Obligation Santo Espírito Banco 6.875% ( XS0458566071 ) en EUR

Santo Espírito Banco

100 % ▲

Portugal

XS0458566071 ( en EUR )

6.875% par an ( paiement annuel ) - Obligation en défaut, paiements suspendus

21/10/2019 - Obligation échue

Prospectus brochure de l'obligation Banco Espirito Santo XS0458566071 en EUR 6.875%, échue

100 000 EUR

400 000 000 EUR

Banco Espírito Santo était une banque portugaise, fondée en 1991, qui a fait faillite en 2014 après avoir été touchée par une crise de solvabilité liée à des problèmes de gestion et de gouvernance interne.

L'Obligation émise par Santo Espírito Banco ( Portugal ) , en EUR, avec le code ISIN XS0458566071, paye un coupon de 6.875% par an.
Le paiement des coupons est annuel et la maturité de l'Obligation est le 21/10/2019

Espírito Santo Financial Group S.A.
(incorporated with limited liability in the Grand Duchy of Luxembourg société anonyme registered with the Register
of Commerce and Companies under number B-22.232)
400,000,000 6.875 per cent. Subordinated Notes due 2019
The 400,000,000 6.875 per cent. Subordinated Notes due 2019 (the Notes) are issued by Espírito Santo
Financial Group S.A. (the Issuer).
Interest will be payable in arrear on 21 October of each year (each an Interest Payment Date). Interest will
accrue from and including 21 October 2009 (the Issue Date) to but excluding 21 October 2019 and will be at
a rate of 6.875 per cent. per annum as further described, and except as mentioned, under "Conditions of the
Notes - Interest".
The Notes mature on 21 October 2019. Subject to the prior consent of the Bank of Portugal, if then required,
the Issuer may at its option redeem all (but not some only) of the Notes at any time at par plus accrued
interest, in the event of certain tax changes described under "Conditions of the Notes Redemption and
Purchase".
Application has been made to the Commission de Surveillance du Secteur Financier (the CSSF) in its
capacity as competent authority under the Luxembourg Act dated 10 July 2005 on prospectuses for securities
(the Luxembourg Act) to approve this document as a prospectus and to the Luxembourg Stock Exchange
for the listing of the Notes on the Official List of the Luxembourg Stock Exchange and admission to trading
on the Luxembourg Stock Exchange's regulated market. The Luxembourg Stock Exchange's Regulated
Market is a regulated market for the purposes of Directive 2004/39/EC (the Markets in Financial Instruments
Directive) and Directive 2003/71/EC (the Prospectus Directive).
The Notes will be rated Baa1 by Moody's Investors Service, Inc. (Moody's) and BBB+ by Fitch Ratings
Limited (Fitch Ratings). A rating is not a recommendation to buy, sell or hold securities and may be subject
to revision, suspension or withdrawal at any time by the assigning rating organisation.
The Notes will initially be represented by a temporary global note (the Temporary Global Note), without
interest coupons, which will be deposited on or about the Issue Date with a common depositary for Euroclear
Bank S.A./N.V. (Euroclear) and Clearstream Banking, société anonyme (Clearstream, Luxembourg).
Interests in the Temporary Global Note will be exchangeable for interests in a permanent global note (the
Permanent Global Note and, together with the Temporary Global Note, the Global Notes), without interest
coupons, on or after 30 November 2009 (the Exchange Date), upon certification as to non-U.S. beneficial
ownership.
An investment in Notes involves certain risks. Prospective investors should have regard to the factors
described under the heading "Risk Factors" on page 5.
Joint Lead Managers
Espírito Santo Investment
J.P. Morgan
The date of this Prospectus is 19 October 2009

This Prospectus comprises a prospectus for the purposes of Article 5.3 of Directive 2003/71/EC (the
Prospectus Directive).
The Issuer accepts responsibility for the information contained in this Prospectus. To the best of the
knowledge of the Issuer (having taken all reasonable care to ensure that such is the case) the information
contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the
import of such information.
This Prospectus is to be read in conjunction with all documents which are deemed to be incorporated herein
by reference (see "Documents Incorporated by Reference"). This Prospectus should be read and construed
on the basis that such documents are incorporated and form part of the Prospectus.
No representation, warranty or undertaking, express or implied, is made and to the fullest extent permitted by
law, no responsibility or liability is accepted by the Managers (as defined in "Subscription and Sale") or the
Trustee as to the accuracy or completeness of the information contained or incorporated in this Prospectus or
any other information provided by the Issuer in connection with the offering of the Notes. No Manager or
the Trustee accepts any liability in relation to the information contained or incorporated by reference in this
Prospectus or any other information provided by the Issuer in connection with the offering of the Notes or
their distribution.
No person is or has been authorised by the Issuer, the Managers or the Trustee to give any information or to
make any representation not contained in or not consistent with this Prospectus or any other information
supplied in connection with the offering of the Notes and, if given or made, such information or
representation must not be relied upon as having been authorised by the Issuer, the Managers or the Trustee.
Neither this Prospectus nor any other information supplied in connection with the offering of the Notes (a) is
intended to provide the basis of any credit or other evaluation or (b) should be considered as a
recommendation by the Issuer, any of the Managers or the Trustee that any recipient of this Prospectus or
any other information supplied in connection with the offering of the Notes should purchase any Notes.
Each investor contemplating purchasing any Notes should make its own independent investigation of the
financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Neither this
Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an
offer or invitation by or on behalf of the Issuer, any of the Managers or the Trustee to any person to
subscribe for or to purchase any Notes.
Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall in any
circumstances imply that the information contained herein concerning the Issuer or the ESFG Group is
correct at any time subsequent to the date hereof or that any other information supplied in connection with
the offering of the Notes is correct as of any time subsequent to the date indicated in the document
containing the same. The Managers and the Trustee expressly do not undertake to review the financial
condition or affairs of the Issuer during the life of the Notes or to advise any investor in the Notes of any
information coming to their attention.
The Notes have not been and will not be registered under the United States Securities Act of 1933, as
amended, (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions,
the Notes may not be offered, sold or delivered within the United States or to U.S. persons. For a further
description of certain restrictions on the offering and sale of the Notes and on distribution of this document,
see "Subscription and Sale" below.
This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy the Notes in any
jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The
distribution of this Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions.
The Issuer, the Managers and the Trustee do not represent that this Prospectus may be lawfully distributed,
or that the Notes may be lawfully offered, in compliance with any applicable registration or other
requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any
responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the
2

Issuer, the Managers or the Trustee which is intended to permit a public offering of the Notes or the
distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no
Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or
other offering material may be distributed or published in any jurisdiction, except under circumstances that
will result in compliance with any applicable laws and regulations. Persons into whose possession this
Prospectus or any Notes may come must inform themselves about, and observe, any such restrictions on the
distribution of this Prospectus and the offering and sale of Notes. In particular, there are restrictions on the
distribution of this Prospectus and the offer or sale of Notes in the United States and the United Kingdom,
see "Subscription and Sale".
Unless a specific source is identified, all information regarding market and other operating and statistical
data provided in this document is based on the ESFG Group's own estimates. In making estimates, the
ESFG Group relies on data produced internally and, where appropriate, external sources, including
information made public by other market participants or associations, such as the Association of Mutual
Funds, Pension Plans and Asset Management Companies and the Portuguese Association of Insurance
Companies. As far as ESFG is aware and is able to ascertain from such external sources, no facts have been
omitted which would render any such information or data presented in this document inaccurate or
misleading. However, although publications prepared by other market participants or associations generally
state that the information they contain has been obtained from sources believed to be reliable, the accuracy
and completeness of such information is not guaranteed and neither ESFG nor any other member of the
ESFG Group has independently verified such information.
Certain terms used in this document, including capitalised terms, are defined and explained in "Definitions".
Certain of the Managers and their affiliates have engaged, and may in the future engage, in investment
banking and/or commercial banking transactions with, and may perform services to, the Issuer and its
affiliates in the ordinary course of business.
IN CONNECTION WITH THE ISSUE OF THE NOTES, J.P. MORGAN SECURITIES LTD. AS
STABILISING MANAGER (THE STABILISING MANAGER) (OR PERSONS ACTING ON
BEHALF OF THE STABILISING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT
TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT
A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER,
THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON
BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION.
ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH
ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS
MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER
THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS
AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY STABILISATION ACTION
OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE STABILISING MANAGER (OR
PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH
ALL APPLICABLE LAWS AND RULES.
All references in this document to EUR, euro and refer to the currency introduced at the start of the third
stage of European economic and monetary union pursuant to the Treaty establishing the European
Community, as amended.
3

CONTENTS
Page
Risk Factors..................................................................................................................................................5
Documents Incorporated by Reference........................................................................................................14
Conditions of the Notes ..............................................................................................................................16
Summary of provisions relating to the Notes while represented by the Global Notes ...................................26
Use of Proceeds ..........................................................................................................................................29
Espírito Santo Financial Group S.A.............................................................................................................30
Taxation .....................................................................................................................................................50
Subscription and Sale..................................................................................................................................53
General Information....................................................................................................................................54
Definitions..................................................................................................................................................57
4

RISK FACTORS
The Issuer believes that the following factors may affect its ability to fulfil its obligations under the Notes.
All of these factors are contingencies which may or may not occur and the Issuer is not in a position to
express a view on the likelihood of any such contingency occurring.
In addition, factors which are material for the purpose of assessing the market risks associated with the
Notes are described below.
The Issuer believes that the factors described below represent the principal risks inherent in investing in the
Notes, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with the
Notes may occur for other reasons which may not be considered significant risks by the Issuer based on
information currently available to it or which it may not currently be able to anticipate. Prospective
investors should consider carefully the following information and also read the detailed information set out
elsewhere in this Prospectus and reach their own views prior to making any investment decision relating to
the Notes.
Factors that may affect the Issuer's ability to fulfil its obligations under the Notes
Risks relating to the ESFG Group
This section describes some of the risks that could affect the ESFG Group's businesses.
The risks below are not the only ones that the ESFG Group faces some risks are not yet known to the
ESFG Group and some that the ESFG Group does not currently believe to be material could later turn out to
be material. All of these risks could materially affect the ESFG Group's business, its revenues, operating
income, net income, net assets and liquidity and capital resources and the price at which the Notes trade.
Deterioration of the economic environment
In 2008, the ongoing financial crisis ran concurrently with a substantial increase in the price of commodities,
most notably oil. In the second half of 2008 a dramatic fall in prices occurred as investors saw the inevitable
spread of the financial turmoil to the general economic environment. In the last quarter of 2008 and
continuing during the first quarter of 2009, the financial markets experienced particularly negative
performances after the declarations of insolvency of several leading financial institutions. This situation
caused significant disruptions to world markets in relation to liquidity and funding, furthermore it has placed
considerable pressure on the core business of many investment banks, commercial banks and insurance
companies globally.
The second quarter of 2009 saw a deceleration in the pace of the recession and an improvement in investor
sentiment. The determined efforts of governments and central banks around the world, through the roll out
of monetary and fiscal policies, has brought about a level of stability in the capital markets and aided in the
rebuilding of investor confidence. The positive sentiment has translated into support for the equity, credit
and commodity markets, generally increasing the value of assets across the board.
Within this context, and when recognising the complexity of these unprecedented events, the following
points, outlining possible challenges for the ESFG Group, are made:
· There has been a general slowdown in the business of ESFG's principal subsidiaries. The increase in the
cost of funding and a reduction of share prices and in asset values has lead to a reduction in profitability
at ESFG. If there were a worsening of these circumstances ESFG could suffer further. A worsening of
the current economic environment might jeopardise further strategic expansion.
· ESFG is exposed to risk of loss if financial institutions or other counterparties become insolvent or are
not able to meet their obligations.
5

· Numerous financial institutions worldwide received support through various rescue plans and other types
of support by their respective governments. ESFG is unable to predict for how much longer
governments will continue this support. Any failure by governments might lead to a worsening of the
position of some banks and insurance companies and might cause further insolvencies and a loss of
confidence in the global banking system.
· As previously mentioned several European countries, as well as the United States and other globally
significant economies, are in recession or have, until recently, been in recession. A worsening of the
current situation could adversely affect ESFG's financial condition and results of operations by reducing
business activity and profitability. Such an impact could lead to dividend cuts which may affect the
trading prices of ESFG's shares. Additionally, results from investments could also be adversely affected
through the recognition of losses, impairments or write downs of investments on a consolidated basis.
These potential developments, outlined above, could have a materially adverse effect on ESFG's business,
financial condition and operational results.
The core businesses of the ESFG Group are banking (taking deposits and using them and other borrowings to
make loans), selling life and non-life insurance and other financial activities. As its operations are
concentrated mainly in Portugal, the state of the Portuguese economy affects the performance of the ESFG
Group. In addition, the ESFG Group's performance, results of operations and financial condition are also
affected by the economic conditions and levels of economic activity in other countries where the ESFG
Group operates, such as Spain, Brazil and Angola. A downturn in the economy of any of these countries,
particularly in Portugal, could lead to an increase in the defaults by the ESFG Group's customers on the
loans extended to them, as well as a reduction in the amount of premiums written in the insurance business.
In addition, protracted economic declines could reduce the overall level of economic activity in the market,
thereby reducing the ESFG Group's ability to collect deposits and forcing it to satisfy its liquidity
requirements by resort to the more expensive capital markets and wholesale markets as a result.
A downturn in the Portuguese economy could have a material adverse effect on the ESFG Group's business.
The ESFG Group's ability to grow may be restricted by slower growth in the banking and insurance markets
in which it operates.
Changes in the regulatory environment or additional regulatory restrictions/requirements
The ESFG Group is subject to banking, insurance and financial services laws and government regulations in
each jurisdiction where it conducts its business. Regulatory agencies have broad administrative powers over
many aspects of the financial services business, which may include liquidity, capital adequacy and permitted
investments, ethical issues, money laundering, privacy, record keeping and marketing and selling practices.
Banking, insurance and financial services laws, regulations and policies currently governing the activity of
the ESFG Group may change at any time in ways which have an adverse effect on its business. Furthermore,
the ESFG Group cannot predict the timing or form of any future regulatory initiatives. Changes in existing
banking, insurance and financial services laws and regulations may materially affect the way in which the
ESFG Group conducts its business, the products and services it may offer and the value of its assets.
In particular, the ESFG Group's banking and insurance activities are subject to extensive regulation by the
European Central Bank, the Bank of Portugal and the Portuguese Insurance Institute (the Instituto de Seguros
de Portugal, or ISP), mainly relating to liquidity levels, solvency, provisioning, and insurance policy terms
and conditions.
· The minimum cash requirement applicable to Portuguese banks is currently fixed at 2 per cent. of the
total amount of deposits. An increase in this minimum cash requirement or a decline in the rate accrued
on those cash reserves would have an adverse impact on the ESFG Group's net income.
6

· At 31 December 2008, the BES Group's total solvency ratio, Core Tier I ratio and Tier I ratio were
11.3 per cent., 6.1 per cent. and 7.1 per cent. (based on risk-weighted assets as at 31 December 2008),
respectively, under the Basel II, IRB Foundation Method. As at 31 December 2008, the BES Group's
total solvency ratio, Core Tier I ratio and Tier I ratio were 10.5 per cent., 5.7 per cent. and 6.6 per cent.,
respectively, under the Basel II, Standard Method. At 30 June 2009, the BES Group's total solvency
ratio, Core Tier I ratio and Tier I ratio were 12.2 per cent., 8.3 per cent. and 8.9 per cent., respectively,
under the Basel II, IRB Foundation Method.
· In November 2008, the Bank of Portugal issued an order recommending credit institutions to maintain, at
a minimum, 8 per cent. of risk-weighted assets on a consolidated basis composed exclusively of Tier I
capital starting on 30 September 2009. Although the ESFG Group believes the Bank of Portugal's order
is an adequate response to the current financial and economic environment, the capital adequacy
requirements of the ESFG Group and the BES Group may limit the BES Group's ability to extend credit
to customers and may require it to issue additional equity capital or subordinated debt in the future,
which are expensive sources of funds. Furthermore, capital adequacy ratios such as those mandated by
Basel II have a "procyclical" effect, meaning that in difficult credit environments such as at present, a
bank may find its capital ratios decreased at precisely the time that the economy is most in need of
increased financing activity. Thus, as a result of this "procyclical" effect, capital adequacy requirements
intended to ensure the health of banks can in fact exacerbate the effect of an economic downturn, further
adding to the strain on the banking system.
· At 31 December 2008, the ESFG Group's total solvency ratio, Core Tier I ratio and Tier I ratio were
9.5 per cent., 5.7 per cent. and 7.0 per cent., respectively, calculated under Basel II, IRB Foundation
Method. At 30 June 2009, the ESFG Group's total solvency ratio, Core Tier I ratio and Tier I ratio were
9.7 per cent., 7.1 per cent. and 8.2 per cent., respectively under the Basel II, IRB Foundation Method.
· Any change in the existing, or the introduction of new, capital adequacy requirements could have an
adverse impact on the ESFG Group's results of operations.
· In addition, the Bank of Portugal has established minimum provisioning requirements regarding current
loans, non-performing loans, overdue loans, impairment for securities and equity holdings, sovereign
risk and other contingencies. Therefore, any change in these requirements could have a material adverse
impact on the ESFG Group's results of operations.
Compliance with anti-money laundering and anti-terrorism financing rules involves significant cost and
effort
The BES Group is subject to rules and regulations regarding money laundering and the financing of terrorism.
Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant
financial burden on banks and other financial institutions and pose significant technical problems. Although the
BES Group believes that its current policies and procedures sufficiently comply with applicable rules and
regulations, the BES Group cannot guarantee that its group-wide anti-money laundering and anti-terrorism
financing policies and procedures completely prevent the violation of anti-money laundering and anti-terrorism
financing rules. Any violation of anti-money laundering and anti-terrorism financing rules, or even the
suggestion of violations, may have severe consequences, notably reputational consequences, and could have a
material adverse effect on the BES Group's financial condition and results of operations.
In October 2005, BES and other Portuguese credit institutions were subject to investigation procedures directed
by the Public Prosecutor (Ministério Público), in the context of a criminal investigation related to suspicions of
money laundering and fiscal fraud involving some clients of BES. Until the present date, neither BES, nor
any of its directors or officers, have been charged as defendants in such investigations. The investigations are in a
preliminary phase and are being conducted exclusively by the Public Prosecutor.
7

Market risks
The ESFG Group is subject to the risks typical of banking and insurance activities, such as interest rate
fluctuations, exchange rate variations and capital markets volatility. As is the case with other banking
groups in Portugal, the ESFG Group, and especially its retail and corporate banking operations segment, is
particularly exposed to differentials between the interest rates payable by it on deposits and the interest rates
that it is able to charge on loans to customers and other banks. This exposure stems from the fact that in the
Portuguese market loans typically have variable interest rates, whereas the interest rates applicable to
deposits are usually fixed for periods that may vary between three and six months. As a result, Portuguese
banks, including the BES Group, frequently experience difficulties in adjusting the interest rates that they
pay for deposits in line with market interest rate changes. This trend is reinforced by intense competition
among the banks. If the ESFG Group is unable to adjust interest on deposits in line with the interest rates on
loans, its interest income could rise less or decline more than its interest expense, in which case the ESFG
Group's results could be negatively affected.
The ESFG Group is subject to the risk that liquidity may not always be readily available; this risk is
exacerbated by current conditions in global financial markets
Within its normal course of business, banking subsidiaries of the ESFG Group (including the BES Group)
grant credit to, and receive deposits from, their customers. The medium to long term nature of customer
loans compared to the short term nature of customer deposits creates a mismatch in the maturity profile of
ESFG's consolidated assets and liabilities.
The ESFG Group's liquidity could be impaired by an inability to access debt markets, an inability to sell
assets or redeem its investments, outflows of cash or collateral deterioration. This situation may arise due to
circumstances that the ESFG Group is unable to control, such as continued general market disruption, loss in
confidence in financial markets, uncertainty and speculation regarding the solvency of market participants,
credit rating downgrades or operational problems that affect third parties. Recent events in global markets
have exacerbated this risk. Even a perception among market participants that a financial institution is
experiencing greater liquidity risk can cause significant damage to the institution. Specific ways in which
the ESFG Group could find its liquidity impaired include the following:
· The ESFG Group's ability to sell assets may be impaired if other market participants are seeking to sell
similar assets at the same time or are not in the position to finance themselves, or when the market value
of assets, including financial instruments underlying derivative transactions to which a member of the
ESFG Group is a party, is difficult to ascertain, as has occurred in current market conditions.
· Financial institutions with which the ESFG Group interacts may exercise set-off rights or the right to
require additional collateral, which could further impair the ESFG Group's access to liquidity.
· An increase in interest rates and/or credit spreads, as well as the restriction on the availability of credit,
including, but not limited to, inter-bank credit, can impact the ESFG Group's ability to borrow on a
secured or unsecured basis. Given the current disruption in the credit markets, the ESFG Group may be
forced to fund its operations at a higher cost or it may be unable to raise as much short- or long-term
funding as it needs to support its business activities.
Any of these events could cause the ESFG Group to curtail its business activities and could increase its cost
of funding, both of which could have a material adverse effect on the ESFG Group's results.
Credit risk
In addition to the risks described above, the ESFG Group is subject to credit risk, i.e., the risk that the ESFG
Group's borrowers and other counterparties may become unable to meet their payment obligations to the
ESFG Group. Although the ESFG Group regularly reviews its exposure to specific borrowers and other
counterparties and to specific industries and countries that it believes present special concerns, defaults may
8

arise from events and circumstances that are difficult or impossible to predict or detect. In addition, the
ESFG Group's collateral may be insufficient to cover its exposure, for example, as a result of sudden market
declines that reduce the value of the collateral. Accordingly, if a major borrower or other counterparty were
to default on its obligations, the ESFG Group's results of operations and financial condition could suffer.
The ESFG Group's provisions for credit losses provide a reserve against incurred losses inherent in loans
and advances. Estimating incurred losses, however, is inherently uncertain and depends on many factors,
including general economic conditions, changes in the ratings assigned to the ESFG Group's borrowers and
other counterparties, structural changes in industries that alter the competitive position of the companies
operating in these industries as well as other external factors, such as legal and regulatory requirements. An
increase in the ESFG Group's provisions for loan losses or any loan losses in excess of these provisions
could have a material adverse effect on the ESFG Group's financial condition and results of operations.
Insurance risks
Part of the ESFG Group's property and casualty insurance business involves covering losses from
unpredictable events such as floods, earthquakes, hurricanes, fires, industrial explosions, terrorist attacks and
other man-made or natural disasters. The ESFG Group also maintains technical reserves to cover potential
claims in its life insurance business and sets up provisions for claims in its property and casualty insurance
business, based on actuarial valuations. These provisions do not represent an exact liability. Instead, they
are based on statistical projections. Therefore, the ESFG Group cannot ensure that actual losses on claims
will not differ from the initial estimates made and recorded in the accounts. Even though the ESFG Group
normally seeks to reduce its exposure to such events through the purchase of reinsurance, claims related to
such events could adversely affect the ESFG Group's financial results.
The availability and cost of reinsurance is primarily related to factors such as prevailing insurance premiums,
levels of insured claims, the underwriting policies and processes of the reinsured, levels of insurance industry
surplus and use of underwriting capacity, which may in turn fluctuate in response to changes in rates of
return on investments earned in the reinsurance industry. Changes in the reinsurance market may affect the
results of ESFG's insurance subsidiaries.
Operational risks
The ESFG Group is subject to certain operational risks, including interruption of service, errors, fraud by
third parties, omissions or delays in providing services and in complying with risk management
requirements. The ESFG Group continually monitors these risks by means of, among other things, advanced
administrative and information systems and insurance coverage in respect of certain operational risks.
However, the ESFG Group may be unable successfully to monitor and prevent these risks in the future. Any
failure successfully to apply the ESFG Group's risk management and control policies could materially
adversely affect its financial condition and results of operations.
Competition
Structural changes in the Portuguese economy over the past several years have significantly increased the
strength and scope of competition in the Portuguese banking and insurance sectors. These changes
principally relate to the privatisation of several sectors of the economy, including banking and insurance, as
well as to the integration of the Portuguese economy into the European Union and the introduction of the
euro.
The ESFG Group faces intense competition in all of its areas of operation; in particular, competition in the
Portuguese banking (deposits, mortgages, consumer credit, leasing, investment banking, specialised credit
and asset management) and insurance markets has the most significant effect on the ESFG Group's results
and operations. The ESFG Group's competitors in the Portuguese markets are Portuguese commercial
banks, savings and investment banks, foreign banks (some of which have recently entered the Portuguese
market), and domestic and foreign insurance companies. Over recent years, mergers and acquisitions
involving the largest Portuguese banks and insurance companies have resulted in a significant concentration
9

of market shares, a process which ESFG expects may continue. Competition has increased further with the
emergence of non-traditional distribution channels, such as internet and telephone banking. The ESFG
Group's principal competitors in banking (ranking in terms of assets as of 31 December 2008) as well as
insurance activities (in terms of premiums as of 31 December 2008) are Caixa Geral de Depósitos Group,
Millennium BCP Group, Santander Totta Group and BPI Group in the banking sector and Fidelidade
Mundial, Império-Bonança, Millenium BCP Fortis, Santander Totta, AXA, Allianz, Banif, BPI Vida and
Zurich in the insurance sector.
Competition is affected by consumer demand, technological changes, impact of consolidation, regulatory
actions and other factors. The ESFG Group expects competition to intensify as continued merger activity in
the financial industry produces larger, better-capitalised companies that are capable of offering a wider array
of products and services, and at competitive prices. If the ESFG Group is unable to provide attractive
product and service offerings that are profitable, it may lose market share or incur losses on some or all
activities.
Although the ESFG Group believes that it is in a strong position to continue to compete in the Portuguese
market, there can be no assurance that it will be able to compete effectively in the markets in which it
operates, or that it will be able to maintain or increase the level of its results of operations.
Pledge of BES shares
In June 2006, BESPAR, a member of the ESFG Group, obtained a loan from a consortium of banks led by
Caixa Geral de Depósitos, S.A. in the amount of EUR 101.5 million which is repayable in June 2010. To
secure this loan, BESPAR pledged to Caixa Geral de Depósitos, S.A. 11 million shares in BES, representing
2.2 per cent. of the share capital of BES. If, pursuant to the terms of this pledge, Caixa Geral de Depósitos,
S.A. were to become entitled to and decide to enforce its security in relation to all or some of the pledged
shares in BES, this would result in a reduction of ESFG's indirect holding in BES.
Structure of the ESFG Group
ESFG is a financial holding company, holding and administering participating interests in other companies.
It does not conduct business of its own. Dividends from ESFG's direct and indirect subsidiaries, together
with any investment income, are ESFG's main source of funds to pay interest and other expenses and any
dividends. The inability of ESFG's direct and indirect subsidiaries to pay dividends in an amount sufficient
to enable it to meet its cash requirements at the holding company level could have a material adverse effect
on its business, its ability to pay dividends and its ability to pay interest and/or capital in connection with its
debt obligations and other borrowings including the Notes.
Majority shareholders
As at 18 September 2009 Espírito Santo International S.A. and Espírito Santo Irmãos SGPS, S.A. (together
Espírito Santo International) held, directly or indirectly, approximately 39.25 per cent. of the issued share
capital of the Issuer.
Espírito Santo International is able to influence significantly the affairs and actions of the Issuer, including
matters requiring shareholder approval, such as the approval of significant corporate actions and the
composition of the board of directors of the Issuer. Seven of the directors of Espírito Santo International are
also directors of ESFG. Espírito Santo International is 49.1 per cent. owned, directly or indirectly, by
members of the Espírito Santo family and certain Portuguese nationals close to the family (including certain
of the directors of Espírito Santo International and the Issuer).
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