Banco Macro SA — Audit Report / Information 2005

May 5, 2006

Audited CONSOLIDATED Financial Statements

sud BANK & trust COMPANY LIMItEd

DECEMBER 31, 2005

SUD BANK & TRUST COMPANY LIMITED

Audited CONSOLIDATED Financial Statements

December 31, 2005

Contents

Page

Independent Auditors’ Report 1

Audited CONSOLIDATED Financial Statements

Consolidated Balance Sheet 2

Consolidated Statement of Income and Deficit 4

Consolidated Statement of Cash Flows 6

Notes to Consolidated Financial Statements 8

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholder of

SUD BANK & TRUST COMPANY LIMITED

We have audited the accompanying consolidated balance sheet of Sud Bank & Trust Company Limited (the Bank) as of December 31, 2005 and the related consolidated statements of income and deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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 provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Bank as of December 31, 2005, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

April 5, 2006

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED BALANCE SHEET

(Expressed in United States Dollars)

	December 31
	2005	2004
Assets
Cash and due from banks – demand and call deposits (note 3)	$ 33,712,231	$ 121,155,175
Due from parent bank
Operating accounts	14,657	33,746
Loans	555,000	555,000
Accrued interest receivable	2,895	1,511
Overdrafts	1,665	-
Loans	36,951,137	5,178,031
Investments (note 8)	9,622,737	826,778
Accrued interest receivable	228,594	127,038
Other assets	2,295,335	290,293
Receivable under open forward contracts (note 9)	19,959,161	28,701,698
Real estate investment trust	10,666,667	-
Investment property	1,867,211	2,647,539
Investment in non-consolidated subsidiary	4,534	4,534
Total assets	$ 115,881,824	$ 159,521,343

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED BALANCE SHEET (Continued)

(Expressed in United States Dollars)

	December 31
	2005	2004
LIABILITIES AND SHAREHOLDER’S EQUITY
Liabilities
Deposits (note 5)
Banks	$ 716,661	$ 716,661
Customers	52,540,537	97,487,392
Securities borrowed	8,634,588	-
Accrued interest payable	265,596	402,671
Payable under open forward contracts (note 9)	-	10,227,319
Forward sales of government securities under open forward contracts (note 9)	18,729,989	19,796,125
Other accounts payable	435,621	119,666
Total liabilities	81,322,992	128,749,834
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
Statutory loan loss reserve	371,798	51,780
Deficit	(6,342,966)	(9,810,271)
Total shareholder’s equity	34,558,832	30,771,509
Total liabilities and shareholder’s equity	$ 115,881,824	$ 159,521,343

COMMITMENTS (note 9)

Approved By The Board:

	Director		Director

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED Statement of income AND DEFICIT

(Expressed in United States Dollars)

	Year ended December 31
	2005	2004
INCOME
Interest on bank deposits, loans and overdrafts	$ 3,519,812	$ 2,930,845
Interest expense	(2,575,058)	(1,847,135)
Net interest income	944,754	1,083,710
Other income (note 14)	1,453,098	127,492
Exchange income	469,686	135,795
Services fees	205,750	44,575
Income on forward contracts	-	200,416
Total other income	2,128,534	508,278
	3,073,288	1,591,988
EXPENSES
Administration and general expenses (note 15)	1,067,436	737,686
Other expense (note 16)	408,986	-
Commissions	145,441	39,520
Loss on forward contracts	109,316	-
Services charges	33,448	51,133
Depreciation	27,866	24,743
Equity in losses of subsidiary	-	13
Total expenses	1,792,493	853,095

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED Statement of income AND DEFICIT (Continued)

(Expressed in United States Dollars)

	Year ended December 31
	2005	2004
Net operating income	1,280,795	738,893
Net income (loss) on investments (note 17)	2,504,414	(2,108,613)
Translation income (loss) on result of subsidiary	12,372	(358)
Net income (loss) before tax	3,797,581	(1,370,078)
Income tax	(10,258)	(8,970)
NET INCOME (LOSS)	3,787,323	(1,379,048)
Deficit at the beginning of year	(9,810,271)	(8,379,443)
	(6,022,948)	(9,758,491)
Transfer to statutory loan loss reserve	(320,018)	(51,780)
Deficit at end of year	$ (6,342,966)	$ (9,810,271)

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED Statement of CASH FLOWS

(Expressed in United States Dollars)

	Year ended December 31
	2005	2004
Cash and cash equivalents provided by (used in):
operating activities
Net income (loss) for the year	$ 3,787,323	$ (1,379,048)
Adjustment for items not involving cash:
Depreciation	27,866	24,743
Loss on forward contracts	144,157	305,434
Other income	(1,138,098)	(73,600)
Loss (income) on investments	(1,759,487)	800,882
Equity in losses of subsidiary	-	13
Changes in operating assets and liabilities:
Accrued interest receivable	(101,556)	(138,774)
Accrued interest payable	(137,075)	259,831
Other assets	(2,024,862)	(134,827)
Other accounts payable	315,955	(14,872)
Net cash used in operating activities	(885,777)	(350,218)
INVESTING ACTIVITIES
Purchase of equipment	(8,046)	(48,906)
Sale of equipment	-	7,310
Sale of investment property	1,918,426.	773,600
Purchase of current investments	(7,036,472)	-
Sale of current investments	-	1,538,824
Net increase in real estate investment trust	(10,666,667)	-
Net increase in overdrafts	(1,665)	-
Net increase in loans	(31,773,106)	(2,660,000)
Net decrease (increase) in due from parent bank	17,705	(24,837)
Net decrease (increase) in receivable under open forward contracts	8,742,537	(23,912,587)
Net cash used in investing activities	$ (38,807,288)	$ (24,326,596)

SUD BANK & TRUST COMPANY LIMITED

CONSOLIDATED Statement of CASH FLOWS (Continued)

(Expressed in United States Dollars)

	Year ended December 31
	2005	2004
FINANCING ACTIVITIES
Net (decrease) increase in deposits	$ (44,946,855)	$ 65,117,842
Net increase in securities borrowed	8,634,588	-
Net increase (decrease) in payable under open forward contracts	(11,437,612)	23,526,122
Net cash (used in) provided by financing activities	(47,749,879)	88,643,964
Net (decrease) increase in cash and cash equivalents	(87,442,944)	63,967,150
Cash and cash equivalents at beginning of year	121,155,175	57,188,025
Cash and cash equivalents at end of year	$ 33,712,231	$ 121,155,175

Supplemental cash flow information:
Interest received	$ 3,418,256	$ 2,803,518
Interest paid	$ 2,712,133	$ 1,587,304

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(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 and its consolidated subsidiary had 13 (2004: 13) 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.

The consolidated financial statements of the Bank were authorized for issue by the Board of Directors on April 5, 2006.

2. SUMMARY OF Significant Accounting Policies

Statement of compliance

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards.

Basis of accounting

The consolidated financial statements are expressed in United States (U.S.) dollars. The preparation of consolidated 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. The consolidated financial statements are prepared under the historical cost convention, except for investments, forward contracts, real estate investment trust and securities borrowed which are measured at fair value.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

2. SUMMARY OF Significant Accounting Policies (Continued)

Basis of consolidation

The consolidated financial statements comprise the financial statements of Sud Bank & Trust Company Limited and it subsidiary Sud Asesores (R.O.U.) S.A. (a Uruguayan company) as at December 31 each year. The financial statements of the subsidiary are prepared for the same reporting fiscal year as the parent company, using consistent accounting policies. All intercompany balances, transactions, profit and losses resulting from intercompany transactions are eliminated in full.

Revenue recognition

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

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 consolidated 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.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

2. SUMMARY OF Significant Accounting Policies (Continued)

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.

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

Investment in non-consolidated subsidiary

The investment in Sud Asesores SAFI (a non-consolidated Uruguayan subsidiary) is accounted for based on the equity method of accounting.

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, 2005 (2004 - nil).

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

2. SUMMARY OF Significant Accounting Policies (Continued)

Real estate investment trust

Real estate investment trust represents the fair value of its participation in a real estate investment trust developed in Argentina (TST & AF Fideicomiso Financiero).

Securities borrowed

Securities borrowed correspond to security’s deposits which are carried at estimated market value as reported by stock exchanges based on the most recent trades.

Foreign currency translation

Monetary assets and liabilities in foreign currencies are translated into U.S. dollars using year-end exchange rates. Consolidated 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 consolidated statement of income for the year.

Statutory loan loss reserve

This amount represents a general provision that is required to meet the Bank’s statutory requirements. Changes to this amount are reflected as appropriations (or increases) of retained earnings.

Assets under administration

Assets under administration have not been included in these consolidated financial statements. Total assets under administration as at December 31, 2005 approximated $57.5 million (2004: $3.8 million). The amount of $46.4 million (2004: $.2 million) correspond to shares of Banco Macro Bansud (Argentina) held on behalf of clients of the Bank.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(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. In connection with the subsidiary, tax liabilities for the current and prior periods are measured at the amount expected to be paid to the taxation authorities. Tax rates and tax laws used to compute the amounts are those that are enacted at the balance sheet date.

Adoption of IFRSs during the year

The Bank has adopted the following revised standards during the year and comparative figures have been amended as required. Adoption of revised standards does not have any effect on equity as at January 1, 2004.

• IAS 1 Presentation of Financial Statements (excluding amendments effective for period beginning on or after January 1, 2007);
• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
• IAS 10 Events after the Balance Sheet Date;
• IAS 16 Property, Plant and Equipment
• IAS 24 Related Party Disclosures;
• IAS 27 Consolidated and Separate Financial Statements;
• IAS 32 Financial Instruments: Disclosure and Presentation;
• IAS 36 Impairment of Assets; and
• IAS 39 Financial Instruments: Recognition and Measurement

Early adoption

The Bank did not early adopt any new standards during the year.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

2. SUMMARY OF Significant Accounting Policies (Continued)

Adoption of IFRSs during the year (continued)

IFRSs and IFRIC Interpretations not yet effective

The Bank has not applied the following IFRSs and IFRIC Interpretations that have been issued but are not yet effective:

IFRS 6 Exploration for and Evaluation of Mineral Resources

This Standard does not apply to the activities of the Bank.

IFRS 7 Financial Instruments: DisclosuresThis Standard is required to be applied for annual periods beginning on or after January 1, 2007, and as a result, certain amounts and disclosures related to a portion of the Bank’s financial instruments may be changed.

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

This Interpretation is required to be applied for annual periods beginning on or after January 1, 2006, but is not expected to be relevant for activities of the Bank.

IFRIC 6 Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment

This Interpretation is required to be applied for annual periods beginning on or after December 1, 2005, but is not expected to be relevant for activities of the Bank.

IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies

This Interpretation is required to be applied for annual periods beginning on or after March 1, 2006, but is not expected to be relevant for activities of the Bank.

IFRIC 8 Scope of IFR 2

This Interpretation is required to be applied for annual periods beginning on or after May 1, 2006, but is not expected to be relevant for activities of the Bank.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

3. CASH AND DUE FROM BANKS

Cash and due from banks comprise the following:

		2005	2004
Cash		$ 34,364	$ 16,919
Due from banks
American Express N.Y		11,233,583	18,382,808
USB International		10,016,343	-
Standard Chartered Bank N.Y.		8,755,153	96,407,215
Morgan Guaranty Brussels Euroclear		1,958,195	5,781,771
Pershing LLC		1,465,825	5,000
Standard Chartered Bank London		98,004	468,086
Bank Boston - Uruguay		69,802	994
EFG Capital		62,980	-
Nuevo Banco Comercial - Uruguay		15,224	30,456
Macro Securities S.A. Soc. de Bolsa (former Sud Valores S.A. Sociedad de Bolsa)		2,344	10,682
The Winterbotham Merchant Bank		199	3,968
Wachovia Securities		195	47,271
Bulltick LLC		20	5
		$ 33,712,231	$ 121,155,175

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

4. PARENT COMPANY AND AFFILIATES

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

	2005	2004
ASSETS
Cash and due from banks – demand and call deposits	$ 2,344	$ 10,682
Due from parent bank
Operating accounts	14,657	33,746
Loans	555,000	555,000
Accrued interest receivable	2,895	1,511
	$ 574,896	$ 600,939
LIABILITIES
Deposits	$ 938,906	$ 939,006
Securities borrowed	8,634,588	-
Accrued interest payable	2,957	-
	$ 9,576,451	$ 939,006

The Bank has investments in custody by Parent Bank and companies controlled by it for an amount of $1,592,582 at December 31, 2005 (2004: $20,650).

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

	2005	2004
Interest on bank deposits, loans and overdrafts	$ 685,906	$ 1,828,605
Interest expense	(49,342)	(7,465)
Services fees	100	4,400
Services charges	(12,677)	-
	$ 623,987	$ 1,825,540

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

5. DEPOSITS

Deposits comprise the following:

	2005		2004
	Banks	Customers	Banks	Customers
Demand	$ 716,661	$ 4,876,459	$ 716,661	$ 17,574,895
Time	-	47,664,078	-	79,912,497
	$ 716,661	$ 52,540,537	$ 716,661	$ 97,487,392

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, 2005:

	Due on demand	Less than 3 months	3 to 12months	More than 12 months	Total
MONETARY ASSETS
Cash and due from banks	$ 33,712,231	$ -	$ -	$ -	$ 33,712,231
Due from parent bank
Operating accounts	14,657	-	-	-	14,657
Loans	-	-	555,000	-	555,000
Overdrafts	1,665	-	-	-	1,665
Loans	-	28,236,670	2,328,031	6,386,436	36,951,137
Forward contracts	-	19,028,661	-	930,500	19,959,161
MONETARY LIABILITIES
Due to banks	716,661	-	-	-	716,661
Due to customers	4,876,459	43,219,916	4,444,162	-	52,540,537
Securities borrowed	-	8,634,588	-	-	8,634,588
Forward contracts	-	17,269,174	-	1,460,815	18,729,989

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

6. MATURITIES OF ASSETS AND LIABILITIES (Continued)

December 31, 2004:

	Due on demand	Less than 3 months	3 to 12months	More than 12 months	Total
MONETARY ASSETS
Cash and due from banks	$ 121,155,175	$ -	$ -	$ -	$ 121,155,175
Due from parent bank
Operating accounts	33,746	-	-	-	33,746
Loans	-	-	-	555,000	555,000
Loans	-	-	-	5,178,031	5,178,031
Forward contracts	-	27,771,198	-	930,500	28,701,698
MONETARY LIABILITIES
Due to banks	716,661	-	-	-	716,661
Due to customers	17,574,895	72,859,610	7,052,887	-	97,487,392
Forward contracts	-	28,446,432	-	1,577,012	30,023,444

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(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, 2005:

	United States of America	Argentina	Bahamas	Other	Total
MONETARY
ASSETS
Cash and due from banks	$ 31,534,298	$ 26,030	$ 10,510	$ 2,141,393	$ 33,712,231
Due from parent bank
Operating accounts	-	14,657	-	-	14,657
Loans	-	555,000	-	-	555,000
Overdrafts	-	1,665	-	-	1,665
Loans	23,031,670	6,089,467	-	7,830,000	36,951,137
Forward contracts	19,028,661	930,500	-	-	19,959,161
MONETARY LIABILITIES
Due to banks	-	716,661	-	-	716,661
Due to customers	129,520	48,255,887	-	4,155,130	52,540,537
Securities borrowed	-	8,634,588	-	-	8,634,588
Forward contracts	17,269,174	1,460,815	-	-	18,729,989

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

7. CONCENTRATIONS OF ASSETS AND LIABILITIES (Continued)

December 31, 2004:

	United States of America	Argentina	Bahamas	Other	Total
MONETARY
ASSETS
Cash and due from banks	$ 114,846,267	$ 15,558	$ 11,996	$ 6,281,354	$ 121,155,175
Due from parent bank
Operating accounts	-	33,746	-	-	33,746
Loans	-	555,000	-	-	555,000
Loans	-	2,328,031	-	2,850,000	5,178,031
Forward contracts	-	6,243,567	-	22,458,131	28,701,698
MONETARY LIABILITIES
Due to banks	-	716,661	-	-	716,661
Due to customers	4,477,238	88,472,559	45,600	4,491,995	97,487,392
Forward contracts	-	6,577,012	-	23,446,432	30,023,444

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

8. INVESTMENTS

Investments comprise the following:

	2005	2004
Government bonds	$ 2,639,031	$ 815,039
Corporate securities	6,983,706	-
Other	-	11,739
	$ 9,622,737	$ 826,778

The Government bonds represent:

	Nominal Value	Market Value
“Bonos del Gobierno Argentino US$ Libor 2012”	$ 1,447,500	$ 1,136,233
“Bocon Provisional Argentine $3ª. Serie”	1,112	656
“Bonos Garantizados Dec. 1579”	7,563	3,506
“Treasury Bills vto. 26/02/07”	1,500,000	1,498,636
		$ 2,639,031

The Corporate securities represent:

	Nominal Value	Market Value
“JP Morgan vto. 15/08/06”	$ 300,000	$ 307,756
“Disney vto. 30/03/06”	300,000	306,660
“Nactional Rural Utils Coop. Fin. vto. 15/05/06”	300,000	303,870
“GTE Corp. Notes vto. 08/09/06”	300,000	305,310
“Lehman Brothers vto. 15/05/06”	688,000	696,863
“Amex”	1,500,000	1,528,947
“Wallmart vto. 01/08/06”	825,000	818,524
“Telefónica C11 vto. 11/01/06”	380,000	424,255
“Fondo Pionero Global” (quantity 4,623,167)		1,588,414
Other		703,107
		$ 6,983,706

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

1. COMmitments

Derivative financial instruments

Forward contracts are contracts to purchase and to sell securities and currencies 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).

The contract amounts of open forward contracts were as follows:

December 31, 2005:

Commitments under forward contracts	Assets	Liabilities
Commitments to sell	$ 119,959,161	$ 18,729,989

December 31, 2004:

Commitments under forward contracts	Assets	Liabilities
Commitments to purchase	$ 10,313,067	$ 10,227,319
Commitments to sell	18,388,631	19,796,125
	$ 28,701,698	$ 30,023,444

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 non-performance. The credit risk is limited to the amounts with a positive value reflected in the Bank’s consolidated balance sheet.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

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, liquidity, interest rate, market and foreign currency risk. The Board reviews and agrees policies managing each of these risks and they are summarized below.

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.

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, 2005 in relation to each class of recognized financial assets other than derivatives, is the carrying amount of those assets as indicated in the consolidated balance sheet.

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

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

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.

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 for the U.S. dollar at December 31, 2005.

Market risk

Market risk is the risk that significant fluctuations will occur in the market value of investments due to changes in market prices, currency rates and other market factors. Market risk embodies not only the potential for loss but also the potential for gain. Market risk is primarily concentrated in investments. This risk is managed by the treasury department of the Parent.

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.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

The currency exposure is stated below in U.S. dollars:

December 31, 2005:

	United States Dollars	Argentina Pesos	Euros	Uruguay Pesos	Total
Assets
Cash and due from banks	$ 33,693,628	$ -	$ 15,713	$ 2,890	$ 33,712,231
Due from parent bank
Operating accounts	13,256	1,401	-	-	14,657
Loans	555,000	-	-	-	555,000
Accrued interest receivable	2,895	-	-	-	2,895
Overdrafts	1,665	-	-	-	1,665
Loans	36,951,137	-	-	-	36,951,137
Investments	9,622,737	-	-	-	9,622,737
Accrued interest receivable	228,594	-	-	-	228,594
Other assets	2,292,956	-	-	2,379	2,295,335
Receivable under open forward contracts	19,959,161	-	-	-	19,959,161
Real estate investment trust	10,666,667	-	-	-	10,666,667
Investment property	1,867,211	-	-	-	1,867,211
Investment in non- consolidated subsidiary	4,534	-	-	-	4,534
Total assets	$ 115,859,441	$ 1,401	$ 15,713	$ 5,269	$ 115,881,824
Liabilities
Deposits
Banks	$ 716,661	$ -	$ -	$ -	$ 716,661
Customers	52,517,230	17,106	6,201	-	52,540,537
Securities borrowed	8,634,588	-	-	-	8,634,588
Accrued interest payable	265,596	-	-	-	265,596
Forward contracts	18,729,989	-	-	-	18,729,989
Other account payable	414,139	-	-	21,482	435,621
Total liabilities	$ 81,278,203	$ 17,106	$ 6,201	$ 21,482	$ 81,322,992

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

11. FINANCIAL RISK MANAGEMENT (Continued)

December 31, 2004:

	United States Dollars	Argentina Pesos	Euros	Uruguay Pesos	Total
Assets
Cash and due from banks	$ 121,132,811	$ 3,447	$ 17,591	$ 1,326	$ 121,155,175
Due from parent bank
Operating accounts	8,673	25,073	-	-	33,746
Loans	555,000	-	-	-	555,000
Accrued interest receivable	1,511	-	-	-	1,511
Loans	5,178,031	-	-	-	5,178,031
Investments	826,778	-	-	-	826,778
Accrued interest receivable	127,038	-	-	-	127,038
Other assets	279,431	-	-	10,862	290,293
Receivable under open forward contracts	28,701,698	-	-	-	28,701,698
Investment property	2,647,539	-	-	-	2,647,539
Investment in non- consolidated subsidiary	4,534	-	-	-	4,534
Total assets	$ 159,463,044	$ 28,520	$ 17,591	$ 12,188	$ 159,521,343

Liabilities
Deposits
Banks	$ 716,661	$ -	$ -	$ -	$ 716,661
Customers	97,471,660	8,400	7,332	-	97,487,392
Accrued interest payable	402,671	-	-	-	402,671
Payable under open forward contracts	10,227,319	-	-	-	10,227,319
Forward sales of government securities under open forward contracts	19,796,125	-	-	-	19,796,125
Other accounts payable	103,092	-	-	16,574	119,666
Total liabilities	$ 128,717,528	$ 8,400	$ 7,332	$ 16,574	$ 128,749,834

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

12. INTEREST RATE EXPOSURE

The Bank’s exposure to interest rates for significant interest-bearing monetary assets and liabilities for the U.S. dollar is as follows:

	2005	2004
Assets
Due from banks	4.0625% - 4.25%	1.906% - 2.015%
Loans	4.01% - 10%	2.58% - 10%
Liabilities
Due to customers	2.25% - 5%	1.25% - 5%
Securities borrowed	2.5%	-

13. IRREVOCABLE ADVANCES FOR FUTURE CAPITALIZATION

On January 25, 2002 and April 25, 2002, the Parent 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 consolidated balance sheet.

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

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

14. OTHER INCOME

Other income comprises the following:

	2005	2004
Income on investment property sale	$ 1,138,098	$ 73,600
Income on option sale	315,000	29,000
Income on acquisition of loans	-	21,439
Other	-	3,453
Total	$ 1,453,098	$ 127,492

15. ADMINISTRATION AND GENERAL EXPENSES

Administration and general expenses comprise the following:

	2005	2004
Expenses of Bahamas office	$ 340,103	$ 317,670
Personnel costs	358,779	185,906
Professional fees	221,718	106,351
Other	118,276	85,592
Taxes	28,560	42,167
Total	$ 1,067,436	$ 737,686

16. OTHER EXPENSE

During the year ended December 31, 2005, the Bank registered a loss of $398,258 corresponding to net assets maintained with a financial institution that entered into bankruptcy.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

17. NET INCOME (LOSS) ON INVESTMENTS

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

18. GUARANTEES RECEIVED

The Bank has received the following guarantees for the loans granted:

	2005	2004
Mortgage guaranty	$ 2,850,000	$ 2,850,000
Other	5,146,436	-
Total	$ 7,996,436	$ 2,850,000

19. ECONOMIC SITUATION IN ARGENTINA

The Argentine economic and financial situation worsened in late 2001, when the Argentine government suspended payments on the sovereign debt and imposed severe restrictions on cash withdrawals from financial institutions.

In early 2002, the Argentine Congress enacted Public Emergency and Foreign Exchange System Reform Law No. 25,561 (the effective term of which was extended through December 31, 2006). This law introduced significant changes to the economic model implemented until that date and amended the Convertibility Law (the currency board that pegged the Argentine peso at parity with the US dollar) effective since March 1991. After a period of an official foreign exchange market, a single foreign exchange market was established, subject to Central Bank of Argentina requirements and regulations. Such law and subsequent presidential decrees established, among others, measures that affected the financial system, primarily related to the conversion into pesos of its assets and liabilities in foreign currency at different exchange rates and the related compensatory measures.

SUD BANK & TRUST COMPANY LIMITED

notes to CONSOLIDATED financial statements

December 31, 2005

(Expressed in United States Dollars)

19. ECONOMIC SITUATION IN ARGENTINA (Continued)

The then-current government administration launched a program that included important measures such as the lifting of the restrictions on bank deposits, the relaxing of foreign-exchange controls and the monetary reunification by redeeming quasi-currencies. In addition, during 2005, the government debt restructuring process was completed and the Argentine Government settled its debt to the International Monetary Fund. Also, the economic and financial variables showed evolution and the financial system is undergoing a financial consolidation process.

As of the date of issuance of these financial statements, there are still some issues pending resolution, primarily related to the final outcome of constitutional rights protection actions derived from the reimbursement of deposits in their original currency.

20. COMPARATIVE FIGURES

Certain 2004 amounts have been reclassified to conform with the consolidated financial statement presentation adopted for 2005.