20-F 1 bbdform20f2009.htm FORM20-F 2009 bbdform20f2009.htm - Provided by MZ Technologies

 

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20‑F

¨                    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x                   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009

OR

¨                    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨                    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1‑15250

BANCO BRADESCO S.A.

(Exact name of Registrant as specified in its charter)

BANK BRADESCO

(Translation of Registrant's name into English)

Federative Republic of Brazil

(Jurisdiction of incorporation or organization)

Cidade de Deus S/N ‑ Vila Yara ‑ 06029‑900 ‑ Osasco ‑ SP, Brazil

(Address of principal executive offices)

Domingos Figueiredo de Abreu (Vice President and Investor Relations Officer) +55 11 3684‑4011, e‑mail: 4000.abreu@bradesco.com.br ‑ Cidade de Deus S/N ‑ Vila Yara, 06029‑900 ‑ Osasco ‑ SP, Brazil

(Name, Telephone, E‑mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

American Depositary Shares, or ADSs (evidenced by American Depositary Receipts, or ADRs), each representing 1 Preferred Share

New York Stock Exchange

Preferred Shares

New York Stock Exchange *

 

*          Not for trading, but only in connection with the registration of ADSs pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2009:

 

 

1,710,204,835

Common Shares, without par value

 

 

1,710,345,568

Preferred Shares, without par value

 

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non‑accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b‑2 of the Exchange Act:

Large accelerated filer x

Accelerated filer ¨

Non‑accelerated filer ¨

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x

International Financial Reporting Standards as issued by the International Accounting Standards Board ¨

Other ¨

 

Indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 x Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). ¨ Yes x No

 

 

 

 

 

 


Table of Contents

Page

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 5
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE 5
ITEM 3 KEY INFORMATION 5
3.A Selected Financial Data 5
3.B Capitalization and Indebtedness 8
3.C Reasons for the Offer and Use of Proceeds 8
3.D Risk Factors 8
ITEM 4 INFORMATION ON THE COMPANY 18
4.A History, Development of the Company and Business Strategy 18
4.B Business Overview 28
4.C Organizational Structure 115
4.D Property, Plants and Equipment 115
ITEM 4A UNRESOLVED STAFF  COMMENTS 115
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS 116
5.A Operating Results 116
5.B Liquidity and Capital Resource 142
5.C Research and Development, Patents and Licenses 153
5.D Trend Information 153
5.E Off-balance sheet contracts 153
5.F Tabular Disclosure of Contractual Obligations 153
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 153
6.A Board of Directors and Board of Executive Officers 153
6.B Compensation 160
6.C Board Practices 160
6.D Employees 164
6.E Share Ownership 165
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 165
7.A Major Shareholders 165
7.B Related Party Transactions 170
7.C Interests of Experts and Councils 171
ITEM 8 FINANCIAL INFORMATION 171
8.A Consolidated Statements and other Financial Information 171
8.B Significant Changes 173
ITEM 9 THE OFFER AND LISTING 173
9.A Offer and Listing Details 173
9.B Plan of Distribution 176
9.C Markets 176
9.D Selling Shareholders 178
9.E Dilution 178
9.F Expenses of the Issue 178

 

 

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ITEM 10 ADDITIONAL INFORMATION 178
10.A Share Capital 178
10.B Memorandum and Articles of Incorporation 178
10.C Material agreements 187
10.D Exchange controls 187
10.E Taxation 188
10.F Dividends and Paying Agents 194
10.G Statement by Experts 194
10.H Documents on Display 194
10.I Subsidiary Information 194
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 194
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 199
12.A Government Bonds 199
12.B Subscription Bonus and Rights 199
12.C Other 199
12.D American Depositary Shares 199
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 200
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 200
ITEM 15 CONTROLS AND PROCEDURES 201
ITEM 16 [RESERVED] 202
16.A Audit Committee Financial Expert 202
16.B Code of Ethics 202
16.C Principal Accountant Fees and Services 202
16.D Exemptions from the listing standards for Audit Committees 203
16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers 203
16.F Change in Registrant's Independent Auditing 203
16.G Corporate Governance 204
ITEM 17 FINANCIAL STATEMENTS 205
ITEM 18 FINANCIAL STATEMENTS 205
ITEM 19 EXHIBITS 205

 

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, the terms "Bradesco," the "company," the "Bank," the "organization," "we" or "us" refer to Banco Bradesco S.A., a sociedade anônima organized under the laws of Brazil and, unless the context otherwise requires, its consolidated subsidiaries.  We are a full service financial institution providing, directly or through our subsidiaries, a full range of banking, financial, consortium management, insurance, private pension plan and certificated savings plans services to all segments of the Brazilian domestic market.  Our operations are based primarily in Brazil.

All references herein to "real," "reais" or "R$" are to the Brazilian real, the official currency of Brazil. References herein to "U.S. dollars," "dollar" and "US$" are to United States dollars, the official currency of the United States of America.

Our audited consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009, including the notes thereto, are included in “Item 18. Financial Statements” of this annual report and have been prepared in accordance with U.S. generally accepted accounting principles, or "U.S. GAAP."

We use the accounting principles adopted in Brazil for certain purposes, such as reports to Brazilian shareholders, registrations with the Brazilian Securities Commission, which we call "CVM," and for determining the payment of dividends and tax liabilities.

On June 15, 2010, the real/U.S. dollar exchange rate was R$1.7971 per US$1.00 based on the closing selling commercial exchange rate reported by Brazil's Central Bank.  The commercial rate as of December 31, 2009 was R$1.7412 per US$1.00.  See "Item 3.A. Selected Financial Information - Exchange Rate Information" for more information regarding the exchange rates applicable to the Brazilian currency since 2005.

As a result of recent fluctuations in the real/U.S. dollar exchange rate, the closing selling commercial exchange rate at June 15, 2010 or at any other date may not be indicative of current or future exchange rates.

Some data related to economic sectors presented in this annual report was obtained from the following sources: Associação Brasileira das Empresas de Cartão de Crédito e Serviços (Brazilian Association of Credit Card Companies and Services) or ABECS; Associação Brasileira de Empresas de Leasing (Brazilian Association of Leasing Companies) or ABEL; Associação Brasileira das Entidades dos Mercados de Financeiros e de Capitais (Brazilian Association of Financial and Capital Markets Entities) or ANBIMA; Agência Nacional de Saúde Suplementar (Brazilian Health Insurance Authority) or ANS; Banco Nacional de Desenvolvimento Econômico e Social (Brazilian Development Bank) or BNDES; Federação Nacional de Previdência Privada e Vida (National Association of Private Pension Plans) or FENAPREVI; Fundação Getulio Vargas (Getulio Vargas Foundation) or FGV and Superintendência de Seguros Privados (Private Insurance Superintendence) or SUSEP.  We believe that these sources are reliable, but we cannot take responsibility for the accuracy of this data.

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

 

 

 

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FORWARD‑LOOKING STATEMENTS

This annual report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or "Securities Act," and Section 21E of the Securities Exchange Act of 1934, as amended, or "Exchange Act." These statements are based mainly on our current expectations and projections of future events and financial trends that currently affect or might affect our business.  In addition to the items discussed in other sections of this annual report, there are many significant factors that could cause our financial condition and results of operation to differ materially from those set out in our forward‑looking statements, including, but not limited to, the following:

·              global economic conditions;

·              economic, political and business conditions in Brazil and the markets in which we operate;

·              risks of lending, credit, investments and other activities;

·              our level of capitalization;

·              cost and availability of funds;

·              increase in defaults by borrowers, loan delinquencies and other breaches of contract that result in an increase in our provision for loan losses;

·              loss of clients or other sources of income;

·              our ability to execute our investment strategies and plans as well as to maintain and improve our operating performance;

·              our revenues from new products and businesses;

·              adverse claims or legal or regulatory disputes or proceedings;

·              inflation, depreciation of the real and/or fluctuations in the interest rate, which could adversely affect our margins;

·              conditions of competition in the banking and financial services, credit card, asset management, insurance and related sectors;

·              the market value of securities, particularly Brazilian government securities; and

·              changes by the Central Bank and others in laws and regulations, applicable to us and our activities, including, but not limited to, those affecting tax issues.

Words such as "believe," "expect," "continue," "understand," "estimate," "will," "may," "anticipate," "should," "intend," and other similar expressions are intended to identify forward‑looking statements.  These statements refer only to the date on which they were made, and we undertake no obligation to publicly update or revise any forward‑looking statements, whether as a result of new information or any other event.

In light of these risks and uncertainties, the forward‑looking statements, events and circumstances discussed in this annual report may not be accurate, and our actual results and performance could differ materially from those anticipated in our forward‑looking statements.  Investors should not make investment decisions based solely on the forward‑looking statements in this annual report.

 

 

 

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PART I

ITEM 1.              IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.              OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.              KEY INFORMATION

3.A.        Selected Financial Data

We present below our selected financial data prepared in accordance with U.S. GAAP as of and for the years ended December 31, 2005, 2006, 2007, 2008 and 2009.  The data for each of the five years in the period ended December 31, 2005, 2006, 2007, 2008 and 2009 is derived from our audited consolidated financial statements, which were audited by PricewaterhouseCoopers Auditores Independentes. 

Certain prior year amounts for the years ended December 31, 2005, 2006, 2007 and 2008 have been reclassified to conform to presentation standards used for the year ended December 31, 2009. These reclassifications had no impact on our assets, liabilities, shareholders' equity or our net income.

The following selected financial data should be read together with the "Presentation of Financial and Other Information" and "Item 5. Operating and Financial Review and Prospects."

Selected Financial Data according to U.S. GAAP

 

Year ended December 31,

 

2005

2006

2007

2008

2009

2009

 

(R$ in millions)

(US$ in millions)(1)

Data from the Consolidated Statement of Income:

 

 

 

 

 

 

Net interest income(2)

R$ 18,485

R$ 21,402

R$ 23,771

R$ 25,371

R$ 33,133

US$ 18,238

Provision for loan losses

(1,823)

(3,767)

(4,616)

(6,651)

(10,822)

(5,957)

Net interest income after provision for loan losses  

16,662

17,635

19,155

18,720

22,311

12,281

Fee and commission income(2)

5,121

6,379

7,819

8,997

9,381

5,164

Insurance premiums

7,805

8,121

8,843

10,963

12,521

6,892

Pension plan income

377

791

555

710

607

334

Equity in the earnings of unconsolidated companies(3)      

186

224

407

597

644

354

Other non‑interest income(2)(4)

4,051

4,365

7,457

2,393

8,581

4,723

Operating expenses(5)

(9,645)

(11,310)

(13,005)

(14,168)

(15,615)

(8,595)

Insurance claims

(5,501)

(6,124)

(6,012)

(7,391)

(8,329)

(4,585)

Changes in provisions for insurance, pension plans, certificated savings plans and pension investment contracts

(3,939)

(4,199)

(4,981)

(4,225)

(6,008)

(3,307)

Pension plan operating expenses

(505)

(560)

(478)

(482)

(410)

(226)

Insurance and pension plan selling expenses

(1,041)

(852)

(1,157)

(1,014)

(1,654)

(910)

Other non‑interest expense(2)(6)

(4,819)

(5,720)

(7,306)

(8,352)

(8,360)

(4,602)

Income before income taxes

8,752

8,750

11,297

6,748

13,669

7,524

Income tax and social contribution on net income

(2,431)

(2,273)

(3,352)

401

(4,420)

(2,433)

Net income attributed to noncontrolling interest

(11)

(15)

(37)

(131)

(33)

(18)

Parent company´s net income

R$ 6,310

R$ 6,462

R$ 7,908

R$ 7,018

R$ 9,216

US$ 5,073

 

(1)     Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$1.8167 per US$1.00, the Central Bank exchange rate on May 31, 2010.  Such translations should not be construed as a representation that the Brazilian real amounts presented were or could be converted into U.S. dollars at that rate.

(2)     For the years ended December 31, 2005 and 2006, the following reclassifications were made: (i) the amounts R$16 and R$231 respectively, were reclassified from the line item "Fee and commission income" to the line item "Net interest income" and (ii)  the amounts R$397 and R$535, respectively, were reclassified from the line item "Other non‑interest expense" to the line item "Net interest income". For the years ended December 31, 2006, 2007 and 2008, the amounts of R$27, R$1,200 and R$165 were reclassified from the line item “Other non-interest expense” to the line item “Other non-interest income”.  These reclassifications were implemented to allow the comparability of the financial statements as of and for the years ended December 31, 2005, 2006, 2007 e 2008 with the financial statements as of and for the year ended December 31, 2009.  These reclassifications do not affect the amounts recorded as assets, liabilities, shareholders' equity or net income.

(3)     For further information on the results of equity in the earnings of unconsolidated companies, see "Item 5. Operating and Financial Review and Prospects" and note 9 to our consolidated financial statements in “Item 18. Financial Statements”.

(4)     Other non‑interest income consists of gains (losses) of trading securities, net realized gains on available‑for‑sale securities,other non‑interest income, net impairment losses recognized in earnings on available-for-sale debt securities.

(5)     Operating expenses consist of salaries, benefits and administrative expenses.

(6)       Other non‑interest expenses consist of amortization of intangible assets, depreciation and amortization and other non‑interest expenses.

 

 

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Table of Contents

 

Year ended December 31,

 

2005

2006

2007

2008

2009

2009

 

(R$, except for number of shares)

(US$ in millions)(1)

Data on Earnings and Dividends
per Share
(2):

 

 

 

 

 

 

Earnings per share (parent company):(3)(4)

 

 

 

 

 

 

Common

R$ 1.87

R$ 1.90

R$ 2.28

R$ 1.98

R$ 2.60

US$ 1.43

Preferred

2.05

2.09

2.50

2.18

2.86

1.57

Dividends/interest on shareholders' equity per share:(5)

 

 

 

 

 

 

Common

0.56

0.64

0.81

0.73

0.80

0.44

Preferred

R$ 0.61

R$ 0.70

R$ 0.89

R$ 0.80

0.88

US$ 0.48

Weighted average number of outstanding shares:

 

 

 

 

 

 

Common

1,612,348,003

1,617,632,745

1,654,409,790

1,684,494,483

1,687,866,458

 

Preferred

1,606,923,849

1,619,759,760

1,655,650,313

1,684,573,384

1,687,895,921

 

 

(1)       Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$1.8167 per US$1.00, the Central Bank exchange rate on May 31, 2010.  Such translations should not be construed as a representation that the Brazilian real amounts presented were or could be converted into U.S. dollars at that rate.

(2)       Data on earnings and dividends per share reflects: (a) the split of our capital stock on November 11, 2005, in which we issued to our shareholders one new share for each existing share of the same class; (b) the split of our capital stock on March 12, 2007, in which we issued to our shareholders one new share for each existing share of the same class; (c) the split of our capital stock on March 24, 2008, in which we issued to our shareholders one new share for each two existing shares of the same class, as approved by our shareholders; and (d) the split of our capital stock on January 22, 2010, in which we issued to our shareholders one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009.  For comparison purposes, all share amounts have been retroactively adjusted for all periods to reflect the stock split.

(3)       Holders of preferred shares are entitled to receive dividends per share in an amount 10.0% greater than the dividends per share paid to common shareholders.  For purposes of calculating earnings per share according to U.S. GAAP, preferred shares are treated in the same manner as common shares.  For a description of our two classes of shares, see "Item 10.B. Memorandum and Articles of Incorporation."

(4)       None of our outstanding liabilities are exchangeable for or convertible into equity securities.  As a consequence, our diluted earnings per share do not differ from our earnings per share.  Accordingly, our basic and diluted earnings per share are equal in all periods presented.  See note 2(u) to our consolidated financial statements in "Item 18. Financial Statements."

(5)       The amounts determined in U.S. dollars were converted into reais using the exchange rate on the date such dividend was paid.

 

 

 

 

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Table of Contents

 

As of December 31,

 

2005

2006

2007

2008

2009

2009

 

(R$ in millions)

(US$ in millions)(1)

Data from the Consolidated Balance Sheet:

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

R$3,447

R$4,748

R$5,485

R$9,353

R$ 6,992

US$ 3,849

Interest–earning deposits in other banks

13,119

8,918

7,887

14,435

11,211

6,171

Federal funds sold and securities purchased under agreements to resell

10,985

14,649

40,601

46,950

82,146

45,217

Brazilian Central Bank compulsory deposits

21,686

23,461

31,813

26,384

32,696

17,997

Trading and available-for-sale securities, at fair value  

55,658

86,614

88,799

121,804

143,331

78,896

Held to maturity securities, at amortized cost

4,121

3,265

2,981

4,097

3,883

2,137

Loans(2)

83,311

98,724

133,137

174,835

179,934

99,044

Allowance for loan losses

(4,964)

(6,552)

(7,769)

(10,318)

(14,572)

(8,021)

Equity investees and other investments

397

527

761

881

2,284

1,257

Premises and equipment, net

2,721

3,000

3,547

4,263

4,830

2,659

Goodwill

332

667

883

1,286

1,234

679

Intangible assets, net(2)

1,554

2,163

2,917

3,138

3,643

2,005

Other assets(2)

14,227

19,087

23,467

38,363

39,203

21,579

Total assets

 206,594

259,271

334,509

435,471

496,815

273,471

Liabilities

 

 

 

 

 

 

Deposits

75,407

83,925

98,341

164,501

171,115

94,190

Federal funds purchased and securities sold under agreements to repurchase

22,886

42,875

69,015

74,730

108,357

59,645

Short–term borrowings

7,066

5,709

7,989

13,849

7,976

4,390

Long–term debt

23,316

30,122

38,915

47,255

50,817

27,972

Pension plan investment contracts

25,457

30,948

37,947

43,388

52,314

28,796

Insurance claims and pension plans reserves

10,695

12,787

14,616

14,689

15,354

8,452

Other liabilities

21,460

26,348

34,316

39,797

44,772

24,645

Total liabilities

186,287

232,714

301,139

398,209

450,705

248,090

Shareholders' Equity

 

 

 

 

 

 

Common shares(3)

6,497

7,095

9,497

11,500

13,250

7,293

Preferred shares(4)

6,503

7,105

9,503

11,500

13,250

7,293

Capital stock

13,000

14,200

19,000

23,000

26,500

14,587

Total shareholders' equity of the parent company  

20,219

26,464

33,089

36,930

45,770

25,194

Noncontrolling interest

88

93

281

332

340

187

Total shareholders' equity and noncontrolling interest(5)  

20,307

26,557

33,370

37,262

46,110

25,381

Total liabilities, shareholders' equity and noncontrolling interest

206,594

259,271

334,509

435,471

496,815

273,471

Average assets(6)

188,091

227,898

289,456

376,546

463,931

255,370

Average liabilities

170,677

206,466

261,552

342,178

424,149

233,472

Total average shareholders' equity of the parent
 company(6)

R$17,357

R$21,323

R$27,731

R$33,180

R$39,352

US$ 21,661

 

(1)       Amounts stated in U.S. dollars have been translated from Brazilian reais at an exchange rate of R$1.8167 per US$1.00, the Central Bank exchange rate on May 31, 2010.  Such translations should not be construed as a representation that the Brazilian real amounts presented have been or could be converted into U.S. dollars at that rate.

(2)       With respect to the data as of December 31, 2005 and 2006, (i) "Loans" includes R$622 million and R$789 million, respectively, relating to loan origination fees and costs that were reclassified from "Other Assets," and (ii) "Intangible assets, net" includes R$260 million and R$540 million, respectively, relating to exclusive rights for rendering banking services that were reclassified from "Other assets."  These reclassifications were implemented to alow comparability of the financial statements as of and for the years ended December 31, 2005 and 2006 with the financial statements as of and for the years ended December 31, 2007, 2008 and 2009.  These reclassifications do not affect the amounts recorded as assets, liabilities, shareholders' equity or net income.

(3)       Common shares outstanding, no par value: (i) 1,710,204,835 authorized and issued at December 31, 2009 due to the split of one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009; (ii) 1,534,805,958 authorized and issued at December 31, 2008; (iii) 1,009,337,030 authorized and issued at December 31, 2007; (iv) 500,071,456 authorized and issued up to December 31, 2006; and (v) 489,450,004 authorized and issued up to December 31, 2005. Data from 2005 to 2009 reflect (a) the split of our capital stock on November 11, 2005, in which we issued one new share for each existing share; (b) the split of our capital stock on March 12, 2007, in which we issued one new share for each existing share; (c) the split of one share for each two existing shares, which was approved by our shareholders on March 24, 2008; and (d) the split of one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009.

(4)       Preferred shares outstanding, no par value: (i) 1,710,345,568 authorized and issued at December 31, 2009 due to the split of one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009; (ii) 1,534,900,221 authorized and issued at December 31, 2008; (iii) 1,009,336,926 authorized and issued at December 31, 2007; (iv) 500,811,468 authorized and issued up to December 31, 2006; and (v) 489,938,838 authorized and issued up to December 31, 2005. Data from 2005 to 2009 reflect (a) the split of our capital stock on November 11, 2005, in which we issued one new share for each existing share; (b) the split of our capital stock on March 12, 2007, in which we issued one new share for each existing share; (c) the split of one share for each two existing shares, which was approved by our shareholders on March 24, 2008; and (d) the split of one new share for each ten shares held of the same type, which was approved by our shareholders on December 18, 2009.

(5)       Pursuant to ASC 810 of December 15, 2009, noncontrolling interest in subsidiaries is the portion of equity in the consolidated financial statements not attributable to the parent company.  For comparison purposes, this reclassification was also applied to previous years.

(6)       See "Item 4.B. Business Overview—Selected Statistical Information."

 

 

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Exchange Rate Information

In the past years, the exchange rate between the real and the U.S. dollar has experienced significant variation.  From 2005 to mid 2008, the real appreciated against the U.S. dollar.  In the second half of 2008, the real depreciated against the U.S. dollar, from R$1.5919 per U.S.$1.00 on June 30, 2008 to R$2.3370 per U.S.$1.00 on December 31, 2008, mainly due to the global economic crisis that began in mid 2008.  In 2009, the real began to appreciate against the U.S. dollar, from R$2.3370 per U.S.$1.00 on December 31, 2008 to R$1.7412 as of December 31, 2009.  On June 15, 2010, the exchange rate was R$1.7971 per U.S.$1.00.  Under the current free convertibility exchange system, the real may undergo further depreciation or appreciation against the U.S. dollar and other currencies.

The following table sets forth the period‑end, average and high and low selling rate reported by the Central Bank at closing, expressed in reais per US$1.00 for the periods and dates indicated:

 

Closing Selling Rate for U.S. dollars
R$ per US$1.00

 

Period

Period‑End

Average(1)

High

Low

2005

R$           2.3407

R$           2.4341

R$           2.7621

R$           2.1633

2006

2.1380

2.1812

2.3407

2.0892

2007

1.7713

1.9460

2.1380

1.7440

2008

2.3370

1.8824

2.4689

1.5666

2009

1.7412

2.0171

2.3784

1.7412

December

1.7412

1.7503

1.7879

1.7096

2010

 

 

 

 

January

1.8748

1.7798

1.8748

1.7227

February

1.8110

1.8416

1.8773

1.8046

March

1.7821

1.7855

1.8207

1.7620

April

1.7306

1.7566

1.7806

1.7306

May

R$    1.8167

R$    1.8132

R$    1.8811

R$    1.7315

 

(1)       Average of the month‑end rates beginning with December of the previous period through last month of the period indicated.

Source: Central Bank

3.B.        Capitalization and Indebtedness

Not applicable.

3.C.        Reasons for the Offer and Use of Proceeds

Not applicable.

3.D.        Risk Factors

Macroeconomic risks

Our business and the results of our operations have been materially affected by the adverse conditions in the global financial markets.

Recent disruptions in the global capital and credit markets have reduced liquidity and increased credit risk premiums for many market participants, which has led to a reduction in the availability of funds and/or an increase in funding costs for financial institutions and their clients.  High interest rates and/or widening credit spreads have created a less favorable environment for most of our business operations and could hinder the ability of our clients to repay their debts to us, which reduces our flexibility to plan or react to changes in our clients' operations and to the financial industry in general.  Accordingly, even though the global and Brazilian economies experienced a strong recovery since the second half of 2009, the results of our operations will likely continue to be affected by adverse conditions in the global financial markets as long as the global financial markets remain volatile.

 

 

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Globally and in Brazil, adverse macroeconomic conditions have impacted our business, and the results of our operations may be negatively impacted while these adverse conditions persist.

Most of our profit is generated by our operations in Brazil. Consistent with global trends, the Brazilian economy suffered, particularly because of volatility in commodities prices, which impacted some key industries in Brazil.  According to the Brazilian Geography and Statistics Institute (or IBGE), Brazil's GDP decreased by 0.2% in 2009, compared to prior years.  Our allowance for loan losses increased significantly as of December 31, 2009, compared to prior years, as a result of the adverse economic conditions. Since the economic conditions globally and in Brazil have not yet fully recovered, some of our clients may continue to experience difficulties in repaying their debts to us. Adverse economic conditions may also limit our ability to carry out our strategy in the same way that we would have during a period of economic growth and stability.  Accordingly, for so long as these adverse conditions persist, our results of operations are likely to be negatively affected.

The Brazilian government exercises significant influence over the Brazilian economy, and Brazilian political and economic conditions may directly impact our business.

Our financial condition and results of operations depend mostly on the Brazilian economy, which in the past has been characterized by frequent and sometimes drastic intervention by the Brazilian government and by volatile economic cycles.

In the past, the Brazilian government has often changed monetary, fiscal and tax policies to influence the course of the Brazilian economy.  We cannot control, nor foresee, which measures or policies the Brazilian government may adopt in response to the current or future economic situation or how Brazilian government policies or interventions will directly or indirectly affect our operations and revenues. 

Therefore, our business, financial situation and the market value of our preferred shares and ADSs may be adversely affected by changes in these policies and other factors such as the following:

·              fluctuations in exchange rates;

·              fluctuations in the base interest rate;

·              domestic economic growth;

·              political, social or economic instability;

·              monetary;

·              tax and changes in tax regimes;

·              exchange controls;

·              liquidity of domestic financial, capital and credit markets;

·              our customers' ability to meet their obligations to us;

·              decreases in wage and income levels;

·              increases in unemployment rates;

·              inflation; and

·              other political, diplomatic, social and economic developments in Brazil or abroad.

Uncertainty about whether the Brazilian government will implement changes in policy or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to an increase in the volatility of the Brazilian securities market and the market for securities issued abroad by Brazilian companies. Changes in policies and regulations may adversely affect our business, financial condition, results of operations and the market price of our preferred shares and ADSs.

 

 

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Currency exchange variations may have an adverse effect on the Brazilian economy, our financial results and our financial situation.

Our business is impacted by variations in the value of the real.  Since June 2004 the real has slowly gained in value against the U.S. dollar (reaching R$1.5593 per US$1.00 on August 1, 2008).  In 2008 the real depreciated (reaching R$2.3370 per US$1.00 on December 31, 2008).  In 2009, the real began to appreciate again in relation to the U.S. dollar (reaching R$1.7412 per US$1.00 on December 31, 2009).

As of December 31, 2009, the net balance of our financial assets and liabilities denominated in, or indexed to, foreign currencies (primarily the U.S. dollar) reached 1.6% of our total assets. If the Brazilian currency depreciates, we may incur losses on our liabilities denominated in, or indexed to, foreign currencies, such as our U.S. dollar‑denominated long‑term debt and foreign currency loans, and gains in monetary assets denominated in, or indexed to, foreign currencies, because the liabilities and assets are translated into reais.  Therefore, if our liabilities denominated in, or indexed to, a foreign currency, significantly exceed our monetary assets denominated in, or indexed to, a foreign currency, including any financial instruments used for hedging purposes, then a strong depreciation of the Brazilian currency could materially and adversely affect our business, financial condition, results of operations and the market price of our preferred shares and ADSs, even if the liability amount has not changed in its original currency.  Furthermore, our loan operations depend heavily on our ability to match the cost of the U.S. dollar‑indexed funds with the rates we charge our clients.  A significant depreciation could affect our capacity to attract clients on these terms or to charge dollar‑pegged rates.

Conversely, when the value of the Brazilian currency appreciates, we may incur losses on our monetary assets denominated in, or indexed to, foreign currencies such as the U.S. dollar, and we may experience decreases in our liabilities denominated in, or indexed to, foreign currencies since the assets and liabilities are translated into reais.  Therefore, if our monetary assets denominated in, or indexed to, a foreign currency significantly exceed our liabilities denominated in, or indexed to, a foreign currency, including any financial instruments used for hedging purposes, then a strong appreciation of the Brazilian currency could materially and adversely affect our financial results even if the monetary asset amount has not changed in its original currency.

If Brazil experiences substantial inflation in the future, our revenues and our ability to access foreign financial markets may be reduced.

In the past, Brazil has experienced extremely high rates of inflation along with Brazilian government measures to combat inflation.  As measured by the Índice Geral de Preços – Disponibilidade Interna (General Price Index – Domestic Availability), or IGP‑DI, inflation rates in Brazil reached 1.23%, 3.80%, 7.90%, 9.11% and (1.44)% at December 31, 2005, 2006, 2007, 2008 and 2009, respectively. Inflation, the Brazilian government's measures to combat inflation and public speculation about possible future government measures have had a significant negative effect on the Brazilian economy, contributing to an increase in economic uncertainty and heightened volatility in the Brazilian securities market, which may negatively impact us.

Brazilian government measures may include maintaining a tight monetary policy with high interest rates, restricting the availability of credit and reducing economic growth. As a result, interest rates may fluctuate significantly.  Increases in the Sistema Especial de Liquidação e Custódia rate (Special Clearing and Settlement System rate), which we call the "SELIC rate," and the base interest rate established by the Comitê de Política Monetária (Brazilian Committee for Monetary Policy), which we call "COPOM," may have an adverse effect on us by reducing demand for our credit, and increasing our cost of funds, domestic debt expense and the risk of customer default. Decreases in the SELIC rate may also have an adverse effect on us by decreasing the interest income we earn on our interest‑earning assets. Although, in this case, a decrease in our interest expense from our liabilities may occur..

Future Brazilian government actions, including interest rate decreases, intervention in the foreign exchange market and actions to adjust or fix the value of the real may trigger increases in inflation.  If Brazil experiences fluctuations in rates of inflation, our costs and net margins may be affected and, if investor confidence lags, the price of our securities may drop.  Inflationary pressures m ay also affect our ability to access foreign financial markets and may lead to counter‑inflationary policies that may have an adverse effect on our business, financial condition, results of operations and the market price of our preferred shares and ADRs.

 

 

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Changes in the base interest rate by the COPOM may materially and adversely affect our margins and operating results.

The COPOM establishes the base interest rates for the Brazilian banking system.  The base interest rate was 18.00%, 13.25%, 11.25%, 13.75% and 8.75% per year on December 31, 2005, 2006, 2007, 2008 and 2009, respectively. Changes to the base interest rate may substantially and adversely affect the results of our operations for the following reasons:

·              high base interest rates increase our domestic debt expense and could increase the probability of customer defaults; and

·              low base interest rates may lower our interest income.

The COPOM adjusts the base interest rate to manage aspects of the Brazilian economy and to protect its reserves and capital flows.  We do not have control over either the base interest rates established by the COPOM or over the frequency with which these rates are adjusted.

Economic developments and the perception of risk in Brazil and in other emerging market countries may have an adverse effect on the market price of Brazilian securities, including our preferred shares and ADRs.

The market price of securities of Brazilian companies is affected to varying degrees by economic conditions in other countries, including the United States and other Latin American and emerging market countries.  Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in these other countries may have an adverse effect on the market price of securities of Brazilian issuers.  Crises in other emerging countries may diminish investor interest in securities of Brazilian issuers, including ours, which could adversely affect the market price of our preferred shares and ADRs.

The recent global financial crisis has had significant consequences worldwide and in Brazil, including volatility in the capital markets, unavailability of credit, higher interest rates, a general slowdown of the global economy, volatile exchange rates and inflationary pressure which have and may continue to have, directly or indirectly, an adverse effect on our business, financial condition, results of operations, the market price of securities issued by Brazilian companies, including ours, and our ability to finance our operations.

We have been and may continue to be affected by volatility in the markets and adverse macroeconomic conditions globally and in Brazil.

Most of our profit is generated by our operations in Brazil.  Consistent with global trends, the Brazilian economy suffered in 2008 and 2009, particularly as a result of falling commodity prices.  This impacted certain key industries in Brazil, including industries where we have debtor clients.  According to the Brazilian Geography and Statistics Institute (or IBGE), Brazil's GDP decreased by 0.2% in 2009, compared to prior years.  As a result of the economic downturn, our allowance for loan losses increased materially as of December 31, 2009 compared to prior years.  Economic conditions globally and in Brazil have not yet fully recovered.  Recently, there has been significant volatility in global markets as a result of adverse economic conditions in certain countries in the European Union, including Greece.  If these conditions persist or worsen, the Brazilian economy may be affected and/or we may not be able to obtain financing on favorable terms, each of which could adversely affect our results of operations and ability to execute our strategy.

Risks relating to Bradesco and the Brazilian banking industry

We may experience increases in our level of past due loans as our loan portfolio matures.

Our loan portfolio has grown substantially since 2005, especially as a result of the expansion of Brazil's economy.  Any corresponding rise in our level of past due loans may lag behind the rate of loan growth, as loans typically do not become due within a short period of time after their origination. Our level of past due loans is higher for our individual client base than for our corporate client base. From 2005 to 2009, our loan portfolio increased by 116.0%, and our level of non-performing loans increased by 310.7% as a result of the increase in our individual client base.

 

 

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Weakening economic conditions in Brazil beginning in mid 2008 resulted in increased unemployment, which caused increases in our level of non-performing loans, especially within our individual client base.  This trend of increasing levels of non-performing loans worsened in 2009.  As of December 31, 2009, our allowance for loan losses increased 41.2% compared to December 31, 2008, and our credit portfolio grew 2.9% in the same period.  If the economic conditions in Brazil deteriorate further, we may be required to increase our allowance for loan losses in the future.

Rapid loan growth may also reduce our ratio of past due loans to total loans until growth slows or the portfolio becomes more seasoned.  Adverse economic conditions and lower growth rates of our credit portfolio may result in increases in our provisions for loan losses, charge‑offs and the ratio of non-performing loans to total loans, which may have an adverse effect on our business, financial condition and results of operations.

Adverse conditions in the credit and capital markets may negatively affect our ability to access funding in a cost effective way and/or on a timely basis.

The recent volatility, disruption and uncertainty in the credit and capital markets have lowered liquidity in general, increasing financing costs for financial institutions and companies.  These conditions may impact our ability to restructure the maturity date of our liabilities in a cost effective way and/or on a timely basis, and/or have access to funds to carry out our growth strategy.  If we are forced to raise capital at unattractive interest rates, our financial condition and the result of our operations may be negatively affected.

An increasingly competitive environment in the banking and insurance segments in Brazil could negatively affect the prospects of our business.

Financial, banking and insurance service markets in Brazil are highly competitive.  We face significant competition from other large Brazilian and international banks and insurance companies, both public and private, in all of our main areas of operation.  The Brazilian banking market has also become more consolidated in the last two years.  In November 2008, Banco Itaú S.A. (Banco Itaú) and Unibanco – União de Bancos Brasileiros S.A. (Unibanco) merged to become an important player in our market.  Furthermore, Banco do Brasil S.A. (Banco do Brasil) announced a merger with Banco Nossa Caixa S.A. in November 2008 and a strategic partnership with Banco Votorantim S.A. (Banco Votorantim) in January 2009.  Recently, Itaú Unibanco announced a partnership agreement with Porto Seguro in the auto and home insurance sector.

Brazilian regulations have also created barriers to market entry and do not differentiate between local or foreign commercial and investment banks, and local or foreign insurance companies.  As a consequence, the presence of foreign banks and insurance companies in Brazil, some of them with greater resources than ours, increased competition in the banking and insurance sectors and in markets for specific products.  The privatization of publicly owned banks has also made the Brazilian markets for banking and financial services more competitive.

This increased competition may negatively affect our business results and prospects by, among other factors:

·              limiting our ability to increase our customer base and expand our operations;

·              reducing our profit margins on banking, insurance, leasing and other services and products we offer; and

·              increasing competition for foreign investment opportunities.

 

 

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Losses on our investments in marketable securities may have a significant effect on our results of operations and are unpredictable.

The value of some of our investments in securities may drop significantly due to dislocated financial markets and may fluctuate over short periods.  As of December 31, 2009, investments in securities represented 29.6% of our assets, and realized investment gains and losses have had, and will continue to have, a significant impact on our results of operations.  These gains and losses, which we record when investments in securities are sold or recognized at fair value, may fluctuate considerably from time to time. The level of fluctuation depends, in part, upon the market value of the securities, which in turn may vary considerably. We cannot predict the amount of realized gain or loss for any future period, and our management believes that variations from time to time have no practical analytical value.  In addition, any gains on our investment portfolio may not continue to contribute to net income at levels consistent with recent periods or at all, and we may not successfully realize the appreciation now existing in our consolidated investment portfolio or any portion thereof.

We may incur losses associated with counterparty exposures.

We face the possibility that counterparties will be unable to honor their contractual obligations due to bankruptcy, lack of liquidity, operational failure or other reasons.  This risk may arise, for example, from entering into swaps or other derivative contracts under which counterparties have obligations to make payments to us or from executing currency or other trades that fail to settle at the required time due to non‑delivery or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries.  Such counterparty risk is more acute in difficult markets where the risk of failure of counterparties is higher.

Our trading activities and derivatives transactions may produce material losses.

We engage in the trading of securities, buying debt and equity securities principally to sell them in the near term with the objective of generating profits on short‑term differences in price.  These investments could expose us to the possibility of material financial losses in the future, as securities are subject to fluctuations in value and may generate losses.  In addition, we enter into derivative transactions to manage our exposure to interest rate and exchange rate risk to hedge against either increases or decreases in such rates, but not both.  For instance, if we have entered into derivative transactions to protect against decreases in the value of the real or in interest rates and the real instead increases in value or interest rates increase, we may incur financial losses. Such losses could adversely affect our net income and future liquidity.

The Brazilian government regulates the operations of Brazilian financial institutions and insurance companies, and changes in existing laws and regulations, or the imposition of new laws and regulations, may adversely affect our operations and earnings.

Brazilian banks and insurance companies, including our banking and insurance operations, are subject to extensive and continuous regulatory review by the Brazilian government.  We have no control over government regulations, which govern certain aspects of our operations, including the following:

·              minimum capital requirements;

·              compulsory deposit/reserve requirements;

·              investment requirements in fixed assets;

·              lending limits and other credit restrictions;

·              accounting and statistical requirements;

·              solvency margins;

·              minimum coverage; and

·              mandatory policy.

The regulatory structure governing Brazilian banks and insurance companies is continuously evolving. Existing laws and regulations could change the way in which these laws and regulations are enforced or interpreted, may be altered, and new laws and regulations may be adopted.  These changes could materially adversely affect our operations and our revenues.

 

 

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The Brazilian government, in particular, has historically issued regulations that affect financial institutions in an effort to implement the Brazilian government's economic policies. These regulations are intended to control credit availability and reduce or increase consumption in Brazil. These changes may adversely affect us because our return on compulsory deposits is smaller than what we obtain on our other investments.

Parts of our business that are not currently subject to government regulations could be regulated in the future. For example, currently there are various legislative proposals under discussion in the Brazilian congress to regulate the credit card sector. Some of these proposals are related to increasing the competition in the sector and limiting the fees charged by credit card companies.  New regulations that affect the credit card sector could have an adverse effect on the revenues of our credit card businesses.  These regulations and regulatory changes that affect other businesses we are involved in, including our brokerage and leasing operations, could have a negative effect on our operations and revenues.

Most of our common shares are held by a single shareholder whose interests may conflict with the interests of certain investors.

As of December 31, 2009, Fundação Bradesco directly and indirectly held 51.23% of our common shares.  Consequently, this shareholder has the power to, among other actions, prevent a change in control of our company and can approve related‑party transactions or corporate reorganizations. According to Fundação Bradesco's bylaws, all of our executive officers, members of our Board of Executive Officers and department directors who have worked at Bradesco Group for more than ten years are members of the Fundação Bradesco's Presiding Board.  The Presiding Board does not have other members.  For further information about our shareholders, see "Item 7.A. Major Shareholders."

Changes in reserve and compulsory deposit requirements and taxes may reduce our operating margins.

The Central Bank has periodically changed the level of reserve requirements and compulsory deposits that financial institutions in Brazil are required to maintain with the Central Bank.  For example, in September 2008, the Central Bank revoked and changed a number of compulsory deposit requirements in an attempt to reduce the impact of the global financial crisis.  In February 2010, following a strong recovery of the Brazilian and global economies in the second half of 2009, the Central Bank increased compulsory deposits imposed on time deposits.  The Central Bank may further increase reserve and compulsory deposit requirements in the future or impose new reserve or compulsory deposit requirements.

The compulsory deposits generally do not yield the same return as other investments and deposits because:

·              a portion of compulsory deposits does not bear interest;

·              a portion of compulsory deposits must be held in Brazilian federal government securities; and

·              a portion of compulsory deposits must be used to finance the federal housing program, the Brazilian rural sector, low‑income clients and small companies through a program known as "microcredit program."

Our compulsory deposits for demand deposits, savings deposits and time deposits were R$32.7 billion as of December 31, 2009.  Compulsory deposits have been used in the past by the Central Bank to control liquidity as part of its monetary policy, and we do not have control over these impositions.  Any increase in compulsory deposit requirements may reduce our ability to lend funds and make other investments and, as a result, may adversely affect us.  For more information on compulsory deposits, see "Item 4.B. Business Overview—Deposit‑taking activities."

Changes in taxes and other fiscal charges may adversely affect us.

The Brazilian government enacts reforms on a regular basis for tax rates and other charges that affect us and our clients. These reforms include changes in the rate of assessments and occasionally the enactment of temporary taxes, the proceeds of which are earmarked for governmental purposes.  The effects of these changes and other changes that result from additional tax reforms have not been and cannot be quantified, and there are no guarantees that once these reforms are implemented they will not have a negative effect on our business. 

 

 

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Furthermore, these changes could bring about uncertainties in the financial system by increasing the cost of borrowing and contributing to an increase in the non‑performing loan portfolio.

In the past, the Brazilian Constitution established a ceiling for interest rates on bank loans, and the impact of subsequent legislation regulating this subject is uncertain.

Article 192 of the Brazilian Constitution enacted in 1988 established a ceiling of 12.0% per year for bank loan interest rates.  After the enactment of the constitution, however, this rate was not enforced because the regulation regarding this ceiling was pending. Various attempts were made to regulate interest rates on bank loans, but none of them has been implemented.

On May 29, 2003, Constitutional Amendment no. 40 (or EC 40/03) was enacted and revoked all sub‑items and paragraphs under Article 192 of the Brazilian Constitution.  This amendment allows the Brazilian financial system to be regulated by specific laws for each sector rather than by a single law related to the system as a whole.

With the enactment of the new Civil Code (or Law no. 10,406 of January 10, 2002) there exists some uncertainty as to whether or not the interest rate ceiling is linked to the base rate charged by the Brazilian Federal Revenue Service unless the parties to a loan have agreed to use a different rate. Today this base rate is the SELIC, which as of December 31, 2009 was 8.75% per year.  However, there is presently some uncertainty as to whether said applicable base rate would actually be the SELIC rate or the 12% annual interest rate established in the National Tax Code.

The impact of EC 40/03 and the provisions of the new Civil Code are uncertain at the moment, but any substantial increase or reduction in the interest rate ceiling could have a material adverse effect on the financial condition, operating results or prospects of Brazilian financial institutions, including us.

Furthermore, some Brazilian courts have, in the past, issued decisions limiting interest rates on consumer loans that were considered abusive or excessively burdensome in comparison to market practices.  Future decisions from the Brazilian courts, as well as changes in legislation and regulations restricting interest rates charged by financial institutions may have a negative effect on our business.

Our losses in connection with insurance claims may vary from time to time, and differences between the losses from actual claims and underwriting and reserving assumptions may have an adverse effect on us.

Our results of operations significantly depend upon the extent to which our actual insurance losses are consistent with the assumptions we used to assess our obligations under current and future insurance policies and to price our insurance products. We seek to limit our responsibility and price our insurance products based on the expected payout of benefits, calculated using factors such as: assumptions about investment returns, mortality and morbidity, expenses and certain macroeconomic factors, such as inflation and interest rates. These assumptions may deviate from our prior experience due to factors beyond our control such as natural disasters (floods, explosions and fires) and man‑made disasters (riots, gang or terrorist attacks) or changes in mortality and morbidity rates as a result of advances in medical technology and longevity. Therefore, we cannot precisely determine the amounts that we will ultimately pay to settle these liabilities, when these payments will need to be made, or whether the assets supporting our policy liabilities, together with future premiums, will be sufficient for payment of these liabilities.  These amounts may vary from the estimated amounts, particularly when those payments do not occur until well into the future, which is the case with certain of our life insurance products. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, we may be required to increase our provisions, which may have an adverse effect on our cash flow.

If our actual losses exceed our provisions on risks that we underwrite, we could be adversely affected.

Our results of operations and financial condition depend upon our ability to accurately estimate the actual losses associated with the risks that we underwrite.  Our current provisions are based on estimates that rely on available information and involve a number of factors, including recent loss experience, current economic conditions, internal risk rating, actuarial and statistical projections of the cost of the settlement of future claims, such as estimates of future trends in claims severity and frequency, judicial theories of liability, the levels of and/or timing of receipt or payment of premiums and rates of retirement, mortality and morbidity. Accordingly, the establishment of provisions is inherently uncertain, and our actual losses usually deviate, sometimes substantially, from such estimates. Deviations occur for a variety of reasons, for example: since we record our loan loss provisions based on estimates of incurred losses, the allowance for loan losses might not be sufficient to cover actual losses; we might have an increased number of claims; or our costs could be higher than the costs we estimated.  If actual losses materially exceed our provisions, we could be adversely affected.

 

 

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We are jointly liable for claims of our clients if our reinsurers fail to meet their obligations under the reinsurance contracts.

The purchase of reinsurance does not hold us harmless against our liability to our clients if the reinsurer fails to meet its obligations under the reinsurance contracts. As a result, reinsurers' insolvency or failure to make timely payments under these contracts could have an adverse effect on us, given that we remain responsible to our insureds.

Risks relating to the preferred shares and ADSs

The preferred shares and ADSs generally do not give their holders voting rights.

Under Brazilian corporate law (Brazilian Law No. 6,404/76, as amended by Law No. 9,457/97 and Brazilian Law No. 10,303/01, which we refer to collectively as "Brazilian Corporate Law") and our bylaws, holders of our preferred shares, and therefore of our ADSs, are not entitled to vote at our shareholders' meetings, except in limited circumstances.  This means, among other things, that you, as a holder of ADSs, are not entitled to vote on corporate transactions, including any proposed merger or consolidation with other companies.

In addition, in the limited circumstances where preferred shareholders are able to vote, holders may exercise voting rights with respect to the preferred shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs.  There are no provisions under Brazilian law or under our bylaws that limit ADS holders' ability to exercise their voting rights through the depositary bank with respect to the underlying preferred shares. However, there are practical limits to the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with such holders. For example, our preferred shareholders will either receive notice directly from us or through publication of notice in Brazilian newspapers and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy.  ADS holders, by comparison, will not receive notice directly from us. Rather, in accordance with the deposit agreement, we will provide the notice to the depositary bank, which will, in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary bank how to vote the shares represented by their ADSs. Because of this extra procedural step involving the depositary bank, the process for exercising voting rights will take longer for ADS holders than for holders of preferred shares.  ADSs for which the depositary bank does not receive timely voting instructions will not be voted at any meeting.

Except in limited circumstances, ADS holders are not able to exercise voting rights attached to the ADSs.

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets such as Brazil often involves greater risk than investing in securities of issuers in other countries, and these investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid and can be more volatile than the major securities markets, such as the United States. Although you are entitled to withdraw the preferred shares underlying the ADSs from the depositary at any time, your ability to sell the preferred shares underlying the ADSs at a price and time acceptable to you may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in major securities markets such as the United States or other countries.  The ten largest companies in terms of market capitalization represented 53.0% of the aggregate market capitalization of the BM&FBovespa in March 2010.

 

 

 

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The preferred shares and ADSs do not entitle you to a fixed or minimum dividend.

Holders of our preferred shares and ADSs are not entitled to a fixed or minimum dividend.  Pursuant to our bylaws, our preferred shares are entitled to dividends 10% higher than those assigned to our common shares.  Although under our current bylaws we are obligated to pay our shareholders at least 30% of our annual adjusted net income, our shareholders, acting at our annual shareholders' meeting, have the discretion to suspend this mandatory distribution of dividends if the Board of Directors advises them that the payment of the dividend is not compatible with our financial condition. Neither our bylaws nor Brazilian law specifies the circumstances in which a distribution would not be compatible with our financial condition, and our controlling shareholders have never suspended the mandatory distribution of dividends.  However, general Brazilian practice is that a company need not pay dividends if such payment would threaten the existence of the company as a going concern or would harm its normal course of operations.

As a holder of ADSs you will have fewer and less well‑defined shareholders' rights than in the United States and certain other jurisdictions.

Our corporate affairs are governed by our bylaws and Brazilian Corporate Law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States or in certain other jurisdictions outside Brazil.  Under Brazilian Corporate Law, you and the holders of the preferred shares may have fewer and less well‑defined rights to protect your interests relative to actions taken by our Board of Directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil.

Although Brazilian Corporate Law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in certain other jurisdictions. In addition, self‑dealing and the preservation of shareholder interests may not be as regulated, and regulations may not be as strictly enforced, in Brazil as in the United States, which could potentially disadvantage you as a holder of the preferred shares underlying ADSs. For example, when compared to Delaware general corporation law, Brazilian Corporate Law and practice have less detailed and well‑established rules and judicial precedents relating to the review of management decisions against duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties, and sale‑of‑business transactions.  In addition, shareholders in Delaware companies must hold 5% of the outstanding share capital of a corporation to have standing to bring shareholders' derivative suits, and shareholders in Brazilian companies ordinarily do not have standing to bring a class action.

It may be difficult to enforce civil liabilities against us or our directors and officers.

We are organized under the laws of Brazil, and all of our directors and officers reside outside the United States.  In addition, a substantial portion of our assets and most or all of the assets of our directors and officers are located in Brazil.  As a result, it may be difficult for investors to effect service of process within the United States or other jurisdictions outside of Brazil on such persons or to enforce judgments against them, including any based on civil liabilities under the U.S. federal securities laws.

If we issue new shares or our shareholders sell shares in the future, the market price of your ADSs may be reduced.

Sales of a substantial number of shares, or the belief that those may occur, could decrease the market price of the preferred shares and ADSs by diluting the shares' value.  If we issue new shares or our existing shareholders sell shares they hold, the market price of the preferred shares and, by extension, of the ADSs, may decrease significantly.

You may be unable to exercise preemptive rights relating to the preferred shares.

You will not be able to exercise preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. Similarly, we may from time to time distribute rights to our shareholders.  The depositary bank will not offer rights to you as a holder of the ADSs unless the rights are either registered under the Securities Act or are subject to an exemption from the registration requirements.  We are not obligated to file a registration statement with respect to the shares or other securities relating to these rights, and we cannot assure you that we will file any such registration statement.  Accordingly, you may receive only the net proceeds from the sale by the depositary bank of the rights received in respect of the shares represented by your ADSs or, if the preemptive rights cannot be sold, they will be allowed to lapse.  You may also be unable to participate in rights offerings by us, and your holdings may be diluted as a result.

 

 

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If you exchange your ADSs for preferred shares, you risk losing Brazilian tax advantages and the ability to remit foreign currency abroad.

Brazilian law requires that parties obtain registration with the Central Bank in order to be allowed to remit foreign currencies, including U.S. dollars, abroad.  The Brazilian custodian for the preferred shares will obtain the necessary registration with the Central Bank for the payment of dividends or other cash distributions relating to the preferred shares or upon the disposition of the preferred shares.  If you exchange your ADSs for the underlying preferred shares, however, you may only rely on the custodian's certificate for five business days from the date of exchange.  Thereafter, you must obtain your own registration in accordance with Central Bank and the Comissão de Valores Mobiliários (the Brazilian Securities Commission), which we call "CVM," rules, in order to obtain and remit U.S. dollars abroad upon the disposition of the preferred shares or the receipt of distributions relating to the preferred shares.  If you do not obtain a certificate of registration, you may not be able to remit U.S. dollars or other currencies abroad and may be subject to less favorable tax treatment on gains with respect to the preferred shares.  For more information, see "Item 10.D. Exchange Controls."

If you attempt to obtain your own registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to the preferred shares or the return of your capital in a timely manner.  The custodian's registration and any certificate of foreign capital registration you obtain may be affected by future legislative changes.  Additional restrictions applicable to you, to the disposition of the underlying preferred shares or to the repatriation of the proceeds from disposition may be imposed in the future.

ITEM 4.              INFORMATION ON THE COMPANY

4.A.        History, Development of the Company and Business Strategy

The company

We were founded in 1943 as a commercial bank under the name "Banco Brasileiro de Descontos S.A." In 1948, we began a period of aggressive expansion, which led to our becoming the largest private‑sector commercial bank in Brazil by the end of the 1960s.  We expanded our activities nationwide during the 1970s, entering into urban and rural Brazilian markets.  In 1988 we merged with our real estate finance, investment bank and consumer credit subsidiaries to become a multiple service bank and changed our name to Banco Bradesco S.A.

We are currently one of the largest private‑sector banks (non‑government‑controlled) in Brazil in terms of total assets.  We offer a wide range of banking and financial products and services in Brazil and abroad to individuals, large, mid‑sized and small companies and major local and international corporations and institutions.  We have the most extensive private‑sector branch and service network in Brazil, allowing us to reach a diverse client base.  Our products and services encompass banking operations such as lending and deposit‑taking, credit card issuance, consortiums, insurance, leasing, payment collection and processing, pension plans, asset management and brokerage services.

According to information published by SUSEP and by ANS, we are the largest insurance, pension plan and certificated savings plan group in Brazil on a consolidated basis in terms of insurance premiums, pension plan contributions and income from certificated savings plans.  Títulos de capitalização, which we call "certificated savings plans," is a type of savings account that is coupled with periodic drawings for prizes. According to the annual publication of Fundación Mapfre, in Spain, Grupo Bradesco de Seguros e Previdência was the largest insurance and supplementary private pension group in Latin America in 2008.

 

 

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In 2009, some of our subsidiaries ranked among the largest companies in Brazil in their respective markets, according to the sources cited in parentheses below, including:

·              Bradesco Seguros S.A., our insurance subsidiary ("Bradesco Seguros"), together with its subsidiaries, leader in terms of insurance premiums, shareholders' equity and technical reserves (“SUSEP” and “ANS”):

­     Bradesco Vida e Previdência S.A. ("Bradesco Vida e Previdência"), Bradesco Seguros' subsidiary is the largest company in the market in terms of private pension plan contributions, life and personal accident insurance premiums, investment portfolios and technical provisions (“SUSEP”);

­     Bradesco Capitalização S.A. ("Bradesco Capitalização"), Bradesco Seguros' subsidiary offers certificated savings plans.  Bradesco Capitalização is the leading private company in the market in terms of revenue from the sale of certificated savings plans (“SUSEP”);

­     Bradesco Auto/RE Companhia de Seguros S.A. ("Bradesco Auto/RE"), Bradesco Seguros' subsidiary is one of the largest company in its segment, offering automobile insurance, basic lines and liability products (“SUSEP”);

­     Bradesco Saúde S.A. ("Bradesco Saúde"), Bradesco Seguros' subsidiary offers health insurance coverage, including medical and hospitalization. Bradesco Saúde has one of the largest networks of healthcare service providers and is the leader in the health insurance market (“ANS”);

·              Bradesco Leasing S.A. Arrendamento Mercantil ("Bradesco Leasing"), is one of the leaders in terms of the present value of leasing portfolio (“ABEL”);

·              Bradesco Administradora de Consórcios Ltda. ("Bradesco Consórcios"), market leader with over 395,000 outstanding consortium quotas (“Central Bank”); and

·              Banco Bradesco Financiamentos (“Bradesco Financiamentos”) (former Banco Finasa BMC), leader in terms of automobile financing loans (“Central Bank”).

We are also one of the leaders among private‑sector financial institutions in third‑party asset management and in underwriting debt securities, according to information published by Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais (the Brazilian Association of Financial and Capital Markets Entities, "ANBIMA").

As of December 31, 2009, we had, on a consolidated basis:

·              R$496.8 billion in total assets;

·              R$179.9 billion in total loans;

·              R$171.1 billion in total deposits;

·              R$46.1 billion in shareholders' equity, including noncontrolling interest;

·              R$74.6 billion in technical reserves for insurance claims, pension plans, certificated savings plans and pension investment contract operations;

·              R$22.0 billion in foreign trading financing;

·              26.3 million insurance policyholders;

·              20.9 million checking account holders;

 

 

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·              37.7 million savings accounts;

·              2.5 million certificated savings plans holders;

·              2.0 million pension plan holders;

·              1,213 Brazilian and multinational corporations with affiliated companies in Brazil as corporate customers;

·              an average of 14.3 million daily transactions, including 2.4 million in our 3,454 branches and 11.9 million through self‑service outlets, mainly Automatic Teller Machines ("ATMs"), the Internet and Fone Fácil;

·              a nationwide network consisting of 3,454 branches, 30,657 ATMs and 4,112 special banking service stations and outlets located on the premises of selected corporate clients, as well as 7,300 Banco24Horas ATMs for operations such as cash withdrawal, statement printing, account balance information, loan application, or money transfer between accounts; and

·              a total of four branches and seven subsidiaries located in New York, London, the Cayman Islands, the Bahamas, Japan, Argentina, Luxembourg and Hong Kong.

Although our client base includes individuals of all income levels as well as large, midsized and small businesses, the lower‑ to middle‑ income citizens of Brazil have traditionally been Bradesco's strategic focus.  Since the 1960s, we have been a leader in the retail banking market in Brazil.  This segment still has great potential for growth and provides us with higher margins than other segments, such as corporate loan operations and securities trading, where we face greater price competition.

Since 2009, we operate in all Brazilian municipalities and our large banking network allows us to be closer to our customers, providing our managers with information on economically active regions and other conditions relevant to our business.  This knowledge helps us to assess and limit risks in credit operations, among other risks, as well as to service the particular needs of our clients.

We are a corporation established under the laws of Brazil.  We are headquartered at Cidade de Deus, Vila Yara, 06029‑900, Osasco, SP, Brazil, and our headquarters' telephone number is (55‑11) 3684‑5376.  Our New York Branch is located at 450 Park Avenue, 32nd and 33th floor, New York 10022‑2605.

Recent acquisitions

In June 2010, Bradesco concluded the acquisition of the entire capital stock of  the controlling group of Ibi Services S. de R.L. México ("Ibi México") and of RFS Human Management S. de R.L., a subsidiary of Ibi México . As of December, 2009 Ibi México had a credit portfolio of R$205 million  and more than 1.3 million credit cards. This transaction includes a partnership contract with C&A México S. de R.L. (C&A México) for a period of 20 years for the exclusive joint sale of financial products and services through the C&A México chain of stores.

 In October 2009 we announced that the Board of Directors of both Odontoprev and Bradesco, as indirect controlling shareholder of Bradesco Dental, approved the execution of an agreement establishing the terms of the merger between Bradesco Dental and Odontoprev in the segment of dental insurance. Under the plan of merger, Bradesco Dental becomes a wholly‑owned subsidiary of Odontoprev, and Bradesco Saúde, the direct controlling company of Bradesco Dental, receives shares representing 43.50% of Odontoprev's total capital.  Bradesco Saúde and Odontoprev's major shareholder, Mr. Randal Luiz Zanetti, will jointly own 51.06% of the combined company's capital.

In June 2009, we entered into an agreement to acquire Ibi Participações S.A., Banco Ibi and its subsidiaries, for a total consideration of R$1.5 billion, paid to the former controlling shareholders in shares representing approximately 1.6% of Bradesco's capital stock. Banco Ibi is among the main credit card issuers in Brazil, both in the private label segment as well as in branded cards, and its acquisition will substantially strengthen our position in both markets.  The transaction includes a partnership with C&A Modas Ltda., a leader in the fashion and clothing markets, under which Bradesco will offer its financial products and services at C&A stores, for 20 years. 

 

 

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Bradesco announced in April 2009 that through Bradesco Seguros e Previdência, its insurer group, it acquired 20% of the voting capital and total capital stock of Integritas, a holding company of Grupo Fleury, for R$342 million. Grupo Fleury, which has operated for the past 83 years, is one of Brazil's most renowned and respected medical and health organizations.  It provides diagnosis, clinical treatment and medical analyses services and provides the benchmark in complex medical tests for nearly 1,500 clinical laboratories and hospitals.

2008 and 2007 acquisitions

In March 2008, Banco Bradesco BBI S.A. ("BBI") entered into an agreement with the shareholders of Ágora CTVM S.A. ("Ágora Corretora") to acquire 100% of its total capital stock for R$908 million.  With the closing of the transaction, which occurred in September 2008 upon receipt of Central Bank approval, the Ágora Corretora shareholders received as consideration shares representing 7.8% of BBI's capital stock.  Ágora Corretora became BBI's wholly owned subsidiary.  In November and December 2008, we repurchased 6.1% of BBI shares held by Ágora's former shareholders.

In January 2008, we entered into an agreement with Marsh Corretora de Seguros Ltda. to acquire 100% of the total capital stock of Mediservice—Administradora de Planos de Saúde Ltda. ("Mediservice") for R$84.9 million. Mediservice has been operating for 20 years in Brazil.  It has offices located in the cities of São Paulo, Rio de Janeiro and Salvador.  It serves approximately 300,000 patients and has a network of nearly 30,000 accredited physicians, as well as dentists, laboratories, diagnosis centers, clinics, hospitals and emergency services.  This acquisition expands the client portfolio of Grupo Bradesco Seguros e Previdência and reinforces its position in the health plan market.  ANS approved the transaction in February 2008.

In January 2007, we entered into an agreement with the shareholders of Banco BMC S.A. ("BMC") to acquire 100% of the total capital stock of BMC, and, accordingly, its controlled companies BMC Asset Management Ltda. – Distribuidora de Títulos e Valores Mobiliários, BMC Previdência Privada S.A. and Credicerto Promotora de Vendas Ltda. BMC is one of the largest private banks in the payroll deductible loan market for beneficiaries and pensioners of INSS, with a network of approximately 7,000 agents and 749 correspondent banks.  In accordance with the terms of this agreement, in August 2007 we delivered 9,299,618 of our common shares and 9,299,514 of our preferred shares to BMC shareholders in exchange for their BMC shares, which amounted to R$790 million.  This transaction was closed in August 2007, upon receipt of Central Bank approval.

Other strategic alliances

In April, 2010 Bradesco.and Banco do Brasil signed a non-binding memorandum of understanding for the preparation of a business model, involving: (i) the integration of part of their card operations; (ii) the launch of a Brazilian brand of credit, debit and pre-paid cards for account-holders and nonaccount-holders and (iii) the joint creation of new businesses for private label cards (cards offered to non-account-holder clients through partner merchants).The conclusion of the operation is subject to technical, legal and financial studies, the satisfactorynegotiation of the final documents and compliance with the applicable legal and regulatory requirements.

In September 2009, Bradesco launched a family of investment funds domiciled in Luxemburg to be marketed exclusively to foreign investors.  The family of funds called Bradesco Global Funds is managed by BRAM – Bradesco Asset Management S.A. Distribuidora de Títulos e Valores Mobiliários, our asset management company (“BRAM”) and the custody of its assets in Brazil is provided by Bradesco.  Bradesco Global Funds is an umbrella structure that will provide investors with a series of investment funds, each with different investment objectives and separate accounting records.

On June 3, 2009, Bradesco entered into a partnership with SEB – Skandinaviska Enskilda Banken, a Swedish bank, to offer cash management solutions to its clients, increasing Bradesco´s presence in the international market.

In August 2008, we entered into an operational agreement with The Bank of Tokyo‑Mitsubishi UFJ to manage investment funds through BRAM.  In November 2008, BRAM launched the Bradesco Brazil Saiken Fund, a fixed-income investment fund aimed at Japanese retail investors who are investing in Brazil.  It is the first fund established in a partnership with Mitsubishi UFJ Asset Management, an affiliate of The Bank of Tokyo-Mitsubishi UFJ.

 

 

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Our brokerage house in London, Bradesco Securities UK, Ltd. ("Bradesco Securities UK") began its activities in March 2008.  Bradesco Securities UK acts as an intermediary in transactions involving Brazilian fixed and variable bonds between Brazilian companies and European and global institutional investors, and is mainly focused on intermediation in purchases and sales of shares on the NYSE, NASDAQ and BM&FBovespa exchanges, the distribution of research reports and prospectuses, presentations to European and global investors and other investment banking activities.

In October 2007, we entered into a partnership agreement with Banco de Chile to jointly develop investment products and offer new business opportunities and synergy gains through BRAM and Banchile Administradora General de Fondos S.A., Banco de Chile's asset management company.

In June 2007, we sold 676,009 of our shares in Serasa S.A., ("Serasa") to Experian Brasil Aquisições Ltda., a subsidiary of Experian Solutions Inc. Serasa is a leader in credit analysis and information services, and Experian is a world leader in analytical and information services to organizations and consumers.  Despite this sale, we maintained the right to appoint a member of the Board of Directors of Serasa.  As a result of this sale, we currently hold 8.3% of the Serasa's capital stock.

In September 2006, we and Dimed S.A. Distribuidora de Medicamentos, the leading pharmaceutical company in the State of Rio Grande do Sul, entered into an agreement for the issuance and management of its private label cards.

In July 2006, we and Coop—Cooperativa de Consumo, the largest consumption cooperative in the supermarket sector of Latin America, entered into an agreement to regulate the issuance and management of its private label cards and provide financial products and services to its clients.

In May 2006, we and GBarbosa, the fourth‑largest supermarket retailer in Brazil, entered into an agreement for the issuance and administration of its private label credit card called "Credi Hiper," and the provision of financial services and products to Gbarbosa's clients.  There are currently more than 1.3 million Credi Hiper cards issued.

In March 2006, we entered into a joint venture agreement with Fidelity National and Banco ABN AMRO Real S.A. ("Banco Real") for the rendering of card processing services through a newly formed company called Fidelity Processadora e Serviços S.A. ("Fidelity").  Fidelity provides all card processing services (including credit, multiple, debit, benefit and private label cards), such as authorization, processing and settlement of transactions (including data exchange and other procedures for authorization of transactions, database marketing and credit analysis) as well as maintenance, printing (including tailor‑made cards), mailing of invoices and other correspondence, call center, billing services and fraud prevention. Fidelity has been rendering services to our clients, Banco Real's clients and other card issuers since April 2006. Fidelity became one of the largest providers of credit card processing services in Brazil after the transfer of our and Banco Real's credit card accounts to them.

Banco Postal

We offer our products and services throughout Brazil, together with Empresa Brasileira de Correios e Telégrafos (the government owned postal company) ("Postal Service") through correspondent offices operating under the trademark "Banco Postal" ("Postal Bank.").

Through our service contract dated September 2001 with the Postal Service, we have exclusive rights to offer services at a number of locations, some of which we own and others which we rent from the Postal Service and which we refer to as "correspondent offices."

Delivery of services started in March 2002, when we opened the first Postal Bank branch in the State of Minas Gerais.  As of December 31, 2009 we had 6,067 open correspondent offices in 5,183 Brazilian municipalities, processing on average more than 38.9 million transactions monthly or 1.77 million transactions daily.

 

 

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Approximately 1,800 out of 6,067 correspondent offices were set up in new markets, bringing services, either directly or indirectly, to millions of people for whom financial services were previously either inaccessible or difficult to obtain.

The Postal Bank offers basic services, mainly addressed to the low‑income segments of the population, and include:

·              submission of proposals for new accounts;

·              submission of proposals for loans, financing and credit cards;

·              withdrawals from checking and savings accounts, and benefit payments under the INSS social security program;

·              deposits in checking and savings accounts;

·              consultation of balances of checking and savings accounts, and benefit payments under the INSS social security program;

·              receipt of bank payment slips;

·              processing utilities bills payments;

·              processing municipal, state and federal taxes payments; and

·              licensing of vehicles.

Bradesco Expresso

In addition to Postal Bank services performed at correspondent offices, we have also opened outlets under the trademark "Bradesco Expresso" located on the premises of retail networks such as supermarkets, drug stores and bakeries, to provide our clients with greater access to banking correspondent services.  Bradesco Expresso processes utilities bills and bank collection invoices for our clients at their offices, as well as offering withdrawals from checking and savings accounts and pension payments.

As of December 31, 2009, the Bradesco Expresso network totaled 20,200 outlets averaging more than 30.7 million transactions monthly or 1.4 million transactions daily.

Store owners benefit directly from Bradesco Expresso through remuneration received in connection with the Bradesco Expresso units placed in their stores and also benefit indirectly from the increased flow of people, which may increase both sales and client loyalty.

Business strategy

We believe that the Brazilian financial system has been able to weather the sudden downturn in the global economy beginning in the second half of 2008 and the challenges the financial crisis presented to the liquidity of large financial institutions.  We expect that the expansion of the Brazilian economy will gradually resume as a result of a significant increase in the purchasing power of certain income segments of the Brazilian population, mainly the low‑ and medium‑income population as well as an increase in private investments.  This would lead to a sustained expansion of demand for financial services and insurance in the upcoming years and that, in the long‑term, the Brazilian financial system may be strengthened as a result of the present global  economic crisis.

Our main objective is to maintain our focus on the domestic market, as one of the largest private banks in Brazil, and to expand our profitability, maximizing our shareholders' value and generating a higher rate of return than other Brazilian financial institutions.

 

 

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Our strategy to achieve these goals is focused not only on continuing to expand our client base but also on consolidating our position as a "complete bank," the "first bank" for all our clients.  We are increasingly segmenting our products and services as we allocate our resources and talents to provide our clients with products and services that are tailored to meet their needs.  We believe that our concern with our clients' financial profiles and our respect for their individuality results in greater satisfaction and loyalty.  The segmentation of our financial services has also allowed us to better absorb and take greater advantage of the integration of institutions we have acquired over the past years.

We have the largest and, we believe, the best network of distribution channels among Brazilian private banks.  This network includes our branches, banking posts and outlets, ATMs, Postal Bank services and other third‑party channels.  The growth of these channels was spurred mainly by our arrangements with large retailers as our banking correspondents.  We also have more than 71,800 physical banking posts and outlets.  We have a well‑distributed and extensive branch network which optimizes our clients' access to our products and services and allows us to fully compete in the retail banking market.  We intend to continue expanding and refining our branch network to provide more and better mass products and services to our clients, in order to meet a growing demand for credit and insurance in the Brazilian market.

We are also focused on expanding our wholesale operations in all aspects, especially our corporate and private banking services.  The economic scenario in Brazil has significantly improved the performance of small and medium‑sized companies, a market in which we believe we are well positioned to increase our market share.

In addition, since 2006, we have been paying particular attention to our investment banking subsidiary Bradesco BBI.  We will continue to maintain and hire professionals for our highly qualified investment banking team, and we plan to make full use of our solid relationship with corporate clients and high‑income individuals to develop our investment banking activities.

We also intend to focus on segments in which we were traditionally less focused, such as securities brokerage services.  The significant growth in the Brazilian securities market over the past years and our acquisition of Brazil's largest brokerage company, Ágora Corretora, made us one of the leaders in the brokerage market.

We believe that our insurance segment has high growth potential, due to the low percentage of the GDP covered by the Brazilian insurance industry.  Increases in the average income of the Brazilian population has led to millions of new policyholders.  We intend to capture new customers seeking insurance products and to consolidate our leadership in different insurance lines.

We are also structuring ourselves to increase our scale and operational efficiency gains by segmenting our line of insurance products through the creation of specialized insurance companies in each specific insurance field, which we call "multi‑line" insurance companies.  This approach allows us to avoid crossing revenues or expenses among different insurance segments as we maintain complete control over the performance of each line of products.  We believe that we can benefit from this structure by maximizing insurance product sales, which have a high contribution margin and give us access to independent brokers.

Additionally, in each of our business segments, we strive to be recognized by our clients as leaders in performance and efficiency.  We closely monitor and continually seek to improve our level of operational efficiency.

We understand that the success of a financial sector company depends not only on the number of clients it has but also on having highly capable, well‑trained and dedicated personnel with strict work and ethical standards.  Qualification, promotion and the creation of a culture of solidarity at work are keys to improving the business, creating a cooperative and friendly environment where our employees can develop long‑lasting careers.  In 2009, we were once again chosen in an employee survey by the "Guia Você S/A Exame" publication as one of the best companies to work for in Brazil.

Our key philosophy is the management of our business in accordance with the highest ethical standards. Beyond creating shareholders' value, our strategy is also guided and focused on achieving the best market practices of corporate governance and the understanding that we play an important role in our society.

 

 

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The key elements of our business strategy are to:

·              expand through organic growth;

·              operate based on the bank‑insurance model, in order to maintain our profitability and consolidate our leadership in the insurance sector;

·              increase revenues, profitability and shareholder value by strengthening our loan and financing operations, our core activity, and expanding to new products and services;

·              maintain our commitment to technological innovation;

·              achieve profitability and shareholder return through the ongoing improvement of our efficiency ratio;

·              maintain acceptable risk levels in our operations; and

·              expand through strategic alliances and selective acquisitions when advantageous.

Expand through organic growth

Despite the global economic crisis, which began in the second half of 2008, we expect the Brazilian economy to recover and continue to grow. The Brazilian economy has been growing at a sustained rate and has produced strategic opportunities for growth in the financial and insurance industries, mainly due to increases in business volume in the segments in which we are particularly well positioned. We plan to continue to take advantage of this growth to increase our revenue, build profitability and maximize shareholder value by:

·              taking advantage of the opportunity in the Brazilian market to capture new customers, mainly from the low‑ and middle‑income brackets, whose financial and credit needs have not yet been served, while continuing to compete for the small group of clients in upper income brackets;

·              expanding our financial services distribution channels by creatively developing new mass market products and utilizing third‑party channels, such as, for example, by expanding our offers for credit cards, financial and insurance products and services, to large retail stores by means of partnerships with retail chains, the Postal Bank and other correspondent banks;

·              taking advantage of our existing distribution channels, including our traditional branch network and other means of distribution to identify demand for new products and expanding the offer of traditional products, such as long‑term financing and particularly real estate credit, which is in renewed demand due to the stability of the Brazilian economy;

·              using our client base to offer our products and services more widely and to increase the average number of products used from 4.8 products as of December 2009, to an average of 5.0 products per client by December 2010;

·              using our branch‑based systems aimed at assessing and monitoring clients' use of our products so as to channel them to the proper selling, delivery and trading platforms; and

·              developing products tailored to profiles and needs of both our existing and potential segment of clients.

Operate based on the bank‑insurance model, in order to maintain our profitability and consolidate our leadership in the insurance sector.

Our goal is to have our customers look to us first for all of their banking, insurance and pension needs.  We believe that we are in a good position to capitalize on the synergies among our banking, insurance, pension and other financial activities.  These products are offered throughout Brazil through our banking distribution network, Internet distribution services and new and creative distribution channels.  We also have specific distribution channels for the offering of these products that rely on our 24,004 insurance brokers and 8,460 brokers for pension products and VGBL.  We continuously assist and encourage our brokers and dealers to improve services to our clients.

 

 

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At the same time, we are looking to increase the profitability of our insurance and pension plan businesses by using our profitability measures, instead of the volume of premiums underwritten or amounts deposited, as follows:

·              managing our portfolio and reserves;

·              aggressively marketing our products and services; and

·              maintaining acceptable risk levels in our operations through a strategy of:

·              prioritizing insurance underwriting opportunities according to the "risk spread," which is the difference between the expected income under an insurance contract and the actuarially determined amount of claims likely to be paid under that same contract;

·              entering into hedging transactions, so as to avoid mismatches between the actual rate of inflation and provisions for interest rate and inflation adjustments in long‑term contracts; and

·              entering into reinsurance agreements with well‑known reinsurers, and taking advantage of the new reality of the Brazilian reinsurance market.

Increase revenues, profitability and shareholder value by strengthening our loan and financing operations, our core activity, and expanding to new products and services.

Our strategy to increase revenues and profitability of our banking operations is focused on:

·              building our traditional deposit‑taking and loan and financing operations by continuously improving the quality of the loan portfolio, through risk mitigation plans and improving the delinquency risk pricing models, ensuring appropriate provisions for incurred losses in loan operations and better results in credit granting, following up on, and recovering operations;

·              continuing to build our corporate and individual client base by offering services tailored to meet specific clients' profiles and needs;

·              focusing aggressively on fee‑based services, such as bill collection and payment processing;

·              expanding our financial services and products that are distributed outside of the conventional branch environment, such as our credit card businesses, taking advantage of changes in consumer behavior in the consumption of financial services;

·              expanding our asset management revenues; and

·              continuing to build our base of high‑income clients by offering a wide range of tailor‑made products and services.

Maintain our commitment to technological innovation

The development of efficient means of reaching customers and processing transactions safely and on a continued basis is a key element of our goal to expand our profitability and to capitalize on opportunities for organic growth.

We have been pioneers in our field for more than six decades by creating efficient strategies and positive impacts to anticipate future challenges.  Amongst these strategies, our use of cutting‑edge technology stands out as a central pillar of our strategy for sustainability, business generation and easy client access to innovative and safe services.

 

 

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We believe we are among the Brazilian companies that most invest in research and development in the banking segment.  Therefore, with the goals of further strengthening the organization's IT environment to prepare it for the decades to come and increasing public perception of our technological resources, and based on best practices and existing technology, we have invested in a major strategic program titled "IT Improvements," which touches upon five macro‑areas of the IT chain (processes, applications, operational environments, technologies and infrastructure).

We believe that technology offers unparalleled opportunities to reach our customers in a cost‑efficient manner.  We are committed to being at the forefront of the bank automation process by creating opportunities for the Brazilian public to reach us through the Internet and other means of access, such as:

·              expanding our mobile banking service, "Bradesco Mobile Banking," which allows customers to conduct their banking business with compatible mobile phones; and

·              providing "Pocket Internet Banking" for hand‑held devices and personal digital assistants or "PDAs," including mobile phones that allow our clients to check their savings and checking account information, review recent credit card transactions, make payments, transfer funds and obtain information relating to our services.

Achieve profitability and shareholder return through the ongoing improvement of our efficiency ratio

We intend to improve on our levels of operating efficiency by:

·              maintaining austerity as the basis of our cost control policy;

·              continuously revising internal processes to reduce resource consumption and contribute to our policy of corporate sustainability;

·              consolidating the synergies created by our recent acquisitions;

·              continuing to reduce our operational costs through investments in technology that will minimize these costs on a per‑transaction basis, emphasizing our existing automated channels of distribution, including our wireless distribution systems, telephone, Internet banking and ATMs; and

·              continuing to merge the institutions that we acquire in the future into our existing system in order to eliminate redundancies and potential inefficiencies and improve our gains on scale.

Maintain acceptable risk levels in our operations

We approach the management of risks inherent in our activities in an integrated manner, a process within our internal controls and compliance structure called "Risk Management Process."  This process allows the continuous improvement of our models for risk management and minimizes the existence of loopholes undermining their correct identification and assessment.  The process provides a centralized and permanent method for identifying, measuring, controlling, monitoring and mitigating our credit, market, liquidity and operational risks.

The existence of our Integrated Risk Management and Capital Allocation Committee, a statutory‑level committee, guarantees the uniqueness of our risk management process.  The committee's assignment is to advise our Board of Directors in the adoption of institutional policies, operational guidelines and the establishment of limits for exposure to risks within our consolidated financial statements.

In addition, we have three executive committees charged with topics related to credit, market, liquidity and operational risks, and which, amongst other responsibilities, are charged with suggesting limits of tolerance to their respective risks and the design of risk mitigation plans for submission to the Integrated Risk Management and Capital Allocation Committee.

 

 

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We have two independent departments dedicated to global risk management and internal controls, the Integrated Risk Control Department and the Internal Controls and Compliance Department, which implement and continuously monitor the directives and processes formulated by our higher‑level committees.

Our internal risk management processes and groups, on par with the best international practices, assure the maintenance of our operational risks at adequate levels and the efficient allocation of our capital, permitting us to obtain competitive advantages.

Expand through strategic alliances and selective acquisitions when advantageous

We believe that in the coming years, most of Brazilian financial institutions will rely on organic growth.  We believe there could be opportunities to acquire other financial institutions, including institutions in newer segments, such as consumer financing, credit cards and investment banking. For that reason we are continuously evaluating potential strategic alliances and consolidation opportunities, including proposed privatizations and acquisitions, as well as other methods that offer potential opportunities either to increase our market share or to improve our efficiency. In addition to focusing on value and asset quality, we consider the potential operating synergies, opportunities for cross‑selling, acquisition of know‑how and other advantages of a potential alliance or acquisitions.  The analysis of potential opportunities is grounded on their potential impact on our results.

Investments

Our main investments between 2007 and 2009 are described in "Item 5.B. Liquidity and Capital Resources – Capital expenditures."

4.B.        Business Overview

We organize our operations in two main areas: (i) banking services and (ii) insurance services, private pension plans and certificated savings plans. See note 27 to our consolidated financial statements in “Item 18. Financial Statements” for additional segment information.

As of December 31, 2009, according to the sources cited in parentheses below, we were:

·              one of the largest banks among private‑sector banks in savings deposits, with 14.1% of savings deposits in Brazil and R$45.1 billion on deposit ("Central Bank");

·              the largest provider of insurance, public pension plans and certificated savings plans, with R$26.3 billion in net premiums written and revenues from supplementary pension plans and certificated savings plans ("SUSEP" and "ANS");

·              the leader among the largest on‑lender banks in BNDES loans targeting micro‑, small‑ and medium‑sized companies for the 7th consecutive year ("BNDES"), with 45.7% of all loans being disbursed by us and having a presence in 94.9% of operations targeted at micro, small and medium‑sized companies;

·              one of the leaders in Brazilian leasing operations, with R$21.5 billion outstanding ("ABEL");

·              one of the leaders in the placement of debt instruments in Brazil, during 2009 ("ANBIMA");

·              one of the largest private‑sector fund and portfolio administrators and managers in Brazil, with R$247.7 billion in total third‑party assets under administration and management, representing over 16.6% of the total Brazilian market ("ANBIMA");

·              one of the largest credit card issuers in Brazil, with 79.6 million credit cards (Visa, American Express, MasterCard and private label cards) with a total credit card revenue of R$55.3 billion (Bradesco, Fidelity National Information Services, Inc., which we call "Fidelity National"; Leader S.A. Administradora de Contas de Crédito, which we call "Leader Card"; American Express, Deib Otoch S.A., which we call "Lojas Esplanada"; Lojas Colombo S.A. Comércio de Utilidades Domésticas, which we call "Lojas Colombo"; and GBarbosa Comercial Ltda., which we call "GBarbosa");

 

 

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·              one of the largest debit card issuers in Brazil, with 53.3 million debit cards issued;

·              the leader in bank collection services in Brazil, with a market share of 29.7% ("Central Bank");

·              the leader among private banks in number of client registrations in the Pre‑Authorized Direct Debit (DDA) program, with 549,000 registrations;

·              the leader in marketing of consortium quotas in the following three segments: real estate with 146,201 quotas; automobile with 225,792 quotas; and trucks and tractors with 23,618 quotas ("Central Bank");

·              one of the leaders in car loan customer financing, with a market share of 19.6% ("Central Bank"); and

·              the leader among private‑sector banks in benefit payments under the Instituto Nacional do Seguro Social (the National Social Security Institute), known as "INSS," social security program, having service payments to more than 5.3 million retirees, beneficiaries and pensioners of the "INSS", accounting for 19.6% of the total number of INSS beneficiaries.

Furthermore, Bradesco was classified as one of the most profitable bank in Latin America and the United States by consulting firm Economática and it was also considered one of the ten best companies and the best bank to work for in Brazil in the category of large companies by Guia Você S/A Exame magazine.  It was also elected Company of the Year, best bank, best Insurance and Private Pension Company and best Health Insurance Company according to a survey by IstoÉ Dinheiro magazine.  Bradesco Seguros e Previdência was classified by Anuário Valor 1000 magazine as the largest insurer group in Brazil and for the second consecutive time was elected the best insurance company in South America by the World Finance magazine.  Bradesco was the first Brazilian company to receive the Golden Peacock Global Award for Excellence in Corporate Governance 2009, sponsored by the Institute of Directors, which recognizes actions toward transparency and excellence in corporate governance.

Main subsidiaries

The following is a simplified chart of our principal material subsidiaries in the financial and insurance services businesses and our voting and ownership interest in each of them as of December 31, 2009 (all of which are consolidated in our financial statements in “Item 18. Financial Statements”).  With the exception of Banco Bradesco Argentina, which is incorporated in Argentina, all of these material subsidiaries are incorporated in Brazil.  For more information regarding the consolidation of our material subsidiaries, see note 1(a) to our consolidated financial statements in “Item 18. Financial Statements.”

 

 

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Revenues per business segment

The following table summarizes our gross revenues by business area for the periods indicated.

The sum of the segments shown in the table below may not correspond to the amounts shown on a consolidated basis, as they do not take into account immaterial activities or inter‑segment transactions.

 

For the Years Ended December 31,

 

2007

2008

2009

 

(R$ in millions)

Banking:

 

 

 

Loan operations:

 

 

 

Housing loans

R$ 323

R$ 528

R$ 662

Rural loans

862

1,014

846

Leasing

908

2,393

3,447

Other loans(1)

20,515

29,727

27,753

 

 

 

 

Total

22,608

33,662

32,708

 

 

 

 

Fees and commissions:

 

 

 

Asset management fees

743

758

733

Collection fees

859

959

984

Credit card fees

1,273

1,696

1,972

Fees charged on checking account services

2,108

1,794

1,497

Fees for receipt of taxes

237

219

235

Interbank fees

321

387

42

Financial guarantees

197

330

559

Consortium administration

256

318

351

Other services

1,000

1,422

1,998

 

 

 

 

Total

6,994

7,883

8,371

 

 

 

 

Insurance and pension plans:(2)

 

 

 

Insurance premiums:

 

 

 

Health

4,246

5,259

6,099

Life and personal accidents

1,822

2,799

3,145

Automobile, property and liability

2,775

2,905

3,277

 

 

 

 

Total

8,843

10,963

12,521

 

 

 

 

Pension plan income

R$ 555

R$ 710

R$ 607

 

(1)       Includes industrial loans, financing under credit cards, overdraft loans, trade financing and foreign loans.

(2)       This does not include private pension investment contracts.  See "—Insurance,  pension plans and certificated savings plans."

We do not break down our revenues by geographic regions within Brazil, and less than 10.0% of our revenues come from international operations.  For more information on our international operations, see "International banking services."

Banking activity

We have a diverse client base that includes individuals and small, midsized and large companies in Brazil. Historically, we have cultivated a stronger presence among the broadest segment of the Brazilian market, middle and low income individuals. In 1999, we built our corporate department to serve our corporate clients with annual revenues of R$350 million or more, and our private banking department to serve our individual clients with minimum net assets of R$2 million. In 2002, we created Bradesco Empresas (Middle Market), responsible for corporate clients that have an annual income of between R$30 and R$350 million, with the goal of expanding our business in the middle corporate market sector. In May 2003, we launched Bradesco Prime, which offers services to individual clients who either have a monthly income of at least R$6,000 or have R$70,000 available for immediate investment. Bradesco Varejo ("Bradesco Retail") is our division responsible for the corporate clients that have an annual income lower than R$30 million and the individual clients that have a monthly income lower than R$6,000. For more information, see "Distribution channels” and “Specialized distribution of products and services."

 

 

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The following diagram shows the breakdown of our banking activities as of December 31, 2009:

 

The sum of the segments shown in the table below may not correspond to the amounts shown on a consolidated basis, as they do not take into account immaterial activities or inter‑segment transactions.

 

 

 

 

 

 

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The following table sets forth selected financial data for our banking segment for the periods indicated:

 

Year ended December 31,

 

2007

2008

2009

 

(R$ in millions)

Income statement data:

 

 

 

Net interest income(1)

R$          17,188

R$          19,054

R$          25,551

Provision for loan losses

(4,617)

(6,651)

(10,822)

Non‑interest income(1)

12,884

10,564

15,721

Non‑interest expense

(18,751)

(20,620)

(21,554)

Income before income taxes (1)

6,704

2,347

8,896

Income tax and social contribution

(1,877)

1,970

(2,733)

Net income before attribution to noncontrolling interest(1)

4,827

4,317

6,163

Net income attributed to noncontrolling interest

(28)

(42)

(6)

Parent Company`s net income

R$            4,799

R$            4,275

R$            6,157

Balance sheet data:

 

 

 

Total assets

R$        275,400

R$        373,908

R$        418,926

Selected results of operations data:

 

 

 

Interest income:

 

 

 

Interest on loans

R$          22,608

R$          33,662

R$          32,708

Interest on securities

2,445

5,576

4,660

Interest on federal funds sold and securities purchased under agreements to resell

3,202

6,465

7,701

Deposits from financial institutions

441

706

506

Brazilian Central Bank compulsory deposits

1,207

1,489

1,434

Others

37

38

35

Interest expense:

 

 

 

Interest on deposits

(5,560)

(9,636)

(11,446)

Interest on federal funds purchased and securities sold under agreements to repurchase

(5,553)

(9,619)

(9,179)

Interest loans

(1,639)

(9,627)

(868)

Net Interest Income

17,188

19,054

25,551

Fee and commission income

R$            6,994

R$            7,883

R$            8,371

 

(1)       Includes income from related parties outside of the banking segment.

We have a segmented customer base and we offer the following range of banking products and services in order to meet the needs of each segment:

·              deposit‑taking activities, including checking accounts, savings accounts and time deposits;

·              credit operations (individuals and companies, real estate financing, microcredit, onlending of BNDES resources, rural credit, leasing, among others);

·              credit cards, debit cards and pre‑paid cards;

·              management of receipts, payments, human resources, and administrative support;

·              asset management;

·              services related to capital markets and investment banking activities;

·              intermediation and trading services;

·              custody, depositary and controllership services;

·              international banking services; and

·              consortiums.

 

 

 

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Deposit‑taking activities

We offer a variety of deposit products and services to our customers through our branches, including:

·              checking accounts, which do not bear interest;

·              investment deposit accounts;

·              traditional savings accounts, which currently earn the Brazilian reference rate, the taxa referencial, known as the "TR," plus 6.2% in annual interest;

·              time deposits, which are represented by certificados de depósito bancário (Bank Deposit Certificates, or "CDBs"), and earn interest at a fixed or floating rate; and

·              deposits exclusively from financial institutions, which are represented by certificados de depósito interbancário (Interbank Deposit Certificates, or "CDIs"), and earn the interbank deposit rate.

As of December 31, 2009, we had 20.9 million checking account holders, 19.7 million of which were individual account holders and 1.2 million of which were corporate account holders.  On that same date, we had 37.7 million savings accounts. In the same period, our deposits (excluding deposits from financial institutions) totaled R$170.4 billion and we had a 14.1% share of the Brazilian savings deposit market, according to the Central Bank.

The following table sets forth a breakdown by product type of our deposits at the dates indicated:

 

December 31,

 

2007

2008

2009

 

(R$ in millions, except %)

Deposits from Customers:

 

 

 

 

 

 

Demand deposits

R$ 29,423

29.9%

R$ 28,612

17.4%

R$ 35,664

20.8%

Reais

29,222

29.7

28,246

17.2

35,126

20.5

Foreign currency

201

0.2

366

0.2

538

0.3

Savings deposits

32,813

33.4

37,768

23.0

44,162

25.8

Reais

32,813

33.4

37,768

23.0

44,162

25.8

Time deposits/certificates of deposit

35,733

36.3

97,423

59.2

90,537

52.9

Reais

33,658

34.2

90,561

55.1

85,221

49.8

Foreign currency

2,075

2.1

6,862

4.1

5,316

3.1

Total deposits from customers

97,969

99.6

163,803

99.6

170,363

99.5

Deposits from financial institutions

372

0.4

698

0.4

752

0.5

Total

R$ 98,341

100.0%

R$ 164,501

100.0%

R$ 171,115

100.0%

 

We offer our clients some additional special services, such as:

·              the "Easy‑Checking Account," a combination checking account and savings account in which, after the lapse of a pre‑set period (the length of which is determined by regulation), deposited funds earn interest at the same rate as our savings accounts, unlike our ordinary checking accounts, which earn no interest;

·              "identified deposits," which allow our clients to identify deposits made in favor of a third party through the use of a personal identification number; and

·              real‑time "banking transfers" from a checking, savings or investment account to or between another checking, savings or investment account, including accounts at other banks.

 

 

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Credit operations

The following table sets forth a breakdown by product type of our credit operations in Brazil, at the dates indicated:

 

December 31,

 

2007

2008

2009

 

(R$ in millions)

Loans outstanding by product type:

 

 

 

Loans to individuals

R$      40,672

R$     36,734

R$     39,208

Real estate financing

3,205

5,308

6,841

Banco Nacional de Desenvolvimento Econômico e Social ("BNDES") onlendings

12,824

14,480

16,014

Other local commercial loans

31,556

47,736

46,872

Rural credit

9,032

10,459

11,661

Leasing

8,097

20,096

19,787

Credit cards

2,330

2,501

3,452

Import and export financings

17,521

27,480

21,961

Foreign loans

2,529

2,769

2,958

Public sector loans

94

94

88

Total

127,860

167,657

168,842

Non‑performing loans

5,277

7,178

11,092

Total

R$ 133,137

R$ 174,835

R$ 179,934

 

The following table sets forth a summary of the concentration of our outstanding loans by borrower size at the dates indicated.

 

December 31,

 

2007

2008

2009

Borrower size:

 

 

 

Largest borrower

0.7%

1.3%

1.0%

10 largest borrowers

5.5

6.5

6.5

20 largest borrowers

9.0

10.4

9.8

50 largest borrowers

15.6

16.9

16.2

100 largest borrowers

20.6%

22.1%

20.6%

 

Credit operations and discounted loans

Our credit operations and discounted loans, which consist mostly of consumer credit operations, loans to companies and credit cards, totaled R$179.9 billion as of December 31, 2009.

Consumer credit operations

We provide a significant volume of loans to individual customers.  This allows us to diminish the impact of individual loans on the performance of our portfolio and helps to build customer loyalty.  Such loans consist primarily of:

·              short‑term loans, extended by our branches to holders of our checking accounts and, within certain limits, through our ATM network.  These short‑term loans have an average maturity of four months and an average interest rate of 6.2% per month as of December 31, 2009;

·              automobile financing loans, which have an average maturity of fifteen months and an average interest rate of 1.9% per month as of December 31, 2009; and

·              overdraft loans on checking accounts (which we call "Cheque Especial"), which are, on average, repaid in one month and have interest rates varying from 7.6% to 8.2% per month as of December 31, 2009.

We also provide revolving credit facilities and traditional term loans.  As of December 31, 2009, we had outstanding advances, automobile financings, consumer loans and revolving credit loans in an aggregate amount of R$39.208 billion, representing 21.8% of our credit portfolio as of that date.  On the basis of loans outstanding at that date, we had a 12.8% share of the Brazilian consumer loan market, according to information published by the Central Bank.

 

 

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In April 2008, Banco Finasa S.A. was dissolved as a consequence of its merger into Banco Finasa BMC S.A. and all of its assets and liabilities were transferred to Banco Finasa BMC S.A.  In April, 2008, the merger of Banco Finasa S.A. into Banco Finasa BMC S.A. was approved by the Central Bank.

In 2009 we repositioned the "Finasa" and "BMC" brands as "Bradesco Financiamentos" and "Bradesco Promotora," respectively.

Bradesco Financiamentos, our financing subsidiary, has two business lines:

·              payroll deductible loans to (i) INSS retirees and pensioners, (ii) employees of companies controlled by federal, state and municipal governments and (iii) employees of private sector companies. Currently, it operates with correspondent banks in all Brazilian states, which also offer value‑added products (credit cards, insurance, funding, consortium and others) and operate in partnership with Bradesco branches to directly prospect clients in the market; and

·              financing and leasing of vehicles with solutions in CDC, leasing and others with its own funds as well as onlending to Bradesco clients and non‑clients, working in partnership with 22,639 resellers and dealers across the country in the segments of light vehicles, motorcycles and heavy vehicles.

Real estate financing

As of December 31, 2009, we had 43,231 outstanding real estate loans.  As of December 2009, we financed 22.6% of the residential units constructed by the civil construction sector, according to information published by the Central Bank.  As of December 31, 2009, the aggregate outstanding amount of our real estate loans amounted to R$6.841 billion, representing 3.8% of our loan portfolio.

Our real estate loans are granted by the Sistema Financeiro Habitacional (the National Housing System), which we call the "SFH" or by the Carteira Hipotecária Habitacional (Housing Mortgage Portfolio), which we call the "CHH," or by the Carteira Hipotecária Comercial (Commercial Mortgage Portfolio), which we call the "CHC." Loans from SFH or CHH are made at annual interest rates that vary between 8.9% to 11.9% plus TR, and 14% from CHC. Loans from SFH for pre‑fixed installments are made at annual interest rates of 12.9%.

Residential  SFH and CHH loans have stated maturities of up to thirty years and commercial loans have stated maturity of up to ten years.

Our construction loans granted to individuals have a maturity of up to 30 years, with 24 months for the termination of the construction, 2‑month grace period and the remainder for loan return.  Payments are made on a floating rate basis of TR plus an annual interest rate of 10.9% for the SFH loans, and 12.9% fixed interest rates for properties evaluated at up to R$500,000.

We also extend financing to corporate plan under the SFH.  These loans are for construction purposes and typically have a maturity of up to 36 months for the completion of the construction and repayment begins within 36 months after the approval of the construction.  We make these loans on a floating‑rate basis of TR plus an annual interest rate of 12% during the construction stage for SFH loans, and TR plus an annual interest rate of 15% for CHH loans.

Central Bank regulations require us to provide an amount of residential real estate financing equal to at least 65% of the balance of our savings accounts.  In addition to direct residential real estate loans, mortgage notes and charged‑off residential real estate loans, other financings can be used to satisfy this requirement. We generally do not finance more than 80% of the purchase price or the market value of a property, whichever is lower.

Micro credit

We extend micro credit to low‑income individuals and small companies, in accordance with Central Bank regulations requiring that banks direct 2% of their cash deposits to provide such loans. We began extending such micro credits in August 2003. As of December 31, 2009, we had 42,785 micro credit loans outstanding, totaling R$22.947 million.

 

 

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In accordance with Central Bank regulations, most micro credit loans have a maximum effective interest rate of 2% per month. However, micro credit loans for business directed towards a specific production have a maximum effective interest rate of 4.0%. The CMN requires that the maximum amount loaned to a borrower be limited to (i) R$1,000 for individuals in general, (ii) R$3,000 for individuals developing certain professional, commercial or industrial activities or for micro companies, and (iii) R$10,000 for micro companies with pre‑defined production.  In addition, terms of micro credit loans cannot be shorter than 120 days, and the loan granting fee must vary from 2.0% to 4.0% of the value of the credit raised.

BNDES  onlendings

The Brazilian government has a program to provide government‑funded long‑term loans with below‑market interest rates to sectors of the economy that it has targeted for development. We borrow funds under this program from either (i) BNDES, which is a Brazilian development bank wholly owned by the federal government, or (ii) Agência Especial de Financiamento Industrial—Finame, which we call "Finame," the equipment financing subsidiary of BNDES. We then on‑lend these funds to borrowers in targeted sectors of the economy. We determine the spread on the loans based on the borrowers' credit. Although we bear the risk for these onlending transactions before BNDES and Finame, they are always secured.

According to BNDES, in 2009, we disbursed R$8.880 billion, 45.7% of which was loaned to micro‑, small‑ and medium‑sized companies.  Our onlending portfolio was R$16.014 billion as of December 31, 2009, representing 8.9% of our credit portfolio at that date.

Other local commercial loans

We provide traditional loans for the ongoing needs of our corporate clients. We had R$46.872 billion of outstanding commercial loans, accounting for approximately 26.0% of our credit portfolio as of December 31, 2009. We offer a range of loans to our Brazilian corporate clients, including:

·              short‑term loans of twenty‑nine days or less;

·              working capital loans to cover our customers' cash needs;

·              guaranteed checking accounts and corporate overdraft loans;

·              discounting of trade receivables, promissory notes, checks, credit cards receivables and suppliers, and a number of other receivables;

·              financing for purchase and sale of goods and services;

·              corporate real estate loan;

·              investment lines for acquisition of assets and machinery; and

·              guarantees.

These lending products generally bear an interest rate of between 1.4% and 7.2% per month.

Rural loans

We extend loans to the agricultural sector by financing demand deposits, BNDES onlendings and our own resources, in accordance with Central Bank regulations.  As of December 31, 2009, we had R$11.661 billion in outstanding rural loans, representing 6.5% of our credit portfolio.  In accordance with Central Bank regulations, we extend loans using funds from our reserve requirements at a fixed rate.  The annual fixed rate was 6.8% as of December 31, 2009.  The maturity of these loans generally matches agricultural cycles and the principal becomes due at the time a crop is sold, except BNDES rural onlendings, which are valid for up to a five‑year term and require repayments on a semi-annual or annual basis.  As security for such loans, we generally obtain a mortgage on the land where the agricultural activities being financed are conducted.

 

 

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Since November 2008, Central Bank regulations require us to use at least 30% of our checking account deposits to provide loans to the agricultural sector.  If we do not meet the 30% threshold, we must deposit the unused amount in a non‑interest‑bearing account with the Central Bank.

Leasing

According to ABEL, as of December 31, 2009, the value of our outstanding leases was one of the largest among private companies in Brazil.  According to this source, the aggregate discounted present value of the leasing portfolios of leasing companies in the country as of December 31, 2009 was R$110.3 billion, of which we had a market share of 19.4%.

As of December 31, 2009, we had 793,970 outstanding leasing agreements totaling R$19.787 billion, representing 11.0% of our credit portfolio.

The Brazilian leasing market is dominated by large banks and both domestic‑ and foreign‑owned companies affiliated with vehicle manufacturers. Brazilian lease contracts generally relate to motor vehicles, computers, industrial machinery and other equipment.

Most of our leases are financial (as opposed to operational).  Our leasing operations primarily involve the leasing of cars, trucks, material handlers, aircraft and heavy machinery.  As of December 31, 2009, 85.9% of our outstanding leases were automobile leases; in the Brazilian leasing market as a whole, 86.9% were automobile leases.

We conduct our leasing operations through our primary leasing subsidiary, Bradesco Leasing and also through Bradesco Financiamentos (formerly Banco Finasa BMC).

We obtain funding for our leasing operations primarily through the issuance of debentures and notes in the domestic market.  As of December 31, 2009, Bradesco Leasing had R$46.334 billion of debentures outstanding in the domestic market.  These debentures will mature in 2025 and bear monthly interests at the CDI rate.

Terms of leasing agreements

Financial leases represent a source of medium‑ and long‑term financing for Brazilian customers.  Under Brazilian law, the minimum term of financial leasing contracts is 24 months for transactions with respect to goods with an average life of five years or less, and 36 months for transactions with respect to goods with an average useful life greater than five years.  There is no legally imposed maximum term for leasing contracts.  As of December 31, 2009 the remaining average maturity of contracts in our lease portfolio was 47 months.

Credit cards

We issued Brazil's first credit cards in 1968, and as of December 31, 2009, we were one of Brazil's largest credit card issuers, with 79.6 million credit cards and private label cards issued.  We offer Visa, American Express, MasterCard and Private Label credit cards to our clients.  As of December 31, 2009, our credit cards were accepted in over 200 countries.

In April 2010 Bradesco and Banco do Brasil signed a non-binding memorandum of understanding for the preparation of a business model, involving: (i) the integration of part of their card operations; (ii) the launch of a Brazilian brand of credit, debit and pre-paid cards for account-holders and nonaccount-holders and (iii) the joint creation of new businesses for private label cards (cards offered to non-account-holder clients through partner merchants).The conclusion of the operation is subject to technical, legal and financial studies, the satisfactorynegotiation of the final documents and compliance with the applicable legal and regulatory requirements.

Our partnership with the American Express Company has permitted us to successfully operate their credit cards and other related activities in Brazil.  Notable amongst these operations are the exclusive offers of the Centurion line of cards, which includes the Membership Rewards Program, and management of the network of establishments under contract with Amex Cards.

 

 

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In addition, through Fidelity Processadora e Serviços S.A., a partnership we entered into with Fidelity National and Banco ABN AMRO Real, in 2006 for providing credit card services, we currently rank as one of Brazil's largest service providers of processing, customer services management and support activities.

We earn revenues from our credit card operations through:

·              fees on purchases carried out in commercial establishments;

·              issuance fees and annual fees;

·              interest on credit card balances;

·              interest and fees on cash withdrawals through ATMs;

·              interest on cash advances to cover future payments owed to establishments that accept credit cards; and

·              several fees charged from cardholders and affiliated commercial establishments.

We offer our customers the most complete line of credit cards and related services, including:

·              cards issued, and restricted for use, in Brazil;

·              credit cards accepted nationwide and internationally;

·              credit cards directed toward high‑net‑worth customers, such as "Gold," "Platinum" and "Infinite/Black" Visa, American Express and MasterCard.  The highlights are the benefits of the Fidelity Programs, including the “Membership Rewards Program”;

·              cards that combine the features of credit and debit cards in a single card.  Holders of these cards can use them to carry out traditional banking transactions as well as to purchase goods;

·              for greater security, we are issuing chip‑embedded credit cards for our entire client base, which allows holders to use passwords instead of signatures;

·              corporate credit cards accepted nationwide and internationally;

·              co‑branded credit cards, which we offer through partnerships we have with traditional companies, such as airlines, retail stores, newspapers, magazines, automobile companies and others;

·             "affinity" credit cards, which we offer through civil associations, such as sport clubs and non‑governmental organizations;

·              "CredMais" credit cards for employees of our payroll processing clients, which have more attractive revolving credit fees, and "CredMais INSS" credit cards for pensioners and other beneficiaries of INSS with lower financing interest rates;

·              private label credit cards, which exclusively target retail clients in efforts to leverage our business and the loyalty of individual clients, and which may or may not have a brand for use outside the commercial establishment;

·              "GiftCard," which is a prepaid card sold as a gift to individuals;

 

 

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·              SMS – Bradesco Message Service, which allows the credit card holder to receive a text message on their mobile phone informing them that a transaction with their respective credit card has been made;

·              CPB – Bradesco Ticket Card, a virtual card focused on the management and control of plane ticket expenses for corporations;

·              Bradesco Transportation Card, aimed at transportation companies, shipping companies, risk management companies and truck drivers, with both prepaid and debit card functionality;

·              "Blue Credit Cards," a credit card with a modern shape, offering special benefits for American Express clients with upscale lifestyles;

·              "FixCard," with a reduced fee that enables the card user to plan his/her monthly expenditure payment;

·              Flex Car Visa Vale Card is a prepaid card that offers the client more practical payment options for vehicle related expenses, such as fuel, parking, among others, allowing the company to determine the maximum credit available to each employee;

·              payment of invoice in up to 12 fixed installments, with specific charges per type of card;

·              "Seguro Proteção Desemprego Bradesco" (Bradesco Unemployment Protection Insurance) settles or amortizes the amount due on the participant's credit card in the event of involuntary unemployment (for employed professionals) or permanent or temporary physical disability (for self‑employed workers or professionals).  Coverage varies by plan;

·              "Seguro Cartão Super Protegido Premiável Bradesco" (Bradesco Unauthorized Purchase Protection Insurance) settles or amortizes the amount due on the participant's credit card, excluding cash withdrawals, resulting from loss, robbery or theft of the credit card.  This protection encompasses a 7‑consecutive‑day period (168 hours) prior to the notification of the event, up to the credit card limit, with ceiling of R$50,000;

·              "Purchase with Change," a cash‑back service provided by Bradesco, Banco do Brasil and Banco Real, which allows the client to request cash back when purchasing with the card;

·              "Contactless" branded card, which allows the client to simply place the card close to the reader for the payment to be processed;

·              "Bradesco Corporate Checking Account Card," which allows access to checking account funds for small daily expenses, providing advanced technology and making transfers easier, faster and much safer for companies;

·              "Gold Cards" with differentiated services in harmony with Bradesco's customer segmentation strategy, offering competitive products that bring profitability to the Bank and benefits to clients; and

·              "FIFA 2010 World Cup Visa Credit Card," a special edition focusing on the 2010 World Cup in South Africa targeted at individuals, clients or non‑clients.

We are authorized to accredit establishments under the Visa, American Express and Mastercard systems in our branches, in addition to providing transfers to the branch where the holder maintains its accounts.

In 1993, we launched the SOS Mata Atlântica card, which allocates a portion of its revenues to environmental causes, and in 2007, we entered into an agreement with the State of Amazonas to donate R$70 million to Fundação Amazonas Sustentável (Sustainable Amazonas Foundation) within five years.  A portion of this project will be funded through the allocation of some of the revenues generated by our social‑purpose credit card operations. In 2008, we launched the Amazonas Sustentávelcredit card, the first credit card made of recycled plastic, which part of its revenues will be transferred to Fundação Amazonas Sustentável.

 

 

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In June 2009, we announced the partial sale of our interest in the capital stock of "Companhia Brasileira de Meios de Pagamento" (VisaNet), currently called "Cielo," as part of its secondary share offering, which generated a pre‑tax profit of R$2 billion.

In July 2009, we announced an additional sale of our interest in Cielo's capital stock as part of an overallotment option to the underwriters, generating a pre‑tax profit of R$410 million.  After these sales we still maintained a total of approximately 362.4 million Cielo common shares, which corresponds to 26.6% of its capital stock.

In September 2009 the Central Bank authorized the acquisition of the shareholding control of Ibi Participações, which is an important credit card issuer with a strong position in the private label segment.

As of December 31, 2009, we had more than 69 partners with whom we offered co‑branded, affinity and private label/hybrid credit cards.  These relationships have allowed us to integrate our relationships with our clients, thereby offering our credit card customers banking products, such as financing and insurance services.

The following table sets forth a breakdown of credit cards we issued in Brazil for the years indicated:

 

2007

2008

2009

 

(millions)

Card base:

 

 

 

Credit

28.5

35.3

79.6

Debit

43.2

48.0

53.3

Total

71.7

83.3

132.9

 

 

 

 

Revenue – R$:

 

 

 

Credit

38,746

46,704

55,294

 

 

 

 

Number of transactions:

 

 

 

Credit

506.3

607.4

722.6

 

Debit cards

We began to issue debit cards in 1981 under the name “Bradesco Instantâneo”.  In 1999 we started converting all of our Bradesco Instantâneo debit cards into new cards called “Bradesco Visa Electron”.  Customers who hold Bradesco Visa Electron debit cards can use them to make purchases at establishments and withdraw cash at Bradesco customer service network in Brazil and the “Visa Plus” network worldwide.  The amount paid is withdrawn from the cardholder's Bradesco account, eliminating the inconvenience and bureaucracy of a check.

Prepaid cards

In 2009, together with other card issuers and Visa International, we actively participated in the distribution of VisaVale cards.

Management of receipts, payments, human resources, and administrative support

Management of receipts and payments

In order to meet the cash management needs of our clients, both in the public and private sectors, we offer many electronic solutions for receipt and payment management, supported by a vast network of branches, correspondent banks and electronic channels, all of which aim to improve the speed and security of information and the transfer of resources of customers.

These solutions include: (i) the collection and payment services and (ii) on‑line resource management with a system which allows our clients to pay suppliers, salaries, taxes and other contributions due to governmental or public entities.

 

 

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These solutions, which can also be customized, facilitate our clients' day‑to‑day tasks as well as contribute to generating other businesses for the Bank.

We also earn revenues through the payment of fees on collection services and payment processing services, as well as upon transfers of funds received until their availability to the beneficiary.

Global cash management

The global cash management concept provides solutions regarding the cash management of multinational companies operating in Brazil and/or domestic companies operating abroad.

Bradesco's Global Cash Management provides payment, deposits and treasury management functions to companies aiming at regionally or globally centralizing their cash, by means of partnerships with banks present in several locations worldwide.

Charging and other receivables solution

In 2009, we processed 616.9 million receivables through our collection system, checks custody service, deposits at tellers (identified deposits) and credit orders via our teleprocessing system (credit order by teleprocessing or OCT), a 4.0% increase as compared with the same period in 2008.

Tax collection solutions

In 2009, we processed payments of 413.9 million documents related to taxes and other contributions due to governmental or public entities, an 8.0% increase as compared with the same period in 2008.

Check‑custody services

Under the post‑dated check system, our clients pay for goods and services with bank checks dated with a future date. Sellers deposit the post‑dated check on the future date, effectively extending the time in which the payment must be made.  We hold such checks in custody for our clients to facilitate the control of the document in the period between when the check is written and when it is deposited in the recipient's account.

Solutions for payment of suppliers, salaries and taxes

In 2009, we processed over 256.6 million transactions, a 19.8% increase as compared with the same period in 2008.

Productive chain solutions

In the current market, we believe that is essential that the companies, besides operating together in an industry segment, work together for better results.  In this context, we have worked to become a "Production Chain Bank," attempting to be present in all stages of the production process, coming up with solutions, products, services and partnerships that meet the needs of all members of the production chain, whether they are suppliers, distributors, clients or other.

Public authority solutions

Public administration also requires agility and technology in its every‑day activities.  In order to serve this market, we have a specific area and offer specialized services to entities and bodies of the Executive, Legislative and Judiciary branches, at the federal, state and municipal levels, in addition to independent governmental agencies, public foundations, state‑owned and mixed companies, the armed forces (Army, Navy and Air Force) and the auxiliary forces (Federal, Military and Civil Police) and notary officers and registries, identifying business opportunities and structuring customized solutions.

An exclusive website was developed for these clients and presents the federal, state and municipal governments with corporate payments, receipts, human resources and treasury solutions, meeting the needs and expectations of the Executive, Legislative and Judiciary Branches.  The portal also has an exclusive place for public employees and military policemen with all the products and services we make available for these clients.

 

 

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The relationship occurs by means of exclusive service platforms located nationwide, with specialized relationship managers to provide services to these clients, creating a closer relationship to conquer new business and establishing a consolidated presence with the Public Authority.

Management of human resources and administrative support

We offer our corporate clients several electronic solutions for management of human resources and administrative services, including payroll processing, employee checking accounts and the "company card" for the payment of business trips and other company‑related expenses.  Once employees receive their salaries through this system, they may take advantage of special credit lines, special conditions for rates, fees, products and services and access our broad ATM network.

Asset management

We manage third‑party assets by means of:

·              mutual funds;

·              individual and corporate investment portfolios;

·              pension funds, including assets guaranteeing the technical reserves of Bradesco Vida e Previdência;

·              insurance companies, including assets guaranteeing the technical reserves of Bradesco Seguros; and

·              FIDCs.

As of December 31, 2009, we had R$247.7 billion of assets under management, R$174.6 billion of which were managed by Bradesco Asset Management and R$73.1 billion of which were in third party funds related to the fiduciary administration, custody and controllership services of BEM Distribuidora de Títulos e Valores Mobiliários Ltda., which we call "BEM DTVM."

In the same period we offered 960 funds and 209 portfolios to over 3.2 million investors.  We also offer a range of fixed asset, variable income, money market and other funds. Currently we do not offer investments in highly leveraged funds.

The following tables show the distribution of managed assets, the number of investors, and the number of investment funds and customer portfolios managed as of the dates indicated.

 

Distribution of Assets
As of December 31

 

2008

2009

 

(R$ in millions)

Investment Funds:

 

 

Fixed income

155,365

201,012

Variable income

10,797

23,999

Third party share funds

4,857

5,641

Total

171,019

230,652

Managed Portfolios:

 

 

Fixed income

8,484

8,590

Variable income

6,881

7,552

Third party share funds

767

906

Total

16,132

17,048

Overall Total

187,151

247,700

 

 

 

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As of December 31

 

2008

2009

 

Number

Quota holders

Number

Quota holders

Investment Funds

807

3,281,540

960

3,169,464

Managed Portfolios

209

568

209

486

Overall Total

1,016

3,282,108

1,169

3,169,950

 

The increase of investment funds occurred in 2009 was mainly due to an increase in fixed income investment funds, which have lower management fees compared to variable income investment funds.

Our products are distributed through our branch network, our telephone banking services and our Internet‑based investment site—ShopInvest.

Services related to capital markets and investment banking activities

In February 2006, we incorporated Banco Bradesco BBI S.A., which we call "Bradesco BBI," to be our investment bank and operate in the capital markets, mergers and acquisitions, project financing, structured operations and private equity areas.  In 2009 we coordinated the placement of R$24.064 billion in primary and secondary operations of shares and debt instruments, representing 38.6% of the volume of the issuances registered with the CVM during the period.

Along with these activities, Bradesco BBI is the controlling company for the operations of Bradesco Corretora de Títulos e Valores Mobiliários, Ágora Corretora de Títulos e Valores Mobiliários, BRAM – Bradesco Asset Management and Bradesco Securities Inc.

Variable income

Bradesco BBI coordinates and places public offerings of shares in the local and international capital markets, as well as intermediates public tender offers. In 2009 we participated in several Initial Public Offerings (IPOs) and follow‑ons of our clients' shares. As of December 2009, according to a ranking set by ANBIMA, Bradesco BBI ranks third in volume distributed in variable income with a market share of 12.2% and volume of R$4.5 billion, and ranks fifth in number of operations.

Fixed income

During 2009, Bradesco BBI was one of the main players in the fixed income market, ranking third in ANBIMA's ranking of origination and distribution disclosed in December 2009, based on volume in fixed income in the domestic market.  We participated in important transactions, totaling more than R$10.3 billion in transaction volume with approximately 21.5% of market share.

Structured operations

Banco BBI develops structures used to segregate credit risks through securitization, using SPEs, loan assignments with shared risk and medium‑ and long‑term financing, based on receivables and/or other collateral. 

Mergers and acquisitions

Bradesco BBI advises important clients on mergers, acquisitions, asset sale, joint ventures, corporate restructuring and privatization operations.  We are among the leaders in this sector, ranking first in the closing number of merger and acquisition transactions and in the number and volume of corporate restructuring operations (OPA transactions), according to ANBIMA, in December 2009.

Project finance

Bradesco BBI plays the role of financial advisor and financial structurer for several projects in the project and corporate finance categories, always seeking the best financing solution for projects in several sectors of the economy. BBI has an excellent relationship with several different promotion agencies, such as BNDES, Inter-American Development Bank (BID), International Finance Corporation (IFC) and Banco do Nordeste do Brasil(BNB).

 

 

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In 2009, Bradesco BBI was involved in the funding of various projects in Brazil, such as the financing of hydropower plants of the Madeira Complex (Santo Antônio and Jirau), with a volume of third‑party funds exceeding R$13.0 billion.

Intermediation and trading services

Through our wholly owned subsidiary Bradesco S.A. Corretora de Títulos e Valores Mobiliários, which we refer to as "Bradesco Corretora," we trade futures, options and corporate and Brazilian government securities on behalf of our customers.  The clients of Bradesco Corretora include high net worth individuals, large companies and institutional investors.

During 2009, Bradesco Corretora traded more than R$77.809 billion in the BM&FBovespa equities market and, according to BM&FBovespa, was ranked eleventh in Brazil in terms of total trading volume.

In addition, in the same period, Bradesco Corretora traded approximately 3,466,477 futures, swaps, options and other contracts, with a total amount of R$364.238 billion, on the BM&FBovespa.  According to the BM&FBovespa, in 2009, Bradesco Corretora was ranked 23rd in the Brazilian market, in terms of the number of options, futures and swaps contracts executed.

With more than 40 years of tradition and efficiency in capital markets, Bradesco Corretora was the first brokerage firm to make available to its clients the DMA‑Direct Market Access, an innovative computer order routing service, which allows the investor to carry out asset purchase and sale operations directly in BM&FBovespa's market.

BM&FBovespa, through its Operational Qualification Program, awarded the 5 Qualification Seals (Agro Broker, Carrying Broker, Execution Broker, Retail Broker and Web Broker) to Bradesco Corretora in September 2009, indicating excellence in futures transactions.

Bradesco Corretora has sixty brokers covering retail investors and assisting our branch managers, twelve brokers dedicated to Brazilian and foreign institutional investors, and ten brokers dedicated to BM&FBovespa.

Bradesco Corretora offers its clients the ability to trade securities via the Internet through its "Home Broker" service.  In 2009, trading through "Home Broker" totaled R$28.160 billion, corresponding to 6.0% of all transactions carried out through the Internet on BM&FBovespa and ranking Bradesco Corretora as the 5th largest Internet trader in the Brazilian market.

Bradesco Corretora offers its clients complete investment analysis service with coverage of the main sectors and companies in the Brazilian market, currently covering 83 companies.  There are nineteen sector specialists (senior analysts and assistants) on our analyst team.  They disclose their opinions to clients with follow‑up reports and share guides with a wide basis of projections and multiples of comparison.  In addition to the analysis of our team of economists, Bradesco Corretora has a separate economic team dedicated to the specific demand of its clients, focusing on the stock market.

With "Projeto Sala de Ações" (Share Rooms Project), our clients have access to professionals qualified to give them advice on investments on the BM&FBovespa.  Our ever‑expanding network of share rooms currently consists of 21 share rooms located throughout Brazil.  With this service, Bradesco Corretora aims at direct customer service and a closer relationship with the client, training and certificating its employees in a range of operations, including structured operations, and attracting new clients.  This channel is also very profitable and welcomed by the investor.  It helps to bring together our network of branches, creating loyal clients and concentrating their funds with us.  Thirty‑nine share rooms are estimated to be implemented by the end of 2010 and forty‑one by the end of 2011 in strategic locations of Brazil.

We also offer our clients the Direct Treasury Program, which allows individual clients to invest in federal public securities via the Internet by registering with Bradesco Corretora on our website.

 

 

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Bradesco Corretora also offers its services as a representative of non‑resident investors in transactions carried out in the financial and capital markets, in accordance with the terms of CMN Resolution 2,689, which we refer to as "Resolution 2,689."  For more information regarding Resolution 2,689, see "Item 10.D. Exchange Controls."

Custody, depositary and controllership services

In 2009, we were one of the main service providers for capital markets and maintained the leadership in the domestic market of assets custody, according to the ANBIMA ranking.  With a modern infrastructure and a specialized team, we offer a broad range of services such as: Qualified Custody – Domestic & International Markets, Controllership of Managed Funds and Portfolios, Structured Funds, Offshore Funds, Fiduciary Administration for Investment Funds, DR – Depositary Receipt, BDR – Brazilian Depositary Receipt, Representation for Foreign Investors, Asset Bookkeeping, Agent Bank, Depositary (Escrow Account – Trustee), and Clearing Agent.

We submit our processes to the Quality Management System ISO 9001:2008 and GoodPriv@cy certifications.  Bradesco Custódia alone has ten certifications related to quality and three related to protection and data privacy.

As of December 31, 2009, Bradesco Custódia offered:

·              custody, controllership and fiduciary administration for third parties, with

·              R$562.919 billion in assets under custody (ANBIMA's ranking);

·              R$625.092 billion in investment funds and managed portfolios (ANBIMA's ranking);

·              13 registered DR Programs with market values of R$84.652 billion; and

·              R$126.230 billion in third party investment funds under fiduciary management by BEM DTVM Ltda..

·              book‑entry assets :

·              our system for book‑entry shares had 236 companies, with a total of 3.038 million shareholders;

·              our system for book‑entry debentures had 93 companies with a total market value of R$126.305 billion;

·              our system for book‑entry quotas had 124 investment funds with a market value of R$15.701 billion; and

·              we administered three BDR registered programs, with a market value of R$155.223 million.

International banking services

As a private commercial bank, we offer a range of international services, such as exchange transactions, external trade financing, lines of credit and offshore banking activities.  Our overseas network is made up of:

·              in New York City, one branch and Bradesco Securities Inc., our subsidiary brokerage firm, which we call "Bradesco Securities U.S.;"

·              in London, Bradesco Securities U.K., our subsidiary, which we call "Bradesco U.K.;"

·              in the Cayman Islands, 2 branches of Bradesco as well as our subsidiary, Cidade Capital Markets Ltd., which we called "Cidade Capital Markets;"

 

 

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·              in the Bahamas, a branch of Bradesco;

·              in Argentina, Banco Bradesco Argentina S.A., our subsidiary, which we call "Bradesco Argentina;"

·              in Luxembourg, Banco Bradesco Luxembourg S.A., our subsidiary, which we call "Bradesco Luxembourg;"

·              in Japan, Bradesco Services Co. Ltd., our subsidiary, which we call "Bradesco Services Japan;" and

·              in Hong Kong, our subsidiary Bradesco Trade Services Ltd.

Our international operations are coordinated by our exchange department and supported by twelve operations units in Brazil, in addition to thirteen foreign exchange platforms located in Brazil's principal exporting and importing centers.

Revenues from Brazilian and foreign operations

The table below provides a breakdown of our revenues (interest income plus non‑interest income) arising from our operations in Brazil and overseas for the periods indicated:

 

For the year ended December 31,

 

2007

2008

2009

 

R$ in millions

%

R$ in millions

%

R$ in millions

%

Brazilian operations

R$  60,697

98.6%

R$  76,215

98.4%

R$  83,963

97.8%

Overseas operations

893

1.4

1,248

1.6

1,922

2.2

Total

R$  61,590

100.0%

R$  77,463

100.0%

R$  85,885

100.0%

 

Foreign branches and subsidiaries

Our foreign branches and subsidiaries are principally engaged in financing Brazilian companies seeking external trade financing.  Bradesco Luxemburg also provides additional services to the private banking segment.  With the exception of Bradesco Services Japan and Bradesco Trade Services, our branches abroad are allowed to receive deposits in foreign currency from corporate and individual clients and extend financing to Brazilian and non‑Brazilian clients.  Total assets of the foreign branches, excluding transactions between related parties, were R$20.4 billion, as of December 31, 2009, totally denominated in currencies other than the real.

In October 2007, we indirectly acquired the Grand Cayman branch of BMC, as a result of our acquisition of its former parent company.  On March 27, 2009, this branch was incorporated into Bradesco Grand Cayman.

The funding necessary for import and export financing is obtained from the international financial community by means of credit lines granted by correspondent banks abroad.  In addition to the traditional funding source of correspondent banks, in 2009, we raised US$1.4 billion in public and private issue of debt securities in the international capital markets.  In this same year, we assumed US$1.3 billion in credit lines to finance Brazilian exports through auctions in foreign currency promoted by the Central Bank.

Bradesco Argentina.  With a view to expanding our operations in Latin America, in December 1999, we established our subsidiary in Argentina, Bradesco Argentina, the general purpose of which is to extend financing, largely to Brazilian companies established in Argentina and, to a lesser extent, to Argentinean companies doing business with Brazil.  In order to start its operations, we capitalized Bradesco Argentina with R$54.0 million from March 1998 to February 1999, and in May 2007, we carried out an additional capitalization of R$27.2 million.  As of  December 31, 2009, Bradesco Argentina recorded R$85.1 million in total assets.

Bradesco Luxemburg.  In April 2002, we acquired the total control of Banque Banespa International S.A. in Luxembourg and changed its name to Banco Bradesco Luxembourg S.A.  In September 2003, Mercantil Luxembourg was merged into Banco Bradesco Luxembourg and Banco Bradesco Luxembourg was the surviving entity.  As of  December 31, 2009, the total assets of this subsidiary were R$1.2 billion.

 

 

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Bradesco Services Japan.  In October 2001, we incorporated Bradesco Services Japan to provide support and specialized services to the Brazilian community in Japan, including remittances to Brazil and advice regarding investments within Brazil.  As of  December 31, 2009, its assets totaled over R$461,000.

Bradesco Trade Services.  A non‑financial institution and a subsidiary of our branch in the Cayman Islands, which we formed in Hong Kong in January 2007, in partnership with the Standard Chartered Bank.

Bradesco Securities (U.S. and U.K.) - Bradesco Securities, our wholly owned subsidiary, is a broker/dealer in the United States and England.

·              The focus of Bradesco Securities U.S. is on facilitating the purchase and sale of shares, primarily in the form of ADRs.  The company is also authorized to deal with bonds, commercial paper and deposit certificates, among other securities, and to provide investment advisory services. Currently, we have more than thirty ADR programs for Brazilian companies traded on the New York Stock Exchange.  As of  December 31, 2009, Bradesco Securities U.S. had assets of R$44.2 million; and

·              Bradesco Securities U.K.'s focus is the intermediation of variable and fixed income operations of Brazilian companies for global institutional investors.  The authorization for operation was granted to Bradesco Securities U.K. in May 2008.  As of  December 31, 2009, Bradesco Securities U.K. had equity of R$10.2 million.

Cidade Capital Markets.  In February 2002, Bradesco, through BCN, acquired Cidade Capital Markets in Grand Cayman, as part of the acquisition of its parent company in Brazil, Banco Cidade.  As of  December 31, 2009, Cidade Capital Markets had R$65.8 million in assets.

Banking operations in the United States

In January 2004, the United States Federal Reserve Bank granted us permission to operate as a financial holding company in the United States.  As a result, we are permitted to operate in the United States market, directly or through a subsidiary, and, among other things, may sell insurance and certificates of deposit, provide underwriting services, assist with private placements, portfolio management and merchant banking services and manage mutual fund portfolios.

Import and export financing

Our Brazilian import and export activities consist primarily of financing export and import transactions.

We provide foreign currency payments on behalf of the importer directly to foreign exporters, attached to the receipt of a local currency payment by Brazilian importers. Exporters usually receive an advantage in local currency upon the closing of the export contract, in exchange for an assignment of a foreign currency receivable due on the contract maturity date.  Financing of imports done prior to the shipment of the goods is called Adiantamento Sobre Contrato de Câmbio (Advances on Exchange Contracts, or "ACC"), whereby the funds obtained are used in the production of the goods that will be exported.  Financing done after the shipment of the goods, when the exporter is awaiting payment, is called Adiantamento Sobre Contrato de Exportação (Advances on Export Contracts, or "ACE").

Other types of financing for exports include, among others, the pre‑payment of exports, BNDES‑EXIM onlending, advance discounts, exports credit notes and exports credit certificates.

Our foreign trade portfolio is funded primarily by credit lines with banking correspondents.  We maintain relationships with various North American, European, Asian and Latin American financing institutions for this purpose, relying on our network of approximately 1,000 banking correspondents abroad, 83 of which granted funding facilities at the end of 2009.

As of  December 31, 2009, the balance of our export financing transactions was R$18.1 billion and the balance of our import financing transactions was R$3.8 billion.  The volume of our foreign exchange contracts for exports reached US$37.9 billion, an 11.7% decrease over 2008.  In 2009, the volume of our foreign exchange contracts for imports reached US$24.7 billion, a 10.3% increase over 2008.  In 2009, based on information made available by the Central Bank, we had a 25.2% market share in the Brazilian export market, and an 18.4% market share in the Brazilian import market.

 

 

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The following table sets forth the composition of our foreign trade asset portfolio at December 31, 2009:

 

December 31, 2009

 

(R$ millions)

Export financing:

 

Advance on foreign exchange contracts – undelivered bills

4,838

Advance on foreign exchange contracts – delivered bills

539

Export prepayment

7,151

Onlending of funds borrowed from BNDES/EXIM

2,665

NCE/CCE (Exports Credit Note/Exports Credit Certificates

2,944

Total export financing

18,137

 

 

Import financing:

 

Import financing – foreign currency

2,659

Exchange discounted in advance for import credit

1,165

 

 

Total import financing

3,824

 

 

Total foreign trade portfolio

21,961

 

Foreign exchange products

In addition to import and export financing, we offer our customers other exchange services and products, such as:

·              purchasing and selling of traveler´s  checks and foreign currencies;

·              cross border money transfers;

·              exports advanced receipt;

·              bills of clients domiciled abroad in domestic currency;

·              transfer of available funds to our customers' bank accounts located abroad;

·              collecting import and export receivables;

·              cashing checks that are denominated in foreign currency; and

·              structuring transactions in foreign currency by means of our units abroad.

Consortiums

In Brazil, persons or entities that wish to acquire certain goods can form a group, known as a "consortium," in which the members pool their resources to assist each other with the purchase of certain consumer goods.  The purpose of a consortium is to acquire goods, and Brazilian law forbids the formation of consortiums for investment purposes.

In January 2003, our subsidiary Bradesco Consórcios initiated the sale of consortium memberships, known as "quotas," to our clients.  Since May 2004, Bradesco Consórcios has been the leader in the real estate segment and, since December 2004, it has also been the leader in the vehicle segment.  In October 2008, Bradesco Consórcios became the leader in the segment of trucks/tractors, thereby achieving leadership in all three segments.  As of  December 31, 2009, Bradesco Consórcios registered total sales of over 395,611 active quotas in the three segments, with a total billed amount of approximately R$18.6 billion and a net profit income of R$207.3 million.  Bradesco Consórcios acts as the administrator for the consortiums, which are formed to purchase real estate, automobiles and trucks/tractors.

 

 

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Insurance, pension plans and certificated savings plans

The following diagram shows the principal elements of our insurance, pension plans and certificated savings plans segment as of December 31, 2009:

 

The following table sets forth selected financial data for our insurance, pension plans and certificated savings plans segment for the periods indicated.  The total amounts per segment may not correspond to the amounts shown on a consolidated basis, as they do not take into account immaterial activities or inter‑segment transactions.

 

 

 

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As of and for the year ended December 31,

 

2007

2008

2009

 

(R$ in millions)

Income statement data:

 

 

 

Net interest income(1)

R$ 6,577

R$ 6,295

R$ 7, 569

Non‑interest income(1)

11,412

12,977

15,900

Non‑interest expense

(14,069)

(14,946)

(18,775)

Income before income taxes (1)

3,920

4,326

4,694

Income tax and social contribution

(1,287)

(1,545)

(1,661)

Net income before attribution to noncontrolling interest(1)

2,633

2,781

3,033

Net income attributed to noncontrolling interest

(19)

(89)

(26)

Parent Company`s net income(1)

R$ 2,614

R$ 2,692

R$ 3,007

Balance sheet data:

 

 

 

Total Assets

R$ 73,028

R$ 69,197

R$ 90,173

Selected results of operations data

 

 

 

Insurance premiums:

 

 

 

Premiums of life insurance and personal accidents

1,822

2,799

3,145

Health insurance premiums

4,246

5,259

6,099

Automobile and basic line insurance premiums

2,775

2,905

3,277

Total

R$ 8,843

R$ 10,963

R$ 12,521

Pension plan income

555

710

607

Interest income from insurance, pension plans, certificated savings plans and pension investment contracts

6,577

6,295

7,569

Changes in technical provisions for insurance, pension plans, certificated savings plans and pension investment contracts

(4,981)

(4,225)

(6,008)

Insurance claims

(6,012)

(7,391)

(8,329)

Pension plan operating expenses

R$ (478)

R$ (482)

R$ (410)

 

(1)       Includes income from related parties outside the segment.

Insurance products and services

We offer insurance products through a number of different entities, which we refer to, collectively, as Grupo Bradesco de Seguros e Previdência. Grupo Bradesco de Seguros e Previdência is the largest insurer group in Brazil, based on total revenues and technical provisions, according to information published by SUSEP and ANS.  The Group provides a wide range of insurance products, both to individuals and to corporate clients.  Its products include health, life, accident, automobile and basic line insurance. 

According to the annual publication of Fundacion Mapfre in Spain, Grupo Bradesco de Seguros e Previdência was the largest insurance and pension plan group in Latin America in 2008.

Life and personal accident insurance

We offer life, personal accident and random events insurance through our subsidiary Bradesco Vida e Previdência.  As of  December 31, 2009 Bradesco Seguros had 19 million life insurance policyholders.

Health insurance

Health and dental insurance

The health and dental insurance policies cover medical/hospital coverage and dental care expenses, respectively.  We offer our health and dental insurance policies through our subsidiary Bradesco Saúde to small, medium or large companies.

As of  December 31, 2009, Bradesco Saúde and its subsidiaries had more than 4.310 million policyholders, including holders of corporate insurance plans and individual/family plans.  Approximately 35,000 companies in Brazil have health insurance policies underwritten by Bradesco Saúde and its subsidiaries, including 41 of the country's 100 largest companies.

 

 

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Bradesco Saúde and its subsidiaries currently have one of the largest health and dental insurance networks in Brazil.  As of December 31, 2009, it included 10,440 laboratories, 12,367 specialized clinics, 15,774 physicians, 3,348 hospitals, 3,235 dental clinics and 9,646 dentists located throughout the country.

Automobiles, basic lines and liability insurance

We provide automobile, basic lines and liability products through our subsidiary Bradesco Auto/RE.  Our automobile insurance covers policyholders' losses resulting from vehicle theft, damage to vehicles, personal injury and injury to third parties.  Basic line insurance is geared towards individuals, particularly those with residential and/or equipment related risks and small‑ and medium‑sized companies, the assets of which are covered by corporate multi‑risk insurance.

Among mass basic insurance lines for individual clients, the residential ticket is a product that has a relatively affordable cost and high profitability. For corporate clients, Bradesco Auto/RE offers Bradesco Seguro Empresarial, which is tailored to meet our clients' needs in accordance with their business.  For corporate basic and liability insurance lines, Bradesco Auto/RE has an exclusive highly specialized team that provides large business groups with services and products that are tailor‑made to the specific needs of each policyholder. In this segment, the transportation, engineering and operational risks and oil insurance policies are the most traded lines.

As of  December 31, 2009, Bradesco Auto/RE had 1.429 million insured automobiles and 1.163 million basic line policies and tickets, making it one of the main insurers in Brazil.

Other Information

Sales of insurance products

We sell our insurance products through exclusive brokers in our branch network, as well as through non‑exclusive brokers throughout Brazil. Bradesco Seguros pays brokers' fees on a commission basis. As of December 31, 2009, 24,004 brokers offered our insurance policies to the public. We also offer certain automobile, health, basic lines insurance products directly through our website.

Pricing

The pricing of collective health and dental insurance in Brazil is based on historical experience (i) of medical, hospital and dental care costs, as well as (ii) the frequency of utilization per procedure. Actuarial studies for pricing health insurance also take into consideration the distribution and frequency of claims according to age brackets of the insured population and geographical areas, along with the insurance coefficients adopted according to the best actuarial practices.

The price for life insurance is usually determined based on the life expectancy of individual policyholders and, in a few cases, the frequency of claims and the average premium payments for the Brazilian population. Any amount exceeding the limit of the reinsurance agreement is automatically transferred to IRB Brasil Resseguros S.A., known as "IRB."

The price determination of automobile insurance is influenced by the frequency and severity level of an individual's claims, and takes into consideration many factors, such as place of use of the vehicle and its specific characteristics.  In accordance with market practice, we consider the client profile in the price determination of an automobile insurance policy.

The profitability of personal automobile insurance partially depends on the identification and correction of the disparity between premium levels and the expected claim costs. The premiums charged for damage insurance to vehicles considers, among other factors, the value of the insured automobile. Consequently, the premium levels partially reflect the sales volume of new automobiles.

Pricing in the basic lines insurance business is driven by claim frequency and average claim amount, as well as the specific characteristics of the insured party's location. In the corporate basic lines, insurance prices are determined in accordance with each covered risk.  In case of atypical type of coverage and/or covered amounts, we must consult IRB to obtain the basic terms of the contract.

 

 

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Reinsurance

Brazilian regulations set retention limits on the amount of risk insurance companies may underwrite without having to purchase reinsurance.  In accordance with such regulations, Grupo Bradesco de Seguros e Previdência reinsures with the IRB all the risk it underwrites for which the insured amounts exceed the retention limits.  In addition, Grupo Bradesco de Seguros e Previdência also reinsures all risk for which reinsurance is recommended by technical/actuarial decisions, in order to minimize the risks of our portfolio.