2.3. LA COMPRENSIÓN AUDITIVA
2.3.8. Materiales y actividades
The strategic partnership announced between Banco Votorantim (BV) and BB was concluded on September 28th., 2009, according to material fact released to the market on the same date.
Banco do Brasil now holds 50% of the total capital and approximately 50% of the voting capital of Banco Votorantim. The business model and the team of collaborators will be maintained, and the board of directors will be on the same level, with the appointment of three members by every partner, and the chairmanship of the board of directors alternated between the two partners. All strategic decisions will be made jointly.
The operation involves the acquisition, by BB, of 33,356,791,198 BV’s common shares for the price of R$ 3 billion, paid directly to Votorantim Finanças, besides the subscription, also by BB, of new preferred shares issued by Banco Votorantim in the amount of R$ 1.2 billion. For further details on the payment terms, please refer to the Material Event Fact disclosed at the portal www.bb.com.br/ri.
The consolidation of the financial statements, risk management and operating limits will be proportional to BB's ownership interest in the total capital of BV. The Assets and Liabilities have already been consolidated in the financial statements since 3Q09 and since this quarter the income statement accounts also form part of BB’s net income.
The partnership presents strong strategic rationale, as it will allow Banco do Brasil:
To increase the asset origination capacity in the competitive consumption financing industry;
Access to well developed alternative distribution channels - concessionaires, partners and stores of
BV Financeira;
Model of success in the promotion of sales with national activity in the vehicle financing market; Strengthening of the activity of BB in the capital market (Votorantim Corretora) and in the Corporate
segment.
The tables below illustrate the main highlights of the operation of BV.
As regards the income statement, the reallocations carried out are detailed below and can differ from those made in the financial statements of BB. Accordingly, for a better understanding of BV's net income, the income statement with reallocations was maintained, despite the fact that the net income of BV is already consolidated in the financial statements of the BB conglomerate. Further information can be obtained from the website of Banco Votorantim.
Table 147. Banco Votorantim – Highlights of the Result
Quarterly Flow Chg. % Annual Flow Chg. %
R$ million 4Q08 4Q09 On 4Q08 2008 2009 On 2008
Financial Intermediation Income 2,321 2,543 9.6 9,599 10,405 8.4
Loan operations (1) (2) (3) (6) (7) (8) (10) (11) (18) 1,592 1,742 9.5 5,846 6,707 14.7 Lease operations (7) (1) 68 166 145.6 135 474 252.6 Securities Income (7) (8) (10) (13) 891 927 4.0 3,536 3,825 8.2 Income from Financial Derivatives (4) (5) (7) (8) (9) (19) (236) (292) 23.9 (26) (601) 2,184.6 Compulsory Investments 6 - - 108 - -
Income from Financial Intermediation (1,482) (1,622) 9.5 (6,128) (6,548) 6.8
Market Borrowing (7) (8) (9) (1,322) (1,488) 12.6 (5,675) (6,045) 6.5 Borrowings, Assignments and Onlendings (8) (160) (134) (16.7) (453) (503) 11.1
Gross Financial Margin 839 921 9.7 3,471 3,857 11.1
Allowance for loan losses (2) (12) (195) (288) 47.2 (840) (1,598) 90.2
Net Financial Margin 644 633 (1.8) 2,631 2,259 (14.1)
Bank fee income 61 105 72.0 366 320 (12.6) Fee income (6) 61 105 72.6 366 319 (12.7) Bank Fee Income (6) 0 (0) - - 1 - Taxes on Revenues (2) (3) (5) (104) (68) (35.2) (303) (298) (1.8)
Contribution Margin 601 670 11.5 2,694 2,281 (15.3)
Administrative expenses (349) (450) 29.1 (1,276) (1,567) 22.8 Personnel Expenses (114) (159) 40.2 (427) (564) 32.1 Other Administrative Expenses (18) (19) (234) (290) 24.1 (846) (999) 18.2 Other Tax Expenses (1) (1) 74.0 (3) (4) 19.6
Commercial Income 252 220 (12.8) 1,418 714 (49.6)
Legal Risk (32) (25) (22.0) (80) (108) 35.0 Legal Claims (14) (7) (3) (54.1) 0 (11) - Labor Lawsuits (15) (3) (9) 189.8 (14) (31) 123.2 Fiscal Lawsuits (16) (22) (13) (43.1) (66) (66) 0.4 Other Components of the Result (48) (43) (10.6) 6 (23) - Other Operating Income (Expenses) (48) (43) (10.6) 6 (23) - Other Operating Income (4) (11) (12) (16) (17) (17) 4 - 112 99 (11.5) Other operating expenses (1) (2) (3) (4) (11) (12) (14) (15) (16) (17) (20) (31) (47) 50.0 (106) (122) 14.9 Operating Result 172 152 (11.7) 1,344 583 (56.6)
Non-operating Income (21) 20 - (56) (86) 53.0
Profit before taxation and profit sharing 151 172 13.4 1,288 497 (61.4) Income and Social Contribution Taxes (2) (3) (5) (13) (17) (20) 64 3 (95.4) (160) 46 -
Profit Sharing (135) (108) (19.7) (273) (201) (26.2)
Profit before minority interest 80 67 (17.2) 855 342 (60.0)
Minority interest (0) 0 - (1) (1) 35.9 Non-Recurring Items 80 67 (17.0) 854 341 (60.1) Extraordinary Items 48 242 403.9 48 461 859.8 Assignment (2) 48 227 372.6 48 446 828.4 REFIS (17) - 15 - - 15 - Net Income 128 309 140.5 902 802 (11.1)
(1) Reclassification of Other Operating Expenses to Loan Operations and Leasing corresponding to the amount of expenses with granted discounts on loan operations, being necessary its reallocation for comparability purposes. The expenses for granted discounts totaled R$ 232.5 million (2008), R$ 286.9 million (2009), R$ 70.8 million (4Q08) and R$ 95.5 million (4Q09).
(2) Assignment of a loan portfolio generating extraordinary revenues of R$ 48.0 million in 2008 and R$ 445.9 million in 2009. In 4Q08, this amount was of R$ 48.0 million and in 4Q09, R$ 227,0 million. (3) The effects related to assignment of the loan portfolio to (FIDCs) registered as Taxes Expenses,
Other Operating Expenses and Income and Social Contribution Taxes were reallocated to the result of Loan Operations, in the amount of R$ 62.6 million in 2008 and R$ 39.1 million in 2009. In the quarterly periodicity, the amounts were R$ 2.6 million (4Q08) and R$ 10.0 million (4Q09). (4) The foreign exchange gain (loss) on foreign financial equity is reallocated from Other Operating
Income/Expenses to Income from Financial Derivatives for inclusion in the financial margin. This adjustment is necessary to maintain the balance and consistency of spread analyses. In 2008, this reallocation was of R$ 221.7 million and in 2009, R$ 299.7 million. In 4Q08, this reallocation was of R$ 177.9 million and in 4Q09, R$ 18.6 million.
(5) Reallocations were performed in order to cancel the Tax Hedge's effects. In 2008, the amount reallocated to the income of Derivatives resulting from Tax Expenses on Revenues was R$ 20.5 million and that from Income Tax (IR) and Social Contribution on Net Profit (CSLL) was R$ 170.9 million. In 2009, the amount reallocated from Tax Expenses on Revenues was R$ 22.4 million and that from IR and CSLL was R$ 183.8 million.
In 4Q08, the amount reallocated to the income of Derivative Financial Instruments resulting from Tax Expenses on Revenues was R$ 15.2 million and that from IR and CSLL was R$ 124.9 million. In 4Q09, the amount reallocated from Tax Expenses on Revenues was R$ 1.3 million and that from IR and CSLL was R$ 10.9 million.
(6) Fee revenues resulted from loan operations recorded under Revenues from Services Provided were reallocated to the income statement from Loan Operations in the amount of R$ 322.6 million in 2008 and of R$ 497.1 million in 2009. In the quarters, the amounts were R$ 76.0 million in 4Q08, and R$ 157.3 million in 4Q09.
Table 148. Banco Votorantim – Realocations - (Market to Market - MKT)
R$ million 4Q08 4Q09 2008 2009
Fee Income (6) (56.4) (151.0) (188.6) (458.1) Rate Repayment (6) (17.7) (3.8) (130.1) (29.2) Credit Card Fees (6) (1.9) (2.6) (3.9) (9.8)
Allocation on Loan Operations (6) (76.0) (157.4) (322.6) (497.1)
(7) All market to market due to the hedge were reallocated and can be found in the Financial Derivative Instruments, as follows:
Table 149. Banco Votorantim – Realocations - (Market to Market - MKT)
R$ million 4Q08 4Q09 2008 2009
MKT Operações de Crédito (BV Financeira) (539.0) 142.2 (521.3) 72.2 MKT Loans Operations (BV) (140.2) (0.3) 115.6 (325.6) MKT Leasing (70.6) 18.2 (70.6) 7.0 MKT Securities (322.0) 100.6 148.4 (18.9) MLT Funding 32.3 (1.3) 50.5 16.9 Alocation of MKT on Derivatives 1,039.5 (259.4) 277.5 248.4
(8) All the effects of fluctuations in foreign currencies, such as the US dollar, yen, Turkish lira, euro among others, were reallocated due to the hedge on the result of derivative financial instruments, as follows:
Table 150. Banco Votorantim – Reallocations (Currency Variation)
R$ million 4Q08 4Q09 2008 2009
VCR Loans Operations (1,081.2) 95.5 (1,627.3) 1,142.7 VCR Securities (200.7) 54.3 (365.2) 754.9 VCR Fundings 998.6 (47.1) 1,487.3 (776.8) VCR Loans and On Lending 963.2 (25.3) 1,323.1 (1,120.9) Alocation of VCR on Derivatives (679.9) (77.5) (817.9) -
(9) The option BOX accounted in the Derivative Financial Instruments were reallocated to Money Market Funding with the amount of R$ 383,0 million in 2008 and R$ 355,0 million in 2009. In the quarters, the reallocations were R$ 100.2 million in 4Q08, and R$ 146.3 million in 4Q09.
(10) We reallocated the profit effect upon realization of the CCB options recorded in the Securities results to the result of Loan Operations, as follows:
Table 151. Banco Votorantim – Reallocations (Bank Credit Bills)
R$ million 4Q08 4Q09 2008 2009
MKT Securities (Bank Credit Bills) - - (126.6) - Alocation MKT (Bank Credit Bills) on loans operations - - 126.6 -
(11) The Operational Income and Expenses directly associated with the loan operations were reallocated from Other Operating Income/Expenses to Loan Operations line in the amount of R$ 652.8 million in 2008 and of R$ 364.6 million in 2009. In the quarters, the amounts were R$ 119.5 million in 4Q08, and R$ 62.0 million in 4Q09.
(12) The Allowance for Loan Losses resulted from the Assignments made with Co-obligations recorded under Other Operating Expenses were reallocated to the Allowance for Loan Losses expenses line in the amount of R$ 9.4 million in 2008 and R$ 24.7 million in 2009. In the quarterly periodicity, the reallocations were R$ 9.4 million in 4Q08, and R$ 16.3 million in 4Q09.
(13) The effect of the tax benefit generated by the tax-free interest of securities issued abroad was reallocated from the Income Tax and Social Contribution line to the Result of Securities in the amount of R$ 136.1 million in 2008 and R$ 99.3 million in 2009 (R$ 41.2 million in 4Q08 and R$ 20.9 million in 4Q09).
We segregated the Expenses on Labor, Civil and Tax Lawsuits to the group named Legal Risk, in order to facilitate the analysis of the other operating expenses and to increase the transparency of this type of risk. The reallocated amounts were as follows:
(14) Civil Claims: R$ 0.5 million in 2008 and (R$ 11.2 million) in 2009 R$ 7.1 million in 4Q08 and R$ 3.2 million in 4Q09
(15) Labor Lawsuits: R$ 13.9 million in 2008 and (R$ 31.1 million) in 2009 R$ 3.3 million in 4Q08 and R$ 9.5 million in 4Q09
(16) Tax claims: R$ 66.7 million in 2008 and R$ 65.9 million in 2009 R$ 22.1 million in 4Q08 and R$ 12.6 million in 4Q09
(17) We reallocated from Other Operating Income/Expenses and Income Tax/Social Contribution the net effect of the payment of taxes under the program for installment and cash payment of tax debts (REFIS), generating an extraordinary result of R$ 0 million in 2008 and of R$ 15.0 million in 2009. In the quarters, the amounts were R$ 0 million in 4Q08, and R$ 15.0 million in 4Q09.
(18) Other Administrative Expenses directly related to loan operations were reallocated to the line Loan Operations in the amount of $ 0 million in 2008 and $ 26.7 million in 2009. In 4Q09, R$26.7 million were reallocated and $ 0 million in 4Q08.
(19) Other Administrative Expenses directly related to derivative operations were reallocated to the line Income for Derivative Financial Instruments in the amount of $ 0 million in 2008 and R$ 11.1 million in 4Q09.
(20) The amount of R$0.0 million was reallocated from Other Operational Expenses Foreign Income Tax (IRF) to Income Tax, in 2008 and R$ 46.1 million in 2009. In 4Q09 the amount was R$ 46.1 million and R$ 0 million in 4Q08.
Table 152. Banco Votorantim – Equity Highlights
R$ million Dec/08 Sep/09 Dec/09 On Dec/08 On Sep/09
Assets 72,310 88,121 84,801 17.3 (3.8) Securities 21,585 19,609 18,195 (15.7) (7.2) Loan Portfolio 38,184 40,996 42,444 11.2 3.5 Individuals 19,251 24,892 26,252 36.4 5.5 Payroll Loan 1,748 3,378 3,348 91.6 (0.9) Vehicles Loan 15,761 17,893 18,677 18.5 4.4 Leasing and Subleasing Receivables 1,472 3,342 3,948 168.2 18.1 Other 270 278 278 2.8 (0.1) Businesses 18,933 16,105 16,193 (14.5) 0.5 Working Capital 5,776 5,123 5,309 (8.1) 3.6 BNDES/Finame 4,142 4,517 4,918 18.7 8.9 Export Letter of Credit 4,310 2,854 2,699 (37.4) (5.4) Other 4,706 3,611 3,267 (30.6) (9.5) Permanent Assets 88 162 161 82.8 (0.8) Deposits¹ 18,932 26,320 24,477 29.3 (7.0) Demand Deposits 109 246 135 23.6 (45.2) Saving Deposits - - - - - Time Deposits 14,636 22,743 22,599 54.4 (0.6) Judicial 0 0 0 0.8 (0.0) Others 14,635 22,743 22,599 54.4 (0.6) Money Market Borrowing 16,625 26,104 24,767 49.0 (5.1)
Shareholders’ Equity 6,362 7,002 7,145 12.3 2.0
Chg. % Balance
¹ Except other deposits
Table 153. Banco Votorantim – Loan Portfolio by Level of Risk
Dec/08 Sep/09 Dec/09
R$ million Balance Provision Share Balance Provision Share Balance Provision Share
AA 11,655 - 30.5 7,592 - 18.5 7,803 - 18.4 A 20,054 100 52.5 25,320 127 61.8 26,300 131 62.0 B 4,194 42 11.0 4,773 48 11.6 4,814 48 11.3 C 1,182 35 3.1 1,359 41 3.3 1,611 48 3.8 D 362 36 0.9 496 50 1.2 494 49 1.2 E 142 42 0.4 248 75 0.6 210 63 0.5 F 122 61 0.3 236 118 0.6 186 93 0.4 G 83 58 0.2 158 111 0.4 325 228 0.8 H 390 390 1.0 813 813 2.0 701 701 1.7 Total 38,184 765 100.0 40,996 1,381 100.0 42,444 1,362 100.0 Add. Allow. 9 11 - Total Allow. 774 1,392 1,362 AA-C 37,085 178 97.1 39,044 215 95.2 40,529 228 95.5 D-H 1,099 588 2.9 1,952 1,166 4.8 1,915 1,134 4.5
Table 154. Banco Votorantim – Delinquency Ratios
R$ million Dec/08 Sep/09 Dec/09
Loan Portfolio 38,183.9 40,996.4 42,444.3
Loans overdue 2,351.9 3,713.7 3,768.4
Past Due Loans/Loan Portfolio 6.2% 9.1% 8.9%
Past Due Loans + 90 days 684.4 1,375.6 1,342.0 Past Due Loans + 90 days/Loan Portfolio 1.8% 3.4% 3.2% Write-off (172.7) (242.0) (312.8) Recovery of Write-offs 21.4 32.2 35.9 Net Loss (151.2) (209.8) (276.9) Saldo da Perda / Carteira de Crédito 1.6% 2.1% 2.6%
Provision (774.1) (1,392.4) (1,362.0)
Allowance/Loan Portfolio 2.0% 3.4% 3.2%
Allowance/Past Due Loans + 90 days - % 113.11% 101.2% 101.5% Allowance Expenses / Loan Portfolio (12 months average) 2.4% 3.7% 3.8%
Table 155. Banco Votorantim – Vehicle Portfolio
Dec/08 Sep/09 Dec/09
Average rate per crop (p.m.) 2.3 1.7 1.7 Average term per crop 44 49 49 Duration 45 46 48 Average Portfolio Term (p.y.) 26.2 24.5 24.3 Used Vehicles / Vehicles Portfolio - % 85.7 82.9 84.1 Average Vehicle Age (years) 6.5 5.8 5.5 Financed Value / Good Value – average % 66.6 69.9 71.2
Table 156. Banco Votorantim – Operational and Structural Highlights
Sep/09 Dec/09
Customers 3,559,515 3,829,581 Assets Under Management - R$ million 17,506 18,552 Employees* 5,636 5,859 Number of Branch Offices 243 247
Banco Nossa Caixa
On November 30, 2009 arised the corporate merger of Banco Nossa Caixa (BNC), with absorption of 100% of its capital by BB. The transaction awaits approval of the Brazilian Central Bank.
Considering that the 2009 Guidance monitoring was issued based on the pro forma segregation of Nossa Caixa and Banco Votorantim numbers, we show below operational highlights and BNC loan portfolio, besides a pro forma Reallocated Income Statement of 4Q09, based on the October/November corporate DRE.
Table 157. Banco Nossa Caixa – Income Statement Highlights
R$ million Chg. %
Income Statement 3Q09 4Q09 On 3Q09
Income from Financial Intermediation 2,036 1,929 (5.3)
Loan operations 1,113 1,133 1.8 Securities Income 860 739 (14.1)
Expenses from Financial Intermediation (909) (849) (6.6)
Net Interest Income 1,127 1,080 (4.2)
Allowance for Loan Losses (238) (194) (18.6)
Net Financial Margin 889 886 (0.4)
Fee income 313 287 (8.5)
Contribution Margin 1,135 1,274 12.2
Administrative Expenses (682) (689) 1.0 Personnel Expenses (380) (385) 1.4 Other Administrative Expenses (302) (304) 0.6
Commercial Income 436 181 (58.5)
Legal Risk (100) (61) (38.7) Legal Claims (26) (10) (60.6) Labor Lawsuits (74) (51) (31.1) Other Income and Expenses (102) (0) (99.7)
Income Before Taxes 235 120 (49.0)
Income and Social Contribution Taxes (70) 40 (157.7)
Recurring Income 165 160 (2.9)
The adjustments made in the statement of income to get the Reallocated Statement of Income are detailed below.
Reallocations in the Net Interest Income
(1) Reallocations of Other Operating Income/ Expenses to Other Operating Income with Financial Intermediation Characteristics, for the purpose of including in the Financial Margin the revenues with financial intermediation characteristics recorded under "Other Operating Income", arising from earning assets recorded under "Other Receivables" in the Balance Sheet, and to include in the Financial Margin amounts related to negative foreign exchange adjustments which were recorded under "Other Operating Income/Expenses" to avoid inverting the balance of accounts related to financial intermediation.
Reallocations in the net financial margin
(2) The expense with the Allowance for Loan Losses includes credits without characteristics of financial intermediation, so this part of provision expenses to loanlosses is reallocated to Other Operating Expenses.
Reallocations in the contribution margin
(3) Considering the model used for the income statement, tax expenses on revenues are reallocated and included in the contribution margin.
Reallocations in the operating income
(4) Statutory Profit Sharing was reallocated to Personnel Expenses.
(5) The expenses with Legal Claims and Labor Lawsuits were separated in the Income Statement with Reallocations, into a group called Legal Risk. It aims to provide a better analysis of the administrative expenses and giving more transparency to this kind of risk.
(6) As from 1Q09, in compliance with the decision of the Central Bank, a portion of the premiums paid to clients (amortization of the rights related to the payment of the payroll of state public servants and other payrolls) started to be recorded under "Other Administrative Expenses". Aiming to maintain the comparability and considering the nature of the amounts disbursed, the entire sum was reallocated to "Other Operating Expenses", as was recorded up to December 2008.
One-off Items
(7) Civil claims of Economic Plans on savings deposits and judicial deposits, generating extraordinary expenses before taxes in October and November (4Q09 Pro forma DRE basis) in the amount of R$ 48 million and R$ 87 million in 4Q09.
(8) Tax credits arising from the equalization to the criteria adopted by Banco do Brasil, in the total amount of R$ 242 million.
(9) Tax Credits arising from Economic Plan Expenses (item “7” above), in the amount of R$ 19 million in October and November 2009 and R$ 35 million in 3Q09.
Table 158. Banco Nossa Caixa – Loan Portfolio
R$ million Dec/08 Sep/09 Dec/09 On Dec/08 On Sep/09
Individuals 9,161 14,524 15,080 64.6 3.8 Payroll loans 5,804 10,672 11,324 95.1 6.1 Personal Loan 1,740 1,933 1,905 9.5 (1.4) Housing Loan 730 819 854 17.1 4.3 Other 888 1,100 997 12.3 (9.4) Businesses 2,943 3,984 3,904 32.7 (2.0)
Micro and Small 1,455 1,501 1,608 10.5 7.1 Overdraft Accounts 893 923 811 (9.2) (12.1) Working Capital 798 2,000 2,151 169.4 7.5 Other 1,251 1,060 942 (24.7) (11.2) Agribusiness 792 800 783 (1.1) (2.2) Total 12,896 19,308 19,766 53.3 2.4 Chg. %
Table 159. Banco Nossa Caixa – Operating Highlights
Dec/08 Sep/09 Dec/09 On Dec/08 On Sep/09
Checking Acc ounts – in thousands 3,420 3,449 3,296 (3. 6) (4.5) Individual Customers Check ing Accounts 3,223 3,256 3,122 (3. 1) (4.1) Network of Branches 562 566 566 0. 7 - ATM 3,732 3,715 3,685 (1. 3) (0.8)