning 2 July 2004 and ending 2 July 2014.

If the issuer does not redeem these preference shares on 2 July 2014, the dividend applicable rate will be the 3 months Euribor plus 2.65%, with payments on 2 January, 2 April, 2 July and 2 October of each year, if declared by the Board of Directors of the issuer.

BES unconditionally guarantees dividends and principal repayment related to the above mentioned issue, until the limit of the dividends previously declared by the Board of Directors of the issuer.

These shares rank lower than any BES liability, and pari passu relative to any preference shares that may come to be issued by the Bank.

Other equity instruments During 2010, the BES Group issued perpetual subordinated bonds with interest conditioned in the total amount of €320 million, of which €270 million were issued by BES and the remaining €50 million by BESI. These bonds have an interest conditioned non-cumulative, payable only if and when declared by the Board of Directors.

The main characteristics of these equity instruments are presented as follows:

Interest rate Reimbursement Issuer Issue date Currency Book Value (%) Coupon date possibility(2) (EUR million) BES Dec 2010 EUR 26.296 8.50 15 Mar and 14 Sep From Sep 2015 BES Dec 2010 USD 2.866 8.00 15 Mar and 14 Sep From Sep 2015 29.162 BESI(1) Oct 2010 EUR 3.681 8.50 20 Apr and 20 0ct From Oct 2015 32.843

Notes: (1) BESI issue is included in the balance non-controlling interest (2) The reimbursement of these securities may be performed in full, but no partially, at the option of the issuer, subject to prior approval of the Bank of Portugal.

During the year ended 31 December 2013, the BES Group made an interest payment in the amount of €2.8 million (2012 €2.8 million, 2011 €21.8 million), which was recorded as a deduction to equity.

In scope of the exchange offer over securities, during 2011, other equity instruments issued by BES reduced by an amount of €240.4 million and Non-controlling interests issued by BESI reduced by an amount of €46.2 million.

These bonds are subordinated in respect of any liability of BES and BESI and pari passu in respect of any subordinated bonds with identical characteristics that may be issued by the Bank. Given their characteristics, these obligations are considered as equity instruments.

263 Evolution of Share Capital At the General Meeting held on 9 June 2011, the BES shareholders approved a partial amendment of the articles of association by which the shares representing the share capital of BES became no par value shares. Simultaneously, the Board of Directors was authorised to, upon favourable opinion of the Audit Committee, increase the share capital with new contributions in cash, one or more times, through the issuance of ordinary shares or preferential shares, redeemable or non-redeemable, under the terms and conditions to be defined. This authorisation was granted up to the maximum amount of €5,000,000,000.00 and is valid for a period of five years. At the same General Meeting, following a request from the Bank of Portugal, it was approved the suppression of shareholders’ pre-emption rights, in case the Board of Directors resolves on a capital increase, as authorised by the Company’s articles of association, with the objective of converting credits arising from the guarantee provided by the Portuguese state to the issuance of non-subordinated bonds, if that guarantee were to be executed, under the terms of Law no. 60-A/2008, of 20 October 2008, and Ministerial Order no. 1219-A/2008, of 23 October 2008.

On 11 November 2011, the General Meeting of Shareholders approved a share capital increase of BES with new contributions in-kind, by means of the launching of a public exchange offer over securities issued by BES, BES Investimento and BES Finance. The purpose of this operation was to strengthen BES’ core own funds in order to comply with the capital ratios defined by the Bank of Portugal.

As a result of the public exchange offer, open between 14 and 30 November 2011, there have been issued 294,573,418 new shares of BES at €1.80 and 81,736 subordinated bonds (“obrigações de caixa”) with the nominal amount of €100 each.

At the same General Meeting, it was also approved to suppress the shareholders’ pre-emption rights in the share capital increase resulting from the possible execution of the guarantee granted by the Portuguese state to the three unsubordinated bond issuances, with a three-year maturity and a global amount of €3.5 billion, that the Board may approve. It was also approved the increase of the maximum amount of the Board’s authorisation to increase the share capital with new contributions in cash without prior approval from the General Meeting from €5,000,000,000.00 to €7,500,000,000.00.

As a result of the public exchange offer, the amount of the share capital increase by new contributions in-kind was €530,232,152.40, and the share capital of BES was set at €4,030,232,150.40, represented by 1,461,240,084 ordinary, book-entry shares with no par value.

During May 2012, BES conducted a capital increase in the amount of €1,009,891 912.86, fully paid in cash at a price of € 0.395 per share, corresponding to the issue of 2,556,688,387 new ordinary shares. The new shares are fungible and give their holders the same rights as the other shares existing prior to the capital increase. The capital increase did not cause significant changes in the structure of large shareholders of the BES.

Share capital increases to be resolved by the General Meeting must be approved by two thirds of the votes cast in the meeting, whether the General Meeting successfully convenes on a first or second notice. Pursuant to BES’ articles of association, for the General Meeting to convene on a first notice it is necessary that shareholders whose shares represent at least 50% of the share capital are present or represented. On a second notice, the General Meeting may convene regardless of the number of shareholders present or represented and the capital they represent.

Other Securities In accordance with its articles of association, BES can issue any type of legally permitted debt, including bonds, convertible bonds and bonds with warrants, or any other securities, under the terms of applicable law. The issuance of bonds or any other securities is subject to a Board resolution or to a resolution of the Executive Committee pursuant to the respective delegation of powers, with the exception of securities whose issuance is exclusively subject to a General Meeting resolution.

BES can also, by means of the Board, perform transactions over bonds and other treasury securities.

BES has no convertible bonds, exchangeable bonds or warrants.

264 Articles of Association Description of Rights Attached to the Shares All BES’ shares are ordinary and there are no different categories of shares. Thus, in accordance with the Portuguese Companies Code and its articles of association, all of BES’ shares contain the following economic and political rights: • Voting right: Each group of 100 shares represents one voting right. Shareholders who hold less than 100 shares cannot participate in or observe the meetings of the General Meeting, but may pool their shares, under the terms of applicable law. Shareholders with more than one vote cannot vote both affirmatively and negatively on the same proposal (however, shareholders who, as professionals, hold shares in their own name but also on behalf of their clients, may vote in different directions with their shares, provided that certain statutory procedures are complied with); • Right to participate in the General Meeting: Shareholders are entitled to attend, participate, discuss and vote in BES’ General Meeting or any of its sessions, in case of suspension, provided that at the registration date, i.e., at 00:00 hours (GMT) of the fifth trading day prior to the General Meeting, they hold shares that entitle them, pursuant to the law and the articles of association, to at least one vote, and further provided that they have declared their intention to participate in the Meeting, in writing, to the Chairman of the Board of the General Meeting and the financial intermediary with whom they have opened an individual securities no later than the previous date of the above-mentioned registration date. Additionally, shareholders shares corresponding to at least 2% of the Company’s share capital are entitled to request the convening of a General Meeting, as well as apply for insertion of items on the agenda or for insertion of proposals for resolution on the items mentioned on or added to the agenda. • Right to receive information regarding the company: (a) Shareholders holding shares corresponding to, at least, 1% of the share capital, may, by arguing a justified interest for this purpose, have access to and a copy of the management reports and annual financial documents related to the last three financial years, the record of documents related to the General Meetings, the global annual amounts of remuneration paid to the members of BES’ corporate bodies over the last three years, the global amounts of the ten largest remunerations paid, as well as the company’s share register; (b) shareholders are entitled to receive preparatory information for the General Meetings from the date of the notice; (c) during the General Meeting, shareholders may request information regarding matters subject to the resolution in question; and (d) shareholders holding shares corresponding to, at least, 10% of the share capital may request, in writing, information from the Board of Directors related to BES’ affairs; • Right to receive dividends from net income: the shareholders acquire the right to receive dividends on the date which the General Meeting resolves on the respective distribution, which occurs, in general, at the annual General Meeting that may take place up to five months after the end of the financial year. Payment is due 30 days after such resolution, unless shareholders approve a delay. Dividends that have not been claimed are considered to have been abandoned in favour of the Portuguese state when, within five years, the holders of the respective shares have not charged or attempted to charge that revenue, or have not manifested in any other legitimate and unequivocal manner their right to do so, in accordance with Decree-Law no. 187/70. There is no fixed rate of return of the shares, nor mandatory periodicity and the right to dividends is not cumulative. There are no applicable restrictions to dividends nor applicable procedures to non-resident holders. • Right to share in any surplus in the event of liquidation; • Pre-emption rights in the subscription of new BES shares, under the scope of share capital increases to be paid up in cash, unless said right is limited or suppressed by a resolution of the General Meeting that approves the share capital increase; • Right to receive new BES shares issued by the company as a result of an increase in share capital by incorporation of reserves; and • Right to challenge resolutions of BES’ corporate bodies in case of a breach of law or of the articles of association.

Amendments to Shareholders’ Rights Amendments to shareholders’ rights not arising from statutory changes require a resolution of the General Meeting and usually involve an amendment to BES’ articles of association.

Moreover, unless there is a specific legal rule to the contrary, when special rights are attached to a category of shares, these rights cannot be suppressed or limited without the prior consent of the respective holder given by a special General Meeting of the holders of shares of such special category.

265 Corporate Purpose Pursuant to BES’ articles of association, the corporate purpose of the company is to perform all banking industry- related activities. To this effect, BES may subscribe or acquire shares or quotas in limited liability companies even if governed by special laws and participate in incorporated joint ventures (agrupamento complementar de empresas) and in European incorporated joint ventures of an economic interest, regardless of the respective corporate purpose.

Shareholders’ General Meeting Under the terms of the applicable law and BES’ articles of association, the General Meeting is composed of shareholders with voting rights.

The articles of association provide that each 100 shares corresponds to one vote.

Shareholders with voting rights may be represented at the General Meeting by another shareholder or any person with full legal capacity. Legal entities are represented by the person indicated for that purpose. As a representation instrument, a written and signed document addressed to the Chairman of the Board of the General Meeting is required, which must be presented to BES by the fifth day prior to the date of the General Meeting to which the representation instrument refers. However, the Chairman of the Board of the General Meeting may allow a representative who was not appointed within the required time-frame to participate provided that the Chairman considers that his participation is not an obstacle to the General Meeting.

The Board of the General Meeting is comprised of a chairman, a vice-chairman and a secretary. The chairman of the Board of the Shareholders’ General Meeting convenes and manages the meetings of the General Meeting under the terms of the annual Shareholders’ General Meeting Regulation. Meetings are convened with a minimum 21-day prior notice, such notice containing the agenda items and the date of the General Meeting.

BES’ articles of association allow for the shareholders to vote by post, and their votes are counted to form the constituting quorum of the General Meeting, as well as for the second notice of the General Meeting. The Chairman of the Board of the General Meeting must verify the authenticity, regularity and confidentiality of the votes cast by post. Votes cast by post must be received three days prior to the General Meeting. Voting by electronic means, including via electronic mail and the Internet, is not permitted.

The preparatory information for the General Meeting is provided to the shareholders at the date of publication of the relevant notice.

The General Meeting convenes at least once a year, or when the law so requires or the Board, the Audit Committee or one or more shareholders holding shares corresponding to at least 2% of the share capital by means of a written request addressed to the Chairman of the Board of the General Meeting.

The annual General Meeting must convene within five months of the date of the term of the financial year to resolve on the management report and the financial documents, the proposal for the application of profits, the general evaluation of the management and supervision of BES and on the appointments under its powers.

The General Meeting have powers to resolve on the matters that are specifically vested in them by law or by the by-laws of the company, and on those matters that are not within the powers of other corporate bodies. In particular, shareholders may only resolve on management matters upon request of the Board. As a rule, shareholder resolutions require a majority of the votes cast in order to be approved, except if the law or the by- laws provide differently. If there is more than one proposal on the appointment of Board members or statutory auditors, the winning proposal will be the one with more favourable votes. Amendments to the by-laws, mergers, de-mergers, transformation of the company or any other matters for which the law requires a qualified majority, without specifying, by a majority of two-thirds of the votes cast, whether the General Meeting meets on a first or second call. However, if a meeting is convened a second time, and if shareholders representing at least half of the share capital are present or represented, resolutions on any of the matters referred to above may be adopted by a majority of the votes cast.

In addition, under the terms of number 1 of article 34 of the RGICSF, the prior consent of the Bank of Portugal is required for BES to amend its articles of association regarding the following matters: corporate name, corporate purpose, moving of registered office outside the same municipality or a surrounding municipality, share capital reduction, creation of categories of shares or amendment to the existing categories, structure of the management and supervisory bodies, limitation of the powers of the management and supervisory bodies and dissolution.

266 Board of Directors The Board is composed of a variable number of members between a minimum of 11 to a maximum of 31, from which a chairman of the Board is appointed. One or more vice-chairmen may also be appointed. The members of the Board may be shareholders and are elected by the General Meeting for mandates of four years. Re-election is allowed. The current Board is composed of 25 members.

The powers of the Board are those provided by law and BES’ articles of association. The Board represents BES, in and out of court, actively and passively, and has full management authority, as well as the power to resolve on any matter regarding the management of the company, being able to, likewise, confess, give up and settle any kind of dispute, as well as enter into arbitration agreements.

It is also within the powers of the Board to resolve on share capital increases in cash, up to the amount of €7,500,000.00 and, following a favourable opinion from the Audit Committee, together with the issuance of debt securities or other securities pursuant to the terms permitted by law, acquisition, sale or on any other form of alienation or encumbrance of rights, establishment of the technical and administrative organisation of BES and its internal regulations, appoint attorneys with necessary specified powers, proceed, by co-opting, with the replacement of Directors, as well as the remaining powers that are provided by law or by the General Meeting.

The share capital increases to be resolved by the Board must be subject to shareholders’ pre-emption rights, except where the General Meeting resolves to limit or suppress such pre-emption rights.

The Board may designate one or more of its members to assume responsibility for certain areas of management.

Pursuant to BES’ articles of association, the Board shall hold a meeting at least quarterly, as well as whenever so requested by the Chairman, two members of the Board or by the Audit Committee. So that the Board may validly act, it is required that the majority of its members in power be present or duly represented. The resolutions of the Board are approved by an absolute majority of its members who are present or duly represented and, in the case of a tie, the Chairman has the deciding vote.

The Directors may be remunerated under the terms defined by the General Meeting or by a Remunerations Committee comprised of two or more members, shareholders or not, elected by the General Meeting for a four- year mandate, with the possibility of re-election allowed.

The responsibility of each member of the Board is secured, in any of the ways permitted by law, in the minimum amount of €250,000.

Executive Committee The day-to-day management of BES is carried out by an Executive Committee. A Chairman must be appointed from the members of the Executive Committee and shall be given a deciding vote. The Executive Committee is currently composed of 10 members.

The members of the Executive Committee may, alongside their remuneration earned as Directors, earn a variable remuneration which corresponds to a percentage of net income. In cases in which the Directors are or have been members of the Executive Committee, they are entitled to a retirement pension or a supplement to a retirement pension, under the terms approved by the General Meeting.

The Executive Committee shall operate in accordance with the terms defined by the Board and shall hold meetings whenever the corporate interest of BES so requires and, at least, weekly and whenever convened by its president.

The Board may allow the Executive Committee to designate one or more of its members to assume the responsibility for certain areas of management and delegate to one or more of its members the execution of some of its powers.

Please see “Management and Supervisory Corporate Bodies and Senior Management of BES—Board Committees—Executive Committee”.

267 Audit Committee The supervision of BES is carried out by an Audit Committee comprised of a minimum of three to a maximum of five nonexecutive Directors elected for a four-year mandate by the General Meeting simultaneously with the election of the Board. A chairman shall be appointed from amongst the members of the Audit Committee. The current composition of the Audit Committee is three members.

The Audit Committee has the powers to, among other things, supervise the management of the company; verify compliance with the law and regulations issued by the relevant banking and securities supervisory authorities and BES’ articles of association and Code of Conduct; verify the books, accounting registries and remaining documents; verify the accuracy of the financial documents; supervise the efficiency of the risk management system, the internal control system and the internal audit system; receive notices of irregularities presented by the shareholders; supervise the process of preparation and disclosure of financial information; supervise the revision of the financial documents of the company; and supervise the independence of the Statutory Accountant, as well as hire experts that may assist its members in the carrying out of their duties.

The Audit Committee shall hold a meeting at least once every two months, as well as whenever so requested by the Chairman or any of its members. So that the Audit Committee may validly resolve, it is required that the majority of its members be present. Resolutions must be approved by the majority of the members present or represented. The Chairman has a deciding vote.

Please see “Management and Supervisory Corporate Bodies and Senior Management of BES—Board Committees—Audit Committee”.

Corporate Governance Committee The Corporate Governance Committee is an internal committee of the Board of Directors and it has advisory functions. It is composed by a minimum of 3 and a maximum of 7 non executive members of the Board of Directors that are appointed by the Board of Directors, the majority of which must be independent according to the applicable statutory criteria. Currently, the Corporate Governance Committee is composed of three independent directors.

This Committee has several responsibilities both in terms of corporate governance and in terms of evaluation and remuneration of board members and senior officers. The Corporate Governance Committee has, among others, the following responsibilities: (a) monitor compliance with the guiding principles of the BES Group’s corporate governance policy; (b) express an opinion, at its own initiative or at the request of the Board, on national or international guidelines on corporate governance, viewing their possible integration into the BES Group’s corporate governance model and/or the improvement of this model; (c) verify at all times that the independence requirements of the Company’s corporate bodies are complied with and in accordance with the applicable legal and regulatory provisions; (d) inform the Board of any situations or events of which it is aware, that in its opinion represent cases of non-compliance with the established corporate governance rules and practices; (e) support and advise the Board on the filling of vacancies occurring within the Board, namely by evaluating the profile of each candidate in terms of qualifications, expertise and experience; (f) examine the Board’s policy on the selection and appointment of senior officers; (g) implement, in cooperation with the Company’s internal structures, a programme intended to acquaint newly appointed directors with the organisation and its activities, as well as with their responsibilities and duties as members of the Board; and (h) determine which areas require the upgrading of the qualifications and expertise of the Company’s directors, and make an annual proposal on the subject.

The Corporate Governance Committee shall hold a meeting at least four times a year, as well as whenever so requested by the chairman or any two of its members. So that this Committee may validly resolve, it is required that the majority of its members be present. The Committee may request the presence of all other directors at its meetings, as well as that of any senior officers of the Company.

Please see “Management and Supervisory Corporate Bodies and Senior Management of BES—Board Committees—Corporate Governance Committee—Board Committees”.

Remuneration Advisory Committee The Remuneration Advisory Committee is an internal committee of the Board with advisory functions, and it is comprised of a minimum of three and a maximum of seven Board members who are not members of the

268 Executive Committee. The members of the committee are appointed by the Board of Directors and the majority of the members shall be independent directors, as determined pursuant to the applicable laws. Currently, the Remuneration Advisory Committee is composed of three independent directors.

The Committee has the following responsibilities: (a) prepare proposals and recommendations on the fixing of the remuneration of the members of the Board and Audit Committee, and senior officers of the Company; (b) provide all necessary support and issue recommendations for the purpose of approval of the Company’s general remuneration policy for its corporate bodies and senior officers; (c) prepare proposals and recommendations to ensure that all branches, subsidiaries, including subsidiaries abroad and offshore branches, and all entities comprised within the Company’s supervision consolidation scope implement remuneration policies that are consistent among them; (d) test the capacity of the remuneration system implemented to react to external and internal events, using various possible scenarios and backtesting the model used for the purpose; and (e) ensure and carry out a revision of the Company’s remuneration policies and their implementation at least on an annual basis.

The Remuneration Advisory Committee shall hold at least annual meetings, as well as whenever so requested by its chairman or any two of its members. Meetings shall be convened with at least eight days’ prior notice. For the Committee to validly resolve, it is required that the majority of its members be present. The Committee may request the presence of other directors at its meetings, as well as that of any senior officers of the Company.

Please see “Management and Supervisory Corporate Bodies and Senior Management of BES—Board Committees—Remuneration Advisory Committee”.

Statutory Auditor The review of BES’ accounts is carried out by a statutory auditor, nominated by the Audit Committee and appointed by the General Meeting, together with the alternate statutory auditor.

Company Secretary and Alternate In accordance with BES’ articles of association, a company secretary and its alternate shall be appointed by the Board for a mandate duration corresponding to the respective Board’s mandate.

The company secretary has the powers set forth by applicable law.

Binding of BES Pursuant to its articles of association, BES is bound by: • the majority of the members of the Board; • the Chairman of the Board, together with the chairman of the Executive Committee; • one vice-chairman of the Board, together with the chairman of the Executive Committee; • two Directors that are members of the Executive Committee • one member of the Executive Committee acting jointly with an attorney, within the limited powers granted by a power of attorney; • two Directors that are members of the Audit Committee, within the scope of their respective powers; and • attorneys of the company, within the limited powers granted by a power of attorney.

Shares Pursuant to BES’ articles of association, there are no provisions with the effect of delaying, deferring or preventing a change in control of the company, notably, there are no provisions restricting the acquisition or transfer of shares. The shares representing BES’ share capital are not convertible.

All BES shares are ordinary shares conferring the same political and economic rights. There are no shares conferring special rights or privileges nor any shares carrying multiple voting rights.

Under the terms pursuant to article 16 of the Portuguese Securities Code, a shareholder with a shareholding equal to or larger than, or that becomes smaller than, 2%, 5%, 10%, 15%, 20%, 25%, 33.3%, 50%, 66.6%, and 90% of BES’ share capital and voting rights must inform the Portuguese Securities Commission and BES, within four trading days of such shareholding percentage change.

269 Additionally, any entity reaching or exceeding a long position of 2%, 5%, 10%, 15%, 20%, 25%, one third, 40%, 45%, half, 55%, 60%, two thirds, 70%, 75%, 80%, 85% and 90% of the share capital of a issuer subject to Portuguese Law, whose shares are admitted to trading on a regulated market located or operating in Portugal and whoever reduces its position to a value less than any of the thresholds mentioned above, shall within four trading days of the occurring fact, inform the CMVM and the invested company. Long positions include the agreements or financial instruments of similar economic effect to holding shares (due to the exposure to benefits resulting from the increase and to the risks due to depreciation of share prices via an agreement or the acquisition of a financial instrument), such as contracts for differences, cash-settled swaps, cash-settled options or cash-settled futures and forwards contracts, although they alone do not generate the attribution of voting rights.

Under the terms pursuant to articles 483 and 484 of the Portuguese Companies Code, shareholders with a shareholding equal to or larger than 10% of BES’ share capital must inform BES whenever acquiring or selling shares representing BES’ share capital, as long as the shareholding is less than or equal to 10%. Under the terms pursuant to article 485 of the Portuguese Companies Code, companies in a reciprocal relationship in relation to their equity interests shall be subject to the same disclosure requirements, and the last such company making such communication that the 10% stake has been reached cannot acquire additional stakes in the other company’s share capital.

BES’ shares do not carry any “poison pill” features exercisable in the event of a change of control event or a change of the Board of Directors that are detrimental to the free transfer of shares and the appraisal by the shareholders of the Board of Directors’ work.

Treasury Shares Pursuant to articles 316 et. seq. of the Portuguese Companies Code, a company is not allowed to subscribe to its own shares and generally, to issue guarantees or lend money to any third party in connection with the subscription for or acquisition of such shares, except for loans made in the ordinary course of business by banks and other financial institutions. In the event the by-laws of a company do not prohibit the acquisition of its own shares, the company may acquire or sell its own shares on terms and conditions determined at a General Meeting and, with certain exceptions, such shares, together with shares held by the company as collateral, may not exceed 10% of its share capital. During the period in which the company owns such shares, all rights attendant on the ownership of such shares are suspended except for the right to receive additional shares in the case of share capital increases through the incorporation of reserves. With certain exceptions, a Portuguese subsidiary is prohibited from subscribing for shares of its parent, and the acquisition of such shares by the Portuguese subsidiary is subject to the conditions described above.

Treasury shares of a company that exceed the 10% limit must be sold within one year (if unlawfully acquired) or within three years (if lawfully acquired). Failure to sell shares in accordance with these provisions will subject such shares to cancellation and the directors of the company to potential personal liability for damages to the company, to the creditors of the company or to third parties.

Issuers subject to Portuguese or foreign personal law with shares or other securities that confer rights of subscription, acquisition or disposal and that are admitted to trading in regulated markets located or operating in Portugal must notify the Portuguese Securities Commission of any acquisitions or disposals by them of such treasury shares or securities conferring rights over treasury shares. In addition, issuers must disclose (i) the aggregate position resulting from such transactions whenever that position exceeds or drops below 1% of the share capital, and subsequently multiples thereof and (ii) all acquisitions and disposals in the same trading session of a regulated market where such transactions amount to or exceed 5% of the traded volume for such session.

Controlling companies must give notice, in accordance with the terms of the preceding paragraph, of all acquisitions and disposals of securities issued by the controlling company itself and executed by a company controlled by it.

Preference Shares BES can issue preference shares, with or without voting rights, redeemable or not, under the terms of applicable law. These preference shares grant the right to a priority dividend taken from net income and to a priority refund of its par value in the event of liquidation of the company. The redeemable preference shares grant the shareholder asset privileges. The preference shares may be subject to redemption at a date specified by the General Meeting, and the redeemable shares will be redeemed at their nominal value.

270 TAXATION

Certain Portuguese Tax Considerations This section summarises the Portuguese tax rules, in force as of the date of this Offering Circular, applicable to income arising from the ownership, disposal and gratuitous acquisition of New Shares and the receipt, exercise and disposal of the Rights.

This summary does not analyse the tax implications that may indirectly arise from a decision to invest in the New Shares, such as those relating to the tax framework of financing obtained to support such investment or those pertaining to the counterparties of potential investors, regarding any transaction involving the New Shares.

This section is a general summary of features of the Portuguese tax system relevant to the combined Offering. This summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor in the New Shares or the Rights. It also does not contain detailed information about all special and exceptional regimes, which may entail tax consequences at variance with those described herewith.

The tax treatment of each type of potential investor described in each section applies exclusively to that type of potential investor. No analogy regarding the tax implications applicable to other type of potential investors should be drawn. Potential investors should seek individual advice about the implications of the acquisition, ownership and disposal of the New Shares and the recipt, exercise and disposal of the Rights, in light of their specific circumstances.

This summary does not include any reference to the tax framework applicable in countries other than Portugal. The rules of any convention to prevent double taxation (a “Convention”) may have a bearing on Portuguese tax implications. Furthermore, the domestic provisions of other countries may exacerbate or alleviate such implications.

The meaning of the terms adopted in respect of every technical feature, including the qualification of the securities offered as “shares” (ações), the classification of taxable events, the arrangements for taxation and potential tax benefits, among others, is the one in force in Portugal as of the date of this Offering Circular.

No other interpretations or meanings, including those potentially employed in other countries, are intended. The tax framework described in this section is subject to any changes in law and practices (and the interpretation and application thereof) at any moment.

Portuguese tax resident individuals Acquisition of New Shares for consideration The acquisition of New Shares for consideration is not subject to Portuguese taxation.

Income arising from the ownership of New Shares Profits of the Company distributed to the owners of New Shares are liable for personal income tax (Imposto sobre o Rendimento das Pessoas Singulares—“IRS”). IRS is withheld, at a 28% rate, when profits are made available. This represents a final withholding, releasing owners of the New Shares from the obligation to disclose such income to the Portuguese tax authorities and from the payment of any additional amount of IRS. The withholding tax rate is increased to 35% when dividends are paid or made available to accounts opened in the name of one or more account holders on behalf of undisclosed third parties, unless the beneficial owner of such income is identified, in which case the standard rate of 28% applies.

Alternatively, owners of New Shares may opt to declare such income on their tax returns, together with other income. In this case, only half of the income arising from the ownership of New Shares is taxable at the rate imposed by the relevant progressive tax brackets for the relevant year, up to 48%, plus a 3.5% surtax (sobretaxa extraordinária) on part of the taxable income resulting from the inclusion of such income in total income reported, plus certain income as defined by law which exceeds the annual minimum wage (currently €6,790) and a solidarity tax (taxa adicional de solidariedade) of up to 5% on taxable income exceeding €250,000 (2.5% on taxable income below €250,000, but exceeding €80,000). The progressive taxation under the IRS rules may then go up to 56.5%. Tax withheld is deemed a payment on account of the final tax due. Opting to declare income arising from the ownership of shares on a tax return results in the need to aggregate such income with other income ordinarily subject to final withholding tax (taxas liberatórias) or special tax rates (taxas especiais), such as interest and capital gains.

271 Capital gains and capital losses arising from the disposal of New Shares for consideration An annual positive balance between capital gains and capital losses arising from the disposal of shares (and other assets indicated under Portuguese law) for consideration, is taxed at a special 28% IRS rate.

For the purposes of computing taxable capital gains (i) the acquisition value, in the case of shares listed on a stock exchange (such as the New Shares), is determined by the cost (as documentarily evidenced), or failing that, the lowest price recorded on the stock exchange in the two years prior to the date of disposal, if another lower cost is not declared (ii) the necessary and effectively incurred costs upon the disposal (e.g. trading expenses) are added to the acquisition value (the cost basis) of the shares, and (iii) shares that were acquired first are considered as being sold first (first in, first out method).

Alternatively, the owners of New Shares may opt to declare such income on their tax returns, together with other income. In this case, capital gains are taxable at the rate imposed by the relevant progressive tax brackets for the relevant year, up to 48%, plus a 3.5% surtax (sobretaxa extraordinária) on part of the taxable income resulting from the inclusion of such income in total income reported, plus certain income as defined by law which exceeds the annual minimum wage (currently €6,790) and a solidarity tax (taxa adicional de solidariedade)ofupto5% on taxable income exceeding €250,000 (2.5% on taxable income below €250,000, but exceeding €80,000). Under IRS rules, the tax rate may then go up to 56.5%. Electing to declare the capital gains or capital losses arising from the disposal of shares for consideration on a tax return results in the need to aggregate such income with other income ordinarily subject to final withholding tax (taxas liberatórias) or special tax rates (taxas especiais), such as interest and dividends.

A negative balance between capital gains and capital losses can be carried forward (but only against income of the same nature) for two years if an individual elects to include capital gains as part of overall taxable income.

Losses arising from disposals for consideration in favour of counterparties subject to a clearly more favourable tax regime, namely counterparties resident for tax purposes in a country, territory or region listed in the Ministerial Order no. 150/2004 of 13 February 2004, as amended by Ministerial Order no. 292/2011, of 8 November 2011, (“Blacklist”) are disregarded for purposes of assessing the positive or negative balance referred to in the previous paragraphs.

Gratuitous acquisition of New Shares The gratuitous acquisition (following death or during life of the previous owner) of New Shares by Portuguese tax resident individuals is liable for stamp tax at a 10% rate. Spouses and certain relatives are exempt from stamp tax on such acquisitions.

Rights The receipt and exercise of Rights are not taxable events under Portuguese tax rules. Capital gains derived from the disposition of the Rights are subject to Portuguese tax at a rate of 28% when realised by resident individual holders.

Non-Portuguese tax resident individuals Acquisition of New Shares for consideration The acquisition of New Shares for consideration is not subject to Portuguese taxation.

Income arising from the ownership of New Shares Profits of the Company made available to the owners of New Shares are liable for IRS. IRS is withheld, at a 28% rate, when profits are made available. This represents a final withholding, releasing the owners of the New Shares from the obligation to disclose such income to the Portuguese tax authorities and from the payment of any additional amount of IRS.

The above rate may be reduced pursuant to a Convention in force between Portugal and the country where the owner of the New Shares is a resident for tax purposes, provided that both substantive and formal conditions on which the application of such benefit depends are duly observed. In broad terms, under Portuguese tax law, these formalities consist of the certification of the tax residence of the owner of the New Shares which requires filling- out a specific form (Mod. 21-RFI) which should be certified by the competent authorities of the recipient’s state

272 of residence or, as an alternative to having the specific form (Mod. 21-RFI) duly certified, complemented by a document issued by the competent authorities of the recipient’s state of residence attesting the investor’s residence for tax purposes during the relevant period and the liability for tax in that state.

The withholding tax rate is increased to 35% if (i) the shareholder is an entity resident in a country, territory or region subject to a clearly more favourable tax regime, as listed in the Blacklist or (ii) payments are made to accounts opened in the name of one or more account holders on behalf of undisclosed third parties, unless the beneficial owner of such income is identified, in which case the standard rate of 28% applies.

Capital gains and capital losses arising from the disposal of New Shares for consideration Several IRS exemptions are set out in law, notably a tax exemption for capital gains arising from the disposal of shares for consideration. This exemption does not apply in case the seller is resident for tax purposes in a country, territory or region subject to a clearly more favourable tax regime, listed in the Blacklist.

Regardless of the applicability of the above-mentioned, capital gains arising from the disposal of shares for consideration by a seller resident for tax purposes in a country with which there is a Convention in force with Portugal are usually excluded from taxation in Portugal pursuant to such Convention.

An annual positive balance between capital gains and capital losses arising from the disposal of shares which do not benefit from an exemption are taxed at a 28% rate, which is increased to 35% in case the investor is located in a country, territory or region subject to a clearly more favourable tax regime, listed in the Blacklist.

No withholding tax is levied on capital gains arising from the disposal of shares which are subject to Portuguese tax.

Gratuitous acquisition of New Shares The gratuitous acquisition (following death or during life of the previous owner) of New Shares by non- Portuguese tax resident individuals is not liable for Portuguese stamp tax.

Rights The receipt and exercise of Rights are not taxable events under Portuguese tax rules. The tax treatment of the disposition of Rights by non-resident holders follows the treatment of the capital gains treatment of the sale of shares and may benefit from an exemption under certain circumstances as described above.

Corporate entities resident for tax purposes in Portugal or non-resident corporate entities with a permanent establishment to which income associated with the New Shares is imputable Acquisition of New Shares for consideration The acquisition of New Shares for consideration is not subject to Portuguese taxation.

Income arising from the ownership of New Shares Profits of the Company made available to owners of New Shares are liable for corporate income tax (Imposto sobre o Rendimento das Pessoas Colectivas—“IRC”). IRC is withheld, at a 25% rate, when profits are made available. This withholding represents an advance payment on account of the final IRC liability. IRC is levied on taxable income (computed as the taxable profit minus tax losses carried forward) at a rate of up to 23% (small and medium-sized enterprises, as defined by law and subject to the de minimis rule of the EU, avail of a 17% IRC rate for the first €15,000 of taxable income). A municipal surcharge, at variable rates (as set by municipal bodies) of up to 1.5% of taxable profit may also apply. Moreover, corporate taxpayers are also subject to a State surcharge of 3% on the portion of the taxable profit between €1.5 million and €7.5 million, of 5% on the portion of the taxable profits between €7.5 million and €35 million and of 7% on the portion exceeding €35 million.

If an owner of New Shares is not taxed under the tax transparency regime and holds shares representing at least 5% of the share capital or of the voting rights, profits made available by the Company will be disregarded for the purposes of computing taxable profit, provided the shares are held for a minimum uninterrupted period of twenty four months. If this holding period has already elapsed prior to the date on which the profits are made available, the owner is exempt from the withholding at a 25% rate referred to in the previous paragraph. In the event the minimum twenty-four months holding period only elapses after such date, the IRC withheld will be refundable.

273 There is no obligation to withhold tax, partially or entirely, on profits of the Company made available to taxpayers exempt from IRC (for instance: the Portuguese Republic and other corporate entities subject to administrative law; corporate entities recognised as having public interest and charities; pension funds; retirement savings funds, education savings funds and retirement and education savings funds; venture capital funds; and shares savings funds, provided that, with respect to all the above funds, they are organised and operate in accordance with Portuguese law) or which benefit from a total or partial exemption on the profits made available by the Company, assuming that proof of such exemption is presented to the entity responsible for the payment.

An autonomous taxation, at a 23% rate, applies to profits distributed by the Company to entities which are totally or partial exempt from IRC (including investment income, in the case of a partial exemption) if the New Shares are not held by those entities for a minimum period of one year, which may be completed after the date on which the profits are made available. This autonomous taxation is increased by 10 percentage points if the investor has had tax losses in the relevant year.

This withholding tax rate is increased to 35% when dividends are paid or made available to accounts opened in the name of one or more account holders on behalf of unidentified third parties, unless the beneficial owner of such income is identified, in which case the standard rate above applies.

Capital gains and capital losses arising from the disposal of New Shares for consideration Capital gains and capital losses are taken into consideration for the purposes of computing taxable profit subject to IRC. IRC is levied on taxable income (computed as taxable profit minus tax losses carried forward) at a rate of up to 23% (small and medium-sized enterprises, as defined by law and subject to the de minimis rule of the EU, avail of a 17% IRC rate for the first €15,000 of taxable income). A municipal surcharge, at variable rates (as set by municipal bodies) of up to 1.5% of taxable profit may also apply. Moreover, corporate taxpayers are also subject to a State surcharge of 3% on the portion of the taxable profit between €1.5 million and €7.5 million, of 5% on the portion of the taxable profits between €7.5 million and €35 million and of 7% on the portion exceeding €35 million.

If the owner of the New Shares is not taxed under the tax transparency regime and holds shares representing at least 5% of the share capital or of the voting rights, capital gains resulting from the disposal for consideration of the shares will be disregarded for purposes of computing the taxable profit, provided the shares were held for a minimum uninterrupted period of twenty four months.

For the purposes of computing capital gains and capital losses, the cost of acquisition of New Shares held for at least two years prior to a disposal for consideration is adjusted on the basis of inflation indexes approved annually by the Ministry of Finance.

Capital losses related to a shareholding in a subsidiary are not deductible, up to the amount of a tax-free dividend distribution (under the rules set out above in “Corporate entities resident for tax purposes in Portugal or non- resident corporate entities with a permanent establishment to which income associated with the New Shares is imputable—Income arising from the ownership of New Shares”) or a tax-free capital gain (under the participation exemption set out above in “Corporate entities resident for tax purposes in Portugal or non-resident corporate entities with a permanent establishment to which income associated with the New Shares is imputable—Capital gains and capital losses arising from the disposal of New Shares for consideration”) made in the previous four years in respect of that subsidiary.

Gratuitous acquisition of New Shares Increases in net worth not reflected in the profit and loss account of a given financial year and that arise from the gratuitous acquisition of New Shares by a Portuguese tax resident corporate entities liable for IRC, even if exempt therefrom, or by permanent establishments to which they are imputable, are considered for the purposes of computing the taxable profit subject to IRC.

IRC is levied on taxable income (computed as taxable profit minus tax losses carried forward) at a rate of up to 23% (small and medium-sized enterprises, as defined by law and subject to the de minimis rule of the EU, avail of a 17% IRC rate for the first €15,000 of taxable income). A municipal surcharge, at variable rates (as set by municipal bodies) of up to 1.5% of taxable profit may also apply. Moreover, corporate taxpayers are also subject to a State surcharge of 3% on the portion of the taxable profit between €1.5 million and €7.5 million, of 5% on the portion of the taxable profits between €7.5 million and €35 million and of 7% on the portion exceeding €35 million.

274 Rights The receipt and exercise of Rights are not taxable events under Portuguese tax rules. Gains derived from the disposition of the Rights are subject to the corporate tax general framework when realised by resident corporate holders.

Corporate entities not resident for tax purposes in Portugal and without a permanent establishment to which income associated with the New Shares is imputable Acquisition of New Shares for consideration The acquisition of New Shares for consideration is not subject to Portuguese taxation.

Income arising from the ownership of New Shares Profits of the Company made available to owners of New Shares are liable for IRC. IRC is withheld, at a 25% rate, when profits are made available. This represents a final withholding, releasing the owners of the New Shares from the obligation to disclose such income to the Portuguese tax authorities and from the payment of any additional amount of IRC.

The above rate may be reduced pursuant to a Convention in force between Portugal and the country where the owner of New Shares is resident for tax purposes, provided that both substantive and formal conditions on which the application of such benefit depends are duly observed. In broad terms, under Portuguese tax law, these formalities consist of the certification of the tax residence of the owner of the New Shares which requires filling- out a specific form (Mod. 21-RFI) which should be certified by the competent authorities of the recipient’s state of residence or, as an alternative to having the specific form (Mod. 21-RFI) duly certified, complement it with a document issued by the competent authorities of the recipient’s state of residence attesting the investor’s residence for tax purposes during the relevant period and the liability for tax in that state.

If the shareholder is an entity resident in a country, territory or region subject to a clearly more favourable tax regime, as listed in the Blacklist, the withholding tax rate is increased to 35% The withholding tax rate is also 35% when dividends are paid or made available on accounts in the name of one or more holders but on behalf of unidentified third parties, except when the beneficial owner is identified, in which case the standard rate of 25% applies.

Profits of the Company made available to entities (i) in the EU, (ii) in the European Economic Area (but only if the relevant member state is obliged to provide administrative cooperation on taxation equivalent to that which exists within the EU), or (iii) in a jurisdiction with which Portugal has concluded a Convention setting out administrative cooperation procedures on taxation matters equivalent to the ones applicable in the EU may be tax exempt in Portugal, as long as the recipient holds directly, or directly and indirectly, for an uninterrupted period of at least twenty four months, at least 5% of the capital or voting rights of the Company and is subject to (and not exempt from), in (i), to one of the taxes foreseen in article 2 of the Directive 2011/96/EU in (ii) and (iii), a tax equivalent to IRC, which in the case of (iii) must correspond to a rate of at least 60% of the IRC rate. If the minimum twenty four months holding period has already elapsed prior to the date on which the profits are made available, the owner is exempt from the withholding tax at a 25% rate referred to in the previous paragraph. In the event the minimum twenty four months holding period only elapses after such date, the IRC withheld will be refundable. For both the exemption or refund purposes, it is necessary to comply with certain formalities required by Portuguese tax law, consisting in broad terms of the certification of compliance of all conditions mentioned above through specific documentation. This exemption also applies to entities resident in Switzerland, in accordance with an agreement between Switzerland and the EU, if, among other conditions, such entities hold a participation in a Portuguese company of at least 25% for a minimum period of two years.

Capital gains and capital losses arising from the disposal of New Shares for consideration Pursuant to the Portuguese Tax Benefits Code, capital gains arising from the disposal of New Shares for consideration are exempt from taxation, unless: (i) the seller is directly or indirectly held, by more than 25%, by Portuguese tax resident entities; or (ii) the seller is resident for tax purposes in a country, territory or region subject to a clearly more favourable tax regime, listed in the Blacklist.

275 Regardless of the above mentioned Portuguese Tax Benefits Code capital gains exemption being applicable, capital gains arising from the disposal of New Shares for consideration by a seller resident for tax purposes in a country which has a Convention in force with Portugal are usually excluded from taxation in Portugal pursuant to such Convention.

An annual positive balance between capital gains and capital losses arising from the disposal of shares (and other assets indicated under Portuguese law, when subject to tax in Portugal) for consideration, minus the costs necessary and effectively incurred in such disposal, is taxed at a 25% rate.

No withholding tax is levied on capital gains arising from the disposal of shares which are subject to Portuguese tax; for the purposes of assessing and paying such taxable capital gains an investor should file a Portuguese annual corporate income tax form (Declaração modelo 22 de IRC).

Losses arising from disposals for consideration in favour of counterparties subject to a clearly favourable tax regime in the country, territory or region where it is a tax resident, listed in the Blacklist, are disregarded for the purposes of assessing the positive or negative balance referred to above.

Gratuitous acquisition of New Shares Gains arising from the gratuitous acquisition of New Shares by corporate entities not resident for tax purposes in Portugal and without a permanent establishment to which they are imputable are taxed at a 25% rate.

Rights The receipt and exercise of Rights are not taxable events under Portuguese tax rules. The tax treatment of the disposition of Rights by non-resident holders follows the treatment of the capital gains treatment of the sale of New Shares and may benefit from an exemption under certain circumstances as described above.

Certain U.S. Federal Income Tax Considerations THIS DISCLOSURE IS LIMITED TO THE U.S. FEDERAL INCOME TAX ISSUES ADDRESSED HEREIN. ADDITIONAL ISSUES MAY EXIST THAT ARE NOT ADDRESSED IN THIS DISCLOSURE AND THAT COULD AFFECT THE U.S. FEDERAL INCOME TAX TREATMENT OF THE RIGHTS AND NEW SHARES. THIS TAX DISCLOSURE WAS WRITTEN IN CONNECTION WITH THE MARKETING OF RIGHTS AND NEW SHARES BY BES AND IT CANNOT BE USED BY ANY PERSON FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE ASSERTED UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). TAXPAYERS SHOULD SEEK THEIR OWN ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER.

The following is a description of certain U.S. federal income tax consequences to U.S. Holders (defined below) of the receipt, exercise and disposition of Rights and of acquiring, owning and disposing of New Shares, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s investment decision. This discussion applies only to a U.S. Holder that holds Existing Shares, and will hold New Shares, as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including consequences of the alternative minimum tax and the Medicare tax on net investment income and tax consequences applicable to U.S. Holders subject to special rules, such as: • certain financial institutions, insurance companies and regulated investment companies; • dealers or traders in securities who use a mark-to-market method of tax accounting; • persons holding Rights or Shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the shares; • persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; • entities classified as partnerships for U.S. federal income tax purposes; • tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”; • persons that own or are deemed to own ten percent or more of BES’ voting stock; or • persons holding Rights or Shares in connection with a trade or business conducted outside of the United States.

276 If an entity that is classified as a partnership for U.S. federal income tax purposes holds Rights or New Shares, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. Entities classified as partnerships for U.S. federal income tax purposes 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 Rights and New Shares that apply to them.

This discussion is based on the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the income tax treaty between Portugal and the United States (the “Treaty”), all as of the date hereof, any of which is subject to change, possibly with retroactive effect.

A “U.S. Holder” is a person that is a beneficial owner of New Shares or Rights, as the case may be, that is for U.S. federal income tax purposes: • a citizen or individual resident of the United States; • a corporation created or organised in or under the laws of the United States, any state therein or the District of Columbia; or • an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of the receipt, exercise and disposition of Rights and of acquiring, owning and disposing of New Shares in their particular circumstances.

This discussion assumes that BES is not, and will not become, a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes, as described below. BES’ possible status as a PFIC must be determined annually and therefore may be subject to change. If BES were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders.

Taxation of the Rights The receipt of the Rights by a holder of Existing Shares that is a U.S. Holder (an “Existing U.S. Holder”) pursuant to the Rights Offering should be treated as a non-taxable distribution with respect to the Existing Shares for U.S. federal income tax purposes. If the fair market value of the Rights received is 15% or more of the fair market value of the Existing Shares on the date the Rights are received, an Existing U.S. Holder’s basis in the Existing Shares must be allocated between the Existing Shares and the Rights in proportion to their respective fair market values, as determined on the date of receipt. On the other hand, if the fair market value of the Rights is less than 15% of the fair market value of the Existing Shares on the date the Rights are received, the Rights will have a zero basis for U.S. federal income tax purposes, unless the Existing U.S. Holder affirmatively elects to allocate basis in proportion to the relative fair market values of the Existing Shares and the Rights received, as determined on the date of receipt. This election must be made in the tax return for the taxable year in which the Rights are received and is irrevocable.

The exercise of a Right by, or on behalf of, an Existing U.S. Holder will not be a taxable transaction for U.S. federal income tax purposes. The basis of each New Share acquired upon exercise of the Right will equal the sum of the U.S. dollar value of the Subscription Price determined at the spot rate on the date of exercise and the tax basis (as determined above) of the Right exercised. The holding period of the New Shares acquired by the exercise of Rights will begin on the day the Rights are exercised.

Gain or loss realised on a sale of Rights by an Existing U.S. Holder will be capital gain or loss, and will be long- term capital gain or loss if the Existing U.S. Holder’s holding period for the Rights is more than one year. For these purposes, the holding period for the Rights will include the holding period of the Existing Shares with respect to which the Rights were distributed. The amount of the gain or loss will be equal to the difference between the tax basis in the Rights sold (as determined above) and the U.S. dollar value of the amount realised on the sale. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

In the event an Existing U.S. Holder allows the Rights to expire, the Rights will be deemed to have a zero basis and, therefore, the Existing U.S. Holder will not recognise any loss upon the expiration of the Rights. In addition, the tax basis of the Existing Shares with respect to which the expired Rights were distributed will remain unchanged compared to their tax basis prior to the Rights Offering.

277 Taxation of Distributions Distributions paid on New Shares, other than certain pro rata distributions of Shares, generally will be reportable as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be taxable at favourable rates, provided BES qualifies for the benefits of the Treaty.

The amount of a dividend will include any amounts withheld by BES in respect of Portuguese taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of receipt. The amount of any dividend income paid in euros generally will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognise 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 such foreign currency gain or loss will be treated as ordinary income or loss and will be U.S.-source income or loss for foreign tax credit limitation purposes.

Subject to applicable limitations, Portuguese income taxes withheld from dividends on New Shares at a rate not exceeding any applicable Treaty rate will be creditable against the U.S. Holder’s U.S. federal income tax liability (see “Taxation—Certain Portuguese Tax Considerations—Income Derived from the Holding of New Shares in Portuguese Companies—Non-Resident Individuals without a Permanent Establishment in Portugal—Income arising from holding New Shares” for a discussion of how to obtain the Treaty rate), but any Portuguese taxes withheld in excess of the applicable Treaty rate will not be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. As an alternative to claiming a foreign tax credit, a U.S. Holder may claim a deduction for Portuguese withholding taxes (subject to generally applicable limitations), but, in general, may do so only for a year for which such U.S. Holder elects to do so with respect to all foreign income taxes. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisers regarding the creditability or deductibility of foreign taxes in their particular circumstances.

Sale or Other Disposition of New Shares Gain or loss realised on the sale or other disposition of New Shares will be capital gain or loss, and will be long- term capital gain or loss if the U.S. Holder held the New Shares for more than one year. The amount of the gain or loss will equal the difference between the amount realised on the sale or other disposition and the U.S. Holder’s adjusted tax basis in the New Shares disposed of, in each case as determined in U.S. dollars. Long-term capital gain of certain non-corporate U.S. Holders is generally taxable at favourable rates. The deductibility of capital losses is subject to limitations. Any gain or loss that a U.S. Holder recognises on a disposition of New Shares will generally be U.S.-source gain or loss for foreign tax credit limitation purposes.

Passive Foreign Investment Company Rules In general, a non-U.S. corporation will be a PFIC for any taxable year if (i) 75% or more of its gross income consists of passive income or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. Passive income generally includes dividends, interest, rents, royalties and capital gains. Based upon proposed Treasury regulations dealing with the application of the PFIC rules to foreign banks, BES does not believe that it will be a PFIC for its current taxable year and does not expect to become a PFIC in the foreseeable future. However, because there are uncertainties in the application of the relevant rules and because BES’ PFIC status depends upon the composition of its income and assets and the market value of its assets (including, among others, less-than-25%-owned equity investments) from time to time, there can be no assurance that BES will not be a PFIC for any taxable year.

In general, if BES were a PFIC for any taxable year during which a U.S. Holder held Shares, or under proposed Treasury regulations, Rights, gain recognised by a U.S. Holder on a sale or other disposition (including certain pledges) of the Shares, or under proposed Treasury regulations, Rights, would be allocated ratably over the U.S. Holder’s holding period for the Shares or Rights. The amounts allocated to the taxable year of the sale or other disposition and to any year before BES became a PFIC would generally be taxed as ordinary income. The amount allocated to each other taxable year would generally 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 generally be imposed on the tax liability for such taxable year. Further, to the extent that any distribution received by a U.S. Holder on its Shares exceeds 125% of the average of the annual distributions on the Shares received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would generally

278 be subject to taxation in the same manner as gain, described immediately above. Certain elections, such as a mark-to-market election, may be available that would result in alternative treatments of the Shares, but not Rights. 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.

Information Reporting and Backup Withholding Payments 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 (i) the U.S. Holder is a corporation or other exempt recipient or (ii) 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 may be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.

Foreign Financial Asset Reporting U.S. taxpayers that own certain foreign financial assets, including equity of foreign entities, with an aggregate value in excess of $50,000 at the end of the taxable year or $75,000 at any time during the taxable year (or, for certain individuals living outside the United States and married individuals filing joint returns, certain higher thresholds) may be required to file an information report with respect to such assets with their tax returns. The New Shares are not expected to constitute foreign financial assets subject to these requirements while the New Shares are held in an account at a financial institution (but the account through which the New Shares are held may be reportable if maintained by a foreign financial institution). U.S. Holders should consult their tax advisers regarding the application of the rules relating to foreign financial asset reporting.

279 PLAN OF DISTRIBUTION AND ARRANGEMENT

BES and the Underwriters listed in the table immediately below have entered into the Underwriting Agreement with respect to the Remaining Shares.

Banco Espírito Santo de Investimento, S.A., Morgan Stanley & Co. International plc and UBS Limited are acting as Joint Global Coordinators of the Institutional Offering (the “Joint Global Coordinators”). The Joint Global Coordinators, Merrill Lynch International, Citigroup Global Markets Limited, J.P. Morgan Securities plc and Nomura International plc are acting as Joint Bookrunners for the Combined Offering (the Joint Bookrunners (other than Banco Espírito Santo de Investimento, S.A.), the “Lead Underwriters”). The Underwriters have severally (and not jointly) agreed, subject to certain conditions, to procure subscribers, or to themselves to subscribe, at the Subscription Price, up to a maximum of 1,607,033,212 New Shares, in the percentages set forth below:

Percentage of Remaining Shares to be subscribed Underwriters for Banco Espírito Santo de Investimento, S.A...... 0% Morgan Stanley & Co. International plc ...... 15% UBS Limited ...... 15% Merrill Lynch International ...... 15% Citigroup Global Markets Limited ...... 15% J.P. Morgan Securities plc ...... 15% Nomura International plc ...... 15% Banca IMI S.p.A...... 1% Banco Bilbao Vizcaya Argentaria, S.A ...... 1% Banco Santander, S.A...... 1% COMMERZBANK Aktiengesellschaft ...... 1% Crédit Agricole Corporate and Investment Bank ...... 1% ING Bank N.V...... 1% KBC Securities NV ...... 1% Keefe, Bruyette & Woods Limited ...... 1% Mediobanca—Banca de Credito finanziario S.p.A ...... 1% Société Générale ...... 1% Total ...... 100%

The Portuguese Companies Code limits the possibility of companies subscribing for their own shares (directly or through an affiliate). As a result, Banco Espírito Santo de Investimento, S.A., an affiliate of BES and a Joint Global Coordinator and Joint Bookrunner in the Institutional Offering, will not assume an underwriting commitment.

BES agrees that the Remaining Shares may be resold by the Underwriters through a private placement. The Rights and the New Shares have not been, and will not be, registered under the Securities Act and will not be offered or sold by the Underwriters within the United States.

Espírito Santo Financial Group, S.A. has informed BES that it intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell during the Rights Offering Shares or Rights for New Shares and reinvest in full the net proceeds from such sale in the subscription of New Shares in the Rights Offering. Crédit Agricole also has informed BES that it intends to subscribe New Shares in the Rights Offering. For that purpose it intends to sell Shares or Rights and reinvest approximately €10 million of the net proceeds thereof in the subscription of New Shares in the Rights Offering.

280 BES and the Underwriters have entered into an Underwriting Agreement governed by English law, under which the Underwriters have agreed, subject to certain conditions, to procure subscribers or otherwise subscribe themselves, for New Shares not otherwise subscribed for pursuant to the Rights Offering, up to the limit of 1,607,033,212 New Shares (100% of the Combined Offering).

The Underwriting Agreement is subject to the fulfilment of certain conditions. The Underwriting Agreement may be terminated upon the occurrence of certain events, including, among other things, certain events of force majeure or the breach of representation and warranties by BES under such agreement.

The Underwriting Agreement may be terminated by a majority in number of Lead Underwriters at any time prior to the issue of the New Shares, in situations including: (i) any change in the financial condition, business or operations, or in any other significant aspect of the business of BES and its subsidiaries, taken as a whole, that, in the judgment of the majority of the Lead Underwriters, is material and adverse and that makes it, in the judgment of the majority of the Lead Underwriters, impracticable or inadvisable to market the Combined Offering and the New Shares on the terms and in the manner contemplated in the Underwriting Agreement; (ii) when trading generally shall have been suspended or materially limited on, or by, as the case may be, the New York Stock Exchange, Euronext Lisbon or the London Stock Exchange, or if trading of any securities issued by BES shall have been suspended on any exchange or in any over-the-counter market; (iii) a material disruption in securities settlement, payment or clearance services in the United States, the United Kingdom or Portugal; (iv) the declaration of any moratorium on or suspension of commercial banking activities by Portuguese, United Kingdom, U.S. Federal or New York State authorities; or (v) any outbreak or escalation of hostilities or acts of terrorism, or any actual or prospective change in financial markets, currency exchange rates or controls or any actual or prospective calamity or crisis that, in the judgment of the majority of the Lead Underwriters, is material and adverse and which makes it, in the judgment of the majority of the Lead Underwriters, impracticable or inadvisable to proceed with the Rights Offering or the sale or delivery of the New Shares on the terms and in the manner contemplated in the Underwriting Agreement.

The Underwriting Agreement may also be terminated by any party in case of a breach of the Underwriters’ obligation to subscribe for over one quarter of the remaining shares after applying resolution mechanics set out in the Underwriting Agreement.

Termination of the Underwriting Agreement shall in no way prevent BES from proceeding with the Rights Offering.

As Rights will be granted to Existing Shareholders proportionally to the shares they hold in the share capital of BES, some of the members of the Board of Directors will be granted Rights as they are also Existing Shareholders. BES has not been informed of the intention of the members of its management and supervisory bodies to subscribe for the New Shares.

BES has agreed to pay the Underwriters a commission of 2.0% of the aggregate Subscription Price for 1,607,033,212 New Shares (of which 0.25% shall correspond to a praecipium deductible by the Lead Underwriters and payable only to them). In addition, BES at its discretion may pay the Lead Underwriters a further incentive fee of up to 0.5% of the aggregate Subscription Price for 1,607,033,212 New Shares that is due even if all of the New Shares are subscribed for and the Underwriters have no obligation to subscribe for any New Shares. BES will also pay to each Joint Global Coordinator a fee of €250,000 regardless of the number of New Shares subscribed. In the event that all of the New Shares are subscribed for in the Rights Offering, the Underwriters will have no obligation to subscribe for any New Shares under the Underwriting Agreement but will be entitled to receive their commission.

BES Investimento, an affiliate of BES, is one of the Joint Global Coordinators in the Combined Offering and is responsible for the preparation and coordination of the process for obtaining approval of the Portuguese Prospectus and for the admission of the New Shares to trading on Euronext Lisbon. For these services BES will pay BES Investimento a fee equal to 0.304% of the aggregate Subscription Price for the number of New Shares actually subscribed for in the Combined Offering (which excludes the €250,000 fee described above) and may pay a further incentive fee of up to 0.083% of the aggregate Subscription Price for the number of New Shares actually subscribed for in the Combined Offering.

BES has agreed to indemnify the Underwriters against certain liabilities, including liabilities under applicable securities laws. In addition, BES has agreed to reimburse the Underwriters for certain of their expenses. BES estimates that its total expenses for the Combined Offering, including underwriting commissions, will be approximately €33.5 million.

281 In the event that the Underwriters are required to pay BES the Subscription Price and subscribe for or procure subscribers for the Remaining Shares, any resale of such New Shares by the Underwriters will be for their own account and not on behalf of BES or on behalf of any non-exercising Existing Shareholders.

The Underwriters and their respective affiliates have performed and may in the future perform investment banking services for BES in the ordinary course of their business. BES Investimento, one of the Joint Global Coordinators and Joint Bookrunners, is a subsidiary of BES.

BES has agreed that during the period that began on 15 May 2014 and continues through to and including the date 180 days after the date of delivery of the Remaining Shares, subject to waiver with the written consent of a majority of the Lead Underwriters, it will not offer, sell, contract to sell or otherwise dispose of any ordinary shares of BES or any of its other securities that are substantially similar to its ordinary shares, including, but not limited to, any securities that are convertible into or exchangeable for, or that represent the right to receive any ordinary shares of BES, or any such substantially similar securities other than: (i) the New Shares; (ii) shares issued in connection with BES stock option plans existing on 15 May 2014; (iii) ordinary trading by BES in its shares acquired after the completion of the distribution of the New Shares (as notified in writing by the majority by number of Lead Underwriters to BES) within the authorisation approved by the general meeting of shareholders; and (iv) trading in its shares for the account and/or on behalf of clients of BES in the ordinary course of business.

In addition, each of Crédit Agricole, S.A. and ESFG have agreed that during the period that began on 15 May and continues through to and including the date 180 days after the date of the physical settlement of the Combined Offering, subject to waiver with the consent of a majority of the Lead Underwriters, such parties and their respective subsidiaries and other affiliates will not offer, pledge, sell, contract to sell or otherwise dispose of any ordinary shares of BES or any other securities of BES that are substantially similar to the ordinary shares of BES, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, shares of BES or any such substantially similar securities, other than: (i) sales or disposals of shares or other transactions entered into by ESFG, Crédit Agricole or any of their respective subsidiaries or other affiliates consisting of, leading to or resulting in the sale or disposition of ordinary shares of BES or substantially similar securities, or the entering into of transactions by such entities with similar economic effects, including the issuance of securities linked to ordinary shares of BES (whether such instruments are cash or physically settled), provided such transactions are conducted as part of the normal business activities of such subsidiaries or affiliates, are in compliance with applicable regulations and do not result in the issuance of new ordinary shares of BES; (ii) the sale of shares or any securities of BES substantially similar to the ordinary shares of BES by ESFG, Crédit Agricole or any of their respective subsidiaries and/or affiliates provided any sales of such shares or other securities are not executed with entities other than ESFG, Crédit Agricole or their respective subsidiaries or other affiliates and provided further that any permitted transferee of such shares or other securities shall remain subject to the provisions of the lock up; (iii) the sale or disposal of shares or any securities of BES substantially similar to the ordinary shares of BES by any subsidiaries and/or affiliates of Crédit Agricole or ESFG whose corporate object is to manage funds for third parties, such as pension funds, investment funds, individual portfolio management on a discretionary basis or similar (each an “asset management company”), where such asset management company has a legal or contractual obligation to act in the sole interest of the beneficial owners of those funds; and (iv) sales or disposals of Shares and or of Rights by Credit Agricole and ESFG attributed to Credit Agricole and ESFG, as applicable, in the offering that are executed before the settlement date of the offering, provided that the number of Shares owned by each of Credit Agricole and ESFG immediately after the physical settlement of the offering will not be lower than the amount of Shares owned by each of Credit Agricole and ESFG on 15 May 2014; and (v) pledges of Shares to secure financing agreements.

Subscribers for New Shares may be required to pay taxes and other charges in accordance with the laws and practices of their country in addition to the initial Subscription Price.

In addition, subject to compliance with applicable law, the Underwriters may engage in certain trading activity for the purpose of hedging the Underwriters’ commitments under the Underwriting Agreement or otherwise for their own account. Such activity may include purchases and sales of securities of BES and related or other securities and instruments, including ordinary shares and Rights.

Irrespective of whether Rights are traded on Euronext Lisbon or on an over-the-counter market, Rights that are not exercised prior to the end of the Subscription Period will expire valueless without any compensation, and the corresponding New Shares will be allocated to any Existing Shareholders who have exercised their Oversubscription Rights, to the extent of such exercise.

282 None of BES nor any of the Underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the shares. In addition, none of BES nor any of the Underwriters make any representation that the Underwriters will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

In connection with the Combined Offering, each of the Underwriters and any of their respective affiliates, acting as an investor for its own account, may take up Rights or New Shares in the Combined Offering and in that capacity may retain, purchase or sell for its own account such securities and any Rights or New Shares or related investments and may offer or sell such shares or other investments otherwise than in connection with the Combined Offering. Accordingly, references in this Offering Circular to shares being offered should be read as including any offering of Rights or New Shares to any of the Underwriters or any of their respective affiliates acting in such capacity. In addition certain of the Underwriters or their affiliates may enter into financing arrangements (including swaps or contracts for differences) with investors in connection with which such Underwriters (or their affiliates) may from time to time acquire, hold or dispose of Rights or New Shares. None of the Underwriters intend to disclose the extent of such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.

Selling Restrictions United States Neither the Rights nor the New Shares have been, or will be, registered under the Securities Act and the Rights and the New Shares may not be offered, sold or exercised or otherwise transferred except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act. The Rights and the New Shares will be offered and sold only outside the United States in accordance with Rule 903 of Regulation S under the Securities Act. Notwithstanding the foregoing, independently from and without the participation of the Underwriters, BES may allow holders of Rights in the United States who are qualified institutional buyers as defined in Rule 144A under the Securities Act to exercise their Rights in reliance on exemptions provided for private placements under Section 4(a)(2) of the Securities Act.

In addition, until the expiration of the period beginning 40 days after the commencement of the Institutional Offering, an offer or sale of Rights or New Shares within the United States by a dealer (whether or not it is participating in the Rights Offering or the Institutional Offering) may violate the registration requirements of the Securities Act.

European Economic Area In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer to the public of any New Shares or Rights which are the subject of the offering contemplated by this Offering Circular may not be made in that Relevant Member State, other than the offers contemplated in the Portuguese Prospectus once such prospectus has been approved by the competent authority in Portugal and published in accordance with the Prospectus Directive as implemented in Portugal, except that an offer to the public in that Relevant Member State of any New Shares or Rights may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: • to any legal entity which is a qualified investor as defined in the Prospectus Directive; • to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the Joint Bookrunners for any such offer; or • in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Shares or Rights shall result in a requirement for the publication by BES or any Underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any New Shares or Rights in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any New Shares or Rights to be offered so as to enable an investor to decide to purchase or subscribe for any New Shares or Rights, as the same may be varied in that Member State by any

283 measure implementing the Prospectus Directive in that Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in the Relevant Member State. The expression 2010 PD Amending Directive means Directive 2010/73/EU.

France No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of the Rights or the New Shares that has been approved by the Autorité des marchés financiers or by the competent authority of another Member State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorité des marchés financiers; no Rights or New Shares have been offered or sold nor will be offered or sold, directly or indirectly, to the public in France; this Offering Circular or any other offering material relating to the Rights or the New Shares has not been distributed or caused to be distributed and will not be distributed or caused to be distributed to the public in France; such offers, sales and distributions have been and shall only be made in France to persons licensed to provide the investment service of portfolio management for the account of third parties (service d’investissement de gestion de portefeuille pour compte de tiers), qualified investors (investisseurs qualifiés) investing for their own account and/or a restricted circle of investors (cercle restreint d’investisseurs) investing for their own account, all as defined in Articles L.411-2, D.411-1 to D.411-4, D.744-1, D.754-1 and D.764-1 of the Code monétaire et financier. The direct or indirect distribution to the public in France of any so acquired Rights or New Shares may be made only as provided by Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the Code monétaire et financier and applicable regulations thereunder.

Spain This Offering Circular has not been approved by or registered in the administrative registries of the Spanish Comisión Nacional del Mercado de Valores and, therefore, neither the Rights nor the New Shares may be offered in Spain except in circumstances which do not constitute a public offer of securities in Spain within the meaning of article 30bis of the Spanish Securities Market Law of 28 July 1988 (Ley 24/1988, de Julio, del Mercado de Valores), as amended and restated, and supplemental rules enacted thereunder; or pursuant to an exemption from registration set out in article 41 of Royal Decree 1310/1995 of 4 November 1995.

Switzerland This Offering Circular does not constitute a public offering prospectus as that term is understood pursuant to article 652a or 1156 of the Swiss Code of Obligations nor is it a listing prospectus within the meaning of the listing rules of the SIX Swiss Exchange. Accordingly, public offering, solicitation or marketing of the Rights or the New Shares in and from Switzerland is not permitted.

This Offering Circular will not be issued, circulated or distributed in or from Switzerland, except under exceptional circumstances hereinafter described, and this Offering Circular is not intended as an offer or solicitation with respect to the purchase or sale of the Rights or the New Shares by the public. The Offering Circular may be distributed only on a private placement basis, without any public distribution, offering or marketing in or from Switzerland, provided that any such distribution does not occur as a result of, or in connection with, public solicitation, offer or marketing with respect to the purchase or sale of the Rights or the New Shares.

Brazil The Rights and the New Shares have not been and will not be issued nor placed, distributed, offered or negotiated in the Brazilian capital markets. Neither the issuer of the Rights and the New Shares nor the issuance of the Rights or the New Shares have been or will be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários). Therefore, the Rights and the New Shares may not be offered or sold in Brazil, except in circumstances which do not constitute a public offering, placement, distribution or negotiation of securities in the Brazilian capital markets.

United Kingdom In addition to the restrictions referred to under “European Economic Area” above, in the United Kingdom this Offering Circular is being distributed to and is directed only at persons who have professional experience in

284 matters related to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) of the United Kingdom (the “Financial Promotion Order”); or who fall within Articles 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Financial Promotion Order; or who are persons to whom this Offering Circular may otherwise lawfully be directed (all such persons together being referred to as “Relevant Persons”). This Offering Circular must not be acted on or relied on in the United Kingdom by persons who are not Relevant Persons. Any investment or investment activity to which this Offering Circular relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.

Australia and Canada Neither the Rights nor the New Shares may be offered, sold, exercised or acquired in Australia or Canada, except in accordance with applicable law.

Japan The Rights and New Shares offered hereby have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the “Financial Instruments and Exchange Act”). Accordingly, the Rights and New Shares may not, directly or indirectly, be offered or sold in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.

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BANCO ESPÍRITO SANTO GROUP ACTIVITY AND RESULTS IN 2014 (Unaudited financial information under IFRS as implemented by the European Union) (BES; Bloomberg: BES PL; Reuters: BES.LS) Lisbon, 15 May 2014

 Very positive performance of banking income and net operating income, which reached EUR 576.5 million (+27.1%) and EUR 290.1 million (+67.5%), respectively, underpinned by EUR 154.7 million gains on capital markets and other results (1Q13: EUR 60.0 million), a 21.7% increase in net interest income, and a 3.1% reduction in domestic operating costs (excluding early retirement costs).

 The quarter’s results, a net loss of EUR 89.2 million, were once again dictated by impairments, though translating an improvement compared to 4Q13 (-EUR 136.6 million) and the FY13 quarterly average (- EUR 129.4 million).

 The international results reached EUR 13.9 million (1Q13: EUR 4.4 million), backed by a 60.7% YoY increase in banking income.

 Operating costs were reduced by 1.5% on a comparable basis, with domestic operating costs falling by 3.1%. 64 employees were early retired in 1Q14, representing a non-recurrent cost of EUR 7.6 million. The Cost to Income improved in the quarter to 49.7% (1Q13: 61.8%).

 The excellent performance of banking income combined with cost containment positively impacted the net operating income/cash flow generated, which reached EUR 290.1 million, a YoY increase of 67.5%, and 52% above the FY13 quarterly average.

 The credit impairment cost increased by 47.6%, to EUR 276.3 million (annualised charge of 2.17% versus FY13: 2.02%); provisions for securities were reinforced by EUR 46.1 million (1Q13: EUR 18.5 million) due to impairment losses in credit restructuring funds, while provisions for real estate totalled EUR 47.7 million (1Q13: EUR 25.2 million). As a result the total impairment cost in the quarter was EUR 380.6 million, up by 7.0% on the FY13 quarterly average.

 Deleveraging was pursued: assets decreased by EUR 2.1 billion YoY (-2.5%), with main drops in net customer loans (-EUR 1.1 billion; -2.3%) and securities (-EUR 1.7 billion; -8.8%); deposits and insurance products increased by EUR 0.5 billion (+1.3%) while debt securities decreased by EUR 1.8 billion (-11.7%). The loan to deposits ratio remained flat YoY (129%).

 The Provisions for Credit / Gross Loans ratio increased to 7.16% (Dec.13: 6.81%) with the Coverage of Credit at Risk ratio reaching 64.2% (Dec.13: 64.5%); the ratio of overdue loans over 90 days/gross loans reached 6.0% (Dec.13: 5.7%) and on-balance sheet provisions for credit impairments increased to EUR 3.6 billion (Dec.13: 3.4 billion; Mar.13: 2.8 billion).

A-1  Full compliance with the new BIS III rules: calculated under CRD IV/CRR and Bank of Portugal criteria, the Common Equity Tier I ratio was 9.8%, if considering the transitory period (Bank of Portugal’s minimum requirement: 7%), or 8.0%, if fully implemented).

 BES was the leading bank in the 2013 European Customer Satisfaction Index, ranking especially high in overall quality of products and services, customer service, advisory ability and concern, contact initiative, response speed, branch and remote channels quality, innovation, communication, and quality/price ratio.

Press Investors and Analysts Paulo Padrão [email protected] (+ 351 21 350 1713) Elsa Santana Ramalho Paulo Vaz Tomé [email protected] André Leite [email protected] (+ 351 21 359 7390)

BANCO ESPÍRITO SANTO, S.A. Public Traded Company Registered in Lisbon C.R.C. no. 500 852 367 Headquarters: Avenida da Liberdade n.º 195, 1250 – 142 Lisbon, Portugal Share capital: EUR 5,040,124,063.26

2 1Q14 Results Lisbon, 15 May 2014

A-2

Main Indicators

31-Mar-14 31-Mar-13 Change

ACTIVITY (euro million)

Total Assets (1) 96 150 98 659 -2,5% Net Assets 82 817 84 946 -2,5% Gross Loans 51 001 51 267 -0,5% Customer Deposits 36 242 37 417 -3,1% Total Equity 7 017 7 685 -8,7%

SOLVENCY(2)

BIS II - CORE TIER I - 10,5% - - TOTAL - 11,2% - BIS III - Common Equity TIER I (phasing in) 9,8% - - - Common Equity TIER I (fully implemented) 8,0% - -

LIQUIDITY (euro million)

ECB funds (net) (3) 8 346 7 877 469 Repoable Assets 23 783 25 435 - 1 652 (4) Loan/deposits ratio 129% 129% 0 pp

ASSET QUALITY

Overdue loans + 90 days / Gross loans 6,0% 4,3% 1,7 pp Coverage of Overdue Loans + 90 days 119,0% 126,8% -7,8 pp Credit at Risk 11,1% 10,1% 1,0 pp Provisions for Credit / Gross loans 7,2% 5,5% 1,7 pp (5) Cost of risk 2,2% 1,5% 0,7 pp

RESULTS & PROFITABILITY

Net income (EUR mn) -89,2 -62,0 …. ROE(6) -5,8% -3,5% …. ROA(6) -0,44% -0,30% …. EFFICIENCY

Cost to Income 49,7% 61,8% -12,1 pp Cost to Income (ex markets) 67,9% 71,3% -3,4 pp

BRANCH NETWORK

Retail Network 778 769 9 - Domestic 631 659 -28 - International 147 110 37

(1) Net A sset s + A sset Management + Ot her off-balance sheet liabilit ie s + Se curit ise d Credit (2) preliminary March 2014 data (3) Includes funds from and placements with the ECB System; positive = net borrowing; negative = net lending (4) Rácio calculado de acordo com a definição para efeitos do objetivo fixado pelo Banco de Portugal para este indicador no Funding & Capital Plan (5) Annualised P&L provisions / Gross Loans (6) Annualised Results

3 1Q14 Results Lisbon, 15 May 2014

A-3 INDEX

1. ECONOMIC ENVIRONMENT ...... 5

2. RESULTS ...... 6

2.1 Net Interest Income ...... 10

2.2 Fees and Commissions ...... 10

2.3 Capital markets and other results ...... 11

2.4 Operating Costs ...... 12

2.5 Efficiency ...... 14

2.6 Provisions ...... 14

2.7 Profitability ...... 15

3. ACTIVITY ...... 16

3.1 General Overview ...... 16

3.2 Main business areas (Operating Segments) ...... 20

4. FINANCIAL STRENGTH AND ASSET QUALITY ...... 34

4.1 Asset Quality ...... 34

4.2 Liquidity, Solvency and Financial Strength ...... 37

4.3 Bank of Portugal reference indicators ...... 40

5. Other ...... 41

Consolidated Financial Statements

4 1Q14 Results Lisbon, 15 May 2014

A-4 1. ECONOMIC ENVIRONMENT

After starting on a positive note, the first quarter of 2014 was marked by an increase in volatility in the financial markets. This was driven by certain lacklustre economic indicators in the US, new signs of deceleration in China and an escalation of geopolitical risks mainly due to mounting tension between Ukraine and Russia. The consequent increase in risk aversion led to increased demand for safe haven assets, pushing back the Treasuries and Bund yields by 31 bps and 36bps, to 2.72% and 1.57%, respectively, and thus breaking the upward trend seen in the previous quarters. In this context, the main stock market indices oscillated between moderate drops and moderate gains: in the US, the Dow Jones retreated 0.72% in the first three months of the year, while the Nasdaq and S&P 500 rose by 0.54% and 1.3%; in Europe, the DAX and CAC 40 edged up by 0.04% and 2.2%, while the FTSE 100 slid by 2.2%. Mirroring the existing concerns with the emerging markets, in Brazil, the Bovespa fell back by 2.1% while in China the Shanghai Composite lost 3.9%.

Despite this backdrop, the main advanced economies continued to show signs of an upturn. In the US, the first quarter’s uninspired performance was mainly due to poor weather conditions, as the available indicators for the start of the second quarter again suggest a strengthening of activity. The Fed therefore continued to taper quantitative easing. In the eurozone, quarterly growth is estimated to have advanced from 0.3% to around 0.4%, as activity picked up and financial conditions in the periphery stabilised. The improvement in sentiment towards the periphery induced a 206bps drop, to 4.073%, in the yield on the 10- year Portuguese Treasury bonds, which continued to slide during the second quarter, reaching close to 3.7%. This movement, which was common to other peripheral economies, was also supported by expectations of new monetary stimuli from the ECB, taking into account the drop in the eurozone year-on- year inflation to 0.5%.

In light of this context, and bolstered by the reduction of the government deficit (4.9% of GDP in 2013) and the improvement in the external accounts (a surplus of 2% of GDP in 2013), the Portuguese Treasury successfully placed two long-term debt issues (with maturities of 5 and 10 years), for an overall amount of EUR 6.25 billion. After rising by 1.7% in the fourth quarter of 2013 (the first positive change in 12 quarters), GDP is reckoned to have grown by 2% year-on-year in the first quarter of 2014, underpinned by the still favourable performance of exports and a moderate recovery of domestic demand. The PSI-20 advanced by close to 16% in the period.

5 1Q14 Results Lisbon, 15 May 2014

A-5

2. RESULTS

BES Group posted a net loss of EUR 89.2 million in 1Q14, which compares with net losses of EUR 136.6 million in 4Q13 and EUR 62.0 million in 1Q13.

Income Statement EUR million Change Mar,14 Mar,13 absolute relative

Net Interest Income 269,9 221,9 48,0 21,7%

+ Fees and Commissions 151,9 171,8 - 19,9 -11,6%

= Commercial Banking Income 421,8 393,7 28,1 7,1%

+ Capital Markets and Other Results 154,7 60,0 94,7 ...

= Banking Income 576,5 453,7 122,8 27,1%

- Operating Costs 286,4 280,5 5,9 2,1% [Operating Costs excluding early retirements and new 276,3 280,5 - 4,2 -1,5% consolidations]

= Net Operating Income 290,1 173,2 116,9 67,5%

- Provisions 380,6 240,1 140,5 58,5% Credit 276,3 187,1 89,2 47,6% Securities 46,1 18,5 27,6 ... Other 58,2 34,5 23,7 68,9% = Income before Taxes and Minorities - 90,5 - 66,9 - 23,6 …. - Income Tax - 2,1 - 6,3 4,2 …. - Special T ax on Banks 8,2 6,5 1,7 26,3% = Income Before Minorities - 96,6 - 67,1 - 29,5 -44,0% - Minority Interests - 7,4 - 5,1 - 2,3 …. = Net Income - 89,2 - 62,0 - 27,2 -44,0%

 Banking income grew by 27.1% YoY, underpinned by the good performance of Capital markets and other results (+EUR 94.7 million) and a 21.7% increase in net interest income;  Operating costs (excluding non-recurrent costs with early retirements and new consolidations) were reduced by 1.5%, with domestic operating costs retreating by 3.1%;  Provisions for impairment losses, which reached EUR 380.6 million, corresponding to a cost of risk of 2.17% (FY13: 2.02%), were decisive for the net loss reported in the quarter. The increase in credit provisions in 1Q14 was influenced by one-off charges for assets not covered by the sovereign guarantee provided to the Bank’s subsidiary in Angola.

6 1Q14 Results Lisbon, 15 May 2014

A-6

BES is the leading bank in customer satisfaction In the 2013 European Customer Satisfaction Index (ECSI) for Portugal BES was the leading national bank in customer satisfaction. This position reflects the Bank’s concern with the clients’ needs and wellbeing, an area where it consistently improved over the last years and which gave it the first place among the five largest Portuguese banks in 2012 and now the absolute leadership. According to this survey BES is recognised by the clients as global satisfaction leader, as well as leading in the various categories, namely overall quality of products and services, customer service, advisory ability and concern, contact initiative, response speed, branch and remote channels quality, innovation, communication, and quality/price ratio. The continuous investment made by BES in quality management has mainly focused on employee training, the enhancement and diversification of the offer, the streamlining of processes and tools in order to improve services and the capacity to meet requests, the remote channels and the creation of a quality monitoring service. In Portugal the ECSI survey is conducted by the Associação Portuguesa para a Qualidade (Portuguese Association for Quality), the Instituto Português da Qualidade (Portuguese Institute for Quality), and the Universidade Nova de Lisboa’s Institute of Statistics and Information Management, which guarantee the fairness, credibility and rigour of that which is recognised as the most important independent survey of goods and services in various activity sectors.

International and Domestic Activity The international area posted net income of EUR 13.9 million in 1Q14 (1Q13: EUR 4.4 million), contributing to cushion the losses reported by the domestic area (-EUR 103.1 million). The international banking income grew by 60.7%, underpinned by a 32.3% increase in net interest income and positive capital markets and other results (EUR 31.4 million vs. -15.6 million in 1Q13). The increase in operating costs (+4.6%) and the EUR 89.7 million provisioning cost prevented the international units from posting a more significant performance and contribution to the consolidated results.

The domestic banking income was 13.9% higher than in 1Q13, driven by the increase in net interest income (+13.8%) and capital markets and other results (+63.1%). Domestic operating costs (excluding early retirement costs) were reduced by 3.1% while the reinforcement of provisions for impairments reached EUR 290.9 million (+40.4%), being responsible for the EUR 103.1 million loss reported in the period.

7 1Q14 Results Lisbon, 15 May 2014

A-7

Income Statement Domestic and International Activity EUR million DOMESTIC INTERNATIONAL

Mar,14 Mar,13 Change Mar,14 Mar,13 Change

Net Interest Income 145,0 127,5 13,8% 124,9 94,4 32,3%

+ Fees and Commissions 102,4 122,5 -16,4% 49,5 49,3 0,5%

= Commercial Banking Income 247,4 250,0 -1,0% 174,4 143,7 21,4%

+ Capital Markets and Other Results 123,3 75,6 63,1% 31,4 - 15,6 ...

= Banking Income 370,7 325,6 13,9% 205,8 128,1 60,7%

- Operating Costs 191,5 189,8 0,9% 94,9 90,7 4,6%

[Operating Costs excluding early retirements and new consolidations] 183,9 189,8 -3,1% 92,4 90,7 1,9%

= Net Operating Income 179,2 135,8 32,0% 110,9 37,4 ...

- Provisions 290,9 207,3 40,4% 89,7 32,8 ...

Credit 189,0 165,9 13,9% 87,3 21,2 ...

Securities 46,1 14,2 ... 0,0 4,3 0,0%

Other 55,8 27,2 ... 2,4 7,3 -67,4%

= Income before Taxes and Minorities - 111,7 - 71,5 -56,2% 21,2 4,6 ...

- Income Tax - 13,7 - 5,6 ... 11,6 - 0,7 …

- Special T ax on Banks 8,2 6,5 26,3% - - -

= Income Before Minorities - 106,2 - 72,4 -46,6% 9,7 5,3 80,8%

- Minority Interests - 3,1 - 6,0 47,9% - 4,3 0,9 ...

= Net Income - 103,1 - 66,4 -55,2% 13,9 4,4 ...

The acquisition in February 2014 of a 44.8% stake in BES Vénétie increased BES Group’s overall holding in this bank to 87.5%. The international area’s 1Q14 results incorporate the effects of the consolidation of this subsidiary, with the following impacts on the consolidated income statement:

8 1Q14 Results Lisbon, 15 May 2014

A-8

Contribution of BES Vénétie

EUR million

Mar,14

Net Interest Income 3,2 + Fees and Commissions 1,8 = Commercial Banking Income 5,0 + Capital Markets and Other Results 0,0 = Banking Income 5,0 - Operating Costs 2,5 = Net Operating Income 2,5 - Provisions 0,7 = Resultado antes de Impostos 1,8 - Income Tax 0,9 - Minority Interests 0,1 = Net Income 0,8

Activity in Spain yielded positive results of EUR 14.5 million, revealing an expressive recovery from the net loss reported in 1Q13 (-EUR 3.8 million). This was due to a lower provisioning charge, the improvement of net interest income and gains on financial transactions. France/Luxembourg increased their contribution to consolidated results to EUR 4.1 million (1Q13: EUR 2.4 million), while Africa gave a negative contribution due to the reinforcement of provisions for credits not covered by the sovereign guarantee provided to BES Angola. Breakdown of international results by geography

EUR million

Mar,14Mar,13 Change

Africa(1) -6,1 - 2,1 - 4,0 Brazil 1,8 1,4 0,4 Spain 14,5 - 3,8 18,3 STRATEGIC TRIANGLE 10,2 - 4,5 14,7

United Kingdom 1,2 9,1 - 7,9 USA - 1,1 1,8 - 2,9 France/Luxdembourg 4,1 2,4 1,7 Macao - 0,2 1,3 - 1,5 Other(2) - 0,3 - 5,7 5,4 TOTAL 13,9 4,4 9,5 (1) includes Angola, Mozambique, Cape Verde, Libya and Algeria (2) includes Venezuela, Poland, Italy and India

9 1Q14 Results Lisbon, 15 May 2014

A-9

2.1 Net Interest Income

Net interest income reached EUR 269.9 million, a YoY increase of 21.7% that was mainly driven by the international performance (+EUR 30.5 million; +32.3%), and in particular by the recovery of BES Angola’s net interest margin, but also by positive developments in Portugal (+EUR 17.5 million; +13.8%).

Net interest income and Net interest margin

EUR million Mar,14 Mar,13

Average Avg Rate Average Avg Rate NII NII Balance (%) Balance (%)

Interest Earnings Assets 68 407 4,65 784 70 059 4,61 798 Customer Loans 49 465 4,67 569 50 154 4,66 576 Other Assets 18 942 4,61 215 19 905 4,52 222 Other 535 - - - - - Interest Earning Assets & Other 68 942 4,62 784 70 059 4,61 798

Interest Bearing Liabilities 68 942 3,03 514 66 909 3,49 576 Deposits 36 449 2,29 206 35 855 2,88 254 Other Liabilities 32 493 3,85 308 31 054 4,20 322 Other ---3 150-- Interest Bearing Liabilities & Other 68 942 3,03 514 70 059 3,33 576

NIM/NII 1,59 270 1,28 222

Euribor 3 M - average 0,30% 0,21%

The net interest margin improved to 1.59% (from 1.28% in 1Q13) due to the reduction in the average rate of liabilities, to 3.03% (down by 30 bps YoY), in so far as the average rate on assets remained flat (4.62%). The decline in the cost of liabilities resulted from reductions in the average rate paid for both deposits (-59 bps) and debt securities and other interest bearing liabilities (-35 bps), reflecting the general improvement in the financial system liquidity as a result of the deleveraging effort and the gradual opening of the debt markets to the eurozone peripheral countries, including Portugal.

2.2 Fees and Commissions

Fees and commissions decreased by 11.6% YoY, to EUR 151.9 million, due to a reduction in domestic commissions as a result of the ongoing deleveraging process. Commission income contracted across all banking services provided to the clients, except for commissions on securities, which were up by 21.2%, underpinned by commissions on the sale of treasury bonds and public offers for sale in the equity market.

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A-10

Fees and Commissions

EUR million Change Mar,14 Mar,13 absolute relative

Collections 3,2 4,3 -1,1 -24,1% Securities 23,3 19,3 4,0 21,2% Guarantees 32,5 36,7 -4,2 -11,4% Account management 18,7 18,7 0,0 0,1% Commissions on loans and other (1) 33,0 41,0 -8,0 -19,6% Documentary credit 14,9 17,0 -2,1 -12,7% Asset management (2) 19,4 21,3 -1,9 -9,2% Cards 8,1 8,4 -0,3 -3,5% Bancassurance 5,1 5,7 -0,6 -10,0% Other Services (3) -6,3 -0,6 -5,7 ...

TOTAL 151,9 171,8 -19,9 -11,6%

(1) Includes commissions on loans, project finance, export financing and factoring (2) Includes investment funds and discretionary management (3) Includes costs with State Guarantees

The reduction in commissions on collections (-24.1%) essentially translates a fall in credit in the form of discounts; commission income on loans and other was down by 19.6%, reflecting not only the overall contraction of the loan book but also weak demand for corporate and project finance solutions; the drop in commissions on documentary credit (-12.7%) translates a slowdown in the origination of new trade finance transactions with emerging countries; commissions on guarantees declined by 11.4% through a reduction in commercial paper operations; and finally, commissions on asset management declined (-9.2%) due to the reduction in funds under discretionary management.

2.3 Capital markets and other results

Capital markets and other results reached EUR 154.7 million, representing a substantial increase over the previous quarter (EUR 60.0 million).

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A-11

Capital markets and other results

EUR million

Mar,14 Mar,13 change

Interest rate, Credit and FX 137,1 86,0 51,1 Interest rate 155,2 87,4 67,8 Credit -9,4 -5,9 -3,5 FX and Other -8,7 4,5 -13,2 Equity 24,9 6,7 18,2 Trading 22,4 4,8 17,6 Dividends 2,5 1,9 0,6 Other Results -7,3 -32,7 25,4

TOTAL 154,7 60,0 94,7

BES Group’s positive capital markets results in 1Q14 were mainly driven by the interest rate area. In fact, the Group achieved significant gains by taking advantage of the downward trend in the Portuguese debt securities’ yields in the period, while maintaining positive fair value reserves of EUR 290 million on the balance sheet, of which EUR 225 million relate to potential gains on public debt securities.

2.4 Operating Costs

Total operating costs reached EUR 286.4 million, an increase of EUR 5.9 million (+2.1%) YoY, with domestic costs rising by 0.9% and international costs by 4.6%.

Operating Costs EUR million Change Mar,14 Mar,13 absolut e relat ive

Staff Costs 149,7 145,6 4,1 2,8% Administrative Costs 109,3 108,9 0,4 0,3% Depreciation 27,4 26,0 1,4 5,5% TOTAL 286,4 280,5 5,9 2,1%

Excluding new consolidations 276,3 280,5 -4,2 -1,5%

Domestic 191,5 189,8 1,7 0,9% Excluding new consolidations 183,9 189,8 -5,9 -3,1% International 94,9 90,7 4,2 4,6% Excluding new consolidations 92,4 90,7 1,7 1,9%

12 1Q14 Results Lisbon, 15 May 2014

A-12 Excluding the cost of 64 early retirements in the quarter and the impact of the new consolidations, operating costs would have fallen by 1.5%, with domestic costs decreasing by EUR 5.9 million (-3.1%). The international costs increased by 1.9% on a comparable basis, mainly reflecting the costs of expansion in the Angolan market (opening of 31 new branches since March 2013).

Staff Costs EUR million Change Mar,14 Mar,13 absolut e relat ive

Remunerations 113,1 116,1 -3,0 -2,6%

Pensions, Long term service benefits & Other 36,6 29,5 7,1 24,1% TOTAL 149,7 145,6 4,1 2,8%

Excluding early retirements and new 140,4 145,6 -5,2 -3,6% consolidations

Domestic 98,2 94,6 3,6 3,8% Excluiding early retirements 90,6 94,6 -4,0 -4,2% International 51,6 51,0 0,6 1,1%

Excluding new consolidations 49,8 51,0 -1,2 -2,4%

Domestic staff costs (excluding the early retirement costs) were down by 4.2% through a reduction in the workforce (-158 employees). The 1.1% increase in the international staff costs (-2.4% on a comparable basis) resulted from the expansion of the international workforce (by 493 employees, of whom 177 from BES Vénétie), in so far as variable remunerations were reduced.

The general administrative costs increased by 0.3%, with domestic costs dropping by 1.9% and international costs increasing (+5.6% and +3.7%, respectively, if excluding the new consolidations).

Amortisation and depreciation decreased in the domestic area (-2.4%), where 28 branches were closed and the streamlining of structures and processes permitted a reduction of investment and consequent amortisation and depreciation, but increased by 24.4%, to EUR 9.3 million, in the international area, where new investments in tangible and intangible assets were required to pursue the development of the international business.

Gradual cost-cutting plan In light of the challenges currently faced by the financial sector and the country’s economic and financial context, BES Group has launched a programme aimed at gradually streamlining and reducing operating costs. The programme will be implemented in 2013-2015 and is expected to generate savings of EUR 100 million in the period, of which 3% in 2013, 5% in 2014 and 6% in 2015. The Plan’s implementation in 2013 permitted to achieve savings of EUR 30.1 million (3.8% reduction in costs) to which added another EUR 5.9 million in 1Q14.

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A-13

2.5 Efficiency

The increase in banking income and the containment of costs permitted an improvement in the Group’s Cost to Income: Efficiency Indicators

Mar,14 Mar,13 Change

Cost to Income 49,7% 61,8% -12,1 p.p. excluding early retirements 47,9% 61,8% -13,9 p.p.

Cost to Income (ex-markets) 67,9% 71,3% -3,4 p.p.

excluding early retirements 65,5% 71,3% -5,8 p.p.

2.6 Provisions

The Group recognised impairment costs of EUR 380.6 million in 1Q14, which represents a YoY increase of 58.5%. Credit impairment charges were increased by 47.6%, to EUR 276.3 million, while the provision charge for securities totalled EUR 46.1 million (of which 64% resulting from the revaluation of the restructuring funds assets). Provisions for foreclosed real estate assets reached EUR 47.7 million and provisions for impairments in other assets stood at EUR 10.5 million.

Provision Charge EUR million Change Mar,14 Mar,13 absolute relative

Credit Provisions 276,3 187,1 89,2 47,6%

Securities Provisions 46,1 18,5 27,6 ...

Foreclosed Assets 47,7 25,2 22,5 89,3%

Other Provisions 10,5 9,3 1,2 13,4%

TOTAL 380,6 240,1 140,5 58,5%

At the end of 1Q14, provisions for credit registered in the Balance Sheet totalled EUR 3,650.4million (+29.3% YoY), lifting the credit provisions/gross customer loans ratio to 7.2% (Dec.13: 6.8%).

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A-14

Credit Provisions

EUR million Change Mar,14 Mar,13 absolut e relative

Gross Loans 51 001 51 267 - 266 -0,5%

Credit Provisioning Charge 276,3 187,1 89,2 47,6%

Provisions for credit 3 650,4 2 823,4 827,1 29,3%

Provision Charge (annualised) 2,17% 1,46% 0,71 pp

Provisions for credit / Gross Loans 7,2% 5,5% 1,7 pp

The credit provision charge in the quarter was harmed by the one-off reinforcement of provisions in BES’s subsidiary in Angola. Excluding this effect, the charge would have been 1.77%, which compares with 2.0% in FY13.

2.7 Profitability

The Group’s return on equity (ROE) and return on assets (ROA) reflect the net loss reported in the period as a result of the reinforcement of provisions for impairments.

Profitability

Mar,14(1) Mar,13(1)

Return on Equity -5,83% -3,53%

Return on Assets -0,44% -0,30% (1) data as at March 2014, annualised

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A-15

3. ACTIVITY

3.1 General Overview

The latest macroeconomic data released by the Bank of Portugal and the National Statistics Institute signal an improvement in the economic environment and confidence indicators, though still at a moderate pace. In this context BES Group’s activity continued to focus on reinforcing the equilibrium and strength of the balance sheet, through the following main initiatives: (i) continuation of the deleveraging programme viewing the sustained improvement of the loan to deposits ratio; (ii) funding structure emphasising the more stable components (deposits and life insurance products), with a reduction in the weight of debt securities; and (ii) maintaining buffers at capitalisation levels in order to ensure compliance with the regulatory ratios required for Asset Quality Review (AQR) exercises, and hence preserve the Group’s strategic autonomy.

Loan to Deposits Ratio Calculated according to the BoP definition for Funding & Capital Plan (F&CP)

192%

165%

141% 137% 129% 121%

Dec09 Dec10 Dec11 Dec12 Dec13 Mar14

At the end of 1Q14 the Loan to Deposits ratio was 129%, the same as in March 2013. The increase in the ratio in 2014 translates the growth of customer loans (due to the full consolidation of BES Vénétie since February) and the reduction in deposits of large companies and institutional clients. The full consolidation of BES Vénétie had the following main impacts:

Impact on the Consolidated Balance Sheet of First-Time Consolidation of BES Vénétie (Feb.14)

EUR million Assets Liabilities + Total Equity

Customer Loans (net) 1 323 Deposits from Banks 242 Deposits with Banks -449 Deposits 424 Other Asstes -30 Other Liabilities 110 Total Equity 68 Total Assets 844 Total Liabilities + Total Equity 844

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A-16

The growth of customer funds 0.6% YoY (+EUR 366 million) to EUR 57.2 billion on March 31st, 2014 – has been one of the more striking aspects of the last few years. Off-balance sheet customer funds grew by 6.3% in the quarter, underpinned by the increase in domestic mutual funds as well as life insurance products, which have shown expressive growth (+35.4% YoY).

Assets, Credit and Customer Funds EUR million

Change YoY Change QoQ Mar,14 Dec,13 Mar,13 absolute relative absolute relativ3

Total Assets (1) 96 150 93 342 98 659 -2 509 -2,5% 2 808 3,0% Net Assets 82 817 80 608 84 946 -2 129 -2,5% 2 209 2,7% Customer Loans (gross) 51 001 49 722 51 267 - 266 -0,5% 1 279 2,6% Loans to Individuals 12 979 13 198 13 617 - 638 -4,7% - 219 -1,7% - Mortgage 10 728 10 815 11 044 - 316 -2,9% - 87 -0,8% - Other Loans to Individuals 2 251 2 383 2 573 - 322 -12,5% - 132 -5,5% Corporate Lending 38 022 36 524 37 650 372 1,0% 1 498 4,1% (Loans to SME's Winners) 1 452 1 381 1 302 150 11,5% 71 5,1% Total Customer Funds 57 204 56 838 58 518 -1 314 -2,2% 366 0,6% On-Balance Sheet Customer Funds 46 297 46 577 47 427 -1 130 -2,4% - 280 -0,6% Deposits 36 242 36 831 37 417 -1 175 -3,1% - 589 -1,6% Debt Securities placed with Clients (2) 3 520 3 713 5 185 -1 665 -32,1% - 193 -5,2% Life Insurance 6 535 6 033 4 825 1 710 35,4% 502 8,3% Off-Balance Sheet Customer Funds 10 907 10 261 11 091 - 184 -1,7% 646 6,3%

Loans/Deposits(3) 129% 121% 129% 0 p.p. 8 p.p.

(1) Net Assets + Asset Management + Off-Balance sheet items + Non consolidated Secuiritised credit (2) Includes funds associated with consolidated securitisations and commercial paper (3) Ratio calculated based on the definition of BoP

The EUR 1,279 million credit portfolio increase in the quarter was mainly driven by the full consolidation of BES Vénétie and activity growth in Angola. Loans to individuals contracted, reflecting reductions in both mortgage credit (-0.8%) and consumer loans (-5.5%) explained by the contraction of families’ consumption and the reimbursement of mortgage loans. Corporate credit reflects the impact of the consolidation of BES Vénétie as well as a 5.1% increase in loans to Winner SMEs.

As to other funding components, net funding from the ECB is now considerably below the peak attained in June 2012.

17 1Q14 Results Lisbon, 15 May 2014

A-17 (1) ECB Funding ECB Net Funding (€billion) (€billion)

-39,0% -28,9%

13,7 13,7

8,3 9,3 9,7 5,4

Jun,12 Dec,13 Mar,14 Jun,12 Dec,13 Mar,14

(1) Net Funding

Asset financing sources show the following evolution:

Structure of liabilities and equity (€billion)

82,3 82,8

Deposits 25,4 Deposits (31%) 36,2 (44%)

Life Insurance(8%) Debt Securities 6,5 35,7 (43%) Debt Securities 13,6 (16%)

Other Other 19,5 14,3 (1) Liabilities(17%)(1) Liabilities(23%) Equity 6,9 7,0 Equity Dec, 09 Mar,14

(1) Includes ECB Facilities

At the end of 1Q14 deposits remained the main asset financing source (44%, or 52% if including customer funds in the form of life insurance products), while debt securities accounted for 16% only - a marked reversal since the end of 2009 (immediately before the escalation of the eurozone crisis at the start of 2010) when debt securities accounted for 43% of the total asset financing sources.

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A-18 International and Domestic Activity The international area continued to reinforce its share of the Group’s total activity, notwithstanding the early stage of its more recent units and the difficulties experienced by several emerging economies. Hence assets grew by 8.0%, the loan portfolio by 12.3%, and total customer funds by 9.7%.

Domestic and International Activity

EUR million Domestic International

Mar,14 Mar,13 Change Mar,14 Mar,13 Change

Total Asstes (1) 64 212 68 847 -6,7% 31 939 29 813 7,1%

Assets 53 871 58 154 -7,4% 28 946 26 792 8,0%

Loans to Customers (gross) 36 648 38 492 -4,8% 14 353 12 775 12,3%

Total Customer Funds 40 730 43 495 -6,4% 16 475 15 023 9,7%

Loans /Deposits (2) 133% 130% 3 p.p. 119% 125% -6 p.p (1) Net Assets + Asset Management + Off-Balance sheet liabilities+ Non consolidated secuiritised credit (2) Ratio calculated according to the BoP definition for Funding & Capital Plan

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A-19

3.2 Main business areas (Operating Segments)

BES Group overview The BES Group develops its activity supported by a set of value propositions aimed at meeting the needs of its diverse client base: companies, institutions and individual clients. Its decision-making centre is located in Portugal, which is also its main market of operation.

The historic links with Africa and South America, notably with Angola, Brazil and Venezuela, the internationalisation of Portuguese companies, the growing interdependence of the Iberian economies and the large communities of Portuguese nationals established across various continents have provided the basis for the international expansion of BES Group.

When monitoring the performance of each business area, the Group considers the following Operating Segments:  Domestic Commercial Banking, which includes the Retail, Corporate, Institutional and Private Banking sub segments  International Commercial Banking  Investment Banking  Asset Management  Life Insurance  Markets and Strategic Investments  Corporate Centre

Each segment is directly supported by dedicated structures, as well as by those central units whose activity is most closely related to each of these segments. These structures run individual monitoring of each operational unit of the Group (considered from the viewpoint of an investment centre) while the Executive Committee defines strategies and commercial plans for each Operating Segment. As a complement to this, the Group uses a second segmentation of its activity and results according to geographical criteria, separating the performance of the units located in Portugal (Domestic Area) from that achieved by the units abroad (International Area).

3.2.1 Retail

This segment includes activity with individuals and small businesses, most notably deposit taking, sale of saving products, commissions for account management, cards and other means of payment, insurance products, investment funds, brokerage of securities, custody services, mortgage credit, consumption credit and financing of small businesses.

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A-20

Retail Banking

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Loans (gross) 14 480 15 370 -5,8% Customer Funds 12 812 13 005 -1,5% INCOME STA TEMENT Commercial Banking Income 154,9 148,5 4,4% Capital Mkts & Other Results 8,2 8,2 0,3% Banking Income 163,1 156,7 4,1% Operating Costs 93,7 95,6 -2,0% Prov isions 15,4 16,7 -8,0% Income Before Tax 54,0 44,3 21,9%

Cost to Income 57,5% 61,0% -3,6 pp

This business area was supported by a network of 631 branches in Portugal at the end of 1Q14 (net reduction of 12 branches since the beginning of the year, and of 28 YoY). This streamlining process permitted to achieve a 2.0% YoY reduction in operating costs. The network includes 44 on-site branches resulting from partnerships with insurance agents under the Assurfinance programme.

Taking into account the strong competition from the State’s saving products, the slick customer funds margin and the economic hardships faced by the Portuguese families, Retail remained very resilient, showing the Group’s capacity to devise added value solutions for its clients, even in very adverse market situations, and the trust placed by the clients in the BES brand. On-balance sheet customer funds dropped by 1.5% YoY, with deposits decreasing by 1.0% only.

The resilience of Retail customer funds in the period was also supported by an influx of new clients: a total of 23.5 thousand new clients were acquired in the period as a result of coordinated action between the branch network and other client acquisition channels, in particular the Cross-segment and Assurfinance programmes, as well as the external promoters, which maintained a decisive contribution to the commercial performance of Retail.

The Retail area maintains a constant and dynamic management of the customer funds margin in order to protect banking income growth. In 1Q14 the segment’s banking income grew by 4.1% YoY, underpinned by the streamlining of the net interest margin, which improved by 59 bps, to 3.21%. The increase in banking income, allied to reductions in costs and in impairment losses, allowed the area to increase pre-tax earnings to EUR 54.0 million (EUR 44.3 million in 1Q13).

During the period the area maintained its selective loan granting policies, and achieved significant results in cross-selling, where commercial results are supported by a wide range of innovative products, services and

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A-21 tools. Growth was particularly significant in several areas of insurance production, namely in life insurance and car insurance products, where sales increased YoY by 83 % and 33% respectively.

The Direct Channels continued to play a key role in the relationship with the clients, providing the following: (i) access to the entire range of services, account enquiries and transactions which can be done remotely; (ii) sale of a range of products, namely saving and insurance products, which can be acquired directly through the internet, with the support of a phone operator, or by scheduling a meeting with the branch or account manager; (iii) integration and centralised management of the CRM platforms (branch, BESnet and BESdirecto), where the success of the customised offers provided at the time the client interacts with the remote channel confirms their adjustment to the clients’ needs; (iv) new solutions adjusted to the clients’ mobility needs affording safe, convenient and permanent access in any circumstance.

The internet banking service for individual clients – BESnet – achieved a 5.8% YoY increase (to 387 thousand) in the number of frequent users, being at the lead of internet banking penetration in Portugal, with a share of 43.9% of the customer base (according to the latest Marktest data), while the number of logins reached 11.3 million (+19.3% YoY).

The BESmobile service maintained strong growth, with the number of frequent users reaching 77 thousand at the end of 1Q14. The new ‘BES-one-click’ app, which permits instant mobile phone top-ups, was a success with the clients, already accounting for approximately 40% of the total mobile top-ups.

Focusing on the new mobile needs, the BEStablet application was specifically designed for Apple iPad and Android tablets. Available for individual and corporate clients, it offers innovative solutions that sharply stand out from the comparable offer not only in the domestic market but also at international level. BEStablet already offers a wide range of transactions, covering more than 90% of the clients’ everyday mobile needs. In 1Q14 new facilities were introduced, namely ‘Payments to the State’ and ‘BIN/IBAN inquiry’. This application is proving highly successful, with the number of client users having already surpassed 14 thousand.

Banco Best posted a pre-tax profit of EUR 4.8 million in 1Q14, a YoY increase of 19%. The first quarter’s performance was supported by a strategy of innovation and permanent adjustment of the offer to the market context and the clients’ objectives. The period also saw a 110% rise in online stock exchange trading, while the volume of investment funds under management increased by 23% YoY, surpassing EUR 1,000 million, and customer assets under custody were up by EUR 219 million, reaching more than EUR 2.5 billion. Since the start of the year Best has already added three new fund managers (Neuberger Berman, MFS and Muzinich) to its portfolio. The bank maintained the lead in sales of foreign investment funds, with a 37.4% market share as well as in online derivatives trading, with a share of 28% (according to the latest data released by CMVM, the Portuguese Securities Market Commission).

The activity of Banco Espírito Santo dos Açores in 1Q14 was marked by a huge provisioning effort (EUR 4.5 million) and moderate success in the monitoring and recovery of problem loans. On-balance-sheet customer

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A-22 funds decreased, reflecting the increased subscription of off-balance sheet products. Banco Espírito Santo dos Açores maintained its strategy for raising the market share, backed by the signature of protocols with regional companies, associations and other institutions, while continuing to promote a stronger involvement with the agricultural sector, one of the most important in the economy of the Azores. Commercial and socially-oriented actions were also reinforced in order to further enhance BES Açores’s position as a bank dedicated to serving the clients and society and as the only bank in Azores with its headquarters in the region. Total assets amounted to EUR 448.2 million at the end of 1Q14 (-14.2% YoY). The Bank posted a net loss for the period of EUR 2.5million.

3.2.2 Corporate and Institutional Clients

This business area includes the business with large and medium-sized companies, as well as with institutional and municipal clients. BES Group holds a significant position in the Corporate and Institutional Clients segment as a result of its support to the development of the national business community, where it targets companies with a good risk profile, innovative characteristics and exports oriented.

Corporate and Institutional Clients

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Loans (gross) 20 653 21 497 -3,9% Customer Funds 8 793 10 694 -17,8% INCOME STA TEMENT Commercial Banking Income 140,6 159,1 -11,6% Capital Mkts & Other Results 1,5 2,5 -39,1% Banking Income 142,1 161,6 -12,1% Operating Costs 14,2 14,7 -3,2% Provisions 123,6 112,2 10,2% Income Before Tax 4,3 34,7 87,7% Cost to Income 10,0% 9,1% 0,9 pp

This business area’s results continue to be affected by the increase in overdue loan ratios, leading to the need to reinforce the segment’s credit provisions. To counter this effect, the Group has taken action at various levels: (i) intensification of risk prevention practices, namely by increasing the collateralisation of both new loans and the loan portfolio; ii) regular revision of pricing policies for both credit spreads and interest rates on customer funds and elimination of commissioning discounts and exemptions; and (iii) optimisation of the cost basis.

Despite the improvement in the net interest margin and a 3.2% YoY contraction in operating costs, the segment’s banking income was penalized by the continuous increase in provisions, in line with the Group’s prudent policy and the reduction in commission income due to one-off impacts in 2013 and the credit deleveraging process.

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A-23 In line with its ambition of being the Portuguese companies’ bank of choice, while being aware that, as never before, these companies are seeking to expand their client base abroad, both through exports and presence in foreign countries, BES Group systematically reinforces its commitment to providing a strong international support service and international offer. The service is provided by the International Premium Unit (IPU), which comprises two different types of bankers, namely those managing relations with the financial institutions in countries where BES Group is not present, and the commercial bankers specialising in international business who offer the Portuguese medium-sized and large companies their accumulated knowledge about the main features of each market.

The support provided is focused on the client’s needs, including the following:

1. Customised support from the team of international bankers, who in 1Q14 helped 140 companies in differing stages of the internationalisation process. 2. Assistance in reaching new markets: a. Innovative market prospecting support services, namely ISKO, which comprises detailed information about each country and a useful summary of the relevant features for internationalisation decisions, and the ‘BES Fine Trade’, a tool that identifies potential export markets for globally tradable goods; these services are now available online. b. Opening of new markets by BES teams’ missions to countries with the potential for the development of economic relations with Portugal. In 1Q14 the Trade Mission to Azerbaijan took 16 companies to explore this new market, adding on to the more than 400 others that had already travelled with the IPU in Trade Missions. 3. A global offer in constant innovation, namely including the recently created Multilaterals Nucleus for the development of partnerships, which aims to support the Portuguese companies’ undertakings by providing political risk hedging and long-term funding.

In the Iberian market, given the close-knit economic relations between Portugal and Spain, client acquisition and business development are supported by strong cooperation between domestic and Spanish commercial networks: 53 new Iberian corporate clients were acquired in 1Q14. As far as support to Innovation and Entrepreneurship is concerned, the Bank has pursued efforts on two main fronts: first, at the level of the investee companies of Espírito Santo Ventures, which already number more than 30 in Portugal, two investments in 1Q14 reinforced the share capital of some of the most promising companies that received seed and early stage investment in the last two years, while two of this Espírito Santo Ventures’ investees are in well advanced talks with foreign investors interested in taking a stake in their share capital; second, there has been a strong dynamics – largely thanks to the increasingly well structured innovation and entrepreneurship network in Portugal – in the identification on the ground of high potential opportunities in both start-ups and more mature companies whose development may benefit from the support of BES Group’s corporate banking team and for which the Bank may become the reference partner. This mapping work has already found and assessed more than one thousand opportunities from the north to the south of Portugal.

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A-24 The exports and entrepreneurship support initiatives developed during 1Q14 created a positive dynamics of engagement with innovative export-oriented companies dealing in tradable goods, with a good risk profile (Winner SMEs). Client acquisitions of Winner SMES reached 47, while credit to this important segment increased by EUR 71 million (+5.1%) in the quarter. In year-on-year terms, gross loans to Winner SMEs grew by EUR 150 million (+11.5%).

BES actively promotes the various PME Investe, PME Crescimento and Investe QREN credit lines, all of them important tools to support the national SMEs’ investment and growth, under which it has approved to date EUR 3,250 million of loans. In the PME Crescimento 2014 line BES is market leader, with a share of 22.4%. The credit lines contracted with the European Investment Bank (EUR 200 million) and the European Investment Fund (EUR 160 million) have allowed the Bank to grant loans to the national SMES under quite favourable conditions, helping companies to achieve important investment projects and supporting their working capital needs. In 1Q14 more than EUR 220 million loans were approved under these new facilities.

In the current market context, supporting companies’ cash management continues to deserve particular attention. In this area, BES maintains a strong position in Factoring Solutions, with a market share of 21.9% that represents EUR 1,136 million of credit under management.

Through the ‘BES Express Bill’ the Bank remains at the forefront of financial innovation for businesses, actively promoting the dynamics of economic activity, the adoption of financial management good practices and the improvement of companies’ financial health.

Overall, the ca. 18,500 clients that subscribed this innovative service have a total of EUR 2.6 billion in facilities approved, which guarantee the advancing of payments of more than EUR 13 billion per year. By guaranteeing payments and bringing forward receipts, thus promoting business and acting as a confidence booster in business dealings, this networking solution links all companies (micro, small, medium-sized and large) and increasingly stands out from within other cash management solutions.

In 2013, Banco Espírito Santo and Edenred, the world leader in prepaid corporate services, entered a joint venture to operate and develop in Portugal the market for social benefits delivered by companies to their employees. In 1Q14 Edenred, supported by the strong involvement of BES’s commercial network, consolidated its lead of the meal card solutions market, with an estimated share of 46%.

The internet banking service for corporate clients - BESnetwork – reached 64.4 thousand frequent users at the end of 1Q14 (a YoY increase of 17.3%) while the number of logins reached 18.6 million.

25 1Q14 Results Lisbon, 15 May 2014

A-25 3.2.3 Private Banking

This area is dedicated to the business with private high net worth clients, covering all products associated with these clients, notably deposits, discretionary management, custody services, brokerage of securities and insurance products.

Private Banking

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Loans (gross) 827 937 -11,8% Customer Funds 1 575 1 578 -0,2% INCOME STA TEMENT Commercial Banking Income 33,2 30,3 9,7% Capital Mkts & Other Results 2,8 2,1 32,1% Banking Income 36,0 32,4 11,1% Operating Costs 4,2 4,2 0,3% Provisions -0,7 4,1 -118,0% Income Before Tax 32,5 24,1 34,9%

Cost to Income 11,7% 13,0% -1,3 pp

In Private Banking the Group also showed its capacity to weather the adverse economic context. In this important business area, total customer funds (consisting entirely of deposits) remained practically flat YoY (-0.2%), with on-balance-sheet customer funds registering the same rate of change. The segment’s pre-tax profit increased 34.9% YoY in 1Q14, to EUR 32.5 million. This improvement translates the measures taken in 2013 and 1Q14 to enhance the customer funds margin (which led to a 11.1% increase in banking income) combined with efficient control over the structure of operating costs.

3.2.4 International Commercial Banking

This segment includes the retail units operating abroad, which develop their banking activity (excluding investment banking and asset management) with both individual and corporate clients. This business area remained vigorous, with customer funds increasing by 14.0%, largely driven by growth in Spain and the inclusion of BES Vénétie in the consolidation scope, while customer loans grew by 12.5%, underpinned by the intensification of business in BES’s subsidiary in Angola and the contribution of BES Vénétie. Despite the performance of banking income (+69.2%), the segment reported a pre-tax loss of EUR 8 million in the period that reflects the increase in operating costs (+14.6%) and provisions (+EUR 89.3million) and which compares with a pre-tax profit of EUR 19.6 million in 1Q13.

26 1Q14 Results Lisbon, 15 May 2014

A-26 International Commercial Banking

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Loans (gross) 13 644 12 128 12,5% Customer Funds 12 329 10 814 14,0% INCOME STA TEMENT Commercial Banking Income 147,0 115,4 27,3% Capital Mkts & Other Results 25,3 -13,6 …. Banking Income 172,3 101,8 69,2% Operating Costs 68,9 60,1 14,6% Provisions 111,4 22,1 …. Income Before Tax -8,0 19,6 -141,1%

Cost to Income 40,0% 59,0% -19,0 pp

In 1Q14 BES Spain Branch maintained the positive performance seen in the previous quarters. Main highlights in the period: (i) the commercial network expansion programme was pursued according to plan, with new branches scheduled to open in the next few months (from a total of 33 branches, 8 were opened in the last 18 months); ii) customer deposits increased by 24.4% YoY while customer loans decreased by 5.3%, reflecting the deployment of the branch’s policy aimed at reinforcing its self-sufficiency in terms of funding; (iii) off-balance sheet activity volume remained practically unchanged at ca. EUR 1,300 million, in line with the trend in the previous quarters; iv) the international corporate activity support volume stabilised at around EUR 880 million, while the number of active international clients reached 180, which represents a YoY increase of 5.9%%; (v) the overall number of clients, mostly in retail and private banking +34.1%), increased by 32.0% YoY, which represents 7,200 new client acquisitions; and (vi) continued implementation of the prudent credit risk management policy, involving a strong reinforcement of provisions in light of the evolution and direct and indirect effects of the economic situation. Backed by a 16.5% increase in banking income (ex-markets) driven by the continuing downward trend in the cost of liabilities, combined with the containment of costs, operating income increased to EUR 33.6 million, which compares with EUR 13.6 million in 1Q13. The Branch reported a pre-tax profit of EUR 17.8 million in 1Q14 (vs. a EUR 5.5 million loss in 1Q13).

BES London Branch (United Kingdom) concentrates its activity in wholesale banking in the European market. During the 1Q14 business volume remained consistently above EUR 5 billion, underpinned by the EMTN programme, but also by an increase in on-balance sheet customer funds through the reinforcement of deposits acquisition (+55% since the start of the year). On the other hand customer loans remained flat compared to the end of 2013, having slightly decreased YoY (-3%). Commercial banking income reached EUR 4.9 million in the period. The Branch continued to streamline its structure of operating costs.

27 1Q14 Results Lisbon, 15 May 2014

A-27 Espírito Santo Bank (Miami/USA), after reporting strong growth in 2013, is now focused on improving its profitability, based on the increase in revenues, namely from asset management, combined with the containment of operating costs. On March 31st, 2014 assets totalled USD 736 million (-7% vs. 2013 YE), with deposits dropping by USD 27 million in the quarter, to USD 626 million and gross customer loans increasing by 1%, to USD 549 million. In its lending activity, where it maintains its safe and conservative standards in credit assessment, the Bank has focused, on the one hand, on promoting the acquisition of second homes in South Florida by non-resident individuals (a market segment showing signs of perking up, particularly in the luxury construction segment), and on the other on supporting exports to Latin America, guaranteed or insured by US Eximbank (Export-Import Bank of the United States) and other developed countries’ Export Credit Agencies. Backed by the diversified range of products targeting the clients’ financial needs which are offered by the private banking and wealth management areas, the recently created investment advice unit, and also the broker/dealer ES Financial Services, assets under management reached USD 1.5 billion in March 2014. For the sixth consecutive quarter, at the start of 2014 ES Bank was confirmed its “5-star” rating, Bauer Financial’s highest classification, which was awarded for the first time in 2012 on the grounds of its asset quality and liquidity and solvency levels. Net income for the period was USD 0.6 million.

BES New York Branch (USA) concentrates its activity in wholesale banking, mainly in the US and Brazil. In a persistently adverse environment, the 1Q14 was marked by the continuation of the deleveraging process (the loan book was reduced by 51% YoY) and strong restrictions on access to market liquidity, penalising the placement of certificates of deposit and commercial paper and the Branch’s overall activity in the North- American market.

Banco Espírito Santo Angola (Angola) pursued the implementation of its 2013-2017 Strategic Plan which aims to evolve the business model towards an aspirational banking model, involving the expansion of the branch network, the revision of the commercial and marketing strategy, the implementation of a multichannel strategy and the development of support areas. The deployment of the Strategic Plan has supported continued activity growth, with assets increasing by 2% versus the end of 2013, to EUR 8,393 million, driven by the growth of the loan book, which increased by 1.7% in the quarter, to EUR 5,808 million. Customer funds expanded by EUR 216 million (+8.3%) in the period. Banking income grew by 87% YoY, to EUR 81.4 million, underpinned by the increase in net interest income (+64%, to EUR 67.4 million), commissions, (+33%, to EUR 7 million), and capital markets and other results, which reached EUR 7 million. Operating costs were up by 3.9%. BES Angola’s results in the period, a net loss of EUR 15 million, were penalised by the increase in credit provisions by approximately EUR 70 million.

BES Cape Verde (based on Cidade da Praia, with a second branch in Santa Maria, Sal Island) focuses on local corporate banking activity, where it mainly targets public sector companies, subsidiaries of Portuguese companies with interests in Cape Verde, and the local affluent market. Customer funds nearly trebled in 1Q14, reaching EUR 125 million at year end, while total assets amounting to EUR 180 million at the end of the period.

28 1Q14 Results Lisbon, 15 May 2014

A-28 The activity of Banco Espírito Santo do Oriente (Macau / Popular Republic of China) in 1Q14 was marked by the implementation of a new IT platform and the gradual adjustment of the structures to the 2014-2018 Strategic Plan. In line with the strategy of diversifying and differentiating the offer, these changes will permit to develop new capabilities in personal and corporate banking, turning the bank into BES Group’s centre of RMB and trade finance expertise in Asia. The Bank’s documentary transactions business (e.g. L/C Advising/Forfaiting/Discount) in connection to local trade and the trade flows between the Popular Republic of China and the Portuguese-speaking countries where BES Group is present remained strong, supported by the commercial and operational action undertaken in cooperation with BES’s International area (International Department and International Premium Unit) and by the tightening of relations with the main Chinese Banks, with which it has entered instrumental agreements viewing the development of this type of business. The growth and stability of customer funds achieved over the last few years thanks to the excellent relations maintained with the local authorities remains a key priority in the current context, and to this end during the 1Q14 the Bank continued to develop commercial activities targeting its various client segments.

In 1Q14 Banque Espírito Santo et de la Vénétie (France) had a good performance across all its business areas, and especially in the real estate business, which contributed with 47% to banking income, while refinancing costs also decreased compared to 1Q13. Underpinned by a 29% YoY increase in banking income, to EUR 13.2 million and a 7% reduction in operating costs, to EUR 6.2 million, the bank’s pre-tax profit improved by 86%, to EUR 5.3 million, which compares with EUR 2.8 million in 1Q13.

Moza Banco (Mozambique) continued to deploy its commercial expansion plan, opening 3 new branches in 1Q13 that increased the network to 26 units and achieved full coverage of all the country’s provinces. Activity continued to grow at a strong pace, with assets increasing to EUR 403 million (+86% YoY and +14% since the start of the year) and deposits growing by 18% in the quarter.

Since its opening two years ago BES Venezuela Branch has been focusing its activity on the Portuguese resident community and the local large companies and institutions. In 1Q14 the branch’s total assets increased by 116% YoY and by 16% since the start of the year, reaching EUR 241 million, mainly underpinned by the growth of customer deposits (+132% YoY and +22% since the start of the year, to EUR 195 million).

BES Luxembourg Branch, which has also completed two years, has been acting as a platform for business with the Portuguese emigrant community in the country as well as in neighbouring countries in central Europe, while offering the Group’s global client base the possibility to do business in a safe, credible, and uniquely stable market. At the end of 1Q14 the branch had total assets of EUR 1,317 million (+ 63% YoY and + 46% since the start of the year), reporting a net profit for the period of EUR 2.0 million.

In Libya, Aman Bank has remained focused on the reinforcement of operations and the deployment of its commercial plans so as to seize the growth opportunities arising in the country, which is still struggling with

29 1Q14 Results Lisbon, 15 May 2014

A-29 social and economic difficulties. In 1Q14 the bank’s business volume remained relatively stable, with assets totalling EUR 877 million. Aman Bank reported a net profit for the period of EUR 2.2 million.

3.2.5 Investment Banking

Investment banking includes advisory services in project finance, mergers and acquisitions, restructuring and consolidation of liabilities, preparation and public or private placement of shares, bonds and other fixed-income and equity instruments, stock broking and other investment banking services. In addition, the bank offers traditional banking services to corporate and institutional clients.

Investment Banking

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Loans (gross) 2 157 2 213 -2,5% Customer Funds 2 239 1 308 71,2% INCOME STA TEMENT Commercial Banking Income 44,8 48,7 -8,1% Capital Mkts & Other Results 46,3 14,8 211,9% Banking Income 91,1 63,6 43,3% Operating Costs 41,0 43,0 -4,6% Prov isions 30,6 12,1 153,0% Income Before Tax 19,5 8,5 129,0%

Cost to Income 45,1% 67,6% -22,5 pp

The start of 2014 was quite encouraging for investment banking, with improving sentiment and market flows supporting an expressive increase in revenues and results. Banking income increased by 43.3% YoY, to EUR 91.1 million, while operating costs were reduced by 4.6%. The operational improvement fully absorbed the increase in credit impairments, allowing for an increase in the pre-tax profit, which reached EUR 19.5 million (EUR 8.5 million YoY). The international area maintained a consistent performance, representing 44% of banking income.

In general terms, all business areas improved their performance compared to 1Q13. The Capital Markets area maintained its buoyancy, leading another debt issue by the Portuguese Republic, in the amount of EUR 3 billion, and concluding various operations in different markets.

Mergers and Acquisitions – BESI provided advisory services in Portugal to Estaleiros Navais de Viana do Castelo on the sub-concession of land to Martifer Group (contract signed on January 10th, 2014).

30 1Q14 Results Lisbon, 15 May 2014

A-30 Project Finance and Securitisation – BESI acted (i) in Portugal, as Structuring Bank and Mandated Lead Arranger on the EUR 135 million refinancing of the NorteShoping mall; (ii) in Brazil, as Financial Adviser and Onlending Agent on the long-term loan through BNDES to Viracopos Aeroportos Brasil, the concessionary of the Campinas Viracopos International Airport, for a total of BRL 1.8 billion; and (iii) in Mexico, as Issuer of a Standby Letter of Credit for a motorway construction project of ICA (MXN 689 million).

Acquisition Finance and Other Lending - BESI acted in Portugal as Mandated Lead Arranger on the refinancing of Efacec Group’s debt.

Equity Capital Markets – BESI acted (i) in Iberia, as Joint Global Coordinator on the IPO of Espírito Santo Saúde (EUR 150 million), as Joint Bookrunner on the placement of two blocks of shares, namely a 3% stake in ZON OPTIMUS (EUR 76 million) and a 16.8% stake in Mota-Engil, SGPS (EUR 159 million), as Joint Lead Manager on bond issues by EDP (USD 750 million), BES (EUR 750 million), Brisa (EUR 300 million) and Isolux- Corsán (EUR 600 million) and as Sole Lead Manager on Celbi’s bond issue (EUR 80 million); (ii) in Brazil, as Sole Placement Agent on Monteiro Aranha’s sale of a block of 4.18 million shares of Klabin (BRL 50 million) and as Joint Lead Manager on a bond issue by BDMG (BRL 248 million) and an issue of debentures by Ouro Verde (BRL 250 million); (iii) in Poland, as Sole Arranger on bond issues by Globe Trade Centre (PLN 200 million) and Kredyt Inkaso (PLN 70 million); and (iv) in Mexico, as Sole Bookrunner on a bond issue by Famsa (USD 60 million). In the Structured Products segment, BESI was Lead Manager on the issue of Agribusiness Receivables Certificates backed by credits due by Jalles Machado S.A. (BRL 41.5 million).

Brokerage - BESI maintained a prominent position in Portugal (3rd place with a 7.2% market share) and ranked in 11th place in the Madrid Stock Exchange ranking, with a 3.2% market share. The Bank positioned in 22nd place in Brazil’s Bovespa ranking, with a market share of 0.9%, and in the 21st position in the Polish brokers’ ranking, with a market share of 1.6%. In the United Kingdom the year started on a positive note, while in India activity progressively improved during the quarter.

In Private Equity the main transactions in the period included (i) two divestments, namely from Synergy and the TLCI Group, for a total of EUR 22 million and (ii) the first investment made in Brazil, the acquisition of a minority stake in Aramis, a menswear retailer.

BESI was recently distinguished by the EMEA Finance magazine for its role as Joint Bookrunner of Energa’s IPO, the largest in the Warsaw Stock Exchange since July 2011 and the largest in Central and Eastern Europe in 2013, and considered the ‘Best Privatisation IPO in EMEA’. This transaction allowed the Polish Treasury to sell a 34.18% in Energa, for more than PLN 2.4 billion (ca. EUR 570 million).

3.2.6 Asset Management

This segment includes all the asset management activities of the Group, essentially conducted by Espírito Santo Activos Financeiros (ESAF), within Portugal and abroad (Spain, Luxembourg, Angola, and Brazil).

31 1Q14 Results Lisbon, 15 May 2014

A-31 ESAF’s product range covers mutual funds, real estate funds and pension funds, besides providing discretionary and portfolio management services.

Asset Management

EUR million

Mar,14 Mar,13 Change

A SSETS UNDER MA NAGEMENT 16 860 15 455 9,1% INCOME STA TEMENT Banking Income 12,4 14,4 -13,6% Operating Costs 4,0 4,3 -5,9% Provisions 0,1 0,0 …. Income Before Tax 8,3 10,1 -18,0%

Cost to Income 32,4% 29,8% 2,7 pp

At the end of 1Q14 the global volume of assets under management reached EUR 16.9 billion, a YoY increase of 9.1%. At domestic level, the YoY increase in pension funds, asset management and real estate investment funds should be stressed, while in the international business, there was an increase in volume under management in Luxembourg. For the third consecutive year, ESAF was distinguished in the Lipper Fund Awards Europe, disclosed in the 1Q14: ESAF - Espírito Santo Gestão de Patrimónios received the award for Best European Small-Cap Manager, in Bonds, while Espírito Santo Euro Bond was named Best Fixed Rate Euro Bond Fund (3.5 and 10 years) and Espírito Santo Global Bond was considered Best Global Fixed Rate Bond Fund (3 years). Moreover, Espírito Santo Portugal Acções - Fundo de Investimento Mobiliário Aberto de Ações was the winner in Euronext Lisbon Awards’ Third Edition, in the category of closed-end mutual and pension funds investing in Portuguese equities

3.2.7 Life Insurance

This business area comprises the activity developed by BES Vida, which provides both traditional and unit- linked insurance products as well as pension plans.

Life Insurance

EUR million

Mar,14 Mar,13 Change

BA LA NCE SHEET Customer Funds 6 535 4 825 35,4% INCOME STA TEMENT Gross Margin of Insurance Business 56,6 67,1 -15,7% Operating Costs 2,7 2,9 -7,2% Provisions 0,9 0,1 ….

Net Income 37,7 70,3 -46,4%

32 1Q14 Results Lisbon, 15 May 2014

A-32

BES Vida’s production in Portugal reached EUR 648.1 million in 1Q14, which represents a 39.6% YoY increase in premium volume. The period was marked by the continuous expansion of the company’s business, underpinned by pension plan production, which largely exceeded claims volume. As a result Mathematical Provisions reached ca. EUR 7,446 million, rising by 5.9% relative to December 2013 and by 24.7% YoY.

3.2.8 Markets and Strategic Holdings

This segment includes the global financial management activity of the Group, namely raising and placement of funds in the financial markets, as well as investment in and risk management of credit, interest rate, FX and equity instruments, whether of a strategic nature or as part of current trading activity. It also includes activity with non-resident institutional investors, as well as any activities arising from strategic decisions impacting the entire Group.

Markets and Strategic Holdings

EUR million

Mar,14 Mar,13 Change

INCOME STA TEMENT Banking Income -97,0 -143,9 -32,6% Operating Costs 16,0 14,0 14,4% Prov isions 99,4 72,7 36,8% Income Before Tax - 212,4 -230,6 7,9%

Despite an improvement in 1Q14, resulting from capital gains on securities and a general amelioration in access conditions to funding sources, the segment posted a negative banking income in the period. This was due to the fact that the internal allocation of the cost of funding implicit in the definition of spreads on strategic products sold to domestic corporate and individual clients does not take into account market volatility. The increase in impairments in the securities portfolio, namely for investments in debt restructuring funds, and in real estate assets obtained through credit recoveries, explains the net loss of EUR 212.4 million reported by the segment in 1Q14 (1Q13: - EUR 230.6 million).

33 1Q14 Results Lisbon, 15 May 2014

A-33

4. FINANCIAL STRENGTH AND ASSET QUALITY

4.1 Asset Quality

The table below summarises the evolution of credit, overdue loans, credit at risk, restructured loans, provisions for impairment losses and overdue loans ratios and provisions ratios in 1Q14 and comparison with 1Q13.

Asset Quality

Change YoY Change QoQ Mar,14 Dec,13 Mar,13 absolute relative absolute relative

EUR million Gross loans 51 001 49 722 51 267 - 266 -0,5% 1 279 2,6% Overdue Loans 3 321 2 990 2 521 800 31,7% 331 11,1% Crédito Vencido > 90 dias 3 067 2 826 2 227 840 37,7% 241 8,5% Credit at risk (1) 5 684 5 249 5 178 506 9,8% 435 8,3% Restructured Credit (2) 6 170 5 846 - - - 324 5,5% Restructured Credit not included in Credit at Risk (2) 4 842 4 678 - - - 164 3,5% Provisions for Credit 3 650 3 387 2 823 827 29,3% 263 7,8%

Indicators (%)

Overdue Loans / Gross Loans 6,5 6,0 4,9 1,6 p.p. 0,5 p.p. Overdue Loans +90d / Gross Loans 6,0 5,7 4,3 1,7 p.p. 0,3 p.p. Credit at risk (1) / Gross Loans 11,1 10,6 10,1 1,0 p.p. 0,5 p.p. Restructured Credit / Gross Loans 12,1 11,8 - - 0,3 p.p. Restructured Credit not included in Credit at Risk(2)/ Gross 9,5 9,4 - - 0,1 p.p. Loans Coverage of Overdue Loans 109,9 113,3 112,0 -2,1 p.p. -3,4 p.p. Coverage of Overdue Loans + 90d 119,0 119,9 126,8 -7,8 p.p. -0,9 p.p. Coverage of Credit at risk (1) 64,2 64,5 54,5 10,0 p.p. -0,3 p.p. Provisions for Credit / Gross Loans 7,2 6,8 5,5 1,7 p.p. 0,4 p.p. Cost of Risk (3) 2,2 2,0 1,5 0,7 p.p. 0,1 p.p.

(1) According to the definition of BoP Instruction nº23/2011. (2) According to the definition of BoP Instruction nº32/2013. (3) March Data annualised

The credit portfolio risk indicators show a deterioration across the board, a trend that was clear throughout 2013. Hence credit at risk increased, causing the credit at risk ratio to rise to 11.1% (Dec.13: 10.6%), with net new entries in the quarter, on a comparable basis, totalling EUR 314 million.

34 1Q14 Results Lisbon, 15 May 2014

A-34

Quarterly evolution of Credit at Risk

172 -408 121 5684 307 314 420 4758 1,8% 2,9% -3,0% 4,0% 3,9%

Dec,12 1Q13 2Q13 3Q13 4Q13 1Q14* BES Mar,14 Vénétie

* Excludes BES Vénétie Quarterly anualised credit at risk new entries/ Total Credit

The Overdue loans/Gross Loans ratio was 6.5% while the Overdue loans + 90 days /Gross Loans ratio reached 6.0%. The new indicators whose disclosure is required by the Bank of Portugal since the end of 2013, namely ‘restructured loans / gross loans’ and ‘restructured loans not included in credit at risk / gross loans’, were 12.1% and 9.5%, respectively.

The Provisions for Credit / Gross Loans ratio continued to be reinforced, reaching 7.2% (Dec.13: 6.8%), with the Coverage of Credit at Risk ratio (Provisions for Credit / Credit at Risk), excluding collaterals and guarantees, standing at 64.2% (Dec.13: 64.5%). Bes Group’s credit provisioning ratios are among the highest in the Portuguese financial system.

Provisions for Credit / Gross Loans ratio

8,0% 6,8% 7,2% 7,0% 6,0% 5,3% 5,0% 4,2% 4,0% 3,1% 3,4% 3,0% 2,0% 1,0% 0,0% Dec09Dec10Dec11Dec12Dec13Mar14

35 1Q14 Results Lisbon, 15 May 2014

A-35 The overdue loan ratios increased to 7.8% in corporate loans and reached 10.4% in other loans to individuals; the mortgage loans overdue loan ratio was once again the slowest growing, standing at 1.1% at the end of the quarter.

Overdue Loans

Change Mar,14 Dec,13 Mar,13 Yo Y Qo Q

Overdue Loans 6,5% 6,0% 4,9% 1,6 0,5

Individuals 2,7% 2,4% 2,2% 0,5 0,3

- Mortgage 1,1% 1,0% 0,9% 0,2 0,1

- Other Purposes 10,4% 9,0% 7,6% 2,8 1,4

Corporate 7,8% 7,3% 5,9% 1,9 0,5

According to the statistics published by the Bank of Portugal (February 2014), the Group’s overdue loan ratios continue to compare favourably with those of the Portuguese banking sector, where corporate overdue loans stand at 10.8% (BES Group: 7.8%), mortgage overdue loans at 2.2% (BES Group: 1.1%) and other loans to individuals overdue loans at 12.4% (BES Group: 10.4%). Foreclosed real estate assets on the balance sheet totalled EUR 2.1 billion at the end of 1Q14. The table below shows the distribution of these assets by the domestic and international areas:

Foreclosed Assets

EUR million Mar,14 Dec,13 Mar,13

Domestic 2 464 2 453 2 122 International 156 156 137 Gross Value 2 620 2 609 2 259 Provisions 511 477 321 Net Value 2 109 2 132 1 938

The Group develops an active and innovative strategy viewing the sale of foreclosed properties, using for the purpose various internal and external sales channels adapted to each target market. 483 such properties were sold in 1Q14 (a YoY increase of 19%) for a gross balance sheet value of EUR 75 million. Given the prudent provisioning policy adopted, where property valuations are based on the immediate sale value, no material gains or losses were determined on these sales.

36 1Q14 Results Lisbon, 15 May 2014

A-36

Property Sales

2013 1Q14 1Q FY

Sold Premises 483 405 3 462

Proceeds (€mn) 75 82 444

Gains/Losses (€mn) 0,2 1,1 0,5

4.2 Liquidity, Solvency and Financial Strength

4.2.1 Liquidity The first half of 2014 maintained the improving trend of market sentiment, especially in the eurozone peripheral countries, thus sustaining positive expectations of a recovery of economic growth in the main economies. Sovereign debt yields of various eurozone countries sharply subsided, with the Portuguese public debt yield shrinking to around 4% at the end of the quarter.

However, tensions in Crimea and deflationary pressures in the eurozone have been acting as a counterpoint to this optimism. The disclosure of inflation data at the end of March – an inflation rate of 0.5%, the lowest since November 2009 – confirmed a deflationary scenario in the eurozone for a relatively extended period of time, even if actual deflation risks remain limited.

Taking advantage of the favourable conditions, in January and April 2014 BES Group tapped the international capital markets with two issues of senior unsecured debt with 5- and 3-year maturities, for a total of EUR 1.5 billion, and credit spreads of 285 bps and 208 bps, respectively. The market’s improvement is reflected on the reduction of the spread paid for debt issues, notwithstanding the difference in maturities.

In April 2014, and for the first time since it requested financial assistance in 2011, Portugal returned to the debt auction system, issuing EUR 750 million of 10-year bonds at an average interest rate of 3.58%, not supported by a syndicate of banks. With the adjustment programme agreed with the Troika nearing the end and in light of the positive sentiment towards Portugal, the Government announced it would not negotiate a precautionary programme. It should be noted that over the last months the Government has built up a buffer that will largely cover the funding of liabilities in 2014 e 2015, which allays concerns about the national accounts during the post-troika period. This, together with a brighter economic outlook, are expected to alter the main rating agencies’ perception of Portugal, as was the case with Fitch, which in April revised its outlook on the country from negative to positive.

37 1Q14 Results Lisbon, 15 May 2014

A-37 In 1Q14 the structure of liabilities and equity remained stable, with the share of customer deposits in funding sources standing flat YoY, at 56%, while total customer funds (deposits and bancassurance) significantly increased as a percentage of the total, to 66%, due to the growth of bancassurance products in the period (+35%). The share of long-term funding retreated by 2pp, to 22% of the total, due to the reimbursements and repurchases occurred in the year to March 2014.

Relative to the end of 2013, BES Group’s net funding from the ECB increased by ca. EUR 3 billion, to EUR 8.3 billion, essentially reflecting the increase in the public debt portfolio (and especially of Portuguese and Italian bonds) in the period. At the end of March 2014 the portfolio of repoable securities amounted to EUR 24 billion, of which EUR 21.3 billion were eligible for rediscount with the ECB. This amount includes exposure to Portuguese sovereign debt of EUR 5 billion (of which EUR EUR 1.6 billion maturing in less than one year). BES Group’s other peripheral European sovereign exposures totalled EUR 1.8 billion (of which EUR 1.5 billion maturing in less than one year), including EUR 0.9 billion of Italian public debt, EUR 0.7 billion of Spanish public debt, and EUR 0.2 billion of Greek public debt.

On May 14th BES cancelled EUR 1,250 million of a senior debt issue guaranteed by the Portuguese State, and on the same date repaid in advance EUR 1 billion borrowed under the European Central Bank’s Long Term Refinancing Operations.

4.2.2 Solvency

On June 26th, 2013 the European Parliament and the Council approved Regulation (EU) no. 575/2013 and Directive 2013/36/EU which establish the applicable prudential requirements for credit institutions and investment firms in the European Union.

On June 26th, 2013 the European Parliament and the Council approved Directive 2013/36/EU and Regulation (EU) no. 575/2013, which, as from January 1st 2014, regulate in the European Union, respectively the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, and the prudential requirements for these institutions.

Bank of Portugal’s Notice 6/2013, of 30 December established transitional arrangements for own funds, under said Regulation, and laid down measures to preserve those funds, determining a common equity Tier 1 capital ratio of no less than 7%.

As the table shows, on March 31st, 2014 BES Group’s capital ratios were significantly above the minimum established levels, even if considering full application of the new BIS III rules.

38 1Q14 Results Lisbon, 15 May 2014

A-38

Risk Weighted Assets, Eligible Capital and Regulatory Capital BIS III (CRD IV/CRR)

EUR million Mar,14(1)

Fully Phasing in implemented

Risk Weighted Assets (A) 62 268 61 722 Banking Book 57 292 56 746 Trading Book 1 722 1 722 Operational Risk 3 254 3 254 Regulatory Capital

Common Equity Tier I(B) 6 079 4 927

Tier I (C) 6 079 4 997 Tier II and Deductions 850 1 046 TOTAL (D) 6 929 6 043

Common Equity Tier I (B/A) 9,8% 8,0%

Tier I (C/A) 9,8% 8,1%

Solvency Ratio (D/A) 11,1% 9,8%

(1) Preliminary data; RWAs do not include the Sovereign Guarantee provided to BES Angola

The CET 1 ratio was 9.8%, according to phasing in rules (Bank of Portugal minimum requirement: 7%) and 8.0%, if fully implemented. According to Notice 6/2013, under the transitional regime, unrealised gains on assets measured at fair value (EUR 290 million in March 2014) are fully excluded from CET1 in 2014.

39 1Q14 Results Lisbon, 15 May 2014

A-39

4.3 Bank of Portugal reference indicators

The table below lists the reference indicators under Bank of Portugal instruction no. 16/2004, as amended by instructions nos. 16/2008, 23/2011 and 23/2012, for the end of 1Q14. The indicators show: (i) solvency ratios are above the Bank of Portugal’s recommended minimum levels; (ii) credit quality indicators deteriorated; iii) profitability indicators reflect the net loss reported in the period; (iv) efficiency levels improved due to the increase in banking income; and (v) the loan to deposits ratio was 129% in March 2014.

% Mar,14

SOLVENCY (g) Regulatory Capital / RWA (a) 11,1%

Tier I / RWA (a) 9,8%

Core Tier I / RWA (a) 9,8%

ASSET QUALITY

Overdue & Doubtful Loans (b) / Gross Loans (c) 7,0%

Overdue & Doubtful Loans net of Provisions (c)/ Net Loans (c) -0,1%

Credit at Risk (c/f) / Gross Loans (c) 11,1%

Credit at Risk net of Prov isions (c/f)/ Net Loans (c) 4,3%

PROFITABILITY Income before Tax and Minorities / Average net Assets -0,5% Banking Income (d)/Average Net Assets 2,8% Income before Tax and Minorities/ Average Equity (e) -5,5%

EFFICIENCY

General Admin Costs (d)+ Depreciation / Banking Income (d) 49,7%

Staff Costs / Banking Income (d) 26,0%

TRANSFORMATION

(Gross Loans (c)- Credit Impairments (c) / Customer Deposits (f) 129%

(a) Under IRB Foundation (b) According to BoP Circular Letter nº 99/2003/DSB ( c) According to BoP Instruction 22/2011 (d) A ccording t o BoP inst ruct ion 16/2004 (e) Includes Minority Interests (f) According to BoP instruction nº23/2004 (g) Preliminary dat a considering phased in CRD IV/CRR

40 1Q14 Results Lisbon, 15 May 2014

A-40

5. Other

 On April 28th, 2014 Banco Espírito Santo informed the market it had placed a EUR 750 million senior unsecured debt issue under the EMTN programme. The notes have a maturity of 3 years and will pay a coupon of 2.625%. The order book was approximately 2 times oversubscribed, with roughly 150 accounts and a very strong presence from international investors (representing approximately 90% of allocations).

 On May 14th, 2014 BES cancelled EUR 1,250 million of a senior bond guaranteed by the Portuguese Republic. On the same date the Bank repaid in advance EUR 1 billion borrowed under the European Central Bank’s Long Term Refinancing Operations.

Lisbon, May 15th, 2014

THE BOARD OF DIRECTORS

41 1Q14 Results Lisbon, 15 May 2014

A-41 BANCO ESPÍRITO SANTO, S.A..A. CONSOLIDATED BALANCE SHEET AS OF 31 2014 AND 2013

EUR million

Mar,14 Dec,13 Mar,13

ASSETS Cash and deposits at Central Banks 1 806 047 1 719 363 1 410 320 Deposits with banks 705 078 542 945 511 384 Financial assets held for trading 2 620 435 2 507 932 4 128 436 Financial assets at fair value through profit or loss 3 922 014 3 874 347 2 779 791 Available-for-sale financial assets 11 131 177 8 486 605 13 558 571 Loans and advances to banks 2 930 500 5 431 464 3 093 328 Loans and advances to customers 47 350 633 46 334 896 48 443 427 Held-to-maturity investments 1 532 760 1 499 639 920 728 Hedging derivatives 322 383 363 391 450 190 Non-current assets held for sale 3 510 415 3 567 011 3 489 085 Investment properties 393 101 395 855 394 919 Other tangible assets 928 684 925 438 971 032 Intangible assets 458 827 455 352 548 180 Investments in associates 433 779 536 666 583 391 Current income tax assets 34 326 36 399 23 419 Deferred income tax assets 1 054 739 1 034 318 779 414 Reinsurance Technical Provisions 10 912 10 435 1 827 Other assets 3 671 526 2 885 960 2 858 986

TOTAL ASSETS 82 817 336 80 608 016 84 946 428

LIABILITIES Deposits from central banks 9 862 959 9 530 131 9 947 129 Financial liabilities held for trading 1 374 965 1 284 272 1 949 035 Deposits from banks 5 296 659 4 999 493 5 592 263 Due to customers 36 241 940 36 830 893 37 417 113 Debt securities 12 666 062 11 919 450 14 581 959 Hedging derivatives 114 049 130 710 161 883 Investment contracts 4 763 607 4 278 066 3 293 401 Non current liabilities held for sale 155 098 153 580 175 651 Provisions 215 931 192 452 230 176 Technical provisions 1 771 517 1 754 655 1 531 666 Current income tax liabilities 146 859 101 868 207 164 Deferred income tax liabilities 130 024 97 129 151 153 Other subordinated loans 982 865 1 066 298 834 939 Other liabilities 2 077 520 1 219 723 1 187 493

TOTAL LIABILITIES 75 800 055 73 558 720 77 261 025 EQUITY Capital 5 040 124 5 040 124 5 040 124 Share Premium 1 070 146 1 067 596 1 069 340 Other capital instruments 29 163 29 162 29 389 Treasury stock ( 858) ( 858) ( 1 006) Preference shares 159 342 159 342 193 089 Fair value reserve, other reserves and retained earnings 113 118 468 885 734 838 Profit for the period attributable to equity holders of the bank ( 89 159) ( 517 558) ( 62 036)

Shareholder's Equity 6 321 876 6 246 693 7 003 738

Minority Iterests 695 405 802 603 681 665

TOTAL EQUITY 7 017 281 7 049 296 7 685 403

TOTAL LIABILITIES AND EQUITY 82 817 336 80 608 016 84 946 428

42 1Q14 Results Lisbon, 15 May 2014

A-42 BANCO ESPÍRITO SANTO, S.A. CONSOLIDATED INCOME STATEMENT AS OF 31 MARCH 2014 AND 2013

EUR million Mar,14 Mar,13

Interest and similar income 826 570 860 353 Interest expense and similar charges 556 622 638 501

Net Interest Income 269 948 221 852 Dividend income 2 452 1 867 Fee and Commission income 195 252 209 523 Fee and Commission expense 49 386 46 523 Net gains from financial assets at fair value through profit or loss ( 49 444) ( 70 489) Net gains from available-for-sale financial assets 203 295 161 002 Net gains from foreign exchange differences 12 041 15 173 Net gains/ (losses) from sale of other assets 2 170 ( 6 341) Insurance earned premiums net of reinsurance 55 753 20 052 Claims incurred net of reinsurance 51 552 72 077 Change on the technical provision net of reinsurance ( 17 545) 50 317 Other operating income and expense ( 20 689) ( 36 337) Operating income 552 295 448 019 Staff costs 149 716 145 644 General and administrative expenses 109 259 108 914 Depreciation and amortisation 27 390 25 944 Provisions impairment net of reversals 4 814 ( 5 762) Loans impairment net of reversals 276 294 187 143 Impairment on other financial assets net of reversals 46 075 18 303 Impairment on other assets net of reversals 53 466 40 377 Operating Costs 667 014 520 563 Disposal of Subsidiaries and Associates ( 3 111) - Income arising on business combinations achieved in stages 22 665 - Associate Income 2 806 1 833 Net income before income tax and minorities ( 92 359) ( 70 711) Income tax Current tax 32 793 43 674

Deferred tax ( 34 943) ( 49 941) ( 2 150) ( 6 267)

Earnings for continuing activities ( 90 209) ( 64 444) Net Income of discontinued operations ( 6 345) ( 2 721)

Net Income ( 96 554) ( 67 165)

Attributable to Shareholders ( 89 159) ( 62 036) Attributable to Minority Interests ( 7 395) ( 5 129) ( 96 554) ( 67 165)

43 1Q14 Results Lisbon, 15 May 2014

A-43 REGISTERED OFFICE OF BANCO ESPÍRITO SANTO, S.A.

Banco Espírito Santo, S.A. Avenida da Liberdade, 195 1250-142 Lisbon Portugal

JOINT GLOBAL COORDINATORS AND JOINT BOOKRUNNERS

Banco Espírito Santo Morgan Stanley & Co. International plc UBS Limited de Investimento, S.A. 25 Cabot Square 1 Finsbury Avenue Rua Alexandre Herculano, 38 Canary Wharf London EC2M 2PP 1269-161 Lisbon London E14 4QA United Kingdom Portugal United Kingdom

JOINT BOOKRUNNERS

Merrill Lynch International Citigroup Global Markets Limited J.P. Morgan Securities plc 2 King Edward Street Citigroup Center 25 Bank Street London, EC1A 1HQ 33 Canada Square Canary Wharf United Kingdom Canary Wharf London E14 5JP London, E14 5LB United Kingdom United Kingdom

Nomura International plc 1 Angel Lane London EC4R 3AB United Kingdom

CO-MANAGERS

Banca IMI S.p.A Banco Bilbao Vizcaya Argentaria, S.A Banco Santander, S.A. Largo Mattioli, 3 Plaza de San Nicolás 4 Paseo de Pereda 9-12 20121 Milano 48005 Bilbao (Vizcaya) 39004 Santander Italy Spain Spain

COMMERZBANK Aktiengesellschaft Crédit Agricole Corporate and KBC Securities NV Frankfurt am Main Investment Bank Havenlaan 12 Avenue du Port Kaiserstraße 16 9 Quai du president Paul Doumer B-1080 Brussels 60311 Frankfurt/Main 92920 Paris la Défense Cedex Belgium Germany France

Keefe, Bruyette & Woods ING Bank N.V. Mediobanca—Banca de Société Générale Limited Bijlmerplein 888 Credito Finanziario S.p.A. 29 Boulevard Haussmann One Broadgate 1102 MG Amsterdam Piatzetta Enrico Cuccia, 1 75009 Paris London, EC2M 2QS The Netherlands 20121 rular France United Kingdom Italy

LEGAL ADVISORS

To BES as to English, Portuguese To the Joint Bookrunners as to To the Joint Bookrunners as to and United States law English and United States law Portuguese law

Linklaters LLP Davis Polk & Wardwell LLP Garrigues Portugal, SLP—Sucursal One Silk Street 99 Gresham Street Avenida da República 25—1º London EC2Y 8HQ London EC2V 7NG 1050-186 Lisbon United Kingdom United Kingdom Portugal

INDEPENDENT AUDITORS OF THE COMPANY

KPMG & Associados SROC S.A. Edifício Monumental Avenida Praia da Vitória, 71-A, 11.7 1069-006 Lisbon Portugal Printed by RR Donnelley, 727074 THIS DOCUMENT IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) WITHIN THE MEANING OF RULE 144A (“RULE 144A”) UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR (2) PERSONS WHO ARE OUTSIDE THE UNITED STATES (AND, IF INVESTORS ARE RESIDENT IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, A QUALIFIED INVESTOR). THIS DOCUMENT MAY NOT BE DISTRIBUTED IN OR INTO AUSTRALIA, CANADA OR JAPAN.

IMPORTANT: You must read the following before continuing. The following applies to the attached document and you are therefore required to read this disclaimer carefully before accessing, reading or making any other use of the attached document. In accessing the attached document, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. You acknowledge that this electronic transmission and the delivery of the attached document are confidential and intended for you only and you agree you will not forward, reproduce or publish this electronic transmission or the attached document to any other person. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions.

Restrictions: Under no circumstances shall the attached document constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities described in the attached document in any jurisdiction in which such offer or solicitation would be unlawful. The securities described in the attached document have not been, and will not be, registered under the Securities Act, or with the securities regulatory authority of any state or other jurisdiction in the United States, and may not be offered, sold, exercised or otherwise transferred except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable state law. There will be no public offer in the United States. If you have gained access to the attached document contrary to the foregoing restrictions, you will be unable to purchase any of the securities described therein.

The securities described in the attached document have not been and will not be registered under the applicable securities laws of Australia, Canada or Japan and, subject to certain exemptions, may not, directly or indirectly, be offered or sold in, or for the account or benefit of any national, resident or citizen of, Australia, Canada or Japan. The attached document does not constitute an offer of securities to the public in the United Kingdom.

In the European Economic Area, the attached document and the offer when made are only addressed to and directed at persons in member states of the European Economic Area who are “qualified investors” within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC and amendments thereto, including Directive 2010/73/EC to the extent implemented in the relevant member state of the European Economic Area, and includes any relevant implementing measure in each member state of the European Economic Area which has implemented the Prospectus Directive) (“Qualified Investors”). In addition, in the United Kingdom, the attached document is being distributed only to, and is directed only at, Qualified Investors (i) who have professional experience in matters relating to investments falling within the definition of “investment professional” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) or (ii) who are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associates, etc.”) of the Order (all such persons together being referred to as “Relevant Persons”).

Confirmation of Your Representation: The attached document is being sent at your request. By accepting electronic delivery of this document and accessing this document, you are deemed to have confirmed to Banco Espírito Santo, S.A. (“BES”) and anyone acting for BES that you consent to electronic delivery of the attached document and (i) either (a) in the United States you and any customers you represent are QIBs, or (b) you and any customers you represent are outside the United States; (ii) if you are resident in a member state of the European Economic Area, you are a Qualified Investor within the meaning of the law of that state implementing the Prospectus Directive, and, if you are in the UK, you are also a Relevant Person; (iii) you are not in Australia, Canada or Japan; and (iv) you are a person into whose possession the attached document may lawfully be delivered in accordance with the laws of the jurisdiction in which you are located.

The attached document must not be acted on or relied on by any other class of persons.

This document has been made available to you in electronic form. Documents transmitted via this medium may be altered or changed during the process of transmission and consequently neither BES nor any person acting for BES, or any of their respective affiliates, accepts any liability or responsibility whatsoever in respect of any difference between the document distributed to you in electronic format and the hard copy version. By accessing the linked document, you consent to receiving it in electronic form. You have accessed the attached document on the basis that you are a person into whose possession this document may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and that you will not forward, reproduce or distribute this document, in whole or in part, electronically or otherwise, directly or indirectly, to any other person.

The attached document is an advertisement and not a prospectus for the purposes of the Prospective Directive.

Nothing in this electronic transmission constitutes, and may not be used in connection with, an offer of securities for sale to persons other than the specified categories of institutional buyers described above and to whom it is directed and access has been limited so that it shall not constitute a general solicitation. If you have gained access to this transmission contrary to the foregoing restrictions, you will be unable to purchase any of the securities described therein.

None of the Underwriters or any of their respective affiliates, or any of their respective directors, officers, employees or agents accepts any responsibility whatsoever for the contents of this document or for any statement made or purported to be made by it, or on its behalf, in connection with the issuer or the offer. The Underwriters and any of their respective affiliates accordingly disclaim all and any liability whether arising in tort, contract, or otherwise which they might otherwise have in respect of such document or any such statement. No representation or warranty express or implied, is made by any of the Underwriters or any of their respective affiliates as to the accuracy, completeness, reasonableness, verification or sufficiency of the information set out in this document.

The Underwriters are acting exclusively for the issuer and no one else in connection with the offer. They will not regard any other person (whether or not a recipient of this document) as their client in relation to the offer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for giving advice in relation to the offer or any transaction or arrangement referred to herein.

You are responsible for protecting against viruses and other destructive items. Your receipt of this document via electronic transmission is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.