UNIBANCO UNION OF BRAZILIAN BANKS SA 6-K 2008
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Commission File Number 1-14640
For the month of December, 2008
UNIBANCO - UNIÃO DE BANCOS BRASILEIROS S.A.
(Exact name of registrant as specified in its charter)
Unibanco - Union of Brazilian Banks S.A.
(Translation of Registrant's name into English)
Av. Eusébio Matoso, 891
05423-901 São Paulo - SP, Brazil
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F ___X___ Form 40-F _______
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under Securities Exchange Act of 1934.Yes _______ No ___X____
Quarterly Financial Information
7001 - MANAGEMENT REPORT
The third quarter of 2008 was marked by international scenario deterioration, with the credit crisis worsening the risk perception by international investors. As an indirect consequence of the turbulences, global economy may begin a sharp deceleration period.
Given this international scenario volatility, the Embi+BR ended 3Q08 at 304 basis points, 75 basis points up. Following the sovereign risk downgrade, the Real currency depreciated 20.3% against the US-dollar in 3Q08. The Brazilian international reserves ended the quarter at US$206.4 billion.
The trade balance may reach US$23 billion surplus in 2008. The strong domestic demand accelerated the imports, which were the main reason for the trade balance deterioration in 2008, but the high level of international reserves and the low foreign debt keep the Brazilian external solvency very solid.
In the domestic scenario, the inflation (IPCA) increased 1.07% in the third quarter. Central Bank increased the Selic rate by 150 b.p, in order to reduce inflation pressure. However, with the international crisis affecting the domestic credit offering, the Central Bank is likely to end the cycle of interest rates increase, and the Selic rate should end the year at the current level of 13.75% .
The debt to GDP ratio reached 38.3% . The public sector primary surplus amounted to 4.4% of the GDP in the last 12 months, above the 2008 goal of 3.8% .
Credit market continued to present a robust growth in the third quarter of 2008. The total loan portfolio represented 38% of the GDP.
Besides the worse international environment and the credit crisis, the Brazilian economy fundamentals with the solid fiscal and external debts should protect Brazilian assets from excessive volatility. However, smaller growth rates in Brazil are expected during next quarters than the observed to see last years.
In September 2008, Unibancos Retail segment had exceeded 30 million clients throughout the country.
The full-service commercial bank serves individuals and small and medium enterprises (SME); Unicard, Hipercard and Redecard are credit card companies; Fininvest, PontoCred and LuizaCred focus on consumer finance; Unibanco also operates nationwide in the auto (cars and heavy vehicles) financing segment. In the payroll loans segment, Unibanco operates through dealers (including Fininvest), its commercial bank, and partnerships.
Auto loans grew 10.2% in the quarter. With a distinctive strategy in auto loans, focused in new vehicles, Unibanco has increased its market share in terms of financed units. Unibancos market share in the new cars segment was 8.0% in 3Q08.
Payroll loans portfolio reached R$ 4,276 million in September 2008. Since 4Q07, Unibanco has focused in its own origination of payroll loans, which reached R$ 1,944 million in September 2008, a 26.6% increase in the last 12 months. Such evolution is explained by the intensive offering of this product to clients from the commercial bank and portfolio origination efforts through dealers (including Fininvest), besides the partnerships established.
The mortgage loan portfolio totaled R$ 2,155 million on September 30, 2008. In September 2008, the balance of commitment to future disbursement reached R$ 2,060 million.
As a result, total retail loan portfolio reached R$ 44,082 million, of which R$ 29,052 million are represented by individuals.
The SME segment serves companies with annual sales up to R$150 million. This segment provides a full range of financial services, such as credit lines, accounts receivable financing, working capital loans, auto financing, home financing, BNDES-funded loans, leasing, and payroll services, in addition to cash management services. At the end of 9M08, the SME segment had approximately 670,000 customers.
The SME loan portfolio totaled R$ 15,030 million in September 30, 2008. Excluding auto loans and mortgage loans, the total portfolio was R$ 10,610 million, 3.0% evolution in the quarter.
Consumer Credit Companies
Consumer Credit Companies operate in the consumer finance and credit cards segments through Unicard, Hipercard, Redecard (Unibancos participation of 23.2%), Fininvest, PontoCred (a partnership with Globex, parent company of the PontoFrio department store) and LuizaCred (a partnership with the Magazine Luiza department store chain), as well as Unibancos partnerships with Ipiranga Group and Banco Cruzeiro do Sul. These companies operate in the personal credit, consumer credit, credit cards, and payroll-linked credit.
Credit Card Companies
Unibancos credit card business is composed of Unicard, Hipecard and Redecard. Together, these companies posted a R$ 158 million net income in the quarter. The results from Redecard are proportionally consolidated in Unibancos financial statements according to its participation in the company.
The credit portfolio posted a 26.8% growth over the past 12 months, amounting to R$ 7,201 million in September 2008. In the quarter, the 2.1% decrease is explained by the impact of the sale Tricards loan portfolio to Tribanco, due to the end of the partnership with Tribanco.
Unicard issues and manages MasterCard and Visa cards, and is also the national leader in the co-branded card segment. Hipercard is a credit card acquirer and issuer, in addition to a flagship credit card.
Consumer Finance Companies
Fininvest, PontoCred and LuizaCred are Unibancos Consumer Finance Companies. The credit portfolio totaled R$ 3,493 million in September 2008, an increase of 0.4% in the quarter. Business results reached R$ 17 million in 3Q08, impacted by the lower portfolio evolution. The lower growth in the quarter is due to a more conservative credit concession, specially, in partnership with retailers in low income segment.
Fininvest had 606 fully-owned stores, mini-stores and kiosks, and more than 13 thousand points-of-sale as of September 2008. At the same date, LuizaCred had 448 points-of-sale while PontoCred had 443.
Wholesale and Investment Banking
The Wholesale segment serves companies with annual sales of over R$150 million, in addition to institutional investors. Its business strategy is a blend of regional coverage and industry-specific expertise designed to build long-term banking relationships.
Distinctive products and services such as cash management solutions and structured finance, besides the asset growth, were the highlights in the quarter.
As a financial agent for BNDES (Brazilian National Bank for Social and Economic Development), Unibanco disbursed R$3,257 million up to August 2008, with a 11.6% market share, maintaining its 3rd place in the BNDES overall ranking. In the same period, Unibanco also disbursed R$401 million in BNDES-eximfunded loans.
The Wholesale loan portfolio reached R$ 30,190 million in September 2008, up 14.4% in the quarter, mainly influenced by the Real depreciation of 20.3% in the quarter. It is worth mentioning that US dollar-denominated credit portfolio represents approximately 15% of the total loans. The loan growth was also influenced by the increasing demand from companies in this sector for funds in the Brazilian market, mainly due to the lower liquidity in the international market.
The Investment Banking, enlists executives with extensive experience in the Brazilian and international financial sectors. The Investment Banking handles origination, structuring, distribution, and research. Since April 2008, the new structure has focused on prospecting business and on consolidating its operations. The highlight was the Equity Research team of Investment Banking, which was recognized as the only Brazilian firm among the Top 10 Research Houses in the 2008 Latin Research Team ranking, from Institutional Investor magazine.
Insurance and Pension Plans
Results for the Insurance and Private Pension Plan businesses stood at R$ 280 million in 9M08. Operating income reached R$ 129 million in 9M08. Combined revenues from the Insurance and Private Pension Plan businesses were R$ 4,583 million in the nine first months of 2008.
Consolidated technical reserves reached R$11,621 million at the end September 2008.
The financial result was affected by the several payments of Interest on Capital/Dividends, performed by the company during the 9M08 in the total amount of R$131 million.
The loss ratio was 160 b.p. improvement in 9M08. The combined ratio reached 94.5%, and significantly better than the industry average.
Unibanco Insurance and Pension Plans companies placed 4th in the ranking of insurance and private pension plans published by Susep (Private Insurance Regulatory Body) and ANS (National Supplemental Health Regulatory Agency), and hold a 7.4% market share (as of August 2008).
Unibanco Insurance and Pension Plan business is supervised by Brazilian regulatory authorities and its technical reserves, both for insurance and pension plans, are composed exclusively by securities traded in the national market, as required by the applicable regulation.
Unibanco is the leader in the following segments: D&O (Directors and Officers), aviation risks, transportation risks, facultative risks and extended warranty products, a key product for the cross selling strategy in the insurance business.
Net income from the private pension business in 9M08 was R$79 million. Revenues were R$1,477 million in 9M08, due to sales effort in alternative channels. The technical reserves reached R$8,693 million in September 2008.
According to statistical data compiled by Susep, Unibanco ranked 5th in private pension plan revenues, up to August 2008. Unibanco ranked 2nd in sales of corporate pension plans, with R$551.8 million in sales and a 19.2% market share, according to Fenaprevi, up to August 2008. The company serves more than 1,500 corporate clients and more than 890 thousand individual clients.
Unibanco Asset Management
Unibanco Asset Management (UAM) was the Brazilian first institution focused on third partys investment management. It offers an extensive variety of distinctive and high value-added products and services and consistency in asset management, addressed to wealth generation, protection and growth.
UAM ended September 2008 with a 14.3% growth, reaching R$55.6 billion in assets under management. The 13.3% decrease in the quarter, is explained by the reduction in assets from the short-term cash management fund, in the form of a FIDC (Credit Receivable Investment Fund) of Petrobras.
According to Anbid, UAM increased its market share in the Corporate segment to 8.0% in September 2008. Since July 2001, Standard & Poors has rated UAM as AMP-1 (Very Strong). This rating corresponds to third party asset management practices, and is the highest possible rate in the scale that goes from AMP-1 to AMP-5.
The funds managed by UAM have received several awards from the magazines Guia Exame, Valor Invest (Fixed Income and Equity Top Management), GazetaInveste and Investidor Institucional. In September, 2008, six UAM funds were awarded with the excellence label in a ranking produced by PPS Consultoria for Investidor Institucional magazine (one fixed income fund, two multi-market funds and three equity funds).
UAM was the first Brazilian asset management company to join the PRI Principles for Responsible Investment of United Nations (UN).
Unibanco Private Bank
During 3Q08, Unibanco Private Bank maintained its improvements in infrastructure and in customer assistance efforts Brazil wide, launching new offices in Curitiba and Goiânia.
Net funding raised maintained its strong pace, 137% up when compared to the same period of last year, and more focused in less risky products, due to the international market crisis.
Assets under management in the domestic market reached R$28 billion, a 34% growth.
During this quarter, the Programa de Desenvolvimento de Lideranças Nova Geração (Leadership Development Program New Generation) was launched, focused in Family Succession topics. The program is directed to clients sons and wives and is composed by 10 modules developed in a partnership with Fundação Dom Cabral.
This year, Unibanco completes 40 years of listing in Bovespa.
Unibanco was the first Brazilian bank to be listed on the New York Stock Exchange. It is worth mentioning that Unibancos GDS is the only ADR level III among Brazilian banks.
In 9M08, the GDSs average daily trading volume reached R$350 million. In Bovespa, the Units average daily trading volume was R$96.7 million.
Stock Exchange Indices
Unibancos Units (UBBR11) are part of the main Brazilian stock indices. Since its inclusion on the Ibovespa in May 2005, its weighting increased more than 140%.
At the end of 3Q08, Unibancos market capitalization, based on the Unit (UBBR11) closing quotation of R$19.45, as of September 30, 2008, was R$27.1 billion.
Stock Repurchase Program
On February 2008, the Board of Directors of both Unibanco and Unibanco Holdings approved the acquisition of up to 20,000,000 Units, with the purpose of keeping these shares in Unibancos treasury, for further sale or cancellation, without share capital reduction of Unibanco or Unibanco Holdings.
The authorization is valid for 12 months from February 15, 2008, and the acquisition of the shares is made through the broker Unibanco InvestShop Corretora de Valores Mobiliários S.A.
On October 2008, the Board of Directors of Unibanco and Unibanco Holdings approved an increase in the limit of shares that can be acquired under the stock repurchase plan approved on February, 2008. Unibanco is now authorized to acquire up to 40,000,000 Units.
Interest on Capital Stock and Dividends
Unibanco and Unibanco Holdings paid quarterly Interest on capital stock on October 31, 2008
Unibanco's dividend distribution policy calls for a minimum payment of 35% of the annual net income after the establishment of legal reserves (5%). Unibanco Holdings distributes the entirety of its results realized in cash.
At the end of each six-month period, all Unibanco and Unibanco Holdings shareholders are paid an additional amount related to the earnings in the period, besides the fixed quarterly payments. For this reason, dividend payouts at the second and fourth quarters tend to be higher than those made during the other two periods of each year.
UAMs Endorsement to The United Nations Principles for Responsible Investment
In July, Unibanco Asset Management (UAM) endorsed the Principles for Responsible Investment (PRI), an initiative by the United Nations for incorporating environmental, social and corporate governance (ESG) issues into the investment decision-making process.
UAM is the first of Brazilian asset management firms to adhere the PRI. As a representative of institutional investors, UAM elaborated a voting policy for annual shareholders' meetings, thus environmental, social and corporate governance issues will be considered.
The principles are voluntary and seek to provide a framework of sustainable development for the financial and capital market. The PRI were developed in 2005 by an international group of institutional investors in collaboration with the former United Nations Secretary-General Kofi Annan.
7002 - BALANCE SHEET
7003 - STATEMENT OF INCOME
7004 - STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
7005 - STATEMENT OF CHANGES IN FINANCIAL POSITION
7006 - CONSOLIDATED BALANCE SHEET
7007 - CONSOLIDATED STATEMENT OF INCOME
7008 - CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
7009 - CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
7010 - FINANCIAL GROUP BALANCE SHEET
7011 - FINANCIAL GROUP STATEMENT OF INCOME
7012 - FINANCIAL GROUP STATEMENT OF CHANGES IN FINANCIAL POSITION
7013 - FINANCIAL ECONOMIC GROUP - CONEF
7014 - NOTES TO THE QUARTERLY FINANCIAL INFORMATION
The operations of Unibanco - União de Bancos Brasileiros S.A. and its direct and indirect subsidiaries and jointly controlled companies in Brazil and abroad include, in addition to the financial activities of the Unibanco Conglomerate, other activities carried out by subsidiaries with specific objectives principally related to insurance, credit card operations, annuity product plans and private retirement plans.
2. Presentation of Quarterly Information
The quarterly information of Unibanco - União de Bancos Brasileiros S.A. and its foreign branch (Unibanco) are presented together with the consolidated quarterly information of Unibanco and its direct and indirect subsidiaries, and its jointly controlled companies (Unibanco Consolidated), as shown in Note 11.
The consolidated quarterly information has been prepared in accordance with consolidation principles determined by the Brazilian Securities Commission and Brazilian Central Bank. Intercompany investments, balances, income and expenses, as well as unrealized intercompany gains and losses, were eliminated upon consolidation. The investments held by consolidated companies in Exclusive Investment Funds have been consolidated and Investments in these fund portfolios are classified by type of transaction and type of paper. The assets, liabilities, revenues and expenses of jointly controlled companies have been included in the consolidated quarterly information on a proportional basis. The quarterly information of September 30, 2008 include the statements of cash flows and value added.
The quarterly information of the leasing subsidiary was reclassified by means of off-book adjustments, in order to reflect its financial position and results of operations in the consolidation, in accordance with the financial method of accounting for leasing transactions.
In preparing our quarterly information, estimates and assumptions were used to account for certain assets, liabilities, revenues and expenses in accordance with accounting practices adopted in Brazil. Estimates and assumptions were used to account for the allowance for credit losses, the provision for litigation, the fair value of financial instruments, in the methods of determining reserves of insurance and private retirement plan businesses and to determine the remaining useful lives of certain assets. Actual results in future periods could differ from those estimates and assumptions and judgments adopted.
3. Summary of Significant Accounting Policies
The accounting policies adopted by Unibanco and its subsidiary companies are in accordance with the requirements of Brazilian Corporate Law and the regulations of the National Monetary Council, the Brazilian Central Bank, the Brazilian Securities Commission and the Superintendency of Private Insurances, have already considered determined aspects of Law n° 11,638 at December 29, 2007, mentioned in Note 25 (c).
(a) Determination of net income
Net income is determined on the accrual basis and considers:
(b) Current and long-term assets
These assets are stated at cost plus, when applicable, the related income and monetary and exchange rate variations, and less the related unearned income and/or allowances for losses, except for marketable securities, the derivative financial instruments and financial assets subject to hedge, which are presented as stated in item (c).
The allowance for losses on credit is set up in an amount considered sufficient to cover probable future losses. Management's analysis to establish the allowance required takes into account the economic environment, accumulated experience, specific and general portfolio risks, as well as the regulations of the Brazilian Central Bank.
(c) Marketable securities and derivative financial instruments
Marketable securities are classified into three categories accounted for as follows:
Derivative financial instruments (assets and liabilities)
The derivative financial instruments are classified based on Managements intent for hedging or non-hedging purposes.
Derivative financial instruments designed to hedge or to modify characteristics of financial assets or liabilities and (i) which are highly correlated to changes in fair value in relation to the fair value of the item being hedged, both at inception date and over the life of the contract; and (ii) are effective at reducing the risk associated with the exposure being hedged, are classified as hedges as follows:
- Fair value hedge. The financial assets and liabilities and the corresponding derivative financial instruments are accounted for at fair value and any offsetting gains or losses recognized currently in earnings; and
- Cash flow hedge. The effective hedge portion of financial assets and liabilities and the respective derivative financial instruments are accounted for at fair value and any unrealized gains and losses are recorded as a separate component of stockholders equity, net of applicable taxes, as Unrealized gains and losses marketable securities and derivatives. The non-effective hedge portion is recognized currently in earnings.
Transactions involving derivative financial instruments to meet customer needs or for the banks own purposes that do not meet hedge accounting requirements established by the Brazilian Central Bank, primarily derivatives used to manage overall exposure, are accounted for at fair value with unrealized gains and losses recognized currently in earnings.
(d) Prepaid expenses
It is composed by financial resources related to benefits or services that will be provided in the future.
(e) Permanent assets
Investments, fixed assets and deferred charges are originally stated at cost.
Investments in subsidiary and associated companies whose investments due to common shares which has significant influence, are accounted for using the equity method of accounting in the proportion of the ownership interest in the stockholders equity of the associated companies, as shown in Note 11. The effects in subsidiary and associated companies related to the valuation of marketable securities and derivatives, as mentioned above in item (c), are recognized by the controlling company so as to maintain the original accounting made by the subsidiary and associated companies.
Other investments consist, principally, of investments carried at cost, adjusted by an allowance for losses, when applicable.
Goodwill relating to the acquisition of subsidiaries is being amortized over periods not exceeding five years, see Note 11 (b). Upon the merger of the subsidiary company with the discontinuation or expiration of the acquired brand, the respective goodwill is amortized in full.
Depreciation of fixed assets is calculated on the straight-line method at the following annual rates: buildings in use - 4%; equipment in use - 10%; and communications, data processing, and transportation systems - 20%.
Deferred charges, composed substantially of leasehold improvements and software acquisition and development, are amortized over the term of the respective lease contracts or up to five years as from the beginning of their use.
(f) Current and long-term liabilities
These amounts are presented at cost and include, when applicable, accrued interest and monetary and exchange rate variations, except for derivative financial instruments and liabilities subject to hedge, which are presented above in item (c).
Liabilities are presented according to their maturity in current or long-term liabilities. Time deposits are presented according to their contractual maturity date despite that it is market practice to offer immediate liquidity for these instruments.
(g) Contingent assets and liabilities and legal liabilities.
The recognition, measurement and disclosure of contingent assets and liabilities are made according to the criteria defined in Deliberation CVM n° 489 of 2005.
Contingent assets Contingent assets are not recorded, except upon evidence guaranteeing their realization.
Contingent liabilities Contingent liabilities are recorded, based on the opinion of Legal Counsel Advisers and the Administration, whenever a loss is considered as probable for judicial and administrative claims, which would cause a probable outflow of resources for the settlement of liabilities and when the amounts involved can be reasonably estimated.
Legal liabilities Taxes and social security result from obligations arising under legislation, independently from the probable outcome of litigation in progress, which have their full amount recorded.
(h) Technical provisions for insurance, complementary pension plans and annuity products
The technical provisions are recorded in accordance with the rules of Resolution CNSP no. 162/06 and 139/05. In accordance with Resolution CNSP no. 135/05, an actuarial valuation is also performed on an annual basis and reported to the Superintendency of Private Insurance (SUSEP) with the respective actuarial report.
The provision for unearned premiums (PPNG) is recorded to cover claims to be incurred through the deferment of premium income over the related contract period according to the regulation of the Superintendency of Private Insurance - SUSEP. When the actuarial calculation determines a shortfall the provision for insufficient premiums (PIP) is increased.
The provision for payment of unsettled claims (PSL) is recorded to cover claims reported until the date of the calculation base, considering commitments assumed by the insurance company.
The provision for claims incurred but not yet reported (IBNR) is recorded based on the risk of incidents incurred but not yet reported until the reporting date and the amount is determined through actuarial calculation.
The mathematical provisions related to the free benefits generator plan (VGBL and PGBL) and comprise the amounts of the liabilities assumed under the form of survival insurance and are established based on the financial method determined in the contract under the responsibility of a legally qualified actuary. The mathematical provisions represent the present value of future benefits estimated based on actuarial methods and assumptions.
The mathematical provision for benefits to be granted represents the commitments assumed with participants, whose vesting event and the Mathematical Provision for Benefits granted corresponds to the value of commitments whose vesting event has already occurred. Both provisions are calculated according to methodology approved in the Actuarial Note of the plan or product.
The financial expenses related to the technical provision are recorded as Interest and monetary correction on technical provision for insurance, pension plans and annuity products.
4. Short-Term Interbank Investments
5. Marketable Securities and Derivative Financial Instruments
(a) The balances can be summarized as follows:
(b) Trading assets
Trading securities are classified as current assets, regardless of their maturity dates, since these securities are actively and frequently traded.
(c) Securities available for sale
(ii) By maturity:
(1) Refers to marketable equity securities and mutual funds.
(d) Securities held to maturity
(ii) By maturity:
(iii) Financial ability
Unibanco and its subsidiaries classified investments as held to maturity for which there is intention and financial ability to hold them to maturity. Maturities are the parameters used to define financial ability, interest rate (existence of positive spread) and liabilities transactions currencies.
(e) Fair value determination
The fair value of Marketable Securities is calculated by fair value, when applicable, is based on the available prices of Stock Exchanges or on an internal valuation model based on the average rate for the last business day of the quarter, as informed by Stock Exchanges trade associations and external entities.
(f)Derivative financial instruments
(i) The current notional and fair values of derivative financial instruments recorded in memorandum accounts, except for the option contracts, whose notional exposure represents the premium paid/received and the exposure at fair value represents the amounts recorded in assets and liabilities accounts, are as follows:
(ii) Nominal value by maturity and type, are as follows:
(iii) Nominal value by trade location/counterpart:
(iv) Market value by trade location:
On September 30, 2008 the amounts pledged to guarantee BM&F transactions were R$282,949 in Unibanco and R$359,059 in Unibanco Consolidated and are comprised by federal government securities.
(v) The maturities and types of derivative financial instruments recorded in balance sheet accounts are as follows:
(1) CETIP (Clearing House for Custody and Financial Settlement of Securities).
(vi) Hedge Account
(a) On September 30, 2008, there were derivative financial instruments recognized as cash flow hedges accounted for at fair value and associated to the US dollar fluctuations and indexed to interbank interest rate (CDI) represented in Unibanco and in Unibanco Consolidated by future transactions in the amount of R$30,267,539, swap contracts in the amount of R$132,779 and forward contracts in the amount of R$65,137, associated with future liabilities transaction with variations of interbank interest rate (CDI). These contracts presented on September 30, 2008, gains net of applicable taxes in the amount of R$60,395 in Unibanco and in Unibanco Consolidated, recorded in Unrealized gains or losses marketable securities and derivatives.
The hedges as of September 30, 2008, were undertaken in accordance with the standards established by the Brazilian Central Bank and were not identified ineffective hedge to be accounted during the quarter.
The transactions shown above do not represent Unibancos total exposure to market, currency and interest rate risks since they only consider the derivative financial instruments.
(b) The swap transactions associated with funding and/or asset operations in the amount of R$2,091,040 in Unibanco and in Unibanco Consolidated are recorded at current notional value, adjusted in accordance with the index variation occurred (carrying amount), and are not adjusted to their fair value, in accordance with Circular n°. 3,150/02 of the Brazilian Central Bank.
6. Lending, Leasing and Other Credits Portfolio and Allowance for Credit Losses
(a) Components of the operations portfolio by type and by maturity:
(1) Recorded in Other liabilities Foreign exchange portfolio. (See Note 7 (a))
(2) Other credits refer, substantially, to receivables from purchase of assets, notes and credits receivable, insurance premium and receivables from credit card operations (with attributes of lending).
(3) Include 14 days past-due amounts.
(b) Components of lending, leasing and other credits by business activity:
(c) Concentration of lending, leasing and other credits:
(d) Components of lending, leasing and other credits and allowance for losses by risk level:
(1) Include past-due for more than 15 days.
The allowance for credit losses is recorded in accordance with Resolution 2,682 of the Brazilian National Monetary Council. The minimum allowance for each level is used as a general rule, however, based on the judgment and experience of management, higher percentages are used within each level in order to assess the risk of certain clients, operations or portfolios more accurately.
(e) The balance of renegotiated transactions with clients as established in Resolution 2,682 of the Brazilian National Monetary Council totaled R$906,495 in Unibanco and R$1,370,643 in Unibanco Consolidated. These transactions relate to the active portfolio and credits written off, and were reclassified in a manner which maintains the risk assessment and the provision for losses existing prior to renegotiation. These transactions are only re-assessed to higher classification only after the collection of a significant portion of the renegotiated debt.
(f) Changes in the allowance for credit losses during the quarter:
(1) Loan recoveries were recorded as revenue from Lending operations and Leasing operations.
7. Foreign Exchange Portfolio
(a) Balance sheet
(b) Statement of income
8. Other Credits Sundry
(1) Substantially related to litigations (Note 14)
9. Prepaid Expenses
10. Foreign Branch
As mentioned in Note 2, the financial statement of foreign branch (Grand Cayman) is consolidated with that of Unibanco.
The balance of this branch can be summarized as follows:
(a) Investments in subsidiary and associated companies
Results of investments in subsidiary and associated companies were recorded as Equity in the results of subsidiary companies in the statement of income. The foreign branch and subsidiary companies exchange gains in the amount of R$919,885 in Unibanco and in Unibanco Consolidated, were recognized as Gross Profit from Financial Intermediation. The investments in subsidiary and associated companies and the major transactions relating to investments in subsidiary and associated companies, were as follows:
(i) The percentage shown in the Unibanco Consolidated column refers to the total percentage holding in the companies.
(1) The difference between the net income (loss) and the equity results and between the stockholders equity and the investment balance were mainly, alteration of participation during the period and restatement of exchange membership certificates, recorded in stockholders equity of the investee.
(2) In June 2007, Unibanco admitted a non financial company of the Deutsche group as a minority shareholder in a non-financial subsidiary, Unibanco Participações Societárias S.A. - (UPS), controlled by Dibens Leasing S.A. - Arrendamento Mercantil. The minority shareholder became a holder of 49% of the total capital of UPS which has the business purpose of participation in Unibancos non-financial subsidiaries. See Note 26.
(3) In June 2008, approved the increase in the capital of Unipart Participações Internacionais Ltd., in the amount of US$588,912 represented by 588,912 shares, totally paid by Unibanco.
(4) The Extraordinary Shareholders´meeting held in July 2008, approved the increase of capital, in the amount of R$78,856, through the issue of 3,098,472,089 common shares, with no par value, originated by the absorption of the split-up of Banco Único S.A. (in process of transformation and charging the name to Unibanco Banco de Investimentos do Brasil S.A. (BIB). The change is pending of the approval of Brazilian Central Bank.
(5) The Extraordinary Shareholders´meeting held in April 2008, approved the increase of capital, in the amount of R$20,706, with no shares issued, capitalizing the earnings of 2007 and reserves. The Brazilian Central Bank approved in April, 2008. The Extraordinary Shareholders´meetings held in July 2008, approved (i) the increase of capital in the amount of R$174,216, through the private issue of 3,166,357,881 shares being 1,583,178,941 common shares and 1,583,178,940 preferred shares, with no par value; (ii) denomination changed to Unibanco Banco de Investimentos do Brasil S.A.; (iii) capital reduction in the amount of R$78,856, with no change in the number of shares, by the transfer of part of the equity to Banco Dibens and (iv) increase of capital in the amount of R$81,935, with no shares issued by capitalization of the reserves. These changes are pending of the approval of the Brazilian Central Bank.
(6) The Ordinary Shareholders´meeting held in April 2008, approved the increase of capital, in the amount of Gs1 467,360, represented by 1,467,360,000 shares.
(7) The Extraordinary Shareholders´meeting held in September 2008, approved the change of the social denomination to Unibanco Securities Corretora de Valores Mobiliários e Câmbio S.A. The change is pending of the approval of Brazilian Central Bank.
(8) The Extraordinary Shareholders´meeting held in March 2008, approved the increase of capital in the amount of R$1,750, with no shares issued, capitalizing the earnings of 2007. The Brazilian Central Bank approved the increase in the capital in June 2008.
(9) The Extraordinary Shareholders´meeting held in April 2008, approved the increase of capital in the amount of R$11,803, through the private issue of 3,995,140 common shares, with no par value.
(10) In August 2008, the Change and Consolidation of Statutes Agreement, changed the social denomination of Fininvest Negócios de Varejo Ltda.,to Provar Negócios de Varejo Ltda.
(b)Goodwill on acquisition of companies
The goodwill on acquisition of a company is based on the expectation of future earnings, with the amortization period changed up to 5 years. The goodwill balance shown in the Unibanco consolidated financial statements and the amount amortized were as follows:
12. Resources from Securities Issued
Resources from securities issued are represented mainly by mortgage notes, debentures, real estate notes and credit and similar issued in Brazil and euronotes issued abroad.
(a) The resources from real estate and credit and similar are represented substantially by:
(i) The real estate notes in the amount of R$1,923,409 in Unibanco and in Unibanco Consolidated are restated, being paid up to 93% of interbank interest rate and maturing up to August 2010.
(ii) The agribusiness credit bills in the amount of R$2,420,319 in Unibanco and in Unibanco Consolidated are restarted, being paid up to 93% of interbank interest rate and maturing up to May 2011.
(b) Resources from debentures
Debentures issued by Dibens Leasing S.A. - Arrendamento Mercantil are restated, bearing interest up to 102% of interbank interest rate, paid semiannually and mature up to January 2023.
Debentures pledged schedules are restated, bearing interest up to 106% of interbank interest rate and fixed interest rate up to 14.2% with maturity up to January 2020.
(c) Securities abroad Euronotes
The average interest of issues in foreign currency was 4.79% per annum in Unibanco and 4.46% per annum in Unibanco Consolidated.
(d) The other issues totaled R$14,464 in Unibanco and in Unibanco Consolidated with maturities up to September 2010 and an average interest rate of 5.52% per annum.
13. Borrowings and Onlendings
Foreign borrowings consist principally for refinancing of foreign exchange transactions, imports and exports.
Onlendings in Brazil governmental agencies are payable up to 2029, with interest rates established by operational policies of BNDES (National Economic Development Bank).
Foreign onlendings, consisting of long-term credit lines for project and trade financing, are payable up to April 2018, with an average interest rate of 4.27% per annum.
14. Contingent Assets and Liabilities and Legal Liabilities
Unibanco and its subsidiaries are parties to several disputes, including judicial lawsuits and administrative proceedings mainly related to tax, civil and labor claims.
As from first half ended in June, 2007, the provisions for labor claims are based on: (i) the individual analysis regarding the potential amount of the probable losses, pursuant to the advice of our legal counsel for claims with significant individual amounts; (ii) the historic percentage of the balance of judicial deposits converted into payments with respect to the labor claims with judicial deposits; and (iii) the historic average of payments made, for all other claims.
Civil litigation is represented mainly by claims for personal and moral injury, due to among other reasons, returns of checks, and protests of notes considered not due and economic plans. As from the six-months ended June 30, 2007 the amount provided represents managements estimate, considering the probability of loss in those lawsuits, based on: (i) the individual analysis regarding the potential amount of the probable losses, pursuant to the advice of our legal counsel for claims with significant individual amounts; (ii) the balance of judicial deposits converted into payments, with respect to the civil claims with judicial deposits; and (iii) the historic average of payments made, for all other claims.
Tax claims, which are considered legal liabilities based on Deliberation CVM n° 489, independently of the probability of loss, and whose tax claims with loss classification as probable, in accordance with the opinion of the legal advisors, are recognized at the full amount being questioned. On September 30, 2008, Unibanco and its subsidiaries maintained provision for such causes in the total amount of R$2,014,092 in Unibanco and R$3,281,685 in Unibanco Consolidated, mainly: (i) widening of the calculation basis of Profit Participation Program PIS and Tax and Social Security Financing COFINS by Law 9,718, in the amount of R$1,487,197 in Unibanco and R$2,014,413 in Unibanco Consolidated; (ii) Deductibility of interest and taxes whose payments are suspended, in the amount of R$299,855 in Unibanco and R$387,781 in Unibanco Consolidated; and (iii) Social Contribution on Net Income of non-employees companies in the amount of R$231,527 in Unibanco Consolidated.
The tax claims considered as legal liabilities have a remote or possible risk of loss in accordance with the opinion of legal advisors.
The suits which are not considered legal liabilities and those suits with loss classification as possible in accordance with the legal advisors opinion, are not recognized for accounting purposes and, the amount, net of tax effects, is R$1,088,457 in Unibanco Consolidated. These suits include disputes regarding:
(i) Collection of CPMF on leasing transactions in the amount of R$165,039;
Provisions recorded and their movements in the quarter are as follows:
15. Other Liabilities
(a) Technical provision for insurance, private retirement plans and annuity products:
(b) Subordinated debt
16. Employee Benefits
(a) Pension plan
Unibanco and its subsidiary companies provide to their employees a pension plan, based on a defined contribution through UBB-Prev Previdência Complementar a non-listed entity. The program is sponsored by Unibanco, its subsidiaries and employees.
During the quarter ended September 30, 2008, the company sponsor contributions totaled R$13,136 in Unibanco and R$14,505 in Unibanco Consolidated.
(b) Stock option program
Unibanco has a Stock Option Plan, which aims to align the executives commitment with long term results and reward exceptional performance. It is also an instrument for attraction, retention and motivation of talented people. In the Extraordinary Shareholders Meeting, held in March 2007, a change in the Stock Option Plan was approved to allow the establishment of a program, in which some executives are chosen to be partners of Unibanco. The executives must maintain the Units, subject to market conditions, for 3 to 5 years. The Partner Program has become the main incentive program to executives. These executives will be able to invest a percentage of their respective bonuses to acquire Unibanco Units and, for each acquired Unit each executive will receive certain amount of Bonus Units (options to acquire Units subjected to defined vesting conditions). The granted Units stock options can be exercised by the executives in 3 to 5 years. The annual granted options cannot exceed 1% of the authorized capital and total granted options represent 0.3% of the authorized capital and are accordance with the limit established of 10%.
Up to September 30, 2008, the options activity was as follows:
The stock option program in Units (Share Deposit Certificate is represented by a preferred share issued by Unibanco and by a preferred share issued by Unibanco Holdings) is granted simultaneously by Unibanco and Holdings.
The cancelled options refer to beneficiaries excluded before the end of the exercise period, except for retirees that will be continuing as participants active in the program.
The exercise price of stock option after the third quarter of 2004, is being restated, pro rata temporis, pegged accumulated to the IPCA (Amplified Consumer Price Index) for the period between the issuance date and the respective exercise period of each option in Units.
The amounts and unit prices were adjusted in accordance with the issuance of bonus shares in July 2006.
The executives who opted to invest a percentage of their respective bonuses to purchase Unibanco Units received the following number of Bonus Units.
The exercise of these bonus units is linked to the achievement of individual objectives and the maintenance of the propriety of their own shares without changes and burden during the exercise period.
17. Stockholders Equity
Subscribed and paid-in capital is comprised of shares without par value, as follows:
Preferred shares carry no voting rights, aren´t convertible into common shares, have priority over common shares in the reimbursement of capital, in the case of liquidation, up to the amount of capital represented by such preferred shares, and are entitled to receive a 10% greater dividend per share than that distributed to common stockholders.
Each Share Deposit Certificate (Unit) is represented by a preferred share issued by Unibanco and by a preferred share issued by Unibanco Holdings S.A. (Holdings) and is traded in the Brazilian market. On September 30, 2008, the market value of Units is R$19.45.
On May 29, 2008, the Board of Directors approved the change in the Global Depositary Shares (GDSs). Each GDS, that represents 10 (ten) Units currently, will represent 2 (two) Units. This change is pending on the approval of Brazilian Securities Commission. Whilst CVM does not approve, GDSs units keep continue to be traded as 10 (ten) Units.
The Extraordinary Shareholders Meeting held on July 16, 2008, approved and confirmed the capital increase in the amount of R$3,000,000 through partial appropriation of income reserves (reserve applied to secure suitable operating margin to Company), represented by 280,775,580 bonus shares issued to stockholders, being 151,131,633 common shares and 129,643,947 preferred shares, in proportion to 1 per 10 owned shares. These alterations depend on approbation by Brazilian Central Bank.
The unit cost was R$10.685451 to bonus shares and R$21.299488 to Units, in accordance with 1st paragraph of article 25 from Federal Internal Revenue Department normative instruction n° 25/2001.
The treasury stock will be bonus under the condition of Brazilian Securities Commission (CVM) authorization, in accordance with the information submitted to CVM on July 7, 2008. If CVM refuses this possibility, the Board of Directors will determine, based on number of shares in transit on the base date, (i) the number of shares to be issued following the share dividend, (ii) the new number of shares that will comprise their capital stocks, including the authorized capital and (iii) the unit cost will be given to bonus shares, that will be adjusted to share number issued effectually, being realized to stockholders by market release.
(b) Dividends and interest on own capital
The mandatory dividend represents at least 35% of the Banks annual net income, adjusted for transfers to the legal reserve.
During the third quarter of 2008, R$275,207 of interest on own capital, to be paid to stockholders, was accrued. The interest on own capital was calculated in accordance with article 9° of Law n° 9,249/95 with tax benefit by deductibility of R$110,083. The amounts, net of applicable tax, will be included in the calculation of the minimum mandatory dividend of the year.
In September 2008, the Board of Directors approved the payment of interest on capital to the shareholders, comprising R$113,346 related to the third quarter of 2008, amounting to R$0.0388 (R$0.0330 net of applicable tax) per common share and R$0.0427 (R$0.0363 net of applicable tax) per preferred share. The payment was realized on October 31, 2008.
The Units had interested on capital of R$0.0765 (R$0.0650 net of applicable tax) being R$0.0338 (R$0.0287 net of applicable tax) from Unibanco Holdings and R$0.0427 (R$0.0363 net of applicable tax) from Unibanco. The GDS had interested on own capital of R$0.7647 (R$0.6500 net of applicable tax).
In July 2008, the Board of Directors approved the payment of interest on capital to the shareholders previously accrued, in the amount of R$465,000 comprising R$113,294 related to the second quarter of 2008 and a complement to the interest on capital related to the six-month ended on June 30, 2008 in the amount of R$351,706, amounting to R$0.1593 (R$0.1354 net of applicable tax) per common share and R$0.1753 (R$0.1490 net of applicable tax) per preferred share. The payment was realized on July 31, 2008.
The Units had interested on capital of R$0.3121 (R$0.2653 net of applicable tax) being R$0.1368 (R$0.1163 net of applicable tax) from Unibanco Holdings and R$0.1753 (R$0.1490 net of applicable tax) from Unibanco. The GDS had interested on own capital of R$3.1215 (R$2.6533 net of applicable tax).
(c) Capital reserves
These reserves are substantially represented by share premium reserve.
(d) Statutory reserves
The balance is summarized as follows:
(e) Treasury stock
On October 24, 2008 Unibanco announced the supplement of the Repurchase Program Shares of February 13, 2008. The Board of Directors of both Unibanco and Unibanco Holdings approved, respectively, the new limit of the acquisition of shares for the purpose of maintaining these shares in treasury from 20,000,000 of Units to 40,000,000 of Units for further sale or cancellation, without reducing the share capital of Unibanco and Unibanco Holdings. Unibanco´s Executive Board shall decide the timing and volume of the acquisitions. The authorization will be valid for 12 months as from February 15, 2008, and the acquisition of the shares will be carried out at fair market value through the broker Unibanco Investshop Corretora de Valores Mobiliários S.A. or other broker that comes to be defined by the Unibanco´s Executive Board.
In the repurchase program, shares of Unibanco Holdings are acquired by Unibanco, by using revenue reserves, for subsequent exchange for its own shares.
During the quarter ended September 30, 2008, in accordance with the repurchase program and Stock option program (Note 16 (b)), the following changes in treasury stock occurred:
The average cost was R$19.27 per repurchased Units, and the minimum and maximum price per share were R$16.84 and R$20.74, respectively.
18. Revenues from services rendering
The charges from services rendered collecting was regulated by National Monetary Council Resolution n° 3,518, applied since April 2008, with the application to rules they laid down. The revenues components are disclosured following this Resolution since 2007 for the purpose of better comparability.
Components of the revenues from services rendering by type:
19. Other Operating Income and Expenses
(a) Other operating income
(b) Other operating expenses
20. Income Tax and Social Contribution
Deferred income tax and social contribution, calculated on tax losses and social contribution carry-forwards are recorded in Other credits sundry, and provisions not currently deductible are recorded in Other credits sundry or in Other liabilities taxes and social security, according to their nature.
Deferred tax assets on tax losses and social contribution losses are realized in accordance with the existing taxable income, and deferred income taxes on temporary differences are realized when the related provision is utilized or reversed.
(a) Deferred tax assets
Deferred tax assets recorded are determined at the tax rates in effect at each balance sheet date.
On September 30, 2008, the expected realization of deferred taxes is as follows:
The present value of deferred taxes, calculated using the average rate of funding, net of tax effects, totaled R$2,004,821 in Unibanco and R$3,720,013 in Unibanco Consolidated.
(b) Income tax and social contribution income (expenses):
21. Adjusted Net Income
22. Commitments and Guarantees
23. Related-Party Transactions (Unibanco)
The amounts shown above reflect transactions between Unibanco and its subsidiary companies, and have been eliminated on consolidation. Transactions with unconsolidated related parties are limited to normal banking transactions and are not material in the operational context of Unibanco.
Related-party transactions were undertaken at average market rates in effect at the respective transaction dates, considering the absence of risk.
Services rendered relate basically to services offered by Unibanco to the group companies according to the terms of contractual agreements, through utilization of physical assets and personnel related to credit card, leasing, annuity products plans, insurance operations and brokerage.
Other administrative expenses relate mainly to the payment of rents based on the fair value of the buildings according to the lease contracts.
24. Financial Instruments
(a) Purposes and use policies
Unibanco uses derivative financial instruments to manage its own overall exposures or to assist its clients, in managing market risks, foreign exchange risk and interest rate risk (hedge). In addition, Unibanco enters into derivative contracts for trading purposes to take advantage of market opportunities.
(b) Hedge policies
Derivative financial instruments can be used as part of asset and liability risk management and can be used on an overall basis to hedge Unibancos net position undertaken in certain markets or related to specific assets and liabilities attributed to a particular risk.
(c) Strategy and management of risk
Unibanco continuously strives to improve its risk management practices, which are integrated into the various levels of the organization. A separate division is responsible for identifying, measuring and managing market, credit and operational risk on an institution-wide basis. In addition, each business division has dedicated risk management staff.
(d) Fair value determination
The fair value of Marketable Securities and of Derivative Financial Instruments is calculated by fair value, when applicable is based on the available prices of Stock Exchanges or on an internal valuation model based on the average rate for the last business day of the quarter, as informed by Stock Exchanges trade associations and external entities.
The management of credit risk seeks to submit constant information to help in defining strategies beyond the establishment of position limits, comprising exposure and trend analysis as well as the effectiveness of credit policies.
Market and liquidity risk
The management of market risk and liquidity is conducted through daily monitoring of exposure level vis-à-vis limits established with the help of tools such as VAR, sensitivity analysis and stress testing.
Operational risk management is conducted through evaluating new products and transactions, monitoring processes, defining risk indicators, and quantifying potential operating losses, allowing for the establishment of a solid culture of operational risk monitoring and mitigation.
(e) Financial instruments recorded in the quarterly information compared to the respective fair values are as follows:
The fair value of marketable securities was based on an internal valuation model, based on the average rate for the last business day of the quarter, as informed by Stock Exchanges, trade associations and external entities.
The fair value of interbank deposits, lending operations, interbank deposits payable, time deposits and mortgage notes was based on the average rate practiced by Unibanco on the last business day of the quarter for similar instruments.
The fair value of resources from securities issued abroad and subordinated debt was based on the average quoted prices in effect in the corresponding markets on the last business day of the quarter for similar instruments.
The fair value of derivatives was based on an internal valuation model, based on the average rate for the last business day of the quarter for operations with similar maturities and indices, as informed by the Futures and Commodities Exchange - BM&F and trade associations.
The fair value of other liabilities related to sale of rights of receipt of future flow of payment orders abroad was computed considering the value that could be obtained in the corresponding market.
The fair value of treasury stocks was based on the Units price at September 30, 2008 on the São Paulo Stock Exchange.
25. Other Information
(a) Assets leased to third parties, in the amount of R$14,586,029, net of depreciation, are committed for sale to the lessees, at their option, at the end of the respective contracts for R$13,435,778 and the residual value received in advance from these lessees amounts to R$5,839,378, classified as a reduction of leasing operations. Leases of third parties assets are not material.
(b) Unibanco and its subsidiaries insure their properties and equipment to the extent considered necessary to cover eventual losses, taking into account the nature of their activity. At September 30, 2008, the insurance coverage on properties and other assets in use totaled R$416,642 in Unibanco and R$720,901 in Unibanco Consolidated.
(c) Corporate Law Amendments - Law 11,638/07
On December 28, 2007, Law no. 11,638/07 was published, which amends the Corporation Law, with respect to the accounting practices adopted in Brazil.
The new accounting practices and changes introduced by the law are being evaluated by BACEN - Brazilian Central Bank, CVM Securities Commission and SUSEP Superintendency of Private Insurances. BACEN issued on March 20, 2008, the Communication no. 16,669, and the CVM on May 2, 2008 the Instruction no. 469, providing guidance on the adoption of the new law in the financial statements and quarterly information during the 2008 fiscal year, as well as the disclosure in notes about the estimated effects of the adoption of this law on stockholders´equity and the results of the period.
The following amendments promoted by the law are already substantially adopted by the Bank and its subsidiaries in this quarterly information:
The main changes which are not yet regulated and may impact on the financial statements in December 31, 2008 are represented as follows:
Management will recognize the effects of these changes when the rules are published and the expectation is that the impacts will not be relevant on the financial statements context.
(d) Material Fact
Taking into account the behavior of capital and financial markets in Brazil and abroad, on October 24, 2008, a Material Fact was published to advance the disclosure of the major economic-financial data detailed in this report. The Material Fact is available at the RI website (www.unibanco.com.br).
26. Subsequent Event
(a) In October 2008, the Brazilian Central Bank approved the transfer of Bancred S.A. Crédito, Financiamento e Investimento ownership to Banco Cruzeiro do Sul S.A. and Unibanco União de Bancos Brasileiros S.A. in accordance with the Agreement of February 2007.
(b) Compulsory deposit
During October 2008, the Brazilian Central Bank determined changes in compulsory deposits, to aim an increase in the Brazilian Financial System liquidity.
(c) Merger between Unibanco and Itaú
On November 3, Unibanco and Itaú signed an agreement for merger of their financial operations, establishing the largest conglomerate in southern hemisphere, with a market value among the 20 largest financial institutions in the world. The created financial institution will be fully capable of competing with the biggest banks in the global market.
This partnership creates a bank with Brazilian capital with commitment, strength, vocation and economic capacity to become a vital partner in the development of Brazilian companies in Brazil and abroad. With a strong international presence with commercial bank operations in all Mercosur countries - , the institution Will have the required agility to increase the presence of Brazil internationally.
The merger, matured over 15 months of dialogues and joint work, is formed based on a strong identity of values and a converging vision for the future. The controlling stockholders of Itaúsa and Unibanco will establish a holding company with a shared governance model.
The Board of Directors of Itaú Unibanco Holding will be composed of fourteen members, six of which will be named by the controlling stockholders of Itaúsa and the Moreira Salles family. The other eight Board members will be independent. Itaú Unibanco Holdings Chairman of the Board of Directors will be Mr. Pedro Moreira Salles and its CEO will be Mr. Roberto Egydio Setubal.
The new institution will have approximately 4,800 branches and service stations, accounting for 18% of the banking network; and 14.5 million checking account clients, or 18% of market share. In loans, it will represent 19% of the Brazilian systems volume; whereas total deposits, funds and managed portfolios will reach 21%.
Combined total assets is over R$ 575 billion, the highest in southern hemisphere.
Taking into consideration the increase in capital related to the shares merger, the stockholding interests changes and the accounting and tax effects, the impact produced on Itaú Unibanco Holdings results is estimated at R$ 7.9 billion while that on Itaúsas results is at R$ 2.5 billion.
The completion of the merger between Unibanco and Itaú depends on the approval from the Central Bank of Brazil and other appropriate authorities.
The material fact with more details about the merger is available at the IR website (www.unibanco.com.br)
* * *
7015 - INVESTMENTS IN SUBSIDIARY COMPANIES
7016 - MARKETABLE SECURITIES
7017 - MARKETABLE SECURITIES
7018 - CONCENTRATION OF MARKETABLE SECURITIES, LENDING OPERATIONS PORTFOLIO AND DEPOSITS
7019 - MATURITY OF LENDING OPERATIONS PORTFOLIO
7020 - FLOW OF LENDING OPERATIONS PORTFOLIO
7021 - GEOGRAPHICAL DISTRIBUTION OF LENDING OPERATIONS PORTFOLIO AND DEPOSITS
7022 - RISK LEVEL OF LENDING OPERATIONS PORTFOLIO
7023 - LENDING OPERATIONS PORTFOLIO BY INDEX
7024 - CREDIT ASSIGNMENT
7025 - LENDING OPERATIONS PORTFOLIO BY AMOUNT AND RISK LEVEL
7026 - FIXED ASSETS
7027 - FUNDING BY MATURITY
7028 OPERATIONAL LIMITS
7029 - MAIN BRANCHES FINANCIAL INFORMATION
7030 - CHARGES AND TAXES
7031 CORRESPONDENT BANKS TRANSACTIONS
7032 - CHANGES ON CLIENT DEMAND ACCOUNTS BY CHECK AND ELECTRONIC TRANSACTIONS
7033 REPORT OF INDEPENDENT ACCOUNTANTS ON THE LIMITED REVIEW
To the Board of Directors
1 We have reviewed the accounting information included in the Quarterly Financial Information (IFT), individual and consolidated, of Unibanco - União de Bancos Brasileiros S.A., for the quarter ended September 30, 2008, comprising the balance sheet and the related statements of income, of changes in stockholders' equity and of changes in financial position, as well as the statement of income for the nine-month period then ended and the accounting information in the notes to the IFT (exhibits 7002 to 7005 and 7014). This IFT is the responsibility of Unibanco's management.
2 Our review was carried out in conformity with specific standards established by the Institute of Independent Auditors of Brazil (IBRACON), in conjunction with the Federal Accounting Council (CFC), and mainly comprised: (a) inquires of and discussions with management responsible for the accounting, financial and operating areas of Unibanco with regard to the main criteria adopted for the preparation of the quarterly information and (b) a review of the significant information and of the subsequent events which have, or could have, significant effects on Unibanco's financial position and its operations.
3 Based on our review, we are not aware of any material modifications which should be made to the accounting information included in the IFT referred to above in order that such information be stated in conformity with the standards established by the Brazilian Central Bank, applicable to the preparation of the Quarterly Financial Information, including Communication No. 16,669, which waived the application of the provisions of Law 11,638/07 for the preparation of interim financial statements in 2008.
4 The IFT also includes accounting information presented in order to provide supplementary information on Unibanco, as required by the Brazilian Central Bank, on the combined financial statements referred to as the "Financial Conglomerate" and the "Economic-Financial Consolidated (CONEF)", comprising the combined balance sheet as of September 30, 2008 of the Financial Conglomerate and Economic-Financial Consolidated (CONEF) and the combined statements of income and of changes in financial position of the Financial Conglomerate for the quarter then ended (exhibits 7010 to 7013). These combined financial statements have been submitted to the same review procedures described in paragraph 2 and, based on our review, we are not aware of any material modifications which should be made for this accounting information to be presented in conformity with the standards issued by the Brazilian Central Bank specifically applicable to the preparation of this information, including Communication No. 16,669, which waived the application of the provisions of Law 11,638/07 for the preparation of interim financial statements in 2008.
5 The review of the IFT was carried out with the purpose of issuing a report on the accounting information contained in the quarterly information referred to in paragraph 1, taken as a whole. Exhibits 7016 to 7023, 7025 to 7032 and 7034 to 7039, which are part of this IFT, are being presented to provide supplementary information on the Bank, as required by the Brazilian Central Bank, and are not required as a part of the basic financial information. The accounting information included in these exhibits has been submitted to the same review procedures described in paragraph 2 and, based on these review procedures, we are not aware of any material modifications which should be made for this accounting information to be fairly presented in relation to the financial information referred to in paragraph 1, taken as a whole.
6 As mentioned in Note 25(c), Law 11,638 was enacted on December 28, 2007 and became effective on January 1, 2008. This Law altered, revoked and introduced new provisions to Law 6,404/76 (Corporation Law), generating changes in the accounting practices adopted in Brazil. Although this law is already effective, the main changes introduced by it depend on regulations to be issued by the regulatory agencies for them to be fully implemented by the companies. Accordingly, in this transition phase, the Brazilian Central Bank (BACEN), through its Communication No. 16,669 of March 20, 2008, waived the application of the provisions of Law 11,638/07 for the preparation of interim financial statements for 2008. Therefore, the accounting information included in the Quarterly Financial Information at September 30, 2008 does not consider all the modifications in the accounting practices introduced by Law 11,638/07.
São Paulo, November 14, 2008
7034 - PROVISIONS
7035 - CAPITAL
7036 - CASH DIVIDENDS PAID
7037 - CHANGES ON CAPITAL IN THE REFERENCE PERIOD
7038 - COMMITMENTS AND GUARANTEES
7039 - ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCY
7040 - COMMENTS ON PERFORMANCE AND PROSPECTS
Unibancos net income reached R$ 704 million in 3Q08. Stockholders equity was R$ 13 billion on September 30, 2008. Annualized return on average equity (ROAE) reached 23.9 % in 3Q08.
Unibancos total assets reached R$ 179 billion on September 30, 2008. This evolution is explained mainly by the R$ 18.4 billion increase in total loans, mostly in auto loans, large corporate, SME, mortgages, credit cards and payroll loans (own origination) portfolios. Annualized return on average assets (ROAA) was 1.6% in 3Q08.
The total loan portfolio increased 7.7% in the quarter, reaching R$ 74,272 million.
In 3Q08, the Retail portfolio reached R$ 44,082 million, influenced by a 10.2% increase in auto loans, 5.5% in mortgage and 3.0% in SME. The 2.1% decrease in credit card portfolio in the quarter is explained by the impact of the sale Tricards loan portfolio to Tribanco, due to the end of the partnership with Tribanco.
The Wholesale loan portfolio grew 14.4% in the quarter, mainly influenced by the Real depreciation of 20.3% in 3Q08. It is worth mentioning that US dollar-denominated credit portfolio represents approximately 15% of the total loan portfolio. The segments evolution is a result of an increasing demand from large companies for funds in the local market, mainly due to the lower liquidity in the international market and the Real depreciation in the quarter.
Allowance and Provisions for Loan Losses
The balance of allowance for loan losses at the end of September 2008 reached R$ 3,463 million, or 4.7% of the total loan portfolio, as follows:
R$ 1,551 million related to overdue credits, in compliance with Resolution 2,682;
R$ 942 million for falling due credits, in compliance with Resolution 2,682;
R$ 970 million based on percentages above those required by the regulatory authority.
The total amount of R$ 970 million of additional allowance for loan losses, above the required by Resolution 2,682, represents 28.0% of total allowance for loan losses.
Allowance for loan losses over the credits rated E to H stood at 126% on September 30, 2008.
Allowance for loan losses as a percentage of overdue installments reached 129% on September 30, 2008, conveying the loan portfolio strength.
The allowance for loan losses relative to total Retail loan portfolio was 5.9% in September 2008, in line with the mix change to lower risk portfolios in the last 18 months. The allowance for loan losses relative to total Wholesale loan portfolio remained stable in the quarter.
In 3Q08, required provision stood at R$ 686 million as a consequence of the loan growth during the last 12 months.
Provision for loan losses in 3Q08 was R$ 670 million above the R$ 399 million of the total net write-offs, representing a net provision for loan losses of R$ 271 million.
Unibanco registered a total of US$ 2,800 million in investments abroad at the end of September 2008.
Funding and Assets under Management
Unibancos total funding stood at R$ 128,428 million on September 30, 2008.
As part of its strategy, Unibanco has focused on low cost CDs (Core Deposits CDs), which increased 20.1% in the quarter. Furthermore, with the recent cycle of interest rate increase, there was a higher demand for products indexed to the interbank rate (CDI) instead of savings deposits and investment funds.
The balance of time and interbank deposits presented a 17.1% growth in the quarter. This increase was influenced by the CPMF tax extinguishment, the Central Bank new regulation of reserve requirements and the higher market demand for lower risk investments.
The debentures, an alternative funding instrument for time deposits, increased 6.7% in the quarter.
It is worth mentioning that the increase in the line other funding was mainly influenced by funding obtained in the open market, resources from securities issued, borrowings, onlendings, and subordinated debt.
Local currency funding reached R$ 105,511 million at the end of September 2008. This growth was mostly driven by time deposits, resources from securities issued and subordinated debt.
Foreign currency funding reached R$ 22,917 million in September 2008. Such evolution was mainly driven by the growth in time deposits, import and export financing lines, funding obtained in the open market and the 4.1% Real depreciation in the period.
During the last 12 months, Unibanco increased the participation of local currency in its funding mix, in line with its assets growth in the country, maintaining the local currency deposits and debentures to total loans ratio close to 100%.
Capital Adequacy Ratios
Unibancos BIS ratio, as of September 2008, reached 13.0%, above the minimum 11% level determined by the Central Bank. It is worth mentioning the mythology change between the BIS I and BIS II ratios calculated, which represents a negative variation of 0.3, or 30 basis points.
Unibanco continued its focus on maximizing efficiency, prioritizing the review and simplification of its operational processes. The efficiency management system involves all levels of the organization, identifying areas where improvements can be made. Improvement projects are systematically monitored by executives from different areas of the Bank. Results, causes and corrective measures are presented to the Executive Committee. Since the implementation of the Operational Efficiency unit, in 2006, Unibanco has already seen positive results in the expenses, reflecting better efficiency. The graph below shows the evolution of both efficiency and the cost to average assets ratios.
Total fees reached R$ 2,716 million in 9M08. In the quarter, the 3.3% decrease is mainly explained by the change in banking tariffs regulation established by the Brazilian Central Bank, effective since April 30, 2008, and by the impact of the sale of Tricards portfolio to Tribanco in credit cards revenues.
Personnel and Administrative Expenses
Unibancos total personnel and administrative expenses posted a 9.0% growth in 9M08, largely due to growth in volume of business, increase of 2,816 employees and wage increases. It is worth mentioning the growth of 6.8% in other administrative expenses under Unibancos direct management in the same period, below the inflation rate of 12.31% (IGPM), due to the efficiency gains and cost controls, despite the expansion of business activities.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: December 10, 2008