BANCO ITAÚ HOLDING FINANCEIRA S.A. International Conference Call RESULTS OF THE 1 ST QUARTER OF 2003 May 7 th, :00 a.m.

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1 Operator: Ladies and gentlemen, thank you for standing by. At this time all lines are in a listen-only mode. Later there will be a question and answer session. Instructions will be given at that time. If you should require any kind of assistance during the call please press star, zero (*0). As a reminder, this conference is being recorded. At this time I would like to turn the conference over to Mr. Curtis Smith from Thomson Financial. Please go ahead, sir. Mr. Curtis Smith: Good morning ladies and gentlemen and welcome to Banco Itaú Holding Financeira s conference call to discuss First Quarter 2003 results. I would like to mention that a slide presentation has also been made available on the company s website at for this call. Questions to the executives may be sent by . Before proceeding let me mention that forward-looking statements are being made under the safe harbor of the Security Litigation Reform Act of Actual performance could differ materially from that anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks, and other factors. With us today in São Paulo this morning are Mr. Henri Penchas, Senior Vice President; Mr. Alfredo Egydio Setubal, Investor Relations Director and Mr. Silvio de Carvalho, Executive Director. First Mr. Setubal will comment on First Quarter 2003 results. Afterwards, the Management will be available for a question and answer session. It is now my pleasure to turn the call over to Mr. Setubal. Please go ahead, sir. Mr. Alfredo Setubal: Good morning. It s a pleasure for us to be again with you talking about the first quarter results, in a quarterly conference call that we re used to do. For those who are following through the Internet, the slide through the Internet, we are going to slide #1 where we highlight some points in the first quarter. The first one is the net income of R$ 714 million above fourth quarter of R$ 689 million. It was a very good and sound result for the bank and we ll go into details later in the presentation. The annualized ROE, 31.8% in the quarter it was a very good result in terms of ROE due to the amortization of the goodwill that we are going to talk later. The solvency ratio 19.7%, it s the BIS ratio, very high and very good for the growth of the bank for the next quarters, if necessary in terms of growing assets. Efficiency ratio 40.1%, almost in the same level of the fourth quarter of 2002, also was a very good number below the historical numbers of Banco Itaú, in the same line of the fourth quarter. Of course here we have some extra gains in the financial margin in terms of securities, but anyway we continue to be very committed in terms of efficiency ratio and controlling costs. So the first quarter was very good in terms of numbers and we go now to some details of all these numbers. We go to slide #2 Statement of Income; the first line - financial margin - a little bit lower than the financial margin of the fourth quarter. We finished first quarter 2003 with R$ 2.8 billion against R$ 2.9 billion in the last quarter of

2 It s important to remember in this first quarter, it was the first one that we include the Itaú BBA. You remember that at the end of 2002 we just made the consolidation of the assets of the Itaú BBA. In the first quarter of 2003 we have the asset and the income of Itaú BBA, included. Also in the case of Banco Fiat, just the assets are in the consolidated balance sheet Banco Fiat is not giving any results in terms of income; this will happen in the second quarter of this year and on. So the financial margin, reduced a little because the reduction in the value of the Dollar the Real against the Dollar the devaluation of the Real. Remember that at the year-end the exchange rate was 3.53 and at the end of March was So this has some impact in the financial margin and the financial margin also was impacted by the devaluation of the securities held by Banco Itaú. In terms of provisions for loan and losses, we showed R$ 449 million in the quarter against R$ 941 million in the fourth quarter of You remember that in the end of the last year we made huge provisions, especially in the corporate and public sides, in terms of credit in a more conservative way, we increased provisions at that time. In this quarter, the numbers for provision was most in line with the other quarters of last year, we have no big difference, no big reclassification in terms of provision. We did some provisions, extra provisions around R$ 45 million, in Itaú BBA for some clients there. It s always important to remember that we have guarantees from the former controllers of the bank for most of the credit that we have at Itaú BBA, so in reality this increase in provision was not necessary but we prefer to have this sound and good quality of our assets so we made the provision, not even being necessary. In terms of fees, we remain almost in the same line; we are going to detail these service fees more ahead. Administrative expenses - also we finished the quarter in line with fourth quarter of 2002 and we will give some more details ahead, but we continue to be very committed in terms of controlling the expenses in the balance sheet of the bank for this year. Extraordinary results - negative in R$ 532 million against negative also R$ 679 million in the last quarter of 2002; we remember that in 2002, fourth quarter, we did the amortization of the total goodwill paid by BBA R$ 1.3 billion and the fiscal effect, the net in the quarter, was R$ 679 million. Here, in the first quarter of this year, negative impact R$ 532 million, most of that was the amortization, the total amortization in the consolidated balance sheet of the bank for the acquisition of Banco Fiat. Total assets finishing at R$ 113 billion; including R$ 2.5 billion almost, in terms of Fiat Banco Fiat s assets. In slide #3, statement of income in more details I think here is very important just to analyze the subsidiary - the equity income of our subsidiaries R$ 146 million and of this total, R$ 108 million was the result for Itaú BBA. So first quarter that we release and we appropriate the results from Itaú BBA and it was a very good result for the first quarter. So I think it s important to show how is going the transaction that we did in the last quarter of It s always important to remember that we finalized the integration of Itaú BBA in the first quarter of this year. All the people from Itaú corporate side are already in the office of Itaú BBA so the team is working together the former team of BBA and the Itaú s team in terms of corporate, they are all together since March 10. 2

3 Going to slide #4 we see how the foreign exchange affected the results of Banco Itaú. The final result was R$ 37 million positive if we consider all the assets that we have in terms of Dollar investments. The first line we see the negative impact of R$ 166 million of the long Dollar position that we have abroad. Remember that we reduced a lot this position during the last year, especially in the last quarter of But we had a position during the first quarter of this year that had a negative impact of R$ 466 million. Another impact that is now positive is the marked-to-market of the trading Dollar linked securities we have in our balance sheet to the reduction of our interest rate of the coupon traded in the market, we have a gain of R$ 354 million, in the market-to-market Dollar-linked securities. As we always show, if we don t have this long-term position outside Brazil and Dollar-linked securities, we would be investing in interbank rate at the minimum so the cost of funding to carry on all these positions is R$ 222 million. So this goes to the final result of R$ 37 million positive in terms of impact of the Dollar position in Brazil and outside Brazil in our balance sheet, considering the funding expense. Going to slide #5, we see the evolution of the credit operations. We finished with R$ 39.7 billion in the quarter against R$ 38.4 billion in the year-end, just considering the credit operations in the balance sheet. If you consider the guarantees, the final number is R$ 46.4 billion. Here it s important to go to the next slide, slide #6, where we see the credit operations by currency. We can see that the foreign currency credits reduced, because of the valuation of the Real against the Dollar so this explains part of the small increase that we have in the total credit operations of Banco Itaú Holding. Another important point is that we increased the credit portfolio by R$ 2 billion with the acquisition of the Banco Fiat in the first quarter of this year that is in our consolidated balance sheet. So this finished with the R$ 46 billion in terms of credits and guarantees in the balance sheet. Going to the slide #7 we can see the graphics of non-performing loans and coverage ratio. We can see, in the blue line, that the total non-performing loans ratio remains flat in the quarter mainly we can see in the yellow line an improve in the ratio of the individuals - this improve is mainly because of the write offs of around R$ 550 million that we did in the portfolio of the individuals. The numbers at the end show an improvement. In terms of companies, in the red line we can see deterioration mainly because of the R$ 45 million in additional provisions that we did at Itaú BBA, as I mentioned some slides ago. So at the end we finished with 4.16%, in the total credit portfolio of Banco Itaú Holding flat compared to the year-end. Due to the write offs that we did, that in total was R$ 682 million as I said, R$ 450 million almost only for individuals, the coverage ratio reduced a little but finished in a very comfortable position of almost 190%. Going to the next slide we can see the graphic of the evolution of the total provisions that we have in the balance sheet for credits. We finished with R$ 3.1 billion in provisions; the minimum required by the Central Bank regulation is R$ 2.3 billion so, we finished the quarter with R$ 843 million additional provisions almost the same level that we had in the yearend, of R$ 841 million. 3

4 So we continue to have this additional provision for credit operations, due to the volatility of the Brazilian economy. We think it is important to keep some additional provisions for credit if we have some changes, sudden changes in the economy. Going to slide #9 Financial Instruments - Market value, we see that we have an unrealized gain of total assets that if we realize we pass through results of R$ 1.6 billion. I would like you to pay attention in this slide to the line of securities and derivatives, the first numbers that we have in this chart. Additional provision for securities, R$ 545 million and just available for sale security of provisions that we have in the net worth, of R$ 261 million. So the total provision that we have for securities and derivatives, the total amount is R$ 806 million, considering these R$ 261 million that we have in the net worth. If we go to slide #10, we can see the portfolio of securities, how we classified these securities. So in the total of R$ 26.5 billion at market value 33% is trading, classified as trading security; 55% of available and only 4% of held to maturity R$ 1 billion. You see here the additional provision of R$ 545 million and the provision in the equity of R$ 261 million for the available for sale securities. So we continue to have a very small portion of our portfolio in the held-to-maturity reclassification, what gives to the management more flexibility to sell and buy securities that we have in our portfolio. Going to the slide #11, we can see the deposits and total resources of the bank. I would like you to pay attention that we have a reduction in the quarter, compared to the year-end in the total deposits, from R$ 39 billion to R$ 38 billion. This reduction was totally off-setted by the growth in the assets of the management that increased from R$ 59 billion to R$ 62.8 billion - the investors are going back to the mutual funds again after the mark-to-market problems that we had in the mutual fund industry especially during the second semester of last year. So we finished the total resources in deposits and assets under management with a growth of more than R$ 2 billion in total of the bank. Going to slide #12 we see service fees: service fees had a small reduction when we compare to the fourth quarter % in reduction. We remember that we had an extraordinary result revenue in tax collection for the INSS in Brazil it s a Federal Entity - that was delayed and paid R$ 50 million in the last quarter of So we had extra revenues in the fourth quarter. In this first quarter we have R$ 1.2 billion in service fees; this includes R$ 25 million of Itaú BBA (in terms of fees); we have in the mutual fund an increase of 3.3%, compared to the fourth quarter of especially because of the growth of the assets under management. In the current account services we have an increase of 8.5% - this is mainly due to price increase that we did in last November as we mentioned in the Conference Call at the beginning of the year. So we have this price increase effect for the whole quarter in this first quarter of I think that here we mentioned the most important movements in terms of service fees. Going to slide#13 we can see the chart of administrative expenses. The total expenses remain basically flat when we compare to the last quarter of 2002 and what is a very good result because in the first quarter we have R$ 70 million of Itaú BBA expenses, additional 4

5 expenses in this quarter. So we could remain flat, we continue to have a very high commitment in terms of controlling costs and we think, again this year as we did last year, that we will show a very good number in total expenses. Because of this more tight control, we finish the quarter again with a very good efficiency ratio of 40.1%. Slide#14: we see here a chart about the insurance, capitalization and pension plans companies again we show this number because it s important to see that these companies are having a more important contribution for the net income of the Banco Itaú Holding in the first quarter a little bit below the numbers that we released in the fourth quarter of We finished with an operational margin of R$ 144 million against R$ 170 million in the fourth quarter It s important to mention that this number is not considering the investments of the technical reserves of these three companies; it s just the industrial result. The result was a little bit worse than the last quarter because of an increase in the claims in the insurance business in this first quarter, so we have the duration in the claims and because of that, a little worse combined ratio, but still below 100%, which was very good. And to finish this part of the Conference Call, to show the chart of the extraordinary result: as we mentioned the result was negative in R$ 532 million; we see the amortization of Fiat after tax effects of R$ 420 million; we amortized the goodwill of Icatu Asset management that was bought some years ago by Banco BBA we amortized in this quarter the remaining goodwill that was in the balance sheet of BBA, of this acquisition of the asset management of Banco Icatú R$ 46 million. So that s the main point of the extraordinary results. We finished with R$ 532 million in amortization of goodwill of these institutions. We finish here the formal presentation of Banco Itaú for this first quarter, and we are open to questions that you may have about the results and the perspectives of Banco Itaú. Operator: Ladies and gentlemen, we will now begin the Question and Answer session. If you have a question, please press the star (*) key, followed by the one (1) key on your touch-tone phone now. If at any time you would like to remove yourself from the questioning queue, press the pound key (#). Please restrict your questions to two at a time. Our first question comes from Mr. Jason Mollin with Bear Stearns. Mr. Mollin: Hello Everyone. My question is related to the demands for loans in Brazil that you re seeing. We have seen this decline in your loan portfolio, particularly related to the movements in the currency during the quarter, but perhaps you could give us your view on how you see the demand for loans in the current interest rate environment; how you expect interest rates move, if you expect them to come down over the remainder of the year and if you expect to see an increase in demand and if that means that you d be willing to supply for loans and may be give us an over all expectation for loan growth for the year. Mr. Setubal: Jason, the demand for loans is not very high in Brazil at this moment. Not even for companies or for individuals and Banco Itaú continues to be very conservative in 5

6 terms of lending at this moment. Because of the high inflation that we passed in the last six, seven months because of the devaluation of the Real at that time, the level of income from individuals reduced a lot. So we are not seeing demands from individuals. We see some deterioration in the credit portfolio of individuals - because of that the economy, the internal market is not performing very well, it s not heated. The sectors that are performing much better are companies that are exporting and that don t depend so much in the internal market. So demand for credit is low, we believe that at this moment, because of this reduction in income, because of the high interest rate and volatility of the economy, we believe that demand will continue to be low. Our forecast is a growth of nominal terms of the total portfolio, around 10% for the year. We expect the second semester to see a more deep reduction in interest rates, especially if this new Government is able to approve the reforms in the congress in terms of social security and tax. Mr. Mollin: Can I just follow up? That s very helpful. Can I just follow up with may be your general views on the regulatory environment we just saw, that, I think it was confirmed this morning, that the COFINS tax was increased by 100 basis points you expect more taxes to be levied on Itaú, going forwards? Mr. Penchas: Good morning, Jason. Henri speaking. Mr. Mollin: Good morning. Mr. Penchas: The effect of the increase of 100 basis points in the COFINS is approximately, will be approximately of R$ 100 million before the deduction of income tax, so after the 34% deduction, the effect is of 66 million in the net income. That s almost immaterial in the numbers, in the year numbers of Banco Itaú and I m speaking of R$ 66 million in an annual basis. For the moment, Jason, nobody is speaking of increasing other taxes for banks. I personally don t believe they will increase that this year mainly because they are trying - and we need to - reduce the spreads in Brazil and taxes on loans, and the interest on loans. So we don t expect any other change in taxes for the banks, for this year. Mr. Mollin: Henri, let me just follow up on that, I mean, I did the calculation basis, you have excellent disclosure in all of your releases. But according to my analysis, we saw a COFINS as tax expense in the year 2002, of R$ 436 million and therefore 100 basis points excuse me increase, would increase by about R$ 145 million so it would be more, my calculation is giving me, again it s not a significant number, but about R$ 100 million for the year 2002, which represented about 4% of your earnings in. I did the same calculation for the first quarter numbers and it gave me that all else the same, that it would have reduced your fourth quarter reported net income by 4%. Is that a reasonable expectation? Mr. Penchas: Jason, yes. It s that R$ 100 million number before the effect in income taxes, no? Because the COFINS is deductible for Contribuição Social (Social Contribution) and for income tax. So you have a reduction of 34% of that 100 million. Mr. Mollin: But I had 145 million for 2002 therefore adjusting for the tax, the income tax and social contribution, I got 96 but it s a small number. 6

7 Mr. Penchas: It s immaterial. Mr. Mollin: Is that a reasonable ballpark? Mr. Penchas: Yes, it is. Mr. Mollin: OK. Thank you very much. Operator: Ladies and gentlemen, as a reminder, if you would like to pose a question, please press the star (*) key followed by the one (1) key on your touch-tone phone now. Again, if you would like to pose a question, please press the star key followed by the one key (*1) on your touch-tone phone now. Our next question comes from Mr. Roberto Attuch with CSFB. Mr. Attuch: Hi. Good morning Alfredo, good morning Henri. I noticed on your expense statement a significant reduction in real terms, if you compare to the first quarter of last year. I would like you to give us some guidance of where you expect administrative expenses this year. Mr. Silvio de Carvalho: Roberto, Silvio speaking. Our expectation in relation to the administrative expenses for 2003 is basically maintain flat in relation to 2002 without including the expenses from Banco Itaú BBA. Mr. Attuch: OK. So you still maintain that, this year. Mr. Silvio de Carvalho: Yes. Mr. Attuch: OK. Thank you. Operator: ladies and gentlemen, if you would like to pose a question, please press the star key followed by the one key (*1). Our next question comes from Mr. Gustavo Hungria with Banco Pactual. Mr. Hungria: Hello everyone. I will just take a chance to ask you another question about the provisions for price portfolio, we see a significant drop from a previous quarter than you just explain that you didn t have this large amount in the first quarter and also you are not conducting those downgrading in your credit portfolio. Just if this move is sustainable, I mean, should we expect these numbers to remain stable during the year? Mr. Penchas: Good morning, Gustavo. Henri speaking. Yes, for the moment as we see the trends in the economy, in inflation, we see probably a little bit of increase in the next quarters. But everything is under control, we don t see any big, big, big increase but we see probably a small increase in the next quarters. Obviously we have a lot of things to see in what will happen in our economy: interests, the decrease, the reduction in interest, the value of the exchange rate Dollar/Real and a lot of things, but, as in our forecast and looking and the later numbers of our loan portfolio, we believe we will have some increase in the next three quarters. 7

8 Mr. Hungria: OK. Thank you, Henri. Operator: Our next question comes from Mr. Roberto Attuch with Credit Suisse. Mr. Attuch: Hi, I have another question about your capital position. Considering the substantial increase in profitability over the last quarters you will be building up some, you know, some excess capital, I would say; do you vision any change in the way you employ that capital, let s say, changes in dividend policy or you re just preparing for future acquisitions or more aggressive loan growth? I mean, the question is: how you plan to employ your excess capital in the foreseeable future? Mr. Penchas: Roberto, Henri speaking. Roberto, as I always joke with you, when you live South of Equator, you need to be conservative, you need higher BIS ratio and you need higher provisions BIS ratios. Obviously, all the alternatives are on the table; or we will have an economic growth and we ll need the capital, I would like just to remember that the total loans are just 30%, % on GDP in Brazil, obviously in a more stable environment than this number will grow and we will need capital. By the other side, we always have and we always are open to new acquisitions, so for the moment we are very comfortable and we believe that this is the right amount of capital to have. Mr. Attuch: OK, thank you. Operator: As a reminder, if you would like to pose a question, please press the star key followed by the one key (*1) on your touch-tone phone. This concludes today s question and answer session. Mr. Setubal, at this time you may proceed with your closing statements. Mr. Setubal: I d like to thank you all following the conference call. I hope it was good for you to analyze and have a better view of our first results. We think the first quarter results were very good; we were able also to amortize the goodwill and even show a very good and solid net income. I think it s important also to say that the integration of Itaú BBA is already finished and we are very happy, we think the integration is working very well; all the teams are together at Itaú BBA s offices the formal office of BBA and we also release this first quarter, the result of Itaú BBA of R$ 188 million. We are very confident that we will be able to increase these numbers. The teams are very motivated and we are very happy with this integration. I would like to thank you and hope to be with you again in our next conference call for the second quarter results that we ll be showing in August. Thank you. Operator: That does conclude our Banco Itaú Holding Financeira s conference for today. Thank you very much for your participation. You may now disconnect. 8