EspÍrIto santo FInancIal Group s.a. - CMVM

Interim Report 2009

EspÍrIto santo FInancIal Group s.a.

Espírito Santo Financial Group S.A.Interim Report 2009

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1. Espírito Santo Financial Group S.A. (‘ESFG’)

2. Group overview

3. Financial highlights

4. Economic report

5. Commercial banking

6. Insurance

7. Investment banking and stockbrokerage

8. Asset management and private banking

9. Healthcare

10. Important participations in the capital of ESFG

11. Directors and officers

12. Annex

13. Statement of the Board of Directors

14. Interim Financial Statements and Interim Consolidated Financial Statements

ESPÍRITO SANTO FINANCIAL GROUP S.A.Société Anonyme

231 Val des Bons Malades, L-2121 Luxembourg – KirchbergIssued Capital: EUR 778 549 160RCS Luxembourg B-22.232

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Espírito santo Financial Group s.a.Interim report 2009

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On 26 May 2009, ESFG announced the launch of EUR 150 million ESFIL – Espírito Santo Financière S.A. senior 2-year notes. The transaction is guaranteed by ESFG.

On 22 July 2009, Espírito Santo Saúde received the final evaluation report relating to the new Loures Public Hospital tender under the PPP programme: ESS was identified as being in first place. It is expected that the final management contract will be signed by the end of this year. Subsequently on 23 July 2009, Fitch rating confirmed Tranquilidade’s A- rating, however Fitch Rating moved the fully owned subsidiary from stable outlook to negative outlook.

On 10 August 2009, ESFG announced the launch of its EUR 1.0 billion STEP compliant Euro Commercial Paper programme. The joint ESFG and ESFIL programme is rated P-1 by Moody’s and F-2 by Fitch Rating.

Strategy and Business Model

ESFG’s primary strategy is to further develop its ability to cross-sell the full range of financial, insurance and healthcare services offered by it subsidiaries, while taking advantage of further cost reduction opportunities afforded by a more efficient integration of ESFG’s inter-related businesses.

Furthermore ESFG has consistently followed a strategy of organic growth. Thus it remains open to pursuing means of ensuring that it will continue to play a major role in the banking, insurance and healthcare sectors in Portugal in appropriate circumstances, including pursuing opportunities for external growth in Portugal or other relevant markets, principally Spain, Angola and Brazil.

Espírito Santo Financial Group S.A. (‘ESFG’) is the Luxembourg based holding company for the financial interests of the Espírito Santo Group. ESFG’s interests are situated in Portugal, where the majority of its investments are located, Europe, Brazil and Angola. At the end of June 2009 its total consolidated assets reached EUR 84.7 billion, a rise of 8.4% from year end 2008. ESFG’s consolidated profit for the first half of 2009, attributable to equity holders of the company reached EUR 71.0 million, a rise of 13.3%.

ESFG is a public company, with its shares listed on the Luxembourg, Lisbon and London stock exchanges. ESFG, through it subsidiaries, provides a wide range of services, centred on Banco Espírito Santo (́ BES )́, Tranquilidade insurance services (‘Tranquilidade’) and Espírito Santo Saúde (‘ESS’) healthcare operations.

Developments during H109 and Subsequent Events

On 19 January 2009, ESFG sold 5.0% of the capital of ES Bankers (Dubai), the remaining 95.0% stake remains with ESFG.

On 6 April 2009, Moody’s announced it had downgraded ESFG’s rating to A2 from A1 as well as placing all Portuguese banks on review for a possible downgrade. ESFG joined the list of banks on review for a potential further downgrade.

ESFG subscribed to its full entitlement in BES’ recent EUR 1.2 billion capital increase which was concluded on 16th April 2009.

On 24 April 2009, following the Annual General Meeting held in Luxembourg on that day, it was confirmed that a dividend of EUR 0.30 per share would be paid on 25 May 2009. It was also announced that the share would become ex-dividend on 4 May 2009.

On 30 April 2009, ESFG announced the Bank of Portugal’s approval of the Company’s request for the use of IRB (Internal Ratings Based) method. The Portuguese central bank’s decision came into effect on 31 March 2009. ESFG, through its subsidiaries in Portugal, became the first institution to receive approval from the Bank of Portugal for the use of the IRB Foundation method.

2. Group overview


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3. Financial highlights

Highlights for the Reporting Period(1)

Consolidated H109 Net Income reached • EUR 71.0 million (EUR 62.7 million) in the first half of 2009, a year-on-year increase of 13.3% and corresponds to an annualised ROE of 15.4%;

Consolidated Net Interest Income increased by 25.9% • year-on-year to EUR 666.9 million (EUR 529.9 million) on the back of significant contributions from Portuguese and international business;

Consolidated Net Fees and Commissions rose • by 15.2% year-on-year to EUR 354.8 million (EUR 308.0 million) benefiting from ESFG’s strategy of supporting international trade activities;

Consolidated Market Results2 and Other Results • decreased to EUR 265.4 million (EUR 291.3 million), a year-on-year fall of 8.9%;

Consolidated Insurance Earned Premiums Net of • Reinsurance decreased 12.8% year-on-year to EUR 153.1 million (EUR 175.6 million) reflecting the high level of competition witnessed in the market;

Consolidated Claims Incurred Net of Reinsurance • decreased by 3.1% year-on-year to EUR 112.2 million (EUR 115.8 million) as improvements to claims’ management begin to take effect;

Consolidated Staff Costs and General Administrative • Expenses increased moderately by 1.3% to EUR 569.6 million (EUR 562.4 million). Excluding pension charges, both staff costs and total operating costs were down year-on-year resulting from the strict cost management programme in effect;

ESFG is well capitalised and reported a Core Tier I • of 7.1% and Tier I of 8.2% as of June 2009.

(1) A year on year comparison of the key indicators is provided. Figures in parentheses following the operational and financial results for 2009 refer to the same item in 2008.


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4. Macro economic report and the impacts of the difficult financial environment

Developing economies such as China, India and Brazil showed clearer signs of a continued recovery in the second quarter, particularly with regards to internal demand, and all showed positive and accelerating GDP growth. Greater optimism concerning these economies was visible in the quarter-on-quarter level of the Shanghai Composite, Sensex and Bovespa stock market indices, which were up by 24.7%, 49.3% and 25.8% respectively.

In the second quarter of 2009 Portugal, Germany, France and Greece surprisingly registered a small increase in GDP. In Portugal exports and private consumption helped drive the recovery. The rate of unemployment continued to increase in the first half of the year from 7.8% to around 9.0% of the working population. The PSI-20 index, in Portugal, however gained 15.0% in the second quarter.

It is within this setting that ESFG reports its financial performance for the first half of 2009.

Following an extremely volatile first quarter, MACRO ECONOMIC ENVIRONMENT

The second quarter of 2009 saw a deceleration in the pace of the recession and an improvement in investor sentiment. The determined efforts of governments and central banks around the world, through the roll out of monetary and fiscal policies, has brought about a level of stability in the capital markets and aided in the rebuilding of investor confidence. The positive sentiment has translated into support for the equity, credit and commodity markets, generally increasing the value of assets across the board.

In the United States, the Dow Jones, Nasdaq and S&P500 indices gained respectively 11.0%, 20.1% and 15.2% in the second quarter, while in the Euro area the DAX, CAC40 and IBEX were up by 17.7%, 11.9% and 25.2% respectively. The price of oil increased by 43.0% in the quarter to USD 68.0 per barrel while credit spreads, although wide, narrowed (the iTraxx Financials index, which tracks the spreads on Credit Default Swaps, fell by 65 basis points). The recent demand for equities has contributed to the sale of bonds resulting in the upward trend of bond yields (10 year Treasuries were up from 2.66% to 3.53% and Bunds from 2.99% to 3.38% in the second quarter). Finally, the depreciation of the USD and the advance of the EUR by 6.2% versus the USD to EUR/USD 1.405 was further evidence of the change in investor sentiment. Despite the relative improvement in the economic environment, both the United States and the majority of Euro zone members are expected to report negative GDP growth in the second quarter, though the figure is expected to show an improvement on the two previous quarters. The degree of uncertainty regarding the sustainability of the recovery somewhat dampened investors’ optimism towards the end of the quarter, causing a retracement in the principal stock market indices and a slight widening in credit spreads. With year-on-year inflation falling to negative levels, the European Central Bank (‘ECB’) cut the refinancing rate by 50 basis points, to 1.0%, while reinforcing liquidity injections into the money markets. The 3-month Euribor slid from 1.51% to 1.10%.


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5. Commercial banking

year, with the corresponding overdue loans ratio rising from 1.08% to 1.42%, with the provisioning charge of overdue loans by more than 90 days of close to 200.0%. The favourable evolution of total balance sheet provisions over total loans has been increasing and reached 2.81% in June 2009 (2.35% in H108).

Net Interest Margin at BES rose to 1.96%, up by 25 basis points in H108. This follows the bank’s policy of updating credit spreads as a function of the deterioration of risk and the liquidity shortage. The significant proportion of the rise took place in the first quarter of the year and also reflected the mismatch in the frequency of the re-pricing of assets and liabilities to the adjusted market rates. Net Interest Income at BES from areas outside of Portugal continues to make an effective contribution, with the overall international NII contribution rising 61.5% year-on-year versus a rise of 17.8% for domestic business. International NII contribution to total NII has risen from 21.5% in the second half of 2008 to 27.3% in H109 at BES.

The first half of 2009 saw dynamic growth in documentary credit benefiting from BES’ strategy of supporting international trade and strong increases in guarantees and commissions on loans. Fees originating from securities’ business and asset management fell, however the second quarter has already shown signs of recovery as investor confidence improves, which in turn has translated into a heightened interest in the equity, credit and commodity markets, boosting the value and volume of assets traded.

On the 16 April 2009 BES successfully completed a EUR 1.2 billion capital increase through a rights issue. The rights issue strengthened the bank’s Core Tier I to 8.3% and Tier I to 8.8%, placing BES among the most well capitalised banks in Iberia. The AFS portfolio recovered, showing a potential gain of EUR 58.2 million.

ES Bank (Panama) S.A.

Capital: USD 30.0 millionEconomic Participation: 100.0%Location: Panama

ES Bank (Panama), the fully owned subsidiary of ESFG, follows the fast development of the local economy as an important source of future business. At present its business activity centres on the provision of financial services, mainly short term loan operations.

In the first 6 months of the year individual net income at ES Bank (Panama) rose by 8.6% year-on-year to USD 2.4 million on the back of a strong loans portfolio supported by on balance sheet client funds.

Banco Espírito Santo

Capital: EUR 3.5 billionEconomic Participation: 29.1%Location: Portugal, Angola, Brazil

Banco Espírito Santo (‘BES’) net income reached EUR 246.2 million in then first half of 2009 and corresponds to a return on equity (‘ROE’) of 10.1%. ESFG’s principal banking subsidiary half yearly performance remains strong both domestically and internationally. New client acquisition through initiatives to attract higher value added clients resulted in 57,000 new retail clients in the first half of the year, 64,000 when including the international units. The branch network of 733 units in Portugal includes 40 on-site branches working in partnership with Tranquilidade’s insurance agents under the assurfinance programme. On balance sheet customer funds grew by 13.7% year-on-year. Highly selective credit growth however translated into a reduction in the loans portfolio of 3.4%. In its efforts to support the internationalisation of the Portuguese business community, corporate loans grew by 6.7% during the period, with on balance sheet corporate funds up by 14.3%.

The growth in BES’ international operations continues to make strong contributions to net income, particularly towards Net Interest Income. Notwithstanding the positive performance of the bank’s international performance credit provisions of the units aboard also increased, most notably in Spain and the United Kingdom, reflecting the global reach of the crisis. Angola, Brazil and the United Kingdom are the greatest contributors to the bank’s profitability outside of Portugal. The domestic net income dropped by 13.7% whilst international business grew by 9.8% year on year, however BES’ domestic business contribution remains strong at 65.6%, EUR 161.4 million, of Net Income in the first six months of 2009.

In the context of the global recession there has been a deterioration of the overdue loan ratios at BES. The associated provisioning charges rose to 1.13% (FY 2008 0.57%) translating into a charge in provisions of EUR 274.1 million, which includes an extra ordinary provision of EUR 40.0 million set to strengthen the war chest in this recessionary period. Excluding this additional reserve the provisions’ charge for the period would have been 0.97%. Impairments in certain investments in securities lead to the recognition of losses in the amount of EUR 22.6 million (EUR 20.3 million).

Overall asset quality remains resilient; however the global crisis has had an impact on the level of overdue loans both in Portugal and elsewhere. Overdue loans of over 90 days at BES grew by EUR 192.5 million year-on-


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On the 23 July 2009, Fitch rating confirmed Tranquilidade’s A- rating. However Fitch Rating moved the fully owned subsidiary from stable outlook to negative outlook.

Companhia de Seguros T-Vida S.A.

Capital: EUR 65.0 millionEconomic Participation: 100.0%Location: Portugal

Life premium growth at Companhia de Seguros T-Vida (‘T-Vida’) remains strong with the assurfinance programme bolstering performance. T-Vida premiums grew by 52.2% during the period.

Consolidated Insurance Earned Premiums Net of Reinsurance fell by 12.8% to EUR 153.1 million compared to EUR 175.6 million in the first half of 2008. Consolidated Claims Incurred Net of Reinsurance also declined to EUR 112.2 million, compared to EUR 115.8 million in the same period in 2008, a fall of 3.1%.T-Vida, the life insurance business, reported improved individual results for the same period of EUR 2.1 million (EUR 1.6 million in H109).

T-Vida reported a 31.3% increase in results despite a decrease in financial results. The positive performance was due to technical results and a successful programme of expense reduction which resulted in a 40.1% decrease in costs during the period, personnel costs fell by 30.8%.

Seguros Logo S.A.


Insurance business activities continue to be affected by the stagnant Portuguese Non-Life market. The Portuguese insurance industry reported an average reduction in premiums in motor insurance of 9.4%. Competition amongst its peers remains strong within the motor market.

Despite these pressures, Seguros Logo (‘Logo’), ESFG’s direct motor insurer, reached 49,361 clients and achieved gross written premiums of EUR 4.7 million at the end of the first half of 2009, the direct insurer broke the 50,000 client mark shortly there after. The number of clients and premiums are above budget. Net results continue to be negative but remain in line with budget targets.

Companhia de Seguros Tranquilidade S.A.


ESFG’s Insurance business made positive contributions to consolidated results despite the stagnant Portuguese Non-Life market. The Portuguese insurance industry reported an average reduction in premiums in motor and workers’ compensation of 9.4%. Competition amongst its peers remains strong throughout both property and casualty markets. Average gross written premiums, as reported by the Portuguese Association of Insurers (‘APS’), decreased 5.1% in the non life market overall.

Consolidated Insurance Earned Premiums Net of Reinsurance fell by 12.8% to EUR 153.1 million compared to EUR 175.6 million in the first half of 2008. Consolidated Claims Incurred Net of Reinsurance also declined to EUR 112.2 million, compared to EUR 115.8 million in the same period in 2008, a fall of 3.1%. Companhia de Seguros Tranquilidade (‘Tranquilidade’), ESFG’s fully owned Non-Life insurance subsidiary reported a reduction in individual net results to EUR 4.6 million (EUR 11.2 million in H108) as a result of a reduced contribution from financial results and a decrease in the underwriting margin, operating costs however fell during the period.

The assurfinance programme continued to make an effective contribution to the retail client base with the addition of 9,323 new clients and 6,128 credit card (T-Card) issued. The assurfinance programme also reported a 28.0% growth in on-balance sheet client funds.

Tranquilidade reported an 11.7% decrease in gross written premiums primarily due to a fall in motor fees. The high churn ratio and tariff decreases reflect the weak market environment. Several measures targeted at improving retention levels for the most profitable segments have been put in place with encouraging results. Tranquilidade expects significant improvement in churn rates in the second half of 2009. Health products at Tranquilidade continue to show an above average market growth.

Expenses at Tranquilidade decreased by 6.7% during the period with personnel costs falling by 4.9%, highlighting the positive effects of the on-going cost reduction programme. The expense ratio however increased to 29.6% (28.8% in H108) as gross written premiums fell. Despite fierce competition within the sector, given improvements in claims management and no major fire related claims during the period, the direct insurance claims ratio decreased from 61.4% in H108 to 58.9% in H109.

6. Insurance


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7. Investment banking & stockbrokerage

(EUR 150.0 million). BESI was also Joint Lead Manager of Galp Energia’s EUR 700.0 million bond issue, and Co-Lead Manager of HSBC Holdings Plc’s issue of subordinated bonds, in the amount of EUR 1.75 billion. The Bank arranged and led the Commercial Paper Programmes for EP – Estradas de Portugal (EUR 50.0 million) and Sonae Distribuição, SGPS (EUR 75.0 million). In the Equity Capital Markets, in Portugal, BESI acted as Global Coordinator and Bookrunner of Banco Espírito Santo’s rights issue, in the amount of EUR 1.20 billion. In Brazil, the Bank was Sole Bookrunner of the Banco Espírito Santo de Investimento do Brasil USD 150.0 million Eurobonds issue, and Co-Manager of the Odebrecht Finance Ltd USD 200.0 million Eurobonds issue. In addition, it also participated in the reopening of the Brazilian IPO market, acting as Co-Manager of Visanet’s secondary offering, the largest ever IPO in Brazil.

Capital Markets – Brokerage – BESI maintained its leading position in Portugal, where it increased its market share to 12.8% (11.7% in 2008), while remaining the fifth largest operator on the Madrid Stock Exchange, with a market share of 6.1 % (5.6% in 2008).

Private Equity – through the Espírito Santo Infrastructure Fund – I, BESI participated with 8.3% in the consortium formed to purchase Cintra Aparcamientos, representing an investment of EUR 20.5 million. Funds under management, at the end of the first half 2009 reached EUR 190.0 million.

At the end of the first half of 2009, BESI completed a capital increase in the amount of EUR 110.0 million to EUR 180.0 million, which was fully subscribed by BES.

Banque Espíríto Santo et de la Vénétie

Capital: EUR 75.117 millionEconomic Participation: 57.2%Location: France

Banque Espíríto Santo et de la Vénétie (‘BESV’), despite the difficult market and economic conditions, continues to report positive results for first half of the year. BESV’s unaudited individual net profit for the period however fell from EUR 6.4 million in H108 to EUR 3.9 million in H109.

Banking Income at the Paris based operations, fell by 11.8% despite a 9.4% growth in Real Estate and Structured Finance as Commercial Banking contributions slowed as a result of increased funding costs. The cost to income ratio at BESV in the first half of 2009 reached 53.9%. BESV continues to develop its 3 point plan of diversification of business lines, gain greater coverage in niche markets and the creation of teams focusing on corporate advice services and private banking.

Banco Espírito Santo de Investimento S.A.

Capital: EUR 180.0 millionEconomic Participation: 29.1%Location: Portugal, Spain, Brazil

Banco Espírito Santo de Investimento S.A. (‘BESI’), the fully owned subsidiary of BES, reported a slightly lower individual banking income than in the fist half of 2008 at EUR 105.6 million (-6.0%) on the back of lower capital market results. Activities outside of its Portuguese operations recovered significantly in the second quarter, representing 55.0% of total banking income. In Poland, the Bank intensified its activity and extended its client base; in New York, BESI branch launched its operations. The main operations concluded in the second quarter by BESI were:

Mergers and Acquisitions – advisory services to: (i) ES Saúde on the acquisition of Clínica de Oiã (ii) Teodoro Gomes Alho on the sale of Quimipedra to Secil (iii) the consortium led by ASSIP in the acquisition of Cintra Aparcamientos.

Project Finance – BESI led the following operations: (i) Autostrada Wielkopolska II S.A Limited – as Lead Arranger on the EUR 400.0 million financing for the design, construction and operation of 105.6 km of the A2 Motorway linking Nowy Tomysl to Swiecko (Poland); (ii) Milford Wind Corridor Phase I, LLC – as Lead Arranger on the USD 376.4 million financing of a wind farm in Utah (USA); (iii) Midland Cogeneration Venture Limited Partnership – as Lead Arranger on the structuring of the USD 515.0 million financing for the acquisition of a combined cycle cogeneration plant in Michigan (USA); (iv) Hadera Desalting Plant – as Lead Arranger in the USD 78.5 million financing provided to the H2ID consortium to increase the production capacity of the Hadera desalting plant (Israel); (v) Pebble – Consultoria e Investimento, Sociedade Unipessoal, Lda – as Financial Advisor and one of the four Lead Arrangers on the EUR 1.06 billion credit facilities refinancing of the wind farm portfolio (vi) Sociedade Ventos da Serra – Produção de Energia, S.A. – as Lead Arranger on the EUR 37.0 million financing of a solar photovoltaic plant (Portugal) (vii) Ascendi, CIBE and Leão & Leão – as Lead Arranger on the structuring of a BRL 340.0 million bridge loan for Concessionária Rodovias do Tietê (viii) Sefac – Serra do Facão Energia – issuance of a letter of credit in the amount of the BRL 73.0 million to guarantee the long term financing of the Serra do Facão power plant. Capital Markets – Origination, acting as Bookrunner in the following operations: (i) Banco Espírito Santo (EUR 1.75 billion), (ii) Portugal Telecom International Finance, B.V. (EUR 1,000 million), (iii) EDP Finance B.V. (EUR 1.0 billion) and ESFIL – Espírito Santo Financière S.A.


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8. Asset management and private banking

The cost stability programme at BPES during the first 6 months of 2009 proved successful with year-on-year costs rising by only 0.5% to CHF 23.2 million. The cost stability programme allowed BPES’ costs to stay well within budget.

BEST – Banco Electrónico de Serviço Total S.A.


BEST – Banco Electrónico de Serviço Total S.A. (‘Banco BEST’), in which Espírito Santo Financial Group acquired a 34.0% direct stake in 2008 and controls the remaining stake through BES, is the pioneer of interactive simulators based on Web technology. Banco BEST offers over 2,000 mutual funds to its clients as well as access to more traditional markets. Assets under management, in the first half of 2009, grew by 13.0% year on year to EUR 1.32 billion as emboldened investors sought asset classes with greater exposure to financial products linked to capital markets performance. The online trading activity in regulated markets and transactions volumes also increased significantly in the period leading up to June 2009. The unaudited individual net profit reported at Banco Best, for the first six months of 2009, increased by 23.0% year-on-year to EUR 2.6 million.

E.S. Bankers (Dubai) Limited

Capital: USD 30.0 millionEconomic Participation: 95.0%Location: Dubai, U.A.E.

Espírito Santo Financial Group’s Dubai based banking operations E.S. Bankers (Dubai) Limited (‘ESBD’) offers opportunities for the development of business interests both in the Middle East and countries with cultural affinities to the Portuguese community, namely India. ESBD provides a diversified range of financial services to its clients in the Middle East, capitalising on opportunities in private banking and wealth management. At the end of June 2009 on balance sheet assets reached USD 111.2 million, an increase of over 100.0% year on year. Loans and advances to banks rose by 26.0% whilst loans and advances to customers increased by 70.3% since the end of 2008. Assets under management rose 13.7% to over USD 1.1 billion. Individual Net Income for the reporting period reached USD 1.22 million.

On 19th January 2009, ESFG sold 5.0% of the capital of ESBD, the remaining 95.0% stake remains with ESFG.

ESAF – Espírito Santo Activos Financeiros SGPS S.A.

Capital: EUR 11.7 millionEconomic Participation: 29.7% Location: Portugal, Spain

ESAF – Espírito Santo Activos Financeiros (‘ESAF’), the fully owned subsidiary of ESFG’s Portuguese banking operations BES, continued its international expansion through specialised companies in Portugal, Spain, Luxembourg, United Kingdom, Angola and Brazil. ESAF’s product range covers mutual funds, real estate funds and pension funds, as well as providing discretionary and portfolio management services.

At the end of the first half of 2009, total assets under management amounted to EUR 20.0 billion, reflecting a decrease of 4.3% relative to the first half of 2008. In the second quarter Fundo de Investimento Imobiliário Espírito Santo Arrendamento (a closed-end real estate fund for residential rental) and Fundo de Pensões Aberto Espírito Santo Multireforma Capital Garantido were launched, targeting investors looking for a long term placement for their savings as a complement to their pension plans and with a tax benefit.

ESAF also provides a discretionary portfolio management service. In the international asset management business, assets under management totalled EUR 4.8 billion at the end of the first half of 2009. ESAF’s international presence is ensured by its subsidiaries ESAF-International Management (Luxembourg), ESAF-Alternative Asset Management Limited (United Kingdom), Espírito Santo Activos Financieros (Spain), BESAACTIF – Sociedade Gestora de Fundos de Investimento, BESAACTIF Pensões – Sociedade Gestora de Fundos de Pensões (Angola) and BESAF – BES Ativos Financeiros (Brazil).

Banque Privée Espírito Santo S.A.

Capital: CHF 30.0 millionEconomic Participation: 100.0%Location: Switzerland, Portugal

Banque Privée Espirito Santo (‘BPES’), ESFG’s Swiss based banking operations, continued to report positive results, unaudited net income however fell to CHF 3.5 million in the first half of the year. Banking income saw a slight fall of 6.0% when compared to the same period in 2008 despite a steady growth in Net Interest Margin of 16.5% during the period. Commission related fees fell on the back of difficult market conditions.

BPES has focused on new client generation by attracting new money from outside the traditional Portuguese client base. This has resulted in a 6.0% increase in Assets under Management to EUR 5.9 billion and a 5.2% increase in the number of new clients at the bank from the beginning of the year. Contributions to growth have come from both the Swiss and its Portuguese based operations.


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9. Healthcare

AdvanceCare – Gestão de Serviços S.A.

Capital: EUR 4.5 millionEconomic Participation: 51.0% Location: Portugal

AdvanceCare –Gestão de Serviços S.A. (‘AdvanceCare’) is a joint health care management project set up between Tranquilidade (51.0%) and United Healthcare International U.S.A. (49.0%). AdvanceCare manages numerous health insurance related products from some 9 insurers and holds a dominant 40.0% share of the Portuguese market. It operates a Portuguese network of 4,000 medical support points with a further 1,300 located in Spain and the United States.

AdvanceCare continues to provide good results. Revenue increased by 6.0% in the first half of 2009 as net income reached EUR 1.0 million.

Espírito Santo Saúde SGPS S.A.


Espírito Santo Saúde (‘ESS’) is a principal private healthcare provider in Portugal. The company operates 15 hospitals, out-patient clinics, residential hospitals as well as senior citizen residencies and has been participating in the Public-Private Partnerships programmes.

Operating income at ESFG’s healthcare operator rose by 18.0% year on year from EUR 90.5 million to EUR 106.6 million. The growth in income was due mainly to the units located in the Lisbon area, principally at Hospital da Luz where operating income rose by 30.0% year on year. Hospital da Arrábida and Cliria saw performance in line with H108 due to capacity constrains, and which are expected to be resolved by year end. Cliria concluded the acquisition of Clínica Central de Oiã, a clinic located in the Aveiro area of Portugal, reinforcing the healthcare operator’s presence in the region. The acquisition has been approved by the regulating authorities.

Positive results were also reported in operations in the north and central regions of Portugal namely the Porto district, Loures, Oeiras and Setúbal. Hospital operations in the south, Hospital da Misericórdia de Évora, also reported a slight increase in activity, when compared to the same reporting period last year. Senior citizen care unit at the new site of Casas da Cidade in Lisbon received the final licence approval and is now open. The occupancy rate at Casa dos Leões senior citizen care centre continues to grow.

ESS looks forward to further consolidation of its activities at its hospital operations most notably at Hospital da Luz and the launch of its senior citizen care unit on the same site. The health care subsidiary also looks forward to the completion of construction and opening of its outpatient unit at Cliria (Aveiro) and the expansion of Hospital da Arrábida (Porto), doubling its capacity. During the second semester, ESS will also initiate its operations in the Amadora’s clinic, one of the most important suburbs in the Lisbon area, enlarging its offer in this region.

On the 22 July 2009, Espírito Santo Saúde received the final evaluation report relating to the new Loures Public Hospital tender under the PPP programme: ESS was identified as being in first place. It is expected that the final management contract will be signed by the end of this year.


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10. Important participations in the capital of ESFG

Information on important participations in the capital of ESFG is published in accordance with Luxembourg’s Grand-Ducal regulation of 11 January 2008 and article 5 a) of the Circular 08/337 of the Commission de Surveillance du Secteur Financier in Luxembourg.

Important Participations Number of % of as at 30 June 2009 Shares Voting rights

Espírito Santo International S.A. 22 861 732 29.36Espírito Santo Resources SGPS S.A. 7 493 911 9.63Total 30 355 643 38.99

ESFG 1 Year Price Evolution

May’08

Jun’08

Jul’08

Aug’08

Sep’08

Oct’08

Nov’08

Dec’08

Jan’09

Feb’09

Mar’09

-48.90%

-35.35%-33.15%

Apr’09

May’09

Jun’09

ESFG 1 Year Price Evolution– DJS banks – ESFG – PS120


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11. Directors and officers

Ricardo Espírito Santo Silva SalgadoChairman

José Manuel Pinheiro Espírito Santo SilvaVice-Chairman

António Luís Roquette Ricciardi

Mário Mosqueira do Amaral

Manuel Fernando Moniz Galvão Espírito Santo Silva

Jackson Behr Gilbert

Patrick Monteiro de Barros

Robert Studer

Philippe Guiral

Manuel António Ribeiro Serzedelo de Almeida

José Maria Espírito Santo Silva Ricciardi

Pedro Guilherme Beauvillain de Brito e Cunha

Carlos Augusto Machado de Almeida Freitas

Aníbal da Costa Reis Oliveira

Juan Villalonga Navarro

Othman Benjelloun

José Pedro Torres Garcia Caldeira da Silva

Fernando Pedro Braga Pereira Coutinho

Yves Alain Marie Morvan

Alexandre da Paixão Coelho

Horácio Lisboa Afonso

José Carlos Cardoso Castella

Bernard Basecqz

Manuel Guerrero Péman

Gerard Laffineur Petracchini Chief Executive Officer

Erich DählerSenior Vice President

Jean-Luc SchneiderSenior Vice President

Teresa de SouzaSenior Vice President/Company Secretary

Filipe Worsdell Senior Vice President/Chief Financial Officer


11

12. Annex

III. Impact of the period of financial turmoil on the results8, 9. and 10. Qualitative and quantitative description of the resultsPoint 4 of the 2009 Interim Report contains information regards impacts of the financial turmoil.

11. Comparison of impacts between periodsThe direct impacts on ESFG Group of the turbulence period are presented on Page 9 the 2008 Annual Report.

12. Decomposition of realised and not realised write-downs The profit and loss of assets and liabilities held for trading and of assets at fair value and assets available for sale are detailed by financial instruments in Notes 7 and 8. Non-realized gains and losses on assets available for sale are detailed in Note 23, while the most significant positions are broken down in Note 23.

13. Financial turmoil and the price of the ESFG sharePoint 10 of the 2009 Interim Report presents the ESFG share price performance that decreased in line with the financial sector shares in general.

14. Maximum loss risk Note 51 contains the relevant information about potential losses in market stress situations.

15. Debt issued by the Group and results Note 50 contains information on the impact of debt revaluation and the methods used to calculate their impact on the results.

Annex – Adoption of the Financial Stability Forum (‘FSF’) and Committee of European Banking Supervisors (‘CEBS’) Recommendations concerning the Transparency of Information and the Valuation of Assets.

(Banco of Portugal’s Circular Letter no. 97/2008/DSB, of 3 December.)

I. Business model1. Description of the Business ModelA description of the ESFG Group’s Business Model is provided on Point 2 of the 2009 Interim Report.

2. Strategies and ObjectivesA description of the ESFG Group’s strategy and objectives is provided in the Point 2 of the 2009 Interim Report.

3, 4 and 5. Activities developed and contribution to the businessPoints 5 to 9 of the 2009 Interim Report and Note no. 4 contain detailed information about the activity and contribution to the business.

II. Risk and risk management6. and 7. Description and Nature of the Risks IncurredNote 51 contains diverse information that in total allows the market to gain knowledge about the risks incurred by the ESFG Group and the management mechanisms for their monitoring and control.


12

VI. Other relevant aspects of disclosure26. Description of the disclosure policies and principles The ESFG Group, within the context of accounting and financial information disclosure, aims to satisfy all the regulatory requirements, defined by the accounting standards or by the supervisory and regulatory entities.

At the same time, the Group aims to meet the best market practice in information disclosure, balancing the cost of preparing the relevant information with the benefit that it may provide to the users.

From the information made available to the ESFG’s shareholders, clients, employees, supervisory entities and the public in general, ESFG highlights the 2009 Interim Report, the Financial Statements and the respective Notes.

The financial statements are prepared under IFRS that comply with the highest degree of disclosure and transparency and facilitate comparison to other domestic and international banks.

In addition, ESFG establishes regular contacts with the shareholders, mainly when releasing quarterly results and during the roadshows. Whenever necessary, ESFG promptly releases relevant facts, in addition to the news flow through the media.

IV. Level and type of exposures affected by the period of turmoil16. Nominal and fair value of exposures

17. Credit risk mitigators

18. Information about the Group’s exposuresPoint 4, 5 and 6 of the 2009 Interim Report contain information on exposures affected by the turmoil period. The detailed information referred to above is considered to be sufficient particularly as in the 1st half of 2009 there have not been any events which can be considered of material relevance.

19. Movement in exposures between periodsAs expressed on Page 9 of the 2008 Annual Report the impacts had effect in 2008. Also the explanatory notes contain diverse information comparing the exposures and results, with strong market exposures in 2007 and 2008. The detailed information referred to above is considered to be sufficient particularly as in the 1st half of 2009 there have not been any events which can be considered of material relevance.

20. Non consolidated exposuresAll the operations related securitisation structures originated by the Group are presented in Note 49. None of the Special Purpose Entities (‘SPEs’) were consolidated due to the market turbulence.

None of the SPEs were consolidated due to the market turbulence.

21. Exposure to monolines insurers and quality of the assets insuredThe Group does not have exposures to monoline insurers.

V. Accounting policies and valuation methods22. Structured Products These situations are described in Note 2 – Main accounting policies.

23. Special Purpose Entities (‘SPEs’) and consolidationDisclosure available in Notes 2 and 49.

24 and 25. Fair value of financial instrumentsNote 2 contains the conditions for utilisation of the fair value option as well as the methodology used to value the financial instruments.

12. Annex continued


13

13. Statement of the Board of Directors

The Board of Directors of Espírito Santo Financial Group is responsible for preparing the consolidated financial statements as at and for the period ended 30 June 2009 in accordance with International Financial Reporting Standards as adopted by the European Union as well as with the European Transparency Directive (2004/109/EC).

The Board of Directors reviewed the consolidated financial statements on 20 August 2009 and authorized their issue.

The Board of Directors of Espírito Santo Financial Group declares that:

I. the consolidated financial statements of Espírito Santo Financial Group, S.A. (‘ESFG Group’), for the period ended 30 June 2009, were prepared under the International Financial Reporting Standards (‘IFRS’), as adopted by the European Union;

II. to the best of their knowledge, the financial statements referred to in point (I) reflect a true and appropriate situation of the assets, liabilities, capital and results of Espírito Santo Financial Group, in accordance with the IFRS as adopted by the EU;

III. the management report reflects adequately the business development, performance and financial position of ESFG Group during the period ended 30 June 2009 and contains a description of the main risks and uncertainties that the Group faces.

Luxembourg, 20 August 2009

Board of Directors

Ricardo Espírito Santo Silva SalgadoChairman

José Manuel Pinheiro Espírito Santo SilvaVice-Chairman

ESPIRITO SANTO FINANCIAL GROUP SA

ESPÍRITO SANTO FINANCIAL GROUP SA

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS AT 30 JUNE 2009

(UNAUDITED)


Notes 30.06.2009 30.06.2008

Interest and similar income 5 2 171 018 2 309 676

Interest expense and similar charges 5 1 504 151 1 779 807

Net interest income 666 867 529 869

Dividend income 62 306 71 792

Fee and commission income 6 403 855 367 315

Fee and commission expenses 6 ( 49 060) ( 59 279)

Net gains / (losses) from financial assets and financial liabilities at fair value through profit or loss 7 ( 299) ( 141 268)

Net gains from available-for-sale financial assets 8 1 771 245 488

Net gains from foreign exchange differences 9 19 105 41 715

Net gains / (losses) from the sale of other assets ( 5 022) 854

Insurance earned premiums net of reinsurance 10 153 127 175 630

Other operating income 11 249 795 144 549

Operating profit 1 502 445 1 376 665

Staff costs 12 350 286 325 117

General and administrative expenses 14 219 265 237 238

Claims incurred net of reinsurance 15 112 214 115 810

Change on the technical reserves net of reinsurance 16 ( 5 609) 8 973

Insurance commissions 17 15 813 17 575

Depreciation and amortisation 29 and 31 60 471 53 318

Provisions net of reversals 40 13 967 31 372

Loans impairment net of reversals and recoveries 25 270 001 116 007

Impairment on other financial assets net of reversals 23, 24 and 26 22 734 24 369

Impairment on other assets net of reversals 28, 29, 31 and 34 19 480 10 005

Other operating expenses 11 114 605 108 267

Operating expenses 1 193 227 1 048 051

Gains on disposal of investments in subsidiaries and associates 1 832 9 925

Share of profit of associates 32 14 019 7 922

Profit before income tax 324 069 346 461

Income tax

Current tax 41 60 282 116 522

Deferred tax 41 ( 2 270) ( 30 411)

58 012 86 111

Profit for the year 266 057 260 350

Attributable to equity holders of the company 70 993 62 667Attributable to minority interest 45 195 064 197 683

266 057 260 350

Earnings per share of profit attributable to the equity holders of the company:Basic (in Euro) 18 0.73 0.83Diluted (in Euro) 18 0.73 0.83

CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTH PERIODS ENDED 30 JUNE 2009 AND 2008

(in thousands of euro)

The following notes form an integral part of these interim consolidated financial statements.

Page 3


30.06.2009 30.06.2008

Profit for the period 266 057 260 350

Other comprehensive income

Exchange differences on translating foreign operations ( 16 353) ( 17 649)Deferred tax on exchange differences on translating foreign operations 1 812 1 432

( 14 541) ( 16 217)

Available-for-sale financial assets:Gains / losses arising during the period 269 585 ( 503 091)Reclassification adjustments for gains / losses included in the profit or loss 12 450 ( 207 061)Deferred taxes on gains / losses of available-for-sale financial assets ( 45 456) 176 278

236 579 ( 533 874)

Other comprehensive income for the period 222 038 ( 550 091)

Total comprehensive income for the period 488 095 ( 289 741)

Attributable to equity holders of the company 131 604 ( 110 872)Attributable to minority interest 356 491 ( 178 869)

488 095 ( 289 741)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE SIX MONTH PERIODS ENDED 30 JUNE 2009 AND 2008



Page 4


Notes 30.06.2009 31.12.2008

Assets Cash and deposits at central banks 19 1 240 548 2 044 923Deposits with banks 20 766 690 884 501Financial assets held for trading 21 4 052 970 3 693 305Other financial assets at fair value through profit or loss 22 1 918 003 2 502 876Available-for-sale financial assets 23 7 951 398 7 605 669Loans and advances to banks 24 10 443 053 3 547 479Loans and advances to customers 25 49 478 565 49 176 608Held-to-maturity investments 26 2 669 805 2 170 055Derivatives for risk management purposes 27 487 164 936 290Non-current assets held for sale 28 252 108 148 372Property and equipment 29 985 231 962 897Investment properties 30 91 049 89 817Intangible assets 31 355 187 355 008Investments in associates 32 291 362 264 156Technical reserves of reinsurance ceded 33 54 963 52 239Current income tax assets 62 943 54 293Deferred income tax assets 41 179 675 182 419Other assets 34 3 451 559 3 478 666

Total assets 84 732 273 78 149 573

LiabilitiesDeposits from central banks 35 3 239 863 4 810 458Financial liabilities held for trading 21 1 602 529 1 930 905Deposits from banks 36 10 834 819 8 101 915Due to customers 37 25 537 562 26 367 772Debt securities issued 38 31 216 611 25 307 119Derivatives for risk management purposes 27 310 510 727 475Investment contracts 39 409 245 400 597Non-current liabilities held for sale 28 41 938 12 827Provisions 40 158 671 145 132Technical reserves of direct insurance 33 1 000 756 1 012 487Current income tax liabilities 75 941 114 446Deferred income tax liabilities 41 82 996 42 165Subordinated debt 42 2 671 537 2 836 529Other liabilities 43 1 522 970 1 509 891

Total liabilities 78 705 948 73 319 718

EquityShare capital 44 778 549 778 549Share premium 44 253 656 253 656Preference shares 44 395 514 395 514Other equity components 44 115 171 115 171Fair value reserve 44 ( 48 254) ( 115 485)Other reserves and retained earnings 44 ( 210 472) ( 221 776)Profit for the year attributable to equity holders of the Company 70 993 77 061

Total equity attributable to equity holders of the Company 1 355 157 1 282 690

Minority interest 45 4 671 168 3 547 165

Total equity 6 026 325 4 829 855

Total equity and liabilities 84 732 273 78 149 573

CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2009 AND 31 DECEMBER 2008



Page 5


ESPÍRITO SANTO FINANCIAL GROUP SA

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2008, 31 DECEMBER 2008 AND 30 JUNE 2009


Share capitalShare

premiumPreference

sharesOther equity instruments

Fair value reserve

Other reserves and retained

earnings

Profit for the period

attributable to equity holders of

the Company

Total equity attributable to

equity holders of the Company

Minorityinterest

Totalequity

Balance as at 1 January 2008 578 549 253 656 395 514 115 171 169 771 ( 361 451) 204 862 1 356 072 4 104 389 5 460 461

Other comprehensive income for the period Changes in fair value, net of taxes - - - - ( 168 903) - - ( 168 903) ( 364 971) ( 533 874) Exchange differences - - - - - ( 4 636) - ( 4 636) ( 11 581) ( 16 217)Profit for the period - - - - - - 62 667 62 667 197 683 260 350

Total comprehensive income for the period - - - - ( 168 903) ( 4 636) 62 667 ( 110 872) ( 178 869) ( 289 741)

Transfer to reserves - - - - - 204 862 ( 204 862) - - - Dividends on ordinary shares

(a)- - - - - ( 38 184) - ( 38 184) - ( 38 184)

Dividends on preference shares (b) - - - - - ( 32 755) - ( 32 755) ( 23 737) ( 56 492)Effect of share based incentive scheme (SIBA) (see Note 2.17) - - - - - 653 - 653 9 717 10 370 Other changes in minority interest (see Note 45) - - - - - - - - ( 189 139) ( 189 139)

Balance as at 30 june 2008 578 549 253 656 395 514 115 171 868 ( 231 511) 62 667 1 174 914 3 722 361 4 897 275

Other comprehensive income for the period Changes in fair value, net of taxes - - - - ( 116 353) - - ( 116 353) ( 306 425) ( 422 778) Exchange differences - - - - - 12 548 - 12 548 4 026 16 574 Profit for the period - - - - - - 14 394 14 394 126 204 140 598

Total comprehensive income for the period - - - - ( 116 353) 12 548 14 394 ( 89 411) ( 176 195) ( 265 606)

Capital increase Capital increase ESFG (see Note 44) 200 000 - - - - ( 2 302) - 197 698 - 197 698 Costs with capital increase of subsidiaries - - - - - ( 342) - ( 342) - ( 342)Effect of share based incentive scheme (SIBA) (see Note 2.17) - - - - - ( 169) - ( 169) ( 8 540) ( 8 709)Other changes in minority interest (see Note 45) - - - - - - - - 9 539 9 539

Balance as at 31 December 2008 778 549 253 656 395 514 115 171 ( 115 485) ( 221 776) 77 061 1 282 690 3 547 165 4 829 855

Other comprehensive income for the period Changes in fair value, net of taxes - - - - 67 231 - - 67 231 169 348 236 579 Exchange differences - - - - - ( 6 620) - ( 6 620) ( 7 921) ( 14 541)Profit for the period - - - - - - 70 993 70 993 195 064 266 057

Total comprehensive income for the period - - - - 67 231 ( 6 620) 70 993 131 604 356 491 488 095

Costs with capital increase of subsidiaries - - - - - ( 3 200) - ( 3 200) ( 7 760) ( 10 960)Transfer to reserves - - - - - 77 061 ( 77 061) - - - Dividends on ordinary shares

(a)- - - - - ( 23 357) ( 23 357) - ( 23 357)

Dividends on preference shares (b)

- - - - - ( 32 718) - ( 32 718) ( 23 774) ( 56 492)Effect of share based incentive scheme (SIBA) (see Note 2.17) - - - - - 138 - 138 339 477 Other changes in minority interest (see Note 45) - - - - - - - - 798 707 798 707

Balance as at 30 June 2009 778 549 253 656 395 514 115 171 ( 48 254) ( 210 472) 70 993 1 355 157 4 671 168 6 026 325

(a) Corresponds to a dividend per share of euro 0.66 and euro 0.30 as at 31 December 2007 and 31 December 2008 respectively, distributed to the ordinary shares outstanding.

(b) Corresponds to a preferred dividend paid by BES Finance calculated based on an annual rate of 5.58% on the nominal amount of the preference shares outstanding and to the preferred dividend paid by ESFG International calculated based on an annual rate of 5.753% on the nominal amount of the preference shares outstanding (see note 44)

The following notes form an integral part of these interim consolidated financial statements

Page 6


Page 7

329

CONSOLIDATED CASH FLOW STATEMENTFOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2009 AND 2008

Notes 30.06.2009 30.06.2008

Cash flows from operating activitiesInterest and similar income received 2 255 215 2 278 896 Interest expense and similar charges paid (1 650 496) (1 830 289)Fees and commission received 406 712 383 222 Fees and commission paid (71 970) (96 760)Insurance premiums 157 360 142 396 Claims paid (103 517) (100 596)Medical services income received 115 869 63 276 Medical services expenses paid (96 671) (56 917)Recoveries on loans previously written off 9 067 7 954 Contribution to pension fund (420) (1 067)Cash payments to employees and suppliers (685 029) (464 707)

Net cash from operating profits before changes in operating assets and liabilities 336 120 325 408

Deposits with central banks (1 806 171) 847 828 Financial assets at fair value through profit and loss (244 601) (1 112 318)Loans and advances to banks (6 898 070) (593 524)Deposits from banks 2 771 963 258 138 Loans and advances to customers (586 084) (2 947 385)Due to customers (783 209) 728 682 Derivatives for risk management purposes (153 019) 77 189 Other operational assets and liabilities 223 560 (704 410)

Net cash from operating activities before income tax (7 139 511) (3 120 392)

Income taxes paid (107 345) (116 364)

Net cash from operating activities (7 246 856) (3 236 756)

Cash flows from investing activitiesPurchase of subsidiaries and associates (23 659) (66 486)Sale of subsidiaries and associates 6 023 20 828 Dividends received 62 459 94 833 Purchase of financial assets available for sale (16 003 559) (9 509 501)Sale of financial assets available for sale 15 868 585 9 314 858 Held to maturity investments (501 136) (152 691)Insurance investment contracts 5 523 595 Purchase of tangible and intangible assets (90 300) (308 269)Sale of tangible and intangible assets 25 124

Net cash from investing activities (676 039) (481 504)

Cash flows from financing activitiesDebt securities issued 11 376 402 7 577 580 Debt securities paid (5 324 362) (4 039 805)Subordinated debt issued 20 000 50 000 Subordinated debt paid - (281 211)Minority interest on capital increase of subsidiaries 841 231 - Minority interest on capital decrease of subsidiaries (2 449) - Dividend paid on ordinary shares (85 974) (213 877)Dividend paid on prefered shares (56 492) (56 492)

Net cash from financing activities 6 768 356 3 036 195

Net increase in cash and cash equivalents (1 154 539) (682 065)

Cash and cash equivalents at beginning of the period 2 155 818 1 741 096 Effect of exchange rate changes on cash and cash equivalents (10 551) (27 549)Cash and cash equivalents at end of the period 990 728 1 031 482

(1 154 539) (682 065)

Cash and cash equivalents includes:Cash 19 158 319 216 894 Deposits at Central Banks 19 1 082 229 769 960 Mandatory deposits at Central Banks (1 016 510) (653 833)Deposits with banks 20 766 690 698 461

Total 990 728 1 031 482




Notes to the interim consolidated financial statements 30 June 2009 Page 8

ESPÍRITO SANTO FINANCIAL GROUP S.A.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS AT 30 JUNE 2009

(Amounts expressed in thousands of euro, except when indicated)

NOTE 1 - ACTIVITY AND GROUP STRUCTURE

Espírito Santo Financial Group S.A. (ESFG or Group) is a limited liability company headquartered in Luxembourg,

incorporated under Luxembourg law on 28 November 1984, and is the holding company of the banking and financial

activities of the Espírito Santo Group located in Portugal, Europe and around the world. The main shareholder of

ESFG, Espírito Santo International S.A. (ESI), is a limited liability company headquartered in Luxembourg, and is the

holding company of the Espírito Santo Group interests. The non financial activities of ESI, including agriculture,

hotels, real estate and other activities are managed by Espírito Santo Resources Ltd., a company headquartered in

Bahamas.

Through its subsidiaries, the Group (ESFG and its subsidiaries) engages in a broad range of financial activities

primarily through Banco Espírito Santo, S.A. and its insurance companies: Companhia de Seguros Tranquilidade, S.A.

and T-Vida, Companhia de Seguros, S.A. Its operations abroad complement its Portuguese activities.

ESFG is listed on the Luxembourg, London and Lisbon Stock Exchanges.



The following table describes the main activity of each of the Group’s subsidiaries and associates as at 30 June 2009

and 31 December 2008:

Subsidiaries

Activity Location

Advancecare - Gestão de Serviços de Saúde, S.A. Managed care Portugal 51.0% 51.0% 51.0% 51.0%Banco Espírito Santo Angola, SARL Commercial banking Angola 75.9% 22.0% 80.0% 23.3%Banco Espírito Santo de Investimento, S.A. Investment banking Portugal 100.0% 29.0% 100.0% 29.1%Banco Espírito Santo do Oriente, S.A. Commercial banking Macau 99.8% 28.9% 99.8% 29.0%BESAACTIF - Sociedade Gestora de Fundos de Investimento SA Asset management - Mutual funds Angola 97.0% 24.0% 97.0% 24.8%BESAACTIF Pensões - Sociedade Gestora de Fundos de Fundos de Pensões Asset management - Pensions funds Angola 97.0% 24.0% - -Banco Espírito Santo dos Açores, S.A. Commercial banking Azores Island 57.5% 16.7% 57.5% 16.8%Banco Espírito Santo North America Capital Corporation Financing vehicle USA 100.0% 29.0% 100.0% 29.1%Banco Espírito Santo, S.A. (a) Commercial banking Portugal 42.0% 29.0% 42.2% 29.1%Bank Espírito Santo International, Ltd. Commercial banking Cayman Islands 100.0% 29.0% 100.0% 29.1%Banque Espírito Santo et de la Vénétie, S.A. Commercial banking France 87.5% 57.2% 87.5% 57.2%Banque Privée Espírito Santo, S.A. Assets management Switzerland 100.0% 100.0% 100.0% 100.0%BES Activos Financeiros, Ltda Assets management Brazil 100.0% 26.4% 100.0% 26.5%BES Beteiligungs, GmbH Commercial banking Germany 100.0% 29.0% 100.0% 29.1%BES Finance, Ltd. Financing vehicle Cayman Islands 100.0% 29.0% 100.0% 29.1%BES Investimento do Brasil, S.A. Investment banking Brazil 80.0% 23.2% 80.0% 23.3%BES REFRAN Investimentos Services provider Brazil 56.0% 13.0% - -BES REFRAN Consultoria Services provider Brazil 56.0% 13.0% - -BES Securities do Brasil, S.A. Brokerage house Brazil 100.0% 23.2% 100.0% 23.3%BESPAR, SGPS, S.A. Holding company Portugal 67.4% 67.4% 67.4% 67.4%BEST - Banco Electrónico de Serviço Total, S.A. Internet banking Portugal 100.0% 53.1% 100.0% 53.2%BIC International Bank Ltd. Commercial banking Cayman Islands 100.0% 29.0% 100.0% 29.1%Capital Mais - Assessoria Financeira, S.A. Advisory services Portugal 100.0% 29.6% 100.0% 29.7%CÊNTIMO, SGPS, S.A. Custodian company Portugal 100.0% 29.0% 100.0% 29.1%COMINVEST - Sociedade de Gestão e Investimento Imobiliário S.A. (a) Real-estate Portugal 49.0% 14.2% 49.0% 14.3%Espirito Santo Investment Sp. Z.o.o. Services provider Poland 100.0% 29.0% 85.4% 24.9%ES Bankers (Dubai) Limited Commercial banking Dubai 95.0% 95.0% 100.0% 100.0%ES Financial Services, Inc. Portfolio Management USA 100.0% 39.0% 100.0% 39.1%ES Tech Ventures, S.G.P.S., S.A. Holding company Portugal 100.0% 29.0% 100.0% 29.1%ES Ventures - Sociedade de Capital de Risco, S.A. Venture capital Portugal 100.0% 29.0% 100.0% 29.1%ES Recuperação de Crédito, ACE Debt collection Portugal 100.0% 29.0% 100.0% 29.1%ESAF - Alternative Assets Management Ltd Holding company United Kingdown 100.0% 29.6% 99.7% 29.7%ESAF - Espírito Santo Activos Financeiros, S.G.P.S., S.A. Holding company Portugal 90.0% 29.6% 90.0% 29.7%ESAF - Espírito Santo Participações Internacionais SGPS, S.A. Holding company Portugal (Madeira) 100.0% 29.6% 100.0% 29.7%ESAF - International Distributors Associates, Ltd. Distribution company British Virgin Islands 100.0% 29.6% 100.0% 29.7%ESFG International Ltd Financing vehicle Cayman Islands 100.0% 100.0% 100.0% 100.0%ESFG Overseas Ltd. Financing vehicle Cayman Islands - - 100.0% 100.0%ESGEST - Esp. Santo Gestão Instalações, Aprov. e Com., S.A. Technical services Portugal 100.0% 29.0% 100.0% 29.1%Espírito Santo Activos Financeiros, S.A. Advisory services Spain 100.0% 29.3% 100.0% 29.4%Espírito Santo Bank (Panama), S.A. Commercial banking Panama 100.0% 100.0% 100.0% 100.0%Espírito Santo Bank, Inc. Commercial banking USA 98.5% 28.5% 98.5% 28.7%Espírito Santo Capital - Sociedade de Capital de Risco, S.A. Venture capital Portugal 100.0% 29.0% 100.0% 29.1%Espírito Santo Capital Brasil SA Venture capital Brazil 100.0% 26.1% 100.0% 26.2%Espírito Santo Concessões, SGPS, S.A. (a) Holding company Portugal 41.0% 11.9% 41.0% 11.9%Espírito Santo Contact Center, Gestão de Call Centers, S.A. Call center services Portugal 97.1% 67.5% 97.1% 67.5%Espírito Santo Data S.G.P.S., S.A. Computer services Portugal 100.0% 29.0% 100.0% 29.1%Espírito Santo do Oriente - Estudos Fin. e Mercado Capitais S.A. Consulting Macau 90.0% 26.1% 90.0% 26.2%Espírito Santo e Comercial de Lisboa Inc. Representation office USA 100.0% 29.0% 100.0% 29.1%Espírito Santo Financial (Portugal), SGPS, S.A. Holding company Portugal 100.0% 100.0% 100.0% 100.0%Espírito Santo Financial Consultants, S.A. Portfolio Management Portugal 100.0% 29.0% 100.0% 29.1%Espírito Santo Financière, S.A. Holding company Luxembourg 100.0% 100.0% 100.0% 100.0%Espírito Santo Fundo de Pensões, S.A. Asset management - Pensions funds Portugal 100.0% 29.6% 100.0% 29.7%Espírito Santo Fundos de Investimentos Imobiliários, S.A. Asset management - Real Estate funds Portugal 100.0% 29.6% 100.0% 29.7%Espírito Santo Fundos de Investimentos Mobiliários, S.A. Asset management - Mutual funds Portugal 100.0% 29.6% 100.0% 29.7%Espírito Santo Gestão de Patrimónios, S.A. Portfolio Management Portugal 100.0% 29.6% 100.0% 29.7%Espírito Santo Gestión, S.A. S.G.I.I.C. Insurance broker Spain 100.0% 29.3% 100.0% 29.4%Espírito Santo Informatica, ACE Computer services Portugal 84.9% 24.6% 84.9% 24.7%Espírito Santo International Management, S.A. Asset management - Mutual funds Luxembourg 99.8% 29.6% 99.8% 29.7%Espírito Santo Investimentos, Ltda Investment banking Brazil 100.0% 29.0% 100.0% 29.1%Espírito Santo Investments PLC Brokerage house Ireland 100.0% 29.0% 100.0% 29.1%Espírito Santo Pensiones, S.G.F.P., S.A. Assets management - Pensions Spain 100.0% 29.3% 100.0% 29.4%Espírito Santo Prestação de Serviços, ACE 2 Shared services Portugal 100.0% 29.0% 100.0% 29.1%Espírito Santo Representações, Ltda Representation office Brazil 100.0% 29.0% 100.0% 29.1%Espírito Santo Saúde SGPS, S.A. (a) Holding company Portugal 37.9% 30.8% 37.9% 30.8%Espírito Santo Servicios, S.L. Insurance Spain 100.0% 29.0% 100.0% 29.1%Espírito Santo, PLC Non-bank finance company Ireland 100.0% 29.0% 100.0% 29.1%ESSI Comunicações, SGPS, S.A. Holding company Portugal 100.0% 29.0% 100.0% 29.1%ESSI Fin. SGPS. SA Holding company Portugal 60.0% 17.4% 60.0% 17.5%ESSI Investimentos, SGPS, S.A. Holding company Portugal 100.0% 29.0% 100.0% 29.1%ESSI, SGPS, S.A. Holding company Portugal 100.0% 29.0% 100.0% 29.1%Esumédica - Prestação de Cuidados Médicos, S.A. Health care Portugal 100.0% 82.3% 100.0% 82.3%Fiduprivate - Sociedade de Serviços, Cons.e Adm. Empresas, S.A. Consulting Portugal 99.8% 82.2% 99.8% 82.2%Gespar S/C, Ltda Holding company Brazil 100.0% 23.2% 100.0% 23.3%Jampur - Trading International, Lda Support services Portugal 100.0% 29.0% 100.0% 29.1%KeySpace Hungary Kft Real-estate Hungaria 51.0% 51.0% 51.0% 51.0%Kutaya Support services Madeira 100.0% 29.0% 100.0% 29.1%

Voting interest

Economic interest

Voting interest

Economic interest

31.12.200830.06.2009



Activity Location

Atlantic Ventures Corporation Holding company USA 100.0% 17.0% 100.0% 17.1%Casas da Cidade - Residências Sénior, S.A. Medical services Portugal 100.0% 30.8% - -Clínica Parque dos Poetas, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Cliria - Hospital Privado de Aveiro, S.A. Medical services Portugal 90.6% 27.9% 90.6% 27.9%ES Saúde - Residência com Serviços Sénior, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Espírito Santo - Unidades de Saúde e de Apoio à Terceira Idade, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Espírito Santo Representaciones, S.A. Representation office Uruguay 100.0% 28.5% 100.0% 28.7%FI Multimercado Treasury Investment funds Brazil 100.0% 23.2% 100.0% 23.3%Fundo BES FI Multimercado 30 Investment funds Brazil 52.9% 15.3% - -Fundo BES Absolute Return FIM Investment funds Brazil 52.2% 15.1% - -Fundo de Capital de Risco - FIQ Ventures II Venture capital fund Portugal 58.8% 17.0% 58.8% 17.1%Fundo de Capital de Risco - FIQ Ventures III Venture capital fund Portugal 70.3% 20.4% - -Fundo de Capital de Risco - BES PME Capital Growth Venture capital fund Portugal 100.0% 29.0% - -Fundo FCR PME / BES Venture capital fund Portugal 57.1% 16.6% 57.1% 16.6%Hospital da Arrabida - Gaia, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%HCI - Health Care International Inc. Medical services Portugal 50.0% 15.4% 50.0% 15.4%Hospital da Luz, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Hospital da Luz - Centro Clínico da Amadora, S.A. Medical services Portugal 100.0% 30.8% - -HME Gestão Hospitalar, S.A. Medical services Portugal 50.0% 15.4% 50.0% 15.4%Hospital Residência do Mar, S.A. Medical services Portugal 100.0% 23.1% 100.0% 23.1%HOSPOR - Hospitais Portugueses, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Instituto de Radiologia Dr. Idálio de Oliveira - Centro de Radiologia Médica, S.A. Medical services Portugal 100.0% 30.8% 100.0% 30.8%Morumbi Capital, S.A. Investment fund Cayman Islands - - 95.2% 27.7%Omnium Lyonnais de Participations Industrielles, S.A. Investment company France 99.9% 57.1% 99.9% 57.2%Parsuni - Sociedade Unipessoal, SGPS Holding company Portugal 100.0% 29.0% 100.0% 29.1%PARTRAN SGPS, S.A. Holding company Portugal 100.0% 100.0% 100.0% 100.0%Praça do Marquês - Serviços Auxiliares, SA Real-estate Portugal 100.0% 29.0% 100.0% 29.1%Quinta dos Cónegos- Sociedade Imobiliária, S.A. Real-estate Portugal 100.0% 42.5% 100.0% 42.6%RML - Residência Medicalizada de Loures, SGPS, S.A. Medical services Portugal 75.0% 23.1% 75.0% 23.1%SCI BOURDONNAIS 42 - Société Civile Immobilière Real-estate France 95.0% 95.0% 95.0% 95.0%SEGUROS LOGO S.A. Insurance Portugal 100.0% 100.0% 100.0% 100.0%SES Iberia, S.A. Asset management Spain 50.0% 14.5% 50.0% 14.6%SLMB - Société Lyonnaise de Marchands de Biens Real-estate France 99.8% 57.1% 99.8% 57.1%Société Civile Immobilière du 45 Avenue Georges Mandel Real-estate France 100.0% 50.8% 100.0% 50.9%Surgicare - Unidades de Saúde, S.A. Medical services Portugal 97.5% 30.0% 97.5% 30.0%Tagide Properties, Inc. Real-estate USA 100.0% 28.5% 100.0% 28.7%TRANQUILIDADE - Companhia de Seguros Tranquilidade, S.A. Insurance Portugal 100.0% 100.0% 100.0% 100.0%T-VIDA, Companhia de Seguros, S.A. Insurance Portugal 100.0% 100.0% 100.0% 100.0%Vila Lusitano - Unidades de Saúde, S.A. Medical services Portugal 100.0% 23.1% 100.0% 23.1%

Associates

Activity Location

Aquaspy Group Pty Limited Services provider Australia 26.3% 4.5% - -Ascendi - Concessoes de Transportes SGPS Motorway concession Portugal 40.0% 4.8% 40.0% 4.8%Apolo Films, S.L. Entertainment Spain 25.1% 7.3% 25.1% 7.3%BES, Companhia de Seguros, S.A. Insurance Portugal 50.0% 32.2% 50.0% 32.3%BES-Vida, Companhia de Seguros, S.A. Insurance Portugal 50.0% 14.5% 50.0% 14.6%BIO-GENESIS Holding company Brazil 36.0% 6.1% 36.0% 6.2%BRB Internacional, S.A. Entertainment Spain 24.9% 7.2% 24.9% 7.2%Concesionaria Autopista Perote-Xalapa, CV Motorway concession Mexico 20.0% 2.4% 20.0% 2.4%Coporgest Holding company Portugal 25.0% 7.2% 25.0% 7.3%Coreworks-Proj. Circuito Sist. Elect., S.A. Holding company Portugal 40.0% 6.8% 40.0% 6.9%DECOMED, SGPS Holding company Portugal 21.3% 3.5% 21.3% 3.5%ENKROTT S.A. Water management and treatment Portugal 30.0% 5.0% 30.0% 5.0%ESEGUR - Empresa de Segurança, S.A. Security Portugal 44.0% 12.8% 44.0% 12.8%Espírito Santo International Asset Management Ltd. Advisory services Cayman Islands 49.0% 14.5% 49.0% 14.6%Europ Assistance - Comp. Portuguesa Seguros Assistência, S.A. Insurance Portugal 47.0% 30.7% 47.0% 30.7%Fin Solutia - Consultoria de Gestão de créditos, S.A. Credit recovery Portugal 49.5% 8.6% 49.5% 8.6%Financière Mandel SCA Project finance France 45.0% 23.6% 45.0% 23.7%Fundo Espírito Santo IBERIA I Venture capital fund Portugal 38.7% 11.2% 38.7% 11.3%Genomed Medical services Portugal 35.0% 10.6% 35.0% 10.6%Global Active - Gesão Part. Soc., SGPS, SA Holding company Portugal 25.0% 4.3% 25.0% 4.3%HLC - Centrais de Cogeração, S.A. Services provider Portugal 24.5% 7.1% 24.5% 7.1%LOCARENT - Companhia Portuguesa de Aluguer de Viaturas, S.A. Consumer finance Portugal 45.0% 13.0% 45.0% 13.1%Lusoscut - Auto-Estradas da Costa de Prata S.A. Motorway concession Portugal 22.4% 2.7% 22.4% 2.7%Lusoscut - Auto-Estradas das Beiras Litoral e Alta S.A. Motorway concession Portugal 22.4% 2.7% 22.4% 2.7%Lusoscut - Auto-Estradas do Grande Porto S.A. Motorway concession Portugal 22.4% 2.7% 22.4% 2.7%Mobile World - Comunicações SA Telecommunication Portugal 49.0% 8.1% - -Multiwave Photonics SA IT Services Portugal 20.8% 3.5% 20.8% 3.6%Neumáticos Andrés Investments, S.A. (c) Services provider Spain 17.7% 5.1% 17.7% 5.2%OBLOG Consulting S.A. (b) Software development Portugal 66.6% 19.3% 66.6% 19.4%Outsystems, S.A. IT Services Portugal 27.3% 4.7% 27.3% 4.7%Polish Hotel Company, SP Services provider Poland 33.0% 9.6% 33.0% 9.6%Polish Hotel Capital SP Services provider Poland 33.0% 9.6% 33.0% 9.6%Polish Hotel Management Company, SP Services provider Poland 25.0% 7.2% 25.0% 7.3%Prosport - Com. Desportivas, S.A. Sporting goods trading Spain 25.0% 7.2% 25.0% 7.3%Só Peso Restauração e Hotelaria, S.A. (c) Restaurants Portugal 9.8% 2.8% 9.8% 2.9%RODI SINKS & IDEAS, S.A. Industry Portugal 35.4% 7.3% 44.3% 8.8%SAGEFI - Société Antillaise de Gestion Financière, S.A. Consumer credit France 38.8% 22.2% 38.8% 22.2%Salgar Investments S.L. Services provider Spain 23.6% 6.8% 23.6% 6.9%SGPICE Soc. de Serviços de Gestão Management of internet portals Portugal 33.3% 9.7% 33.3% 9.7%Sinergy industry and technology S.A. Holding company Spain 25.3% 7.3% 18.7% 4.4%SOPRATTUTTO CAFÉ, S.A. Distribution company Portugal 44.8% 7.4% 44.8% 7.5%Sousacamp, SGPS, S.A. Holding company Portugal 39.1% 6.7% 39.1% 6.7%Ydreams - Informática SA IT Services Portugal 26.1% 4.4% - -

31.12.200830.06.2009

Voting interest

Economic interest

Voting interest

Economic interest

31.12.200830.06.2009

Voting interest

Economic interest

Voting interest

Economic interest

(a) Although the Group’s voting interest is less than 50%, these companies are fully consolidated, as the Group controls its activities. (b) Although the Group’s voting interest is more than 50%, these companies’ activities are not controlled by the Group, but the Group exercises a

significant influence over them. (c) Although the Group’s voting interest is less than 20%, the Group exercises a significant influence over these companies.



Additionally and applying SIC 12 as described in Note 2.2, the Group consolidation scope includes the following

special purposes entities:

Lusitano SME No 1 plc 2006 Ireland Special Purpose Entity 100% Full consolidation

Lusitano Mortgages No 6 plc 2007 Ireland Special Purpose Entity 100% Full consolidation

Lusitano Project Finance No 1 plc 2007 Ireland Special Purpose Entity 100% Full consolidation

Lusitano Mortgages No 7 plc 2008 Ireland Special Purpose Entity 100% Full consolidation

Consolidation me thodActivity

% e conomic inte re stEstablishe d He adquarte re d

The main changes in the Group structure that occurred during the six months period ended 30 June 2009 are

highlighted as follows:

- Subsidiary companies

In April 2009, BES increase its share capital in the amount of euro 1 200 million through the issuance of

666,666,666 new shares with a nominal value of euro 1 each, and a subscription price of euro 1.80. As a

result of this capital increase BES share capital is currently represented by 1 166 666 666 ordinary shares with

a face value of euro 3 each. ESFG subscribed the share capital increase in order to maintain the same level of

control as prior to the capital increase;

In January 2009, the company BESAACTIF Pensões – Sociedade Gestora de Fundos de Pensões, S.A., was

incorporated and is held jointly by ESAF(35%) and BES Angola (62%);

In February 2009, the companies BES REFRAN Investimentos and BES REFRAN Consultoria were

incorporated and are held by BES Investimento Brasil;

In March 2009 the Group liquidated Morumbi Capital Fund and registered a gain of euro 832 thousands;

In April and June 2009, the funds FCR – ES Ventures III and FCR – BES PME Capital Growth were

incorporated and are included in the scope of consolidation of the Group;

In January 2009 ESFG sold 5% of its holding in ES Bankers (Dubai) Ltd., which did not generated any

gain / loss in the consolidated financial statements;

In June 2009 ESFG Overseas was liquidated.

- Associates (see Note 32)

In January 2009, BES acquired 6.58% of the share capital of Synergy Industry and Technology, S.A, thus

increasing its participation to 25.25%;

In May 2009, the Fund FCR Ventures II acquired 10.58% of the share capital of YDreams – Informática, SA,

thus increasing its participation to 26.08%;

In May 2009, the Fund FCR Ventures II acquired 10.45% of the share capital of Aquaspy Group Pty Limited,

thus increasing its participation to 26.25%;



In May 2009, the Fund FCR PME BES acquired 49.05% of the share capital of Mobile World –

Comunicações, SA.

As at 30 June 2009, gains on disposal of investments in subsidiaries and associates described above are as follows:

30.06.2009Net of minority

interest 30.06.2008Net of minority

interest

ES Saúde - - 8 958 8 958 Carlua - - 967 281 Fundo Morumbi 832 241 - -

832 241 9 925 9 239

(in thousands of euro)(in thousands of euro)



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

2.1. Basis of preparation and statement of compliance

In accordance with Regulation (EC) no. 1606/2002 of 19 July 2002 from the European Council and Parliament,

Espírito Santo Financial Group S.A. (“ESFG” or “the Company”) is required to prepare its consolidated financial

statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European

Union (“EU”).

IFRS comprise accounting standards issued by the International Accounting Standards Board (“IASB”) and its

predecessor body as well as interpretations issued by the International Financial Reporting Interpretations Committee

(“IFRIC”) and its predecessor body.

These interim consolidated financial statements have been prepared in accordance with International Financial

Reporting Standard (IFRS) IAS 34 - Interim Financial Reporting and do not include all the information required in the

preparation of a complete set of consolidated financial statements which will be prepared for the year ending 31

December 2009.

The interim consolidated financial statements as at and for the six months period ended 30 June 2009 were prepared in

accordance with the recognition and measurement requirements of IFRS effective and adopted by the EU until 30 June

2009. The accounting policies applied by the Group in the preparation of these interim consolidated financial

statements as at and for the six month period ended 30 June 2009 are consistent with the ones used in the preparation

of the annual consolidated financial statements as at and for the year ended 31 December 2008.

During the six month period ended 30 June 2009, the Group adopted:

- the amendment to IAS 1 – Presentation of Financial Statements. As a result the Group prepared the statements of

comprehensive income for the six month periods ended 30 June 2009 and 2008, which present all non-owner

changes in equity for these periods. All owner changes in equity are presented in the statement of changes in

equity. The adoption of the amended IAS 1 only impacted presentation aspects.

- the amendments to IFRS 2 – Share Based Payments, to IAS 23 – Borrowing Costs, to IAS 32 – Financial

Instruments: presentation – puttable financial instruments and obligations arising on liquidation, to IAS 39 –

Financial Instruments: recognition and measurement – eligible hedged items. The adoption of these amendments

had no impact on the consolidated financial statements of the Group;

- IFRIC 13 – Customer loyalty programmes, IFRIC 15 – Agreements for construction of real estate, IFRIC 16 –

Hedge of a net investment in a foreign operation, IFRIC 17 – Distributions of non-cash assets to owners and

IFRIC 18 – Transfers of assets from customers. The adoption of these interpretations had no significant impact on

the consolidated financial statements of the Group;



- the amendments resulting from the 2008 improvement project including amendments to IAS 19 Employee

Benefits, IAS 28 Investments in Associates, IAS 38 Intangible Assets, IAS 40 Investment Property. The adoption

of these amendments had no significant impact in the Group’s financial statements.

- IFRS 8 – Operating segments, which sets out the requirements for disclosures of information about an entity’s

operating segments. From 1 January 2009, the Group determines and presents operating segments based on the

information that internally is provided to management for decision making purposes. Comparative information

related to 30 June 2008 has been re-presented. The reporting operating segments in accordance with this standard

are presented in Note 4 – Segmental Reporting.

These interim consolidated financial statements are expressed in thousands of euro, except when indicated, and have

been prepared under the historical cost convention, except for the assets and liabilities accounted at fair value, namely,

derivative contracts, financial assets and financial liabilities at fair value through profit or loss, available-for-sale

financial assets, recognised assets and liabilities that are hedged, in a fair value hedge, in respect of the risk that is

being hedged and investment properties.

The preparation of financial statements in conformity with IFRS requires the application of judgment and the use of

estimates and assumptions by management that affects the process of applying the Group’s accounting policies and the

reported amounts of income, expenses, assets and liabilities. Actual results in the future may differ from those

reported. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates

are significant to the consolidated financial statements are disclosed in Note 3.

These interim consolidated financial statements were approved in the Board of Directors meeting held on 20 August

2009.

2.2. Basis of consolidation

These interim consolidated financial statements comprise the interim financial statements of Espírito Santo Financial

Group S.A. and its subsidiaries (“the Group”), and the results attributable to the Group from its associates.

These accounting policies have been consistently applied by the Group companies, during all the periods covered by

the interim consolidated financial statements.

Subsidiaries

Subsidiaries are entities over which the Group exercises control. Control is presumed to exist when the Group owns

more than one half of the voting rights. Additionally, control also exists when the Group has the power, directly or

indirectly, to govern the financial and operating policies of the entity, so as to obtain benefits from its activities, even if



its shareholding is less than 50%. Subsidiaries are fully consolidated from the date on which control is transferred to

the Group until the date that control ceases.

Accumulated losses of a subsidiary attributable to minority interest, which exceed the equity of the subsidiary

attributable to the minority interest, is attributed to the Group and is taken to the income statement when incurred. If

the subsidiary subsequently reports profits, these profits are recognised by the Group until the losses attributable to the

minority interest, previously recognised have been recovered.

When an interest in a subsidiary is disposed of, the difference between the proceeds from the disposal and the carrying

amount of the Group’s interest in the subsidiary net assets plus the carrying amount of goodwill related to subsidiary is

recognised in the income statement as a gain or loss on disposal.

A dilution occurs when the Group’s interest in a subsidiary decreases without the Group having disposed of any of its

shares in the subsidiary (for example, in the case the Group does not participate proportionally in a share issue of a

subsidiary). Gains or losses on dilution, when the control ceases, are accounted for by the Group in the income

statement.

Associates

Associates are entities over which the Group has significant influence over the company’s financial and operating

policies but not its control. Generally when the Group owns more than 20% of the voting rights it is presumed that it

has significant influence. However, even if the Group owns less than 20% of the voting rights, it can have significant

influence through the participation in the policy-making processes of the associated entity or the representation in its

executive board of directors. Investments in associates are accounted for by the equity method of accounting from the

date on which significant influence is transferred to the Group until the date that significant influence ceases.

If the Group’s share of losses of an associate equals or exceeds its interest in the associate, including any long-term

interest, the Group discontinues the application of the equity method, except when it has a legal or constructive

obligation of covering those losses or has made payments on behalf of the associate.

Special purpose entities (“SPE”)

The Group consolidates certain special purpose entities (“SPE”), specifically created to accomplish a narrow and well

defined objective, when the substance of the relationship with those entities indicates that they are controlled by the

Group, independently of the percentage of the equity held.



The evaluation of the existence of control is made based on the criteria established by SIC 12 – Consolidation –

Special Purpose Entities, which can be summarised as follows:

In substance, the activities of the SPE are being conducted in accordance with the specific needs of the Group’s

business, so that the Group obtains the benefits from these activities;

In substance the Group has the decision-making powers to obtain the majority of the benefits from the activities of

the SPE;

In substance, the Group has rights to obtain the majority of the benefits of the SPE, and therefore may be exposed to

the inherent risks of its activities;

In substance, the Group retains the majority of residual or ownership risks related to the SPE so as to obtain the

benefits from its activities.

Goodwill

Goodwill resulting from business combinations that occurred until 1 January 2004 was offset against reserves,

according to the option granted by IFRS 1, adopted by the Group on the date of transition to the IFRS.

From 1 January 2004, the purchase method of accounting is used by the Group to account for the acquisition of

subsidiaries and associates. The cost of acquisition is measured as the fair value, determined at the acquisition date, of

the assets and equity instruments given and liabilities incurred or assumed plus any costs directly attributable to the

acquisition.

Goodwill represents the difference between the cost of acquisition and the fair value of the Group’s share of

identifiable net assets acquired.

In accordance with IFRS 3 – Business Combinations, goodwill is recognised as an asset at its cost and is not

amortised. Goodwill relating to the acquisition of associates is included in the book value of the investment in those

associates determined using the equity method. Negative goodwill is recognised directly in the income statement in the

period the business combination occurs.

The recoverable amount of the goodwill recognised as an asset is reviewed annually, regardless of whether there is any

indication of impairment. Impairment losses are recognised directly in the income statement.

Transactions with minority interest

The goodwill resulting from the acquisition of minority interest in a subsidiary represents the difference between the

acquisition cost of the additional investment in the subsidiary and the book value, at acquisition date, of the net assets

acquired, as recognised in the consolidated financial statements.



Gains or losses on a dilution or on a sale of a portion of an interest in a subsidiary without a change in control,

corresponding to an increase in minority interest, are accounted for by the Group in the income statement.

Foreign currency translation

The financial statements of each of the Group entities are prepared using their functional currency which is defined as

the currency of the primary economic environment in which that entity operates. The consolidated financial statements

are prepared in euro, which is ESFG’s functional and presentation currency.

The financial statements of each of the Group entities that have a functional currency different from the euro are

translated into euro as follows:

Assets and liabilities are translated into the functional currency using the exchange rate prevailing at the balance

sheet date;

Income and expenses are translated into the functional currency at rates approximating the rates ruling at the dates of

the transactions;

The exchange differences resulting from the translation of the equity at the beginning of the year using the exchange

rates at the beginning of the year and at the balance sheet date are accounted for against reserves net of deferred

taxes. The exchange differences arising from the translation of income and expenses at the rates ruling at the dates

of the transactions and at the balance sheet date are accounted for against reserves. When the entity is sold such

exchange differences are recognised in the income statement as a part of the gain or loss on sale.

Balances and transactions eliminated in consolidation

Inter-company balances and transactions, including any unrealised gains and losses on transactions between Group

companies, are eliminated in preparing the consolidated financial statements, unless unrealised losses provide evidence

of an impairment loss that should be recognised in the consolidated financial statements.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s

interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an

impairment loss.

2.3. Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the

dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to euro at the

foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on translation are

recognised in the income statement.



Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated

using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign

currencies that are stated at fair value are translated to euro at the foreign exchange rates ruling at the dates the fair

value was determined. The resulting exchange differences are accounted for in the income statement, except if related

to equity instruments classified as available-for-sale, which are accounted for in equity, within the fair value reserve.

2.4. Derivative financial instruments and hedge accounting

Classification

Derivates for risk management purposes include (i) hedging derivatives and (ii) derivatives used to manage the risk of

certain financial assets and financial liabilities designated at fair value through profit or loss that were not classified as

being hedging derivatives.

All other derivatives are classified as trading derivatives.

Recognition and measurement

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into (trade date).

Subsequent to initial recognition, the fair value of derivative financial instruments is re-measured on a regular basis

and the resulting gains or losses on re-measurement are recognised directly in the income statement, except for

derivatives designated as hedging instruments. The recognition of the resulting gains or losses of the derivatives

designated as hedging instruments depends on the nature of the risk being hedged and of the hedge model used.

Fair values are obtained from quoted market prices, in active markets, if available or are determined using valuation

techniques, including discounted cash flow models and options pricing models, as appropriate.

Hedge accounting

Classification criteria

Hedge accounting is used for derivative financial instruments designated as hedging instruments, provided the

following criteria are met:

(i) At the inception of the hedge, the hedge relationship is identified and documented, including the

identification of the hedged item and of the hedging instrument and the evaluation of the effectiveness of the

hedge;

(ii) The hedge is expected to be highly effective, both at the inception of the hedge and on an ongoing basis;



(iii) The effectiveness of the hedge can be reliably measured, both at the inception of the hedge and on an ongoing

basis;

(iv) For cash flows hedges, the cash flows are highly probable of occurring.

Fair value hedge

In a fair value hedge, the book value of the hedged asset or liability, determined in accordance with the respective

accounting policy, is adjusted to reflect the changes in its fair value that are attributable to the risks being hedged.

Changes in the fair value of the derivatives that are designated as hedging instruments are recorded in the income

statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the risk

being hedged.

If the hedge no longer meets the criteria for hedge accounting, the derivative financial instrument is transferred to the

trading portfolio and the hedge accounting is discontinued prospectively. The cumulative adjustment to the carrying

amount of a hedged item for which the effective interest rate method is used is amortised to the income statement over

the period to maturity.

Cash flow hedge

When a derivative financial instrument is designated as a hedge of the variability in highly probable future cash flows,

the effective portion of changes in the fair value of the hedging derivatives is recognised in equity. Amounts

accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect the

income statement. The gain or loss relating to the ineffective portion is recognised immediately in the income

statement.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any

cumulative gain or loss recognised in equity at that time is recognised in the income statement when the hedged

transaction also affects the income statement. When a hedged transaction is no longer expected to occur, the

cumulative gain or loss reported in equity is recognised immediately in the income statement and the hedging

instrument is reclassified for the trading portfolio.

During the periods covered by these financial statements, the Group did not have any transactions classified as cash

flow hedge.

Embedded derivatives

Derivatives that are embedded in other financial instruments are treated as separate derivatives when their economic

characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair

value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value




2.5. Loans and advances to customers

Loans and advances to customers include loans and advances originated by the Group, which are not intended to be

sold in the short term. Loans and advances to customers are recognised when cash is advanced to borrowers.

Loans and advances to customers are derecognised from the balance sheet when (i) the contractual rights to receive

their cash flows have expired, (ii) the Group has transferred substantially all risks and rewards of ownership or (iii)

although retaining some but not substantially all of the risks and rewards of ownership, the Group has transferred the

control over the assets.

Loans and advances to customers are initially recorded at fair value plus transaction costs and are subsequently

measured at amortised cost, using the effective interest rate method, less impairment losses.

In accordance with the documented strategy for risk management, the Group contracts derivative financial instruments

to manage certain risks of a portion of the loan portfolio, without applying, however, the provisions of hedge

accounting as mentioned in Note 2.4. These loans are measured at fair value through profit or loss, in order to

eliminate a measurement inconsistency resulting from measuring loans and derivatives for risk management purposes

on different basis (accounting mismatch). This procedure is in accordance with the accounting policy for classification,

recognition and measurement of financial assets at fair value through profit or loss, as described in Note 2.6.

Impairment

The Group assesses, at each balance sheet date, whether there is objective evidence of impairment within its loan

portfolio. Impairment losses identified are recognised in the income statement and are subsequently reversed through

the income statement if, in a subsequent period, the amount of the impairment losses decreases.

A loan or a loan portfolio, defined as a group of loans with similar credit risk characteristics, is impaired when:

(i) there is objective evidence of impairment as a result of one or more events that occurred after its initial recognition

and (ii) that event (or events) has an impact on the estimated future cash flows of the loan or of the loan portfolio, that

can be reliably estimated.

The Group first assesses whether objective evidence of impairment exists individually for each loan. In this assessment

the Group uses the information that feeds the credit risk models implemented and takes into consideration the

following factors:

• the aggregate exposure to the customer and the existence of non-performing loans;

• the viability of the customer’s business model and its capability to trade successfully and to generate

sufficient cash flow to service their debt obligations;

• the extent of other creditors’ commitments ranking ahead of the Group;



• the existence, nature and estimated realisable value of collaterals;

• the exposure of the customer within the financial sector;

• the amount and timing of expected recoveries.

When loans have been individually assessed and no evidence of loss has been identified, these loans are grouped

together on the basis of similar credit risk characteristics for the purpose of evaluating the impairment on a portfolio

basis (collective assessment). Loans that are assessed individually and found to be impaired are not included in a

collective assessment for impairment.

If an impairment loss is identified on an individual basis, the amount of the impairment loss to be recognised is

calculated as the difference between the book value of the loan and the present value of the expected future cash flows

(considering the recovery period), discounted at the original effective interest rate. The carrying amount of impaired

loans is reduced through the use of an allowance account. If a loan has a variable interest rate, the discount rate for

measuring the impairment loss is the current effective interest rate determined under the contract rules.

The changes in the recognised impairment losses attributable to the unwinding of discount are recognised as interest

and similar income.

The calculation of the present value of the estimated future cash flows of a collateralised loan reflects the cash flows

that may result from foreclosure less costs for obtaining and selling the collateral.

For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk

characteristics, taking in consideration the Group’s credit risk management process. Future cash flows in a group of

loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the

loans in the Group and historical loss experience. The methodology and assumptions used for estimating future cash

flows are reviewed regularly by the Group with the purpose of reducing any differences between loss estimates and

actual loss experience.

When a loan is considered by the Group as uncollectible and an impairment loss of 100% was recognised, it is written

off against the related allowance for loan impairment. Subsequent recoveries of amounts previously written off

decrease the amount of the loan impairment loss recognised in the income statement.



2.6. Other financial assets

Classification

The Group classifies its other financial assets at initial recognition in the following categories:

Financial assets at fair value through profit or loss

This category includes: (i) financial assets held for trading, which are those acquired principally for the purpose of

selling in the short term and (ii) financial assets that are designated at fair value through profit or loss at inception.

The Group classifies, at inception, certain financial assets at fair value through profit or loss when:

Such financial assets are managed, measured and their performance evaluated on a fair value basis;

Such financial assets are being hedged (on an economical basis), in order to eliminate an accounting

mismatch; or

Such financial assets contain an embedded derivative.

Note 27 includes a summary of the assets and liabilities that were classified at fair value trough profit or loss at

inception.

The structured products acquired by the Group corresponding to financial instruments containing one or more

embedded derivatives meet the above mentioned conditions, and, in accordance, are classified under the fair value

through profit or loss category.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed

maturities that the Group’s management has the positive intention and ability to hold until its maturity and that are not

classified, at inception, as at fair value through profit or loss or as available-for-sale.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets (i) intended to be held for an indefinite period of

time, (ii) designated as available-for-sale at initial recognition or (iii) that are not classified in the other categories

referred to above.

Initial recognition, measurement and derecognition

Purchases and sales of: (i) financial assets at fair value through profit or loss, (ii) held-to-maturity investments and (iii)

available-for-sale financial assets are recognised on trade date – the date on which the Group commits to purchase or

sell the asset.



Financial assets are initially recognised at fair value plus transaction costs except for financial assets at fair value

through profit or loss, in which case these transaction costs are directly recognised in the income statement.

The best evidence of the fair value of the instrument at inception is deemed to be the transaction price. However, in

particular circumstances, the fair value of a financial instrument at inception, determined based on a valuation

technique, may differ from the transaction price, namely due to the existence of a built-in fee, originating a day one

profit.

The Group recognises in the income statement the gains arising from the built-in fee (day one profit), generated,

namely, on the trading of derivative and foreign exchange financial products, considering that the fair value of these

instruments at inception and on subsequent measurements is determined only based on observable market data and

reflects the Group access to the wholesale market.

Financial assets are derecognised when (i) the contractual rights to receive their cash flows have expired, (ii) the

Group has transferred substantially all risks and rewards of ownership or (iii) although retaining some but not

substantially all of the risks and rewards of ownership, the Group has transferred the control over the assets.

Subsequent measurement

Financial assets at fair value through profit or loss are subsequently carried at fair value and gains and losses arising

from changes in their fair value are included in the income statement in the period in which they arise.

Available-for-sale financial assets are also subsequently carried at fair value. However, gains and losses arising from

changes in their fair value are recognised directly in equity, until the financial assets are derecognised or impaired, at

which time the cumulative gain or loss previously recognised in equity is recognised in the income statement. Foreign

exchange differences arising from equity investments classified as available-for-sale are also recognised in equity,

while foreign exchange differences arising from debt investments are recognised in the income statement. Interest,

calculated using the effective interest rate method and dividends are recognised in the income statement.

Held-to-maturity investments are carried at amortised cost using the effective interest rate method, net of any

impairment losses recognised.

The fair values of quoted investments in active markets are based on current bid prices. For unlisted securities the

Group establishes fair value by using (i) valuation techniques, including the use of recent arm’s length transactions,

discounted cash flow analysis and option pricing models and (ii) valuation assumptions based on market information.

Financial instruments whose fair value cannot be reliably measured are carried at cost, net of impairment losses.



Reclassifications between categories

The Group only reclassifies non-derivative financial assets with fixed or determinable payments and fixed maturities,

from the available-for-sale financial assets category to the held-to-maturity investments category, if it has the intention

and ability to hold those financial assets until maturity.

Reclassifications between these categories are made at the fair value of the assets reclassified on the date of the

reclassification. The difference between this fair value and the respective nominal value is recognised in the income

statement until maturity, based on the effective interest rate method. The fair value reserve at the date of the

reclassification is also recognised in the income statement, based on the effective interest rate method.

In October 2008, IASB issued an amendment to IAS 39 Financial Instruments: Recognition and Measurement and

IFRS 7 Financial Instruments: Disclosures. This amendment to IAS 39, permits, in rare circumstances, to reclassify

non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial

recognition) out of the fair value through profit or loss category, to the held-to-maturity investments, available-for-sale

financial assets and loans and receivables categories.

The amendment also permits an entity to transfer from the available-for-sale category to the loans and receivables

category.

Financial assets may be reclassified to the (i) held-to-maturity investments category if the entity has the intention and

ability to hold those financial assets until maturity and to the (ii) loans and receivables category if the entity has the

intention and ability to hold those financial assets for the foreseeable future and if those financial assets are not traded

in an active market.

Following the issuance of this amendment to IAS 39, the Group reclassified, during the last quarter of 2008, non-

derivative financial assets, with fixed or determinable payments and fixed maturities, out of the fair value through

profit or loss category to the held-to-maturity investments category.

In accordance with the transitions rules of this amendment to IAS 39, the reclassifications of financial assets

performed until 31 October 2008 were made at the fair value of the assets reclassified on 1 July 2008 and any

reclassifications of a financial asset made in periods beginning on or after 1 November 2008 were made at the fair

value of the assets reclassified on the date of the reclassification. The difference between this fair value and the

respective nominal value will be recognised in the income statement until maturity, based on the effective interest rate

method.



Impairment

The Group assesses periodically whether there is objective evidence that a financial asset or group of financial assets is

impaired. If there is objective evidence of impairment, the recoverable amount of the asset is determined and

impairment losses are recognised through the income statement.

A financial asset or a group of financial assets is impaired if there is objective evidence of impairment as a result of

one or more events that occurred after their initial recognition, such as: (i) for equity securities, a significant or

prolonged decline in the fair value of the security below its cost, and (ii) for debt securities, when that event (or events)

has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably

estimated.

For held-to-maturity investments, the amount of the impairment loss is measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows (considering the recovery period) discounted at

the financial asset’s original effective interest rate. The carrying amount of the impaired assets is reduced through the

use of an allowance account. If a held-to-maturity investment has a variable interest rate, the discount rate for

measuring any impairment loss is the current effective interest rate determined under the contract. For held-to-maturity

investments if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related

objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss

is reversed through the income statement.

If there is objective evidence that an impairment loss on available-for-sale financial assets has been incurred, the

cumulative loss recognised in equity – measured as the difference between the acquisition cost and the current fair

value, less any impairment loss on that financial asset previously recognised in the income statement – is taken to the

income statement. If, in a subsequent period, the amount of the impairment loss decreases, the previously recognised

impairment loss is reversed through the income statement up to the acquisition cost if the increase is objectively

related to an event occurring after the impairment loss was recognised, except in relation to equity instruments, in

which case the reversal is recognised in equity.

2.7. Sale and repurchase agreements

Securities sold subject to repurchase agreements (‘repos’) at a fixed price or at the sales price plus a lender’s return are

not derecognised. The corresponding liability is included in amounts due to banks or to customers, as appropriate. The

difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the

effective interest rate method.

Securities purchased under agreements to resell (‘reverse repos’) at a fixed price or at the purchase price plus a

lender’s return are not recognised, being the purchase price paid recorded as loans and advances to banks or customers,



as appropriate. The difference between purchase and resale price is treated as interest and accrued over the life of the

agreements using the effective interest rate method.

Securities lent under lending agreements are not derecognised being classified and measured in accordance with the

accounting policy described in Note 2.6. Securities borrowed under borrowing agreements are not recognised in the

balance sheet.

2.8. Financial liabilities

An instrument is classified as a financial liability when it contains a contractual obligation to transfer cash or another

financial asset, independently from its legal form.

Non-derivatives financial liabilities include deposits from banks and due to customers, loans, debt securities,

subordinated debt and short sales. Preference shares issued are considered to be financial liabilities when the Group

assumes the obligation of reimbursement and/or to pay dividends.

The financial liabilities are recognised (i) initially at fair value less transaction costs and (ii) subsequently at amortised

cost, using the effective interest rate method, except for short sales and financial liabilities designated at fair value

through profit or loss, which are measured at fair value.

The Group designates, at inception, certain financial liabilities as at fair value through profit or loss when:

• Such financial liabilities are being hedged (on an economical basis), in order to eliminate an accounting

mismatch; or

• Such financial liabilities contain embedded derivatives.

The structured products issued by the Group meet the above mentioned conditions and, in accordance, are classified

under the fair value through profit or loss category.

The fair value of quoted financial liabilities is based on the current price. In the absence of a quoted price, the Group

establishes the fair value by using valuation techniques based on market information, including the own credit risk of

the issuer.

If the Group repurchases debt issued, it is derecognised from the balance sheet and the difference between the carrying

amount of the liability and its acquisition cost is recognised in the income statement.



2.9. Equity instruments

An instrument is classified as an equity instrument when it does not contain a contractual obligation to deliver cash or

another financial asset, independently from its legal form, being a contract that evidences a residual interest in the

assets of an entity after deducting all of its liabilities.

Transaction costs directly attributable to the issue of equity instruments are recognised under equity as a deduction

from the proceeds. Amounts paid or received related to acquisitions or sales of equity instruments are recognised in

equity, net of transaction costs.

Distributions to holders of an equity instrument are debited directly to equity as dividends, when declared.

Preference shares issued are considered as equity instruments if the Group has no contractual obligation to redeem and

if dividends, non cumulative, are paid only if and when declared by the Group.

2.10. Compound financial instruments

Non-derivative financial instruments that contain both a liability and an equity component (e.g. convertible bonds and

bonds issued with warrants) are classified as compound financial instruments. For these instruments to be considered

as compound financial instruments, the number of shares to be issued upon conversion is determined at the date of

issue and does not vary with changes in their fair value. The liability component corresponds to the present value of

the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that

do not have a conversion option. The equity component corresponds to the difference between the proceeds of the

issue and the amount attributed to the liability. The interest expense recognised in the income statement is calculated

using the effective interest method.

2.11. Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally

enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset

and settle the liability simultaneously.



2.12. Assets acquired in exchange for loans

Assets acquired in exchange for loans are initially reported in ‘Other assets’ and are initially recognised at the lower of

their fair values less costs to sell and the carrying amount of the loans.

Subsequently, those assets are measured at the lower of their carrying amount and the corresponding fair values less

costs to sell and are not depreciated. Any subsequent write-down of the acquired assets to fair value is recorded in the

income statement.

The value of assets acquired in exchange for loans is periodically reviewed by the Group, based on valuations

performed by experts.

When these assets are available for immediate disposal, in accordance with IFRS 5 – Non current assets held for sale,

they are classified as Non-current assets held for sale and booked in accordance with the accounting policy described

in note 2.27.

2.13. Property and equipment

Property and equipment are measured at cost less accumulated depreciation and impairment losses. At the transition

date to IFRS, 1 January 2004, the Group elected to consider as deemed cost, the revalue amount of property and

equipment as determined in accordance with previous accounting policies of the Group, which was broadly similar to

depreciated cost measured under IFRS, adjusted to reflect changes in a specific price index. The value includes

expenditure that is directly attributable to the acquisition of the items. In relation to the insurance activity, the Group

decided to consider as deemed cost of its buildings for own use the fair value at transition date.

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only

when it is probable that future economic benefits associated with the item will flow to the Group. All other repairs and

maintenance are charged to the income statement during the year in which they are incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method over their estimated

useful lives, as follows:

Number of years

Buildings 35 to 50

Improvements in leasehold property 10

Computer equipment 4 to 5

Furniture 4 to 10

Fixtures 5 to 12

Security equipment 4 to 10

Office equipment 4 to 10

Motor vehicles 4

Other equipment 5



When there is an indication that an asset may be impaired, IAS 36 requires that its recoverable amount is estimated

and an impairment loss recognised when the net book value of the asset exceeds its recoverable amount. Impairment

losses are recognised in the income statement.

The recoverable amount is determined as the greater of its net selling price and value in use which is based on the net

present value of future cash flows arising from the continuing use and ultimate disposal of the asset.

Buildings related to discontinued branches are classified under non-current assets held for sale when they are available

for immediate sale in accordance with the accounting policy described in Note 2.27.

2.14. Investment properties

The Group classifies as investment property the property held to earn rentals or for capital appreciation or both.

Investment property is recognised initially at cost, including transaction costs that are directly attributable

expenditures, and subsequently at their fair value. Changes in the fair value determined at each balance sheet date are

recognised in the income statement. Investment property is not amortised.

Subsequent expenditure is capitalised only when it is probable that it will give rise to future economic benefits in

excess of the originally assessed standard of performance of the asset.

2.15. Intangible assets

The costs incurred with the acquisition, production and development of software are capitalised, as well as the costs

incurred to acquire and bring to use the specific software. These costs are amortised on the basis of their expected

useful lives, which is usually between three to six years.

Costs that are directly associated with the development of identifiable specific software applications by the Group, and

that will probably generate economic benefits beyond one year, are recognised as intangible assets. These costs include

employee costs from the Group companies specialised in IT directly associated with the development of the referred

software.

All remaining costs associated with IT services are recognised as an expense as incurred.



2.16. Leases

The Group classifies its lease agreements as finance leases or operating leases taking into consideration the substance

of the transaction rather than its legal form, in accordance with IAS 17 – Leases. A lease is classified as a finance lease

if it transfers substantially all the risks and rewards incidental to ownership. All other leases are classified as operating

leases.

Operating leases

Payments made under operating leases are charged to the income statement in the period to which they relate.

Finance leases

As lessee

Finance lease contracts are recorded at inception date, both under assets and liabilities, at the cost of the asset leased,

which is equal to the present value of outstanding lease instalments. Instalments comprise (i) an interest charge, which

is recognised in the income statement and (ii) the repayment of principal, which is deducted from liabilities. Financial

charges are recognised as costs over the lease period, in order to produce a constant periodic rate of interest on the

remaining balance of liability for each period.

As lessor

Assets leased out are recorded in the balance sheet as loans granted, for the amount equal to the net investment made

in the leased assets. Interest included in instalments charged to customers is recorded as interest income, while

repayments of principal, also included in the instalments, is deducted from the amount of the loans granted. The

recognition of the interest reflects a constant periodic rate of return on the lessor's net outstanding investment.

2.17. Employee benefits

Pensions

To cover the liabilities assumed by the Group within the framework stipulated by the ACT "Acordo Colectivo de

Trabalho" for the banking sector in Portugal and by the CCT “Contrato Colectivo de Trabalho” for the insurance

sector in Portugal, pension funds were set up to cover retirement benefits, including widows and orphans benefits and

disability for the entire work force and also health-care benefits for employees hired until 31 March 2008. Employees

hired after 31 March 2008 are covered by the Social Security general scheme.

During 2008, BES obtained the necessary authorizations from the Portuguese Insurance Institute to change the Pension

Fund contract in order to allow coverage of all pension liabilities and health care benefits.



The pension liabilities and health care benefits are covered by funds that are managed by ESAF – Espírito Santo

Fundos de Pensões, S.A., a Group’s subsidiary.

The pension plans of the Group are classified as defined benefit plans, since the criteria to determine the pension

benefit to be received by employees on retirement are predefined and usually depend on factors such as age, years of

service and level of salary.

In the light of IFRS 1, the Group decided to adopt, at transition date (1 January 2004), IAS 19 retrospectively and has

recalculated the pension and other post-retirement benefits obligations and the corresponding actuarial gains and losses

to be deferred in accordance with the corridor method allowed by this accounting standard.

The pension liability is calculated semi-annually by the Group, as at 31 December and 30 June for each plan

individually, using the projected unit credit method, and reviewed annually by qualified independent actuaries. The

discount rate used in this calculation is determined by reference to interest rates of high-quality corporate bonds that

are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to

the terms of the related pension liabilities.

Actuarial gains and losses determined semi-annually and resulting from (i) the differences between financial and

actuarial assumptions used and real values obtained and (ii) changes in the actuarial assumptions are recognised as an

asset or liability and are recognised in the income statement using the corridor method defined by IAS 19.

This method establishes that the actuarial gains and losses accumulated at the beginning of the period that exceed the

greater of 10% of the pension liabilities or the fair value of the plan assets, as at the beginning of the period, are

charged to the income statement over a period not to exceed the average of the remaining working lives of the

employees participating in the plan. The Group has determined on the basis of the above criteria to amortise the

actuarial gains and losses that fall outside the corridor over a 15 year period. The actuarial gains and losses

accumulated at the beginning of the period that are within the corridor are not recognised in the income statement.

At each period, the Group recognises as a cost in the income statement a net total amount that comprises (i) the service

cost, (ii) the interest cost, (iii) the expected return on plan assets, (iv) a portion of the net cumulative actuarial gains

and losses determined using the corridor method, and (v) the effect of curtailment losses related with early retirements,

which includes the early amortisation of the respective actuarial gains and losses.

The effect of the early retirements corresponds to the increase in pension liabilities due to retirements before the

normal age of retirement, which is 65 years.

ESFG and its subsidiaries make payments to the fund in order to maintain its solvency and to comply with the

following minimum levels: (i) the liability with pensioners shall be totally funded at the end of each year, and (ii) the

liability related to past services cost with employees in service shall be funded at a minimum level of 95%.



The Group assesses at each reporting date and for each plan separately, the recoverability of any recognised asset in

relation to the defined benefit pension plans, based on the expectation of reductions in future contributions to the

funds.

Health care benefits

The Group provides to its banking employees health care benefits through a specific Social-Medical Assistance

Service. This Social-Medical Assistance Service (SAMS) is an autonomous entity which is managed by the respective

Union.

SAMS provides to its beneficiaries services and/or contributions on medical assistance expenses, diagnostics,

medicines, hospital confinement and surgical operations, in accordance with its financing availability and internal

regulations.

The annual contribution of the Group to SAMS amounts to 6.5% of the total annual remuneration of employees,

including, among others, the holiday and Christmas subsidy.

The measurement and recognition of the Group’s liability with post-retirement healthcare benefits is similar to the

measurement and recognition of the pension liability described above.

Long term service benefits

In accordance with the ACT "Acordo Colectivo de Trabalho" for the banking sector, BES Group has assumed the

commitment to pay to current employees that achieve 15, 25 and 30 years of service within the Group, long-term

service premiums corresponding, respectively, to 1, 2 and 3 months of their effective monthly remuneration earned at

the date the premiums are paid.

At the date of early retirement or disability, employees have the right to a premium proportional to what they would

earn if they remained in service until the next payment date.

These long term service benefits are accounted for by the Group in accordance with IAS 19 as other long-term

employee benefits.

The liability with long term service benefits is calculated semi-annually, at the balance sheet date, by the Group using

the projected unit credit method. The actuarial assumptions used are based on the expectations about future salary

increases and mortality tables. The discount rate used in this calculation is determined by reference to interest rates of

high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have

terms to maturity approximating to the terms of the related liabilities.



In each period, the increase in the liability for long term service premiums, including actuarial gains and losses and

past service costs is charged to the income statement.

Share based payments - Share based incentive scheme (SIBA)

BES and its subsidiaries established a share based payment scheme (SIBA) that allows its employees to acquire BES

shares with deferred settlement financed by it. The employees have to hold the shares for a minimum of two to four

years after which they can sell the shares in the market and repay the debt. However, the employees have, after the

referred period, the option to sell the shares back to BES at acquisition cost.

The shares held by the employees under SIBA are accounted for as treasury stock of BES, this scheme is classified as

an equity settlement share based payment in accordance with IFRS 2 – Share based payments.

Each option under the scheme is fair valued on grant date and is recognised as an expense, with a corresponding

increase in equity, over the vesting period. Annually the amount recognised as an expense is adjusted to reflect the

actual number of options that vest.

The equity instruments granted are not remeasured for subsequent changes in their fair value.

Share based payments – Stock option plan

In 2008, ESFG set-up a stock option plan that allows certain employees to acquire ESFG shares, or alternatively to

require a cash payment equivalent to the appreciation of ESFG share market price above the strike price.

The options granted to employees may be exercised after their first anniversary and during a ten year period.

This share based payment plan is within the scope of IFRS 2 – Share based payments and corresponds to a cash

settlement share based payment.

The fair value of this benefit plan at inception, determined at its grant date, will be taken to the income statement as

staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheet date,

being the fair value changes recognised in the income statement under the caption staff costs.

Variable remuneration payment plan

During the first semester of 2008, following the BES’ General Shareholders Meeting held on 31 March 2008, BES

and its subsidiaries established a benefits payment scheme - Variable remuneration payment plan (PPRV –

2008/2010).



Under this incentive scheme, employees of BES and its subsidiaries have the right to a future cash payment,

corresponding to the appreciation of BES shares above a pre-established price (strike price). In order to receive this

payment, the employees have to remain in BES for a minimum period of three years.

This variable remuneration payment plan is within the scope of IFRS 2 – Share based payments and corresponds to a

cash settlement share based payment.


staff costs over a period of three years. The recognised liability under the plan is re-measured at each balance sheet

date, being the fair value changes recognised in the income statement.

Bonus to employee and to the Board of Directors

In accordance with IAS 19 – Employee benefits, the bonus payment to employees and to the Board of Directors are

recognised in the income statement in the year to which they relate.

2.18. Income tax

Income tax for the period comprises current tax and deferred tax. Income tax is recognised in the income statement

except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Income tax recognised directly in equity relating to fair value re-measurement of available-for-sale financial assets and

cash flow hedges is subsequently recognised in the income statement when gains or losses giving rise to the income

tax are also recognised in the income statement.

Current tax is the tax expected to be paid on the taxable profit for the year, calculated using tax rates enacted or

substantively enacted at the balance sheet date at each jurisdiction.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the

carrying amounts of assets and liabilities for financial reporting purposes and their respective tax basis, and is

calculated using the tax rates enacted or substantively enacted at the balance sheet date in any jurisdiction and that are

expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax liabilities are recognised for all taxable temporary differences except for goodwill, not deductible for tax

purposes, differences arising on initial recognition of assets and liabilities that affect neither accounting nor taxable

profit and differences relating to investments in subsidiaries to the extent that probably they will not reverse in the

foreseeable future. Deferred tax assets are recognised to the extent it is probable that future taxable profits will be

available against which deductible temporary differences can be deducted.



The Group offsets deferred taxes assets and liabilities for each subsidiary, whenever (i) the subsidiary has a legally

enforceable right to set off current tax assets against current tax liabilities, and (ii) they relate to income taxes levied by

the same taxation authority. This offset is therefore performed at each subsidiary level, being the deferred tax asset

presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which present deferred tax assets and

the deferred tax liability presented in the consolidated balance sheet the sum of the subsidiaries’ amounts which

present deferred tax liabilities.

2.19. Provisions

Provisions are recognised when: (i) the Group has present legal or constructive obligation, (ii) it is probable that

settlement will be required in the future and (iii) a reliable estimate of the obligation can be made.

Restructuring provisions are recognised when the Group has approved a detailed and formal restructuring plan and

such restructuring either has commenced or has been announced publicly.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract

are lower than the unavoidable costs of meeting its obligation under the contract. The provision is measured at the

present value of the lower of the expected cost of terminating the contract and the expected net costs of continuing

with the contract.

2.20. Interest income and expense

Interest income and expense are recognised in the income statement under interest and similar income and interest

expense and similar charges for all non-derivative financial instruments measured at amortised cost and for the

available-for-sale financial assets, using the effective interest rate method. Interest income arising from non-derivative

financial assets and liabilities at fair value through profit or loss is also included under interest and similar income or

interest expense and similar charges, respectively.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the

expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the

financial asset or financial liability. The effective interest rate is calculated at inception and it is not subsequently

revised.

When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the

financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation

includes all fees and commissions paid or received that are an integral part of the effective interest rate, transaction

costs and all other premiums or discounts.

In the case of financial assets or groups of similar financial assets for which an impairment loss was recognised,

interest income is calculated using the interest rate used to measure the impairment loss.



For derivative financial instruments, except for derivatives for risk management purposes (see Note 2.4), the interest

component of the changes in their fair value is not separated out and is classified under net gains/(losses) from

financial assets and financial liabilities at fair value through profit or loss. The interest component of the changes in the

fair value of derivatives for risk management purposes is recognised under interest and similar income or interest

expense and similar charges.

2.21. Fee and commission income

Fees and commissions are recognised as follows:

Fees and commissions that are earned on the execution of a significant act, as loan syndication fees, are

recognised as income when the significant act has been completed;

Fees and commissions earned over the period in which the services are provided are recognised as income in the

period the services are provided;

Fees and commissions that are an integral part of the effective interest rate of a financial instrument are recognised

as income using the effective interest rate method.

2.22. Dividend income

Dividend income is recognised when the right to receive payment is established.

2.23. Fiduciary activities

Assets held in the scope of the fiduciary activity are not recognised in the consolidated financial statements of the

Group. Fee and commissions arising from this activity are recognised in the income statement in the period to which

they relate.

2.24. Insurance contracts

The Group issues contracts that contain insurance risk, financial risk or a combination of both insurance and financial

risk. A contract, under which the Group accepts significant insurance risk from another party, by agreeing to

compensate that party on the occurrence of a specified uncertain future event, is classified as an insurance contract.

A contract issued by the Group without significant insurance risk, but on which financial risk is transferred with

discretionary participating features is classified as investment contract recognised and measured in accordance with the

accounting policies applicable to insurance contracts. A contract issued by the Group that transfers only financial risk,



without discretionary participating features, is classified as an investment contract and accounted for as a financial

instrument.

The financial assets held by the Group to cover the liabilities arising under insurance and investment contracts are

classified and accounted for in the same way as other Group financial assets.

Insurance contracts and investment contracts with discretionary participating features are recognised and measured as

follows:

Premiums

Gross written premiums are recognised for as income in the period to which they respect, in accordance with the

accrual accounting principle.

Reinsurance premiums ceded are accounted for as expense in the period to which they respect in the same way as

gross written premiums.

Unearned premium reserve

The reserve for unearned gross written premiums and reinsurance ceded premiums reflects the part of the written

premiums before the end of the period for which the risk period continues after the end of the period. This reserve is

calculated using the pro-rata temporis method applied to each contract in force.

Acquisition costs

Acquisition costs that are directly or indirectly related to the selling of insurance and investment contracts with

discretionary participating features are capitalized and deferred through the life of the contracts. Deferred acquisition

costs are subject to recoverability testing at the time of the insurance policy or investment contract is issued and

subject to impairment test (liability adequacy test) at each reporting date.

Claims reserves

Claims outstanding reflects the estimated total outstanding liability for reported claims and for incurred but not

reported claims (IBNR). Reserves for both reported and not reported claims are estimated by management based on

experience and available data using statistical methods. Additionally, claims reserve also includes an estimation related

with future costs with claims settlement (“expense reserve”).

The mathematical reserves relating to obligations to pay life pensions resulting from workmen’s compensation claims

is calculated by using actuarial assumptions, with reference to recognised actuarial methods and current labour

legislation.



Claims reserves are not discounted, except life pensions arising from workmen’s compensation claims.

Unexpired risk reserve

The reserve for unexpired risks represents the amount by which expected claims and administrative expenses likely to

arise after the end of the period, from contracts concluded before that date, exceeds the unearned premiums reserve,

any expected future premiums expected to be written under those contracts and from premiums renewed on January

next year.

Life assurance reserve

The life assurance reserve reflects the present value of the Group's future obligations arising from life policies

(insurance contracts and investment contracts with discretionary participating features) written and is calculated in

accordance with recognised actuarial methods within the scope of applicable legislation.

Reserve for bonus and rebates

The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries of insurance

or investment contracts, in the form of profit participation, which have not yet been specifically allocated and included

in the life assurance reserve.

Liability adequacy test

At each reporting date, the Group performs a liability adequacy test to the insurance and investment contracts with

discretionary participating features liabilities. The assessment of the liabilities is performed using the best estimate of

future cash flows under each contract, discounted at a risk free rate. The liability adequacy test is performed product

by product or aggregate basis when contracts are subject to broadly similar risks and managed as a single portfolio.

Any deficiency determined, if exists, is recognised directly through income.

Shadow accounting

In accordance with IFRS 4, the unrealised gains and losses on the assets covering liabilities arising out from insurance

and investment contracts with discretionary participating features are attributable to policyholders, to the extent that it

is expected that policyholders will participate on those unrealised gains and losses when they became realised in

accordance with the terms of the contracts and applicable legislation, by recording those amounts under liabilities.

2.25. Segmental reporting

Since 1 January 2009 the Group adopted IFRS 8 – Segmental reporting. An operating segment is a component of the

Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and

expenses that relate to transactions with any of the Group’s other components. All operating segments’ operating



results are reviewed regularly by management to make decisions about resources to be allocated to the segment and

assess its performance, and for which separate financial information is available.

A geographical segment is engaged in providing products or services within a particular economic environment that

are subject to risks and return that are different from those of segments operating in other economic environments.

Inter-segment pricing is determined on an arms length basis.

2.26. Earnings per share

Basic earnings per share is calculated by dividing net income available to ordinary shareholders by the weighted

average number of ordinary shares outstanding during the period, excluding the average number of ordinary shares

purchased by the Group and held as treasury stock.

For the diluted earnings per share, the weighted average number of ordinary shares outstanding is adjusted to assume

conversion of all dilutive potential ordinary shares, such as convertible debt and share options granted to employees.

Potential or contingent share issuances are treated as dilutive when their conversion to shares would decrease net

earnings per share.

2.27. Non-current assets held for sale

Non-current assets or disposal groups (group of assets to be disposed of together and related liabilities that include at

least a non-current asset) are classified as held for sale when (i) their carrying amounts will be recovered principally

through sale (including those acquired exclusively with a view to its subsequent disposal), (ii) the assets or disposal

groups are available for immediate sale and (iii) its sale is highly probable.

Immediately before classification as held for sale, the measurement of the non-current assets or all assets and liabilities

in a disposal group, is brought up to date in accordance with the applicable IFRS. Subsequently, these assets or

disposal groups are measured at the lower of their carrying amount or fair value less costs to sell, determined annually

in accordance with the applicable IFRS.

2.28. Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than three months’

maturity from the inception date, including cash and deposits with banks.

Cash and cash equivalents exclude restricted balances with central banks.



NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING

ACCOUNTING POLICIES

IFRS set forth a range of accounting treatments and require management to apply judgment and make estimates in

deciding which treatment is most appropriate. The most significant of these accounting policies are discussed in this

section in order to improve understanding of how their application affects the Group’s reported results and related

disclosure. A broader description of the accounting policies applied by the Group is shown in Note 2 to the interim

consolidated financial statements.

Because in many cases there are other alternatives to the accounting treatment chosen by management, the Group’s

reported results would differ if a different treatment were chosen. Management believes that the choices made by it are

appropriate and that the interim consolidated financial statements present the Group’s financial position and results

fairly in all material respects.

3.1. Impairment of available-for-sale financial assets

The Group determines that available-for-sale financial assets are impaired when there has been a significant or

prolonged decline in the fair value below its cost or when it has identified an event with impact on the estimated future

cash flows of the assets. This determination requires judgement, based on all available relevant information, including

the normal volatility of the financial instruments prices.

Considering the high volatility and the reduced markets liquidity felt throughout 2008, the Group has considered the

following parameters when assessing the existence of impairment losses:

(i) Equity securities: declines in market value above 30% in relation to the acquisition cost or market value below the

acquisition cost for a period longer than twelve-months;

(ii) Debt securities: objective evidence of events that have an impact on the estimated future cash flows of these assets.

In addition, valuations are generally obtained through market quotation or valuation models that may require

assumptions or judgment in making estimates of fair value.

Alternative methodologies and the use of different assumptions and estimates could result in a higher level of

impairment losses recognised with a consequent impact in the income statement of the Group.



3.2. Fair value of derivatives

Fair values are based on listed market prices if available; otherwise fair value is determined either by dealer price

quotations (both for that transaction or for similar instruments traded) or by pricing models, based on net present value

of estimated future cash flows which take into account market conditions for the underlying instruments, time value,

yield curve and volatility factors. These pricing models may require assumptions or judgments in estimating fair

values.

Consequently, the use of a different model or of different assumptions or judgments in applying a particular model

may have produced different financial results from the ones reported.

3.3. Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment on a regular basis, as described in Note 2.5.

The evaluation process in determining whether an impairment loss should be recorded in the income statement is

subject to numerous estimates and judgments. The frequency of default, risk ratings, loss recovery rates and the

estimation of both the amount and timing of future cash flows, among other factors, are considered in making this

evaluation.

Alternative methodologies and the use of different assumptions and estimates could result in a different level of

impairment losses with a consequent impact in the consolidated income statement of the Group.

3.4. Securitisations and special purpose entities (SPE)

The Group sponsors the formation of special purpose entities (SPEs) primarily for asset securitisation transactions and

for liquidity purposes.

The Group does not consolidate SPEs that it does not control. As it can sometimes be difficult to determine whether

the Group does control an SPE, it makes judgements about its exposure to the risks and rewards, as well as about its

ability to make operational decisions for the SPE in question (see Note 2.2).

The determination of the SPEs that needs to be consolidated by the Group requires the use of estimates and

assumptions in determining the respective expected residual gains and losses and which party retains the majority of

such residual gains and losses. Different estimates and assumptions could lead the Group to a different scope of

consolidation with a direct impact in net income.



3.5. Held-to-maturity investments

The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable

payments and fixed maturity as held-to-maturity. This classification requires significant judgement.

In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the

Group fails to keep these investments to maturity other than for the specific circumstances – for example, selling an

insignificant amount close to maturity – it will be required to reclassify the entire class as available-for-sale. The

investments would therefore be measured at fair value instead of amortised cost.

Held-to-maturity investments are subject to impairment tests made by the Group. The use of different assumptions and

estimates could have an impact on the income statement of the Group.

3.6. Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant interpretations and estimates are required

in determining the worldwide amount for income taxes. There are many transactions and calculations for which the

ultimate tax determination is uncertain during the ordinary course of business.

Different interpretations and estimates would result in a different level of income taxes, current and deferred,

recognised in the period.

The Tax Authorities are entitled to review the Portuguese Group entities determination of annual taxable earnings, for

a period of four years or six years in case there are tax losses brought forward. The determination of annual tax

earnings by other Group entities (located outside Portugal) can also be subject to similar reviews by their respective

tax authorities. Hence, it is possible that some additional taxes may be assessed, mainly as a result of differences in

interpretation of the tax law. However, the Board of Directors of the Company and those of its subsidiaries, are

confident that there will be no material differences arising from tax assessments within the context of the financial

statements.

3.7. Pension and other employees’ benefits

Determining pension liabilities requires the use of assumptions and estimates, including the use of actuarial

projections, estimated returns on investment, and other factors that could impact the cost and liability of the pension

plan.

Changes in these assumptions could materially affect these values.



3.8. Insurance and investment contracts liabilities

Insurance and investment contracts liabilities represent liabilities for future insurance policy benefits. Insurance

reserves for traditional life insurance, annuities, and workmen’s compensation policies have been calculated based

upon mortality, morbidity, persistency and interest rate assumptions applicable to those coverage. The assumptions

used reflect the Groups’ and market experience and may be revised if it is determined that future experience will differ

substantially from that previously assumed. Insurance and investment contracts liabilities include: (i) unearned

premiums reserve, (ii) life mathematical reserve, (iii) reserve for bonus and rebates, (iv) unexpired risk reserve, (v)

liability adequacy test and (vi) claims reserves. Claims reserves include estimated provisions for both reported and

unreported claims incurred and related expenses.

When claims are made by or against policyholders, any amounts that the Group pays or expects to pay are recorded as

losses. The Group establishes reserves for payment of losses for claims that arise from its insurance and investment

contracts.

In determining their insurance reserves and investment contracts liabilities, the Group’s insurance companies perform

a continuing review of their overall positions, their reserving techniques and their reinsurance coverage. The reserves

are also reviewed periodically by qualified actuaries.

The Group maintains property and casualty loss reserves to cover the estimated ultimate unpaid liability for losses with

respect to both reported and not reported claims incurred as of the end of each accounting period.

Claims reserves do not represent an exact calculation of liability, but instead represent estimates, generally using

actuarial valuations/techniques. These reserve estimates are expectations of what the ultimate settlement of claims is

likely to cost based on an assessment of facts and circumstances then known, a review of historical settlement patterns,

estimates of trends in claims severity, frequency, legal theories of liability and other factors. Variables in the reserve

estimation process can be affected by both internal and external events, such as changes in claims handling procedures,

economic inflation, legal trends and legislative changes. Many of these items are not directly quantifiable, particularly

on a prospective basis. Additionally, there may be significant reporting lags between the occurrence of the insured

event and the time it is actually reported to the insurer. Reserve estimates are continually reviewed in a regular

ongoing process as historical loss experience develops and additional claims are reported and settled.



NOTE 4 - SEGMENT REPORTING

As at 1 January 2009, the Group adopted IFRS 8 – Operating Segments, for disclosure of information about the entity's

operating segments. In order to comply with the requirements of IFRS 8 the Group adopted new criteria in the

preparation of this information.

The Group activities are focused primarily on the banking and insurance sectors and are directed to companies,

institutional and private costumers. The Groups’ principal operating subsidiaries are located in Portugal, which makes

it its privileged market. The historical link with Brazil and Africa, the globalization of the Portuguese companies and

the Portuguese emigration to several countries, led to an internationalisation of the Group, which already has an

international structure contributing significantly to the Group’s activities and results. The Group is also active in

Portugal in the health-care management business.

The Group’s products and services include deposits, loans to retail and corporate costumers, fund management, broker

and custodian services, investment banking services, as well as the issuance and commercialization of life and non-life

insurance products. Additionally, the Group makes short, medium and long term investments in the financial and

currency exchange markets with the objective of taking advantages from the prices changes or to have a return from its

available resources.

The Group has BES as its main banking operating unit- with 703 branches in Portugal and with branches in London,

New York, Spain (25 branches), Nassau, Cayman Islands, Cape Verde and Madeira Free Zone and 12 representation

offices – with BES Investmento (investment banking), BES Angola, BES Açores (18 branches), Banco BEST (12

branches), Espírito Santo Bank, BES Oriente, BES Vénétie, Espírito Santo Activos Financeiros (ESAF), ES Bank

Panama, ES Bank Dubai and Banque Privée Espirito Santo. Tranquilidade, Logo and BES Seguros are the Group’s

non-life operating unit while T-Vida and BES-Vida are active in life-insurance.

When evaluating the performance by business area, the Group considers the following Operating Segments: (1)

Domestic Commercial Banking, including Retail, Corporate, Institutional and Private Banking; (2) Asset

Management; (3) International Commercial Banking including Private banking; (4) Investment Banking; (5) Capital

Markets and Strategic Investments; (6) Non-Life Insurance; (7) Life Insurance; (8) Health-care management and (9)

Corporative Centre. Each segment includes the Group structures that directly or indirectly relate to it, and also the

other units of the Group whose activities are most related to one of these segments. The performance of each operating

unit of the Group (considered as an investment centre) is evaluated individually.

Complementary, the Group, uses a second segmentation of its activities and results according to geographic criteria,

segregating the activity and the results generated from the units located in Portugal (domestic activities) from the units

located abroad (international activities).



4.1. Operating Segments Description

Each of the operating segments includes the following activities, products, customers and Group structures:

Domestic Commercial Banking

This operating segment includes all the banking activity with corporate and institutional costumers developed in

Portugal, based in the branch offices network, corporate centres and other channels and includes the following:

a) Retail: corresponds to all activity developed by BES in Portugal with private costumers and small business,

fundamentally originated by the branches network, agent network and electronic channels. The financial

information of the segment relates to, among other products and services, mortgage loans, consumer credit,

financing the clients’ activity, deposits repayable on demand and term deposits, retirement plans and other

insurance products to private costumers, commissions over account management and electronic payments, the

investment funds cross-selling and brokerage and custodian services.

b) Corporate and Institutional: includes BES activities in Portugal with small, medium and large companies, through

its commercial structure dedicated to this segment, which includes 28 corporate centres. Also includes activities

with institutional and municipal costumers. The main products considered on this segment are: discounted bills,

leasing, factoring and short and long term loans; includes deposits and guarantees, custodian services, letters of

credit, electronic payments management and other services.

c) Private Banking: includes private banking activity in Portugal, all profit, loss and assets and liabilities associated

to customers classified as private by the Group in Portugal. The main products considered on this segment are:

deposits; discretionary management, selling of investment funds, custodian services, brokerage services and

insurance products.

International Commercial Banking

This operating segment includes the units located abroad, which banking activities are focused on corporate, retail

customers and private banking, excluding investment banking and asset management, which are integrated in the

corresponding segments.

Among the units comprising this segment are BES Angola and Spain, London and New York Branches of BES, ES

Bankers Dubai, ES Bank Panama and Banque Privée. The main products included in this segment are deposits, credit,

asset management fees, leveraged finance, structured trade finance and project finance operations. This segment, in the

context of the funding strategy, has been assuming a relevant role, mainly within institutional customers.



Investment Banking

This segment includes assets, liabilities, profits and losses of the operating units that consolidate in BES Investimento,

which comprises all the investment banking activities of the Group originated in Portugal and abroad. In addition to

the lending activity, deposits and other forms of funding, it includes advisory services, mergers and acquisitions,

restructuring and debt consolidation, initial public offerings (shares and bonds), brokerage and other investment

banking services.

Asset Management

This segment includes the asset management activities developed by ESAF in Portugal and abroad (Spain, Brazil,

Angola, Luxembourg and United Kingdom). ESAF’s products includes all types of funds - investment funds, real

estate funds and pension funds, and also includes discretionary management services and portfolio management.

Life Insurance

This segment includes the activities of T-Vida in the life insurance sector and the Group’s participation in the activities

of its associated company, BES-Vida.

Non-Life Insurance

This segment includes the activities of Tranquilidade and Logo in the non-life insurance sector as well as the Group’s

participation in the activities of its associated companies, BES-Seguros and Europ-Assistance.

Health-care management

This segment includes the Group’s activities in the management of hospitals, outpatient clinics, residential hospitals

and senior citizen residences through ES Saúde.

Capital Markets and strategic investments

This segment includes the financial management of the Group, namely the investments in capital markets instruments

(equity and debt), whether they are integrated in trading, fair value, available for sale or held to maturity financial

assets portfolios. Also included in this segment is the Group’s investment in minority strategic positions, as well as all

the activity inherent to interest rate and exchange rate risk management, long and short positions on financial

instruments management, which allow the Group to take advantage of the price changes in those markets where these

instruments are exchanged.

Corporative centre

This area does not correspond to an operating segment. It refers to an aggregation of corporative structures acting

throughout the entire Group, such as Representative Office in London, areas related to the Board of Directors,

Compliance, Financial and Accounting, Risk management, Investor Relations, Internal Audit, Organization and

Quality, among others. It also includes the corporate borrowings of the Group.



4.2. Allocation criteria of the activity and results to the operating segments

The financial information presented for each segment was prepared in accordance with the criteria followed for the

preparation of internal information analysed by the decision makers of the Group, as required by IFRS.

The accounting policies applied in the preparation of the financial information related with the operating segments are

consistent with the ones used in the preparation of these consolidated financial statements, which are described in Note

2.

Measurement of profit or loss from operating segments

The Group uses net income before taxes as the measure of profit or loss for evaluating the performance of each

operating segment.

Autonomous Operating Segments

As mentioned above, each operating unit (subsidiaries and associated entities) is evaluated separately, as these units

are considered investment centres. Additionally, considering the characteristics of the business developed by these

units, they are fully included in one of the operating segments, assets, liabilities, equity, income and expenses.

ESFG structures dedicated to segments

The activity of BES, ESFG’s main subsidiary, comprises most of its operating segments and therefore its activity is

disaggregated.

For the purpose of allocating the financial information, the following principles are used: (i) the origin of the

operation, i.e., the operation is allocated to the same segment as the commercial structure that originated it, even

though, in a subsequent phase, the group makes a strategic decision in order to securitize some of these originated

assets; (ii) the allocation of a commercial margin to mass-products, established in a high level when the products are

launched; (iii) the allocation of a margin directly negotiated by the commercial structures with the clients for non-

mass-products; (iv) the allocation of direct costs from commercial and central structures dedicated to the segment; (v)

the allocation of indirect cost (central support and IT services) determined in accordance with specific drivers and with

the Cost Based Approach (CBA) model; (vi) the allocation of credit risk determined in accordance with the

impairment model.

The transactions between the independent and autonomous units of the Group are made at market prices; the price of

the services between the structures of each unit, namely the price established for funding between units, is determined

by the margins process referred above (which vary in accordance with the strategic relevance of the product and the

balance between funding and lending); the remaining internal transactions are allocated to the segments in accordance

with CBA without any margin from the supplier.



The interest rate risk, exchange risk, liquidity risk and others, except for credit risk, are included in the Financial

Department, whose mission is to make the Group’s financial management. The related activity and results are included

in Capital Markets and Strategic Investments segment.

Consolidated Investments under the Equity Method

Investments in associated companies consolidated under the equity method are included in Capital Markets and

Strategic Investments segment, in case of BES associates. For other companies of the Group, the same entities are

included in the segment they relate to.

The factors that influence the amount of responsibilities and the amount of the funds assets correspond, mainly, to

external elements; it is Group’s policy not to include these factors on the performance evaluation of Operating

Segment, which activities relate to customers.

Domestic and International Areas

In the disclosure of financial information by geographical areas, the operating units that integrate the International

Area are: BES Angola and its branches, BES Oriente, Espírito Santo Bank; ES Bankers Dubai, ES Bank Panama,

Banque Privée Espirito Santo, Espírito Santo Vénétie, ESFIL, London, Spain, New York and Cape Verde branches of

BES, and the operating units located abroad from BES Investimento and ESAF.

The financial elements related to the international area are presented in the financial statements of those units with the

respective consolidation and elimination adjustments.

Retrospective Information

In 2009, the Group adopted IFRS 8 – Operating Segments, which differ substantially from the rules employed until

this date in the preparation of the financial statements. As a consequence, the information related to 2008 was

reorganized and prepared to be consistent and compliant with IFRS 8.


The primary segments reporting are presented as follows:

30.06.2009

Corporate International Capital markets

Retail and Private comercial Investment Asset Life Non-life Health-care and strategic Corporative Total

institutional banking banking banking management insurance insurance management investments centre

Net banking interest 189 793 155 981 10 378 185 901 32 313 465 - - - 105 381 - 680 212

Net other interest - - - - - - 4 998 7 690 ( 3 152) - ( 22 881) ( 13 345)

Other operating income 166 439 112 129 28 341 66 730 71 052 13 113 16 155 145 241 112 450 160 610 23 268 915 528

Total operating income 356 232 268 110 38 719 252 631 103 365 13 578 21 153 152 931 109 298 265 991 387 1 582 395

Inter segment operating income 5 652 17 210 2 159 379 ( 971) ( 10 839) 1 507 2 087 ( 1 358) 54 173 9 951 79 950

External operating income 350 580 250 900 36 560 252 252 104 336 24 417 19 646 150 844 110 656 211 818 ( 9 564) 1 502 445

Operating costs 260 447 146 026 29 958 144 807 71 577 11 265 16 641 151 438 109 449 132 548 119 071 1 193 227

Gains from sale of investments in

subsidiaries and associates - - - - - - - - - 832 - 832

Shares of profit of associates - - - 17 1 137 - 9 012 1 420 ( 60) 2 168 325 14 019

Profit before income tax 90 133 104 874 6 602 107 462 33 896 13 152 12 017 826 1 147 82 270 ( 128 310) 324 069

Page 49


30.06.2008

Corporate Comercial Capital markets

Retail and Private banking Investment Asset Life Non-life Health-care and strategic Corporative Total

institutional banking international banking management insurance insurance management investments centre

Net interest income 218 864 129 104 13 572 149 215 16 130 1 674 - - - 24 872 - 553 431

Net interest expense corporate - - - - - - 8 747 9 970 ( 9 334) - ( 32 945) ( 23 562)

Other operating income 161 962 109 648 31 819 79 077 97 757 11 293 19 846 155 058 105 826 102 406 30 985 905 677

Total operating income 380 826 238 752 45 391 228 292 113 887 12 967 28 593 165 028 96 492 127 278 ( 1 960) 1 435 546

Inter segment operating income 7 439 20 480 2 665 37 554 4 579 ( 14 022) 3 249 1 659 1 936 ( 39 949) 33 291 58 881

External operating income 373 387 218 272 42 726 190 738 109 308 26 989 25 344 163 369 94 556 167 227 ( 35 251) 1 376 665

Operating costs 308 504 73 767 27 347 89 629 52 296 10 664 25 268 165 890 104 377 84 870 105 439 1 048 051

Gains from sale of investments in

subsidiaries and associates - - - 764 - - - ( 56 973) - 967 65 167 9 925

Shares of profit of associates - - - - 4 344 - 115 1 781 4 1 489 189 7 922

Profit before income tax 64 883 144 505 15 379 101 873 61 356 16 325 191 ( 57 713) ( 9 817) 84 813 ( 75 334) 346 461



30.06.2009

USA

Profit for the year after tax and before minority interest 164 495 ( 1 863) 9 415 28 625 14 185 ( 11 489) ( 100) ( 59) 6 965 1 090 14 885 35 921 1 359 2 628 266 057

Attributable to the minority interest 195 064

Profit for the year 70 993

Total Assets 58 540 767 5 908 816 1 172 237 9 523 501 934 508 61 620 2 562 2 532 732 464 420 78 544 1 299 152 3 891 394 140 677 181 343 84 732 273

Capital expenditure (property and equipment) 47 745 426 634 87 1 096 - - 13 2 13 - 23 170 1 1 73 188

Capital expenditure (intangible assets) 19 802 525 51 517 151 - - - - - - 907 - - 21 953

30.06.2008

USA

Profit for the year after tax and before minority interest 196 297 9 651 11 402 13 915 7 965 ( 28 441) ( 21) 7 907 1 426 ( 711) 17 780 21 749 753 678 260 350

Attributable to the minority interest 197 683

Profit for the year 62 667

Total Assets (a)53 590 588 6 336 063 1 198 947 8 473 771 797 709 107 043 5 392 2 190 626 481 133 54 996 1 027 561 3 530 153 153 421 202 170 78 149 573

Capital expenditure (property and equipment) (a) 108 518 1 438 378 136 4 563 36 - 167 41 21 - 84 750 19 32 200 099

Capital expenditure (intangible assets) (a) 70 749 4 936 196 - 301 - . - - - - 5 438 - 1 81 621

(a) Figures as at December 31, 2008


Hungary

HungaryLuxembourg TotalAngola

Dubai

Dubai

Total


Macao

Macao

Panama

Panama Brazil

Cape Verde

Cape Verde

Luxembourg

Portugal SwitzerlandSpain France UK

AngolaBrazilPortugal Spain France UK Switzerland

The secondary segment information is prepared in accordance with the geographical distribution of the Group’s business units, as follows:



NOTE 5 - NET INTEREST INCOME

This balance is analysed as follows:

30.06.2009 30.06.2008

Interest and similar income

Interest from loans and advances 1 261 533 1 421 676 Interest from loans and deposits with banks 64 735 170 785 Interest from financial assets at fair value through profit or loss 172 250 188 697 Interest from available-for-sale financial assets 109 296 119 168 Interest from derivatives for risk management purposes 502 054 377 952 Other interest and similar income 61 150 31 398

2 171 018 2 309 676

Interest expense and similar charges Interest from debt securities 471 118 675 711 Interest from amounts due to customers 289 270 312 999 Interest from deposits from central banks and other banks 154 206 251 498 Interest from subordinated debt 72 466 68 039 Interest from derivatives for risk management purposes 505 711 440 277 Other interest expenses and similar charges 11 380 31 283

1 504 151 1 779 807

666 867 529 869


Interest from loans and advances includes an amount of euro 10 813 thousands (30 June 2008: euro 8 155 thousands)

related to the unwind of discounts regarding the impairment losses of loans and advances to customers that are

overdue (see Note 25).

Interest from derivatives for risk management purposes includes, in accordance with the accounting policy described

in Notes 2.4 and 2.20, interest from hedging derivatives and from derivatives used to manage the risk of certain

financial assets and financial liabilities designated at fair value through profit or loss in accordance with the accounting

policies described in Notes 2.5, 2.6 and 2.8.

Page 52



NOTE 6 - NET FEE AND COMMISSION INCOME


30.06.2009 30.06.2008

Fee and commission incomeFrom banking services 250 322 233 621From guarantees granted 64 789 38 957From transactions with securities 15 893 26 291From commitments assumed to third parties 14 435 9 661Other fee and commission income 58 416 58 785

403 855 367 315

Fee and commission expensesFrom banking services rendered by third parties 32 483 33 764From transactions with securities 8 830 12 085From guarantees received 598 111Other fee and commission expense 7 149 13 319

49 060 59 279

354 795 308 036




NOTE 7 - NET GAINS/ (LOSSES) FROM FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT

FAIR VALUE THROUGH PROFIT OR LOSS


Gains Losses Total Gains Losses Total

Trading assets and liabilitesSecurities

Bonds and other fixed income securitiesIssued by government and public entities 46 221 ( 34 366) 11 855 31 300 ( 66 349) ( 35 049)Issued by other entities 16 321 ( 23 457) ( 7 136) 6 409 ( 4 351) 2 058

Shares 74 542 ( 44 395) 30 147 46 509 ( 38 018) 8 491

Other variable income securities 2 504 ( 1 016) 1 488 5 394 ( 44 047) ( 38 653)

139 588 ( 103 234) 36 354 89 612 ( 152 765) ( 63 153)Derivative financial instruments

Exchange rate contracts 2 211 382 (2 375 325) ( 163 943) 766 248 ( 728 240) 38 008 Interest rate contracts 4 401 995 (4 241 495) 160 500 4 224 214 (4 325 206) ( 100 992)Equity/Index contracts 766 410 ( 903 151) ( 136 741) 1 015 711 (1 002 649) 13 062 Credit default contracts 312 921 ( 288 439) 24 482 193 048 ( 198 134) ( 5 086)Other 316 672 ( 136 727) 179 945 185 685 ( 230 075) ( 44 390)

8 009 380 (7 945 137) 64 243 6 384 906 (6 484 304) ( 99 398)

8 148 968 (8 048 371) 100 597 6 474 518 (6 637 069) ( 162 551)

Financial assets and liabilities at fair valuethrough profit or loss

SecuritiesBonds and other fixed income securities

Issued by government and public entities 5 - 5 - - - Issued by other entities 134 326 ( 78 927) 55 399 200 474 ( 272 265) ( 71 791)

Shares 1 844 ( 6) 1 838 3 143 ( 15 561) ( 12 418)

Other variable income securities 63 464 ( 155 342) ( 91 878) 34 075 ( 58 567) ( 24 492)

199 639 ( 234 275) ( 34 636) 237 692 ( 346 393) ( 108 701)

Financial assets (1)

137 783 ( 221 489) ( 83 706) 6 882 ( 66 726) ( 59 844)

Financial liabilities (1)

224 494 ( 207 048) 17 446 327 446 ( 137 618) 189 828

362 277 ( 428 537) ( 66 260) 334 328 ( 204 344) 129 984

561 916 ( 662 812) ( 100 896) 572 020 ( 550 737) 21 283

8 710 884 (8 711 183) ( 299) 7 046 538 (7 187 806) ( 141 268)

(1) includes the fair value change of hedged assets and liabilit ies and of assets and liabilit ies at fair value through profit or loss


30.06.200830.06.2009

As at 30 June 2009, this balance includes a positive effect of euro 207 thousands related to the change in fair value of

financial liabilities designated at fair value through profit or loss, attributable to the Group’s credit risk component (30

June 2008: positive effect of euro 38 643 thousands).



NOTE 8 - NET GAINS FROM AVAILABLE-FOR-SALE FINANCIAL ASSETS


30.06.2009Gains Losses Total Gains Losses Total

Bonds and other fixed income securitiesIssued by government and public entities 2 920 ( 6) 2 914 568 ( 2 312) ( 1 744)Issued by other entities 11 733 ( 8 599) 3 134 5 985 ( 20 547) ( 14 562)

Shares 82 155 ( 85 389) ( 3 234) 329 075 ( 69 540) 259 535

Other variable income securities 861 ( 35) 826 3 432 ( 1 683) 1 749

Other 463 ( 2 332) ( 1 869) 4 293 ( 3 783) 510

98 132 ( 96 361) 1 771 343 353 ( 97 865) 245 488

30.06.2008


During the six months period ended 30 June 2008, the Group sold (i) 42.7 million ordinary shares of Bradesco

adjusted from the stock split, generating a gain of euro 233.5 million (euro 68.0 million net of minority interest); (ii)

29.3 million ordinary shares of EDP generating a gain of euro 18.8 million (euro 5.5 million net of minority interest)

and (iii) 7.6 million shares of Portugal Telecom realizing a gain of euro 8.1 million (euro 2.4 million net of minority

interest).

Related party transactions are described in Note 48.

NOTE 9 - NET GAINS FROM FOREIGN EXCHANGE DIFFERENCES

This balance is analysed follows:

Gains Losses Total Gains Losses Total(in thousands of euro)

Foreign exchange translation 831 273 ( 812 168) 19 105 389 382 ( 347 667) 41 715

831 273 ( 812 168) 19 105 389 382 ( 347 667) 41 715

30.06.2009 30.06.2008

This balance includes the exchange differences arising on translating monetary assets and liabilities at the exchange

rates ruling at the balance sheet date in accordance with the accounting policy described in Note 2.3.



NOTE 10 - INSURANCE EARNED PREMIUMS, NET OF REINSURANCE

The insurance earned premiums, net of reinsurance, can be analysed as follows:

30.06.2009 30.06.2008

Gross premiums written 187 265 204 843Reinsurance premiums ceded ( 30 370) ( 25 836)

Net premiums written 156 895 179 007

Change in the provision for unearned premiums, net of reinsurance ( 3 768) ( 3 377)

Earned premiums, net of reinsurance 153 127 175 630


The direct insurance written and earned premiums are analysed as follows:

Written Earned Written Earnedpremiums premiums premiums premiums

Life 22 015 20 305 20 464 20 464 Non -life:

Direct BusinessAccident and health 51 291 48 309 53 951 50 602 Fire and hazards 32 772 29 057 32 267 28 551 Motor 65 439 69 350 79 556 82 698 Maritime, airline and transportation 4 012 3 838 5 030 4 374 Third party liability 6 223 4 720 6 808 5 452 Credit and surety ship 69 59 72 92 Other 5 422 5 336 5 870 5 752

Total 187 243 180 974 204 018 197 985

Reinsurance accepted 22 21 825 4

187 265 180 995 204 843 198 432


30.06.2009 30.06.2008

47



The reinsurance written premiums are analysed as follows:

Written Earned Written Earnedpremiums premiums premiums premiums

Life 5 988 5 988 1 456 1 456 Non -life:

Direct BusinessAccident and Health 1 135 1 101 497 534 Fire and hazards 12 970 10 973 12 409 10 533 Motor 809 1 162 1 709 1 264 Maritime, airline and transportation 2 344 2 302 3 207 2 781 Third party liability 1 204 988 1 164 953 Credit and surety ship 52 41 48 66 Other 5 849 5 294 5 317 5 148

Total 30 351 27 849 25 807 22 735

Reinsurance accepted 19 19 29 67

30 370 27 868 25 836 22 802


30.06.2009 30.06.2008

In accordance with IFRS 4, the contracts issued by the Group for which there is only a transfer of financial risk, with

no discretionary participating features, are classified as investment contracts and accounted for as financial liabilities.

NOTE 11 - OTHER OPERATING INCOME AND EXPENSES


30.06.2009 30.06.2008

Other operating income arising from:

Medical services business 107 896 97 435Insurance business 4 238 1 254IT related business 477 3 105Call center business 6 494 7 575Gain on repurchase of Group debt securities (see Note 42) 106 662 - Other 24 028 35 180

249 795 144 549

Other operating expenses arising from:

Direct and indirect taxes 12 149 8 966Contributions to the depositors guarantee fund 2 264 1 971Membership and donations 4 190 11 918Medical services business 65 136 60 818Insurance business 1 387 1 226Other 29 479 23 368

114 605 108 267

135 190 36 282


Medical services business operating income and expenses relate mainly to the health-care business provided by

Espírito Santo Saúde SGPS, S.A. and its subsidiaries (see Note 1).



NOTE 12 - STAFF COSTS


30.06.2009 30.06.2008

Wages and salaries Remuneration 248 589 248 214 Long term service benefits (see Note 13) 1 612 3 330Pension costs (see Note 13) 43 307 19 800Other mandatory social charges 40 389 39 750

Other costs 16 389 14 023

350 286 325 117


The increase of pension costs for the six month period ended 30 June 2009, when compared to the same period ended

30 June 2008 is mainly explained by the increase in the amortisations of actuarial losses as a result of the fund’s

performance in 2008.

Included in other costs is the amount of euro 181 thousands (30 June 2008: euro 350 thousands) related with the

‘‘Stock Based Incentive Scheme’’ (SIBA) and a negative amount of euro 37 thousands related with the variable

remuneration payment plan (PPRV), in accordance with the accounting policy described in Note 2.17. The details of

these schemes implemented by BES Group are analysed in Note 13.

Also included in other costs is an amount of euro 4 090 thousands (30 June 2008: negative amount of euro 1 309

thousands) related to the stock options plans set-up by ESFG, in accordance with accounting policy described in Note

2.17 (see Note 13).

As at 30 June 2009 and 2008, the number of employees of the Group is analysed as follows:

30.06.2009 30.06.2008

Banking sector employees 6 767 6 834Financial sector subsidiary employees 2 770 2 526Insurance sector employees 784 820Employed by other companies essentially providing services to cus tomers outs ide the Group 3 089 3 417

13 410 13 597



NOTE 13 - EMPLOYEE BENEFITS

Pension and health-care benefits

As described in Note 2.17, the Group’s companies operate defined pension and health-care plans for their employees

and their dependants under which the benefits vest on the earlier of retirement, death or incapacity.

The actuarial valuation of pension and health-care benefits for the Group companies, except BES Group, is performed

annually, with latest valuation performed as at 31 December 2008. However, BES Group updated its actuarial

valuation as at 30 June 2009, the assumptions used, the resulting defined benefit obligation and the fair value of plan

assets as at that date being presented below in this note.

A detailed analysis of the pension and health-care benefits of the Group is included in the consolidated financial

statements as at 31 December 2008.

The net periodic benefit cost can be analysed as follows:

30.06.2009 30.06.2008


Service cos t 21 502 21 118 Interes t cos t 58 972 53 611 Expected return on plan assets ( 63 211) ( 59 541)Amortisation of the unrecognised net loss 26 044 4 612

Net benefit cost 43 307 19 800

During 2008, the Group obtained the necessary authorisations from the Portuguese Insurance Institute to change the

Pension Fund Contract in order to allow the coverage of all pension liabilities and health care benefits. The pension

funds in Portugal are managed by ESAF- Espírito Santo Funds de Pensões, S.A.

The real estate assets rented to the Group and securities issued by Group companies which are part of the pension fund

assets are analysed as follows:

30.06.2009 31.12.2008

Shares 79 560 75 570Fixed income securities 9 077 11 033Real estate 187 105 127 319

Total 275 742 213 922


As at 30 June 2009, the shares held by the pension fund correspond to 20.7 million shares of BES (31 December 2008:

11.3 million shares of BES).



As referred above, BES Group updated its actuarial valuation as at 30 June 2009, representing its defined benefit

obligation 97.8% of the Groups’ total liability as at 31 December 2008. The actuarial assumptions used in the actuarial

valuation as at this date were the following:

30.06.2009 31.12.2008Financial assumptionsSalaries increase rate 3.75% 4.00%Pens ions increase rate 1.75% 2.00%Expected return of plan assets 6.35% 5.80%Discount rate 5.75% 5.75%

Demographic assumptionsMortality tableMen TV 73/77 (adjus ted)W omen TV 88/90

Actuarial method Project Unit Credit Method

In accordance with IAS 19, BES Group liabilities as at 30 June 2009 and 31 December 2008 are analysed as follows:

Pension Health-care Total Pension Health-care Total

plans plans plans plans

Assets / (liabilities) recognised in the balance sheet

Defined benefit obligation

Pens ioners (1 243 740) ( 67 903) (1 311 643) (1 286 915) ( 70 213) (1 357 128)

Employees ( 695 291) ( 37 966) ( 733 257) ( 671 203) ( 36 543) ( 707 746)

(1 939 031) ( 105 869) (2 044 900) (1 958 118) ( 106 756) (2 064 874)

Fair value of plan assets 2 044 086 2 056 627

(Un)/overfunded liabilities ( 814) ( 8 247)

Unrecognised net actuarial losses 921 703 971 172

Assets/(liabilities ) recognised in the balance sheet 920 889 962 925

30.06.2009 31.12.2008




The change in the unrecognised net actuarial losses for BES Group, which represented 99.5% of the consolidated

figures as at 31 December 2008, are analysed as follows:

30.06.2009 31.12.2008


Unrecognised net actuarial losses as at 1 January 971 172 328 087 Actuarial (gains) and losses

- changes in actuarial assumptions ( 62 926) ( 87 684)- experience adjustments 38 803 750 724

Amortisation of the year ( 25 448) ( 16 907)Additional amortisation (curtailment) - ( 2 657)Exchange differences and other 102 ( 391)

Unrecognised net actuarial losses as at 30 June / 31 December 921 703 971 172

Of which:- W ithin the corridor 204 072 205 663 - Outs ide corridor 717 631 765 509

SIBA

During 2000, BES Group established a ‘‘Stock Based Incentive Scheme’’ (SIBA). This incentive scheme consists on

the sale to BES Group employees of one or more blocks of BES ordinary shares with deferred settlement for a period

that can vary between two to four years. During this period the employees are required to hold the shares, after which

they are allowed to sell the shares in the market or, alternatively, have the option to sell them back to BES at

acquisition cost.

The main characteristics of each plan are presented as follows:

Plan maturity (expected)

Number of shares at the

grant date

Average strike price

(euros)

Number of shares

as at 30.06.2009 (1)

Coverage by shares

Plan 20022nd block Expired (Apr-08) 1 762 619 12.02 - -

Plan 20031st block Expired (May-08) 480 576 14.00 - - 2nd block Expired (May-09) 1 121 343 14.00 - -

Plan 20041st block Dec-09 541 599 13.54 97 835 100%2nd block Dec-09 1 270 175 13.54 1 347 911 100%

(1) Includes shares attributed under the incorporation of share premium as a result of the capital increase in 2006.



The changes in the number of underlying shares to the outstanding plans during the six month period ended 30 June

2009 and the year ended 31 December 2008 were as follows:

Number of shares

Amount (thousands of euro)

Number of shares

Amount (thousands of euro)

Balance at the beginning of the period 2 479 081 29 838 3 484 262 41 437

Shares sold (1) (1 033 335) ( 4 023) (1 005 181) ( 11 599)

Balance at the end of the period 1 445 746 25 815 2 479 081 29 838

30.06.2009 31.12.2008

(1) Includes shares sold in the market, after the exercise by the employees of the option of sell back to BES at acquisition cost and those that werepaid by the employees at the maturity of the plans.

The assumptions used in the initial valuation of each plan were the following:

Plan 2004 Plan 2003 Plan 2002

Maturity1st block 24 months Expired Expired2nd block 60 months Expired Expired

Volatility 12% 12% 12%Risk free interest rate

1st block 3.04% 2.63% 2.70%2nd block 3.22% 3.52% 3.56%

Dividend yield 2.90% 2.90% 2.90%

Fair value at the grant date (thousands of euros) 2 305 2 137 2 830

The total costs recognised related to the plan are as follows:

30.06.2009 31.12.2008

Total costs of the plans (see Note 12) 181 703


Variable remuneration payment plan (PPRV)

As described in Note 2.17, during the first semester of 2008, following the General Shareholders Meeting held on 31

March 2008, BES and its subsidiaries established a benefits payment scheme, named Variable remuneration payment

plan (PPRV – 2008/2010).

Under this incentive scheme, BES Group employees have the right to a future cash payment equivalent to the

appreciation of BES shares between the initial reference date and the final reference date. Under this plan no rights

are granted to employees equivalent to a shareholding position in BES share capital.



The plans’ initial fair value was calculated using an option valuation model with the following assumptions:

Initial reference date 02.06.2008Final reference date 02.06.2011Rights granted to employees 5,000,000 Exercise price (in EUR) 11.00Interes t rate 5.22%Volatility 33.50%Initial fair value of the plan (in thousands of euro) 12 902

The fair value of the liability recognised is remeasured at the balance sheet date, amounting as at 30 June 2009 to

euro 775 thousands (31 December 2008: euro 812 thousands).

In accordance with the accounting policy described in Note 2.17, the initial fair value of the PPRV, in the amount of

euro 12 902 thousands, will be recognised during the three year period comprised between the initial and the final

reference dates. As such, the Group recognised during the first semester of 2009, as staff costs, the amount of euro

2 150 thousands (30 June 2008: euro 359 thousands). The change in the fair value of the benefit granted to employees

during the life of the program will also be recognised as staff costs.

Stock options plan - expired plan

On 4 April 1999, the Company established a stock-option plan that entitled key management personnel to purchase

ESFG shares. On 16 September 1999, a further grant on similar terms has been offered. In accordance with these

plans, options are exercisable at an exercise price determined based on the market price of the shares at grant date.

As at 30 June 2008, all options under the plans had already vested and the plan expired on 30 November 2008.

Considering the terms and conditions of the plans and ESFG’s informal practices of settling the options granted to

employees in cash, they were accounted for as cash-settled share-based payment arrangement, in accordance with the

accounting policy described in Note 2.17. Therefore, the fair value of these options, determined at each balance sheet

date, was recognised as a liability under Other liabilities.



The number and weighted average exercise prices of share options as of 30 June 2008 were as follows:

Outstanding as at 1 January 15.92

Exercised during the year 15.92 -

Outstanding as at 30 June 2008 15.92 180 000

Exercisable as at 30 June 2008 15.92 180 000

30.06.08

Weighted average exercise price

(in USD)

Number ofoptions

180 000

As at 30 June 2008, the fair value of the outstanding options amounted to euro 1 061 thousands

which was recognised under Other liabilities (see Note 43). During the six months period ended 30 June 2008, the

Company recognised an income related with the stock options plan amounting to euro 1 309 thousands (see Note 12).

During the second semester of 2008, the outstanding options were fully settled in cash. Therefore, as at 31 December

2008, there were no outstanding options in relation to this plan.

Stock options plan - new plan

On 1 October, 2008, the Company established a new stock-option plan that entitles key management personnel to

purchase ESFG shares, or alternatively to require cash payment equivalent to the appreciation of ESFG share market

price above the exercise price. Under the program, the Company may grant options to its employees up to 3,000,000

ordinary shares. The exercise price of each option equals the market price of ESFG share on the grant date and an

option’s maximum term is of 10 years. Options are granted at the discretion of the Board of Directors and have a

vesting period of 1 year.

As at 30 June 2009, no options under the plan have already vested.

Considering the terms and conditions of the plan and ESFG’s informal practices of settling the options granted to

employees in cash, they are accounted for as cash-settled share-based payment arrangement, in accordance with the

accounting policy described in Note 2.17.


staff costs over a period of one year. The recognised liability under the plan is re-measured at each balance sheet date,

being the fair value changes recognised in the income statement under staff costs.



The number and weighted average exercise prices of share options are as follows:


in Euro

Number ofoptions


in Euro

Number ofoptions

Outstanding at the beginning of the period 13.20 2 940 000 - -

Granted during the period - - 13.20 2 940 000

Outstanding at the end of the period 13.20 2 940 000 13.20 2 940 000

Exercisable at the end of the period - - 13.20 -

30.06.2009 31.12.2008

The options outstanding at 30 June 2009 and 31 December 2008 have a weighted average exercise price of euro 13.2

and a contractual life of approximately 10 years.

The plans’ initial fair value was calculated using an option valuation model with the following assumptions:

30.06.2009

Initial reference date 01.10.2008Final reference date 01.10.2018Number of options 2 940 000 Exercise price (in EUR) 13.20Interest rate 4.27%Initial spot price (in EUR) 10.33Volatility 26.47%Initial fair value of the plan (in thousands of euro) 4 783

In accordance with the accounting policy described in Note 2.17, the initial fair value of the new plan, amounting to

euro 4 783 thousands, will be recognised during the 12 month-period comprised between the grant date and its first

anniversary. As such, the Group recognised during the period, as staff costs, an amount of the amount of euro 2 391

thousands. The change in the plans’ fair value of the benefit granted to employees during the life of the program is

recognised in the income statement as staff costs and amounts to euro 1 699 thousands for the six months period

ended 30 June 2009.

The fair value of the liability recognised is remeasured at the balance sheet date, amounting as at 30 June 2009 to

euro 5 397 thousands (31 December 2008: euro 1 307 thousands) (see Note 43).

Long term service benefits

As referred in Note 2.17, for employees that achieve certain years of service, the Group pays long term service

premiums, calculated based on the effective monthly remuneration earned at the date the premiums are due. At the

date of early retirement or disability, employees have the right to a premium proportional to that they would earn if

they remained in service until the next payment date.



As at 30 June 2009 and 31 December 2008, the Group’s liabilities regarding these benefits amount to euro 27 927

thousands and euro 27 412 thousands, respectively (see Note 43). The costs incurred in the period with long term

service benefits amounted to euro 1 612 thousands (30 June 2008: euro 3 330 thousands).

The actuarial assumptions used in the calculation of the liabilities are those presented for the calculation of pensions

(when applicable).

NOTE 14 - GENERAL AND ADMINISTRATIVE EXPENSES


30.06.2009 30.06.2008

Rental costs 35 350 33 247Communication costs 22 025 23 337Traveling and representation costs 15 858 16 262Advertising costs 22 716 29 457Maintenance and related services 10 353 10 108Insurance costs 3 778 3 518Specialised services

IT services 25 568 26 212Professional services 4 415 5 134Temporary work 3 369 6 609Electronic payment system 6 351 7 434Legal costs 303 5 005Consultants and external auditors 10 482 15 006Other specialised services 10 541 20 623

Water, energy & fuel 4 954 4 658Current consumption material 3 603 3 246Transports 5 394 5 895Other costs 34 205 21 487

219 265 237 238


The balance Other specialised services includes, among others, costs with security, information services and databases.

The balance Other costs includes costs with training and external suppliers.



NOTE 15 - CLAIMS INCURRED, NET OF REINSURANCE

Claims incurred, net of reinsurance are analysed as follows:

30.06.2009 30.06.2008

Claims incurred for the life business 21 691 18 578 Claims incurred for the non-life business 90 523 97 232

112 214 115 810


Concerning the life business, the claims incurred, net of reinsurance are analysed as follows:

30.06.2009 30.06.2008

Claims paid Gross amount 23 711 21 265

Reinsurance share ( 308) ( 125)

23 403 21 140

Change in claims outstanding reserve Gross amount ( 1 758) ( 2 453) Reinsurance share 46 ( 109)

( 1 712) ( 2 562)

21 691 18 578


Concerning the non-life business, the claims incurred, net of reinsurance are analysed as follows:

30.06.2009 30.06.2008

Claims paid Gross amount 113 003 102 563 Reinsurance share ( 11 950) ( 4 733)

101 053 97 830

Change in claims outstanding reserve Gross amount ( 14 516) 6 671 Reinsurance share 3 986 ( 7 269)

( 10 530) ( 598)

90 523 97 232




The gross amount of claims paid and change in claims reserve for the non-life business are as follows:

Claims paid Change in

claims reserve Total Claims paid

Change in claims reserve Total

Direct businessAccident and health 32 715 ( 1 937) 30 778 30 327 363 30 690 Fire and other hazards 19 921 ( 7 933) 11 988 11 165 8 428 19 593 Motor 53 366 ( 6 441) 46 925 56 401 ( 2 851) 53 550 Maritime, airline and transportation 5 903 ( 126) 5 777 2 342 412 2 754 Third pary liability 849 1 310 2 159 1 526 157 1 683 Credit and suretyship 85 ( 52) 33 216 ( 267) ( 51)Other 164 94 258 510 294 804

Reinsurance accepted - 569 569 76 135 211

Total 113 003 ( 14 516) 98 487 102 563 6 671 109 234

30.06.2009 30.06.2008


NOTE 16 - CHANGE ON THE TECHNICAL RESERVES, NET OF REINSURANCE

The change on the technical reserves net, of reinsurance is analysed as follows:

30.06.2009 30.06.2008

Life business ( 8 405) 2 880 Non-life business 2 796 6 093

( 5 609) 8 973


Concerning the life business, the changes on the technical reserves are analysed as follows:

30.06.2009 30.06.2008

Change in life assurance reserve Gross amount ( 3 573) 2 180 Reinsurance share ( 5 108) ( 383)

( 8 681) 1 797

Reserve for bonus and rebates Gross amount 423 1 477 Reinsurance share ( 147) ( 394)

276 1 083

( 8 405) 2 880




Concerning the non-life business, the changes on the technical reserves are analysed as follows:

30.06.2009 30.06.2008

Change in non life insurance reserve Change in unexpired risk reserve 2 661 5 958 Others 135 135

2 796 6 093


NOTE 17 - INSURANCE COMMISSIONS

The insurance commissions are analysed as follows:

30.06.2009 30.06.2008

Direct insurance commissions Acquisition commissions and other costs 20 627 23 137 Change in deferred acquisition costs ( 773) (1 111) Collection commissions 1 005 1 183Reinsurance commissions (5 046) (5 634)

15 813 17 575


NOTE 18 - EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share, is calculated by dividing the net profit attributable to equity holders of the Company by the

weighted average number of ordinary shares outstanding during the year.

30.06.2009 30.06.2008(in thousands of euro)

Profit attributable to the equity holders of the Company 56 552 48 208

Weighted average number of ordinary shares outs tanding (thousands) 77 855 57 855

Basic earnings per share attributable to the equity holders of the Company (in euro) 0.73 0.83



Diluted earnings per share

The diluted earnings per share is calculated considering the profit attributable to the equity holders of the Company

and the weighted average number of ordinary shares outstanding, adjusted for the effects of all dilutive potential

ordinary shares.

30.06.2009 30.06.2008(in thousands of euro)

Profit attributable to the equity holders of the Company 56 552 48 208

Weighted average number of ordinary and potential shares outstanding (thousands) 77 855 57 943

Diluted earnings per share attributable to the equity holders of the Company (in euro) 0.73 0.83

The weighted average number of ordinary and potential shares outstanding used to calculate the dilutive earnings per

share considers the effect of the stock-option plan (see Note 13) and of the warrants issued (see Note 44). As at 30

June 2009 both the stock-option plan and the warrants issued are non-dilutive.

NOTE 19 - CASH AND DEPOSITS AT CENTRAL BANKS

As at 30 June 2009 and 31 December 2008, this balance is analysed as follows:

30.06.2009 31.12.2008

Cash 158 319 251 576

Deposits at central banksBank of Portugal 522 804 1 161 717Other central banks 559 425 631 630

1 082 229 1 793 347

1 240 548 2 044 923


The deposits at Central Banks include mandatory deposits with the Bank of Portugal intended to satisfy legal

minimum cash requirements, for an amount of euro 522 804 thousands (31 December 2008: euro 773 606 thousands).

According to the European Central Bank Regulation (CE) no. 2818/98, of 1 December 1998, minimum cash

requirements kept as deposits with the Bank of Portugal earn interest, and correspond to 2% of deposits and debt

certificates maturing in less than 2 years, excluding deposits and debt certificates of institutions subject to the

European System of Central Banks’ minimum reserves requirements. As of 30 June 2009, these deposits have earned

interest at an average rate of 1.52% (31 December 2008: 4.07%).



NOTE 20 - DEPOSITS WITH BANKS


30.06.2009 31.12.2008

Deposits with banks in PortugalUncollected cheques 178 644 285 873Repayable on demand 269 864 222 426

448 508 508 299

Deposits with banks abroadUncollected cheques 1 456 3 263Repayable on demand 109 075 159 359Other 207 651 213 580

318 182 376 202

766 690 884 501


Uncollected cheques in Portugal and abroad were sent for collection during the first working days following the

reference dates.

Deposits with banks includes the amount of euro 229 259 thousands (31 December 2008: euro 273 471 thousands)

related to deposits held by securitisation vehicles consolidated by the Group and that collateralise the debt issued in the

scope of the respective transactions (see Note 49).



NOTE 21 - FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING


30.06.2009 31.12.2008

Financial assets held for tradingSecurities

Bonds and other fixed income securitiesIssued by government and public entities 1 904 278 1 553 513Issued by other entities 103 685 94 660

Shares 30 376 16 342Other variable income securities 56 286 3 232

2 094 625 1 667 747

DerivativesDerivative financial instruments with positive fair value 1 958 345 2 025 558

4 052 970 3 693 305

Financial assets held for tradingDerivatives

Derivative financial instruments with negative fair value 1 602 529 1 930 905

1 602 529 1 930 905

(in thousands of euros)

In accordance with the accounting policy described in Note 2.6, securities held for trading are those which are bought

to be traded in the short-term, regardless of their maturity.



As at 30 June 2009 and 31 December 2008, derivative financial instruments can be analysed as follows:

Assets Liabilities Assets Liabilities

Exchange rate contractsForward - buy 1 139 677 1 565 541 - sell 651 086 1 186 093Currency Swaps - buy 2 900 231 1 223 435 - sell 2 915 447 1 294 547Currency Futures - - - 10 571 - - Currency Interes t Rate Swaps - buy 1 411 248 1 398 053 - sell 1 398 349 926 160Currency Options 10 176 164 197 935 208 842 7 710 712 270 688 188 371

20 592 202 258 499 284 542 15 315 112 451 081 483 231

Interest rate contractsForward Rate Agreements 567 000 551 1 899 1 674 740 1 348 1 471Interest Rate Swaps 42 835 881 1 355 411 1 023 762 56 466 278 1 193 413 985 649Swaption - Interes t Rate Options 859 788 9 769 1 688 5 180 646 9 672 7 745Interest Rate Caps & Floors 9 436 775 83 427 50 123 9 138 244 67 187 40 568Interest Rate Futures 76 200 - - 1 314 551 - - Bonds Options 20 000 42 96 - - - Future Options 12 714 246 - 623 20 972 550 - -

66 509 890 1 449 200 1 078 191 94 747 009 1 271 620 1 035 433

Equity/index contractsEquity / Index Swaps 892 072 40 189 33 211 868 417 50 927 61 284Equity / Index Options 3 112 954 160 599 161 640 4 292 082 191 896 284 968Equity / Index Futures 377 - - 102 944 - -

4 005 403 200 788 194 851 5 263 443 242 823 346 252

Credit default contractsCredit Default Swaps 2 981 680 49 858 44 945 2 779 578 60 034 65 989

94 089 175 1 958 345 1 602 529 118 105 142 2 025 558 1 930 905

214 750 49 338 49 058 154 559

1 662 3 105 5 937 4 258

9 564 23 537 19 897 75 852

30.06.2009

NotionalFair value


31.12.2008

NotionalFair value

NOTE 22 - OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS


30.06.2009 31.12.2008

Bonds and other fixed income securitiesIssued by other entities 1 353 125 1 362 984

Shares 9 296 7 146

Other securities 555 582 1 132 746

1 918 003 2 502 876




In light of IAS 39 and in accordance with the accounting policy described in Note 2.6, the Group designated these

financial assets at fair value through profit or loss, in accordance with the documented risk management and

investment strategy, considering that these financial assets (i) are managed and evaluated on a fair value basis and/or

(ii) have embedded derivatives.

NOTE 23 - AVAILABLE-FOR-SALE FINANCIAL ASSETS


Positive Negative Impairment

Bonds and other fixed income securitiesIssue by government and public entities 1 558 490 2 350 ( 2 862) ( 49) 1 557 929Issue by other entities 3 683 872 13 299 ( 87 938) ( 61 037) 3 548 196

Shares 2 032 737 211 919 ( 126 130) ( 92 020) 2 026 506 Other securities 829 113 15 842 ( 7 637) ( 18 551) 818 767

Balance as at 30 June 2009 8 104 212 243 410 ( 224 567) ( 171 657) 7 951 398

Bonds and other fixed income securitiesIssue by government and public entities 1 902 912 3 111 ( 31) ( 53) 1 905 939Issue by other entities 3 636 380 7 866 ( 82 239) ( 58 054) 3 503 953

Shares 1 736 616 37 091 ( 229 684) ( 88 797) 1 455 226 Other securities 755 455 13 052 ( 9 774) ( 18 182) 740 551

Balance as at 31 December 2008 8 031 363 61 120 ( 321 728) ( 165 086) 7 605 669

(1) Acquisition cost relating to shares and other variable income securities and amortised cost relating to debt securities .

Fair value reserve


Cost (1) Book value

The balance Available-for-sale financial assets includes an amount of euro 4 047 884 thousands of securities pledged

as collateral by the Group (31 December 2008: euro 2 279 209 thousands).

In accordance with the accounting policy described in Note 2.6, the Group assesses periodically whether there is

objective evidence of impairment on the available-for-sale financial assets, following the judgment criteria’s

described in Note 3.1.



The changes occurred in the period in impairment losses of available-for-sale financial assets are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance as at beginning of the period 165 086 84 415 67 086Charge for the period 16 646 92 105 24 463Charge off ( 22 692) ( 14 084) ( 6 307)Write back for the period ( 295) - ( 32)Exchange differences and other 12 912 2 650 ( 795)

Balance at the end of the period 171 657 165 086 84 415


The main equity exposures that contribute to the fair value reserve, as at 30 June 2009 and 31 December 2008, can be

analysed as follows:

Positive Negative

Banco Bradesco 501 681 147 355 - - 649 036Portugal Telecom 439 758 - ( 31 751) - 408 007EDP 375 944 - ( 64 767) - 311 177Banque Marocaine du Commerce Extérieur 2 480 7 429 - ( 682) 9 227

1 319 863 154 784 ( 96 518) ( 682) 1 377 447

Positive Negative

Banco Bradesco 412 745 - ( 20 493) - 392 252Portugal Telecom 454 356 - ( 91 222) - 363 134EDP 375 893 - ( 75 815) - 300 078Banque Marocaine du Commerce Extérieur 2 480 7 963 - ( 682) 9 761

1 245 474 7 963 (187 530) ( 682) 1 065 225


31.12.2008

Cost Fair value reserve

Impairment Market value

30.06.2009

Fair value reserve


Impairment Cost Market value

As at 30 June 2009, the unrealized losses related with the main equity exposures under the available-for-sale financial

assets category were recognised in the fair value reserve as they did not meet the judgment criteria’s applied for

impairment recognition, namely (i) the decline in market value above 30% in relation to the acquisition cost or (ii)

market value below the acquisition cost for a period longer than twelve-months.



During 2008, BES acquired 36.5 million shares of Banco Bradesco, adjusted by the stock split, by an amount of euro

359.8 million. Also during 2008, BES sold 42.7 million shares of Banco Bradesco by an amount of

euro 510.7 million, 38 million of which were sold to BES Vida. During 2008, BES Vida sold all Bradesco shares (see

Note 8 and Note 48).

Following these transactions, the investment funds managed by ESAF – Fundos de Investimento Mobiliário, S.A. and

the Group’s pension fund acquired 25.3 million shares of Banco Bradesco by an amount of euro 290.5 million and 5

million shares of Banco Bradesco by an amount of euro 67.1 million, respectively.

NOTE 24 - LOANS AND ADVANCES TO BANKS


30.06.2009 31.12.2008

Loans and advances to banks in PortugalInter-bank money market 50 071 1 326Deposits 6 457 079 140 508Loans 57 024 112 593Very short term deposits 23 312 58 266Other loans and advances 191 896 173 022

6 779 382 485 715

Loans and advances to banks abroadDeposits 986 133 621 007Loans 1 315 567 1 998 801Very short term deposits 1 280 830 191 584Other loans and advances 81 426 251 394

3 663 956 3 062 786

Overdue loans and interest 398 398

10 443 736 3 548 899

Impairment losses ( 683) ( 1 420)

10 443 053 3 547 479


The main loans and advances to banks in Portugal, as at 30 June 2009, bear interest at an average annual interest rate

of 1.9% (31 December 2008: 4.41%). Loans and advances to banks abroad bear interest at international market rates

where the Group operates.



The changes occurred in impairment losses of loans and advances to banks are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the begining of the period 1 420 1 463 1 602

Charge for the period 231 126 292Write back for the period ( 1 002) ( 302) ( 354)Exchange differences and other 34 133 ( 77)

Balance at the end of the period 683 1 420 1 463




NOTE 25 - LOANS AND ADVANCES TO CUSTOMERS


30.06.2009 31.12.2008

Domestic loansCorporate

Loans 12 062 433 11 820 345Commercial lines of credits 5 599 963 5 653 679Finance leases 3 119 620 3 086 997Discounted bills 707 497 906 749Factoring 1 203 162 1 096 588Overdrafts 54 193 39 311Other loans 178 770 266 223

RetailMortgage loans 10 366 687 10 394 044Consumer and other loans 2 360 739 2 436 367

35 653 064 35 700 303

Foreign loansCorporate

Loans 8 480 565 8 098 729Commercial lines of credits 2 102 988 2 076 222Discounted bills 181 255 204 263Finance leases 273 606 293 250Overdrafts 464 591 340 929Other loans 1 804 610 1 974 524

RetailMortgage loans 535 321 551 043Consumer and other loans 422 391 422 262

14 265 327 13 961 222

Overdue loans and interestUp to 3 months 216 033 148 376From 3 months to 1 year 297 154 179 488From 1 to 3 years 302 350 247 373More than 3 years 162 420 138 012

977 957 713 249

50 896 348 50 374 774

Impairment losses (1 417 783) (1 198 166)

49 478 565 49 176 608


As at 30 June 2009, the balance loans and advances to customers includes an amount of euro 4 434.4 million

(31 December 2008: euro 4 408.0 million) related to securitised loans following the consolidation of the securitisation

entities (see Note 49), according to the accounting policy described in Note 2.2. The liabilities related to these

securitisations are booked under Debt securities issued (see Notes 38 and 49).



As at 30 June 2009, loans and advances includes euro 2 705 038 thousands of mortgage loans that collateralise the

issue of covered bonds (31 December 2008: euro 2 722 664 thousands) (see Note 38).

The changes occurred in impairment losses of loans and advances to customers are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 1 198 166 1 126 251 1 035 364

Charge of the period 305 603 168 977 156 634 Charge off ( 40 357) ( 67 104) ( 21 262)Amounts recovered during the year previously charged-off 9 067 14 000 7 954 Write back of the period ( 35 602) ( 26 960) ( 40 627)Unwind of discount ( 10 813) ( 8 035) ( 8 155)Exchange differences and others ( 8 281) ( 8 963) ( 3 657)

Balance at the end of the period 1 417 783 1 198 166 1 126 251


The unwind of discount represents the interest on overdue loans, recognised as interest and similar income, as

impairment losses are calculated using the discounted cash flows method.



As at 30 June 2009 and 31 December 2008, loans and advances to customers and impairment losses can be analysed as

follows:

Gross amount

ImpairmentGross

amountImpairment

Gross amount

Impairment Net amount

Corporate loans 7 471 494 723 378 29 559 803 323 437 37 031 297 1 046 815 35 984 482

Mortgage loans 1 639 550 197 918 9 343 670 23 492 10 983 220 221 410 10 761 810

Consumer and other loans 587 029 112 080 2 294 802 37 478 2 881 831 149 558 2 732 273

Total 9 698 073 1 033 376 41 198 275 384 407 50 896 348 1 417 783 49 478 565

Gross amount

ImpairmentGross

amountImpairment

Gross amount

Impairment Net amount

Corporate loans 5 424 104 577 719 30 985 619 256 842 36 409 723 834 561 35 575 162

Mortgage loans 1 042 219 205 718 9 978 063 25 428 11 020 282 231 146 10 789 136

Consumer and other loans 304 240 88 745 2 640 529 43 714 2 944 769 132 459 2 812 310

Total 6 770 563 872 182 43 604 211 325 984 50 374 774 1 198 166 49 176 608



31.12.2008

Loans with impairment losses calculated on an individual basis

Loans with impairment losses calculated on a portfolio basis

Total

30.06.2009

Loans with impairment losses calculated on an individual basis

Loans with impairment losses calculated on a portfolio basis

Total

Loans with impairment losses calculated on an individual basis include loans with objective evidence of impairment,

overdue loans for over 90 days and restructured loans.

As at 30 June 2009, loans and advances to customers (excluding overdue loans and interest) include euro 70 458

thousands of restructured loans (31 December 2008: euro 63 686 thousands). These loans correspond, in accordance

with the definition of the Bank of Portugal, to loans previously overdue, which through a restructuring process are

considered as performing loans.

The interest recognised in the six months period ended 30 June 2009 as interest and similar income in relation to

impaired loans amounts to euro 208.8 million (30 June 2008: euro 152.5 million) which includes the effect of the

unwind of discount related to overdue loans.



NOTE 26 - HELD-TO-MATURITY INVESTMENTS

The held-to-maturity investments, can be analysed as follows:

30.06.2009 31.12.2008

Bonds and other fixed income securitiesIssued by government and public entities 493 676 504 424Issued by other entities 2 182 875 1 665 631

2 676 551 2 170 055

Impairment losses ( 6 746) -

2 669 805 2 170 055


During the year ended 31 December 2008, the Group has reclassified non-derivative financial assets to the held-to-

maturity investments category in the amount of euro 767.2 million, as follows:

Positive Negative


Available-for-sale financial as sets 551 897 522 715 424 ( 29 607) 701 070 5.75% 485 831 4 902

Financial assets held-for-trading 243 114 244 530 - - 408 976 11.50% 237 295 -

Bonds and other fixed income securities 795 011 767 245 424 ( 29 607) 1 110 046 723 126 4 902

a)

b)

Amortisation of the fair

value reserve in the period

ended 30 June 2009

Undiscounted capital and interest cash flows; future interest is calculated based on the forward int erest rat es at the date of reclassificat ion.

Effect ive interest rate was calculated based on t he forward interest rates at the dat e of reclassificat ion; the maturity considered was t he minimum between the call dat e, if applicable and the maturity date of the financial asset .

Reclassification date

Future cash-flows (a)

Effective interest rate (b)

Book value

Fair value reserveAcquisition cost

Market value as at 31

December 2008

The reclassification of financial assets held-for-trading as held-to-maturity investments was performed following the

amendment to IAS 39 Financial instruments: recognition and measurement and IFRS 7 Financial instruments:

disclosures, adopted by the Regulation (EU) nº 1004/2008 issued in 15 October 2008, as mentioned in the accounting

policy described in Note 2.6. This reclassification was made due to the market conditions following the international

financial crises that characterised the year 2008, which was considered to be one of the rare circumstances justifying

the application of the amendment to IAS 39.

During the six months period ended 30 June 2009, no transfer were made to this category of assets.

During the second half of 2008, BES Group acquired from BES Vida debt securities for an amount of euro 689.5

million, that were classified upon initial recognition as held-to-maturity investments.



The fair value of the held-to-maturity investments is presented in Note 50. The Group assessed, with reference to 30

June 2009, the existence of objective evidence of impairment on its held-to-maturity investment portfolio. The changes

occurred in impairment losses of held-to-maturity investments are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period - - - Charge for the period 7 154 - - Exchange differences and other ( 408) - -

Balance at the end of the period 6 746 - -


NOTE 27 - DERIVATIVES FOR RISK MANAGEMENT PURPOSES

As at 30 June 2009 and 31 December 2008, the fair value of the derivatives for risk management purposes can be


31.12.2008

Hedgingderivatives

Other derivatives for risk

management purposes

Total Total

Derivatives for risk management purposes

Derivatives for risk management purposes - assets 334 460 152 704 487 164 936 290 Derivatives for risk management purposes - liabilities ( 106 742) ( 203 768) ( 310 510) ( 727 475)

227 718 ( 51 064) 176 654 208 815

Fair value component of assets and liabilities being hedged

Financial assetsSecurities - 1 740 1 740 ( 726)Deposits at banks - 96 96 35 Loans and advances to costumers 10 056 24 893 34 949 1 747

10 056 26 729 36 785 1 056

Financial liabilitiesDeposits from banks ( 24 806) 99 392 74 586 ( 21 077)Due to customers ( 6 276) 28 227 21 951 6 108 Debt securities issued ( 107 987) 32 924 ( 75 063) ( 95 154)Subordinated debt 4 402 - 4 402 ( 17 431)

( 134 667) 160 543 25 876 ( 127 554)

( 124 611) 187 272 62 661 ( 126 498)

30.06.2009


As mentioned in the accounting policy described in Note 2.4, derivatives for risk management purposes includes

hedging derivatives and derivatives contracted to manage the risk of certain financial assets and financial liabilities

designated at fair value through profit or loss and that were not classified as hedging derivatives.



Changes in the fair value of the hedged items mentioned above and of the respective hedging derivatives are

recognised in the income statement under net gains / (losses) from financial assets and financial liabilities at fair value

through profit or loss.

As at 30 June 2009, the ineffectiveness of the fair value hedge operations amounted to euro 15.3 million

(31 December 2008: euro 6.8 million) and was recognised in the income statement. ESFG evaluates on an ongoing

basis the effectiveness of the hedges.

As at 30 June 2009, the fair value component of the financial liabilities at fair value through profit or loss, includes a

positive cumulative effect of euro 109 932 thousands (31 December 2008: cumulative effect of euro 109 725

thousands) attributable to the Group’s own credit risk. The change in fair value attributable to the Group’s own credit

risk resulted in the recognition, in the six months period ended 30 June 2009, of a profit amounting to euro 207

thousands ( 30 June 2008: euro 38 643 thousands).

NOTE 28 - NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE

This balance as at 30 June 2009 and 31 December 2008, is analysed as follows:

Assets Liabilities Assets Liabilities

Assets and liabilities of subsidiaries acquired exclusively for resale purposes 77 445 41 938 17 042 12 827

Property held for sale 202 690 - 151 954 - Equipment 1 841 - 1 413 - Other tangible assets 1 325 - 1 339 -

205 856 - 154 706 - Impairment losses ( 31 193) - ( 23 376) -

174 663 - 131 330 -

252 108 41 938 148 372 12 827


30.06.2009 31.12.2008

The amounts presented refer to (i) investments in entities controlled by the Group, which have been acquired

exclusively with the purpose of being sold in the short term, and (ii) assets acquired in exchange for loans and

discontinued branches available for immediate sale.

As at 30 June 2009, the amount of property held for sale includes euro 35 398 thousands (31 December 2008: euro 31

367 thousands) related to discontinued branches, in relation to which the Group recognised an impairment loss

amounting to euro 7 622 thousands (31 December 2008: euro 6 863 thousands).



The changes occurred in impairment losses are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 23 376 12 812 6 084

Charge for the period 8 877 11 471 4 660Charge off ( 5 521) ( 2 866) ( 1 982)Write back for the period ( 22) ( 134) - Transfers

(a) 4 483 2 093 4 050


(a) Represents the transfer from Other assets of impairment losses related to property which qualify for recognition as non

current assets held for sale, in accordance with the accounting policy described in Note 2.12 (see Note 34).



NOTE 29 - PROPERTY AND EQUIPMENT

As at 30 June 2009 and 31 December 2008 this balance is analysed as follows:

30.06.2009 31.12.2008

PropertyLand and buildings 662 486 662 026 Improvements in leasehold property 226 688 224 223 Other 2 705 2 742

891 879 888 991

EquipmentComputer equipment 302 091 298 270 Furniture 133 827 132 313 Fixtures 120 189 118 764 Security equipment 32 268 31 400 Office equipment 40 428 40 125 Medical equipment 83 078 79 294 Motor vehicles 8 453 7 310 Other 20 507 19 973

740 841 727 449

Other 18 883 18 374

Work in progressLand and buildings 171 540 135 051 Improvement in leasehold property 7 771 2 638 Equipment 10 193 9 500 Other 4 306 5 486

193 810 152 675

Accumulated depreciation ( 857 339) ( 821 749)Impairment losses ( 2 843) ( 2 843)

( 860 182) ( 824 592)

985 231 962 897


In accordance with the accounting policy described in Note 2.13, the Group concluded that there was an indication of

impairment in relation to certain property and equipment. Therefore it has performed impairment tests for these assets

and concluded that an accumulated impairment loss of euro 2 843 thousands should be recognised (31 December

2008: euro 2 843 thousands).



The movements in this balance were as follows:

Property Equipment Other Total

Acquisition costsBalance as at 31 December 2007 957 497 693 583 10 964 80 518 1 742 562

Acquisitions 4 882 10 987 1 501 65 530 82 900 Disposals ( 7 922) ( 8 087) ( 83) - ( 16 092)Transfers (a) 7 306 12 062 268 ( 25 696) ( 6 060)Exchange differences and other ( 1 923) ( 1 845) ( 109) ( 380) ( 4 257)

Balance as at 30 June 2008 959 840 706 700 12 541 119 972 1 799 053 Change in the scope of consolidation (d) ( 88 479) ( 19 598) ( 5 516) ( 1 964) ( 115 557)Acquisitions 8 654 27 391 3 168 77 986 117 199 Disposals ( 700) ( 3 971) ( 3 378) ( 5) ( 8 054)Transfers (b) 5 750 16 510 9 904 ( 44 604) ( 12 440)Exchange differences and other 3 926 417 1 655 1 290 7 288

Balance as at 31 December 2008 888 991 727 449 18 374 152 675 1 787 489 Acquisitions 5 858 14 400 682 52 248 73 188 Disposals ( 586) ( 2 460) ( 2) - ( 3 048)Transfers (c) ( 1 142) 2 035 - ( 6 498) ( 5 605)Exchange differences and other ( 1 242) ( 583) ( 171) ( 4 615) ( 6 611)

Balance as at 30 June 2009 891 879 740 841 18 883 193 810 1 845 413

DepreciationBalance as at 31 December 2007 270 989 522 769 2 906 - 796 664

Depreciation 13 797 21 323 1 762 - 36 882 Disposals ( 1 351) ( 7 755) - - ( 9 106)Transfers (a) ( 428) ( 32) - - ( 460)Exchange differences and other 163 349 ( 1 685) - ( 1 173)

Balance as at 30 June 2008 283 170 536 654 2 983 - 822 807 Change in the scope of consolidation (d) ( 10 860) ( 17 199) ( 4 388) - ( 32 447)Depreciation 12 819 24 044 3 365 - 40 228 Disposals ( 1 388) ( 3 532) ( 3 438) - ( 8 358)Transfers (b) ( 8 590) ( 1 102) 7 145 - ( 2 547)Exchange differences and other 213 ( 1 571) 3 424 - 2 066

Balance as at 31 December 2008 275 364 537 294 9 091 - 821 749 Depreciation 13 750 25 004 952 - 39 706 Disposals ( 586) ( 2 435) ( 2) - ( 3 023)Transfers (c) ( 1 113) ( 80) - - ( 1 193)Exchange differences and other ( 642) 871 ( 129) - 100

Balance as at 30 June 2009 286 773 560 654 9 912 - 857 339

ImpairmentBalance as at 31 December 2007 3 398 - 530 - 3 928

Impairment losses 91 - - - 91 Write-back for the period - - ( 26) - ( 26)Write-off for the period ( 1 163) - - - ( 1 163)

Balance as at 30 June 2008 2 326 - 504 - 2 830 Write-back for the period - - 26 - 26 Exchange differences and other - - ( 13) - ( 13)

Balance as at 31 December 2008 2 326 - 517 - 2 843

Balance as at 30 June 2009 2 326 - 517 - 2 843

Net balance as at 30 June 2009 602 780 180 187 8 454 193 810 985 231

Net balance as at 31 December 2008 611 301 190 155 8 766 152 675 962 897

Net balance as at 30 June 2008 674 344 170 046 9 054 119 972 973 416

(in thousand of euro)

Work in progress



(c) Includes the amount of euro 5 224 thousands related to the acquisition costs (property and equipment) and euro 1 193 thousands ofaccumulated depreciations transferred to the balance Other Assets, relating to discontinued branches.(d) Relates to the sale of Espírito Santo Health & Spa occurred in 2008.

(a) Includes an amount of euro 6 060 thousands related to the acquisition costs (property and equipment) and euro 460 thousands ofaccumulated depreciation transferred to the balance Other Assets, relating to discontinued branches.

(b) Includes the amount of euro 12 440 thousands related to the acquisition costs (property and equipment) and euro 2 547 thousands ofaccumulated depreciations transferred to the balance Other Assets, relating to discontinued branches.

NOTE 30 - INVESTMENT PROPERTIES

Investment properties are analysed as follows:

30.06.2009 31.12.2008

Insurance activity 87 069 86 942Real estate activity 3 980 2 875

91 049 89 817


The movement in investment properties for the six months periods ended 30 June 2009 and 30 June 2008, and for the

year ended 31 December 2008 can be analysed as follows:

Insurance Real estate activity activity Total

Net balance as at 1st January 2008 82 904 6 352 89 256 Acquisitions and improvements 3 354 - 3 354 Disposals ( 115) - ( 115)Other movements - 23 23

Net balance as at 30 June 2008 86 143 6 375 92 518 Acquisitions and improvements ( 112) - ( 112)Unrealised gains / losses 911 ( 3 500) ( 2 589)

Net balance as at 31 December 2008 86 942 2 875 89 817 Acquisitions and improvements 127 1 155 1 282 Other movements - ( 50) ( 50)

Net balance as at 30 June 2009 87 069 3 980 91 049




NOTE 31 - INTANGIBLE ASSETS

As at 30 June 2009 and 31 December 2008 this balance is analysed as follows:

30.06.2009 31.12.2008

Goodwill 231 372 229 065

Internally developed Software 23 746 20 847

Acquired from third parties Software 553 515 542 692 Other 1 742 1 531

555 257 544 223

Work in progress 29 060 23 225

839 435 817 360 Accumulated amortisation ( 482 641) ( 462 352)Impairment ( 1 607) -

355 187 355 008


Goodwill, recognised in accordance with the accounting policy described in Note 2.2, is analysed as follows:

30.06.2009 31.12.2008

HOSPOR 89 943 89 943PARTRAN 61 123 61 123BES 49 567 49 567BEST 8 874 8 874BESLEASING 7 437 7 437BESPAR 5 960 5 960Other 8 468 6 161

231 372 229 065


In accordance with the accounting policy described in Note 2.2, goodwill is subject to impairment tests annually or

whenever there is an indication of impairment. These tests were performed for the preparation of the consolidated

financial statements as at 31 December 2008 and will be performed for the preparation of the consolidated financial

statements as at 31 December 2009. As of 30 June 2009, an impairment on the investment in Concordia was

recognised as a charge for the six months period ended 30 June 2009.

The balance of internally developed software includes the costs incurred by the Group in the development and

implementation of software applications that will generate economic benefits in the future (see Note 2.15).



The movement in this balance was as follows:

WorkGoodwill Software Other in progress Total

Acquisition costsBalance as at 31 December 2007 212 607 489 702 1 608 33 419 737 336

Acquisitions :Internally developed - 2 122 - - 2 122 Acquired to third parties 8 873 3 378 - 17 219 29 470

Disposals - ( 38) ( 26) - ( 64)Transfers - 21 306 ( 108) ( 21 198) - Exchange differences and other 172 ( 206) ( 21) - ( 55)

Balance as at 30 June 2008 221 652 516 264 1 453 29 440 768 809 Acquisitions :

Internally developed - ( 1 980) - 8 173 6 193 Acquired to third parties 7 692 18 003 74 18 067 43 836

Disposals - ( 352) ( 19) - ( 371)Transfers - 32 477 - ( 32 477) - Exchange differences and other ( 279) ( 873) 23 22 ( 1 107)

Balance as at 31 December 2008 229 065 563 539 1 531 23 225 817 360 Acquisitions :

Internally developed - - - 3 751 3 751 Acquired to third parties 2 371 3 159 63 12 609 18 202

Transfers - 10 752 154 ( 10 525) 381 Exchange differences and other ( 64) ( 189) ( 6) - ( 259)

Balance as at 30 June 2009 231 372 577 261 1 742 29 060 839 435

AmortisationBalance as at 31 December 2007 - 423 741 1 354 - 425 095

Amortisation - 16 423 13 - 16 436 Disposals - 5 ( 26) - ( 21)Transfers - 108 ( 108) - - Exchange differences and other - 20 162 - 182

Balance as at 30 June 2008 - 440 297 1 395 - 441 692 Amortisation - 20 025 284 - 20 309 Disposals - ( 352) ( 10) - ( 362)Transfers - ( 620) 620 - - Exchange differences and other - 1 793 ( 1 080) - 713

Balance as at 31 December 2008 - 461 143 1 209 - 462 352 Amortisation - 20 671 94 - 20 765 Exchange differences and other - ( 655) 179 - ( 476)

Balance as at 30 June 2009 - 481 159 1 482 - 482 641

ImpairmentBalance as at 31 December 2008 - - - - -

Impairment losses 929 - - - 929 Exchange differences and other 678 - - - 678

Balance as at 30 June 2009 1 607 - - - 1 607

Net balance as at 30 June 2009 229 765 96 102 260 29 060 355 187

Net balance as at 31 December 2008 229 065 102 396 322 23 225 355 008

Net balance as at 30 June 2008 221 652 75 967 58 29 440 327 117




During 2008, the Group, through ESFG, increased its participation in Banco BEST by 34%, thus gaining full control

over this entity. This acquisition generated a goodwill of euro 8 874 million. Also in 2008, the Group, through BES,

acquired 10.64% of BES Leasing and Factoring - Instituição Financeira de Crédito, S.A., share capital, from which

resulted a goodwill for an amount of euro 7 437 thousands (see Note 1).

NOTE 32 - INVESTMENTS IN ASSOCIATES

The financial information concerning associates is presented in the following table (information adjusted for

consolidation purposes):

3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 0 .0 6 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 0 .0 6 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 8

BES VIDA 7 615 395 7 699 814 7 499 781 7 600 312 115 614 99 502 149 455 394 288 18 022 230 124 476 124 476 124 476

BES SEGUROS 118 820 115 515 96 451 92 532 22 369 22 983 31 669 31 844 2 000 2 499 7 501 7 501 7 501

EUROP ASSIST ANCE 39 895 32 072 31 482 23 255 8 413 8 817 17 973 13 363 1 045 861 2 344 2 344 2 344

LOCARENT 330 720 320 322 324 798 314 543 5 922 5 779 50 210 45 100 700 827 2 517 2 517 2 517

ESEGUR 45 424 42 419 34 356 29 788 11 068 12 631 29 683 27 067 805 2 700 9 634 9 634 9 634

FUNDO ES IBERIA 22 452 23 939 865 790 21 587 23 149 ( 223) 222 ( 551) ( 115) 10 496 10 496 10 496

BRB INTERNACIONAL 10 850 12 350 12 392 12 203 ( 1 542) 147 4 292 830 ( 4 309) ( 587) 10 034 10 033 10 034

AUTOPIST A PEROT E-XALAPA 284 861 284 861 134 217 134 217 150 644 150 644 - 5 316 - - 35 056 35 056 34 235

LUSOSCUT COSTA DE PRAT A 532 321 424 782 499 105 394 851 33 216 29 931 19 881 - 6 006 - 10 061 9 972 -

LUSOSCUT BEIRA LITORAL E ALT A 1 011 619 1 020 565 929 130 925 025 82 489 95 540 38 105 - 4 573 - 23 093 23 776 -

LUSOSCUT GRANDE PORT O 700 957 674 060 661 363 643 086 39 594 30 974 22 756 - 1 876 - 25 165 27 948 -

ASCENDI 6 148 7 952 3 805 3 023 2 343 4 929 - - ( 285) ( 71) 2 400 2 000 2 000

RODI SINKS & IDEAS 48 195 49 819 31 259 33 770 16 936 16 049 27 208 7 587 864 583 1 240 1 240 1 240

Other - - - - - - - - - - 84 334 61 844 53 976

348 351 328 837 258 453

( in tho us a nds o f e uro )

Assets Liabil ities Equity Income Profit / (Loss) for the period Acquisition cost

Share of profit of associates

3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 8 3 0 .0 6 .2 0 0 9 3 1.12 .2 0 0 8 3 0 .0 6 .2 0 0 8


BES VIDA 50.00% 50.00% 50.00% 52 567 44 511 71 973 9 012 ( 33 927) 115

BES SEGUROS 50.00% 50.00% 50.00% 11 184 11 491 11 132 1 000 2 004 1 250

EUROP ASSISTANCE 45.00% 45.00% 45.00% 4 029 4 078 4 016 420 764 532

LOCARENT 44.00% 44.00% 44.00% 2 786 2 722 2 370 315 724 371

ESEGUR 47.00% 47.00% 47.00% 11 713 12 402 12 357 354 2 209 1 188

FUNDO ES IBERIA 38.69% 38.69% 38.69% 8 687 9 342 9 500 ( 477) ( 519) ( 312)

BRB INTERNACIONAL 24.93% 24.93% 24.93% - 37 545 ( 37) ( 349) 159

AUTOPISTA PEROTE-XALAPA 20.00% 20.00% 20.00% 30 155 30 154 31 830 - - -

LUSOSCUT COSTA DE PRATA 22.38% 22.38% - 19 357 18 714 - 1 093 554 -

LUSOSCUT BEIRA LITORAL E ALTA 22.38% 22.38% - 43 256 43 909 - 511 1 290 -

LUSOSCUT GRANDE PORTO 22.38% 22.38% - 21 036 23 788 - ( 46) 87 -

ASCENDI 40.00% 40.00% 40.00% 1 337 1 972 1 972 ( 1 034) ( 28) ( 28)

RODI SINKS & IDEAS 44.30% 44.30% 44.30% 6 023 5 773 5 674 250 213 114

Other - - - 79 232 55 263 47 785 2 658 7 085 4 533

291 362 264 156 199 154 14 019 ( 19 893) 7 922

Book valueVoting interest



The movement occurred in this balance is presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 264 156 199 154 220 583

Disposals ( 4 149) ( 3 325) ( 1 135)Acquisitions 23 659 74 476 40 803Share of profit of associates 14 019 ( 27 815) 7 922Dividends received ( 2 471) 6 246 ( 35 308)Fair value reserve of associates (a) ( 414) ( 2 957) ( 26 757)Exchange differences and other ( 3 438) 18 377 ( 6 954)


(a) represents mainly the movement on fair value reserve of BES VIDA


NOTE 33 - TECHNICAL RESERVES

The direct insurance and reinsurance ceded technical reserves are analysed as follows:

Direct Reinsurance Direct Reinsurance insurance ceded Total insurance ceded Total

Unearned premiums reserve 112 374 17 037 95 337 107 560 14 282 93 278Life mathematical reserve 336 935 6 047 330 888 338 798 938 337 860Claims outstanding reserve 524 573 31 808 492 765 541 576 36 564 505 012Unexpired risks reserve 24 754 - 24 754 22 093 - 22 093Reserve for bonus and rebates 2 120 71 2 049 2 460 455 2 005

1 000 756 54 963 945 793 1 012 487 52 239 960 248

30.06.2009 31.12.2008

( in thousands of euro)

The life mathematical reserve is analysed as follows:


Annuities 91 840 690 91 150 94 635 - 94 635Life 245 095 5 357 239 738 244 163 938 243 225

336 935 6 047 330 888 338 798 938 337 860

30.06.2009 31.12.2008




In accordance with IFRS 4, the contracts issued by the Group for which there is only a transfer of financial risk, with

no discretionary profit sharing, are classified as investment contracts and accounted for as financial liabilities.

The claims outstanding reserve by line of business is analysed as follows:


Life 7 830 116 7 714 9 589 163 9 426 Workers compensation (mathematical reserve) 126 910 27 126 883 129 591 31 129 560 Workers compensation (not related to life pensions) 45 905 - 45 905 47 695 - 47 695 Accidents and health 14 586 181 14 405 12 329 524 11 805 Fire and other hazards 25 018 6 820 18 198 32 393 10 940 21 453 Motor 276 614 12 542 264 072 283 503 12 919 270 584 Maritime, airline and transportation 7 553 4 019 3 534 7 664 4 489 3 175 Third parties liabilities 18 448 7 680 10 768 17 152 7 039 10 113 Credit and suretyship 967 19 948 1 012 19 993 Other 742 404 338 648 440 208

524 573 31 808 492 765 541 576 36 564 505 012

30.06.2009 31.12.2008


The claims outstanding reserve represents unsettled claims occurred before the balance sheet date and includes an

estimated provision in the amount of euro 27 464 (31 December 2008: euro 25 239 thousands), for claims incurred

before 30 June 2009, but not reported (IBNR).

Included in the amount of claims outstanding for workers’ compensation is euro 126 910 thousands (31 December

2008: euro 129 591 thousands), relating to the mathematical reserve for workers’ compensation.

The mathematical reserve for workers’ compensation includes an amount of euro 3 913 thousands (31 December

2008: euro 7 376 thousands) as a result of the liability adequacy test.

Additionally, mathematical reserve for workers’ compensation also includes an accrual related to the present value of

the future contributions to Workers Compensation Fund (FAT) for an amount of euro 6 817 thousands (31 December

2008: euro 6 995 thousands).

The claims outstanding reserve also includes an estimation of future costs related with the settlement of pending

claims (expense reserve), both-declared and non-declared, for an amount of euro 8 705 thousands (31 December 2008:

euro 9 830 thousands).



The movements on the claims outstanding reserve of direct insurance business are analysed as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 541 576 541 683 537 465 Plus incurred claims

Current year 136 685 44 903 268 547 Prior years ( 16 974) ( 363 494) 320 558

Less paid claims related toCurrent year ( 55 742) 16 607 ( 173 470)Prior years ( 80 972) 301 877 ( 411 417)



The reserve for bonus and rebates corresponds to the amounts attributed to policyholders or beneficiaries of insurance

and investment contracts with profit sharing, in the form of profit participation, which have not yet been specifically

allocated and included in the life mathematical reserve.

The movement in the reserve for bonus and rebates is as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 2 460 4 351 3 421 Amounts paid ( 898) ( 1 329) ( 683)Estimated attributable amounts 558 ( 562) 1 613



As at 30 June 2009, life mathematical reserve includes an amount of euro 1 007 thousands (31 December 2008: euro

3 437 thousands) as a result of the liability adequacy test. This test was performed based on the best estimate

assumptions (see Note 51).



NOTE 34 - OTHER ASSETS

As at 30 June 2009 and 31 December 2008, the balance other assets is analysed as follows:

30.06.2009 31.12.2008


Deposits placed with option contracts 266 149 314 414

Deposits placed with futures contracts 66 346 148 964

Recoverable government subsidies on mortgage loans 39 476 43 046

Collateral deposits placed 359 782 359 237

Loans to companies in which the Group has a minority interest 139 738 133 410

Public sector 64 352 53 362

Debtors from the banking business 242 690 260 954

Debtors from the insurance business 21 157 25 390

Debtors from medical services business 76 427 84 400

Sundry debtors 48 317 49 976

1 324 434 1 473 153

Impairment losses on debtors ( 24 278) ( 24 210)

1 300 156 1 448 943

Debtors arising out of direct insurance operations 71 526 56 875

Debtors arising out of reinsurance operations 72 049 63 254

143 575 120 129

Impairment losses on debtors arising out of direct

insurance and of reinsurance operations ( 9 642) ( 6 751)

133 933 113 378

Other assets

Gold, other precious metals, numismatics and other liquid assets 13 312 13 778

Other assets 112 703 115 897

126 015 129 675

Accrued income 56 630 77 802

Prepayments and deferred costs 158 811 147 153

Deferred acquisition costs 22 168 21 376

Other sundry assets

Foreign exchange transactions pending settlement 132 631 166 021

Stock exchange transactions pending settlement 251 305 107 512

Other transactions pending settlement 185 714 171 243

569 650 444 776

Assets acquired in exchange for loans 157 027 126 359

Impairment losses on assets acquired in exchange from loans ( 6 190) ( 6 948)

150 837 119 411

Assets recognised on pensions 933 359 976 152

3 451 559 3 478 666



Loans to companies in which the Group has a minority interest include the amount of euro 123 500 thousands related

with loans to Locarent – Companhia Portuguesa de Aluguer de Viaturas, S.A. (31 December 2008: euro 118 500

thousands) (see Note 48).

As at 30 June 2009 and 31 December 2008, the balance prepayments and deferred costs refers mainly to the difference

between the nominal amount of loans granted to Group’s employees under the collective labour agreement for the

banking sector (ACT) and their respective fair value at grant date, calculated in accordance with IAS 39. This amount

is charged to the income statement over the lower period between the remaining maturity of the loan granted, and the

estimated remaining service life of the employee.

The stock exchange transactions pending settlement refer to transactions with securities on behalf of third parties,

recorded on trade date and pending settlement, in accordance with the accounting policy described in Note 2.6.

Deferred acquisition costs relate to the insurance business and can be analysed as follows:

30.06.2009 31.12.2008

Non-life insurance business 22 168 21 376

22 168 21 376


The movements on the deferred acquisition costs for the non-life business are analysed as follows:

30.06.2009 31.12.2008


Balance at the beginning of the period / year 21 376 23 459 Acquisition costs of the period / year 21 743 21 376 Acquisition costs amortisation ( 20 951) ( 23 459)

Balance at the end of the period / year 22 168 21 376



The balance of impairment losses is presented as follows:

30.06.2009 31.12.2008

Debtors 24 278 24 210 Debtors arising out of direct insurance and reinsurance operations 9 642 6 751 Assets recovered from non-performing loans 6 190 6 948

40 110 37 909


The movements occurred in impairment losses are presented as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 37 909 39 561 36 508 Change in the scope of consolidation - ( 774) - Charge of the year 13 368 11 737 7 525 Write back of the period ( 3 672) ( 9 487) ( 2 245)Charge off ( 3 473) ( 1 208) ( 181)

Transfers (a)

( 4 483) ( 2 093) ( 4 050)Exchange differences and other 461 173 2 004



(a) Related to impairment t ransferred to non-current asset s held-for-sale, as the asset s to which the impairment correspondedwere also t ransferred, in accordance with the account ing policy described in Note 2.12 (see Note 28).



NOTE 35 - DEPOSITS FROM CENTRAL BANKS

The balance deposits from central banks in analysed as follows:

30.06.2009 31.12.2008

From the European Sytem of Central Banks

Inter-bank Money Market - 100 000 Deposits 490 40 505 Other funds 1 035 000 1 300 000

1 035 490 1 440 505

From other Central BanksDeposits 2 204 373 3 369 953

2 204 373 3 369 953

3 239 863 4 810 458


As at 30 June 2009 and 31 December 2008, Other funds from the European System of Central Banks amounting to

euro 1 035 million and euro 1 300 million respectively, are covered by securities from the available-for-sale portfolio

pledged as collaterals (see Note 46).

Deposits from other central banks, as at 30 June 2009 includes euro 2 073 million of deposits made by the Central Bank

of Angola (31 December 2008: euro 3 359 million).



NOTE 36 - DEPOSITS FROM BANKS

The balance deposits from banks is analysed as follows:

30.06.2009 31.12.2008

DomesticLoans 221 580 162 421Inter-bank money market 58 392 46 314Depos its 624 636 1 246 781Very short terms funds 41 288 73 112Other funds 3 460 2 444

949 356 1 531 072

InternationalDepos its 6 560 578 3 356 313Loans 1 942 759 1 794 395Very short terms funds 846 837 694 778Repurchase agreements 282 893 433 247Other funds 252 396 292 110

9 885 463 6 570 843

10 834 819 8 101 915




NOTE 37 - DUE TO CUSTOMERS

The balance due to customers is analysed as follows:

30.06.2009 31.12.2008

Repayable on demandDemand depos its 8 081 806 8 925 691

Time depos itsTime depos its 13 633 727 13 288 539Notice depos its 15 019 14 998Other 59 294 21 508

13 708 040 13 325 045

Savings accountsPens ioners 71 032 83 536Emigrants 1 989 2 821Other 1 780 067 1 616 750

1 853 088 1 703 107

Other fundsRepurchase agreement 1 169 338 1 820 566Other 725 290 593 363

1 894 628 2 413 929

25 537 562 26 367 772




NOTE 38 - DEBT SECURITIES ISSUED

The balance of debt securities issued is analysed as follows:

30.06.2009 31.12.2008

Debt securities

Euro Medium Term Notes a)

11 118 433 10 130 109

Bonds b)

6 190 748 5 540 323Certificates of deposit 7 892 402 3 658 330Covered bonds 2 687 047 2 663 350Debt bonds issued 904 296 597 664Other 2 423 685 2 717 343

31 216 611 25 307 119

a)

b)


As at 31 December 2008, includes the amount of euro 179.9 million of extendible Notes.As at 30 June 2009, includes euro 1 530.7 million of bonds issued with the guarantee of the Portugal Government.

On 15 November 2005, ESFG issued the euro 500 000 000 Fixed Rate Step-Up Notes due 2025 with 10 000 warrants.

Each of these Notes, will bear interest at the rate of 3.55% until 15 November 2010 and 5.05% from then on. Each

warrant entitles the holder to subscribe euro 50 000 to acquire fully paid up shares of Euro 10.0 each of ESFG at an

initial exercise price of euro 24.50 per share. The rights under the warrants are exercisable from and including 26

December 2005 up to the close of business on 8 November 2025. With effect from 15 November 2006, the notes and

warrants may be detached or be traded separately. Unless previous redeemed or repurchased and cancelled, the Notes

will be redeemed at their principal amount on 15 November 2025. As of 30 June 2009, none of the warrants has been

exercised.

In the light of IAS 32, the warrants issued correspond to an equity instrument and therefore are recognised in equity

and the Notes correspond to a debt instrument and are recognised as a liability.

The value attributable to the warrants upon the initial recognition was calculated by deducting, at inception, the fair

value of the Notes from the par value of the instrument as a whole, the fair value attributable to the Notes being

calculated as the present value of the contractual future cash flows discounted at a rate of interest, determined at

inception, based on comparable Notes providing substantially the same cash flows, on the same terms, but without the

detachable warrants. On this basis, the Group recognised in equity the amount of euro 118 570 thousands related to the

warrants and an amount of euro 381 430 thousands as a liability, corresponding to the respective fair value at the date

of issue.

After its initial recognition, the liability will accrue interest at an effective interest rate of 6.7%, which was the rate

used to fair value the liability at the inception.



During the year ended 31 December 2008, BES Group issued covered bonds for an amount of euro

2 500 million, under the covered bonds programme, which has a maximum amount of euro 10 000 million.

The covered bonds are guaranteed by a cover assets pool, comprised of mortgage credit assets and limited classes of

other assets, that the issuer of mortgage covered bonds shall maintain segregated and over which the holders of the

relevant covered bonds have a statutory special creditor privilege. These conditions are set up in Decree-Law no.

59/2006, Regulations 5/2006, 6/2006, 7/2006 and 8/2006 of the Bank of Portugal and Instruction 13/2006 of the Bank

of Portugal.

The main characteristics of these issues are as follows:

DescriptionNominal value


Book value (in thousands

of euro)Issue date Maturity date Interest payment Interest rate Rating

BES Covered Bonds 25/01/2011 1 250 000 1 323 751 25-01-08 25-01-11 Anually 4.375% AAABES Covered Bonds 21/07/2010 1 250 000 1 363 296 21-07-08 21-07-10 Anually 5.50% AAA

As at 30 June 2009, the mortgage loans that collateralise these covered bonds amounted to

euro 2 705 038 thousands (31 December 2008: euro 2 722 664 thousands) (see Note 25).

The changes occurred in debt securities issued during the period ended 30 June 2009 are analysed as follows:


31.12.2008 Issues c) Repayments Net repurchase

Other

movements a) 30.06.2009

Euro Medium Term Notes 10 130 109 2 775 431 (1 373 900) ( 347 573) ( 65 634) 11 118 433 Bonds 5 540 323 1 498 498 ( 552 858) ( 143 184) ( 152 031) 6 190 748 Certificates of depos it 3 619 306 4 493 265 ( 241 110) - 20 941 7 892 402 Covered bonds 2 663 350 - - - 23 697 2 687 047 Debt bonds 597 664 300 200 - - 6 432 904 296 Other 2 756 367 2 309 008 (2 665 737) - 24 047 2 423 685

25 307 119 11 376 402 (4 833 605) ( 490 757) ( 142 548) 31 216 611

a) Other movements include accrued interest , fair value adjustments and foreign exchange differencesb) Cert ificates of deposit are present ed at t he net value, considering their short t erm maturit yc) Amount issued

b)

In accordance with the accounting policy described in Note 2.8, debt issued repurchased by the Group is derecognised

from the balance sheet and the difference between the carrying amount of the liability and its acquisition cost is




The main characteristics of Euro Medium Term Notes, Bonds and Debt bonds issued during the six months period ended 30 June 2009, are as follows:

Issuer Des ignation Currency Book value Maturity Interest rate

BES - Sede BES 3,75% EUR 1 530 663 2012 Fixed rate - 3.75%BES - Sede BES DUE 2011 EUR 173 356 2011 Fixed rate 3.26%BES - Sede BES DUE 2012 EUR 99 491 2012 Fixed rate 4.43%BES - Sede BES RENDIM.CR. EUR 1 786 2012 Fixed rate - 3.35%BES - Sede BES REND.CR. EUR 24 807 2012 Fixed rate - 3.85%BES - Sede BES 5,625% 2014 EUR 1 743 761 2014 Fixed rate - 5.63%BES - Sede BES 4,427% EUR 200 455 2012 Fixed rate - 4.43%ES Inves tment Plc ESIP JAN2012 EURBRL LINKED EUR 1 728 2012 Indexed to EUR/BRLES Inves tment Plc ESIP FEB2012 SX5E LINKED EUR 2 479 2012 Indexed to DJ Euros toxx 50ES Inves tment Plc ESIP MAR2010 ENEL LINKED EUR 1 008 2010 EURIBOR3M +3% + a)ES Inves tment Plc ESIP SX5E LINKED MARCH2011 EUR 1 128 2011 Indexed to DJ Euros toxx 50ES Inves tment Plc ESIP EURIBOR BARRIER FEB2012 EUR 3 228 2012 Euribor 6M DigitalES Inves tment Plc ESIP EURIBOR6M DIGITAL MAR2012 EUR 2 558 2012 Euribor 6M DigitalES Inves tment Plc ESIP FIXED AMOUNT + AMORT NOV22 EUR 3 482 2022 FixedES Inves tment Plc ESIP BRASIL CLN EUR3M+2% JUN2010 EUR 1 497 2010 EURIBOR3M +2% + a)ES Inves tment Plc ESIP EDP CLN EUR3M+2% MAR2011 EUR 1 495 2011 EURIBOR3M +2% + a)ES Inves tment Plc ESIP EUR3M+20BPS MAR2010 EUR 300 000 2010 EURIBOR3M + 0.2%ES Inves tment Plc ESIP PHARMA EQL APRIL2011 EUR 2 924 2011 Indexed to basket b)ES Inves tment Plc ESIP JULY2009 PBR W RC LINKED EUR 778 2009 Indexed to Brazilian OilES Inves tment Plc ESIP JULY2009 BBD W RC LINKED EUR 1 850 2009 Indexed to Banco BradescoES Inves tment Plc ESIP JULY2009 RIO W RC LINKED EUR 1 866 2009 Indexed to Companhia Vale Rio DoceES Inves tment Plc ESIP BRAZ CLN 2 EUR3M+2% JUN2010 EUR 1 498 2010 EURIBOR3M +2% + a)ES Inves tment Plc ESIP EDP 2 CLN EUR3M+2% MAR2011 EUR 1 495 2011 EURIBOR3M +2% + a)ES Inves tment Plc ESIP LACAIXA EUR3M+2% MAR2011 EUR 2 501 2016 EURIBOR3M +2% + a)ES Inves tment Plc ESIP APR2014 5%+INDEX BASKET LKD EUR 2 090 2014 Fixed rate + Indexed to basket c)ES Inves tment Plc ESIP FIXED COUPON APRIL2011 EUR 105 743 2011 Fixed rate 4.384%ES Inves tment Plc ESIP MAY2014 5%+INDEX BASKET LKD EUR 3 233 2014 Fixed rate + Indexed to basket c)ES Inves tment Plc ESIP MAY2012 SX5E LINKED EUR 1 244 2012 Indexed to DJ Euros toxx 50ES Inves tment Plc BES INVEST BRASIL 5.75% MAY2012 EUR 102 578 2012 Fixed rate 5.75%ES Inves tment Plc ESIP JUN2013 EQL LINKED EUR 388 2013 Indexed to basket d)ES Inves tment Plc ESIP JUN2010 EURBRL LINKED EUR 992 2010 Indexed to EUR/BRLES Inves tment Plc ESIP JAN2011 SP500 LINKED EUR 990 2011 Indexed to SP500ES Inves tment Plc ESIP JUN2011 CLN LINKED EUR 2 744 2011 Fixed rate + a)ESFIL Floating Rate Notes USD 71 002 2010 2.67625%ESFIL Floating Rate Notes USD 71 003 2010 2.95125%ESFIL Floating Rate Notes EUR 148 985 2010 4.50%

a) indexed to the credit risk.

b) Indexed to a basket made of ROCHE HOLDING, SANOFI, NOVARTIS, PFIZER and ASTRAZENECA shares .

c) Indexed to a basket made of ROCHE HOLDING, SANOFI, NOVARTIS, PFIZER, ASTRAZENECA, TELEFONICA, FRANCE TELECOM and DEUTSCHE TELEKOM shares .

d) Indexed to a basket made of BBVA, REPSOL and ENEL shares .

NOTE 39 - INVESTMENT CONTRACTS

As at 30 June 2009 and 31 December 2008, the liabilities arising from investment contracts are analysed as follows:

30.06.2009 31.12.2008

Fixed rate investment contracts 26 637 23 376Investment contracts in which the financial risk is borne by the policyholder 382 608 377 221

409 245 400 597


In accordance with IFRS 4, the insurance contracts issued by the Group for which there is only a transfer of financial

risk, with no discretionary participating features, are classified as investment contracts.



The movement in the liabilities arising out from the investment contracts with fixed rate is analysed as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 23 376 24 245 31 039 Deposits received 12 111 - - Benefits paid ( 9 234) ( 1 182) ( 7 554)Technical interest charged 384 313 760



The movement in the liabilities arising out from the investment contracts in which the financial risk is borne by the

policyholder is analysed as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period 377 221 40 541 33 034 Deposits received 12 988 344 532 10 539 Benefits paid ( 10 342) ( 6 241) ( 2 982)Changes in financial liabilities at fair value through profit of loss 2 476 ( 1 118) 92 Technical result 265 ( 493) ( 142)





NOTE 40 - PROVISIONS

As at 31 December 2008 and 2007, the balance of provisions presents the following movements:

Restructuring Otherprovisions provisions Total

Balance as at 1 January 2008 24 201 135 224 159 425

Charge of the year / write back 25 000 6 372 31 372 Charge off ( 5 718) ( 4 725) ( 10 443) Exchange differences and other - 244 244

Balance as at 30 June 2008 43 483 137 115 180 598

Charge of the year / write back ( 19 312) 7 936 ( 11 376) Charge off ( 16 331) ( 7 212) ( 23 543) Exchange differences and other - ( 547) ( 547)

Balance as at 31 December 2008 7 840 137 292 145 132

Charge of the year / write back - 13 967 13 967 Charge off ( 4 851) ( 384) ( 5 235) Exchange differences and other - 4 807 4 807

Balance as at 30 June 2009 2 989 155 682 158 671


The restructuring provision as at 31 December 2008 amounting to 7.8 million euros is mainly related to the remaining

provision booked for the estimated costs associated with the merger of BESSA and its subsequent change into a

branch of BES. From this provision in the amount of 6.0 million euros in 31 December 2008, the Group charged off

during the six month period ended 30 June 2009 an amount of 3.9 million euros.

The financial statements as at and for the year ended 31 December 2008 includes additional information regarding the

restructuring provision.

Other provisions in the amount of euro 155 682 thousands as at 30 June 2009 (31 December 2008: euro 137 292

thousands) are intended to cover litigations and other contingencies related to the Group’s activities, the more relevant

being as follows:

• Contingencies in connection with the exchange, during 2000, of Banco Boavista Interatlântico shares for

Bradesco shares. The Group has provisions for an amount of approximately euro 39.6 million (31 December

2008: euro 33.4 million) to cover these contingencies;



• Contingencies in connection with legal processes established following the bankruptcy of clients which might

imply losses for the Group. Provisions for an amount of euro 20.0 million (31 December 2008: euro 17.0

million) were established to cover these losses;

• Contingencies for ongoing tax processes. To cover these contingencies, the Group maintains provisions of

approximately euro 55.8 million (31 December 2008: euro 53.3 million);

• The remaining balance of approximately euro 40.3 million (31 December 2008: euro 33.6 million), is

maintained to cover potential losses in connection with the normal activities of the Group, such as frauds,

robbery and on-going judicial cases.

NOTE 41 - INCOME TAXES

The Group determined its current and deferred income tax for the six months period ended 30 June 2009 and the year

ended 31 December 2008 on the basis of a nominal rate of 26.5%, applicable to the activities undertaken in Portugal

that represent a significant portion of its consolidated activities. This is the nominal rate enacted at the balance sheet

date.

The Portuguese Tax Authorities are entitled to review the annual tax return of the Group subsidiaries domiciled in

Portugal for a period of four years. Hence, it is possible that some additional taxes may be assessed, mainly as a result

of differences in interpretation of the tax law. However, the Board of Directors of the Group subsidiaries domiciled in

Portugal are confident that there will be no material differences arising from tax assessments within the context of the

financial statements.



The deferred tax assets and liabilities recognised in the balance sheet as at 30 June 2009 and 31 December 2008 can be


Assets Liabilities Net

30.06.2009 31.12.2008 30.06.2009 31.12.2008 30.06.2009 31.12.2008

Derivative financial instruments 8 231 11 078 ( 88 222) ( 74 117) ( 79 991) ( 63 039)Available-for-sale financial assets 62 908 70 491 ( 64 333) ( 33 030) ( 1 425) 37 461 Loans and advances to customers 201 798 157 846 ( 51) ( 110) 201 747 157 736

Property and equipment 895 895 ( 23 557) ( 20 262) ( 22 662) ( 19 367)Intangible assets 15 162 15 191 - - 15 162 15 191 Investments in subsidiaries and associates 17 470 26 535 ( 59 579) ( 48 418) ( 42 109) ( 21 883)

Provisions 22 479 19 718 ( 4 342) ( 4 539) 18 137 15 179 Technical reserves 497 558 - - 497 558 Pensions 14 989 16 499 ( 48 553) ( 45 708) ( 33 564) ( 29 209)

Health care - SAMS 30 932 27 176 - - 30 932 27 176 Long term service benefits 7 211 6 965 - - 7 211 6 965 Debt securities issued - - ( 24 618) ( 7 404) ( 24 618) ( 7 404)

Other 5 120 8 407 ( 324) ( 6 508) 4 796 1 899 Tax losses brought forward 22 566 18 991 - - 22 566 18 991

Deferred tax asset / (liability) 410 258 380 350 ( 313 579) ( 240 096) 96 679 140 254

Deferred tax assets/liabilities offset ( 230 583) ( 197 931) 230 583 197 931 - -

Deferred tax asset / (liability), net (1) 179 675 182 419 ( 82 996) ( 42 165) 96 679 140 254

(1) netted by Group entity


The changes in net deferred taxes were recognised as follows:

30.06.2009 31.12.2008


Balance at beginning of the year (assets / (liabilities )) 140 254 ( 208 142)

Recognised in the income s tatement 2 270 75 311 Recognised in fair value reserve ( 45 456) 273 540 Recognised in other reserves 2 787 1 085 Exchange differences and other ( 3 176) ( 1 540)

Balance at end of the year (assets / (liabilities)) 96 679 140 254



The current and deferred taxes recognised in the income statement and reserves, during the six months period ended 30

June 2009 and the year ended 31 December 2008 is analysed in the following table. The amounts presented do not

consider the effect of minority interest.

30.06.2009 31.12.2008

Recognised in the income s tatement (income) /expense

Recognised in reserves

Recognised in the income s tatement (income) /expense

Recognised in reserves


Derivative financial ins truments 16 952 - ( 958) - Available-for-sale financial assets ( 6 570) 45 456 ( 20 570) ( 273 540)Loans and advances to cus tomers ( 44 011) - ( 49 188) - Property and equipment 3 295 - 3 552 - Intangible assets 29 - ( 320) - Inves tments in subs idiaries and associates 20 226 - ( 4 679) - Provis ions ( 2 958) - 1 724 - Technical reserves 61 - 911 - Pens ions 5 330 ( 975) 7 691 ( 3 341)Health care - SAMS ( 3 756) - ( 5 364) - Long term service benefits ( 246) - ( 495) - Debt securities is sued 17 214 - - - Exchange differences and other ( 4 261) ( 1 812) 5 264 2 256 Tax credits resulting from double tax treaties - - - - Tax los ses brought forward ( 3 575) - ( 12 879) -

Deferred taxes ( 2 270) 42 669 ( 75 311) ( 274 625)

Current taxes 60 282 ( 3 860) 164 940 3 831

58 012 38 809 89 629 ( 270 794)

The current tax recognised in reserves includes a deferred tax income of euro 4 883 thousands related to the cost

incurred with the capital increase of BES and deferred tax expenses of euro 975 thousands related with pensions and

euro 48 thousands related to the share based payments scheme (31 December 2008: euro 3 341 thousands related to

pensions and euro 186 thousands related to the share based payments scheme).



The reconciliation of the income tax rate can be analysed as follows:

30.06.2009 31.12.2008

% Amount % Amount

Profit before minority interest and taxes 324 069 490 577

Statutory tax rate 26.5% 26.5%Income tax calculated based on the s tatutory tax rate 85 878 130 003

Differences on the subs idiaries s tatutory tax rates -1.8% ( 5 875) -2.0% ( 9 809)Tax-exempt dividends -4.9% ( 15 842) -8.1% ( 39 779)Tax-exempt profits (off shore) -8.0% ( 26 017) -7.7% ( 37 804)Tax-exempt gains -1.4% ( 4 417) -0.4% ( 2 012)Non deductible realised losses 0.0% - 0.1% 248 Changes in es timates 1.0% 3 342 -0.1% ( 560)Unrecognised deferred tax assets related to

tax losses generated in the year 2.7% 8 841 7.3% 35 738 Tax losses used for which no deferred tax assets

were recognised 0.0% - -0.9% ( 4 204)Non-taxable share of (profit)/losses in associates -1.1% ( 3 483) 1.1% 5 271 Non deductible cos ts 4.7% 15 204 2.8% 13 777 Other 0.1% 381 -0.3% ( 1 241)

17.8% 58 012 18.3% 89 628


Unrecognised deferred tax assets related to tax losses generated in the year represent the tax effect on tax losses

generated by subsidiaries, in relation to which there is no expectation of future taxable profits against which the losses

can be used.



NOTE 42 - SUBORDINATED DEBT

The balance subordinated debt is analysed as follows:

30.06.2009 31.12.2008

Cash bonds 1 613 600 1 647 091 Loans 226 831 238 801 Perpetual bonds 831 106 950 637

2 671 537 2 836 529


The main features of the subordinated debt are presented as follows:

30.06.2009

Issuer Designation

Issue date Amount issuedCarrying amount

Interest rate Maturity

BES Finance Subordinated bonds 1999 43 022 30 067 7.80% 2009



BES Finance Perpetual subordinated bonds 2002 500 000 459 140 6.63% 2012 a)

BES Finance Perpetual subordinated bonds 2004 500 000 356 953 4.50% 2015 a)


BESI Subordinated bonds 2003 10 000 10 103 5.50% 2033






BES (sucursal de Caimão) Subordinated loans 2005 213 068 216 889 3.95% 2015

BES Subordinated bonds 2001 7 000 506 6.05% 2011

BES Subordinated bonds 2004 25 000 25 138 6.31% 2014 b)

BES Perpetual subordinated bonds 2005 15 000 15 013 5.38% 2015 a)

BES Subordinated bonds 2008 40 650 37 999 4.43% 2018



BESV Subordinated loans 2002 9 669 9 942 5.60% -

2 864 775 2 671 537

a) Call option dateb) The call option can be exercised in 2009



The changes occurred in subordinated debt during the six months period ended 30 June 2009 are analysed as follows:


31.12.2008 Issues RepaymentsNet

RepurchasesOther movements

(a)30.06.2009

Bonds 1 647 091 520 - - ( 34 011) 1 613 600 Loans 238 801 20 000 - - ( 31 970) 226 831 Perpetual bonds 950 637 207 125 - ( 311 000) ( 15 656) 831 106

2 836 529 227 645 - ( 311 000) ( 81 637) 2 671 537

a) Other movements include accrued interest , fair value adjustments and foreign exchange differences

In accordance with the accounting policy described in Note 2.8, debt issued repurchased by the Group is derecognised

from the balance sheet and the difference between the carrying amount of the liability and its acquisition cost is

recognised in the income statement. Following the repurchases performed in the six months period ended 30 June

2009, the Group has recognised a gain in the amount of euro 106.7 million (31 December 2008: euro 27.9 million

gain).



NOTE 43 - OTHER LIABILITIES

As at 30 June 2009 and 31 December 2008, the balance other liabilities is analysed as follows:

30.06.2009 31.12.2008

CreditorsPublic sector 45 060 59 968

Creditors aris ing out from future contracts 33 193 49 641

Collateral deposit on negative exposures on derivative contracts 140 450 185 462

Sundry debtorsStock-option plan (see Note 13) 5 397 1 307Creditors from transactions with securities 125 447 187 395Suppliers 67 374 79 565Creditors from factoring operations 9 803 15 979Other sundry creditors 230 418 238 285

Creditors from the medical business 39 698 71 233Creditors from the insurance business 13 337 9 098

Creditors aris ing out of direct insurance operations 26 902 21 356Creditors aris ing out of reinsurance operations 15 433 12 282

752 512 931 571

Accrued expensesLong term service benefits (see Note 13) 27 927 27 412Other accrued expenses 207 987 201 883

235 914 229 295

Deferred income 26 092 19 341

Other sundry liabilitiesStock exchange transactions pending settlement 186 018 90 625Foreign exchange transactions pending settlement 128 733 130 665Other transactions pending settlement 193 701 108 394

508 452 329 684

1 522 970 1 509 891


The stock exchange transactions pending settlement refer to transactions with securities on behalf of third parties,

recorded on trade date and pending settlement, in accordance with the accounting policy described in Note 2.6.



NOTE 44 - SHARE CAPITAL, SHARE PREMIUM, OTHER EQUITY INSTRUMENTS, FAIR VALUE

RESERVES AND OTHER RESERVES AND RETAINED EARNINGS

Share capital and share premium

As at 30 June 2009 and 31 December 2008, the authorised share capital of Espírito Santo Financial Group, S.A., was

represented by 100 million shares with a face value of euro 10 each, from which 77 854 916 shares held by different

shareholders were subscribed and fully paid as described below:

30.06.2009 31.12.2008

Espírito Santo International S.A. 29.36% 28.36%Espírito Santo Irmãos, Sociedade Gestora de Participações Sociais , S.A. 9.63% 9.63%Other 61.01% 62.01%

100.00% 100.00%

% Share capital

In November 2008, ESFG issued 20 million ordinary shares at pair with nominal value of euro 10 each. The proceeds

of this capital increase, net of issue costs, amounted to euro 197.7 million.

Preference shares

In June 2007, ESFG International Limited (“issuer”), a fully owned subsidiary of ESFG, issued euro 400 million series

A non-cumulative guaranteed step-up preferred securities. These securities, with a face value of euro 50 thousands per

security, are listed on the Luxembourg stock exchange.

These preferred securities pay non-cumulative preferred dividends, when, as and if declared by the Board of Directors

of ESFG International Limited, annually in arrears on 6 June in each year commencing on 6 June 2008 up to and

including 6 June 2017 at an annual rate of 5.753% p.a. of the respective face value. Thereafter, the preferred dividends

will be payable, when, as and if declared by the Board of Directors of ESFG International Limited, quarterly in arrears

on 6 March, 6 June, 6 September and 6 December each year, commencing on 6 September 2017 at a rate of 2.130%

above the 3 months Euribor.

The preferred securities are perpetual securities and have no fixed redemption date. However, these securities may be

redeemed, at the option of ESFG International Limited, in whole but not in part, on 6 June 2017 or on any preferred

distribution payment date falling thereafter. Such redemption is subject to the authorization of ESFG and the

Supervisor Authority.

ESFG unconditionally guarantees, on a subordinated basis, the payment of distributions on the preferred securities

when, as and if declared by the Board of Directors of the issuer, and payments on liquidation of the issuer or on



redemption. By virtue of the scope of the guarantee the rights of the holders of these preference securities against

ESFG are equivalent to those which such holders would have had if they had instead held preference shares issued

directly by ESFG whose terms are identical to the terms of the preferred securities and the guarantee taken together.

Considering the features of these preferred securities, they were considered, following IAS 32, as equity instruments of

the Group. On that basis, the total proceeds from the issue, net of expenses incurred, totalling approximately euro

395.5 million, was taken to equity. Additionally, and in accordance with the accounting policy described in Note 2.9,

preferred dividends will be recorded as a deduction to equity when declared.

Other equity instruments

As at 30 June 2009 and 31 December 2008, other equity instruments relate to the equity component of the warrants

issued by ESFG as described in Note 38, in the amount of euro 118 570 thousands, net of issue costs amounting of

euro 3 399 thousands.

Legal reserve

Under the Luxembourg law, a minimum of 5% of the profit for the year must be transferred to the legal reserve until

this reserve equals 10% of the issued share capital. This reserve is not available for distribution.

Fair value reserve

The fair value reserve represents the amount of the unrealised gains and losses arising from securities classified as

available for sale, net of impairment losses recognised in the income statement in the year/previous years. The amount

of this reserve is shown net of deferred taxes and minority interest.



During the six months period ended 30 June 2009 and year ended 31 December 2008, the changes in these balances,

net of minority interest, were as follows:

Other reserves and retained earnings

Balance as at 31 December 2007 245 192 ( 75 421) 169 771 27 910 ( 7 140) ( 382 221) ( 361 451)

Transfer to reserves - - - 2 194 - 202 668 204 862

Dividends on ordinary shares - - - - - ( 38 184) ( 38 184)

Dividends from preference shares - - - - - ( 32 755) ( 32 755)

Changes in fair value ( 238 378) 69 475 ( 168 903) - - - -

Exchange differences - - - - ( 4 636) - ( 4 636)

Effect of SIBA scheme - - - - - 653

Balance as at 30 June 2008 6 814 ( 5 946) 868 30 104 ( 11 776) ( 249 839) ( 231 511)

Changes in fair value ( 133 827) 17 474 ( 116 353) - - - -

Exchange differences - - - - 12 548 - 12 548

Cost with capital increase of subsidiaries - - - - - ( 2 644) ( 2 644)

Effect of SIBA scheme - - - - - ( 169) ( 169)

Balance as at 31 December 2008 ( 127 013) 11 528 ( 115 485) 30 104 772 ( 252 652) ( 221 776)

Transfer to reserves - - - 1 261 - 75 800 77 061

Dividends on ordinary shares - - - - - ( 23 357) ( 23 357)

Dividends from preference shares - - - - - ( 32 718) ( 32 718)

Changes in fair value 79 691 ( 12 460) 67 231 - - - -

Exchange differences - - - - ( 6 620) - ( 6 620)

Cost with capital increase of subsiddiaries - - - - - ( 3 200) ( 3 200)

Effect of SIBA scheme - - - - - 138

Balance as at 30 June 2009 ( 47 322) ( 932) ( 48 254) 31 365 ( 5 848) ( 235 989) ( 210 472)


Total Other reserves and

retained earnings

Deferred tax reserves

Available-for-sale financial

assets

Total Fair value reserve

Legal Reserve Exchange differences

Other reserves and retained

earnings

Fair value reserve

653

138

The movement in the fair value reserve, net of deferred taxes, impairment losses and minority interest, in the six

months period ended 30 June 2009 and the year ended 31 December 2008 is analysed as follows:

30.06.2009 31.12.2008 30.06.2008

Balance at the beginning of the period ( 115 485) 868 169 771 Changes in fair value 75 248 ( 156 093) ( 164 678)Disposals during the period ( 742) 16 141 ( 79 623)Impairment recognised during the period 5 185 6 125 5 923 Deferred taxes recognised in reserves during the period ( 12 460) 17 474 69 475

Balance at the end of the period ( 48 254) ( 115 485) 868




NOTE 45 - MINORITY INTEREST

As at 30 June 2009, 31 December 2008 and 30 June 2008, minority interest can be analysed as follows:

30.06.2009 31.12.2008

Balance sheetIncome

statement Balance sheetIncome

statement

BES Group 3 405 556 194 725 2 427 928 306 403 Preference shares issued by BES Finance 600 000 - 600 000 - Bespar 537 278 ( 820) 388 882 ( 1 321)ES Saúde 76 132 ( 572) 76 958 10 875 Other 52 202 1 731 53 397 7 930

4 671 168 195 064 3 547 165 323 887


Preference shares issued by BES Finance correspond to 450 thousands non-voting preference shares, which were

issued and listed in the Luxembourg stock exchange in July 2003. In March 2004, 150 thousands preference shares

were additionally issued forming a single series with the existing preference shares. The face value of these shares is

euro

1 000 and are fully booked under minority interest. The total issue (euro 600 000 thousands) is wholly, but not

partially, redeemable at its face value at the option of the issuer, as at 2 July 2014, subject to prior approvals of BES

and the Bank of Portugal.

These preference shares pay an annual non-cumulative preferred dividend, if and when declared by the Board of

Directors of BES Finance, corresponding to an annual rate of 5.58% p.a. on the nominal value. This dividend is paid

on 2 July of each year, beginning 2 July 2004 and ending 2 July 2014. If BES Finance does not redeem these

preference shares on 2 July 2014, the applicable rate will be 3 months Euribor plus 2.65% p.a., with payments on 2

January, 2 April, 2 July and 2 October of each year, if declared by the Board of Directors of BES Finance.

These shares are subordinated to any BES liability, and are “pari passu” in relation to any preference shares that may

come to be issued by the Bank. BES unconditionally guarantees dividends if previously declared by the Board of

Directors of BES Finance and principal repayments related to either of the above mentioned issues.

Considering the features of these preference shares, they were considered, in accordance with IAS 32, as equity

instruments of BES Group being classified as minority interest at ESGF level. On that basis, and in accordance with

the accounting policy described in Note 2.9, the dividends related with these preference shares are recorded as a

deduction to equity when declared.



The movement in minority interest in the six months period ended 30 June 2009 and 2008 and the year ended 31

December 2008 can be analysed as follows:

30.06.2009 31.12.2008 30.06.2008

Minority interest at the beginning of the period 3 547 165 3 722 361 4 104 389 Changes in the scope of consolidation 14 852 3 684 ( 8 579)

Increase in share capital of subsidiaries 852 190 31 769 760

Decrease in share capital of subsidiaries ( 2 449) ( 25 891) -

Capital increase costs ( 7 760) - -

Dividends paid ( 65 886) ( 23) ( 181 325)

Dividends paid on preference shares ( 23 774) - ( 23 732)

Effect of SIBA scheme 339 ( 8 540) 9 717

Changes in fair value reserve 169 348 ( 306 425) ( 364 971)

Exchange differences and other ( 7 921) 4 026 ( 11 581)

Profit for the period 195 064 126 204 197 683

Minority interest at the end of the period 4 671 168 3 547 165 3 722 361


NOTE 46 - OFF-BALANCE SHEET ITEMS

As at 30 June 2009 and 31 December 2008 off-balance sheet items, excluding the financial derivative instruments, can

be analysed as follows:

30.06.2009 31.12.2008

Contingent liabilitiesGuarantees and stand by letters of credit 7 243 441 6 714 951Assets pledged as collateral 4 047 884 2 279 209Open documentary credits 1 784 788 2 137 253Other 173 639 107 946

13 249 752 11 239 359

CommitmentsRevocable commitments 8 833 108 10 027 892Irrevocable commitments 5 284 744 4 711 263

14 117 852 14 739 155




Guarantees and standby letters of credit are banking operations that do not imply any out-flow by the Group.

As at 30 June 2009, the balance assets pledged as collateral include:

Securities pledged as collateral to the Bank of Portugal (i) for the use of the money transfer system (Sistema

de Pagamento de Grandes Transacções) for an amount of euro 151 117 thousands (31 December 2008: euro

254 610 thousands) and (ii) in the scope of a liquidity facility collateralised by securities for an amount of

euro 3 254 400 thousands (as at 30 June 2009, securities eligible for rediscount at the Bank of Portugal

amounted to euro 9 017 million);

Securities pledged as collateral to the Portuguese Securities and Exchange Commission (CMVM) in the

scope of the Investors Indemnity System (Sistema de Indemnização aos Investidores) for an amount of euro

43 177 thousands (31 December 2008: euro 15 322 thousands);

Securities pledged as collateral to the Deposits Guarantee Fund (Fundo de Garantia de Depósitos) for an

amount of euro 62 494 thousands (31 December 2008: euro 62 894 thousands);

Securities pledged as collateral to European Investment Bank for an amount of euro 522 500 thousands

(31 December 2008: euro 521 600 thousands).

The above mentioned securities pledged as collateral are booked in the available-for-sale portfolio and they can be

executed in case the Group does not fulfil its obligations under the terms of the contracts.

Documentary credits are irrevocable commitments, by the Group, in the name of its clients, to pay or order to pay a

certain amount to a supplier of goods or services, within a determined term, against the exhibition of the expedition

documentation of the goods or service provided. The condition of irrevocable consists of the fact that the terms

initially agreed can only be changed or cancelled with the agreement of all parties.

Revocable and irrevocable commitments represent contractual agreements to extend credit to Group’s customers (eg.

unused credit lines). These agreements are, generally, contracted for fixed periods of time or with other expiration

requisites, and usually require the payment of a commission. Substantially, all credit commitments require that clients

maintain certain conditions verified at the time when the credit was granted.

Despite the characteristics of these contingent liabilities and commitments, these operations require a previous

rigorous risk assessment of the client and its business, like any other commercial operation. When necessary, the

Group require that these operations are collateralised. As it is expected that the majority of these operations will

mature without any use of funds, these amounts do not represent necessarily future out-flows.



Additionally, the off-balance sheet items related to banking services provided are as follows:

30.06.2009 31.12.2008

Securities and other items held for safekeeping on behalf of customers 63 779 428 60 595 075 Assets for collection on behalf of clients 261 840 280 250 Securitised loans under management (servicing) 3 588 171 3 766 429 Discretionary portfolio management 4 738 023 4 136 767

72 367 462 68 778 521


NOTE 47 - ASSETS UNDER MANAGEMENT

In accordance with the legislation in force, the fund management companies and the depositary bank are jointly liable

before the participants of the funds for the non fulfilment of the obligations assumed under the terms of the Law and

the management regulations of the funds.

As at 30 June 2009 and 31 December 2008, the amount of the investment funds managed by the Group is analysed as

follows:

30.06.2009 31.12.2008

Securities investment funds 5 250 308 4 868 487Real estate investment funds 1 205 803 1 142 083Pension funds 2 519 659 2 608 269Others 9 984 890 9 516 971

18 960 660 18 135 810


The amounts recognised in these accounts are measured at fair value determined at the balance sheet date.



NOTE 48 - RELATED PARTIES TRANSACTIONS

Following the definition of related party established by IAS 24, related parties to ESFG include associates, pension

funds, Board members and entities controlled or significantly influenced by any of these individuals.

The entities considered to be related parties to ESFG, as defined by IAS 24, are as follows:

Company Company

Activalor - Sociedade de Valorização de Activos, Lda Fin Solutia - Consultoria de Gestão de Créditos, SA

Ascendi - Concessões de Transportes, SGPS, SA Financière Mandel SCA

Apolo Films SL Fimoges - Sociedade Gestora de Fundos de Investimento Imobiliário, SA

The Atlantic Company ( Portugal ) - Turismo e Urbanização, SA Fisheries Co Limited

Africa Natural Resources Ltd Fundo Espírito Santo IBERIA I

Africa Resources Ltd Genomed, Diagnóstico de Medicina Molecular, SA

Agribahia, S/A GES Finance Ltd

Air Gemini Angola - Companhia de Transportes Aéreos, Lda Gesfimo - Espirito Santo, Irmãos, Soc. Gestora de Fundos de Investimento Imobiliários,SA

Sociedade de Investimentos Hotel Almansor, SA Gestres - Gestão Estratégica Espirito Santo, SA

African Markets Development Limited Global Active - Gesão Part. Soc., SGPS, SA

Angola Diamonds International Ltd Goggles Marine, Ltd

Atr - Actividades Turisticas e Representações, Lda Sociedad Agricola Golondrina, S/A

Aveiro Incorporated GreenWoods Ecoresort - Empreendimentos Imobiliários, Lda

Azimuth International Resorts LLC GTD - Goods Trading and Distribution Inc.

Beach Heath Investments Ltd GTD South Africa (Property) ltd

BES, Companhia de Seguros, SA HDC - Serviços de Turismo e Imobiliário, S.A.

BES - Vida, Companhia de Seguros, SA Herdade da Boina - Sociedade Agrícola, SA

BIO-GENESIS Herdade da Comporta - Actividades Agro Silvícolas e Turísticas, SA

Companhia Agricola Botucatu, SA Hoteis Tivoli, SA

Brb Internacional, SA Hotelagos, SA

Cerca da Aldeia - Sociedade Imobiliária, SA HLC - Centrais de Cogeração, SA

Clarendon Properties Inc. I.A.C. Uk Limited

Club Campo Villar Olalla, SA Inter-Atlântico, S/A

Clup Vip - Marketing de Acontecimentos, SA Iber Foods - Produtos Alimentares e Biológicos, SA

Clube de Campo da Comporta - Actividades Desportivas e Lazer, Lda Imopca, SA

Clube Residencial da Boavista, SA Locarent - Companhia Portuguesa de Aluguer de Viaturas, SA

Companhia Brasileira de Agropecuária Cobrape Lupiri - Sociedade de Investimentos e Participações, Lda

Coimbra Jardim Hotel - Sociedade de Gestão Hoteleira, SA Lusitânia, SA

Consecionaria Autopista Perote-Xalapa, SA CV Lusoscut - Auto Estradas da Costa de Prata, SA

Construcciones Sarrion, SL Lusoscut - Auto Estradas das Beiras Litora e Alta, SA

Coporgeste - Companhia Portuguesa de Gestão e Desenvolvimento Imobiliário, SA Lusoscut - Auto Estradas do Grande Porto, SA

Ganadera Corina Campos y Haciendas, S/A Luzboa, SA

Coreworks-Proj. Circuito Sist. Elect., S.A. Monteiro de Barros - Sociedade Gestora de Participações Sociais, SA

Decomed, SGPS Sociedade de Pesca Mar Bonançoso Limitada

E.S.B. Finance Ltd Sociedade de Pesca Mar Ondulado Limitada

Eastelco - Consultoria e Comunicação, SA Margrimar - Mármores e Granitos, SA

Eichenberg Gmbh Marinoteis - Sociedade de Promoção e Construção de Hoteis, SA

E.S. Asset Administration Litd Marmetal - Mármores e Materiais de Construção, SA

Espírito Santo Cachoeira Desenvolvimento Imobiliário Ltda Milson Holding Corporation

ES Comercial Agrícola, Ltda Multiger - Sociedade de Compra Venda e Administração de Propriedades, SA

Espírito Santo Guarujá Desenvolvimento Imobiliário Ltda Multipessoal - Sociedade de Prestação de Serviços, SA

Espírito Santo Health & Spa SA Multiples - Espírito Santo Services Ltd

ES Holding Administração e Participações, S/A Multiwave Photonics SA

Espírito Santo Hotéis, SGPS, SA Mundo Vip - Operadores Turísticos, SA

Espírito Santo Indaiatuba Desenvolvimento Imobiliário Ltda Net Viagens - Agência de Viagens e Turismo, SA

Espirito Santo Industrial SA Neumáticos Andrés Investments, SA

Espirito Santo Industrial ( BVI ) SA New Media Investments Assets Ltd

Espírito Santo Industrial ( Portugal ) - SGPS, SA Novagest Assets Management, Ltd

Espirito Santo Irmãos - Sociedade Gestora de Participações Sociais, SA OBLOG - Consulting, SA

Espírito Santo Itatiba Desenvolvimento Imobiliário Ltda Opca Angola, SA

Espírito Santo Management Corp. Opca Moçambique, Lda

Espírito Santo Primavera Desenvolvimento Imobiliário Ltda Opcatelecom . Infraestruturas de Comunicação, SA

ES Private Equity Ltd Opway Imobiliária, SA

Espirito Santo Property SA Opway - Engenharia, SA



Company (cont.) Company (cont.)

Espirito Santo Property (Brasil) S/A Opway - SGPS, SA

Espirito Santo Property Holding ( BVI ) SA Outsystems, S.A.

Espírito Santo Property España, S.L. Pavi do Brasil - Pré-Fabricação,Tecnologia e Serviços, Lda

Espírito Santo Services SA Pavicentro - Pré Fabricação, SA

Espirito Santo Tourism Ltd Pavilis - Pré - Fabricação, SA

Espirito Santo Tourism ( Europe ) SA Paviseu - Materiais Pré-Fabricados, SA

Espírito Santo Venture Ltd Pavitel, SARL

Espírito Santo Viagens - Sociedade Gestora de Participações Sociais, SA Personda - Sociedade de Perfurações e Sondagens, SA

ES Viagens e Turismo, Lda Piscicultura Preto Prata Indústria e Comércio Ltda

Espírito Santo Viagens - Consultoria e Serviços, SA Placon - Estudos e Projectos de Construção, Lda

Enkrott, S.A. Pojuca Administração, SA

ESAI - Espírito Santo Activos Imobiliários, Ltda ( Brasil ) Pojuca, SA

ESAP Brasil Agro - Pecuária, Ltda Polish Hotel Company, SP

Espirito Santo BVI Participation Ltd Polish Hotel Capital SP

Espírito Santo Control SA Polish Hotel Management Company, SP

Escae Consultoria, Administração e Empreendimento, Ltda Pontave - Construções, SA

Escom Investments Group Limited Agência Receptivo Praia do Forte, Ltda

Escom Alrosa Limited Praia do Forte Operadora de Turismo, Ltda

Escom Espírito Santo Commerce (UK) Ltd Progest Congo, SARL

Escom Afrique Central, Lda Prosistemas - Consultores de Engenharia, SA

Escom Agro Industries Investments Assets Ltd Prosistemas Ambiente - Engenharia e Gestão, SA

Escom Alluvials Ltd Prosport, SA

Escom Ásia Lda Grupo Proyetos y Servicios Sarrion, SA

Escom Capital Development Ltd Quinray Technologies Corp.

Escom - Congo, SARL Quinta da Areia - Sociedade Agricola Quinta da Areia, SA

Escom Energy Ltd Recigreen - Reciclagem e Gestão Ambiental, SA

Escom Holdings BV Recigroup - Industrias de Reciclagem, SGPS, SA

Escom - Espírito Santo Imobiliária SARL Recipav - Engenharia e Pavimentos, Unipessoal, Lda

Escom Infrastructures BV Recipneu - Empresa Nacional de Reciclagem de Peneus, Lda

Escom Investments BV Rodi - Sinks & Ideas, SA

Escom Investimentos e Participações, SA Rushton Business Consultants, Ltd

Escom Kimberlites Ltd Salgar Investments, SL

Escom Management Ltd Santa Mónica - Empreendimentos Turísticos, SA

Escom Mining Chimbongo Ltd Saramagos S/A Empreendimentos e Participações

Escom Mining Development Co. Ltd Société Congolaise de Construction et Travaux Publiques, SARL

Escom Mining Inc Seicor - Comércio, Administração e Participações, S/A

Escom Mining Services Ltd Series - Serviços Imobiliários Espirito Santo, SA

Escom Natural Resources BV SGPICE - Soc. de Serviços de Gestão de Portais na Internet e Consultoria de Empresas, SA

Escom Opca Africa Contractors BV Société Immobiliére du Congo, SARL

Escom - Promoção Imobiliária Lda SIM - Société D' Investissement Minier, SARL

Espírito Santo Commerce RDC, SPRL Sinergy Industry and Tecnology SA

Escom Real Estate Ltd Sintra Empreendimentos Imobiliários, Ltda

Escom - Espirito Santo Commerce, SA Sisges, SA Desenvolvimento de Projectos de Energia

Escom Trading & MarketingLtd Société Congolaise de Carriers et des Mines, SARL

Escopar - Sociedade Gestora de Participações Sociais, SA Soguest - Sociedade Imobiliária, SA

ESDI Administração e Participações Ltda Soliférias - Operadores Turísticos, Lda

Esegur - Empresa de Segurança, SA Soltrade International Limited

Esger - Empresa de Serviços e Consultoria, SA Só Peso Restauração e Hotelaria, S.A. (c)

Espírito Santo International SA Sopol - Concessões, SGPS, SA

Espirito Santo International (BVI) SA SOPRATTUTTO CAFÉ, S.A.

Espirito Santo International BVI Paticipation SA Sotal - Sociedade de Gestão Hoteleira, SA

E.S. International Overseas Ltd Sousacamp, SGPS, S.A.

Espirito Santo International Panama SA Space - Sociedad Peninsular de Aviación, Comércio e Excursiones, SA

Esiam - Espirito Santo International Asset Management Ltd Starfish - Empreendimentos Pesqueiros SARL

Esim - Espirito Santo Imobiliário, SA Suliglor - Imobiliária do Sul, SA

E.S. - Espírito Santo, Mediação Imobiliária, SA TA DMC, Brasil - Viagens e Turismo, SA

Espart Madeira SGPS, Unipessoal, Lda Agência de Viagens Tagus, SA

Espart - Espirito Santo Participações Financeiras, SGPS, SA Terras de Bragança Participações, Ltda

Espírito Santo Property Holding ( Portugal ), SA Timeantube Comércio e Serviços de Confecções, Ltda

Espirito Santo Resources Ltd Tivoli Gare do Oriente - Sociedade de Gestão Hoteleira, SA

E.S. Resources Overseas Ltd TOP A DMC Viajes, SA

Espírito Santo Resources SA Top Atlântico - Viagens e Turismo, SA

Espirito Santo Resources ( Portugal ), SA Top Atlântico DMC, SA

Estoril Incorporated Touravion Ltd

Euroamerican Finance Corporation Inc. Transcontinental - Empreendimentos Hoteleiros, SA

Euroamerican Finance SA Turifonte - Empreendimentos Hoteleiros, SA

Euroatlantic Realty Inc. Turistrader - Sociedade de Desenvolvimento Turístico, SA

Europeia - Agência Turística, SA Ushuaia - Gestão e Trading Internacional Limited

Europe Assistance - Companhia Portuguesa de Seguros de Assistência, SA Vértice Serviços, Lda

Fafer - Empreendimentos Turisticos e de Construção, SA Viveiros da Herdade da Comporta - Produção de Plantas Ornamentais, Lda



As at 30 June 2009 and 31 December 2008, the total amount of the assets and liabilities of the Group with associates

or related companies, is as follows: 30.06.2009 31.12.2008

Assets Liabilities Guarantees Income Expenses Assets Liabilities Guarantees Income Expenses

ESI S.A. 418 776 1 424 - 10 717 - 385 159 1 320 - 28 338 4 790 ESR LTD 412 008 1 647 - 6 634 - 257 102 5 713 - 11 943 978 DIRECTORS 46 406 - - - - 41 745 2 591 - - - ES INDUSTRIAL - 12 - 712 - 97 328 1 - 7 223 - ES HEALTH - - - - - - 2 - 3 757 - ESCOM 159 544 711 - 25 543 - 79 509 344 - 743 - EUROAM ERICAN 17 009 50 - 96 - 2 321 52 - 65 - ES IRM AOS 81 022 3 - - - - 37 - 7 - M ARINOTEIS - 1 - 1 - 2 496 114 4 27 - ES TOURISM 3 512 36 - - - 1 457 66 - 152 650 HERDADE - - - 12 - - - - 30 - EUROP ASSISTANCE 1 081 1 657 7 8 7 2 1 115 - 44 90 ESPH 285 809 217 - 4 536 - 278 330 2 080 - 16 001 - ESEGUR 1 933 145 2 452 115 116 74 213 1 651 945 435 ESR (P) - 106 - - 207 - 61 - - 739 M ULTIPESSOAL 71 31 - 153 94 - - - - - OBLOG Consulting, S.A. - 439 - - - 196 1 530 - - - TOP ATLANTICO - 86 - - 176 - 39 - - 436 BES SEGUROS 483 4 118 - 1 315 5 601 192 - 2 755 325 BES VIDA - Comp anhia de Seguros, S.A. 245 004 79 628 - 35 092 27 941 721 912 105 540 - 271 066 2 604 LOCARENT 130 004 486 - 82 5 770 118 932 - - 7 142 8 324 Other 46 232 24 924 - 4 059 424 29 307 13 451 5 696 1 840 832

1 848 894 115 721 2 459 89 075 34 740 2 016 471 134 462 7 351 352 078 20 203


Balances and transactions with the above referred entities relate mainly to loans and advances and deposits in the

scope of the banking activity of the Group.

During 2008, BES sold 38 million shares of Banco Bradesco to BES Vida, adjusted by the stock split, for an amount

of euro 438.4 million. During the same period, BES Vida sold all Bradesco shares. The gain from this sale amounted

to euro 234.6 million (euro 68.3 million net of minority interest) (see Note 8 and Note 23).

In the scope of the distribution and operating management agreement between BES, BES Vida and Crédit Agricole,

BES granted BES Vida a guarantee on the return over a group of assets associated to insurance and investment

contracts. BES recognises this guarantee on its balance sheet as a liability at fair value against the income statement,

when the expected return of assets is lower than the minimum guaranteed return to the policy holders. Based on the

valuation performed as at 30 June 2009, no liabilities arising from this guarantee were identified.

During the six months period ended 30 June 2009 and the year ended 31 December 2008, and excluding the payment

of dividends, no additional transactions with related parties were undertaken between the Group and its shareholders.



NOTE 49 - SECURITISATION TRANSACTIONS

As at 30 June 2009, the outstanding securitisation transactions performed by the Group were as follows:

Designation Initial date Original amount Current amount

Lusitano Mortgages No. 1 plc December 2002 1 000 000 505 611 Mortgage loans (subsidised regime)

Lusitano Mortgages No. 2 plc November 2003 1 000 000 509 956 Mortgage loans (subsidised and general regime)

Lusitano Mortgages No. 3 plc November 2004 1 200 000 714 106 Mortgage loans (general regime)

Lusitano Mortgages No. 4 plc September 2005 1 200 000 802 065 Mortgage loans (general regime)

Lusitano Mortgages No. 5 plc September 2006 1 400 000 1 056 433 Mortgage loans (general regime)

Lusitano SME No. 1 plc October 2006 862 607 821 486 Loans to small and medium entities

Lusitano Mortgages No. 6 plc July 2007 1 100 000 912 823 Mortgage loans (general regime)

Lusitano Project Finance No. 1 plc December 2007 1 079 100 859 289 Project Finance Loans

Lusitano Mortgages No.7 plc September 2008 1 900 000 1 870 769 Mortgage loans (general regime)

Asset securitized


As permitted by IFRS 1, the Group has applied the derecognition requirements of IAS 39 for the transactions entered

into after 1 January 2004. Therefore, the assets derecognised until that date, in accordance with the previous

accounting policies of the Group, were not restated in the balance sheet.

The assets sold in the securitization transactions Lusitano Mortgages No.3, Lusitano Mortgages No. 4 and Lusitano

Mortgages No. 5, performed after 1 January 2004, were derecognised considering that the Group has transferred

substantially all the risks and rewards of ownership.

In accordance with SIC 12, the Group fully consolidates Lusitano SME No. 1 plc, Lusitano Mortgages No. 6, plc,

Lusitano Project Finance No. 1 plc and Lusitano Mortgages No. 7 plc, as it retains the majority of the risks and

rewards associated with the activity of these SPE. Therefore, the respective assets and liabilities are included in the

consolidated balance sheet of the Group. The other securitization vehicles are not included in the consolidated

financial statements of the Group as it has not retained the majority of the risks and rewards of ownership.

As at 30 June 2009 and 31 December 2008 the consolidation of these entities had the following main impacts on the

consolidated balance sheet:

30.06.2009 31.12.2008

Deposits with banks 229 259 273 471 Loans to customers (net of impairment) 4 434 358 4 408 013 Debt securities issued 1 590 798 1 678 048 Equity ( 17 235) ( 22 201)Net income 4 964 ( 6 208)




NOTE 50 - FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The fair value of financial assets and liabilities, for the Group, is analysed as follows:

30.06.2009 31.12.2008

Book value Fair value Book value Fair value

Cash and deposits at central banks 1 240 548 1 240 548 2 044 923 2 044 923 Deposits with banks 766 690 766 690 884 501 884 501 Financial assets held for trading 4 052 970 4 052 970 3 693 305 3 693 305 Financial assets as at fair value through profit or loss 1 918 003 1 918 003 2 502 876 2 502 876 Available-for-sale financial assets 7 951 398 7 951 398 7 605 669 7 605 669 Loans and advances to banks 10 443 053 10 443 053 3 547 479 3 547 479 Loans and advances to customers 49 478 565 49 420 209 49 176 608 49 621 395 Held to maturity investments 2 669 805 2 493 093 2 170 055 2 079 028 Derivatives for risk management purposes (assets) 487 164 487 164 936 290 936 290

Financial assets 79 008 196 78 773 128 72 561 706 72 915 466

Deposits from central banks 3 239 863 3 239 863 4 810 458 4 810 458 Financial liabilities held for trading 1 602 529 1 602 529 1 930 905 1 930 905 Deposits from banks 10 834 819 10 834 819 8 101 915 8 101 915 Due to customers 25 537 562 25 537 562 26 367 772 26 367 772 Debt securities issued 31 216 611 30 534 030 25 307 119 24 447 319 Derivatives for risk management purposes (liabilities) 310 510 310 510 727 475 727 475 Subordinated debt 2 671 537 2 261 302 2 836 529 2 364 537

Financial liabilities 75 413 431 74 320 615 70 082 173 68 750 381


The assets and liabilities fair value was determined in accordance with the methodology described in the notes to the

consolidated financial statements as at 31 December 2008.

The methods and assumptions used in estimating the fair values of financial assets and liabilities measured at

amortised cost in the balance sheet are analysed as follows:

Cash and deposits at central banks, Deposits with banks and Loans and advances to banks

Considering the short term nature of these financial instruments, carrying value is a reasonable estimate of its fair

value.

Loans and advances to customers

The fair value of loans and advances to customers is estimated based on the discount of the expected future cash

flows of capital and interest, assuming that the installments are paid on the dates that have been contractually defined.

The expected future cash flows of loans with similar credit risk characteristics are estimated collectively. The

discount rates used by the Group are current interest rates used in loans with similar characteristics.



Held-to-maturity investments

The fair values of these financial instruments are based on quoted market prices, when available. For unquoted

securities the fair value is estimated by discounting the expected future cash-flows.

Deposits from central banks and Deposits from banks

Considering the short term nature of these financial instruments, carrying value is a reasonable estimate of its fair

value.

Due to customers

The fair value of these financial instruments is estimated based on the discount of the expected future cash flows of

capital and interest, assuming that the installments are paid on the dates that have been contractually defined. The

discount rates used by the Group are the current interest rates used in instruments with similar characteristics.

Considering that the applicable interest rates to these instruments are floating interest rates and that the period to

maturity is substantially less than one year, the difference between fair value and book value is not significant.

Debt securities issued and Subordinated debt

The fair value of these instruments is based on market prices, when available. When not available, the Group

estimates its fair value by discounting the expected future cash-flows.

NOTE 51 - RISK MANAGEMENT

The Group’s financial risk management objectives and policies are consistent with that disclosed in the consolidated

financial statements as at and for the year ended 31 December 2008. In this note it is included certain information

regarding risk management as at and for the six month period ended 30 June 2009. Additional information is included

in the financial statements as at 31 December 2008.

A qualitative outlook of the risk management at the Group is presented below:

Credit risk;

Market risk;

Liquidity risk;

Operational risk;

Insurance risk.



Credit risk

Credit risk represents the potential financial loss arising from the failure of a borrower or counterparty to honour its

contractual obligation. Credit risk is essentially present in traditional banking products – loans, guarantees granted and

contingent liabilities – and in trading products – swaps, forwards and options (counterparty risk). Regarding credit

default swaps, the net exposure between selling and buying positions in relation to each reference entity, is also

considered as credit risk to the Group. The credit default swaps are accounted for at fair value in accordance with the

accounting policy described in Note 2.4.

Credit portfolio management is an ongoing process that requires the interaction between the various teams responsible

for the risk management during the consecutive stages of the credit process. This approach is complemented by the

continuous introduction of improvements in the methodologies, in the risk assessment and control tools, as well as in

procedures and decision processes.

The risk profile of ESFG Group’s credit portfolios is analysed on a regular basis by the risk committees at the

subsidiary level. In these meetings the Committees monitor and analyses the risk profile of the Group entities under

four major perspectives: evolution of credit exposures, monitoring of credit losses, capital allocation and consumption

and control of risk adjusted return.

ESFG Group credit risk exposure is analysed as follows:

30.06.2009 31.12.2008

Deposits with banks 12 291 972 6 225 327Financial assets held for trading 3 966 308 3 673 731Financial assets at fair value through profit or loss 1 353 125 1 362 984Available-for-sale financial assets 5 106 125 5 409 892Loans and advances to customers 49 478 565 49 176 608Held-to-maturity investments 2 669 805 2 170 055Hedging derivatives 487 164 936 290Other assets 734 090 764 526Guarantees granted 7 243 441 6 714 951Open documentary credits 1 784 788 2 137 253Irrevocable commitments 5 284 744 4 711 263Credit risk linked to the reference entities of credit derivatives 557 622 581 915

90 957 749 83 864 795




The analysis of the risk exposure by sector of activity, as at 30 June 2009 and 31 December 2008, can be analysed as

follows:

Grossamount

Impairment losses

Grossamount

Impairment losses

Grossamount

Impairment losses

Agriculture 561 032 ( 21 007) 2 920 - 10 387 - - - 34 887 Mining 333 617 ( 3 851) 3 046 - 444 - - - 170 580 Food, beverage and tobacco 925 020 ( 17 748) 17 220 - 42 623 ( 52) 4 303 - 99 721 Textiles 386 414 ( 43 526) 7 093 - 25 668 ( 3 672) - - 26 119 Shoes 103 228 ( 5 357) 1 210 - 503 ( 499) - - 3 197 Wood and cork 175 751 ( 18 354) 1 859 - 1 560 - - - 6 029 Printing and publishing 292 922 ( 6 925) 4 399 - 116 126 - - - 51 296 Refining and oil 121 168 ( 292) 1 622 - 18 653 ( 10 010) - - 3 087 Chemicals and rubber 580 430 ( 17 802) 18 112 - 46 436 ( 4 642) 13 029 - 116 878 Non-metalic minerals 446 828 ( 11 620) 1 821 - 5 542 - - - 49 169 Metalic products 622 861 ( 25 743) 6 417 - 7 099 - - - 68 698 Production of machinery,

equipment and electric devices 340 782 ( 36 494) 2 530 1 966 10 485 ( 892) 17 950 - 151 910 Production of transport material 518 789 ( 6 158) 1 109 - 3 297 - 26 558 - 48 533 Other transforming industries 466 682 ( 21 797) 1 212 - 25 037 ( 931) - - 14 769 Electricity, gas and water 1 449 979 ( 7 088) 26 268 3 903 399 450 - 17 427 - 435 354 Construction 5 743 119 ( 169 544) 125 988 - 142 344 ( 1 687) - - 2 016 721 Wholesale and retail 3 149 470 ( 162 037) 25 166 - 367 732 ( 12 823) 14 571 - 543 237 Tourism 1 190 767 ( 25 837) 18 397 - 10 385 ( 376) - - 114 146 Transports and communications 2 003 622 ( 31 445) 198 612 503 1 040 938 ( 396) 147 565 - 665 422 Financial activities 2 592 992 ( 43 995) 1 361 773 1 206 593 2 418 166 ( 76 677) 1 304 350 ( 5 636) 258 262 Real estate activities 5 293 831 ( 156 088) 45 795 - 82 210 ( 1 741) - - 388 364 Services provided to companies 3 958 424 ( 73 247) 35 533 8 1 152 251 ( 27 166) - - 1 183 891 Public services 862 734 ( 14 809) 1 925 568 95 1 556 646 - 493 675 - 100 707 Non-profit organisations 4 546 848 ( 106 395) 184 586 704 935 597 639 ( 30 052) 615 162 ( 1 110) 546 984 Mortgage loans 10 983 223 ( 230 554) - - 22 013 - - - 39 Consumer loans 2 879 027 ( 151 056) - - - - - - 132 260 Other 366 788 ( 9 014) 34 714 - 19 421 ( 41) 21 961 - 13 181

TOTAL 50 896 348 (1 417 783) 4 052 970 1 918 003 8 123 055 ( 171 657) 2 676 551 ( 6 746) 7 243 441

Other financial assets as at fair value through profit or loss


30.06.2009

Loans and advances to customers Available-for-sale financial assets Held to maturity investments Financial guarantees

issued

Financial assets held for trading

Grossamount

ImpairmentGross

amountImpairment

lossesGross

amountImpairment

losses

Agriculture 619 580 ( 20 317) 4 576 - 1 761 - - - 24 541 Mining 359 339 ( 5 221) 3 463 - 281 - - - 48 104 Food, beverage and tobacco 804 136 ( 18 549) 14 709 - 54 512 ( 52) 4 306 - 99 319 Textiles 389 248 ( 31 934) 9 171 - 22 908 ( 2 238) - - 26 466 Shoes 70 889 ( 5 150) 1 037 - 499 ( 499) - - 2 995 Wood and cork 178 445 ( 12 277) 3 521 - 3 038 - - - 6 604 Printing and publishing 236 259 ( 5 550) 2 188 - 81 768 - - - 40 228 Refining and oil 59 776 ( 71) - - 11 943 - - - 3 004 Chemicals and rubber 601 760 ( 11 068) 15 565 - 46 109 ( 5) 13 119 - 70 888 Non-metalic minerals 437 653 ( 11 074) 1 557 - 8 507 - - - 47 504 Metalic products 607 650 ( 21 343) 7 083 - 8 014 - - - 68 595 Production of machinery,

equipment and electric devices 227 104 ( 5 261) 1 474 1 981 7 491 ( 770) 15 467 - 181 011 Production of transport material 219 522 ( 5 089) 238 693 - 17 360 - 43 825 - 76 320 Other transforming industries 462 177 ( 12 772) 1 185 - 9 886 ( 815) - - 15 560 Electricity, gas and water 1 231 600 ( 9 492) 14 921 - 363 800 - 12 591 - 368 661 Construction 6 358 755 ( 153 268) 172 730 - 326 774 ( 1 811) - - 1 720 102 Wholesale and retail 3 401 218 ( 122 290) 26 043 - 140 307 ( 11 600) 14 645 - 466 708 Tourism 1 281 752 ( 19 988) 11 874 - 8 905 ( 987) - - 78 615 Transports and communications 1 860 783 ( 23 979) 15 659 - 1 111 304 ( 13 719) 122 573 - 593 521 Financial activities 2 797 562 ( 43 456) 1 403 421 2 097 537 2 110 547 ( 71 498) 910 470 - 537 092 Real estate activities 5 175 992 ( 116 195) 67 173 - 3 546 ( 968) - - 435 895 Services provided to companies 5 046 521 ( 86 437) 12 082 - 907 453 ( 13 488) 2 352 - 998 476 Public services 686 795 ( 9 663) 1 553 580 20 1 905 613 - 504 424 - 45 849 Non-profit organisations 3 276 641 ( 56 011) 111 469 398 812 540 179 ( 36 131) 526 283 - 154 115 Mortgage loans 11 020 282 ( 237 772) - 4 526 26 421 - - - - Consumer loans 2 946 204 ( 130 532) - - - - - - 119 250 Other 17 131 ( 23 407) 131 - 51 829 ( 10 505) - - 485 528

TOTAL 50 374 774 (1 198 166) 3 693 305 2 502 876 7 770 755 ( 165 086) 2 170 055 - 6 714 951


Financial assets held for trading

Other financial assets as at fair value through profit or loss

31.12.2008

Held to maturity investmentsLoans and advances to customers Financial guarantees

issued

Available-for-sale financial assets



As at 30 June 2009, the analysis of the loan portfolio by rating is as follows:

(in millions of euro)

Rating/Scoring models Internal scale (1) Credit amount (% )

[aaa;a-] 1 269 7.08%

[bbb+;-bbb-] 1 657 9.24%

[bb+;bb-] 6 110 34.07%

[b+;b-] 8 386 46.76%

ccc+ 511 2.85%

8-9 290 5.69%

10-11 453 8.89%

12-13 814 15.98%

14-15 990 19.44%

16-17 883 17.34%

18-19 427 8.38%

20-21 539 10.58%

22-23 282 5.54%

24-25 415 8.16%

A 97 3.36%

B 574 19.90%

C 931 32.28%

D 533 18.48%

E 269 9.33%

F 480 16.65%

01 888 8.88%

02 2 572 25.71%

03 2 051 20.50%

04 1 275 12.75%

05 779 7.79%

06 600 6.00%

07 1 703 17.02%

08 135 1.35%

01 101 5.40%

02 121 6.47%

03 235 12.56%

04 366 19.56%

05 299 15.98%

06 190 10.15%

07 148 7.91%

08 125 6.68%

09 269 14.38%

10 17 0.91%

50 896 100.00%

(1) Internal scale established by the Group. The lower the number / letter the better is the rating.

Total ESFG

25.76%

Large companies

Medium enterprises

Small enterprises

Mortgage loans

Private individuals

No internal rating/scoring loans 13 112



Market Risk

Market risk is the possible loss resulting from an adverse change in the value of a financial instrument due to

fluctuations in interest rates, foreign exchange rates or share prices.

The market risk management is integrated with the balance sheet management through the Asset and Liability

Committee (ALCO) at the Group entities level. These committees are responsible for defining policies for the

structuring and composition of the balance sheet, and for the control of exposures to interest rate, foreign exchange

and liquidity risk.

The main measure of market risk is the assessment of potential losses under adverse market conditions, for which the

Value at Risk (VaR) valuation criteria is used. Group's VaR model uses the Monte Carlo simulation, based on a

confidence level of 99% and an investment period of 10 days. Volatilities and correlations are historical, based on an

observation period of one year. As a complement to VaR, stress testing has been developed, allowing to evaluate the

impact of potential losses higher than the ones considered by VaR.

30.06.2009 31.12.2008

(in million of euro)

Exchange risk 34 25 Interest rate risk 23 33 Shares 29 9 Commodity 1 - Diversification effect ( 31) ( 20)

56 47

Group has a VaR of euro 56 million (31 December 2008: euro 47 million), for its trading positions.



The sensitivity of ESFG Group to interest rate risk, measured in accordance with Instruction no. 19/2005 of the Bank

of Portugal, which requires the calculation of the impact of a parallel shift of 200 basis points in the interest rate curve,

can be analysed as follows:

30.06.2009 31.12.2008

Accumulated impact in equity:Increase of 200 basis points 385 156 Decrease of 200 basis points (385) (156)


The following table presents the average balances, interest and interest rates in relation to the Group’s major assets and

liabilities categories, for the six months period ended 30 June 2009 and the year ended 31 December 2008.

Average balance of the year

Interest of the year

Average interest rate

Average balance of the year

Interest of the year

Average interest rate

Monetary assets 7 958 148 89 289 2.26% 8 618 820 242 443 2.81%Loans and advances to customers 49 978 838 1 261 533 5.09% 47 807 456 2 992 039 6.26%Securities 11 354 628 303 105 5.38% 8 688 013 627 530 7.22%Differential resources 509 638 - - - - -

Financial assets 69 801 252 1 653 927 4.78% 65 114 289 3 862 012 5.93%

Monetary liabilities 13 259 892 154 206 2.35% 10 877 984 514 710 4.73%Due to costumers 25 196 119 289 270 2.32% 23 118 495 673 934 2.92%Other 30 276 361 543 584 3.62% 29 932 971 1 545 311 5.16%Differential resources - - - 86 035 - -

Financial liabilities 68 732 372 987 060 2.90% 64 015 485 2 733 955 4.27%

Net interest income 666 867 1.88% 1 128 057 1.66%


30.06.2009 31.12.2008



Liquidity risk

Liquidity risk derives from the potential inability to fund assets while satisfying commitments on due dates and from

potential difficulties in liquidating positions in portfolio without incurring in excessive losses.

The purpose of liquidity management is to maintain adequate liquidity levels to meet short, medium and long term

funding needs.

The Group prepares regulatory specific reports that allow the identification of negative mismatch and permits their

dynamic coverage. In addition, the Group calculates the liquidity ratios in accordance with the Bank of Portugal

rules.

30.06.2009 31.12.2008

Cash and deposits with banks 12 157 6 085 Short term deposits from banks ( 11 972) ( 10 700)

Treasury Gap I (1) 185 ( 4 615)

Eligible securities to be used as collateral with European Central Bank 9 017 8 710Eligible securities used (1 035) (1 400)

Treasury Gap II 8 167 2 695

Liquidity ratio (2) 91% 86%

(1) Treasury Gap - immediate liquidity and short term interbank loans less interbank debt up to one year. A positive Treasury Gap indicates available liquidity levels in excess of Group needs(2) Calculated in accordance with Instruction nº 1/2000 of the Bank of Portugal


Operational risk

Operational risk represents the risk of losses resulting from failures in internal procedures, people behaviours,

information systems and external events.

To manage operational risk, it was developed and implemented a system that standardizes, systematizes and regulates

the frequency of actions with an objective of identification, monitoring, controlling and mitigation of risk. The system

is supported at organizational level by a unit within the Global Risk Department of GBES, exclusively dedicated to

this task, and by representatives designated by each of the relevant departments and subsidiaries.



Insurance risk

Insurance risk – inherent risk related to the selling of insurance contracts, underwriting policy, pricing, reserving,

claims management and reinsurance arrangements.

Pricing is based on actuarial methodologies, revised on a regular basis in order to ensure a rigorous policy

underwriting and risk acceptance.

Risks underwritten that require selective acceptance are analysed centrally. Evidence of the underwriting conditions

and identification of the decision maker are required.

The technical reserves, specifically the claims reserves, are analysed on a monthly basis. The adequacy of the

insurance liabilities is reviewed on a regular basis. Regarding the evaluation of reserves, new models are being

developed internally by the Group’s Insurance companies based on stochastic methodologies.

Longevity risk covers the uncertainty in the ultimate loss due to policyholders living longer than expected and can

arise for example, in annuity portfolios within the life Insurance and workmen’s compensation portfolios within non-

life insurance.

Longevity risk is managed through pricing, underwriting policy and by regularly reviewing the mortality tables used

for pricing and establishing reserves. Where longevity is found to be improving faster than assumed in the mortality

tables additional reserves are established and mortality tables are updated.

Any adjustments resulting from changes in reserves estimates are reflected in current results of operations. However,

because the establishment of claims reserves is an inherently uncertain process, there can be no assurance that ultimate

losses will not exceed existing claims reserves, and this risk is covered by the additional solvency capital.

For liability adequacy test purposes of the life business the mortality assumptions are based on best estimates derived

from portfolio experience investigations. Future cash flows are evaluated and discounted at risk free rate.

ESPÍRITO SANTO FINANCIAL GROUP S.A., LUXEMBOURG

INTERIM FINANCIAL STATEMENTS

AS OF JUNE 30, 2009

(UNAUDITED)

231 Val des Bons Malades

L-2121 Luxembourg-Kirchberg RC: Luxembourg B22.232


Balance sheet

Profit and loss account

F-1

F-2

Notes to the financial statements F-3


BALANCE SHEET AS AT

Notes 31.12.2008 30.06.2009(Audited) (Unaudited)

Euros Euros

ASSETS

UNAMORTISED COSTS IN RESPECT OF DEBT SECURITIES 3 12,929,023 12,545,941

FORMATION EXPENSES 4 5,143,433 4,009,918

FIXED FINANCIAL ASSETS

Financial assets

Shares in affiliated undertakings 5 1,008,218,774 1,022,728,334

Loans to affiliated undertakings 6 652,624,406 1,008,058,722

Other financial assets 7 10,624,802 10,723,096

CURRENT ASSETS

Debtors 8 7,722,885 2,582,622

Transferable securities 9 82,886,394 34,875,366

Cash at bank and cash in hand 10 372,537,809 38,036,871

PREPAYMENTS AND ACCRUED INCOME 3,634,752 1,991,237

2,156,322,278 2,135,552,107

LIABILITIES

CAPITAL AND RESERVESSubscribed capital 11 778,549,160 778,549,160

Share premium account 12 262,623,258 262,623,258

Reserves

Legal reserve 12 30,103,500 31,364,500

Other reserves 12 130,995,349 130,995,349

Profit brought forward 12 13,233,079 13,834,977

Profit for the financial year 25,219,373 8,539,133

CREDITORSBonds 13 500,000,000 500,000,000

Other creditors 14 415,598,559 409,645,730

2,156,322,278 2,135,552,107

The accompanying notes 1 to 20 form an integral part of these financial statements.


PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS PERIODS ENDED

Notes 30.06.2008 30.06.2009(Unaudited) (Unaudited)

Euros Euros

CHARGES

External charges 2,697,505 3,868,173

Amortisation of costs in respect of debt securities 3 383,082 383,082

Value adjustments in respect of formation expenses 4 921,465 1,153,622

Other operating charges 15 28,781,281 2,863,855

Value adjustments in respect of financial assets and

of transferable securities held as current assets 5 and 9 32,468,240 —

Interest payable and similar charges 24,928,519 20,438,212

Concerning affiliated undertakings 11,451,562 10,624,933

Other interest payable and similar charges 13,476,957 9,813,279

Other taxes not shown under the above items 20 151,900 632,275

————— —————90,331,992 29,339,219

Profit for the financial year 19,634,811 8,539,133

————— —————109,966,803 37,878,352

INCOME

Gains on sale of shares in affiliated undertakings 16 67,970,544 —

Income from participating interests 16 35,051,603 31,642,997

Derived from other affiliated undertakings 35,051,603 31,642,997

Income from other transferable securities and

from loans forming part of the fixed assets 16 4,787,473 3,619,909

Derived from affiliated undertakings 4,065,349 3,379,084

Other income 722,124 240,825

Other interest receivable and similar income 2,157,183 2,615,446

Derived from affiliated undertakings 2,099,408 2,609,196

Other interest receivable and similar income 57,775 6,250

————— —————109,966,803 37,878,352

————— —————

The accompanying notes 1 to 20 form an integral part of these financial statements.


NOTES TO THE INTERIM FINANCIAL STATEMENTS AT JUNE 30, 2009 (unaudited)

F-3

NOTE 1 - ACTIVITY

Espírito Santo Financial Group S.A. (“the Company” or “ESFG”) is a limited liability company (société

anonyme) incorporated under Luxembourg law on November 28, 1984 for an unlimited duration.

Espírito Santo Financial Group S.A. is the holding company of the banking and financial activities of the Espírito

Santo Group. The non-financial interests of the group are held by Espírito Santo Resources Ltd., Nassau. The

Company and Espírito Santo Resources Ltd., Nassau, are subsidiaries of E.S. International S.A. (ESI), a

Luxembourg company.

The Company has extensive transactions and relationships with members of the Espírito Santo group. Because of

these relationships, it is possible that the terms of these transactions are not the same as those that would result

from transactions with wholly unrelated parties.

Consolidated financial statements are available at the Company’s registered office at 231, Val des Bons-Malades

in Luxembourg.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting convention and basis of presentation

The financial statements have been prepared, for all periods presented, in conformity with Luxembourg legal and

regulatory requirements, under the historical cost convention, and in the format applicable to Luxembourg

commercial companies.

The preparation of financial statements requires management to make estimates and assumptions that affect the

reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the

financial statements and the reported amounts of revenues and expenses during the reported period. Actual results

could differ from those estimates.

Income and expenses recognition

Income and expenses are generally recognised on an accrual basis. Dividends from investments are accounted for

as income when received.

Expenses arising on issuance of debt securities are capitalised and amortised over the life of the bonds. Expenses

arising on capital increases are capitalised and amortised over a five-year period.

Financial assets

Financial assets are stated at acquisition cost. Provisions for write down are made when an impairment loss is

identified and are booked under the caption “Value adjustments in respect of financial assets and transferable

securities held as current assets”.

Investments in transferable securities

Investments in transferable securities are stated at the lower of cost and market value. Unrealised losses are

recognised through the profit and loss account.

Derivative instruments

Premiums paid and received on options outstanding at the balance-sheet date are included under “Prepayments

and accrued income” and “Accruals and deferred income”, respectively. The premium paid on the option

purchased to hedge the stock-option plan is amortised over the vesting period through the profit or loss account.

The unamortised part of the premium is included under “Prepayments and accrued income”.



F-4

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currencies

The books of accounts are maintained in Euro. Transactions in foreign currencies during the period are recorded

at exchange rates ruling at the time the transactions take place. All assets and liabilities expressed in currencies

other than Euro are translated at exchange rates ruling at the end of the period, except for investments in affiliated

undertakings which are kept at historical exchange rates. Any exchange gains or losses are recognised in the

profit and loss account.

Spot positions hedged by forward transactions as well as forward positions hedged by spot deals are considered to

be neutral in relation to currency fluctuations. Any valuation difference which may arise is neutralised so that the

results for the year are not affected.

Provision is made for unrealised losses on forward transactions which do not represent the hedging of spot

positions. Unrealised gains are not accounted for.

NOTE 3 – UNAMORTISED COSTS IN RESPECT OF DEBT SECURITIES

This balance relates to the unamortised costs in respect of debt securities, as follows:

30.06.2008 31.12.2008 30.06.2009

Euros Euros Euros

Cost at the beginning and at the end of the period 15,323,288 15,323,288 15,323,288

Amortisation at the beginning of the period (1,628,099) (2,011,181) (2,394,265)

Amortisation of the period (383,082) (383,084) (383,082)

Amortisation at the end of the period (2,011,181) (2,394,265) (2,777,347)

Unamortised cost at the end of the period 13,312,107 12,929,023 12,545,941

NOTE 4 – FORMATION EXPENSES

This balance relates to the unamortised costs in respect of capital increases, as follows:

30.06.2008 31.12.2008 30.06.2009

Euros Euros Euros

Cost at the beginning of the period 9,214,648 9,214,648 11,516,117

Additions for the period — 2,301,469 20,107

Cost at the end of the period 9,214,648 11,516,117 11,536,224

Amortisation at the beginning of the period (4,491,397) (5,412,862) (6,372,684)

Amortisation of the period (921,465) (959,822) (1,153,622)

Amortisation at the end of the period (5,412,862) (6,372,684) (7,526,306)

Unamortised cost at the end of the period 3,801,786 5,143,433 4,009,918



F-5

NOTE 5 – SHARES IN AFFILIATED UNDERTAKINGS

Percentage of

Company Location 31.12.2008 30.06.2009 capital heldEuros Euros

Espírito Santo Financial (Portugal) SGPS, S.A. Portugal 566,517,693 566,517,693 100.0

Banco Espírito Santo S.A. Portugal 92,755,057 108,306,284 1.3

Espírito Santo Saúde SGPS, S.A. Portugal 48,293,600 48,293,600 24.9

ESFIL – Espírito Santo Financière S.A. Luxembourg 127,639,112 127,639,112 100.0

Partran SGPS, S.A. Portugal 161,082,569 161,082,569 55.0

Banque Privée Espírito Santo S.A. Switzerland 154,764 154,764 0.7

ESFG Overseas Ltd. Cayman Islands 1 — —

ES Bank (Panama) S.A. Panama 26,017,036 26,017,036 100.0

ES Bankers (Dubai) Ltd. Dubai 20,833,340 19,791,674 95.0

ESFG International Ltd. Cayman Islands 1,000 1,000 100.0

SCA Mandel Partners France 200,000 200,000 5.0

Banco Electrónico de Serviço Total, S.A. Portugal 16,000,000 16,000,000 34.0

Others 2,389 2,389 —

1,059,496,561 1,074,006,121

(51,277,787) (51,277,787)

1,008,218,774 1,022,728,334

Provision for write down of investments in group companies

During the six months period ending 30 June 2009, the following transactions took place:

- Sale of 5% of ES Bankers (Dubaï) Ltd. for an amount of Usd 1,500,000;

- subscription of 8,639,571 shares of the capital increase of Banco Espírito Santo S.A for an amount of

Euro 15,551,228;

- dissolution of ESFG Overseas Ltd., held 100% by the Company, further to the distribution of a dividend

of Euro 382,343 (see Note 16).

During 2008, the following transactions took place:

- subscription of 25,880,000 shares of the capital increase of Espírito Santo Financial (Portugal) SGPS,

S.A. for an amount of Euro 129,400,000 by partial reimbursement of existing loans;

- purchase of 232,049 shares and sale of 227,523 shares of Banco Espírito Santo S.A., generating a gain

of Euro 145,374 (see Note 16);

- reimbursement of supplementary capital from Espírito Santo Saúde SGPS, S.A. for an amount of Euro

9,960,000;

- subscription of 2,175,000 ordinary shares and 2,325,000 preference shares of the capital increase of

Espírito Santo Financière, S.A. for a total amount of Euro 67,500,000;

- sale of 20,279,700 shares of Partran SGPS, S.A. to Espirito Santo Financial (Portugal) SGPS, S.A.. This

sale generated a gain of Euro 67,825,170 (see Note16);

- purchase of 10,000 shares of ES Bank (Panama) S.A. for an amount of Euro 8,742,243;

- purchase of 21,420,000 shares of Banco Electrónico de Serviço Total, S.A. for an amount of Euro

16,000,000.

The provision for write down of investments in group companies during includes Euro 49,405,897 on investment

in Banco Espírito Santo S.A..

During 2003 the Company lent 1 million shares of Partran to Bespar. The shares were lent for an amount of Euro

5,000,000 and will return to the Company in 2011.



F-6

NOTE 5 – SHARES IN AFFILIATED UNDERTAKINGS (continued)

The shareholders’ equity and the net income of the subsidiaries in which the Company owns more than 20% at 30

June are as follows:

Shareholders'

equity(*) Net Income(*)Eur'000 Eur'000

Espírito Santo Financial (Portugal) SGPS, S.A.30/06/2009 453,502 32,811

31/12/2008 451,091 71,712

ES Saude SGPS, S.A.30/06/2009 126,311 (1,234)

31/12/2008 128,308 15,874

ESFIL - Espírito Santo Financière S.A.30/06/2009 148,654 26,642

31/12/2008 125,522 (27,652)

Partran SGPS, S.A.30/06/2009 348,715 (6)

31/12/2008 348,722 17,916

ESFG Overseas Ltd.30/06/2009 — —

31/12/2008 382 —

ES Bank (Panama) S.A.30/06/2009 33,236 1,765

31/12/2008 31,426 3,702

ES Bankers (Dubai) Ltd.30/06/2009 18,154 907

31/12/2008 17,172 (2,638)

ESFG International Ltd.30/06/2009 397,230 (**) 11,432

31/12/2008 400,001 (**) 4,390

BEST S.A.30/06/2009 23,086 2,637

31/12/2008 23,960 2,376

(*) figures in accordance with IFRS

(**) Include Euro 400,000,000 Non-cumulative Guaranteed Step-Up Preferred Securities which are not owned by

ESFG.



F-7

NOTE 6 - LOANS TO AFFILIATED UNDERTAKINGS

31.12.2008 30.06.2009Euros Euros

ESFIL - Espírito Santo Financière S.A. 77,253,184 96,267,500

Espírito Santo Financial (Portugal) SGPS, S.A. 471,914,901 798,334,901

Partran SGPS, S.A. 81,960,368 111,960,368

Banque Privée Espirito Santo S.A. 20,000,000 —

Espírito Santo Saúde SGPS, S.A. 1,495,953 1,495,953

652,624,406 1,008,058,722

The balance due from ESFIL - Espírito Santo Financière S.A. represents the following revolving loans:

Date of transaction Description CHF 31.12.2008 30.06.2009Euros Euros

23/12/1993 Granted 59,040,000 39,553,708 38,710,794

23/12/1993 Granted 10,000,000 6,699,476 6,556,706

46,253,184 45,267,500

28/12/2007 Granted 31,000,000 31,000,000

29/06/2009 Granted — 20,000,000

31,000,000 51,000,000

Total 77,253,184 96,267,500

The loans bear interest and will be reimbursed based either on a notice given by the lender or on mutual

agreement between the two parties.



F-8

NOTE 6 - LOANS TO AFFILIATED UNDERTAKINGS (continued)

The receivable from Espírito Santo Financial (Portugal) SGPS, S.A. represents the following revolving loans:

Date of transaction Description 31.12.2008 30.06.2009Euros Euros

20/12/2002 Granted 67,399,461 67,399,461

31/12/2008 Repaid (51,029,000) (51,029,000)

16,370,461 16,370,461

30/01/2003 Granted 1,000,000 1,000,000

04/07/2003 Granted 31,500,000 31,500,000

31/07/2006 Granted 37,343,000 37,343,000

27/10/2006 Granted 50,733,240 50,733,240

30/11/2006 Granted 61,418,200 61,418,200

23/03/2007 Granted 36,525,000 36,525,000

16/04/2007 Granted 850,000 850,000

21/05/2007 Granted 1,600,000 1,600,000

01/06/2007 Granted 700,000 700,000

29/11/2007 Granted 300,000 300,000

20/12/2007 Granted 450,000 450,000

09/01/2008 Granted 200,000 200,000

28/01/2008 Granted 700,000 700,000

25/02/2008 Granted 375,000 375,000

17/03/2008 Granted 550,000 550,000

14/04/2008 Granted 200,000 200,000

15/04/2008 Granted 100,000 100,000

28/04/2008 Granted 700,000 700,000

05/05/2008 Granted 500,000 500,000

21/05/2008 Granted 29,800,000 29,800,000

30/06/2008 Granted 200,000,000 200,000,000

20/01/2009 Granted — 1,800,000

03/04/2009 Granted — 323,520,000

09/04/2009 Granted — 850,000

13/05/2009 Granted — 250,000

455,544,440 781,964,440

Total 471,914,901 798,334,901

The loans bear no interest and will be reimbursed based either on a notice given by the lender or on mutual




F-9

NOTE 6 - LOANS TO AFFILIATED UNDERTAKINGS (Continued)

The receivable from Partran SGPS, S.A. represents the following revolving loans:

Date of transaction Description 31.12.2008 30.06.2009Euros Euros

07/01/2005 Granted 406,218 406,218

07/04/2005 Granted 396,901 396,901

07/07/2005 Granted 401,311 401,311

07/10/2005 Granted 401,752 401,752

06/01/2006 Granted 411,427 411,427

07/04/2006 Granted 438,642 438,642

27/06/2006 Granted 22,000,000 22,000,000

06/10/2006 Granted 703,855 703,855

01/01/2007 Granted 783,992 783,992

30/04/2007 Granted 14,016,270 14,016,270

27/06/2007 Granted 30,000,000 30,000,000

27/06/2008 Granted 12,000,000 12,000,000

29/06/2009 Granted — 30,000,000

Total 81,960,368 111,960,368

The loans bear no interest and will be reimbursed based either on a notice given by the lender or on mutual


The subordinated loan of Euro 20,000,000, granted on December 14, 2007 to Banque Privée Espirito Santo S.A.,

was sold to ESFIL- Espírito Santo Financière S.A. on June 30, 2009. This loan bore interest at 6.75% per annum.

The balance due from Espírito Santo Saúde SGPS S.A. represents a subordinated loan of Euro 1,495,953 granted

on June 19, 2008. The loan bears no interest and will be reimbursed based either on a notice given by the lender

or on mutual agreement between the two parties.

NOTE 7 - OTHER FINANCIAL ASSETS

Other financial assets relate to Life-Insurance policies in favor of the Company and some of its Directors.



F-10

NOTE 8 - DEBTORS

Debtors’ balances comprise essentially short term advances to and receivables from affiliated undertakings and

related entities.

31.12.2008 30.06.2009Euros Euros

Companhia de Seguros Tranquilidade S.A. 43,776 —

Banco Espírito Santo S.A. 312,278 487,646

ESFIL – Espírito Santo Financière S.A. 4,884,190 2,011,886

Espírito Santo Financial (Portugal) SGPS, S.A. 281,985 —

Interest receivable (due within one year) 575,197 42,144

Others 1,625,459 40,946

7,722,885 2,582,622

NOTE 9 – TRANSFERABLE SECURITIES

This caption is analysed as follows:

Euros Euros Euros Euros Euros

UnrealisedCost losses Impairment Book value Market value

Equity securities 33,555,799 — (1,972,582) 31,583,217 31,612,320

Units in investment funds 3,292,149 — — 3,292,149 3,317,542

36,847,948 — (1,972,582) 34,875,366 34,929,862

Euros Euros Euros Euros Euros

UnrealisedCost losses Impairment Book value Market value

Bonds 17,251,108 (10,880) — 17,240,228 17,635,611

Equity securities 45,816,068 (3,820,133) (1,972,580) 40,023,355 40,057,498

Units in investment funds 34,542,248 (8,919,437) — 25,622,811 26,617,662

97,609,424 (12,750,450) (1,972,580) 82,886,394 84,310,771

31.12.2008

30.06.2009

NOTE 10 - CASH AT BANK AND CASH IN HAND

Cash at bank and cash in hand include a fiduciary deposit of Euro 37,000,000 with Banco Espírito Santo Group

via Banque Privée Espírito Santo S.A., an affiliated bank.



F-11

NOTE 11 – SUBSCRIBED CAPITAL

31.12.2008 30.06.2009Euros Euros

Ordinary sharesAuthorised:

100,000,000 (31.12.2008 – 100,000,000) shares of Euros 10

(2008 – Euros 10) each 1,000,000,000 1,000,000,000

Subscribed, issued and fully paid:

77,854,916 (31.12.2008: 77,854,916) shares of Euros 10

(31.12.2008 – Euros 10) each 778,549,160 778,549,160

NOTE 12 - SHARE PREMIUM ACCOUNT, RESERVES AND PROFIT BROUGHT FORWARD

Share premium Profitaccount Legal reserve Other reserves brought forwardEuros Euros Euros Euros

December 31, 2008 262,623,258 30,103,500 130,995,349 13,233,079

Prior year profit — — — 25,219,373

Appropriation to legal reserve — 1,261,000 — (1,261,000)

Dividend paid — — — (23,356,475)

June 30, 2009 262,623,258 31,364,500 130,995,349 13,834,977========== ========== ==========

Under Luxembourg law, a minimum of 5% of the profit for the year must be transferred to a legal reserve until

this reserve equals 10% of the issued share capital. The legal reserve is not available for distribution. The other

reserves are available for distribution at the discretion of the shareholders.

The appropriation of the 2008 result was approved at the annual general meeting of shareholders on May 25,

2009. The shareholders decided to pay a dividend of Euro 0.30 per share on the outstanding ordinary shares.

NOTE 13 - BONDS

31.12.2008 30.06.2009Euros Euros

Fixed Rate Step-Up Notes due 2025 500,000,000 500,000,000

————— —————

The Euro 500,000,000 Fixed Rate Step-Up Notes due 2025 with 10,000 warrants were issued on November 15,

2005. Each Note bears interest at the rate of 3.55% until November 15, 2010 and 5.05% from then on. Each

warrant entitles the holder to subscribe Euro 50,000 to acquire fully paid up shares of Euro 10.0 each of ESFG at

an initial exercise price of Euro 24.50 per share. The rights under the warrants are exercisable from and including

December 26, 2005 up to the close of business on November 8, 2025. Unless previously redeemed, or

repurchased and cancelled, the Notes will be redeemed at their principal amount on November 15, 2025. None of

the warrants has been exercised to date.



F-12

NOTE 14 - OTHER CREDITORS

31.12.2008 30.06.2009Euros Euros

Interest payable (less than one year) 2,236,986 11,039,041

Payable to group companies (more than one year) 409,262,909 397,683,505

Payable to group companies (less than one year) 2,417,726 —

Sundry payables (less than one year) 1,680,938 923,184

415,598,559 409,645,730

Payable to group companies (more than one year) relates to ESFG International Ltd.. The advance from ESFG

International Ltd. is revolving and will be reimbursed based either on a notice given by the lender or on mutual

agreement between the two parties. Payable to group companies (less than one year) as at December 31, 2008

related to ESFG Overseas Ltd., which is reimbursed during the first six months of 2009.

NOTE 15 - OTHER OPERATING CHARGES

In the first six months of 2009, other operating charges relate to the charges in connection with the stock-option

plan for Euro 2,391,333 (see Note 19) and to the losses on the sale of transferable securities and derivatives for

Euro 472,522.

In 2008, other operating charges relate to the absorption of losses within the guarantee given by ESFG (see Note

17) to ESFG Overseas Ltd. for Euro 13,385,772 and ESFG International Ltd. for Euro 7,317,911 and to the losses

on the sale of transferable securities and derivatives for Euro 8,077,598.

NOTE 16 - RESULT FROM FINANCIAL ASSETS

Gains on sale of shares in affiliated undertakings

30.06.2008 30.06.2009Euros Euros

Gains on sale of shares in affiliated undertakings 67,970,544 —

Gains on sale of shares in affiliated undertakings for the first six months of 2008 relate to the sale of 227,523

shares of Banco Espírito Santo S.A. on the market, generating a gain of Euro 145,374 and 20,279,700 shares of

Partran SGPS, S.A. to Espirito Santo Financial (Portugal) SGPS, S.A., generating a gain of Euro 67,825,170 (see

Note 5).



F-13

NOTE 16 - RESULT FROM FINANCIAL ASSETS (continued)

30.06.2008 30.06.2009Euros Euros

Income from participating interests derived from affiliated undertakings - dividend incomeBanco Espírito Santo S.A. 2,488,203 829,401

Espírito Santo Financial (Portugal) SGPS, S.A. 28,683,600 30,400,000

ES Bank (Panama) S.A. 3,845,853 —

ESFG Overseas Ltd. — 382,342

Others 33,947 31,254

35,051,603 31,642,997

Income from transferable securities and from loans forming part of the fixed assetsInterest income on loans to affiliated undertakings 4,065,349 3,379,084

Transferable securities income 722,124 240,825

4,787,473 3,619,909

NOTE 17 - COMMITMENTS AND CONTINGENCIES

31.12.2008 30.06.2009Euros Euros

Guarantees granted 820,000,000 970,000,000

ESFG issued a guarantee to ESFG Overseas Ltd to cover the payment of dividends and liquidation of the Non-

cumulative Guaranteed Preference Shares in the amount of Euro 153,387,564 (formerly DEM 300 million) and

Euro 127,822,970 (formerly DEM 250 million) issued by ESFG Overseas Ltd, Cayman Islands. This guarantee

has expired on June 30, 2008, due to the reimbursement of the above Non-cumulative Guaranteed Preference

Shares.

In June 2007, ESFG issued a guarantee to ESFG International Ltd to cover the payment of dividends and

liquidation of the Non-cumulative Guaranteed Preference Shares in the amount of Euro 400,000,000 issued by

ESFG International Ltd, Cayman Islands.

This caption also includes a guarantee granted to Banque Espirito Santo et de la Vénétie S.A. for an amount of

Euro 200,000,000 (2007: Euro 200,000,000), to BIC International Bank Ltd. for an amount of Euro 220,000,000

(2007: Euro 220,000,000) in relation with their lending to ES Bank (Panama) S.A. for an amount of Euro

418,000,000 (2007: Euro 426,000,000) and to ESFIL – Espírito Santo Financière S.A. for an amount of Euro

150,000,000 in relation with their issuance in May 2009 of Guaranteed Notes of Euro 150,000,000, 4.5%, due

2011.



F-14

NOTE 18 - DERIVATIVES

Following the introduction of the new stock-option plan, ESFG contracted in 2008 an option to purchase

own shares at Euro 13.2 for a period of 10 years in order to hedge the stock-option plan of the Company (see

Note 19). The premium paid amounted to Euro 4,782,889 and is amortised over the vesting period of the plan,

namely one year starting October 1, 2008. The cost for 2009 amounted to Euro 2,391,333 and is included under

“Other operating charges” (see Note 15). The unamortised premium, for an amount of Euro 1,195,667 is included

under “Prepayments and accrued income”.

NOTE 19 - SHARE OPTION PLAN

Effective October 1, 1999, ESFG established a share option program that entitled key management personnel to

purchase shares in the entity, which expired on September 30, 2008. Under the program, ESFG could grant

options to its employees up to 2,200,000 ordinary shares. The exercise price of each option equaled the market

price of ESFG shares on the date of grant and an option’s maximum term was of 10 years. Options were granted

at the discretion of the Board of Directors and had a vesting period of 1 year. During the first six months of 2008,

no share option was exercised. The program ended on September 30, 2008.

On October 1, 2008, the Company established a new stock-option plan that entitles key management personnel to

purchase ESFG shares. Under the program, the Company may grant options to its employees up to 3,000,000

ordinary shares. The exercise price of each option equals the market price of ESFG share on the date of grant and

an option’s maximum term is of 10 years. Options are granted at the discretion of the Board of Directors and have

a vesting period of 1 year.

As at June 30, 2009, no option under the plan has already vested.

The number and weighted average exercise prices of share options are as follows:

Weighted average Weighted average exercise price Number of options exercise price Number of options

Euro Euro

Outstanding at the beginning of the period — — 13.20 2,940,000

Granted during the period 13.20 2,940,000 — —

Outstanding at the end of the period 13.20 2,940,000 13.20 2,940,000Exercisable at the end of the period 13.20 — 13.20 —

31.12.2008 30.06.2009

The options outstanding at June 30, 2009 have a weighted average exercise price of Euro 13.2 and a contractual

life of approximately 10 years.

For the six months period ending 30 June 2009, the cost related to the option purchased by the Company to hedge

the cost of its stock-option plan amounted to Euro 2,391,333, being the amortisation of the premium paid over the

vested period elapsed in 2009 (see Notes 15 and 18).

NOTE 20 - TAXATION

The Company is subject to the general tax regulations applicable to Luxembourg commercial companies.

Designed and produced by The College +44 (0)20 7457 2030www.thecollege.uk.com


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