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PHAROL, SGPS, S.A.

Earnings Release Nov 6, 2008

1925_10-q_2008-11-06_457c06e2-fc63-4677-8a67-a7bedf060e00.pdf

Earnings Release

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Banif - SGPS, SA

The Banif Financial Group

Information on the operations and results of the Banif Financial Group in the 3rd quarter of 2008

(unaudited figures)

Banif - SGPS, SA Public Limited Company Company Headquarters: Rua de João Tavira, 30 – 9000 Funchal Registered at Funchal Company Registry Office Single Registration and Collective Person Number 511 029 730 Share Capital: 350,000,000 Euros

OPERATIONS, HIGHLIGHTS AND RESULTS OF THE BANIF FINANCIAL GROUP IN THE THIRD QUARTER OF 2008

Banif – SGPS, SA, the holding company of the Banif Financial Group, achieved a consolidated net profit of 50.1 million euros in the period to the end of the third quarter of 2008. This result represents a decrease of 22.6% on the equivalent period of the previous year.

Balance Sheet Analysis

The Banif Financial Group had total net assets of 12,742 million euros as at 30 September 2008. This corresponds to an increase of 25.1% compared with the end of the third quarter of 2007.

For its part, (gross) credit to customers, excluding debt securities reclassified as "loans and receivables", came to 10,324 million euros, 23.1% higher than the figure recorded on 30 September 2007. Over the same period the ratio of credit impairment/total credit rose from 2.08% to 2.29%, reflecting the adverse effects of the current economic situation.

Customer deposits on the balance sheet grew by 20.4% relative to 30 September 2007, to 8,533 million euros. In terms of "off-balance sheet" funds, the figure for the Group was 2,419 million euros (+13.6% versus the year-earlier period). The rise in total customer funds was fuelled in part by an increase in the number of Banif Financial Group points of sale from 423 to 474 between the ends of the third quarters of 2007 and 20081 . The number of bank branches in Portugal rose from 266 to 309.

So far this year, the Banif Financial Group has opened 37 branches in Portugal, three in Malta and two in Brazil. It is foreseen that a further 13 branches will open in Portugal in the final quarter of 2008, along with another three in Brazil and three more in Malta.

It is important to note, moreover, the strong growth in the number of banking customers of the Group as a result of the marketing campaigns conducted in recent years and the policy of expansion and diversification of distribution networks. A three-year programme is currently under way to increase the number of products and services sold to customers, with the objective of reinforcing their loyalty and identification with the Banif Financial Group and so obtaining a greater value from cross-selling activities among the various Group companies.

The equity of the Banif Financial Group (excluding minority interests) increased by 20.2%, as a result of the following situations:

  • An increase of 100 million euros in the share capital of Banif SGPS, SA. This operation, which was carried out in June 2008, generated a net capital in-flow of the same amount;
  • Undistributed results for the year 2007 in the amount of 63.6 million euros;
  • An accumulated profit of 50.1 million euros to the end of the third quarter of 2008;
  • A decrease in revaluation reserves for securities classified on the balance sheet under the item "financial assets available for sale" in the amount of -96,4 million euros (sale of shareholdings in Brazil: - 62.5 million euros; effect of the decrease in the equity of Companhia de Seguros Açoreana: - 22.8 million euros; and decrease in the market value of the shareholding in Finibanco Holdings SGPS: - 9.2 million euros).

Thus the Group had equity of 626.1 million euros at the end of the third quarter of 2008.

1 Excluding the following banks in which Banif-SGPS, SA does not have a majority shareholding: Banca Pueyo (Spain), with 82 branches; Bankpime (Spain), with 23 branches; and Banco Caboverdiano de Negócios, with 14 branches.

Income Statement Analysis

The Banif Financial Group had operating revenues of 354.0 million euros at the end of third quarter 2008, an increase of 18.5% in relation to the year-earlier period. The main components of revenue were:

  • Financial margin, including income from securities, rose 8.9% to 198.6 million euros. This item has been affected by a decrease in the total intermediation margin (credit portfolio margin plus margin on the on-balance sheet customer funds portfolio), which fell from 3.02% to 2.71% between the ends of the third quarters of 2007 and 2008 respectively, because of the increase in funding costs and the narrower margin on the credit portfolio as a consequence of the growing proportion of mortgage loans;
  • Other net income, which includes net commissions, rose 5.1%, to 95.1 million euros. Progress in this domain continues to be affected by the ongoing crisis in the main international financial markets, This has had the consequence of lowering levels of activity in the areas of investment banking and asset management. Nevertheless, it is worth highlighting the 9.3% increase in net commissions, as a result above all of strong growth in the Group's lending business over the period in question.
  • Profits on financial operations increased 132.5%, to 60.3 million euros, benefiting from the realisation of capital gains on disposal of shareholdings in Brazil, but also held back by losses associated with updating the Banif Group's investment and trading portfolios to reflect market values.

Operating costs, which comprise general administrative expenditure and staff costs, came to a total of 210.4 million euros, 21.3% more than over the same period in 2007. This was due to the major expansion of distribution networks in Portugal, Brazil and Malta, and to costs associated with the advertising campaign to promote the Banif Financial Group's new image, which ran in the first few months of this year.

Net provisions and impairment for the period show an increase of 100.5%, reaching 46.8 million euros at the end of the third quarter of 2008. This reflects the current deterioration in the domestic and international macroeconomic situation, as a consequence of which it has been necessary to adopt a policy of greater prudence in the evaluation of certain collective credit impairment indicators.

The Banif Financial Group's consolidated operational cash flow came to 143.6 million euros (+ 14.6% on the year-earlier period), while the cost-to-income ratio (operating costs + depreciation / operating revenues) increased, from 61.4% in the third quarter of 2007, to 64.4% in the third quarter of 2008.

Considering only recurrent profits in the period in question, there was a decrease of 51.10% between third quarter 2007 and third quarter 2008: the consolidated net result fell from 57.7 million euros on 30 September 2007, to 28.2 million euros on 30 September 2008. This decrease reflects the narrower financial intermediation margin and greater provisions for credit impairment, as mentioned above, and lower profits from insurance business and investment banking at the level of commissions and trading operations.

As far as the insurance business of the Banif Financial Group is concerned, the total volume of premiums issued came to 338.8 million euros (9.8% less than at the end of the third quarter of 2007); within this total there was a 2.9% increase in the value of non-life premiums.

On the basis of the Banif Financial Group's net profit of 50.1 million euros as at 30 September 2008, ROE (Return on Equity) was 11.4% (as against 19.5% in the year-earlier period), while ROA (Return on Assets) came to 0.57% (versus 0.95% in the year-earlier period). Both ratios have been annualised and calculated using average values for the Group's equity and assets.

Lisbon, 6 November 2008

THE BOARD OF DIRECTORS

COMPARATIVE ANALYSIS

Banif Financial Group '000 Euros

Balance sheet 30-09-2008 30-09-2007 Absolute %
variation variation
1 Net assets 12.741.968 10.182.064 2.559.904 25,1%
2 Lending (gross) (1) 10.323.604 8.387.131 1.936.473 23,1%
3 Customer deposits (balance sheet) 8.533.063 7.085.223 1.447.840 20,4%
4 Equity (2) 626.112 520.948 105.164 20,2%
Income statement 30-09-2008 30-09-2007 Absolute %
variation variation
5 Interest margin (including earnings on equity instruments) 198.578 182.380 16.198 8,9%
6 Profits on financial operations (net) 60.338 25.955 34.383 132,5%
7 Other income (net) 95.095 90.517 4.578 5,1%
8 Operating revenue 354.011 298.852 55.159 18,5%
9 Personnel costs 119.995 98.519 21.476 21,8%
10 Overheads 90.445 75.008 15.437 20,6%
11 Cash flow 143.571 125.325 18.246 14,6%
12 Depreciation in the period 22.207 19.710 2.497 12,7%
13 Provisions and impairment (net) 46.855 23.364 23.491 100,5%
14 Equity method 4.505 9.363 -4.858 -51,9%
15 Pre-tax profit 79.014 91.614 -12.600 -13,8%
16 Taxes (current and deferred) 23.196 18.589 4.607 24,8%
17 Minority interests 5.738 8.340 -2.602 -31,2%
18 Consolidated income for the period 50.080 64.685 -14.605 -22,6%
Other indicators 30-09-2008 30-09-2007 Absolute %
variation variation
19 Insurance premiums (total) 338.823 375.449 -36.626 -9,8%
- Life 208.191 248.439 -40.248 -16,2%
- Non-life 130.632 127.010 3.622 2,9%
20 Assets under management (in million euros) 2.419 2.129 290 13,6%
21 Credit impaiment / Total lending 2,29% 2,08% - -
22 ROE 11,4% 19,5% - -
23 ROA 0,57% 0,95% - -
24 Pre-tax profit and minority interests / Average net assets 0,90% 1,34% - -
25 Operating revenue / Average net assets 4,03% 4,38% - -
26 Pre-tax profit and minority interests /Average equity (including minority interests) 13,9% 22,2% - -
27 Operating costs + Depreciation / Operating revenue (3) 64,4% 61,4% - -
28 Personnel costs / Operating revenue (3) 33,8% 32,6% - -

(1) Excluding debt securities classified as "loans and receivables"

(2) Less minority interests

(3) These ratios exclude non-financial and auxiliary activities. Operating revenues include profits on investment in associates excluded from consolidated accounts.

* ANNEX II *

INDIVIDUAL/CONSOLIDATED QUARTERLY REPORT (Unaudited)

(Form applicable to entities subject to accounting rules for the banking/leasing/factoring system)

Company: BANIF - SGPS, S.A.
Reg.Off.: Rua de Joao Tavira, 30 9004 - 509 Funchal 511 029 730
Reference period: 01-01-2008
1st Quarter X
3rd Quarter
5th Quarter(1) (000 euros) 30-09-2008
BalanceSheet Items Individual Consolidated
30/09/08 30/09/07 Var. (%) 30/09/08 30/09/07 Var. (%)
(000 EUR) AAS AAS AAS IAS IAS IAS
NET ASSETS
Due from other banks 15.842 17.014 (6,9%) 621.243 679.443 (8,6%)
Loans and advances to customers - - - 10.156.858 8.196.475 23,9%
Trading securities 1.766 1.272 38,8% 559.652 520.126 7,6%
Available-for-sale financial assets 488.006 435.097 12,2% 162.275 96.503 68,2%
Held-to-maturity investment securities - - - 75.620 - -
EQUITY AND EQUIVALENT
Share Capital 350.000 250.000 40,0% 350.000 250.000 40,0%
No. ordinary shares (5) 350.000.000 250.000.000 40,0% 350.000.000 250.000.000 40,0%
No. other shares - - - - - -
Treasury shares - - - - - -
No. of voting shares (voting rights impaired) - - - 6.005 130.261 (95,4%)
No. non-voting shares - - - - -
Subordinated loans - - - 349.397 379.400 (7,9%)
Minority interests - - - 197.732 122.348 61,6%
LIABILITIES
Deposits from other banks 38.655 69.747 (44,6%) 2.254.686 1.662.598 35,6%
Customer accounts and other loans 35.011 15.000 133,4% 6.508.263 4.945.901 31,6%
Debt securities in issue 123.693 72.236 71,2% 2.024.800 2.139.322 (5,4%)
TOTAL ASSETS (NET) 672.221 536.427 25,3% 12.741.968 10.182.064 25,1%
TOTAL EQUITY 458.682 365.896 25,4% 823.844 643.296 28,1%
TOTAL LIABILITIES 213.539 170.531 25,2% 11.918.124 9.538.768 24,9%
Income Statement Items Individual Consolidated
30/09/08 30/09/07 Var. (%) 30/09/08 30/09/07 Var. (%)
(EUR) AAS AAS AAS IAS IAS IAS
Interest margin (2) (6.475) (2.470) (162,1%) 195.968 179.302 9,3%
Fee and commission income (net) (178) (137) 29,9% 95.095 90.517 5,1%
Income on securities and financial operating profits (net) 1.856 9.607 (80,7%) 62.948 29.033 116,8%
Operating income (4.797) 7.000 (168,5%) 354.011 298.852 18,5%
Personnel, admin. and other costs 1.870 690 171,0% 210.440 173.527 21,3%
Depreciation 13 31 (58,1%) 22.207 19.710 12,7%
Provision / Impairment 68 506 (86,6%) 46.855 23.364 100,5%
Income from companies recognized by equity method - - - 4.505 9.363 (51,9%)
Pre-tax profits (6.748) 5.773 (216,9%) 79.014 91.614 (13,8%)
Tax on income (3) 950 (1.483) 164,1% (23.196) (18.589) 24,8%
Minority interests - - - (5.738) (8.340) (31,2%)
Net profit for the quarter (5.798) 4.290 (235,2%) 50.080 64.685 (22,6%)
Net profit for the quarter per share EUR (5) -0,02 0,02 (196,5%) 0,14 0,26 (44,7%)
Net cash flow (4) (5.717) 4.827 (218,4%) 119.142 107.759 10,6%

(1) Applicable in the first accounting period of companies which adopt a company year different from the calendar year (Article 65-A of the Companies Code)

(2) Interest margin = Interest and equivalent income - Interest and equivalent expense

(3) Estimate of tax on income and deferred taxes

(4) Net cash flow = Net profits + Depreciation + Provisions

NIC - International Accounting Standards

NCA - Adjusted Accounting Standards

(Summary ofthe company's operations so as to permit investors to form an opinion on its affairs over the quarter)

An account of the business affairs of Banif - SGPS, S.A., in the third quarter of 2008 is contained in item 1 of the Report preceding this Annex.

(Persons who take responsibility for the information, office held and respective signatures)

The Board of Directors

EXPLANATORY NOTES

* Save as otherwise indicated, the figures required should be expressed in thousands of euros, without decimals. * Negative amounts should be stated in brackets ( ).

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