Banco Macro SA — Audit Report / Information 2003

May 14, 2004

AUDITED FINANCIAL STATEMENTS

SUD BANK & TRUST COMPANY LIMITED

DECEMBER 31, 2003

SUD BANK & TRUST COMPANY LIMITED

AUDITED FINANCIAL STATEMENTS

DECEMBER 31, 2003

CONTENTS

Page

Independent Auditors’ Report 1

AUDITED FINANCIAL STATEMENTS

Balance Sheet 2

Statement of Income and Deficit 4

Statement of Cash Flows 5

Notes to Financial Statements 7

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholder of

Sud Bank & Trust Company Limited

We have audited the accompanying balance sheet of Sud Bank & Trust Company Limited (the Bank) as of December 31, 2003, and the related statements of income and deficit and cash flows for the year then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Bank for the year ended December 31, 2002 were audited by other auditors whose report dated June 20, 2003, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2003, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

March 29, 2004

SUD BANK & TRUST COMPANY LIMITED

BALANCE SHEET

(Expressed in United States Dollars)

December 31

	2003	2002
ASSETS
Cash and due from banks- demand and call deposits
(notes 3, 4, 6 and 7)	$ 57,184,258	$ 35,229,814
Due from parent bank (notes 4, 6 and 7)
Operating accounts	9,760	7,123
Time deposit	-	110,765
Securities lent	-	2,999,753
Loans	555.000	200,000
Accrued interest receivable	660	9,794
Loans (notes 4, 6 and 7)	2,528,031	1,992,584
Investments (note 8)	3,126,584	2,546,580
Accrued interest receivable	18,164	17,180
Other assets	94,486	15,877
Receivable under open forward contracts (notes 6, 7 and 9)	4,703,363	-
Investment property	3,347,539	1,813,981
Investment in non-consolidates subsidiries	46,464	5,580
Total assets	$ 71,614,309	$ 44,949,031

The accompanying notes form an integral part of the financial statements.

See Independent Auditors’ Report page 1 2

SUD BANK & TRUST COMPANY LIMITED

BALANCE SHEET (Continued)

(Expressed in United States Dollars)

December 31

	2003	2002
LIABILITIES AND SHAREHOLDER’S EQUITY
LIABILITIES
Deposits (notes 4, 5, 6 and 7)
Banks	$ 939,786	$ 85,109
Customers	32,146,425	13,918,475
Securities borrowed (note 4)	-	860,153
Accrued interest payable	142,840	54,824
Payable under open forward contracts (notes 6, 7, and 9)	6,106,140	-
Other accounts payable	128,561	65,458
Total liabilities	39,463,752	14,984,019
SHAREHOLDER’S EQUITY
Share capital
Authorized, issued and fully paid
9,816,900 shares at par value of $ 1 each	9,816,900	9,816,900
Irrevocable advances for future capitalization (note 13)	30,000,000	30,000,000
Share premium	713,100	713,100
Deficit	(8,379,443)	(10,564,988)
Total shareholder’s equity	32,150,557	29,965,012
Total liabilities and shareholder’s equity	$ 71,614,309	$ 44,949,031

COMMITMENTS (note 9)

SUBSEQUENT EVENT (note 13)

Approved By The Board:

Guido Simeto Director Director

The accompanying notes form an integral part of the financial statements.

See Independent Auditors’ Report page 1 3

SUD BANK & TRUST COMPANY LIMITED

STATEMENT OF INCOME AND DEFICIT

(Expressed in United States Dollars)

Year ended December 31

	2003	2002
INCOME
Interest on bank deposits, loans, overdrafts and
Securities lent (note 4)	$ 3,156,593	$ 1,343,108
Interest on investments	337,074	110,297
Interest expense (note 4)	(830,233)	(475,965)
Net interest income	2,663,434	977,440
Other income (note 14)	620,392	-
Services fees	61,568	114,269
Equity in earnings of subsidiaries	-	31
Total other income	681,960	114,300
	3,345,394	1,091,740
EXPENSES
Loss on forward contracts	(1,677,434)	-
Administration and general expenses (note 16)	(646,581)	(494,581)
Exchange loss	(127,384)	(24,551)
Commissions	(39,833)	-
Equity in losses of subsidiaries	(25,737)	-
Depreciation	(3,742)	-
Services charges	(2,256)	-
Total expenses	(2,522,967)	(519,132)
Net operating income	822,427	572,608
Income (loss) on investments (note 15)	1,363,118	(6,140,522)
NET INCOME (LOSS)	2,185,545	(5,567,914)
Deficit at beginning of year	(10,564,988)	(4,997,074)
Deficit at end of year	$ (8,379,443)	$(10,564,988)

The accompanying notes form an integral part of the financial statements.

See Independent Auditors’ Report page 1 4

SUD BANK & TRUST COMPANY LIMITED

STATEMENT OF CASH FLOWS

(Expressed in United States Dollars)

Year ended December 31

	2003	2002
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income (loss) for the year	$ 2,185,545	$ (5,567,914)
Adjustment for items not involving cash:
Depreciation	3,742	-
Loss on forward contracts	1,677,434	-
Other income	(551,876)	-
Equity in earnings of subsidiaries	25,737	(31)
Loss (income) on investments	(1,363,118)	6,140,522
Changes in operating assets and liabilities:
Accrued interest receivable	(984)	(17,180)
Accrued interest payable	88,016	7,743
Other assets	(48,005)	(10,960)
Other accounts payable	63,103	(8,650)
Net cash provided by operating activities	2,079,594	543,530
INVESTING ACTIVITIES
Purchase of equipment	(34,346)	-
Purchase of investment property	(1,533,558)	(1,813,981)
Purchase of current investments	-	2,118,369
Sale of current investments	783,114	-
Increase in investment in non-consolidated subsidiaries	(66,621)	-
Net (increase) decrease in loans	(93,896)	(1,958,612)
Net (increase) decrease in due from parent bank	2,872,340	1,187,629
Net (increase) decrease in receivable under open forward
contracts	(4,703,363)	-
Net cash used for investing activities	(2,776,330)	(466,595)

The accompanying notes form an integral part of the financial statements.

See Independent Auditors’ Report page 1 5

SUD BANK & TRUST COMPANY LIMITED

STATEMENT OF CASH FLOWS (Continued)

(Expressed in United States Dollars)

Year ended December 31

	2003	2002
FINANCING ACTIVITIES
Irrevocable advances for future capitalization	$ -	$ 30,000,000
Net increase (decrease) in deposits and securities borrowed	18,222,474	5,039,144
Net increase (decrease) in payable under open forward contract	4,428,706	-
Net cash provided by financing activities	22,651,180	35,039,144
Net increase in cash and cash equivalents	21,954,444	35,116,079
Cash and cash equivalents at beginning of year	35,229,814	113,735
CASH AND CASH EQUIVALENTS AT END OF YEAR	$ 57,184,258	$ 35,229,814
Supplemental cash flow information:
Interest received	$ 3,501,817	$ 2,006,980
Interest paid	$ 742,217	$ 468,222

The accompanying notes form an integral part of the financial statements

See Independent Auditors’ Report page 1 6

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

1. CORPORATE INFORMATION

Sud Bank & Trust Company Limited (the Bank) was incorporated in 1991 under the laws of the Commonwealth of The Bahamas and is licensed under the Banks and Trust Companies Regulation Act 1965, as amended, to carry on banking and trust business from within The Bahamas. The address of its registered office is Norfolk House, Frederick Street Ground Floor, Nassau, Bahamas. The principal activities of the Bank consist of providing banking and investment management services.

The Bank had 4 (2002: 4) employees at year-end.

The Bank is a wholly-owned subsidiary of Banco Macro Bansud S.A.(the Parent), a bank organized under the laws of Argentina. A significant part of the Bank’s business is transacted with related parties.

The financial statements of the Bank were authorized for issue by the Board of Directors on March 29, 2004.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

These financial statements are prepared in accordance with International Financial Reporting Standards, which comprise standards and interpretations approved by the International Accounting Standards Board and interpretations issued by its Standing Interpretations Committee.

The financial statements are expressed in United States (U.S.) dollars. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Actual results could differ from those estimates.

Revenue recognition

Interest income, interest expense, services fees and services charges are recorded on the accrual basis.

See Independent Auditors’ Report page 1 7

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Trade date accounting

All “regular way” purchases and sales of financial assets are recognized on the “trade date”, i.e., the date that the Bank commits to purchase or sell the asset. Regular way purchases and sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

Impairment and uncollectibility of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss recognized for the difference between the recoverable amount and the carrying amount is included in the statement of income.

Forward contracts

The Bank enters into forward contracts, which are stated at fair value. The fair value of a forward contract is the equivalent of the unrealized gain or loss from marking to market the forward contract using prevailing market prices.

Loans

Loans are stated at the principal amount less any specific provisions for losses which management consider necessary. Management’s periodic evaluation of the adequacy of the provision is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. The Bank’s management estimates that no loan loss allowance is required as of December 31, 2003 and 2002, based on the structure and quality of the loan portfolio. No loans were considered impaired at December 31, 2003 (2002 – nil).

See Independent Auditors’ Report page 1 8

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and cash equivalents

Cash and cash equivalents include demand and call balances due from banks.

Investments

Investments are held for short-term investment purposes and are classified as held for trading and are carried at fair value as follows:

Bonds are carried at estimated market value as reported by stock exchanges based on the most recent trades.

Investments in mutual funds at December 31, 2002 had been valued at the net asset value of the mutual fund as represented by the fund’s administrator as of the balance sheet date.

Securities are recorded on the trade date. Dividend income is recorded on the ex-dividend date, or when known, and interest is recorded on the accrual basis as earned.

Securities lent and borrowed

Securities lent and borrowed represent arrangements whereby the Bank lends or borrows securities. Under these arrangements, the Bank receives or pays interest based on an agreed upon rate applied to the nominal value of the security. At maturity of the arrangement, the security is returned. During the period of this arrangement, the counterparty takes control of the security and can encumber it, thus exposing the Bank or customer to credit risk, being the risk that the counterparty will not be able to return the security. The Bank or customer is also exposed to market risk resulting from the fluctuation in the market value of the security to be returned. These transactions are recorded on balance sheet, and are carried at the market value of the security to be returned. There were no securities lent or borrowed at December 31, 2003.

See Independent Auditors’ Report page 1 9

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment in non-consolidated subsidiaries

The Bank does not prepare consolidated financial statements since it is itself a wholly-owned subsidiary. The Parent Bank issues consolidated financial statements.

The investment in non-consolidated subsidiaries is accounted for based on the equity method of accounting. As of year end the Bank had investments in the following wholly-owned nonconsolidated subsidiaries:

Company Name Country of Incorporation

Sud Asesores S.A.F.I. Uruguay

Sud Asesores (R,O,U.) S.A. Uruguay

Investment property

Investment property represents undeveloped land acquired for capital appreciation and is carried at cost, less impairment losses. The Bank’s management estimates that no impairment losses have occurred as of December 31, 2003 (2002 - nil).

Foreign currency translation

Monetary assets and liabilities in foreign currencies are translated into U.S. dollars using year-end rates of exchange. Statement of income items in foreign currencies are recorded in U.S. dollars by applying the exchange rates existing at the dates of the transactions. All exchange differences are included in the statement of income for the year.

Assets under administration

Assets under administration have not been included in these financial statements. Total assets under administration as at December 31, 2003 approximated $3.5 million (2002 - $6.1 million).

See Independent Auditors’ Report page 1 10

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Taxation

There are no income taxes imposed on the Bank in the Commonwealth of The Bahamas.

3. CASH AND DUE FROM BANKS

Cash and due from banks comprise the following:

	2003	2002
Cash	$ 49,975	$ 487,791
Due from banks
American Express N.Y.	13,442,286	34,567,359
Prudential Securities INC. N.Y.	-	6,693
Wachovia Securities	226,341	-
Standard Chartered Bank	42,440,294	-
Morgan Guaranty Brussels Euroclear	1,013,085	167,791
Sud Valores S.A. Soc. de Bolsa	12,277	-
Total assets	$ 57,184,258	$ 35,229,814

See Independent Auditors’ Report page 1 11

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

4. PARENT COMPANY AND AFFILIATES

Balances with the Parent Bank and companies controlled by it at the balance sheet date are as follows:

	2003	2002
ASSETS
Cash and due from banks – demand and call deposits	$ 12,277	$ -
Due from parent bank
Operating accounts	9,760	7,123
Time deposits	-	110,765
Securities lent	-	2,999,753
Loans	555,000	200,000
Accrued interest receivable	660	9,794
Loans	-	1,789,722
Accrued interest receivable	-	10,980
	$ 577,697	$ 5,128,137
LIABILITIES
Deposits	$ 1,162,456	$ 85,109
Securities borrowed	-	281,734
	$ 1,162,456	$ 366,843

See Independent Auditors’ Report page 1 12

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

4. PARENT COMPANY AND AFFILIATES (Continued)

Transactions with the Parent Bank and companies controlled by it in the statement of income for the year ended December 31 are as follows:

	2003	2002
Interest on bank deposits, loans, overdrafts and securities lent	$ 2,904,339	$ 1,048,616
Interest expense	(33,602)	(11,689)

5. DEPOSITS

Deposits comprise the following:

		2003		2002
	Banks	Customers	Bank	Customers
Demand	$ 939,786	$ 9,516,989	$ 85,109	$ 917,691
Time	-	22,629,436	-	13,000,784
	$ 939,786	$ 32,146,425	$ 85,109	$ 13,918,475

See Independent Auditors’ Report page 1 13

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

6. MATURITIES OF ASSETS AND LIABILITIES

Banking monetary assets and liabilities can be classified based on the period remaining to maturity from the balance sheet date, as follows:

December 31, 2003
	Due on	Less than	3-12	More than
	demand	3 months	months	12 months	Total
MONETARY ASSETS
Cash and due from banks	$ 57,184,258	$ -	$ -	$ -	$ 57,184,258
Due from parent bank
Operating accounts	9,760	-	-	-	9,760
Loans	-	-	-	555,000	555,000
Loans	-	-	200,000	2,328,031	2,528,031
Forward contracts	-	1,496,086	-	3,207,277	4,703,363
MONETARY LIABILITIES
Due to banks	939,786	-	-	-	939,786
Due to customers	9,516,989	19,546,463	3,082,973	-	32,146,425
Forward contracts	-	1,526,485	-	4,579,655	6,106,140

See Independent Auditors’ Report page 1 14

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2002

(Expressed in United States Dollars)

6. MATURITIES OF ASSETS AND LIABILITIES (Continued)

December 31, 2002
	Due on	Less than	3-12	More than
	demand	3 months	months	12 months	Total
MONETARY ASSETS
Cash and due from banks	$ 35,229,814	$ -	$ -	$ -	$ 35,229,814
Due from parent bank
Operating accounts	7,123	-	-	-	7,123
Time deposits	-	110,765	-	-	110,765
Loans	-	100,000	100,000	-	200,000
Securities lent	-	2,999,753	-	-	2,999,753
Loans	590,897	1,201,687	-	200,000	1,992,584
MONETARY LIABILITIES
Due to banks	85,109	-	-	-	85,109
Due to customers	917,691	12,874,324	126,460	-	13,918,475
Securities borrowed	-	860,153	-	-	860,153

See Independent Auditors’ Report page 1 15

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

7. CONCENTRATIONS OF ASSETS AND LIABILITIES

The following is an analysis of significant concentrations of monetary assets and liabilities:

December 31, 2003
	United States of America	Argentina	Bahamas	Other	Total
MONETARY ASSETS
Cash and due from banks	$ 56,108,921	$ 55,543	$ 6,710	$ 1,013,084	$ 57,184,258
Due from parent bank
Operating accounts	-	9,760	-	-	9,760
Loans	-	555,000	-	-	555,000
Loans	-	2,328,031	-	200,000	2,528,031
Forward contracts	-	4,703,363	-	-	4,703,363
MONETARY LIABILITIES
Due to banks	-	939,786	-	-	939,786
Due to customers	-	23,292,835	8,778,911	74,679	32,146,425
Forward contracts	-	6,106,140	-	-	6,106,140

See Independent Auditors’ Report page 1 16

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

7. CONCENTRATIONS OF ASSETS AND LIABILITIES (Continued)

December 31, 2002
	United States of America	Argentina	Bahamas	Other	Total
MONETARY ASSETS
Cash and due from banks	$ 34,574,052	$ 487,971	$ -	$ 167,791	$ 35,229,814
Due from parent bank
Operating accounts	-	7,123	-	-	7,123
Time deposits	-	110,765	-	-	110,765
Loans	-	200,000	-	-	200,000
Securities lent	-	2,999,753	-	-	2,999,753
Loans	-	1,725,964	-	266,620	1,992,584
MONETARY LIABILITIES
Due to banks	-	85,109	-	-	85,109
Due to customers	-	13,404,870	212,968	300,637	13,918,475
Securities borrowed	-	860,153	-	-	860,153

See Independent Auditors’ Report page 1 17

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

8. INVESTMENTS

Investments comprise the following:

	2003	2002
Argentine Government Bonds	$ 3,109,945	$ 2,409,838
Mutual funds	-	119,619
Other	16,639	17,123
	$ 3,126,584	$ 2,546,580

The Argentine Government Bonds represent:

	Nominal value	Market value
“Bonos del Gobierno Argentino US$ Libor 2012”	2,302,600	$ 1,467,289
“Bonos del Gobierno Argentino $A 2008”	5,000,000	1,510,399
“Bono Externos Globales 2017”	99,000	28,016
“Bono Externos Globales 2009”	21,000	5,871
“Bono Externos Globales 2008”	119,700	33,057
“Bono Externos Globales 2003”	96,000	25,694
“Bonos del Tesoro 2002”	170,000	38,250
“Bonos garantizados Decreto 1579”	4,838	1,369
		$ 3,109,945

9. COMMITMENTS

Derivative financial instruments

Forward contracts are contracts to purchase and to sell securities at specific prices on specific

dates in the future. Risk arises from the potential inability of counterparties to perform under

the terms of the contracts (credit risk) and from fluctuations in prices (market risk).

See Independent Auditors’ Report page 1 18

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

9. COMMITMENTS (Continued)

Derivative financial instruments

The contract amounts of open forward contracts were as follows:

		2003		2002
Commitments under forward contracts	Assets	Liabilities	Assets	Liabilities
Commitments to purchase	$ 7,971	$ 8,115	-	-
Commitments to sell	4,695,392	6,098,025	-	-
	$ 4,703,363	$ 6,106,140	-	-

The contract amounts of these instruments reflect the extent of the Bank’s involvement in forward contracts and do not represent the Bank’s risk of loss due to counterparty nonperformance. The credit risk is limited to the amounts with a positive value reflected in the Bank’s balance sheet.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments utilized by the Bank include recorded assets and liabilities, as well as items that principally involve off-balance sheet risk. The majority of the Bank’s financial instruments are either short-term in nature or have interest rates that automatically reset to market on a periodic basis. Accordingly, the estimated fair value is not significantly different from the carrying value for each major category of the Bank’s recorded assets and liabilities.

11. FINANCIAL RISK MANAGEMENT

The Bank’s financial instruments, other than derivatives, comprise deposits, money market assets and liabilities, some cash and liquid resources, and other various items that arise directly from its operations. The main risks arising from the Bank’s financial instruments are credit risk, liquidity risk, interest rate risk and foreign currency risk. The Board reviews and agrees policies managing each of these risks and they are summarized below.

See Independent Auditors’ Report page 1 19

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

Credit risk

Credit risk is the risk that a customer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Bank. The Bank manages counter-party credit risk centrally to optimize the use of credit availability and to avoid excessive risk concentration. Customer credit risk is monitored on a daily basis by management. The Bank’s Board of Directors receives regular reports on credit exposures, levels of bad debt provisioning and bank exposure limits. The Bank did not incur credit losses in 2003, nor was a bad debt provision required in 2003.

Credit risk exposure

The Bank’s maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event the counterparties fail to perform their obligations as at December 31, 2003 in relation to each class of recognized financial assets other than derivatives, is the carrying amount of those assets as indicated in the balance sheet.

With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under the contract.

Liquidity risk

Liquidity risk is the risk that the Bank will encounter difficultly in realizing assets or otherwise raising funds to meet commitments. The Bank monitors expected cash outflow on a daily basis. Its policy throughout the year has been to ensure liquidity by maintaining at all times sufficient high quality liquid assets to cover expected net cash outflow. The maturity analysis of the assets and liabilities are disclosed in note 6 above.

See Independent Auditors’ Report page 1 20

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

Interest rate risk

Exposure to interest rate risk is the risk that arises where there is an imbalance between rate and non-rate sensitive assets and liabilities. The Bank’s policy is to maintain the interest rate risk at a minimal level except that management may invest shareholders’ funds in fixed or floating rate instruments in response to market conditions.

The table in note 12 shows the Bank’s exposure to interest rates by major currencies at December 31, 2003.

Market risk

Market risk is the risk that significant fluctuations will occur in the market value of investments. Market risk is primarly concentrated in investments. This risk is managed by the treasury department of the Parent Bank.

See Independent Auditors’ Report page 1 21

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates. The Bank’s foreign exchange exposure arises from providing services to customers. The Bank’s policy is to hedge against foreign exchange risks by matching currency liabilities with currency assets. Currency exposure is monitored on a daily basis and reviewed by management.

December 31, 2003:

	United States dollars	Argentine pesos	Euros	Total
ASSETS
Cash and due from banks- demand and call deposits	$ 57,160,720	$ 12,277	$ 11,261	$ 57,184,258
Due from parent bank
Operating accounts	180	9,580	-	9,760
Time deposits	-	-	-	-
Securities lent	-	-	-	-
Loans	555,000	-	-	555,000
Accrued interest receivable	660	-	-	660
Loans	2,528,031	-	-	2,528,031
Investments	3,126,584	-	-	3,126,584
Accrued interest receivable	18,164	-	-	18,164
Receivable under open forward contracts	4,695,248	8,115	-	4,703,363
Fixes assets	30,604	-	-	30,604
Investment property	3,347,539	-	-	3,347,539
Investment in non-consolidates subsidiaries	46,464	-	-	46,464
Other accounts receivable	63,882	-	-	63,882
Total assets	$ 71,573,076	$ 29,972	$ 11,261	$ 71,614,309

Liabilities
Deposits
Banks	$ 939,786	$ -	$ -	$ 939,786
Customers	32,126,101	18,353	1,971	32,146,425
Securities borrowed	-	-	-	-
Accrued interest payable	142,840	-	-	142,840
Payable under open forward contracts	6,098,025	8,115	-	6,106,140
Other accounts payable	113,007	15,554	-	128,561
Total liabilities	$ 39,419,759	$ 42,022	$ 1,971	$ 39,463,752

See Independent Auditors’ Report page 1 22

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

Foreign currency risk (Continued)

December 31, 2002:

	United States dollars	Argentine pesos	Euros	Total
ASSETS
Cash and due from banks- demand and call deposits	$ 35,229,814	-	-	$35,229,814
Due from parent bank
Operating accounts	-	7,123	-	7,123
Time deposits	110,765	-	-	110,765
Securities lent	2,999,753	-	-	2,999,753
Loans	200,000	-	-	200,000
Accrued interest receivable	9,794	-	-	9,794
Loans	1,992,584	-	-	1,992,584
Investments	2,546,580	-	-	2,546,580
Accrued interest receivable	17,180	-	-	17,180
Receivable under open forward contracts	-	-	-	-
Fixes assets	-	-	-	-
Investment property	1,813,981	-	-	1,813,981
Investment in non-consolidates subsidiaries	5,580	-	-	5,580
Other accounts receivable	15,877	-	-	15,877
Total assets	$ 44,941,908	$ 7,123	$ -	$ 44,949,031

Liabilities
Deposits
Banks	$ 85,109	$ -	$ -	$ 85,109
Customers	13,881,565	36,910	-	13,918,475
Securities borrowed	860,153	-	-	860,153
Accrued interest payable	54,824	-	-	54,824
Payable under open forward contracts	-	-	-	-
Other accounts payable	65,458	-	-	65,458
Total liabilities	$ 14,947,109	$ 36,910	$ -	$ 14,984,019

See Independent Auditors’ Report page 1 23

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

12. INTEREST RATE EXPOSURE

The Bank’s exposure to interest rates for significant interest-bearing monetary assets and liabilities by major currencies was as follows:

December 31, 2003
	United States
	dollars
Assets
Due from banks	0.65% - 0.7%
Loans	1.2588% - 18%
Liabilities
Due to customers	3% - 5%
December 31, 2002
	United States
	dollars
Assets
Due from banks	1.4%
Time deposits	5.5%
Loans	12% - 18%
Securities lent	3% - 4%
Liabilities
Due to customers	4% - 5%
Securities borrowed	2% - 3%

See Independent Auditors’ Report page 1 24

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

13. IRREVOCABLE ADVANCES FOR FUTURE CAPITALIZATION

On January 25, 2002 and April 25, 2002, the Parent Bank made cash contributions of $10,000,000 and $20,000,000 respectively. These contributions have been recorded as “Irrevocable advances for future capitalization” in the shareholder’s equity section of the balance sheet.

On March 26, 2004, The Central Bank of The Bahamas, approved the increase of the share capital by $30,000,000.

14. OTHER INCOME

$551,876 of other income represents mainly the income that arose from the acquisition of loans with two Argentine financial institutions.

15. NET INCOME (LOSS) ON INVESTMENTS

Net income (loss) on investments included the income (loss) that arose from changes in market price of securities.

16. ADMINISTRATION AND GENERAL EXPENSES

Administration and general expenses comprise the following:

	2003	2002
Expenses of Bahamas office	$ 256,071	$ -
Personnel costs	166,360	223,780
Professional fees	93,347	99,937
Other	81,103	170,684
Taxes	49,700	-
Total	$ 646,581	$ 494,581

See Independent Auditors’ Report page 1 25

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

17. COMPARATIVE FIGURES

Certain 2002 figures have been reclassified to conform with the financial statement presentation adopted for 2003.

18. ECONOMIC SITUATION IN ARGENTINA

Argentina’s financial and economic situation deteriorated unrelentingly over the last few months of 2001. The crisis eventually affected Argentine institutions and caused numerous and successive changes at the highest levels of the Federal Executive, the declaration of default on public debt payments in such period, and the implementation of severe restrictions on the withdrawal of deposits from financial institutions. On January 6, 2002, the Argentine Congress enacted Public Emergency and Exchange System Reform Law No. 25,561 that introduced dramatic changes to the economic model implemented until that date and that amended the Convertibility Law (the currency board that pegged the Argentine peso at parity with the US dollar) enacted in March 1991.

The new law empowered the Federal Executive to implement, among other things, additional monetary, financial and exchange measures aimed at overcoming the economic crisis. Such law and the related administrative orders established, among other, the following measures: (a) the consolidation of the exchange market in a “free” market subject to certain restrictions, (b) the rescheduling of a number of deposits depending on their original currency and amount, (c) the switch into pesos of deposits denominated in US dollars with financial institutions, (d) the switch

into pesos of all private contracts, (e) the issuance of Federal Government bonds to compensate the financial institutions for certain switch into pesos events; and (f) the suspension for two years of the law on deposits unseizability. The current Argentine Government authorities devised a program that included important measures, such as lifting a significant number of the restrictions

on bank deposits, easing foreign exchange controls, and starting the process of monetary reconsolidation by redeeming quasi-currencies. On September 2, 2003, Law No. 25,820 extended until December 31, 2004, the Public Emergency declaration included in Law No. 25,561.

See Independent Auditors’ Report page 1 26

SUD BANK & TRUST COMPANY LIMITED

NOTES TO FINANCIAL STATEMENTS

December 31, 2003

(Expressed in United States Dollars)

18. ECONOMIC SITUATION IN ARGENTINA (Continued)

The Argentine Ministry of Economy has taken the first steps to restructure the government’s debt. It has presented the guidelines for the public debt restructuring and has signed a letter of intent with the International Monetary Fund. Government bonds to be restructured have been defined as eligible debt. This debt includes all government bonds issued prior to December 31, 2001. Government bonds issued subsequent to that date would be excluded from the eligible debt. The restructuring proposal presented by Argentina offers a wide variety of par, quasi-par and discount bonds to be exchanged for eligible debt. The new bonds have much longer terms, lower interest rates and face value cuts from 30% to 75%, depending on the option chosen. As of December 31, 2003, the holdings of Argentine government bonds amount to $3,109,945 and are carried at estimated value based on the most recent trading prices.

As of the date of issuance of these financial statements there are unresolved matters related to, among other things, the public debt restructuring, the final outcome of amparos (constitutional protection actions resulting in the immediate release of frozen deposits) and the possible compensation payable to banks as a result of such amparos, the reorganization and consolidation of the financial system, the renegotiation of rates and the outcome of the restructuring of the private sector debt. The Argentine government is still analyzing supplementary policies related to the above mentioned issues.