Banco BPI 2008 This page was intentionally left blank. Report This page was intentionally left blank. Index REPORT Leading business indicators 4 Introduction 6 Governing Bodies 11 Historical milestones 12 Highlights 14 The identity of BPI 16 Financial structure and business 17 Distribution channels 20 The BPI Brand 24 Social responsibility 27 Human resources 33 Technology 37 Background to operations 41 Domestic Commercial Banking 53 Bancassurance 72 Asset Management 73 Investment Banking 79 Private Equity 84 International Commercial Banking 85 Financial review 90 Risk management 143 Rating 177 Proposed appropriation of net profit 179 Final acknowledgements 180 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Consolidated financial statements 181 Notes to the consolidated financial statements 191 Statement from the Board of Directors 316 Legal certification of accounts and audit report 317 Report and opinion of the Supervisory Board 319 THE BPI GROUP’S CORPORATE GOVERNANCE REPORT BPI Group’s Corporate Governance report 321 Appendices 422 ANNEXES Definitions, acronyms and abbreviations 444 Glossary 446 Formulary 449 Methodological notes 451 General index 452 Index of figures, tables, charts and “boxes” 456 Thematic index 458 Miscellaneous information 459 Leading business indicators (Consolidated figures in millions of euros, except where indicated otherwise) 2004 2005 2006 2007 2008 07/08 2008 07/08 Δ% adjusted1 Δ% Net total assets 24 010 30 159 35 565 40 546 43 003 6.1% Assets under management 2, F 9 671 14 339 15 184 15 884 12 665 (20.3%) Business volume 3, F 43 452 49 328 56 407 64 520 68 245 5.8% Loans to Customers (gross) and guarantees4 21 959 24 409 28 263 32 483 34 069 4.9% Total Customer resourcesF 21 493 24 919 28 144 32 037 34 176 6.7% Business volume 3 per Employee 5 (thousands of euro) 6 170 6 583 6 806 6 904 7 185 4.1% Net operating revenue 1, F 794.5 898.8 1 018.1 1 215.5 1 181.8 (2.8%) 1 099.7 (9.5%) Net operating revenue per Employee5 (thousands of euro)1 110 122 129 138 125 (9.4%) 116 (15.7%) Operating costsF / Net operating revenue 1, 6 62.6% 57.7% 56.6% 53.7% 55.8% - 60.0% - Net profit 1, F 192.7 250.8 308.8 355.1 150.3 (57.7%) 231.9 (34.7%) Cash flowG after taxation 1, F 300.2 390.6 410.3 531.1 493.0 (7.2%) 454.0 (14.5%) Return on average total assets (ROA)1, F 0.8% 0.9% 1.0% 0.9% 0.4% - 0.6% - Return on Shareholders’ equity (ROE)1, 7, F 15.2% 23.7% 24.3% 24.7% 8.8% - 13.6% - Loans in arrears for more than 90 days (in the balance sheet) / Customer loansF 1.1% 1.3% 1.1% 1.0% 1.2% - Loan impairments (in the balance sheet) / Customer loansF - 1.6% 1.4% 1.4% 1.6% - Net credit loss 8, F 0.33% 0.24% 0.19% 0.23% 0.32% - Cover of pension obligation recognised in the balance sheetF 100.3% 100.2% 110.7% 114.4% 98.7%9 - Shareholders’ Equity 1 231.5 1 181.4 1 450.6 1 635.1 1 498.1 (8.4%) Ratio of own funds requirements10, G 9.8% 11.5% 9.4% 9.9% 11.3% - Tier I10 6.5% 7.3% 7.4% 6.2% 8.8% - Core Tier I10 5.1% 5.9% 5.9% 5.4% 8.0% Adjusted data per share (euro)11 Cash flow after taxation 1, 11 0.38 0.50 0.53 0.68 0.59 (13.8%) 0.54 (20.6%) Net profit 1, 11 0.25 0.32 0.40 0.45 0.18 (60.7%) 0.28 (39.4%) Dividend 11, 12 0.10 0.12 0.15 0.18 0.07 (60.7%) Book value 11 1.56 1.52 1.86 2.09 1.68 (19.6%) Weighted average no. of sharesF (in millions)11 782.3 778.2 776.4 782.1 842.3 - Closing price (euro)13 2.864 3.710 5.680 5.151 1.750 (66.0%) Total Shareholder returnF 5.1% 33.7% 56.3% (7.0%) (64.4%) - Stock market capitalisation at year end 2 264.8 2 933.6 4 491.6 4 073.6 1 575.0 (61.3%) Dividend yieldF, G 3.4% 4.0% 4.1% 3.2% 1.4% - Retail branches14 (number) 615 622 692 805 870 8.1% Corporate and institutionals centers network 15 (number) 52 52 55 59 63 6.8% BPI Group staff complement 16 (number) 7 080 7 493 8 288 9 345 9 498 1.6% Note: 2004 accounts prepared in accordance with the Portuguese standards laid down in the Chart of Accounts for the Banking Sector (Plano de Contas Table 1 para o Sector Bancário – PCSB). 1) Banco BPI’s 2008 consolidated net profit of 150.3 M.€ was negatively affected by the loss incurred on the sale of the shares in Banco Comercial Português (BCP) and by the impairment charges set aside on the BCP investment, both of which had a negative impact on after-tax net profit of 184.4 M.€, and by early-retirement costs of 27.7 M.€ (after tax), and positively affected by the gain realised on the sale of 49.9% of BFA’s capital to Unitel, with a positive impact on after-tax net profit of 130.6 M.€. The above table presents the indicators relating to efficiency, profitability, earnings and earnings per share after eliminating the abovementioned impacts. 2) Unit trust (mutual) funds, Retirement Savings Plans (PPR) and Equities Savings Plans (PPA), capitalisation insurance, guaranteed-capital and limited-risk bonds, assets under discretionary management and advisory mandates of Private Banking Clients and institutional Clients and assets of pension funds under management (including the Group’s staff pension funds). 3) Loans, guarantees and total Customer resources. 4) To ensure comparability, 1 266 M.€ and 989 M.€ of securitised mortgage loans (gross balance) written off from the balance sheet in 2007 and 2008, respectively, were added back. 5) Number of Employees of the companies which are consolidated in full. 6) Personnel costs (excluding costs with early-retirements), outside supplies and services, depreciation and amortisation as percentage of net operating revenue. 7) In 2007 and 2008, for the purpose of the calculation of the ROE, the revaluation reserves were excluded from the allocated capital. 8) Loans provisions (PCSB; 2004) and loan impairments (IAS / IFRS; from 2005 onwards) in the year, deducted of recoveries of loans in arrears written-off (in the income statement) as percentage of Customer loans portfolio. 9) Including contributions of 119.3 M.€ to the pension fund to be made at the beginning of 2009. 10) Calculated in accordance with Bank of Portugal rules governing minimum own funds requirements. 11) Corresponds to net profit, cash flow, dividends to be distributed and shareholders’ equity (excluding minority interests) divided by the weighted average number of shares (end-of-year number in the case of the indicator “book value per share”), with the number of shares adjusted by the capital increase which took place in June 2008. 12) The amount of dividends to be distributed in respect of 2008 corresponds to a dividend per share of 0.0668 euro which will be paid on each one of the 900 million shares representing the capital at 31 December 2008. 13) Historical share prices adjusted by the share capital increase realised in June 2008. 14) Includes traditional branches, housing shops, investment centres and automatic shops in Portugal, branches in Angola, investment centres in Angola and branches in Paris. 15) Distribution network specialising in serving companies, 1 Project FinanceG centre, Institutionals, the branch in Madrid and corporate centres in Angola. 16) Group staff complement in the domestic activity and in the international activity. Includes term Employees and temporary workers, and excludes bursaries. 4 Banco BPI | Annual Report 2008 GROWTH, PROFITABILITY, STRENGTH AND VALUE 2004-2008 Net total assets plus th.M.€ th.M.€ Loans and Customer disintermediationF 47.5 47.3 34.2 resources 43.2 32.0 36.8 29.5 2 28.1 28.5 2 1 31.5 Total Customer resources 24.9 24.6 Loans to Customers Net total assets1 Disintermediation2 21.5 21.0 1) Corrected for duplication of 18.9 balances. 1) Corrected for 2) Includes securitised loans duplication of balances. derecognised from the balance 2) Off-balance sheet sheet (1.3 th.M.€ in 2007 Customer resources. and 1.0 th.M.€ in 2008). 0405 06 07 08 04 0506 07 08 Net profit € % ROE 355.1 24.3 24.7 308.8 23.7 250.8 192.7 15.2 150.3 8.8 0405 06 07 08 04 0506 07 08 Tier I ratio % BPI Ratings According to Bank of Long-term rating notations Portugal rules 8.8 A+ Fitch Ratings Stable 06 Oct. 08 7.3 7.4 8.0 6.5 6.2 5.9 5.9 A1 Moody’s 5.1 5.4 Stable 10 Sep. 08 A Standard & Poor’s Tier I Negative 03 Feb. 09 Core capital 04 0506 07 08 Net profit per share € th.M.€ Stock market capitalisation 0.45 4.5 0.40 4.1 0.32 2.9 0.25 2.3 0.18 1.6 0405 06 07 08 04 0506 07 08 Figure 1 Report | Leading business indicators 5 Introduction CHALLENGE AND RESPONSE 2008 will be remembered as the year of the unrelenting worsening of the grave international financial crisis which began to emerge in the second half of 2007, and which history will indubitably record as one of the most serious and protracted of the last century.