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BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Banco BMG:

Quarterly Update Executive Summary

· BMG has a conservative credit policy marked by a healthy paycheck-deductible loan portfolio (PDL) and significantly low delinquency rates ­ loan loss provision represented just 2.1% of the total credit portfolio in Q3'10 vs. peer average of approximately 6%. Credit risk is mitigated by the fact that public service employees in Brazil are generally employed for life, making the credit risk essentially government risk. Brazilian banks have availed themselves of strong economic activity and growing household expenditures in 2010. In Q3'10, credit activity grew by 5.6% q/q, reaching a 14.7% year-to-date growth. Meanwhile, PDL grew 6.7% q/q, marginally decelerating from previous quarters and topping 22.1% YTD growth. In Q3'10, BMG reported a US$ 4.5 bn loan portfolio, up 4.6% q/q, a US$ 8.9 bn balance of credit assignments, up 12.6% q/q, and US$667million in liquid assets. Despite the Panamericano collapse, BMG continues to assign credits regularly. The bank's credit portfolio is a liquidity cushion, as it remains ready to be assigned and monetized. Despite stronger competition, BMG has maintained its leadership position in the payroll deductible loan (PDL) segment, with an 18.4% market share as of September 2010. The bank's competitors include smaller niche players, large-cap private retail banks and public institutions. The bank has a diversified source of funding, being credit assignments the most relevant one. Since 2004, BMG has signed partnership agreements with several financial institutions, including Cetelem, Caixa Economica Federal, Banco Bradesco, Banco do Brasil, Itau e Santander, to sell parts of its loan portfolio and share the profit. As of September 30, 2010, total funding reached US$ 12.6 bn, out of which credits assignments were equivalent to 67%. Rated `Ba2' Negative / `BB-' Stable / `BB-' Stable (Moody's / S&P/Fitch).

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Financial Highlights

Banco BMG

Financial Highlights in US$ MM Total Assets Shareholder Equity Total Loan Portfolio* On-Balance Sheet Loans Deposits Net Income Credit Assignments / Total Portfolio Payroll-Deductible Loans (PDL) / Total Loan Portfolio Capitalization (Equity / Total Assets) BIS Capital Adequacy Ratio Loan Loss Provision as % of Total Loans Gross Margin From Financial Intermediation** ROAE * Includes credit assignments ** Includes income from credit assignments Q3'10 6,272 1,306 13,385 4,481 2,853 84 67% 89% 20.8% 15.7% 2.1% 70.2% 29.1% Q2'10 6,033 1,199 12,193 4,286 2,698 201 65% 89% 19.9% 13.9% 2.2% 69.4% 36.1%

Page 1 of 8 Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail: [email protected]

BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Introduction ­ Ownership, History and Key Milestones

Banco BMG is a core asset of a diversified group of companies owned by the Guimarães family. The Guimarães family has been operating in the Brazilian banking sector since 1930 when it established Banco de Crédito Predial (later renamed Banco de Minas Gerais). In addition to Banco BMG, the Guimarães family holds investments in the real estate, agricultural, services and food processing sectors, all under the BMG Group. The bank accounts for approximately 60% of the group's total equity. Up until the late `90s, vehicle financing was Banco BMG's primary business, accounting for approximately 78% of its total loan portfolio in 1996. However, in 1998 the bank decided to shift its focus in light of the following occurrences: 1) a decline in margins as a result of increased competition; 2) the financial crises in Russia and Asia, and; 3) the devaluation of the Brazilian real in 1998 and 1999. At that point, management moved away from commercial lending and developed a new, lower-risk strategy of lending to public service employees via the payroll-deductible mechanism. In April 2008, Banco BMG's shareholders approved a capital increase of R$600 million (US$340 million) through the issuance of common shares. The increase was funded by Banco UBS Pactual through a syndicated loan facility. In November 2009 Banco BMG raised US$ 300 million in 10-year tier 2 subordinated notes. The issue pays a 9.95% coupon. This operation had already been approved by the Central Bank and incorporated into the capital base in February 2010. Less than a year later, in August 2010, BMG raised an additional US$ 250 million in 10-year in tier 2 subordinated notes. Proceeds were mostly used to fund BMG's credit expansion and enhance the bank's capitalizations.

Services, Products, Markets and Strategy

Banco BMG is a privately-owned full-service retail bank with a 75-year history in Belo Horizonte. The bank's core activity is payroll-deductible lending (also known as consigned credit, or `crédito consignado'), although the bank also provides consumer loans, commercial loans, vehicle financing and leasing. Banco BMG entered the payroll-deductible lending segment in 1999 and has since achieved a leading market position. According to the Brazilian Central Bank, BMG's market share in public payroll-deductible loan was 18.4%in September 2010, up from 15.6% in February 2010. Not surprisingly, most of the bank's loan portfolio consists of medium-term loans to employees of municipal, state and federal government agencies, as well as loans to social security beneficiaries. Under federal statute, the bank can deduct loan payments owed by borrowers directly from their monthly salary / pension. Because public service employees in Brazil are employed for life by a government agency, BMG has had very low loan losses on these types of loans. BMG has benefited during the last decade from great expansion in the Brazilian payroll-deductible lending sector. Nevertheless, PDL growth rates in Brazil started to slow in 2008 due to: 1) increasing competition and; 2) declining margins not only as result of aggressive competition, but also as a result of decreasing interest rates in Brazil, the establishment of ceilings for interest rates charged to INSS retirees and higher costs as a result of increasing commissions paid to payroll-deductible loan originators (payroll-deductible loan originators are not bank employees, but rather work on a commission basis). Lehman's collapse, in September 2008, curbed these two trends temporarily, as several competitors exited the PDL segment and shifted their focus in 2009. As of today, however, competition remains a challenge and new entrants, including large-cap banks, continue to arise attracted by the asset quality and liquidity. In addition to paycheck-deductible loans, Banco BMG has launched new products and initiatives such as the BMG Credit Card, expanding the opportunities for paycheck-deductible loans. The BMG credit card is issued in association with MasterCard and has over 570,000 active accounts up to this date. It is an untapped

Page 2 of 8 Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail: [email protected]

BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

market with strong growth potential and low risk exposure since payments are deducted directly from paychecks. Due to high levels of non-performing loans as a percentage of total loans in the auto loan financing and in private PDL segments, Banco BMG has been focusing on public PDL, a segment in which they have great expertise. As of September 30 2010, Banco BMG's total credit portfolio is 89% exposed to government credit risk, which has a significantly lower NPL ratio than private PDL and vehicle financing.

Q3'10 - Profitability and Operating Results

In Q3'10, BMG's financial operations income totaled US$ 509 million and gross profit from financial intermediation topped US$ 370 million, down, respectively, 9% and 5% q-o-q. Net income totaled US$ 84 million in Q3'10 and US$ 280 million in the nine-month period ended in September 30, 2010. Results reflected a slightly more competitive environment - BMG reported 29.1% ROAE, down from 44.6% in Q2'10, and 38.2% NIM, down from 41.3% in the previous quarter. As displayed in the chart below, in the nine-month period ended in September 30, 2010, ROAE reached 32%, down from 36.1% during the first semester. We don't view this main deceleration as a major source of concern. Indeed, BMG continues to register one of the strongest margins among its peers and, thus, can confront higher funding costs better than its peers.

BMG - ROAE (%) - YTD Figures 40% 30% 20% 10% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 8.8% 18.7% 20.6% 26.1% 31.6% 36.1% 32.0%

BMG - NIM (%) 50% 40% 30% 20% 10% 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 34.8% 36.3% 25.7% 46.0% 41.3% 39.9% 38.2%

Credit assignment is within the nature of BMG's core business, as it provides adequate, long-term funding and bolsters asset growth. Moreover, a robust investor demand for low credit risk assets enables BMG to securitize and assign considerable amounts of assets recurrently. Throughout the nine-month period ended in September 30, 2010, the bank assigned US$ 6.0 bn in credits, out of which US$ 5.6 bn had partial recourse obligation. BMG controls its outstanding credit assignments through custom-made IT systems that enable it to closely follow the individual performance of the assigned portfolios and loans, making it virtually impossible to misrepresent results or outstanding balances. Additionally, BMG hired PwC to perform an independent assurance report designed to validate the adequacy and trustworthiness of its credit assignment controls,. The most recent report ­ published on December/2010 ­ confirmed the bank's compliance, in all material respects, with its internal control guide and reporting criteria.

Page 3 of 8 Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail: [email protected]

BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Central Bank's New Macroprudential Measures

In December 2010, the Brazilian Central Bank announced tighter reserve and capital requirement measures, specifically designed to curb credit expansion - especially in the consumer lending segment - and help tether inflation. The main changes include: (a) compulsory deposits requirements for large-cap banks were increased, directly reducing the system's liquidity. Among the main differences, we highlight the increase in additional reserve requirements on demand and time deposits, from 8% to 12%, and the hike in reserve requirements on time deposits, from 15% to 20%; (b) letras financeiras, a domestic funding source for banks, are now exempt from any reserve requirements. With this change, the Central Bank hopes to stimulate the issuance of long-term letras financeiras vis-à-vis time deposits; (c) the risk weighting factor of long-term personal loans was increased from 100% to 150%. This change will only affect personal loans with maturities above 24 months, pay-check deductible loans longer than 36 months and specific vehicle financing facilities. Moreover, this new risk factor will be applied solely to new loans and, thus, has no immediate impact in bank current capital structures. But it should push credit concession downwards; (d) Beginning January 2012, FGC guaranteed deposits, also known as DPGE, will be gradually cut at a 20% annual rate until 2016, when it will be finally zeroed-out. Brazilian authorities expect these measures to remove R$ 61 bn from the economy and, consequently, force local banks to revise their growth projections downwards. Despite its successful business model, Banco BMG was not immune to these new developments. The macroprudential measures, however, bring long-term positive developments. Because regulation is now more conservative, it will both help prevent over-leveraging and support long-term growth, and it will discourage competition from new entrants or smaller players. Competitors forced to comply with more conservative capital requirements might shift their production to other niches, benefiting BMG that has a consolidated market position and adequate capital structure.

Assets and Asset Quality

Banco BMG's total assets as of September 30, 2010 totaled US$6.3 billion, up 4.0% from US$6.0 billion as of June 30, 2010. BMG's assets can be broken down as follows:

Assets Breakdown as of September 30, 2010 Total Assets - US$ 6.3 bn

Other Assets, $ 270, 4% Other Rec., $ 697, 11% Permanent Assets, $ 39, 1% Cash, Interbank Accounts and Short-Term Interbank Investments, $ 613, 10% Marketable Securities, $ 457, 7%

Credit and Leasing Operations, $ 4,197, 67%

Including credit assignments, the bank's total loan portfolio as of September 30, 2010 amounted to US$13.4 billion, up from US$12.2 billion as of June 30, 2010, divided as follows: payroll deductible, US$11.9 billion, vehicle financing and leasing, US$433 million, commercial loans, US$ 1.0 billion and US$ 2.2 million in other loans to individuals. Overall, paycheck deductible loans represented 89% of BMG's total loan portfolio, stable from the previous quarter. Out of the total loan portfolio, 33% of loans were on the balance sheet, in line with the previous quarter. Despite the growth in credit activities, BMG's liquid assets balance remained stable, compared to the previous quarter, totaling US$ 667 million.

Page 4 of 8 Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail: [email protected]

BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Total Credit Portfolio as of September 30, 2010 Total Loan Portfolio - US$ 13.4 bn

Commercial Loans, $ 1,012, 8% Personal Credit, $ 2, 0%

Vehicle Financing and Leasing, $ 433, 3% Private Payroll Deductible, $ 73, 1%

Social Security Payroll Deductible, $ 6,449, 48%

Public Payroll Deductible, $ 5,415, 40%

Total Credit Portfolio

On-Balance Sheet Loans and Off-Balance Sheet Loans - in US$ million

14,000

Off-Balance Sheet Loans On-Balance Sheet Loans

12,000

10,000 8,903 US$ Millions 8,000 6,988 6,000 4,669 4,000 2,969 2,000 808 892 2004 2005 2006 2007 2008

Year

7,907 7,293

4,195 2,815 3,761 966 1,511 2,368 1,838 2009 1Q10 2Q10 3Q10 4,482

4,053

4,286

The bank's loan loss provision as a percentage of the total loan portfolio (including credit assignments) totaled 2.1% in Q3'10, after peaking at 3.1% in Q2'09. Average provision is well below the industry average of 6%. The increase in overall NPLs throughout 2009 has been attributable to the auto loan and private loan divisions, which are displayed in the second graph below. As a result of the high levels of non-performing loans as a percentage of the total credit portfolio, Banco BMG is started to reduce its activities in auto and personal loan, increasing its payroll deductible balance. As a result of this strategy, 2010 financials reflect a marginal reduction in the NPL Loan / Total Credit Portfolio ratio compared to the previous quarters.

Non-Performing Loans / Total Credit Portfolio*

4.0%

3.5%

3.4%

3.0%

2.5%

2.5%

2.3% 2.0% 1.7% 1.3% 1.4%

2.4% 2.1% 2.1% 2.1%

2.0%

1.5%

1.0%

0.5%

0.0% 2002 2003 2004 2005 2006 2007 2008 2009 1Q10 2Q10 3Q10

*Includes credit assignments

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BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Non Performing Loans by Product (E-H)

Non Performing as % of Total Credit Portfolio

16%

15.5%

14%

12%

10.0%

10%

8%

6.0%

6%

4%

2%

1.70% 0.40%

0% Social Security Government Private Vehicles Commercial

The following graph presents BMG's credit risk exposure as of September 30, 2010. Essentially, 89% of the bank's total credit portfolio is exposed to government credit risk.

Credit Risk Exposure

Vehicles and Leasing 3%

Private Companies 8%

Social Security 49%

Public (State / Federal / Municipal) 40%

Funding and Liquidity

Since 2004, credit assignments (loans assignments and securitizations) have become particularly important to Banco BMG's funding structure. Under such agreements, small and medium-sized banks sell a portion of their loan portfolio to larger financial institutions in exchange for cash payments. Banco BMG currently has loan assignment agreements with Cetelem, Banco do Brasil, Caixa Economica Federal, Santander, Bradesco and Itau. In the three-month period ended in September 30, 2010, credits amounting to US$2.3 billion (versus US$2.1 billion in 2Q'10) were assigned to financial institutions and receivables securitization funds, out of which US$ 2.2 billion were assigned with co-obligation (versus US$1.8 billion in 2Q'10). The results of these assignments were recorded in the line "Income from financial intermediation ­ credit operations" and amounted to US$ 293 million in 3Q'10 (versus US$ 292 million in 1Q'10). The contracts for the assigned credits substantially refer to personal consigned credits. BMG's total funding balance as of September 30, 2010 amounted to US$12.6 billion, distributed as follows: total deposits, US$2.8 billion; term notes, US$497million; credit assignments to financial institutions US$ 8.5 billion; subordinated debt, US$ 550 million; credit assignment to receivables fund, US$ 226 million; and other sources, US$122 million.

Page 6 of 8 Tel: +1 (203) 629- 2181; + 55 (21)2227 4160 ; E-mail: [email protected]

BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Funding as of September 30, 2010 - in US$ million Total Funding - US$ 12.7 billion

Other Sources, R$ 122, 1% FIDCs, R$ 226, 2% Deposits, R$ 2,768, 22%

Term Notes, R$ 497, 4% Subordinated Debt, R$ 550, 4%

Credit Assignmet, R$ 8,483, 67%

Financial Highlights

Income Statement (US$ Millions)

Q3'10 Sept-10 Income from Financial Intermediation Expenses of Financial Intermediation Gross Profit from Financial Intermediation Other Operating Income (Expenses) Operating Income Income Before Taxes and Profit Sharing Net Income Before Minority Interest Net Income for Period 509 (139) 370 (222) 148 148 86 84 Q2'10 June-10 559 (171) 388 (213) 176 175 112 112 Q3'09 Sep-09 402 (64) 338 (220) 118 118 69 69 % Change yoy 27% 116% 9% 1% 25% 26% 25% 22%

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BCP Securities, LLC 289 Greenwich Ave. Greenwich, CT 06830 Balance Statement (US$ Millions)

January 19, 2011 James Harper, Director of Corporate Research Jansen Moura, Brazilian Corporate Research

Sep-10 Current Assets Cash Short-Term Interbank Investments Marketable Securities Interbank Accounts Credit Operations Leasing Operations Other Short-Term Receivables Other Short-Term Assets Total Current Assets Long-Term Assets Marketable Securities Short-term Interbank Investments Credit Operations Leasing Operations Other Long-Term Receivables Other Assets Permanent Assets Total Long-Term Assets Total Assets Current Liabilities Deposits Repurchase Agreements Funds from Issues of Securities Interbank Accounts Borrowings and Onlendings Other Current Liabilities Total Current Liabilities Long-Term Liabilities Deposits Funds from Issues of Securities Borrowings and Onlendings Other Liabilities Total Long-Term Liabilities Minority Interest Shareholders' Equity Total Liabilities and Shareholders' Equity 40 538 70 19 1,905 39 355 187 3,153

Jun-10 39 617 92 12 1,753 42 298 173 3,026

Sep-09 32 538 57 5 1,406 47 309 189 2,584

386 16 2,219 34 342 83 39 3,119 6,272

346 2,185 41 325 72 38 3,006 6,033

382 1 1,777 56 305 71 42 2,633 5,217

1,419 11 223 13 40 784 2,490

1,069 55 222 10 41 1,019 2,416

1,018 46 385 1 33 752 2,237

1,434 308 65 668 2,475 1,306 6,272

1,629 301 72 416 2,418 1,199 6,033

1,117 504 57 154 1,833 1,148 5,217

This document is for information purposes only. Under no circumstances should this document be used or considered as an offer to sell or a solicitation to buy the securities or other instruments mentioned in it. The information in this document has been obtained from sources believed reliable, but BCP Securities LLC makes no representations concerning the truth or accuracy of the content or substance of this report, or of the future market value of any securities, notes, or private claims mentioned within. Opinions expressed herein constitute our opinion as of the date published and are subject to change without notice, and BCP Securities LLC makes no representations that it will endeavor to update its analysis upon any change of circumstances. All views expressed accurately reflect the research analyst's personal views about the subject, securities and/or issuers and no part of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst. The products mentioned in this document may not be eligible for sale in some states or countries. BCP Securities LLC, its affiliated companies, and/or its officers, directors, or shareholders, may from time to time have long or short positions in the financial instruments of the company mentioned in this document, or may serve in an advisory capacity with respect to such instruments. @2010 BCP Securities LLC

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