Economic Decoupling?

BNCCFebruary, 26th 2008

2

Table of Contents

SECTION 1 Macroeconomic Framework

SECTION 2 Is Economic Decoupling a Credible

Possibility?

SECTION 3 Outlook

SECTION 4 Itaú Group

SECTION 5 Itaú Europa

SECTION 1

Macroeconomic Framework

4

► Historical growth volatility as been replaced by consistency.

► We expect 2007 GDP growth to stand at 5.4%.

► Driven by domestic demand.

GDP Growth

-2-1012345678

Mar

-00

Sep-

00

Mar

-01

Sep-

01

Mar

-02

Sep-

02

Mar

-03

Sep-

03

Mar

-04

Sep-

04

Mar

-05

Sep-

05

Mar

-06

Sep-

06

Mar

-07

Sep-

07

(%)

GDP Growth by Component

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Consumption Investment Publicexpenditure

Exports Imports

61%

19%

18%

14%

-12%GDP Weight:

Source: IBGE, Banco Itaú Europa.

Consistent Growth

5

Real rates in Brazil are among the highest in the world

Inflation and Central Bank Rate

0

5

10

15

20

25

30

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

(%)

Inflation (IPCA) Central Bank rate (Selic)

► Prudent monetary policy despite lack of formal independence of the Central Bank.

► Loosening cycle since 2005.

► Economic growth and high commodity prices (and food) raising inflation concerns: BCB on hold.

Source: BCB, Banco Itaú Europa.

Independent Monetary Policy

6

► Prudent and responsible fiscal policy.

► Commitment to the target of primary surplus/GDP of 3.8%.

► Decreasing nominal deficit reflecting strong tax revenue.

► Consistent improvement of the debt profile.

Source: BCB, Banco Itaú Europa.

Responsible Fiscal Policy

Budget Balance and Net Debt/GDP

-8

-6

-4

-2

0

2

4

6

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

(%)

30

35

40

45

50

55

60

(%)

Nom. Deficit/GDP Primary Surplus/GDP Net Debt/GDP (RHS)

7

► Consistent improvement of the debt profile.

► Strong reserve build-up.

► Maturity extension and risk management.

► Brazil is a net external creditor.

Source: BCB, Banco Itaú Europa.

Sound External Position

International Reserves and External Debt

-

50

100

150

200

250

300

2003 2004 2005 2006 2007

(bn

USD

)

-

20

40 60

80

100

120

140 160

180

200

(bn

USD

)

Total external debt Total external public debt International reserves

SECTION 2

Is Economic Decoupling a Credible Possibility?

9

► No country is insulated from a weaker US economy .

► Tighter credit conditions in US will have multiple impacts worldwide and in Brazil.

► We believe that Brazil is more protected from the turmoil than most of the countries.

Is Economic Decoupling a Credible Possibility?

Lower imports

Tighter credit

Risk aversion

Wealth effect

Confidence?

10

► Low degree of openness when measured by adding imports and exports to GDP.

► Diversified export profile with important weight of other emerging economies.

► US represents 16% of total exports and Euro zone 21%.

Source: BCB, Banco Itaú Europa.

Diversified Export Profile

Export Breakdown in 2007

5.6%19.8%

0.5%

30.0%

26.5%

17.6%

Africa Asia Australia Europe LatAm North America

US: 16%Euro Zone: 21%Argentina:9%

China: 7%

11

► Tighter credit conditions worldwide postpone investment decisions.

► The more dependent a country is on international financing the larger the impact.

► The reliance of the Brazilian economy on credit is low.

► The reliance of the Brazilian economy on external debt is the lowest among peers.

Source: Moody’s, IMF, Banco Itaú Europa.

Low Exposure to International Credit Conditions

Domestic Credit/GDP

0%

20%

40%

60%

80%

100%

Peru

Russ

ia

Arge

ntina

Colom

bia

Braz

il

Mex

ico

Deve

loping

coun

tries

rate

d(B

a1-B

a3)

Deve

loping

coun

tries

rate

d(B

aa1-

Baa3

) Turk

ey

Chile

Deve

loping

coun

tries

rate

d(A

aa-A

3)

External Debt/GDP

0%

20%

40%

60%

80%

100%

Braz

il

Mex

ico

Col

ombi

a

Peru

Chi

le

Rus

sia

Dev

elop

ing

coun

tries

rate

d(B

a1-B

a3)

Dev

elop

ing

coun

tries

rate

d(B

aa1-

Baa3

)

Arge

ntin

a

Dev

elop

ing

coun

tries

rate

d(A

aa-A

3)

Turk

ey

12

► Falling equity and bond markets worldwide erode the value of savings.

► High risk aversion prevent foreign direct and portfolio investment abroad.

► Similarly to what happens to credit, Brazil has low saving rates when compared to peers.

► Foreign direct investment, in net terms in not consistently positive nor meaningful.

► Foreign exchange flows are of quality: trade over financial flows.

Source: BCB, Banco Itaú Europa.

Low Investment Dependence

Net Foreign Direct Investment/GDP

-15-10-505

10

1520253035

2000 2001 2002 2003 2004 2005 2006 2007

( Bn

USD

)

Foreign Currency Flows

- 40 000- 20 000

- 20 000 40 000 60 000 80 000

100 000

2000 2001 2002 2003 2004 2005 2006 2007

(Mn

USD

)

Commercial Financial

2.1% GDP

13

► Confidence is an important determinant of consumption and investment decisions.

► Consumer and business confidence has been eroding in US and EU.

► Brazilian confidence is rising, which bodes well for the future.

Source: Banco Itaú Europa, U. Michigan, Conference Board, European Commission – Directorate General for Economic and Financial Affairs, FGV, CNI.

Agents Remain Confident

Confidence Index Evolution

-40-20

020406080

100120140

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep-

05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

-1

-0.5

0

0.5

1

1.5

2

US consumer US business BZ consumer

BZ business EU zone consumer EU zone business

14

► The major risk we see is if an international crisis leads to a sharp deterioration of the value of the currency.

► Ceasing the interest rate convergence process for a substantial period would affect directly consumption and investment.

► Consumption and investment stand for nearly 80% of GDP .

► A weak currency feeds through directly to inflation expectations and could lead the BCB to even hike rates in the current environment of strong domestic demand.

► Didn’t happen so far. Uncertainty is likely to diminish in 2008.

► In an extreme scenario, a strong slump in exports, i.e. deep double digit, would have an important impact on growth.

► Nevertheless, in such an environment all the remaining arguments stand for an outperformance of Brazil over peers.

► These situations aren´t our base case scenario.

The Most Important Channel of International Contagion is Currency Depreciation

SECTION 3

Outlook

16

► We expect economic growth to remain supported by domestic demand.

► Lower trade surplus.

► Deficit in the current account.

► Monetary policy and trade could decelerate growth in the 2H08.

► Strong BRL at all times on the back of exports, financial inflows and rising interest rate differentials.

Supportive Domestic Environment

Source: Itaú Corretora, Banco Itaú Europa.

Estimates

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

2007F 2008F 2009F 2010F 2011F-20

-10

0

10

20

30

40

50

(Bn

USD

)

GDP Growth (LHS) Unemployment (LHS)

Current Account (RHS) Trade Balance (RHS)

17

► Our top concern is inflation.

► What could push inflation up: oil, food, service (non-tradable), capacity restrictions, BRL depreciation.

► What could push inflation down: a strong BRL, Monetary Policy Committee (Copom).

Source: BCB, Banco Itaú Europa.

Inflation is our Main Concern

Inflation Components in 2007

0

2

4

6

8

10

12

Jan-

07

Feb-

07

Mar

-07

Apr-0

7

May

-07

Jun-

07

Jul-0

7

Aug-

07

Sep-

07

Oct

-07

Nov

-07

Dec

-07

(%)

IPCA YTD Food Serv ices

18

► We expect the Copom to be on hold most of the year.

► Arguments for rising rates: Potential BRL depreciation if international environment deteriorates further, strong domestic demand, commodity, food and non-tradable prices.

► Arguments to be on hold: Strong BRL, high weigh of consumption and investment in the economy, lower trade surplus, FED policy.

Source: Itaú Corretora, Banco Itaú Europa.

Copom on Hold in 2008

Estimates

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

11.50%

2007F 2008F 2009F 2010F 2011F1.55

1.60

1.65

1.70

1.75

1.80

Selic rate, eop (LHS) BRL/USD, end of the period (RHS)

19

Path to Investment Grade

Equities since June 2007

80

90100

110

120

130140

150

160

01/0

1/20

07

01/0

2/20

07

01/0

3/20

07

01/0

4/20

07

01/0

5/20

07

01/0

6/20

07

01/0

7/20

07

01/0

8/20

07

01/0

9/20

07

01/1

0/20

07

01/1

1/20

07

01/1

2/20

07

01/0

1/20

08

01/0

2/20

08

Bovespa S&P

► We expect Brazil to continue the path to investment grade.► By many credit metrics Brazil already compares favourably with investment grade

countries.► Current account deficit in 2008 could raise concerns about the country’s external

vulnerability.► Debt levels remain high for investment grade standards.► Fiscal discipline – Will the government be successful in implementing a replacement for

CPMF tax?► Rating agencies are more prudent given high international uncertainty.► Financial markets decoupling hasn’t been clear at all times. Buy opportunity?

Equities since June 2007

20

2007F 2008F 2009F 2010F 2011FReal GDP growth 5.4% 5.0% 4.7% 4.5% 5.0%Unemployment 9.3% 8.0% 6.7% 5.8% 5.0%Investment/GDP 18.0% 19.1% 20.8% 21.8% 22.8%IPCA 4.5% 4.7% 4.4% 4.2% 4.5%Selic rate, end of the period 11.25% 11.25% 10.25% 8.25% 8.00%Primary fiscal surplus - % GDP 4.0% 3.8% 3.5% 3.5% 3.5%Public sector net debt - % GDP 42.8% 42.0% 38.8% 37.0% 35.0%BRL/USD, end of the period 1.78 1.65 1.69 1.73 1.77Current account balance - bn USD 3.6 -5.0 -10.0 -12.0 -15.0Trade balance - bn USD 40.0 28.7 20.8 15.3 10.1Foreign direct investment - bn USD 34.6 30.0 30.0 30.0 30.0Source: Itaú Corretora, Banco Itaú Europa.

Brazil Annual Macroeconomic Forecasts

Economic Forecasts

SECTION 4

Itaú Group

22

Itaú Group – A Global Brazilian Financial Institution

► Itaú Group has an important presence in key financial centers, a strong recognition and a broad range of products.

(Brazil)

(Lisbon)

(London)

(Tokyo)

(Shanghai)

Itaú Bank Ltd (Cayman)

(Nassau)

(Uruguay)

(Argentina)

Sarbanes-Oxley: Itaú Holding is the first foreign bank listed on the NYSE to attain all Section 404 requirements of Sarbanes-Oxley Act, one year prior to the compliance deadline set by the U.S. authorities.

(Chile)

(Miami)

(NY)

(Dubai)

(Hong Kong)

23

Itaú Holding Financeira – Highlights1, 2

► Performance leadership is reflected on the high market capitalization and outstanding results.

1 As of December 31st, 2007.2 Considering the Real / US$ = 1,7713.

► Stockholders’ Equity

► Total Assets

► Market Captalization

► # of Employees

► Total clients

► Branches + CSB

► ATMs

US$ 16.4 billion

US$ 166 billion

US$ 62.6 billion

65,089

24 million

3,528

23,739

B- Financial Strenght (international) Aaa.br (domestic)Baa3 Foreign Currency Bonds

Moody’s (Long Term)

AAA(bra) (domestic) BBB (international, local currency)BBB- (international, foreign currency)

Fitch Ratings (Long Term) Standard & Poor’s (Long Term)

brAAA (domestic) BBB- (international, local currency)BBB- (international, foreign currency)

SECTION 5

Itaú Europa

25

Itaú Europa – Strategic Overseas Presence

► Focus on cross-border businesses between Europe and South America.

► Local relationships in Europe through commercial teams in Lisbon, Madrid, London, Frankfurt and Paris (new representative office in 2008).

► Private Banking activities conducted through Banco Itaú Europa Luxembourg and Banco Itaú Europa International (Miami).

Trade Finance

Loans & Guarante

es

Syndicated Loans Treasury

Products &

Derivatives

Investment

BankingCash Management South America

Domestic

Lending South America

Structured

Finance

Investment Grade Ratings Baa1 (international)

Moody’s (Long Term)

BBB+ (international)

Fitch Ratings (Long Term)

26

Itaú Europa – Financial Highlights1

11699 103

14661947

2687 2507

4304

2915

44943235

24352295193117771437

2000 2001 2002 2003 2004 2005 2006 2007

On the Balance Sheet Off the Balance Sheet (including AUM)

21 26 3148

7182

113

53 5342

30211815

27% 30%25%

32% 34% 36%

54%

2000 2001 2002 2004 2005 2006 2007

Net Income Operating Income Efficiency Rate

Consistent Growth of Assets

Revenues Diversification – Operating Income (Year 2.007)

Material results in face of wholesale nature of business and strong capital base

€ Million

1553 1876 2034

37614382

5602 5742

8798

€ Million

1 Financial Highlights for 2007 are preliminar and unaudited.

€ Million

7,4%

8,5%

7,7%

9,0%

9,9% 10,4%

9,6%

12,4%

13,9%12,3%

0,9% 1,0% 1,1% 1,1% 1,2% 1,2% 1,3% 1,6%1,8% 1,4%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ROA & ROE

ROE

ROA

31,6; 28%

48,6; 43%

32,9; 29%

Corporate, Treasury and Capital Markets Private Banking BPI

27

Disclaimer

The information herein is believed to be reliable but Itau Europa does not warrant its completeness or accuracy. Opinions and estimates constitute our judgment and are subject to change without notice. Banco Itau Europa may have a position in these financial instruments from time to time. This report is prepared by Banco Itau Europa and this material is for our European Clients ONLY. This information is NOT intended or distributed to U.S. clients by Banco Itau Europa. However, if a U.S. investor receives this information via a third party it must be understood that any U.S. persons interested in any securities mentioned herein must call a representative of Itau Securities, Inc. ("Itau Securities") in New York, MEMBER: NASD/SIPC, not any of the non-U.S. affiliates. Any Financial Products related to this report may or may not be provided by Itau Securities to U.S. investors. Banco Itau Europa is wholly owned by Itausa Portugal which has become the European Platform of the Itausa Group, a conglomerate in Brazil. Banco Itau Europa is credit rated by S&P and Moodys as a separate bank from Banco Itau SA. Portuguese banking regulation prohibits BIE from lending to its Brazilian parent group of companies for over 10% of its own equity. Banco Itau Europa structure has been designed to create regulatory and geographic barriers to Brazilian transfer risk. Banco Itau Europa Lisbon is regulated by Bank of Portugal. Banco Itau Europa London is authorised by the Banco de Portugal and regulated by the Financial Services Authority for designated investment business in the UK. Banco Itau Europa, capital markets area has a strong relationship with Banco Itau of Brazil. Itau Securities is a wholly owned subsidiary of Itau Corretora de Valores S.A, subsidiary of Banco Itau S.A.This document/site has been prepared by Banco Itaú Europa, S.A. and/or by one of its branches or subsidiaries (together referred to as “Banco Itaú Europa”). This message contains information that may be privileged or confidential and is the property of BANCO ITAÚ EUROPA, S.A. It is intended only for the person to whom it is addressed. If you are not the intended recipient, you are not authorized to read, print, retain, copy, disseminate, distribute or use this message or any part thereof. If you receive this message in error please notify the sender immediately and delete all copies of this message.This document/site contains information obtained from sources considered by Banco Itaú Europa to be reliable and this information has been reproduced, whether totally or partially, originally or treated by our analysts. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except where such information relates to Banco Itaú Europa. Banco Itaú Europa reserves the right to change, amend, or delete any part of the information contained herein without prior notice. Banco Itaú Europa is under no obligation to update or keep current the information.The information contained herein merely aims to be a supportive instrument towards the formation of conscientious decisions related to the purchase and sale of securities or investment finance products and should not, in any circumstance, constitute a ground for any investment decision. Options and estimates are made on the basis of our analysts’ judgment and are subject to change without notice. Banco Itau Europa may have a position in the securities referred to herein from time to time. The information should not exclude or replace the investigation or exercise of judgment that is undertaken before an investment decision is made. The information should not be construed as a solicitation or offer to buy or sell any securities or investment finance products. Past performance is not indicative of future results. United Kingdom and the rest of Europe: Except where stated, the information contained herein is communicated by Banco Itaú Europa to persons who are a Market Counterparty (as defined in the UK Financial Services and Markets Act 2000) and is only intended to be made available to such persons. If you do not, or cease to, fall within the definition of Market Counterparty & Intermediate Customer, you should not rely upon the information contained herein and should notify Banco Itaú Europa in order that its records may be updated.