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Economic Decoupling? BNCC February, 26th 2008. A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em.

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Presentation on theme: "Economic Decoupling? BNCC February, 26th 2008. A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em."— Presentation transcript:

1 Economic Decoupling? BNCC February, 26th 2008

2 A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em preto. 2 Table of Contents SECTION 1Macroeconomic Framework SECTION 2Is Economic Decoupling a Credible Possibility? SECTION 3Outlook SECTION 4Itaú Group SECTION 5Itaú Europa

3 Por definições de Marketing, deve-se usar a tipografia MyriaMM. SECTION 1 Macroeconomic Framework

4 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 4 ► Historical growth volatility as been replaced by consistency. ► We expect 2007 GDP growth to stand at 5.4%. ► Driven by domestic demand. 61% 19% 18% 14% -12% GDP Weight: Source: IBGE, Banco Itaú Europa. Consistent Growth

5 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 5 Real rates in Brazil are among the highest in the world ► Prudent monetary policy despite lack of formal independence of the Central Bank. ► Loosening cycle since ► Economic growth and high commodity prices (and food) raising inflation concerns: BCB on hold. Source: BCB, Banco Itaú Europa. Independent Monetary Policy

6 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 6 ► Prudent and responsible fiscal policy. ► Commitment to the target of primary surplus/GDP of 3.8%. ► Decreasing nominal deficit reflecting strong tax revenue. ► Consistent improvement of the debt profile. Source: BCB, Banco Itaú Europa. Responsible Fiscal Policy

7 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 7 ► Consistent improvement of the debt profile. ► Strong reserve build-up. ► Maturity extension and risk management. ► Brazil is a net external creditor. Source: BCB, Banco Itaú Europa. Sound External Position

8 Por definições de Marketing, deve-se usar a tipografia MyriaMM. SECTION 2 Is Economic Decoupling a Credible Possibility?

9 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 9 ► No country is insulated from a weaker US economy. ► Tighter credit conditions in US will have multiple impacts worldwide and in Brazil. ► We believe that Brazil is more protected from the turmoil than most of the countries. Is Economic Decoupling a Credible Possibility? Lower imports Tighter credit Risk aversion Wealth effect Confidence?

10 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 10 ► Low degree of openness when measured by adding imports and exports to GDP. ► Diversified export profile with important weight of other emerging economies. ► US represents 16% of total exports and Euro zone 21%. Source: BCB, Banco Itaú Europa. Diversified Export Profile US: 16% Euro Zone: 21% Argentina:9% China: 7%

11 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 11 ► Tighter credit conditions worldwide postpone investment decisions. ► The more dependent a country is on international financing the larger the impact. ► The reliance of the Brazilian economy on credit is low. ► The reliance of the Brazilian economy on external debt is the lowest among peers. Source: Moody’s, IMF, Banco Itaú Europa. Low Exposure to International Credit Conditions

12 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 12 ► Falling equity and bond markets worldwide erode the value of savings. ► High risk aversion prevent foreign direct and portfolio investment abroad. ► Similarly to what happens to credit, Brazil has low saving rates when compared to peers. ► Foreign direct investment, in net terms in not consistently positive nor meaningful. ► Foreign exchange flows are of quality: trade over financial flows. Source: BCB, Banco Itaú Europa. Low Investment Dependence 2.1% GDP

13 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 13 ► Confidence is an important determinant of consumption and investment decisions. ► Consumer and business confidence has been eroding in US and EU. ► Brazilian confidence is rising, which bodes well for the future. Source: Banco Itaú Europa, U. Michigan, Conference Board, European Commission – Directorate General for Economic and Financial Affairs, FGV, CNI. Agents Remain Confident

14 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 14 ► The major risk we see is if an international crisis leads to a sharp deterioration of the value of the currency. ► Ceasing the interest rate convergence process for a substantial period would affect directly consumption and investment. ► Consumption and investment stand for nearly 80% of GDP. ► A weak currency feeds through directly to inflation expectations and could lead the BCB to even hike rates in the current environment of strong domestic demand. ► Didn’t happen so far. Uncertainty is likely to diminish in ► In an extreme scenario, a strong slump in exports, i.e. deep double digit, would have an important impact on growth. ► Nevertheless, in such an environment all the remaining arguments stand for an outperformance of Brazil over peers. ► These situations aren´t our base case scenario. The Most Important Channel of International Contagion is Currency Depreciation

15 Por definições de Marketing, deve-se usar a tipografia MyriaMM. SECTION 3 Outlook

16 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 16 ► We expect economic growth to remain supported by domestic demand. ► Lower trade surplus. ► Deficit in the current account. ► Monetary policy and trade could decelerate growth in the 2H08. ► Strong BRL at all times on the back of exports, financial inflows and rising interest rate differentials. Supportive Domestic Environment Source: Itaú Corretora, Banco Itaú Europa.

17 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 17 ► Our top concern is inflation. ► What could push inflation up: oil, food, service (non-tradable), capacity restrictions, BRL depreciation. ► What could push inflation down: a strong BRL, Monetary Policy Committee (Copom). Source: BCB, Banco Itaú Europa. Inflation is our Main Concern

18 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 18 ► We expect the Copom to be on hold most of the year. ► Arguments for rising rates: Potential BRL depreciation if international environment deteriorates further, strong domestic demand, commodity, food and non-tradable prices. ► Arguments to be on hold: Strong BRL, high weigh of consumption and investment in the economy, lower trade surplus, FED policy. Source: Itaú Corretora, Banco Itaú Europa. Copom on Hold in 2008

19 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 19 Path to Investment Grade ► We expect Brazil to continue the path to investment grade. ► By many credit metrics Brazil already compares favourably with investment grade countries. ► Current account deficit in 2008 could raise concerns about the country’s external vulnerability. ► Debt levels remain high for investment grade standards. ► Fiscal discipline – Will the government be successful in implementing a replacement for CPMF tax? ► Rating agencies are more prudent given high international uncertainty. ► Financial markets decoupling hasn’t been clear at all times. Buy opportunity? Equities since June 2007

20 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 20 Economic Forecasts

21 Por definições de Marketing, deve-se usar a tipografia MyriaMM. SECTION 4 Itaú Group

22 A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em preto. 22 Itaú Group – A Global Brazilian Financial Institution ► Itaú Group has an important presence in key financial centers, a strong recognition and a broad range of products. (Brazil) (Lisbon) (London) (Tokyo) (Shanghai) Itaú Bank Ltd (Cayman) (Nassau) (Uruguay) (Argentina) Sarbanes-Oxley: Itaú Holding is the first foreign bank listed on the NYSE to attain all Section 404 requirements of Sarbanes-Oxley Act, one year prior to the compliance deadline set by the U.S. authorities. (Chile) (Miami) (NY) (Dubai) (Hong Kong)

23 A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em preto. 23 Itaú Holding Financeira – Highlights 1, 2 ► Performance leadership is reflected on the high market capitalization and outstanding results. 1As of December 31 st, Considering the Real / US$ = 1,7713. ► Stockholders’ Equity ► Total Assets ► Market Captalization ► # of Employees ► Total clients ► Branches + CSB ► ATMs US$ 16.4 billion US$ 166 billion US$ 62.6 billion 65, million 3,528 23,739 B- Financial Strenght (international) Aaa.br (domestic) Baa3 Foreign Currency Bonds Moody’s (Long Term) AAA(bra) (domestic) BBB (international, local currency) BBB- (international, foreign currency) Fitch Ratings (Long Term)Standard & Poor’s (Long Term) brAAA (domestic) BBB- (international, local currency) BBB- (international, foreign currency)

24 Por definições de Marketing, deve-se usar a tipografia MyriaMM. SECTION 5 Itaú Europa

25 A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em preto. 25 Itaú Europa – Strategic Overseas Presence ► Focus on cross-border businesses between Europe and South America. ► Local relationships in Europe through commercial teams in Lisbon, Madrid, London, Frankfurt and Paris (new representative office in 2008). ► Private Banking activities conducted through Banco Itaú Europa Luxembourg and Banco Itaú Europa International (Miami). Trade Finance Loans & Guarantee s Syndicate d Loans Treasury Products & Derivative s Investmen t Banking Cash Managemen t South America Domestic Lending South America Structured Finance Investment Grade Ratings Baa1 (international) Moody’s (Long Term) BBB+ (international) Fitch Ratings (Long Term)

26 A marca Itaú não pode ser movimentada ou modificada. Número do slide: Arial normal corpo 10, escrito em preto. 26 Itaú Europa – Financial Highlights 1 Consistent Growth of Assets Revenues Diversification – Operating Income (Year 2.007) Material results in face of wholesale nature of business and strong capital base € Million € Million 1Financial Highlights for 2007 are preliminar and unaudited. € Million ROA & ROE ROE ROA

27 Por definições de Marketing, a marca do Itaú Europa não pode ser movimentada ou modificada. Por definições de Marketing, deve-se usar a tipografia MyriaMM. 27 Disclaimer The information herein is believed to be reliable but Itau Europa does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Banco Itau Europa may have a position in these financial instruments from time to time. This report is prepared by Banco Itau Europa and this material is for our European Clients ONLY. This information is NOT intended or distributed to U.S. clients by Banco Itau Europa. However, if a U.S. investor receives this information via a third party it must be understood that any U.S. persons interested in any securities mentioned herein must call a representative of Itau Securities, Inc. ("Itau Securities") in New York, MEMBER: NASD/SIPC, not any of the non-U.S. affiliates. Any Financial Products related to this report may or may not be provided by Itau Securities to U.S. investors. Banco Itau Europa is wholly owned by Itausa Portugal which has become the European Platform of the Itausa Group, a conglomerate in Brazil. Banco Itau Europa is credit rated by S&P and Moodys as a separate bank from Banco Itau SA. Portuguese banking regulation prohibits BIE from lending to its Brazilian parent group of companies for over 10% of its own equity. Banco Itau Europa structure has been designed to create regulatory and geographic barriers to Brazilian transfer risk. Banco Itau Europa Lisbon is regulated by Bank of Portugal. Banco Itau Europa London is authorised by the Banco de Portugal and regulated by the Financial Services Authority for designated investment business in the UK. Banco Itau Europa, capital markets area has a strong relationship with Banco Itau of Brazil. Itau Securities is a wholly owned subsidiary of Itau Corretora de Valores S.A, subsidiary of Banco Itau S.A. This document/site has been prepared by Banco Itaú Europa, S.A. and/or by one of its branches or subsidiaries (together referred to as “Banco Itaú Europa”). This message contains information that may be privileged or confidential and is the property of BANCO ITAÚ EUROPA, S.A. It is intended only for the person to whom it is addressed. If you are not the intended recipient, you are not authorized to read, print, retain, copy, disseminate, distribute or use this message or any part thereof. If you receive this message in error please notify the sender immediately and delete all copies of this message. This document/site contains information obtained from sources considered by Banco Itaú Europa to be reliable and this information has been reproduced, whether totally or partially, originally or treated by our analysts. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except where such information relates to Banco Itaú Europa. Banco Itaú Europa reserves the right to change, amend, or delete any part of the information contained herein without prior notice. Banco Itaú Europa is under no obligation to update or keep current the information. The information contained herein merely aims to be a supportive instrument towards the formation of conscientious decisions related to the purchase and sale of securities or investment finance products and should not, in any circumstance, constitute a ground for any investment decision. Options and estimates are made on the basis of our analysts’ judgment and are subject to change without notice. Banco Itau Europa may have a position in the securities referred to herein from time to time. The information should not exclude or replace the investigation or exercise of judgment that is undertaken before an investment decision is made. The information should not be construed as a solicitation or offer to buy or sell any securities or investment finance products. Past performance is not indicative of future results. United Kingdom and the rest of Europe: Except where stated, the information contained herein is communicated by Banco Itaú Europa to persons who are a Market Counterparty (as defined in the UK Financial Services and Markets Act 2000) and is only intended to be made available to such persons. If you do not, or cease to, fall within the definition of Market Counterparty & Intermediate Customer, you should not rely upon the information contained herein and should notify Banco Itaú Europa in order that its records may be updated.


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