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Morgan Stanley Banks ConferenceAn updated picture on Portugal and BES

Ricardo Espírito Santo Salgado

Chairman of the Executive Board of Directors of BES

1

Agenda

i. Quick Overview of Portuguese Economy

ii. How BES has tackled the financial crisis

iii. Conclusion

2

116.7

82.5 76.766.380.385.4

124.9

82.9

0

20

40

60

80

100

120

140

160

Ireland Greece Spain Italy Portugal UK France Germany

% 2009 2010 2011

0

2

4

6

8

10

12

14

Gre

ece

Irelan

dUK

Spain

Lithu

ania

Portu

gal

Latvi

aFr

ance

Rom

ania

Czec

hPo

land

Slov

enia

Slov

akia

Belgi

um Italy

Neth

erl.

Malt

aAu

stria

Hung

ary

Cypr

usG

erm

any

Esto

niaFi

nland

Luxe

mb.

Swed

enDe

nmar

kBu

lgaria

% o

f GDP

2.8 2.93.4

6.1

3.9

2.6 2.7

9.38.3

0.01.02.03.04.05.06.07.08.09.0

10.0

2002 2003 2004 2005 2006 2007 2008 2009 2010

Portugal is not Greece. Public debt is in line with the EU average.

Public Deficit 2002-2010E (% of GDP) Public Deficit vs. EU (% of GDP)

Before the global economic crisis, Portugal was going through a path of fiscal consolidation, having lowered the budget deficit from 6.1% to 2.7% of GDP between 2005 and 2008 (in an environment of relatively low growth). In the same period, Greece’s deficit increased from 5.2% to 7.7% of GDP, in spite of stronger GDP growth.

Portugal’s public debt is expected to reach 85.4% of GDP in 2010, which is still in line with the EU average of close to 84% of GDP.

2009 2010 2011

Sources: European Commission, Ministry of Finance.

Public Debt (% GDP)

3

Portugal suffered the negative impact of the “Greece effect”, but sovereign spreads are now declining.

10-year Government Bond spread vs. Germany (bps).

5-year Sovereign CDS Spreads (bps).

Following a sharp deterioration in Greece’s public accounts in the context of high global risk aversion, financial assets in the Euro Area’s periphery were put under pressure, as a result of market speculation. Portugal has

suffered the contagion effect of market worries with Greece.Portuguese sovereign spreads have now been declining consistently, as a result of (i) an ease in market pressure

on Greece; and possibly (ii) a closer look at fundamentals, which differentiate Portugal from Greece.

Source: Bloomberg. NOTE: Data from March 18th. From March 11th onwards Bloomberg has changed the 10Y Bond reference for Portugal

0

50

100

150

200

250

300

350

400

Out. 2007 Mar. 2008 Ago. 2008 Jan. 2009 Jun. 2009 Nov. 2009

Basi

s Po

ints

Greece

Ireland

PortugalSpain78

117137

316

85

Italy

Italy

0

50

100

150

200

250

300

350

400

450

Jan.2008

Abr.2008

Jul.2008

Out.2008

Jan.2009

Abr.2009

Jul.2009

Out.2009

Jan.2010

Bas

is P

oint

s

IrelandGreece

Portugal

Austria

Italy

Spain

121

295

11698

5093

Mar. 2010 Mar. 2010

4

Portugal’s public debt affordability in line with higher rated economies.

Sources: IGCP, ES Research.

Public Debt Affordability (Interest Payments as % of annual tax revenues)

02468

101214

Finla

nd

Spain

Neth

erlan

ds

Fran

ce

Austr

ia

Ger

many

Portu

gal

Irela

nd

Belgi

um Italy

Gre

ece

Aaa countries Non-Aaa countries

5

Public Debt Redemption Schedule, 2010 (EUR Billion).

Outstanding Public Debt Distribution, Principal and Interest (EUR Billion).

Public financing needs are being fulfilled with no particular stress. Portugal is not facing any liquidity risk.

0

1

2

3

4

5

6

7

8

Jan.2010

Fev.2010

Mar.2010

Abr.2010

Mai.2010

Jun.2010

Jul.2010

Ago.2010

Set.2010

Out.2010

Nov.2010

Dez.2010

Jan.2011

EUR

Billio

ns

OthersCedicTBillsBonds

0

5000

10000

15000

20000

25000

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

T-BillsBonds

Sources: IGCP, Bloomberg.

6

Central Bank liquidity provision(% of banks’ assets).

No risk of public debt securities becoming ineligible as collateral for financing operations with the ECB.

0

2

4

6

8

10

12

Greece

Ireland

Belgium

Germa

nyAus

triaNet

herland

sSpa

inFra

ncePor

tugal Italy

Finland

Investment grade Moody's

Investment grade

Standard & Poor's Fitch

Aaa Spain AAA Spain Aa1 Ireland AA+ Spain Aa2 Portugal/Italy AA Ireland Portugal Aa3 AA- Ireland/ItalyA1 A+ Portugal/Italy A2 Greece A A3 A- Baa1 BBB+ Greece Greece Baa2 BBB Baa3 BBB-

Euro Area “periphery” sovereign ratings.

Portugal’s rating would have to be lowered by three notches to reach Greece’s rating, both in the case of S&P (A+ vs. BBB+) and Moody’s (Aa2 vs. A2). The problem with Greece’s current negative outlook for its rating is that, if it leads to

a further downgrading, it would risk having its public debt securities ineligible as collateral for financing operations with the ECB. Portugal and, specifically, its banking sector, are not subject to this risk. The stability and soundness of

Portugal’s banking sector also favours the Portuguese economy’s outlook. Portuguese banks’ borrowings from the central bank amount to less than 2% of banks’ assets. This is below the levels observed, for example, in France,

Spain, Germany and Greece.

Sources: Bloomberg, National Central Banks.

Portuguese Banks among the lowest in

Europe

7

0

10

20

30

40

50

60

70

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Non-Residents Domestic Banks Other Financial Institutions Other Residents

Public Debt by Holders (% GDP).

Domestic banks have a low exposure to Portuguese public debt, and IMF has stated that “…Portuguese Banking System has weathered the global financial crisis relatively well…”

The IMF report released in January stated that “The (Portuguese) banking system has weathered the global financial crisis relatively well, reflecting pre-existing strengths.”

Source: Bank of Portugal..

8

Sources: Confidencial Imobiliário, Bank of Spain.

House Prices, Portugal vs. Spain(1988=100 and % annual nominal change)

Having had its period of stronger expansion in

the 1990s, the Portuguese housing market

faced the recent global financial crisis in a very

different cyclical position from those in

economies such as the US, UK, Ireland or

Spain. House price growth has been moderate

over the last years, essentially reflecting

macroeconomic developments and

fundamentals. The lack of evidence of

overvaluation in house prices mitigates any

potential credit risks.

No Spanish-style bubble in house prices

0

100

200

300

400

500

600

700

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009 H

1

Inde

x

-20

-10

0

10

20

30

40%Price index Portugal (lhs)

Price index Spain (lhs)Nominal change Spain (rhs)Nominal change Portugal (rhs)

9

Sources: Confidencial Imobiliário, INE.

Average Mortgage Loan Rate(%)

Index of Housing Affordability(Ratio of household nominal disposable income to

the nominal house price index, 2000=100)

Housing affordability, as measured by the ratio of household nominal disposable income to the nominal house price index, has remained relatively stable and supported over the last years (in contrast with the euro

area average, where it has declined more visibly until 2007, improving slightly after that). This has mainly resulted from a combination between low interest rates (benefiting disposable income) and moderate house

price growth.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Nov.2003

Mai.2004

Nov.2004

Mai.2005

Nov.2005

Mai.2006

Nov.2006

Mai.2007

Nov.2007

Mai.2008

Nov.2008

Mai.2009

Nov.2009

%

90

95

100

105

110

115

120

125

2003 2004 2005 2006 2007 2008 2009

Moderate price growth and low interest rates support housing affordability.

10

0

20

40

60

80

100

120

Spain

Irelan

dGr

eece

Belgi

umGe

rman

yFr

ance Italy

Neth

erlan

dsPo

rtuga

lFi

nland Malt

Cypr

usSl

oven

iaLu

xem

burg

Austr

iaEu

ro Z

one

%

0

10

20

30

40

50

60

70

80

90

Belgi

um

Germ

any

Irelan

d

Gree

ce

Spain

Fran

ce

Italy

Cypr

us

Luxe

mbo

urg

Malt

a

Neth

erlan

ds

Aust

ria

Portu

gal

Slov

enia

Finla

nd

Owne

r Occ

upat

ion ra

te

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2000 2001 2002 2003 2004 2005 2006 2007 200825

30

35

40

45

50

55

60

Number of contracts (rhs)

EUR million (lhs)

0

1

2

3

4

5

6

1991 1996 2001 2006 2007

Sources: DGT, Bank of Portugal, INE, ECB.

Number of Dwellings (Million) Owner-Occupation Ratio (%)

Mortgage Production Loan-to-Value Ratio (%)

Relatively high owner-occupation ratio, relatively low LTVs.

11

Source: Bank of Portugal.

Non-Performing Loans(% of total)

Household Loan Growth(%, y-o-y)

Mortgage loans have been decelerating gradually, from the high growth rates of the 1990s and, more recently, reflecting the impact of the global financial crisis. Recent data shows a stabilisation in y-o-y growth rates, at around 2.5%. Non-performing mortgage loans have increased recently, as economic activity declined in 2H2008-1H2009 and unemployment increased, but they remained well contained, below 2% of total mortgage loans. Consumption non-

performing loans have shown a more visible increase, but they represent a small share of total household loans (around 20%).

Mortgage loan growth has stabilised. Housing NPLs remain contained.

-5

0

5

10

15

20

25

30

35

40

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

Mortgage

Consumption2.60.9

12

Unemployment rate (% of labour force). Households’ savings rate (% of disposable income).

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

8.3%

Higher unemployment and higher households’ savings rate.

Unemployment has increased to 10.1% of the labour force in 4Q 2009 (annual average of 9.5% in 2009), as a result of the retreat in GDP. The unemployment rate should increase a little further in 2010, stabilising by year-end and starting

to decline in 2011, as activity growth gradually strengthens.Household savings have increased to 8.3% of disposable income, benefiting from a higher disposable income and an

increased sense of precaution on the part of individuals.

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

10.1%

Source: INE.

13

-3-2-1012345678

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

%

-4

-2

0

2

4

6

8

10

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

%

Coincident indicator of activity

GDP

Relatively fast return to positive GDP growth, with the help of a recovery in exports and a stabilisation in domestic demand.

Coincident indicator of economic activity vs. GDP (%, y-o-y).

Coincident indicator of private consumption (%, y-o-y).

Indicator of expectations demand in manufacturing and services (net balances).

Indicator of external demand (net balances).

Sources: INE, Bank of Portugal, European Commission..

14

January 2010 data for exports is reinforcing recovery trend witnessed in previous months

-30-25-20-15-10-505

101520

2006 2007 2008 2009 2010

%

2.0%

-40

-30

-20

-10

0

10

20

30

2006 2007 2008 2009 2010

%

4.3%

YoY Exports – January 2010YoY Exports – January 2010 Moving Average 3M

15

-2.7

0.7 0.91.3

1.7

-3-2.5

-2-1.5

-1-0.5

00.5

11.5

2

2009 2010 2011 2012 2013

76.6

85.4

88.9 90.1 89.3

65

70

75

80

85

90

95

2009 2010 2011 2012 2013

9.38.3

6.6

4.7

2.8

0123456789

10

2009 2010 2011 2012 2013

Stability and Growth Program – Budget Deficit (% GDP)

Stability and Growth Program – External Deficit (% GDP)

Stability and Growth Program – GDP Growth Forecasts (%)

Stability and Growth Program – Public Debt(% GDP)

8.4

8.8

8.2 8.2

7.98

8.18.28.38.48.58.68.78.88.9

2010 2011 2012 2013

Stability and Growth Program 2010-2013 sees public debt declining in 2013

Source: Ministry of Finance.

16

Stability and Growth Program 2010-2013 focuses on spending cuts.

Highlights of the 2010-2013 Stability and Growth Program:

• According to the Program, cuts in public spending should contribute to close to 50% of the deficit reduction. Around 15% should come from higher revenues and 35% should come from the effects of higher activity growth.

• The main measures on the side of spending include: (i) a freeze in nominal wages in 2010 and a fall in real wages in 2011-2013 (i.e. wage increases below inflation); (ii) hiring in the civil service limited by the “1-for-2” rule (1 admission only when 2 other civil servants leave); this rule becomes law; (iii) cuts in health-related spending and in all social benefits that are not linked to contributions; (iv) cuts in public investment, including the postponement of 2 projected high-speed train lines (Lisbon-Porto and Porto-Vigo) and a 40% reduction in military spending; (v) extra penalties in pensions in the case of early retirements; (vi) phasing out of the extraordinary stimulus measures implemented during the financial crisis; (vi) reduction in intermediate consumption spending; (vii) zero net indebtedness in regional and local Government until 2013 and new limits to public companies’ indebtedness.

• The main measures on the side of revenue include: (i) lower tax benefits, including the creation of progressive ceilings on deductions in the Personal Income Tax; (ii) an increase in the tax on capital gains; (iii) a new 45% personal income tax rate on incomes above EUR 150000 (until 2013); (iv) new highway tolls. The Government expects revenues from privatisations to reach EUR 6 billion in the period 2010-2013 (these revenues contribute directly to a reduction in public debt).

• The SGP rightly focuses the efforts of deficit reduction on the spending side, tackling spending components that, until now, hadn’t been subject to this kind of restrictive measures (ex. wages and social benefits); nevertheless, there are some explicit and implicit increases in taxes. A OECD report has stated that it “…welcomes the (Portuguese) authorities’ consolidation strategy, which goes in the direction of maintaining market confidence, supporting growth and ensuring fiscal sustainability.”

ILLUSTRATIVE

17

Changes in Primary Cyclically Adjusted Budget Deficit vs. Business Confidence.*

Where will growth come from? From higher confidence levels as public finances improve.

Periods of fiscal

consolidation (involving

discretionary policy

measures) tend to give

way to improvements in

business confidence

levels. This is because

lower budget deficits

and lower public debt

ratios tend to increase

the prospects of

sustained activity

growth. Source: Reuters Ecowin, ES Research. * 2-year changes in the budget deficit. Business confidence advanced 1 year. 12 month MA.

18

Where will growth come from? From an expansion in the relevant market of the Portuguese economy.

0

2

4

6

8

10

12

2002 2003 2004 2005 2006 2007 2008 2009(Nov.)

0.0

0.5

1.0

1.5

2.0

2.5AFRICA (LHS)ASIA (LHS)LATIN AMERICA (RHS)

Weight in total Portuguese exports (%).*

Sources: INE, Eurostat,ES Research. * Merchandise.

19

External Deficit (% GDP).

Where will growth come from? From reducing the external dependence on energy imports.

Source: Bank of Portugal.

3.4

4.9

6.4

8.9 9.0

6.6

4.2

6.1

8.39.2

8.1

10.59.4

1.4

3.54.6

5.8 6.1

4.0

1.7

3.2

4.45.2

4.3

5.66.4

0

2

4

6

8

10

12

1997 1999 2001 2003 2005 2007 2009

Current and Capital Account Deficit (% of GDP)Current and Capital Account Deficit,Without Energy (% of GDP)

20

Sources: DGEG, CE, ES Research – Research Sectorial.

1

Portugal has already reached 44.7% in 2009,

above the target

78.1

60.0

39.031.5 29.4 29.0 25.0 22.0 21.0 20.1

13.2 12.5 10.0 9.0 6.0 5.7

Aus

tria

Swed

en

Por

tuga

l

Finl

and

Spa

in

Den

mar

k

Italy

EU-1

5

Fran

ce

Gre

ece

Irela

nd

Ger

man

y

UK

Net

herla

nds

Belg

ium

Luxe

mbo

urg

44.7

With the estimated investments, by 2020 Portugal is expected to reach a level of 60% in electricity

produced through renewable energy

Targets for electricity production through renewable energy in 2010 (%)

Where will growth come from? From investments in renewable energy.

21

Agenda



iii. Conclusion

22

The financial and economic crisis has brought extraordinary challenges to Banks at different levels affecting the industry returns

Subdued volume growth; Wholesale funding scarcity;Increased cost of funding;Increased deposit competition;Historically low interest rates;

Increase in non performing loans;Guarantees and collaterals value pressure;Increase in cost of risk;Deterioration of coverage ratios globally;

Pro-cyclicality of Basel II IRB and advanced methods;Markets meltdown and impact on pension funds returns;New recommendations for minimum tier I;Basel III new rules;

Commercial Banking income growth pressure

Solvency requirements & capital management

Deterioration of asset quality indicators

Main challenges imposed by the

financial and economic crisis

on Banks

Profitability pressure

and significant decline of Industry ROE’s

1

2

3

23

European Banks ROE has fallen significantly since 2006 and market relative valuation has been reflecting this trend, with Price to Book Value for the sector falling accordingly

18.216.5

7.76.0

7.3

2.4

1.8

0.8 1.0 0.9

2006 2007 2008 2009 2010E

ROE (%) P/BV (x)

ROE and P/BV Evolution since 2006

Source: Research Reports compilation

Note: ROE used is the last estimated ROE for the year, while P/BV takes into account prices at the end of that year

24

BES has taken important steps to overcome the challenges imposed by the crisis in order to moderate profitability decline. In terms of NII and commissions, BES posted a very good performance in 2009




on Banks

1

Actions ResultsNet Interest IncomeEur mn, YoY %

Commissions & Fees*

Commercial Bkg. Inc.

2007 2009

Increase in corporate credit spreads by 164 basis points since 2007, reflecting the increased funding costs and risk and benefiting from BES bigger focus on corporate segment;

Avoidance of price leadership in deposits, leveraging on solid and trustworthy image of BES and on the ability to maintain with better clients a strong commitment in terms of access to credit;

Focus on high growth areas, like trade finance and bancassurance, while optimising pricing in traditional banking fees and continue to promote cross selling initiatives. Recovery in IB fees.

NII

F&C

954

+15%

2008

1,086

1,200

+14%

+11%

2007 2009

643

+10%

2008

636

718

-1%

+13%

2007 2009

1,597

+13%

2008

1,722

1,919

+8%

11%

25

Good NII performance is also a function of the prudent and timely liquidity and wholesale funding management, which avoided liquidity bottlenecks and tapped the market when the price was fair




on Banks

1

Actions Results

Focus on Customer funds as the primary source of funding (representing 60% of the funding structure)

Anticipation of wholesale funding needs, benefiting from market windows of opportunity in specific instruments (covered bonds and unsecured senior debt);

Increasing the maturity profile of BES wholesale funding debt;

The Bank has built a repoablesecurities stock of Eur 9.3bn, ow Eur4.4bn are eligible with ECB

Wholesale Funding & Liquidity

BES has never faced, during the crisis, any liquidity bottleneck;

BES ended 2009 with a short term (up to 1 year) cash surplus position in the balance sheet of Eur 1.7bn;

BES is a net lender in ECB with a deposit at year end of Eur 3.75bn;

2010 medium to long term refinancing needs have been almost 90% covered. In 2009 BES issued Eur 7.0bn for Eur 3.2bn of needs;

Ability to keep on growing credit, which has grown since 2007 by Eur6.6bn (7% CAGR 07-09)

Wholesale Funding & Liquidity has not been a constraint, but rather a source of value and differentiation

26

BES increased focus on international area has been critical to sustain top line growth at good levels in the current environment



on Banks

Actions Results

Int. Commercial Bkg Inc.Eur mn, YoY %

Int. Operating Income

Credit

1


International Business

In Angola, BES continues benefiting from the strength of the country’s economy. Moreover BES has reinforced local partnerships, after the sale of 24% of capital to local investors, which will be important to continue on boosting the Bank’s activity in Angola;

Increased dynamism in Brazil, as BES investment bank is participating evermore in important capital markets deals;

In UK the focus on Global Trade Finance business was critical to the unit strong results;

Expansion of relevant markets to countries like Libya, Algeria, South Africa, Mozambique and Venezuela, following Portuguese economy trade links and allowing BES to be positioned in high growth economies with very interesting growth potential

2007 2009

302

+19%

2008

389

489

+29%

+26%

2007 2009

228

+56%

2008

267

416

+17%

+20%

2007 2009

7,607

+38%

2008

9,703

10,154

+28%

+8%

27

BES maintained its focus on operating efficiency, as sound top line performance was accompanied by a strong focus on cost control



on Banks

Actions Results

Op. Costs Evolution *YoY

Operating Jaw **

2007 2008 2009

2007 2008 2009

2007 2008 2009

Cost to Income

1


Operating Efficiency

* Ex post employment benefits** Commercial Bkg Income growth – Op. Costs growth

53.0%47.5%

43.1%

2.4%

6.0% 6.0%

Further simplification of process and workflows;

Centralisation of functions in highly specialised structures;

Merger and integration of activities;

Increased efficiency in the use of IT systems in International activity;

Containment of staff costs ex post employment benefits;

1.6%

6.5%

9.5%

Continuous organisation focus in increasing efficiency and

productivity

28

Asset quality deterioration is a given in times of economic slowdown, but the conservative stance in managing risks, namely credit, has allowed BES to maintain the best asset quality indicators among peers

Deterioration of Asset Quality



on Banks

Actions Results

Loan Growth *YoY

Corporate Loan Growth *

Credit Provision Reserve

2007 2008 2009

2007 2008 2009

2007 2008 2009

2

Increased selectivity in credit concession, focusing on corporate segment, better scoring clients and international activity;

Refinement of credit risk evaluation metrics with IRB Foundation certification;

Pro-active increase of levels of guarantees with customers;

Reinforcement of credit provisions above amount indicated by impairment models;

Decision to maintain high levels of coverage, above peers in spite of lower non performing loans ratio;

3.8%

9.7%

16.9%

* Total Loans including securitised

5.8%

13.4%

21.5%

3.1%2.4%

2.3%

107bp

57bp49bp

Cost of Risk

29

BES credit quality has outperformed the system consistently, with particular relevance for times of credit quality deterioration

1.3%1.2%1.3%1.5%

1.9%2.1%2.1%

1.8%1.9%2.3%2.4%

3.2%

1.8%

2.2%

1.6%1.7%1.9%2.0%

2.3%2.2%2.2%2.1%

2.6%

3.6%

4.8%

3.2%

1997 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 2009

Overdue Loans/Gross Loans BESOverdue Loans/Gross Loans System

1.95%

3.90%

0.75%

1.70%

3.55%

6.36%

BES

System

BES

System

BES

System

Corporate

Mortgage

Consumer

Overdue Loans Ratio EvolutionBES vs Portuguese System

Source: BoP

2

30

BES maintains one of the highest core tier I ratios in Iberia, and is well prepared to face Basel 3 recommendations after taking the propermeasures in the last 2 years to reinforce capital

Solvency Requirements & Capital Management



on Banks

3

Actions Results

Core Tier I2009; %

Dividend Payout

ROE

BES Peer 1 Peer 2

2007 2008 2009

BES Peer 1 Peer 2

BES did a capital increase of Eur 1.2bn in 2009, which had the strong support of its core shareholders and faced strong demand from institutional investors, despite difficult market conditions at the time (April 09);

Certification by the BoP for utilisation of IRB Foundation, being the first and still to date the only Portuguese Bank to receive such approval, which has led to improvement of RWA efficiency;

During 2008, BES has decreased the level of dividend payout to 20% from an average of 43% in the 3 previous years. In 2009 BES has announced a dividend payout of 35%;

Focus on profitability and earnings generation capacity in order to improve the level of self financing;

BES has not issued new preferred shares (current Eur 600mn, 11% of Tier I out of maximum allowed of 35%), which gives the Bank further flexibility for the future.

8.0%7.8%

6.4%

40%

20%

35%

10.0%

8.8%

4.6%

31

Traditional conservative management and long term value creation focus has allowed BES to emerge from the current crisis stronger, with an increased domestic market share and a continuous successful internationalisation

2.5 x

Average domestic market share(%)

Corporatebanking: 24.2

Source: APB; BoP; APFIPP; ISP; ASP; APLEASE; APEF; Euronext; SIBS; SWIFT; CMVM; BES analysis

8.5

20.421.2

1992 2007 2009

Successful Internationalisation

2007 200920082006

International Operating Income Evolution (Eur mn)

146.1

227.8

267.1

415.52.8 x

18% 22% 30% 35%*

* Based on recurrent 2009 operating income

Weight in consolidated

32

Which is underpinned by high levels of efficiency and solid capital base…

31.9

40.4

41.7

43.1

47.1

50.8

57.9

63.6

POP

BBVA

SAN

BES

SAB

BKT

BPI

BCP

Cost to Income Core Tier I

(%) (%)

Source: Press Releases 2009.Stated Cost to income (includes D&A)

6.4

6.5

7.7

7.8

8.0

8.0

8.6

8.6

BCP

BKT

SAB

BPI

BBVA

BES

SAN

POP

Source: Press Releases 2009.

33

… And sound asset quality and coverage…

1.60

1.80

2.30

2.46

3.03

3.73

4.30

4.80

BES

BPI

BCP

BKT

SAN

SAB

BBVA

POP

Non Performing Loans Credit Provision Reserve

Source: Press Releases FY09

NPL’s above 90 days

Source: Press Releases FY09Credit Provision Reserve = Total Provisions / Credit (gross)

1.80

1.90

2.42

2.60

2.79

2.80

2.90

3.10

BPI

BKT

SAN

BBVA

BCP

POP

SAB

BES

(%) (%)

34

When we look at long term series of share price performance, the strength of BES franchise and long term value creation strategy consistently implied an outperformance versus the sector

BES: +240.4%

DJ STOXX 600

Banks: +105.4%

-100%

0%

100%

200%

300%

400%

500%

600%

700%

Jul-91 Jul-94 Jul-97 Jul-00 Jul-03 Jul-06 Jul-09

Source: Bloomberg & NYSE Euronext

Dec-09

15th July 1991Listing of BES

shares

35

14%

10.0

4.5

-0.8

5.24.5

4.0 3.73.2

2.2

0.90.5

Angola Brazil Spain Lybia Egypt Tunisia Algeria Morocco USA Euro Area Portugal

Going forward, international area will be critical to sustain long term growth

GDP growth 2010E¹ Total trade flows between Portugal, Spain, Angola and Brazil

Annual growth of BES Trade Finance Fees

¹ Source: Bloomberg, IMF, INE, ES Research

0

10

20

30

40

50

1996 1998 2000 2002 2004 2006 2008

(€bn

)

Mediterranean Basin

StrategicTriangle

Countries

(%)CAGR 96-08 11.4%CAGR 05-08 15.4%

10.2 11.614.5

33.0

53.7

2005 2006 2007 2008 2009

25%

128%

62%Eur mn; YoY increase

36

International business focuses on BES core competences and markets…

BES

’pos

ition

ing

and

stra

tegi

c fo

cus

Strategic Focus: Investment BankingSupport Portuguese companies with commercial ties to Brazil and Brazilian companies accessing European Markets

Develop asset management and private banking and expand capital markets

Strategic Focus: Corporate Banking, Private Banking and Investment Banking

Best Bank in Angola in 2009 by Global Finance. Assist international corporate with interests in Angola, provide Angolan companies with access to international markets

Develop corporate and private banking and participate in infrastructure program

Strategic Focus: Corporate Banking, Private Banking and Investment BankingRelevant investment bank, Iberian integrated approach for corporate, help Iberian companies to export to Angola and Brazil

Expand private and upper affluent banking and consolidate investment banking

Strategic Focus: Wholesale BankingFunding source and distribution platform for products commercialised in European and African markets

Leverage on expertise in infrastructure and renewable energy

Strategic Focus: Wholesale and Investment Banking and Private Banking Funding source and distribution platform of Iberian and Lat Am originated products in the US. Centre of competence for USD denominated products.

Growth drivers: leverage on expertise in project, trade finance and global markets, and private banking.

37

… while developing new ventures and reinforcing BES positioning in high growth countries

LibyaAgreement for the acquisition of 40% of Aman Bank.

UKAgreement to acquire 51% of Execution Noble, a global investment bank with focus on covering big and mid cap pan European companies, present in the UK, USA, Hong Kong, India and Germany.

South AfricaConsidering the proper business model and strategic approach to this market, in order to develop corporate and investment banking.

AngolaBES Investimentois waiting for the authorisation of local authorities to start an Investment Banking Bank and Brokerage business in the country.

Hong KongBES will submit during 2010 a request to BoP and Hong Kong authorities for the opening of a BES branch.

MexicoBES has submitted to local authorities a request to open a Rep Office for both BES and BES Investimento.

VenezuelaRequest to BoPand Venezuelan authorities to open a BES branch.

Cape VerdeTransformation from the current Cape Verde BES branch status to Bank.

MozambiqueConsidering the proper business model and strategic approach to this market, in order to develop corporate and investment banking.

AlgeriaAgreement with BEA for a JV in leasing with a stake of 35%. Pending approval by local authorities.

BES ÁFRICABES has created a holding last November that will coordinate and aggregate BES investments in Africa. Also includes the 2.77% stake held in Banque Marocaine du Commerce Exterieur

2010 GDP growthMorocco +3.2%Algeria +3.7%Libya +5.2%Angola +10.0% Moza +5.2%Cape Verde +4.0%S. Africa +1.7%

38

Agenda



iii. Conclusion

39

Conclusion

BES has emerged from the current crisis stronger, reinforcing its domestic market share by 80bp in the last 2 years alone, while continuing a focused international expansion that has been, and will continue to be, critical for earnings growth and profitability enhancement;

BES long term value creation strategic approach coupled with decisive measures being taken to better cope with the challenges presented by this crisis, while counting with the permanent support of its core shareholders, has allowed the Bank to be today in a very good position – strong capital, strong balance sheet, good asset quality and with very interesting growth prospects;

BES is thus well prepared to face potential risks, namely in terms of regulation and a hypothetical slower economic recovery in its domestic market, but is also well positioned to reap the benefits of growth opportunities that might materialise;

Our commitment, as always, is to continue on working hard to serve our clients, creating value to our shareholders and honouring the 140 years of history that lie behind us.

Morgan Stanley Banks ConferenceAn updated picture on Portugal and BES

Ricardo Espírito Santo Salgado

Chairman of the Executive Board of Directors of BES

morgan stanley banks conference · morgan stanley banks conference an updated picture on portugal...

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